By Geetanjali Kedia

Today, share prices of all polymeric film manufacturers such as polyester (PET) films, Biaxially Oriented Polypropylene (BOPP) film and Biaxially Oriented Polyethylene Terephthalate (BOPET) have fallen sharply. Companies such as Uflex Limited, Cosmo Films, Garware Polyester, Jindal Poly Films and Polyplex Corporation all saw consolidation in their stock prices of about 8-9%, with Garware Polyester and Polyplex Corporation being locked in lower circuits of 20% and 10% respectively for the day.

The Indian flexible packaging film market witnessed a sudden emergence of a demand-supply gap, boosting prices sharply. On one hand, where capacity additions globally, were slow over the last couple of years due to manufacturers in US and Europe going slow on account of recession, these films, on the other hand, have found several new uses, boosting their demand. Take for example BOPET films, which have found applications in flat screen TVs, touchscreen enabled equipment like smart phones and photovoltaic cells used in generating solar power besides traditional flexible packaging use.

Polyester prices have risen at an estimated 50% between April to September 2010, spurred on, by a global shortage and over-buying by some. During this period, BOPET film prices have more than doubled. Rising crude futures prices during the September quarter further let to the uptrend, resulting in excellent financial performance being reported by the Indian film packaging companies. Also, inventory gains resulted in better-than-expected numbers for the companies.

Companies have reported excellent profitability in Q2FY11, which was a one-off. Garware Polyester reported second quarter EPS of Rs. 13.16 as against full year EPS of Rs. 11 in FY10. Same was the case with Jindal Poly Films, which reported Q2 EPS of Rs. 78 vis-a-vis Rs. 84 in FY10 and Rs. 36 in Q1 FY11. Likewise Uflex had Q2 EPS of Rs. 12 versus FY10 EPS of Rs. 14 and EPS of less than Rs. 4 in Q1FY11.Thus, Q2FY11 was the golden quarter for all these companies. It is however not certain that these numbers can be sustained in the future as well.  

Jindal Poly Films, Polyplex Corporation and Garware Polyester are all undertaking expansion either by scaling up existing capacities or venturing into more advanced products. As additional capacities get operational, prices will ease and the momentum in prices is likely to get haulted.

Polyester film prices, like any other commodity such as zinc, gold or oil, are very difficult for any analyst / expert to take a call on, with 100% accuracy. Many-a-times, one quarter numbers get extrapolated when clear historic trend is not visible. Since there is not enough clarity on the expected price movements of these polyester films, it is best to have a wait-and-watch strategy, at the moment.

When companies are ruling at high levels, fresh buying must be avoided and those sitting on handsome gains can even consider profit booking at these levels.