Indorama Ventures, the world’s largest polyester value chain company, expects to close the acquisitions of polyethylene terephthalate and paraxylene plants early next year.
Dilip Kumar Agarwal, a director of IVL, said yesterday the company cannot reveal the value of the PET deal but it has sufficient cash on hand to acquire businesses. It can draw on internal cashflow of US$900 million. It also has room to borrow from banks if the value of a deal is high because its debt-to-equity ratio is 1.3 times, less than the limit of 1.5 times.
The paraxylene plant is in the Middle East.
IVL has set aside a US$500 million capital expenditure budget for 2014-15, which excludes the acquisitions, to prepare production capacity expansion and machinery improvement.
The company targets revenue growth of 12 per cent next year on the expansion of 500,000 tonnes per year at plants in Indonesia and Poland and the increase in the utilisation rate to 89 per cent from 85 per cent this year.
Growth this year might be limited to 12 per cent, lower than the target of 15 per cent, due mainly to the drop in the crude oil price, which influenced commodity prices. However, the company has maintained its earnings forecast before interest, taxes, depreciation and amortisation at US$500 million because it can preserve its gross profit margin despite softening sales.
The company wants to increase high value-added products (HVA) to 30-35 per cent of the total in four years from 25 per cent because of their higher margins.
“The high value-added and Western commodity businesses have been steady due to strategic investments made over the last three years. Indorama Ventures’ ongoing investments will lead to larger volumes in an improving market while our operations excellence team will improve cost reduction further, contributing to overall gains of $150 million in the next three years,” said Aloke Lohia, CEO of IVL.
For the third quarter, revenue climbed by 11 per cent to $1.9 billion. The reduction in commodity prices has pressured its profit down to Bt1.09 billion from Bt1.44 billion in the same quarter last year. Its nine-month consolidated net profit dropped to Bt1.8 billion from Bt2.97 billion.
“As a global company with a strong portfolio of assets, Indorama Ventures’ strategy has been to diversify risk geographically and therefore regional results provide an important overview of how the moving parts of the business are performing,” Lohia said.
“Our Asian business, which has seen the impact of tremendous oversupply of PTA in the region for a few years now, reported an EBITDA of $40 million in the third quarter of 2013 against $28 million in the previous quarter once we strip out income from insurance claims, indicating some improvement.
“Asian PTA spreads were still less than half of their former levels, which we believe are not sustainable for the majority of players and will have to recover gradually for the industry to strike a balance at which it can sustain itself.
“Our European business was steady but soft with EBITDA of $16 million against $17 million in the second quarter, due to regional oversupply, Asian imports and a seasonal dip at the end of summer. However, the North American performance has been consistent with EBITDA now at $76 million.”