IVL reports healthy profits despite weaker spreads seen in IRP

Indorama Ventures Limited (IVL) the parent company of Indorama Polymers Plc (IRP) reported a sharp increase in its earnings for the 9-months period ending September 2009 thanks to the company’s exposure to the Pure Terepthalic Acid (PTA) business.


“The performance of IVL has been good because the margins for PTA has remained stable while those for the PET (polyethylene terephthalate) has seen decline during the previous quarter,” Dilip Kumar Agarwal, the chief executive officer of IRP said during the analysts conference to announce the results of IRP’s third quarter and give some indication of IVL’s performance.

IVL which is in the process of buying out IRP from the retail shareholders in a share swap which would see IVL list on the local bourse by Mid-February reported its 9-months net profits of about 4.5 billion baht against 3.5 billion it had seen at the end of June this year.

The 4.5 billion in profits was more than 160% increase from those seen during last year, which the company attributed to the higher ‘integrated spreads’ between the PTA and PET business. The spread for the 9-months ending September for the two businesses stood at $397/tonne against the Asian published spreads of $316/tonne.

As for IRP, which handles only the PET business, the company saw a slight decline in its margins as it has been evident from most Asian operators on the back of seasonal factor and weaker demand. The PET spreads for the quarter stood at $170 against $222 seen during Q2 2009. The third quarter’s spreads in Asia stood at $142/ton.

“Our margins are still better than those of the benchmark industry standards,” Mr. Agarwal said while adding that IRP during the past quarter was slightly ‘aggressive’ in its sales which had caused the margins to decline as well.

He said that the lower margins has meant that the company has managed to increase its market share globally and excluding China the company’s global market share has reached around 13% from blow 10% seen at the start of this year.

“During the fourth quarter we are expecting our spreads to be above $200 per ton,” Mr. Agarwal stressed during questions raised by some analysts on whether the squeezed margins would be the strategy going forward.

This prompted IRP to report a net profit of 239 million baht down from 276 million baht seen during the third quarter of 2008. As for the 9-month operations IRP reported a net profit of 1.58 billion against 933 million baht on sale of 32.85 billion baht against 30.92 billion baht seen during the same period of 2008.

Commenting on the demand side Mr. Agarwal said that there continues to be a shortage of about 1-million ton in the European markets and with many of the incumbent players in not such a strong financial position the situation could further intensify.

He said that IRP and IVL were looking at various options to cater to the European market but none have been very concrete yet to make a formal announcement.