Rupali Polyester : Transmission of Quarterly Report for the Period Ended 2021-12-31

Half Yearly Report

31 December 2021

Corporate Data

Board of Directors

Chairman	Chief Executive Officer
Shehzad Feerasta	Nooruddin Feerasta
Directors
Muhammad Rashid Zahir - Non-Executive	Amyna Feerasta - Non-Executive
Zeeshan Feerasta - Non-Executive	Yaseen M. Sayani - Independent Non-Executive
Shahid Hameed - Independent Non-Executive	Abdul Hayee - Non-Executive
Audit Committee
Yaseen M. Sayani - Chairman	Muhammad Rashid Zahir - Member
Zeeshan Feerasta - Member
Human Resource & Remuneration Committee
Shahid Hameed - Chairman	Nooruddin Feerasta - Member

Zeeshan Feerasta - Member

Chief Financial Officer

Muhammad Ahsan Iqbal

Company Secretary

S. Ghulam Shabbir Gilani

Bankers

Askari Bank Limited	Bank Alfalah Limited
Faysal Bank Limited	Habib Bank Limited
Habib Metropolitan Bank	MCB Bank Limited

Soneri Bank Limited

Auditors

RSM Avais Hyder Liaquat Nauman

Chartered Accountants

Registered Office

Plant

Rupali House, 241-242 Upper Mall Scheme,	30.2 Kilometer Lahore - Sheikhupura Road
Anand Road, Lahore - 54000 PAKISTAN	Sheikhupura - 39350 PAKISTAN

2 Rupali Polyester Limited

Directors' Review

We are pleased to present the Company's un-audited financial statements for the second quarter and the half-year period ended 31 December 2021, duly reviewed by the external auditors.

Overview

The policies introduced by the Government and State Bank of Pakistan to manage the economy during the pandemic worked well but some challenges like surge in global commodity prices including raw materials of Polyester industry still persist and need to be addressed to sustain growth momentum.

The industrial sector faced an unprecedented energy shortfall during this current winter. Gas/ RLNG supply to export-oriented units was suspended on 15 December 2021 and we had to switch over to alternate energy source like Furnace Oil and WAPDA which significantly increased the cost of production. Furthermore, gas supply suspension to industrial units resulted in an acute shortage of furnace oil as factories scrambled to secure alternate energy supplies. On the representation of export-oriented units regarding possible decrease in exports, gas supply was partially restored to maximum 38 percent of Company's preceding three months' (September- November 2021) average Gas consumption till 31 January 2022 with certain conditions. Later, this was increased to 47 percent from 1 February 2022.

With gradual revival of businesses, the demand of Polyester Staple Fibre (PSF) and Polyester Filament Yarn (PFY) is increasing, and we are happy to report that the financial results for the quarter and half year period ended on 31 December 2021 are satisfactory and the turnaround of the Company is steadily moving forward. The profitability of the Company is largely attributed to supply chain disruptions and increased volatility in commodity prices along with the USD/ PKR exchange rates. Disturbed supply chain for imported products along with increased freight costs made locally available polyester much more attractive to the domestic consumers. Furthermore, unpredictability in international oil prices encouraged consumers to only buy as much as they needed rather than holding stock and potentially incurring inventory losses. The PSF and PFY markets in the country which remained closed due to COVID-19 are steadily recovering. The demand of our products is returning to normal level however without any form of protection, we will see margins erode going forward. Dumped fabric imports also put price pressure on end use products, which in turn poses a threat to the overall PFY demand in the country.

Anti-dumping Duty (ADD)

The dumping of PSF and PFY from China, Malaysia, Indonesia and Korea into Pakistani markets is growing at an alarming pace. The anti-dumping duty remained under litigation since it was imposed four years ago. Appeals were filed in various Courts and in the Anti-Dumping Appellate Tribunal (the Tribunal) by Yarn Traders against imposition of anti-dumping duty. Recently, the Tribunal vide Judgment dated 3 December 2021 remanded the matter to the NTC to re-investigate the matter on PFY. Pursuant to the Tribunal Judgment, the NTC after re-investigation has, vide Final Determination dated 26 January 2022 reduced the ADD rates on PFY. In earlier Determination of 2017, the maximum and minimum ADD rates were 11.35

• 3.25% which have now been reduced to 6.82 - 2.78% respectively. The previous ADD rates were already inadequate to compensate the actual injury margin of 25% to the domestic PFY

Half Yearly Financial Statements 2021

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industry as was determined by the NTC and further reduction will have an adverse impact on the domestic PFY industry's plans to increase production capacity. The Regulatory Duty on PFY has been abolished by the FBR. Under this situation, further expansion envisaged by domestic manufacturers worth billions of rupees may go astray if zero protection is available from the Government. Therefore, previous rates of ADD and 5% RD need to be restored for at least five years along with a stronger mechanism of anti-dumping duty collection.

The National Tariff Commission was investigating to determine whether Polyester Staple Fiber (PSF) originating in and / or exported from China, Indonesia and Thailand is being dumped into Pakistan and whether such dumping is the cause of material injury to the domestic PSF industry. The NTC after investigation of these facts decided to continue imposition of ADD on dumping of PSF in accordance with the injury being caused to domestic industry. Since the injury to domestic Polyester Filament Yarn industry is similar to Polyester Staple Fiber as determined by the NTC, therefore the previous rates of ADD for Polyester Filament Yarn imports should be revived to protect this industry.

Energy Tariffs

The concessional energy rates of 7.5 cents per KwH and US$ 6.5 per MMBTU for the export- oriented sectors were somewhat helpful to compete with the imported PFY prices. Electricity tariff was increased from 7.5 cents to 9 cents from 1 September 2020 and Gas/RLNG tariff increased to US$ 9/MMBTU from 15 November 2021. Since the energy cost directly increases the production cost, we urge the Government to restore the previous tariffs of power and Gas/ RLNG.

Gas supply suspension to Industries

As stated above, the Government suspended gas supply to industries due to gas shortage in the country in winter months. However, the export-oriented units were supplied gas with certain conditions. These conditions included the survey of industrial units' energy efficiency to be conducted by the National Energy Efficiency & Conservation Authority (NEECA) and withdrawal of stay orders obtained against the SNGPL for Gas/RLNG tariff and ancillary matters pertaining to captive power and priority of gas supply.

Raw Material Prices

The raw material prices have drastically increased since the last half yearly report in 2021. In February 2021, PTA price was US$ 625 per M. Ton which has now increased to US$ 845 per M. Ton. Similarly, MEG price in February 2021 was US$ 625 per M. Ton which has now increased to US$ 725 per M. Ton. The increase in raw material prices has increased cost of production in the period under-review.

Polyester industry plays significant role in the country's economy especially as raw material supplier for both textile exports and to fulfill the local population's clothing needs. It needs continued support from the Government to protect huge infrastructure worth billions of rupees and large work force connected with the industry.

Financial Results

Sales revenue for the half year ended 31 December 2021 increased to Rs.5,259.20 million from Rs.3,399.40 million in the half year ended 31 December 2020. Gross profit increased to