Hindustan Organic Chemical Limited

Stock Opportunities Untested - but worth a good look
1

HINDUSTAN ORGANIC CHEMICALS LIMITED(HOCL) is a PSU incorporated in 1960 under the Ministry of Chemicals & Fertilisers. It is the second largest producer of Phenol and Acetone in India.

It has two manufacturing units, viz. Rasayani Unit (total 14 plants for different chemical products located in this unit), which manufactures Aniline, Nitro-benzene, Formaldehyde and Nitrogen oxide. The Kochi Unit was set up for producing 40,000 TPA of Phenol , 24640 TPA of Acetone and Hydrogen Peroxide(5225 TPA later expanded to 14000 MTPA using de-bottlenecking) in 1987. one subsidiary unit, viz. Hindustan Fluorocarbons Limited, a plastic chemical and is situated in Medak District of Telangana.

Product portfolio : Nitrobenzene, Hydrogen, Aniline, Sulphuric acid, Oleums, Formaldehyde, Nitrotoluenes, Concentrated Nitric Acid, Nitrogen tetroxide, Caustic soda ,Lye, Chlorine, Phenol, Acetone and Hydrogen peroxide. Last 3 are from Kochi plant rest all from rasayani plant.

I am not going to discuss Rasayani plant as it was shutdown and will be liquidated soon.

Kochi Plant product details:
PHENOL is used in the manufacture of preservatives, disinfectants, lubricating oils, herbicides, insecticides, pharmaceuticals, etc. Hocl and SI(unlisted) is only producing this in india. India requires about 2.5 lakh tonnes to 3 lakh tonnes of phenol. Out of that the domestic market is producing only 80,000 tonnes. The balance 2.2 lakh tonnes is imported. Competitor (might be Deepak Fert) is producing another 40,000 tonnes. So, 80,000 tonnes is the installed capacity in India and the balance is imported. This data is according to 2015 stats, now the import quantum is much bigger. Last year Hocl manufactured 10609 TPA, which is very less mainly because of working capital issues, plant were shut down for several days.

ACETONE is another product with wide usage as a solvent for Cellulose Acetate, Nitrocellulose, Celluloid, Cellulose Ether, chlorinated Rubber, various resins, fats and oils and an absorbent for Acetylene Gas. The Indian acetone market, currently estimated at 180.5 thousand MT, is expected to grow at a rate of around 11.0 percent till 2022. Currently india imports more than 80 percent of acetone consumption in India. Indian companies manufactured 25000 metric tons, HOCL manufactured 14000 of the same.

HYDROGEN PEROXIDE is an eco-friendly chemical with wide application in Paper and Textile Industries for Bleaching purpose as a substitute for hazardous Chlorine. It is also used in Electronic and metallurgical industries, Effluent Treatment Plants, Sewage Treatment and for removal of Toxic Pollutants from Industrial Gas Streams. I don’t have the india production data for this but HOCL produced 9000 TPA in FY 18.

Subsidiary Unit Hindustan Flouro Carbons Limited (A Subsidiary Company of HOCL),Telangana makes PTFE. Hocl plans to divest the stake in this company and bidding process is already completed for the same.

What happened in the past (Bad times):
HOCL was a blue chip Company till mid 1990’s and all plants are making good profits. But suffered heavily due to steep fall (50-60%) in international prices of its main products, e.g., Phenol, Acetone and Aniline during 1999 other than changes in customs duty resulted in loss of revenue to the Company that adversely affected its profitability. The Company could not implement plans and projects to cope with economic liberalization and globalization, ex: The projects Caustic Soda (20,000 MTPA), PU Systems, Jawaharlal Nehru Port Trust (JNPT) Tank Terminal became NPA assets for several reasons. The Company had borrowings (Bonds) to the extent of ₹250 crore for the said projects, with annual interest burden of ₹31 crore.

HOCL rasayani plant used manufacture 14 products with 2300 permanent employees. Most of the capacities of rasayani plant is less than 10000 TPA without any economies of scale. During no anti dumping duty phase, HOCL unable to compete with cheap imports because of high crude prices resulting losses. Later company issues commercial paper with 250 cr for Caustic soda plant set-up by agreeing power cost @4rs with Maha govt. But when the project completed power price was changed to 8rs halting the project even before start.

HOCL has stopped 14 plants operation in Rasayani because of commercial viability and working capital issues. Subsequently 2300 employees wage cost on govt revised guidelines is simply mounting the debt pile. Bleeding with continued losses, HOCL was registered for BIFR as a sick company in January 2005. Subsequently, a rehabilitation proposal was approved and implemented by the Government during 2006-07. As a result, the company made a profit of Rs. 17.04 crore during 2006-07 and Rs 13.61 crore in 2007-08 and came out of the BIFR in May, 2008. As per rehabilitation package terms, HOCL has been given time for redemption from 2011 starting 20% for five years for total 270 cr.

However since 2011, anti dumping duty is expired from JAPAN, EU , USA and Taiwan and the process of re imposition of ADD is delayed by 2 years and this resulted once again mounting losses for HOCL, particularly Rasayani plant is idle with huge employee base. Moreover the rehabilitation package is 70% used for employee VRS and other non operating expenses such as paying the debts and not on any other aspect to strengthen its functioning. This resulted HOCL once again running behind working capital issues. Govt had postponed redemption action to 2017 with 25% redeem every year starting 2017 in four yearly instalments. HOCL by 2016 , company had accumulated losses of 1100cr other than 270cr govt revival package. With accumulated losses resulting in erosion of net worth of the Company, HOCL was again referred to BIFR for the second time in 2014, since then it never recovered.

HOCL Kochi plant is always generating profit, but this is moved to rasayani wage expenses. This inturn creating working capital issues for Kochi plant as well.
Ex: HOCL Kochi unit sourcing its main raw material LPG and Benzene from BPCL which has an adjacent refinery (KRL). The supply of raw material is through pipeline. Since HOCL could not clear the dues of raw material suppliers which had accumulated to the extent of Rs. 100 crore resulting in BPCL stopping the supply of raw material to Kochi unit.
HOCL did the below actions to overcome the crisis
• Sale of surplus obsolete unserviceable Plant and Machinery at Rasayani. The Company has realized ₹40 crore over the years by way of sale of old plant and machineries.
• An amount of ₹72 crore can be realized as upfront lease premium from CONCOR towards 60 Acre of land proposed to be leased at Rasayani.
• Similar negotiations with M/s HPCL and BPCL for leasing of land.
• Scouted for 1million ton aniline project setup with gujarat state PSU majors.
• Trying to sell unused land to create working capital liquidity issues.
Being the PSU where govt approval required for all decisions simply didn’t work in the short term for handling the crisis.

So the problems of high debt, idle assets, technical up-gradation failures, working capital issues, laziness in decision making, failing in taking protective measures of govt company , all in all ground level issues faced by distressed PSU is happened.

Recent Updates in right direction:
• HOCL Rasayani plant is 1000+ acres in size with plants, accommodation occupying 300+ acres. Finally govt approved the land sale last year to BPCL. BPCL bought 442 acres from HOCL at a rate of 1.4cr per acre resulting 600cr, company received 350cr and balance amount will be settled this year.
• Similarly HOCL manufactures N2O4 rocket propellant exclusively for ISRO, considering this ISRO bought corresponding unit for 30cr and govt gave bridge loan of 300 cr to clear all bond paper redemption.
• HOCL board approved another 240 acre land sale to BPCL in march, this will generate another 400cr.
• Similarly company holds 8 acre land in Panvel, selling process through NBCC is in progress.
• Rasayani plant already shut down and all the employees were taken VRS adoption, resulting no further cash flow to this plant.

Totally these 1400cr will help HOCL coming out from all the short, long term liabilities and running the Kochi unit normally. Kochi unit generates 5cr profit per month when it run successfully during 2015. Kochi plant is running normally in the current year, this is started generating operating profits after several years.

Next Planned actions:
• Streamlining Kochi operations, SAP ERP implementation is done for the same.
• Up gradation on Kochi plant with the below priorities.
• Kochi plants are producing phenol and acetone and they are money earning plants. These plants are not having the latest technology. Change of catalyst from Solid Phosphoric Acid (SPA) to Zeolite technology catalyst involving a capital expenditure of Rs. 60 crore , by which the capacity of the plant can be increased from the present 54000 MTPA to 90000 MTPA and the production cost can be reduced by 5%.
• It is also proposed to increase the capacity of the existing Phenol plant from 40000 MTPA to 68000 MTPA by debottlenecking / revamping with estimated of Rs. 200 crore.

Currently the main chemicals Phenol, Acetone and Hydrogen Peroxide all are having only 20-30% domestic production, india is depending on import of all these.

image
image884×383 17.5 KB

Ref: • India: phenol production volume 2021 | Statista

All these 3 product projected growths are anywhere between 6-10%

image
image909×173 25.3 KB

Demand Drivers for company products
image

Currently no new projects are planned and any new project for 100KTPA acetone will be 600 crore with a breakeven period of 4.5 years.

Under these circumstances company is in a nice spot w.r.to opportunities. Atleast the recent actions initiated by mgmt giving hope of company moving in a right direction.

Financials
image
Observations:
For H1 company reported sales of 342cr vs 97cr last year registering 3X growth implying no dearth of demand.
Net profit of 66cr vs net loss of 82crores, other income played a major role in this. But good to see the operational profit also coming as 20crores.
EPS of 10rs vs -12rs for the half year ended with Sep,2018.

Positives:

  1. Anti dumping duty on all the products, protecting the company. Most of the countries Taiwan, EU, Middle-east, Japan others till 2020 October,with Duty amount ranging between 80$-250$ per MT.
  2. Working capital issues are cleared, running the KOCHI plant normally for 6 months continuesly the first time in last 6-7 years.
  3. Major working capital issues are resolved and concrete plans of kochi plant upgradation.
  4. Only 2 companies in acetone and Phenol, less than 5 companies operating in Hydrogen peroxide providing no headroom for much competition. No new projects atleast for next 3 years coming up in india leaving demand to propel as expected.

Negatives:

  1. PSU tag and past history of referring to BIFR state.
  2. High crude prices will dent margins
  3. Regulatory changes w.r.to Anti Dumping Duty might spoil the show, currently the ADD exists for 2020 on

Disclosure:
Currently stock price @34rs with a market cap of 225cr. I am considering it as a turnaround story with the changes and i am invested in this company.

9 Likes
2

Ramesh Daman in his old chats in money control talked about this.Hope the revival plan is successful this time.

3

@chaitanyak : Thank you for initiating this thread. This one popped up on my radar given the significant jump in revenue. I did a cursory glance using screener on the balance sheet and had a couple of questions for you.

For the last 3 qtrs, the “Other income” segment is big whereas the Q2 operating profit is as good as zero. Any thoughts here on operating margin improvement and future guidance if any issued by the company ? I am happy that they have moved from -300% to +1% and trying to understand whats next.

hindchem
hindchem1213×453 57.3 KB

The other liabilities section is also significant with trade payables for march 2018 being only 15% of 994cr… Also the other assets section had a big jump from 158 to 1537 cr which includes loans and advances of 1332 cr (Is this money owed by some company for the land sold? ). Atleast reserves are trending in the right direction. Thoughts here on these numbers and any future guidance by the company to clean this up?

hindchem2
hindchem21201×410 59.4 KB

4

Pl. see other Income for the last two quarters, it is around Rs. 77.9 Crore, if you exclude other Income then there is loss of Rs. 11 Crore and EPS would have been negative by Rs. 1.78 per share. Company performed well during Q1 where one can see 2 Core profit at PBT level (excluding other income), however, In Q2 there is huge loss of Rs. 13 core at PBT level (excluding other income) & other expenses also increased significantly. Source of other Income need to be checked as it is significant. You have completely missed other income analysis in your note which is material. No doubt it’s a turnaround story which one need to monitor.

5

The land held for sell has already been revalued and profit recognised in the balance sheet . The source of other income is not disclosed , may be it’s lease money being received from ISRO & others.

6

Right, Around 181 Crore they have booked under the head OCI last year as revaluation of land to improve reserve and surplus. Source of other Income is important and is it sustainable ?

7

Other income is higher and i feel contribution from Short term fixed deposit income from SBI is playing role here.

Operating profit: Till last year company was defaulted in paying the interest and taxes and now they paid both on time. Q1 they generated Operating profit of 18cr excluding other income and finance cost. In Q2 they generated operating losses of -10cr. Kochi plant always generates Operating profit whenever it is operational for sure, in the current expenses also nearly 10cr was paid for emp expenses, which is very high for a employee base of near 500. I view this as one of the footprints of previous settlements.

Employee Cost+ Finance cost used to be around 52cr per quarter(23cr +29cr) previously, which now came down by good 50%(9cr +13cr) on account of Rasayani Plant closure and debt closures.

Other liabilities: Govt bridge loan(270 cr) + Company Bond redemption of 80cr is main reason for jump in current liabilities.

Other assets: Revaluation of reserves.

Future direction: As i explained above, Firstly they are running the plant normally after several years. Now the plant is generating operating profit (with paying interest + taxes) is an indication for the same. Plant upgradation has to happen in phased manner, as this will need shutdown period.

Few more reasons behind my investment decision:

  1. Kochi Hocl plant alone worth 500cr according to SBI Cap valuation report Vs current market cap of 220cr.
  2. HOCL is in a position to collect advance amount from customers as per mgmt analysis.
  3. So far the biggest issue is redirecting profits from Kochi to Rasayani which in turn creating working capital issues for Kochi HOCL. Now this unit expected to receive 120cr + from this deal other than VRS+Wage settlements in Rasayani.
1 Like
8

Thanks for sharing more info on my observations. I agree with you here that this seems like a good turnaround story but at the same time many moving pieces that still need more progress. I am going to track this company for now and hopefully, a more clearer picture will emerge in the next few qtrs which will give me the confidence to jump in.

Great analysis @chaitanyak and lot of info covered specially the history… Kudos to you…

Disclaimer: Not invested but will be tracking.

9

Great analysis @chaitanyak. I believe that the company’s land bank of Rasayani plant and Pavnel are good enough to pay off the debts and move forward. The products that HOCL offers a good run way and I see it as a highly probable turn around story.

For me the major risk PSU tag, not taking timely decisions. I have invested in HOCL Q2 FY19 results.

Disclaimer: Invested

10

Great work ! The PSU tag is a little concern for me. Future prospects of the company looks bright.

11

Deepak Nitrite is on the verge of commissioning 2.0 lac plus capacity phenol plant.Will it affect the company?

12

According to q2 fy 19 concall of deepak nitrite, the phenol capacity is already commissioned since 1 Nov 2018 and the company will be able to clock 5 months of sales of new plant in FY 19. The prices of phenol as indicated in the above concall have remained strong.

13

@chaitanyak : Thank you for starting this thread. Great analysis. Kudos !!

Could you please provide some reference / source link for

  1. Upgradation of Kochi plant. Change of catalyst from SPA to Zeolite tech and its cost advantage.
  2. Increase the existing capacity.

I couldn’t find any relevant info in annual report / website / any news relating to this.

From the valuation prespective.
I think its definitely available at extremely cheaper valuation considering the growth prospects.
Considering the Q1/Q2 earnings of EPS (4+6), annual EPS is INR 20. i.e. PE ratio is 1.5 :no_mouth: ( Ofcourse we still have a problem of complete understanding of other income category).

14

Debit to equity ratio is 12, Looks like this is large in number.

15

@Ragav1024
This below information is discussed by Loksabha commitee while reviewing the HOCL performance last year i.e 2017 December. Since now the company is getting cash flow from BPCL land sale. i expected this to happen near term.

image
image836×254 14.6 KB

16

The other income pertains to facility charges from ISRO ( support services til Aug18). AR 17/18. It means Q3 results shouldn’t have any other income. Its wait and watch story…

image
image720×94 22.3 KB

Tracking. Not invested.

17

Thanks for initiating this thread. I wanted to understand more on the company’s ability to continue its operations, so started digging the past of the company.

HOCL made regular profits up to 1996-97 and was even declared a Mini-Ratna company in 1997. This status was however withdrawn in 2005 because of financial problems faced by the company since 1997-98 when HOCL incurred losses for the first time. Thereafter, it has continued with negative results, except for some intermittent profits during 2004-05, 2006-07, 2007-08 and 2010-11.

Historical Chain of Events:

1. Declared sick unit in 2005 under BIFR

Causes (Internal):

  • Diversification in other products like caustic soda plant, Hydrogen Peroxide plant, JNPT tank Terminal, Polyurethane project, Monochloro Benzene plant etc. Nothing except Hydrogen peroxide was successful. Some of the projects were discarded midway.
  • The Caustic soda/Chlorine projects became unviable with the increase in the power cost of Maharashtra and the plant had to be shut down immediately after commissioning. Subsequent refurbishment efforts with a cost of ₹ 25 crores were also led to a failure. The downstream plants like Monochloro benzene also had to be shut down due to non-availability of chlorine as the Caustic soda /Chlorine Plant was shut down being economically unviable.
  • Production – The plants set up at Rasayani Unit during the 1970s and 1980s were of small capacity and became unviable due to higher fixed cost. Hence the products could not compete with the private sector manufacturers of similar products.
  • Annual interest burden of Rs. 31 crores for setting plants that burned cash. Along with that, high fixed overhead expenses were present because of the high manpower cost.

Causes (External):

  • Introduction of economic globalisation, liberalisation in 1991
  • Steep fall in international prices (50-60%) of main products – Phenol and Acetone during 1999
  • The prices of these raw materials were dependent on petroleum crude prices that were highly volatile

Package post – BIFR:

  • Fund infusion: Rs.250 crore in the form of 8% redeemable noncumulative preference shares to be redeemed @ 20% each year from the 4th year onwards) to be utilized for repayment of high cost overdue Bonds repayment of VRS loan of Rs.31 crore availed from Bank of Baroda, introduction of fresh VRS costing Rs.36 crore and Rs.8 crore towards part repayment of bonds.
  • Non-cash transaction: Continuation of the Government of India Guarantee of Rs. 100 crores for a full term of ten years (issue date 19.12.2001) and waiver of penal interest and interest up to 31.03.2005.
  • The Government on 08.02.2007 also approved an investment of Rs. 20 crores in HOCL in the form of redeemable, non-cumulative preference shares for restarting the Caustic Chlorine Plant at Rasayani.

As a result of the implementation of the above rehabilitation package, the company made a profit of Rs.17.04 crore during 2006-07 and Rs.13.61 crore in 2007-08 and came out of the purview of BIFR in May 2008.

2. Declared sick unit AGAIN in 2013 under BIFR

The company again started suffering losses in 2009 and 2010 mainly due to competition from cheap imports and global meltdown during 2008-2010. Though it earned profits during 2010-11, the situation worsened thereafter with continuous losses from 2011-12 to 2013-14

Reasons for failure of revival package in 2006:

The revival package of 2006 basically involved financial restructuring only. A major portion of the funds (about 70%) were marked for financial restructuring and a very small proportion of the package only was allocated for modernization and diversification for long-term sustainability of operation of the Company. It was proposed to send 590 employees on VRS from Rasayani Unit but only 111 employees were sent on VRS.

Causes:

  • Withdrawal of anti-dumping duties on its main products Phenol and Acetone
  • Uneconomic operations of plants like;
    • Sulphuric acid plant (30-year old).
    • Nitro-toluene plant (produced by the private sector).
    • Caustic soda/Chlorine plant (was revamped during the year 2007-08 and had become unviable due to high power cost in Maharashtra. Moreover, Caustic soda was being imported and available at cheaper rates).
  • The input cost of raw-materials like benzene and propylene had increased. Earlier, there was a margin of $ 300 between the raw-material benzene and phenol. Now, that had come down to $150 - $180 which was unviable.
  • Poor response to VRS, and consequent high manpower cost
  • Inability to take up plant modernisation projects due to the continuous decline of the company’s financial condition

Package post – BIFR:

  • The Anti-Dumping Duty of the main products of Kochi namely, phenol and acetone were withdrawn in the year 2012 in the month of February and it was re-imposed in March 2014.
  • The approval for extension of Government Guarantee of Rs. 100 crores up to 2017 since the Company was not in a position to redeem the borrowings of Rs. 100 crores against Bonds.
  • Approval for Postponement of the redemption of preference shares from 2011-12 to 2015-16. i.e. for a period of 4 years with the approval of CCEA was obtained.
  • GOI guarantee for another Rs. 150 crores was provided to the Company to enable them to borrow Rs. 150 crore by issue of Bonds backed by Government of India guarantees to repay the Raw Material suppliers dues and other working capital purposes. Funds of Rs.150 crore were raised by HOCL in October 2014 against the Government guarantee which enabled the company to restore manufacturing operations at Kochi Unit and restore operations of Nitrobenzene plant and N2O4 plant at Rasayani Unit.
  • Ministry has taken up with the State Bank of India to provide a corporate loan of ₹ 30 crores to improve the working capital to make available funds for raw material procurement which was sanctioned.

3. Unable to kick-start operations even after BIFR package

The unprecedented steep fall in the global prices of crude petroleum during 2014-15, caused a severe crash in the prices of Phenol and Acetone and the company was facing difficulty in selling the products at profitable rates and generating adequate working capital. This led to frequent shutting down of operations at both Kochi and Rasayani units thereby further aggravating the financial crisis of HOCL.

Presently, the factors adversely affecting the company’s operations are high manpower cost (Rasayani unit), acute working capital shortage leading to frequent shut down of the plants/units and huge outstanding liabilities relating to employee salaries / statutory dues, raw material suppliers/contractors etc. due to the continuous losses since 2011-12.

2 Likes
18

Restructuring Plan

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has approved a restructuring plan for Hindustan Organic Chemicals Ltd.

  • Disposal of land assets, initially through the sale of 442 acres to BPCL at Rs. 1.4 crores per acre amounting to Rs. 618.8 crores.
  • Approval of bridge loan of Rs. 365.26 crores from the government.
  • The restructuring plan involves closing down the operations of all the non-viable plants at Rasayani unit of HOCL, except the Di-Nitrogen Tetroxide (N2O4) plant which is to be transferred to ISRO on ‘as is where is’ basis, with about 20 acres of land and employees associated with the plant.
  • Strategic disinvestment of their subsidiary – Hindustan Fluorocarbons Ltd.

The funds will be used to liquidate the various liabilities of the company, including payment of outstanding salary and statutory dues of employees and repayment of Govt. guaranteed bonds of Rs.250 crores due for redemption in Aug.-Sept. 2017.

The bridge loan amount, along with other Govt. liabilities of the company, is proposed to be repaid to the Govt. from the disposal of remaining unencumbered land and other assets of Rasayani unit.

Before understanding the operational viability of the company and product details, it was important to understand whether the assets are good enough to cater to all the potential outstanding liabilities of the company.

Note that these liabilities and assets are taken post the sale of 442 acres to BPCL and paying off Govt. debt through bridge funding.

Outstanding Liabilities Amount in Lacs
Total long-term loan from Govt. 33,239
Principal due from government 8,981
Interest due 10,118
Interest accrued but not due 4,664
Preference shares 2.5% (1.5+1%) p.a. with 25% redemption starting from 2020 27,000
Interest on interest 24,163
Suppliers and contractors (as on 9th Feb 2018) 7,771
Employees related liabilities (as on 9th Feb 2018) 35,631
Rental claim Harchandrai house (contingent liability) 4,926
Security bond to Govt. of Kerala (contingent liability) 3,053
Delayed payment charges by BPCL (contingent liability) 1,480
**Less: Net amount received from BPCL to pay off other dues (adjusted for BPCL liability of Rs. 135.6 crores) *** 21,577
Total 1,39,449

*Sold 442 acres for 618.8 crores out of which Rs. 351.4 crores were received in March 2018. Outstanding liability of BPCL as on Feb, 2018 was Rs. 135.6 crores. So, the remaining amount (351.4 – 135.6 = Rs. 215.8 crores) is assumed to have been used against paying off employees and other dues.

Assets Remaining acres of land Value (in Rs. Lacs)
Rasayani
Surplus Land 69 9,660
Land in use 467 65,380
Remaining Land and property
Land at Kharghar 0.25 acres 1,400
Land at panvel 8 acres 17,814
Nestle flats - 10 (Parel) 2,400
Add: Cash yet to be received from BPCL (618.8 crores – 351.4 crores) 26,740
Total 1,23,394

This has resulted in a negative asset of Rs. 160.55 crores which are not present to cater to all the possible liabilities.

I have not considered Rasayani plant and machinery (Value – Rs. 75 crores) in the asset sale for now. If I assume the government to not demand interest on the interest of Rs. 241.63 crores, it leaves us with a surplus of Rs. 81.08 crores.

BPCL was able to take over 442 acres because it had to partly offset itself from the past liabilities that HOCL owed him. Otherwise, there is a decent time lag involved in these asset sales.

Assuming, that the government doesn’t demand interest on interest of Rs. 242 crores, the only risk is delay in sale of assets which is big enough to bring the company back in the same loop.

Views invited.

4 Likes
19

HI Salonihemani011,

Thanks for detailed post. I would like to make a couple of points with respect to HOCL’s Assets and Liabilities.

  1. As per HOCL Annual Report 2018, HOCL got into agreement with BPCL for sale of 442 acre land. BPCL paid 351.40Cr for 251acre land and registration is complete. HOCL is yet to receive remaining 267.4Cr for the rest of 191 Acre land.

  2. As per AR 2018, the assets held disposal value is at 1256Cr. If I consider the assets that you have mentioned 966.54 Cr + 267.4 Cr (cash expected from BPCL) , the total value is @ 1233 Cr. Approximately equals to the assets under disposal. Certain portions of HOCL land @ Rasayani is encroached and I am not sure the estimate excludes the encroachment (http://www.nbccindia.com/nbccindia/nroot/pdfdata/LMA/hocl/HOCL_Rasayni_Land_Map.pdf)

  3. HOCL has cash ~ 98Cr on bank account from Q2 FY19 balance sheet. From Q2FY19 balance sheet, the total outstanding liabilities are ~1500Cr including all the dues. The assets may still fall short to repay/honor liabilities. NBCC process to develop and sale the land is time consuming process and debt keep increasing during that time. BPCL has plans to move complete LPG facility to Rasayani from Mumbai and plans to invest 40,000Cr on this project. I believe BPCL will be purchasing rest of 191 Acre land in near future.

  4. As pointed by other boarders, Deepak Nitrite has started 200KT Phenol plant and commissioned it starting Nov 18 and Phenol prices under pressure. The only advantage is BPCL directly supplies the required raw materials directly to HOCL at Kochi plant.

Disclosure: Invested, views may be biased.

2 Likes
20

Hi Sreenadh,

Thanks for pointing it out. My bad on not taking the number into account. I have edited the same in the above post and have pointed it out in bold.

Regarding remaining acres, I have arrived at 69 acres of land by taking the available land of 551 acres - 442 (sold to BPCL) - 40 under encroachment.

The same adjustment is taken for land in use (510 acres - 23 lease to MES - 20 given to ISRO = 467 acres)

The cash is adjusted in the liability table where I have deducted the net amount to be paid against other liabilities after paying off BPCL’s liability.

With this correction, the operational viability looks much better.

2 Likes