MANAGEMENT DISCUSSION AND ANALYSIS REPORT The Management of Hindustan Organic Chemicals ltd (HOCL) brsents its Analysis Report covering the Performance and Outlook of the Company. The Report contains business perspective and prospects based on the current environment and strategic options to steer the Company through unforeseen and uncontrollable external factors. The petroleum feed stock prices in India are significantly higher as compared to major exporting countries. The capability of manufacturing units to earn a reasonable return has been largely affected by global competition and tightening of parameters like rationalized duty structure and strict quality controls. Moreover, the capacity in the Indian Industry is small as compared to the competitors abroad, in effect the Indian Industry is in a disadvantageous position with regard to overhead costs. In order to brvent dumping and to reform the sector to enable it to meet global competition, active follow ups is made with the Govt. for continuation of/levy of anti-dumping duties as per WTO Guidelines. KEY OPPORTUNITIES INCLUDE - Growth in certain sectors such as phenolic resins, laminates, plastics, rubber chemicals etc. in the overall markets of the country. - High quality standard and wide sbrad marketing network to remain brferred supplier to large consumer all over the country. - Growth in production/promotion of chemical industry . - Potential to develop Rasayani into a Petrochemical hub with the interest shown by Petroleum Companies like BPCL / HPCL and GAIL for investment in land infrastructure. - Company has filed review petition & fresh application for Anti-Dumping Duty to the concerned Authorities. KEY THREATS INCLUDE - Tough competition in Petro sector along with downward movement in prices. - Availability of cheaper imported chemicals - BIFR has declared the company Sick Company under the provisions of SICA (Special Provisions) Act . - Availability of Anti-dumping support for Phenol and Acetone manufactures at Kochi unit. - The Company is facing acute working capital shortage which has affected the operations and payment obligations. SEGMENTWISE PERFORMANCE The Company is primarily in the business of manufacture and sale of chemicals. OUTLOOK AND INITIATIVES FOR THE CURRENT YEAR Both the units of the company have taken initiatives to improve the efficiency of the operating plants by implementing certain schemes like; Retrofitting of Conc. Nitric acid plant (C.N.A), where N2O4 is produced has been completed, with the commissioning of Nox Blower. HOCL is in discussion with HPCL, BPCL to lease our Land at Rasayani to generate resources and improve the operations. GAIL has shown interest in acquiring land for setting up a Petrochemical Complex SOME RISKS & CONCERNS. • The man power cost per ton of finished product remains high. • Old debrciated plants, requires high maintenance cost. • Huge investments required for revamp/replacement/modernization of the old plants. • In view of the fact that as on 31.03.2015 as the Company's Accumulated Losses have exceeded the networth the Company has been referred to BIFR • During the year ended 31-03-2013 as the entire net worth of the Company has been eroded, Company is taking necessary steps under SIC (SP)Act,1985, as to reporting to BIFR as a sick unit etc. • Dumping of cheap imports chemical products to the detriment of domestic chemical industry. • Volatility in the raw material prices mainly Benzene prices. INTERNAL CONTROL SYSTEMS & THE ADEQUACY Internal controls are supported by Internal Audit and Management Reviews. Company ensures existence of adequate internal control through documented policy and procedures to be followed by the executives at various levels. The Management is keen on these issues and initiated various measures such as upgrading IT infrastructure, evaluating & implementing ERP software, web based application and establishing connectivity amongst manufacturing units and branch offices for effective & proactive services and business benefits. With the objective of improving the systems and removing bottlenecks, systems review is carried out and policies and procedure manuals are amended. Kochi unit has been certified under ISO-9001:2000 standards through Bureau Veritas Certification India Pvt. Ltd. (BCI). Environment Management System (EMS) of Kochi unit has been certified under ISO-14001:2004 standards through BVQI, Rasayani unit has been re-certified in January' 2008 and Kochi unit has been recertified in June'2008 under ISO-9001:2000 standards. The existing certificate for ISO 9001 & 14001 is valid up to 2014. As part of good Corporate Governance the Audit Committee re-constituted by the Board periodically reviews the internal controls, Audit Programmes, Financial Results, Recommendations of the Auditors and Management's Replies to those Recommendations. REVIEW OF FINANCIAL PERFORMANCE : The financial statements have been brpared in accordance with the requirements of the Companies Act, 1956 and Generally Accepted Accounting Principles. The financial performance highlights are as follows:- The sales turnover was of the order of Rs. 167.19 crores against Rs. 236.79 crores for the brvious year showing a decrease of 29.39%. There was an Operating Loss before interest and debrciation of Rs. 114.61 crores against the Operating loss of Rs 114.98 crores for the brvious year. Company incurred an Interest expenditure of Rs. 51.27 crores against Rs. 42.61 crores of the brvious year. The Company is in the process of submitting a Revival Plan to the Ministry. The Report brpared by the Consultants is under consideration of the Management. The main focus of revival of the company is with the financial assistance from Government and monetizing of land infrastructure with potential for joint venture investment. Information Technology - 2014-15 Company has effective information systems for core business areas. However, company has envisaged a plan to meet changing demands keeping in view the technological changes and the way information & communication technology offering innovative services suiting to every business needs. Company has successfully rolled out SAP at their manufacturing unit at Kochi and all branch offices. Management ensures continual effort in the ever changing technological environment, for improving and meeting with requirement like data security, information available, transparency and accuracy. Company is using open tendering / e-Tendering solution being provided by National Informatics Centre (NIC). CAUTIONARY STATEMENT Statement in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those exbrssed or implied. Important developments that could affect the Company's operations include a downtrend in the chemical industry - global or domestic or both, significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, manpower cost, exchange rate fluctuations, interest and other costs. For and on behalf of the Board of Hindustan Organic Chemicals Ltd. Sd/- (V.B. Ramachandran Nair) Chairman & Managing Director Place : Navi Mumbai Date : 11/08/2015 |