Hindustan Organic Chemicals Ltd Management Discussions.

Annexure III

The Management of Hindustan Organic Chemicals Ltd (HOCL) presents its Analysis Report covering the Performance and Outlook of the Company. The Report contains business prospects and perspectives based on the current environment and strategic options to steer the Company through unforeseen and uncontrollable external factors.

The feed stock prices in India which is based on petroleum feed stock prices are significantly higher as compared to major exporting countries. The capability of chemical 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 of the domestic Industry is small as compared to the competitors abroad. The domestic manufacturers in Indian Industry are in a disadvantageous position with regard to overhead costs.

In order to prevent dumping and to reform the sector to enable it to meet global competition, active follow up is made with the Govt. of India for continuation of/levy of anti-dumping / safe guard duties as per WTO Guidelines.

KEY OPPORTUNITIES INCLUDE

Consequent to the closure of Rasayani unit as per the Government approved restructuring plan, the Registered and Marketingofficeshave been shifted to CBD Belapur . In Kochi unit, two plants (Phenol and Hydrogen plant) are operational. Operations of Rasayani unit have been closed & closure of Rasayani unit has been approved by Ministry of Labour and order to the effect was issued by Joint Secretary (Industrial Relations) vide letter dated 13th February 2019.

Out of the balance 191 acre, of land for sale to BPCL, 38 acre was registered during the year and BPCL has recovered the loan principal amount in full, and balance amount was utilised to pay the salary dues of Kochi employees. All liabilities of Employees of Rasayani & Kochi Unit have been cleared.

The Phenol Plant at Kochi unit achieved a capacity utilization of 80 % during the year in spite of working capital constraints by mobilizing advance payments from major customers.

KEY THREATS INCLUDE

The Company continues to face working capital constraints. Competition from imports for the main products Phenol and Acetone, consequent to expiry of Anti-dumping duty on imports from USA and

Taiwan, even though antidumping duty is in place from other importing countries. Volatility in raw material prices due to fluctuating crude prices.

SEGMENTWISE PERFORMANCE

The Company is primarily in the business of manufacture and sale of chemicals.

Product Segment Year ended 31/03/2019 Year ended 31/3/2018
Target MT Actual MT Percentage Achieved Target MT Actual MT Percentage Achieved
Chemicals 40100 58910 146.91% 46600 37224 79.88

PRODUCT WISE PERFORMANCE (Production of Main Products)

Sr. No. Name of Product Installed Capacity F.Y. 2018-19 Actual F.Y. 2017-18 Actual
(MT) (MT) (MT)
1. Di-Nitrogen tetroxide Nil Nil 416
2. Phenol 40000 31991 17191
3. Acetone 24640 20130 10609
4. H2O2 10450 6789 9008

OUTLOOK AND INITIATIVES FOR THE CURRENT YEAR

The transfer of C NA / N204 plant has been completed and the disposal of all plant and machinery at Rasayani is complete. Out of balance 191 acre of land to BPCL additional 38 acre sale has also been completed. The transfer of 1000 sq. mtr of plot to NALCO has been completed. Further sale of unencumbered land though NBCC is in progress.

SOME RISKS & CONCERNS.

Competition from cheaper Imports of main product Phenol and Acetone.

Volatility in raw material feed stock prices based on fluctuations in crude prices.

Huge investments required for revamp / replacement / modernization of the old plants.

Transfer of balance land (191 acre) to BPCL and receipt of funds for settling the liabilities of the company.

Sale of balance unencumbered land at Rasayani after receipt of NOC from Government of Maharashtra.

Non-Availability of working capital from Banks for continuous operation of the Plants at Kochi.

High interest costs, high employees remuneration.

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. HOCL Kochi unit is having ISO 9001: 2015 (Quality Management System) and ISO 14001:2015 (Environmental Management System) certification.Theexistingcertificatefor ISO 9001 has been extended up to 18 th June 2020 and ISO 14001 is valid up to 07th March 2022 audit for further extension is in progress.

REVIEW OF FINANCIAL PERFORMANCE :

During the year 2018-19 the Companys total revenue registered an impressive growth of 91%.

The Gross income of the Company stood at Rs. 587.70 crore as against Rs.310.93 crore achieved before Tax during thepreviousyear.TheProfit for the year 2018-19 was Rs.70.80 crore as against (-) Rs. 203.45 crore (loss) incurred during the corresponding period of last year.

As per the approval of Government of India, the operation of all the plants at Rasayani Unit (except C NA / N204 plant transferred to ISRO, along with the manpower) has been closed. In Kochi Unit, two plants (Phenol and Hydrogen plant) are operational.

The operation of the Phenol Plant at Kochi unit was restarted during the year in spite of working capital constraints by mobilizing advance payments from major customers. The plant operations have been stabilized and achieved 80% capacity utilization during the year under review.

INFORMATION TECHNOLOGY – 2018-19

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 is in the process of implementing Tally Erp 9 at Kochi Unit.

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 Companys 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 expressed or implied. Important developments that could affect the Companys operations include a downtrend in the chemical industry - global or domesticorboth,significantchanges 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/-
Place: CBD, Belapur (S.B. Bhide)
Date: 28-05-2019 Chairman & Managing Director