CHEMFAB ALKALIS LIMITED
ANNUAL REPORT 2009-2010
For the first time in its 25 year old history, CHEMFAB is presenting
Chairman's Statement only in the Company website. This is an a co-friendly
and cost saving initiative.
The Indian Economy has shown remarkable resilience and has almost bounced
back from the after-effects of the recent Global melt-down. The Finance
Minister has stated in his Budget that GDP growth for 2009-10 is estimated
at 7.2% and higher. The manufacturing sector has grown 18.5% in December
2009 whim is the highest to be recorded in two decades. This is not to say
that there are no concerns: annual inflation has climbed to a high of 9.8%
in February 20t0 nd food inflation at 18.5% is worrisome. It is hoped that
the Central Government and the Reserve Bank of India will address these
concerns most effectively.
The performance of the Chlor-Alkali industry to which your Company belongs
is dependent upon the following.
a. Consistent power supply from grid by Puducherry Government
b. Reasonable power tariff:
In the year alone, there is an increase by nearly 40 paise per unit - a
steep 14% hike - meaning increase in the direct cost resulting in a clean
loss of more than Rs.4 crores annually, at the present level of operations.
c. Good domestic market:
The dumping of imported products makes it a tough market.
The set-back in the profitability of the Company is mainly due to the power
problems faced by it during the first three quarters of the year under
review. The extent of power supplied by the Puducherry Electricity
Department was totally inadequate in relation to the Company's requirements
and the quality of power was also far from satisfactory, leading to
significant production loss. But it improved in last quarter and hope will
sustain, due to the efforts of local Government in trying to get more
Possible gas supplies in future is another hope, our proposal of Power
plant is cleared by the Government.
During the year, the Company, had to take the painful decision to close
down its Chlorates Division as it could not operate the Division at
economic levels for want of requisite power as also due to labour non-
In light of the above, your Company is planning various steps to strengthen
our marketing set-up and efforts arid also closely review and monitor
operational costs under various heads with a view to bringing about as much
economy as possible, by implementing innovations and cutting costs.
You would note in spite of problems, your Company has made a reasonable
profit and wiped out all debts to the Banks.
During the year, the Company has received the demand from the Income Tax
Department amounting to Rs.211 Lakhs. This demand is due to reopening of
the assessment years 2004-05, 2005-06, 2006-07, which were already assessed
and tax paid. The Department on reopening the assessments, disallowed the
expenditure which are purely revenue in nature, incurred on replacement of
membranes, recoating charges and other attendant expenses on these two
areas. Earlier, the Department had accepted the company's stand and issued
original order allowing this expenditure as revenue expenditure, but based
on the revenue audit. they have reopened the assessment and had made this
demand. The assessment for the year 2007-08, was also done icy the Income
tax department, on the same basis.
It is a Chlor-industry practice to treat the expenditure on replacement of
membranes and recoating charges of anodes as capital expenditure, but for
the income tax purpose, it is charged as revenue expenditure which is also
well recognized under the statute. Your company, for the past 6 years, has
been following the method of capitalizing this expenditure for the
accounting purpose and writing-off of the entire expenditure incurred on
these two areas for the income tax purpose.
Treating expenditure on replacement of membrane and recoating of anodes /
cathodes as revenue expenditure are on the basis that these replacement /
refurbishment expenditure lasts only for a limited period of 4 or 5 years
and have to be necessarily replaced / refurbished, on a continuous basis.
Therefore, we are advised, the Department's contention is not right in
disallowing this as revenue expenditure and treating them as capital
The Company is taking appropriate measures to take this on appeal; however,
in the mean time, I would like to draw the attention of the Government and
The Ministry of Finance
a. to come out with a clear guideline to the Department, to avoid long
drawn litigations between the department and the companies.
b. consistent policy to be followed by all IT offices in the country; so
all in the same industry, are treated alike.
c. There should be a single decision authority above which no appeal should
be entertained, and decision to be awarded within a reasonable time bound
limit, so the Government gets it revenues on time and Industry do not lose
time in legal battle and end up with huge interest and penalty payments and
un-necessary contingent liabilities hanging around.
As you are aware, the Company declared 100% dividend for the year ended
31st March 2007. thereafter, dividend for the subsequent two years, 2007-08
and 2008-09 was deferred as it was considered more desirable to conserve
resources and utilize them for bringing down working capital drawings and
thereby interest costs, which was achieved.
The Company was established in 1985 ad de year ended 31st March 2010 marks
its Silver Jubilee Year. This is a significant milestone in the annual of
it Company. In this context, I am happy to announce that subject to your
approval, the Company proposes to pay a dividend of 50% for the Silver
The Company's present installed capacity of Caustic Soda is 42,000 MT per
annum and of Chlorine (co-product) is 37,000 MT per annum. We have planned
expansion of the Caustic Soda capacity to 70,000 MT per annum
(corresponding to 200 TPD) ad of Chlorine to 61,600 MT per annum. The
environmental clearance for the proposed capacity enhancements has been
obtained from the Ministry of Environment and Foams, New Delhi, in August
2007. However, we ate yet to get NOC from the Puducherry Government for
undertaking the proposed capacity expansion and also for setting up (i) a
captive 25 MW power plant and (ii) a 1000 m3/day desalination plant. Our
request for the NOC is pending with the Puducherry Government for over 4
long years now. Your Company has appealed for quicker approval of the NOC
to Puducherry Government which is under consideration.
The future of the Company largely depends upon getting adequate power
supply from the Electricity Department for the present operations as well
as for the expansion of capacities as planned We are determined to succeed
in this regard and we will pursue the matter with Government more
vigorously and hope that Government will clear our proposals once they
realize the extent to which benefits will accrue to the Union Territory.
With the Union Ministry of Environment and Forests, coming out with new
norms for environmental clearances, we hope the Puducherry Government, will
clear our proposals for expansion and Power Plant, quickly without delay.
I wish to record my deep appreciation of the support received from the
Governmental agencies, banks, institutions, our customers, associates and
of the confidence reposed in the Company by its shareholders. I must also
acknowledge the dedicated work put in by CALmates at all levels.
Place : Chennai Dr. C.H. Krishnamurthi Rao
Date : 7th April 2010 Chairman