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Hindustan Organic Chemicals Ltd.

BSE: 500449 Sector: Industrials
NSE: HOCL ISIN Code: INE048A01011
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OPEN 19.00
CLOSE 18.85
VOLUME 44551
52-Week high 35.40
52-Week low 16.55
P/E
Mkt Cap.(Rs cr) 125
Buy Price 0.00
Buy Qty 0.00
Sell Price 18.65
Sell Qty 293.00

Hindustan Organic Chemicals Ltd. (HOCL) - Director Report

Company director report

DIRECTORS’ REPORT

To the Members of

HINDUSTAN ORGANIC CHEMICALS LIMITED

Dear Shareholders

The Board of Directors presents herewith the 55th Annual Report of your Company alongwith the Auditors statement of Accounts for the financial year 2015-16.

A. FINANCIAL RESULTS

The financial results for the year ended 31.03.2016 with the comparative figures ofCompany's operations for the previous year is as under:

Particulars 2015-16 2014-15
Revenue from operations 10914.77 15013.24
Other Income 489.21 833.03
Total 11403.98 15846.27
Expenditure 27938.55 36515.42
Profit before Depreciation & Tax (16534.57) (20669.15)
Less Depreciation 856.49 879.62
Profit /(Loss) before Tax (17391.06) (21548.77)
Less : Provision of Tax 0 0
Profit/(Loss) after Tax (17391.06) (21548.77)

B. DIVIDEND

In view of continuous incurring of losses during the current year as well as in theprevious years the Board of Directors did not recommend any Dividend for the current yearunder review.

Status of the Company at BIFR under SIC(SP)Act 1985 :-

As per BIFR Summary Record of Proceedings of the Hearing of HOCL Case No.501/2014 Heldon 22-07-2015 before the Bench BIFR declared the Company as Sick under Section 3(1)(o) ofthe Act and appointed State Bank of India as the Operating Agency with directions toprepare a viability study report and revival scheme for the Company if feasible keepingin view the provisions of Section 18 of the Act and the guidelines given. BIFR alsodirected the Company to submit the Draft Rehabilitation Proposal (DRP) with in period of 8weeks considering the Cut Off Date(COD) as 31-3-2015. BIFR directions also include amongother directions that OA to submit its report thereof before the next date of the hearing(on 4-112015) and to examine the DRP on its receipt from the Company etc. Accordinglyduring September 2015 Company had submitted HOCL Revival Study Report of the consultantsM/s. JPS Consultants Pvt. Ltd. to the Administrative Ministry for consideration and a copythereof to the OA SBI as per directions. As at the BIFR Board consequent to demitting ofoffice by Hon'ble Member all Hearings w.e.f.28th October 2015 listed beforethe Bench of BIFR were postponed till further orders and hence the matter of HOCL waspending in BIFR till a Bench is constituted in BIFR. Later at BIFR the Bench isconstituted and hearing is resumed in April 2016. Company is at present awaiting furtherdirections from the Ministry as well as from the BIFR.

C. CHANGE IN NATURE OF BUSINESS IF ANY : None

D. FINANCIAL HIGHLIGHTS

The Gross income of the Company stood at Rs.114.04 crore as against Rs.158.46 croreachieved during the previous year. The loss for the year 2015-16 was Rs.173.91 crore asagainst the loss of Rs.215.48 crore of the corresponding period of last year.

E. NUMBER OF MEETINGS OF BOARD (including the dates of Board and committee meetingsindicating the number of meetings attended by each director in every financial year)

During the year the Board Meetings were held on the following dates:

28/04/2015 28/05/2015 25/06/2015 11/08/2015 03/09/2015 12/11/2015 11/02/2016 and08/03/2016

F. MANNER IN WHICH FORMAL ANNUAL EVALUATION OF PERFORMANCE OF BOARD ITS COMMITTEES ANDINDIVIDUAL DIRECTORS HAS BEEN CARRIED OUT :

HOCL being a CPSU governed by the DPE Guidelines the Annual Evaluation of Performanceof Board its committees and of individual Directors has been carried out by theAdministrative Ministry (DCPC).

However Board Committees evaluation during the year did not arise in view of nonexistence of Independent Directors during the year under review on Company's Board.

G. DETAILS OF DIRECTORS AND/OR KMP’S WHO HAVE BEEN APPOINTED OR RESIGNED DURINGTHE YEAR.

Government has appointed Shri Samir Kumar Biswas Joint Secretary (Chemicals) asOfficial part time (Govt. Nominee) Director on the Board of the Company w.e.f.02/09/2015 in place of Dr. A.J.Vara Prasad JS

Government has appointed Shri Vinod Kumar Thakral SS&FA (C&F) as Officialpart time (Govt. Nominee) Director on the Board of the Company w.e.f. 17/09/2015 in placeof Shri Rajiv Yadav SS&FA.

Government has appointed Shri Sunil Kumar Sharma Director (Chemicals) as Officialpart time (Govt. Nominee) Director on the Board of the Company w.e.f. 06/05/2016 in placeof Shri Vinod Kumar Thakral SS&FA.

Government has appointed Ms. Pushpa Trivedi Professor HSS Dept. IIT Bombay PowaiMumbai as Part time Non Official (Independent &woman) Director on the Board of theCompany w.e.f. 15/06/2016 for a period of 3 years or till further orders whichever isearlier.

Government vide Order No. 23011/9/2015-Org.Estt. approved the pre-mature terminationof tenure of Shri V.B.Ramchandran Nair as CMD HOCL with immediate effect from 22/02/2016(by payment of 3 moths' notice pay).

Government vide order dated 25-02-2016 directed Shri S.B.Bhide Director (Technical)to hold the additional charge of CMD HOCL for a period of 3 months which later wasextended for further period of 3 months up to 24-08-2016 or till further orders whicheveris earlier.

As Director (Finance) Shri Sureshkumar R. was continuous remained absent himself fromall the board meetings of the Company for the period of 12 months from March 2015 to29/02/2016 . The position of Director (Fin.) of Mr. Sureshkumar has become vacant w.e.f.01-03-2016. Pursuant to application of Sect. 167 of the Company's Act 2013. The companyhas communicated the facts as such to the Administrative Ministry.

Vide Government Order dated 03-08-2016 The President has approved the non extension ofthe tenure of Mr. J.N.Suryawanshi as Director Marketing of the Co. with immediate effectfrom 03-08-2016. (A.N.)

H. COMPOSITION OF AC AND NON ACCEPTANCE OF ANY RECOMMENDATIONS OF AC None. - NotApplicable.(during the year under review.)

I. DIRECTOR’S RESPONSIBILITY STATEMENT

Your Directors make the following statement in terms of Section 134(5) of the CompaniesAct 2013 -

a. That in the preparation of the annual accounts for the year ended 31st March 2016;the applicable accounting standards had been followed along with proper explanationrelating to material departures.

b. That such accounting policies as mentioned in the Notes of Accounts had been appliedconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the financial yearended 31st March 2016 and the profit or loss of the Company for that period.

c. That proper and sufficient care had been taken for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities.

d. That the annual accounts for the year ended 31st March 2016 had been prepared on agoing concern basis.

e. That the Directors had devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively

f. That during the year under review in view of sick unit status of the Companypending revival the employees' salary dues and corresponding statutory dues were unpaidand outstanding for the last 13 Months (March 2015 to March 2016 and to that extentvarious compliances by the KMPs and Directors have not been complied with.

J. DISCLOSURE ON REAPPOINTMENT OF INDEPENDENT DIRECTORS

Not Applicable during the year under review in view of non-existence of independentdirectors on the Board of the Company.

K. COMPANIES POLICY ON DIRECTOR’S APPOINTMENT AND REMUNERATION INCLUDING CRITERIAFOR DETERMINING QUALIFICATIONS POSITIVE ATTRIBUTES INDEPENDENCE OF DIRECTORS ETC.

Company being a CPSE and appointment of all the Directors on the Board of the Companyare made by the Govt. of India/President of India and under the

supervision control and directions of the DC&PC the prescribed DPE Guidelines arebeing followed. The Terms and Conditions of appointment of Independent and other directorsas disclosed in the Company's web site are given in Annexure to this Report.

L. RATIO OF DIRECTORS REMUNERATION TO MEDIAN EMPLOYEES REMUNERATION AND OTHERPRESCRIBED ELABORATE DISCLOSURES AND DETAILS.

Company being a CPSE which is under the supervision control and directions of theDC&PC the prescribed DPE Guidelines are being followed in respect of employeesremunerations and DPE Guidelines as well as CVC Guidelines are being followed as regardsother prescribed elaborate disclosures and details.

M. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS MADE UNDER SECTION 186 OF THECOMPANIES ACT 2013

There were no loans guarantees or investments made by the Company under Section 186 ofthe Companies Act 2013 during the year under review and hence said provisions are notapplicable.

However cumulative total as on 31-03-2016 of the particulars of Secured Loans to itssubsidiary Co. viz. HFL Company's Rs.11.03 crore Corporate Guarantee extended to itssubsidiary Co. Hindustan Fluorocarbons Ltd.[HFL] or investments made in earlier years inits subsidiary companies viz. in HFL and in HOC Chematur Ltd. etc. under section 186 ofthe Companies Act 2013 all were shown in the financial statements. Guarantees includingRs.100 crore 4 year Government Guarantee Rs. 150 crore 3 year Government Guaranteerenewable on year to year basis both granted by the Government of India for the issue ofrespectively Rs.100 crore and Rs.150 crore Bonds.

N. PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES

1. Details of Contracts or arrangement or transactions not at arm's length basis:During the year NIL.

2. Details of material contracts or arrangements or transactions at arm's length basis: NIL during the year under review. However cumulative total as on 31-032016 ofthe particulars of contracts or arrangements of the previous years' made with thesubsidiaries were shown in the financial statements.

O. EXPLANATION OR COMMENTS ON QUALIFICATIONS RESERVATIONS OR ADVERSE REMARKS ORDISCLAIMERS MADE BY THE AUDITORS AND PRACTISING COMPANY SECRETARY IN THEIR REPORTS

In view of the non-existence of adequate number of Independent directors and womandirectors on the Board of the Co. suitable Management Replies to the auditors'observations in the Secretarial Audit Report -2015 were furnished during the year underreview and were considered by the secretarial auditors M/s. SNA & Co. the PCS. TheSecretarial Audit Report annexed hereto forms part of the Annual Report- 2015-16 of theCompany.

P. AMOUNTS IF ANY WHICH IT PROPOSES TO CARRY TO RESERVES.

None - in view of the accumulated losses incurred by the Company.

Q. MATERIAL CHANGES AND COMMITMENT IF ANY AFFECTING THE FINANCIAL POSITION OF THECOMPANY OCCURRED BETWEENT THE END OF THE FINANCIAL YEAR TO WHICH THIS FINANCIAL STATEMENTSRELATE AND THE DATE OF THE REPORT

Ongoing financial crisis in the Company pending revival of the Company etc.

The details in respect of adequacy of internal financial controls with reference to theFinancial statements. Internal controls are supported by Internal Audit and ManagementReviews. Company ensures existence of adequate internal control through documented policyand procedures to be followed by the executives at various levels. The Management is keenon these issues and initiated various measures such as upgrading IT infrastructureevaluating & implementing ERP software web based application and establishingconnectivity amongst manufacturing units and branch offices for effective & proactiveservices and business benefits.

With the objective of improving the systems and removing bottlenecks systems review iscarried out and policies and procedure manuals are amended.

Board periodically reviews the internal controls Audit Programmes Financial ResultsRecommendations of the Auditors and Management's Replies to those Recommendations etc.

S. CONSERVATION ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO

A) Conservation of energy

(i) the steps taken or impact on conservation of Energy : Nil

(ii) the Steps taken by the company for utilizing alternate source of energy :

We have already identified the Administrative Building roof top admeasuring @1500 sq.mfor installation of grid connected Solar Roof Top photovoltaic panels. However due to thefinancial constraints that your company is facing at present the scheme is not beingimplemented.

(iii) the capital investment on energy conservation equipments - NIL

B. Technology Absorption

(i) the efforts made towards technology absorption - NIL

(ii) the benefits derived like product improvement cost reduction product developmentor import substitution : NIL

(iii) in case of imported technology (imported during the last three years reckonedfrom the beginning of the financial year) - NIL

(a) the details of technology imported;

(b) the year of import;

(c) whether the technology been fully absorbed;

(d) if not fully absorbed areas where absorption has not taken place and the reasonsthereof; and

(iv) the expenditure incurred on Research and Development.- NIL

T. STATEMENT CONCERNING DEVELOPMENT AND IMPLEMENTATION OF RISK

MANAGEMENT POLICY OF THE COMPANY

KEY THREATS INCLUDE

• Tough competition in Petro sector along with downward movement in prices.

• Availability of cheaper imported chemicals

• High raw material costs

• BIFR has declared the company Sick Company under the provisions of SICA (SpecialProvisions) Act and pending and delays in revival of the Company had worsened thefinancial status of the Company led to non-payment of employee dues for over 13 monthsduring the period under review.

• Availability of Anti-dumping support for Phenol and Acetone manufactures atKochi unit.

• The Company is facing acute working capital shortage which has affected theoperations and payment obligations.

• High interest burden high employees' remuneration.

SOME RISKS & CONCERNS.

• The man power cost per ton of finished product remains very high.

• Old depreciated plants requires high maintenance cost.

• Huge investments required for revamp/replacement/modernization of the oldplants.

• In view of the fact that as on 31.03.2016 as the Company has been declared asSick Unit pending revival of the Company markets for the finished products customerscredentials have lost.

• Dumping of cheap imports chemical products to the detriment of domestic chemicalindustry.

• Volatility in the raw material prices mainly Benzene prices.

• Excess manpower of non-operative plants.

U. SUBSIDIARIES JOINT VENTURES AND ASSOCIATE COMPANIES WHICH HAVE BECOME OR CEASED TOBE : HOC Chematurl Ltd. a J.V Subsidiary of one abandoned MDI Project proposed to exitunder MCA's Early Exit Scheme.

V. DETAILS OF CSR POLICY AND ITS IMPLEMENTATION DURING THE YEAR Company right fromits inception is cognizant about its social responsibilities. To promote School EducationCompany is giving need based assistance to the deserving students along with SC/STstudents for their school/ graduate education. Company also extends vocational trainingfacilities to the wards of employees in company as well as nearby Engineering/ ManagementColleges for enhancing their particular skill/ knowledge. Company also engages ICWATrainees CS Trainees and vocational Trainees as a part of their curriculum for impartingpractical training by paying stipend.

W. DISCLOSURES PRESCRIBED IN TERMS OF SECTION 67.

X. DEPOSITS: None / Nil.

During the period under review the Company has not invited or accepted any depositseither from the directors or from shareholders of the Company.

Y. The details of significant and material orders passed by the regulators orcourts or tribunals impacting the going concern status and company's operations in future: NONE

Z. EXTRACT OF ANNUAL RETURN

(iii) Liability of wage revision for the period 1.1.1997 to 31.12.2000 Rs.1887.79 lakhs (previous year ended 31st March 2015 Rs.1887.79 lakhs) at Rasayani unit No provision has been made for liability towards wage revision of employees of Rasayani unit for the period from 01.01.1997 to 31.12.2000 amounting to Rs.1887.79 Lakhs since the arrears are payable when the company generate adequate surplus with the prior approval of the Administrative ministry. Accordingly no provision for the arrears payable as above was made in the accounts. However during the year 2011-12 the Board of Directors with the concurrence of the Administrative ministry have decided to settle the dues of employees of Rasayani unit during the next four years time period. Necessary accounting of the arrears payable will be made in the accounts depending of the release of dues to the employees.
(iv) Liability of the wage Revision for the period 1.1.2007 to 31.3.2008 Rs.161.55 lakhs (previous year ended 31 March 2015 Rs.161.55 lakhs) to the officers and Rs.148.26 lakhs (previous year ended 31st March 2015 Rs.148.26 lakhs) to staff at Rasayani unit. In respect of revision of wages w.e.f. 01.01.2007 the Board in its 327th meeting held on 09.08.2010 decided to release arrears subject to the condition that the company generates adequate cash surplus. Accordingly no provision has been made for arrears payable for the period from 01.01.2007 to 31.03.2008 amounting to Rs.161.55 Lakhs in respect of Officers and Rs.148.26 Lakhs to Staff of Rasayani unit. Necessary accounting will be made in subsequent years as and when the above dues are paid to the employees.

 

As per Annexure-2
For Audit Qualification(s) where the impact is not quantified by the auditor : Management Views
In absence of adequate profit Redemption reserve for redemption of 25% of Preference Shares Capital amounting to Rs. 6750 lakhs due for redemption during the financial year 2015-16 is not provided in the books. As stated in Note No.2B the Board has authorised the company to request the government for further extension of the redemption date by another four years. The consultant has recommended for conversion of preference shares into equity in the revival report submitted to the government. Pending above the redemption reserve has not been created in the books.
(A) The Balances of trade payables loans & advances and other current assets and other debit/ credit balances are pending for confirmations and reconciliations (note no. 43). The effect of the same on the loss is not ascertainable. This matter was also qualified in Audit report on the financial statements for the year ended March 312015. These are running account balances and the company continues to follow up with the parties for reconciliation of their balances. Any consequential adjustments will be carried out in the books of accounts during the next year.
(B) In absence of current status of pending litigations and financial impact thereof liabilities under such cases are not ascertainable and the foreseeable loss of the same is not considered while preparing financial results. The pending litigations are pending with statutory authorities / different courts and the matters are subjudice. The liability if any will be known only on the final order on the respective cases are issued.
(C) The Kochi unit of the company has entered into long term supply contract with Gas Authority of India (GAIL) for supply of Liquefied Natural Gas in 2011 for the period of 15 years ending in 2026. Material foreseeable losses on this contract are not quantifiable in the current scenario. Necessary provision for the liability towards GAIL as per the contract for supply of LNG is being made in the books of accounts on monthly basis.
(D) The Company has not provided any provision during the year for diminution in the value of investments in subsidiaries and also no provision is made against overdue of loans given to them since long. The subsidiary company has submitted a revival proposal which is under consideration of the ministry. Pending above no provision has been made for the temporary diminution in the value of investments in the subsidiary.

 

For and on behalf of the Board of Directors of
Hindustan Organic Chemicals Limited
Sd/-
Place: Mumbai S. B. Bhide
Date 05/ 08 / 2016 Acting Chairman & Managing Director & Dir. (Tech.)

In order to prevent dumping and to reform the sector to enable it to meet globalcompetition active follow ups is made with the Govt. for continuation of/levy ofantidumping duties as per WTO Guidelines.

KEY OPPORTUNITIES INCLUDE

- Growth in certain sectors such as phenolic resins laminates plastics rubberchemicals etc. in the overall markets of the country.

- High quality standard and wide spread marketing network to remain preferred supplierto 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 byPetroleum Companies like BPCL / HPCL for investment in land infrastructure.

- Company has filed review petition & fresh application for Anti-Dumping Duty tothe concerned Authorities.

KEY THREATS INCLUDE

• Tough competition in Petro sector along with downward movement in prices.

• Availability of cheaper imported chemicals

• High raw material costs

• BIFR has declared the company Sick Company under the provisions of SICA (SpecialProvisions) Act and pending and delays in revival of the Company had worsened thefinancial status of the Company led to non-payment of employee dues for over 13 monthsduring the period under review.

• Availability of Anti-dumping support for Phenol and Acetone manufactures atKochi unit.

• The Company is facing acute working capital shortage which has affected theoperations and payment obligations.

• High interest burden high overhead costs high employees' remuneration. SEGMENTWISEPERFORMANCE

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

Product Segment

Year ended 31/03/2016

Year ended 31/3/2015

Target MT Actual MT Percentage Achieved Target MT Actual MT Percentage Achieved
Chemicals 202435 26734 13.21 215234 48159 22.38%

PRODUCT WISE PERFORMANCE (Production of Main Products)

Sr. No. Name of Product

F.Y. 2015-16

F.Y. 2014-15
Target Actual Actual
1. Nitrobenzene 17808 634 1097
2. Dinitrogen Tetroxide (N2O4) 500 446 130
3. Phenol 36000 4265 9944
4. Acetone 22200 2648 6167
5. H2O2 11000 8802 8031

OUTLOOK AND INITIATIVES FOR THE CURRENT YEAR

Both the units of the company have taken initiatives to improve the efficiency of theoperating plants by implementing certain schemes like;

Retrofitting of Conc. Nitric acid plant (C.N.A) where N2O4 is produced has beencompleted with the commissioning of Nox Blower.

HOCL is in discussion with HPCL BPCL to lease our Land at Rasayani to generateresources and improve the operations. GAIL has shown interest in acquiring land forsetting up a Petrochemical Complex

SOME RISKS & CONCERNS.

• The man power cost per ton of finished product remains very high.

• Huge investments required for revamp/replacement/modernization of the oldplants.

• In view of the fact that as on 31.03.2016 as the Company has been declared asSick Unit pending revival of the Company markets for the finished products customerscredentials have lost.

• Dumping of cheap imports chemical products to the detriment of domestic chemicalindustry.

• Volatility in the raw material prices mainly Benzene prices.

• High interest costs high employees' remuneration.

INTERNAL CONTROL SYSTEMS & THE ADEQUACY

Internal controls are supported by Internal Audit and Management Reviews. Companyensures existence of adequate internal control through documented policy and procedures tobe followed by the executives at various levels. The Management is keen