Bengal Chemicals plans to pay off debt through divestment

Bengal Chemicals & Pharmaceuticals, which posted a net profit in the first half of this financial year after remaining in the red for 63 long years, plans to become debt-free.

The central government recently approved a strategic disinvestment plan for the public-sector firm, under which it will sell stakes to public or private companies. 

While this will lead to an immediate capital infusion, the company plans to cash on its real estate to pay back its bank loan completely. 

Out of its 70 acres of land worth Rs 2,500 crore in Kolkata and Mumbai, Bengal Chemicals will sell five acres at Panihati in West Bengal to raise Rs 50-60 crore, which will be used to pay off its Rs 18.82 crore bank loan. The residual amount can be used to pay VRS to the employees as well as boost its capital.

“We have just started posting a profit after a long span of time. This is the right time to repay the bank loan by selling off the unused land,” said the company’s managing director P M Chandraiah. 

Out of its total land holding, only five acres are vacant with the remaining taken up by factories, offices and other buildings. Through rental agreements with other public and private companies, Bengal Chemicals now earns a revenue of Rs 15 crore a year. 

Approval from the government is a prerequisite to implementing the process of land sale. According to Chandraiah, the government’s decision to offload stakes is a move in this direction. The government is yet to arrive at the percentage of selling stakes, though. 

Its current outstanding liabilities comprise Rs 18.82-crore bank loan and another Rs 217-crore loan from the Centre.

The process to revive the company had started in 2014, when Chandraiah took charge of the firm as finance director. 

After Bengal Chemicals posted a dismal revenue of Rs 17.07 crore during 2013-14, down 38% compared to the previous financial year, and a gross loss of Rs 36.55 crore, things started looking bright.

During 2014-15, the company’s revenue jumped 169% to Rs 45.84 crore and escalated to Rs 88.19 crore during 2015-16. The loss also narrowed down from Rs 17.32 crore in 2014-15 to Rs 9.13 crore in 2015-16. 
 

Chandraiah was subsequently given the additional charge as the managing director earlier this year. In the first half of the current year, Chandraiah has been able to report a profit of Rs 1.16 crore and expects to close the year with Rs 100 crore top line and Rs 4-5 crore bottom line. 

By 2020, the company expects to post Rs 200 crore revenue and Rs 20 crore profit. 
 

Chandraiah says he implemented a slew of measures to turn around the company while giving it a corporate culture. “Also, we created confidence among our suppliers which helped us improve costs.”
 

Creating discipline among the staff has also been an enabler. In one instance, when the company installed gate passes and attendance machines in its Kolkata factory, trade unions opposed the move. A trade union leader, thereafter, was transferred to its Mumbai office. 

Even if the company pays off its bank loan, it will still remain under the Board for Industrial and Financial Reconstruction (BIFR) ambit. Its accumulated losses stand at Rs 262 crore and the net worth is at a negative. At the current pace, it would take another 50 years for Bengal Chemicals to get out of the BIFR purview. 

The company has homecare and cosmetics brands such as Cantharidine, Phenol, White Tiger and naphthalene balls and used to have a 40% market share. 

However, it’s presence in the market is negligible now. Bengal Chemicals traces its foundation to Acharya Prafulla Chandra Ray, the father of Indian pharmaceuticals, who set up the company in 1892 with Rs 700 as capital investment. 

The firm, which successfully competed against British drug makers, became a renowned name by the mid-1930s and went on for expansion outside east India. However, its fortunes declined in the post-Independence era. 

Bengal Chemicals was declared sick in 1992 and it was subsequently referred to the BIFR, which came out with a revival package in 2006. 

Litmus test of time 

• 1892 : Bengal Chemicals & Pharmaceutical Works founded in Kolkata by Acharya Prafulla Chandra Ray with Rs 700 capital
• 1901 : Bengal Chemicals goes for listing as a publicly held company. Subsequent, Swadeshi movement helps it to take on the British drug manufacturers head-on
• 1905 : First factory at Maniktala in Kolkata built
• 1920 : 2nd one at Panihati in West Bengal commences production 
• 1938 : Expansion into west Indian market and subsequent establishment of 3rd one in Mumbai
• 1949 : 4th one at Kanpur in Uttar Pradesh commences production
• 1965 : Company begins to face financial stress 
• 1977 : Govt takes over managerial control
• 1980 : Bengal Chemicals nationalised 
• 1981 : Changes name to Bengal Chemicals & Pharmaceutical
• 1992 : Company referred to BIFR
• 2006 : BIFR comes up with a package to revive the company
• 2014 : Bengal Chemicals & Pharmaceutical starts giving initial indications of staging a comeback
• 2015 : Centre indicates to encash land holdings of sick pharmaceutical firms 
• 2016 : Govt decides to offload stakes in Bengal Chemical & Pharmaceutical