Herdillia Chemicals

A major local player which falls in the above category is Herdillia Chemicals (HCL). The company's 1996-97 performance was below the mark, despite a 15 per cent growth in turnover to Rs 232 crore. Net profit declined marginally to Rs 6.42 crore from Rs 6.64 crore. The situation has worsened in the first half of 1997-98. While HCL sales improved 4.99 per cent to Rs 101.15 crore, net profit was down 66.3 per cent to Rs 1.24 crore.

The company attributes the poor showing to the inadequate availability of select raw materials, reduction in import tariffs on certain commodity chemicals and poor liquidity.

 

Of these problems, falling import duties has affected its performance the most. There has been a slash in import duties -- twice between July 1996 and March 1997-- with tariff reduction ranging between 13 and 18 percentage points on certain chemicals which compete with HCL's portfolio. This has forced it to slash prices. The company's main products are phenol, acetone, cumene and pthallic anhydride. Being common commodities, only huge capacities --which HCL does not have-- can enable producers to earn adequate returns.

Sensing its shortcomings, HCL has initiated a major restructuring drive. It is planning to produce more value-added downstream products like perfumery products and drug intermediates for vitamin-E. It is also planning to hike existing phenol capacity by 25 per cent through debottlenecking. To counter the constraint of raw material availability, HCL is planning a backward integration into cumene to support the new unit. In addition, it is planning to integrate forward into the manufacture of bisphenol-A with a capacity of 30,000-40,000tpa.

Also on the anvil is a Rs 750-crore phenol unit which will have a one lakh tpa phenol capacity. The high cost of funding has blunted the competitive edge of local players. To tackle this, HCL is planning to tie up with foreign partners to finance the new phenol unit.