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Hindustan Organic Chemicals Ltd.

BSE: 500449 Sector: Industrials
NSE: HOCL ISIN Code: INE048A01011
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NSE 05:30 | 01 Jan Hindustan Organic Chemicals Ltd
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VOLUME 37603
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OPEN 17.00
CLOSE 17.55
VOLUME 37603
52-Week high 40.30
52-Week low 10.70
P/E
Mkt Cap.(Rs cr) 110
Buy Price 16.00
Buy Qty 352.00
Sell Price 16.38
Sell Qty 123.00

Hindustan Organic Chemicals Ltd. (HOCL) - Director Report

Company director report

The Board of Directors presents herewith the 57th Annual Report of yourCompany along with the Auditors statement of Accounts for the financial year 2017-18.

A. FINANCIAL RESULTS

The financial results for the year ended 31.03.2018 with the comparative figures ofCompany's operations for the previous year is as under:

Particulars 2017-18 2016-17
Revenue from operations 24232.94 14330.51
Other Income 6630.47 627.59
Total 30863.41 14958.10
Expenditure 50129.82 39255.36
Profit before Depreciation & Tax -19266.41 -24297.26
Less Depreciation 680.54 1260.20
Profit /(Loss) before Exceptional Items and Tax -19946.95 -25557.46
Less : Exceptional Items - -
Less : Provision of Tax (1) Current Tax - -
(2) Deferred Tax - -
Profit/(Loss) for the Period -19946.95 -25557.46
Other Comprehensive Income :
(i). Items that will not be classified to Profit or Loss 12478.07 -
a). Revaluation of Plant Property & Equipment's Less : (2793.25)
Deferred Tax Assets 873.02 357.33
b). Changes in defined benefit plan
Other Comprehensive Income for the year Net of Tax 10557.84 357.33
Total Other Comprehensive Income for the year (9389.11) (25200.13)

B. DIVIDEND

In view of the continuous losses during the current year as well as in the previousyears the Board of Directors do not recommend any Dividend for the current year underreview.

C. CHANGE IN NATURE OF BUSINESS IF ANY

As per the approval of Government of India the operation of the all the plants atRasayani Unit (except C NA / N204 plant along with the manpower transferred to ISRO) hasbeen closed. In Kochi Unit two plants (Phenol and Hydrogen plant) is operational.

Further Government has approved sale of 442 acre of land at Rasayani to BPCL for '618.80 crore. Out of the 442 acre sale of 251 acre has been completed for which an amountof ' 351.40 crore has been received from BPCL and in addition a bridge loan of ' 360.26crore has been received from GoI which has been utilized to clear liabilities partiallyand for implementation of VRS to the employees of the Rasayani unit of the company.

D. FINANCIAL HIGHLIGHTS

During the year 2017-18 the Company registered an impressive growth of 106 %under Revenue .The Gross income of the Company stood at ' 308.63 crore as against ' 149.58crore achieved during the previous year. The Loss before Tax for the year 2017-18 was - '199.47 crore as against - ' 255.57 crore incurred during the corresponding period of lastyear.

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:

29th May 2017 19th July 2017 26th July 2017 12thSeptember 2017 11th December 2017 9th February 2018 and 16thMarch 2018.

OTHER DETAILS ARE FURNISHED IN THE Corporate Governance Report in Annexure VI to thisReport.

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

HOCL being CPSU governed by the DPE Guidelines the Annual Evaluation of Performance ofBoard its committees and of individual Directors have been carried out by theAdministrative Ministry (DCPC).

G. However as the appointment of adequate number (2/3) of independent directors onCompany's Board was taken place only during Feb. 2017 resulting in reconstitution of theBoard committee/s only in March 2017 (and thereafter) Board Committees' evaluationduring the year did not arise.

H. DETAILS OF DIRECTORS AND/OR KMP'S WHO HAVE BEEN APPOINTED OR RESIGNED DURING THEYEAR

None

I. COMPOSITION OF AC AND NON ACCEPTANCE OF ANY RECOMMENDATIONS OF AC

(only for public and listed companies)

The Audit Committee has been reconstituted during the year; - No such cases.

J. 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 2018;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 2018 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 2018 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.

K. INDEPENDENT DIRECTORS DECLARATION - submitted on appointment.

L. DISCLOSURE ON REAPPOINTMENT OF INDEPENDENT DIRECTORS -not applicable.

M. COMPANIES POLICY ON DIRECTOR'S APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FORDETERMINING 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 anddirectors of the DC&PC; the prescribed DPE Guidelines are being followed. The Termsand Conditions of appointment of Independent and other directors as disclosed in theCompany's website are given in Annexure to this Report.

N. 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 directors of theDC&PC the prescribed DPE Guidelines are being followed in respect of employee'sremunerations and DPE Guidelines as well as CVC Guidelines are being followed as regardsother prescribed perquisites

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

There are 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 the cumulative investment on the Subsidiary Company Hindustan Fluorocarbonsltd. 31.3.2018 stood at ' 11.06 Crore. In addition the company has given Secure Loan of' 35.10 Crores to HFL [on the security of HFL Land] and Company has also extendedCorporate Guarantee to the working Capital loan to the subsidiary company HFL andinvestments made in HFL and HOC Chematur Ltd. during earlier years under section 186 ofthe Companies Act 2013 were shown in the financial statements.

P. PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES

- None

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

a) Name(s) of related party and nature of relationship

b) Nature of Contracts/arrangements/transactions

c) Duration of contracts/arrangements/transactions

d) Salient terms of the contracts or arrangements or transactions including theincluding the value if any

e) Justification for entering into such contracts or arrangements or transactions date(s) of approval by the Board

f) Amount paid as advances if any

g) Date on which a special resolution was passed in general meeting as required underfirst proviso to section 188

2. Details of material contracts or arrangements or transactions at arm's length basis;: - None.

(a) Name(s) of related party and nature of relationship

b) Nature of contracts/arrangements/transactions

c) Duration of contracts/arrangements/transactions

d) Salient terms of the contracts or arrangements or transactions including the valueif any:

e) Date(s) of approval by the Board if any:

f) Amount paid as advance if any:

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

There were no qualifications reservations or adverse remarks made by the Auditors intheir Audit report. The replies to the observations of the auditors are forming part ofthe Directors' Report.

The Secretarial Auditors of the company have submitted their Secretarial Audit Reportfor the year 2017-18 and management replies to the audit observations thereof are annexedto the Directors' Report and forming part of 57th Annual Report of the Company.

The observations of the auditors and notes to accounts are self - explanatory and areforming part of the Directors' Report.

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

None - In view of the accumulated losses and loss incurred during the year.

S. 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

The closure of all the non-viable plants at Rasayani Unit and transfer to the CNA/ N204plant to ISRO as per the approval of the Government of India Gol released bridge loan of' 360.26 crore and the matured Bonds have been paid off and all statutory liabilities hasbeen cleared out of the bridge loan. Further out of 442 acre of land sale approved by Gol251 acre has been registered and received ' 351.40 crore as consideration. The VRS hasbeen implemented at Rasayani and all employees except the skeletal 15 and staff retained 8have been relieved and their dues have been settled. The working capital loan availed fromSBI and Canara Bank has been repaid.

T. The details in respect of adequacy of internal financial controls with reference tothe Financial statements :

Company ensures existence of adequate internal controls through documented policy andprocedures laid down in the manuals to be followed by the executives at various levels.Internal controls are supported by periodical internal audits and management reviews. Themanagement is keen on these issues and initiated various measures such as upgrading the ITinfrastructure evaluating and implementing ERP software web based application andestablishing connectivity amongst manufacturing units and branch offices for effective andproactive services and businesses.

Board periodically reviews the internal controls audit programme financial resultsand recommendation of the replies of the management to Government Audit and internal auditetc.

U. CONSERVATION ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO

A) Conservation of energy : Nil

i. The steps taken or impact on conservation of energy : Nil

ii. The steps taken by the company for utilizing alternate sources of energy and :Nil

iii. The capital investment on energy conservation equipments : Nil

B) Technology Absorption : Nil

(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

V. STATEMENT CONCERNING DEVELOPMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICY OF THECOMPANY

Key Threats include :

• Competition from Imports and fluctuation in the input prices

• High input costs

• High utility costs

• High overheads

• Continued availability of anti-dumping support for the main products Phenol andAcetone.

• Acute working capital shortage affecting continuous operations

• High interest cost and employee remuneration.

Some risks and concerns :

• High manpower cost per ton of finished product.

• Depreciated plants requiring high maintenance cost.

• Dumping in main products Phenol / Acetone.

• Volatility in main input Benzene.

W. SUBSIDIARIES JOINT VENTURES AND ASSOCIATE COMPANIES WHICH HAVE BECOME OR CEASED TOBE:

HOC Chematur Ltd. a Joint Venture subsidiary abandoned due to non-achievement of thefinancial closure for the proposed MDI Project and Company has applied to for striking ofthe name under Early Exit scheme of MCA and ROC has approved the striking of the name ofthe Company and necessary Gazette notification is awaited.

X. DETAILS OF CSR POLICY AND ITS IMPLEMENTATION DURING THE YEAR

Company has recognized its social obligations and extends the following:

• On closure of Rasayani Unit Company's Library Books at Rasayani Unit Librarywere donated to Dr.Babasaheb Ambedkar Marathwada University Aurangabad.

• As a part of social obligation the company is extending need based assistance todeserving students along with SC/ST students for their School / Graduate education.

• Vocational training facilities to the wards of employees of the company in thenearby Engineering / Management colleges for enhancing skill / knowledge.

• Engaging professional students of ICAI / ICSI who have completed intermediatelevel as trainees for imparting practical knowledge of company working by paying stipend.

Y. DISCLOSURES PRESCRIBED IN TERMS OF SECTION 67 (only for public and listedcompanies)- N.A

Z. DEPOSITS : Nil

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

The details of significant and material orders passed by the regulators or courts ortribunals impacting the going concern status and company's operations in future: None

Under Sec.177(10) of Companies Act2013:

VIGILANCE MECHANISM:

Hindustan Organic Chemicals Limited being a Government Company a Vigilance Departmentis already existing in pursuance of CVC Guidelines. And therefore Vigilance Mechanism isbeing handled by the Vigilance Department and the Company has already adopted a VigilanceManual in pursuance of CVC Guidelines. Vigilance Manual is available on Company's Website.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

(Annexure IV to Directors' Report)

The Management of Hindustan Organic Chemicals ltd (HOCL) presents its Analysis Reportcovering the Performance and Outlook of the Company. The Report contains businessperspective and prospects based on the current environment and strategic options to steerthe Company through unforeseen and uncontrollable external factors.

The petroleum feed stock prices in India are significantly higher as compared to majorexporting countries. The capability of manufacturing units to earn a reasonable return hasbeen largely affected by global competition and tightening of parameters like rationalizedduty structure and strict quality controls. Moreover the capacity in the Indian Industryis small as compared to the competitors abroad; in effect the Indian Industry is in adisadvantageous position with regard to overhead costs.

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 ofanti-dumping duties as per WTO Guidelines.

KEY OPPORTUNITIES INCLUDE

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

Further Government has approved sale of 442 acre of land at Rasayani to BPCL for '618.80 crore. Out of the 442 acre sale of 251 acre has been completed for which an amountof ' 351.40 crore has been received from BPCL and in addition a bridge loan of ' 360.26crore has been received from GoI which has been utilized to clear liabilities partiallyand for implementation of VRS to the employees of the Rasayani unit of the company.

The sale of balance unencumbered land is being made through Land Management AgencyNBCC. The operation of the Phenol Plant at Kochi unit was restarted during the year inspite of working capital constraints by mobilizing advance payments from major customers.The plant operations have been stabilized and achieve 97 % capacityutilization during the 4th quarter of current year. KEY THREATS INCLUDE

The Company has been facing working capital shortage due to continuous loss andnon-availability of working capital finance from Banks.

Competition from imports for the main products Phenol and Acetone even thoughanti-dumping duty is in place from major importing countries.

Volatility in raw material prices due to fluctuating crude prices.

SEGMENT-WISE PERFORMANCE

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

Product

Year ended 31/03/2018

Year ended 31/3/2017

Segment Target MT Actual MT Percentage Achieved Target MT Actual MT Percentage Achieved
Chemicals 46600 37224 79.88 96000 23609 24.59

PRODUCT WISE PERFORMANCE (Production of Main Products)

Name of Product

F.Y. 2017-18

F.Y. 2016-17
Target Actual Actual
1. Nitrobenzene 0 0 710
2. Di-Nitrogen tetroxide 0 416 685
3. Phenol 24000 17191 7810
4. Acetone 14800 10609 4722
5. (H2O2) 7800 9008 9682

OUTLOOK AND INITIATIVES FOR THE CURRENT YEAR

The transfer of CNA/N204 plant along with manpower to ISRO has been completed. Sale of251 acre to BPCL out of 442 acre has been completed. VRS to all employees of Rasayani unitexcept skeletal staff and support staff of 23 has been completed. Further sale ofunencumbered 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 crudeprices.

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

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

• Sale of balance unencumbered land at Rasayani through NBCC after receipt of NOCfrom Government of Maharashtra.

• Availability of working capital from Banks for continuous operation of thePlants at Kochi.

• 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 on these issuesand initiated various measures such as upgrading IT infrastructure evaluating &implementing ERP software web based application and establishing connectivity amongstmanufacturing units and branch offices for effective & proactive services and businessbenefits.

With the objective of improving the systems and removing bottlenecks systems review iscarried out and policies and procedure manuals are amended. Kochi unit has been certifiedunder ISO- 9001:2000 standards through Bureau Veritas Certification India Pvt. Ltd. (BCI).Environment Management System (EMS) of Kochi unit has been certified under ISO-14001:2004standards through BVQI Rasayani unit has been re-certified in January' 2008 and Kochiunit has been re-certified in June'2008 under ISO-9001:2000 standards. Kochi Unit ISO9001:2008 certification is valid till 18-06-2017 . ISO 14001:2004 certification is validtill 19-11-2017.

REVIEW OF FINANCIAL PERFORMANCE :

During the year 2017-18 the Company registered an impressive growth of 169 % underRevenue .The Gross income of the Company stood at ' 242.33 crore as against '143.30 croreachieved during the previous year. The Loss before Tax for the year 2017-18 was - '199.17crore as against - ' 255.57 crore incurred during the corresponding period of last year.

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

Further Government has approved sale of 442 acre of land at Rasayani to BPCL for '618.80 crore. Out of the 442 acre sale of 251 acre has been completed for which an amountof ' 351.40 crore has been received from BPCL and in addition a bridge loan of ' 360.26crore has been received from GoI which has been utilized to clear liabilities partiallyand for implementation of VRS to the employees of the Rasayani unit of the company. Thesale of balance unencumbered land is being made through Land Management Agency NBCC.

The operation of the Phenol Plant at Kochi unit was restarted during the year in spiteof working capital constraints by mobilizing advance payments from major customers. Theplant operations have been stabilized and achieve 97 % capacity utilization during the 4thquarter of current year.

Information Technology - 2017-18

Company has effective information systems for core business areas. However company hasenvisaged a plan to meet changing demands keeping in view the technological changes andthe way information & communication technology offering innovative services suiting toevery business needs. Company has successfully rolled out SAP at their manufacturing unitat Kochi and all branch offices.

Management ensures continual effort in the ever changing technological environment forimproving and meeting with requirement like data security information availabletransparency and accuracy. Company is using open tendering / e-Tendering solution beingprovided by National Informatics Centre (NIC).

CAUTIONARY STATEMENT

Statement in this Management Discussion and Analysis describing the Company'sobjectives projections estimates and expectations may be 'forward looking statements'within the meaning of applicable laws and regulations. Actual results might differsubstantially or materially from those expressed or implied. Important developments thatcould affect the Company's operations include a downtrend in the chemical industry -global or domestic or both significant changes in political and economic environment inIndia or key markets abroad tax laws litigation manpower cost exchange ratefluctuations interest and other costs.

For and on behalf of the Board of
Hindustan Organic Chemicals Ltd.
Sd/-
Place : CBD Belapur (S.B. Bhide)
Date : 10-08-2018 Chairman & Managing Director