DIRECTORS' REPORT To the Members of HINDUSTAN ORGANIC CHEMICALS LIMITED Dear Shareholders Your Directors are pleased to present the 54th Annual Report and the Audited Annual Accounts of the Company for the financial year ended 31st March, 2015. 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 Held on 22-07-2015 before the Bench, BIFR declared the Company as Sick under Section 3(1)(o) of the Act and appointed State Bank of India as the Operating Agency with directions to prepare a viability study report and revival scheme for the Company, if feasible, keeping in view the provisions of Section 18 of the Act and the guidelines given. BIFR also directed the Company to submit the Draft Rehabilitation Proposal (DRP) with in period of 8 weeks considering the Cut Off Date(COD) as 31-3-2015. BIFR directions also include among other directions, that OA to submit its report thereof before the next date of the hearing (on 4-11-2015) and to examine the DRP on its receipt from the Company etc., [Previous year, as on 31st March, 2015, we have already reported the fact of HOCL as a Sick Unit to BIFR and the company has been registered as a sick company vide BIFR Order No. Case No.501/2014 dated 30.9.2014]. RESULTS OF OPERATIONS : During the year under review the Company has suffered Net loss of Rs. 215.49 crore, as against the Net Loss of the previous year of Rs. 176.85 crore . As regards the unit wise performance, the Net Loss of Kochi Unit was Rs.72.58 crore as compared to the previous year's Loss of Rs.69.15 crore. The Rasayani Unit recorded a Net Loss of Rs. 142.90 crore as compared with the previous year's loss of Rs. 107.70 crore. OPERATIONS : During the year under report your company achieved a sales turnover of Rs. 16709.40 lacs as against Rs.23679.73 lacs of the previous year. The high labour cost and high incidence of cost on closed plants at Rasayani Unit are the major concerns. Company decided to operate those plants, which were giving contribution. Your company has continued its cost cutting measures to counter these problems and in order to be competitive and improve performance and profitability. Due to cash losses, the Company was not able to make payments to raw material suppliers of both the units which resulted in stoppage of raw material supplies and therefore the operations were affected. The Company could however successfully mobilise Rs.150 crore by issuing Redeemable, Non-convertible Unsecured Bonds with the Sovereign Guarantee issued by the Government of India in the month of September 2014 to clear the dues to raw material suppliers and other working capital payments. The company could once again restart the production at Kochi with BPCL resuming the raw material supplies. PRODUCTION : Kochi Unit: During the year your company's Kochi unit could achieve 46476 MTs of production as against the previous year production of 51253 MTs. The capacity utilization for the year was 29.40 % [Installed capacity-158090] Rasayani Unit: During the year your company's Rasayani unit could achieve 1227 MTs of production as against the previous year production of 2564 MTs. The capacity utilization for the year was 0.88 %. Capacity utilization is affected due to high fixed cost & finance constrains. [Installed Capacity- 138725] MARKETING : The chemical market for various basic chemicals are volatile in the domestic market and in the international market.. There is stiff competition for HOC main products from domestic manufacturers as well importers. During the year 2014-15, the company has achieved the sales turnover of Rs. 150.13 crore ( net of excise duty) only as against Rs. 211.16 crores (net of excise duty) of the previous year(2013-14) and the sales volume during the year 2014-15 was 26474 MTs as against 32184 MTs for the previous year 2013-14. The projected Sale Turnover & Sale Volume could not be achieved, because of shortage of working capital, easy availability of imported material at cheaper rate, increased price for major raw materials and less margin in selling prices. Even though the company could clear the raw material supplier's dues in the month of October 2014 and restart the operation of Plant at Kochi, due to drastic fall in international crude prices which resulted in sharp decline in the finished product prices as well as main raw material prices, company recovered only contribution on selling of high cost material. This has resulted the stoppage of Kochi Unit operations. This has resulted the loss on the value of inventory holdings as the stock had to be disposed of at market prices. CURRENT / PRESENT SCENARIO. The Kochi unit of the Company which was making profits continuously, year after year up to 2011-12 , but during the current year under review, for the third time (in the span of 10 years), the Kochi Unit has incurred a loss to the tune of Rs.72.58 Crores (during the current year). The main reason for the loss suffered by the unit was due to shortage of working capital and withdrawal of Anti-Dumping Duty on the Phenol and Acetone manufactured at Kochi unit, resulting in large scale import of /dumping of those imported products and forcing the company to reduce the prices to match the imported price of Phenol and Acetone. The company has filed review petition & fresh application for Anti-Dumping Duty to the concerned Authority, which will help to improve and better realisation. Due to the pursuance of the Company and also due to change in international scenario, anti-dumping duty has been imposed by GOI. STATUS OF FUTURE PLANS & TURNAROUND / REVIVAL PLAN Future Course of Action / Revival Plan: The Company is declared as sick unit by BIFR in Company's reference and registration with BIFR under Case No. 501/2014. due to 100% erosion of its net worth. Further, apart from BIFR appointing SBI as Operating Agency with directions to submit the revival plan , the appointed new Consultant M/s. J P S Associates (P) Ltd., have prepared the revival plan and submitted their report to the Board which is under consideration. HOCL Plans to replace the catalyst of Cumene plant from SPA to Zeolite which will bring down the cost of production. ENERGY CONSERVATION/TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Installed energy efficient H T motor of Siemens in place of old, rewound NGEF makes motor of the same capacity in H2O2 plant. Energy saved due to this modification is 18KW. Future Plans: Installation of online BOD, COD & TSS analyser in treated effluent discharge line and transmission of these data to Kerala State Pollution Control Board / Central Pollution Control Board server. Information in accordance with the provisions required to be disclosed under Section 217(2)(e) of the Companies Act, 1956 read with the Companies (Disclosures of particulars in the Report of Board of Directors) Rules, 1988, regarding conservation of energy, Technology Absorption and Foreign Exchange Earning and outgo, are given at Annexure II to this Report. RESEARCH & DEVELOPMENT After initial trial runs on pilot scale the 'In-house' developed vapour phase continuous process for ISRO's specific grade of Kerosene (Isrosene) was fine tuned. A model developed on laboratory scale was also verified on pilot plant scale. Regular runs with optimized parameters in 'scaled down version' of HOC's commercial plant were successfully completed. The product quality from these runs has been re-affirmed and the capacity of the plant has also been established, based on these runs. The technology is now ready for implementation in HOC's available commercial plant. In this regard meeting with ISRO was held. The detailed proposal was sent to ISRO. Company's further contribution in IPR field is maintained and grant of three nos. of Indian patents has been obtained during this year. HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS: The Company has recognized the importance of Human Resource since its inception. The Company continues to recognize that human asset is very much valuable for the continual improvements in the performance of the Company, particularly in the context of competition all around. Since it is very vital resource, Company is upgrading the skills of their employees by systematically identifying training need of employees. The position relating to SC/ST/Women personnel in the Company is given in Annexure - III to the Directors' Report. II. Training: During the Financial Year 2014-15 at Kochi Unit, training was imparted to employees based on operational requirement/needs identifications with the allocated resources to enhance Soft Skills, Technical and Managerial Skills. Due importance was given and constant efforts were made to impart Health, Safety and Environment aspects considering the nature of hazards in our Unit. During the year under review, company has organized training programmes both Internal/External covering 505 mandays with the help of Internal/External Experts. Specific user training in functional module of ERP was also imparted to the employees so as to make the SAP system more users friendly. Regular refresher course in Safety and Environmental Management were organized. Apart from employees training our Company has extended the facilities and resources to students coming from different Engineering Colleges, Management Institutions to enhance their practical knowledge/for experiential learning. Company also engages Graduate/Technical/Trade/Vocational Apprentices to undergo Apprenticeship Training in different discipline under the Apprentices Act 1961. III. Industrial Relations : Industrial Relation climate in HOC Kochi Unit during the year 2014-15 was satisfactory. IV. Suggestion Scheme: The Suggestion Scheme is in existence in HOCL, Kochi Unit. All employees and Company Trainees are eligible to participate in this scheme. The Suggestions received from the employees are evaluated by a Suggestion Committee and the selected suggestions are awarded with Cash Prizes ranging from Rs.100/- to Rs.5000/-. PARTICULARS OF EMPLOYEES - INFORMATION REQUIRED UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 . No employee of the Company has drawn the remuneration during the year 2014-15 or any part thereof, in excess of the limits specified under the Company's (Particulars of Employees) Rules 1975. Accordingly particulars of employees' remuneration prescribed u/sec 217 (2A) of the Companies Act, 1956 are not furnished. VIGILANCE The Vigilance Department, headed by Chief Vigilance Officer, appointed by Government of India on deputation, has three main functional officers, one each at Rasayani (Raigad) in Maharashtra, and at Ambalamugal (Kochi) in Kerala and third at Corporate office, CBD Belapur, Navi Mumbai. Keeping in view of the Principles of Corporate Governance, the main focus of the Vigilance Department has been to help the sincere, dedicated and honest personnel working in the Organization to discharge their duties effectively and efficiently so that the target of optimum turnover and profitability are achieved in a transparent manner. More emphasis is given in improving the functioning of all sections and maintaining transparency. The Vigilance department takes appropriate and timely action in respect of complaints received. There is a comprehensive complaint handling policy and prescribed punitive action is duly suggested, after conducting fair and impartial investigation/enquiry, where ever required. The Annual Property Returns of the officers are periodically scrutinized and inspection of departmental activities are undertaken to detect deviations, if any, and suggest corrective measures. Vigilance Awareness Programmes, as per guidelines issued by the CVC, are observed and awareness sessions are conducted for the personnel regarding vigilance related matters as well as in respect of CDA Rules, RTI Act, PIDPI (Whistle Blowers Act) etc. The vigilance department has been instrumental in updating the existing manuals and policies i.e. the Purchase Policy, the Works Policy, the Marketing Manual, the Vigilance manual etc., so that the laid down procedures, policies, rules, regulations etc., of the Company and that of Central Vigilance Commission are duly followed. The Vigilance Department maintains close interaction with CVC, CBI and other Government agencies. The Vigilance wing has been sincerely and consistently helping all personnel of the Organization in improving their efficiency and effectiveness and, in turn, achieving the set goals of the Organization. CORPORATE SOCIAL RESPONSIBILITY Company right from its inception is conscious about its social responsibilities. To fulfill this, Company has provided basic civic amenities to the neighboring villages, rendering assistance to the neighborhood in different forms viz. financial assistance, drinking water supply, medicines etc. To promote School Education, Company is giving scholarship to X and XII standard students. Company extends need based assistance to the deserving SC/ST students in the nearby villages for their graduate education. Company also extends vocational training facilities to the wards of employees in nearby Engineering/ Management Colleges for enhancing their practical knowledge. Company also engages ICWA Trainees, CS Trainees and Vocational Trainees, as a part of their curriculum for imparting practical training. HEALTH, ENVIRONMENT, FIRE & SAFETY Health : • Physical Check-up, the Special Certificate of Fitness in Form No. 23 and ascertaining Health Status in Form No. 7 of all employees have been carried out by the Certifying Surgeon for the year 2013. • Periodic Medical Check-up and regular monitoring of health records of all employees was done. Various health awareness training programmes were carried out by specialist doctors for the benefit of employees. Environment: • Our Laboratory has participated in the Proficiency Testing conducted by CPCB for the laboratories recognized under E.P. Act and other laboratories. • To ascertain that the level of pollutants are maintained within acceptable limits, ambient air quality monitoring, Stack emissions, Noise monitoring, workplace monitoring & analysis of inorganic and organic chemicals is being carried out a various locations in plants and in other locations. • Testing of Flammable gases for issue of hot permit under safety policy especially for plants held for disposal under idle assets #1. Security System : Kochi Unit of HOCL has been classified as 'MAJOR ACCIDENT HAZARD INSTALLATION' by the Govt. of Kerala. The security requirements are met from the agencies sponsored by the Director General (re-settlement), Ministry of Defense, Govt. of India. Security Guards are posted in the identified areas inside the Factory premises and also in Township round the clock. At present the strength of the security personnel is as under: Security Officer : 01; Security Supervisor : 03; Security Guards: 65 In view of the increased threat perception in Kochi, the Unit has been advised to take suitable measures for upgrading the security by the concerned authorities. Action is being taken to install CCTV Surveillance system. IMPLEMENTATION OF OFFICIAL LANGUAGE POLICY . During the year under report, your Company continued its intensive and extensive efforts for progressive use of the official language. To promote Hindi as official language is day to day working in line with the Government policies. In Compliance with Section 3(3) of the Official Language Act, 1963 and Official Language Rules 1976 framed there under, Company has implemented various measures effectively given in annual program during the year under review. All documents coming under Section 3(3) like Resolutions, General Orders, Rules, Notifications, Reports Press Communiques, Contracts, Agreements, Licenses Permits, Tender Notices, Forms of Tender, Reports/ Papers submitted to the Parliament & Company letters like Part-I Orders, Part-II Orders, Circulars, transfer etc. were issued bilingually. The all Hindi Letters received are being replied in Hindi to comply with Rule 5 of Official Language Rule 1976. All name plates, sign-boards, visiting cards, Demi Official letter heads etc. are prepared in bilingual form. Our Company participated in all the programs organized by Mumbai town Official Language Implementation Committee. Hindi Workshops were conducted in every quarter to impart training in the working knowledge of Hindi to Officers as well as employees. The Official Language implementation Committee Meetings were held at both the Units to review the progressive use of Hindi for the Official purpose. Hindi Fortnight was organized at both Rasayani and Kochi Units and in the Corporate Office. During this period various competitions were organized & large number of Employees participated in this competitions. The other activities of the Company which was organized through the medium of Official Language was Vigilance Week, Security Week and Environment Day during the year. For the progressive use of Information Technology through medium of Hindi all the Computers are being loaded with Unicode. Kochi Unit received Second prize for the best implementation of Official Language from Kochi Town Official Language Implementation Committee. - Web site of the Company is prepared to Hindi also www.hocl.hindi.gov.in - To improve the Hindi word power of the employees, every day one bilingual word being exhibited in the presto Board kept in the reception and the list of the same is being circulated in the end of the month. - To comply with the Official Language Policy of the Government, Workshops on Official Language are regularly conducted for the employees who possesses working knowledge in Hindi so as to encourage them to use Hindi in their day to day office work. 7 Workshops were conducted during the period under the report. - Out of the total amount spent for purchase of books for library, nearly 50% of the amount was spent for the purchase of Hindi Books. Hindi Newspaper and magazines are also subscribed in the Unit. - The Official Language implementation Committee has been constituted for review of the OL implementation work in the Unit and the OLIC meets regularly. Every year effort are made to fulfill the targets set in the Annual program issued by Department of Official Language Ministry of Home Affairs. ISO CERTIFICATION : HOCL Kochi unit is an ISO 9001: 2008 (Quality Management System) and ISO 14001: 2004 (Environmental Management System) certified company. The existing certificate for ISO 9001 & ISO 14001 is valid up to 2014. BVCI Conducted routine surveillance audit periodically for both the systems. INSURANCE All properties and insurable interest of the Company including building, plant and machinery and goods are adequately insured. As required under Public liability Insurance Act, 1991 the company has taken necessary insurance cover. FIXED DEPOSITS With regard to Fixed Deposits, nothing is outstanding towards FDR for the Financial Year 2014-15. DEPOSITORY SYSTEM As the members are aware your company's shares are tradable compulsorily in electronic form and your Company has established connectivity with both the depositories i.e. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). In view of the enormous advantages offered by the Depository system, Members are requested to avail the facility of dematerialisation of the Company's shares on either of the depositories as aforesaid. E-Voting facilities are available at the depositories and in respect of 54th AGM, Company has provided the e-voting facilities for the Shareholders of the Company at CDSL MANAGEMENT DISCUSSION AND ANALYSIS REPORT. In accordance with the listing agreement, the Management Discussion and Analysis Report is annexed hereto in Annexure V and forms part of the Directors' Report. CORPORATE GOVERNANCE The Company has complied with the various requirements of Corporate Governance. The details in this regard form part of this report in Annexure VI. RESPONSIBILITY STATEMENT The Directors confirm: a) that in the preparation of the annual accounts, the applicable accounting standards have been followed and that no material departures have been made from the same; b) that they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the company for that period; c) that they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the New Companies Act, 2013 & Companies Act, 1956, for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; d) that they have prepared the annual accounts on a going concern basis. Subsidiary Companies : HINDUSTAN FLUOROCARBONS LIMITED [HFL] : (Subsidiary) . OPERATION AND OVERALL PRODUCTION AND MARKETING PERFORMANCE: During the year, HFL has made Net loss of Rs.377.46 lacs from operations as against the net loss of Rs. 2482.47 lacs of the previous year. During the year, the sales turnover (net) was Rs.2915.07 lacs as against Rs.2788.92 lacs in the previous year. This is mainly due to employee benefits against wage revision, Decrease in sales realization of main product PTFE and discontinuation of CDM Project in international market. During the year under report production of PTFE was 107 Metric Tons as against 184 Metric Tons in the previous year. During the year, 726.58 Metric Tons of CFM-22 was sold in the market against 555.17 Metric Tons in the previous year and balance quantity was used as feed stock to manufacture various products including Fluoro Specialty Chemicals. Accordingly, during the year 45.80 Metric Tons of Tetra Fluoro Etylene (TFE) was used to manufacture Telomere. Quality of all company's products continued to be well accepted by our customers. Company has achieved 88% capacity utilization as against 86% in the previous financial year. In spite of better physical performance, financial performance was badly affected due to the reasons mentioned above. Considering the Company's financial health, during the year on the recommendations of the BODs, though your Company has put up its proposals to (its Subsidiary,) HFL, demanding for the repayment of part of secured loan amount fallen due for payment (to HOCL) out of the proceeds of land sale (HFL Land sold to CIEPET), HFL had expressed its inability to repay to HOCL amount overdue stating that the funds not available due to Capex Programme. CLEAN DEVELOPMENT MECHANISM (CDM) PROJECT: In absence of buyers from European Union, CER prices was drastically come down, hence company is not generating CERs. HOC CHEMATUR LTD. [Subsidiary JV)- Abandoned Project : The subsidiary Co. HOC Chematur Ltd. existing only on records as it was incorporated as a Public Ltd. Co. under the Companies ACT and is subject to audit both by the statutory auditors appointed by the C&AG, and by the Govt. Audit, The statement of Profit & Loss is approved and audited as prescribed under the provisions of Companies Act, 2013 and are e-filed to the MCA/ROA authorities. The Statement Pursuant to Sec. 129(3) of the Companies Act, 1956 is given in Annexure I & Annexure IA in respect of HOC Chematur Ltd. Form AOC-I Pursuant to first proviso to sub-section (3) of section 129 read with rule 5 of Companies (Accounts) Rules, 2014 , Form AOC-I is given in Annexure IB AUDITORS In terms of provisions of Section 619(2) of the Companies Act,1956, the Comptroller & Auditor General of India, under its letter No.CA. V/COY/CENTRAL GOVT,HOCL(2)/225 dated 30/7/2014 has appointed M/s FORD RHODES PARKS & CO, Chartered Accountants, Mumbai as Auditors of the Company to audit the accounts of the Rasayani unit and to audit the consolidated accounts of the company. Vide CAG under its letter No.CA. V/COY/CENTRAL GOVT. HOCL (2)/225 dated 30/7/2014 has appointed M/s AYYAR & CHERIAN Chartered Accountants, Cochin as Branch Auditors to audit the accounts of Cochin unit for the year ended 31st March, 2015. The remarks of the Board of Directors on the Auditors' Report to the members are furnished in Annexure IV. The report of the Comptroller & Auditor General of India under section 619(4) of the Companies Act, 1956, on the Accounts of the Company for 2013-14 is annexed to the Statutory Auditors' Report in the Annual Report. Pursuant to directions from the Ministry of Company Affairs for appointment of Cost Auditors, Board of Directors of the company appointed M/s V.J.Talati & Co. as the Cost Auditors of Rasayani Unit and also as Lead Auditors for the Year 2014-2015 for cost audit of Company's Sulphuric Acid, Aniline, Formaldehyde, Caustic Soda, Nitro Benzene products (of Rasayani unit) and M/s Panikar & Company as Cost Auditors of Kochi Unit for the year 2014-15 for Kochi Unit products viz. Phenol, Acetone & Polypropylene products. DIRECTORS During the Financial Year 2014-15, GOI has appointed also Shri. Rajiv Yadav, Additional Secretary & Financial Advisor in the Ministry of Chemicals & Fertilizers as part-time Government Nominee Director in place of Dr. V.K. Subburaj, SS&FA, on the Board of HOCL, vide GOI Order No. 51/11/95-Ch-III-(Vol.II) dated 23rd June, 2014. During the year 2015, in the month of May, 2015 (21-5-2015, the tenure of one Independent Director, Dr. N.J. Gaikwad from Nagpur, ( Non official part time Director on the Board of HOCL ) on the Board of the Company was ended on 21st May, 2015. In terms of Article 76(4) of the Articles of the Association of the Company, as on date of this Report ( 11-8-2015) the Government Nominee Directors, viz. Shri Rajiv Yadav, Special Secretary & Financial Advisor and Dr. A.J.V.Prasad, Joint Secretary, will retire at this 54th AGM in 2015 and are eligible for reappointment. Company is awaiting the necessary orders of the Government regarding reappointment of the said two Govt. Nominee Directors. ACKNOWLEDGMENT Your Directors gratefully acknowledge the valuable guidance, support and directions given by the Government of India. Your Directors also gratefully acknowledge the support and co-operation extended by the State Governments, by the valued and esteemed customers, shareholders, suppliers, bankers, Statutory/Internal/Cost and Tax Auditors, Bondholders, and Investors at large. Your Directors place on record their appreciation for the whole hearted efforts and contribution from all the employees and also acknowledge the support and co-operation of the entire Workers' Unions and Employees' Unions and their members for the smooth functioning of the Company's operations. For and on behalf of the Board of Directors of Hindustan Organic Chemicals Limited Sd/- V.B. Ramachandran Nair Chairman & Managing Director Place : Mumbai Date 11 / 08 / 2015 |