The Hindu Business Line : When `red tape' helped Chemplast shareholders

At the current prices of PVC, 170,000 tonnes of resin translates to about Rs 850 crore — additional turnover to the company. Since the project would take two years to complete, Chemplast is expected to become a Rs 2,000-crore company by 2008-09.

Chennai , Jan. 23

SHAREHOLDERS of Chemplast Sanmar Ltd perhaps owe a word of thanks to the bureaucratic red tape.

If events had proceeded as planned, then a Chemplast-promoted 170,000 tonnes-a-year project would have been in a joint venture subsidiary, with a clutch of domestic and foreign financial institutions as co-promoters. The proposal was to form a special purpose vehicle for the project, with IFC, Washington, DEG of Germany and IDBI.

Chemplast would at best have got dividend income from the subsidiary and shareholders' share of it, if any at all, would have depended upon the dividend policy of the Chemplast management.

But strung by the red tape, various approvals for the project delayed it a good three years. In the meantime, Chemplast's internal generation got better thanks to good PVC and caustic soda business.

The Rs 25-crore the company received for phasing out chloro fluro carbons and the Rs 40-crore that it would receive for phasing out carbon tetra chloride under the Montreal Protocol, also strengthened the company's ability to spend on its own. Therefore, when the final bureaucratic hurdle was crossed in December 2005, the company decided to put up the project on its own, at an investment of Rs 450 crore — as part of Chemplast.

Debt-equity mix is being worked out as part of working towards financial closure, but Chemplast's Managing Director, Mr P.S. Jayaraman, expects the company to borrow about Rs 250 crore. He also sees no need to raise equity capital from the market.

Meanwhile, Chemplast is mulling converting its furnace oil fired 40-MW captive power plant into a coal-fired plant. The rising cost of furnace oil bore will cost the company Rs 25 crore more in 2005-06.

In the quarter ended December 2005, Chemplast achieved a turnover of Rs 158 crore compared with Rs 147 crore in the same period last year. Net profit was Rs 7.67 crore against Rs 7.55 crore previously. Net profit for the nine-month period at Rs 29 crore exceeded the Rs 25 crore achieved in the full year 2004-05. Chemplast's project for raising the capacity of its caustic soda plant is nearing completion. By March, the plant's capacity will have increased to 160 tonnes a day, against 110 tonnes now.