GICS Industry: Chemicals l Sub Industry: Specialty Chemicals l Website: www.hocl.gov.

in

Hindustan Organic Chemicals Ltd

Key Stock Indicators

NSE Ticker: HOCL CMP (as on 25 Apr 2011Rs/share): 39.9 Shares outstanding (mn): 67.2
Bloomberg Ticker: HOC: IN 52-week range up to 25 Apr 2011 (Rs) (H/L): 63.30/29.40 Free Float (%): 41.2
Face value / Share: 10.0 Market Cap as on 25 Apr 2011 (Rs mn): 2,680 Average daily volumes (12 months): 247,480
Div. Yield (%): 0.00 Enterprise Value as on 25 Apr 2011 (Rs mn): 7,403 Beta (2 year): 1.4
Div. Yield (%): 0.0

Hindustan Organic Chemicals Limited (HOCL) was set up by the Government of India in 1960. The
company manufactures phenol, acetone, nitrobenzene, aniline, nitrotoluenes, chlorobenzenes, etc. Key Financial Indicators
HOCL provides basic organic chemicals for industries such as resins and laminates, dyes and dyes Mar-08 Mar-09 Mar-10
intermediates, drugs and pharmaceuticals, rubber chemicals, paints, pesticides and others. It has
two manufacturing units at Rasayani in Raigad district (Maharashtra) and at Kochi (Kerala). Its Revenue (Rs mn) 5,883.1 5,939.9 4,888.1
corporate office is located at Mumbai and registered office is located at Rasayani. EBITDA ma rgins (%) 9.3 2.7 -8.0
PAT (Rs mn) 131.9 -277.7 -830.8
KEY HIGHLIGHTS PAT ma rgins (%) 2.2 -4.7 -17.0
Rasayani unit turnaround plan Gea ring (x) n.m n.m n.m
The high labour cost and high cost of closed plants at Rasayani unit are a major concern for the EPS (Rs /s ha re) 2.0 -4.1 -12.3
company. To improve performance and profitability of the Rasayani unit, HOCL has signed a gas PE (x) 19.6 n.m n.m
transmission agreement with GAIL India. With this, the company plans to change its feed stock of
P/BV (x) n.m n.m n.m
hydrogen from naphtha to natural gas, and use the gas for firing its boilers in place of furnace oil.
Further, post the availability of natural gas, the company plans to put up a captive power plant RoCE (%) 9.6 n.m n.m
based on natural gas to economise on power costs. The company has appointed SBI Capital RoE (%) 43.3 - -
Markets Ltd to study and submit recommendations for arresting the trend of losses at the Rasayani EV/EBITDA (x) 11.5 34.1 n.m
unit. n.m. : Not meaningful

Subsidiary seeking carbon credits

HOCLs subsidiary Hindustan Fluorocarbons Ltd (HFL) is implementing a clean development Shareholding (As on March 31, 2011)
mechanism project, under which it expects to generate substantial revenue earning through sale of
carbon credits. The project has been registered, and the company has started storing of R23, a Others
refrigerant gas for this purpose. 41%

Plans to improve energy efficiency

HOCL is exploring areas to install variable frequency drives at the Kochi and Rasayani units to save
on electrical power. The company also plans to optimise the steam distribution network at
Rasayani to reduce distribution losses. It has proposed a 16 MW captive power plant at Rasayani to
reduce power and steam cost and replacement of an existing oil boiler with a high efficiency boiler.

KEY RISKS
Availability of cheaper, imported chemicals
Promoter
Volatile feed stock prices i.e. benzene, toluene, naphtha, LPG, etc 59%

The manpower cost per tonne of finished product remains high

Indexed price chart
Old, depreciated plants require high maintenance
(index) ('000)
180 5000
Stock Performances vis--vis market 160
140 4000
Returns (%) 120
100 3000
YTD 1-m 3-m 12-m 80 2000
60
HOCL 6 19 3 6 40 1000
20
NIFTY 11 4 3 10 0 0
Apr-10

Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10

Feb-11
Jan-11
May-10

Mar-11

Note:
1) YTD returns are since Apr 01, 2010 to Apr 25, 2011.
2) 1-m, 3-m and 12-m returns are up to Apr 25, 2011 Volumes (RHS) HOCL NIFTY

CRISIL COMPANY REPORT | 1

 Hindustan Organic Chemicals Ltd
BACKGROUND

HOCL was incorporated in 1960 by the Government of India. The company is engaged in manufacture and sale of chemicals. It provides basic organic chemicals essential for
vital industries such as resins and laminates, dyes and dyes intermediates, drugs and pharmaceuticals, rubber chemicals, paints, pesticides and others. The main products
manufactured by the company are phenol, acetone, nitrobenzene, aniline, nitrotoluenes, suphuric acid, chlorobenzenes, formaldehyde and nitrochlorobenzenes. It also
produces polytetrafluoroethylene (PTFE), a versatile engineering plastic, through its Hyderabad-based subsidiary Hindustan Fluorocarbons Ltd.

The raw materials used by the company are benzene, toluene, LPG, methanol, naphtha and sulphur, majority of which come from petroleum refineries. In FY10, the
company produced 221,249 tonnes of chemicals and 85.88 tonnes of PTFE through its subsidiary. HOCL has two manufacturing units at Rasayani in Raigad district of
Maharashtra and at Kochi in Kerala. In FY10, the Kochi unit produced 137,730 tonnes of main products, against 164,436 tonnes in FY09. Capacity utilisation at Kochi was
90% in FY10. The Rasayani unit achieved production of 83,519 tonnes of main products, against 80,756 tonnes in FY09. Capacity utilisation at the Rasayani unit was 33%.

COMPETITIVE POSITION

Peer Comparison
Manali
Hindustan Organic XPRO India Petrochemical Chemplast
Chemicals Ltd. Ltd Ltd. Sanmar Ltd.
Mar-10 Mar-10 Mar-10 Mar-10
Revenue (Rs mn) 4,888.1 2,211.4 3,896.2 9,254.7
EBITDA ma rgins (%) -8.0 9.7 8.3 1.6
PAT (Rs mn) -830.8 25.0 210.6 -1,281.6
PAT ma rgins (%) -17.0 1.1 5.4 -13.8
Gea ring (x) n.m 0.8 0.1 5.6
EPS (Rs /s ha re) -12.3 2.3 1.2 -1.6
PE (x) n.m 26.0 12.2 n.m
P/BV (x) n.m 0.6 2.0 2.6
RoCE (%) n.m 6.4 21.1 n.m
RoE (%) - 2.4 17.5 n.m
EV/EBITDA (x) n.m 5.6 7.7 n.m
n.m: Not meaningful

FINANCIAL PROFILE Key Financial Indicators

Top line drops ~17% on lower realisations, net loss widens Units Mar-08 Mar-09 Mar-10
Revenue Rs mil li on 5,883.1 5,939.9 4,888.1
HOCL reported top line of Rs 4.88 bn in FY10, down ~17.7% over FY09s Rs 5.93 bn.
Decline was on account of poor price realisations post the global slowdown, which EBITDA ma rgins Per cent 9.3 2.7 -8.0
adversely impact revenues of the company. Also, the company could not export bulk PAT Rs mil li on 131.9 -277.7 -830.8
parcels of phenol in FY10 due to unremunerative prices of these products in the
export market. The company achieved capacity utilisation of 55% during the year. PAT ma rgi ns Per cent 2.2 -4.7 -17.0
Revenue growth Per cent 9.6 1.0 -17.7
The company reported an operating loss of Rs 389.9 mn in FY10, vis--vis an
operating profit of Rs 162.8 mn in FY09. The decline was on account of increases in EBITDA growth Per cent -13.2 n.m n.m
material cost, fuel cost and labour cost, and high incidence of cost on closed plants PAT growth Per cent n.m n.m n.m
at the Rasayani unit.
Gea ring Ti mes n.m n.m n.m
As a result of decrease in operating profit and non-operating income, and increase in RoCE Per cent 9.6 n.m n.m
amortisation cost as a percentage of sales, the companys net loss widened to Rs
830.8 mn in FY10 from Rs 277.7 mn in FY09. RoE Per cent 43.3 0.0 0.0

INDUSTRY PROFILE

Organic Chemicals / Commodity Chemicals

Organic chemicals are derived either directly or indirectly from naphtha or gas. However, some of them can also be produced from ethylene, which is obtained from
alcohol. Hence, some organic chemicals can be classified as alco-chemicals in the Indian context. CRISIL Research has identified 13 major organic chemicals, all of which
have significant market sizes and end-uses. These include methanol, orthoxylene (OX), phthalic anhydride (PAN), carbon black, linear alkyl benzene (LAB), vinyl acetate
monomer (VAM), ethylene oxide (EO), phenol or acetone, acetic acid, aniline, acetic anhydride and maleic anhydride (MAN). Naphtha, benzene and ethylene, the main
feedstock, are derived from crude oil. Prices of most organic chemicals plummeted sharply in 2009-10 with the steep fall in feedstock prices. The margins of players in the
organic chemicals industry are sensitive to raw material costs, as it constitutes nearly 65-70 per cent of the total cost. In 2009-10, margins of organic chemical producers
increased on account of a sharper decrease in feedstock prices as compared to product prices.

CRISIL COMPANY REPORT | 2

Hindustan Organic Chemicals Ltd
ANNUAL RESULTS

Income Statement Balance sheet

(Rs million ) Mar-08 Mar-09 Mar-10 (Rs million ) Mar-08 Mar-09 Mar-10
Net Sales 5,744.8 5,462.5 4,769.8 Equity share capital 672.7 672.7 672.7
Operating Income 5,883.1 5,939.9 4,888.1 Reserves and surplus -1,650.2 -1,905.0 -2,737.1
Tangible net worth -977.5 -1,232.3 -2,064.4
EBITDA 546.2 162.8 -389.9 Deferred tax liablity:|asset| 0.0 0.0 0.0
EBITDA Margin 9.3 2.7 -8.0 Long-term debt 3,102.8 3,079.0 4,042.3
Short-term-debt 1,219.4 1,692.8 969.9
Depreciation 262.3 268.0 265.2 Total debt 4,322.3 4,771.8 5,012.2
Interest 194.4 248.2 232.3 Current liabilities 1,202.4 1,012.0 1,189.4
Other Income 67.9 71.2 56.3 Total provisions 365.9 421.6 515.1
Total liabilities 4,913.1 4,973.1 4,652.3
PBT 135.8 -273.7 -830.8 Gross block 6,767.0 7,027.8 7,057.9
PAT 131.9 -277.7 -830.8 Net fixed assets 2,616.4 2,467.7 2,227.0
Investments 5.0 110.6 110.6
PAT Margin 2.2 -4.7 -17.0 Current assets 2,291.7 2,394.8 2,314.7
Receivables 659.1 388.6 472.4
No. of shares (Mn No.) 67.3 67.3 67.3 Inventories 587.4 669.5 762.6
Cash 628.7 464.1 289.5
Earnings per share (EPS) 2.0 -4.1 -12.3 Total assets 4,913.1 4,973.1 4,652.3

Cash flow Ratio

(Rs million ) Mar-08 Mar-09 Mar-10 Mar-08 Mar-09 Mar-10
Pre-tax profit 157.4 -282.3 -831.1 Revenue growth (%) 9.6 1.0 -17.7
Total tax paid -3.9 -3.9 0.0 EBITDA growth(%) -13.2 -70.2 -339.5
Depreciation 262.3 268.0 265.2 PAT growth(%) -20.3 -310.4 -199.2
Change in working capital -206.0 -402.4 176.3
EBITDA margins(%) 9.3 2.7 n.m
Cash flow from operating activities 209.8 -420.6 -389.6 Tax rate (%) 2.8 n.m 0.0
Capital Expenditure -179.9 -119.3 -24.5 PAT margins (%) 2.2 n.m n.m
Investments and others 0.0 -105.6 0.0
Dividend payout (%) 0.0 0.0 0.0
Dividend per share (Rs) 0.0 0.0 0.0
Cash flow from investing activities -179.9 -224.9 -24.5 BV (Rs) n.m n.m n.m
Equity raised/(repaid) -4.2 -24.9 -19.6 Return on Equity (%) 43.3 0.0 0.0
Debt raised/(repaid) 2,405.7 449.5 240.4 Return on capital employed (%) 9.6 n.m n.m
Dividend (incl. tax) 0.0 0.0 0.0
Others (incl extraordinaries) -2,713.4 56.3 18.6 Gearing (x) n.m n.m n.m
Interest coverage (x) 2.8 0.7 n.m
Debt/EBITDA (x) 7.9 29.3 n.m
Cash flow from financing activities -311.9 480.9 239.4
Change in cash position -282.0 -164.6 -174.7 Asset turnover (x) 0.9 0.9 0.7
Opening cash 910.7 628.7 464.1 Current ratio (x) 0.8 0.7 0.7
Closing cash 628.7 464.1 289.5 Gross current assets (days) 139 125 145
n.m : Not meaningful;

QUARTERLY RESULTS

Profit and loss account

(Rs million) Dec-10 % of Dec-09 % of Sep-10 % of Dec-10 % of Dec-09 % of
No of Months 3 Revenue 3 Revenue 3 Revenue 9 Revenue 9 Revenue

Revenue 1,460.9 100.0 1,350.3 100.0 2,032.4 100.0 5,001.5 100.0 3,517.5 100.0
EBITDA 147.2 10.1 (68.4) (5.1) 310.6 15.3 595.3 11.9 (288.8) (8.2)
Interes t 48.9 3.3 55.1 4.1 55.1 2.7 158.4 3.2 177.5 5.0
Depreci a tion 60.8 4.2 67.2 5.0 65.2 3.2 192.2 3.8 201.6 5.7
PBT 37.5 2.6 (190.7) (14.1) 190.3 9.4 244.7 4.9 (667.9) (19.0)
PAT 37.4 2.6 (190.9) (14.1) 182.3 9.0 235.3 4.7 (668.1) (19.0)

CRISIL COMPANY REPORT | 3

Hindustan Organic Chemicals Ltd
FOCUS CHARTS & TABLES

Rs mn Quarterly sales & y-o-y growth Per cent Rs mn Quarterly PAT & y-o-y growth Per cent
2,500 100 300 1,000
200 500
80
2,000 100 0
60 -500
40 0
1,500 -1,000
20 -100
-1,500
1,000 -200 -2,000
0
-300 -2,500
-20
500 -400 -3,000
-40
-500 -3,500
0 -60

Jun-08
Sep-08
Dec-08

Jun-09
Sep-09
Dec-09

Jun-10
Sep-10
Dec-10
Mar-08

Mar-09

Mar-10
Jun-08
Sep-08
Dec-08

Jun-09
Sep-09
Dec-09

Jun-10
Sep-10
Dec-10
Mar-08

Mar-09

Mar-10

Sales Sales growth y-o-y (RHS) Net Profit Net profit growth y-o-y (RHS)

Rs/share EPS Per cent Movement in operating and net margins

4 40
30
2 20
10
0
0
-2 -10
-20
-4 -30
-40
-6
-50
Jun-08

Sep-08

Dec-08

Jun-09

Sep-09

Dec-09

Jun-10

Sep-10

Dec-10
Mar-08

Mar-09

Mar-10
-8
Jun-08

Sep-08

Dec-08

Jun-09

Sep-09

Dec-09

Jun-10

Sep-10

Dec-10
Mar-08

Mar-09

Mar-10

OPM NPM

Shareholding Pattern (Per cent) Board of Directors

Jun 2010 Sep 2010 Dec 2010 Mar 2011 Director Name Designation
Promoter 58.8 58.8 58.8 58.8 Ra vindra Na ra ya n Rao Chairma n & Ma na ging Director
FII 0.1 0.1 0.1 - Ma dangeri (Mr.)
DII 0.0 0.0 0.1 0.1 Na resh Ja na rdan Ga ikwa d (Dr.) Non-Executive Director
Others 41.0 41.0 41.0 41.1 Suresh Cha ndra Gupta (Mr.) Nominee Director-GOI
Ma hes h Kuma r Mittal (Mr.) Wholetime Director
V. Ra ja gopa la n (Dr.) Nominee Director-GOI
Ma dan Verma (Mr.) Non-Executive Director

Additional Disclosure
This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT).

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CRISIL COMPANY REPORT | 4