The project is to be financed by a rights-cum-public issue of Rs 15.6 crore, unsecured loan of Rs 25 crore from promoters and rupee term loan of Rs 100 crore.

The promoter company — Hindalco — has already given an unsecured loan of Rs 12.25 crore and a rupee term loan — from IDBI, IFCI and the UTI — of Rs 87.5 crore.

Around 75 per cent of total sales are accounted by Hindalco and Indal.

The company's strength lies in its location in the eastern region, which results in low transportation costs.

Growth prospects

As compared to the Rs 4.5-crore loss in 2001, BCCL made a net profit of Rs 3.92 crore for the year ended 2002. Sales have increased consistently, from Rs 65.6 crore in 1998 to Rs 90.8 crore in 2002. For the nine-month period ended December 2002, BCCL recorded a profit of Rs 6.38 crore compared to Rs 10.15 crore in the corresponding period of 2001.

Around 86 per cent of BCCL's sales turnover is from caustic soda and 6.4 per cent from chlorine. Power costs have declined 82.6 per cent, from Rs 48.32 crore in 2001 to Rs 8.3 crore in 2002. Its captive power plant commenced operations in January 2001. Compared to the chloro-alkaliindustry's return on net worth of 4.19 per cent, BCCL was 14.79 per cent.

One of the risks for BCCL is its dependence on Hindalco and Indal for its major revenue. However, with Hindalco's sales consistently increasing and its demand for caustic soda being more than BCCL's capacity, there are opportunities to be exploited. Also, while the per capita consumption of chlorine in developed countries — such as the US and Canada — is around 42 kg, it is a mere 1.1 kg in India (Chemical Industry News, May 2002), indicating scope for further demand growth.

For companies such as BCCL, control over costs is important. The captive power plant project needs to be viewed in this backdrop.

The chloro-alkali industry is power intensive and captive power plants that provide assured supply at competitive costs are essential.

With threat of cheaper imports — from West Asia and China — the cost reduction would help BCCL stay competitive.

Notwithstanding such positives, investors can avoid the rights offer, as it will triple the equity base while the scope for commensurate expansion in earnings is limited. The stock is trading at around Rs 11 per share. The offer opened on February 18 and closes on April 18.

Article E-Mail :: Comment :: Syndication