HPL to wait for viability before making further investments

HPL to wait for viability before making further investments
India's second-largest petrochemical company, Haldia Petrochemicals Ltd ( HPL), has been boosted by the news of the withdrawal of the 5% import duty on naphtha, which is a key raw material for the Kolkata based firm. The firm which meets 75 percent of its requirements through import, would save Rs 350 crore annually following the duty exemption. But the company, which is battling legal tussles between its two promoters and staring at heavy losses, would only invest in new projects after it becomes viable and returns to profitability.

The company's financials have taken a hit with the rising naphtha prices, which had increased by 39 percent, whereas product prices went up by only 18 percent, impacting their margins by a massive 21 percent. In Q1, 2011-12, the company suffered a loss of Rs 247 crore and is expected to incur a loss of over Rs 1,000 crore in 2011-12. However, the firm is hopeful of an improved performance in July. The company, which has a debt servicing ratio of 0.6, which means its earnings are only sufficient to repay 60 percent of its debt, said that it will only ask loans from banks, once the profitability of the firm is restored and lenders are assured of its credit repayment capacity.

The firm's Supermax project at Haldia, West Bengal suffered a cost and time overrun of Rs 555 crore, and impacted its profitability. Haldia Petrochemicals aims to invest Rs 200 crore on projects having an internal rate of return of 35 percent and start generating cash inflows from two years of their initial investment. The firm also plans to invest Rs 4,000 crore for manufacturing 12 -13 polymer product grades.

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