Haldia Petrochemicals Ltd (HPL) has projected a possible loss of Rs 140 crore in the current fiscal. A 5% import duty was proposed to be levied in India's Union Budget this year. HPL is India's only petrochemicals company that will be directly affected by the imposition of the levy. HPL sources over 90% of its naphtha requirement from imports. HPL's naphtha requirements will increase once it completes its expansion plan that is currently underway. GAIL uses gas cracker technology and Reliance has its own source of naphtha supply, hence they are unlikely to be affected by this levy. The duty hike will possibly burden the company with Rs 300 crore. The company made a net profit of Rs 262 crore in 2007-08. Had the duty not been imposed, the company would have perhaps made a profit in this fiscal. HPL had no option but to absorb the higher costs of buying naphtha because if it raised prices, it would lose market share to Reliance and GAIL.
HPL's decision to close the plant for 75 days, necessary to execute Project Supermax, has also added to the problems. Moreover, the shutdown because of Project Supermax will impact cash flows and economies of scale of operations. The expansion programme is already running behind schedule leading to potential cost overruns. Since the naphtha levy would limit its capacity to generate funds internally, HPL would have to borrow more to fund the expansion program.
After making huge losses in the initial years of operations, HPL turned around after the debt restructuring in 2004. 2006-07 was a good year for HPL, with the company making a net profit of Rs 581 crore on net sales of Rs 6,959 crore. Company's profit in 2007-08 dipped by 55% to Rs 262 crore as naphtha prices rose by 37% to erode margins.