Haldia Petrochemicals Ltd has always hit the headlines for the wrong reasons. The company, which produces the finest quality polymers, first made the news by lurching into a financial crisis soon after it was commissioned.

For two years, HPL was a world-class polymer manufacturer groaning under a huge burden of debt and a tug-of-war between the promoters and lenders.

Luckily, things have started to change. On the product front, the company has tied up with GAIL for a product swapping and sharing arrangement.

In the process, it has knocked the stuffing out of most other polymer sellers in east and north India. In the east, for instance, it has a 65 per cent share of the market and has left industry giant Reliance standing.

On the financial front, HPL under new chairman Tarun Das of CII fame has progressed to the corporate debt restructuring forum (CDR).

Not that this has stopped the banks and financial institutions from carping about the promoters, but the step towards a solution has been taken.

Most importantly, Das has solid backing from the promoters and his appointment has triggered optimism about the company. 

The fact is that HPL's achievements have always been far from the public gaze. The company started commercial production in August 2001.

Since then, it has maximised capacity utilisation, boosted volume and turnover significantly, and improved operating ratio --  sales to EBDIT (earnings before depreciation interest and tax) -- every successive year.

It now has a 23 per cent share of the polymers market. The market leader Reliance-IPCL has about 70 per cent and GAIL has the rest. However, don't forget that Gail and HPL have a marketing alliance.

What's more, HPL's luck seems to be holding. No new petrochemicals capacity will be commissioned in the polymer starved Indian market for the next 24 months, ensuring strong demand. Meanwhile, a 'favourable' debt-restructuring package has to be concluded and fresh capacity added through de-bottlenecking.

"The buoyancy in the economy and in the petrochemical market has helped HPL to better its performance this year. Even though April was bad as business was hit by the transport strike, our numbers are a lot better than last year," says Ashu Bose, vice president, finance, HPL.

How much better? HPL's turnover has zoomed by 50 per cent during the first half of this fiscal over the corresponding period last year. Its turnover stood at Rs 1,800 crore (Rs 18 billion) compared to Rs 1,200 crore (Rs 12 billion) in the same period last year.

Meanwhile, capacity utilisation has improved to 94 per cent in 2003-4 from 81 per cent in the previous year. However, the truck strike created huge problems leading to inventories piling up and lower capacity utilisation.

Make no mistake about it, in terms of volume, the company's growth has been stupendous this year. It sold 560,000 tonne of polymer last year, and it has now sold 435,000 tonne in first seven months alone.

Moreover, the sale of chemicals has also grown by 18.75 per cent this year.

Most importantly, all this has resulted in reducing net losses from Rs 500 crore (Rs 5 billion) for the full year to around Rs 250 crore (Rs 2.50 billion) (projected) this year.

The figure for this year, however, does not take into account the possible waiver lenders may extend after a debt restructuring. If annual interests costs fall and the loans are extended the company could make small cash profits.

Consider the figures. HPL has been clocking around Rs 55 crore (Rs 550 million) EBDIT on average per month. Unfortunately, the company's monthly interest bill is Rs 45 crore (Rs 450 million) and depreciation is pegged at Rs 27 crore (Rs 270 million).

Bose says the company is hoping to achieve EBDIT of Rs 600 crore (Rs 6 billion) for the full year. That's compared to around Rs 300 crore (Rs 3 billion) last year.

Experts believe there's every possibility that EBDIT will go up in the coming months as petrochemical prices aren't expected to fall in the near future.

The price of naphtha, the basic feedstock for HPL, is also expected to remain stable in the world market in the medium term.

To put things in perspective, all Indian petrochemical companies -- Reliance, IPCL and Gail -- have done well this year as polymer demand is projected to grow over 10 per cent in 2003-4.

Swapan Bhoumik, chief executive officer, HPL says the growth for polyolefins like PP and PE (the product category where HPL operates) may be much higher than expected.

"We expect the petrochemical cycle to peak in 2005 and the upside to continue till 2007. In this scenario, plants with latest technology producing finest grades are expected to benefit most," says Bhoumik.

To make the most out of it, HPL is also considering a small capacity addition. Bhoumik says HPL's total production capacity will rise 10 per cent by end 2004 and it should be ready to catch rising demand.

The best part about the expansion is that HPL won't spend more than Rs 140 crore (Rs 1.40 billion) to Rs 150 crore (Rs 1.50 billion) for the project.

"We are doing it at extremely an low cost, 20 per cent of what it normally takes to do such work. The company should be able to realise the return on investment within a year and make profit on it from 2006 onwards," says Bhoumik.

Another factor working in HPL's favour is that there aren't any major capacities being added anywhere in Asia. Given that it takes four years to build fresh capacity, HPL is well poised to reap the benefit of the upside in the cycle.

HPL also has a marketing pact with Gail that will help to crack open the north Indian market. According to the arrangement between HPL and Gail, the latter will buy PP from HPL and market it.

Also under the grade swapping agreement  both companies would save substantially on freight costs.

Under this, Gail would supply to HPL's customers in north India by supplying from its plant in Uttar Pradesh. Similarly, HPL will service Gail's customers in east and south east Asia by supplying from the Haldia plant.

However, HPL faces the problem of lack of downstream units within a reasonable distance. There are about 550 units in West Bengal but the demand for raw material isn't enough.

The combined installed capacity of these is a mere 200,000 tonne per annum and they source 80 per cent of their requirement from HPL. This year, 20 new units have come up, but the rate of growth is far below the company's expectations.

If the situation is bad for polymer-based downstream plants, its worse for the chemicals business group. Unlike polymers, the investment in chemical downstream is larger and this has kept investors away.

All this has left HPL at the mercy of major buyers, who unsurprisingly negotiate hard on prices. Also, not having small and medium units close by drives up the logistics costs.

Thus, HPL is on a roll in terms of operations, but the picture is far from settled on the financing side. Only if the debt and equity restructuring are executed fast will the company be on a steady course.

If the monthly interest burden falls by Rs 10 crore (Rs 100 million) to Rs 15 crore (Rs 150 million), HPL will make profits. With the upturn in business forecasted, things can only look up.

Secondly, the debt restructing of the 6,000 crore (Rs 60 billion) company, will improve its credit worthiness in the market. It will be able to manage long-term naphtha credit from international players.

HPL buys naphtha worth of Rs 150 crore (Rs 1.50 billion) a month through local players on a cash and carry basis.

Six months credit would equal to Rs 900 crore (Rs 9 billion) and the company will be able to run the plant full steam and may even cross 100 per cent capacity utilisation as Reliance has done. It will also improve working capital requirement.