Disinvestment clouds Bengal Chemicals' growth prospects

16 state govt clients doubt firm's ability to meet supply deals, with Centre undecided on stake sale

Lack of clarity over the proposed disinvestment in Bengal Chemicals and Pharmaceuticals is threatening its turnaround.

A company executive said 16 state governments that bought generic drugs from Bengal Chemicals were questioning its ability to meet supply contracts as its future was yet to be decided by the Centre.

The Union Cabinet had in December approved strategic equity sales in Bengal Chemicals and Hindustan Antibiotics, in which it holds 100 per cent stakes.

“Questions are being asked by our clients over the future of the company,” the executive said, adding this could dent sales and discourage potential customers.

PM Chandraiah, director of revenue who holds additional charge as acting managing director of Bengal Chemicals, said he was yet to receive any communication from the Centre over disinvestment.

Bengal Chemicals posted a revenue of Rs 17.07 crore in 2013-14, 38 per cent lower than the previous year, and a loss of Rs 36.55 crore. Since then, its earnings have climbed to Rs 88.19 crore and losses have narrowed down to Rs 9.13 crore in 2015-16.

In the second quarter of 2016-17, Bengal Chemicals reported a profit of Rs 1.16 crore and expects its revenue in 2016-17 will cross Rs 100 crore with a net profit of Rs 4-5 crore.

Chandraiah, who joined the company in 2014, has drawn up a strategy for Bengal Chemicals to become debt-free in 10 years. However, he cannot proceed because of uncertainty over the company’s future.

He said plans were on for appointing medical representatives and sales agencies. Besides, the company is also planning to expand its home care chemicals business by 20 per cent a year.

“It all depends on what the government decides and in whose hands managerial control of this company is vested,” Chandraiah said.

With an improvement in cash flow at the end of the third quarter of 2016-17, Bengal Chemicals has cleared Rs 13 crore debt. Its current debt to banks stands at Rs 15 crore while the Centre is yet to recover Rs 225 crore it had lent the company earlier.

“We were able to post a net profit for the first time since Bengal Chemicals’ nationalisation in 1981. We are on a recovery track and given time we can pay off our debts,” Chandraiah said.

Bengal Chemicals’ accumulated losses are Rs 262 crore and its net worth is a negative Rs 184.6 crore.

A company executive has projected Bengal Chemicals’ earnings from generic drugs can double to Rs 130-140 crore by 2020 and the home care chemicals business can grow from Rs 35 crore to Rs 60 crore

Company timeline:

1892 – Bengal Chemicals & Pharmaceuticals Works founded in Kolkata by Acharya Prafulla Chandra Ray with Rs. 700 capital infusion

1901– Bengal Chemicals & Pharmaceuticals Works goes for listing as a publicly held company. Subsequent Swadeshi movement helps it to take on the British drug manufactures head on

1905 – First factory at Maniktala in Kolkata built

1920 – Second factory at Panihati in West Bengal commences production 

1938 – Expansion into west Indian market and subsequent establishment of third factory in Mumbai

1949 – Fourth factory at Kanpur in Uttar Pradesh commences production

1965 – Company begins to face financial stress 

1977 – Government of India takes over managerial control

1980 – Bengal Chemicals & Pharmaceuticals Works nationalised. 

1981 – Changes name to Bengal Chemicals & Pharmaceuticals

1992 – Company referred to BIFR

2006 – BIFR comes up with a package to revive the company

2014 – Bengal Chemicals & Pharmaceuticals starts giving initial indications of staging a comeback

2015 – Union government indicates to encash land holdings of sick pharmaceutical companies 

2016 – Bengal Chemicals & Pharmaceuticals posts net profit after a 63-year long timespan. Government of India decides to offload stakes in the company