SPIC – Recovery Very Far Away

SPIC – Recovery Very Far Away

Your Votes please

Do you think that SPIC can survice in the next five years?

  • Yes
  • No
See results without voting

SPIC – Recovery Very Far Away

A large, modern fertilizer spreader
A large, modern fertilizer spreader | Source
SPIC - share price movement
SPIC - share price movement | Source

SPIC – Recovery Very Far Away


Chequered history

Once upon a time, the company SPIC (Southern Petrochemical Industries Corporation Ltd) was a household name in the fertilizer industry in India. The company was well managed and functioned well. It even had a subsidiary in Jordan where it was manufacturing phosphoric acid from the rock phosphates available in Jordan. But today the company is languishing. In the BSE website, I could not even see the results of the company for the latest quarter. The website stated that the results have not been filed.

SPIC set up India’s first Di-Ammonium Phosphate plant

A C Muthiah is the founder of SPIC. After the 40th Annual General Meeting of the company, the patriarch has called it a day. His won Ashwin Muthiah will be the heir apparent. SPIC has a chequered history. It first started its operations in Tuticorin with production of urea alone and not di-ammonium phosphate. The government of Tamil Nadu wanted an anchor industry in Tuticorin in order to feed the port coming up there. But there were no takers. TVS group rejected the offer. India Cement group rejected the offer. But Muthiah family took it up. A C Muthiah’s father did not want to venture into it as he saw no attraction in the fertilizer business. But A C Muthiah somehow convinced his father and got involved in the setting up of SPIC. Later on, SPIC set up India’s first DAP plant.

Floating a subsidiary SPIC Petrochemicals

The company also started producing aromatic chemicals and purified terephthalic acid (PTA) in collaboration with Madras Refineries (now called Chennai Petroleum Corporation Ltd). The company later produced PFY. For all these things, another company was needed and the company floated SPIC Petrochemicals Ltd. There were lots of troubles the company faced from the powerful lobby of some industrialists from Mumbai who wanted to scuttle SPIC’s project for fear of competition.

Sold off Phosphatic Unit for a pittance

But today the situation is pitiable. As part of the restructuring, SPIC has sold its phosphatic fertilizer business to Greenstar Fertilizers for Rs.300 crore. Now SPIC is left with only its nitrogenous (urea) fertilizers division. The company is unable to operate its phosphatic fertilizer plant to the optimum capacity due to paucity of working capital. The plant required sizeable capital infusion as it required substantial capital expenditure. The company was not having any funds to do this. Therefore it sold out the unit and settled the debt with the proceeds of the sale.

Rs.145 crore secured creditors

The phosphatic fertilizer complex is situated in Tuticorin, the southern port city of Tamil Nadu and comprises phosphoric acid, sulphuric acid, NPK, Di-Ammonium Phosphate, aluminium fluoride and single super phosphate business of the company. After this sales transaction, SPIC’s secured creditors stand at Rs.145 crore.

Other assets also sold out one by one to pay debt

Earlier, SPIC sold out its engineering division SPIC-SMO to a Kolkata based company for around Rs.50 crore. Earlier to this, SPIC sold its joint venture Technip India and its stake in Indo Jordan Chemicals. In addition, SPIC has also sold off many properties, guest houses, and godowns etc – all for the purpose of paying off its marauding creditors.

SPIC is planning to switch over to natural gas from naphtha

A C Muthiah has stated that the company will be beginning its operations in its urea and ammonia plants in Tuticorin using naphtha. Later on the company will switch over to natural gas when it is made available. Subsidies to the fertilizer companies are granted by the government of India only if it is a gas-based company. Therefore SPIC will have to switch over to natural gas operations sooner than later in order to avail the subsidy. But SPIC is confident of obtaining the subsidy even if it is runs its plant on naphtha. The company has been granted three years to shift to natural gas. By that time the company should be getting the gas allocation.

Power company to start operations soon

SPIC can source its requirement of natural gas either from IOC’s LNG terminal at Ennore near Chennai or from LNG terminal at Kochi. There is also good news for the company. SPIC Electric Power Corporation Pvt Ltd is going to commence its operations at 525 MW capacities at Tuticorin. SPIC Electric Power Corporation is a subsidiary of Tamil Nadu Petroproducts Ltd. Tamil Nadu Petro in turn is a company promoted by the SPIC group. So far the power company was bogged down because of a land dispute that stalled its operations for a long time.

Investors prepared to take high risk can invest in SPIC

SPIC posted a net profit of Rs.82 crore because of the disposal of its assets and not because of its operations. The company commenced its urea operations in October 2010 which is good news. But still the company is dragged by huge debt burden and negative net worth. The company’s share price has increased by 60% in the last three months or so, which is a surprise. At present the shares of SPIC are traded in the stock markets at around Rs.15. Even at this low price, investors should not enter into the scrip as there are better companies to reward the investors like State bank of India. But for investors who are prepared to take a large risk, SPIC shares are a blessing in disguise. If one invests in the shares and if the company does well in the coming years, one can reap a huge reward even if the share price goes up to Rs.100 or so

Comments

No comments yet.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working