Chairman and managing director RD Shroff said that a merger would lead to substantial cost-cutting on sales tax, excise and labour.

"The idea of floating Search Chem Industries was to set up an a unit dealing in industrial chemicals as UPL had established itself as a major player in agrochemicals. However, it is a thinking that Search Chem can also operate as a division of UPL which will result in better cost realisation as far as labour and sales tax goes," said Shroff.

United Phosphorus owns 53 per cent in Search Chem Industries. Search Chem posted a loss of Rs 27.89 crore on a turnover of Rs 106.29 crore for 1997-98. The company produces caustic chlorine at Jhagadia in Gujarat, which is close to United Phosphorus's manufacturing base at Vapi.

United Phosphorus consumes chlorine produced by Search Chem to manufacturechloro-alkaline products, while caustic soda is sold in the market. Sales of Search Chem were affected owing to lower average sales realisation of caustic soda and chlorine on account of a depressed market, said Shroff. The lower sales realisation was also on account of a steep increase in power tariff in addition to lower margins. The state of the caustic chlorine industry, which is running at 50 per cent of the total installed capacity, has hit Search Chem's bottomline. The price of caustic chlorine, which was ruling at Rs 12.20 per kg a year ago, has now risen to Rs 16.50. Meanwhile, the company plans to diversify into the manufacture of caustic-based products like paint additives, detergent additives like Zeolite and synthetic rubber additives. This will help create an independent and steady consumption pattern for caustic, said Shroff. It will also insulate Search Chem from incurring losses on account of the market volatility. Besides caustic chlorine, Search Chem also manufactures phosphorustrichloride.

Search Chem to sell power to parent

Search Chem Industries has decided to run its 50mw power plant in full capacity, as it has recently been granted the permission to sell power to its parent.

The Rs 150-crore plant, at Jhagadia in Gujarat, apart from catering to its own captive requirements, will sell electricity to UPL, which has manufacturing facilities at Vapi. While it will pay the wheeling charges to the Gujarat Electricity Board (GEB) at the rate of Rs 0.13 per unit for using its transmission, it will sign a power purchase agreement (PPA) with UPL. However, it will also have to pay a sales tax on wheeling charges.

"The need of the power plant was felt due to the short and irregular supply of power from the state grid," Search Chem Industries chairman & managing director RD Shroff said, adding that caustic chlorine being a power-intensive business required assured supply of power. The company requires a 2200 kwh of power for each tonne of caustic chlorine production. Thoughthe plant had commenced production on September last year, its capacity was highly under-utilised.

Besides assuring constant supply, the co-generation power plant will also make caustic soda cost-effective as power would be cheaper, he said. The company's cost of its own generated power will be around Rs 2.50 per unit. The sale of electricity will also add to the company's revenue, Shroff said, adding that it plans to earn around Rs 4 per unit from UPL.