The mammoth investment exercise, which includes a Rs 600-crore acrylonitrile project at Dahej and new cracker and propylene projects at Baroda was finalised sometime back to meet IPCL's future needs. The funds for the proposed programme will be raised through through internal generation and market borrowings.

The projects, which have received environnmental clearances from the state and central governments will be approved by the IPCL board only after considering ICICI's views. This comes after an internal assessment done by experts within the company, said ICICI sources.

IPCL will decide whether to go ahead with the proposed joint ventures with Gujarat Spinners and Malwa Cotton after examaning ICICI's feasibiltyreport. General Electrical International, The Netherlands, has proposed to buy out the 50 per cent stake of IPCL in GE Plastics India. IPCL has sent GE's propsal to the industry ministry for consideration.

The new cracker will have a capacity of 300,000 tonnes and the old cracker, having a capcaity of 130,000 tonnes, will not be completely phased out. Gujarat Chemicals Port Company, a joint venture between IPCL and a few Gujarat-based companies, is on the verge of competing the construction of a port at Dahej. Once the port is in place, IPCL will be able to reduce its transportaion cost phenomenally, industry sources said.

The upturn seen in the south-east Asian markets is expected to improve the performance of the company in the first quarter of the current fiscal. The closure of a few petrochemical plants has perked up polymer prices for over the last three months. This will also have a positive effct on IPCL's bottomline, analysts said.

Meanwhile, the divestment programme of IPCL has reached acrucial stage with petrochemical majors Reliance Industries and Exxon-Mobile making know their intention to become a partner to global advisor Warburg Dillon. It is believed that about 10 companies have evinced interest in the deal. The global advisor is expected to shortlist the names of suitors by November. Warburg officials have conducted a due-diligence excercise of IPCL before inviting the "expression of interest" from the interested parties.

Capex will make it cost-effective

The capex proposed by IPCL is extremely important for the company because it would make it more cost-effective through the use of ethane/propane for its cracker at Nagothane/Gandhar and imported naphtha at its Baroda complex. Further, it would get the additional advantage of higher volume.

With the drop in internal accurals, the bulk of the funding would be through debt. Since the funding of capex would be through debt, the debt:equity would rise. This would, however, be preferable to funding through equity. Since theinterest cost would be capitalised till the completion of the project, higher interest cost would be felt only when the new capacities go on stream. Nevertheless, higher volumes should offset the rise in interest cost, resulting in better earnings for the company.

--Manish Saxena