The Cabinet Committee on Disinvestment had on June 23 recommended a 33 per cent dilution in the government holding in HOC which is presently 58.61 per cent. In an internal document on "efficiency improvement targets," HOC expects expenditure on utilities to decline to Rs 58.50 crore in 2000-2001 (1999-2000 Rs 65 crore), salaries to Rs 34.27 crore (Rs 48.07 crore), administrative overheads to Rs 17.50 crore (Rs 18.50 crore) and a decline in interest to Rs 28.17 crore (Rs 29.52 crore).

Significantly, the document also takes into account a Rs 14 crore loss on sale of assets in 2000-2001. Expenditure on trading goods, raw material and excise duties show an upward trend in 2000-01 to the extent of nearly Rs 85 crore. The document says that a 10 per cent reduction in utilities is considered for the next two years on a base level of Rs 65 crore for the year 1999-2000. "Utilities have been worked out considering a 10 per cent escalation in utilities cost per year," it adds.

For the purpose of calculations of savings in interest, the short-term rates have been assumed at 15.5 per cent (the SBI rate for HOC) and at 13.5 per cent in respect of long-term loans, HOC says. In the area of manpower reduction, HOC expects to launch an attractive voluntary retirement scheme for around 800 personnel by 2001. Average manpower cost accounts for roughly 10 per cent of total cost at HOC, well above the industry average of around six per cent. The company had launched two schemes in 1998-99 and 1999-2000 and 173 employees availed themselves of this golden handshake at that time. All future recruitments have stopped except in critical areas.

Significantly, the company has pegged the interest on borrowings for the VRS at 13.5 per cent. The average VRS benefit for employees has been calculated at Rs 6.5 lakh (per employee).Interest costs account for over 7 per cent of total cost and the company has already "replaced high cost bonds (17.5 per cent) by unsecured/secured redeemable non-convertible bonds (13 to 13.5 per cent) to the extent of Rs 38 crore out of Rs 100 crore."

Industry sources say that the PSU is also examining the option of outsourcing a host of functions including marketing and sales, procurement, accounting and even recruitment and training to stay focused on thrust areas. Core activities that will be done in-house include manufacturing (including quality assurance), application research and development and management information systems and business forecasting.

Earlier an internal SWOT analysis identified "surplus manpower, inadequate IT systems, financial management and size of operations" as key areas of weaknesses. HOC, a market leader in nitro-aromatics, has also identified major opportunities in the growing domestic and south east Asian markets, though the SWOT analysis views the obsolescence of technology, ageing plants and the low scale of operations as significant threats.