NEW DELHI, June 2: HINDUSTan Max-GB -- the joint venture of public sector Hindustan Antibiotics Limited and Max-GB has run into rough weather following a Rs 11-crore loss in 1996-97. Last year, the company had incurred a loss of Rs 8-crore.

In the wake of a liquidity crunch, Hindustan Max-GB has now approached the government to bail out the joint venture since the co-promoter HAL, which has been declared sick by the BIFR, is in no position to rescue it. The joint venture firm has sought deferment of lease rent of Rs 17 crore payable to HAL and additional finances as equity contribution by HAL (to be provided as budgetary support from the government).

Incidentally, the joint venture, which was hailed as the first of its kind, is facing the financial crisis barely two years since its inception. On October 8, 1995, HAL entered into a 50:50 equity participation with Max-Gist Brocades to upgrade its pencillin production technology at Pimpri near Pune. The public-private co-operation was cited as ``an excellent practical choice for achieving a most cost-effective improvement in production and productivity at HAL's pencillin plant.''

The joint venture provided HAL an interest-free refundable deposit of Rs 5 crore to enable it to subscribe towards equity capital. The agreement between the two also provided for payment of fixed annual lease of Rs 17 crore to HAL for making available its pencillin plant to the joint venture. The fee was to be payable ``irrespective of whether the joint venture is able to generate any profits'' and HAL was to have first charge on the revenue of Hindustan Max.

In the contract, Max-GB projected an operating profit (before depreciation and interest) of Rs 16 crore with an output of 8.5 lakh BOU during the first year of operation with the commitment of an additional fee arising out of HAL's 50 % entitlement.

Their projections, however, turned awry with price of pencillin gradually declining from the estimated Rs 1,025 per BOU to Rs 600 per BOU (as of March 1997). The slump in prices was a consequence of the domestic supply increasing to 60 lakh BOU with the entry of Spic, Torrent, JK and Hindustan Max. However, the demand remained limited to 40 lakh BOU. The manufacturers' woes were compounded by dumping of pencillin by international suppliers at a rate of $11-12 per BOU.

In the first year of operation, Hindustan Max witnessed a loss of Rs 8 crore which was tide over through an external commercial borrowing.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.