Thread by @ValueEducator

Corporate Governance issues at #Hikal?

On Thursday morning, Hikal was involved in a gas leak that took place in Sachin GIDC area, Surat. It claimed the lives of 6 people. I did some scuttlebutt and Here are my findings
@unseenvalue
@jeevanpatwa
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On January 5th. Hikal passed off 25,000 litres of sodium hydrosulphide to Sangam Enviro Private Limited for disposal. The company collected the waste from Hikal under the guise that they would sell it to cement manufacturing companies.

The chemical was being illegally discharged from the tanker when a toxic gas leaked from it and spread to nearby areas, due to which 26 workers present in the dyeing and printing mill and surrounding areas fell unconscious following which they were rushed to the hospital.

The fire department later managed to close the tanker's valve to stop the leakage.
Rule 9 of the Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 stipulates that if a company is disposing of hazardous waste at its own site or giving it

to a third party for disposal, both parties should have permission from both Central and State Pollution Control Boards. Companies also need to submit an online manifesto on Gujarat Pollution Control Board’s website to be able to transport and dispose hazardous waste.

Police investigation has found that Sangam Enviro did not have any of these permissions
Rule 9 also states that the generator of the waste is responsible for all hazardous waste.

They have a responsibility to audit the plant every 6 months. They have to present the audit report to the Pollution Control board whenever asked. Sangam Enviro did not have a plant to audit which clearly indicates wrongdoing on Hikal’s part.

Pharma companies produce solvents which are distilled and used as by-product solvents. According to US FDA rules, pharma companies are not allowed to use these by-product solvents so they give them to third parties to distil and sell.

The third party is allowed to sell the non-hazardous by-products but the hazardous by-products are supposed to be brought back to the generator to dispose of properly.

This is because the small third party companies usually do not dispose of the hazardous waste properly and end up dumping it. So, it is the responsibility of bigger companies like Hikal to dispose of any hazardous waste generated during the manufacturing process.

Any waste products that cannot be used need to be incinerated at 1400C.
Today Hikal submitted a clarification to the exchange where they said that the tanker that was involved in the incident was not the tanker that left their facility.

This is true and police investigation shows that the chemical was moved to a different tanker after it left the facility.
But this does not absolve the company of their responsibility. The issue is not of whether the tanker that left their facility was involved in the incident.

The issue is that Hikal as a company did not bother to check whether Sangam had the right permissions in place to handle and dispose these chemicals. They did not do a plant audit or any background checks to see what they are dealing with.

They could have gone with other companies such as Bharuch Enviro Infrastructure Limited (BEIL) and Saurashtra Enviro Projects Private Limited (SEPPL) which are known and have the required permissions and expertise to dispose of hazardous waste in a safe manner.

But Hikal chose to go for a paper company with no track record to save costs.
To be fair, it could be entirely possible that this decision was taken by a lower level employee and the management had no idea of this.

Speaking to an industry expert, I found that this is very commonplace for chemical companies to dispose of hazardous chemicals in such a dangerous way. The only reason we heard about this incident is because it caused the death of several people and made the news.

As a counter argument, when most chemical companies are involved in incidents like this, they come out of it to become much cleaner and with better compliance.

But for now, I will be exiting Hikal because corporate governance issues are a big red flag and there are many more companies which can offer the same returns minus the ESG issues.

Disc : Above details are according to my understanding and I might be wrong. No holdings in hikal!