Basant Agro Tech (India) Ltd

1. Organisation profile:

Basant Agro Tech (I) Ltd ( BATL) is one of India's leading manufacturer of various farminputs comprising of NPK mixture granulated fertilisers, phosphatic fertilizers as well asvarious hybrid seeds. The following Management Discussion and Analysis contains a briefwrite up on the Industry structure,opportunities and concerns, performance of theCompany with respect with respect to operation and other information:

2. Operations review :

The Financial statement of your Company as Contained in the Annual report has followinghighlights:

* Gross Turnover has been increased to Rs 13074.21 lacs. The delay in announcement offertilizer policy by the Central Government has affected sales of fertilisers in thefourth quarter of the year and resulted in building up of the closing stock of fertilizersat the year end. Now, after the announcement of the said policy the sale of fertilisershas picked up to recover from the slow growth in the previous quarter.

* Sales of seeds has jumped by 105.76%

* The Profit before tax has gone up by 3.24%

* Production of fertilizers has increased by 7.81%

3. Business over view :

Although India's GDP growth in 2008-09 was modest 7% the real turnaround transpired inthe second half of 2009-10 when the economic growth surged around 7.9%. It was expectedthat the industrial sector will grow over 8% during 2009-10.India today is one of thelargest producer and consumer of fertilizers in the world. The top five fertilizerconsumers, namely, China, India, USA, Brazil and Indonesia, accounted for nearly 70percent of fertilizer consumption while top five producers (China, Canada, Russia, USA andIndia) controlled about 60 percent of world fertilizer production. In order to keep pricesof the food grains affordable to the average citizen the Government offer fertilizersubsidies to induce farmers to adopt high yielding varieties, which often depended heavilyon fertilizers. The credit policies of the Reserve Bank of India and Governmentintervention to curb the rising prices helped India to survive in the severe world wideinflessionary situation The outlook of the Indian economy continues to be stable and showsthe GDP growth of 7,4% in 2009-10. It shows that it has recovered from the threats of theglobal recession and regained the momentum due to its strong fundamentals. The positiveoutlook has led to improved capital inflows led by the return of FlIs to equity marketsduring the year.

4. Current and future outlook :

The prediction of Monsoon this year shows that it will be above normal. With themodernization and upgradation of the newly acquired SSP fertilizers plant at Neemuch inM.P. the production of SSP fertilisers will increase substantially. The newly announcedNBS policy of the Central Government is very helpful for the growth of the SSP fertilisersindustry and encourage domestic production by allowing fertilizer producers a reasonablereturn on their investments. SSP fertilisers has got advantage over other phospheticfettilisers due to additional subsidy on account of other nutrients contents like sulphurand calcium. The adequate availability of the raw material at reasonable prices willresult in increase in the production of Fertilisers. The generation of power through windmills was better as compared to previous year. By introduction of the newly developedhybrid seeds in the market in the coming season the Company expects the excellent growthin the sales turnover of the seeds division. Barring unforeseen circumstances it isexpected that the performance of the Company will be Robust as compared to previous year.The more demand for SSP fertilisers will result in increased output of pulses and oilseeds as sulphur is very essential for their growth and only SSP fertiliser can providesulphur to the crops. The Company has during the year expanded the seeds business to UttarPradesh and Bihar as well.

The distribution and movement of these fertilizers would continue to be monitoredthrough fertiliser monitoring system (FMS) like at present 20% of these fertilizersproduced would be under movement control under essential commodities Act 1955. The importof these fertilizers is placed under OGL and subsidy would be admissible on all products.NBS implies that subsidy amount payable to the company will be fixed annually for eachnutrient of the product sold based on the nutrient contents. The nutrient based subsidy sodecided would be converted into subsidy per tonne for each subsidized fertilizers. By suchdecontrol of fertilizers the industry can plan the production activities considering theprevailing prices of raw material and also can negotiate for better prices and enter intolong term contracts for procurement of raw material well in advance. NBS will encouragethe industry to increase the production of fertilizers thereby utilizing optimum capacityof the plant and avail the advantages of economies of scale.

Strength : Your company's strength lies in the supply of the quality fertilizers atthe reasonable prices and at appropriate time. Over the years the Company has built up itsreputation in this regards and it has resulted into increasing its market share in thefertilizers industry. Agribusiness continued its focus on integrated nutrient managementand providing crop specific, soil specific advisory services to the farmers, to buildbrand loyalty enhance produce quality and farm productivity. The preventive maintenance ofall fertilizers plants and proper planning about the procurement of raw materials helpedus in ensuring uninterrupted production of all fertilizers. The main focus of themanagement is on cost control as well as cost reduction. This is mainly achieved byprocuring the required raw material during the slack period by availing the maximumdiscounts as well as longer credit periods. The Company remains focused on its keyobjectives of consistent, stable and sustainable growth, improving the operationalefficiencies and striving to attend better profitability alongwith the highest standardsof quality, safety and productivity.

(On Face Value of Rs 1/-)

Our high quality products and better product mix ensured a higher realization in ourseeds business. In the very competitive seeds market we succeeded due to our main focus oncost and operational efficiency as well as extensive farmer education. Our R&D effortsare aimed at yield enhancement, abiotic as well as biotic stresses to make the breedingfaster end efficient. We continued our efforts on our seeds breeding research to developnew products that are best suited for Indian farmers considering the climatic and soilconditions of various regions. In line with our commitment to provide superior qualityproducts that enhance yield as well as quality, we have developed germplasm bank thathelps the breeder to select the most effective combination of genes.

In order to face the strong challenges like growing populations, climate change andpoverty, advancement in agricultural productivity in inevitable. And the key factors thatcan deliver the enhanced agricultural productivity are improved agricultural inputs suchas seeds and technology and agronomic knowledge improvement. We believe in strong and longterm relationship with the farmers thereby assuring them higher yield, higher income andthus improve their lives. Our dedicated team interacts with farmers all year round andkeep on implementing the education programs focusing on agronomic practices, product usageand support and increasing the awareness to adopt modern technologies in agriculture.

We undertake various field research trials and demonstrations in various parts of thestate thereby providing effective solutions to the farmers of the regions includingproduct use recommendations thereby assuring improved agronomy and new growthopportunities for the seeds division.

Even though Indian economy is mainly the agriculture based economy, the averageproductivity of Indian farmers is far lower as compared to the global averages. Themaximum productivity growth can come from seeds which constitute a small part of the totalfarm input costs, yet contribute the maximum to increased farm productivity. The seedsreplacement ratio in India is very low as compared to other Asian countries like China.

5. Opportunities and threats :

The Government of India (GOI) has recently announced major policy towards fertiliser bydecontrolling of retail prices of non- urea fertilisers and a calibrated shift towards anutrient-based subsidy (NBS) mechanism for non- urea fertilisers with effect from May1,2010. According to NBS, the subsidy will be fixed individually for each nutrient:Nitrogen (N), Phosphorus (P), Potash (K), and Sulphur(S). NBS will encourage balancedconsumption of fertilisers by eliminating variances in the degree of subsidisation for aspecific nutrient across different fertilisers. Further, the GOI has announced anadditional subsidy for subsidised fertilisers containing other secondary nutrients andmicro nutrients so as to encourage their consumption along with primary nutrients. This isexpected to encourage customisation and development of new fertilizer products fordifferent soil conditions, from hitherto commoditised product offerings by the incumbentsand also expected to attract fresh investments in this sector. In the case ofmanufacturers of single super phosphate (SSP), NBS is expected to have a positive impacton them, given that the new policy seeks to make the subsidy on the P content of SSPcomparable with that on the corresponding nutrient in DAP. As a result, consumption of SSPwill get a fillip in the current year. The Company is contemplating its plans ofacquisitions of the Sick fertilisers plants at strategic locations thereby proposing toincrease its shares in fertiliser markets in near future. In the seeds division also theCompany wants to increase its activities in Contract farming. The Company wants to havetie up with many multinational Companies under Contract farming agreements thereby addingthe different varieties of seeds under its Brand. This will definitely helpful to theCompany in technological upgradation of its R & D program.

Though the economic growth of Indian economy was good, the Inflation on account ofincrease in the crude prices and rising food prices remains the major concern for theIndustry. The erratic monsoon may create problem in some pockets for the growth of thefertilizer industry in general. The delay in release of the subsidy on fertilizers by theCentral Government may create shortages of working capital. This has poised a challenge tothe Company of managing the cost and company has structured the risk management programsafeguarding the Company from various risks through adequate and timely actions.

6. Internal control system :

The Internal audit function is an independent function and is carried out by externalauditors at various locations of the Company. The company has proper and adequate internalcontrol system which covers all aspects of financial & operational controls to ensureproper recording of transactions and also compliances with applicable company policies andvarious statutes. The Company has an exhaustive budgetary control system and themanagement regularly reviews actual performance. The Audit Committee of the Companyperiodically reviews the audit plans, observations and recommendation of the internal andexternal auditors with reference to significant risk areas and adequacies of the internalcontrol. With the advice & guidance of the experts, the business risks are mappedcarefully & a risk management frame work is evolved considering seriousness of therisks.

7. Financial performance:

During the year under review the Company has undertaken the modernization andupgradation of the newly acquired SSP fertilizer plant at Neemuch ( MP). The saidupgradation was carried out by the Company was financed through internal accruals.The Company has got various growth plans including acquisition of the fertilizersplants at the strategic locations and also to diversify into cattle feed and solar powergeneration segment. During the year the working capital limit of the Company was enhancedby Rs 12 Crores by its Banker which enabled the Company to procure adequate raw materialsfor the monsoon season.

8. Cautionary statement :

The statement in the Management Discussion and Analysis describing the Companiesobjectives, projections, estimates, expectations may be forward looking statements withinthe meaning of applicable securities laws and regulations. Actual results could howeverdiffer materially from those expressed or implied may be due to economic conditionsaffecting demand and supply, monsoon condition, change in Government regulations morespecifically towards subsidy and MRP of fertilisers and tax laws.