MANAGEMENT DISCUSSION AND ANALYSIS
1. Economic scenario
The global economic scenario continues to be in a state of delicate stability with theUS economy showing signs of moderate recovery with increase in job creation while theEurozone continues to be weak. India has not been an exception to this slowing economicscenario and its GDP growth is estimated to be 5% for the year 2012-13.
In light of the slowing growth, the Government has taken mid-course corrections toresolve structural issues and reduce fiscal deficit, which is estimated to be 5.2% of GDP.While the Government of India has commenced pursuing pro-growth initiatives, the abilityof the central bank to take a complimentary stance has been limited by high inflation.Tight monetary policies adopted by the central bank have moderated inflation to 7.4% in2012-13.With the announcement of the various policy measures aimed at correcting theIndian economic growth trend, the earlier negative sentiment associated with Indian GDPgrowth projections have moderated and current institutional forecasts are now between 5.5and 6.0% GDP growth in 2013-14. Successful implementation of the announced policy measureswill further improve global confidence in India's investment climate.
Agriculture in the current environment faces challenges from multiple fronts; it has toproduce sufficient food and fibre to feed the growing population with a smaller rurallabor force, contribute to inclusive development in developing Nation while adoptingsustainable agricultural practices and adapt to climate change.
Global population has been growing at ever faster rates and has crossed the 7 billionmark. Asia is home to approximately 60% of the world's population with India accountingfor 1.2 billion people. This large and growing population has material ramifications onthe global food production and supply dynamics.The global demand for cereals for food andanimal feed is forecast to grow from the current 2.1 billion tons a year to nearly 3billion tons by 2050. Economic development and the resulting income growth in thedeveloping nations will drive dietary consumption practices to high-protein diets whichare more food grain intensive. The implication of all the above factors is that theproductivity of agricultural land will need to increase to meet the growing demand.
India's agricultural GDP growth in 2012-13 is estimated to be 1.9% and agriculturalgrain output is approximately 250 million tons despite facing headwinds from multiplefronts - erratic monsoon and higher input costs.The resilience of the Indian agriculturalsector is evidenced by the fact that this output is only a marginal decline from therecord 252 million tons achieved in 2011-12.
In 2012-13, the country as a whole received 92% of the Long Period Average (LPA)rainfall during the south west monsoon. While the overall rainfall received was marginallylower than the LPA, the nature of monsoon onset, which was delayed in certain states anddeficient in others, contributed significantly to lower sowing and production in kharif2012-13.
While the growth in agricultural sector has slowed, India continues to be one of thelargest agricultural producers with over 50% of its population engaged in various parts ofthe agriculture value chain. In addition, with over a billion people to feed, foodsecurity is of strategic importance to India. India's annual fertiliser consumption isroughly 145 kg per hectare and is below developed nations' usage and has to increase involumes and re-balance for correct nutrient input levels.
The disparity in prices between "N" and "P" fertilisers poseschallenge in balanced nutrient approach and Government policy response in this directionhas been slow resulting in skewed NPK ratio which is likely to affect the food productionin the long run. Fertiliser subsidy is more skewed towards Urea and given its impact onthe fiscal deficit, needs an urgent review to ensure long-term soil health andproductivity.
All early indications from weather reporting agencies have been for a normal south westmonsoon in 2013-14. Assuming a normal monsoon, declining inflation and continued mildglobal recovery, the overall Indian GDP growth rate for 2013-14 is expected to improvewhich would augur well for the agricultural and fertiliser sector.
Coromandel is a flagship Company of the Murugappa Group and is a subsidiary of EIDParry (India) Limited which holds 62.59% of the equity share capital in the Company. TheCompany is engaged in the business of Farm Inputs comprising of Fertilisers, CropProtection, Speciality Nutrients and Organic compost. The Company is also engaged in ruralretail business in the states of Andhra Pradesh and Karnataka through a chain of 600+retail outlets set up in various parts of these States. The Company has 6 manufacturingfacilities located in Andhra Pradesh (AP), Tamil Nadu (TN), Gujarat (GJ) and Jammu &Kashmir (J&K). The Company's products are marketed all over the Country through anextensive network of dealers and its own retail outlets.
During the year, the Company acquired 53.62% stake in Liberty Phosphate Limited,leading manufacturers of Single Super Phosphate (SSP) with presence in the northern partof the country, and also announced an open offer for the acquisition of an additional 26%from the public. The Company also acquired 100% equity in Liberty Urvarak Limited, a partof Liberty group. With these acquisitions, the Company now has made a strong entry intothe north and west of India and commands a leading position in the phosphatic fertilisersector with a complete portfolio of offerings.
The Company has following subsidiaries and joint ventures for its various businessinitiatives.
Sabero Organics Gujarat Limited, India
Sabero Organics America Ltda, Brazil
Sabero Australia Pty Ltd, Australia
Sabero Europe BV, Netherlands
Sabero Argentina S.A., Argentina
Parry Chemicals Limited, India
Liberty Phosphate Limited, India
Liberty Urvarak Limited, India
Liberty Pesticides and Fertilisers Limited, India
Dare Investments Limited, India
CFL Mauritius Limited, Mauritius
Coromandel BrasilLtda, Brazil
Coromandel Getax Phosphates Pte Ltd, Singapore
Coromandel SQM (India) Pvt Ltd, India
Tunisia Indian Fertilisers Company Ltd, Tunisia
In addition, the Company also holds 14% equity stake in Foskor Pty Ltd, South Africa,through combined holding of the Company and CFL Mauritius Limited.
The Management Discussion and Analysis given below discusses the key issues concerningeach of the Strategic Business Units (SBU) forming part of the Farm Inputs segment of theCompany and of the Retail Business.
3. Farm inputs:
A. Fertilisers SBU:
Coromandel, with a production capacity of 36.25 Lakh tons of DAP and complexfertilisers, is the leading private sector player in phosphatic fertilisers in India. TheCompany produces and sells Nitrogen (N), Phosphatic (P) and Potassic (K) Fertilisers ofvarious grades ranging from Di Ammonium Phosphate (DAP), Complex Fertilisers withdifferent composition of nutrients to Single Super Phosphate (SSP). The Company alsodistributes imported DAP, Potash, Urea and NPKs.
With the acquisition of the Liberty group of companies, the Company has accelerated itsplanned entry into the north/ western SSP sector and currently has the capacity tomanufacture over 10 lakh tons of SSP. In addition, this also allows the Company to offerlow P fertiliser products to the farming community in the core SSP markets - Gujarat,Rajasthan, Madhya Pradesh, Uttar Pradesh.
The Company has a complete range of products to offer including Urea as it has baggedgovernment contracts for handling Urea at Kakinada and Karaikal ports. This allows theCompany to compete in all fertiliser segments - nitrogenous, phosphatic and potassicfertilisers.
The Company's fertiliser manufacturing facilities are located at Visakhapatnam andKakinada in Andhra Pradesh and Ennore and Ranipet in Tamil Nadu.The Company's fertilisersare sold under the well established 'Gromor' and 'Godavari' brand names.
(a) Industry scenario:
Global fertiliser sales in 2012 for N, P2O5 and K2O was a combined 178 M tons - a 0.5%increase over 2011 levels. The economic slowdown in large consuming countries, adverseweather conditions and high prices
The complex fertiliser imports in 2011-12 is more than likely to remain a one yearphenomenon as the low quality of these products has resulted in a strong backlash from thefarmers.
The combination of excess inventory from previous imports,material that waspre-positioned at the beginning of the year, the delayed and erratic monsoon in kharif2012-13 and the steep price increase in prices due to currency depreciation, has resultedin a glut situation in the market. Adverse monsoon in the Company's key addressablemarkets of Andhra Pradesh (AP), Tamil Nadu (TN), Karnataka (KA) and Maharashtra (MH) hasresulted in demand contraction for phosphatic fertilisers by 25% -30%. However, Coromandelleveraged its re-launched brands and high quality product and bags to improve itsmarket-share for DAP and complexes in the primary markets in a contracting marketenvironment from 9.7% to 14.8% for DAP and from 44.7% to 45.7% for complexes.
While the overall consumption of phosphatic fertilisers has declined in the last twoyears due to a multitude of factors, it is set to rebound in the near to medium term asthe farming community increases the P and K nutrient inputs in order to avoid adverseimpact on crop yields. Farmers who have deferred the application of phosphatics inprevious years will have to re-commence its application in order to improve soil healthand output. Revision in Minimum Support Prices (MSPs) by Government to compensate for theinput cost increase has definitely helped the farmers to move in this direction.
(b) Government policies:
Nutrient Based Subsidy (NBS) policy continued to be in effect for the third straightyear for phosphatic fertilisers and its full impact on prices and market dynamics was feltin 2012-13. NBS policy has achieved the intended purpose of ensuring adequate availabilityof fertilisers during season and reduced the subsidy bill thereby giving the Governmentmuch expected relief in managing the fiscal deficit. The sudden depreciation of currencyand hardening of international prices of some of the inputs has forced the Industry topass on the cost to the consumers under the fixed subsidy rate regime and this has facedresistance in the absence of not so good monsoon conditions.While prices of phosphaticfertilisers moved up by approximately 20-30%, the price of Urea has remained artificiallylow. With the increased pressure on fiscal deficit, the Government in all likelihood isexpected to reduce subsidy. It becomes imperative for the Government to take a pragmaticview on Urea pricing policy, as the fertiliser subsidy allocation for 2013-14 ( Rs 29,427Cr for phosphatics, Rs 21,000 for indigenous Urea and Rs 15,545 for imported Urea) hasbeen retained at the last year level.
In line with the softening trend in international prices of DAP and Potash theGovernment plans to reduce the subsidy on phosphorous (P) and potash (K) nutrients for2013-14 as well.
The target for farm credit in 2013-14 has been established at Rs 7 lakh crore ascompared with the Rs 5.75 lakh crore that was earmarked for the same purpose in 2012-13.This increase will provide the necessary stimulus to the farming community and willincrease the farm spending. In addition, the current year budget has allocated Rs 5,000crore to NABARD for the creation of agri-storage facilities. All these steps augur wellfor the farming community.
The fiscal year 2012-13 has been a challenging one for the Fertiliser industry. Thehigh prices for DAP and Complexes relative to Urea and erratic south west monsoon haveaffected the application rates and fertiliser sales. This lowered consumption of DAP andComplex fertilisers has led to the inventory build-up across the supply chain resulting ina situation of oversupply. As a result, the industry as a whole recorded DAP sales of91lakh tons and Complex sales of 73 lakh tons in 2012-13 which is 15% and 33% lower thanprevious year levels respectively. Coromandel's combined DAP, Complex and SSP fertilisersales for 2012-13 was 21.50 lakh tons.
The total production of DAP, Complex and SSP in 2012-13 from Coromandel's productionfacilities was 18.57 lakh tons. The Company has slowed down production during the year toalign with the market requirement and also to avoid excess inventory buildup. All fourfertiliser plants have reported improved operational efficiencies and maintained safetyand environmental standards. The timely purchase of raw materials and pro-active foreignexchange management has helped the Company to improve overall performance.
In 2012-13, the Company has repositioned the brands for its products and organized allchemical fertilisers under the flagship "GROMOR" brand and all organicfertilisers under the flagship "Godavari" brand. This rebranding exercise hasbeen completed and launched with redesigned high quality bags. These efforts will furtherstrengthen the brand equity of these brands which are currently measuring 6.7.Based on thebrand re-launch and marketing efforts, Coromandel increased its market-share in AP, TN, KAand MH.
The Company completed the capacity expansion at Kakinada and commissioned the newthirdgranulation train (C-Train) and all associated support facilities in 2012-13. The newlyinstalled capacity at Kakinada will allow Coromandel to manufacture unique grades offertilisers and provide value added products to the farmer.As part of its tie up withShell for manufacture of Sulfur enhanced fertilisers, the Visakhapatnam plant successfullycommenced trial production of 24:24:0:8S using Shell's Thiogro technology.
The Company has been investing continuously in meeting its obligations towardsprotecting the environment. Towards this step, during the year the Green Visaka projectwas continued with the planting of over 20,000 trees. Safety of the employees and thecommunity is of paramount importance to the Company and in order to maintain a safeworking culture in all its manufacturing locations, the Company has invested and improvedthe structural integrity at its Vishakapatnam and Ennore plants. The Company will continueto undertake investments in further improving the safety culture at its plants.
B. Crop Protection SBU:
a) Industry Scenario
Agro-chemicals industry across globe witnessed a growth of 8.9% on nominal terms andgrowth of 6.4% on real terms, over previous year with revenues of $47.3 billion. Thisgrowth was boosted by significant volume growth in many countries while prices witnessedmodest rises. Along with non-crop agrochemicals consumption the industry size was $53billion in 2012.
Among different regions Latin America achieved a growth of nearly 13%, boosted bystrong farm economy in Brazil and Argentina. Asia witnessed a growth of nearly 5% affectedby variable monsoon in India. Europe had a growth of below 2% affected by extremetemperatures in Russia and Southern Europe.
Across globe farm economy is expected to have a good year given high commodity pricesand this is expected to influence growth of agrochemicals consumption positively andglobal business is expected to grow at 5% under normal weather conditions.
Indian Industry, coming out of poor Rabi in previous year, was affected by variablemonsoon in 2012-13. This coupled with high prices of fertilisers, affected farm economy inNorth, Gujarat, Maharashtra and some parts of Karnataka. While cotton acreage fell bynearly 10% over previous year, Paddy crop was affected due to lower water storage in damsin critical states. These adverse conditions affected Industry while increased consumptionof herbicides and insecticides in Soya and Pulses segments helped the industry to achievemarginal growth, below expected levels.
Indian Agriculture continues to perform resiliently under adverse conditions.Government continues to permit export of wheat and other select commodities whose stocksare excess in storage.
Growing demand for food crops and high commodity prices for most of the crops otherthan cotton, are expected to boost consumption of agrochemicals and growth of domesticindustry is expected to rebound under normal monsoon conditions.
b) Crop Protection SBU Performance:
Having acquired M/s Sabero Organics Gujarat Ltd (Sabero) in the previous year, SBUcould expand its manufacturing base of active ingredients for exports in time to capturethe growth in global markets.
During the year 2012-13 SBU could achieve a turnover of Rs 491 crores, a growth of 11%over previous year despite adverse conditions in critical states in India. SBU couldleverage on its network to scale-up technicals being manufactured by Sabero.
During the year, formulations business of Sabero was integrated with Coromandelresulting in more foot-print in markets which had limited access earlier. SBU couldstrengthen its presence in new markets and serve new crop segments like potato and appleleveraged with the expanded basket of products in its fungicides range.
SBU could leverage its presence in Brazil, which is the biggest and fast growing marketfor global agrochemicals industry, to export more of products from combined range ofCoromandel and Sabero portfolios.
Domestic formulations business could overcome the impact of variable monsoon incritical states and achieved a growth of nearly 10% over previous year. Sales throughCompany's retail outlets in AP and Karnataka continue to grow well with increased range ofproducts. SBU could introduce new specialty fungicides through its strategic tie-ups withfew MNCs.
With its increased range of captive technicals, strategic partnerships to source newproducts, strong pipeline of off-patent products and presence in growing geographies andsegments and anticipated normal monsoon conditions in 2013-14, SBU is set to grow at afaster pace in realising its vision to become a significant global player in agrochemicalsindustry.
C. Speciality Nutrients SBU
Speciality Nutrients Division (SND) comprises of three segments
- Water Soluble Fertilisers (WSF)- Foliar and Fertigation, Bentonite Sulphur productsand Micro Nutrients. Inspite of adverse condition in primary markets of SND, namelyKarnataka, Maharashtra, Andhra Pradesh and Gujarat, the business has grown in WSF andMicro Nutrient segments by 14% and 16%, respectively. Though subdued demand and higherpipeline stocks reduced the demand for fresh sales of Sulphur products, Coromandelcontinued its market leadership in Sulphur and WSF segments.
Recognizing high growth and emerging opportunities in the Specialty Nutrients industry,the team is restructured to bring focus in the field. This team will have crop basedapproach and form into crop based units for high potential selective crops. It is expectedto capture the growing market of WSF, which is attributed to increased acreage under dripirrigation on select crops.
The joint venture with SQM, Coromandel SQM (CSQM), has become fully operational duringthe year. CSQM provides technical and product support for Coromandel's SND team to attainmarket leadership in WSF.
D. Retail SBU
The Retail Business is an exclusive agri-focused rural retail concept unique toCoromandel in the Indian agricultural-inputs sector. Subsequent to the restructuring fromprevious year and exit from the lifestyle products, the Retail Business has grown lastyear and the non-fertiliser segment has grown by 26%. The Retail Business has commenced"GROMOR Webinar" sessions which are farmer education programs designed topromote scientific and technical information sharing over a webcast.Subject matterspecialists in agriculture are connected through webinars to farmers present at variousCoromandel retail outlets.
The business has also been pioneering the commercialisation of Farm MechanizationServices (FMS) to improve the overall farm productivity and address the rural laborshortage issue. In 2012-13 the FMS segment successfully transplanted 3,650 acres of paddy.
The Retail Business has received many prestigious awards in 2012-13 in recognition ofits contribution to agriculture and business performance in rural retail.
Received "Retail Marketing Campaign of the Year" award under"Awards for Retail Excellence presented by ET Now" organized by Asia RetailCongress 2013.
Received 3 CSR awards during the "Global Sustainability Conference"organized by World CSR.
Green Business award - For promoting organic manures
Sustainable Business practices - For promoting INM, IPM and other sustainableagricultural practices
Best Rural outreach - For the overall farmer services rendered by the retailoutlets of Coromandel
4. Strengths and Opportunities:
Coromandel produces fertilisers from four manufacturing locations - Vishakapatnam,Kakinada, Ennore and Ranipet -that are all strategically located to serve key markets ofAndhra Pradesh, Karnataka, Tamil Nadu and Maharashtra. With the acquisition of LibertyPhosphates, the Company has expanded its geographical presence to northern and westernmarkets. The Company's brands Gromor and Godavari are all well established. The brandequity enjoyed by these brands in combination with the proximity of the manufacturinglocations to key markets is one of the key strengths enjoyed by Coromandel.
Over a period of time the Company has been expanding the capacities and the plants arecapable of producing different grades of complex fertilisers including urea based grades.The Company has also created adequate infrastructure facilities and storage facilitiescommensurate to the production capacities which help in managing volatility in rawmaterial prices and ensuring uninterrupted production. Production facilities forintermediates like phosphoric acid and sulphuric acid in Visakhapatnam and Ennore help incapturing value addition in own manufacture and derisk the business. Captive power sourceand stake in APGPCL helps in keeping the conversion cost low and efficiencies at par withbest in the Industry.
The Company has established key strategic tie-ups for raw materials and this ensuresustained availability of materials to operate the plant at optimal levels of production.
The Company conducts R&D in its facility at Visakhapatnam where it has the abilityto test and optimize processes for specific product grades and rock from various sources.In addition, the Company has tested and produced Sulfur Enhanced Fertilisers using theThiogro technology based on its technical partnership with Shell.The Company alsoregularly conducts tests at its R&D farm and uses this knowledge to develop uniquegrades of fertilisers and agri-inputs that target specific crops or address specificlocalized issues.
The Company augments its strong presence in fertilisers with offerings in theAgro-Chemicals (pesticides, fungicides and herbicides), Specialty Nutrients and Organicsegments. This complete basket of offerings to the farming community allows Coromandel toaddress all the needs of its customer base and offer holistic solutions. As part of itscontinuing efforts to provide holistic solutions, Coromandel undertakes farmdemonstrations (over seven hundred in 2012-13) using its products while highlightingscientifically proven agricultural practices and conducts soil tests to identifydeficiencies and provides tailored advice to the farming community. The Company is alsoconducting pilot trials for providing farm mechanization services to the farmers toaddress their labor shortage problems. This combination of a complete basket of productsand dissemination of scientifically proven techniques enables Coromandel to build loyaltywith farmers.
The Company operates 600+Mana Gromor and Namma Gromor retail outlets in Andhra Pradeshand Karnataka respectively through which it markets its products directly to the farmers.These Retail outlets have become the face of the Company in rural locations and allow forfirst-hand information exchange with the farming community. Besides captive distributionnetwork, Company also distributes the products through dealers/distributors and hasexpanded its distribution network all over India.
Increasing urbanization, higher disposable income levels, growing population base tofeed and changes in consumption patterns towards higher protein, fruits and vegetablesintake will continue to be the long-term growth drivers for the agricultural inputssector. The core long term demand drivers for the fertiliser industry remain steady withimproving farm economics and rising thrust on irrigation. While the long-term demand sidefundamentals are firmly in place, the short-term supply side fundamentals are continuingto emerge in India.
The pro-Nitrogen subsidy policy that is currently in place will continue to facepressure from multiple fronts - imbalanced nutrient application resulting in poor soilhealth & productivity, highfiscal deficit and industrial advocacy to name a few. TheGovernment will continue to lower subsidies for the decontrolled fertilisers in the nearterm to reduce the burgeoning subsidy payments and reduce fiscal deficit. Substantialincrease in Urea price and its eventual move to NBS is an urgent need to correct nutrientuse balance which has worsened over the last three years.
While the policy issues will continue to be debated and developed over a period oftime, the Company has been actively planning to meet the long term demands of theagricultural inputs sector. With the recent commissioning of C-Train, the Company haspositioned itself to be the leading Phosphatic fertiliser player in private sector in thecountry. In addition, the Company has improved its manufacturing facilities atVisakhapatnam and Ennore to ensure sustainable operations for the long-term. With thesechanges, the manufacturing base of the Company has been positioned to be capable ofmeeting the needs of the phosphatic fertiliser sector.
Further, the Company has been continuing to pursue strategic alliances for raw materialsupply. The TIFERT JV project in Tunisia has been commissioned and is expected to commencesupply soon. In addition, the Company will continue to actively scout for other rawmaterial and backward integration opportunities.
In the Crop Protection Business, the Company will continue to focus on specialities andwill scale up formulation sales based on captive technicals including additional rangebeing manufactured by Sabero. The Company is also actively expanding its global footprintby leveraging Sabero and will continue to increase its presence in Latin America, Africaand South East Asia. In addition, the Company will continue to maintain a global focus andincrease its reach by increasing its portfolio of global registrations.
The Specialty Nutrient Business will continue to be a growing business segment.Increased consumption of high value products like fruits and vegetables resulting fromrising income levels will be the primary engine behind growth in this segment. Acreageunder drip irrigation will continue to increase and drive the usage of Water SolubleFertilisers (WSF). This business segment will assume a crop based focus and expand itsbasket of offerings by leveraging its joint venture with SQM.
The Rural Retail Business will continue to be the face of the Company in rural India.In 2012-13 the Company has restructured its retail footprint - Mana Gromor Centers inAndhra Pradesh and Namma Gromor Centers in Karnataka -by repositioning some existingoutlets.In addition to these outlets being the primary source of cash sales ofagri-inputs, the retail outlets are vital to the dissemination of scientific agriculturaltechniques and will continue to host webinars to connect the farmers to the scientificcommunity.
6. Risk Management Overview
Risk Management at Coromandel is an integral part of our business model, focusing tomitigate adverse impact of risks on our business objectives and enable the Company toleverage market opportunities effectively.
With the implementation of additional supporting infrastructure elements, the Companyis in the process of implementing Comprehensive Enterprise Risk Management, which willcover full spectrum approach to Risk Management across the enterprise. This will result inmovement along the Capability Maturity continuum from Comprehensive to Integrated toStrategic levels.
Risk Management Framework
Risk Management Structure
Risk Management structure at Coromandel spans across different levels which formvarious lines of defense in risk mitigation. Coromandel has a Risk Management Committee,comprising of an Independent Director, who chairs the Committee meetings, and the ManagingDirector. The Committee members along with the senior executives and Business Heads of theCompany carry out regular review of risk management practices.
The risks associated with our business are broadly classified into six majorcategories.
Environmental Risk: due to adverse effects on living organisms and environmentby effluents, emissions, wastes etc., arising due to our organization's activities.
Economic Risk: due to downturn or adverse political situations which maynegatively impact our organizational objectives.
Regulatory Risk: due to inadequate compliance to regulations, contractualobligations or any other statutory violations leading to litigations and loss ofreputation.
Operational Risk: inherent to business operations including manufacturing anddistribution operations, tangible or intangible property, any other business activitydisruptions.
Financial Risk: to organization due to major fluctuations in currency market,rise in interest rates and possible non recovery of debts.
HR & Legal Risk: due to attrition of any Key Managerial Person or disruptionof operations due to any other human resources issue.
The key risk management practices include those relating to risk assessment,measurement, monitoring, reporting, mitigation actions and integration with strategy andbusiness planning.
The key risks associated with various processes of Company's business are analysed indetail covering causes and sources of the risk, a logical sequence of triggering events(Key Risk Indicators), positive and negative consequences and the likelihood of occurrenceof such consequences and the severity of the impact both in qualitative and quantitativeterms. The Key Risk Indicators are mapped to the job function of respective executives andthe reporting & monitoring frequencies are also defined.
The identified key risks at the Entity Level are evaluated on quantitative,semi-quantitative and qualitative aspects of impact for timely decision on its treatment.
The key risks associated with the Company's business, its likely impact and themitigation mechanism evolved are discussed hereunder. The evaluation of risk is based onmanagement's perception and the risks listed below are not exhaustive.
|Risk ||Risk Impact ||Mitigation Plan |
|Environmental/Economic/ Regulatory Risks || || |
|Handling and storage of hazardous materials incl., Ammonia, SO2 etc. ||- Impact on operations || Strict PSMS implementation to maintenance/inspection |
| ||- Stoppage of production || Strict adherence schedules, training and emergency/disaster |
| ||- Accidents resulting from release of the hazardous materials and consequent claims || |
| || ||management plans |
| || || ISO 14001 & OHSAS 18001 |
|Un-treated effluents causing pollution ||- Revocation of factory license || Augmenting ETP facilities |
| ||- Civil/criminal action || Strict adherence to PC standards |
|Non-compliance with Legal / Regulatory/Tax Compliance -Including other Countries ||- Disruption of operations || Understanding/awareness of regulations and statutes by renowned |
| ||- Legal proceedings against the Company and its officials. || Engagement/advice lawyers and experts |
| || || Monitoring regulatory changes |
|Non compliance with FCO ||- Civil/criminal proceedings || Rigid quality checks at Plants |
|Standards & Specifications ||- Production stoppages || |
| || || Test verification of bags |
| ||- Disallowance of subsidy claims || Reprocessing of non-standard materials |
| || || Better bags handling procedures |
|Change in Government Subsidy Policies ||- Impact on turnover/working capital || New grades/customized Fertilisers |
| || || Increased focus on non-subsidy Business |
| ||- Change in product mix || Optimisation of rail road transportation |
| ||- Change in distribution pattern || Liaison with Government |
|Restriction on sale/usage of some crop protection products in India/abroad ||- Impact on turnover/profitability || Development of newer and safer technical |
| ||- Negative publicity || Extension of product life-cycle |
|Risk ||Risk Impact ||Mitigation Plan |
|Operational Risks || || |
|Volatility in the price of key raw materials ||- Impact on revenues. || Close monitoring of international price of raw materials. |
| ||- Increased cost of production || |
| ||- Increase in working capital requirement || Tie-up for expanded product range |
| ||- Volume shrinkage || |
|Product life-cycle obsolescence ||- Impact on turnover/profitability || Identification of new off-patent molecules |
| || || R&D initiatives |
|Introduction of pest/ resistant BT crops or change in crop pattern || || Identification of emerging pests and suitable molecules |
| || || Introduction of new products |
|Loss due to shrinkage at Rural Retail Centres Financial Risks ||- Impact on profitability || Close monitoring of inventory, regular inspection/audit daily MIS |
| ||- Financial loss || |
|Currency and exchange fluctuation risk ||- Under recovery of Subsidy || Close monitoring of exchange trend |
| ||- Impact on profitability ||Forward covers at appropriate time and level |
| || || |
|Interest rate risk ||- Increase in cost of borrowing || Healthy debt-equity and interest cover ratio |
| ||- Impact on profitability || Sustain good credit rating |
|Credit risk ||- Impact on working capital || Review of credit evaluation and limits |
| ||- Dues becoming bad || Close monitoring receivables |
| ||- Loss of interest || |
|Liquidity risk - Delay in subsidy settlement ||- Impact on working capital || Close monitoring of subsidy dues |
| ||- Increase in cost of borrowing || |
| || || Increased working capital facilities |
| || || Securitization of subsidy dues |
|Legal & Human Resource || || |
|Contractual Liability Risk ||- Disruption of operations || Clearance from legal cell |
| ||- Impact on turnover & profitability || Independent experts' services for important contracts |
|Attrition of skilled/trained manpower ||- Disruption of operations || Compensation revision inline with market |
| ||- Knowledge dissipation || Succession Planning |
| || || Career planning and training |
In addition, IT related risks can result in loss of important data etc., leading todisruption in operations. These are addressed through adequate back-up mechanism,including Disaster Recovery Centre, authorization verification, regular training programs,regular purchase of licenses in line with the business requirement and other preventivemeasures.
The assets of the Company, including its plant and machinery, as well work in process,inventory and Finished stocks are adequately insured against loss or destruction by fireand allied perils.
7. Internal controls
Coromandel has adequate internal controls consistent with the nature of business andsize of the operations, to effectively provide for safety of its assets, reliability offinancial transactions with adequate checks and balances, adherence to applicablestatutes, accounting policies, approval procedures and to ensure optimum use of availablerecourses. These systems are reviewed and improved on a regular basis.
Coromandel has a comprehensive budgetary control system to monitor revenue andexpenditure against approved budget on an ongoing basis.
The Company has its own corporate internal audit function to monitor and assess theadequacy and effectiveness of the Internal Controls and System across all key processescovering various locations. Deviations are reviewed periodically and due complianceensured. Summary of key audit observations along with recommendations and itsimplementation are reviewed by the Audit Committee and concerns, if any, are reported tothe Board.
The Company's total revenue for the year 2012-13 stood at Rs 8627 crore as compared toRs 9940 crore in the previous year. The Company's PBT is Rs 566 crore as compared to Rs970 crore in the previous year.The Company generated Rs 818 crore (2012: Rs 1109crore) ofcash surplus from its operations, before changes in working capital and after adjustingfor the changes in working capital the net cash generated from operations is Rs 998 crore(2012: Rs 110 crore).
During the year, the Company commenced commercial operations of the third granulationtrain ("C" train) in Kakinada at a cost of Rs 337 crore. With this, theCompany's operating capacity for manufacture of fertilisers of various grades hasincreased from 32 lakh tons to 36.25lakh tons
During the year the Company acquired 53.62% (including 5% held by Liberty UrvarakLimited) stake in Liberty Phosphate limited (LPL) and 100% stake in Liberty UrvarakLimited(LUL). The Company has approached SEBI for making an open offer to the shareholders of LPLfor acquiring upto 26% of share capital from the public. The Company has also signed aterm sheet to purchase the business undertaking of a Liberty group company, TungabhadraFertilisers and Chemicals Company limited (TFCCL). Total cost of acquisition of theLiberty Group is expected to be in the range of Rs 348 crore to Rs 375 crore.
During the year, the Company issued 9% Unsecured Redeemable Non-convertible Fully PaidBonus Debentures of Rs 15 each for every equity share amounting to Rs 424.23 Cr. and thesame has been carved out of Reserves and Surplus. The Bonus debentures are listed on BSEand NSE.
Higher levels of receivables due to extended credit to the trade channel have led to anoverall increase in the working capital position of the Company; and the Company ismeeting the increased working capital requirements by availing credit from suppliers andby resorting to a prudent mix of rupee and foreign currency borrowings. The Company isactively working towards realizing the receivables at the earliest. The Company has tiedup long term ECB loans to fund capital projects. The Company's long term debt: equityratio has gone up to 0.37 compared to 0.13 in the previous year, due to allotment of bonusdebentures.The Company's liquidity position continues to remain healthy with year-end cashand bank balance of Rs 453 crore of temporary surplus retained in short term bankdeposits/ current accounts. The Company's long term credit rating by 'CRISIL' wasreaffirmedat 'CRISIL AA+ (stable)' and short term debt rating at "CRISIL A1+".
9. Value creation and financial analysis
10. Human resources /Industrial relations
During the year industrial relations across all the plants continued to remain cordial.Long Term Settlement at Ankleshwar was concluded under section 18(1) of The IndustrialDisputes Act, 1947 for a period of 4 years.
The focus on leadership development continued with Coromandel's Leadership DevelopmentProgram 'Laqshya' for senior managers "Building Leadership Skills' for seasonedmanagers and 'Capability Enhancement Program' for first time managers.
'Laqshya' the Leadership Development Process gained momentum during the year with anumber of leadership initiatives for various levels like stakeholder curriculum,communities of practice, coaching and mentoring. With a view to support the globalfootprint of the Crop Protection business Global Business Management Program was conductedfor executives involved in international operations.
Coromandel strongly believes in continuous Learning and Development (L&D) with anaim to build competitive advantage for its current and future business needs. With a sharpfocus on building benchmark L&D processes and systems, it is now the first Company inIndia to receive ISO 10015+ Certification for Training Quality Management System at acompany level by CSEND, Switzerland The L&D process robustness and deployment isfurther endorsed by other prominent recognitions like Golden Peacock National TrainingAward by Institute of Directors among others.
Coromandel continued its focus on building employee engagement. Gallup employeeengagement action planning and review was completed for all managers having employeeengagement scorecards.
The Company, through TQM approach leveraged the creative potential of its employeesresulting in quantum improvement in areas of productivity, cost, efficiency and safety.Employee involvement in TQM initiatives has won various accolades in prominent Qualityforums of 2012 such as -
1. Award for the Best HR Strategy in line with Business for TQM from 3rd Asia's BestEmployer Brand Awards
2. Two Gold Medals for Small Group Activity Projects from Quality Circle Forum of India
3. 1st Place for 5S implementation under large scale process industry and also inmedium scale process industry category from ABK-AOTS, Chennai
4. Indian National Suggestion Scheme Association's Award for Excellence in SuggestionScheme
The Company continued its focus on improving its internal processes to meet multiple,at times conflicting requirements of various stakeholders. Coromandel was awardedSignificant Achievement in Business Excellence and Significant Achievement in HRExcellence by Confederation of Indian Industry (CII).
ANNEXURE TO DIRECTORS' REPORT
DIRECTORS' RESPONSIBILITY STATEMENT
The Board of Directors of Coromandel International Limited confirm that in thepreparation of the Statement of Profit & Loss for the year ended March 31, 2013 andthe Balance Sheet as at that date ("financial statements") :
the applicable accounting standards have been followed
appropriate accounting policies have been selected and applied consistently andjudgments and estimates that are reasonable and prudent have been made so as to give atrue and fair view of the state of affairs of the Company as at the end of the financialyear and of the profit of the Company for that period.
proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities. To ensure this, the Company has established internal control systems,consistent with its size and nature of operations, subject to the inherent limitationsthat should be recognised in weighing the assurance provided by any such system ofinternal controls. These systems are reviewed and updated on an ongoing basis. Periodicinternal audits are conducted to provide reasonable assurance of compliance with thesesystems. The Audit Committee meets at regular intervals to review the internal auditfunction.
Proper systems are in place to ensure compliance of all laws applicable to theCompany.
The financial statements have been prepared on a going concern basis.
| ||On behalf of the Board |
|Place : Hyderabad ||A Vellayan |
|Date : April 23, 2013 ||Chairman |
Information under Section 217(1)(e) of the Companies Act, 1956 read with Companies(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 andforming part of Directors' Report.
A. CONSERVATION OF ENERGY
Various energy conservation schemes formulated by Operational Improvement Teams haveyielded considerable energy savings during the year 2012-13
At Ennore Plant, energy audit was conducted by CII and an auto voltage controlincorporated in main incoming transformer
At Kakinada Plant an "Energy Cell" has been formed to look atimprovements in area of energy conservation.
B. TECHNOLOGY ABSORPTION
At Ennore Plant -
Sulphur sludge crushing machine developed in-house, same being used at Ranipet
Ambient air monitoring of stacks is on line and connected to Care Air centre ofTNPCB, Chennai
C. RESEARCH AND DEVELOPMENT
At Visakhapatnam Plant -
Trials for the production of a new Sulphur Enhanced Fertiliser 24-24-0-8S atVisakhapatnam plant under the technology license agreement signed with Shell ResearchLimited, U.K. in 2010 were conducted successfully.
Several new rock phosphate blends were tested in pilot plant and some of thesewere adopted for commercial production of phosphoric acid at Visakhapatnam and Ennore.
At Ankleshwar Plant -
Developed in-house process technology for production of Cymoxanil and FipronilTechnicals and later produced the same on commercial scale. A new solvent less process hasbeen developed & implemented in the Plant for Profenofos technical for productivityenhancement.
Efforts are on for developing process technology for some new molecules forproduction from their intermediates.
During the year the Company incurred a sum of Rs 391 lakhs towards revenue expenditureon account of Research and Development at the approved In House R&D Units atVisakhapatnam and Ankleshwar. The Company also incurred a sum of Rs 142 lakhs towardsCapital Expenditure in respect of approved In-house R&D units at Visakhapatnam andAnkleshwar.
R&D expenses incurred at the In-House Approved Centres
| || ||Rs in Lakhs |
|Nature of expenses ||2012-13 ||2011-12 |
|Capital Expenditure ||142 ||38 |
|Revenue Expenditure ||391 ||468 |
D. FOREIGN EXCHANGE EARNINGS AND OUT GO
Total foreign exchange used and earned:
| || ||Rs in Lakhs |
| ||2012-13 ||2011-12 |
|Used ||513051 ||690373 |
|Earned ||10883 ||11484 |
| ||Current Year ||Previous Year |
| ||2012-13 ||2011-12 |
|A. Power and Fuel Consumption || || |
|1. Electricity || || |
|a) Purchased || || |
|Units (Lakh Units) ||1,015.51 ||1,274.22 |
|Amount ( Rs Lakhs) ||5,902.54 ||5,577.11 |
|Rate / Unit ( Rs / kwh) ||5.81 ||4.38 |
|b) Own generation || || |
|Through DG Sets || || |
|Units (Lakh Units) ||122.84 ||19.22 |
|Units / litre of HSD ||4.16 ||3.60 |
|Rate / Unit ( Rs / kwh) ||15.00 ||16.68 |
|Through TG Set || || |
|Units (Lakh Units) ||342.26 ||436.94 |
|Units / litre LSHS || || |
|Rate / Unit ( Rs / kwh) ||0.36 ||0.18 |
|2. Coal ||Not used ||Not used |
|3. a) Fuel: Furnace oil / LSHS || || |
|Quantity (K. Litres) ||4,046.01 ||1,627.78 |
|Total cost ( Rs Lakhs) ||2,164.05 ||783.12 |
|Rate / Unit ( Rs / K. Litres) ||53,486.00 ||48,110 .00 |
|b) Compressed Natural Gas || || |
|Quantity SM3 in Lakhs ||57.83 ||65.56 |
|Total amount ( Rs In Lakhs) ||1,149.92 ||1,210.98 |
|Average Rate per 1000 SM3 ( Rs ) ||19,885.68 ||18,471 .00 |
|B. Consumption per MT of Fertilisers Produced || || |
|Electricity (KWH) ||79.24 ||67.51 |
|Fuel: Furnace Oil / LSHS (K.Litres) ||0.0042 ||0.0012 |
|Compressed Natural Gas (SM3) ||3.54 ||2.95 |
Statement under Section 217(2A) of the Companies Act, 1956
a) Employed throughout the Financial Year and in receipt of remuneration aggregating Rs60,00,000 or more
|Name, age and Qualification ||Designation and nature of duties ||Date of commencement of employment ||Experience in years ||Remuneration ( Rs ) ||Last Employment |
|Kapil Mehan, 54 Graduate in Veterinary Science, PGDM (Agri) (IIMA) ||Managing Director ||20.09.2010 ||32 ||2,44,07,150 ||Executive Director Tata Chemicals Limited |
|P Gopalakrishna, 54 B.Sc (Agri), PGDM (IIMA) ||Sr Vice President- Speciality Nutrients & Business Development ||01.12.2003 ||30 ||82,06,646 ||Deputy General Manager-Marketing EID Parry (India) Limited |
|Arun Leslie George, 46 M.A (SW), PMIR ||Sr Vice President & Head of HR ||01.10.2003 ||23 ||84,34,384 ||Deputy General Manager-HR EID Parry (India) Limited |
|Dr G Ravi Prasad, 57 Ph.D in Agricultural Chemicals ||President - Marketing (Fertilisers & Organic) ||01.04.2007 ||30 ||1,04,83,015 ||Vice President-Commercial Zuari Industries Limited |
|S Sankarasubramanian 43 B.Sc, ICWA ||Sr Vice President & Chief Financial Officer ||01.12.2003 ||22 ||69,09,068 ||Deputy General Manager - Finance EID Parry ( India) Limited |
|b) Employed for part of the Financial Year and in receipt of remuneration aggregating Rs 5,00,000 per month or more || |
|S Govindarajan, 50 B.Tech (Mech), GDMM (IIMM) ||Sr Vice President & Head of Manufacturing ||26.09.1992 ||28 ||82,13,146 ||Asst. Manager National Fertilisers Limited |
1. Remuneration includes salary and allowances, commission where applicable, Company'scontribution to Provident Fund, Superannuation Fund and Group Gratuity Scheme,reimbursement of medical expenses at actuals, and monetary value of perquisites calculatedin accordance with the Income Tax Act/Rules.
2. The employment of all employees of the Company is of contractual nature.
3. There are no employees in the service of the Company within the category covered bySub-Section (2)(iii) of Section 217(2A) of the Companies Act, 1956.
4. None of the above employees is a relative of any Director of the Company.
| ||On behalf of the Board |
|Place : Hyderabad. ||A Vellayan |
|Dated : April 23, 2013 ||Chairman |
Disclosure pursuant to Clause 12 of SEBI (Employee Stock Option Scheme and EmployeeStock Purchase Scheme) Guidelines 1999
|Nature of Disclosure ||Particulars |
|a. Options granted ||No Options were granted during the year. The total options granted upto date is 75,72,000. Each Option gives the grantee a right to subscribe to one equity share of Rs 1/- each of the company |
|b. The pricing formula ||The Options carry a right to subscribe to equity shares at the closing price on the Stock Exchange in which there was highest trading volume, prior to the date of grant of the Options. |
|c. Options vested ||47,84,032 |
|d. Options exercised ||32,63,922 |
|e. The total no of shares arising as a result of exercise of option ||32,63,922 |
|f. Options lapsed/surrendered ||16,06,638 |
|g. Variation of terms of Option ||Vesting schedule has been varied in certain cases. The exercise period for the all the options vested in the 2nd, 3rd and 4th year has been extended from 3 years to 6 years. |
|h. Money realised by exercise of Options ||Rs 1575.46 lakhs || |
|i. Total no of Options in force ||27,01,440 || |
|j. (i) Details of Options granted to Senior Management Personnel ||Name and Designation || |
No. of Options granted
| ||Mr Kapil Mehan Managing Director || |
| ||Dr G Ravi Prasad President- Marketing Fertilisers & Organic || |
| ||Mr Arun Leslie George Sr Vice President & Head of HR || |
| ||Mr P Gopalakrishna Sr Vice President-Speciality Nutrients and Business Development || |
| ||Mr S Sankarasubramanian Sr Vice President & Chief Financial Officer || |
|(ii) Any other employee who received a grant in any one year of Option amounting to 5% or more of ||Mr Kapil Mehan || |
| ||Dr G Ravi Prasad || |
|Options granted during the year ||Mr P Gopalakrishna || |
| ||Mr Arun Leslie George || |
| ||Mrs Hima Srinivas || |
| ||Mr C Sitaram || |
| ||Mr K Sankaranarayanamoorthy || |
| ||Mr Manoj K Agarwal || |
| ||Mr Parvez Shaikh || |
| ||Mr R Vaidyanathan || |
| ||Mr Suri V || |
| ||Mr K Muruganandam || |
| ||Mr M Ravindra Rao || |
| ||Mr M Hari Shankar || |
|(iii) Employees who were granted Options, during any one year, equal to or exceeding 1% of the issued capital of the Company at the time of grant. ||None |
|k. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of Option calculated in accordance with Accounting Standard AS-20. ||Rs 15.65 per share |
|l. (i) Method of calculation of employee compensation cost ||The employee compensation cost has been calculated using the intrinsic value method of accounting to account for Options issued under the ESOP Scheme 2007. The stock based compensation cost as per the intrinsic value method for the financial year 2012-13 is Nil. |
|(ii) Difference between the compensation cost using the intrinsic value of the Stock Options (which is the method of accounting used by the Company) and the compensation cost that would have been recognized in the accounts if the fair value of Options had been used as the method of accounting. ||Rs 757 lakhs |
| ||Net Income || ||Rs in lakhs |
|(iii) Impact of the difference mentioned in (ii) above on the profits of the ||As reported || ||44399 |
| ||Less: fair value compensation cost || ||757 |
|Company ||(Black Scholes Model) || || |
| || || ||43642 |
| || ||Basic ( Rs ) ||Diluted ( Rs ) |
|(iv) Impact of the difference mentioned in (ii) above on the EPS of the Company ||As reported ||15.70 ||15.65 |
| ||As Adjusted ||15.43 ||15.38 |
|m. (i) Weighted Average exercise price of Options ||Rs 228.12 per equity share |
|(ii) Weighted Average fair value of Options ||Rs 66.95 per equity share |
|n. (i) Method used to estimate the fair value of Options ||Black Scholes Model |
|(ii) Significant assumptions used (Weighted Average information relating to all grants):- || |
|(a) Risk-free interest rate ||8.0% |
|(b) Expected life of the Option ||4-6 years |
|(c) Expected volatility ||0.39 - 0.47 |
|(d) Expected dividend yields ||700% |
|(e) Price of the underlying share in market at the time of option grant ||Date of grant || |
Market Price ( Rs )
| ||31.08.2007 || |
| ||22.01.2008 || |
| ||22.04.2008 || |
| ||22.07.2008 || |
| ||22.10.2008 || |
| ||18.03.2009 || |
| ||19.10.2010 || |
| ||12.01.2011 || |
| ||21.07.2011 || |
| ||18.10.2011 || |