MANAGEMENT DISCUSSION State of Economy & Industry
The Indian Economy has emerged with remarkable rapidity from the slow down caused bythe global financial crisis of 2007-09. India continues to remain amongst the fastestgrowing economies of the world with a projected growth of 89%. The growth has been broadbased with a rebound in Agriculture Sector with estimated growth of around 5.4%.Manufacturing and services sector registered impressive gains. However, food inflation,higher commodity prices and volatility in global commodity markets have been a cause ofconcern. Though, downside risks of global events, particularly movement in prices ofcommodities like crude oil remain, the Indian economy is poised to further improve andconsolidate.
Indian fertilizer sector witnessed a sustained high growth in consumption for the pastfew years. During 2010-11 total nutrient consumption touched 26.5 million tonnes recordingan increase of 6.3% over the previous year. Against the background of sustained highgrowth in consumption, the growth in indigenous production was stagnant during the decade2000-01 to 2008-09. Production of 'N' increased from 10.900 million tonnes in 2009-10 to11.924 million tonnes in 2010-11.
To sustain a high growth in agriculture in future, there is need for adequateavailability of fertilizer across the country. The government has taken a number ofinitiatives in the recent years for promoting balanced fertilization to accelerateagricultural growth. These include policy for customized, coated and fortifiedfertilizers. The government policy is to unshackle the fertilizer sector in a phasedmanner. NBS has been implemented for P&K fertilizers w.e.f. 1st April, 2010, SSP hasalso been brought under NBS w.e.f. 1st May 2010. The full benefit of the aboveinitiatives of the Government will accrue, once urea is also brought under NBS.
The New Investment Policy for urea sector notified on 41h September, 2008has not attracted any fresh investment in the sector. Notwithstanding Fertilizer industrybeing bench mark as one of the best in the world in terms of energy efficiency, safety andenvironment measures, no new investment came in the fertilizer sector since 2000 as thepolicies were not conducive for investment. With the upsurge in the prices of fertilizersin the international market, augmenting the domestic capacity of fertilizer is essentiallyrequired. Remunerative investment Policy and firm allocation of gas shall give fillip toinvestment in the country. The Union Budget for 2011-12 proposal to accord infrastructurestatus to investments in fertilizer production is a major breakthrough in policy towardsattraction of investment in the fertilizer sector. The budget has not addressed the mainconcern of the fertilizer industry of steep increase in the cost of inputs.
Business Organization
Company is mainly in the business of production and marketing of urea. It has five Ureaplants, one each at Nangal and Bathinda (Punjab), one at Panipat (Haryana) and two atVijaipur (Madhya Pradesh). Company deals in various Industrial Products. Urea accounts formajor part of the turnover. Company has also a 100 tonnes p.a. bio-fertilizers Plant atVijaipur, where three strains of bio-fertilizers namely Phosphate Solubilising Bacteria(PSB), Rhizobium and Azotobacter are produced. Company also markets certified seeds,compost, Mycorrhiza, and imported Muriate of Potash (MoP).
Company has an extensive marketing network spread with significant presence in Northernand Central India. NFL is the second largest producer of urea in the country with a shareof 15.4% of total urea production.
Opportunities
Changeover of Feedstock Projects from Fuel-oil to Gas at Nangal, Panipat and Bathindaunits taken up for execution in 2009-10 are expected to be commissioned in 2012-13. Aftercommissioning of these projects, cost of production of urea from these units shall becomecompetitive in the market. Further, Company has undertaken capacity augmentation of ureaprojects at Vijaipur to consolidate its position as a market leader in urea.
NFL is the first fertilizer manufacturer in the country, which has developed thetechnique for coating of normal prilled Urea with neem oil on large scale. Government hasnotified policy for encouraging production and availability of fortified and coatedfertilizers. Due to wider acceptability of Neem Coated Urea in the market, there is anopportunity to augment the production of neem coated urea in terms of above policy.
With the implementation of Nutrient Based Subsidy (NBS) from 01.04.2010 for P&Kfertilizers, company has undertaken trading of imported P&K fertilizers.
Company has a well knit marketing set-up and dealers network. Marketing of agro-inputslike seeds and compost can be undertaken, on large scale.
Company has been producing and marketing a number of industrial products and isexploring the opportunity to expand further in that sector.
The Company primarily has a single nutrient product base i.e. Urea. Increasing inputcosts of feed-stock i.e. Fuel-Oil/Natural Gas has raised the cost of production of Ureaand Industrial Products. Globalized competitive scenario coupled with reducing trend ofimport duties and dumping at low price may affect the sale and margins on industrialproducts being manufactured by the Company. (However, with the commissioning of changeoverof fuel based projects, cost of production of urea and industrial products shall getreduced considerably).
The acreage under food production is declining because of depletion in water levels.Dependence on Monsoons is increasing. Scanty rains because of Monsoon failures affects theurea off takes in the market area.
Risks & Concerns Management perceives
The steep rise in cost of inputs. Positioning for the future
(a) Projects: Agriculture sector will continue to remain vital for Indian economy. Thecontribution of fertilizers in increasing the production and productivity of Indianagriculture especially food-grains is undisputed. Considering the opportunities available,Company has undertaken the following initiatives:
• Revamp of fuel-oil based plants at Panipat, Bathinda & Nangal
Company has undertaken revamp of fuel-oil based plants at Panipat, Bathinda &Nangal for change over of feedstock from FO/LSHS to NG/RLNG. These projects involve atotal investment of Rs. 4066 crores and a completion period of 36 months from the Zerodate i.e. 29th January 2010. Panipat and Bathinda projects are beingimplemented by M/s. Larsen & Toubro (L&T) with process licence from M/s. HaiderTopsoe. Nangal Project is being implemented by consortium of M/s. Tecnimont SPA Italy andM/s. Technimont ICB, Mumbai with process licence from KBR. M/s. Project & DevelopmentIndia Limited (PDIL) has been engaged as Project Management Consultant for all these threeprojects. The projects are on schedule
• Urea Capacity Augmentation & Energy Saving Project (ESP) at Vijaipur
The Company has undertaken Capacity Augmentation of Ammonia & Urea plants atVijaipur-I & II units including installation of Carbon Dioxide Recovery (CDR) plant atan investment of around Rs.650 crore. The total urea capacity of Vijaipur units aftercommissioning of the project shall be 20.66 lakh tonnes per annum against the existingcapacity of 17.29 lakh tonnes per annum. Capacity Augmentation of Ammonia & Urea shallbe completed by November, 2011 and the CDR Plant shall be commissioned by June, 2012.
• Joint Venture with SAIL
Company is exploring for entering into a joint venture with Steel Authority of IndiaLtd. (SAIL) for setting up of 1.15 million tonne urea plant at Sindri.
• Joint Venture with M/s. Engineers India Limited (EIL)
Empowered Committee of Secretaries of the Government of India has proposed a consortiumof NFL and EIL to form a joint venture to set up a urea plant at Ramagundam for itsrevival. The discussions are being held with El L to assess the feasibility of theproject.
(b) Marketing:
• Sale of other fertilizers
The present market is very competitive and in view of the globalization scenario and toexploit the opportunities in the Nutrient Based Subsidy (NBS) regime, a dedicated team hasbeen formed. Company intends to make use of New Fertilizer Policy by entering intocustomized fertilizers. Company has been planning for imports of fertilizers like MoP, DAPfor trading through its distribution network. Accordingly, contracts are being planned forimport of other fertilizers like DAP, Complex Fertilizers. Company is also exploring toadd Single Super Phosphate fertilizer in its product range.
• Bio-fertilizers
Company has been marketing special fungus based Bio-fertilizer 'Mycorrhiza' under thebrand name of "Kisan Mycorrhiza", which increases the root growth and improvessoil structures to provide vital nutrition to the plant.
• Seeds
Company has been producing foundation and / certified seeds in a pilot projects atselected farmer fields in adopted villages, which can pave the way for seed production ona commercial scale. Company has already initiated action to set up its own Seed ProcessingPlant at Indore to provide good quality seed of various High Yielding Variety (HYV) cropsunder its own brand. Company has also W taken up Seeds Multiplication Programmes for Paddyand Soyabean breeder/foundation seeds on agricultural land and has entered into anagreement with State Farms Corporation of India Limited (SFCI) for supply of certifiedseeds i.e. Paddy, Hybrid Paddy, Soyabean during Kharif 2011. Company has also entered intoan agreement with Hindustan Insecticides Limited for trading of pesticides.
• Promotion of balanced use of fertilizers
During the last three decades, the Company has been working closely with farmingcommunity by ensuring supply of quality fertilizers and other agri-inputs. Companybelieves in marketing its products and services through extensive field demonstrationscoupled with an effort to build relationships with the end users, the farmers. This hashelped to make its brand "Kisan Urea" a household name.
Company undertook 409 block and frontline demonstrations. 17520 farmers were trainedand 57700 soil samples were tested and analysed. Company also participated in 42 krishimelas and exhibitions.
• Business alliance with Bharat Sanchar Nigam Limited (BSNL)
Company has entered into a strategic Business Alliance with Bharat Sanchar NigamLimited (BSNL) to market their products viz. Recharge Coupons, Mobile connections,Landline connections and Broadband internet facility etc. through its dealer network.
(c) Joint Venture: Company signed MoU with M/s. KRIBHCO and RCF in January 2008 toform a Joint Venture Company with the name "Urvarak Videsh Limited" to exploreinvestment opportunities abroad and within the country in nitrogenous, phosphatic andpotassic sectors and to render consultancy services for setting up projects in India andabroad.
Review of Performance of the Company
Production Review
During the year, Company produced 33.80 lakh tonnes of Urea (104.06% of installedcapacity), including 1.49 lakh tonnes of additional production from Vijaipur Plants,compared to 33.30 lakh tonnes in the previous year. Vijaipur units achieved ever-bestyearly production of Urea and Ammonia at 18.78 lakh tonnes and 10.92 lakh tonnesrespectively, which was 108.6% and 108.8 % of installed capacity. The three Fuel oil basedplants achieved 100% capacity utilization on cumulative basis. The production beyond 100%capacity utilization in Fuel Oil based plants is not economically viable in terms ofPricing Policy of Urea. The company achieved ever-best Bio-Fertilizers production of 231tonnes during the year against earlier best production of 226 tonnes in 2009-10. Ever bestlower energy consumption of 9.446 Gcal/tonne of urea was achieved at Nangal during 2010-11surpassing the previous best lowest energy consumption of 9.505 Gcal/tonne of urea in2008-09. The percentage share of NFL in urea production in the country has been at 15.4%.Company has also started the production of foundation and certified seeds under a pilotproject.
Marketing Review
Company sold 33.59 lakh tonnes of Urea against 33.78 lakh tonnes in the previous year.The sales turnover for the year including subsidy was Rs.5791 crore against Rs.5091 crorein the previous year. Bio-fertilizers sales saw a growth of 11% over the previous year.Company sold 219 MT of Bio-fertilizers during the year as compared to 196 MT incorresponding period of the previous year. Industrial Product sales were of the value ofRs.115 crore in 2010-11 recording a growth of 17% from Rs. 98 crores in the previous year.
Company imported and sold 0.50 lakh MT of MoP. It also marketed 5502 MT of wheat,soyabean and paddy seeds with a turnover of Rs.9.07 crores. Company sold 102 MT mycorrhizaand 648 MT compost. In agro-chemicals, the Company saw a turnover of Rs.1.03 crore.
Human Resource
The Company has always believed that human resource is its most important asset andcontinues to work for its development and realisation of its potential. To achieve growthand to foster motivational climate, several initiatives were taken up during the year.Performance Related Pay Scheme has been finalized and Group Productivity Allowance Schemehas also been introduced. The Company has introduced Employees Economic & SocialRehabilitation Scheme which protects the Welfare of the family in case of demise/permanentdisablement of employee during service. A new Pension Scheme for the benefit of employeesis also in the process of finalization.
During the year, to boost moral and inculcate leadership qualities with high values,moral and ethics in all supervisory staff and managerial cadre, Company achieved 8781 and11802 man days training for Executives and Non-Executives, respectively by deputingemployees for external and in-house programmes organized. Manpower strength of the companyas on 31.03.2011 was 4596 comprising of 1877 Executives and 2719 Non-executives.
The Employer-Employee relationship continued to be cordial during the year. There wasno loss of production due to any adverse IR situation. The schemes for employees'participation in Management continue to function successfully. There were continuousinteractions between the Management and employees' representatives on various issueskeeping in view the best interest of employees and the Company.
The Company continues to make efforts for improving employees' health, well-being andwelfare and has taken steps for providing recreation, education and general welfare ofemployees.
Review of Financial Performance
During the year, Company achieved turnover of Rs. 5791 crore. The profit before tax wasRs. 203.92 crore (previous year Rs. 259.95 crore) and profit after tax was Rs.138.50 crore(previous year Rs.171.51 crore). During the year the interest expenses decreased toRs.9.15 crore (previous yearRs. 10.96 crore) due to timely receipt of subsidy. The totalborrowing of the company as on 31s1 March 2011 stood at Rs.613.06 crore againstRs.403.16 crore as on 31s1 March, 2010. Debt Equity Ratio as on 31.03.2011 is0.37:1 as compared to 0.25:1 as on 31.03.2010.
Analysis of the Financial Performance of the Company:
(a) Turnover
| | | (Rs. in crore) |
| FY 2010-11 | FY 2009-10 | Change(%) |
| Sales Turnover (Net) | 5791.03 | 5092.28 | 13.72 |
The increase in sales turnover is mainly due to increase in subsidy on account ofincrease in prices of petroleum products i.e. fuel oil (20%) at FO based units andrevision in the price of APM Gas at Vijaipur w.e.f. 151 July, 2010.
(b) Interest Earned
| | | (Rs. in crore) |
| FY 2010-11 | FY 2009-10 | Change(%) |
| Interest earned - Bonds | 2.71 | 20.43 | (87) |
| Others (Term deposit etc.) | 8.11 | 10.18 | (20) |
| TOTAL | 10.82 | 30.61 | (65) |
The decrease in interest income is on account of lower interest income earned onFertilizer Bonds as the bonds for face value of Rs.125 crore were sold during the year. Nonew bonds were issued by the Government of India during the year.
(c) Other Income
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Other Income (Rent, profit on sale of assets, misc. income etc.) | 35.30 | 26.07 | 35 |
The increase in the other income is mainly due to increase in misc. income during theyear,
(d) Consumption of Raw Materials
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Raw Materials Consumed | 3292.35 | 2611.72 | 26 |
The increase in consumption of raw materials is mainly on account of increase in pricesof petroleum products i.e. fuel oil (20%) and revision in the price ofAPM Gas w.e.f. 1stJuly, 2010.
(e) Consumption of Stores & spares including Repairs & Maintenance
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Changef(%L |
| Stores and Spares Consumed | 24.66 | 31.39 | (21) |
| Repairs and Maintenance | 74.20 | 76.57 | (3) |
| Total | 98.86 | 107.96 | (8) |
The decrease in stores & spares consumption and Repair & Maintenance ascompared to previous year is mainly due to replacement of catalyst at Vijaipur in theprevious year.
(f) Employees Remuneration & Benefits
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Employee Remuneration & Benefits | 386.96 | 349.52 | 11 |
The increase in employee remuneration and benefits is mainly on account of increase inactuarial valuation of retiremental benefits and increase in dearness allowance.
(g) Power and Fuel
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Power and Fuel | 1248.77 | 1066.85 | 17 |
The increase in consumption of raw materials is mainly on account of increase in pricesof petroleum products i.e. fuel oil (20%) and revision in the price of APM Gas w.e.f. 181July, 2010.
(h) Freight and Handling
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Freight and Handling | 245.51 | 228.68 | 7 |
The increase in freight and handling expense is mainly due to higher dispatches of Ureaduring the year,
(i) Other Expenses
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Other Expenses (including past period adjustments) | 111.64 | 110.09 | 2 |
There is a marginal increase in other expenses mainly on account of increase in waterand insurance charges.
Financial Status
(a) Fixed Assets
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change (%) |
| I Gross Block | 2929.54 | 2924.04 | - |
| I Less: Depreciation | 2330.53 | 2258.24 | 3 |
| Net Block | 599.01 | 665.80 | (10) |
| Capital Work in Progress | 654.15 | 29.20 | 2140 |
The increase in capital work in progress is due to expenditure incurred on projects ofEnergy Saving and Urea capacity enhancement at Vijaipurand changeover of feedstock fromfuel oil to natural gas at Nangal, Bathinda and Panipat units.
(b) Investments
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Investments (Net of Provisions) | - | 121.80 | (100) |
Reduction in investment is on account of disposal of Government of India FertilizerBonds during the year,
(c) Inventories
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Raw Materials | 118.09 | 141.16 | (16) |
| Stores and Spares (including packing material) | 158.69 | 161.51 | (2) |
| Semi finished /finished products | 86.36 | 44.45 | 94 |
| Total | 363.14 | 347.12 | 5 |
There is marginal increase in total inventories due to increase infinished/semi-finished inventory primarily due to increase in stock of urea arising out oflimitation of railway wagons at Vijaipur.
(d) Sundry Debtors
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Gross Debtors - FICC | 1497.37 | 871.23 | 72 |
| - Others | 116.72 | 61.48 | 90 I |
| Less: Provision for Doubtful Debts | 12.83 | 12.16 | 6 |
| Net Debtors | 1601.26 | 920.55 | 74 |
The increase in net debtors is mainly due to receivables from FICC for reimbursement inincrease of the price of inputs.
(e) Loans and Advances
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change (%) |
| Loans and Advances | 121.38 | 121.90 | |
(f) Current Liabilities and Provisions
in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Current Liabilities | 771.10 | 578.53 | 33 |
| Provisions (Gratuity, accrued leave, other Employee Benefit Scheme etc.) | 226.78 | 214.94 | 6 |
| Total Current Liabilities and Provisions | 997.88 | 793.47 | 26 |
The increase in current liabilities is mainly on account of increase in year endliability towards sundry creditors for raw materials and increase in provisions is due toactuarial valuation of employees benefit scheme.
(g) Secured and unsecured Loans
(Rs. in crore)
| FY 2010-11 | FY 2009-10 | Change(%) |
| Secured Loans | 493.84 | 233.16 | 112 |
| Unsecured Loans | 119.22 | 170.00 | (30) |
| Total Loans | 613.06 | 403.16 | 52 |
The increase in secured loans is due to Rupee Term Loan and Buyer's Credit facilitytaken for financing the projects of changeover of feedstock at Nangal, Bathinda andPanipat units and Energy Saving and Urea capacity enhancement at Vijaipur respectively.
Internal Controls
The Company has put in place adequate internal control measures in all areas. Thesemeasures are in the form of manuals and procedures, covering all critical and importantactivities viz. Budget, Purchase, Material, Stores, Works, Finance, Personnel, etc. Thesemanuals and procedures are updated from time to time and are subject to strict compliance,which is monitored by Internal Audit. Company has an internal audit set up empowered toexamine the adequacy and compliance with policies, plans and statutory requirements.Continuous audit and verification of the systems enables to plug any shortcomings. TheInternal Audit of all manufacturing units, Corporate Office and Marketing Divisionincluding Industrial Products have been assigned to external audit firms. Audit Committeeand Management periodically reviews the functioning of internal audit and adequacy ofinternal control system.
Cautionary Statement
Statements in the Management Discussions and Analysis describing the company focalobjectives, expectations or anticipations may be forward looking statements within themeaning of applicable securities, laws and regulations that describe our objectives, plansor goals. All these forward looking statements are subject to certain risks anduncertainties, including but not limited to, Government action, economic development andrisks.