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Chambal Fertilisers & Chemicals Ltd

BSE: 500085 | NSE: CHAMBLFERT ISIN: INE085A01013
Market Cap: [Rs.Cr.] 2,370.32 Face Value: [Rs.] 10
Industry: Fertilizers

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Management Discussions

The Company operates Fertiliser, Shipping and Textile businesses. The ManagementDiscussion and Analysis Report covering the aforesaid business segments of the Company isas under:


I. Industry Structure and Developments

(a) Raw Material

Natural Gas is the main input for production of Urea. The requirement is met throughdomestic gas and imported Re-gasified Liquefied Natural Gas (RLNG). The Gas prices in lastfew years has been on rising trend due to increase in crude oil prices and increaseddemand of LNG in Japan.

RLNG constitutes a major part of gas supplies and its cost has been rising due toincrease in prices as well as weakening of the Rupee against the US Dollar. Thedevelopment in domestic market indicates increase in the domestic gas prices. Thedwindling gas supplies from KG-D6 gas fields and other domestic sources is an area ofconcern. The supplies of natural gas to your Company from KG-D6 gas fields have beencurtailed since second quarter of the Financial Year 2013-14 due to reduction inproduction of gas. The Company resorts to spot gas purchase to meet the shortfall as aresult of reduction in supplies of domestic gas.

(b) Demand-Supply Scenario

Urea production has been almost stagnant in India for many years whereas there has beensteady increase in demand of urea, resulting into significant gap between demand andsupply. India imported around 7 million MT of Urea during the year 2013-14, constitutingabout 23% of the total urea consumption in the country. Imported Urea prices were volatileduring the year and varied between USD 300 and USD 408 per MT.

(c) Developments in Government Policies

New Pricing Scheme (NPS) Stage III which was valid upto March 31, 2010, has beenfurther extended provisionally. The government has notified the modification in NPS StageIII, which should provide some relief to the existing urea units including your Company.

In order to reduce the dependence on imports, the Government of India (GOI) announced aNew Investment Policy 2012 (NIP) for attracting fresh investments in Urea sector. However,GOI later on decided to keep NIP on hold. It is expected that NIP will be notified soon.

Government of India proposes to give fertilizer subsidy directly to the farmers insteadof routing it through fertilizer manufacturers. The task force constituted under thechairmanship of Mr. Nandan Nilekani to implement the direct subsidy to farmers hassuggested a three phase roadmap for this purpose. Under Phase - I, the data regardingsupply of fertilizers upto to the retailer point has to be captured in the system. Phase– II envisages payment of fertilizer subsidy to the retailers and the subsidy isproposed to be paid directly to the farmers under Phase – III. The Government ofIndia has already rolled out Phase – I during the year and the subsidy payment hasbeen linked to acknowledgement of receipt of material by retailer. Pilot Projectimplementation of Phase – II is in progress in few districts and the final phase rollout is likely to take some more time.

II. Opportunities & Threats

Your Company plans to expand existing capacities at Gadepan to produce additional 1.30Million MT per annum prilled Urea through a Brown-field Expansion Project (Gadepan-IIIProject). The Board of Directors had approved the setting up of the project at a cost notexceeding USD 850 million. The Company had issued Letter of Intent to theLump-Sum-Turn-Key contractors for Gadepan–III Project. The implementation ofGadepan-III Project will place the Company in a different league and will furtherstrengthen its position in Urea segment. Since Government of India has put New InvestmentPolicy 2012 on hold, further action for expansion plans of the Company will be taken afterthe Government announces the revised policy.

Implementation of Nutrient Based Subsidy by the Government of India has given majorimpetus to the trading activity of the Company. The Company’s strong marketingnetwork and brand provides leverage in ramping up its sales of traded products.

The Company is running its Single Super Phosphate (SSP) production facility at Gadepan.There is a good potential for SSP business as there are not many big players in productionof SSP. This industry is plagued by the presence of a number of small players whosometimes resort to unethical practices.

Urea production beyond re-assessed capacity is becoming unviable for most of the ureamanufacturing units due to increased cost of RLNG, expected price rise in domestic gas andfall in the international urea prices. The Urea industry needs immediate policyintervention from the Government to sustain the production beyond re-assessed capacity. Ifthe Government does not come out with appropriate policy urgently to support theproduction beyond re-assessed capacity, the Urea units will be forced to cut downproduction, resulting into increased imports of Urea and foreign exchange outgo. Theproposed increase in domestic gas prices will have a huge impact on the subsidy burden ofthe Government and consequent increase in the working capital requirements of fertilizerindustry including your Company.

III. Risks and Concerns

The Urea segment of Fertiliser Industry operates in the Government controlled regimeplacing high dependence on Urea pricing policy of the Government of India. During last fewyears, the Government of India has resorted to under-provisioning for fertilizer subsidyin the union budget. This has resulted into long delays in payment of subsidy to thefertilizer companies thereby substantially increasing industry’s interest burden.

High volatility in foreign exchange rates, likely reduction in demand of DAP due tohigh market prices, higher interest costs due to delay in payment of subsidy and theextended credit period in the market may impact the profitability from trading activitiesof the Company. The likelihood of reduction in production of Urea due to un-favourableGovernment policy for production beyond re-assessed capacity is another area of concern.

IV. Outlook

Subject to risks and concerns mentioned above, the Urea industry is unlikely to faceany challenge in terms of sales volumes in near future in view of demand-supply gap. Theoutlook of traded fertilsers also looks positive in view of lower inventory in the tradechannel.

V. Operational and Financial Performance

The performance of Fertiliser Division is summarized below:

Particulars 2013-14 2012-13
Urea Production (MT in lac) 19.41 20.92
Urea Sales (MT in lac) 20.96 20.25
Single Super Phosphate (SSP)
Production (MT in lac) 1.03 0.31
SSP Sales (MT in lac) 0.64 0.31
Sales including Agri inputs
(Rs. in crore) 7014.36 6669.25
EBIDTA (Rs. in crore) 626.75 676.97

The Company had to curtail the production of Urea due to unviable Government policy forproduction beyond certain level. Therefore, the overall production of Urea during the yearunder review was lower than that of last year. The turnover of traded products was Rs.2628.81 crore during the financial year 2013-14 in comparison to Rs. 3043.62 crore in theprevious year. The sales of various products were as under:

Particulars (Quantity) (Quantity)
(MT in lac) (MT in lac)
Product 2013-14 2012-13
Di- Ammonium Phosphate (DAP) 6.04 5.99
Muriate of Potash 0.42 0.60
Single Super Phosphate (SSP) 0.54 1.50
Other Fertilisers 0.60 0.93
Pesticides – (Rs. in Crore) 249.67 272.50
Seeds – (Rs. in Crore) 51.56 41.46

Your Company has setup an additional marketing office at Indore during the year tofocus more in Madhya Pradesh.

VI. Material Developments in Human Resources/ Industrial Relations

Your Company is committed to its employees who are instrumental in the Company’sperformance and continued growth. In order to keep the workforce motivated, your Companyfocuses in the following areas:

i. Promotes open and engaging work environment.

ii. Provides ample opportunities for learning and growth, thereby building employeecapability.

iii. Fair and equitable treatment without bias for gender, caste, religion, etc.

The Company is operating two high-tech plants at Gadepan, Rajasthan which requiresqualified and trained manpower. The retention of trained and experienced manpower incompetitive market is very critical for efficient operations of the Company. Your Companymakes suitable interventions as continuous process including engagement surveys, retentionincentives for key personnel, etc., as a part of its talent retention and augmentationstrategy. The Company inducts fresh talent from premier Engineering and Managementinstitutes at entry level to feed its talent pipeline on a continual basis. Priority isalways given to trained internal resources when it comes to career growth opportunitiesthrough job rotation, job enrichment and promotion. Wherever essential, the personnel arerecruited externally to bridge critical gaps in knowledge and experience. An appropriatemanpower plan is in place for planned future growth of the Company.

Training and development of its people for their growth aligned with business needs, isan on-going process. Apart from in-house training programmes, the employees were nominatedfor various external Management Development Programs. As on March 31, 2014, total employeestrength of fertilizer division was 924. The Fertiliser division continues to maintainopen and cordial employee relations across all locations.


I. Industry Structure & Developments

The dry bulk, containers and tankers are three major segments of Shipping Industry.Your Company operates Aframax Tankers. The shipping industry has been going throughrecession since 2009 and hopefully it is at the bottom of the economic cycle at present.An upward trend was witnessed in December 2013 and January 2014 but could not be sustaineddue to lack of fundamentals. Since the shipping industry’s performance is directlylinked to the Global economy, any positive or negative development directly impacts theshipping industry.

The global seaborne crude oil trade is expected to improve in the year 2014, as strongAsian crude imports are expected to more than offset the further projected drop in USimport volumes. The crude tanker supply is expected to grow at a relatively slow pace of1.7% over the year. The slowing fleet growth with fall in deliveries is expected to helpthe fundamentals to be much more balanced than in previous years, when supply growthconsiderably outstripped the increase in demand. Firm crude demand, driven by the growthin refinery capacity across many parts of the Asia Pacific region, is expected to supportAframax demand in 2014.

II. Opportunities and Threats

The consolidation of the global fleet of ships is underway signifying positivity in themarket. New building prices for crude tankers increased across all vessel types exceptAframaxes. The benchmark price for a new build Aframax remained steady and second-handmarket is also looking up.

The crude tanker markets are generally weak, following a significant tightening inJanuary 2014 when average spot earnings reached three-year highs. The shipping industryhas been on a downtrend since 2009 and the present recession has been the longest known inthe past 20 years. There were few spikes in between but overall market scenario hasremained subdued. The freight and asset prices seem to have bottomed out and there is nowhope for an upside.

III. Risk and Concerns

The shipping being global industry, the developments in the world economy are bound tohave its bearing on this industry. The Chinese government finally announced long-awaitedreforms that are intended to change the structure of the Chinese economy and allow growthto continue at a rapid pace. United States averted a severe crisis but a governmentshutdown did have a negative impact on economic activity. However, a number of majoremerging markets have quickly gone from an environment of optimism about future growth toone of uncertainty.

The geo-political situation in Ukraine, Libya, Iran and Syria are of grave concerns toShipping Industry.

IV. Outlook

Global oil production in 2014 is projected to increase by 1.9%. This positive sentimentis reflected in the tonnage growth in the tanker segment. The VLCC deadweight demand isexpected to increase gradually. Growth in demand is being mainly driven by an expectedincrease in demand in non-OECD regions. Aframax tanker deadweight demand is projected toincrease by around 2% in 2014 which is giving hope for improved rates in the near future.

V. Financial and Operational Performance

The summarized performance of Shipping Division during the year was as under;

Particulars 2013-14 2012-13
Sales (Rs. in crore) 589.28 309.67
EBIDTA (Rs. in crore) 105.50 94.39

VI. Material Developments in Human Resources development/ Industrial Relation

Human Resources continue to be the thrust area for the organization. The committedon-shore staff continuously provides prompt and efficient support and guidance to thefloating staff which results in effective performance and operational efficiency at alltimes. The organization’s focus and emphasis on Occupational Health and Safety,Quality and Protection of environment further drives the performance of its employees.Training programs for shipboard officials help us to build an efficient and well-qualifiedcadre of experienced seafarers for its fleet. The shipping division had 64 employees inits shore office and 138 floating staff onboard as on March 31, 2014. The Employeerelations continued to be cordial during the year.


I. Industry Structure and Developments

India is the second largest textiles manufacturer worldwide after China. India ranksnext to China and USA in the cotton production and consumption trend. The textilesmanufacturing is a pioneer activity in the Indian manufacturing sector and it has aprimordial importance in the economic life of the country.

Almost one quarter of the world’s spindle activities is hosted in India. India isalso significant textiles fiber and yarn manufacturer with 12% share of the world’sproduction volume.

II. Opportunities & Threats

Garment export from India increased by 15.5 per cent to USD 14.94 billion in 2013-14.India’s textile sector may see improvement next year amid a pickup in exports,supporting the outlook for Asia’s third biggest economy. With demand from the USA, animportant market for India’s textile sector, picking up recently, 2014 may be abetter year for the sector. The depreciation of the Indian rupee against the US dollar mayalso boost earnings for the sector.

India’s weak consumer sentiment, high inflation and low wage growth have beendampening textiles and apparel sales. Incremental capital investments in debt relianttextile industry is expected to remain subdued given the high interest rates andbanks’ unwillingness to lend to the sector.

III. Risk & Concerns

The primary risk factor is raw material prices, mainly cotton, which is the largestcomponent of cost. Since cotton is an agri-produce, it suffers from climatic volatility inthe major cotton producing countries, in turn impacting supply of cotton.

Availability of quality power at reasonable price is critical for sustainability of theindustry. However, power cost has been steadily increasing, adding to input cost pressurein the industry. The non-availability of skilled manpower along with high labour cost isanother area of concern for textile industry.

The Company is making all out efforts to cope up with the challenges through continuouscost rationalisation, process improvements, diversification of products, training ofworkforce, improving efficiencies and creating a strong customer oriented approach.

IV. Outlook

India is major player in the global textile industry, with textile exports providingabout 27 per cent of the country’s total foreign exchange and 3 percent of thecountry’s GDP. The Indian Government has planned substantial investments in thetextile and apparel sector in their 11th five year plan including investments in newtextile parks, investment incentives, etc. A number of reputed international apparelretail brands have invested in long-term growth in India.

With economic scenario in the USA and European Union showing signs of revival, demandfor textiles from these consumers is expected to go up. This would help in the growth oftextile exports from the country.

V. Operational & Financial Performance

The summarized performance of Textile Division during the year was as under:

Particulars 2013-14 2012-13
Yarn Production (MT) 19780 18701
Sale of Yarn (MT) 18580 19163
Sales (Rs. in crore) 396.01 379.52
EBIDTA (Rs. in crore) 42.94 37.25
Spindle utilisation 96% 93%

VI. Material development in human resources / industrial relations

Being a labour intensive industry, availability of the trained and experienced humanresource is critical for textile business. The training and development of the work forceis a continuous process enabling the Company to achieve better efficiencies in itsoperations. Presently, the manpower deployments comprises of 1369 workers, 255 staffmembers and 116 trainees.

The Industrial relations remain cordial during the year.


The Company has a strong system of internal controls comprising authorization levels,supervision, checks and balances and procedures through documented policy guidelines andmanuals. These systems ensure that all transactions are authorized, recorded and reportedcorrectly and compliance with policies and statutes are made.

The operational managers exercise their control over business processes throughoperational systems, procedure manuals and financial limits of authority manual. Theseprocesses are reviewed and updated on an on going basis to improve efficiency ofoperations and meet the business needs.

The Company places prime importance on an effective internal audit system. During theyear, the internal audit was carried out jointly by the internal audit team of the Companyand M/s. Deloitte

Touche Tohmatsu India Private Limited based on the internal audit programme dulyapproved by the Audit Committee. The internal audit programme is aligned to the previousyears’ observations, suggestions from the operating managers, statutory auditors andalso the risk areas.

The internal audit carries out audit effectively throughout the year covering all areasof operations including the follow up action. The audit approach is based on random sampleselection and takes into consideration the generally accepted business practices. Theinternal audit reports are first discussed by the Management Committee and subsequentlyplaced before the Audit Committee of the Board of Directors along with the direction/action plan recommended by the Management Committee. The directions are implemented by therespective divisions and Action Taken Report is placed before the Audit Committee.


The report may contain certain statements that the Company believes are, or may beconsidered to be "forward looking statements" that describe our objectives,plans or goals. All these forward looking statements are subject to certain risks anduncertainties, including but not limited to, Government action, economic development,risks inherent to the Company’s growth strategy and other factors that could causethe actual results to differ materially from those contemplated by the relevant forwardlooking statements.

Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

S K Poddar , Chairman

Anil Kapoor , Managing Director

Shyam S Bhartia , Co-Chairman

Chandra Shekhar Nopany , Director

Company Head Office / Quarters:

Gadepan Village,
Distt Kota,
Phone : Rajasthan-91-7455-274121/22/23/24/25 / Rajasthan-
Fax : Rajasthan-91-7455-274145 / Rajasthan-
E-mail : ms.rathore@chambal.in
Web : http://www.chambalfertilisers.com


Zuari Investments Ltd
Corporate One 1st Fl,5 Commercial Centre,Jasola,New Delhi-110025

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