Agro Phos India Ltd Management Discussions.

Overview

As all we know that agriculture plays a vital role in the Indian economy over 70 per cent of the rural households depend on agriculture. this is an important sector of Indian economy as it contributes about 17% to the total GDP and provides employment to over 60% of the population.

Our company M/s Agro Phos (India) Limited being a fertilizer manufacturer is also a part of the agriculture sector of India and continuously serving our best since its pioneering stage, we have previously one unit at dewas, M.P. only which has its capacity of 60000 MT per year and taking steps toward more growth and development, company in the year 2014 inaugurated a new plant at Meghnagar, M.P, we are manufacturing Single Super Phosphate (SSP), Nitrogen Phosphate and Potassium (NPK), Zinc Sulphate, Organic manure and Calcium Sulphate commonly known as soil conditioner or gypsum.

Our Company also undertakes trading of Diamonium Phosphate (DAP), Urea, Ammonium Sulphate and other fertilizers depending upon the demand of the customer, we are haing at our plant a well equipped in-house testing laboratory to test the products as per quality standards and relevant chemical composition. In our quest to maintain high standards of quality for our products, we have imported testing machine to test the product in real time basis. The final product has to pass special quality test to ensure that it is of the requisite quality and contains the requisite chemical composition, apart from manufacturing of above products company since last two years also trading in agricultural produce mainly in rice and management is expecting an extensive growth in this segment in future.

Fertilizer Industry and its Impact on Indian Economy

India is predominantly an agrarian economy. The Indian economy mainly depends upon its agricultural produce. The agricultural output contributes to about 25% of the countrys GDP. As a result of the chemical fertilizers being one of the related parts of the agriculture, there is vast scope for the growth of the chemical fertilizer industry.

The Indian Fertilizer Industry has shown tremendous growth in the last five decades and at present ranks third in the world. India is the second largest consumer of fertilizers after China. India also ranks second in the production of nitrogenous fertilizers and third in phosphatic fertilizers whereas the requirement of potash is met through imports since there are limited reserves of potash in the country, Being an important industry to the Indian economy, the government has ensured the availability of adequate quantity and proper quality of fertilizers to the farmers.

The Indian fertilizer market was worth INR 5,437 Billion in 2018. Looking forward, the market is projected to reach INR 11,116 Billion by 2024, growing at a CAGR of 12 key role in the success of Indias green revolution and subsequent self-reliance in food-grain production. The increase in fertilizer consumption has contributed significantly to sustainable production of food grains in the country. As a result, the demand of fertilizers has witnessed double digit growth rates over the past several years.

Industry structure and developments

The fertilizer industry in India consists of three major players; The Government owned Public Sector undertakings, Cooperative Societies like KRIBHCO, IFFCO and units from Private sector. There are about 33 major producers producing N, NP and NPK fertilizers in the country at present. The fertilizer industry of India had made constructive use of the fertilizer subsidy provided by the Government of India to ensure that the country achieved reasonable self-sufficiency in food grain production. The fertilizer industry has organized itself through Fertilizer Association of India to coordinate with the Government of India to achieve the macro-economic objectives related to agricultural sector and to provide other services. Indian fertilizer industry has succeeded in meeting almost fully the demand of all chemical fertilizers.

Future Outlook

India is the third largest producer and consumer of mineral fertilizer globally. Over the years, the Indian fertiliser industry has grown significantly on the back of favorable demand, governments support and increasing agricultural output. Presently, the Government is actively focusing on addressing balanced crop nutrition and improving soil health. Towards this, neem coating of Urea, soil health cards, moderation of Urea bag size and customized fertilizers usage is being promoted. Direct Benefit Transfer, introduced in 2017, is likely to increase awareness towards balanced nutrition practices among the farmers. Industrys fertilizer sales during the year have improved by 6 percent. Lower opening channel inventories and early monsoon onset during Kharif helped in consumption during the first half of the year.

The agriculture industry is restricting the usage of chemical fertilizers and is increasingly adopting organic and biofertilizers globally to promote not only plant growth but also soil health. The global biofertilizer market was estimated to be in the range of $1.2-1.5 billion in 2017 and is anticipated to expand at a CAGR of 13-15 percent over the next five-year period. In terms of volume, it is expected to exceed 1,200-1,400 kilotons (KT) by 2023-2024.

Risks and Concerns

There are a lots of risk factors which Company faces but these are some main Risk factors which adversely affect Companys working.

1. Fertilizer Prices:

In the fertilizer industry — and pretty much any other commodity companies — revenue depends on fertilizer prices and the quantity of fertilizer companies sell. Fertilizer prices are driven by industry capacity, rivalry (competition among firms), marginal producers cost, proximity to customers, inventory, and demand.

2. Fertilizer demand and purchases:

Demand, in turn, is driven by fertilizer prices, crop economics, currencies, cycles, economic activity, and macro factors like subsidy programs. Crop economics consist of factors like crop inventory, crop demand and supply, and crop prices, which depend on economic activity, food consumption, diet patterns, crop yields, nutrient application, weather, plantation, and energy consumption.

3. The cost of raw material input :

Expenses generally depend on changes in mining costs and fluctuations in raw material prices, which vary by location. Fluctuations in raw material prices or input prices depend on supply and demand dynamics for the specific raw material, which are affected by macro economic activity, weather, and industry-specific trends. Movements in input price can impact fertilizer prices — and therefore demand too.

As you can see, analyzing the factors that affect expense and revenue can be confusing. This weekly fertilizer series breaks them down into key parts to show investors how theyre affecting (or how they could affect) the industry and its respective companies.

4. Change in Government Policies/ Procedures:

Sometimes the polices/ regulation or procedure of Government is change frequently which affects the liquidity of fund in Company, secondly Company suffers with ideal Time loss due to managing its affairs or programmes as per these changes, when Government makes changes in the Tax Rates, it directly affect Cost of the Product, simultaneously reduces demands among customers.

The year 2018-19 was the first full year of implementation of Direct Benefit Transfer (DBT) in Fertiliser. Under the scheme, the subsidy is released to the fertiliser companies, after the sale is made by the retailers to the farmers. The retailer carries out the sales based on Aadhaar-based authentication of the farmers on Point of Sale (PoS) devices. The process under DBT has fairly stabilised during the year, though there were transitionary challenges with respect to the reconciliation of opening stocks which delayed the subsidy claim generation process initially. Fertiliser companies are now able to generate claims seamlessly and file with the Government for refunds.

5. The fertilizer business is highly seasonal and such seasonality may affect our operating results.

6. We are subject to various laws and regulations relating to the handling and disposal of hazardous materials and wastes and bio-medical wastes. If we fail to comply with such laws and regulations, we can be subjected to prosecution, including imprisonment and fines or incur costs that could have a material adverse effect on the success of our business.

7. Our industry is labour intensive and our business operations may be materially adversely affected by strikes, work stoppages or increased wage demands by our employees or those of our suppliers.

8. We require a number of approvals, NOCs, licences, registrations and permits in the ordinary course of our business and any failure or delay in obtaining the same in a timely manner may adversely affect our operations.

9. Our operations may be adversely affected in case of industrial accidents at any of our production facilities.

10. Conflicts of interest may arise out of common business undertaken by our Company, Promoters and our Group Company.

11. Our Company is dependent on third party transportation providers for the delivery of our goods and any disruption in their operations or a decrease in the quality of their services could affect our Companys reputation and results of operations.

12. Continued operations of our manufacturing facility are critical to our business and any disruption in the operation of our facility may have a material adverse effect on our business, results of operations and financial condition.

13. Our lenders have charge over our movable and immovable properties in respect of finance availed by us.

14. The industry segments in which we operate being fragmented, we face competition from other players, which may affect our business operations and financial conditions.

15. We have taken guarantees from Promoters, Directors as well as others in relation to debt facilities provided to us.

16. Any changes in regulations or applicable government incentives can materially and adversely impact our operations and growth prospects.

17. We could be harmed by employee misconduct or errors that are difficult to detect and any such incidences could adversely affect our financial condition, results of operations and reputation.

18. Political instability or a change in economic liberalization and deregulation policies could seriously harm business and economic conditions in India generally and our business in particular.

19. Global economic, political and social conditions may harm our ability to do business, increase our costs and negatively affect our stock price.

20. The extent and reliability of Indian infrastructure could adversely affect our Companys results of operations and financial condition.

21. Natural calamities could have a negative impact on the Indian economy and cause our Companys business to suffer.

22. Terrorist attacks, civil unrests and other acts of violence or war involving India or other countries could adversely affect the financial markets, our business, financial condition and the price of our Equity Shares.

Internal Control System and their Adequacy

The Company has clearly laid down policies, guidelines and procedures that form a part of the internal control system which provide for automatic checks and balances. The Audit committee reviews the effectiveness and efficiency of these systems to ensure that all the assets are protected against loss and that the financial and opera-tional information is complete and accurate, company has also appointed Internal Auditor to list out any deficiency or loop halls in companys Internal Control and financial reporting, Audits are finalized and conducted based on the internal risk assessment. Significant findings are brought to the notice of the Audit committee of the Board and corrective measures recommended for implementation. Our work opportunities and competitive compensation policy helps us in attracting and retaining our personnel.

Health, Safety, Security and Environmen t

Health, safety, security and environment have always been an integral part of our value system, we always having concern about Health safety and security of our Employees, workers at their work place, we are aiming at "Zero Accident" as goal of our company, when the matter is about health and safety, company always follow these some important measure Identification of hazard and risk present in work environment and its rectification.

Continuous monitoring of unsafe condition and unsafe acts through safety inspection.

Safety induction training for all employees and specific job safety awareness programs on a continuous basis.

Our factory are well equipped with required facilities including machinery, crane, conveyor belt, other handling equipments to facilitate smooth manufacturing process and easy logistics. We endeavor to maintain safety in our premises by adhering to key safety norms.

We are having enough greenery at our plant location and also having modern and efficient system to dispose of factory waste, mainly we focus on re- made process of waste and scrap and we always keep in mind about optimum use of energy resources and conservation of natural resources, company is continuously visited by pollution control officers and, we will do it good, if they found any lack of safety measure and other element to protect the surrounding environment of the company.

Cautionary Statement :

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectations may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among other things, economic conditions affecting de-mand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations, tax laws and other statutes and incidental factors.