Asian Fertilizers Ltd Management Discussions.

1. Industry structure and developments:

Fertilizers enhance growth of plants by supplying crucial nutrients to them. Some of the essential nutrients required by plants are:

Straight Fertilizer : N-Nitrogen, P-Phosphorous, K-Potassium

Secondary Fertilizers: CA-Calcium, Mg-Magnesium and S-sulphur

Micronutrients- Cu-Copper, Fe- Iron, Mn- Manganese, Zn- Zinc, B-Boron etc.

Nitrogen, phosphorus, potassium (NPK) are three major constituents of fertilizers. Nitrogen helps in leaf growth, Phosphorous helps in development of roots, flowers, seeds and fruits and potassium helps in strong stem growth, movement of water in plants and promotion of flowering and fruiting.

India has good reserves of phosphate rocks, which can be processed to give water soluble phosphatic fertilizers. Single Super Phosphate is a cheap fertilizer and also known as common farmers fertilizer.

Single super phosphate (SSP) manufactured by carrying out reaction of rock phosphate with Sulphuric acid for converting non-soluble phosphate (present in rock phosphate) into water soluble which is called single super phosphate. It contains 14.5-16% water soluble phosphorous, 10-11% sulphur and 18-21% Calcium. Straight Phosphatic 16% P2O5 Grade

Company was started its manufacturing unit of single super phosphate (powder plant) in 1992 while single super phosphate (Granulated plant) in 1993 with a capacity of 66000MT and Sulphuric Acid in 1993 with a capacity of 33000MT which is used for the production of SSP, in Village devkahiya, block Sardar Nagar, tehsil chorichura, Gorakhpur, Uttar Pradesh. Company has also installed a Micronutrients plant in the name and style of Asian Fertilizers Ltd. (Micro Nutrient Division) in 2012 to produce Micronutrient like Zinc Sulphate, Magnesium Sulphate, ferrous Sulphate, Zyme, and Bio-fertilizer.

Earlier Company have a marketing arrangement with DCM Shriram for selling of fertilizer product (SSP) with their brand name but due to change in government policies, company has discontinued the marketing arrangement with DCM Shriram and started its own marketing, with its own Brand name PASHUPATI. The response of market in our brand is satisfactory.

2. Opportunities and Threats:

Since agriculture sector has its own importance in Indian economy, it is bound to grow and our product SSP has also its own importance in Agriculture sector.

Govt. of India has emphasized to promote SSP to fulfill the demand of phosphatic fertilizers.

3. Segment-wise or product-wise performance:

Single Super phosphate : Company is produce single super phosphate in two categories one is powder and second is granule. Company is able to achieve production of 27, 098.41 MT of Green SSP during the year 2018-19 against the targeted production of 66,000 MT which is 41.06% of the targeted production and 41.06% of the installed capacity of 66,000 MT. Company has dispatched 27, 216 MT during the year. In quantum wise production of SSP has increased during the year.

Sulphuric Acid : Company has produce the Sulphuric acid for the captive consumptions and the excess quantity of Acid sold by Company. Company is able to achieve the production of 35,115.88 MT of the Sulphuric acid during the year 2018-19 against the installed capacity of 33,000 MT which is 106.41% of the installed capacity. The captive consumption of the Sulphuric Acid for production of SSP is 6,565.64 MT and the sale of Sulphuric Acid was 28,858.21 MT. While in quantum vise production of Sulphuric acid has increased during the year.

Micro Nutrients :

Company has produced multiple product in Micro Nutrients Division. Product wise performance of the Micro Nutrients are as follows with comparative study :

Production (MT) Sale (MT)
S. No. Product 2018-19 2017-18 2018-19 2017-18
1 Maxo Zyme - - 32.01 -
2 Ferrous Sulphate - - - 21.00
3 Mono - - - -
4 Magnesium Sulphate - - 162.03 647.36
5 Zinc Sulphate - - 91.23 58.00

4. Outlook :

Agriculture has been playing vital role in Indian economy with its contribution to GDP, around 49% of Indian population is still dependent on agriculture and its allied activities for their livelihood. The growth rate in agriculture has been fluctuating and these uncertainties/ fluctuations in growth rate can be attributed to over dependence on rains (around 60% of agriculture is still rainfall dependent). One of the vital industries in Indian economy is the fertilizer industry which serves as a very crucial raw material for agriculture. Fertilizer, alone accounts for large subsidy, the second highest after food. Owing to poor monsoons in last two years and low commodity prices, there was slowdown in the fertilizer sector. Currently, this sector is showing strong signs of revival owing to good monsoon last years and reforms taken by government.

5. Risks and concerns :

(a) Government Policy :

This sector was operated in a highly regulated environment with cost of production and selling prices being regulated by the Government of India. Due to this reason, fertilizer industry suffered from low profitability as compared to other sectors. Govt. imposed several regulations on prices, subsidies, import etc.

There have been changes in regulations, subsidy structure from time to time creating confusion and uncertainty among producers. In past years, govt. has decontrolled DAP, MOP, complex fertilizers and SSP which will stimulate growth of this industry and thereby ensure adequate supply of essential fertilizers to farmers.

Subsidy for P&K fertilizers is fixed and not varies with market prices. Govt. does not regulate import of DAP and MOP as it does for Urea. Govt. has decontrolled prices of P&K fertilizers, MRP is left open to manufactures to decide and so domestic prices are decided by demand and supply. P&K fertilizers are less regulated compared to Urea, therefore P&K fertilizer producers can optimize operation, improve supply chain and product mix to earn better profits.

Considering all the issues relating to agriculture productivity, balanced fertilization, growth of indigenous fertilizer industry, competiveness amongst the fertilizer companies and to overcome the deficiency of concession scheme, the Government introduced

Nutrient Based Subsidy (NBS) Policy for P&K fertilizers with effective from 1.4.2010.

Under the NBS Policy, a fixed rate of subsidy (in Rs. per Kg basis) is announced on nutrients namely Nitrogen (N), Phosphate (P), Potash (K) and Sulphur (S) by the Government on annual basis which is decided based on international prices, exchange rates, inventory and prevailing MRP etc.

The Govt. of India has opened the MRP of SSP from 01/04/2011 and manufacturers are free to decide their rates upto a fixed limit.

(b) Development In Government Policy :

Investment required for setting up a SSP unit is modest compared to Nitrogenous fertilizers. The setup with indigenous technology depends on imported material because of non-availability of good quality of rock phosphate except Rajasthan State Mines & Minerals Limited, a State Govt. Undertaking. The demand of fertilizers is likely to increase with the emphasis by the Govt. on augmenting agriculture produce. The Govt. of India has notified that Imported Rock Phosphate from some countries to use in production of SSP for competitive Production cost.

(c) Availability of Raw Material :

Rock Phosphate is imported from various country by different dealers.There is no problem in availability of Raw Material.

(d) Subsidy on SSP :

The Govt. of India has introduced nutrient based subsidy policy for all types of fertilizers including SSP. The Govt. of India fixed subsidy for whole year & for the reporting year subsidy was Rs. 2,734/- MT.

6. Internal control systems and their adequacy :

In any industry, the processes and internal control systems play a critical role in the health of the Company. The Companys well defined organizational structure, documented policy guidelines, defined authority matrix and internal controls ensure efficiency of operations, compliance with internal policies and applicable laws and regulations as well as protection of resources. Moreover, the Company continuously upgrades these systems in line with the best available practices. The internal control system is supplemented by extensive internal audits, regular reviews by the management and standard policies and guidelines to ensure reliability of financial and all other records to prepare financial statements and other data.

7. Discussion on financial performance with respect to operational performance :

The highlights of the companys performance for the year ended March 31, 2019 are as under :

Revenue from operation increased by 147.22% to Rs. 4766.89 Lakhs.

PBDIT increased by 226.02% to Rs. 445.86 Lakhs

Profit before tax increased by 796.48% to Rs. 228.35 Lakhs.

Net profit increased by 588.92% to Rs. 154.18 Lakhs.

8. Material developments in Human Resources / Industrial Relations front, including number of people employed :

Asian Fertilizers Limited is a knowledge-driven organization focused on judicious people recruitment and retention. The Companys HR function focuses on employee training, values inculcation and enhanced functional expertise. The Companys key HR objective is to ensure that employees are aware of expected roles leading to organizational momentum. The top management conducted several discussions with employees to discuss multiple issues including leadership qualities, values, responsibilities, workplace freedom and empowered decision-making. Going ahead, the Company will continue to invest in people to strengthen its production processes, product quality and service delivery. During the year under report, the Company also focused on the automation of key HR processes for employee benefit. The result of these initiatives was that the Company was able to keep its attrition levels well under control, much below the industry average. The companys head count stood at 29 as on 31st March 2019.

For and on behalf of the Board of Directors of
Place: Gorakhpur Asian Fertilizers Limited Asian Fertilizers Limited
Date: 18/05/2019 Sd/- Sd/-
Ashok Kumar Matanhelia Somil Matanhelia
Managing Director Whole Time Director
DIN: 01763776 DIN : 01738413
789, Ajay Khand, 789, Ajay Khand,
Patrakar Puram, Patrakar Puram,
Rapti Nagar, Rapti Nagar,
Gorakhpur Gorakhpur