Chambal Fertilisers and Chemicals Limited (CFCL/Company) is the countrys largest single location private sector urea manufacturer, delivering annual production of around 3.4 million MT of urea. It has three urea plants located at Gadepan, District Kota (Rajasthan). CFCL offers agri-inputs to farmers under one roof, thus, in addition to manufacturing urea, the Company markets other fertilisers and agri-inputs such as Di-Ammonium Phosphate (DAP), Muriate of Potash (MOP), Ammonium Phosphate Sulphate (APS), different grades of NPK fertilisers, Crop Protection Chemicals (CPC) and Speciality Nutrients (SN).
The Management Discussion and Analysis Report in respect of business and operations of the Company is, as under:
1. Industry structure and developments A) Own manufactured fertiliser - Urea
Urea is a major crop nutrient which plays vital role in ensuring food security of the country. The demand for urea in the country is higher than the production capacity, thus part of the demand is met through imports. The price of urea is regulated by Government of India, which gives subsidy on the urea sold for agriculture use.
The decadal growth figures (2013-2023) (CAGR basis) for urea sales show an increase of ~ 1.74% p.a., which is majorly due to increase in gross irrigated area, gross cropped area and from higher usage/acre, which has increased from 152.28 kg/ha to 171.08 kg/ha. The grain yield in the same period went up by 1.85% p.a. CAGR, thereby showing almost the same level of nutrient use efficiency. Urea production in the country during the Financial Year 2023-24 was 31.41 million MT, as against 28.45 million MT during the previous year. During the Financial Year 2023-24, 7.04 million MT of Urea was imported in the country, compared to 7.58 million MT of urea imported during the previous year. The urea sales in the country during the Financial Year 2023-24 were 35.73 million MT, as against sales of 35.78 million MT during the previous year. The price of imported urea was around USD 330 per MT at the beginning of the Financial Year 2023-24, which touched the level of USD 405 per MT, before declining to USD 316.8 per MT at the close of the Financial Year 2023-24.
Most Urea manufacturing units in India use gas as feedstock/raw material. The requirement of gas is met through supplies from domestic sources and imports. Supply of domestic gas to Urea manufacturers has reduced over a period. Thus, most of the industrys requirement of gas is met through import of re-gasi_ed lique_ed natural gas (R-LNG). During the Financial Year 2023-24, there was less volatility in the prices of gas, compared to the previous year. The cost of gas, being the major input cost, impacts cost of manufacturing of Urea. However, gas price is considered by Government of India while fixing the subsidy for Urea units upto the Re-Assessed Capacity (RAC). Thus, fluctuation in the price of gas does not have much impact on Urea manufacturing units. For production beyond RAC, as per prevailing policy of Government of India, subsidy is calculated considering cost of natural gas and a fixed cost component, which is common for the entire industry, but lower than the normal fixed cost paid for production upto RAC. This is compared to Import Parity Price (IPP) of urea along with certain fixed incidental expenses. In case the IPP and incidental expenses of imported urea are lower as compared to the subsidy calculated for production beyond RAC, then it may not be viable to operate the plants beyond RAC.
B) Complex fertilisers
DAP is a major product which is sourced from the international market and marketed by the Company. Apart from this, the Company also markets various grades of NPK fertilisers and MOP. DAP demand in India is met through local manufacturing and imports. During the Financial Year 2023-24, countrys DAP imports were around 57% against total quantity supplied in the market. NPK fertilisers are largely manufactured in the country and some quantity is imported to meet the shortfall and demand of the market for a few specific grades. In the case of domestic manufacturing of DAP and NPK fertilisers, raw materials like ammonia, rock phosphate, phosphoric acid, potash, etc. are also imported. Hence, the country has dependence on imports as far as DAP and NPK fertilisers are concerned. For MOP, the country is fully dependent on imports. These fertilisers are governed by the Nutrient Based Subsidy ("NBS") policy of the Government of India.
DAP sales in the country during the Financial Year 2023-24 were 10.81 million MT, in comparison to 10.42 million MT during the Financial Year 2022-23. A total of 4.29 million MT of DAP was manufactured in the country during the Financial Year 2023-24, as against 4.35 million MT manufactured during the previous year. Further, 5.57 million MT of DAP was imported in the country during the Financial Year 2023-24, as against 6.58 million MT of DAP imported during the previous year. MOP is imported for direct application as fertilizer, as well as for manufacture of NPK fertilisers in the country. MOP imports as fertiliser in the country during the Financial Year 2023-24 were 1.99 million MT, as against 1.35 million MT during the Financial Year 2022-23. MOP sales for direct application during the Financial Year 2023-24 were 1.64 million MT against the sales of 1.63 million MT in the previous year. The prices of DAP were in the range of USD 540-571 per MT (CFR India) in April 2023 which moved in the range of USD 563-575 per MT (CFR India) by end of the Financial Year 2023-24, after rising to a peak of around USD 597 per MT.
The prices of MOP were USD 422 per MT (CFR India) at the beginning of the Financial Year 2023-24, which decreased to USD 319 per MT (CFR India) during the quarter ended March 31, 2024.
C) Crop Protection Chemicals (CPC) and Speciality Nutrients (SN)
The CPC business in India is largely dominated by manufactures who cater to domestic and international markets and who manufacture technical grade agrochemicals as well as formulated products such as insecticides, fungicides, herbicides, etc. for agriculture use. The Company procures CPC from reputed formulators, which are then sold under the Companys own brands. The Company has used its brand strength to penetrate the crop protection market and gradually increased this business to a sizeable level. The Company procures SN from manufacturers of repute in India and abroad and these products are marketed under the "Uttam" brand umbrella of the Company. The focus of the Company is to offer quality products to the farmers at a reasonable price. However, brand strength and focused approach have enabled the Company to maintain the momentum to achieve higher sales volumes of all products. Keeping in view good prospects of growth of SN in the future, the Company has worked on strategic alliances of quality products mainly in "Biological Segments". One of the recently launched product under the brand name of "SUPERRHIZA" has been awarded the International Biological product of the year in 2023 by Applied Microbiology International. Further, Company has planned to introduce biostimulants to enhance nutrient use efficiency and, the Companys turnover in CPC and SN segment has been growing at a CAGR of 24% during the last three years.
The Company is rapidly growing this business by way of expansion of the product basket, deeper market penetration in the existing marketing territory, geographical expansion of the marketing territory, farmer connects and demand generation programes.
2. Opportunities and Threats
The Company is a large manufacturer of Urea, and markets bulk fertilisers such as DAP, NPKs and MOP. Reliable supply channels, established marketing network and financial strength, offer an opportunity to grow the volumes of bulk fertilisers, Crop Protection Chemicals (CPC) and Speciality Nutrients (SN) business. The Company is focused on achieving growth in its existing marketing territory and geographical expansion of the marketing network. In addition to the above, the Company has an opportunity to achieve growth by way of addition of new products, especially in the CPC and SN business. The new territories have sizeable demand for NPK fertilisers, CPC and SN, which gives opportunity to the Company to grow. The Companys focus on product quality and high level of customer satisfaction is likely to deliver positive results in the future.
The new urea plants which have become operational in India under New Investment Policy 2012, have significantly narrowed down the demand-supply gap of Urea in the country. While these plants are located in the eastern and southern parts of India, the Company concentrates its supplies of Urea in the northern and central parts of India. The additional supply of Urea from these new plants of other companies would mainly replace the imported Urea.
The Company is running the marketing campaign "Hamara Naam Hamara Nishaan" to popularize the Companys registered name, so that farmers can easily identify/recall the Companys brand name by logo and its name. Demand variation due to change in monsoon pattern, availability constraints, volatility in prices of DAP, MOP and NPK fertilisers, and regulation of prices of products by the Government of India, are few challenges which the Company faces in its non-urea fertilisers business. The Company continuously evaluates these factors and strives to mitigate them through dynamic sourcing and pricing of the products.
Digital media intervention and increasing awareness among the farmers about the importance of balanced nutrition in soil has resulted in growth of the CPC & SN business.
3. Segment-wise or product-wise performance
Segment-wise performance of the Company on standalone basis is summarized below:
(Rs. in Crore)
Particulars |
Financial Year |
|
2023-24 | 2022-23 | |
1. Segment Revenue | ||
a) Own Manufactured Fertilisers | 12,722.65 | 16,689.14 |
b) Complex Fertilisers | 4,483.30 | 10,367.02 |
c) Crop Protection Chemicals and Speciality Nutrients | 760.46 | 716.65 |
2. Segment Results | ||
Profit before Finance Costs and Tax from each Segment: | ||
a) Own Manufactured Fertilisers | 1,500.31 | 1,904.02 |
b) Complex Fertilisers | 159.79 | (418.63) |
c) Crop Protection Chemicals and Speciality Nutrients | 152.80 | 136.30 |
4. Outlook
The strong demand of Companys products in the market, geographical expansion of marketing territory, diversification of business through implementation of Technical Ammonium Nitrate plant and timely release of subsidy by the Government of India gives leg room for growth of the Company. Consistent performance of Urea business shall continue to give stability to the business of the Company. Geographical expansion and deeper penetration in existing marketing territory shall enable the Company to achieve sustainable growth in non-urea fertilisers, CPC and SN space.
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5. Risks and Concerns
The fertiliser industry is dependent on the extant policies of the Government of India. The third Urea plant of CFCL was set up under New Investment Policy 2012, which is effective for 8 years from the commencement of production. Changes or delay in notification of policies of the Government of India may, sometimes adversely affect the Company. The volatility in the price of marketed fertilisers, coupled with regulation of prices of the products by the Government of India may also adversely impact the Company in the short run. The probability of high prices of natural gas on one hand, and low IPP of Urea on the other, may impact production of Urea beyond RAC, as the subsidy of Government of India for production of Urea beyond RAC is linked to the IPP. Application of CPC depends on weather conditions, pest attacks and cropping patterns, which may vary year to year. SN is exposed to cropping pattern, import prices and a_ordability of farmers, which also varies from time to time. Moreover, reduction in prices of bulk technical of some molecules may impact the carry forward stock prices, which may result in lower margin in the stock.
6. Internal control systems and their adequacy
The Company has a strong internal control system comprising various levels of authorization, supervision, checks & balances and procedures, by way of documented policy guidelines and manuals. The Companys internal control systems are adequate and operating effectively. The Internal Audit Department regularly monitors the efficacy of internal controls and compliance with Standard Operating Procedures and manuals, with the objective of providing to the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance that all transactions are authorized, recorded and reported correctly and policies, laws and regulations are complied with. The managers exercise their control over business processes through operational systems, procedure manuals and financial limits of authority manual. These processes are reviewed and updated on a regular basis to improve their efficacy and they meet the business needs. The Internal Audit team develops a risk-based annual audit programme, which is aligned to the previous years observations, suggestions from the operating managers and auditor. The internal audit programme is approved by Audit Committee. The audit approach is based on random sample selection and takes into consideration the generally accepted business practices. Internal audit reports are discussed by the Management Committee and subsequently placed before the Audit Committee along with the directions/action plan recommended by the Management Committee. The directions of the Audit Committee are implemented by respective departments and the Action Taken Report is placed before the Audit Committee. The Internal Audit Department also assesses opportunities for improvement in business processes, systems and controls, gives recommendations and reviews the implementation of directions issued by the management, Board of Directors or its committees.
7. Discussion on financial performance with respect to operational performance
The operational and financial performance of the Company on standalone basis, is summarized below:
Particulars |
Financial Year |
|
2023-24 | 2022-23 | |
Urea Production (MT in Lakh) | 33.83 | 33.47 |
Urea Sales (MT in Lakh) | 32.56 | 34.40 |
Sales including other Agri-inputs (Rs. in Crore) | 17,947.63 | 27,771.45 |
Profit before Interest, Depreciation and Tax (Rs. in Crore) | 2,428.44 | 2080.10 |
Sales of various marketed products are as under: | ||
Product |
Financial Year |
|
2023-24 | 2022-23 | |
DAP (MT in Lakh) | 5.56 | 10.65 |
MOP (MT in Lakh) | 1.54 | 1.89 |
NPK Fertilisers (MT in Lakh) | 1.56 | 2.69 |
Crop Protection Chemicals and Speciality Nutrients (Rs. in Crore) | 760.46 | 716.99 |
The Gadepan-I and Gadepan-II Urea plants have undergone annual turnaround in February and March 2024. During the turnaround, the Company has implemented energy saving schemes, which are delivering better than expected results. All the three Urea plants operated efficiently, and the overall production was higher during the year under review. Urea revenue was lower primarily due to lower gas costs as compared to last year. The revenue from branded marketed products was Rs.5,224.98 Crore during the Financial Year 2023-24, compared to Rs.11,082.31 Crore in the previous year. This was lower due to the reduction in volume of P&K fertilisers, as well as reduction in subsidy during Financial Year 2023-24. Due to headwinds in pricing, trading in P&K fertilisers was muted; however, adequate quantity of DAP, NPK and MOP were imported to keep the channel supplied in the overall interest of farmers of the country.
CPC & SN continued their growth momentum despite adverse market conditions and reduction in prices. The focused approach on marketing of CPC & SN by way of expansion of product basket, deeper penetration, farmer connect and demand generation have enabled the Company to achieve good performance in sales of these products.
Despite the lower sales volume of Urea and P&K fertilisers, the Company has overall performed better in Financial Year 2023-24 by registering higher profits in comparison to the last year.
8. Material developments in HR/Industrial Relations front, including number of people employed
E_cient operation of the manufacturing plants and safety of employees is of paramount importance to the Company. The Company uses resources and capital, optimally and judiciously, prioritizing efficiency and sustainability in every process. The unwavering commitment of the Company to efficiency, brings in continuous improvement of processes and products, consistently surpassing expectations and setting new benchmarks of excellence. The human resource function is a value-driver in the organization - committed to maintaining a positive and productive environment in which people are engaged and enabled to deliver their best to achieve its goals. The Company nurtures a culture that respects individuals, while promoting engagement, continuous improvement and acquisition of new skillsets & capabilities, all aimed at achieving the overall objectives of the organization. The Company has a team of highly qualified and experienced personnel, with a high retention rate. Appropriate recruitment, induction, engagement, retention, and training & development plans are in place to maintain the Companys talent pool. Relevant technical training is imparted to new employees in the plants, which includes classroom sessions, training through simulator and on the job training. Training & development needs are identified periodically for all the existing employees, and multiple interventions for skill-building are undertaken from time to time. The Company provides focused development opportunities and conducts capability building sessions at premier institutes, and holds coaching sessions for competency enhancement. The Company also runs a self-development scheme for the employees to enhance their knowledge & skills, by encouraging them to enroll in professional training courses. As on March 31, 2024, the permanent employee strength of the Company was 1089. The Company continues to maintain open and cordial employee relations at the manufacturing plants as well as other locations of its operations.
9. Details of significant changes (i.e. change of 25% or more compared to the immediately previous financial year) in key financial ratios, alongwith detailed explanations therefor
Sr. No. |
Key Financial Ratio | Financial Year 2023-24 | Financial Year 2022-23 |
1. | Debtors Turnover Ratio | 18.39 | 14.20 |
2. | Inventory Turnover Ratio | 12.11 | 11.59 |
3. | Interest Coverage Ratio | 12.22 | 5.54 |
4. | Current Ratio | 2.00 | 1.79 |
5. | Debt Equity Ratio | 0.25 | 0.47 |
6. | Operating Profit Margin (%) | 11.78 | 6.38 |
7. | Net Profit Margin (%) | 7.41 | 3.85 |
There was a significant change in Debtors Turnover Ratio (29.51%), Interest Coverage Ratio (120.58%), Debt Equity Ratio (46.81%), Operating Profit Margin (84.64%) and Net Profit Margin (92.47%) in comparison to the previous financial year. The reasons for such changes are as under:
(i) Change in Debtors Turnover Ratio
Decrease in natural gas prices, lower volume of own manufactured fertilisers, decrease in prices and quantity of imported fertilisers contributed to around 35% decrease in turnover. Average debtors for the Financial Year 2023-24 were around 50% lower in comparison to the previous year on account of higher collection and subsidy de-escalation due to lower gas prices. Debtors Turnover Ratio improved on account of decrease in average debtors, which was partly offset by decrease in turnover.
(ii) Change in Interest Coverage Ratio
Average borrowings during the Financial Year 2023-24 were around 33% lower as compared to Financial Year 2022-23, which resulted in lower interest costs. Further, the Company has delivered better financial performance during the Financial Year 2023-24, as compared to last year. Both the factors have resulted in a higher Interest Coverage Ratio.
(iii) Change in Debt Equity Ratio
Debt reduced by around 46% due to repayment of scheduled instalments of the long-term borrowings and reduction in short term borrowings on account of receipt of higher subsidy during Financial Year 2023-24. The equity of the Company has increased due to addition of profits during the Financial Year 2023-24, which was partly offset by the buyback of shares. These factors have enabled improvement of the debt equity ratio.
(iv) Change in Operating Profit Margin
Turnover for the Financial Year 2023-24 has decreased by around 35% mainly on account of lower prices of natural gas, lower quantity and prices of imported fertilisers, and lower volume of own manufactured fertilisers. On the other hand, the performance has improved, and the finance costs are also lower. All the above factors have contributed to higher operating profit margin.
(v) Change in Net Profit Margin
Turnover of the Company for the Financial Year 2023-24 has decreased by around 35% mainly on account of lower prices of natural gas, lower quantity and prices of imported fertilisers, and lower volume of own manufactured fertilisers. On the other hand, the performance and the finance costs are also lower. All the above factors have contributed to higher net profit margin.
10. Details of change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof
Return on net worth is calculated by dividing profit after tax for the financial year by average net worth during the financial year on standalone basis. The Return on Net Worth during the Financial Year 2023-24 was 19.02%, compared to 16.38% during the Financial Year 2022-23.
The standalone profit after tax of the Company during the Financial Year 2023-24 was higher compared to the previous financial year. This is primarily attributable to the positive margin on DAP compared to loss in the previous year, lower interest cost and higher other income, which were partly offset by lower contribution in Urea. On the other hand, the average net worth for the Financial Year 2023-24 was higher compared to the previous year due to the addition of profits, which was partly offset by outgo on account of buyback of shares. All these factors have contributed positively to the higher return on net worth during the Financial Year 2023-24 in comparison to the previous year.
CAUTIONARY STATEMENT
The report may contain certain statements which the Company believes are or may be considered to be "forward-looking statements" that describe its objectives, plans or goals. All these forward-looking statements are subject to certain risks and uncertainties, including but not limited to government action, economic developments, risks inherent to the Companys growth strategy and other factors that could cause the actual results to differ materially from those contemplated by the relevant forward-looking statements.
For and on behalf of the Board of Directors of Chambal Fertilisers and Chemicals Limited
Rita Menon Abhay Baijal
Place : New Delhi Director Managing Director Date : May 07, 2024 DIN: 00064714 DIN: 01588087
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