The Company is a major manufacturer of Urea in the country with annual
production capacity of around 3.4 million MT of Urea. It has three Urea plants located at
Gadepan, District Kota, Rajasthan, namely, Gadepan-I, Gadepan-II and Gadepan-III. Apart
from manufacture of Urea, the Company markets other products such as Di Ammonium Phosphate
("DAP"), Muriate of Potash ("MOP"), NPK fertilisers, Speciality Plant
Nutrients and Crop Protection Chemicals. The products marketed by the Company are sourced
from the reputed suppliers in India and abroad.
The Management Discussion and Analysis Report in respect of business
and operations of the Company is as under:
1. Industry Structure and Developments
A) Urea
The Urea is a major crop nutrient which plays a vital role in ensuring
food security. The demand of Urea in the country is higher than its production capacity,
hence part of the demand is met through imports. The price of Urea is regulated by the
Government of India which pays subsidy on the Urea sold for agriculture use.
Most of Urea manufacturing units in India use natural gas as feedstock
/ raw material. The demand of natural gas is met through supplies from domestic sources
and through imports. The supply of domestic gas to Urea manufacturers has reduced over the
years and major part of natural gas requirement of Urea manufacturers is being met through
imports. The imported gas is sourced through long-term, mid-term and short-term contracts.
The prices under the mid-term and long-term contracts are less volatile in comparison to
the prices of natural gas sourced through short-term contracts. There was lot of
volatility in the prices of natural gas during last two financial years and geopolitical
situation in the world has further added to the volatility in the prices of natural gas.
The increase in prices of natural gas increases the cost of manufacturing of Urea,
however, it is appropriately considered by the Government of India while fixing the
subsidy for Urea units up to the Re-Assessed Capacity (RAC) of Urea plants. 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 up to RAC. This is
compared to Import Parity Price (IPP) of Urea along with certain fixed incidental
expenses. The IPP used is the annual average. If 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.
The New Investment Policy - 2012 ("NIP-2012") of the
Government of India boosted the investment in Urea sector during last 6-7 years. Total 6
plants had been set-up / in process under NIP-2012 in public and private sector including
Gadepan-III plant of the Company which commenced commercial production on January 1, 2019.
This had led to addition of annual capacity of around 8 million MT of Urea in the country
which will largely fill the demand & supply gap and will reduce dependence on imports.
The country has reached to the level of almost self-sufficiency in Urea production after
addition of these 6 plants. However, the increasing demand of Urea will require some
import of Urea to meet the demand & supply gap.
The prices under most of the long-term gas supply contracts in India is
linked to the prices of crude oil. The upsurge in the prices of crude oil and natural gas
continued during the Financial Year 2022-23 and geopolitical developments, due to
Ukraine-Russia conflict, has further worsened the situation. The natural gas prices had
touched historically high levels which led to substantial increase in international prices
of ammonia and Urea. The production cost of indigenous Urea has also gone up substantially
due to increase in prices of natural gas. With the fixed MRP (Maximum Retail Price) of
Urea to the farmers in India, the subsidy on Urea has gone up substantially which has put
pressure on the finances of the Government of India as well as working capital
requirements of fertilizer companies.
Urea production in the country during the Financial Year 2022-23 was
28.49 million MT against 25.07 million MT during the previous year. During the Financial
Year 2022-23, total 7.58 million MT of Urea was imported in the country in comparison to
9.14 million MT of Urea imported during the previous year. The Urea sales in the country
during the Financial Year 2022-23 were 35.73 million MT against the Urea sales of 34.18
million MT during the previous year.
The price of imported Urea was around USD 596.45 per MT at the
beginning of the Financial Year 2022-23 which has touched the level of USD 750 per MT
before climbing down to USD 330 per MT at the close of Financial Year 2022-23.
B) Other Products
DAP is other 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 and during Financial Year 2022-23, imports were around 60% 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 few
specific grades. In case of domestic manufacturing of DAP and NPK fertilisers, the raw
materials like ammonia, rock phosphate, phosphoric acid, potash, etc. are also imported.
Hence, the country has huge dependence on imports as far as DAP and NPK fertilisers are
concerned. MOP is not produced in India and the country is fully dependent on imports.
The rally in the prices of fertilizer inputs like natural gas, ammonia,
phosphoric acid, potash, etc. continued unabated during the first half of the Financial
Year 2022-23 leading to high prices of all fertilisers products during this period. The
fertilizer prices started declining in the second half of the Financial Year 2022-23 and
came down substantially by the end of the Financial Year 2022-23. This volatility has
adversely impacted the fertilizer industry in India which is largely dependent on import
of inputs / raw material for fertilizer manufacturing and finished fertilisers.
The consecutive good monsoon has kept the demand high for all the
fertilisers in India. While there was substantial increase in prices of phosphatic and
potassic fertilisers, the MRP of these fertilisers were kept low for farmers leading to
substantial increase in subsidy budget of the Government of India. Due to continuation of
Russia-Ukraine conflict at the beginning of the Financial Year 2022-23 and higher demand
in some of the markets kept the supply of Phosphatic and Potassic fertilisers constrained
at the beginning of the year. The situation stabilized as the year progressed and the
supplies came to normal levels by end of the Financial Year 2022-23 leading to comfortable
stock levels in India. The export restrictions and custom inspections mandated by China
during the previous year had continued but supplies from Morocco has enabled the country
to withstand the pressure and supplies from China shown the sign of easing towards the end
of the Financial Year 2022-23.
DAP sales in the country during the Financial Year 2022-23 were 10.53
million MT in comparison to 9.27 million MT during the Financial Year 2021-22 registering
an increase of about 13.6%. DAP sales in the Financial Year 2021-22 were lower compared to
normal average sales due to challenges in its availability as a result of high global
demand. Total 4.35 million MT of DAP was manufactured in the country during the Financial
Year 2022-23 as against 4.22 million MT manufactured during the previous year. Further,
6.18 million MT of DAP was imported in the country during the Financial Year 2022-23 as
against 5.46 million MT of DAP imported during the previous year.
MOP is imported for direct application as fertiliser as well as for
manufacture of NPK fertilisers in the country. MOP imports as fertiliser in the country
during the Financial Year 2022-23 were 1.87 million MT as against 2.46 million MT during
the Financial Year 2021-22. MOP sales for direct application during the Financial Year
2022-23 were 1.63 million MT against the sales of 2.45 million MT in the previous year.
The prices of DAP were in the range of USD 920-927 per MT (CFR India)
in April 2022 which moved in the range of USD 577-578 per MT (CFR India) by end of the
Financial Year 2022-23 after rising to a peak of around USD 960 per MT.
The prices of MOP were USD 590 per MT (CFR India) at the beginning of
the Financial Year 2022-23 which decreased to USD 422 per MT (CFR India) during the
quarter ended March 31, 2023.
The Company procures speciality plant nutrients from manufacturers of
repute in India and abroad and these products are marketed under the brand names of the
Company. The supply constraints during the first half of the Financial Year 2022-23 have
impacted sales volumes of few products. However, the brand strength and focused approach
have enabled the Company to keep the momentum to achieve higher sales volumes of almost
all other products.
The crop protection chemicals business in India is largely dominated by
the manufactures who cater to domestic and international markets. The Company procures
crop protection chemicals from reputed formulators which are sold under its own brands.
The Company has used its brand strength to penetrate into the crop protection market and
gradually increased this business to sizeable level. The Company is rapidly growing this
business through expansion of its product basket, deeper market penetration in the
existing marketing territory and geographical expansion of its marketing territory.
2. Opportunities and Threats
The Company is a large manufacturer of Urea and markets bulk
fertilisers such as DAP, NPK and MOP. The reliable supply channels, established marketing
network and financial strength offer an opportunity to grow volumes of bulk fertilisers,
crop protection chemicals and speciality plant nutrients. The geographical expansion of
marketing territory and deeper penetration in existing territory offers an opportunity to
grow its business of marketed products. A large portion of demand of phosphatic
fertilisers is met through imports and the Company being an established player has the
advantage to further increase volumes of these products subject to reasonable margins. The
new territories have sizeable demand of NPK fertilisers, crop protection chemicals and
speciality plant nutrients which gives opportunity to the Company to grow; however, the
Company has to overcome the competition from large established players in these
territories by focusing on the product requirements in the new territories and maintaining
reasonable margins.
The new Urea plants which have become operational in India during last
few years have reduced the demand-supply gap in the country. Further, the new players may
also enter the marketing of bulk fertilisers and other agri-inputs resulting in increased
competition. However, these plants are in eastern and southern part of India whereas the
Company supplies major part of its products in northern and central part of India. Hence,
the Company does not foresee much impact on its business due to the capacity addition by
new players in the Urea Industry. The implementation of One-Nation-One-Fertiliser
concept by the Government of India may also impact the brand advantage of the Company. The
Company is evaluating the impact of One-Nation-One-Fertiliser and an appropriate
strategy is being worked out to mitigate the impact thereof on the brand of the Company.
The demand variation due to change in monsoon pattern, availability constraints,
volatility in the prices of DAP, MOP and NPK fertilisers, variation in the foreign
exchange rates and regulation of prices of products by the Government of India are few
challenges which the Company faces in its business related to non-Urea fertilisers. The
Company continuously evaluates these factors and strives to mitigate them through dynamic
sourcing and pricing of the products and appropriate hedging of foreign exchange risk.
3. Risks and Concerns
Fertiliser is a regulated industry with high dependence on policies of
the Government of India. The third Urea plant of the Company is under NIP - 2012 which is
effective for 8 years from the start of production. The changes or delays in policies of
the Government of India may sometimes adversely affect the Company. The volatility in the
prices of marketed fertilisers along with regulation of prices of products by the
Government of India may adversely impact the Company in short run. The high prices of gas
but low IPP of Urea may impact the production of Urea beyond re-assessed capacity as the
subsidy of Government of India for production of Urea beyond re-assessed capacity plants
is also linked to IPP.
4. Outlook
The strong demand of its products in the market, geographical expansion
of its 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 of the
Company shall continue to give stability to the business of the Company barring short term
hi-cups, if any, due to low IPP and high gas prices. The geographical expansion and deeper
penetration in existing marketing territory shall enable the Company to achieve
sustainable growth in non-urea fertilisers, crop protection chemicals and speciality plant
nutrients.
5. Operational and Financial Performance
The operational and financial performance of the Company on standalone
basis is summarized below:
Particulars |
Financial
Year |
|
2022-23 |
2021-22 |
Urea Production (MT in Lakhs) |
33.47 |
33.13 |
Urea Sales (MT in Lakhs) |
34.40 |
33.14 |
Sales including other
Agri-inputs (Rs. in Crore) |
27,771.45 |
16,067.49 |
Profit before Interest,
Depreciation and Tax (Rs. in Crore) |
2,080.10 |
2,357.58 |
The revenue from branded marketed products was Rs. 11,082.31 Crore
during the Financial Year 2022-23 in comparison to Rs. 5,141.94 Crore in the previous
year.
The sales of various marketed products were as under:
Products |
Financial
Year |
|
2022-23 |
2021-22 |
DAP (MT in Lakhs) |
10.65 |
6.87 |
MOP (MT in Lakhs) |
1.89 |
1.28 |
NPK Fertilisers (MT in Lakhs) |
2.69 |
1.59 |
Crop Protection Chemicals and
Speciality Plant Nutrients - (Rs. in Crore) |
716.99 |
472.09 |
The sales of DAP and MOP have increased mainly due to easing of
availability in the international market with early planning for procurement of products.
The geographical expansion and focused approach have helped the Company in achieving the
highest ever sales volumes of NPK fertilisers. The focused approach on marketing of crop
protection chemicals and speciality plant nutrients through expansion of product basket
and deeper penetration have enabled the Company to achieve best ever performance in sales
of these products.
6. Key Financial Ratios and details of significant
changes therein on standalone basis (i.e. change of 25% or more in comparison to the
previous financial year)
Sr. No. |
Key Financial Ratio |
Financial Year 2022-23 |
Financial Year 2021-22 |
1. |
Debtors Turnover |
14.20 |
9.66 |
2. |
Inventory Turnover |
11.59 |
7.07 |
3. |
Interest Coverage Ratio |
5.54 |
19.43 |
4. |
Current Ratio |
1.79 |
1.59 |
5. |
Debt Equity Ratio |
0.47 |
0.69 |
6. |
Operating Profit Margin (%) |
6.38 |
12.81 |
7. |
Net Profit Margin (%) |
3.85 |
8.01 |
There was significant change in Debtors Turnover Ratio (47%), Inventory
Turnover Ratio (63.93%), Interest Coverage Ratio (71.49%), Debt Equity Ratio (31.88%),
Operating Profit Margin (50.20%) and Net Profit Margin Ratio (51.94%) in comparison to the
previous financial year. The reasons for such changes are as under:
(i) Change in Debtors Turnover Ratio
The increase in natural gas price, increase in sales volume and
increase in prices of fertilisers contributed to around 73% increase in turnover of the
Company. The average debtors of the Company for the Financial Year 2022-23 were around 17%
higher in comparison to the previous year. The Debtors Turnover Ratio has improved on
account of increase in turnover, which has been partly offset by increase in average
debtors.
(ii) Change in Inventory Turnover Ratio
The average inventory of fertilisers as on March 31, 2023 was higher
around 15% in value terms, in comparison to the previous year. The Cost of Goods Sold
(COGS) was around 88% higher than last year due to increase in natural gas price, increase
in sale volume and increase in prices of fertilisers of the Company. The Inventory
Turnover Ratio has improved on account of increase in COGS, which has been partly offset
by increase in average inventory.
(iii) Change in Interest Coverage Ratio
The average working capital borrowings of the Company during the
Financial Year 2022-23 were higher by more than 50% in comparison to the previous year due
to increase in natural gas prices, international prices of fertilisers and delay in
receipt of subsidy from the Government of India. Further, the interest rates were almost
doubled during the Financial Year 2022-23 in comparison to the previous year. In addition,
the profitability of the Company was lower during the Financial Year 2022-23 as compared
to the previous year. These factors have resulted into lower Interest Coverage Ratio.
(iv) Change in Debt Equity Ratio
The debt of the Company has reduced by around 23% due to repayment of
scheduled installments of the long-term borrowings and reduction in short term borrowings
on account of receipt of higher subsidy during Financial Year 2022-23. The equity of the
Company has increased due to the addition of profits during Financial Year 2022-23. These
factors have enabled to improve the debt equity ratio of the Company.
(v) Operating Profit and Net Profit Margin
The turnover of the Company for the Financial Year 2022-23 has
increased around 73% mainly on account of higher prices of natural gas and fertilisers.
However, the profit of the Company did not increase commensurate with the increase in cost
of goods sold as bulk fertilisers including Urea are regulated by the Government of India.
The lower Operating Profit Margin and Net Profit Margin during Financial Year 2022-23 in
comparison to the previous year was mainly attributed to these factors.
7. Details of change in Return on Net Worth as compared to the previous
financial year and explanation thereof
The 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 2022-23 was 16.38% in comparison to 22.43%
during the Financial Year 2021-22.
The standalone profit after tax of the Company during the Financial
Year 2022-23 was lower in comparison to the previous financial year which was mainly
attributable to lower profit margin on DAP and MOP fertilisers and higher interest cost
which was partly offset by higher contribution in Urea, higher other income and lower tax
liability including deferred tax. On the other hand, the average net worth for the
Financial Year 2022-23 was higher in comparison to the previous year. Both the factors
have impacted the return on net worth during the Financial Year 2022-23 in comparison to
the previous year.
8. Material Developments in Human Resources/ Industrial Relations
The Company is running three hi-tech Urea plants. The efficient and
safe operation of these manufacturing plants is of the highest importance to the Company.
The Company is committed to maintain a positive and productive
environment in which people are engaged and enabled to deliver their best to achieve its
goals. The Company has a team of highly qualified and experienced personnel with high
retention rate. The appropriate recruitment, induction, engagement, retention and training
plans are in place to maintain the Companys talent pool. The relevant technical training
is imparted to new employees in the plants, which includes classroom sessions, training
through simulator and on the job training. In case of existing employees, the training and
development needs are identified periodically and multiple interventions for skill
building were undertaken during the year. The Company provided focused development
opportunities and conducted various capability building sessions to enhance competencies
for a future ready organisation. The Company has a self-development scheme for its
employees to enhance their knowledge and skills by encouraging them to enroll in
professional training courses.
The permanent employee strength of the Company was 1050 as on March
31,2023. The Company continues to maintain open and cordial employee relations at the
manufacturing plants as well as other locations of its operations.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has a strong internal control system comprising various
levels of authorization, supervision, checks & balances and procedures through
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 compliances with Standard Operating Procedures and
Manuals with an 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 regular basis to improve their efficacy and 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 statutory auditors. The internal audit programme is approved by the Audit
Committee.
The audit approach is based on random sample selection and takes into
consideration the generally accepted business practices. The internal audit reports are
discussed by the Management Committee and subsequently placed before the Audit Committee
of the Board of Directors along with the directions/ action plan recommended by the
Management Committee. The directions of the Audit Committee are implemented by the
respective departments and 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.
CAUTIONARY STATEMENT
The report may contain certain statements that 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 |
Gaurav Mathur |
| Place : New Delhi |
Director |
Managing Director |
| Date : May 26, 2023 |
DIN: 00064714 |
DIN: 07610237 |
+91-9892691696
