f a c t Management discussions

Industry Structure and Development

Fertilizer industry is one of the fastest growing basic industries in India. Indian Fertiliser Market is expected to grow at a Compound Annual Growth Rate of 4.7% between the years 2023 and 2028. The Market growth is being driven by increasing demand for food production and improvements in agriculture process. Decreasing fertility of the land and increasing population have raised the importance of fertiliser industry in India. The industry ensures production and supply of essential plant nutrients to farmers at affordable prices to increase farm productivity and to achieve food security of the nation.

In the global market also the demand for fertilisers has increased rapidly in the recent years as growing population has led to an increase in the demand for food. The decline in agricultural productivity due to various reasons is expected to further increase the demand for fertiliser. As rural areas develop, the land dedicated to agriculture decrease resulting in increased demand for fertilisers to maintain soil fertility to ensure high crop yields.

Fertilizer Industry has played a key role in the success of Indias Green Revolution and subsequent self-reliance in food grain production. Fertilizers are expected to have a significant influence in raising average the agricultural yields. However, the average intensity of fertilizer use and yield per cultivated area in India remains much lower than most of the developed and emerging countries around the world. Fertiliser industry is composed of three primary nutrients which are essential for the growth of plants namely Nitrogen, Phosphorus and Potassium and secondary nutrients. The primary objective of the industry is to ensure the in flow of both primary and secondary nutrients at the optimum level.

Government of India is closely monitoring the fertiliser industry in India and providing necessary support and guidance for its sustainable growth. The support of the Government of India to the industry ensures availability of fertiliser to farmers at reasonable prices.

The financial year 2022-23 was a challenging year for the fertiliser industry, not only in India, but all over the world. The year 2022-23 witnessed high volatility in the prices of fertiliser inputs and fertilisers in international market due to various geo political reasons. Prices of fertiliser inputs soared during the first and second quarters and showed a decreasing trend during the fourth quarter. Timely intervention of the Government of India, including increase in subsidy of fertilisers helped the fertiliser industry in India to maintain the production and supply of fertilisers in the country. During the Financial year 2022-23, production of total Fertiliser Nutrients in India increased by 11.6% compared to the previous year. Prices of fertiliser inputs like Ammonia, Sulphuric Acid, Phosphoric Acid etc. are showing a decreasing trend in the financial year 2023-24. The price has come down to the pre-covid levels and this is a good sign for fertiliser industry in India and also the global fertiliser market.

Growing demand for high efficiency fertilisers is creating lucrative opportunities for the fertiliser industry in India.

Volatility of input price, over dependence of import and lack of infrastructure facilities for handling and storage are the challenges being faced by the fertiliser industry in India.

About the Company

The Fertilisers and Chemicals Travancore Limited (FACT) was incorporated in 1943. In 1947, FACT started production of Ammonium Sulphate with an installed capacity of 10,000 MT per annum at Udyogamandal, near Cochin. In the year 1960, FACT became a Kerala State PSU and on 15th August, 1962, Government of India became the major shareholder From a modest beginning, FACT has grown and diversified into a multi-division/multi-function Organisation with basic interest in manufacture and marketing of Fertilisers and Petrochemicals, Engineering Consultancy and Design and Fabrication and Erection of Industrial Equipment.

Installed capacity of FACT plants are given below.

Product	Installed Capacity
a. Factamfos (NP 20:20)	633,500 MT per annum
b. Ammonium Sulphate	225,000 MT per annum
c. Caprolactam	50,000 MT per annum

FACTs mission is to be a significant player in Fertilisers, Petrochemicals and other businesses such as Engineering and Technology services.

FACTs objectives are: a. To produce and market Fertilisers & Caprolactam and other products efficiently and economically, besides achieving a reasonable and consistent growth. b. To effectively manage the assets and resources of the company to ensure a reasonable return on investment c. To focus on cost reduction and technology upgradation in order to become competitive in business. d. To constantly innovate and develop new products and services to satisfy customer requirements. e. To invest in new business lines, where profit can be made on a sustainable basis. f. To provide services to the farming community by organizing technical training, soil testing and other productivity improvement services in agriculture.

Operational Performance Segment wise / Product wise a. Udyogamandal Complex:

The Udyogamandal Complex produced 208146 MT of Factamfos, (NP 20:20:0:13), which is 140% of the installed capacity. Ammonium Sulphate production during the year was 244732 MT, which is 109% of the installed capacity. This is against the production of 186192 MT and 136665 MT respectively in the previous year.

The production of Ammonium Sulphate was through Caprolactam route and Annual production of 244732 MT of Ammonium Sulphate during the year is the all-time highest production through Caprolactam route.

Nutrient wise production was 92044 MT of Nutrient Nitrogen as against 41629 MT of P2O5. 65391 MT of Nutrient Nitrogen and 37238 MT of Nutrient P2O5, in the previous year. Petrochemical Unit: Caprolactam production was 44754 MT as against 20835 MT during the previous year. The year 2022-23 witnessed full year production of Caprolactum after re-commissioning of the plant.

b. Cochin Division:

The Cochin Division produced 620050 MT of Factamfos, (NP 20:20:0:13), which is 128% of the installed capacity. This is against the production of 640360 MT in the previous year.

The Cochin Division produced 124010 MT each of nutrient nitrogen and nutrient P2O5, which is 127.85% of the installed capacity. The production of Nutrient Nitrogen and P2O5 during the previous year was 128072 MT.

The division also produced 234330 MT of Sulphuric Acid and 63050 MT of Phosphoric Acid as compared to 284495 MT of Sulphuric Acid and 57275 MT of Phosphoric Acid in the year 2021-22.

c. Marketing Division:

During the year the Company had achieved a total sales revenue of . 6083 Crore from the sale of fertiliser which is an all-time record.

The Company also achieved remarkable sales of 1 Million tonnes of all fertilizers by the sale of 7.43 lakh MTs of Factamfos, 2.20 lakhs MTs of Ammonium sulphate, 17179 MTs of FACT Organic and 3120 MTs of Organic Plus. FACT started ex-factory sales of Factamfos in Kerala and was able to sell 10115 MTs. This helped to spread the supply of Factomfos in the state of Kerala. FACT had expanded the fertiliser marketing on PAN India basis by extending the operations in the states of Maharashtra, West Bengal, Odisha, Gujarat and Bihar. The company has also marketed fertilisers in association with other PSUs like Hindustan Insecticides Ltd. (HIL), Rashtriya Chemicals and Fertilizers Limited (RCF), Brahmaputra Valley Fertilizer Corporation Ltd. (BVFCL) during the year.

The Company could also achieve excellent sales in Chemicals and Petrochemical products with 110% growth in sale of Caprlactam and 14% growth in sale of Gypsum. Two new products Cyclohexane and Cyclohexanone were also added for sale to increase the turnover.

d. FACT Engineering and Design Organisation (FEDO):

During the year 2022-23, FEDO focused on major jobs of external clientele and achieved substantial progress in completion of major jobs in the spectrum of design, engineering, procurement and inspection fronts as well as in the Projects and Constructions. FEDO received new external orders for a value of . 45.00 Crore as compared to . 26.15 Crore during the year 2021-22. FEDO achieved a turnover of .4.46 Crore as compared to . 6.40 Crore in the previous year. FEDO is also concentrating on the CAPEX project of FACT. During the year, projects like Construction of Sulphuric Acid Storage Tank at Cochin Division, Reconstruction of south Coal Berth at Willingdon Island etc. were completed. FEDO is actively participating in the ongoing CAPEX like construction of 1650 MT

TPD NP plant at Cochin Division, construction of 10,000 MT Ammonia Storage Tank at FACT Cochin Division, construction of two Phosphoric Acid Storage Tank at Willingdon Island etc.

e. FACT Engineering Works (FEW):

FEW bagged External orders worth .256.24 lakh compared to .120.97 lakh during the Financial Year 2021-22. FEW is planning to associate with credible Engineering firms to increase the business and turnover. The demand from the process industry for pressure vessels and heat exchangers for replacement as well as for capacity expansion is steady and it offers business opportunity to FEW.

FEW is assisting in the commissioning of CAPEX projects of FACT. One major achievement was the construction and commissioning of new Ammonia Barge ‘Pearl of Periyar. The Barge has been put to service for transportation of Ammonia.

Further details on Segment-wise or Product-wise Performance and Discussion on financial performance with respect to operational performance are furnished separately in the Annual Report.

Material developments in Industrial Relations / Human Resources

1. Industrial Relations

During the financial year 2022-2023, cordial industrial relations were maintained across all Divisions of the Company. Meetings were regularly held between Management and the Trade Unions and Officer Associations, to discuss and deliberate on various issues. Pay revision for the period 1.1.2017

31.12.2026 effective from 1.4.2022, was implemented. There was no loss of production during the year due to Industrial Relation issues.

2. Human Resources

The Company values Human Resources as an important asset and recognizes its contribution in achieving high levels of production and sales. 103 employees joined the permanent rolls of the Company during the year 2022-23. There were 1546 employees on permanent rolls as on 31.03.2023. Employees are imparted training through the FACT Training Centre. The new recruits were given induction training and on the job training in Divisions. The web based Learning Management System developed and implemented in-house, whereby intranet users, while in of ce, can access learning modules on various subjects, is also in place. The Company has a well-structured and effective Employees Grievance Management System for redressing employee grievances. The basic objective of the Employees Grievance Redressal System is to provide an easily accessible machinery for settlement of grievances and to adopt measures to ensure expeditious settlement of grievances of all the employees. Three separate Grievance Committees are in place for employees in various cadres to consider and redress grievances.

3. Development of Scheduled Castes/ and Scheduled Tribes (SC/ST).

Regular in house training programmes are being arranged to employees including SC/ST employees through FACT Training Centre. For engagement of Apprentices under the Apprentices Act, representation as per rules is provided. The representation for SC/ST in Apprentices as on 31.03.2023 is as follows:

Total No of Apprentices	GEN	OBC	SC	St
157	49	89	18	01

18 SC and 1 ST Apprentices underwent training during 2022-2023.

4 Steps taken for the welfare of SC/ST employees

The directives of the Government in recruitment and promotion of reserved categories are followed by the Company. SC/ST Officers are nominated on the selection committees and Management also ensures their representation in other committees and forums. Due consideration is given for allotment of residential quarters and also for nominations for training courses. Welfare benefits are extended to employees and their dependents by way of medical facilities, housing, social security measures etc. SC/ST Employees Associations are also functioning in the Company. The representation of SC/ST in recruitments during the year 2022-23 is given below:

Recruitment 01.04.2022-31.03.2023	Numbers Recruited	SC	ST
Managerial cadre	64	11	5
Non managerial cadre	39	6	1
Grand Total	103	17	6

The employment of Reserved categories as on 31.03.2023 is given below:

	Total	SC	ST	OBC	PWBD
No of Employees	1546	211	51	638	38
% of total employees		13.65	3.30	41.27	2.46

SC/ST Grievance Cell

An SC/ST Grievance Cell is functioning in the Company comprising the Chairman, (who is also Chief Liaison Officer for matters pertaining to reservation of SC/ST, and their grievances in the Company), liaison Officers of various Divisions and Officers belonging to SC & ST. The grievances received are examined in detail by the Cell and appropriately redressed wherever possible.

Training

Maximum representation is ensured for SC/ST/OBC in all the training programs.

The following in house training programs were attended by SC/ST/OBC Categories of employees.

1. Training on Preventive Vigilance

2. Training on Effective Leadership & Managerial Effectiveness

3. Effectiveness of Human Resource Functions

4. Training on CVC Guidelines and CTE Observations

5. Awareness program on Sexual Harassment

6. Training on Vibration Analysis & Condition Monitoring

7. Talk on Productivity, Green Growth & Sustainability

Allotment of Residential Quarters

Due consideration is given for allotment of Residential Quarters to SC/ST employees. 27% of the quarters are presently occupied by SC/ST Employees. Details of the quarters allotted to SC/ST employees are furnished below:

Total number of quarters occupied by the employees in the Townships	SC Employees	ST Employees
510	110	29

Reservation of Dealership

FACT is having 5566 dealers for distribution of fertilisers. FACT is encouraging SC/ST category dealers to apply for the dealership in accordance with policy of Department of Fertilizers, Government of India.

Total number of dealers and the representation of SC/ST in dealership as on 31.3.2023 is given below.

S.NO.	STATE	TOTAL DEALER	SC	ST
1	Kerala	1634	15	2
2	Tamil Nadu	1093	59	0
3	Pondicherry	20	2	0
4	Karnataka	1498	41	32
5	Telengana	537	3	5
6	Andhra Pradesh	686	4	0
7	Maharashtra	21	0	0
8	Punjab	1	0	0
9	Odisha	23	0	0
10	West Bengal	38	0	0
11	Bihar	15	0	0
	TOTAL	5566	124	39

Opportunities & Threats

Opportunities

• Premium product in the complex fertiliser segment

Factamfos NP 20:20:0:13 is the most preferred complex fertiliser containing sulphur in South Indian Market.

• Extensive Marketing network in Southern India

FACT is having extensive market network in South India. FACTs products are being marketed through dealer network of about 5566 dealers.

• Substantial infrastructure facilities

FACT is having infrastructure facilities like dedicated berth for importing of raw materials and facilities for movement of fertiliser input through road and water ways in barges.

• Operational efficiency and high capacity utilisation of plants.

FACT plants are capable of achieving 120% - 130% of its installed capacity.

• Scope for expansion and diversification

FACT is having scope for expansion of its activities to other States. Similarly, the Company can diversify to manufacture other grades of fertiliser. The Company can also enter into manufacturing and trading of various chemicals also.

• Availability of land resources for generating additional revenue

The Company is having land resources for generating additional revenue.

• Availability of RLNG at Kochi

Petronet LNG has set up a re-gasification / storage facility of Natural Gas at Kochi. FACT plants are connected with a pipeline of GAIL for transmission of re-gasified Natural Gas.

Threats

• Volatility in Raw Material prices

The Company does not have any control over the price of raw materials. All the major fertiliser inputs are imported and prices are highly volatile.

• High interest on Government of India Loan

Government of India is charging 13.5% interest on the loan availed. The liability in this regard is .240 Crore approximately per annum. This will affect the profitability of the Company.

• Exchange rate variations

The Company is depending upon import for fertiliser inputs. The adverse impact in exchanging rate variations is a serious threat to the profitability of the Company.

• Fluctuation in availability of import raw materials and the logistic constraints

Any delay on receipt of import of raw materials will adversely affect the production of the Company.

• Seasonal nature of product demand

Fertiliser consumption is seasonal and dependent on rainfall in the region.

Risk and Concern

The fertiliser business is exposed to various risks arising from fluctuations in international raw material prices, foreign exchange rate, geo-political uncertainties etc., which can have an adverse impact on the financial position and impact margins. Cyber security issues like information breach, unauthorized access, loss of sensitive or confidential information etc. also pose significant risks to the Company.

Internal Control systems and their adequacy

FACT is having an Internal Control System, commensurate with the size, scale and complexity of its operations. The Internal Audit wing of FACT headed by Deputy General Manager (Internal Audit), monitors and evaluates the efficacy and adequacy of Internal Control System in the Company. The observations and recommendations of internal audit along with corrective action thereon are presented to the Audit Committee of the Board. Based on the recommendation of Internal Audit, the functional heads take necessary corrective action in their functional area, thereby strengthening internal control.

Key Financial Ratios

Key financial ratios of the Company for the financial year 2021-2022 and financial year 2022-2023 are given below

SL No	Particulars	2022-23	2021-22	Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year)
I	Debtors Turn Over Ratio	5.77	4.27	Due to reduction in the accrued subsidy as at the year end
ii	Inventory Turn Over Ratio	7.55	7.50	NA
iii	Interest Coverage Ratio	3.60	2.53	Due to increase in Profit
iv	Current Ratio	1.08	0.98	NA
v	Debt Equity Ratio	3.27	6.16	The debt equity ratio improved due to the profit earned during the year
vi	Operating Profit Margin	0.14	0.16	NA
vii	Net Profit Margin	0.10	0.08	NA
viii	Return on Capital employed	0.19	0.16	NA

As on 31.03.2022 the networth was 567.26 Crore. During the Financial Year 2022-23, the Company earned a profit of 613 Crore and networth as on 31.03.2023 is 1164.16 Crore. The profit of the Company increased from 346 Crore to 613 Crore in 2022-23.

Outlook

The Company expects to continue the excellent production and marketing performance during the year 2023-24. Company is also planning to increase fertilizer trading activities. PAN India operations and tie up with other fertiliser PSUs would help the company to enhance the sale. Production and sale of Chemicals and petrochemical products are also expected to increase during the year 2023-24 and give good revenue to the Company. Tie up for supply of RLNG and other fertiliser inputs would ensure continuous supply of raw materials.

FACT is in the process of commissioning / implementation of various CAPEX projects for enhancing the production capacity and the sustainable growth of the Company in the long run.

Commissioning of the CAPEX project would result in increase in fertiliser production of the Company from 10 lakh MT to 14 lakh MT and considerable increase in turnover and Profit.

The Financial Restructuring proposal submitted by the Company is under the consideration of Department of Fertilizers. The Company expects an early implementation of the same.

Cautionary Statement

Statements in the Management Discussion and Analysis and in the Directors Report, describing the Companys objectives, projections and estimates, contain words or phrases such as “will”, “aim”, “believe”, “expect”, “intend”, “estimate”, “plan”, “objective”, “contemplate”, “project” and similar expressions or variations of such expressions, are “forward-looking” and progressive within the meaning of applicable laws and regulations. Actual results may vary materially from those expressed or implied by the forward-looking statements due to risks or uncertainties associated therewith depending upon economic conditions, government policies and other incidental factors. Readers are cautioned not to place undue reliance on these forward-looking statements.

(Kishor Rungta)

Chairman & Managing Director

DIN-00231106

Place: Udyogamandal

Date : 31.08.2023