Fertilizers & Chemicals Travancore Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry Structure and Development

The fertilizer industry is one of Indias fastest-growing basic industries. Its growth is fueled by the increasing demand for food, driven by the countrys growing population and limited land availability.

The Indian fertilizer industry is on a strong growth path, projected to reach a market size of Rs 1.38 lakh crore by 2032, with a Compound Annual Growth Rate (CAGR) of 4.2% from 2024 to 2032.

In India, the focus of the Government continued on ensuring the availability of fertilizers at affordable prices through subsidies and policy measures. The balanced use of fertilizers and reduced dependence on imports are also prioritized. Promotion of organic fertilizers, bio-fertilizers, and the use of nano-fertilizers to enhance efficiency and reduce environmental impact is also being encouraged for sustainable agriculture practices. The global fertilizer market faced supply chain disruptions due to geopolitical tensions and economic sanctions, which impacted the availability and prices of raw materials and finished products in India.

Global price volatility of fertilizers and raw materials like phosphates, potash, and natural gas had significant repercussions on the Indian market, leading to fluctuating retail prices and impacting farmers.

Changes in trade policies and tariffs by major fertilizer-exporting countries influenced the import dynamics for India. Efforts were made to diversify import sources to mitigate risks associated with over-dependence on a few countries.

The fertilizer industry in India is made up of several government and private sector companies that manufacture a range of different fertilizer types.

Indias fertilizer consumption is on the rise and is projected to continue growing in the coming years. The demand for fertilizers has seen significant growth due to the increasing need to enhance agricultural yields. However, despite this progress, Indias fertilizer use remains imbalanced and is lower in intensity compared to many developed and emerging countries.

Decreasing fertility of the land and increasing demand for food grains have raised the importance of fertilizer industry in India. India is still not self-reliant in fertilizer production. Government of India is taking measures to bring self-sustainability in the fertilizer sector for ensuring food security. The entire requirement of Potash is met through import and also for other fertilizers, for sourcing raw materials and hydrocarbon, the country is dependent on imports.

Fertilizers have been considered as an essential input to Indian agriculture to meet the food grain requirements of the Countrys growing population. However, maintaining full load operation of plants, ensuring availability of fertilizer inputs etc. were a real challenge to the industry. Prevailing Global economic situation is also influencing the operations of fertilizer industry in India.

During the year 2023-24, the government adjusted its subsidy and support policies to help both farmers and the fertilizer industry cope with the adverse climatic impacts, ensuring affordability and availability despite the challenges.

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 15^th 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.

SWOT

Strengths

• Premium product in the complex fertilizer segment. Factamfos NP 20:20:0:13 is the most preferred complex fertilizer containing sulphur in South Indian Market.

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

• Operational efficiency and high capacity utilisation of plants. FACT plants are capable of achieving 120% - 130% of its installed capacity.

• The Company is having land resources for generating additional revenue.

• 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.

Weakness

• The fertiliser plants now in operation in the Company are of very old vintage

• The production facilities of the Company are located away from the main consuming areas

• The Company is heavily dependent on imports.

Opportunities

• FACT is having scope for expansion of its activities to other States due to its wide marketing network.

• The Company can diversify into manufacture of other grades of fertilizer.

• The Company can enter into manufacturing and trading of various chemicals.

• The available land can be used for further expansion and diversification.

Threats

• Volatility in Raw Material prices

The Company does not have any control over the price of raw materials. All the major fertilizer 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 fertilizer inputs. The adverse impact in exchanging rate variations is a serious threat to the profitability of the Company.

• Dependence on imported raw materials and the logistic limitations due to geo political situation, can affect the performance of the company

• Seasonal nature of product demand

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

Operational Performance Segment wise/Product wise

a. Udyogamandal Complex

Fertilizer Units: During the financial year 2023-24 Udyogamandal Complex produced 221267 MT of Factamfos, (NP 20:20:0:13), which is 149% of the installed capacity and 116% of the ministry target. Ammonium Sulphate production during the financial year 2023-24 was 242577 MT, which is 108% of the installed capacity and 113% of the ministry target. This is against the production of 208146 MT and 244732 MT respectively in the previous year.

Nutrient wise production during 2023-24 was 94224 MT of Nutrient Nitrogen as against MoU target of 82290 MT and 44253 MT of P₂O₅against MoU target of 38000 MT.

Petrochemical Unit:

The production of Caprolactam for the financial year was 34663 MT, on Grid Energy with DG support.

b. Cochin Division:

During the financial year 2023-24, Cochin Division produced 121290 MT each of nutrient nitrogen and nutrient P₂O₅, which is 125.04% of the installed capacity and 94.76% of the internal target. The production of Nutrient Nitrogen and P2O5 during the previous year was 124010 MT.

The division also produced 226060 MT of Sulphuric Acid and 58535 MT of Phosphoric Acid as compared to 234330 MT of Sulphuric Acid and 63050 MT of Phosphoric Acid in the year 2022-23.

c. Marketing Division:

During the financial year 2023-24 the Company had achieved total sales of 11.76 lakhs MT of all products as compared to last year sales of 9.96 lakh MT; works out 18% growth over last year in spite of adverse climatic conditions and stiff competition.

FACT conducted government programs like PMKSK, PM-PRANAM, PM-Mahila Kisan Drone Kendra, Vikshit Bharath Sangalp Yathra & Community Radio Program etc. during the year successfully.

As part of market expansion/reorganization of territories, new zones Kadapa, Kakkinada in Andhra Pradesh, Nizambad in Telegana and Bhubaneshwar in Odisha have been formed. Maharashtra State Office at Solapur started functioning.

FACT appointed Stock Point Dealers in Karnataka, AP and Telegana (outside TN/KL) for the first time which will improve Godown facility/wide spread availability of stocks for the dealers/farmers. The company has also started selling the new product like PDM/PROM/Nano UREA/Nano DAP.

FACT achieved Soil Analysis of 10038 samples against the MoU target of 10000 given by DoF for the year 2023-24.

d. FACT Engineering and Design Organisation (FEDO):

During the financial year 2023-24, FEDO focused on execution of major jobs of its external clientele and achieved substantial progress in completion of major milestones laid out in the spectrum of Design, Engineering, Procurement and Inspection fronts as well as in the Projects and Constructions. FEDO actively participated in the E tenders/Enquiries from several Indian clientele in Oil & Gas, Fertilizers, Chemicals, Minerals & Metals etc., like HPCL, KMML, HURL, RIL, NGIL, BHEL, OIL etc.

FEDO received new external orders for a value of Rs. 46.00 Crore during the year 2023-24. FEDO achieved a turnover of Rs.18.65 Crore as compared to Rs. 13.34 Crore in the previous year.

e. FACT Engineering Works (FEW):

During the financial year 2023-24, FEW bagged External orders worth Rs.67.31 lakh compared to Rs. 256.24 lakh during the financial year 2022-23. The total value of the orders for the year is Rs.463.31 lakhs.

FEW is planning to associate with credible Engineering firms, by establishing a panel of interested parties, which can help it to bag & carry out more orders. 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. The shipping sector is also now on the path of resurgence.

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.

Outlook for the future

The Company expects to continue the excellent production and marketing performance during the year 2024-25. Company is also planning to increase fertilizer trading activities this year. Tie up for supply of RLNG for five years has been made with Indian Oil Corporation Ltd. Company has also tied up for Sulphur and benzene from domestic suppliers.

The financial restructuring package has been submitted to Govt. of India seeking approval for conversion of a part of Government of India loan into equity and write off of interest on Govt. of India loan and restructuring of balance Govt. of India loan.

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

The Company has submitted its request to Department of Fertilizers for granting Mini Ratna Status and the proposal is also under consideration.

The Capex projects for the Company is progressing as per the plan. Setting up of 1650 TPD Factamfos plant and implementation of the CAPEX could result in increase in fertilizer production of the Company from 10 lakh MT to 14 lakh MT and considerable increase in turnover and reasonable profit.

Risk and Concern

The fertilizer 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.

Performance of the Company Financial performance

The Company achieved very good performance in the production, marketing and financial front. The Company has achieved turnover of Rs.5054.93 Cr and earned a net profit of Rs.146.17 Cr. For the Financial Year 2023-24, the Board has recommended a Dividend of Rs.0.97/- (ninety-seven paise) per equity share of face value of Rs.10/- each.

Particulars	2023-24
Net Sales	5054.93
Other Income	203.12
Total Revenue	5258.05
Total Expenses	4968.96
Profit before Exceptional Items and Tax	289.09
Exceptional Items	-245.59
Earnings before interest, depreciation and Taxes (EBIDTA)	562.59
Interest	246.93
Depreciation	26.57
Deferred Tax	-102.67
Profit for the year	146.17

Operational performance

On Production front, Factamfos production for the fiscal year 2023-24 was 8.27 lakh MT and Ammonium Sulphate 2.42 lakh MT, as compared to 8.28 lakh MT and 2.44 lakh MT respectively during the previous year.

Material developments in Industrial Relations/Human Resources

1. Industrial Relations

During the financial year 2023-2024, cordial industrial relations were maintained across all Divisions of the Company. Discussions were regularly held between Management and the Trade Unions and Officer Associations on various matters. Consequent to the Pay revision for employees, Company implemented Cafeteria Approach for payment of allowances/perks to employees. The retirement age of employees was enhanced from 58 to 60 years during the financial year. The year witnessed high levels of production and sales with high levels of employee commitment in all its plants. There was no loss of productivity 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 during the year including achievement of many records in these areas. 162 employees joined the permanent rolls of the Company during the year. There were 1523 employees on permanent rolls as on 31.03.2024.

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 office, 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 to inspire confidence of employees in the system leading to increased satisfaction in the job and resulting in improved productivity and efficiency of the organization. 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 31.03.2024 is as follows:

Total No of Apprentices	GEN	OBC	SC	ST
130	35	74	18	03

18 SC and 3 ST Apprentices underwent training during 2023-2024.

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 duing the year 2023-24 is given below:

Recruitment 01.04.2023 - 31.03.2024	Numbers Recruited	SC	ST
Managerial cadre	60	10	2
Non managerial cadre	102	23	6
Grand Total	162	33	8

The employment of Reserved categories as on 31.03.2024 is given below:

	Total	SC	ST	OBC	PWBD
No of Employees	1523	224	54	649	37
% of total employees		14.71	3.55	42.61	2.43

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.

Allotment of Residential Quarters

Due consideration is given for allotment of Residential Quarters to SC/ST employees. 28% 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
365	81	21

Reservation of Dealership

FACT is having 5937 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 31.3.2024 is given below.

Sl.No State	Total Dealers	SC Dealers	ST Dealers
1 Kerala	1618	33	6
2 Tamil Nadu	1145	63	0
3 Karnataka	1721	44	32
4 Telangana	553	3	4
5 Andhra Pradesh	718	5	0
6 Maharashtra	44	0	0
7 Gujarat	-	-	-
8 Odisha	41	0	0
9 West Bengal	51	0	0
10 Bihar	46	0	0
TOTAL	5937	148	42

Sexual Harassment of women at workplace

Sexual Harassment Complaint received during 2023-24	Disposed cases	Pending at the end of 2023-24
1	1	0

Key Financial Ratios

Key financial ratios of the Company for the financial year 2022-2023 and financial year 2023-2024 are given below

SL No	Particulars	2023-24	2022-23	Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year)
I	Debtors Turnover Ratio	4.37	5.77	NA
ii	Inventory Turnover Ratio	4.76	7.55	Due to reduction in Sales and also increased inventory position of Finished goods
iii	Interest Coverage Ratio	1.18	3.48	Due to decrease in profit
iv	Current Ratio	1.05	1.08	NA
v	Return on Capital employed	0.08	0.19	Due to reduction in Net Profit after Tax
vi	Operating Profit Margin	0.11	0.14	NA
vii	Net Profit Margin	0.03	0.10	Due to decrease in Turnover & Net Profit
viii	Debt Equity Ratio	3.23	3.27	NA

As on 31.03.2023 the networth was Rs.1164.16 Crore. During the Financial year 2023-24, the Company earned a profit of Rs.146 Crore and networth as on 31.03.2024 is Rs, 1248.51 Crore.

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.

Place: Udyogamandal	(S. C. Mudgerikar)
Date : 03.09.2024	Chairman & Managing Director
	DIN-03498837