Gujarat State Fertilizers & Chemicals Ltd Directors Report.

To

The Members,

Your Directors have pleasure in presenting their 58th Annual Report on the business and operations of the Company and the accounts for the Financial Year ended March 31, 2020.

1. Financial highlights of the Company

(Rs in Crores)

Sr. No. Particulars Standalone Consolidated
2019-20 2018-19 2019-20 2018-19
1 Gross Sales 7620.82 8574.54 7797.98 8490.67
2 Other Income 109.19 104.90 106.51 107.53
3 Total Revenue 7730.01 8679.44 7904.49 8598.20
4 Less : Operating Expenses 7318.13 7827.15 7480.76 7742.01
5 Operating Profit 411.88 852.29 423.73 856.19
6 Less : Finance Cost 114.69 61.26 114.80 61.01
7 Gross Profit 297.19 791.02 308.93 795.18
8 Less : Depreciation 170.21 125.61 170.95 126.25
9 Exceptional Item 0 0 0 0
10 Profit before Taxes 126.98 665.42 137.98 668.92
11 Shares in Profit/(Loss) of Associates 0.00 0.00 2.94 0.02
12 Profit before taxes after Associates 126.98 665.42 140.92 668.94
13 Taxation
• Current Tax - 123.23 2.99 125.61
• Deferred Tax (net) 24.79 53.11 24.79 54.81
• Mat Credit recognized - (6.89) - (6.89)
• Earlier year tax 3.49 2.29 3.49 2.29
14 Profit after taxes 98.70 493.68 109.64 493.13
15 Non-controlling Interest 0.00 0.00 -0.06 -0.001
16 Other comprehensive income arising from re-measurement of defined benefit plan (201.20) (8.37) (201.22) (8.35)
17 Balance brought forward from last year 431.69 432.06 472.52 473.52
18 Amount available in retained earnings 329.19 917.37 380.89 958.30
19 Payment of Dividend
- Dividend 87.66 87.66 87.66 87.66
- DDT Paid 18.02 18.02 18.12 18.12
20 Transfer to General Reserve - 380.00 - 380.00
21 Leaving a balance in retained earnings 223.51 431.69 275.11 472.53

2. Dividend:

Your Directors are happy to recommend a dividend @ 60%, i.e. Rs 1.20/- per Equity Share (Face value of Rs 2/-each) on 39,84,77,530 shares (Previous Year - 110%, i.e. Rs 2.20 per share on 39,84,77,530 Equity Shares of Rs 2/- each) for the financial year ended 31st March, 2020. The net outgo on account of Dividend shall be Rs 47.82 Crores. The Dividend shall be paid to those members, whose names shall appear on the Register of Members of the Company on the Book Closure Date i.e. on 15/09/2020.

3. Brief description of the Companys working during the year/ State of Companys affair:

Your directors wish to report that your Company has achieved turnover of Rs 7620.82 Crores for the year ended March 31, 2020 as against Rs 8574.53 Crores (FY 18-19) on standalone basis, which is lower by 36% ( Rs 953.71 Crores) when compared to the previous financial year.

Similarly, for the year under review (FY 2019-20), Profit before Tax (PBT) was Rs 126.98 Crores and Net Profit (Profit after Tax) was Rs 98.70 Crores as against PBT of Rs 665.42 Crores and PAT of Rs 493.68 Crores for the previous financial year.

4. Material changes and commitments:

The Company has not made any material changes or commitments which affect the financial position of the Company between the end of the financial year of the Company to which the financial statements relate and the date of signing of this report.

Global Pandemic COVID-19

This year Novel Coronavirus (Covid-19) Pandemic has affected the majority of the countries globally including India. Apart from human suffering, it has also caused major economic disruptions. The Government of India has issued various Advisories/Guidelines on preventive measures to contain the spread of Covid-19. The Iockdowns and restrictions imposed on various activities due to Covid-19 pandemic have posed challenges to the businesses of the Company. In order to control the spread of Covid-19, the Government had issued various guidelines including nation-wide lockdown with effect from 25th March 2020 for 21 days which was further extended upto May 2020. Initially, the Company reduced its manufacturing operations of its various plants at Vadodara Unit and Sikka Unit with effect from 25th March 2020, resulting into significant reduction in economic activities. Later on, the Company had taken complete shut-down of its plants at Vadodara Unit and Sikka Unit in line with the Government of Indias announcement from time to time to observe nation-wide Iockdown. From 3rd April, 2020 onwards, the Company resumed partial operation of its various plants at Vadodara Unit and Sikka Unit in phased manner considering the requirements of various municipal corporations and other essential industries after obtaining necessary permissions from the concerned Authorities. As many of the Companys products are categorized under essential items, the plant operations were resumed after a few days of lockdown at minimum capacity due to manpower and demand constraints. The Company continued with plant operations with minimum of manpower, exercising precautions of social distancing in compliance with Central and State Government Authorities guidelines. The Company had adopted "Work from Home Policy" for its employees. Effective from 1st May, 2020, all plants at Vadodara Unit and Sikka Unit have started operating at full capacity.

All these factors have also adversely affected the progress of ongoing projects under execution which may result into delay in completion of these projects. However, all efforts are being made to minimize the delay in completion of these projects. In assessing the recoverability of Companys assets such as investments, loans, advances and other financial and non-financial assets, the Company has considered internal and external information and has performed sensitivity analysis on the assumptions used basis the internal and external information / indicators of future economic conditions and expects to recover the carrying amount of the assets. The management has evaluated the various financial ratios, expected ageing and maturities of assets and liabilities and the various internal and external information available. The management does not see any risks to Companys ability to continue as a going concern and expects that the Company will be able to meet its liabilities in the foreseeable future, as and when the same fall due. There has been no other material changes and commitments, which affect the financial position of the Company which have occurred between the end of the Financial Year 2019-20 and the date of this Report. There has been no change in the nature of business of the Company.

5. Details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Companys operations in future:

There are no such orders except those which have been appropriately challenged before the judiciary and no impact on going concern status and Companys operation in future of such matters are expected or visualised at the current stage at which they are.

6. Details in respect of adequacy of internal financial controls with reference to the Financial Statements:

Your Company has an internal Control System which commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit function lies with the Audit Committee of Directors. The Audit Committee monitors and evaluates the efficacy and adequacy of internal control systems, accounting procedures and policies. Based on the report of Internal Auditors, significant audit observations and actions taken on such observations are presented to the Audit Committee of the Board.

7. Details of Subsidiary/Joint Ventures/Associate Companies:

During the year under review, Companies listed below are the Subsidiary Company or Associate Companies:

• Subsidiary Company GSFC Agrotech Limited.
Gujarat Port and Logistics Company Limited*
• Associate Companies Vadodara Enviro Channel Limited
Gujarat Green Revolution Company Limited
Gujarat Data Electronics Limited
Karnalyte Resources INC
• Subsidiary of Subsidiary - Gujarat Arogya Seva Private Limited.

*Gujarat Port and Logistics Company Limited was incorporated on 03/02/2020 as a Joint Venture Company by Gujarat State Fertilizers & Chemicals Limited and Gujarat Maritime Board with proposed investment in the ration of 60:40 respectively. A report of the performance and financial position of each of the subsidiaries, associates and joint venture companies as per the Companies Act, 2013 is provided at Annexure - A to the Consolidated Financial Statement and hence not repeated here for the sake of brevity. The Company does not have any material subsidiary in terms of Companys Act, 2013 read with SEBI (Listing Obligation & Disclosure Requirement) Regulations.

8. Listing of Shares & Depositories:

The Equity Shares of your Company are listed on the BSE Limited (BSE) and National Stock Exchange of India Ltd. (NSE). As approved by the shareholders, an application for voluntary delisting of Equity Shares from Calcutta Stock Exchange Association Ltd., Kolkatta, was made, however, the approval for delisting is still awaited. The listing fee for the FY 20-21 has been paid to both the Stock Exchanges.

Your Directors wish to state that the Equity Shares of your Company are compulsorily traded in dematerialized form w.e.f. 26/06/2000. Presently, 97.94% of shares are held in electronic/ dematerialized form.

9. Report on Corporate Governance And Management Discussion And Analysis Report To Shareholders:

Your Company has complied with all the mandatory requirements of Corporate Governance norms as mandated by SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

A separate report on Corporate Governance together with the Certificate of M/s. Samdani Kabra & Associates, Company Secretaries, Vadodara forms part of this Annual Report. The Management Discussion & Analysis report also forms part of this Annual Report.

10. Business Responsibility Reporting

Business Responsibility Report forms part of this Annual Report Annexure-E as required under Regulation 34(2) (f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

11. Fixed Deposits

During the year 2019-20, your Company has not accepted/ renewed any Fixed Deposit. Your Directors wish to report that there are NIL Fixed Deposits aggregating Rs NIL which have remained unclaimed by Depositors, as on 31st March, 2020. Letters reminding them to seek repayment have been sent. Upto and including the date of this report, Nil deposits have been repaid.

During the year, the Company has transferred a sum of Rs 0.69 Lakhs being the unclaimed deposits and interest amount thereon to the Investors Education and Protection Fund (IEPF) as required in terms of Section 125 of the Companies Act, 2013. The Company has discontinued accepting new deposits since 15.11.2005, and renewing the deposits since 31.03.2009.

12. Insurance:

All the properties and insurable interests of the Company, including the buildings, plant & machinery and stocks have been adequately insured. Also, as required under the Public Liability Insurance Act, 1991, your Company has taken the appropriate insurance cover.

13. Expansion & Diversification-Projects under Development: Urea Plant Revamping Project:

To reduce the energy consumption of existing Urea plants and to improve the plant reliability of vintage plant, your company is considering to carry out revamping of Urea-II Plant. The feasibility study for the Project has been completed from Process Licensors and Company is in process of carrying out Detail Project Report from reputed consultant. Also, company has invited offers from Process Licensors for supply of Technology and Basic Engineering Package.

400 MTPD Sulphuric Acid Plant at Vadodara Unit :

To minimize Sulphuric Acid purchase from market and to meet the captive requirement, your company is considering to set up 400 MTPD Sulphuric Acid Plant on LSTK basis at Vadodara Unit. The plant will also export about 440 MTPD steam to the complex which will reduce load on NG fired boilers. Company is in process of carrying out Detail Project Report from reputed consultant.

400 MTPD Ammonium Sulphate Plant at Vadodara Unit:

To capture growing market of Ammonium Sulphate, your company is considering to set up 400 MTPD Ammonium Sulphate Plant at Vadodara Unit. Company is in process of carrying out Detail Project Report from reputed consultant.

PA & APS Plants refurbishment:

To improve productivity, efficiency and reliability of the old PA and APS Plants established in the year 1967, Your Company has taken up refurbishment of these plants.

15 MW Solar Power Project at Charanka:

To make use of green energy & meet Renewable Purchase Obligation (RPO) requirement, your company is considering to install 15 MW ground mounted solar power plant at Charanka, Gujarat. Company is in process of floating of RFP to reputed vendors.

Expansion of Sikka Jetty for better Utilization:

Considering the high cost, about Rs 800 Crores for the Project which will add to PA/SA Project cost at Sikka, complexity of the operation for which GSFC has no experience and addition of Operating cost, your company is not moving ahead with the Project. As an alternative, your company has initiated discussions with M/s Essar Port for unloading of imported rock phosphate for PA Project at Sikka which is a cheaper option.

Methyl Methacrylate (MMA) Plant at Dahej:

Considering uncertainty for sourcing of major raw material C4 Raffinate from OPaL, recent downtrend in the chemical market, Global demand / supply outlook, Your Company is not moving ahead with the Project.

Caprolactam Plant at Vadodara:

Considering recent downtrend in the chemical market and international prices of Caprolactam your Company has put the Project on hold.

NPK Pilot Plant at Sikka:

It is essential to produce various grades of NPK in competitive market. For developing various NPK grades and optimization of process parameters for effective scale up, your Company is considering to install pilot plant at its Sikka unit

14. Information regarding conservation of energy, technology absorption, foreign exchange earnings and outgo and particulars of employees etc.

Information as required under Section 134 (3) (m) of Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 are enclosed in Annexure "E" forming part of this report.

The details relating to Section 197 (12) of the Companies Act, 2013 read with Rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 have been disclosed in point # 5 of Corporate Governance Report.

15. Corporate Social Responsibility (CSR)

The Company has constituted a Corporate Social Responsibility (CSR) Committee in accordance with Section 135 of the Companies Act, 2013. As a part of its initiatives under "Corporate Social Responsibility", the Company has undertaken projects in the areas of education, livelihood, health, water and sanitation. The Annual Report on CSR activities is enclosed as Annexure A. CSR Policy adopted by the Company is placed on the Companys website at https://www.gsfclimited.com/social_commitment.asp?mnuid=1&fid=15

16. Directors

A) Changes in Directors and Key Managerial Personnel:

Shri Arvind Agarwal, IAS has been appointed as Chairman and Managing Director of the Company w.e.f.07.12.2019 in place of Dr. J. N. Singh, IAS Chairman (till 01.12.2019) and Shri Sujit Gulati, IAS, Managing Director of the Company (till 06.12.2019).

Shri Pankaj Joshi, IAS has been appointed w.e.f. 21.12.2019 as rotational director and nominee of Finance Dept. to the Govt. of Gujarat in place of Shri Arvind Agarwal, IAS (who was the erstwhile nominee of Finance Dept. to the Govt. of Gujarat till 06.12.2019) and Smt. Sunaina Tomar, IAS has been appointed w.e.f. 04.01.2020 as rotational director in place of Shri Pankaj Joshi, IAS, Director, who was the erstwhile nominee of Energy and Petrochemicals Dept. to the Govt. of Gujarat on the Board of the Company.

Smt. Sunaina Tomar, IAS shall be liable to retire by rotation at the ensuing Annual General Meeting, being eligible, has offered herself for re-appointment.

The appropriate resolution/s and brief resume of Directors under appointment/ re-appointment at 58th Annual General Meeting is annexed to the Notice convening the 58th Annual General Meeting and it forms the integral part of this Annual Report and your Directors recommend the same for your approval.

The Board of Directors via circular resolution dated 02-09-2020 appointed;

(1) Shri Tapan Ray, DIN 00728682 as an additional director in the category of Independent Director of the Company with effective from 02-09-2020 and subject to approval of shareholders of the Company, the term of appointment of Shri Tapan Ray as an Independent Director of the Company shall be 5 (five) Years from the conclusion of 58th Annual General Meeting till the conclusion of 63rd Annual General Meeting.

(2) Dr. Ravindra Dholakiya, DIN 00069396 as an additional director in the category of Independent Director of the Company with effective from 02-09-2020 and subject to approval of shareholders of the Company, the term of appointment of Shri Ravindra Dholakiya as an Independent Director of the Company shall be 5 (five) Years from the conclusion of 58th Annual General Meeting till the conclusion of 63rd Annual General Meeting.

(3) Smt. Gauri Kumar DIN 01585999 as an additional director in the category of Independent Director of the Company with effective from 02-09-2020 and subject to approval of shareholders of the Company, the term of appointment of Smt. Gauri Kumar as an Independent Director of the Company shall be 5 (five) Years from the conclusion of 58th Annual General Meeting till the conclusion of 63rd Annual General Meeting.

(4) Dr. Sudhir Kumar Jain DIN 03646016 as an additional director in the category of Independent Director of the Company with effective from 02-09-2020 and subject to approval of shareholders of the Company, the term of appointment of Dr. Sudhir Kumar Jain as an Independent Director of the Company shall be 5 (five) Years from the conclusion of 58th Annual General Meeting till the conclusion of 63rd Annual General Meeting.

The Board of Directors is of the opinion that Shri Tapan Ray, Shri Ravindra Dholakiya, Smt. Gauri Kumar and Dr. Sudhir Kumar Jain are the persons of integrity with high level of ethical standards and they were holding senior positions in other organizations, all the directors possess requisite expertise and experience for appointment as Independent Director of the Company.

All the independent directors have submitted declarations that they meet the criteria of Independence as provided under section 149 (6) of the Companies Act, 2013 read with Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014, as amended, the names of all the Independent Directors of the Company have been included in the data bank maintained by the Indian Institute of Corporate Affairs.

The brief resume of Directors with regard to appointment/ re-appointment at 58th Annual General Meeting is annexed to the Notice convening the 58th Annual General Meeting, which forms the integral part of this Annual Report.

B) Board Evaluation:

Pursuant to the provisions of the Companies Act, 2013 and SEBI (Listing Obligation & Disclosure Requirement) Regulations, 2015, the Board has carried out the annual performance evaluation of its own performance, the Directors individually as well as the evaluation of its committees. The manner in which the evaluation has been carried out is explained in the Corporate Governance Report which forms the part of this Annual Report.

C) Appointment and Remuneration Policy:

The Board has on the recommendation of the Nomination and Remuneration Committee, framed a policy for selection and appointment of Directors, senior management and their remuneration. The details of Remuneration Policy and its weblink are contained in the Corporate Governance Report.

D) Meetings:

During the year, Six Meetings of the Board of Directors and Five meetings of the Audit Committee were held. The composition of Board and Committees along with details of attendance is contained in Corporate Governance Report.

17. Details of establishment of vigil mechanism for Directors and Employees:

The Company has a Vigil Mechanism Policy in place to deal with instances, if any, of the fraud, mismanagement, misappropriations, if any and the same is placed on the Companys website. The details of the policy as well as its weblink are contained in the Corporate Governance Report.

18. Particulars of loans, guarantees or investments under section 186:

Particulars of loans given, investments made, guarantee given and securities provided along with the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient are provided in the standalone financial statement.

19. Particulars of contracts or arrangements with related parties:

All related party transactions that were entered into during the financial year were on an arms length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel and other Designated Persons which may have a potential conflict with the interest of the Company at large.

All Related party transactions were placed before the Audit Committee and also the Board of Directors for Approval. Prior omnibus approval of the Audit Committee is obtained and a statement giving details of transactions, if any, shall be continued to be placed before the Audit Committee meeting as mandated. The Company has developed a mechanism for identification of related party transactions and the Company is also having the system of monitoring of such transactions.

The particulars of every contract or arrangements entered into by the Company with related parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 including certain arms length transactions under third proviso thereto have been disclosed in Annexure D to this report.

20. Managerial Remuneration:

Details as required pursuant to Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are contained in Corporate Governance Report.

21. Risk management policy:

The details of such Committee and its terms of reference are set out in the Corporate Governance Report forming part of the Boards Report.

22. Directors Responsibility Statement:

Pursuant to Section 134 (3) (c) of the Companies Act, 2013, your Directors confirm that:

a. In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

b. The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for that period;

c. The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d. The Directors had prepared the annual accounts on a going concern basis;

e. The Directors, in the case of a listed Company, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

f. The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

23. Auditors:

(a) Statutory Auditors

on recommendation of the Audit Committee, the Board of Directors has recommended for the appointment of M/s. T. R Chadha & Co. LLP, Ahmedabad, Chartered Accountants (Firm Registration No.006711N/ N500028) as the Statutory Auditors for the second term of three consecutive years i.e. to hold the office from the conclusion of 57th Annual General Meeting till the conclusion of 60th Annual General Meeting of the Company to be held in the year 2022.

The Companies Amendment Act, 2017 read with notification S O 1833(E) dated 7th May, 2018 has deleted the provision requiring annual ratification of the appointment of Auditors. Therefore a resolution relating to the ratification of appointment of Auditors (M/s. T R Chadha & Co., LLP, Ahmedabad, the Statutory Auditors) of the Company, who shall continue to hold office from the conclusion of 58th Annual General Meeting of the Company till the conclusion of 59th Annual General Meeting of the Company, has not been included in the notice convening 58th Annual General Meeting.

(b) Cost Auditors:

In terms of the Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014, the Company is required to maintain cost accounting records and get them audited every year.

The Board of Directors of your Company, on the recommendations made by the Audit Committee has approved appointment of M/s Diwanji & Company, Cost Accountants, Vadodara (Firm Registration Number 000339) as the Cost Auditors of your Company to conduct the audit of cost records for the Financial Year 2020-21. The remuneration proposed to be paid to the Cost Auditor is placed for your ratification at the ensuing 58th Annual General Meeting. The Cost Auditors for the F.Y. 2019-20 was filed within stipulated time.

(c) Internal Auditors:

Your Company has appointed M/s Talati & Talati, Chartered Accountants, Vadodara, as Internal Auditors of Baroda & Sikka Unit for Financial Year i.e. 2020-21.

(d) Secretarial Auditors & Secretarial Audit Report:

Pursuant to the provisions of Section 204 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s Niraj Trivedi, Practicing Company Secretary to undertake the secretarial audit of the Company. The Report of the Secretarial Auditor is enclosed as Annexure B.

24. Auditors Report

There are no comments/ observations, reservations or adverse remarks in the Auditors Report and Secretarial Audit Report and hence no clarifications need to be given on their clean report.

25. Extract of the Annual Return:

Link of annual report as per the Companies Amendment Act, 2017 is Annexure-C as below;

www.gsfclimited.com/statu_comp.asp?mnuid=12

26. Human Resources:

Your Directors are happy to acknowledge that the well positioned human resource of the Company have been key drivers in implementing ideas, polices, cultural and behavioral aspects of the organization and ultimately with their outstanding performance has helped the Company to realize its objectives. Your Directors are happy to place on record their appreciation for highly potential, consistent and ethical employees for their remarkable contribution to the Company.

Industrial Relations have remained cordial during the period under report.

27. Acknowledgements:

Your Directors place on record their appreciation for the overwhelming co-operation and assistance received from the Government of Gujarat, Government of India, Bank of Baroda and other Banks and agencies. Your Directors also wish to express their gratitude to the investors for their continued support and faith reposed in the Company.

For and on behalf of the Board
Sd/-
Place : Fertilizernagar Arvind Agarwal, IAS
Date : 02nd September, 2020 Chairman & Managing Director