Gujarat State Fertilizers & Chemicals Ltd Management Discussions

MACRO-ECONOMIC FRAMEWORK STATEMENT 2023-24

Overview of the Economy:

During FY 2023-24, the global macroeconomic situation remained complex. Despite ongoing uncertainty due to geopolitical events, supply chain challenges seemed to have improved. Consumer price inflation in most Advanced Economies (AEs) showed signs of moderation. Additionally, global growth exhibited recovery, as indicated by the expansionary zone of the global composite Purchasing Managers Index (PMI) since February 2023.

The policy interventions implemented in 2022-23 to mitigate the impact of rising commodity prices due to geopolitical developments, along with expansionary fiscal measures during the pandemic, have left a lasting legacy. However, recent signals of rate cuts by major central banks in 2024 have eased market expectations. As a result, equity markets have seen gains, while bond yields have decreased.

Economic growth in India:

The Indian economy has shown resilience and maintained strong macroeconomic fundamentals. The IMF revised its growth projection for India in FY2023-24 to 6.7%, up from the previous estimate of 6.3% in October 2023. This upward revision reflects growing global confidence in Indias economic strength, even as the global growth projection for 2023 remains unchanged at 3%.

Indias real GDP grew by 8.1% and 8.2% in the first two quarters of FY 2023-24 (as per the provisional estimates), exceeding the 8% mark. Among major advanced and emerging market economies, India recorded the highest growth during this period. Domestic demand for consumption and investment, along with the governments focus on capital expenditure, were significant drivers of GDP growth. On the supply side, both the industry and services sectors played crucial roles in driving growth during H1 of FY2023-24.

Real GDP in Q3 of 2023-24 is estimated to grow by 8.6% quarter-on-quarter as per the provisional estimates, again crossing the 8% mark. High-Frequency Indicators (HFIs) indicate sustained economic activity. PMI Manufacturing remained in the expansionary zone, reaching 54.9 in December 2023. Index of Industrial Production (IIP) and Index of Eight Core Industries (ICI) showed robust growth in manufacturing. PMI Services also remained in an expansionary zone for the past 29 months. Services sector sentiment remains upbeat, driven by the tourism and hotel industry. Other HFIs like passenger traffic, e-way bills, and electronic toll collection (ETC) reflect healthy domestic economic activity.

In three out of four quarters of FY 2023-24 Indias GDP growth has exceeded the 8% mark. In Q4 of FY 2023-24 the growth in Real GDP has been 7.8% as per the provisional estimates. Overall, Indias real GDP grew by 8.2 per cent (as per Provisional Estimates of National Income) in FY 2023-24, as compared to the growth rate of 7.0% in previous financial year.

FY 2023-24 marks a milestone with total gross GST collection of 20.18 lakh crore exceeding 20 lakh crore with a 11.7% increase compared to the previous year. The average monthly collection for this fiscal year stands at 1.68 lakh crore, surpassing the previous years average of 1.5 lakh crore.

The RBI Services and Infrastructure Outlook Survey indicates improved demand conditions in Q3 and Q4 of 2023-24 for services and infrastructure businesses. Additionally, the Quarterly Industrial Outlook Survey by RBI shows a positive business climate, with the business expectations index for Q3 of FY 2023-24 improving compared to the previous quarter.

On the demand side, during FY 2023-24, Indias economy saw a slight uptick in the share of Private Final Consumption Expenditure (PFCE) in GDP, reaching 60.3% at current prices. Gross Fixed Capital Formation (GFCF) also increased to 30.8% of GDP, supported by government emphasis on capital formation. Capital expenditure for FY 2023-24 stands at Rs. 9.5 lakh crore marking an increase of 28.2% on y-o-y basis. However, exports share in GDP is expected to decline to 21.8% due to a global demand slowdown.

On the supply side, during FY 2023-24, the agriculture sector is forecasted to grow by 1.4% (at 2011-12 prices) due to erratic rainfall from El Nino effect. Real GVA (at 2011-12 prices) in manufacturing is expected to increase by 9.9% driven by higher production and sales expansion. Construction sector growth is estimated at 9.9%. Services sector growth is anticipated to moderate to 6.4% in FY 2022-23, primarily due to slower growth in contact-intensive services. However, Financial, Real Estate and Professional Services saw growth of 8.4% due to increased housing demand.

Agriculture:

The growth rate for Indias agricultural sector which supports more than 42% of its population was seen at 1.4% in FY 2023-24 as compared to a growth rate of 4.7% observed in FY23. The reason for decline in agricultural sector, which is estimated to constitute 18.2% of GDP was attributed to low food grain production on account of the El Nino phenomenon causing erratic rainfall.. Despite challenges posed by the global health crisis and variability in climate conditions, the sector has demonstrated remarkable tenacity and resilience, contributing significantly to Indias economic recovery and development.

Over the past decade, the budget allocation for the Ministry of Agriculture and Farmers Welfare has seen a significant increase. From 27,662.67 crore in 2013-14, it has surged to 1,25,035.79 crores in the Budget Estimate for 2023-24, marking a more than fivefold increase. For maintaining and enhancing productivity and resilience, 1.52 lakh crore has been allocated for farming and allied sectors in the Union Budget 2024-25 declared on 23^rd July 2024.

Total food grain production in 2023-24 is estimated to be 328.9 million tonnes, according to the third advance estimates.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT (Contd.)

Government Schemes:

For the welfare of farmers, Government of India is implementing various schemes/programmes by increasing production, remunerative returns and income support to farmers. The details are given below:

• The National Food Security Mission (NFSM) aims to enhance the production of rice, wheat, and pulses by expanding cultivation areas and improving productivity, alongside restoring soil fertility and bolstering farm-level economies.

• The Rashtriya Krishi Vikas Yojana (RKVY) focuses on making farming economically viable by supporting pre and post-harvest infrastructure, with sub-components such as Per Drop More Crop and Crop Diversification Programme.

• The National Mission on Edible Oil-Oil Palm (NMEO-OP) seeks to make India self-reliant in edible oils, particularly in the North-Eastern States and A&N Islands, aiming to expand oil palm plantations over the next five years.

• Pradhan Mantri Kisan Samman Nidhi (PM KISAN) provides financial assistance to landholding farmer families across the country, offering direct payments into their bank accounts to support agricultural activities.

• Pradhan Mantri Fasal Bima Yojana (PMFBY) offers comprehensive crop insurance to protect farmers against natural risks, with significant enrollment and fund allocation in recent years.

• Pradhan Mantri Kisan Maan Dhan Yojana (PM-KMY) ensures pension security for vulnerable farmer families, with contributions from both farmers and the central government.

• Institutional credit for agriculture has increased significantly, with a focus on extending concessional credit to all PM-KISAN beneficiaries through Kisan Credit Cards (KCC).

• Agricultural mechanization has been prioritized to modernize farming and reduce manual labor, with substantial investments and subsidies for equipment.

• The Agriculture Infrastructure Fund (AIF) aims to improve post-harvest management infrastructure and community farming assets through medium to long-term debt financing.

• The promotion of Farmer Producer Organizations (FPOs) aims to empower farmers through collective action, with thousands of FPOs registered and supported financially.

• The Namo Drone Didi scheme will provide drones to Women Self Help Groups (SHGs) to offer rental services to farmers for agricultural purposes, such as the application of fertilizers and pesticides.

• Agricultural Technology Management Agency (ATMA) supports decentralized extension services, providing farmers with the latest technologies and practices through various activities, benefiting millions of farmers nationwide.

Interim Union Budget 2024 on Agriculture Sector:

The Union Budget for 2024-25 was presented by Ministry of Finance on 1 February 2024. Start-ups for agricultural and rural enterprises will be funded by NABARD.

Under the PM-KISAN initiative, 11.8 crore farmers will receive direct financial help. Furthermore, 4 crore farmers would receive crop insurance coverage thanks to the PM Fasal Bima Yojana.

Highlights:

• The government aims to encourage both private and public investment in post-harvest activities.

• The application of Nano-DAP will be extended to cover all agro-climatic zones. A strategic plan under the Atmanirbhar Oilseeds Abhiyaan will be devised to attain self-sufficiency in oilseeds production.

• Additionally, a comprehensive program for the development of the dairy sector will be formulated.

• Efforts will be intensified to implement the Pradhan Mantri Matsya Sampada Yojana, aimed at enhancing aquaculture productivity, doubling exports, and creating more job opportunities.

• There will be an increased allocation of funds for the Blue Revolution, totaling up to 2,352 crore.

• Similarly, the allocation for the PM Formalisation of Micro Food Processing Enterprises scheme will be raised to 880 crore.

• The Ministry of Agriculture and Farmers Welfare has been allocated a budget of 1.27 lakh crore.

• Direct financial assistance will be provided to 11.8 crore farmers under the PM-KISAN scheme.

• Additionally, crop insurance coverage will be extended to 4 crore farmers through the PM Fasal Bima Yojana.

• Furthermore, the integration of 1,361 mandis under eNAM will support trading volumes amounting to 3 lakh crore.

Minimum support price (MSP):

The Government of India fixes Minimum Support Price (MSP) for 22 mandated agricultural crops on the basis of the recommendations of the Commission for Agricultural Costs & Prices (CACP), views of State Governments and Central Ministries/Departments concerned. Government in its Union Budget for 2018-19 had announced the pre- determined principle to keep MSP at levels of one and half times of the cost of production. Accordingly, MSPs for all mandated crops Kharif, Rabi and other commercial crops have been increased with a return of at least 50 percent over all India weighted average cost of production from the agricultural year 2018-19.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT (Contd.)

i. MSP for Paddy (common) has increased to 2,183 per quintal in 2023-24 from 2,040 per quintal in 2022-23.

ii. MSP for Wheat has increased to 2,275 in FY 2023-24 from 2,125 per quintal in FY 2022-23.

Food grain Production:

Total food grain production in 2023-24 is estimated to be 328.9 million tonnes according to the third advance estimates issued by the agriculture and farmers welfare ministry. Foodgrain production in the 2022-23 crop year was pegged at 329.7 million tonnes as per the governments final estimates.

Industry:

The combined Index of Eight Core Industries (ECI) which reflects the core sector output in India, has reported a growth of 7.5% in FY24. Excluding the last two post-Covid years i.e FY22 and FY23, where the growth prints have been perked up by the base factor, this has been the highest growth rate in the current series (base year: 2011-12). Rapid public investments in Indias infrastructure is the primary factor behind such an outperformance in the core sector. Except for the oil and the fertilizer industries, all the others have delivered high single or double digit annualized growth in FY24.

The summary of the Index of Eight Core Industries is given below:

i. Cement (weight: 5.37%) - The cumulative cement production rose by 9.1% YoY for the Apr-Mar24 period, higher than the 8.7% in the previous year.

ii. Coal (weight: 10.33%) - Coal production increased by 8.7% in March 2024 over 12.1% in March 2023. The cumulative output rose by 11.7% during Apr-Mar24 over the corresponding period of the previous year.

iii. Crude Oil (weight: 8.98%) - Its cumulative index increased by 0.6% during 2023-24 as against a contraction in output in the previous years.

iv. Electricity (weight: 19.85%) - Higher demand of power from the household and the commercial sector due to warmer weather have been a factor behind higher power output during the summer months although the average temperatures in March has been relatively mild in North India. The cumulative output increased by 7.0% during FY24 over 8.9% in FY23. v. Fertilizers (weight: 2.63%) - Its cumulative output has risen by 3.7% YoY during FY24 as a whole. The weakness in fertilizer output can be largely attributed to the impact of El Nino and the deficient rainfall in both the kharif and rabi seasons.

vi. Natural Gas (weight: 6.88%) - The cumulative index for natural gas rose to 6.1% YoY in FY24 as compared to a mute of 1.6% in FY23. Indias demand for gas is on the rise on the back of its status as a cleaner fuel both for household and industrial purposes and its important that domestic gas sources are harnessed to the extent feasible.

vii. Petroleum Refinery Products - Its cumulative index increased by 3.4% YoY only during FY24 vs 4.8% in FY23. Given the high weightage of the refinery sector in India, its weak output has a notable impact on the overall core index. The volatility in global crude prices due to geo-political events and slowdown in global demand have led to lower export demand and a downtrend in petroleum product exports from India

viii. Steel (weight: 17.92%) - The annual output growth increased to 12.3% in Apr-Mar24 vs 9.3% in last fiscal. Among the eight core sectors, steel has seen the highest growth in FY24 driven by buoyant demand from the infrastructure as well as the automotive sector.

Highlights of Union Budget 2024-25

1. Budget 2024-25 focuses on employment, skilling, MSMEs and middle class.

2. Prime Ministers package of 5 schemes and initiatives with an outlay of 2 lakh crore to facilitate employment, skilling and other opportunities for 4.1 crore youth in 5 years.

3. For pursuit of ‘Viksit Bharat, the budget envisages sustained efforts on following 9 priorities for generating abundant opportunities for everyone a. Productivity and resilience in Agriculture b. Employment & Skilling c. Inclusive Human Resource Development and Social Justice d. Manufacturing & Services e. Urban Development f. Energy Security g. Infrastructure h. Innovation, Research & Development and i. Next Generation Reforms

4. Productivity and resilience in Agriculture: A provision of 1.52 lakh crore for agriculture and allied sector announced for current year.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT (Contd.)

a. Comprehensive review of agriculture research to enhance productivity. b. Release of 109 high-yielding climate-resilient varieties of 32 field and horticulture crops for cultivation by farmers. c. Initiative to initiate 1 crore farmers into natural farming with certification and branding support in next 2 years. d. Establishment of 10,000 need-based bio-input resource centres. e. Strengthening production, storage, and marketing for self-sufficiency in pulses and oilseeds. f. Implementation of Digital Public Infrastructure (DPI) in agriculture for coverage of farmers and their lands in 3 years.

5. 1,000 industrial training institutes will be upgraded.

6. Government will formulate a plan, Purvodaya, for the all-round development of the eastern region covering Bihar, Jharkhand, West Bengal, Odisha and Andhra Pradesh.

7. For promoting women-led development, the budget carries an allocation of more than 3 lakh crore for schemes benefitting women and girls.

8. A provision of 2.66 lakh crore for rural development including rural infrastructure made this year.

9. The limit of mudra loans will be enhanced to 20 lakh from the current 10 lakh.

10. Government to launch a comprehensive scheme for providing internship opportunities in 500 top companies to 1 crore youth in 5 years.

11. Under PM Awas Yojana Urban 2.0, housing needs of 1 crore urban poor and middle-class families will be addressed with an investment of 10 lakh crore.

12. Phase IV of Pradhan Mantri Gram SadakYojana (PMGSY) will be launched to provide all-weather connectivity to 25,000 rural habitations.

13. 1,000 crore venture capital fund to promote space technology in the next 10 years. 14. Major relief to 4 crore salaried individuals and pensioners in income tax.

15. Standard deduction increased from 50,000 to 75,000/- for those in new tax regime. 16. Deduction on family pension increased from 15,000/- to 25,000/-.

17. Over 58 per cent corporate tax receipts collected under the new regime.

18. Two third of individual income tax payers switched over to new income tax regime.

19. Angel tax abolished for all class of investors to boost start-ups ecosystem.

20. Corporate tax on foreign companies reduced from 40 to 35 per cent to invite investments.

21. 5 per cent TDS on many payments merged to 2 per cent TDS.

22. Capital gain exemption limit increased to 1.25 lakh per year to benefit lower and middle income classes. 23. Custom duty on X-ray panels, mobile phones & Printed Circuit Board Assembly (PCBA) reduced to 15 per cent.

24. 25 critical minerals fully exempted from customs duties.

25. Precious metals including Gold and Silver to become cheaper, custom duty reduced to 6 per cent.

Pradhan Mantri Janjatiya Unnat Gram Abhiyan

Pradhan Mantri Janjatiya Unnat Gram Abhiyan will be launched focusing on improving the socio-economic status of tribal communities. This initiative aims to provide comprehensive coverage to tribal families in tribal-majority villages and aspirational districts, benefiting 5 crore tribal people across 63,000 villages.

Promotion of MSMEs

The budgets focuses on MSMEs and labor-intensive manufacturing. A self-financing guarantee fund will offer guarantees up to

100 crore per applicant, with potential for larger loans. Public sector banks will enhance their internal capacity to assess MSMEs for credit, reducing reliance on external evaluations.

Fertilizer Market Scenario Agriculture Situation:

Performance of monsoon remained ‘Average with deficit of 6% over Long Period Average (LPA) during the year. Overall country received 820 mm rains against normal precipitation; however its distribution remained erratic, untimely & uneven. Out of 36 metrological subdivision about 29 subdivision, accounting for 73% of land area received Normal to Excess rains. Gujarat received better rains, however, qualitatively its distribution remained erratic throughout monsoon and revival of monsoon in late Sept23 helped to achieve 18% rains over normal precipitation. After good initial rains, long dry spell during Aug23, impacted standing Kharif crops. However, its during Sept23 & extended rains till Mid-Oct helped to fill up major reservoirs & charged soil moisture promising for better Agriculture prospects in Rabi season.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT (Contd.)

Favourable MSP declared by GoI for Kharif & Rabi crops to the tune of 7-10% motivated farmers for higher plantation. Overall, sowing of crops during the year was registered at 1816 Lakh Ha. with growth of 4% over normal sowing area in the country. Individually, Oilseeds, Sugarcane, Wheat & Coarse cereals recorded substantial growth. In state of Gujarat, sowing remained at par with usual sowing area with rise in area under Cotton, Cumin & Potato. As per third advance estimates, country is likely to achieve 328.9 MMT of food grain production.

Market Scenario:

Forecast of sub-par Monsoon on account of ‘El-nino had disturbed the market sentiments initially, however subsequent announcement of ‘Normal monsoon instilled confidence in the market.

Country had good agriculture season consistently for past 4 years favouring for higher production & imports of fertilizers as a result, the spill over inventory of fertilizer in the beginning of Financial Year made position quite comfortable.

After, initial good rains up to July23, long dry spell in Aug23 slowed the demand of fertilizers considerably, however, with revival of monsoon in Sept23, fertilizer demand picked up well.

Down trend in international price of fertilizers and raw materials in the starting of the year, motivated fertilizer companies to follow higher production/imports in the country. With a focused objective to build up inventories, GoI had fixed NBS for H1-23/24 in a most reasonable manner, leading to favorable margins for both imports as well as manufacturing. In fact, production of P&K fertilizers had an edge over imports.

Declining trend in Global prices of Fertilizers and Raw Materials continued till Jul23 and thereafter from mid-Aug23 onwards, sudden spike in prices in the international market, put break on imports & production of fertilizers in the country. Prices of DAP appreciated in the range of 30-40% within a span of one month. Similarly, prices of PA jumped from USD 850 PMT to USD 985 PMT.

In spite of rising trend in Fertilizer and Raw Material prices on account of declining price trend in previous 6 months, industry feared sharp decline in NBS rates compelling Fertilizer companies to follow restricted production & imports of fertilizers. Higher production during April-Aug23 helped to compensate gap in availabilities of fertilizers to major extent.

In spite of rise in Global prices, there was a sharp reduction in NBS rates during the Second Half of the financial year in major phosphatic fertilizers, disturbing the industry sentiment & both production & imports slowed down in H2-23/24.

Except APS, availability of P&K fertilizers remained moderate during the 2^nd half of the year and were sold at standard MRP, without discounts in the market. However, APS, the most viable product, faced intense cut throat competition throughout the year.

During the peak time of fertilizers, DoF was utmost vigilant to ensure equitable distribution of fertilizers across the country so as to avoid any shortage like situation. State wise availability situation was reviewed on weekly basis by DoF to ensure availability of fertilizers across the states.

Accepting the mandate of GoI positively, industry has refurbished about 2 Lakh retail outlets and made them Model PMKSKs, from where farmers will be able to source their bundle of input requirements and services under one roof.

In order to curb excessive use of Chemical fertilizers and thereby promote balance nutrition, GoI initiated special drives of adopting Organic Farming. Under, PM-PRANAM Yojna, special emphasis has been made for use of Organic sources and curb excessive use of chemical fertilizers so as to keep soil sustainable in long run. GoI has also launched Market Development Assistance (MDA) for marketing of bio-gas slurry based organic fertilizers under GOBARdhan initiative. GoI continued to emphasize promotion & adoption of Nano fertilizers such as Nano Urea & Nano DAP across the country so as to reduce dependence on Global suppliers. During the financial year under review, recently GoI launched NaMo Drone Didi Yojna, to empower women from rural India by providing them training related to Drone through Self Help Groups.

Performance of Fertilizer Industry:

Indication of "Normal" monsoon, comfortable opening inventory, lenient NBS & attractive MSP created conducive business in the country during in the 1^st half of the year. However, erratic monsoon with scattered distribution and drastic reduction in subsidy by GoI, kept the margins of fertilizer companies under pressure during H2-FY 2023-24.

During the year under review, production of fertilizers in the country grew by 4% (1.9 MMT). Urea made available through HURLs three Urea units at capacity levels & stabilization of production at Matix fertilizers helped in increasing Urea production by 10% (2.9 MMT) over FY 2022-23. Production of DAP registered decline of 1% & that of NPK grew by 3%. However, production of SSP suffered with decline of 21%. On account of pressure on margins during second half of financial year, production of P&K fertilizers registered a marginal growth of 1% during the year, offsetting gains made in production during first half.

Imports of fertilizers during the year reduced by 6%. With ample availability of Urea in the country throughout the year, GoI was utmost cautious for Imports of Urea. Urea imports reduced by 7%. Due to rise in international prices of P&K fertilizers during second half of the year, margins of fertilizer companies were consistently under pressure. Imports of DAP & NPKS were reduced significantly by 15% & NPKS 19% respectively.

Downward trend in international prices of MOP from USD 422 to USD 319 PMT, helped to increase availability of MOP in the country. Imports of MOP jumped significantly by 54% during the year.

In spite of conducive market environment, sales of fertilizers in the country increased marginally by 2%. Surprisingly, sales of Urea remained in line with last Financial Year. Consumption of DAP increased by 4% & that of NPKs by 10% largely driven by APS. Sales of MOP increased by 1% whereas SSP registered a decline of 9%.

Business Performance of GSFC: FY-2023-24:

Company registered fertilizer sales of 19.09 LMT during the year under review in line with availabilities built up during the year. Sales is higher by 6% as compared to FY 2022-23 (18.01 LMT). Achieved higher Sales of Phosphatic fertilizers made available through BU, SU & Imports (7.57 LMT) in past 3 years.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT (Contd.)

During the year, imports of DAP made through two vessels to the tune of 1.03 Lakh MT has been handled, dispatched and sold in a record period of less than 30 days. Besides achieving 100% sales of Imported DAP to the channels, the Company also ensured its timely PoS by close of Financial year.

As a part of broader strategies to penetrate in secondary markets like UP and Bihar, the Company introduced coloured variant of APS from our Sikka Unit. Contribution of secondary markets increased to 27% from 22% in aggregate fertilizer sales of GSFC.

Consistently monitored the status of un-cleared PoS stocks across the states & followed with the team on regular basis so as to enable us in receiving admissible subsidies in time and Registered PoS sales to the tune of 18.87 LMT, higher by 9% over FY 2022-23.

Your Company effectively controlled the physical inventories of fertilizers at plant, P-port & field warehouses and maintained consistent follow-up with our team as well as with the dealers to ensure timely recovery of sales proceeds ingover dues substantially during the year.

Future Outlook for Fertilizer Industry:

Higher MSP, better farm out prices coupled with better crop production may prompt farmers for reasonable spending on farm inputs like fertilizers and seeds. IMD, in its pre-monsoon forecast, has predicted "Above Normal" rainfall with 106% Long Period Average (LPA) promises for bright prospects for fertilizer industry in Kharif24.

DoF declared NBS rates for H1-FY 23/24 before 1^st April 2024 targeting enough availabilities for the ensuing Kharif season, however the NBS rates were not encouraging enough to prompt fertilizer industry to procure material in advance. NBS subsidy on DAP, the most popular fertilizer after Urea was reduced further by 4% taking Industry back to square one.

Global Prices of key raw material and finished fertilizer are diffusing gradually. Prices of imported DAP have reduced considerably from the highs of USD 595 PMT reported in Feb-Mar24, offering support to Indian fertilizer industry going forward.

Russia-Ukraine War, Middle East and Red Sea crisis continue to impact fertilizer industry. Strong rumours of relaxation in Chinas export policy may help to improve Global availability of fertilizer and diffuse prices further.

Country began the year with comfortable stock position in Urea, NPKs, MOP & SSP baring DAP. In case of DAP, the stock situation is likely to aggravate further once demand picks up from May. Non-viability in DAP has prompted fertilizer companies to produce/ import more of NPKs especially APS, has created an oversupply situation in the market. Govt. is likely to be utmost vigilant for building adequate buffer stocks especially that of DAP during the first quarter and assign company wise targets DAP to be supplied in Kharif, either through Production or Imports. Non-DAP products like AS /APS continues to face supply pressure on account of current high inventories & suppliers may be constrained to offer long credit & heavy discounts on sales.

Significant increase in Urea production achieved through revival of the old plants will extend great relief to Govt. for its imports. As followed during FY 2023-24, GoI may proportionately curtail Urea imports further in FY 2024-25.

Selling prices of fertilizers are unlikely to get increased, at least in Kharif24 season.

INDUSTRIAL PRODUCT SCENARIO:

Globally, major central banks anticipate the relaxing of monetary policy sooner and are confident that inflation is largely under control. Although the global economy has slowed, the outlook is more optimistic than anticipated. But new problems have surfaced recently. The Russia-Ukraine conflict continues, there are two new wars and arising crisis in the Middle East, tensions between the worlds two largest economies remain significant, and patterns of trade and cross-border investment are shifting.

Despite ongoing uncertainty and challenges, India was able to sail ahead while building its ship. Indias concentration on using technology to accumulate and disseminate tacit knowledge, building high-end manufacturing capacity, and enhancing competitiveness through exports served as the three crucial catalysts that accelerated its growth trajectory and strengthened its economic fundamentals over the last decade.

The GDP growth forecast for FY 2023-24 was raised upward from 7.3% to 7.6% in the second advance estimates, underscoring the Indian economys persistent resilience. Various agencies echoed similar sentiments revising the growth estimates of India during the fiscal year closer to 8%. Indias foreign currency reserves reached an all-time high of $645.6 billion on March 29 2024. The current account deficit (CAD) fell to 1.2% of GDP in the December quarter of 2023. Positive foreign direct investment (FDI) and foreign portfolio investment (FPI) flows kept the balance of payments (BoP) in surplus.

The RBIs monetary policy has kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. Manufacturing is anticipated to retain its pace as profit margins remain stable. Services activity is expected to increase above the pre-pandemic level. Private consumption should increase as rural activity improves and urban demand remains constant. According to the Reserve Banks consumer survey, urban families are likely to increase their discretionary spending due to increasing income levels, which bodes well for private consumption growth. Fixed investment prospects remain favourable, with business confidence, strong corporate & bank balance sheets, solid government capital spending, and signs of an upturn in the private capital expenditure cycle.

The company intends to commence production of Hydroxylamine Sulphate Crystal from its new plant having rated capacity of 20 MTPD during second half of the current FY 2024-25. This increased capacity would help company to gain a larger market share by substituting imports. The company has also planned capacity addition in Phosphoric Acid & Sulphuric Acid Plants at Sikka Unit, and 10 MW Electrolyser based Green Hydrogen are progressing as per schedule. The company is targeting to set up chemical complex at Dahej location for manufacturing various products to substitute imports for future growth in chemical segment.

The sales of Industrial products have been impacted during FY 2023-24 in terms of value as the international prices decreased by 20% on a year-over-year basis for Melamine, 14% for Caprolactam, and 12% for Nylon 6 chips, respectively. However, owing to its concentrated strategy and providing of a product mix of diverse grades, the segment was able to reach its ever highest sales volume of Nylon-6 chips. The Industrial Products segments margin remained under pressure during FY 2023-24 due to elevated raw material prices such as benzene and natural gas, which had a negative influence on its profitability.

RAW MATERIAL PRICES:

The international prices of raw materials had decreased during FY 2023-24 as compared to 2022-23.

The average CFR prices of Phosphoric Acid (PA – P2^O5^{) which was USD 1368 per ton P}2^O5 ^{during FY 2022-23 went down to USD}

947 (-31%) per ton P2^O5 ^{during FY 2023-24. As on 31/03/2024, the price of PA was USD 968 per ton P}2^O5.

The average prices of Ammonia decreased during FY 2023-24 as compared to 2022–23. The average CFR prices of Ammonia during 2022-23 was USD 904. It decreased to USD 372 (-59%) per ton during 2023-24. As on 31/03/2024, the price of Ammonia was USD 316 per ton.

The average CFR price of Rock Phosphate, which is mainly derived from price of Phosphoric Acid, decreased in FY 2023-24 as compared to FY 2022-23. The average CFR price of Rock Phosphate during FY 2022-23 was USD 229 per ton. It decreased to USD

150 (-34%) per ton during FY 2023-24. As on 31/03/2024, the price of Rock Phosphate was USD 149 per ton.

The average CFR price of Sulphur decreased during 2023-24 as compared to FY 2022-23. The average CFR price of Sulphur during

FY 2022-23 was USD 271.70 per ton. It went down to USD 110.74 (- 59 %) per ton during 2023-24. As on 31/03/2023, the price of Sulphur was USD 96.35 per ton.

The price of Benzene decreased during FY 2023-24 as compared to FY 2022-23. The average CFR price of Benzene during FY

2022-23 was USD 1066.08 per ton, which decreased to USD 947.20 (- 11 %) per ton during FY 2023-24. As on 31/03/2023, the price of Benzene was USD 1063.88 per ton.

	Average price of Raw Material products ($ / MT):
Product	2022-23	2023-24	% Increase / Decrease	Prices as on 31/03/2023
	1368	947	(-)31	968
Phos. Acid (C & F), P2O5
Ammonia (C & F)	904	372	(-)59	316
Rock Phosphate (C & F)	229	150	(-)34	149
Sulphur (C & F)	271.70	110.74	(-) 59	96.35
Benzene (C & F)	1066.08	947.20	(-) 11	1063.88

FINANCIAL PERFORMANCE OF THE COMPANY DURING FY 2023-24:

Particulars	Units	2023-24	2022-23	Change	Change in %	Reason For Change
Trade Receivables	Times	10.88	12.90	-2.02	-16
Turnover
Inventory Turnover	Times	16.69	17.82	-1.13	-6
Interest Coverage Ratio	Times	234.73	274.46	-39.73	-14
Current Ratio	Times	4.47	5.17	-0.70	-14
Debt Equity Ratio	Times	-	-	-	-
Operating Profit Margin	%	9.61	15.61	-6.00	-38	Operating profit margin declined due to substantially lower subsidy rates and headwinds in Industrial Products market.
Net Profit Margin	%	5.87	11.45	-5.58	-49	Net Profit Margin declined due to lower operating margin YoY.
Return on Net Worth (ROE)	%	4.27	10.94	-6.67	-61	Return on Equity reduced due to lower profitability during the year.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

There exist a robust and comprehensive system of internal controls in place. The internal auditors of the Company comprehensively carry out their audits and their observations/audit queries are being discussed and debated at length by the Finance-cum- Audit Committee. The Finance-cum-Audit Committee of the Company also reviews the follow-up actions and seeks explanation for the open items. The internal control system is so designed that a particular transaction gets filtered at different levels so as to ensure that proper recording of such transaction takes place and no unscrupulous elements get into the system. The Company uses the SAP platform where-in the roles, responsibilities and authorities are well defined and no deviation is allowed without management approval.

TEN YEARS PRODUCT PERFORMANCE RECORD:

The last 10 years Product-wise performance years is given below:

PARTICULARS	Unit	2023-24	2022-23	2021-22	2020-21	2019-20	2018-19	2017-18	2016-17	2015-16	2014-15
PRODUCTION
FERTILIZERS	MT	1432315	1389458	1461910	1908828	1665824	1733957	1678958	1507911	1491741	1385857
Ammonium Sulphate	MT	395235	500246	503100	487250	445630	374720	372330	337370	334030	318680
Ammonium Sulphate
Phosphate	MT	325980	300380	251330	268730	267140	291940	282360	313860	328430	337930
Di-Ammonium Phosphate	MT	261130	193810	307880	565790	484720	459090	503830	411850	370200	314600
N P K	MT	69600	20550	28870	208730	128120	193150	154220	38340	47650	15460
UREA	MT	377410	371070	362826	370700	332705	405360	361181	406571	411431	399187
CAPROLACTAM	MT	84009	87198	86639	81927	83134	91479	86662	86191	86297	89918
NYLON-6	MT	27291	26794	25623	24455	24296	23887	20215	17421	9885	9400
MELAMINE	MT	43500	47756	52847	38732	29215	14161	15188	14886	15697	14284
ARGON	‘000NM3	3369	3564	3294	3325	3116	3574	3319	3549	3581	3611
SALES
FERTILIZERS*	MT	1440694	1377337	1504194	1945122	1682171	1598428	1604222	1412044	1434684	1320471
Ammonium Sulphate	MT	402892	475917	523891	497430	441335	385952	360555	308214	329778	315926
Ammonium Sulphate PhosphateMT		327284	279885	264959	299160	249482	293115	262134	299025	290107	334072
Di-Ammonium Phosphate	MT	257859	230822	297765	563510	524410	399309	500999	417820	368874	302666
N P K	MT	69126	20579	46431	214999	141409	184270	130194	35024	46558	14628
UREA	MT	383534	370134	371148	361049	325536	366763	313448	360879	355402	353058
CAPROLACTAM*	MT	59684	57402	60359	58170	58764	65596	63217	63101	66483	68901
NYLON-6	MT	32545	29187	27644	28150	23752	25311	22569	13697	9999	9701
MELAMINE	MT	47448	48487	48452	40173	26234	13953	15298	15341	15096	14283
ARGON	‘000NM3	3389	3545	3292	3349	3099	3563	3317	3546	3599	3622

*excluding captive consumption

RISK MANAGEMENT:

Changes in Government policy, currency risk, fluctuation in input prices, increase in NG prices, insufficient availability of natural gas and raw material in the international market have an impact on Companys profitability.

Market may experience frequent changes in the price of domestic Phosphatic Fertilizers depending upon the cost of production of the manufacturers. Further, the resistance from farming community has impacted demand. With sharp increase in NG price, prices of Phosphatic fertilizers would go up. In the current scenario, good and widely distributed rainfall, smooth & comparatively cheaper availability of raw materials and timely reimbursement of subsidy by the Govt. of India have been the key catalysts for the Company to sustain its operations profitably.

In the above likely scenario, the Company is focusing on the efficiency improvement with higher production levels, efficiencies in raw material procurement, increased availability through imports, reduction in marketing & distribution costs, production of various complex grade fertilizers at Sikka and proper product/ segment strategies to maximize the sales to achieve better contribution from its product basket.

To control the financial risks associated with the Foreign Exchange/ Currency rate movements and their impact on raw material prices, the Company has put in place a sophisticated Foreign Exchange Risk Management System. Further the Company has put in –place a digital risk management portal under which each identified risk is categorized, monitored and mitigation procedures are devised and implemented so as to minimise them (risks).

RESEARCH AND PROMOTIONAL ACTIVITIES:

The company has a well-established DSIR approved Research Center established in 1974 at Vadodara complex. A dedicated team of young scientists is diligently engaged in driving innovation and enhancing products, processes, and technologies to align with industry needs and surpass customer expectations. With a diverse range of expertise, the team works on conceptualization of emerging ideas across various sectors, including fertilizers, industrial products, biotechnology, waste utilization, and corrosion & metallurgy. Furthermore, our R&D facilities at the Vadodara Unit incorporate a demonstration pilot plant, instrumental in validating and optimizing parameters for scaling up novel processes developed at the laboratory level. It also facilitates the manufacturing of new products in small quantities for initial market seeding efforts.

It is widely acknowledged that optimal crop growth necessitates the availability of adequate nutrients within both the soil and root systems. However, the prolonged utilization of phosphatic fertilizers has resulted in significant alterations to soil conditions and chemistry. Therefore, it is imperative to consider a partial transition towards NPK complex fertilizers in addition to conventional DAP formulations. These innovative fertilizers offer a more sustainable solution by providing a balanced combination of essential plant nutrients (Nitrogen, Phosphorus, Potassium) in ratios tailored to specific crop requirements and local soil conditions. Our R&D department is conducting extensive research to develop processes for new grades of customized NPK complex fertilizers. These formulations offer the flexibility to modify nutrient ratios according to the specific requirements of crops and prevailing soil conditions. Furthermore, there are plans to implement these processes at our Sikka unit by introducing new grades of NPK complex fertilizers in near future.

To support marketing-IP initiatives of expanding the customer base for Caprolactam and promoting the MSME sector, our R&D team is providing training and demonstrations on the process for producing Cast Nylon for engineering components. Cast Nylon components can be a viable substitute for metal parts in many household applications. R&Ds support extends to guiding potential manufacturers on selecting appropriate raw materials, processes, and machinery to ensure successful integration of Cast Nylon production into their operations.

The Research and Development (R&D) department of our company plays a pivotal role not only in advancing new product and process development but also in delivering essential expertise & services crucial for the seamless operation of our plants. These expertise & services encompass a wide spectrum, including heat treatment, welding, repair procedure, import substitution, material selection, erosion and corrosion monitoring. Throughout the year, R&D team conducted 12 Root Cause Failure Analysis (RCFA) investigations and assessed over 163 critical equipment locations to evaluate potential damage and monitor material degradation under high temperature and stress conditions. These efforts have yielded significant direct and indirect benefits for the organization, ranging from enhanced material selection and reduced downtime to improved repair practices and extended service life of equipment.

GSFC AGROTECH LIMITED (GATL)

GSFC AgroTech Ltd., a wholly owned subsidiary of GSFC was established in the year 2012 with the aim of strengthening agri retail business and at the same time diversify into plant nutrient segment (Non-Bulk), which has a growing market potential in India. GATL through its wide spread retail network offering single stop solution to the farmers by providing reliable Agri-products at reasonable prices and promoting extension services either directly or in association with Government.

GATL manages 270 retail outlets across the state of Gujarat and 14 in Rajasthan in a COCO model. All such outlets are manned by trained Agriculture Graduates / Post Graduates. Besides having full range of chemical fertilizers GATL outlets are supplying host of new generation agro inputs comprising of Bio stimulants, Organic fertilizers, Bio-fertilizers, Micronutrients, Soil conditioners, Liquid Fertilizers, Agro-chemicals, improved Seeds etc., which have a growing market potential.

We consider farmer as our partner and are committed to providing an assured supply of a comprehensive range of agri-inputs of Bulk

& Non-Bulk agri-inputs to our customers. We have thus collaborated with various leading agri-input companies such as National Seed Corporation, Coromandel International, Indian Potash Limited, and Chambal Fertilisers and Chemicals Limited, Mahadhan Agri-Tech Ltd etc. to ensure the all-round availability of multi brand products at our retail outlets.

GATL network provides a solid platform to maintain last-mile connectivity with the farmers, facilitate keeping brand visibility in the field, faster mode of DBT compliance and thereby subsidy realization, new product launch etc.

Product innovation is yet another endeavor at GATL. Keeping in view the best interest of the farmer, soil and environment, we are continuously involved in development and launch of newer products and variants.

With a commitment to serve the farmers most effectively, GATL is in constant touch with the latest technology and innovations in the field of agriculture. State-of-the-art Tissue Culture lab which is certified by DBT (Department of Biotechnology, Government of India) has already developed tissue culture protocols for over 10 varieties of fruits, flowers and commercial crops. GATL is also providing a package of agronomical services to the Micro Irrigation Company of Government of Gujarat, M/s GGRC Ltd. GATL has also established itself as a trusted implementation partner with various departments of Government of Gujarat for its farmer welfare schemes launched from time to time.

SAFETY, HEALTH AND ENVIRONMENT:

Safety Management system and Process Safety Management both areas have been strengthened by enhancing control measures during the time period under discussion.

Safety Control has been scaled up by way of additional supervision particularly on contract workers, visitors and vendors. Site safety inspections have been enhanced. Safety checklists have been revisited, revised and updated. Need based hazard and Operability study has been conducted.

External Safety Audit has been conducted in GSFC Vadodara Unit comprising all plants and departments. Onsite Emergency plan has been updated as per the need of the Management of Change.

Shut down and start-ups have been concluded safely during the period under consideration. Tool box talk, Pep talks etc have been

MANAGEMENT DISCUSSION AND ANALYSIS REPORT (Contd.)

suitably increased. Safety trainings to employees, contractors and visitors have been intensified. Fire prevention and Emergency management has been constantly upgraded.

Bronto make Snorkel F54 HDT has been procured and trainings have been imparted to Officers and Staff.

Emergency Control Centre (ECC) has been functional round the clock and is stationed in R&D building. The operational manpower of ECC has been outsourced. Trainings to employees and Contract workers on Safety and Fire prevention have been a regular phenomenon that has attracted more than Ten thousand participants.

The safety initiatives and increased surveillance with greater imposition of Control have shown the impact and GSFC Vadodara has bagged national level award as follows.

1. Awarded WSO Four Star Gold award in August 2023; the felicitation program of which was held in Chennai.

2. Responsible Care (RC) is the global chemical industrys voluntary initiative to drive continuous improvement in safe chemicals management and achieve excellence in environmental, health, safety and security performance. Responsible Care Logo is awarded to chemical industries by Indian Chemical Council (ICC), Mumbai. GSFC has been granted RC Logo Certification for second consecutive term for next 3 years from January 2023 to December 2025.

HUMAN RESOURCES:

Shareholders are requested to refer to point 38 on page no.31 of the Directors Report which forms part of the Annual Report.

For and on behalf of the Board

	Sd/-
Place : Vadodara	Raj Kumar, IAS
Date : 28/08/2024	Chairman
	(DIN: 00294527)

CAUTIONARY STATEMENT:

Some of the statements made in this "Management Discussion & Analysis Report" regarding the economic and financial conditions and the results of operations of the Company, the Companys objectives, expectations and predictions may be futuristic within the meaning of applicable laws/regulations. These statements are based on assumptions and expectations of events that may or may not materialize in the future.

The Company does not guarantee that the assumptions and expectations are accurate and/or will materialize. The Company does not assume responsibility to publicly amend, modify or revise the statements made therein nor does it assume any liability for them. Actual performance may vary substantially from those expressed in the foregoing statements. The investors are, therefore, cautioned and are requested to take considered decisions with respect to these matters.

Data sources : Websites of (1) Ministry of Finance, Department of Economic Affairs, (2) Ministry of Fertilizers & Chemicals, Department of Fertilizers, Govt. of India, (3) Central Statistical Bulletin, (4) FAI, New Delhi, (5) Economic Survey- 2023-24, (6) Fertilizer Market Bulletins and (7) Ministry of Agriculture & Farmers Welfare, GoI. (7) Union Budget 2024-25 (8) India Meteorological Department (IMD), Government of India.