Khaitan Chemicals & Fertilizers Ltd Management Discussions

CAUTIONARY STATEMENT

Some of the statements in the report may be forward looking and are stated as required by applicable laws & regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook The Companys Performance is dependent on several external factors such as performance of monsoons, government policy, fluctuation of prices of raw material and finished products and also their availability. BUSINESS OVERVIEW:

The Company is mainly engaged in the manufacture of Single Super Phosphate (Fertilizer), Sulphuric Acid and other chemicals; the main business segment is related to agriculture and greatly affected by monsoons.

Segment-wise Business Review and Operational and Financial Performance:

The summarized performance of the Company in terms of production and sales for last 5 years is as under:

(Quantity in MT)

The summarized financial performance of the Company for last 2 years is as under:

(Rs. In lacs)

The GOI has successfully implement the partial Direct Benefit Transfer system for the Fertilizer Industry. The GOI has also initiated the pilot project for the final stage of Direct Benefit Transfer to the farmers. Hopefully in a few years this may also be fully implemented. However, the Government of India has been actively working to promote the adoption of DBT across various sectors, including fertilizer subsidies, to improve efficiency, transparency, and accountability in subsidy disbursal.

During the current year, the turnover of your Company increased from Rs. 53,739.46 lacs in FY 2023-24 to Rs. 72,102.58 lacs in FY 2024-25. Operating income improved significantly, rising from a loss of Rs. 2,864.41 lacs in FY 2023-24 to a profit of Rs. 2,391.66 lacs in FY 2024-25. Cash loss reduced notably from Rs. 6,034.18 lacs to Rs. 589.04 lacs over the same period. Further, the Company reported a net profit after tax of Rs. 139.91 lacs in FY 2024-25, compared to a net loss of 7,048.99 lacs in the previous year. FERTILIZER, CHEMICALS & SPECIALITY CHEMICALS DIVISION:

The Company has one of Indias largest Single Super Phosphate (SSP) Fertilizer production capacity of 11,13,500 MT in the states of Madhya Pradesh, Rajasthan, Uttar Pradesh, Chhattisgarh & Gujarat alongwith Chemicals production capacity of 2,70,600 MT in the States of Madhya Pradesh, Uttar Pradesh & Chhattisgarh. Sulphuric Acid is also a raw material for production of SSP.

The Company has produced 3,73,870 MT (previous year 4,35,810 MT) of Single Super Phosphate (SSP) Fertilizer and 1,98,048 MT (previous year 1,96,143 MT) of Chemicals & Specialty Chemicals and sold 4,40,365 MT of SSP (previous year 3,45,851 MT) & 1,25,397 MT of Chemicals (previous year 1,07,533 MT) respectively.

The Company is continuously trying to improve its share in the fortified high value added fertilizers segment. The products are picking up well in the market.

The Company is continuing its efforts for optimizing its current assets to leverage sales on the one hand and diversifying into new geographical markets on the other. Focus this year has been to bring down the inventory levels and reduce carrying costing. Accordingly the Company has done controlled production vis a vis the sales.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

Agriculture is the third largest sector of Indian Economy, which contributes around 17.66% of total GVA of the Country. Fertilizer Industry, with the emerging scenario, plays vital role in the growth of Agriculture Sector. The balanced use of chemical fertilizer is important not only for increasing agricultural productivity but also for sustaining soil fertility.

Single Super Phosphate is a multi nutrient fertilizer containing phosphate (16%) and sulphur (11%) as primary nutrients. SSP is applied as a basal fertilizer being rich in secondary nutrients like calcium and magnesium oxide and several micro nutrients. It is an essential Fertilizer for crops likes Oil seeds, Pulses, Sugarcane, Fruits and Vegetables, Tea etc. and for sulphur deficient soils. Main features of SSP Fertilizer Industry are.

• Basic need for agriculture and its development.

• SSP is a multi-nutrient fertilizer containing P2Os as primary nutrient and Sulphur, Calcium & magnesium as secondary nutrients.

• Besides Primary and secondary nutrients it has several micronutrients like boron, magnesium, manganese, iron, copper etc which also play an important role in plant nutrition.

• SSP fertilizer is the lowest priced fertiizer per kg, and preferred by small & marginal farmers.

• Highly dependent on Imported Raw Material.

• Subsidised by Government of India to control the prices of the input to the farmers.

• Substantial Import of Finished Products other than SSP.

Agronomic Importance of SSP:

• SSP helps in improving root growth and development which is most important for uptake of plant nutrient and water.

• For Leguminous crops like groundnut, use of SSP, ensures a large number of nodules on the roots, which fix atmospheric Nitrogen directly into the soil and also increase Nitrogen uptake.

• SSP improves soil aeration and increase water holding capacity of the soil and increase root growth which increase crop yield.

• Oil content of Groundnut and other oil seeds increases. The quantity and quality of oil seeds crops increases.

• In Sugarcane, the sugar content increases which provide more production and monetary benefit to the farmers

• SSP increases resistance power of the plants against attack of pest and disease.

• SSP increases protein content in pulses crop

• SSP helps in leaching excess water from the root zone and prevent yellowing of the crop

• SSP improves storage capacity of product

• SSP also acts as a soil reclaiming agent.

SSP, which is a poor farmers fertilizer (price wise), is an option to optimize the use of phosphate fertilizers. It also helps to treat sulphur deficiency in soil (about 36% of Indian soil is Sulphur deficient) as well as for further enhancement of yields at the least cost. SSP being an indigenously manufactured fertilizer saves on foreign exchange outgo vis a vis imported phosphoric fertilizers.

The Industry, however, has been suffering from poor profitability since the last few years. In the year 2024-25, the GOI has increased the subsidy rates to some extent as under and also allowed freight subsidy for nine months nearly at par with other ‘P & K fertilizers. This has helped the industry reduce its losses substantially.

In the year 2024-25, the Government increased the subsidy on SSP to 4,804 per MT (for Kharif 2024) as against Rs. 3,540 per MT in the previous season. Further, for Rabi 2024 it was again increased by Rs. 317 per MT to Rs 5121 per MT, which has provided some relief to the industry.

SSP has now been allowed freight subsidy nearly at par to other ‘P & K fertilizers however with some unwarranted deductions and only for a period of nine months as indicated by the GOI. However, this is a step in the right direction and shall help rejuvenate the Industry.

Government is continues to express its desire to encourage SSP to substitute imports of DAP and NPK. Hopefully this shall be reflected in some more of its policies soon.

Future Outlook:

The continued emphasis on enhancing agricultural productivity is expected to result in improved farm incomes and drive increased demand for fertilizers. Single Super Phosphate (SSP), a customized fertilizer containing phosphate along with sulphur, calcium, and other micronutrients, is likely to see sustained demand due to its suitability for various soil and crop types.

An above-normal monsoon is forecast for 2025, which is expected to provide a significant boost to the agricultural sector. This, in turn, is anticipated to positively impact allied industries, including fertilizers, in the near term.

The GOI has also announced an increase in the NBS (Subsidy) rates for SSP for Kharief 2025 increasing it from Rs 5121 per Mt to Rs 7263 per MT. With stable prices of Rock Phosphate this shall improve the profitability and marketability of SSP reasonably well.

Direct Benefit Transfer (DBT) in Fertilizer Subsidy- Since March 2018, the Government of India has implemented the Direct Benefit Transfer (DBT) system in the fertilizer sector. Under this mechanism, subsidies are disbursed to fertilizer companies only after the sale to farmers is recorded through Point of Sale (PoS) devices at retail outlets. Approximately 2.3 lakh fertilizer retailers across the country are equipped with PoS machines integrated with the Ministry of Chemicals and Fertilizers “e-Urvarak” platform, ensuring real-time tracking of fertilizer sales and promoting transparency in subsidy disbursement. Recent Policy Developments (2025)

Consideration of Direct Subsidy to Farmers: In May 2025, Union Agriculture Minister Shivraj Singh Chouhan indicated that the government is contemplating the possibility of transferring fertilizer subsidies directly to farmers. This approach aims to provide farmers with greater autonomy over their input purchases. However, the proposal remains under consideration and is yet to be implemented. DBT to farmers shall benefit fertilizers like SSP considerably since it is a low cost and less subsidized fertilizer amongst all the other ‘P & K fertilizers.

Special Subsidy on DAP: To ensure the affordability of Di-Ammonium Phosphate (DAP) for farmers, the government extended a special additional subsidy of Rs. 3,500 per tonne beyond the standard NBS rates. This measure aims to stabilize DAP prices amidst fluctuating international market conditions. However any subsidy over and above the NBS rates skews the demand in favour of that fertilizer and is unfair to other fertilizers. The raw material Prices of Rock Phosphate have reduced towards the end of 24-25 and are now stable. The Sulphur prices have however shot up considerably to almost three times. We expect this shall be a short term phenomenon and prices may correct soon.

In the long term the performance of the Company is expected to be better in coming years considering its basic strengths like high integrated capacity which is already operational, multi-geographical locations and established brands. The well maintained plant and equipments ensure uninterrupted production and distribution of goods.

Looking ahead, we remain optimistic about the future outlook for our business. We are committed to pursuing growth opportunities, enhancing operational efficiency, and delivering value to our stakeholders. By focusing on innovation, sustainability, and customer satisfaction, we aim to consolidate our position as a leading player in the fertilizer and chemical industry. Opportunity, Threats, Risk & Concerns:

The Company welcomes the Governments plan to introduce DBT subsidy directly to farmers which shall give the farmers unrestricted choice as well as make them understand the real worth of fertilizer used by them. The Company is in an advantageous position for tapping its already established production capacity with multi- geographical locations; wide spread marketing network and high brand value for its product.

NBS policy as envisaged has attracted new entrants in the market, which in fact shall be better for the wider reach of this long neglected product and establishing the SSP Industry in its right place, However, entry of new entrants in overall bad market conditions has created excess supply in the market resulting into changing consumption and stocking patterns necessitating higher inventories.

SSP fertilisers are based on imported raw-materials which can face severe volatility in prices and foreign currency exchange rates, affecting the profitability of the Company. Agro-Climatic conditions also have a large effect on the performance of the Company.

Uncertainty of monsoon, volatile international market of raw material, seasonal consumption of fertilizer mainly in two months each in Kharif and Rabi, lack of awareness of benefits of SSP consumption amongst farmer fraternity, clubbed with logistics availability/cost and higher requirement of working capital shall remain concerns for the Industry & of the Company.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

The Company conducts its business with integrity and high standards of ethics, and in compliance with the laws and regulations that govern its business. The Company has a well established system of internal controls in operations, supported by suitable monitoring procedures and selfassessment exercises. The financial and commercial functions at various locations are structured and reviewed timely to provide adequate support and controls for the business of the Company.

In addition to external audit, The Company has appointed M/s APAS & Co., Chartered Accountants, as an Internal Auditor, who report significant findings to the Audit Committee of the Board. Consequently, required steps are taken to improve the operations.

HUMAN RESOURCE AND INDUSTRIAL RELATIONS:

The ability to attract, onboard, develop and engage the right kind of talent is crucial to an organizations long term success. Company strongly believes in continuously taking steps towards talent management, leadership development, and employee engagement. Employees are the back - bone of good organization and to motivate them to achieve greater heights, the Company undertook various HR initiatives towards their development, enhancement and retention. The Company considers its highly motivated and well-maintained team as its most valuable asset. As on 31.03.2025, the Company has employed 671 peoples at various locations in India.

Amidst all the pressures and demands of the growing business, Industrial Relations continued to be reasonably cordial with our Union(s).

ENVIRONMENT AND SAFETY:

The Company has always considered safety and environment one of its key focus area and has always striven to make continuous improvement in these two aspects.

At Company, environment concerns have always taken precedence; to address the concerns on Environment Protection, the Company has set up an Online Monitoring System at all the plants and concrete efforts were made towards natural resource conservation by way of Water Harvesting, Sewage Treatment Plant, etc.

CONCLUSION:

The Company dwells on chalking out the best possible future plans and policies so as to avoid the pitfalls and following the best course in the long run. In both the business segments, a focus on assets utilization, earning maximization, continuous growth and relentless strengthening of the internal efficiencies will enable the Company to deliver superior value for its shareholders on a sustained basis in future.

In accordance Regulation 34 (3) read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and some of the best practices followed internationally on Corporate Governance, the report containing the details of corporate governance systems and processes at Khaitan Chemicals and Fertilizers Limited is as under: