Madras Fertilizers Ltd Management Discussions

Business

Madras Fertilizers Limited (MFL) incorporated in the year 1966 as a PSU under the administrative control of the Department of Fertilizers (DOF), Ministry of Chemicals & Fertilizers, and Government of India.

MFL is engaged in the manufacture of Ammonia, Urea and Complex Fertilizers at Manali, Chennai-68. MFL is also engaged in manufacturing Bio-fertilizers and marketing of eco-friendly Organic fertilizers and Neem Pesticides under the brand name "VIJAY".

Overview of the Economy

The government has continued its focus on augmenting farmer income through various steps. Increased allocation across the schemes to drive irrigation facilities, improve agricultural markets, augment the allied sectors supporting income, settingup of FPOs, crop insurance schemes and income supplementation schemes are major positive. With these steps, a positive effect on fertiliser off-take is expected.

Industry Structure and Development

Fertilizer industry is one of the most industrial sectors that contributes mainly to achieve food security and sustainable agricultural development.

Indian fertilizer sector witnessed a sustained high growth in consumption. The Government has taken a number of initiatives for promoting balanced fertilization to accelerate agricultural growth.

Besides this, there have been efforts on the technological development in production processes that keep pace with the latest global production methods and environmental requirements.

Improvement in demand due to a good monsoon which resulted in higher sowing aided the increase in production. Overall Fertilizers Sales too have increased buoyed by a good monsoon and harvest season. As overall cost of production of urea produced using RLNG has seen decrease in the working capital intensity of the fertilizer manufacturers and it will also act as a relief for the fiscal spending of the government while disbursing the urea subsidy.

Agricultural Situations prevailed in Southern States:

Tamil Nadu received South-West Monsoon rainfall of 354.0 mm which was 8% excess than normal of 328.4 mm but 26% deficit over CPLY of 477.4 mm. North East Monsoon rainfall of 457.0 mm was at par with normal of 441.2 mm and CPLY of 444.2 mm. Even though, Southern districts received downpour during Dec 23, due to uneven distribution, flooding and water logging yield was affected for both Paddy and Banana. Mettur is the major reservoir in Tamil Nadu which caters around 16 lakh acres. Despite water release on the customary date of 12th June, due to poor rainfall in the catchment area, it was stopped in between resulting in marginal reduction of Kuruvai Paddy cropping area against CPLY Produce price was good for Maize (Rs.2000-2400/Q) and Paddy (Rs.2500-3000/Q). As Paddy fetched more remunerative price, its acreage increased in delta districts during summer replacing Cotton. Sugarcane price is Rs.2950/T including TN Govt special incentive of Rs.195/T. Yield for Paddy and Millets are normall @ 1400 to 1700 Kgs per acre and 300 Kgs per acre for Pulses. Total food grain production in TN exceeded 120 lakh tonnes. MFL has taken 21.28% of share in Urea. No demand for any kind of fertilizers throughout the year due to abundant supply made by the manufacturers. Short supply and steep increase in MRP of Muriate of Potash had no impact on crop yield and production.

Puducherry during the year 2023-24, received 688.1 mm against the normal rainfall of 479.5 mm which is 39.3% more than the normal during Kharif. 787.1 mm rainfall against the normal of 912.mm during Rabi which is 13% less than normal. The Paddy coverage in Puducherry district was normal and good yields reported in both Kharif and Rabi crops. Sugarcane acreage was normal and was cultivated in 4500 acres in Puducherry district. In Karaikkal dist, the Cotton crop around 3000 acres was totally devastated by heavy rains in May 23 due to which farmers suffered huge losses. The first crop of Paddy was not cultivated in around 400-500 acres due to non-release of water for Karaikkal farmers from Mettur dam. Yield was reduced as Rabi Paddy (4500 Acres) cultivation was taken up as rainfed crop by direct sowing. Farmers preferred Paddy crop due to good commodity price ranging between Rs.2000/- to 2250/- per bag of 77 Kgs. Apart from MFL, SPIC is the major supplier for Urea. MFL has taken 73.46% of share in Urea. MFL PoS sales is 8573.13 MT against the supply of 8657.55 MT which is 99% of supplied volume.

Telangana received 920.40 mm rainfall against the normal of 877 mm leading to normal seasonal conditions. South West Monsoon is crucial for the Agriculture sector in Telangana State as it amounts to 86% of annual rainfall. During Kharif, received 861.10 mm rainfall against the normal of 738.60 mm which is 16.57% excess. North East Monsoon contributes to only 14% of annual rainfall. The normal rainfall of NE Monsoon period from October to December is 113.20 mm and the actual rainfall is 52.70 mm with a deviation of -53.45%. Overall, rainfall in the year is deficit by 1.5% only. Water level in major reservoirs is 287.06 TMC as on 31.03.2024 against CPLY storage of 432.13 TMC. During Kharif, major crops like Paddy, Maize, Jowar, Cotton, Chillies, Pulses, Oil Seeds and Vegetables were sown in an area of 126.20 lakh acres against the normal of 124.28 lakh acres. During Rabi, Paddy, Maize, Groundnut, Pulses and other crops sown in an area of 67.55 lakh acres against the normal of 54.93 lakh acres. During the year 21,08,554.080 MT of Urea, 15,04,448.440 MT of NPKs and 98,491.750 MT of MOP were sold in the State. Urea and NPKs sales increased by 1,51,683.755 MT when compared to CPLY whereas DAP sales was decreased by 64,426.850 MT because of short supplies of DAP All products except DAP were surplus during the year. Paddy is the most preferred crop by farmers because of produce value of Rs.2300/Quintal. Area under Cotton crop was reduced due to poor produce price.

In Andhra Pradesh, the major agriculture depends on South-West Monsoon which enters the state in June and contributes 76% of annual rainfall. The North East Monsoon generally enters the state in the month of October. It contributes almost 24% of States rainfall and mostly covers the districts of Nellore, Prakasam, Chittoor, Kadapa and some parts of Anantapur. Overall average rainfall was received in Andhra Pradesh State from 01.06.2023 to 20.03.2024 and recorded as 722.6 mm against the Normal of 883.4 mm showing 18.2% deficit. All major reservoirs were holding 205.16 TMC as on 20.03.2024. By this time in last year, the levels stood at 376.90 TMC. The total area sown in the State is 16.76 lakhs ha (75%) as against the normal area of 22.38 lakh ha. The MSP for Paddy is Rs.2183/quintal, Jowar - Rs.3180/quintal, Maize - Rs.2090/quintal, Urad - Rs.6950/quintal, Groundnut - Rs.6377/quintal, Sunflower -Rs.6760/quintal, Cotton (long staple) - Rs.7020/quintal. The minimum support price increased reasonably as compared to last year. Urea demand was observed in Oct & Nov 23 months, but the overall supply was more than the demand.

Karnataka State received a total rainfall of 881 mm, which is 25% less than normal of 1185 mm and 40% less than CPLY of 1474 mm. By anticipating normal rain, it was programmed to cover 82.35 lakh ha, 25.38 lakh ha and 6.54 lakh ha of agricultural crop during Kharif, Rabi and Summer seasons respectively, totaling 114.27 lakh hectares. However only 98.22 lakh hectares were covered. According to joint survey report submitted to Govt of India, 46.11 lakh hectares of agricultural crops were damaged due to drought during 2023-24. The water level in all reservoirs reached near dead storage and as against full capacity of 537.00 TMC, the available water was only 154.54 TMC as on 31.03.2024. Due to season failure, the produce price was above normal. The Coffee price (Rs.16000 per 50 Kg of Arabica parchment) was very good during the year. The availability of all fertilizer grades was adequate during the year and the prices were relatively steady. The 20-20-013 supply was in glut state. The overall fertilizer consumption declined to 42.00 lakhs MT against CPLY of 47 lakhs MT due to season failure. The significance of fertilizer consumption is that the MOP consumption is coming down year after year, whereas other grades are slightly going up.

In Kerala, the state received 2120.450 mm rainfall against the normal of 2948.600 mm which is 28% less than the normal. All the reservoirs including Malampuzha were reduced to minimum water levels and water was released for agricultural purpose only from 20th of Dec 23 to 15th of Jan 24. Hot and dry climate during Rabi damaged many crops and adversely affected the yields of Banana, Paddy, Pineapple and Vegetables. No shortage of Urea and other Fertilizers were observed in any one of the districts during the season. Produce price of Rubber slightly improved and now is fetching Rs.180/- per Kg on an average.

STRENGTH, WEAKNESS, OPPORTUNITIES & THREATS Strengths

MFLs strength is its Highly skilled manpower, its flagship product Brand viz., Vijay and its dedicated far and wide reach of marketing network throughout South India are its strength. It has its presence in the market over 5 decades and receive continuous support from the GoI. It has already converted its feed stock from Naptha to RLNG which is being supplied by M/s IOC located at the close proximity of MFL.

Weaknesses

Agro-climatic condition has a large effect on the performance of the Company. NPK raw materials which are imported are subject to severe volatility in terms of its availability and affordable price. Variation in the foreign currency exchange rates will also affect the profitability of the Company.

Opportunities

There is a compelling need for alternate fertilizers which will have lesser wastage and reduced fertilizer usage while keeping the same or more yield. This opens up for new investment with better return while ensuring food security.

Business diversification like Trading of fertilizer products will improve the bottom line of the company.

Threats

High volatility in the prices of raw material of NPK resulting in an adverse impact on production of NPK and marketing plans which eventually affects the bottom line of the company.

Outlook

The outlook for the fertilizer sector is positive on expectations of good monsoon. The underlying macros for the Indian fertilizer industry look promising. With surplus reservoir levels, forecasts for a good monsoon season, demand for the procurement of fertilizers seems also promising.

Risks and Area of Concern

The company face low operating margin due to working capital limitation for NPK production. But, the company ensured uninterrupted supply of vital plant nutrients besides ensuring safety of the plants and personnel including contract labor.

Fertilizer Sector:

(Lac MT)

PRODUCT	UREA		NPK
	2022-23	2023-24	2022-23	2023-24
Sales in MFL Marketing Territory	65.91	65.13	50.64	54.75
MFL Sales	5.29	4.27	0.075	-

For Complex fertilizers, NBS is applicable from 1.4.2010 where the subsidy is being fixed by Government of India and the MRP is allowed to be fixed by manufacturers based on market dynamics. Due to fluctuations in international prices of raw- materials during the year 2023-24, the subsidy for NPK 17-17-17 was decreased from Rs 32063/MT and fixed at Rs 22683/ MT in Kharif & Rs 11937/MT in Rabi. Similarly for NPK 20-20-0, the Subsidy was reduced from Rs32991/MT and fixed at Rs 23504/MT in Kharif & Rs 13568/MT in Rabi2023-24. Overall, the average subsidy extended for NPK Complexes 17-17-17 & 20-20-0 during the year 2023-24 was reduced by 51.17% and 43.77% respectively against previous year.

The consumption of UREA has marginally decreased by 1.19% over CPLY due to unfavorable agricultural situation in Karnataka and NP/NPK/NPKS (Other than DAP) consumption has increased by 7.50% over CPLY in MFLs territory due to surplus availability.

• MFL maintained Rail: Road ratio of 86:14 for Urea movement for 2nd consecutive year against the DoF norms of 80:20, which is the best in last 13 years.

• For the 5^th Consecutive year since 2019-20, MFL products were marketed without any additional rebates., thereby saved a huge financial outgo on marketing costs

• No credit period/Open credit offered by MFL during the financial year, whereas Competitors offered several discounts/rebates and open credit facilities.

• For the 6^th consecutive year, achieved 100 % RTGS/online payments for all the sales transactions.

Global Scenario:

During 2023-24, the International FoB Prices of Urea were in continuous fluctuating trend unlike decreasing trend observed during 2022-23. The Urea price that was at USD 332 PMT during Apr23 fluctuated between USD 332-400 PMT during Kharif2023 and touched a high of USD 403 PMT by Oct23. On reaching USD 400 PMT during Sep2023, the price was steady at USD 402/403 PMT between Oct-Dec 2023. Afterwards, there was a continuous fall in Prices during 4th Quarter 2023-24. Urea Price of USD 402 PMT during Dec2023 fell to USD 343 PMT by Jan 2024 and was further down by USD 323 PMT during Feb & Mar2024. Overall there was a marginal decrease of 3.87% in Prices of Urea by Mar2024 when compared to Apr2023. The Prices during the previous year was ranged between USD 596-332 PMT.

Phosphoric acid CFR price was again on declining trend during 2023-24. It was at USD 1050 PMT during Apr 2023 reduced to uSd 990 PMT in May and further to USD 970 PMT in Jun & Jul2023. The Price touched its lowest of 2023-24 during Aug2023 at USD 874 PMT. There was slight increase in Price at USD 951 PMT in Sep 2023 and it was stabilized at USD 985 PMT between Oct2023 to Jan2024. Again it declined to USD 971 PMT during Feb2024 and finally stabilized at USD 968 PMT during Mar 24. Overall there was a reduction of 7.81% in Prices of Phosphoric acid when compared to Apr2023. The Prices during previous year was ranged between USD 1530-1050 PMT.

MoP CFR Price was on reducing trend during 2023-24 unlike a uniform price trend observed in 2022-23. It was stably priced at USD 422 PMT during Apr-Aug2023 and slightly reduced to USD 371 PMT in Sep2023. The Price further decreased and stabilized at USD 319 PMT during Oct2023 to Apr2024. The Price has touched at a low of USD 314 PMT in Feb2024. The CFR Price was stable at USD 590 PMT for the entire year 2022-23, and no fluctuations were observed.

These changes refect the evolving dynamics in the global fertilizer market as observed.

Production, Imports and Consumption of Major Fertilizers (All India Basis):

In the landscape of Indias Agricultural and Fertilizer sectors, The Fiscal Year 2023-24 stands out as a beacon of success of strategies implemented by Ministry of Fertilizers, adorned with remarkable achievements and significant milestones. The nation has witnessed a remarkable surge in both production and sales of key Fertilizers, propelling the total production to an impressive 45.2 million tons.

Leading this charge is Urea, spearheading the fertiliser production with a monumental output of 31.4 million tons. Closely trailing behind are the essential NPKs, contributing 9.5 million tons, and DAP with a notable contribution of 4.3 million tons. This collective accomplishment underscores Indias unwavering commitment to bolstering its agricultural infrastructure and ensuring food security for its populace.

The figures of production, imports and consumption of major fertilizers viz. Urea, complexes in India for the years 2022-23 ^{and 2023-24 are given below:} _{[Lakh MT]}

PRODUCT	UREA		DAP		NP/NPK (Other than DAP)		MOP*
	2022-23	2023-24	2022-23	2023-24	2022-23	2023-24	2022-23	2023-24
PRODUCTION	285.0	314.1	43.5	42.9	92.9	95.5	-	-
IMPORTS	75.8	70.4	65.8	55.7	27.5	22.2	18.7	28.7
CONSUMPTION	357.3	357.8	105.3	108.1	100.7	110.7	16.3*	16.4*

* = For direct application only, Excludes supply to NPK/Complex fertilizers units.

With a growing population and increasing demands on agricultural productivity, these achievements signal a promising trajectory for Indias agricultural future. As India continues to strive for self-sufficiency and resilience in its agricultural sector, these accomplishments serve as a sign of inspiration for the nations journey towards prosperity and food security.

All India Demand Forecast For Fertilizer Nutrients for the Periods 2023-24 to 2025-26

[Lakh MT]

PERIOD	N	P	K	TOTAL	RATIO (NPK)
2023-24 (Estd)*	204.6	83.1	18.8	306.5	10.9:4.4:1
2024-25 (Forecast)	205.0	87.7	20.3	313.0	10.1:4.3:1
2025-26 (Forecast)	208.8	89.2	21.4	319.4	9.8:4.2:1

* = DBT Pos sale.

All India Product-Wise Demand Forecast For 2023-24 To 2025-26

PERIOD	UREA	DAP	SSP	MOP	COMPLEX FERTILIZERS
2023-24 (Estd)*	357.8	108.1	45.4	16.4	110.7
2024-25 (Forecast)	357.6	113.5	48.8	17.7	126.0
2025-26 (Forecast)	362.0	115.5	50.2	18.9	127.6

* = DBT Pos sale.

The Demand forecast for nutrients and corresponding fertilizers are based on anticipating favorable onset of monsoon, availability of irrigation, production, imports, cropping pattern etc. And it is based on existing product nutrient ratio also. However, with Nutrient Based subsidy scheme and programs like soil health management and promotion of balanced fertilizer nutrients application, the demand for complex fertilizers will get rationalized in the coming years.

Nutrient Based Subsidy (NBS) for Phosphatic & Potassic Fertilizers

The Government of India introduced the Nutrient Based Subsidy Phase-I with effect from 1.4.2010. This scheme is applicable for DAP, MOP, MAP, SSP, TSP and for other twenty grades of Complex fertilizers.

Under NBS Scheme, Subsidy for the product Potash Derived from Molasses (PDM-0:0:14.5:0) was enhanced to Rs 2304/ MT from Rs 1467/- to Manufacturers effective Apr2023. Any fortified fertilizers with secondary & micro-nutrients like Boron & Zinc will continue to be eligible for additional per MT subsidy of Rs 300/- & Rs 500/- respectively.

The per kg Nutrient Based Subsidy for Nutrients N P K for the period 2020-21 to 2023-24 is given below:

					(Rs/Kg of Nutrient)
Sl.No.	Nutrients	2020-21	2021-22	2022-23	2023-24
1	N	18.789	18.789	98.02	47.02
2	P	14.888	45.323	66.93	20.82
3	K	10.116	10.116	23.65	2.38
4	S	2.374	2.374	6.12	1.89

Risk Management

Major challenges that fertilizer industry is facing are increasingly volatile International market for fertilizers and raw materials, steep depreciation in rupee value, increasing prices of NPK fertilizers due to new NBS policy and rise in the working capital requirements of fertilizer firms in addition to the historical challenges associated with the rural markets. The Company has a well laid down Risk Management System with Risk Assessment & Risk Mitigation procedures to evolve suitable strategies for mitigating associated risks through better management practices and achieve corporate objectives.

The identified potential risks such as Operational, Input, Utilities, Project Implementation, Business, Competition, Assets, Internal Control, Environmental, Financial, Human Resources, Legal, Regulatory, MIS and Market Risks and their impact on the Companys performance and Stakeholders interest is assessed on continual manner. The reporting of Risk Assessment and Risk Mitigations under the policy is reviewed by the Audit Committee and the Board periodically.

Flood during Dec 2023 /Michaung cyclone: Since MFL had experience in the similar situation during 2015-16, we could anticipate the consequences in advance and necessary steps were taken to safe guard the Plant operation by elevating the DCS control systems above foor level; water logging areas were identified and dewatered using portable pumps. Also to avoid water entry into the Electrical Substations entrance foor level has been raised. This resulted in early restoration of normal operations.

Internal Control System

The company has an Internal Control system designed to ensure security of the assets of the company and efficiency of operations. The internal Control systems include proper delegation of authority, supervision, Online Integration System (OLIS) and checks & procedures trough documented policy guidelines and manuals.

Ratio Analysis

Particulars	FY 2023-24
(i) Debtors Turnover	6.94
(ii) Inventory Turnover	1.12
(iii) Interest Coverage Ratio	1.16
(iv) Current Ratio	0.63
(v) Debt Equity Ratio	(8.35)
(vi) Operating Profit Margin (%)	12.53
(vii) Net Profit Margin (%)	0.25%
(viii) Return on Net worth	NA

Accounting Treatment:

There is no change in the accounting treatment adopted by the Company during the year in the preparation of financial statement other than the Indian Accounting standards as per the provisions of the CompaniesAct and Rules made thereunder.

Prevention of Sexual Harassment

Disclosures in relation to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 have been provided in the Corporate Governance Report.

The Company has zero tolerance for sexual harassment at the work place and has been following the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2014 and the Rules thereunder for prevention and redressal of complaints of sexual harassment at workplace.

Internal Compliance Committee (ICC) is in place at MFL to redress complaints received regarding sexual harassment. All women associates (permanent, temporary, contractual and trainees) as well as any woman visiting the Companys premises are covered under this provision.

Summary of sexual harassment issues raised attended and disposed of during the financial year 2023-24:

No. of complaints received :	Nil
No. of complaints disposed of :	Nil
No. of cases pending for more than 90 days :	Nil