Mangalore Chemicals & Fertilizers Ltd Management Discussions

Industry Structure and Developments

The Company has one major business segment, viz. Fertilizers. It manufactures both Nitrogenous and Phosphatic fertilizers and is the only manufacturer of fertilizers in the state of Karnataka. About 71% of the Companys products are sold in the state of Karnataka, which meets about 12% of the needs of the farmers in the State. The Company also operating in the neighbouring states of Tamil Nadu, Andhra Pradesh, Telangana, Kerala and Maharashtra.

Threats and Opportunities

The New Pricing Scheme is notified by Government of India [GOI] for Urea and various policies are issued from time to time under the Scheme and we are governed by the extant policy guidelines.

The Nutrient Based Subsidy Scheme (NBS) was introduced by the GOI with effect from April 1, 2010 after de-controlling the DAP/ complex fertilizers, where annual/bi-annual concession rates are announced leaving the market realization to reflect the fluctuations in respective commodity prices. However, the GOI is monitoring the market realization with guidelines on its reasonableness.

From January 2018, the GOI has rolled out Direct Benefit Transfer (DBT) for payment of subsidy on sale by the retailers on pan India basis after pilot studies in some selected districts of various States, as against the earlier system of payment of subsidy on receipt basis into the respective districts and sales thereafter. DBT roll out resulted in delayed payment of subsidy which would follow the vagaries of agro climatic conditions, leading to elongated working capital cycle. The delay in payment of subsidy caused by DBT, higher subsidy demand due to higher commodity prices and rupee depreciation would contribute to higher working capital requirement and resultant higher finance cost.

Future Outlook

The demand for both Nitrogenous & Phosphatic fertilizers in India is increasing steadily and expected to grow at a compounded annual rate of about 2-3%. Despite the efforts to augment the domestic production against the increasing demand, the supply deficit has to be met from imports. The Company has planned to import adequate quantity of fertilizers to meet the growing demand and has also finalized supply arrangements with certain suppliers of fertilizers, to augment fertilizer availability in our marketing territory through our own marketing channel.

Financial and Operational Performance a) Production Performance

Production of 4,43,322 MTs of Urea, 3,25,135 MTs of Complex fertilizers [DAP/NP] and 13,130 MTs of Ammonium Bi-Carbonate was achieved during the year.

b) Operating Results

The revenue from operations for the year ended March 31, 2025 was INR 3,331.90 crore as compared to INR 3,795.44 crore for the year ended March 31, 2024.

The profit before tax for the year ended March 31, 2025 was INR 206.05 crore as compared to INR 240.67 crore for the year ended March 31, 2024. Total Comprehensive Income stood at INR 142.78 crore for the year ended March 31, 2025 compared to INR 154.27 crore for the year ended March 31, 2024.

c) Resource Utilization

The gross fixed assets and capital work-in-progress as at March 31, 2025 were INR 1,489.73 crore as compared to INR 1,461.09 crore in the previous year.

d) Working Capital

Net working capital as on March 31, 2025 was INR 307.72 crore.

Risks and Concerns

Due to any changes in Fertilizer policy, Urea production may get curtailed. Possible non-availability of raw materials & fertilizers and their rising prices for non-urea fertilizers and monitoring of reasonableness of market realization are matters of concern. Roll out of DBT, any under provisioning for fertilizer subsidy in the Union Budget and resultant delay in subsidy payment by Govt. of India would contribute to incremental working capital which could impact production and increased finance costs. Considering the Companys plans for higher imports, depreciation of Indian rupee against the US dollar can adversely affect profitability. Increase in operating costs, mainly finance costs on working capital may adversely affect profitability.

Internal Financial Control Systems

Adequate internal financial controls are in place across various functions in the Company. The Company is operating SAP S/4 HANA (high-performance analytic appliance) version and GRC software, which have adequate controls in place.

In addition, Internal Auditor reviews the internal financial control measures on an ongoing basis, whose reports are reviewed by the Audit Committee for continuous improvement of controls.

Human Resources and Industrial Relations

The Company continues to focus on employee training and development and had organized several technical and other soft skills training programs across levels. The Company constantly reviews/revises its policies and practices to stay aligned with the best in the industry.

The total strength of regular employees at the end of the year was 577.

Details of Significant Changes in Key Financial Ratios, along with detailed explanations:

Particulars	As at March 31, 2025	As at March 31, 2024	% change	Reason for variance above 25%
Debtors Turnover Ratio	5.72	5.58	2.58%	-
Inventory Turnover Ratio	8.57	11.52	(25.58%)	Temporary increase in inventory
Interest Coverage Ratio	3.95	3.57	10.83%	-
Current Ratio	1.34	1.23	8.77%	-
Debt- Equity Ratio	0.68	1.08	37.43%	Improved liquidity & profitability
Operating Margin Ratio	8.48%	9.09%	(6.70%)	-
Net Profit Ratio	4.31%	4.08%	5.74%	-
Return on Networth	14.34%	17.77%	(19.28%)	-