Dear Shareholders -A
It gives me great pleasure to share with you an update on the overall performance ofyour Company In a challenging external environment your Company performed well anddelivered another year of profit. Simultaneously we recognized the need for responsiblegrowth and focused on creating greener and more efficient manufacturing with cleanerfuels more efficient energy consumption and lesser generation of waste.
We remained committed to our purpose of making sustainable living commonplace acrossthe value chain.
Before deliberating on the performance of the Company I would like to briefly talkabout the state of economy and more particularly fertilizer industry scenario during2015-16.
Overview of the Economy
India has achieved robust growth despite very complex global conditions and emerged asa beacon of hope amongst major economies by recording the highest gross domestic product(GDP) growth rate of 7.6 per cent for fiscal 2015-16 as against 7.2% in 2014-15. There ishigh expectation of the growth rate to be maintained in the fiscal 2016-17 by Indiasoverall growth story accompanied with the progressive policies of the government and itscommitment towards drastic policy reforms innovation and technology led governancebenign oil prices strong domestic consumption demand implementation of the 7thpay commission to the government employees.
The economy is expected to get a further boost from the passage of Constitution (122ndamendment) Bill 2014 in the monsoon session of parliament with implementation of GSTwhich will give much desired thrust to "Make in India" initiative. Theimplementation of a unified GST in India will be one of the most significant reformsintroduced in recent times which would go a long way in strengthening the economy as onecommon market for taxation as well as address key issues of transparency ease of doingbusiness simplification of tax laws and will have an overall positive impact on theIndian economy which is now at critical stage.
Overview of the Fertilizer Industry
The financial year 2015-16 was a reasonably good year for the fertilizer industry withoverall volumes rising by 7% to
58.2 MMT from 54.1 MMT in financial year 2015 despite second consecutive year of weakmonsoons. The domestic production of Urea witnessed healthy 8% growth during the fiscal2015-16 driven by favorable policy changes of GOI especially the New Urea Policy2015(which altered the policy with regard to reimbursement on the production beyondreassessed capacity) and the Gas Pooling policy (which resulted in uniform gas costs forall gas- based units). As a result Urea imports fell by 3% year to year to 8.47 MMT infinancial year 2016. As the domestic production is expected to remain high at 24.5-25.5MMT during financial year 2017 the import volumes are expected to remain similar to lastyear levels. This along with subdued Urea prices would lower the import bill further inthe financial year 2017.The price of pooled gas for Urea units have fallen to about US$6.5- 6.6/MMBTU during April-May 2016 from -US$ 7.2-7.3/MMBTU during Feb-March 2016 due toa further 20% reduction in the domestic gas prices w.e.f. April 1 2016 and subdued spotgas prices. This lowers the cost of production of Urea which in turn would reduce thesubsidy burden for the Government. The revenues of the domestic fertilizer industry posteda modest growth of 5% to ' 820.9 billion in financial year 2016 from ' 779.4 billion infinancial year 2015 driven by higher sales volumes.The profit margins continued to remainunder pressure due to high reliance on working capital borrowings to fund subsidyreceivable. As subsidy delays are expected to continue and Urea pricing reforms are notexpected immediately the financial performance of the industry is expected to remainimpacted in the near- to- medium term. The volume growth during financial year 201516 wasdriven by relatively low opening inventory levels compared with the previous years andlow base effect and was supported by moderate growth in the domestic production of ureaand higher import of non-urea fertilizers. During the financial year urea sales grew by4% to 31.98 MMT whereas non-urea sales grew substantially at 13% to 26.19 MMT. Howeverhigher volume growth has resulted in increase in the systemic inventory levels as onend-Mar 2016.
In line with its philosophy of promoting a sustainable environment Government ofIndia during the year has mandated 100% production of neem coated urea. Neem coatingensures slow release of nitrogen resulting in lower usage of urea prevents leaching ofsoil nutrient and hinders diversion of urea for non-agricultural uses. This will reducethe consumption of urea by 10-15%. As far as environment is concerned normal prilled Ureause-efficiency is 30%(Paddy crop). In case of Neem Coated Urea this loss is significantlyreduced by about 10%-15% thereby resulting in less pollution of underground water.Moreover the usage of Neem Coated Urea is environmental friendly.
The beginning of monsoon this year has been very encouraging with widespread good rainsin the month of June and
July. In case the normal rainfall continues during the balance monsoon period I expectthe systemic inventory levels to come down to more reasonable levels by the end of thekharif 2016 season.
I am glad to inform you that your Company continues to perform well on a sustainedbasis. Your Company achieved a turnover of ' 8761.64 Crore registering an increase ofabout 12.5 % over previous year turnover of ' 7787.81 Crore. During the year yourCompanys margins besides lower sales of both fertilizers and Industrial Productshave also been adversely impacted by the stringent energy norms specified by theGovernment with effect from 01.06.2015 higher gas price for non-urea operations lowerIPP of urea for production beyond Re-assessed Capacity higher financial cost abundantavailability of cheap imported chemicals steep depreciation in rupees vis-a-vis US$delayed disbursement of subsidy etc. All these factors have affected the profitability ofthe Company. In spite of above factors your company could earn a Profit Before Tax (PBT)of ' 291.10 Crore and Profit After Tax (PAT) of ' 191.23 Crore. Your Company achieved alower fertilizer sales volume of 33.75 lakh MT during 2015-16 as compared to 37.32 lakh MTin the previous year as the Companys major markets were very severely hit bydrought. But for the resilience of your Company the result for the year would have notbeen so good.
Although your Company has lined up a number of capex programmes which will entailsubstantial expenditure considering the consistent profits being made by the Companyyour Directors have recommended a dividend of ' 1.10 (i.e. 11%) per equity share for thefinancial year 2015-16.
Awards & Accolades
As in the past several years your Company received MoU Excellent ratingfor 2014-15 from Ministry of Heavy Industries and Public Enterprises.
I am also happy to share with you the several recognitions and awards received by theCompany under various category from central as well as state Government and Institutes ofrepute for conservation in energy excellence in Cost Management Best Productionperformance of an operating fertilizer unit for nitrogen excellence in InnovationManagement outstanding performance in environment management in Fertilizer Sector and soon. The details of these awards are more specifically spelt out in the Directors report.
As a Company concerned about the need to conserve the natural resources your Companyhas already commenced the work on the project of Sewage Treatment Plant (STP) which whenoperational will generate 15 MLD of treated water for usage in plants of RCF and somequantity of this water will be shared with BPCL the other PSU with whom the Company hasentered in to an MoU to this effect. Similarly as a part of its commitment to promoteecologically sustainable growth by generating greener power your Company has set up 2 MWpGrid connected Photovoltaic Solar power plant within our factory premises at TrombayMumbai to harness renewable energy sources to meet our demands. The power generated isused for captive consumption of the Trombay unit.
Further your Company is planning to undertake major projects by participating in therevival of closed fertilizer units Additional Ammonia Urea project at Thal Coal BasedFertilizer Plant at Talcher and a Urea Plant in Iran for import of Urea to India througha JV the details of such projects are available in the Directors Report.
The Company is also carrying out a number of energy conservation projects which willimprove the profitability of the Company in the coming years.Your Company is also lookingfor opportunities for long term off take agreements for procurement of fertilizers toensure sustained growth. I am confident that with your unflinching support and supportfrom the Government your Company would march ahead successfully.
I am delighted to present the Annual Report for the year 2015-16 and hope to see you on23rd September 2016 at the 38th Annual General Meeting of theCompany.
Before I conclude I would like to place on record my appreciation to all my colleagueson the Board past and present for their valuable contribution in the growth of thecompany. Finally I would like to thank you our valued shareholders for your unwaveringsupport in our journey to deliver value to all our stakeholders.
Thank you ladies and gentlemen.
Chairman and Managing Director Mumbai
15th August 2016