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Mangalore Chemicals & Fertilizers Ltd.

BSE: 530011 Sector: Agri and agri inputs
NSE: MANGCHEFER ISIN Code: INE558B01017
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VOLUME 4101
52-Week high 89.20
52-Week low 40.65
P/E 8.25
Mkt Cap.(Rs cr) 494
Buy Price 0.00
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Sell Price 0.00
Sell Qty 0.00
OPEN 43.00
CLOSE 42.95
VOLUME 4101
52-Week high 89.20
52-Week low 40.65
P/E 8.25
Mkt Cap.(Rs cr) 494
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Mangalore Chemicals & Fertilizers Ltd. (MANGCHEFER) - Director Report

Company director report

To the Members

1. Your Directors place before you the Fifty First Annual Report of the Companytogether with Statement of Accounts for the financial year ended March 31 2018.

2. FINANCIAL HIGHLIGHTS

(Rs. in Crores)

2017-18 2016-17
Revenue from operations 2692.90 2493.99
EBITDA 202.46 181.67
Finance Costs 90.42 116.29
Depreciation 36.99 35.26
Profit before tax 75.05 30.12
Tax expense 14.46 10.70
Profit tax after 60.58 19.41
Other Comprehensive Income/(Expense) (0.16) 0.11
Total Comprehensive Income 60.42 19.52
Earnings Per Share (Basic & Diluted) Rs. 5.11 1.64
Net Worth 477.33 424.03

3. DIVIDEND

The Board of Directors recommended a dividend of Re.1 per equity share of Rs.10/- each.

4. REVIEW OF OPERATIONS

The revenue from operations for the year ended March 31 2018 was Rs. 2692.90 croresas compared to Rs. 2493.99 crores for the year ended March 31 2017.

The profit before tax for the year ended March 31 2018 was Rs. 75.05 crores ascompared to Rs. 30.12 crores for the year ended March 31 2017. Total Comprehensive Incomestood at Rs. 60.42 crores for the year ended March 31 2018 compared to Rs. 19.52 croresfor the previous year. The results for the year ended March 31 2018 were primarilyachieved on account of operational efficiency lower finance cost and the favourablemarket conditions.

5. PRODUCTION

Urea

Your Company achieved production of 409500 MTs during the current year.

Di-Ammonium Phosphate (DAP) and Complex Fertilizers

Your Company produced 265552 MTs of Phosphatic Fertilizers during the year comparedto 262046 MTs in the previous year.

Ammonium Bi-carbonate (ABC)

Production of ABC at 16693 MTs during the year compared to 13014 MTs in the previousyear.

6. SALES

During the year your Company sold 403011 MTs of Urea compared to 379400 MTs in theprevious year. Sales of manufactured Phosphatic Fertilizers were 254297 MTs compared to259792 MTs in the previous year. Sales of imported fertilizers were 344996 MTs against291599 MTs in the previous year.

Sulphonated Naphthalene Formaldehyde (SNF)

The plant set up in August 2010 for manufacture of SNF on a modular basis can take careof increased demand. The Company sold 17621 MTs of SNF during the year compared to16051 MTs in the previous year. The Company has continued with new product variants forapplications in newer areas to improve plant utilization in order to de-risk its focus onconstruction chemical industry.

Specialty Plant Nutrition (SPN) Products

The country is facing a serious problem of deterioration in soil productivity due toindiscriminate and imbalanced use of Urea and NPK fertilizers inadequate use of othernutrients essential for plant growth and injudicious use of irrigation water. In order toarrest soil deterioration and improve soil conditions and its productivity your Companycontinues to supply products that maintain soil health provide balanced and completenutrition and improve crop health.

In order to support marketing requirement with timely supply of quality SPN productsthe specialty fertilizer manufacturing facility in Mangalore with an annual capacity of12000 MT of Water Soluble Fertilizers and Micronutrient Mixtures has greatly helped ingrowth of SPN products business.

To address the nutrient deficiencies noticed in the soil resulting in lowerproductivity or crop failure in the areas serviced by Company's Marketing network R&Dunit of the Company at Hassan has been developing nutrient mixtures enriched organicmanure products and soil conditioners to mitigate crop specific issues apart fromproviding analytical and advisory service to farmers. The response from the crop growerson the effectiveness of these products has been very positive and there is a growingdemand for development of similar products for other crops.

In order to encourage scientific application of fertilizers and plant nutrients yourCompany has been trying to introduce these concepts at the grass roots level. To activelyfocus attention of all concerned on the specificsinvolved therein lot of customereducation programs were carried out to popularize usage of SPN products under the conceptof Mangala Integrated Nutrient Management (Mangala INM).

Concentrated and continued effort in identifying customer needs introducing suitableSPN products and educating farmers as well as channel partners in proper use of theseinputs has resulted in achieving a turnover of Rs. 167 Crores during the year.

Crop Protection Chemical (CPC) Products

As a part of diversification and growth strategy and in order to offer a wider rangeof agri. inputs a collaborative approach was adopted by your Company for marketing theproducts of reputed pesticide companies through its channel partner network. Your Companyhas also introduced selected molecules in its own brand. The Crop Protection Chemicalbusiness registered a turnover of Rs. 29 crores during the year.

Analytical and Advisory Service

To promote the concept of Integrated Nutrient Management (Mangala INM) R & Dfacility at Hassan continues to analyze samples of soil water plant tissues plantnutrients organic manures soil amendments fertilizers etc. Through this facilityanalysis of the samples pertaining to customers is done and appropriate recommendationsfor soil health management and crop management are given. Suitable follow up is done byCompany's experts and extension workers to ensure effective implementation of therecommendation. All these are provided to customers free of cost to ensure their activeparticipation in achieving profitability and sustainability in agriculture.

7. WORKING CAPITAL

Continued under-provisioning for fertilizer subsidy in the Union Budget withresultant unusual delay in subsidy payment by Government of India (GOI) contributed toprecarious working capital condition and increased working capital costs.

8. MODERNIZATION OF AMMONIA/UREA PLANTS

Natural Gas Conversion Project

All equipment related to NG conversion project were installed in ammonia and captivepower plant. Majority of the equipment were commissioned successfully and plant is readyin all respects to receive natural gas.

As informed by GAIL (India) Ltd. the progress in the laying of gas pipeline from Kochito Mangaluru has picked up momentum in this financial year and the pipeline is expected tobe ready by end of 2018-19.

Ammonia Plant Energy Improvement Project

The Government of India (GOI) in pursuit to manage the subsidy burden is reducing theenergy norm as a mandate to all the urea manufacturing units. As a preparedness to thismandate the Company has taken up Ammonia Plant Energy Improvement project to reduceoverall energy consumption of Urea production. Separate studies were conducted by tworenowned Ammonia plant licensors and Kellog Brown & Root LLC USA was chosen forlicensing and to carry out basic egineering of the project. Basic Engineering wascompleted in September 2017. The work on detailed engineering started in October 2017.Placement of order for long lead items is planned for second quarter of 2018-19 withestimated commissioning by first quarter of 2020-21.

9. FERTILIZER POLICY

The Government of India (GOI) by its notification No.12012/3/2010-FPP dated 2nd April2014 specified that the production of high cost naphtha based units will continue undermodified provided to these units or June 30 2014 whichever is earlier beyond whichsubsidy for naphtha based units will not be paid which was further extended untilSeptember 30 2014. Laying of Gas pipeline from Kochi to Mangalore by GAIL (India) Limitedmade negligible progress till then.

The GOI allowed operation of Naphtha based urea plants for 100 days as per NotificationNo. 12012/3/2010-FPP from January 07 2015 pursuant to the legal process initiated by theCompany & permitted continuation of the same policy till June 16 2015.

The GOI vide its Notification No.12018/4/2014-FPP dated June 17 2015 allowedcontinuation of production of urea by 3 Naphtha based units (MFL Manali MCFL Mangaloreand SPIC Tuticorin) till these plants get assured supply of gas either by gas pipeline orany other means. The Company had approached Hon'ble High Court of Delhi seeking remedyagainst some restrictive conditions imposed in terms of the subsidy mechanism that reducesthe eligible subsidy which are discriminatory compared to the recently converted naphthabased urea plants.

The petition was disposed since the GOI confirmed that the Company would be eligiblefor the benefits as are available to other manufacturers of Urea who have converted theirmanufacturing processes to gas based and are now utilizing gas for production of Urea.

The GOI issued Notification No.12012/1/2015-FPP dated March 28 2018 confirming theavailability of benefits to the Company for having converted its manufacturing process togas based on receipt & use of gas for production of Urea and continuation of existingpolicy till March 2020.

The Nutrient Based Subsidy Scheme (NBS) was introduced by the GOI with effect fromApril 1 2010 after de-controlling the DAP/complex fertilizers where annual /bi-annualconcession rates are announced in advance leaving the market realization to reflect thefluctuations in respective commodity prices. However the GOI is monitoring the marketrealization.

10. SAFETY HEALTH ENVIRONMENT AND POLLUTION CONTROL

Safety

Recertification of OHSAS 18001:2007 was done by the certification body DNV-GL duringthe year. In addition to the periodic audits carried out under the integrated managementsystem a statutory annual safety audit was also carried out by external auditors RamsSafety Consultants Chennai.

A public awareness programme was conducted at Shree Devi Institute of Technology inDecember 2017.

Lock-Out/Tag-Out (LOTO) system was implemented throughout the NPS III till the gasavailability and connectivity is plant to avoid accidents due to inadvertent release ofhazardous energy thereby enhancing safety of working personnel. Fire alarm system has beenextended to cover more areas in the plant.

Extensive training programs related to rescue operations usage of personal protectiveequipment emergency management Fire Safety at home Safety Health and Environmentmanagement system were organized for employees. Regular mock drills were also conductedto check the emergency preparedness. Awareness campaigns like National Safety Day FireService Week and Chemical Disaster Prevention Week were undertaken.

Firefighting training is being conducted every Friday to train the employees and alsocontractors' workmen. Various training programmes (Audio Visual & practical) wereconducted both at works and township.

Health

Periodic medical examination was conducted for all the employees and contract workerswhich included general physical examination systemic examination and laboratoryinvestigations.

Special tests like pulmonary function test for the employees who are exposed to dustand chemicals audiometry for those exposed to noise and vision test for those who requirehigh visual acuity at workplace were conducted by experts as per schedule.

Medical examination of the canteen workers was conducted with more stress on personalhygiene and tests were conducted for any communicable diseases. Medical health data of allthe employees was generated after receiving the reports and the findings were incorporatedin Form No.16 as per statutory requirement. The employees with abnormal findings on annualmedical examination were counselled and advised regarding further management.

First aid training programmes were conducted for employees and contract workersregularly. Health awareness programmes on various subjects like Plastic Surgery - the artof healing Diabetes-Causes & Management Ergonomics-Helping to work better LiverDisorders-Causes & Management were conducted by the experts for the employees.Practical session on Yoga for healthy Living was conducted for employees by a Yoga expert.

Health & Eye check-up camps Dental check-up/awareness camps Cardiac Check-upcamps were conducted in neighbouring villages and schools. Our Medical team has deliveredtalk on "Occupational Health & Hygiene" for the employees of neighboringindustries. "Arogya Seva Ratna Award" was conferred to the present Head ofMedical

Services of the factory by Department of Boilers Industries & Occupational HealthGovernment of Karnataka for his contribution in the field of Occupational

Environment

As an ISO 14001 certified company many environmental management programs have beenimplemented to improve the environmental performance of the Company. The Company achievedzero liquid discharge status in 2010 by upgrading its effluent and sewage treatment plantsto recover and reuse the treated waters. The rainwater harvesting system and sewagetreatment plants are already installed at its Township for employees. In addition to theexisting 64 acres of green belt in its manufacturing site the Company has planted 2000saplings during 2017-18.

Environmental Management System (EMS) in line with the new version ISO14001:2015 wasimplemented in during the year and certified by M/s Det Norske Veritas Bangalore valid upto 16th August 2020.

Environment Laboratory of the Company has been assessed and accredited in accordancewith standard ISO/IEC 17025:2015 by National Accreditation Board for Testing andCalibration Laboratories (NABL).

The Company has installed Continuous Ambient Air Quality Monitoring (CAAQM) stationinside factory premises for continuous monitoring of ambient air quality. Ambient airquality data from CAAQM station is being displayed in LED display board at the entrance ofour factory facing National highway for public information. The Company has also installedContinuous Online Monitoring Systems in Urea prill tower DAP plant stack and sulphuricacid plant stack as per the Central Pollution Control Board (CPCB) guidelines.

11. EXTRACTS OF ANNUAL RETURN

Pursuant to the provisions of Section 92 of the Companies Act 2013 read with Rule 12of the Companies (Management and Administration) Rules 2014 the extracts of AnnualReturn are furnished in Annexure 1 attached to this Report.

12. NUMBER OF BOARD MEETINGS CONDUCTED DURING THE YEAR

During the year four Board Meetings were held on May 18 2017 July 29 2017 October26 2017 and February 09 2018.

13. DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 134(5) of the Companies Act 2013 your Directors confirm that:

a) in the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanation relating to material departures;

b) the Directors have selected such accounting policies and applied them consistentlyand made judgments and in year 2017. estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the end of thefinancial year and of the profit and loss of the Company for that period;

c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;

d) the Directors have prepared the annual accounts on a going concern basis;

e) the Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and operating effectively;

f) the Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.

14. STATEMENT ON DECLARATION BY INDEPENDENT DIRECTORS

The Company has received declaration of independence from the Independent Directorsand the same have been noted by the Board of Directors in its meeting held on May 242018.

15. DIRECTORS

The Board of directors at its meeting held on July 29 2017 based on therecommendation of the Nomination and Remuneration Committee appointed Mr. Sunil Sethy andMrs. Rita Menon as Additional Directors which was approved by the members at the AnnualGeneral Meeting held on September 25 2017.

Mr. Akshay Poddar will be retiring by rotation and being eligible offers himself forre-appointment at the ensuing Annual General Meeting.

Mr. Kapil Mehan and Mrs. Ritu Mallya resigned from the Board of Directors with effectfrom June 03 2017 and July 06 2017 respectively.

16. DIRECTORS' TRAINING & FAMILIARIZATION

In accordance with the provisions of Regulation 25(7) of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 the Company had organized a FamiliarizationProgramme. Mrs. Rita Menon who was inducted on the Board of Directors on July 29 2017visited the Company's plant at Mangalore on December 14 2017 and the management made apresentation on the nature of the industry and the business model practiced by the Companyexplaining the various manufacturing activities viz. Urea DAP ammonia etc. and wasbriefed about the end to end production process and operation of the plant.

The Independent Directors of the Company were invited to the Board meeting of ZuariAgro Chemicals Limited the holding company held on April 18 2018 wherein 5 yearstrategy plan for agri. business of Adventz group was presented which covered globalfertilizer supply/demand outlook developments in global fertilizer market domesticmarket demand projections and market share of agri. business of Adventz group.

17. PERFORMANCE EVALUATION

Pursuant to the provisions of the Section 134 178 and Sch. IV of the Companies Act2013 and Regulation 17 of the SEBI (Listing Obligations & Disclosure Requirements)Regulations 2015 the following performance evaluations were carried out;

a. Performance evaluation of the Board Chairman and non-Independent Directors by theIndependent Directors;

b. Performance evaluation of the Board its committees and Independent Directors by theBoard of Directors; and

c. Performance evaluation of every Director by the Nomination and RemunerationCommittee.

The evaluation process covered adequacy of the composition of the Board and itsCommittees disclosure of information to the Board and Committees performance of dutiesand obligations governance parameters participation of the members of the Board and theCommittees.

Based on the evaluation done by the Directors the performance of the Board itsCommittees and the Directors was satisfactory and the quality quantity and timeliness offlow of information between the management and the Board was appreciable.

18. NOMINATION & REMUNERATION POLICY

Based on the recommendation of the Nomination and Remuneration Committee the Board hasapproved the Nomination & Remuneration Policy which deals with appointment and removalof the Directors evaluation of the Directors remuneration for the Directors KeyManagerial Personnel and Senior Management which is attached to this Report as Annexure 2.

19. SUBSIDIARIES ASSOCIATE COMPANIES AND JOINT VENTURES

The Company does not have any Subsidiary Associate Company or Joint venture.

20. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Board of Directors has constituted a CSR Committee and also approved the CSRPolicy.

Terms of Reference:

The CSR Committee formulates and recommends to the Board a CSR Policy which shallindicate the activities to be undertaken by the Company as specified in Schedule VII ofthe Companies Act 2013. The Committee also recommends the amount of expenditure to beincurred on CSR activities and monitors the CSR Policy of the Company from time to time.

During the year the Committee met twice on May 17 2017 and July 29 2017. Theattendance at the meeting was as follows :

Name of the member Status No. of meetings attended
Narendra Mairpady Chairman 2
D A Prasanna Member 2
Rita Menon @ Member 1
K. Prabhakar Rao @ Member 1
Kapil Mehan # Member 1

@ w.e.f. 29.07.2017 # up to 03.06.2017

Based on the recommendation of the CSR Committee the Company has formulated acomprehensive CSR policy. The details of CSR policy CSR initiative and activities duringthe year and the Annual Report on Company's CSR activities are furnished in Annexure 3attached to this report.

21. COMPOSITION OF AUDIT COMMITTEE AND VIGIL MECHANISM

The composition of the Audit Committee during the year is shown in the CorporateGovernance Report attached as Annexure 7.

The Company has established a vigil mechanism through Whistleblower Policy and theAudit Committee of the Company is responsible to review periodically the efficient andeffective functioning of the vigil mechanism to deal with instances of fraud andmismanagement and suspected violations of the Company's Code of Business Conduct andEthics if any. No fraud has been reported by the Auditors to the Audit Committee or theBoard.

The Policy provides for adequate safeguards against victimization of employees andDirectors who express their concerns. The Company has also provided direct access to theChairman of the Audit Committee on reporting issues concerning the interests of theemployees and the Company. The whistleblower policy is placed on the website of theCompany www.mangalorechemicals.com.

22. RISK MANAGEMENT

The Company has the requisite processes and procedures in place to assist in minimizingexposure to risk that threaten the existence of the Company including vendor contractingtransferring risk through personal liability health travel and life insurance;preventing/controlling risk through training and supervision; and by analyzing the risk ina manner that considers the whole organization and not just its individual components.

The heads of departments regularly review and assess the departmentalpolicies/procedures and identify risks perform analysis of the frequency and severity ofpotential risks select the best techniques to manage risk implement appropriate riskmanagement techniques and monitor evaluate and document results.

23. LOANS GUARANTEES OR INVESTMENTS

The Company has not given any loans or guarantees covered under the provisions ofSection 186 of the Companies Act 2013 during the year. The details of the investmentsmade by Company are given in the notes to the financial statements.

24. RELATED PARTY TRANSACTIONS

All related party transactions that were entered into during the year were at arm'slength. All related party transactions are approved by the Audit Committee and the Boardof Directors. The details of related party transactions as per Form AOC 2 is enclosed asAnnexure 4 to the Directors' Report. There were no related party transactions made by theCompany with the Promoters Directors and Key Managerial Personnel which may have apotential conflict with the interest of the Company at large.

25. DEPOSITS

The Company has not accepted any fixed deposits in the past or during the year.

26. STATUTORY AUDIT

The Statutory Auditors M/s. S. R. Batliboi & Co. LLP Chartered Accountants wereappointed to hold office from the conclusion of 50th Annual General Meeting till theconclusion of 55th Annual General Meeting of the Company.

27. SECRETARIAL AUDIT

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Companyreappointed Mr. S. Kedarnath Practicing Company Secretary to undertake the SecretarialAudit of the Company for the year 2017-18. The Secretarial Audit report is annexedherewith as Annexure 5.

28. COST AUDIT

The Company re-appointed Mr. P. R. Tantri Cost Accountant Membership No. 2403 asthe Cost Auditor for the year 2017-18. The Cost Audit Report for the year endedMarch 31 2017 was filed by the Company with the Ministry of Corporate Affairs on August28 2017.

29. AUDITORS' REPORT & SECRETARIAL AUDIT REPORT

There were no qualifications reservations or adverse remarks made by the StatutoryAuditor and the Secretarial Auditor in their respective reports.

30. MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY

There were no material changes and commitments affecting the financial position of theCompany which have occurred between the end of the financial year of the Company to whichthe financial statements relate and the date of this report.

31. DETAILS PURSUANT TO SECTION 197(12) OF THE COMPANIES ACT 2013

Details pursuant to Section 197(12) of the Companies Act 2013 read with Rule 5 of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 in respect ofemployees of the Company shall form part of this report. However in terms of Section 136of the Act this report is being sent to all the members of the Company excluding theaforesaid information. The said particulars are available for inspection by the Members atthe Registered Office of the Company.

32. DISCLOSURE AS PER SECTION 22 OF THE SEXUAL HARRASSMENT OF WOMEN AT WORKPLACE(PREVENTION PROHIBITION AND REDRESSAL) ACT 2013

Pursuant to the Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013 the internal complaints committee is constituted and nocomplaint/case has been filed/pending before the Committee during the year.

33. CONSERVATION OF ENERGY RESEARCH AND DEVELOPMENT TECHNOLOGY ABSORPTION FOREIGNEXCHANGE EARNINGS AND OUTGO

The information pertaining to conservation of energy technology absorption foreignexchange earnings and outgo as required under Section 134(3)(m) of the Companies Act 2013read with Rule 8(3) of the Companies (Accounts) Rules 2014 is furnished in Annexure 6attached to this report.

34. CORPORATE GOVERNANCE

The Company is committed to good corporate governance practices. The Board endeavors toadhere to the standards set out by the Securities and Exchange Board of India (SEBI) oncorporate governance practices and accordingly has implemented all the mandatorystipulations.

A detailed Corporate Governance Report in line with the requirements of SEBI (ListingObligations & Disclosure Requirements) Regulations 2015 regarding the corporategovernance practices followed by the Company and the relating certificate to compliance ofmandatory requirements along with Management Discussion and Analysis report are given asAnnexure 7 and 8.

35. ACKNOWLEDGEMENT

Your Directors wish to place on record their sincere appreciation of the guidance andadvice given by Mr. Kapil Mehan and Mrs. Ritu Mallya during their association with theCompany.

Your Directors thank the Company's clients vendors investors and bankers for theirsupport. Your Directors also wish to place on record their appreciation of the excellentperformance of the employees.

Your Directors express their gratitude to the Government of India the StateGovernments the Customs and Excise Departments and other government agencies for theirsupport and look forward to their continued support in the future.

For and on behalf of the Board of Directors

Arun Duggal

Chairman

May 24 2018

Gurugram