I take great pride in sharing the performance of your Company during the year 2016-17and the road ahead. Your Company has time and again proved that no challenge is greaterthan their dedication and commitment which brings the Company to greater heights withevery passage of time. Though there were challenging external environments like erraticand adverse agro-climatic conditions increased input costs cheap imports etc. theactual sales of our main products manufactured at the units have gone up over previousyear along-with profit after tax. Simultaneously your Company has incessantly continuedits efforts in reducing costs by improvising on efficiencies.
The frame of reference in which your Company operates i.e. the state of economy ingeneral and fertilizer industry in particular during 2016-17 is briefly outlined forbetter understanding of the performance of your Company.
Overview of the Economy
Though the year 2016-17 was really a challenging one for India amidst global crisisthe Indian economy has held its ground firmly due to its inherent strengths and thepolicies of the Government. A lot of confidence and hope continues to be built aroundIndia. The International Monetary Fund has hailed India as a bright spot' amidst aslowing global economy. The World Economic Forum has said that India's growth isextraordinarily high' and currently India has emerged as the fastest growing majoreconomy in the world with forecasts on growth ranging from 7.2% - 7.4% to 7.6% - 7.7% forthe financial year (FY) 2018 and FY 2019 respectively by various prestigious institutions.
Country's external situation is robust as there is marked reduction in the currentaccount deficit and foreign exchange reserves touched a new record high of US$ 392.86billion in the week to July 28 2017 showing an increase of US$ 170.56 billion over thelevel of US$ 222.3 billion at end-March 2016 aided by an increase in foreign currencyassets (FCA) to US$ 367.15 billion. Country's foreign exchange reserves seventh highestin the world are at a comfortable position to buffer any external shocks.
The Government's agenda built around the theme "Transform India" coveringvarious sector in its ambit i.e. agriculture rural social education skills and jobcreation infrastructure etc. accompanied with fiscal discipline and endeavour of theGovernment to simplify the tax laws and bringing friendlier tax regime for ease of doingbusiness in India are truly encouraging. Government's step in demonization of big currencynotes to curb black money shows that this Government is serious in implementing thevarious reforms. This has made the world see India with a renewed interest therebyattracting businesses in the country which will further put Indian economy on a fastergrowth trajectory. No wonder the World Economic Forum has said that India's growth isextraordinarily high'. India is surging on its way forward in leaps and boundslooking at the Government's commitment to bring more reforms.
Implementation of the country's most comprehensive tax reforms i.e. goods and servicetax (GST) assures a single taxation system in the entire country for all goods andservices making tax compliance easier and more effective and is expected to have a bigpositive effect on the economy. This one nation one tax' is intended to simplifyIndia's tax structure broaden the tax base and create a common market across states andis further expected to bring tremendous benefits to the government to the business and tothe consumers. Nifty the performance indicator of overall growth of economy has scaledbeyond the magical milestone of 10000 mark on July 25 2017 for the first time in historyand also managed to sustain above it on a closing basis while the Sensex scaled a freshpeak of 32000. Coupled with influx of foreign investments I hope that it will continue tosymbolize India's growth story across the world.
Overview of the Fertilizer Industry
I would like to share with you the major changes seen in the industry as a whole during2016-17.
I. Change in the compensation formula for production beyond RAC for existing Ureaunits. Under this formula the definition of IPP has been revised to include central dutyand taxes. This has allowed Urea Industry to produce beyond RAC profitably. II. Removal ofinput tax credit by the Gujarat Government on gas sold outside the state resulted in gascosts rising by 13% for the non-Gujarat consumers.
III. Sanction of ` 100 billion Special Banking arrangement (SBA) to the FertilizerMinistry with an interest subvention equivalent to the 10 years government bond whichyields an effective interest rate ~1.75 p.a. to be paid by the Industry. This willcertainly help in reducing the interest costs being borne by the Fertilizer units.
IV. Government of India (GoI) approved a policy on promotion of city compost withprovision for market development assistance for scaling up production and consumption ofthe city compost as a part of Swachh Bharat Mission led by MoUD.
V. During his presentation of the Union Budget 2016 Hon'ble Finance Minister Shri ArunJaitley announced that 2000 "Model Fertilizer Retail Shops" would be establishedwithin next 3 years Pan-India for empowering the farmers.
VI. As a precursor to the introduction of Direct Benefit Transfer (DBT) Pan India inthe fertilizer sector GoI has implemented DBT in 17 pilot districts across India tocapture authenticated retailer sales and buyer's details. Pan India roll out of the schemeis likely to follow in FY 2018.
VII. Monsoon on which a major part of agriculture depends was erratic andinconsistent which led to low productivity in many key areas With this background andadverse agro-climatic conditions the fertilizers sales for industry as a whole haddeclined by almost 7% during the financial year 2016-17 leading to high systemicinventories as against the financial year 2015-16 (except in case of MOP). Improvedefficacy and a more balanced application of nutrients with decline in the MRP of non-ureafertilizers during the year have led to lower urea sales. NPK and DAP sales had declinedby 7% and 10% respectively as compared to the previous year. Imports of Urea andDAP declined by 35% and 27% respectively during the year as compared to the previous year.DAP imports mainly declined due to higher domestic production after decline in key rawmaterial prices which led to improved profitability for domestic producers. Decline inUrea imports are attributed to reduced consumption due to non-diversification of Urea forindustrial use and also lower requirement as Urea sold was 100% Neem Coated Urea. On theother hand imports and sales of MOP witnessed growth of 15% and 16% respectively due tocorrections in the prices of procurement and sale. After touching multi-year lows of$180-$190 per MT urea prices have staged a recovery rising to $ 220- $ 240 per MT. Therecovery is a result of the decline in Chinese exports by 35% during the year
2016 and rising input costs i.e. coal and natural gas. With rising coal prices and lowurea prices a large part of the Chinese capacity became uncompetitive. Additionally acrackdown by the Chinese Government on coal based units to curb pollution resulted inlower utilization rates during 2016. However given the recent price recovery and removalof the $12 per MT export tax on urea by the Chinese Government Chinese capacities areexpected to become competitive and should lead to higher exports during current year 2017which in turn would keep the urea prices under check. As a result GoI may choose toimport higher quantity of urea and lower its subsidy outgo in the coming years.
Simultaneously the GoI is working towards revival of old closed units in an endavourto be self-sufficient in production of Urea. This step will definitely help in containingthe subsidy bill / imports apart from having an increased inherent strength of beingself-sufficient in main fertilizer i.e. Urea. However this may take some time.
The revenues of the Fertilizer industry witnessed a 16% decline due to lower gas pricesleading to lower retention prices for urea and decline in sales volumes as well. Furthersales of associated chemicals witnessed de-growth due to down-cycle in commodity prices.However the profitability of the industry remains moderate with operating margins at10.4% in FY 2017 vis--vis 9.2% in FY 2016 due to lower price of key raw materials. Thenet earnings of the companies improved during FY 2017 to 4.9% as against 2.6% in FY 2016on account of higher operating margins and lower interest costs. The return indicatorsalong with credit metrics continued to remain under pressure due to high reliance onworking capital borrowings to fund subsidy receivables. As subsidy delays are expected tocontinue though the backlog will be lower the financial performance of the industry isexpected to continue to remain impacted in the near to medium term.
In India the urea units have been continuously working on improving their energyefficiencies over the years and are nearly as efficient as some of the best plants in theworld. This has kept the domestic urea production competitive against imports despite theenergy cost being on the higher side.
Corporate Overview of the Company:
Your Company performed reasonably well during the year in spite of sluggish demand dueto adverse agro-climatic conditions. Your Company achieved a Turnover of ` 7223.17 croreas against ` 8241.35 crore in previous year (PY). Lower volumes of fertilizer salesfalling IPP of Urea declining rates of complex fertilizers and depressed IPD salesrealisations led to decline in turnover by 12% Consequently Profit Before Tax (PBT)during the year stood at
` 248.73 crore as against ` 265.23 Crore i.e. a reduction by 6% over previous year.Profit After Tax (PAT) stood at ` 179.26 crore as against ` 172.64 Crore which ismarginally higher than previous year by 4% due to lower deferred tax and refunds onaccount of earlier years assessments.
Your Company is the first public sector to realize the importance of nanotechnology inagriculture which will help in increasing crop productivity and nutrient use efficiencymultifold. A novel product based on nanotechnology i.e. nanofertilizers has been designedand tried at field level and it is envisaged to revolutionize the fertilizer andagriculture scenario. Your Company's R&D Department have gone beyond the definition ofsoil health and plant growth and have developed such fertilizers which not only rejuvenatethe soils and increase nutrient use efficiency but will also rejuvenate barren soils.Registration and field trials are in full swing and in days to come your Company shall bea pioneer in this area. In order to address the micro nutrient deficiencies a new gradehas been launched for Tamil Nadu state. Your Company has also launched a NPK compositebio-fertilizer for sustainable agriculture. In addition to this in order to provide thefarmers and compost units with authentic analysis the National Accreditation Board forLaboratory Testing and calibration (NABL) certification for R&D Lab has been openedfor the customers. In view to implement "Swachha Bharat Abhiyan" the process ofcompost preparation has been initiated from biodegradable solid waste.
In addition to above firm on its commitment to march ahead your Company is in theprocess of introducing more fertilizers in its basket from the existing production linei.e. 10:26:26 and 12:32:16. These products have huge demand in our home markets and salesof these products are bound to augment our income and profitability. Trial runs areexpected to start shortly.
I am happy to announce that your Company is planning to undertake major projects in thedirection of:? self-reliance on scarce resources like water;? improvingefficiency in use of energy in production operations;? participation in the revivalof closed fertilizer units; and? making efforts for increasing consistentlyavailability of raw materials / finished fertilizers through joint ventures in India andAbroad.
The details of such projects are available in the Directors' Report. Your Company isalso looking for opportunities for long term off take agreements for procurement offertilizers to ensure sustained growth. I am confident that with your continuous supportencouragement and faith in us and support from the Government your Company would marchahead successfully.
I am delighted to present the Annual Report for the year 2016-17 and hope to see you on21st September 2017 at the 39th Annual General Meeting of the Company.
Government's commitment to address the various issues faced by farmers and giving tofarmers a sense of income security' and its ambitious target towards doubling theincome of the farmers by 2022 by various policy measures are a positive step. Thefertilizer industry in this direction has to play a pivotal role. Your Company being aprominent leader in the fertilizer industry will also play a very important role inachieving the GoI's stated target of doubling the income of the farmers in five years.Your Company adds value to the farmers by increasing the yield of major crops meaningfullyby providing services to the farmers like advising farmers during sowing watermanagement type of crops nutrient application introducing innovative fertilizers etc.Your Company is in the process of registration and field trials for introducingfertilizers to rejuvenate barren soils and thereby bringing more land under cultivation.The quantum of monsoon rains has been widespread and is currently at above normal rangewhich would boost khariff sowing activities. According to India Metrological Departmentthe cumulative rain received across India has been 105% of the benchmark long periodaverage. With the support of favorable agro-climatic conditions improved water tablesincreased soil health awareness programmes and robust economic outlook your Company willleave no stone unturned in taking your Company's growth to greater heights in 2017-18 andahead.
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 on behalf of the Board I would like to thank you our valuedshareholders for your unwavering support in our journey to deliver value to all ourstakeholders.
Thank you ladies and gentlemen.
|Suresh Warior |
|Chairman and Managing Director |
|Dated : 11th August 2017 |