Management Discussion and Analysis

AN OVERVIEW
The total income of the Company during the year under review has gone up marginally to Rs. 512.27 crores from Rs. 489.99 crores of the previous year. The operating profit for the year has dropped to Rs. 117.94 crores from Rs. 147.20 crores of the previous year. The profit after tax dropped to Rs. 48.64 crores from Rs. 62.70 crores of the previous year.

F. Y. 2001-2002

F. Y. 2000-2001

The Revenue Mix from various Products
The supply of Natural Gas continued to be a major constraint during the year which resulted in the decline of production of Ammonia and Methanol, adversely affecting capacity utilisation of these plants as well as the profitability of the Company. In order to meet shortfall of Ammonia, the Company had to purchase Ammonia from outside at a very high price so as to supplement production of Nitro Phosphate fertilisers. Profitability was also affected due to sharp drop in international prices of Methanol affecting adversely domestic prices as compared to the previous year.

The above performance is to be viewed in the backdrop of sluggish economic scenario that prevailed in the country affecting the chemical and fertiliser industries. The profitability of the Company would have been much lower but for timely action taken by the Management through optimising product mix and better capacity utilisation of downstream plants.

NATURAL GAS
As against the original sanctioned gas allocation of 0.6 MM SM3/day at calorific value of 9000-9500 Kcal / SM3 the actual average supply was only 0.418 MM SM3/day and at times as low as 0.35 MM SM3/day at calorific value of 8300 Kcal / SM3. The sanctioned gas supply does not include the additional requirement of gas for enhancement of Ammonia capacity which was recommended by the Dept. of Fertilisers. In the meantime, the Company had implemented the debottlenecking of Ammonia plant but the additional gas supply was never received. Thus, as against the actual requirement of 0.72 MM SM3/day the supply was almost half. The Company was not able to take up the Methanol plant expansion even though the Dept. of Chemicals has recommended the additional allocation since the same has not been released. The supply of gas, at present, continues to be low and the Company is, therefore, following up with the Government to ensure adequate and uninterrupted supply.

During the year, the gas price which is linked with international price of fuel oil basket remained stable due to price cap. However, based on the reports, the gas prices are expected to go up substantially during the year 2002-03.

Segment-Wise Business Review
The Company has basically two major business segments -- Chemicals and Fertilisers. The various products are being manufactured at plants located at Taloja in the State of Maharashtra. Apart from the manufacturing facility, the customer requirements are also being met through imports. While the revenue from the Chemicals segment and the Fertilisers segment is more or less same at Rs. 256 crores (including inter-segment transfer of Rs. 30 crores) and Rs. 268 crores respectively, the gross profit from the Chemicals segment this year was much higher and stood at Rs. 86 crores as against Rs. 11 crores from that of the Fertilisers segment. The other segment relating to Seeds and Speciality Agro Products has since commenced operations and is in the developmental stage.

Details of Production and Sale for the year under review and of the previous year are as given below:

PRODUCTION

SALE

Product-Wise Business Review
Chemicals
Methanol: The demand for Methanol in the country is more than 6 lac tons, out of which nearly 50% is being met by imports. In order to ensure its market share and keep the customers satisfied, the Company imported twice the quantity of Methanol during the year as compared to the previous year. The supply of Methanol in the international market decides domestic price on import parity basis. During the year under review, the international price of Methanol dropped significantly as compared to the previous year affecting the net realisation in the domestic market. The restricted gas supply reduced Methanol production by about 27,000 MT which also affected the contribution from this product.

Considering the need to import Methanol for meeting the demand, one more storage and distribution point was opened at Visakhapatnam in December, 2001 to cater to the requirements of customers based in and around eastern and southern parts of India.

Acids
The production of Nitric Acids has registered growth of about 17% over previous year and the price realisation was marginally higher.

Keeping in view the DNA plant capacity and the scope for increasing production of DNA, your Company is taking necessary action to enhance production levels of downstream products.

The significant increase in the requirement of CNA by the defence sector was met by the Company. The demand from the industrial sector is increasing particularly for exports of downstream products which helped overall increase in plant capacity utilisation.

LDAN
During the year, since one of the large public sector manufacturers of AN had temporarily closed the plant for some time, there was pressure on the supply which led to heavy imports. Your Company stepped up the production and supply to meet part of the new requirements. Accordingly, the Company achieved its highest ever production and sales during the year. Imports of AN was also high and subsequently dumping of AN started towards the end of the year. However, the Company was able to improve the market share on account of quality and better services.

FERTILISERS
With an aggressive approach and outsourcing of Ammonia, though at a higher cost, your Company was able to cover substantially its market share in the primary market of Maharashtra, despite stiff competition, thanks to the strong brand image `Mahadhan'. The production during the year also registered a growth of 25% over the previous year. However, the overall demand for fertiliser during the year was sluggish.

The Company has taken efforts to focus on development of seed business and speciality agro products.

CURRENT AND FUTURE OUTLOOK
In order to enhance capacity, your Company has pursued the option of increasing the plant capacity through debottlenecking at marginal investment. This will also improve the efficiency of the plants. Accordingly, your Company has taken up the project to enhance capacity of NP fertiliser plant to 3,00,000 tons p.a. and LDAN plant to 1,00,000 tons p.a. The project for enhancing AN Melt capacity is based on the latest technology of pipe reactor and the basic engineering work has been completed. The aforesaid plants are expected to be commissioned during 2002-2003. The enhanced capacity of AN plant and Nitrophosphate plant will help to improve better utilisation of DNA plant capacity.

In order to mitigate shortage of gas, the Company is setting up storage tank for imports of Ammonia at JNPT Terminal at Nhava-Sheva in the State of Maharashtra. This will support enhanced capacity utilisation. Besides, your Company is also actively evaluating various PSU disinvestment proposals especially those which will have synergy with the existing business.

FINANCIAL ANALYSIS
Revenue
During the year under review, the revenue has gone up to Rs. 512.27 crores from Rs. 489.99 crores of the previous year. The increase in the revenue was marginally better as a result of higher sales of indigenously manufactured fertilisers and trading operations. Other income has gone upto Rs. 18.32 crores as against Rs. 16.96 crores of the previous year.

Debt

The financial strength of the Company improved further during the year. The debt equity ratio as on 31st March, 2002 was 0.54:1. The Company has paid high interest bearing loans to the extent of Rs. 29 crores. As and when necessary the Company had mobilised working capital funds at much lower interest rate of 8.5% to 10% p.a. by issue of Commercial Paper and Mibor linked debentures. Overall, the Company was able to consolidate its financial position and was able to reduce the interest burden substantially.

NET PROFIT

Net profit during the year was Rs.48.64 crores as compared to Rs.62.70 crores of the previous year, a drop by 22%. The EPS has come down to Rs. 6.51 from Rs.8.39 of the previous year and CEPS to Rs. 10.36 from Rs. 12.09 of the previous year.

ENHANCED VALUE TO THE SHAREHOLDERS

The Company has been continuously striving to adopt best practices, reduce the overheads at all levels, enhance productivity, improve quality and customer relations, improve supply chain and distribution network. In addition to this, the Company is also evaluating the overall business and product portfolio management and endeavouring to get into value added businesses by exploring and exploiting new business opportunities, making risk analysis on continuous basis. The Company is making efforts to improve profitability in the ever changing market situation and thereby improve shareholders value.

Back To Contents