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Chairman's Address
Address by Shri. C. K. Mehta, Chairman, to the Shareholders at the twenty-second Annual General Meeting of the Company held on 23rd August 2002 at Pune.
Ladies & Gentlemen,
I have great pleasure in extending to you all a very warm welcome to the twenty-second Annual General Meeting of your Company.
Economic Scenario
The year ended March 2002 was a challenging one both for the agricultural and industrial sectors. The Indian economy passed through a difficult phase caused by several unfavourable domestic and international developments. On the domestic front, the demand for agri-inputs was severely affected due to poor performance in the agriculture sector during the last two years. Industrial growth declined to a ten-year low of 2.7% in 2001-02 as compared to 5% during the preceding year. The event of 11th September 2001 in the USA further affected the world scenario as well as the Indian economy.
Performance
Against this backdrop, you would have observed from the Annual Report that sales of the Company increased to Rs.51 2.27 crore from Rs.489.99 crore in the previous year. This was possible because of better capacity utilisation of downstream plants and maintaining of our market share. Excepting Ammonia and Methanol, all other plants achieved record production during the year. Production of ANP fertiliser increased from 1.4 lakh tons to 1.8 lakh tons. However, due to short supply of Natural Gas leading to lower capacity utilisation of Ammonia and Methanol plants, operating profit dropped to Rs.117.94 crore from Rs.147.20 crore, despite improvement in efficiencies. The net profit amounted to Rs.48.64 crore as compared to Rs.62.70 crore in the previous year.
Natural Gas
Natural gas is the only feedstock for both Ammonia and Methanol. All downstream plants of the Company are dependent on Ammonia. The availability and price of natural gas play a critical role in determining the economics of production. Our neighbours like Oman, Iran and Bangladesh, where gas is abundantly available at a much cheaper price, pose a threat to the Indian industry. Under the circumstances, the Government should continue to maintain our gas price in line with the price in the neighbouring countries. Otherwise, Indian industry may suffer badly. Today, the discovery of large quantities of gas in and around the Krishna-Godavari basin is already established. The Government can support infrastructure cost, exploration as well as transportation of this gas and thus lend a helping hand to the industry. If these steps are taken, the problem of fertiliser subsidy will get sorted out and the fertiliser and power sectors can expect growth.
Fertiliser Policy
In order to ensure equitable distribution of fertilisers and to make it available at fair prices, the Union Government fixes the selling price in such a manner that it is affordable to farmers. Since the selling price is invariably less than the cost of production and distribution, the Government has to reimburse to fertiliser manufacturers the difference between cost of production, as determined by the Government, and the selling price. This difference constitutes the subsidy on fertilisers.
Over the years, while cost of production has gone up due to the rise in cost of feedstock and other costs, which are outside the control of the industry, the Government has not increased the subsidy or the selling price in proportion to such increase in costs. This has resulted in the margins getting eroded constantly. Owing to anxiety of the Government to reduce the subsidy outgo, a number of decisions have been taken by the authorities mostly on piece-meal and ad-hoc basis. These have severely affected financial performance of most fertiliser manufacturing companies and threatened their long-term viability.
The bold step of decontrolling phosphatic fertilisers, taken by the Government in 1992 in order to de-regulate the fertiliser industry and to do away with the subsidy, has not met with much success as even after ten years since then, the Government regulates the selling price on the one hand and passes an ad-hoc concession (subsidy) on the other, with the result there is no growth of the fertiliser industry.
Meanwhile, the Government is yet to come out with a long-term fertiliser and feedstock policy to provide direction to the industry and safeguard the interest of the farming community.
Sooner or later, the country will be entering into a free market situation. Your Company is fully geared to meet such a situation through consistent improvement of plant efficiencies, focus on distribution network and establishment of on-shore storage facility for imported Ammonia, etc.
Industrial Chemicals
In view of globalisation, the chemical industry is also passing through a difficult phase, mainly due to substantial reduction in customs duty. Ever-increasing domestic cost of power, transport, water and wages makes it difficult for the industry to survive and grow. As there is excessive global capacity of most products in the Industrial Chemicals segment, the WTO stipulations might result in dumping of such products into the country. The impact of such dumping is already felt in respect of Ammonium Nitrate, one of the products of your Company. We are taking up the matter with the Central Government to correct the situation. Even under such circumstances your Company has performed reasonably well in the Industrial Chemicals segment in respect of all its products, such as various grades of Nitric Acid, Methanol and Ammonium Nitrate which enjoy customer satisfaction.
Future Plans and Outlook
Considering the limited availability of natural gas at present, your Company is contemplating installation of a large port-based facility for storing imported Ammonia and Methanol. However, the construction of storage facility at Nhava Sheva has been delayed despite vigorous follow-up with the environment departments of the State and Central Governments. We expect to receive positive response shortly. This will enable all our downstream plants to operate at full capacity.
Meanwhile, de-bottlenecking of ANP and AN plants is proceeding as per schedule and would be completed before the year-end. This will help in raising the output of these products by nearly 50 percent.
Current Year's Working
The sales of your Company for first four months of the current financial year have amounted to Rs.174 crore as against Rs.179 crore for the corresponding period of the previous year. Sales have been slightly lower because of reduced trading volumes of imported fertilisers. The Chemicals segment continues to do well. Overall, the performance of your Company for the current year is expected to be better, subject of course, to the adequate availability of gas.
Acknowledgements
Before I conclude, I would like to extend personal thanks to my colleagues on the Board as also to Financial Institutions and Banks for their sustained support and guidance. I also take this opportunity to place on record my admiration for the Company's employees and management at all levels. I thank, once again, all the investors of the Company for reposing their confidence in the Management. With your continued support and encouragement, I am confident that the Company will achieve greater heights year after year.
Jai Hind. |
