Chairman's Address

Address by Shri. C. K. Mehta, Chairman, to the Shareholders at the Twenty-Third Annual General Meeting of the Company held on 21^st July 2003 at Pune.

Ladies & Gentlemen,

It gives me great pleasure in extending to you all a very hearty welcome to the Twenty-third Annual General Meeting of your Company.

Economic Scenario

During the last few years, I have found each year to be more challenging than the previous one, and the year ended March, 2003 was no exception. Poor performance by the agricultural sector due to drought conditions, volatility in international oil prices, continued sluggishness of the global economy were unfavourable factors in the domestic and international scene. The Indian economy reported a subdued performance for 2002-03, pegging GDP growth at 4.3%, as against 5.3% last year. This was mainly due to a decline of 3.1% in agricultural production. On the brighter side, Industrial growth, after declining to a ten-year low at 2.7%, picked up to an overall growth of 5.8% over the corresponding period of last year. The Union Budget 2003-04 gives greater thrust on infrastructure, schemes for hi-tech horticulture, precision farming and drip irrigation, and provides adequate budgetary support to the inter-linking of major rivers and the creation of super highways.

It is expected that policy initiatives and various legislative changes would result in improving the economy over a period of time.

Performance

In the backdrop of the global economic environment, you will be happy to note that the Company has kept up its consistent good performance during the year under review. The total income of the Company increased to Rs. 545.97 crores as against Rs. 512.27 crores in the previous year. The capacity utilisation of all the plants, except Ammonia and Nitrophosphate, where better than that of last year. Production of Ammonia and Nitrophosphate were lower due to short supply of Natural Gas.

You must have observed from the Annual Report that the operating profit of your Company has increased to Rs. 146.03 crores from Rs. 117.94 crores, and net profit to Rs. 64.11 crores as compared to Rs. 48.64 crores of the previous year. The performance could have further improved but for the short supply of our main raw material, Natural Gas.

Considering the improved performance, your Directors are pleased to recommend an increase in dividend to 22 percent, which will also not be taxable in the hands of shareholders, as compared to 20 percent paid for the previous year.

Natural Gas

Natural Gas is the only feedstock both for Ammonia and Methanol plants. All the downstream plants of the Company are dependent on Ammonia. Your Company has been one of the initial firm allottees for the supply of 0.6 MM SM³ / day of Natural Gas. Against this, the Company has been receiving supply of gas of less than 0.5 MM SM³ / day until recently. In the current year, from May, 2003 onwards, gas supply has been further drastically reduced to 0.33-0.36 MM SM³ / day by GAIL. The Company has approached the Petroleum Ministry for the restoration of adequate gas supply on grounds of fairness and priority.

On the brighter side, large sources of Natural Gas have been found in the Krishna-Godavari basin off Andhra Pradesh coast. It is expected that these large gas finds and LNG imports will improve the availability of gas by the year 2005, and your Company will be able to operate all its plants at full capacity thereafter. It is expected that price revision in Natural Gas or higher price of LNG will be gradual, or will get somewhat neutralised with the pricing and subsidy mechanism of fertilisers.

Fertiliser Policy

The unit-wise retention price in respect of Urea has been shifted to group-wise retention price based on feedstock. This is a step forward towards free market mechanism in the fertiliser industry relating to Urea. The fertiliser industry is now exposed to global competition, however, efficient units will be able to survive if fair feedstock policies are in place.

In respect of decontrolled fertilisers, particularly Phosphatic and Complex Fertilisers which your Company produces, the policy of ad hoc price concession still continues. Separate studies have been done in respect of DAP and Complex Fertilisers by the Tariff Commission. There have been some anomalies in working out the ad hoc price concession, which is under review by the Government. However, once sufficient gas is available, it should be possible to work out a pragmatic fertiliser policy, either with subsidy, or a free market mechanism. Your Company is well positioned to take on this challenge.

Industrial Chemicals (Chemical Segment)

International prices of Methanol witnessed a positive cyclical upswing and remained high contributing significantly to the Company's bottom line during the year under review. The in-house capacity utilisation of DNA plants remained lower as a result of lower fertiliser production. In respect of CNA, the growth trend has been fairly steady.

The sales volume of Ammonium Nitrate has increased by 11% during the year under review. However, the price realisation was lower on account of distortion in prices because of import of fertiliser grade Ammonium Nitrate and its clandestine diversion to the explosive industry.

The Company, along with other AN manufacturers, took up the issue with the Government of India for anti dumping duty on import of AN from Russia and Iran. After a detailed analysis, the Government has issued an interim notification for imposing anti dumping duty on import of AN from Russia and Iran.

During the current year, the Company successfully completed the project of increasing plant capacity of AN Melt by 90,000 MT per annum with technology from Grande Paroisse, France. This will ensure sustained availability of material to the customers.

Future Plans

The Company has been actively evaluating various PSU disinvestment proposals, especially those having synergy with the existing business of the Company. Pursuant to the recent changes in the Electricity Bill 2003, the Company is also actively pursuing the setting up of a Cogen Captive Power Plant of 6 Mega Watt capacity. Keeping in mind the expected improvement in the availability of gas, your Company is exploring the possibility of setting up green-field projects related to the Chemicals Sector. In the meantime, the Company's project to double CNA plant capacity is well underway. The Company is also entering into the value added Real Estate business, and is in the process of developing various business models in this regard.

Current Year's Working

The sales of your Company for the first quarter has dropped to Rs. 110.78 crores as against Rs. 130.66 crores for the corresponding period of the previous year on account of lower trading volume in Fertiliser and Methanol. However, I am happy to share that the profit margins have improved.

Acknowledgement

Before I conclude, I would like to extend my personal thanks to my colleagues on the Board as also the Financial Institutions and Banks for their sustained support and guidance. I would also like to thank the Company's employees at all levels whose dedication and contribution enabled your Company achieve better performance. I thank once again all the investors for reposing their confidence in the Management. With your continued support and encouragement, I am sure the Company will achieve greater heights year after year.

Jai Hind.