CHAIRMAN
Dear Shareholders,
For decades, the world lived in a period of relatively stable food prices. There is a
growing concern that this era may well be over.
Indian population is rising rapidly but the agricultural growth rate has been
relatively stagnant.
Arable land has mostly peaked. Growing urbanization and industrialization is gradually
eating into precious arable land. Large tracts of arable land is becoming semi arid due to
overuse of ground water and global warming.
There is a growing diversion of food towards industrial uses like fuels and feed stocks
due to pressures on the environment and the growing costs of hydrocarbon.
Income levels are growing at a faster pace than food production.
Before food prices become unaffordable for a large section of humanity, there is a
critical need to enhance agricultural productivity.
Over 60% to 80% of agricultural productivity is directly attributable to fertilizer use
and water management.
Despite India being the 2nd largest fertilizer market in the world due the sheer
quantum of arable land, India consumes only 1/3rd of what China consumes per hector as
fertilizer and its key grain yields are also 1/2 of that of China. Water management
through micro irrigation has become an important way to conserve water and enhance yields
but approximately 3.16% of India's land is under micro irrigation.
Fertilizer and Micro Irrigation contribute significantly to agricultural yields and
farmers incomes and both markets in India are growing at twice the international growth
rates. The company occupies market leadership positions in the products and markets it
operates in.
The company had decided to refocus on its core business in India, integrate similar
businesses within the Group (especially in micro irrigation to increase production
capacity, enhance customer base and market positioning, product portfolio and reduce
costs) and separate dissimilar businesses in order to invest and grow each business
independently and unlock shareholder value. Consequently after receipt of all necessary
clearances and approvals, the company went through a restructuring.
The restructuring resulted in the erstwhile NFCL de-merging its oil business into
Nagarjuna Oil Refinery Limited and merged the residual fertilizer and micro-irrigation
business and Ikisan (agro informatics and micro-irrigation business) into NFCL's
wholly-owned subsidiary called Kakinada Fertilizers Limited.
Following the merger of these businesses into Kakinada Fertilizers Limited, the company
changed its name to Nagarjuna Fertilizers and Chemicals Limited. The Company has obtained
all approvals including that of the Stock Exchanges and awaits relaxation from SEBI under
Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 for listing.
The company is in the process of exiting CDR.
The company can now concentrate on growing its core business with the completion of
restructuring. Consequently, the company shall now aggressively embark to create a larger
and more profitable fertilizer business through new investments in expanding the
fertilizer manufacturing capacity (Primarily Urea) in India and Overseas to address the
growing Indian demand / supply gap for fertilizers currently met through imports.
New investment policy to encourage indigenous urea manufacturing and international
joint ventures is under consideration. This policy is long awaited and if conducive would
usher in a long awaited growth in the indigenous urea manufacturing industry, reduce the
ever increasing subsidy bill and increasing local availability of a critical nutrient. The
company is well poised to take advantage of the policy as and when it is announced.
Review
During the year 2011-12, the Company's revenues increased by a significant 61.71% with
61.98% growth in topline and 15.86% growth in bottomline.
However external unforeseen factors like a rapidly depreciating rupee (and
corresponding forex loss despite proactively hedging a large portion of forex exposure)
and delayed inflows from the government and consequently high interest costs reduced
profits. Replacing trading revenues with manufactured product revenues over the medium to
long term would enhance margins and arrest major fluctuations in revenue and income
levels. The Company did well to arrest the decline in its bottom-line through a
shorter-than-usual maintenance downtime and a commendable capacity utilization for the
year.
It is a matter of pride that the company received the prestigious RC 14001:2008
(Responsible Care) certification during the year under review. The scope of this reward
extends beyond traditional environmental management system to include health and safety,
security, transportation, outreach, emergency response and other responsible care
requirements. The seven key areas for this certification comprise community awareness,
emergency response, security, distribution, employee health and safety, pollution
prevention, process safety and product stewardship.
Though the Company has always maintained highest levels of transparency, the Company
has felt investor awareness requires more focus. Our Annual Report and the upcoming
updated company website is a step towards this direction. I thank you for your continued
support.
K.S. Raju,
Chairman