MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Fertilizer Industry

Fertilizer industry is one of the vital industries for the Indian economy as it manufactures a very critical raw material for agriculture and Fertilizer serve as the key ingredient for the food security of the country by increasing the production and productivity of soil. Indian fertilizer industry's main objective is to ensure the supply of primary and secondary nutrients in the required quantity.

The success of the agricultural sector in India is largly dependent on the fertilizer industry. The bench mark that the food industry in India has set is mainly due to the many technically competent fertilizer producing companies in the country.

Chemical fertilizers have played an important role in making the country self relined in food grain production. The Government of India has been consistently pursuing policies conducive to increased availability and consumption of fertilizers at affordable prices in the country. Due to this the consumption of fertilizers in India is showing an increasing trend year after year. The Government of India is playing a significant role in making available all types of nutrient at affordable prices to farmers at appropriate time.

Over the years, the consumption of fertilizers in the country has risen steadily, while the indigenous production of fertilizers has not increased like wise to meet the growing requirement mainly due to raw materials/input limitations.

The increasing international prices of inputs is the major challenge being faced by fertilizer industry in India. Strategic tie-up and major investment for continuous supply of inputs at an affordable rate is vital for the sustenance and development of fertilizer industry in India.

Industry Structure and Development

The Fertilisers And Chemicals Travancore Limited (FACT) was incorporated in 1943. In 1947 FACT started production of Ammonium Sulphate with an installed capacity of 10,000 MT per annum at Udyogamandal, near Cochin. In the year 1960, FACT became a Kerala State PSU and on 15* August1962, Government of India became the major shareholder.

From a modest beginning, FACT has grown and diversified into a multi-division/multi-function Organisation with basic interest in manufacture and marketing of Fertilisers and Petrochemicals, Engineering Consultancy and Design and Fabrication and Erection of Industrial Equipments.

FACT'S mission is to be a significant player in Fertilisers, Petrochemicals and other business such as Engineering and Technology services.

FACT'S objectives are:

a. To produce and market Fertilisers & Caprolactam and other products efficiently and economically, besides achieving a reasonable and consistent growth.

b. Turnaround of the CPSE by all efforts.

c. To effectively manage the assets and resources of the company to ensure a reasonable return on investment.

d. To focus on cost reduction and technology upgradation in order to become competitive in its line of business.

e.' To constantly innovate and develop new products and services to satisfy customer requirements.

f. To invest in new business lines, where profit can be made on a sustainable basis over the long term.

g. To provide services to the farming community by organizing technical training, soil testing and other productivity improvement services in agriculture.

Performance highlights during the Year 2014-2015

UDYOGAMANDALCOMPLEX

During the year 2014-2015 Udyogamandal Complex produced 134514 MT of Factamfos 20:20, and 120360 MT of Ammonium Sulphate. During the financial year 2013-2014 production of Factamfos and Ammonium Sulphate were 103751 MT and 126286 MT respectively.

Nutrient wise the production during 2014-2015 was 51697 MT of N and 26903 MT of P205 as against 69918 MT of N and 20750 MT of P205during the brvious year. Due to economic reasons, the Caprolactam Plant remained in shut down condition during the financial year 2014-2015.

Cochin Division: During the financial year 2014-2015, Cochin Division produced 468445 MT of Factamfos 20:20 as against 494647 MT during the year 2013-2014.

The production of Nutrient nitrogen and Nutrient P2Osduringthe year was 93689 MT each as against 98929 MT during the last year.

During the year 2014-2015, the division produced 315340 MT of Sulphuric acid and 67840 MT of phosphoric acid as compared to 285245 MT of Sulphuric acid and 41970 MT of phosphoricacidintheyear2013-2014.

Marketing Division: During the financial year 2014-2015 the Fertiliser sales was 7.77 Lakh MT as against 8.89 lakh MT during the brvious year. Sale of Facatmfos during the year was 617807 MT as compared to 624927 MT during the year 2013-2014. The sale of Ammonium Sulphate during the year was 110800 MT as compared to 166417 MT during the brvious year.

The sale of MOP, Biofertilisers & Zincated Factamfos has increased during the year 2014-15 over the brvious year. Sales of Biofertilisers have more than doubled compared to the brvious year.

FEDO: FEDO completed its first year as a Profit Centre in an excellent way. The turnover of FEDO increased to Rs. 18.48 crore in 2014-15 from Rs.11.05 crore in 2013-14. The loss of the Division has come down to Rs.36.55 lakh in 2014-15 compared to Rs.187.77 lakh in 2013-14. During the financial year 2014-15, FEDO has bagged orders worth Rs.860 lakh. The value of jobs on hand as on 31.03.2015 is Rs.220 crore. Apart from the infrastructure projects being executed for NIT, Nagaland and BPCL-Kochi Refinery, FEDO intends involving in this sector in projects like the upcoming NTs and NITs under expansion. EOls have already been sent to various such departments. FEDO also anticipates the opportunity to associate with NIT Nagaland in their next phase of expansion. FEDO has to its credit successful completion of the jobs related to imple me nation of M B Lai Committee recommendation in various oil refineries.

FEW: The turnover of FEW for the year 2014-2015 was Rs.1064 lakh as against Rs.1109 lakh during the year 2013-2014. During the year 2014-2015, FEW has bagged orders worth Rs.222.95 lakh compared to Rs.1894.48 lakh during the year 2013-2014,

The turnover of FEW is expected to improve during 2015-2016. FEW expects steady demand from the process industry for brssure vessels and heat exchangers for replacement as well as for capacity expansion. The shipping sector is also expected to bring in new orders. FEW is manufacturing an Ammonia Bage for transportation of Ammonia to the different production divisions of FACT. The operation of the Barge is also to be arranged by FEW.

Opportunities & Threats

Opportunities

a) Premium product in the complex fertilizer segment containing Sulphur

b) Extensive Marketing network in Southern India

c) Substantial infrastructure facilities

d) Operational efficiency and high capacity utilisation of plants.

e) Scope for expansion and diversification

f) Availability of land resources for generating additional revenue

g) Availability of RLNG at Kochi Threats

a) Non-availability of working capital and high interest and finance charges.

b) Non-availability of Natural Gas.

c) Non-availability of sufficient quantity of Phosphoric Acid and  other inputs.

d) Volatility in the prices of raw mate rials and feedstock.

e) Exchange rate variations

f) Over dependence on import of raw materials and the logistics

g) Shortage of quality manpower

Segment-wise or Product-wise Performance

Details of Unit-wise/Product-wise performance is furnished separately in the Annual Report,

Risk and Concern

a} Shortage of Phosphoric acid and other raw-material.

c) Low level of operation of Fertilizer plants.

d) Lack of level playing field in the price of RLNG.

e) Liquidity crunch and shortage of working capital

f) Non-operation of Caprolactam plant due to economic reasons

HUMAN RESOURCES DEVELOPMENT Industrial Relations

The Industrial Relations situation was generally peaceful during the year 2014-2015. There was no stoppage of work affecting the normal operations of the Company due to Industrial Relation problems in the Company. However, there were several hartals called by political parties, which affected production to some extent, The Save FACT Action Committee in co-ordination with other political parties were conducting hunger strike in front of the main Office at Udyogamandal demanding sanction of financial relief package from Government of India, till 26.06.2014. The action committee announced a one day hartal in Eloor Panchayath area on 12.05.2014 to brssurize the Government for the release of financial package and some of the employees participated in the hartal.

Human Resources

Human resources functions in the company were normal during the year. Senior Regional Managers, Management Trainees and Process Technicians were recruited during the year. The total number of recruitments made during the year 2014-15 is 57 out of which 9 belongs to Scheduled Caste and 2 belongs to Scheduled Trabe. Normal promotions as well as stagnation promotions were kept pending during the year due to the poorfinancial condition of the Company.

Steps taken for the Welfare of SCs/STs

1. Employment/Fresh recruitment

9 SC employees and 2 ST employees were recruited during the period 2014-15. Details of employment of SCs/STs as on 31.03.2015 is provided above.

2. Training

In service training to company employees is arranged through the Training Department. Maximum rebrsentation is ensured for SC / ST employees to attend in house training programme. 86 SC employees and 18 ST employees had undergone training during the year 2014-2015.

For engagement of Apbrntices under the Apbrntices Act, reservation as per rules is provided. The rebrsentation forSC/ STinApbrnticesason31.03.2015isas follows

3. SC/ST Grievance Cell

An SC / ST Grievance Cell is functioning at Corporate Level comprising the Chairman, who is also the Chief Liaison officer for  matters pertaining to reservation of SC / ST and their grievances in the company, Liaison Officers of various divisions and two Officers each belonging to SC and ST. The grievances received are examined in detail by the Cell and appropriately redressed and if found necessary they are called by the cell to brsent their cases in person. The employee concerned is informed of the decision / action taken on the grievances by the Grievance Cell. Further, there are associations rebrsenting SC / ST employees and these associations also take up individual grievances of SC / ST employees with the management for direct redressel.

4. Allotment of Residential Quarters

Due consideration is given for allotment of Residential Quarters to SC/ST employees. Details of quarter allotted to SC/ST employees as on 31.03,2015 is furnished below:

5. Reservation of Dealership

FACT is having 7185 dealers for distribution of fertilizers. During the financial year 2014-15, 30 SC and 4 ST category dealers were appointed across the marketing territories in South India. FACT is encouraging SC/ST category dealers to apply for the dealership

Official Language

FACT is giving top priority for the implementation of the Official Language Act & Rules issued by the Ministry of Home Affairs, Government of India from time to time to achieve the targets brscribed in the Annual Programme. Official Language Implementation Committee Meetings and Official Language Compliance Officers' Committee Meetings are being conducted regularly. In order to create interest in Official Language among the employees, Hindi Department is regularly conducting Hindi Clubs in all Divisions of the Company. Hindi Fortnight is celebrated in a grand manner every year in which various competitions are organized forthe company employees. FACT has continued the Cash Incentive Scheme for the employees, to motivate them to do more official work in Official Language. FACT won Second prize for the Excellent Performance in Hindi competitions during Joint Hindi Fortnight Celebrations-2014 organized by Kochi Town Official Language Implementation Committee.

Pollution Control Activities

All fertilizer plants of FACT are certified for ISO:14001 thereby giving top most priority to ensure clean air and better living environment to the inhabitants around the factory. The Effluent Treatment Plants and emission control facilities are kept in operation along with production plant throughout the year. Treated liquid effluents and gas emissions discharged from plants conformed to the standards brscribed by the Kerala State Pollution Control Board throughout the year.

As per the agreement between FACT and Kerala Enviro Infrastructure Limited (KEIL), the accumulated stock of hazardous wastes viz. spent V205 catalysts and furnace oil sludge were sent to KEIL for final disposal.

Awards and recognitions

FACT received 'Award for improvement in overall performnce of a Company" from Fertiliser Association of India in the year 2014.

FACT received Order of Merit Awards in SKOCH Renaissance Awards-2014 under the India's Best Project Category for Online feed change over in Ammonia Plant, Fuel change over in boilers of Captive Power Plant, Condensate Recovery System in Sulphuric Acid Plant and forthe innovative project of "Transportation of Liquid Ammonia Gas (LAG) by Barge fitted with bullets."

FACT was conferred with two awards at the India Sea Trade Award function held in Kochi, Kerala on 29.8.2014, viz., Cargo Owner/User of the year Award and The Public-Private Partnership Award in connection with the commencement of barge movement of Ammonia from Cochin Port to its production divisions.

FACT was selected for Order of Merit in National Energy Conservation Award conducted by Bureau of Energy Efficiency, Ministry of Power.

National Safety Council of India, Kerala Chapter, has adjudged FACT as the winner for outstanding safety performance in the category of very large size Chemical Industries in 2014.

FACT has won the Second place in Kerala State Pollution Control Awards-2014 among very large Industries in Kerala.

Roadmap for sustainability

FACT has drawn up a road map for the revival and sustainable growth of the company. The scheme for the revival of FACT is categorized as short term and long term plans. These plans are expected to ensure the survival and growth of the company helping it improve its turn over, productivity and profitability. The brief details of these plans are summarized below:

1)Short Term/Medium term plan

Maximize production with existing infrastructure

Remove dependency on use of high cost LNG by putting up facilities to receive, store and transport imported ammonia and to have own barges for movement of other raw materials and augmentation of bulk handling facilities.

Increment the existing NP production by setting up 1000 MT/day NP plant.

2} Long Term Plan:

With sustained operation on implementation of Short Term plan, the company shall take up Long Term plan of setting up of Ammonia Urea plant and other joint venture projects both within and outside India.

Outlook for the future

The Company has submitted an updated financial restructuring package to the Government of India.  On implementation of the financial restructuring package and new projects for expansion and modernization, FACT is expecting a turnaround in its performance and profit on a sustainable basis in the coming years.