DIRECTORS' REPORT Your Directors have pleasure in presenting the 6th Annual Report together with the Audited Accounts of your Company for the year ended March 31, 2012. The Company (pre-scheme) did not have any operations during previous year. Accordingly, the comparative figures for previous year have not been furnished. With effect from the appointed date, all the assets and liabilities of Erstwhile NFCL and iKisan Limited were transferred to and vested in your Company and recorded at their respective fair values as determined by a reputed valuer appointed by the Company. Your Company has drawn up the financial statements for the year 2011-12 as per the revised Schedule VI of the Companies Act, 1956 which provides for a new presentation of the information compared to the earlier format. Consolidated financial statements are also attached along with the financial statements of the Company. DIVIDEND Your Directors after careful consideration of the accounts of the Company recommend a dividend of (previous year-Nil) per equity share to the equity shareholders of the Company for the year ended March 31, 2012. RESERVES Your Directors propose to transfer an amount of Rs. 1500 Lakhs (previous year Nil) to the general reserves account of the Company from out of the profits for the year. The post scheme net worth of the Company as on March 31, 2012 is Rs. 2298.72 Crores (pre-scheme in Erstwhile NFCL Rs. 1549.28 Crores). RESTRUCTURING The Composite Scheme of Arrangement and Amalgamation between Kakinada Fertilizers Limited, iKisan Limited, Nagarjuna Fertilizers and Chemicals Limited and Nagarjuna Oil Refinery Limited (Scheme) was approved by the Hon'ble High Court of Bombay at Mumbai on June 17, 2011 and by the Hon'ble High Court of Andhra Pradesh at Hyderabad on June 27, 2011. Consequent to the Approval of the Jurisdictional High Courts the Composite Scheme was made effective on July 30, 2011 i.e., 'Effective Date' but operative from 'Appointed Date' i.e., April 1, 2011. With effect from July 30, 201 1, the 'Oil Business Undertaking' of Erstwhile NFCL was demerged into NORL and the residual NFCL along with iKisan were merged into your Company. The name of your Company was changed from Kakinada Fertilizers Limited to Nagarjuna Fertilizers and Chemicals Limited with effect from August 19, 2011 and the registered office was shifted from Maharashtra to Andhra Pradesh. Your Company had filed applications for listing of equity shares with Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on October 7, 2011. BSE approved application of the Company for listing of 59,80,65,003 equity shares on December 14, 2011 and NSE provided in-principle approval for listing of 59,80,65,003 equity shares on January 13, 2012. The Company awaits relaxation from SEBI under Rule 19(2) (b) of Securities Contracts (Regulation) Rules, 1957 to commence trading of the equity shares of the Company. PARTIAL REDEMPTION OF ZERO COUPON DEBENTURES/PREPAYMENT OF FUNDED INTEREST TERM LOAN The Board of Directors of the Erstwhile NFCL had in the year 2004 allotted 334,936,238 Zero Coupon Debentures (ZCDs) of the face value of n/- each aggregating Rs. 334,936,238/- to banks and financial institutions in lieu of the sacrifice of interest made by them pursuant to the debt restructuring then carried out. Certain Banks and Financial Institutions had converted the ZCDs into Funded Interest Term Loan (FITL). The above ZCDs/FITL were to be redeemed/repaid after the entire debt liabilities are fully repaid in March 2016. During the year under review, pursuant to the directions of the CDR Empowered Group, of the CDR Cell of IDBI, Mumbai, your Company had redeemed 2,64,78,014 ZCDs with no outstanding ZCDs as on date. SHARE CAPITAL Preference Share Capital The Board of Directors of Erstwhile NFCL had in the year 2004 allotted 37,20,372 0.1% Ordinary Redeemable Preference Shares (ORPS) of Rs. 100/- each to banks and financial institutions in lieu of the sacrifice of interest made by them pursuant to the debt restructuring then carried out. The said Preference Shares were to be redeemed/repaid after the entire debt liabilities are fully repaid in March 2016. During the month of June, 2011, as per the directions of the CDR Monitoring Committee, Erstwhile NFCL redeemed 18,60,187 ORPS of Rs. 100/- each aggregating Rs. 18.60 crores and there are no outstanding ORPS as on date. Equity Share Capital During the year the following changes were effected to the equity share capital of your Company: a) One equity share of Rs. 10/- each was subdivided into ten equity shares of each b) Pursuant to the Composite Scheme 59,80,65,003 equity shares of each were issued to the shareholders of Erstwhile NFCL and iKisan Limited on October 1, 2011 c) The pre-scheme equity paid-up capital of Rs. 5 Lakhs consisting of 5,00,000 equity shares of each held by promoters was cancelled. d) The paid-up equity capital of the Company as on March 31, 2012 is Rs. 59,80,65,003/- PLANT OPERATIONS Urea Your Company during the year manufactured 15.62 LMT of urea as against 16.55 LMT in the previous year. Your Company during the year undertook various initiatives for improving energy efficiency, safety, health, environment, reliability and cost reduction. Your Company during the year also obtained certification of ISO 14001: 2004 RC 14001: 2008 and recertification of ISO 9001: 2008, OHSAS 18001: 2007 and ISO 14001: 2004. Your Company in its quest to continue to protect the environment undertook rain harvesting projects at various locations in the plant. Micro-Irrigation Your Company achieved a production of 1373.51 Lakh Mtrs against of 1135 Lakh Mtrs during the previous year. MARKETING Urea Your Company achieved a sale of manufactured urea of 1562556 MT compared to 1645289 MT in the previous year. The total urea sales both manufactured and imported was 228801 1 MT compared to 2200179 MT of previous year. Other Traded Products Bulk Products Your Company sold 802246 MTS during the year, in comparison with sales of 407872 MTS during the previous year. Seeds Your Company sold 4765 MTS during the year, in comparison with sales of 3365 MTS during the previous year. Customized Fertilizers Your Company sold 16536 MTS during the year, in comparison with sales of 12879 MTS during the previous year. Specialty Fertilizers Your Company sold 12211 MTS during the year, in comparison with sales of 9226 MTS during the previous year. Micro-nutrients Your Company sold 5949 MTS during the year, in comparison with sales of 4506MTS during the previous year. Bio-Products Your Company sold 245 KL during the year, in comparison with sales of 194 KL during the previous year. Micro-Irrigation Your Company during the year achieved 37.56% growth in sales aggregating Rs. 152.61 crores as compared with that of the previous year (Rs. 110.94crores). Please note that reference to previous years figures on plant operation pertains to erstwhile NFCL. Operations in Africa Your Company after a detailed analysis and market research considers it advantageous to explore the opportunities available in Africa. Your Company to begin with has set up a branch office in Nairobi, Kenya, to start its International Sales and Marketing operations in East Africa. In the initial stage, it is proposed to market plant nutrients and thereafter foray into Micro-Irrigation systems at a later stage. Your Company is also looking at various options to commence business activity to cater to the markets in West Africa. Your Company in view of the rapidly growing demand for fertilizers, micro-nutrients and Micro-Irrigation systems, proposes to explore various other countries in Africa in a phased manner. Government Policy In the year under review the fertilizer industry was into second year of the implementation of the Nutrient Based Subsidy (NBS) scheme for phosphatic and potassic fertilizers. The prices of these fertilizers witnessed significant increase in view of reduction in the subsidy component under NBS policy. On the urea front, the subsidy is still computed as per the stage III New Pricing Scheme which was extended from April 1, 2010 onwards till further orders. In view to speed up the mechanism to set up a route to directly transfer subsidies to end users the Government of India in the recent Union Budget has announced the set up of a mobile based Fertilizer Management System (mFMS). This system would help provide end-to-end information on the movement of fertilizers and subsidies, from the manufacturer to the retail level. The Government of India plans to roll out this system nation-wide during the current year and directly transfer subsidy to the retailer, and eventually to the farmer which will be implemented in subsequent phases. The need of the hour is a new investment policy for urea which shall encourage setting up new facilities to increase domestic production and reduce dependence on costly imports. The government needs to address key issues like gas availability, pricing and urgently draw up a comprehensive long-term policy to attract investments in this vital sector. ENVIRONMENT, SAFETY AND AWARDS Environment Your Company continues its mission of protecting the environment and has inculcated the concept right down the organization. The statutory compliance of the Company on environmental matters is being complied from time to time. Safety Your Company on March 31, 2012 completed 3.16 million accident-free man-hours for the first time since inception. Awards Your Company during the year bagged various prestigious awards such as: - NFCL won the prestigious 'Prashansa Patra' award from National Safety Council of India for the year 2010. - NFCL received the 'FAI Award for Excellence in Safety for the year 2010-11' under Nitrogenous Fertilizer Category. - Received 'Certificate of Appreciation' from NREDCAP, Hyderabad for "Implementation of Energy conservation measures" for the year 2010-11. - NFCL has won the prestigious CII Environmental Best Practices Award 2012, in 'Most Innovative Environmental Project' category for the year 2012. RESEARCH AND DEVELOPMENT Your Company has undertaken technology development in Research and Development in areas of Plant Nutrition Solutions Technology Platforms and fuels and feedstocks. In the area of Plant Nutrition Solutions Technology Platforms, your Company has initiated programmes in the areas of efficient plant nutrition with reference to macro, micro and supplements. After a thorough technology gap analysis on a need base; some of the programmes identified are for, in-house development, some through sponsored research and some through licensing technology at early stage to do the pilot plant and scale up. In areas of Fuels and Feedstocks, your company along with active support from Department of Biotechnology (DBT), Government of India has successfully completed the 1st phase of the Pilot Plant and actively engaged in completing the 2nd phase of next generation renewable and sustainable fuel and feedback. EMPLOYEE WELFARE ACTIVITIES Your directors in order to ensure high employee morale, commitment, good working environment which differentiates the Company from others, intend to provide the best employee welfare measures, ensuring retention of the scarce skilled manpower available. Your directors in this regard, have set up 'NFCL Employee Welfare Trust', which will provide welfare benefits to the employees and their families through the returns received from the investments made in various securities. The promoters and their families will not be eligible to receive any benefits from the Trust. POLICY MATTERS Your Company's endeavour has always been to maintain transparency and accountability to its stakeholders. In this direction, various policies mentioned in the Corporate Governance Report have been implemented to enable the stakeholders to appreciate the various interventions the Company has taken which involve them. The implementation of these policies are reviewed periodically by the Board of Directors and updated regularly. The Company has set up a Grievance Redressal Mechanism for all its associates. The Grievance Redressal Mechanism is aimed to redress the grievances of associates expeditiously to ensure good working atmosphere and culture in the organisation. CORPORATE GOVERNANCE Your Company driven by a desire to be more competitive and recognized globally, had inculcated more than a decade ago rules defining ethical business, much before it was introduced as statutory compliance through Clause 49 of the Listing Agreement. Your Company firmly believes that building a culture of compliance is more than meeting regulations and standards. Your Company has always proactively met mandated standards and practiced Corporate Governance in spirit and not just as letter of the law. A report on Corporate Governance along with the Practicing Company Secretary's Certificate on its compliance is annexed hereto. Your Company is happy to inform you that there were no adverse remarks/qualifications/reservations raised in the Corporate Governance Report. SUSTAINABILITY REPORT The Company, as a good governance practice, has compiled a Sustainability Report. A detailed report on the sustainability initiatives taken up by the Company is published in the Nagarjuna Sustainability Report 2008-11. The report is available on the Company's website www.nagarjunafertilizers.com Shareholders interested to have a copy of the report may write to us. DIRECTORS Dr NCB Nath, Shri S R Ramakrishnan and Shri Chandra Pal Singh Yadav were appointed as Additional Directors and hold office up to the date of this Annual General Meeting and being eligible, offer themselves for appointment as Directors liable to retire by rotation. The Board of Directors had placed on record their appreciation of the services rendered by Shri B K Batra, Shri K Soma Raju, Shri A Vyas Maheswar Rao and Shri T V Dwarakanath during their term as Directors of the Company. AUDITORS AND AUDIT REPORT M/s. M Bhaskara Rao & Co., Chartered Accountants, Hyderabad, the Company's auditors retire at the conclusion of the ensuing Annual General Meeting. They have signified their willingness to accept reappointment and have further confirmed their eligibility under Section 224 (1B) of the Companies Act, 1956. The Company's Statutory Auditors have also furnished us with a certificate from the Peer Review Board of the ICAI confirming that they have undergone the process of peer review. The Company has a well established system of Internal Audit which carries out audit on Risk Management framework covering the gamut of financial, marketing, plant operations and other service functions. The Company's Internal Audit function has obtained Quality Management System (ISO 9001: 2000) certificate in December 2006 and the same has been confirmed. COST AUDITOR Pursuant to Section 233 B of the Companies Act, 1956 the Central Government has directed that the cost accounts maintained by the Company be audited by a cost auditor. Subject to the approval of the Central Government, the Company has appointed Shri Dantu Mitra, Cost Accountant, as the Cost Auditor of the Company for the financial year 2012 - 13. SUBSIDIARY COMPANIES During the year upon making the Composite Scheme effective, Nagarjuna Oil Corporation Limited (NOCL) ceased to be subsidiary of the Company with effect from July 30, 2011 as all the assets and liabilities of the Oil Business Undertaking were transferred to Nagarjuna Oil Refinery Limited. The Ministry of Corporate Affairs, New Delhi, vide Circular No.5/12/2007-CL-III dated February 8, 2011 granted general exemption under Section 212(8) of the Companies Act, 1956 in relation to providing information on the subsidiary companies provided certain conditions are fulfilled. Pursuant to the said circular, the Board of Directors of the Company gave their consent for not attaching the Balance Sheets of the subsidiary companies to the Annual Accounts of your Company. Accordingly, the balance sheets and other financial statements relating to the following companies are not attached to the Annual Accounts of the Company. 1. Jaiprakash Engineering and Steel Company Limited (JESCO) 2. Nagarjuna Mauritius Private Limited (NMPL) 3. Nagarjuna East Africa Limited (NEAL) Any member seeking information on any of the subsidiary companies may write to the Company to enable the same to be forwarded. Jaiprakash Engineering and Steel Company Limited (JESCO) JESCO is considering implementing various Infrastructure projects to utilize the available land appropriately and gainfully. Nagarjuna Mauritius Private Limited Nagarjuna Mauritius Private Limited (NMPL) is a wholly owned subsidiary of NFCL with a paid up capital of Euro 5 Million. The Company has invested Euro 5 Million in the form of equity and Euro 2,500,000 as loan which has been reinvested in Nagarjuna Spawnt GmbH, Germany Nagarjuna Spawnt GmbH, Germany, has set-up a plant for manufacture of silane chemicals and has commissioned production from December 5, 2011 Nagarjuna East Africa Limited Nagarjuna East Africa Limited, a wholly owned subsidiary of Nagarjuna Mauritius Private Limited was incorporated in Kenya on October 15, 2010 to market plant nutrients in the initial stages followed by micro-irrigation systems at later stage in Kenya. PERSONNEL There are no employees as on date on the rolls of the Company who are in receipt of remuneration which requires disclosures under Sec 217 (2A) of Companies Act, 1956 and Companies (Particulars of Employees) Rules, 1957. DISCLOSURES Disclosure in terms of Companies (Disclosure of particulars in the Report of the Board of Directors) Rules, 1988 in respect of conservation of energy, technology absorption, earnings and outgo of foreign exchange are attached and forms part of this Report. AUDIT COMMITTEE CONSTITUTION In compliance with the provisions of the Section 292A of the Companies Act, 1956 and the listing agreement entered into with the stock exchanges, the Company had constituted an Audit Committee consisting of highly qualified and experienced members from various fields. The committee consists of four Independent Directors and two Wholetime Directors. The Chairman of the committee Dr. N C B Nath is an Independent Director and the committee meets periodically to review the quarterly financial statements and recommends its findings to the Board apart from taking action independently whenever required. The Statutory Auditors, Secretary and the Internal and Cost Auditors attend and participate in the Audit Committee Meetings. CORPORATE SOCIAL RESPONSIBILITY "A journey of thousand miles starts with a single step." - Laozi. The Nagarjuna Group always desired to play a proactive role in societal development. With an intention to bring positive change in the lives of many, we at the Nagarjuna Group under the aegis of Nagarjuna Foundation started several CSR activities three years ago. An initiative started in 2009 with the spirit of making a difference, has today deepened its roots and is making a bigger impact and changing many more lives. The dedicated support, strength, initiative and encouragement from the associates of the Group to be part of this initiative gave impetus to the movement. Your Company made contribution of Rs. 25 Lakhs post-merger during the previous Financial Year 2011-12 towards education, sports, healthcare and community welfare under the aegis of Nagarjuna Foundation and during the year proposes to collaborate with various leading organizations, charitable and other funds or trusts. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to Section 217(2AA) of the Companies Act, 1956, Your Directors hereby report: a. that in the preparation of Annual Accounts for the year ended March 31, 2012; the applicable accounting standards have been followed. b. that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2012 and of profit and loss account for the period ended March 31, 2012. c. that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. d. that the Directors have prepared the Annual Accounts on a going concern basis. ACKNOWLEDGEMENT Your Directors place on record their gratitude to the Government of India, Government of Andhra Pradesh and the financial institutions and Company's bankers for their assistance and cooperation. Further, the Company places on record its sincere appreciation for the continuing support and unstinting efforts of investors, dealers and associates and all stakeholders in ensuring an excellent all round operational performance. On behalf of the Board K S Raju Chairman Hyderabad June 12, 2012 |