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Directors Report of Mangalore Chemicals & Fertilizers Ltd.

Mar 31, 2015

Dear Shareholders,

The Directors are pleased to present your Company's Forty Eighth Annual Report together with the audited statement of accounts for the year ended March 31, 2015.

FINANCIAL HIGHLIGHTS

Rs. in Crores

2014-15 2013-14

Sales (including other income) 2590.25 3314.81

EBITDA 170.62 224.76

Finance Costs 123.67 102.45

Depreciation 28.66 28.76

Profit before Tax (PBT) 18.29 93.55

Tax expense (19.25) 22.62

Profit after Tax 37.54 70.93

Net Worth* 659.97 635.86

* includes Revaluation Reserve of Rs. 76.70 crores and Rs. 80.08 crores respectively.

DIVIDEND

The Board of Directors recommended a dividend of Rs. 0.60 per equity share of Rs. 10 each.

PERFORMANCE

During 2014-15, your Company achieved a turnover of Rs. 2578.78 crores compared to Rs. 3310.26 crores in the previous year. PBT at Rs. 18.29 crores is significantly lower compared to Rs. 93.55 crores during the previous year, mainly due to shut down of Urea plant from October 1, 2014 to January 6, 2015 on account of Fertilizer Policy of Government of India for Naphtha based urea units.

PRODUCTION

Urea

Your Company achieved production of 2,50,582 MTs against the reassessed capacity of 3,79,500 MTs, mainly due to shut down of plant from October 1, 2014 to January 6, 2015.

Di-Ammonium Phosphate (DAP) and Complex Fertilizers

Your Company produced 1,69,835 MTs of Phosphatic Fertilizers during the year compared to 1,55,992 MTs in the previous year. Plant utilisation would have been much better, if there had been regular and adequate availability of Phosphoric Acid.

Ammonium Bi-carbonate (ABC)

Production of ABC at 8,556 MTs during the year compared to 15,542 MTs in the previous year, was affected by inadequate availability of carbon-dioxide due to ammonia/urea plant shut down.

SALES

During the year, your Company sold 2,49,820 MTs of Urea compared to 3,79,456 MTs in the previous year. Sales of manufactured Phosphatic Fertilizers were 1,71,376 MTs compared to. 1,53,803 MTs in the previous year. Sales of imported fertilizers were 1,86,199 MTs against 1,98,775 MTs in the previous year.

Plant Nutrition Products sales have increased to Rs. 200 crores from Rs. 173 crores, an increase of 16%. Plant Protection Products sales have increased from Rs. 56 crores in the previous year to Rs. 67 crores in current year, an increase of 20%. These achievements are quite commendable given the various constraints faced by the Company and the unfavourable market situation.

SULPHONATED NAPHTHALENE FORMALDEHYDE (SNF)

The plant set up in August 2010 for manufacture of SNF on a modular basis can take care of increased demand. The Company sold 9,948 MTs of SNF during the year, compared to 10,786 MTs in the previous year. The plant capacity utilization was lower due to cheaper imports and sluggishness in construction industry. The Company has continued with new product variants for applications in newer areas to improve plant utilization, in order to de-risk its focus on construction chemical industry.

PLANT NUTRITION PRODUCTS

In order to retain & improve soil productivity and derive increased output from the same area of land, it is necessary to maintain soil health, correct imbalances in the nutrients essential for plant growth and yield, and manage irrigation properly. However, deterioration in soil productivity has reached alarming levels, due to indiscriminate and imbalanced use of NPK fertilizers, inadequate use of other nutrients essential for plant growth and injudicious use of irrigation water. Increase in the farm gate prices of Phosphatics and Potash, compared to stagnant Urea prices has further aggravated this problem. In order to arrest and correct this situation, your Company has introduced products that maintain soil health, provide balanced and complete nutrition and improve crop health.

To address the nutrient deficiencies noticed in the soil resulting in inadequate output or crop failure in the areas serviced by our marketing network, our Research and Development (R & D) units at Hassan and Hubli have been developing nutrient mixtures, enriched organic manure products and soil conditioners to mitigate crop specific issues, apart from providing analytical and advisory service. The response from the crop growers on the efficacy of these products has been quite positive and there is a growing demand for development of similar products for other crops.

To actively focus attention of all concerned on the specifics involved therein, your Company has been promoting successfully two unique concepts viz. Mangala Mitra and Mangala Saathi for three years now. Under Mangala Mitra, opinion leaders in the villages were identified, enrolled, educated and trained on a continual basis on the whole gamut of soil management, crop nutrition and crop protection. These Mangala Mitras in turn educate fellow farmers on various aspects of crop cultivation. Through this innovative approach, your Company is effectively implementing the Mangala Integrated Nutrient Management ("Mangala INM") concept, an approach to enable the farmer to make his agriculture an economically sustainable one. Under Mangala Saathi, all the good and potentially good dealers are given special attention through many unique programs that encourage and motivate them for better performance. These two approaches have greatly helped in promoting nutrient management awareness.

The Mangala INM concept was introduced in 2002-03 where your Company achieved a modest turnover of Rs. 32 lakhs in the Plant Nutrition product segment. Focussed and continued effort in identifying customer needs, introducing suitable products and educating farmers as well as channel partners in proper use of these inputs has resulted in a significant business growth year on year, with the Company achieving a turnover of Rs 200 Crores during the year. The growth achieved during the year that witnessed unfavourable market situation has been considerable.

In order to support marketing requirement with timely supply of quality Plant Nutrition products, the Specialty Fertilizer manufacturing facility set up in 2011 at the factory in Mangalore with an annual capacity of 12,000 MT of Water Soluble Fertilizers and Micronutrient Mixtures, has greatly helped in growth of water soluble fertilizer segment in your Company, one of the fast growing agri input segments in India

PLANT PROTECTION CHEMICALS

As part of diversification and growth strategy and in order to offer a wider range of agri-inputs, your Company introduced Plant Protection (PP) products in July 2010. As an entry strategy, a collaborative approach was adopted, with your Company marketing the products of reputed pesticide companies through its channel partner network. Subsequently, your Company also started introducing selected molecules in its own brand. During the year, your Company launched Mangala Ace, an insecticide. In addition, a spray adjuvant was launched under brand name Mangala Super spreader. In the financial year 2015-16, your Company plans to launch 4 more selected molecules under its own brand. The Plant Protection Chemicals business registered a turnover of Rs. 67 crores compared to Rs. 56 crores in the previous year.

ANALYTICAL AND ADVISORY SERVICE

To promote the concept of Mangala INM, R & D facilities established at Hassan and Hubli have the capability to analyze sample substrates of soil, water, plant tissues, plant nutrients, organic manures, soil amendments, fertilizers etc. Through these facilities, analysis of the samples pertaining to our customers is done and appropriate recommendations for soil health management and crop management are given. Suitable follow up is done to ensure effective implementation of the recommendation. All these are provided to our customers free of cost to ensure their active participation in achieving profitability and sustainability in agriculture.

WORKING CAPITAL

Continued under-provisioning for fertilizer subsidy in the Union Budget with resultant unusual delay in subsidy payment by Government of India (GOI) contributed to precarious working capital shortage, resulting in lower imports than market demand. Delay in the release of GOI subsidy and increase in interest and other costs charged by banks resulted in increase in finance cost.

RENOVATION / MODERNIZATION OF AMMONIA / UREA PLANTS - NG CONVERSION PROJECT

As mandated by Department of Fertilizers, GOI, the Company has successfully completed gas conversion project of urea operations in June 2014 at a cost of around Rs. 305 crores. The plant can therefore work on dual feed of gas and naphtha. The Company has signed a Gas Supply Agreement with Indian Oil Corporation Limited and a Gas Transmission Agreement with GAIL (India) Limited in February 2011.

Though Petronet LNG terminal of Kochi has been commissioned in September 2013, unsatisfactory progress in laying of gas pipeline from Kochi to Mangalore by GAIL (India) Limited has prevented your Company from receiving gas for urea production. Various alternatives are being studied, for providing gas availability/connectivity to Mangalore.

FERTILIZER POLICY

As per the Modified New Pricing Scheme (NPS) - III for existing urea units notified on April 2, 2014, the production of the high cost naphtha based urea units namely SPIC - Tuticorin, MFL - Manali and your Company was to continue till the gas availability and connectivity is provided to these units or by June 2014, whichever is earlier, beyond which subsidy for naphtha based plants will not be paid.

The Cabinet Committee on Economic Affairs (CCEA), in its meeting held on August 27, 2014, approved the operation of these three Naphtha based urea plants from July 01, 2014 to September 30, 2014. Meanwhile, your Company had approached Hon'ble High Court of Delhi on September 29, 2014 with a prayer to direct the GOI to continue subsidy for Naphtha based plants until gas is made available to the Company. CCEA in its meeting held on December 10, 2014 allowed operation of Naphtha based urea plants for 100 days from the date of notification of its decision i.e January 07, 2015. Accordingly, the Urea plant which was shut from October 01, 2014 to January 06, 2015 resumed operations on January 7, 2015, which adversely affected operations and profitability. Lower PBT for the year 2014-15 is mainly due to lower production and sale of urea on account of shut down.

The Urea production is being continued after the expiry of said period of 100 days i.e April 16, 2015, based on the orders of the Hon'ble High Court of Delhi dated April 16, 2015 which ordered GOI to continue with the arrangement made as per Notification No. 12012/3/2010-FPP dated January 07, 2015, until GOI makes appropriate policy for subsidy to Naphtha based plants.

The Nutrient Based Subsidy Scheme (NBS) was introduced by the GOI with effect from April 1, 2010, enabling GOI to announce annual concession rates in advance. This facilitates the Company to plan import of higher quantities of Phosphatic and Potassic fertilizers. GOI had reduced the subsidy of Muriate of Potash (MOP) only for the year 2014-15 due to lower prices in international market and decided to continue the existing subsidy rates for Phosphatic and Potassic fertilizers under the Nutrient Based Subsidy (NBS) policy for the year 2015-16.

SAFETY, HEALTH, ENVIRONMENT AND POLLUTION CONTROL

Safety

Your Company has obtained Occupational Health and Safety Management System certification OHSAS 18001:2007 by DNV as part of its commitment to continual improvement. In addition to the periodic audits carried out under the integrated management system, a statutory - annual safety audit was also carried out by a team of Internal Auditors. Your Company has obtained ISO 22000:2005 certificate for manufacturing of food grade Ammonioum Bi-carobonate (ABC) during the year.

Extensive training programs related to rescue operations, usage of personal protective equipment, emergency management, Fire Safety at home, SH&E management system for employees were organized. Regular mock drills were also conducted to check the emergency preparedness.

Firefighting training is being conducted every Friday to train the employees and also contractors'workmen. Various training programmes (Audio, Visual & practical) were conducted both at plant location and township.

Health

Periodic medical examination was conducted for all the employees and contract workers which included general physical examination and laboratory investigations. Special tests like pulmonary function test for the employees who are exposed to dust and chemicals, audiometry for those exposed to noise and vision test for those who require high visual acuity at workplace were performed periodically.

Medical examination was conducted for the employees at Corporate Office and also at the area offices. The employees with abnormal findings on annual medical examination were advised regarding further management. Medical examination of the canteen workers with more stress on personal hygiene was conducted. Regular check-up of canteen premises and the canteen food was carried out for maintaining hygiene and the quality of the food. First aid training programmes were conducted for employees and contract workers.

Health awareness programmes on various subjects like Diabetic foot care, Diet for diabetics, Hazards of drug abuse & prevention and Swine -flu were conducted by experts.

Environment

As an ISO 14001 certified company, many environmental management programs have been implemented to improve the environmental performance of the Company. The Company has installed waste water treatment plant to treat, recycle and reuse the entire quantity of sewage and process effluents, thereby achieving the status of zero liquid effluent discharge. This is achieved by upgrading the effluent treatment system by the installation of Lamella clarifier, Ultra-filtration and Reverse Osmosis (RO) technologies for the treatment of trade effluent and Membrane Bio- Reactor (MBR) technology for the treatment of domestic effluent. As a part of corporate social responsibility, the Company has implemented the rainwater harvesting system at the Township and has installed sewage treatment plant to treat the sewage generated at the Township. The treated sewage water is used for gardening. In addition to the existing 64 acres of green belt, Company has planted 2,000 saplings during 2014-15.

The Company has installed Continuous Ambient Air Quality Monitoring (CAAQM) station inside factory premises for continuous monitoring of ambient air quality. Ambient air quality data from CAAQM station is being displayed in LED display board at the entrance of our factory facing National Highway for public information.

The Company has bagged the prestigious "FAI Environmental Protection Award" instituted by the Fertilizer Association of India (FAI) in the NP/NPK fertilizer plants excluding captive acids category continuously for the last five years.

On the occasion of "World Environment Day - 2014" celebration jointly organized by Dakshina Kannada District Administration, Karnataka State Pollution Control Board and Mangalore City Corporation on 21.6.2014, Mangalore Chemicals & Fertilizers Limited was awarded the Environment Award for installing the waste water recovery unit with modern technology and reusing the entire treated wastewater. The award was handed over by Shri B. Ramanath Rai, Hon'ble Minister for Forest, Environment and Ecology, Government of Karnataka.

SHARE CAPITAL

As at March 31, 2015, the paid up capital of the Company was Rs. 118,51,51,500 comprising 11,85,15,150 shares of Rs.10 each. There was no change in the paid up share capital of the Company during the year.

Zuari Fertilisers and Chemicals Limited (a wholly owned subsidiary of Zuari Agro Chemicals Limited),which was holding 16.43% of the paid of share capital of the Company at the beginning of the year, acquired 0.04% paid up share capital of the Company in November 2014 pursuant to the open offer followed by another open offer in May 2015 acquiring 36.56% of the paid up share capital of the Company under the extant Regulations, aggregating its total holding to 53.03%. In view of this, your Company has become subsidiary of Zuari Fertilisers and Chemicals Limited. Consequently, the Company has also become subsidiary of Zuari Agro Chemicals Limited.

EXTRACTS OF ANNUAL RETURN

Pursuant to the provisions of Section 92 of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, the extracts of Annual Return are furnished in Annexure 1 attached to this Report.

NUMBER OF BOARD MEETINGS CONDUCTED DURING THE YEAR

Five meetings were held during the year.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 134(5) of the Companies Act, 2013, your Directors confirm that:

a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

b) the directors had 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 at the end of the financial year and of the profit and loss of the company for that period;

c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

d) the directors had prepared the annual accounts on a going concern basis;

e) the directors, have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating effectively;

f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

STATEMENT ON DECLARATION BY INDEPENDENT DIRECTORS

The Company has received declaration of independence from the Independent Directors and the same have been noted by the Board of Directors in its meeting held on May 29, 2015.

DIRECTORS

Dr. Vijay Mallya resigned from the Board of Directors of the Company with effect from 30.11.2014 due to his other pre-occupations. Mr. N Sundar Rajan ceased to be Independent Director of the Company we.f 17.7.2014 on his unfortunate demise.

Mrs. Ritu Mallya was inducted on the Board of Directors with effect from December 4, 2014, Mr. S. R. Gupte retires at the Annual General Meeting and is not seeking re-election. Mr. Srinivasulu Reddy Magunta is appointed as an Independent Director with effect from 07.08.2014.

Your Directors wish to place on record the seminal role played by Dr. Vijay Mallya in steering the Company through difficult phases and shaping the growth by his vision, leadership and guidance. Your Directors also wish to place on record their sincere appreciation of the invaluable contribution by Mr. N Sunder Rajan during his association with the Company.

DIRECTORS' TRAINING, FAMILIARIZATION & EVALUATION AND NOMINATION & REMUNERATION POLICY

Considering the long association of the directors with the Company and their seniority and expertise in their respective areas of specialization and knowledge of the fertilizer industry, their training and familiarization are not considered necessary and accordingly no such programmes were conducted.

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an evaluation of performance of the directors individually as well as the evaluation of the Board and Committees. The evaluation process was carried out by circulating questionnaires on the Board and Committees'functioning such as adequacy of the composition of the Board and its Committees, disclosure of information to the Board and Committees, performance of duties and obligations, governance parameters, participation of the members of the Board and Committees. The performance evaluation of the Independent Directors was carried out by the entire Board. The performance evaluation of the non Independent Directors was carried out by the Independent Directors. The Directors expressed their satisfaction with the evaluation process and performance of Board of Directors and Committees.

The Company has the Nomination & Remuneration Policy which deals with appointment and removal of directors, evaluation of directors, remuneration for the directors, key managerial personnel and senior management, which is attached to this Report as Annexure 2.

SUBSIDIARIES, ASSOCIATE COMPANIES AND JOINT VENTURES

The Company does not have any Subsidiary, Associate Company or Joint venture.

CORPORATE SOCIAL RESPONSIBILITY

Your Company discharged its corporate social responsibility in true spirit and has been actively engaged in the upliftment / development of the communities in its operating territory.

The Board of Directors of the Company in its meeting held on August 07, 2014 has constituted the Corporate Social Responsibility (CSR) Committee to monitor implementation of CSR activities of the Company. The CSR Committee consists of the following Directors as its members

1. Mr. S R Gupte, Chairman

2. Mr. Srinivasulu Reddy Magunta

3. Mr. Pratap Narayan

4. Mr. Deepak Anand

Based on the recommendation of the CSR Committee, the Company has formulated a comprehensive Corporate Social Responsibility (CSR) policy under which Rural Health and Rural Education have been the areas of specific focus. The details of CSR policy, CSR initiative and activities during the year and the Annual Report on Company's CSR activities are furnished in Annexure 3 attached to this report.

COMPOSITION OF AUDIT COMMITTEE AND VIGIL MECHANISM

The Audit Committee consists of the following members;

1. Mr. Pratap Narayan, Chairman

2. Mr. Srinivasulu Reddy Magunta

3. Mr. S. R. Gupte

The Company has established a vigil mechanism through its Whistleblower Policy and the Audit Committee of the Company is responsible to review periodically the efficient and effective functioning of the vigil mechanism, to deal with instances of fraud and mismanagement, and suspected violations of the Company's Code of Business Conduct and Ethics, if any.

The Policy provides for adequate safeguards against victimization of employees and directors who express their concerns. The Company has also provided direct access to the Chairman of the Audit Committee on reporting issues concerning the interests of the employees and the Company. The whistleblower policy of the Company is placed on the website of the Company which can be accessed at http://www.mangalorechemicals.com/investor-whistle-blower-policy.

RISK MANAGEMENT

The Company has the requisite processes and procedures in place to assist in minimizing exposure to risk that threaten the existence of the Company, including vendor contracting, transferring risk through personal liability, health, travel and life insurance; preventing/controlling risk through training and supervision; and by analyzing the risk in a manner that considers the whole organization and not just its individual components.

The heads of departments regularly review and assess the departmental policies/procedures and identify risks, perform analysis of the frequency and severity of potential risks, select the best techniques to manage risk, implement appropriate risk management techniques and monitor, evaluate and document results.

LOANS, GUARANTEES OR INVESTMENTS

The Company has not given any loans or guarantees covered under the provisions of section 186 of the Companies Act, 2013. The details of the investments made by company are given in the notes to the financial statements.

RELATED PARTY TRANSACTIONS

There were no contracts or arrangements made with related parties as defined under Section 188 of the Companies Act, 2013 during the year.

DEPOSITS

During the year, the Company has neither accepted nor renewed any deposits, covered under Section 73 of the Companies Act, 2013 read with Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014.

STATUTORY AUDIT

The Statutory Auditors, M/s K. P Rao & Co., Chartered Accountants, were appointed to hold office from the conclusion of 47th Annual General Meeting till the conclusion of 50th Annual General Meeting of the Company subject to ratification by the members at every Annual General Meeting. Accordingly, their appointment needs to be ratified by the members at the Annual General Meeting.

SECRETARIAL AUDIT

Pursuant to provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company appointed Mr. S. Kedarnath, Practicing Company Secretary to undertake the Secretarial Audit of the Company. The Secretarial Audit report is annexed herewith as Annexure 4.

COST AUDIT

The Company re-appointed Mr. P R. Tantri, Cost Accountant, Membership No. 2403, as the Cost Auditor for the year 2014-15. The Cost Audit Report for the year ended March 31, 2014 has been filed with the Ministry of Corporate Affairs.

AUDITORS' REPORT & SECRETARIAL AUDIT REPORT

There were no qualifications, reservations or adverse remarks made either by the Statutory Auditors or by the Secretarial Auditor in their respective reports.

MATERIAL CHANGES AND COMMITMENTS, AFFECTING THE FINANCIAL POSITION OF THE COMPANY

There were no material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of this report.

DETAILS PURSUANT TO SECTION 197(12) OF THE COMPANIES ACT, 2013

The information required pursuant to Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, shall form part of this report. However, in terms of Section 136 of the Act, this report is being sent to all the members of the Company excluding the aforesaid information. The said particulars are available for inspection by the Members at the Registered Office of the Company.

DISCLOSURE AS PER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL)ACT,20I3

Pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, the committee is constituted and no complaint / case has been filed / pending with the Company during the year.

CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is furnished in Annexure 5 attached to this report.

CORPORATE GOVERNANCE

The Company is committed to good corporate governance practices. The Board endeavors to adhere to the standards set out by the Securities and Exchange Board of India (SEBI) on corporate governance practices and accordingly has implemented all the mandatory stipulations prescribed.

A detailed corporate governance report in line with the requirements of Clause 49 of the listing agreement regarding the corporate governance practices followed by the Company and the Statutory Auditors' certificate indicating compliance of mandatory requirements along with management discussion and analysis report are given as Annexure 6 and 7.

ACKNOWLEDGEMENT

Your Directors wish to place on record their sincere appreciation of the guidance and advice given by Dr. Vijay Mallya and Mr. N Sunder Rajan during their association with the Company.

Your Directors thank the Company's clients, vendors, investors and bankers for their support. Your Directors also wish to place on record their appreciation of the excellent performance of the employees.

Your Directors express their gratitude to the Government of India, the State Governments, the Customs and Excise Departments and other government agencies for their support, and look forward to their continued support in the future.



For and on behalf of the Board of Directors,

SR Gupte Deepak Anand

Director Managing Director

May 29, 2015 Mumbai


Mar 31, 2014

Dear Members,

The Directors are pleased to present your Company''s Forty Seventh Annual Report together with the audited statement of accounts for the year ended March 3I, 2014.

FINANCIAL HIGHLIGHTS (Rs. Crores) 2013-14 2012-13 Sales (including other income) 3314.81 2790.04 EBITDA 224.76 185.22 Interest 102.45 86.97 Depreciation 28.76 29.01 Profit before Tax 93.55 69.24 Tax expense 22.62 2.67 Profit after Tax 70.93 66.57 Net Worth * 635.86 583.25

* includes Revaluation Reserve of Rs. 80.08 Crores and Rs. 81.77 Crores respectively.

DIVIDEND

The Board of Directors recommended a dividend of Rs. 1.20 per equity share of Rs. 10/- each.

PERFORMANCE

During 201 3-14, your Company achieved a turnover of Rs. 33I0.26 Crores compared to Rs. 2779.59 Crores in the previous year. PBT at Rs. 93.55 Crores is higher compared to Rs. 69.24 Crores during the previous year, despite an increase in finance cost due to high subsidy outstanding from GOI. Increased profitability can be attributed to efficient full capacity production of Urea, appreciation of INR against USD to 60 levels from a peak of Rs. 68 per USD and higher sales of the more profitable Plant Nutrition and Plant Protection products.

Urea

Your Company achieved production of the full re-assessed capacity of 3,79,500 MTs.

Di-Ammonium Phosphate (DAP) and Complex Fertilizers

Your Company produced 1,55,992 MTs of Phosphatic Fertilizers during the year compared to 1,65,6I5 MTs in the previous year. The utilization of our phosphatic fertilizer capacity was lower due to reduced availability of Phosphoric Acid.

SALES

During the year, your Company sold 3,79,456 MTs of Urea compared to 3,79,487 MTs in the previous year. Sales of manufactured Phosphatic Fertilizers were 1,53,803 MTs compared to 1,65,652 MTs in the previous year. Sales of imported fertilizers were 1,98,775 MTs as against 87,056 MTs in the previous year.

Plant Nutrition Products sales have increased to Rs. 173 crs from Rs. 138 crs, a substantial increase of 25%. Plant Protection Products sales have almost doubled from Rs. 29 crs in the previous year to Rs. 56 crs in current year. These achievements are quite encouraging in addition to being more profitable than commodity fertilizers.

SULPHONATED NAPHTHALENE FORMALDEHYDE (SNF)

The plant set up in August 2010 for manufacture of SNF can be expanded on a modular basis to take care of increased demand. The Company sold I0,786 MTs of SNF during the year, compared to I6,I45 MTs in the previous year. The plant capacity utilization has decreased due to slump in the construction industry. During the year some new customers were added and export orders executed. Company has added new product variants for application in newer areas, in order to de-risk its focus on construction chemical industry.

PLANT NUTRITION PRODUCTS

The country continues to face a serious problem of deterioration in soil productivity, due to indiscriminate and unbalanced use of NPK fertilizers, inadequate use of other nutrients essential for plant growth and injudicious use of irrigation water. Disproportionate increase in the farm gate prices of Phosphatics and Potash, compared to low, highly subsidised Urea, has aggravated this problem. In order to arrest and correct this deterioration of soil condition, your Company has introduced products that maintain soil health, provide balanced and complete nutrition and improve crop health.

Our R&D units at Hassan and Hubli continue to develop nutrient mixtures, enriched organic manure products and soil conditioners to mitigate crop specific issues. These products, in addition to alleviating nutrient deficiencies and improving tolerance to crop specific diseases, lead to better quality and higher productivity. The response from the crop growers on the effectiveness of these products has been very positive and there is a growing demand for development of similar products for other crops.

In order to encourage scientific application of fertilizers and plant nutrients, your Company has been trying to introduce these concepts at the grass root level. Your Company continues to successfully implement Mangala Mitra and Mangala Saathi schemes. These Mangala Mitras educate fellow farmers on various aspects of crop cultivation to enable them to make agriculture economically sustainable. Under Mangala Saathi, all good and potentially good dealers are given special attention through many unique programs that encourage and motivate them for better performance.

The Mangala INM concept introduced in 2002-03 started with a modest turnover of Rs. 32 lakhs in the Plant Nutrition product segment. Focused and sustained efforts have resulted in a significant business growth year on year, reaching a turnover of Rs. 173 Crores during the year.

PLANT PROTECTION CHEMICALS

As part of diversification and growth strategy and in order to offer a wider range of agri inputs, your Company introduced Plant Protection (PP) chemicals in July 2010. During the year under review, your Company launched two products in the Mangala brand name, viz., Mangala DiDips (an insecticide) and Mangala Surakshit (a fungicide). In addition, an in-house product having fungicidal property was launched under brand name Mangala Kolenashak. In the financial year 2014-I5 your Company plans to launch 3 more selected molecules under its own brand. The Plant Protection Chemicals business nearly doubled its turnover to Rs. 56 crores from Rs. 29 crores of the previous year.

WORKING CAPITAL

During the year under review on an average, there has been adequate rain fall resulting in good demand for fertilizers. Continued under provisioning for fertilizer subsidy in the Union Budget, and resultant unusual delay in subsidy payment by Government of India (GOI) contributed to precarious working capital shortage, resulting in lower imports than market demand. Continued delay in the release of GOI subsidy and increase in interest rates charged by banks resulted in increase in interest cost.

FERTILIZER POLICY

Stage III of New Pricing Scheme (NPS) for Urea announced in March 2007 stipulated that existing Naphtha/Furnace Oil/LSHS units should convert to gas by 3I.3.20I0. Due to delay in laying of pipeline and inadequate gas pipeline network in South India, Government of India had extended this deadline. Government of India, vide letter No.I20I2/3/20I0-FPP dt. 2nd April 2014 has specified that production of high cost Naphtha based Urea units will continue under modified NPS-III till the gas availability and connectivity is provided to these units or June 2014 whichever is earlier, beyond which subsidy for Naphtha based plants will not be paid. Your Company has taken up this matter suitably with Government of Karnataka and Department of Fertilizers, Government of India to extend this deadline till gas availability is ensured at Mangalore; GOI decision awaited. The Company has signed a Gas Supply Agreement with Indian Oil Corporation and a Gas Transmission Agreement with GAIL (India) Limited. The LNG terminal at Kochi has been commissioned in 20I3. Work on gas receiving station of GAIL is in progress at our premises in Mangalore.

With effect from April I, 20I0, the government introduced a Nutrient Based Subsidy (NBS) policy for Phosphatic and Potassic fertilizers, announcing the rate of subsidy in advance for the full year. For 20I3-2014, this subsidy had again been reduced.

RENOVATION / MODERNIZATION OF AMMONIA / UREA PLANTS - NG CONVERSION PROJECT

As mandated by Department of Fertilizers, GOI and as a part of the renovation / modernization programme, the feed and fuel viz. Naphtha/ Furnace oil has been replaced with equipments capable of accepting Natural Gas (NG) also in Ammonia/ Urea plants and captive power plant (CPP).

M/s Jacobs Engineering U.K and Jacobs Engineering India carried out the Basic and detailed Engineering work for NG conversion of Ammonia plant. 3 dual feed Diesel Generators were commissioned in 20I2 and 3 new dual feed Diesel Generators have been procured from Wartsila, Finland and installed to complete changeover in CPP Your Company is fully ready to receive and run its plants on Natural Gas as soon as the same is made available at Mangalore, to comply with the GOI directive.

The LNG terminal at Kochi has been commissioned in September 20I3. Laying of Gas pipeline from Kochi to Mangalore by GAIL (India) Limited is making slow progress and expected to be completed in 20I6-I7.

SAFETY, HEALTH, ENVIRONMENT AND POLLUTION CONTROL

Safety

Your Company has obtained Occupational Health and Safety Management System certification OHSAS 18001:2007 by DNV as part of its commitment to continual improvement. In addition to the periodic audits carried out under the integrated management system, a statutory annual safety audit was also carried out by M/s Rams Safety Consultants, Chennai. A Safety study was carried out for NG Conversion projects by M/s Chem Design Company, Hyderabad.

The Company organized extensive training programs including rescue operations, usage of personal protective equipment, emergency management, Fire Safety at home, awareness training on near miss incident reporting and S, H&E management system for employees. In addition, regular mock drills were conducted to check the emergency preparedness and weekly Fire fighting trainings were organized to train the employees as well as contractors'' workmen.

Health

Periodic medical examination is conducted for all the employees. Special tests like pulmonary function test for the employees who are exposed to dust and chemicals, audiometry for those exposed to noise and vision test for those who require high visual acuity at workplace were performed periodically. Medical examination of the canteen workers with increased emphasis on personal hygiene was conducted. Regular inspection of canteen premises and the canteen food was carried out for maintaining hygiene and the quality of the food. First aid training programmes were conducted for employees and contract workers. Health awareness programmes on various subjects like Cancer-causes and modern trends in management of back pain were conducted for MCF employees. Health awareness programmes on menstrual problems and infertility & Breast cancer- causes and management were conducted for the family members at MCF Township. Free Bone density test was organized at company''s occupational health center for the employees and voluntary blood donation camp was organized at MCF Township.

Environment

As an ISO I400I certified company, many environmental management programs have been implemented. Continuing with its green initiative the Company in addition to the existing 60 acres of green belt, has planted 3,000 saplings during 201 3-14. Your Company has implemented rainwater harvesting system and has installed sewage treatment plant to treat the sewage generated at the Township. The treated sewage water is used for gardening.

Your Company has also installed wastewater treatment plant to treat, recycle and reuse the entire quantity of sewage and process effluents, thereby achieving the status of zero liquid effluent discharge. This was achieved by upgrading the effluent treatment system by the installation of Lamella clarifier, Ultra-filtration and Reverse Osmosis (RO) technologies for the treatment of trade effluent and Membrane Bio- reactor (MBR) technology for the treatment of domestic effluent.

Your Company has installed Continuous Ambient Air Quality Monitoring (CAAQM) station inside the factory premises for continuous monitoring of ambient air quality. Ambient air quality data from CAAQM station is being displayed on LED board at the entrance of the factory facing National highway for public information. Your Company has received the prestigious "FAI Special Environmental Protection Award" instituted by the Fertilizer Association of India (FAI) for the NP/NPK fertilizer plants excluding captive acids category for the fourth consecutive year (20I0-20I3).

Your Company celebrated World Environment Day on June 24, 20I3 and rededicated its efforts for preservation of environment and ecology. This year''s theme ''Think-Eat-Save'' encourages all of us to be more aware of the environmental impact of the food choices we make and empowers us to take informal decisions.

SOCIAL RESPONSIBILITY

Your Company continued to discharge its Social Responsibility in true spirit and has been actively engaged in the up-liftment/ development of the communities in its operating territory. Your Company has formulated a comprehensive Corporate Social Responsibility (CSR) policy under which Rural Health and Rural Education have been the areas of specific focus.

In line with this philosophy, your Company formulated two schemes viz. "Project Eye Care" intended to prevent/eradicate eye related ailments in identified rural areas and "Mangala Akshara Mitra" intended to provide basic facilities and infrastructure to rural schools to promote education and to make schooling a pleasant experience. These schemes were extended to rural and remote locations in the Company''s operating territory for the benefit of the poor and needy.

During the year, under "Project Eye Care" six free eye camps and cataract surgery camps were conducted in the neighboring villages like Kalasa, Kateel, Ballamanja, Mundkur, Manjeshwara and Belvai. Free spectacles were distributed for the needy.

Under its "Mangala Akshara Mitra" program, the basic infrastructures that are required, but are lacking in identified schools in remote locations were provided by your Company. Those include desks, tables, chairs, green boards, racks, cupboards, school bags, lunch plates, water glasses and computers. 24 government primary & higher primary schools located in the districts of Belguam, Hassan, Kolar, Kurnool, Chickballapur, Uttara Karnataka, Bagalkot, Bijapur, Davanagere, Bellary and Chickmagalore and about 7000 poor students were the beneficiaries under this project during the year.

Your Company is also giving special attention to the schools for special children (physically & mentally challenged) by providing Water purifiers, Uniforms, special teaching aids, furniture, sanitation facility etc.

In addition to the above, your Company organized various cultural activities, felicitated young sports persons, sponsored community development programmes, health awareness camps, sports events, and provided financial assistance, uniforms, computers and sanitation facilities to the neighbourhood schools. During the year, your Company conducted several training programs, field demonstrations, crop seminars and krishi melas and organized rural sports and health camps for farmers/ channel partners.

Representatives from the public, government and other public administrative bodies actively supported and participated in all the programs of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE, ETC.

A report in respect of conservation of energy, technology absorption, foreign exchange earnings and outgo as required under Section 2I7(I) (e) read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, I988, is set out in Annexure-I to this report.

PARTICULARS OF EMPLOYEES

Information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, I975, is set out in Annexure-2 to this report.

CORPORATE GOVERNANCE

A report on Corporate Governance is annexed separately as part of this Report along with a certificate of compliance from a Chartered Accountant.

MANAGEMENT DISCUSSION & ANALYSIS

The Management Discussion and Analysis report is annexed to this report in Annexure-4.

DIRECTORS'' RESPONSIBILITY

Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors confirm that:

. the applicable accounting standards have been followed in the preparation of the annual accounts and there are no material departures.

. the accounting policies are in conformity with those generally accepted and have consistently been followed and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit for the year under review.

. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, I956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

. the annual accounts have been prepared on a going concern basis.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act, 20I3 and the Company''s Articles of Association, Mr. S R Gupte retires by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment.

AUDITORS

M/s. K. P Rao & Company, Chartered Accountants, retire as Statutory Auditors of the Company at the conclusion of the ensuing forty seventh annual general meeting, and being eligible offer themselves for re-appointment.

COST AUDITORS

Mr. PR.Tantri, Cost Auditor has submitted the cost audit report for the financial year 2014 which has been considered by your Directors. The Cost Audit Report for the financial year ended on 3I.3.20I3 due for filing by 30.9.20I3, was filed with the Ministry of Corporate Affairs on 23.9.20I3.

ACKNOWLEDGEMENT

Your Directors wish to place on record their appreciation for the excellent performance of the employees of the Company during the year. Your Directors also express their gratitude to the bankers, government agencies, customers, business associates and shareholders for their co-operation and look forward to their continued support in the future.

On behalf of the Board of Directors Place : Bangalore Date : May I5, 2014 Vijay Mallya Chairman


Mar 31, 2013

The Directors are pleased to present your Company''s Forty Sixth Annual Report together with the audited statement of accounts for the year ended March 31, 2013.

FINANCIAL HIGHLIGHTS

(Rs.Crores)

2012-13 2011-12

Sales (including other income) 2790.04 3720.13

EBITDA 185.22 208.73

Interest 86.97 77.16

Depreciation 29.01 29.10

Profit before Tax 69.24 102.47

Tax expense 2.67 33.37

Profit after Tax 66.57 69.10

Net Worth * 583.25 535.49

* includes Revaluation Reserve of Rs.81.77 Crores and X 83.93 Crores respectively.

DIVIDEND

The Board of Directors recommended a dividend of X 1.20 per equity share ofRs. 10/- each.

PERFORMANCE

During 2012-13, your Company achieved a turnover of X 2779.59 Crores compared to X3707.17 Crores in the previous year. PBT at X 69.24 Crores was lower compared to Rs. 102.47 Crores during the previous year. Profitability was adversely affected because of drop in volumes, mainly of non urea fertilizers, caused by failure of monsoon in both Kharif and Rabi seasons and demand destruction caused by sharp increases in MRP of these fertilizers to compensate for increase in international prices and reduction in Government of India subsidy.

PRODUCTION

Urea

Your Company achieved production of the full re-assessed capacity of 3,79,500 MTs.

Di-Ammonium Phosphate (DAP) and Complex Fertilisers

Your Company produced 1,65,615 MTs of Phosphatic Fertilizers during the year compared to 1,72,276 MTs in the previous year. Production of phosphatic fertilizers was marginally lower due to reduced availability of Phosphoric Acid.

Ammonium Bi-carbonate (ABC)

Production of ABC was 16,111 MTs during the year compared to 15,893 MTs in the previous year.

SALES

During the year, your Company sold 3,79,487 MTs of Urea compared to 3,79,545 MTs in the previous year. Sales of manufactured Phosphatic Fertilizers were 1,65,652 MTs compared to 1,74,240 MTs in the previous year. Sales of imported fertilizers were 87,056 MTs as against 4,60,356 MTs in the previous year.

Plant Nutrition Products sales increased from Rs.132 crores to Rs.138 crores and Plant Protection Products sales increased from X 22 crores to Rs.29 crores. These increases, though modest, are quite remarkable in view of the adverse market conditions

SULPHONATED NAPHTHALENE FORMALDEHYDE (SNF)

The state-of-the-art plant was set up in August 2010 for manufacture of SNF which can be expanded on a modular basis to take care of increased demand. You will be happy to note that the Company sold 16,145 MTs of SNF during the year, compared to 11,458 MTs in the previous year. The plant capacity utilization has substantially increased. During the year many new customers were added and export orders were executed for the first time. The liquid and powder forms of SNF have been well received in the market and have created a brand name for excellent quality.

PLANT NUTRITION PRODUCTS

It is necessary to maintain soil health, manage proper irrigation and correct imbalances in the nutrients essential for plant growth to counter the serious problem of deterioration in soil productivity, due to indiscriminate and unbalanced use of NPK fertilizers. Disproportionate increase in the farm gate prices of Phosphatics and Potash, compared to Urea has further aggravated this problem. In this direction your Company has continuously introduced crop specific grades of nutrient mixtures, organic products and soil conditioners.

These products, in addition to alleviating nutrient deficiencies and improving tolerance to crop specific diseases, also lead to better quality and higher productivity. The response from the crop growers on the effectiveness of these products has been very positive.

Attention of all concerned on scientific and balanced application of fertilizers is focussed through two unique concepts viz. Mangala Mitra and Mangala Saathi. Under Mangala Mitra, opinion leaders in the villages were identified, enrolled, educated and trained on a continual basis on the whole gamut of soil management, crop nutrition and crop protection to educate fellow farmers. Through this innovative approach, your Company is effectively implementing an approach to enable the farmer to make his agriculture an economically sustainable one. Under Mangala Saathi, all the good and potentially good dealers are given special attention through many unique programs that encourage and motivate them for better performance.

The Mangala INM concept was introduced in 2002-03 where your Company achieved a modest turnover of Rs.32 lakhs in the Plant Nutrition product segment. Concentrated efforts have resulted in a significant increase year on year, with the Company achieving a turnover of X 138 Crores during the year. This growth is significant as the year witnessed failure of monsoon which led to reduced cropped area and declining productivity.

Your company successfully commissioned a Specialty Fertilizer manufacturing facility in April 2011 with an annual capacity of 12,000 MTs at its factory in Mangalore to produce Water Soluble Fertilizers and Micronutrient Mixtures. This greatly helped in our participation in the growth of water soluble fertilizer segment, one of the fastest growing agriculture input segments in India.

PLANT PROTECTION CHEMICALS

Your Company introduced Plant Protection (PP) products in July 2010. As an entry strategy, a collaborative approach was adopted, with your Company marketing the products of reputed pesticide companies through its channel partner network. During the year under review, your Company launched three products in the Mangala brand name, viz., Mangala Mahacardo (an insecticide), Mangala COC (a fungicide) and Mangala Pardic (a weedicide). In the financial year 2013-14, your Company plans to launch 3 more products of selected molecules under its own brand. The Plant Protection Chemicals business registered a turnover of Rs.29 crores compared to Rs.22 crores in the previous year.

ANALYTICAL AND ADVISORY SERVICES

The R & D facilities established at Hassan and Hubli have the capability to analyze sample substrates of soil, water, plant tissues, plant nutrients, organic manures, soil amendments, fertilizers etc.; appropriate recommendations for soil health and crop management are given. Suitable follow up is done by our experts and extension workers to ensure effective implementation of the recommendations. All these are provided to our customers free of cost to ensure their active participation in achieving profitability and sustainability in agriculture.

WORKING CAPITAL

During the year under review our marketing territories were adversely affected by unprecedented drought. Large brought forward stocks of fertilizers, manifold increase in selling price of non urea fertilizers, erratic availability of phosphoric acid and other raw materials coupled with deficient monsoon affected the sales. Due to continued underprovisioning for fertilizer subsidy in the Union Budget, payment of subsidy has been inordinately delayed stretching upto over 9 months in many cases. This delay in the release of GOI subsidy, depreciation of NR vs. USD and increase in interest rates charged by banks resulted in the increase in interest cost.

FERTILIZER POLICY

Stage - III of the New Pricing Scheme (NPS) for Urea announced by the Government of India in March 2007 lapsed on March 31, 2010. The existing policy has been extended provisionally until further orders.

With effect from April 1, 2010, the government introduced a Nutrient Based Subsidy (NBS) policy for Phosphatic and Potassic fertilizers, announcing the rate of subsidy in advance for the full year. For 2013-14, this subsidy has again been substantially reduced. Coupled with the sharp depreciation of the Indian Rupee, this has led to volatility in MRP.

RENOVATION / MODERNIZATION OF AMMONIA / UREA PLANTS - NG CONVERSION PROJECT

As per the directive of Department of Fertilizers, GOI and as a part of the renovation / modernization programme, the feed and fuel viz. Naphtha/ Furnace oil will be replaced with Natural Gas (NG) in Ammonia/ Urea plants and captive power plant (CPP). The conversion project is expected to be completed in 2013-14.

M/s Jacobs Engineering U.K and Jacobs Engineering India carried out the Basic Engineering study for NG conversion of Ammonia plant and detailed Engineering work is under progress. Procurement of various items required for the project implementation has already commenced. 3 dual feed Diesel Generators were commissioned in 2012 and 3 new dual feed Diesel Generators will be procured from Wartsila, Finland and installed to complete changeover in CPP.

The LNG terminal at Kochi is expected to be commissioned in 2013. Laying of Gas pipeline from Kochi to Mangalore by GAIL India Limited is in progress and expected to be completed by mid 2014.

SAFETY, HEALTH, ENVIRONMENT AND POLLUTION CONTROL

Safety

Your Company has obtained Occupational Health and Safety Management System certification OHSAS 18001:2007 by DNV as part of its commitment to continual improvement. In addition to the periodic audits carried out under the integrated management system, a statutory - safety audit was also carried out by a team of Internal Auditors.

The Company organized extensive training programs including rescue operations, usage of personal protective equipment, emergency management, Fire Safety at home, awareness training on near miss incident reporting and S, H&E management system for employees. In addition, regular mock drills were conducted to check the emergency preparedness and weekly Fire fighting trainings were organized to train the employees as well as contractors'' workmen.

Your Company received first prize for "Best Safe Practices" in the year 2012 instituted by Department of Factories, Boilers, Industrial Safety & Health, Bangalore, Government of Karnataka for mega scale industry category in Karnataka.

Health

Periodic medical examination is conducted for all the employees. Special tests like pulmonary function test for the employees who are exposed to dust and chemicals, audiometry for those exposed to noise and vision test for those who require high visual acuity at workplace were performed periodically. Medical examination of the canteen workers with increased emphasis on personal hygiene was conducted. Regular inspection of canteen premises and the canteen food was carried out for maintaining hygiene and the quality of the food. First aid training programmes were conducted for employees and contract workers. Health awareness programmes on management of burn injuries, Diabetes and its complications, Health hazards of Alcohol & Tobacco consumption and Biomedical Waste Management were conducted for the employees and township families. Free dental check-up and treatment camp was organized at MCF Township. Free cardiac check-up programme and Nerve Conduction test were organized at company''s occupational health centre for the employees.

Environment

As an ISO 14001 certified company, many environmental management programs have been implemented. Your Company has installed wastewater treatment plant to treat, recycle and reuse the entire quantity of sewage and process effluents, thereby achieving the status of zero liquid effluent discharge. This was achieved by upgrading the effluent treatment system by the installation of Lamella clarifier, Ultra- filtration and Reverse Osmosis (RO) technologies for the treatment of trade effluent and Membrane Bio- reactor (MBR) technology for the treatment of domestic effluent.

Your Company has also implemented the rainwater harvesting system and sewage treatment plant at its Township. The treated sewage water is used for gardening. Continuing with its green initiative, the Company in addition to the existing 55 acres of green belt, has planted 5,000 saplings during 2012-13.

Your Company has installed Continuous Ambient Air Quality Monitoring (CAAQM) station inside the factory premises for continuous monitoring of ambient air quality. Ambient air quality data from CAAQM station is being displayed on LED display board at the entrance of the factory facing National highway for public information.

In recognition of these efforts, your Company has received the prestigious "FAI Environmental Protection Award" instituted by the Fertilizer Association of India (FAI) for the NP/NPK fertilizer plants excluding captive acids category for the third consecutive year.

Your Company along with FAI jointly organized a meet on "Group discussion on Environment in the fertilizer industry" at Mangalore. Participants from fertilizer industries, experts from Ministry of Environment and Forests (MoEF), Central and State Pollution Control Board discussed various environment related issue.

SOCIAL RESPONSIBILITY

Your Company continued to discharge its Social Responsibility in true spirit and has been actively engaged in the up-liftment/ development of the communities in its operating territory. Your Company has formulated a comprehensive Corporate Social Responsibility (CSR) policy under which Rural Health and Rural Education have been the areas of specific focus.

In line with this philosophy, your Company formulated two schemes viz. "Project Eye Care" intended to prevent/eradicate eye related ailments in identified rural areas and "Mangala Akshara Mitra" intended to provide basic facilities and infrastructure to rural schools to promote education and to make schooling a pleasant experience. These schemes were extended to rural and remote locations in the Company''s operating territory for the benefit of the poor and needy.

During the year, under "Project Eye Care" five free eye camps and cataract surgery camps were conducted in the neighbouring villages like Permude, Gunduri, Manjeshwara, Sacharipete and Belvai. Free spectacles were distributed for the needy. Free Medical and Dental check-up camp was conducted at Marakada near MCF Township.

Under its "Mangala Akshara Mitra" program, the basic infrastructures that are required, but are lacking in identified schools in remote locations were provided by your Company. Those include desks, tables, chairs, green boards, racks, cupboards, school bags, lunch plates, water glasses and computers. 28 government primary & higher primary schools located in the districts of Belguam, Hassan, Kolar, Kurnool, Chickballapur, Uttara Karnataka, Bagalkot, Bijapur, Davanagere, Bellary and Chickmagalore and about 5000 poor students were the beneficiaries under this project during the year.

In addition to the above, your Company organized various cultural activities, felicitated young sports persons, sponsored community development programmes, health awareness camps, sports events, and provided financial assistance, uniforms, computers and sanitation facilities to the neighbourhood schools. During the year, your Company conducted several training programs, field demonstrations, crop seminars and krishi melas and organized rural sports and health camps for farmers/ channel partners.

Representatives from the public, government and other public administrative bodies actively supported and participated in all the programs of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE, ETC.

A report in respect of conservation of energy, technology absorption, foreign exchange earnings and outgo as required under Section 217(1) (e) read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is set out in Annexure-1 to this report.

PARTICULARS OF EMPLOYEES

Information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is set out in Annexure-2 to this report.

CORPORATE GOVERNANCE

The Company has fully complied with the requirements relating to Corporate Governance as mandated by the Listing Agreements with the Stock Exchanges. A detailed report on Corporate Governance is contained in Annexure-3 to this report.

MANAGEMENT DISCUSSION & ANALYSIS

The Management Discussion and Analysis report is annexed to this report in Annexure-4.

DIRECTORS'' RESPONSIBILITY

Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors confirm that:

- the applicable accounting standards have been followed in the preparation of the annual accounts and there are no material departures.

- the acounting policies are in conformity with those generally accepted and have consistently been followed and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit for the year under review.

- proper and sufficient care has been taken 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.

- the annual accounts have been prepared on a going concern basis.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Company''s Articles of Association, Mr. S R Gupte and Mr. N Sunder Rajan retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment.

Mr. Shrikant G Ruparel, Independent Director expired on 11.2.2013 & Mr. B S Patil, Independent Director resigned with effect from 1.6.2013. The Board places on record appreciation for the valuable contributions made by them during their tenure as Directors of the Company.

AUDITORS

M/s. K.P.Rao & Company, Chartered Accountants, retire as Statutory Auditors of the Company at the conclusion of the ensuing forty sixth annual general meeting, and being eligible offer themselves for re- appointment.

COST AUDITORS

Mr. PR.Tantri, Cost Auditor has submitted the cost audit report for the financial year 2012-2013 which has been considered by your Directors.

The Cost Audit Report for the financial year ended 31.3.2012 which was due for filing on 30.9.2012, was filed with the Ministry of Corporate Affairs on 24.9.2012

ACKNOWLEDGEMENT

Your Directors wish to place on record their appreciation for the excellent performance of the employees of the Company during the year.

Your Directors also express their gratitude to the bankers, government agencies, customers, business associates and shareholders for their co-operation and look forward to their continued support in the future.

On behalf of the Board of Directors Place : Mumbai Vijay Mallya

Date : August 1, 2013 Chairman


Mar 31, 2012

The Directors are pleased to present your Company's Forty Fifth Annual Report together with the audited statement of accounts for the year ended March 31, 2012.

FINANCIAL HIGHLIGHTS

(Rs. Crores)

2011-12 2010-11

Sales (including other income) 3720.13 2523.83

EBITDA 208.73 159.06

Interest 77.16 18.58

Depreciation 29.10 28.88

Profit before Tax 102.47 111.60

Provision for Tax 33.37 34.06

Profit after Tax 69.10 77.54

Net Worth* 535.49 485.10

* includes Revaluation Reserve of Rs.83.93 Crores and Rs.86.12 Crores respectively.

DIVIDEND

The Board of Directors recommended a dividend of Rs.1.20 per equity share of Rs.10/- each.

PERFORMANCE

During 2011-12, your Company achieved the highest ever turnover of Rs. 3707.17 Crores compared to Rs. 2520.46 Crores in the previous year, registering a growth of 47.08%. For the third consecutive year your Company sold over a Million Metric Tonnes of fertilizers. However, the PBT at Rs. 102.47 Crores was lower compared to Rs. 111.60 Crores during the previous year. Profitability was adversely affected by an abnormal increase in interest on working capital and lower production of phosphatics due to non-availability of imported Phosphoric Acid.

PRODUCTION

Urea

Your Company achieved production of the full re-assessed capacity of 3,79,500 MTs.

Di-Ammonium Phosphate (DAP) and Complex Fertilisers

Your Company produced 1,72,276 MTs of Phosphatic Fertilizers during the year compared to 2,23,552 MTs in the previous year. The lower production was on account of erratic and inadequate supplies of phosphoric acid.

Ammonium Bi-carbonate (ABC)

Production of ABC was 15,893 MTs during the year compared to 15,330 MTs in the previous year.

SALES

During the year, your Company sold 3,79,546 MTs of Urea compared to 3,79,442 MTs in the previous year. Sales of manufactured Phosphatic Fertilizers were 1,74,240 MTs compared to 2,24,938 MTs in the previous year. Sales of imported products registered significant growth, with imported Phosphatics at 3,69,181 MTs as against 2,07,320 MTs in the previous year. Sales of Muriate of Potash increased to 91,176 MTs compared to 88,052 MTs in the previous year.

SULPHONATED NAPHTHALENE FORMALDEHYDE (SNF)

As a step towards diversification from the fertilizer sector to Chemicals Production/Trading, your Company had identified Sulphonated Naphthalene Formaldehyde. Accordingly, a state-of-the-art plant was set up in August 2010, which can be expanded on a modular basis to take care of increased demand. You will be happy to note that the Company sold 10,946 MTs of SNF during the year, compared to 4,406 MTs in the previous year. The prime application for SNF is in the manufacture of super plasticizer used in construction chemical industry. For increased market share, new variants are being developed for different applications for specific customer needs. In addition, new customers are being identified and added for greater capacity utilisation. The liquid and powder forms of SNF have been well received in the market and have created a brand name for excellent quality.

PLANT NUTRITION PRODUCTS

In order to retain/improve soil productivity and derive increased output from the same area of land, it is necessary to maintain soil health and correct imbalances in the nutrients essential for plant growth. However the country continues to face a serious problem of deterioration in soil productivity, due to indiscriminate and unbalanced use of NPK fertilizers, inadequate use of other nutrients essential for plant growth and injudicious use of irrigation water. Disproportionate increase in the farm gate prices of Phosphatics and Potash, compared to Urea has further aggravated this problem. In order to arrest and correct this deterioration of soil condition, your Company has introduced crop specific grades of nutrient mixtures and soil conditioners.

To address the nutrient deficiencies noticed in the soil resulting in inadequate output or crop failure in the areas serviced by our Marketing network, our R&D unit at Hassan has been developing nutrient mixtures and soil conditioners to mitigate crop specific issues. These products, in addition to alleviating nutrient deficiencies and improving tolerance to crop specific diseases also lead to better quality and higher productivity. The response from the crop growers on the effectiveness of these products has been very positive and there is a growing demand for development of similar products for other crops.

In order to encourage scientific application of fertilizers and plant nutrients, your Company has been trying to introduce these concepts at the grass roots level. To actively focus attention of all concerned on the specifics involved therein, your Company successfully introduced two unique concepts viz., Mangala Mitra and Mangala Saathi in the previous year. Under Mangala Mitra, opinion leaders in the villages were identified, enrolled, educated and trained on a continual basis on the whole gamut of soil management, crop nutrition and crop protection. These Mangala Mitras in turn educate fellow farmers on various aspects of crop cultivation. Through this innovative approach, your Company is effectively implementing the "Mangala INM" concept, an approach to enable the farmer to make his agriculture an economically sustainable one. Under Mangala Saathi, all the good and potentially good dealers are given special attention through many unique programs that encourage and motivate them for better performance. These two approaches have greatly helped promoting nutrient management awareness.

The Mangala INM concept was introduced in 2002-03 where your Company achieved a modest turnover of Rs. 32 lakhs. Concentrated efforts have resulted in a significant increase year on year, with the Company achieving a turnover of Rs. 131 Crores during the year, a growth of 31% over the previous year.

In order to support with timely supply of quality Plant Nutrition products, your Company successfully commissioned a Specialty Fertilizer manufacturing facility in April 2011 with an annual capacity of 12,000 MTs at its factory in Mangalore, to produce Water Soluble Fertilizers and Micronutrient Mixtures.

PLANT PROTECTION CHEMICALS

As part of diversification and growth strategy and in order to offer a wider range of agri inputs, your Company introduced Plant Protection (PP) products in July 2010. As an entry strategy, a collaborative approach was adopted, with your Company marketing the products of reputed pesticide companies through its channel partner network. In the year under review, your Company launched two products in the Mangala brand name, viz., Mangala Mahakill an insecticide and Mangala Samhar, a Herbicide. In the financial year 2012-13, your Company plans to launch 5 more products of selected molecules under its own brand. The Plant Protection Chemicals business registered a turnover of Rs. 22 crores compared to Rs.12 crores in the previous year.

WORKING CAPITAL

Delay in agreement on the prices of imported fertilizers with the international suppliers and consequent delayed ordering resulted in bunched up imports in the second half of 2011-12. This resulted in heavy congestion at the east coast ports. Non-availability of railway rakes at the same time contributed to material being stuck at the ports for a long period of time. These factors combined by inordinate delay in release of GOI subsidy, nearly 30% increase in interest rates charged by banks and 20% depreciation of INR vs. USD have contributed to the very significant increase in interest cost.

FERTILIZER POLICY

Government of India is yet to announce the new Urea fertilizer policy for grant of concession as well as investments in the sector. Stage - III of the New Pricing Scheme (NPS) for Urea announced by the Government of India in March 2007 lapsed on March 31, 2010. In the interim, as a stop gap arrangement, the existing policy has been extended provisionally until further orders.

With effect from April 1, 2010, the government introduced a Nutrient Based Subsidy (NBS) policy for Phosphatic and Potassic fertilizers, announcing the rate of subsidy in advance for the full year. For 2012-13, this subsidy has been substantially reduced. Coupled with the sharp depreciation of the Indian Rupee, this has led to an abnormal increase in MRPs for these fertilizers.

RENOVATION / MODERNIZATION OF AMMONIA / UREA PLANTS - NG CONVERSION PROJECT

As per the directive of Department of Fertilizers, GOI and as a part of the renovation / modernization programme, the feed and fuel viz., Naphtha/ Furnace oil will be replaced with Natural Gas (NG) in Ammonia/ Urea plants and captive power plant (CPP).

A Gas Sale Agreement has been entered into with Indian Oil Corporation for supply of RLNG from Kochi Terminal of Petronet LNG Limited and a Gas Transmission Agreement has been signed with Gail (India) Limited. Based on latest indications, supply of gas to Mangalore is expected in the second half of 2013. The location has been identified for gas receiving station of GAIL at our plant premises and work has started thereon.

The Petronet LNG terminal is expected to be commissioned in September 2012 at Kochi. As indicated by Gail (India) Ltd., laying of Gas pipeline from Kochi to Mangalore is likely to be completed in the second half of 2013.

M/s Jacob Engineering, UK have been engaged for the basic engineering study for gas conversion, which has been completed. Detailed Engineering is in progress. Your Company has already procured from Wartsila, Finland, three Dual Feed DG sets. The balance three DG sets and the Ammonia - Urea plant modification are expected to be ready synchronized with gas supply.

SAFETY, HEALTH, ENVIRONMENT AND POLLUTION CONTROL Safety

The Company has obtained Occupational Health and Safety Management System Certification OHSAS 18001:2007 as a part of its commitment to continual improvement. In addition to the periodic audits carried out under the integrated management system, a statutory safety audit was also carried out by M/s Rams Safety Consultants Chennai.

Extensive training programs including rescue operations, usage of personal protective equipment, emergency management, safe handling of LPG at home, awareness training on near miss incident reporting, S,H&E management system, were organized for employees and regular mock drills were conducted to check the emergency preparedness.

The Company has procured a State-of-art ambulance equipped with all modern facilities for emergency and a Rescue Tool to rescue people from collapsed building. In addition, fire fighting training was imparted periodically to train the employees as well as contractors' workmen.

Your Company received the "Unnatha Suraksha Puraskara" for outstanding safety performance and management system, instituted by the National Safety Council, Karnataka Chapter Bangalore.

Health

As in the past, periodic medical examination was conducted for all the employees, including general physical examination and laboratory investigations. Special tests like pulmonary function test for the employees who are exposed to dust and chemicals, audiometry for those exposed to noise and vision test for those who require high visual acuity at workplace were performed periodically. Medical examination of the canteen workers with increased emphasis on personal hygiene was conducted. Regular inspection of canteen premises and the canteen food was carried out for maintaining hygiene and the quality of the food. First aid training programmes were conducted for employees and contract workers. Health awareness programmes on stress management, back pain-causes & management, diet & nutrition were conducted for the benefit of employees. A free Asthma check-up camp also was organized at MCF Township.

Environment & Pollution Control

As an ISO 14001 certified Company, many environmental management programs have been implemented. Your Company has installed waste water recovery facility to treat, recycle and reuse the entire quantity of sewage and process effluents, thereby achieving zero liquid effluent discharge.

Your Company has also implemented rain water harvesting system and sewage treatment plant at its township. The treated sewage water is used for gardening. Continuing with its green initiative, the Company planted an additional 3000 saplings in the green belt area in its factory in Mangalore.

In recognition of these efforts, your Company received the "Environmental Protection Award for NP/NPK Fertilizer Plants" instituted by the Fertilizer Association of India for the second consecutive year.

SOCIAL RESPONSIBILITY

Your Company continued to discharge its Social Responsibility in true spirit and has been actively engaged in the up-liftment/ development of the communities in its operating territory. Your Company has formulated a comprehensive Corporate Social Responsibility (CSR) policy under which Rural Health and Rural Education have been the areas of specific focus.

In line with this philosophy, your Company formulated two schemes viz., "Project Eye Care" intended to prevent/eradicate eye related ailments in identified rural areas and "Mangala Akshara Mitra" intended to provide basic facilities and infrastructure to rural schools to promote education and to make schooling a pleasant experience. These schemes were extended to rural and remote locations in the Company's operating territory for the benefit of the poor and needy.

During the year, under "Project Eye Care" four free eye camps were conducted in collaboration with Justice K. S. Hegde Charitable Hospital at Sacharipete, Vogga, Soorinje and Gundoori villages. Over 1000 people attended these eye camps of which about 1 00 were recommended surgery, to be carried out free of cost by the hospital and about 650 people received free spectacles from your Company.

Under its "Mangala Akshara Mitra" program, the basic infrastructure that is required, but is lacking in identified schools in remote locations, was provided by your Company. Those include, desks, tables, chairs, green boards, racks, cupboards, school bags, lunch plates, water glasses and computers. 34 government primary & higher primary schools located in the districts of Belgaum, Chamaraja Nagara,

Chitradurga, Gulbarga, Hassan, Haveri, Kolar, Kurnool, Mandya, Mysore, North Kanara, Raichur, Shimoga and Tumkur and about 5000 poor students were the beneficiaries under this project during the year.

During the current year, your Company's CSR initiative has been extended to two other new segments of the society.

- Tribal Community: Households of underprivileged tribal community living in the remote forest areas of Chamaraja Nagar and North Kanara District of Karnataka were provided with solar lamps, woolen blankets and household stainless steel utensils. Nearly 350 Tribal families have been benefited so far.

- Schools for Special Children: Selected institutions for Special Children (physically & mentally challenged) are also being assisted with Water purifiers, Uniforms, Teaching aids, furniture, sanitation facility etc. Three such Institutions covering over 1 90 Special children have been assisted so far.

In addition to the above, your Company organized various cultural activities, felicitated young sports persons, sponsored community development programmes, health awareness camps, sports events, and provided financial assistance, uniforms, computers and sanitation facilities to the neighbourhood schools. During the year, your Company conducted several training programs, field demonstrations, crop seminars and krishi melas and organized rural sports and health camps for farmers/ channel partners.

Representatives from the public, government and other public administrative bodies actively supported and participated in all the programs of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE, ETC.

A report in respect of conservation of energy, technology absorption, foreign exchange earnings and outgo as required under Section 217(1) (e) read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is set out as Annexure-1 to this report.

PARTICULARS OF EMPLOYEES

There were no employees, in respect of whom information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is to be provided.

CORPORATE GOVERNANCE

The Company has fully complied with the requirements relating to Corporate Governance as mandated by the Listing Agreements with the Stock Exchanges. A detailed report on Corporate Governance is contained in Annexure-2 to this report.

MANAGEMENT DISCUSSION & ANALYSIS

The Management Discussion and Analysis Report is annexed to this report (Annexure-3).

DIRECTORS' RESPONSIBILITY

Pursuant to Section 21 7 (2AA) of the Companies Act, 1 956, your Directors confirm that:

- the applicable accounting standards have been followed in the preparation of the annual accounts and there are no material departures.

- the accounting policies are in conformity with those generally accepted and have consistently been followed and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit for the year under review.

- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1 956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

- the annual accounts have been prepared on a going concern basis.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Company's Articles of Association, Mr. Shrikant G. Ruparel and Mr. Pratap Narayan retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment.

AUDITORS

M/s. K. P. Rao & Company, Chartered Accountants, retire as Statutory Auditors of the Company at the conclusion of the ensuing forty fifth annual general meeting, and being eligible offer themselves for re-appointment.

COST AUDITORS

Mr. P. R. Tantri, Cost Auditor has submitted the cost audit report for the financial year 2011-2012 which has been considered by your Directors.

The Cost Audit Report for the financial year ended 31.3.2011 which was due for filing on 30.9.2011, was filed with the Ministry of Corporate Affairs on 24.9.2011.

ACKNOWLEDGEMENT

Your Directors wish to place on record their appreciation for the excellent performance of the employees of the Company during the year.

Your Directors also express their gratitude to the bankers, government agencies, customers, business associates and shareholders for their co-operation and look forward to their continued support in the future.

On behalf of the Board of Directors

Mumbai Vijay Mallya

August 10, 2012 Chairman


Mar 31, 2011

Dear Members,

The Directors are pleased to present your Company's Forty Fourth Annual Report together with the audited statement of accounts for the year ended March 31, 2011.

FINANCIAL HIGHLIGHTS

(Rs. Crores)

2010-11 2009-10

Sales (including other income) 2523.83 2081.73

EBITDA 159.06 130.61

interest 18.14 23.44

Depreciation 28.88 18.37

Profit before Tax before exceptional items 112.04 88.80

Loss on sale / diminution in value of Fertilizer Companies GOI Special Bonds - 4.27

Profit before Tax 112.04 84.53

Provision for Tax 34.50 28.04

Profit after Tax 77.54 56.49

Net Worth 485.10* 429.61*

* includes Revaluation Reserve of Rs. 86.12 Crores and Rs. 88.35 Crores respectively.

DIVIDEND

The Board of Directors recommended a dividend of Rs. 1.20 per equity share ofRs. 10/- each.

PERFORMANCE

2010-11 was a yet another year of growth and improved performance, with your Company registering the highest ever turnover and Profit Before Tax (PBT). Your Company achieved a record sale of One Million Metric Tonnes of fertilizers for the second year in a row. Sales (including other income) of your Company for the year 2010-2011 was Rs. 2523.83 Crores compared to Rs. 2081.73 Crores in the previous year, registering a growth of 21%. The PBT at Rs. 112.04 Crores was higher compared to Rs. 84.53 Crores during the previous year, representing an increase of 33%.

PRODUCTION

Urea

Your Company achieved production of the full re-assessed capacity of 3,79,500 MTs.

Di-Ammonium Phosphate (DAP) and Complex Fertilisers

Your Company achieved production of 2,23,552 MTs of Phosphatic Fertilizers during the year compared to 2,82,173 MTs in the previous year. The lower production is on account of erratic and inadequate supplies of phosphoric acid.

Ammonium Bi-carbonate (ABC)

Your Company achieved full capacity production of 15,330 MTs of ABC.

SALES

During the year, your Company sold 3,79,442 MTs of Urea compared to 3,83,338 MTs in the previous year. Sales of manufactured Phosphatic Fertilizers was 2,24,938 MTs compared to 2,80,413 MTs in the previous year. Sales of imported products registered significant growth, with imported Phosphatics at 2,07,320 MTs compared to 1,74,670 MTs in the previous year. Sales of Muriate of Potash was 88,052 MTs compared to 57,435 MTs in the previous year.

SULPHONATED NAPHTHALENE FORMALDEHYDE (SNF)

In line with the Company's growth objective, a state-of-the-art plant with an annual production capacity of 21,450 MTs of liquid SNF was commissioned in August 2010. SNF is predominantly used in the construction chemical industry for manufacture of super plasticizer. The product samples were sent to leading customers for field trials and were well accepted. The liquid and powder forms of SNF were released to the market with the trade names ChemCF NL and ChemCF NP respectively. During the year, 4400 MTs of liquid SNF were produced.

INTEGRATED NUTRIENT MANAGEMENT (INM)

The country is facing a serious problem of deterioration in soil productivity. Indiscriminate and unbalanced use of N.P.K fertilizers over the years and inadequate use of other nutrients essential for plant growth are amongst the main reasons for the loss in soil productivity.

Improvement in soil productivity and maintenance of the soil fertility can be achieved by the adoption of an Integrated Nutrient Management (INM) approach. Having been actively associated with the farming community for over 3 decades, your Company believes it has a key role to play in helping the farmers to achieve higher productivity as well as superior quality of farm produce.

NM encompasses soil health management, water management, plant nutrition and plant protection. Your Company has been engaged in imparting extensive and continuous education to farmers and channel partners on the need to practice INM techniques, so that all the essential nutrients are made available in time at every stage of crop growth.

To help the farmer achieve this objective, over the last few years, MCF has been developing and introducing Plant Nutrition (PN) products that are required for achieving root and shoot growth, more fowering, higher fruit and seed setting, improved quality and extended shelf-life of the produce.

Some of the crop specific PN products developed at the Company's R&D unit in Hassan and introduced during the year include Mangala Tur Special and Mangala GT Booster for Tur, and Ginger & Turmeric crops, respectively. Mangala Cotton Special and Mangala Chilli Special for

Bt. Cotton and Chilli crops are ready for introduction. These products, in addition to improving tolerance to crop specific diseases also lead to better quality and higher productivity. The response from the crop growers on the effectiveness of these products has been very positive and there is a growing demand for development of similar products for other crops.

In order to increase the coverage under its Integrated Nutrient Management program, your Company introduced two unique concepts viz. Mangala Mitra and Mangala Saathi. Under Mangala Mitra, opinion leaders in the villages are identifed and enrolled to educate fellow farmers on various aspects of crop cultivation. Under the Mangala Saathi, the

key channel partners are identifed and are given special attention for promoting INM awareness.

All these efforts have led to the Company achieving a turnover of Rs.100 Crores during the year compared to about Rs. 62 Lakhs achieved during the year 2002-2003 when the INM concept was frst introduced.

In order to meet the increasing demand for PN products, your Company has set up a Specialty Fertilizer manufacturing facility at its factory in Mangalore, to produce Water Soluble Fertilizers and Micronutrient Mixtures. The plant with an annual capacity of 12,000 MTs was commissioned in April 2011. Another facility to produce 10,000 MTs per annum of soil conditioners is under construction and will be commissioned during the current financial year.

PLANT PROTECTION CHEMICALS

As part of its diversification and growth strategy and in order to offer a wider range of agri inputs, your Company introduced Plant Protection (PP) Chemicals in July 2010. As an entry strategy, a collaborative approach was adopted, with your Company marketing the products of reputed pesticide companies through its channel partner network. During the first 9 months of operations, the business registered an impressive turnover of Rs. 12 crores. In the current financial year 2011-2012, in addition to the above arrangement, your Company also plans to launch its own brand of PP products for a few select molecules.

WORKING CAPITAL

During the year, the domestic production of fertilizers and import of fertilizers were almost at the same level as in the previous year. In order to meet its working capital needs, your Company also availed of short term loans from banks that carried lower rate of interest compared to normal cash credit limits. Settlement of subsidy claims was also relatively better during the year. All these factors and efficient working capital management contributed to reduction of interest costs.

FERTILIZER POLICY

Stage -III of the New Pricing Scheme (NPS) for Urea announced by the Government of India in March 2007 lapsed on March 31, 2010. As the new policy is yet to be finalized and announced, the existing scheme has been extended provisionally until further orders.

As per the existing policy, all Naphtha/Furnace Oil/LSHS based units were to convert to gas by March 31, 2010. However, this time limit is expected to be extended upto 31.03.2013 by Government of India, for which an official communication is awaited. A Gas Sale Agreement has been entered into with Indian Oil Corporation for supply of RLNG from Kochi Terminal of Petronet LNG Limited and a Gas Transmission Agreement has been signed with Gail (India) Limited. Based on latest indications, supply of gas to Mangalore is expected to commence by end 2012. Leading consultants have been engaged for the basic engineering study for gas conversion and for the power plant conversion from furnace oil to gas. Your Company has already placed orders with Wartsila, Finland for supply of Dual Feed/NG DG sets to be commissioned in two phases in April 2012 and in April 2013 without affecting the normal production of Urea.

With effect from April 1, 2010, the government introduced a Nutrient Based Subsidy (NBS) policy for Phosphatic and Potassic fertilizers. In terms of this policy, each nutrient content in fertilizer, is assigned a value and the aggregate of these values is considered to arrive at the concession rates. Under NBS, the government announces the rate of subsidy in advance for the full year thereby enabling higher import and sale of fertilizers to meet the market needs.

SUBSIDIARY COMPANY

MCF International Limited, the wholly owned subsidiary of the Company had filed a Scheme, for its amalgamation with the Company, before the Hon'ble High Court of Karnataka, with the effective date of April 1, 2010. This scheme of amalgamation has been sanctioned by the Hon'ble High Court on July 8, 2011.

SAFETY, HEALTH, ENVIRONMENT AND POLLUTION CONTROL

Safety and Health

The Company has obtained Occupational Health and Safety Management System Certification OHSAS 18001 as a part of its commitment to continual improvement. In addition to the periodic audits carried out under the integrated management system, a statutory safety audit was also carried out by cross functional internal auditors. DNV, the certification agency has recertified your Company's OHSAS 18001 system, conforming to the latest 2007 version.

Extensive training programs including rescue operations, usage of personal protective equipment, emergency management, safe handling of LPG at home, awareness training on near miss incident reporting, S,H&E management system, were organized for employees and regular mock drills were conducted to check the emergency preparedness. In addition, fre fghting training was conducted periodically to train the employees as well as contractors' workman. Your Company received the "Second Best Safe Industry" award in the large sector, which was instituted by the Directorate of Factories and Boilers, Govt. of Karnataka.

Environment & Pollution Control

As an ISO 14001 certifed Company, many environmental management programs have been implemented. During the year, your Company installed waste water recovery facility to treat, recycle and reuse the entire quantity of sewage and process effuents, thereby achieving zero liquid effuent discharge.

Your Company has also implemented a rain water harvesting system and sewage treatment plant at its township. The treated sewage water is used for gardening purpose. Continuing with its green initiative, the Company planted an additional 5000 saplings in the green belt area in its factory in Mangalore.

In recognition of these efforts, your Company received the "Environmental protection award for NP/NPK fertilizer plants" for the year 2009-10 instituted by the Fertilizer Association of India.

SOCIAL RESPONSIBILITY

Your Company undertakes its Social Responsibility obligation in its true spirit and has always been actively engaged in the up-liftment/ development of the communities in its operating territory. Your Company has formulated a comprehensive Corporate Social Responsibility (CSR) policy under which Rural Health and Rural Education have been the areas of specific focus during the year.

In line with this philosophy, your Company formulated two schemes viz. "Project Eye Care" intended to prevent/eradicate eye related ailments in identifed rural areas and "Mangala Akshara Mitra" intended to provide basic facilities and infrastructure to rural schools to promote education and to make schooling a pleasant experience. These schemes were implemented in rural and remote locations in the Company's operating territory for the benefit of the poor and needy.

Under "Project Eye Care" two free eye camps each were conducted in collaboration with Justice K S Hegde Charitable Hospital at Sacharipete in Udupi district and Vogga village in Dakshina Kannada district during the year. Over 1000 people attended these eye camps of which about 150 were recommended surgery, to be carried out free of cost by the hospital and about 650 people received free spectacles from your Company.

A free diabetes detection and cardiac check-up camp was held in January, 2011 at the staff club of the Company's colony for the benefit of poor and needy residing nearby. Over 100 persons benefited by the camp where ECG and ECHO tests were conducted free of cost.

Under its "Mangala Akshara Mitra" program, the basic infrastructure that is required, but is lacking in identifed schools in remote locations, was provided by your Company. Those include, desks, tables, chairs, green boards, racks, cupboards, school bags, lunch plates, water glasses and computers. Ten government primary & higher primary schools located in the districts of Bellary, Bijapur, Chamaraja Nagara, Chickkaballapur, Dharwar and Gadag and about 4000 poor students were the beneficiaries under this project.

In addition to the above, your Company organized various cultural activities, felicitated young sports persons, sponsored community development programmes, health awareness camps, sports events, and provided financial assistance, uniforms, computers and sanitation facilities to the neighborhood schools. During the year, your Company conducted several training programs, field demonstrations, crop seminars and krishi melas and organized rural sports and health camps for farmers/ channel partners.

Representatives from the public, government and other public administrative bodies actively supported and participated in all the programs of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE, ETC.

A report in respect of conservation of energy, technology absorption, foreign exchange earnings and outgo as required under Section 217(1) (e) read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is set out as Annexure-1 to this report.

PARTICULARS OF EMPLOYEES

There were no employees, in respect of whom information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is to be provided.

CORPORATE GOVERNANCE

The Company has fully complied with the requirements relating to Corporate Governance as mandated by the Listing Agreements with the Stock Exchanges. A detailed report on Corporate Governance is contained in Annexure-2 to this report.

MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis report is annexed to this report (Annexure-3).

DIRECTORS' RESPONSIBILITY

Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors confrm that:

- the applicable accounting standards have been followed in the preparation of the annual accounts and there are no material departures.

- the accounting policies are in conformity with those generally accepted and have consistently been followed and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit for the year under review.

- proper and sufficient care has been taken 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.

- the annual accounts have been prepared on a going concern basis.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Company's Articles of Association, Mr. S R Gupte and Mr. N Sunder Rajan retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment.

AUDITORS

M/s.K.P.Rao & Company, Chartered Accountants, retire as Statutory Auditors of the Company at the conclusion of the ensuing forty fourth annual general meeting, and being eligible offer themselves for re-appointment.

COST AUDITORS

Mr. PR.Tantri, Cost Auditor has submitted the cost audit report for the financial year 2010-2011 which has been considered by your Directors.

The Cost Audit Report for the financial year ended March 31, 2010 which was due for filing on September 30, 2010 was filed with The Ministry of Corporate Affairs on September 24, 2010.

ACKNOWLEDGEMENT

Your Directors wish to place on record their appreciation for the excellent performance of the employees of the Company during the year.

Your Directors also express their gratitude to the bankers, government agencies, customers, business associates and shareholders for their co-operation and look forward to their continued support in the future.

On behalf of the Board of Directors

New Delhi Vijay Mallya

August 2, 2011 Chairman












Mar 31, 2010

The Directors are pleased to present your Companys Forty Third Annual Report together with the audited statement of accounts for the year ended March 31, 2010.

FINANCIAL HIGHLIGHTS

The financial highlights for the year under review are given below:

(Rs. Crores)

2009-10 2008-09

Sales (including other income) 2081.73 2484.04

EBITDA 130.61 131.85

Interest 23.44 36.00

Depreciation 18.37 16.96

Profit before Tax before exceptional items 88.80 78.89

Loss on sale / diminution in value of Fertilizer Companies GOI Special Bonds 4.27 35.63

Profit before Tax 84.53 43.26

Provision for Tax 28.04 15.09

Profit after Tax 56.49 28.17

Net Worth 429.61* 389.20*

* includes Revaluation Reserve of Rs. 88.35 Crores and Rs. 90.57 Crores respectively.

DIVIDEND

The Board of Directors recommended a dividend of Re.1/- per equity share of Rs.10/- each.

PERFORMANCE

2009-2010 has been yet another year of records, with your Company achieving sales of 1 million metric tonnes of fertilizer sales, highest ever sales of Phosphatics and highest ever profit after tax (PAT).

Sales (including other income) of your Company during the year 2009- 2010 aggregated to Rs. 2081.73 Crores against Rs. 2484.04 Crores in the previous year. Despite a higher sales volume, the turnover was lower, attributable to decrease in the prices of raw materials as well as finished goods. The EBITDA for the year was Rs.130.61 Crores compared to Rs.131.85 Crores during the previous year.

PRODUCTION

Urea

Your Company achieved production of the full re-assessed capacity of 3,79,500 MTs.

Di-Ammonium Phosphate (DAP) and Complex Fertilisers

Your Company achieved the highest ever annual production of 2,82,173 MTs of DAP and NP (20:20:0:13) during the year compared to 2,33,343 MTs in the previous year.

Ammonium Bi-carbonate (ABC)

Production of 15,330 MTs of ABC achieved by your Company was also the highest ever compared to the production of 15,121 MTs during the previous year.

SALES

Your Company achieved a record sale of One Million Metric Tonnes of Fertilizers for the year 2009-10. During the year, your Company sold 3,83,338 MTs of Urea compared to 3,86,836 MTs in the previous year. Sales of DAP and NP [20:20:0:13] amounted to 2,80,413 MTs as against 2,35,566 MTs in the previous year. Sales of traded products also registered significant growth, especially imported DAP at 1,74,670 MTs as against 64,126 MTs in the previous year.

INTEGRATED NUTRIENT MANAGEMENT

Under its Integrated Nutrient Management (INM) initiative, your Company continued its efforts to create awareness about the advantages of balanced use of fertilizers. As a result of the sustained focus of your Company over the last few years, sales from this initiative for the year under review stood at Rs. 72 Crores, representing an increase of 33% over Rs.54 Crores in the previous year.

In addition to providing extension support to farmers and dealers, the INM unit of your Company at Hassan continued with its research activities and produced soil and crop specific grades of fertilizers and soil health enhancers. Farmers using the recommended soil and crop specific products reported better crop quality and significant increase in yields. Your Company will continue its efforts to ensure that awareness of balanced use of fertilizers further increases amongst the farming community.

WORKING CAPITAL

During the year, domestic production as well as imports of phosphatic fertilizers were substantially higher than in the previous year. Nevertheless, on account of lower prices of raw materials as well as of finished products, the overall requirements of working capital limits did not increase. Further, in order to meet its working capital needs, your Company availed of short term loans from banks that carried lower rates of interest compared to normal cash credit limits. Settlement of subsidy claims was also relatively better during the year. All these factors contributed to reduction in interest costs.

During the year under review, the Government of India did not issue any Fertilizer Bonds. However, in order to meet working capital needs, your Company had to liquidate the Fertilizer Bonds issued during the previous year, at a discount, resulting in a loss of Rs.4.27 crores.

FERTILIZER POLICY

Stage-III of the New Pricing Scheme (NPS) for Urea announced by the Government of India in March 2007 expired on March 31, 2010. As the new policy is yet to be finalized and announced, the existing scheme has been extended provisionally.

As per the existing policy, all Naphtha/Furnace Oil/LSHS based units were to convert to gas by March 31, 2010. Your Company is in readiness for conversion, subject to availability of gas. Conclusion of agreements with Indian Oil Corporation, Gas Authority of India Limited for supply of gas and its transportation is in final stages. Based on latest indications, supply of gas to Mangalore is expected to commence by end 2012. Your Company has commissioned a basic engineering study for the purpose of conversion to gas.

The policy in regard to concessions for Phosphatic and Potassic fertilizers was based on import parity price during the year 2009-10. With effect from April 1, 2010, the Government has introduced the Nutrient Based Subsidy (NBS) policy for these fertilizers. In terms of this policy, each nutrient content in fertilizer, is assigned a value and the aggregate of these values is considered to arrive at the concession rates. Besides, an additional subsidy on fortified subsidized fertilizers carrying secondary and micro-nutrients as per the Fertilizer (Control) Order, 1985 [FCO] has also been announced. The Government of India has also issued guidelines for the manufacture and sale of customized fertilizers under clause 20B of FCO to promote balanced plant nutrition and maximize fertilizer use efficiency.

SUBSIDIARY COMPANY

Besides being one of the worlds largest producers of food grains, India ranks second in the world in the production of fruits and vegetables. However, lack of adequate processing, preservation and storage facilities and inadequate supply chain management lead to high post-harvest losses on account of spoilage, wastages and quality deficiencies. On the other hand, increased urbanization and improved standards of living have led to increase in demand for food and food products.

Recognizing the need to improve efficiencies and to address the issue of inadequate post-harvest processing, storage, packing and distribution facilities, your Companys subsidiary MCF International Limited had embarked on an innovative AGRI project to address some of these problems by leveraging its linkages with farmers.

The number of farmers enrolled and the area of coverage under the project increased to 3900 and 13500 acres respectively during the year and the Company achieved vegetable sales of 30MTs per day by the end of the financial year.

The Ministry of Corporate Affairs, Government of India, has exempted your Company from the requirement of attaching the audited accounts of the subsidiary Company to its annual accounts for the year ended March 31, 2010. The annual accounts of the subsidiary Company and the related detailed information will be made available to the holding and subsidiary Companys investors seeking such information at any point of time. The annual accounts of the subsidiary Company is also available for inspection by any investor at the Registered Office of the subsidiary Company as well as your Company and the accounts of the subsidiary Company is also uploaded on the website of your Company.

SAFETY, HEALTH, ENVIRONMENT AND POLLUTION CONTROL

Your Company had obtained Occupational Health and Safety Management System certification OHSAS 18001 as part of its commitment to continuous improvement. The certifying agency, DNV, has recertified the OHSAS 18001 system conforming to the latest version. In addition to the periodic audits carried out under the integrated system, a statutory safety audit was also carried out by Chemical Design Company, Hyderabad.

Extensive training programs including rescue operations, usage of personal protective equipment, emergency management, safe handling of LPG at home, awareness training on near miss incident reporting, S,H&E management system, internal auditor training by DNV were organized for employees and regular mock drills were conducted to review the emergency preparedness.

As in the past, periodic medical examination was conducted for all the employees, which included general physical examination and laboratory tests for blood sugar and lipid profile. Special tests like pulmonary function test for the employees who are exposed to dust and chemicals, audiometry test for those exposed to noise and vision test for those who require high visual acuity at the workplace were also performed.

Effluent Treatment

During the year, the company established a facility to treat, recycle and reuse as process water the entire quantity of sewage and process effluent water, thereby achieving the status of zero liquid discharge. As an ISO 14001 certified company, many environmental management programs were implemented to improve the environmental performance of the Company.

Your company received the "Third Best Safe Industry Award in the Large Sector" instituted by the Directorate of Factories and Boilers, Govt. of Karnataka.

SOCIAL RESPONSIBILITY

The Company has formulated a comprehensive CSR policy covering all areas of its operations. Some of the CSR activities/programs undertaken during the year are set out below:

Flood Relief : During September 2009, several districts of Northern Karnataka experienced the worst ever floods in the history of the State. The heavy torrential rains caused extensive damage to infrastructure and standing crops and resulted in loss of human lives. Your Company, being in the service of the farming community for over three decades in Karnataka, immediately initiated flood relief measures in several villages of North Karnataka by organizing food camps, distributing bare necessities such as utensils, clothes, and blankets in collaboration with the district administration, NGOs as well as Mangala Dealer associations. In addition, several flood affected rural schools were provided with basic requirements like bags, books, sweaters, water filters etc.,

Community Development: Your Company organized various cultural and religious activities, sponsored community development programmes, health awareness camps, sports events, provided financial assistance, uniforms, computers and sanitation facilities to the neighborhood schools and adopted "Sambar Deer" at Pilikula Biological Park.

"The United Kingdom - Mangalore Chemicals & Fertilizers - Tungabhadra Gramin Bank Gram Vikas Trust" was established in 1986. During the year the trust sponsored the provision of desks, writing boards, furniture, cupboards, computers and drinking water facilities to various schools. Your Company provided health care equipments, furniture for the emergency / casualty ward of Vijayanagar Institute of Medical Sciences, Bellary and sponsored a learning center for the female child in Raichur district. Your Company also sponsored a project on Environmental Education and Protection in Rural Area in Ramnagar district.

For the benefit of the farming community and their families in times of distress, the Company has taken an accident insurance for farmers in its operating territory under a Group Insurance Scheme. The scheme covers over 1.7 Lakh farmers and provides insurance cover of Rs.25,000 in cases of death and permanent disability.

During the year, your Company conducted several training programs, field demonstrations, crop seminars and krishi melas and organized rural sports and health camps for farmers/ dealers.

As a part of its corporate responsibility, the Company implemented the rainwater harvesting system at its township in Mangalore and installed a sewage treatment plant to treat the sewage generated. The treated sewage water is used for gardening. The Company has also planted 3000 saplings in the green belt area.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE, ETC.

A report in respect of conservation of energy, technology absorption,

foreign exchange earnings and outgo as required under Section 217(1) (e) read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is set out as Annexure-1 to this report.

PARTICULARS OF EMPLOYEES

Information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is provided in Annexure-2 to this report.

CORPORATE GOVERNANCE

The Company has fully complied with the requirements relating to Corporate Governance as mandated by the Listing Agreements with the Stock Exchanges. A detailed report on Corporate Governance is contained in Annexure-3 to this report.

MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis report is annexed to this report (Annexure-4).

DIRECTORS RESPONSIBILITY

Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors confirm that:

- the applicable accounting standards have been followed in the preparation of the annual accounts and there are no material departures.

- the accounting policies are in conformity with those generally accepted and have consistently been followed and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit for the year under review.

- proper and sufficient care has been taken 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.

- the annual accounts have been prepared on a going concern basis.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Companys Articles of Association, Mr. B S Patil and Mr. Pratap Narayan retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment.

AUDITORS

M/s.K.P.Rao & Company, Chartered Accountants, retire as Statutory Auditors of the Company at the conclusion of the ensuing forty third annual general meeting, and being eligible offer themselves for re- appointment.

COST AUDITORS

Mr. P.R.Tantri, Cost Auditor has submitted the report for the financial year 2009-2010 which has been considered by your Directors.

ACKNOWLEDGEMENT

Your Directors wish to place on record their appreciation for the excellent performance of the employees of the Company during the year.

Your Directors also express their gratitude to the bankers, government agencies, customers, business Associates and shareholders for their co-operation and look forward to their continued support in the future

On behalf of the Board of Directors

Banglore Vijay Mallya

July 21,2010 Chairman

 
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