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Directors Report of National Fertilizers Ltd.

Mar 31, 2013

To, Dear Members,

The behalf of the Board of Directors of your Company, I have the pleasure in presenting the 39th Annual Report on the business and operations of the Company together with the Audited Financial Statements for the Financial Year 2012- 2013.

Your Company was incorporated in the year 1974 for implementation of two fertilizer plants at Panipat and Bathinda with annual installed capacity of 5.11 lakh tonnes of urea each. The commercial production from these plants commenced in 1979. In April, 1978, the Nangal Group of Plants of Fertilizer Corporation of India Limited (FCIL) were transferred to NFL consequent upon reorganization of NFL-FCIL. The Government of India (GoI) in 1984 entrusted the Company to execute the country''s first inland gas based urea project at Vijaipur in Madhya Pradesh, which commenced commercial production w.e.f. 1st July, 1988. Expansion of Vijaipur Plant was taken up in the year 1993 for doubling its capacity. The commercial production from Vijaipur Expansion Plant commenced w.e.f. 31st March, 1997. Company successfully completed the revamping of urea plant at Nangal and commercial production commenced from 1st February, 2001.

Presently, the Company has five urea production plants, one each at Panipat, Bathinda and Nangal and two plants at Vijaipur with a total installed capacity of 35.68 lakh tonnes and has grown to the status of being the second largest producer of urea in the country. This financial year has been a happening year in terms of growth plans of the Company. Capacity Augmentation of Ammonia and Urea Plants undertaken at Vijaipur–I and II Units got completed during the year including installation of Carbon Dioxide Recovery Plant. Company has also implemented the feedstock conversion projects at Panipat, Bathinda and Nangal Units by changing over the feed-stock from fuel-oil to Natural Gas. Since all the five units took up shutdown during the financial year for hooking up and commissioning activities of the projects, urea production was adversely affected.

FINANCIAL HIGHLIGHTS

During the year under review, the Company achieved turnover of Rs. 6747 crore (previous year Rs. 7341 crore). The lower turnover was primarily due to lower urea production as all the Units were under shutdown for hooking up and commissioning activities of the projects. The earnings before interest, depreciation and tax (EBIDTA) at Rs. 74.19 crore were lower than Rs. 342 crore achieved in previous year. The loss before tax was Rs. 230.62 crore (previous year profit Rs. 184.20 crore) and loss after tax was Rs. 170.73 crore (previous year profit Rs. 126.73 crore). The main reasons for loss include: -

- Lower production / sale because of shut-downs taken for commissioning of Urea Capacity Enhancement Projects at Vijaipur and changeover of feedstock from Fuel-oil to Natural Gas at Nangal, Bathinda and Panipat Units;

- Decrease in sale and contribution of industrial products due to non-availability of cheaper ammonia; non- availability of gases; sulphur and argon gas at three Fuel-oil based Units post commissioning.

- Provision for Purchase Tax liability pertaining to previous years.

- Higher interest expenditure mainly due to delay in receipt of subsidy.

BORROWINGS

The short-term borrowings of the company as at 31st March, 2013, stood at Rs. 1703.29 crore including cash credit utilization, short-term loans, working capital demand loan, etc. (Rs. 1383.82 crore as at 31st March, 2012). Delay in receipt of urea subsidy lead to more borrowings for meeting working capital requirements.

For changeover of feed stock from LSHS/FO to Gas at Nangal, Panipat & Bathinda units, Rupee Term Loan of Rs. 3850crore has been arranged from Consortium of 13 Banks with SBI as lead bank. As on 31st March,2013 long term loan of Rs. 3451 crore was outstanding.

For Energy Saving and Urea Capacity Augmentation Project at Vijaipur-I, Urea capacity Augmentation Project at Vijaipur-II and installation of Carbon-Dioxide Recovery (CDR), long term loan was raised by way of 9.42% Secured Redeemable Non-Convertible Taxable Bonds of Rs.100.40 crore; Buyer''s Credit of USD 15.68 million and External Commercial Borrowing (ECB) of USD 50 million.

DIVIDEND

In view of the loss incurred by the Company and considering the fact that three plants at Nangal, Panipat and Bathinda converted to Gas shall get stabilized in next financial year only and future capital expenditure and requirement of contribution of equity in the proposed Joint Venture towards revival of Ramagundam Unit of FCIL, Board of Directors have not recommended any dividend for the financial year 2012-13.

CAPITAL & RESERVES

The Paid-up Capital & Reserves and Surplus as at 31st March, 2013 were Rs.491 crore and Rs.1093.12 crore respectively.

OPERATIONS

Production

The Company produced 32.11 lakh MT of Urea (91.94% of revised proportionate installed capacity of 34.92 lakh MT) against 34.01 lakh MT (105.27%) in CPLY.

Production during the year 2012-13 was lower than the CPLY primarily due to shut down taken at Nangal, Panipat and Bathinda units for hooking up and commissioning of Ammonia Feedstock Changeover Project (AFCP) and shutdown taken at Vijaipur I and II for hooking up and commissioning of Revamp Project.

Input availability

Availability of Administered Pricing Mechanism (APM)/ Non-APM and Panna Mukta Tapti (PMT) Gases got reduced during the 3rd quarter of 2012-13. To sustain production at the higher levels spot gas was procured continuously. Domestic gas is yet to be allocated for three Fuel-oil Units converted to gas. As an interim arrangement, Company is purchasing high cost spot RLNG for Bathinda, Panipat and Nangal Units. Allocation of indigenous gas supply to these Units is being followed up regularly with the Department of Fertilizers ( DoF).

SALES & MARKETING

Urea

Company''s prime business is production and sale of urea. It sold 31.62 lakh tonnes of Urea (including 10.92 lakh tonnes of Neem coated Urea) against 33.89 lakh tonnes (including Neem Coated Urea of 6.40 lakh tonnes) in the previous year. The sale was less due to lower production and limitation of dispatches from Vijaipur Unit owing to insufficient availability of rail wagons.

Industrial Products

The sale of Industrial Products was Rs. 95.63 crore against CPLY of Rs.170.91 crore. The lower sale was attributed to lower production and sale of ammonium nitrate at Nangal due to non-availability of surplus ammonia from Vijaipur Units post completion of revamp projects and increase in the market price of ammonia. Stoppage of generation and sale of industrial gases and sulphur at Nangal, Panipat and Bathinda Units and argon at Panipat post conversion to gas has also affected the sale of industrial products.

Bio-Fertilizers

During the year Bio-fertilizers (liquid & solid) worth Rs. 3.65 crore were sold against Rs. 2.60 crore in the previous year.

Agri-Business

The Company has been making regular forays into diverse agri-based business viz. Seeds, Compost, Bentonite Sulphur and Pesticides. During the year, turnover of Rs. 30.08 crore was achieved compared to Rs. 22.72 crore in the previous year.

Promotion of balanced use of fertilizers

The production and productivity at farm level are continuously deteriorating owing to imbalanced fertilizer usage, mono cropping etc. Further the micronutrients in soil are also depleting at a very alarming rate.

Your Company has been strongly advocating and promoting balanced and efficient use of fertilizers. It has identified soil testing as a primary diagnostic technique towards soil health management and balanced fertilizer use and is playing a pivotal role in educating farmers about benefits of soil test based application of chemical fertilizers, appropriate cropping pattern, the role of organic manure and bio- fertilizers in improving soil health. The programmes undertaken to achieve this objective include farmers in house training at Kisan Vikas Kendras, arranging farmers'' meets with eminent scientists to equip them with requisite knowledge.

Company has set up elaborate facilities for soil testing including 6 static and 4 mobile soil testing vans with capacity to test 50,000 samples annually. The soil samples are collected across Company''s marketing territory, analysed and soil test reports are provided free of cost to farmers in time with fertilizer application recommendations according to soil status and crops to be grown. During the year 2012-13, over 50,000 soil samples were collected and analyzed and reports were provided to the farmers.

Company also undertakes dealers training programmes, field demonstrations, distribution of crop literature, participated in kisan melas advising farmers on fertilizer dosages, use of bio-fertilizers, compost etc for holistic approach to cultivation.

MODERNIZATION AND EXPANSION PROJECTS

Revamp of fuel-oil based plants at Nangal, Bathinda & Panipat.

The Company has undertaken capital schemes for change over of feedstock from Fuel-oil to Natural Gas at Panipat, Bathinda and Nangal involving a total investment of Rs.4066 crore with a completion period of 36 months from the zero date i.e. 29th January, 2010. The revamp plants have been successfully commissioned at Panipat and Bathinda on 24th and 16th January, 2013 respectively. After stabilization of these plants, commercial production was declared w.e.f. 28th and 11th March, 2013 respectively. Nangal unit has been commissioned on 9th April, 2013 and commercial production has been declared on 18th July, 2013.

Capacity Augmentation & Energy Saving Project (ESP) at Vijaipur

The Company has successfully commissioned Capacity augmentation and Energy Savings Projects of Ammonia & Urea plants at Vijaipur-I & II units including installation of Carbon Dioxide Recovery (CDR) plant during 2012-13 at an investment of around Rs. 650 crore. The total urea capacity of Vijaipur Units after commissioning of these projects has been augmented to 20.66 lakh tonnes from 17.29 lakh tonnes per annum, an increase of 20%.

JOINT VENTURE

Joint Venture with KRIBHCO & RCF

Company has a Joint Venture “Urvarak Videsh Limited" with M/s. KRIBHCO and RCF as promoters. The main object of the joint venture company is to explore investment opportunity abroad and within the country in nitrogenous, phosphatic and potassic sectors and to render consultancy services for setting up projects in India and abroad.

Revival of closed units of FCIL

Consequent upon nomination of NFL and EIL, by Government of India, for the revival of Ramagundam plant of Fertilizer Corporation of India, it has been planned to set up a 2200 MTPD Ammonia and 3850 MTPD Urea plant. The project is envisaged to be undertaken at the existing Fertilizer Complex of Ramagundam unit at an estimated cost of INR 4700 crore.

Pre-project activities towards setting-up of Joint Venture between NFL/EIL/FCIL, lining-up of Process Licensor for Ammonia / Urea, finalization of Concessionaire Agreement & Financial Model are in progress.

HUMAN RESOURCE

Strategic HR planning is an important component of Human Resource Management. It links HR Management directly to the strategic plan of the Company in achieving organizational goals and supporting future direction to the organization. A study on Organizational Structure, Performance Management System, Recruitment and Promotion Policies of the Company was conducted by an Expert Committee. The report of the committee is under examination for implementation.

The manpower strength of the Company as on 31st March, 2013 was 4291 comprising 1802 Executives and 2489 Non- Executives. Total manpower includes 231 women employees, which is 5.38% of the total work force.

The Company undertakes several employee welfare schemes related to education, medical, benevolence, housing etc. As a measure towards employee social security, a defined Contribution Superannuation Pension Scheme has been implemented. Company has always supported the participative culture in the management through consultative approach. The efforts to promote employees'' participation in various activities like Suggestion Scheme, Welfare, Safety, interactions between Management and employees'' representatives on various issues continued during the year. Industrial relations in the Company continued to be harmonious during the year. Continuous interaction between the Management and Employees'' representatives contributed in maintaining the harmony.

Training initiatives

To develop the skills and instill behavioural and personality development traits in all supervisory staff and managerial cadre, Company organized a number of training programmes during the year. These training programmes were identified through Performance Management System by systemizing organizational needs with individual needs. In these diverse programmes, 12,574 man-days training was imparted to employees. Apart from in-house training programmes, employees were also nominated for attending external training programmes on contemporary subjects. To promote the efficient use of modern technology, 1288 man-days training was imparted to employees. 493 man- days of training programmes on Sustainable Development were organized. Six officers attended training programmes abroad. Company has undertaken Ammonia Plant Feedstock Changeover from Fuel-oil to Natural Gas at Panipat, Bathinda and Nangal. Training workshops were conducted by various equipment vendors at all the three sites.

Implementation of Official Language

The Company is making continuous efforts for propagation and implementation of Official Language Policy of the Government of India. The quarterly meeting of Official Language Implementation Committee (OLIC) is regularly held in all the Units/Offices of the Company to review the progress. 28 Meetings of OLIC were held, 33 Hindi Workshops were organized in which 789 employees participated. Hindi Pakhwara was organized in all the Units/Offices of the Company to mark Hindi Day. During the year 58 programmes/competitions were held for the promotion of Hindi in which 1132 employees participated. Information Technology is widely used to promote use of official language. Unicode Font has been installed on all the computers and training has been imparted to the employees. Bathinda Unit received Rajbhasha Shield from Town Official Language Implementation Committee. Corporate Office was awarded 2nd prize ''Rajbhasha Shield'' by the Department of Fertilizers.

REPRESENTATION OF SCs/STs, OBCs AND PHYSICALLY DISABLED

Your Company has been implementing reservation policies of Government of India for SCs/STs/OBCs/Persons with Disabilities. Representatives of SCs/STs categories are associated in Recruitment Departmental Promotion Committees. A statement showing representation of employees belonging to Scheduled Castes / Scheduled Tribes / Backward Classes / Physically Disabled categories is appended as Annexure-VIII to this report.

INFORMATION TECHNOLOGY

The Company is making use of information technology (IT) to improve efficiency and productivity to bring transparency in its business functions. Local Area Networks (LAN) are operational at all the Units/Offices. All the Units and Offices are also interconnected through secured MPLS based Virtual Private Network (Wide Area Network). Internet connectivity to the employees at Units and Offices has been provided through Leased Line / Broadband. High-speed data cards have been provided to the Marketing Personnel to upload sales data through internet. The Company is extensively making use of e-procurement, e-payment and e-receipt for bringing in efficiency and transparency. Implementation of Mobile based Fertilizer Monitoring System (mFMS) is under way for use in Marketing Division. mFMS has been introduced by Department of Fertilizers (DoF) to monitor and track the movement of fertilizers from the manufacturing unit to the farm gate and to facilitate implementation of “Direct Cash Transfer of Subsidy" to farmers. Under the system acknowledgement of receipt of fertilizers at wholesaler, retailer and end user, forms the basis for ensuring equitable distribution to the farm sector.

INDUSTRIAL SAFETY, ECOLOGY & POLLUTION CONTROL

Company accords highest priority to Industrial Safety, Ecology & Pollution Control. All manufacturing units are ISO 9001-2000 certified for Quality Management System, ISO-14001 certified for Environment Management System. All the Units have also received OHSAS-18001 Certification for Occupational Health Safety Management System.

Carbon Dioxide Recovery Plant of 450 MTPD capacity has been installed at Vijaipur-I for recovery of carbon dioxide from fuel gases of primary reformer. This has also resulted in reduction in discharge of Greenhouse Gases.

Silo System for collecting fly ash from ESP hoppers using dense phase pneumatic Conveying System have been installed at Panipat, Bathinda and Nangal Units for evacuation of ash. These systems have reduced quantity of ash slurry for disposal and ecological problems associated therewith. This has also helped in saving electrical energy used for pumping of ash slurry.

State of the art safety practices were adopted during the project construction and commissioning of revamp of plants. There was no reportable accident at any of the plant sites. To safeguard the plants from emergencies like fire, explosion, toxic gas release, own site emergency disaster plan is available at the Units.

Recognizing the need to balance human economic development with environment protection, Company has adopted the concept of sustainable development. A separate chapter at Annexure-VI in this report deals at length with your Company''s initiatives and commitment to environment conservation and sustainable development.

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) is an evolving concept and has moved away from being just philanthropic to becoming an integral part of strategy of the company. The Company is committed towards upliftment of under privileged sections of the society and has supported various social and community initiatives touching the lives of a large number of people. Under the umbrella of CSR, Company is engaged in undertaking farmer friendly activities that have helped in improving their socio economic status. The major focus of these programmes is on creating awareness about health and hygiene, children education, women empowerment, skill development for self-employment, water conservation, rain-water harvesting and ground water recharging.

During the year, Company has incurred an expenditure of Rs. 1.47 Crores on CSR initiatives. The expenditure pertained to the carry forward amount of schemes taken up for execution in the previous year. The major CSR initiatives undertaken by your Company are detailed in a separate Annexure-VII.

THE RIGHT TO INFORMATION ACT, 2005

In consonance with the provisions of the Right to Information Act, 2005, Company has taken requisite measures and appointed Appellate Authorities / Public Information Officers / Assistant Public Information Officers at all the Units / Offices of the Company to respond effectively to the requests of the applicants under the Act. The Act aims at bringing in transparency in the functioning of organizations and to meet the objective, your Company has created necessary mechanism. Further, in order to promote institutional transparency within the Company through proactive and effective implementation of the provisions of RTI Act 2005, a Transparency Officer has also been appointed in the Company. During the year, 200 applications were received and the information was provided to the applicants within the scheduled time.

WHISTLEBLOWER POLICY

Your Company relies on transparency and propriety in its business dealings. To take this object further, Company has put in place a Whistle Blower Policy providing for a mechanism to the employees and other stakeholders to report concerns about unethical behaviour, actual or suspected fraud or violation of Code of Conduct or Ethics Policy. The policy provides for adequate safeguards against victimization of employees who avail of the mechanism. During the year, no disclosures have been received under the whistleblower mechanism. The policy is reviewed periodically. No employee has been denied access to the Audit Committee.

VIGILANCE

In Vigilance, focus continued to be given to preventive vigilance. Due thrust was given to maintaining high degree of awareness amongst the employees. Systems and procedures were streamlined to provide timely information. Efforts were undertaken to build confidence across the organization to enable faster decision making. To ensure transparency, emphasis was made on computerization of activities relating to award of contracts, purchases, etc. In line with instructions received from the Department of Fertilizers/Central Vigilance Commission, emphasis is being given on leveraging of technology e.g. e-payment / receipts / procurement / tendering, to facilitate transparency and avoid delays.

During the year, interactions were organized between the vigilance functionaries and the line managers on regular basis, with a view to understand the role of vigilance and to educate them about the policies, guidelines and procedures of the Company. In all the Units, Vigilance Awareness Week was also observed to create an environment of ethical growth in the Company.

AWARDS & ACCOLADES

MoU

Company received “Excellent" rating for the MoU 2011-12, which is 12th excellent rating in a row.

Awards

During the year, Company received following prestigious accolades and Awards.

a) “Shreshtha Suraksha Puraskar" for the year 2011 to the Panipat Unit from National Safety Council (India), Mumbai, amongst the manufacturing sector of Chemicals & Chemical products.

b) National Level Fertilizer Association of India ''Runner-up Award'' for excellence in Safety in Nitrogenous and Complex Fertilizer Plant to the Panipat Unit presented by Shri S.K. Jena, Hon''ble Minister of State for Chemicals & Fertilizers.

MANAGEMENT DISCUSSION & ANALYSIS REPORT

Management Discussion & Analysis Report covering the operations and future prospects of the Company is appended as Annexure-I to this report.

STATUTORY AUDITORS & STATUTORY AUDITORS REPORT

The Statutory Audit of your Company was conducted by M/s. DSP & Associates and M/s. Thakur Vaidyanath Aiyar & Company, Chartered Accountants, who were appointed as Joint Statutory Auditors for the financial year 2012-13 by the Comptroller & Auditor General of India (C&AG). Auditors'' Report on the Accounts of the Company for the financial year ended 31st March, 2013 is at Annexure-II.

The review of Annual Accounts of your Company for the year ended 31st March, 2013 by the C&AG under Section 619(4) of the Companies Act, 1956 forms part of this report as Annexure-III and do not call for any reply as no comments as supplementary to Statutory Auditor Report have been made.

COST AUDIT

Pursuant to the directions of Central Government for audit of Cost Accounts, your company has appointed M/s. Sanjay Gupta & Associates for Nangal, M/s. Ravi Sahni & Co. for Bathinda, V.P. Gupta & Co. for Panipat and M/s. Shome & Bannerjee for Vijaipur-I & II as Cost Auditors for the year ended 31st March, 2013.

As prescribed under the Cost Accounting Records (Report) Rules, 2011, the cost accounting records are being maintained by all the Units of the Company. Consolidated Cost Audit Report and Compliance Replort for the financial year 2011-12 was filed on 20th December, 2012.

CORPORATE GOVERNANCE

The Company believes Corporate Governance is the fountain head of value creation for all stakeholders especially shareholders. The Company has in place a well defined “Corporate Governance Mechanism" which considers the interests of all stakeholders. A separate section on Corporate Governance forming part of this Directors'' Report alongwith the Auditors'' Certificate conforming to the Compliance of Corporate Governance Code as provided in Clause 49 of the Listing Agreement is at Annexure-IV.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Disclosures in terms of Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, in respect of conservation of Energy and Technology Absorption and Foreign Exchange earnings and outgo are at Annexure-V.

PARTICULARS OF EMPLOYEES

During the year under review, none of employees of the Company has drawn remuneration in excess of the limits prescribed under section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975.

Directors'' responsibility statement

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

i. in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed and no material departure has been made therefrom by the Company;

ii. 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 2012-13 and of the profit of the Company for that period;

iii. the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

iv. the Directors have prepared the Annual Accounts on a going concern basis.

DIRECTORS

Ms. Neeru Abrol, Director (Finance) was relieved from her duties on completion of her tenure on 31st December, 2012. Subsequently, Department of Fertilizers vide Orders dated 2nd May, 2013 reinstated Ms. Abrol as Director (Finance) with immediate effect and she rejoined on 10th May, 2013.

Shri Sham Lal Goyal, Joint Secretary, DoF, Director, has ceased to be a Director and Chairman & Managing Director on 5th January, 2013.

Shri R.G. Rajan, Chairman & Managing Director, Rashtriya Chemicals & Fertilizers Limited has taken over the additional charge as Chairman Managing Director of the Company w.e.f. 6th January, 2013.

Shri C.M.T. Britto, Director (Technical), Rashtriya Chemicals & Fertilizers Limited has taken over the additional charge as Director (Technical) of the Company w.e.f. 7th May, 2013.

Shri Vikram Srivastava, Ex-DG, Bureau of Police Research & Development (BPR&D), CRPF / ITBP and Shri M. Raman, Ex-Secretary to the Government of India, have been appointed as Part-time Non-official Independent Additional Directors w.e.f. 6th May, 2013 and shall be holding office as Directors till the ensuing Annual General Meeting. Further, notice has been received u/s 257(1) of Companies Act, 1956 for appointment of Shri Vikram Srivastava and Shri M. Raman as Directors at the Annual General Meeting.

In accordance with the provisions of Article 76(2) of the Articles of Association of the Company, Shri Satish Chandra shall retire by rotation at the Annual General Meeting and being eligible has offered himself for reappointment.

CODE OF CONDUCT

In line with the requirements of Clause 49 of Listing Agreement, the Board Members and the Senior Management Personnel have affirmed compliance with the Code of Conduct for the financial year ended 31st March, 2013.

ACKNOWLEDGEMENTS

The Board of Directors acknowledge their gratitude for the valuable guidance and support received from the various wings of Government of India, in particular Department of Fertilizers, Fertilizer Industry Coordination Committee (FICC), various State Governments, Financial Institutions, Banks, stakeholders and all others whose continued support has been a source of strength to the Company.

Your Directors also acknowledge the suggestions received from Statutory Auditors, Cost Auditors and Comptroller and Auditor General of India and are grateful for their continued support and cooperation.

The Board would like to place on record its appreciation to the hard work, commitment and unstinting efforts put in by the employees at all levels.

For and on behalf of the Board of Directors

Place: New Delhi (R. G. Rajan)

Date: 3rd August, 2013 Chairman & Managing Director


Mar 31, 2012

The behalf of the Board of Directors of your Company, I have the pleasure in presenting the 38th Annual Report on the business and operations of the Company together with the Audited Financial Statements for the Financial Year 2011-2012.

Your Company was incorporated in the year 1974 for implementation of two fertilizer plants at Panipat and Bathinda with annual installed capacity of 5.11 lakh tonnes of urea each. The commercial production from these plants commenced in 1979. In April, 1978, the Nangal Group of Plants of Fertilizer Corporation of India Limited (FCIL) were transferred to NFL consequent upon reorganization of NFL-FCIL. The Government of India (Gol) in 1984 entrusted the Company to execute the country's first inland gas based urea project at Vijaipur in Madhya Pradesh, which commenced commercial production w.e.f. 1st July, 1988. Expansion of Vijaipur Plant was taken up in the year 1993 for doubling its capacity.

Presently, the Company has five urea production plants, one each at Panipat, Bathinda and Nangal and two plants at Vijaipur with a total installed capacity of 32.31 lakh tonnes and has grown to the status of being the second largest producer of urea in the country. Your Company has undertaken revamp of fuel-oil based plants at Nangal, Bathinda and Panipat for changeover of feedstock from Fuel-oil to Natural Gas, which on scheduled completion during 2012-2013 will reduce the cost of production and the subsidy outgo from the Gol substantially. This would also contribute to clean environment. The revamp projects undertaken at Vijaipur-I & II would reduce energy consumption and augment the installed production capacity of the Company by 10.4% to 35.68 lakh tonnes.

FINANCIAL HIGHLIGHTS

During the year under review, your Company achieved a turnover of Rs.7341 crore (including subsidy of Rs.5363 crore) as compared to Rs.5804 crore (including subsidy of Rs.3918 crore) in the previous year, registering an increase of 26%. The increase in turnover is due to higher sales of urea and industrial products and increase in subsidy due to escalation in prices of inputs i.e. petroleum products and natural gas.

The earnings before interest, depreciation and tax (EBIDTA) at Rs.342 crore was higher than Rs.302 crore achieved in previous year inspite of higher salaries and wages, repairs & maintenance, etc. mainly due to higher production/sale of urea and industrial products. The profit before tax was Rs.184.20 crore (previous year Rs. 203.92 crore) and profit after tax was Rs.126.73 crore (previous year Rs.138.50 crore). The reduction in net profit was due to higher incidence of interest expenditure of Rs.66.24 crore (previous year Rs. 9.15 crore) mainly attributed to higher utilization of working capital and short term loans arising out of delay in receipt of subsidy and increase in input prices and interest rates. Interest amounting to Rs.75.09 crore was capitalized during the year.

BORROWINGS

For Ammonia Feedstock Changeover Projects (AFCP) at Panipat, Bathinda and Nangal, Rupee term loan of Rs.3850 crore has been arranged from consortium of 13 Banks with State Bank of India as lead Bank. As on 31st March, 2012, long term loans of Rs.1342 crore were outstanding for the AFCP capital scheme. In terms of Gol Policy notified on 6th March, 2009, the Company is entitled to capital subsidy after successful commissioning of AFCP projects over a period of five years towards project cost, interest on borrowed capital and return on own funds. For financing Urea Capacity Enhancement Projects at Vijaipur, Rs.80.96 crore of Buyers Credit, Rs.100.40 crore through Bonds and Rs.77.45 crore through External Commercial Borrowings (ECBs) have been utilized. The short-term borrowings of the Company as at 31st March, 2012, stood at Rs. 1383.82 crore, including cash credit utilization, short-term loans, working capital demand loan, etc. (Rs.421.84 crore as at 31st March, 2011). Delay in timely receipt of urea subsidy and hike in the prices of inputs (Gas/FO/LSHS) lead to higher working capital borrowings. For identifying and managing the foreign exchange and interest risks, Company has put in place Foreign Currency and Interest Rate Risk Management Policy.

DIVIDEND

Your Company has a consistent track record of dividend payment. So far, your Company has disbursed cumulative dividend of Rs.981.74 crore to the shareholders. The Board of Directors have recommended payment of dividend @ 7.8% (Rs.0.78 per share) for the year 2011-12. The total dividend pay out would be Rs.44.48 crore (including dividend tax of Rs.6.21 crore), and a sum of Rs.12.67 crore has been transferred to the General Reserves.

CAPITAL & RESERVES

The Paid-up Capital and Reserves and Surplus as at 31st March, 2012 were Rs.491 crore and Rs.1264 crore respectively.

OPERATIONS

Production

During the year, your Company produced 34.01 lakh tonnes of Urea compared to 33.80 lakh tonnes in the previous year. This included ever best neem coated urea production of 6.4 lakh tonnes compared to 1.2 lakh tonnes in the previous year. The overall urea capacity utilization was 105.3%. Vijaipur Plants registered ever-best production of 19.14 lakh tonnes surpassing previous best of 18.71 lakh tonnes achieved in 2004-05. Extra production from Vijaipur Plants over and above the installed capacity was 1.85 lakh tonnes. Vijaipur-I and Vijaipur-ll units achieved ever-best Ammonia production of 5.44 lakh tonnes and 5.86 lakh tonnes respectively, surpassing previous best of 5.29 lakh tonnes and 5.60 lakh tonnes in 2005-06 and 2006-07 respectively. Vijaipur-ll plant achieved ever-best urea production of 10.12 lakh tonnes surpassing previous best of 9.74 lakh tonnes in 2006-07.

Due to operational problems, there was a production shortfall of urea at Panipat and Bathinda against the rated capacity, which was partially compensated by additional production of 25.1 thousand tonnes from Nangal.

Company in its endeavour to optimally utilize surplus ammonia from Vijaipur Unit and to produce cost effective/competitive industrial products at Nangal, achieved ever-best production of industrial products during the year.

Input Availability

During the year, Company had to procure spot gas intermittently up to December, 2011 to meet additional requirement of gas at Vijaipur-ll after partial retrofitting in April, 2011 and shortfall arising out of reduced availability of Administered Pricing Mechanism (APM)/Panna Mukta Tapti (PMT) Gas. Supply of additional gas commenced from December, 2011 against allocation made by Gol for Vijaipur. Poor coal quality continues to be an area of serious concern, one of the factors responsible for higher energy consumption at Panipat, Bathinda and Nangal Units, for improvement of which continuous efforts are being made.

SALES & MARKETING

Urea

Company's prime business is production and sale of urea. It sold 33.89 lakh tonnes of Urea (including 6.4 lakh tonnes of Neem coated Urea) against 33.59 lakh tonnes (including Neem Coated Urea of 1.21 lakh tonnes) in the previous year.

Industrial Products

Sales performance in the Industrial Products segment, which include Nitric Acid, Ammonium Nitrate (Lumps & Melt) has been significant at Rs. 171 crore vis-a-vis Rs.122 crore in the previous year, registering a growth of 40%. This included, sales worth Rs.38 crore of Ammonium Nitrate (Melt), a new product marketed this year.

Bio-Fertilizers

During the year Bio-fertilizers (powder and liquid) worth Rs.2.59 crore were sold against Rs.0.87 crore in the previous year. Agri-Business

The Company has been making foray into diverse agri-based business viz. Seeds, Compost, Micorhizza and Bentonite Sulphur. During the year, turnover of Rs.22.72 crore was achieved compared to Rs.10.28 crore in the previous year primarily on account of sale of seeds.

Promotion of balanced use of fertilizers

During the last three decades, the Company has been working closely with farming community by ensuring supply of quality fertilizers and other agri-inputs. Company believes in marketing its products and services through extensive field demonstrations coupled with an effort to build relationships with the end users, the farmers. To promote Company's "Kisan Urea" as a household name, various promotional activities including 100 farmers education programmes, 40 dealers/retailers orientation programmes, 415 field days, 120 block and front line demonstrations were organized during the year. Company participated in 44 kisan melas in its marketing territory spread across 18 states.

Company has four Mobile Soil Testing units attached to Nangal and Vijaipur Units and Lucknow and Bhopal Zonal Offices. It also has five static Soil Testing Laboratories at Nangal, Panipat, Vijaipur, Bhopal and Barabanki. One more static Soil Testing Laboratory is being set up at Balasore in Odisha. Micro Nutrient's Labs at Nangal, Vijaipur and Panipat Units are also being set-up. During the year, 48276 Samples for macro nutrients and 766 samples for micro nutrients were analyzed. 15 Trials on non-pressure Urea Ammonium Nitrate solution have been laid out at Punjab Agriculture University, Ludhiana. 33 Trials on use of Liquid Bio-Fertilizers were conducted at Kisan Vikas Kendras in the marketing territory of the Company.

MODERNIZATION AND EXPANSION PROJECTS

Revamp of fuel-oil based plants at Nangal, Bathinda & Panipat

The Company has undertaken capital schemes for change over of feedstock from Fuel-oil to Natural Gas at Panipat, Bathinda and Nangal involving a total investment of Rs.4066 crore with a completion period of 36 months from the Zero date i.e. 29th January 2010. The commissioning of the project at Nangal is scheduled by the end of December, 2012 and that of Panipat and Bathinda by January, 2013. Capital expenditure of Rs.1546.17 crore towards these projects has been incurred upto 31st March, 2012.

These Projects are being implemented on Lumpsum Turnkey (LSTK) basis. Panipat and Bathinda projects are being implemented by M/s. Larsen & Toubro (L&T) with process licence from M/s. Haider Topsoe Associates. Nangal Project is being implemented by consortium of M/s. Tecnimont SPA Italy and M/s. Technimont ICB, Mumbai with process licence from M/s. KBR. M/s. Projects & Development India Limited (PDIL) has been engaged as Project Management Consultant for all the three projects.

Gas Pipeline

Firm allocation of gas from Gol is awaited to meet the gas requirement after completion of feedstock conversion projects. Company is following up for allocation of indigenous gas, alternatively RLNG shall be utilized for feed. The natural gas pipelines have already been laid and commissioned for Nangal and Bathinda units. Last mile connectivity to Panipat unit is in progress.

Capacity Augmentation & Energy Saving Project (ESP) at Vijaipur

The Company has undertaken Capacity Augmentation of Ammonia & Urea plants at its Vijaipur-I & II units, including installation of Carbon Dioxide Recovery (CDR) plant at an investment of around Rs.650 crore. Commissioning of capacity augmentation of Ammonia and Urea Plants was earlier planned for November, 2011, however, due to delay in supply of certain equipment, the same has been undertaken in April/July, 2012. Ammonia and Urea Revamp Projects of Vijaipur-I have been commissioned on 24th April, 2012. Carbon Dioxide Recovery (CDR) Plant was commissioned on 23rd May, 2012 and Ammonia and Urea Revamp Projects at Vijaipur-ll are likely to be commissioned in July, 2012. The capital expenditure of T426.26 crore has been incurred upto 31st March, 2012.

JOINT VENTURES

Joint Venture with M/s. KRIBHCO & M/s. RCF

Company has a Joint Venture "Urvarak Videsh Limited" with M/s. KRIBHCO and RCF as promoters. The main object of the joint venture company is to explore investment opportunity abroad and within the country in nitrogenous, phosphatic and potassic sectors and to render consultancy services for setting up projects in India and abroad.

Revival of closed units of M/s. FCIL

Government of India on nomination basis has allotted NFL & Engineers India Limited (EIL) and NFL & Steel Authority of India Limited (SAIL) for revival of closed units of FCIL at Ramagundam and Sindri respectively. Separate MoUs have been entered with EIL and SAIL and pre-project activities have been undertaken. First Stage clearance of BIFR for these projects is awaited.

HUMAN RESOURCE

Amongst the three Ms, management of human resource is most important for success of any organization. NFL continues to strive for development of its human resource for realization of its full potential. The total Manpower strength of the Company as on 31st March, 2012 was 4515 comprising of 1942 Executives and 2573 Non Executives. The total manpower includes 242 women employees of which 104 are in Executive cadre.

Various HR initiatives for the benefit of employees have been undertaken including implementation of Defined Contribution Superannuation Pension Scheme, Review of Performance Management System and implementation of Performance Related Pay.

Training Initiatives

During the year, to hone the skills and instill behavioral and personality development traits in all supervisory staff and managerial cadre, Company achieved 18,250 mandays training for employees with the aid of in-house and external training programmes. Training programmes were identified by systemizing organizational needs with individual needs through Performance Management System.

To give exposure to technology change in connection with Ammonia Feed Stock Change over Project being undertaken at Company's three Units, 41 personnel were sent to Copenhagen, Denmark for training principally on Haider Topsoe Technology, which is being put to use at Panipat and Bathinda Units. On site training at KRIBHCO, Hazirafor50 persons was arranged to expose them to the KBR technology being used for Nangal Revamp. Training on Distributive Control System/Emergency Shutdown System at Honeywell Works, Pune was also arranged.

Industrial Relations

Industrial relations in the Company continued to be harmonious during the year. Continuous interaction between the Management and Employees' representatives contributed in maintaining the harmony.

IMPLEMENTATION OF OFFICIAL LANGUAGE

Your Company is continuously making efforts for the propagation and successful implementation of the Official Language Policy of the Union of India. The Official Language Implementation Committees at Unit and Corporate Level regularly held their quarterly meetings to monitor and review the progress made in achieving the targets fixed as per the annual programme of Department of Fertilizers (DoF).

In order to increase the use of Hindi in office work, 32 Hindi workshops were organized during the year in which 710 employees participated. Hindi Pakhwara, on the occasion of Hindi Divas (14th September), was observed in all the Offices/Units of the Company. Various Hindi competitions/programmes were organized during the Hindi Pakhwara in which 325 employees participated. Winners of Hindi Competitions were suitably awarded. 59 Employees were awarded cash prize under the Cash Incentive Scheme for doing maximum work in Hindi. Panipat Unit and Zonal Office Bhopal have been awarded Raj Bhasha Shield by respective Town Official Language Implementation Committees for outstanding work in Hindi.

Information Technology (IT) is being widely used to promote the official language in the various offices of the Company. Bilingual software was provided across the Units to impart working knowledge of Hindi as well as computer training programmes were extensively held to enable employees to use the software.

REPRESENTATION OF SCs/STs, OBCs AND PHYSICALLY DISABLED

Your Company has been implementing reservation policies of Gol for SCs/STs/OBCs/Persons with Disabilities. Representatives of SCs/STs categories are associated in Recruitment of Departmental Promotion Committees. A statement showing representation of employees belonging to Scheduled Castes / Scheduled Tribes / Backward Classes/Physically Disabled categories is appended as Annexure-VIII to this report.

INFORMATION TECHNOLOGY

The Company is making use of information technology (IT) to improve efficiency & productivity in its various business functions. Presently home grown software applications are in use for various business functions. In its endeavour to bring about uniformity in implementation of IT Applications across the company, In-house common Financial Accounting & Payroll Systems based on Oracle were implemented across the company.

Company has implemented Local Area Network (LAN), Multi-protocol Label Switching (MPLS) based Virtual Private Network (Wide Area Network) for connectivity amongst Corporate Office, Units and Marketing Offices.

Internet connectivity to the employees at Units and Offices has been provided through Leased Line / Broadband. High-speed datacards have been provided to the field personnel of marketing to upload sales data through internet.

Company is extensively using the facility of e-procurement, e-payment and e-receipt for bringing efficiency and transparency in the business system. Implementation of Mobile based Fertilizer Monitoring System (MFMS) is under way, which will provide information on the movement of fertilizers from the manufacturers to the retailers.

ENVIRONMENT MANAGEMENT

Company accords highest priority to Industrial Safety, Ecology & Pollution Control. The safety and occupational health of its employees and external stake-holders are of paramount importance and all these attributes are embedded within the core values of the organization. Safety/Environment Audit is carried out at production units from time to time.

Silos for collecting fly ash from ESP hoppers using dense phase pneumatic Conveying System have been installed at Panipat, Bathinda and Nangal Units for evacuation of ash from the plants. All the Units are ISO 9001-2000 certified for Quality Management System, ISO-14001 certified for Environment Management System and have received OHSAS- 18001 certification for occupational health and safety management system.

Recognizing the need to balance human economic development with environment protection, Company has adopted the concept of sustainable development. A separate chapter at Annexure-VI in this report deals at length with your Company's initiatives and commitment to environment conservation and sustainable development.

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) is an evolving concept and has moved away from being just philanthropic to becoming an integral part of strategy of the company. The Company is committed towards upliftment of under privileged sections of the society and has supported various social and community initiatives touching the lives of a large number of people. Under the umbrella of CSR, Company is engaged in undertaking farmer friendly social activities that have helped in improving socio economic status of farming community. The major focus of these programmes is on creating awareness about health and hygiene, children education, women empowerment, skill development for self-employment, water conservation, rain-water harvesting and ground water recharging.

During the year 2010-11 and 2011-12, Company earmarked Rs.3 crore and Rs.3.25 crore respectively for CSR activities, against which till 31st March, 2012, an expenditure of Rs.1.90 crore has been incurred and Rs.3.19 crore stands committed towards activities under execution. The unspent amount has been carried over to 2012-13. The major CSR initiatives undertaken by your Company are detailed in a separate Annexure-VII.

THE RIGHT TO INFORMATION ACT, 2005

In consonance with the provisions of the Right to Information Act, 2005, Company has appointed Appellate Authorities/Public Information Officers/Assistant Public Information Officers at all the Units/Offices of the Company to respond effectively to the requests of the applicants under the Act.

In synchronization with the directions of Central Information Commission (CIC), for promotion of Institutional transparency within the Public Authority through proactive and effective implementation of Section 4 of the RTI Act, 2005, the Company has also appointed a Transparency Officer.

Company has created necessary mechanism to meet the objective to bring out transparency in the functioning of organization as envisaged by RTI Act.

WHISTLE BLOWER POLICY

Your Company relies in transparency and propriety in its business dealings. To take this object further, Company has put in place a Whistle Blower Policy providing for a mechanism to the employees and other stakeholders to report concerns about unethical behaviour, actual or suspected fraud or violation of Code of Conduct or Ethics Policy. The disclosures under the Policy are to be made to Ethics Committee Chaired by Director (Finance). In case of conflict of interest, the whistle blower can directly approach the Chairman of the Audit Committee. The policy provides for adequate safeguards against victimization of employees who avail of the mechanism. During the year, no disclosures have been received under the whistle blower mechanism.

VIGILANCE

In Vigilance, focus continued to be given to preventive vigilance. Due thrust was given to maintaining high degree of awareness amongst the employees. Apart from streamlining the systems and providing flexibility to the Units to perform better, efforts were made to build confidence across the organization to facilitate faster decision making.

Emphasis was on for computerization of activities relating to award of contracts, purchases, etc. to ensure transparency. In line with instructions received from the Department of Fertilizers/Central Vigilance Commission, emphasis is being given on leveraging of technology e.g. e-payments/ receipts/procurement/tendering to facilitate transparency and avoid delays.

Regular interactions were organized between the vigilance functionaries and the line managers to understand the role of vigilance and to educate them on the policies, guidelines and procedures of the Company. In order to impart proper training to the employees, a detailed programme was prepared for organizing training programmes/workshops related to Vigilance activities at various offices/Units of the Company. Vigilance Awareness Week was observed at all the Units involving all employees to create an environment of ethical growth in the Company.

AWARDS & ACCOLADES MoU

Company has received "Excellent" rating for the MoU 2010-11, which is eleventh excellent rating in a row.

Awards

During the year, Company and its employees received number of prestigious Accolades and Awards.

a) First Award for excellence in 'Cost Management' in the category of Large Public Sector Enterprises (PSEs) for 2010 from the Institute of Cost Accountants of India.

b) Panipat Unit was conferred as the 'WINNER' for the year 2009 & 'RUNNERS-UP' for the year 2008 by the Government of Haryana for "Lowest Accident Frequency rate" for Panipat Unit.

c) Ms Neeru Abrol, Director (Finance) was awarded "Best Business Achiever" Award in Woman Category by the Institute of Chartered Accountants of India.

d) Scope Excellence Award 2009-10 was awarded to Ms. Neeru Abrol, Director (Finance) for "Outstanding Woman Manager" among all the CPSEs, which was presented by Hon'ble Prime Minister of India at Vigyan Bhawan, New Delhi.

MANAGEMENT DISCUSSION & ANALYSIS REPORT

Management Discussion & Analysis Report covering the operations and future prospects of the Company is appended as Annexure-I to this report.

STATUTORY AUDITORS & STATUTORY AUDITORS REPORT

The Statutory Audit of your Company was conducted by M/s. DSP & Associates and M/s. Thakur, Vaidyanath Aiyar & Co., Chartered Accountants, who were appointed as Joint Statutory Auditors for the financial year 2011-12 by Comptroller & Auditor General of India (C&AG). Auditors' Report on the Accounts of the Company for the financial year ended 31st March, 2012 is at Annexure-ll.

The review of Annual Accounts of your Company for the year ended 31st March, 2012 by the C&AG under Section 619(4) of the Companies Act, 1956 forms part of this report as Annexure-lll and do not call for any reply as no comments as supplementary to Statutory Auditor Report have been made.

COST AUDIT

Pursuant to the directions of Central Government for audit of Cost Accounts, your company has appointed Shri S.D.M. Nagpal for Nangal, M/s. Sanjay Gupta & Associates for Bathinda, Shri Shome & Bannerjee for Panipat and M/s. Chandra Wadhwa & Co. for Vijaipur-I & II as Cost Auditors for the year ended 31st March, 2012.

As prescribed under the Cost Accounting Records (Report) Rules, 2001, the cost accounting records are being maintained by all the Units of the Company.

The Cost Audit Reports for the financial year 2010-11 were filed as follows:-

Unit Date of filing of Report

Nangal 05.09.2011

Bathinda 16.09.2011

Vijaipur I 05.09.2011

Vijaipur II 05.09.2011

Panipat 12.09.2011

CORPORATE GOVERNANCE

The Company believes Corporate Governance is the fountain head of shareholder's value creation. The Company has in place a well defined "Corporate Governance Mechanism" which considers the interests of all stakeholders. A separate section on Corporate Governance forming part of this Directors' Report alongwith the Auditors' Certificate conforming to the Compliance of Corporate Governance Code as provided in Clause 49 of the Listing Agreement is at Annexure-IV.

REPORT ON ENERGY CONSERVATION,TECHNOLOGY ABSORPTION & FOREIGN EXCHANGE EARNINGS AND OUTGO

Disclosures in terms of Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, in respect of conservation of Energy and Technology Absorption and Foreign Exchange earnings and outgo are at Annexure-V.

PARTICULARS OF EMPLOYEES

None of employees of the Company is drawing remuneration in excess of the limits prescribed under section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975.

DIRECTORS' RESPONSIBILITY STATEMENT

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

i. in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed and no material departure has been made there from by the Company;

ii. 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 2011-12 and of the profit of the Company for that period;

iii. the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

iv. the Directors have prepared the Annual Accounts on a going concern basis.

DIRECTORS

Shri Satish Chandra, Joint Secretary, DoF, Director on the Board of the Company held the Additional Charge as Chairman & Managing Director from 31st March, 2011 to 23rd December, 2011.

Shri Munikoti Niranjan Rao, a practicing Chartered Accountant who was appointed as an Additional Director on the Board on 6th May, 2011, has been elected as Director at the previous AGM held on 12th September, 2011.

Shri Suresh Chandra Gupta, Joint Secretary, DoF has been appointed as Additional Director w.e.f. 12th September, 2011 and Shri Sham Lai Goyal, Joint Secretary, DoF has been appointed as Additional Director and assigned the additional charge as Chairman & Managing Director since 23rd December, 2011.

Notice has been received u/s 257(1) of Companies Act, 1956 for appointment of Shri Suresh Chandra Gupta and Shri Sham Lai Goyal as Directors at the Annual General Meeting.

In accordance with the provisions of Article 76(2) of the Articles of Association of the Company, Shri Munikoti Niranjan Rao shall retire by rotation at the Annual General Meeting and being eligible has offered himself for reappointment.

CODE OF CONDUCT

In line with the requirements of Clause 49 of Listing Agreement, the Board Members and the Senior Management Personnel have affirmed compliance with the Code of Conduct for the financial year ended 31st March, 2012.

ACKNOWLEDGEMENTS

The Board of Directors acknowledge their gratitude for the valuable guidance and support received from the Gol in particular DoF, Fertilizer Industry Coordination Committee (FICC), various State Governments, Financial Institutions, Banks, stakeholders and all others whose continued support has been a source of strength to the Company.

Your Directors also acknowledge the suggestions received from Statutory Auditors, Cost Auditors and Comptroller and Auditor General of India and are grateful for their continued support and cooperation.

The Board would like to place on record its appreciation to the hard work, commitment and unstinting efforts put in by the employees at all levels.

For and on behalf of the Board of Directors

(Sham Lai Goyal)

Place: New Delhi Chairman & Managing Director

Date: 25th July,2012


Mar 31, 2011

Dear Members,

The Directors are pleased to present the 37th Annual Report on the business and operations of the company together with the audited accounts for the year ended March 31,2011.

Financial Highlights

During the year under review, the Company achieved turnover of Rs. 5791 crore (previous year Rs. 5091 crore). The profit before tax was X 203.92 crore (previous year Rs. 259.95 crore) and profit after tax was Rs. 138.50 crore (previous year Rs. 171.51 crore). The decrease in profit over previous year is mainly due to higher receipt of subsidy arrears during the previous year and decrease in interest income. This has been off set by higher production, lower energy consumption, and higher sale of Industrial Products. The total borrowings of the company as at 31st March, 2011, stood at Rs. 613.06 crore (Rs. 403.16 crore as at 31 * March, 2010). The borrowings include long term loan of Rs. 150 crore to finance the under implementation capital scheme of change over of feed stock from Fuel-oil to Natural Gas at Nangal, Bathinda and Panipat and buyers credit of Rs. 41.22 crore for Urea capacity enhancement projects at Vijaipur. The cash credit utilization was Rs. 343.84 crore and short term loan of Rs. 78 crore was outstanding as on that date.

Dividend

The Directors have recommended a dividend of Rs.0.85 per share (previous yearRs.1.05 per share) subject to approval of the members. The total dividend pay-out is Rs.48.46 crore (including dividend tax of Rs.6.76 crore) and accounts for 30% of profit after tax. A sum of Rs.13.85 crore has been transferred to the general reserve during the year (previous year 17.15 crore).

Operations

During the year, your company produced 33.80 lakh tonnes of Urea (104.06% of installed capacity), including 1.49 lakh tonnes of additional production from Vijaipur Plants, compared to 33.30 lakh tonnes in the previous year. Vijaipur units achieved ever-best yearly production of Urea and Ammonia at 18.78 lakh tonnes and 10.92 lakh tonnes respectively, which was 108.6% and 108.8 % of installed capacity. The three fuel oil based plants achieved 100% capacity utilization on cumulative basis. The production beyond 100% capacity utilization in fuel oil based plants is not economically viable in terms of Pricing Policy of Urea. The company achieved ever-best Bio-Fertilizers production of 231 tonnes during the year against earlier best production of 226 tonnes in 2009-10. Ever best lower energy consumption of 9.446 Gcal/tonne of urea was achieved at Nangal during 2010-11 surpassing the previous best lowest energy consumption of 9.505 Gcal/tonne of urea in 2008-09. The percentage share of NFL in urea production in the country has been estimated at 15.4%. Company has also started the production of foundation and certified seeds under a pilot project.

Sales & Marketing

Company sold 33.59 lakh tonnes of Urea (including Neem coated Urea of 1.20 lakh tonnes) against 33.78 lakh tonnes (including Neem Coated Urea of 0.38 lakh tonnes) in the previous year. Inspite of marginal drop in sales quantity mainly due to limitation of railway wagons, the sales turnover including subsidy for the year was Rs. 5791 crore, an increase of 14% overRs.5091 crore in the previous year. The increase in turnover is due to increase in subsidy resulting from increase in the prices of petroleum products and revision in the price of APM Gas from 1st July,2010, higher sales of industrial products, etc. Bio-fertilizers sales at 219 tonnes saw a growth of 11% over the previous year at 196 tonnes. Industrial Product sales were of the value of Rs.115 crore in 2010-11 recording a growth of 17% over previous year.

Company sold 0.50 lakh tonnes of imported Murate of Potash (MOP). It has also ventured into trading of certified seeds and sold 5502 tonnes of wheat, soyabean and paddy seeds with a turnover of Rs. 9.07 crore. Company also sold mycorrhiza and compost. In agro-chemicals, the Company saw a turnover of Rs. 1.03 crore and efforts are being made for trading of Zinc Sulphate and Ventonite Sulphur.

Company signed an MoU with M/s PT PUPUK SRIWIDJAJA, an Indonesian firm regarding procurement of around 3 lakh tonnes of Urea and 2.50 lakh tonnes of NPK per annum for a period of two years.

The Company undertook various Agriculture extension activities during the year. Krishi melas, exhibitions, Crop Seminars, Farmers' & Dealers' Training Programmes and study tours were organized to disseminate information regarding improved farm technology and establish direct communication with the farmers as also to educate the farmers on the balanced use of fertilizer and its timely application besides providing guidance on pesticides and fungicides. Under orientation programmes for dealers/retailers and farmers on balanced fertilization to optimize crop productivity, a total of 2045 dealers/retailers and 5351 farmers were covered during the year. The Company undertook 409 block and frontline demonstrations and 182 R&D trials on different crops in different areas. During the year, 17520 farmers were trained and 59,970 soil samples were tested, and analyzed. The Company participated in 42 Krishi Melas and Exhibitions. During the year, 15 'Krishi Sewa Kendras' were set-up and 27 solar lights distributed. Company is establishing a Soil Testing Laboratory at Balasore, Odisha at a cost of Rs. 70 lakhs under the National Project on Soil Health and Fertility of Govt, of India. The Company has 4 mobile and 5 static Soil Testing Laboratories. The Laboratories are used for Soil Testing and analysis to make balanced use of fertilizers by the farming community.

Modernization and Expansion Projects

With a view to consolidate its position as a market leader in Urea, projects of about Rs. 4700 crore are at various stages of implementation in Company's various plants. The major ongoing schemes are:

Revamp of fuel-oil based plants at Panipat, Bathinda & Nangal

The Company has undertaken revamp of fuel-oil based plants at Panipat, Bathinda & Nangal for change over of feedstock from Fuel-oil to Natural Gas. These projects involve a total investment of Rs. 4066 crore and a completion period of 36 months from the Zero date i.e. 29th January 2010. These projects are being implemented on lumpsum turn key (LSTK) basis. Panipat and Bathinda projects are being implemented by M/s. Larsen & Toubro (L&T) with process licence from M/s. Haider Topsoe. Nangal Project is being implemented by consortium of M/s. Tecnimont SPA Italy and M/s. Technimont ICB, Mumbai with process licence from KBR. M/s. Project & Development India Limited (PDIL) has been engaged as Project Management Consultant for all these three projects. The projects are on schedule.

Capacity Augmentation & Energy Saving Project (ESP) at Vijaipur

The Company has undertaken Capacity augmentation of Ammonia & Urea plants at Vijaipur-I & II units including installation of Carbon Dioxide Recovery (CDR) plant at an investment of around Rs.650 crore. The total urea capacity of Vijaipur units after commissioning of the project shall be 20.66 lakh tonnes per annum against 17.29 lakh tonnes per annum at present. Capacity Augmentation of Ammonia & Urea shall be completed by November, 2011 and the CDR Plant shall be commissioned by June, 2012.

Human Resource Management

The Company has always believed that human resource is its most important asset and continues to work for its development and realisation of its potential. To achieve growth and to foster motivational climate, several initiatives were taken up during the year. Modified Performance Related Pay Scheme for Executives and Non-Executives has been implemented and Group Productivity Allowance Scheme has also been introduced. The Company has introduced Employees Economic & Social Rehabilitation Scheme, which protects the welfare of the family in case of demise/permanent disablement of employee during service. A new Pension Scheme for the benefit of employees is also in the process of implementation.

During the year, to inculcate leadership qualities with high values, moral and ethics in all supervisory staff and managerial cadre, Company achieved 8781 and 11802 man days training for Executives and Non-Executives, respectively by deputing employees for external and in-house programmes. Manpower strength of the company as on 31.03.2011 was 4596 comprising of 1877 Executives and 2719 Non-executives.

The Employer-Employee relationship continued to be harmonious during the year. There was no loss of production due to any adverse IR situation. The schemes for employees' participation in Management continue to function successfully. There were continuous interactions between the Management and employees' representatives on various issues keeping in view the best interest of employees and the Company.

The Company continues to make efforts for improving employees' health, well-being and welfare and has taken steps for providing recreation, education and general welfare of employees.

Implementation of Official Language

The Company is making all efforts to ensure the implementation of Official Language policy of the Government of India. The targets fixed in the Annual Programme issued by the Department of Official Language, Government of India have been achieved. A number of workshops, competitions and pakhwaras were organized to encourage employees to work in Hindi. Information Technology is being widely used to promote the official language in the offices. The Company continued to win awards in implementing the National Language. Panipat Unit received Raj Bhasha Shield in Hindi Language from 'NagarRajbhashaKaarynvan Samiti' Panipat for 2009.

Awards & Accolades

Your Company excelled in performance in various areas, which got recognition from various quarters during the year. The company has received "Excellent" rating for the MoU 2009-10 which is tenth excellent rating in a row.

Company has won the following prestigious awards during 2010-11 :-

ICWAI Award 2009 for excellence in cost management for Bathinda Unit.

National Safety Award 2008 for accident free year and lowest average frequency rate from Ministry of Labour and Employment, New Delhi and Prashansa Patra National Safety Award 2009 from National Safety Council for VijaipurUnit.

Safety Award Suraksha Puraskarfrom National Safety Council of India for the year 2009 for Panipat Unit.

Environment Management

The Company accords highest priority to Industrial Safety, Ecology & Pollution Control and has adopted 3R's approach i.e. reduce, reuse, recycle in an effort to have zero effluent discharge plants. Company has adopted an extensive afforestation programme. All the statutory standards are met by respective units.

Silo system for collecting fly ash from ESP Hoppers using dense phase pneumatic conveying system has been installed at Panipat, Bathinda and Nangal Units for evacuation of ash from the plants. This has helped to contain the ecological concerns in fly ash disposal.

All the Units are ISO 9001-2000 certified for Quality Management System, ISO-14001 certified for Environment Management System and have received OHSAS-18001 certification for occupational health and safety management system.

Company is putting up a Carbon Dioxide Recovery Plant of 450 MTPD capacity for recovery of carbon dioxide from Flue Gases of primary reformer at Vijaipur. This will help in reduction of discharge of greenhouse gases.

Information Technology

The Company is making use of information technology in its business functions. A consultant has been appointed to provide advisory services on implementation of Enterprise Resource Planning. A preliminary report including ERP strategy, road map and cost benefit analysis on ERP implementation has already been received.

On IT infrastructure front, the Company has provided wide Local Area Network (LAN) at all the units and offices for integration of local computers and servers, a MPLS based Virtual Private Network (Wide Area Network) to provide a secured and scalable connectivity amongst Corporate Office, Units and Marketing Offices. IP enabled services like email, internet browsing, FTP Server, etc. has been provided to the employees. Field Staff of Marketing Division have been provided with high-speed data cards/broadband connections. The Company is extensively using the facility of e- procurement, e-payment and e-receipt for bringing efficiency and transparency in the business system. DSLAMs/ ADSL Routers have been provided at the Units for LAN connectivity to remote locations through internal exchanges.

Corporate Social Responsibility

The Company is committed towards up-liftment of under privileged Section of the Society and has supported various social and community initiatives touching the lives of large number of people. The Company has identified CSR activities in economic, environmental, health and social areas and had earmarked Rs.3 crores towards CSR activities during the financial year 2010-11. Separate budgets and achievement targets have been fixed for each CSR initiative. The unspent budget from 2010-2011 has been carried forward to the next financial year.

Roadmap was developed to undertake integrated development of 9 villages situated in the vicinity of our Plants/Offices. Baseline survey has been completed in all the Units/ Offices of the Company. Activities identified under CSR like digging of tube well for supplying of potable water, laying pipelines for distribution of water, Construction of concrete approach roads, Anganwadies, kitchen sheds, toilets, overhead water tanks, carrying out various civil jobs in nearby villages, construction of boundary wall, Preparation of Volley ball play ground, installation of submersible tube well, procurement of furniture for distribution in nearby schools etc. are under progress.

Action to line up a contract to construct a Multipurpose Women Empowerment Centre on Panchayat land of Nangal Unit, appointment of agencies for imparting vocational training / stitching training to women in nearby villages is also under process.

17 nos. Solar Street Lights have been installed in Village Sivian, Bathinda. Further, procurement of 35 nos. of solar lights for installation in nearby villages is under process.

100519 saplings have been planted during the year in the vicinity of Company's plants and units. Company's manufacturing units at Vijaipur, Panipat, Bathinda and Nangal also carried out various useful activities for the benefit of socially and economically weaker sections of the society in the surrounding areas of the respective unit. Health awareness Programmes/Medical Camps were organized. In addition, financial aid, ceiling fans, sewing machines etc. were also provided to the poor and needy persons of nearby villages.

In addition, Company extended financial assistance to Bitnoti College, Orissa for construction of one Auditorium-cum- Gallery Class Room. Mayurbhanj is a tribal dominated backward district of Odisha. The objective of construction of auditorium is to prepare students of backward tribal areas to face the competitive world by developing their presentation skills, public speaking and entrepreneurship.

Balasore is a tribal dominated backward district of Orissa and Utkal Bal Ashram is one of the oldest and reputed orphanage of Balasore. This Ashram was established in the year 1944 and has been rendering valuable services to about 250 orphan children. Company is extending a contribution for construction and renovation of Utkal Bal Ashram.

As in the past, the Company continued to facilitate the farming community in improving the crop productivity. The Company also continued its efforts to improve the living standard of socio-economically weaker sections of the society.

The Right to Information Act 2005

In consonance with the provisions of the Right to Information Act, 2005, Company has taken requisite measures and appointed Appellate Authorities/Public Information Officers/Asstt. Public Information Officers at all the Units/Offices of the Company in order to respond effectively to the requests of the applicants under the Act. The Act aims at bringing out transparency in the functioning of organizations and the Company has created necessary mechanism to meet the objective.

Vigilance

Vigilance Division endeavored for evolving and effectively implementing preventive techniques including transparency, accountability, fair play, objectivity and timely response in dealing with matters relating to public administration.

All systems and processes for deliverance of services are being synchronized through use of technology like effecting e-payments to vendors, e-receipts, publishing complete details of tenders on website, e-procurement, reverse auction, etc.

To impart proper training to the employees, yearly calendar was prepared for organizing training programmes/workshops. Special emphasis was laid by organizing workshops on leveraging technology and disciplinary matters through external faculties. Vigilance Awareness Week was observed at all Units/Offices involving all employees to create an environment of ethical growth in the organization.

Management Discussion & Analysis Report

Management Discussion and Analysis Report covering the operations and future prospects of the company is at Annexure-I.

Statutory Auditors & Statutory Auditors Report

M/s. S.P. Chopra & Co. and M/s. DSP & Associates, Chartered Accountants, were appointed as Joint Auditors for the financial year 2010-11 by the Comptroller & Auditor General of India. The Statutory Auditors' Report on the Accounts of the Company for the financial year ended 31 * March, 2011 is at Annexure-I I.

The Comptroller & Auditor General of India (CAG) has given Nil comments on the accounts of the Company for the year ended 31st March, 2011. under Section 619(4) of the Companies Act, 1956. A copy of the comments is at Annexure-lll.

Cost Audit

As prescribed under the Cost Accounting Records (Report) Rules, 2001, the cost accounting records are being maintained by all the Units of the Company. Cost Audit for 2010-11 has been completed.

The Cost Audit Reports for the financial year 2009-10 in respect of the units was filed as follows:-

Unit Date of filing of Report

Nangal 18.8.2010

Bathinda 18.8.2010

Vijaipurl 19.8.2010

Vijaipurll 19.8.2010

Panipat 25.8.2010

Corporate Governance

The Company believes Corporate Governance is the fountain head of shareholder's value creation. The Company has in place a well defined "Corporate Governance Mechanism" which considers the interests of all stakeholders. A separate section on Corporate Governance forming part of this Directors' Report alongwith the Auditors' Certificate conforming the Compliance of Corporate Governance Code as provided in Clause 49 of the Listing Agreement is at Annexure-IV.

Report on Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo.

Disclosures in terms of Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, in respect of Conservation of Energy and Technology Absorption & Foreign Exchange Earnings and Outgo are at Annexure-V.

Statistical information on employees belonging to Scheduled Castes/Scheduled Tribes Categories

The information with regard to the employees belonging to Scheduled Castes / Scheduled Tribes is annexed at Annexure-VI.

Particulars of employees

None of employees of the company is drawing remuneration in excess of the limits prescribed under section 217(2A) of the Companies Act, 1956 read with companies (Particulars of Employees) Rules, 1975.

Directors' Responsibility Statement

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

i. in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed and no

material departure have been made therefrom by the Company;

ii. 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 2010-11 and of the profit of the Company for that period;

iii. the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

iv. the Directors have prepared the Annual Accounts on a going concern basis.

Board of Directors

The position with regard to the Board of Directors since the last report is as follows:-

Shri Sudhir Bhargava ceased to be Director w.e.f. 3rd May, 2010.

Shri Deepak Singhal, Joint Secretary, Department of Fertilizers joined as a Director w.e.f. 27th May, 2010.

Shri Rajesh Kumar Aggarwal, joined as Director (Technical) on 2nd June, 2010.

Shri N.K. Goyal, Shri S.A.T. Rizvi and Dr. S.K. Bhattacharyya ceased to be Directors w.e.f. 29th January, 2011.

Capt. Pavan Kumar Kaul, ex-Executive Director, Container Corporation of India Ltd. has joined as Director (Marketing), w.e.f. 7th February, 2011.

Shri V.K. Sharma ceased to be Director and Chairman & Managing Director w.e.f. 23"1 February, 2011.

Shri Deepak Singhal, Joint Secretary, Department of Fertilizers and a Director on the Board of the Company held the additional charge of the position of Chairman & Managing Director from 25th February, 2011 to 17th March, 2011. He ceased to be a Director and Chairman & Managing Director of the Company w.e.f. 17th March, 2011.

Shri Satish Chandra, Joint Secretary, Department of Fertilizers and Director on the Board of the Company has been holding the additional Charge as Chairman & Managing Director since 31st March, 2011.

Shri Munikoti Niranjana Rao, a practicing Chartered Accountant has been appointed as an Independent Director on the Board w.e.f. 6.5.2011.

Board places on record its deep appreciation for the valuable services rendered by Shri Sudhir Bhargava, Shri N.K. Goyal, Shri S.A.T. Rizvi, Dr. S.K. Bhattacharyya, Shri V.K. Sharma and Shri Deepak Singhal during their association with the Company.

In accordance with the provisions of Article 76(2) of the Articles of Association of the Company, Shri Satish Chandra shall retire by rotation at the Annual General Meeting and being eligible has offered himself for reappointment.

In accordance with provisions of Section 257 of the Companies Act 1956, a notice has been received for appointment of Shri Munikoti Niranjana Rao as Director at the Annual General Meeting.

Acknowledgements

The Board of Directors acknowledge their gratitude for the valuable guidance and support received from the Government of India in particular Department of Fertilizers, Fertilizer Industry Coordination Committee (FICC), various State Governments, Financial Institutions, Banks, stakeholders and all others whose continued support has been a source of strength to the Company.

The Board would like to place on record its appreciation to the hard work, commitment and unstinting efforts put in by your Company's employees at all levels.

For and on behalf of the Board of Directors

(Satish Chandra) Chairman & Managing Director

Place: New Delhi Date: 29th July, 2011

 
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