Rashtriya Chemicals & Fertilizers: 1. Industry trends: India is primarily an agriculture based economy.

The agricultural sector and its other associated spheres provide employment to a large section of the country's population and contribute about 25% to the GDP. The Indian Fertilizer Industry is one of the allied sectors of the agricultural sphere. India has emerged as the third largest producer of nitrogenous fertilizers. The adoption of back to back Five Year plans has paved the way for self sufficiency in the production of food grains. In fact production has gone up to an extent that there is scope for the export of food grains. This surplus has been facilitated by the use of chemical fertilizers. The large scale use of chemical fertilizers has been instrumental in bringing about the green revolution in India. The fertilizer industry in India began its journey way back in 1906. During this period the first Single Super Phosphate (SSP) factory was established in Ranipet in Chennai. It had a capacity of producing 6000 MT annually. The Indian government has devised policies conducive to the manufacture and consumption of fertilizers. Numerous committees have been formed by the Indian government to formulate and determine fertilizer policies. The dramatic development of the fertilizer industry and the rise in its production capacity has largely been attributed to the favorable policies. This has resulted in large scale investments in all three sectors viz. public, private and co-operative. The fertilizer industry presents one of the most energy intensive sectors within the Indian economy and is therefore of particular interest in the context of both local and global environmental discussions. Increases in productivity through the adoption of more efficient and cleaner technologies in the manufacturing sector will be most effective in merging economic, environmental, and social development objectives. Issues of productivity growth and patterns of substitution in the fertilizer sector as well as in other energy intensive industries in India have been discussed from various perspectives. Historical estimates vary from indicating an improvement to a decline in the sectors productivity. The variation depends mainly on the time period considered, the source of data, the type of indices and econometric specifications used for reporting productivity growth. Regarding patterns of substitution most analyses focus on interfuel substitution possibilities in the context of rising energy demand. Not much research has been conducted on patterns of substitution among the primary and secondary input factors: Capital, labor, energy and materials. However, analyzing the use and substitution possibilities of these factors as well as identifying the main drivers of productivity growth among these and other factors is of special importance for understanding technological and overall development of an industry. India is the fourth largest producer as well as consumer of fertilizer in the world. With population growing at a fast rate, food production was given highest priority in India since the 1960s (New Agricultural Strategy). Although Indias soil is varied and rich, it is naturally deficient in major plant nutrients (nitrogen, phosphate and potassium). Growth in chemical fertilizer production and consumption therefore presents the single largest contributor to agricultural progress, its technological transformation and commercialization. External factors such as weather and monsoon conditions as well as policy changes regarding fertilizer production, use and agricultural output enhancement exert significant

influence on capacity utilization in the industry. For instance, following the decontrol of price and distribution of potassic and phosphate fertilizers in 1992 capacity utilization for phosphatic plants fell to 66.3% in 1993-94 from a high at 92.4% in 1991-92. However, immediately thereafter capacity utilization improved remarkably again to 90.5% in 94-95.

Ratios current ratio inventory turnover ratio liquid ratio Debtors turnover ratio return on equity ratio GROSS PROFIT RATIO NET PROFIT RATIO EARNINGS PER SHARE (EPS) DIVIDEND PER SHARE (DPS) PRICE EARNINGS RATIO DIVIDEND YIELD RATIO WORKING CAPITAL TO NET SALES WORKING CAPITAL TO SHARE HOLDERS EQUITY NET PROFIT TO NET WORTH OPERATING PROFIT RATIO RETURN ON INVESTMENT RATIO (LONG TERM) RETURN ON INVESTMENT RATIO (TOTAL) RETURN ON TOTAL ASSETS SALES TO NET WORTH TOTAL DEBT EQUITY RATIO CAPITAL GEARING RATIO LEVERAGE RATIO PLOUGH BACK RATIO

Value 2.029 6.310 1.329 8.931 268.774 -112.75633 -212.929 5.077 2.296 176.053 0.028 -1.346 0.626 17.960 1.915 8.329 9.601. -0.676. 3.160 -2.124 -3.033 0.518 0.887

Although the Indian fertilizer sector progressed considerably over the past, there are various problems associated with the sector. These problems mainly relate to investment into capacity upgradation and expansion, to profitability of operation, and to availability, storage and transportation of raw materials and finished products. Investment projects have been very slow in the past. The delay in setting up fertilizer plants after the issue of the letter of intent can be up to 8-9 years. This increases the cost of projects considerably contributing to the continuous problem of capital scarcity. Major investment would need to be brought in from abroad to meet the capital requirements. The government of India granted concessions to attract foreign capital inflow for the fertilizer industry, such as

majority equity participation, distribution rights etc. However, due to uncertainties surrounding the availability of raw materials in India as well as the high profitability of exports to India, the reaction to these concessions was very low. Capital remained scarce.

Domestic raw materials are available only for nitrogenous fertilizers. For the production of urea and other ammonia based fertilizers methane presents the major input which is gained from natural gas/associated gas, naphtha, fuel oil, low sulfur heavy stock (LSHS) and coal. In the more recent past, production has more and more switched over to the use of natural gas, associated gas and naphtha as feedstock. Out of these, gas is most hydrogen rich and easiest to process due to its light weight and fair abundance within the country. However, demand for gas is quite competitive since it serves as a major input to electricity generation and provides the preferred fuel input to many other industrial processes. Fertilizer consumption depends on various factors. These include agricultural related factors such as geographical aspects, calamities, rainfall and irrigation patterns, soil quality, farming methods, availability of technology and information, varieties and qualities of seeds as well as access to capital and other inputs. Additionally, fertilizer consumption depends on more macro oriented factors such as market forces and policies regarding demand and supply. The introduction of high yielding varieties of seeds and the greater awareness of the benefits of fertilizers - spread out through government initiated extension networks that started in the 1960s - significantly spurred the production and consumption of fertilizers. As shown in Table 2.7 fertilizer consumption more than doubled between 1980 and 1990. Imports during the same time period did not increase. Rising consumption could entirely be met by increases in production. The increase in consumption and production in the 1980s was made possible to a large extent by tremendous subsidies provided by the government. Between 1980 and 1990 subsidies to fertilizer production increased more than eightfold. From 1990 on, consumption as well as imports of fertilizer increased again accompanied by a further increase of subsidies. However, the consumption of phosphatic fertilizers which cannot be produced domestically remained rather stagnant. The optimal mix of fertilizer components depends on the variety of seeds to be grown and the soil quality specific to the region. To assure more efficient use of fertilizer the government has promoted the setting up of soil testing laboratories throughout the country. However, more recently in the progress of liberalization, industry policy and subsidy schemes moved towards supporting nitrogenous fertilizers relatively more than phosphatic and potassic fertilizers. Globally, the chemical industry is mainly concentrated in three areas of the world: Western Europe, North America and Japan. The European community is the largest producer, followed by U.S. and Japan. The International Fertilizer Industry Association (IFA) is projecting global fertilizer consumption of 4.7% for 2010/2011 and 3.8% for 2011/2012.

2. PEST Analysis:

The Ministry of Chemicals and Fertilizers is the administrative unit of three departments namely Department of Chemicals and Petrochemicals Department of Fertilizers Department of Pharmaceuticals

The Department is entrusted with the responsibility of planning, development and regulations of the chemicals, petrochemicals and pharmaceutical industry sector The Indian fertilizer sector has been under strict government control for most of the period since independence. A price and distribution control system was considered to be necessary not only to ensure fair prices and equal distribution all over the country but also to provide incentives for more intensive use of fertilizers. A control system of licensing and approval of collaboration aimed at standardizing technology and capacity of plants. The goal of government intervention was to improve agricultural productivity and thus the basic supply of food Until 1970, only straight nitrogenous fertilizers were under price control and no general distribution control was practiced. In October 1970, Indian fertilizer policy was completely reviewed and controls on prices and distribution of fertilizer reintroduced, reinforced or revised. A control on fertilizer distribution was reintroduced in 1973 (Fertilizer Movement Control Order) due to shortages of supply in various areas. The movement of fertilizer was subject to the Essential Commodity Act (ECA). Percentages and types of fertilizer under control of ECA varied over time depending on the actual demand and supply requirements. In order to further reduce subsidies the government decided in July 1991 to increase fertilizer prices for farmers by 40%. However, as a result of immense pressure by various lobbies, in August 1991, the government reduced the price increase to 30% for big farmers and withdrew it for small and marginal farmers. Since the system of dual pricing included lower prices for small and marginal farmers and higher prices for big farmers many large farmers started splitting up their holdings into smaller entities to qualify for the lower prices. Following this and the devaluation of the rupee in 1991 subsidies to the industry mounted. Of all subsidies distributed by the government the fertilizer industry received more than two-fifth in 1991-92. Moreover, the industry enjoyed much higher subsidies because of additionally benefits from indirect subsidies through the system of differential pricing. Fertilizer demand has historically been influenced by changing and often interrelated factors such population and economic growth, agricultural production, prices and government policies. This still holds. However, three developments distinguish the current state of agricultural markets from past fluctuations, namely that the hike in world prices concern nearly all major food and feed commodities, that record prices are being achieved at a time not of scarcity but of abundance, and that linkages between agricultural commodity markets and other markets are strengthening. Such phenomena already manifest in 2006 strengthened in 2007 a year characterized by persistent market uncertainty, record prices and unprecedented volatility in grain markets. The magnitude and nature of these changes have led some observers to refer to a paradigm shift in agriculture away from decreasing real food prices over the past thirty years. Given the inextricable link between food production and fertilizer use, it is opportune to consider such changes when reviewing prospects for fertilizer demand and supply balances until 2011/12.

After solid and broad-based growth for three consecutive years the world economy decreased slightly in 2007 with anticipated GDP growth back to 2005 levels at 4.9% and 3.3% forecast for 2008 by the World Bank (2007). Developing countries and economies in transition continued their strong economic performance though with a mild reduction in 2007 growth rates when compared with the previous year, i.e. 5.9% for developing countries and 6.5% for countries in transition. Among developing countries, sustained high though slightly decreasing growth in China and India engendered endogenous growth through increasing South-South trade and financial linkages. This is reflected in, among other things, continued strong demand and higher prices for energy and primary commodities including food. Notwithstanding the strong performance by most developing countries they remain vulnerable to any slowdown in major developed economies and to the volatility of international commodity and financial markets. 3. Competitor Analysis: Chief competitors of Rashtriya Chemicals and Fertilizers Limited (RCF) are: Fertilizer Corporation of India Limited (FCIL) Hindustan Fertilizer Corporation Limited (HFC) Pyrites, Phosphates & Chemicals Limited National Fertilizers Limited (NFL) Projects &Development India Limited (PDIL) The Fertilizers and Chemicals Travancore Limited (FACT) Madras Fertilizers Limited (MFL) FCI Aravali Gypsum & Minerals India Limited, Jodhpur

Along with the public sector units, there has been a euphoric growth in the production of fertilizers in the private sector as well. Some of the companies dedicated to the production of fertilizers include Khaitan Chemicals and Fertilizers Limited, Managalore Chemicals, Nagarjuna Fertilizers, Zauri Chambal, BEC Fertilizers and Gujarat State Fertilizers &Chemicals Limited. Hindustan Fertilizer Corporation Limited (HFC) was incorporated on 14th March, 1978 in pursuance of the decision of the Government of India to reorganise the erstwhile Fertilizer Corporation of India (FCI). The units at Namrup, Barauni, Durgapur and Haldia Project, the Eastern Marketing Zone, Fertilizer Promotion and Agricultural Research Centre, Purchase and Liaison Office, Calcutta and agronomy wing of FP & ARD at Sindri came under the control of HFC. As on 31st March, 1996 the company had an authorised capital of Rs.750 crores and subscribed and paid up share capital of Rs.705.11 crores. NFL, incorporated in 1974 is India's largest Central Public Sector Enterprise in Fertilizers Sector with a turnover of over Rs. 5500 crores and an overall annual installed capacity of 32.31 lakh tonnes of Urea. NFL has five Urea plants located at Nangal & Bathinda in Punjab, Panipat in Haryana and Vijaipur I & II plants in Madhya Pradesh. Apart from producing Urea, NFL is also engaged in manufacturing & marketing of Industrial products, trading of complex fertilizers and other Agro Products. The company informed the share market (BSE/NSE) that the total

income/sales too rises 29.87% to Rs 2086.25 crore in the Q4 (ending Mar 2012) of the current fiscal (FY11-12) when compared with the same period (ending Mar 2011) of previous year (FY10-11). Total income was Rs 1606.42 crores in last year's Q4. Fertilizers And Chemicals Travancore Limited (FACT) was incorporated in 1943. In 1947 FACT started production of Ammonium Sulphate with an installed capacity of 50,000 MT per annum at Udyogamandal, near Cochin. In the year 1960, FACT became a PSU and towards the end of 1962, Government of India became the major shareholder. During the current year up to November 2010, the company produced 4.42.749 MT of NP which is 97% of the target . Production of Ammonium Sulphate during the period was 125897 MT which is 113% of the target. During the financial year up to November 2010, the total sale of Fertilizers is 7.18 lakh MT valued at 1427.94 crores compared to1276.54 crores for the corresponding period last year. Company sold 45475 MT of imported MOP during the period. Sale of Gypsum reached 252050 MT till November 2010. New fertilizer products, Zinc fortified Gypsum, FACT Organic, and Zincated factamfos launched last year are moving smoothly in the market. Caprolactam sales for the period April-Nov. 2010 is 28112 MT of which 6460 MT was exported. Commercial production of the Zincated factamfor began this year and till date a total of 19199 MT of zincated factamfos has been sold in the market. This product provides higher returns to FACT and will also serve to promote the balanced use of fertilizer nutrients in the country.

4.SWOT Analysis: Strengths: Established Industry: There exists in India a strong chemical industry for both upstream and downstream chemical manufacturing. Along with it come all the benefits of having a welldefined and mature industry in place for development of future industries. Infrastructure: The infrastructure in terms of roadways, ports, airports, utility and fuel lines are well developed and connected to all the industrial estates. Utilities and Fuel: The utility service providers for electricity and water have a strong track record for efficient, reliable and economically priced delivery of commodities. Fuelsupplies of natural gas are abundant and cost lower than comparable facilities in North America and Europe. These companies are constantly updating technology and increasing capacity to cater for new and expanding enterprises. Skilled Labour Force: As a direct result of the existing industries and tertiary educational facilities geared towards technical training and education, there is a highly skilled labour force of engineers and technicians capable of functioning in a wide range of chemical processing industries. Fiscal Incentives: The Government of India provides fiscal incentives such as tax relief and concessions to capital-intensive chemical manufacturing plants as well as users of novel technologies or plants that generate significant employment. Weaknesses: Lack of Technical Training Capabilities: There may be a shortfall in trained technical labour in the coming years with the proposed expansions in upstream, intermediate and

downstream chemical processing. This shortfall can be addressed by initiating new training programs and establishing new training facilities. Fluctuations in Commodity Prices: Since a large percentage of the industry is based on natural gas or its derivatives such as resins, the chemical industry is subject to fluctuations in commodity prices, which could adversely affect businesses at times. It should be noted that this phenomenon is not unique to India, since it is characteristic of the chemical fertilizer industry worldwide. Availability of Sites: The current number of industrial sites can adequately meet the needs of short-term expansion in upstream and downstream chemical fertilizer processing. However, if there is to be any substantial increase in the number of processing plants, a potential problem may arise on suitable locations for these plants Limited Research and Development: Even though there is active research and development related to the chemical industries it seldom translates to commercial enterprises. As a result, the local industry is very dependent on foreign technology for the establishment and development of the local industry.

Opportunities: Development of a Coordinated Chemical Fertilizer Industry: An opportunity exists for a coordinated development of certain key chemical fertilizer industries, which would entail the use of feedstock, midstream and downstream processing facilities. Such a network of chemical processing plants would help in creating significant levels of employment, increasing the GDP of the country at all levelsand generation of foreign income fromthe export of finished goods. Increase Levels of R&D: The opportunity exists for local and regional research and development to have an impact on the expansion of the local chemical fertilizer sector. This would involve collaboration and facilitation by various industries Threats: Competition from Adjacent Countries: Countries such as China, which has significantly more resources than India, can provide better incentives in terms of prices or raw materials, labour and operating costs, in order to attract foreign investors. Finite Resources: Care must be given to the establishment of new substantial primary users of raw materials such as methanol and ammonia, which are required for chemical fertilizers development.

5.Company Analysis: Company description: Rashtriya Chemicals & Fertilizers Ltd. (RCF) is a PSU (Public Sector Undertaking) in India under the Ministry of Chemicals and Fertilizers, Government of India. RCF is one of the

leading producers of fertilizers in India and is a Miniratna company, a status awarded by the Government of India. RCF was incorporated under the Companies Act 1956. General information about the company: Rashtriya Chemicals & Fertilizers Ltd. (RCF) is based in Mumbai. The company was formed after the reorganisation of the Fertilizer Corporation of India (FCI) into 5 companies. Till 1992, the company was a wholly owned PSU. During 1992 and 1993, some of the equity has been disinvested to financial institutions, public etc. Name R G Rajan Gautam Sen V Rajagopalan Sham Lal Goyal C M T Britto Designation Chairman and Managing director Director (Finance) Director Director Director (Technical)

Share Holding Pattern in (%) Sep-11 Oct-11 Nov-11 Promoter 92.5 92.5 92.5 FII 0.19 0.07 0.06 DII 1.97 1.66 1.62 Others 5.34 5.77 5.82 Total 100 100 100 Financial performance of the company: Revenue: 56.77 billion (US$1.13 billion) Net Income: 2.45 billion (US$48.88 million)

Dec-11 92.5 0.12 2.14 5.24 100

(In Rs Cr) Net Sales Other Income PBDIT Net Profit

Income Statement (MAR '12) QUARTERLY (MAR '12) YEARLY 2494.2 6433.71 64.94 166.72 249.7 566.23 113.51 249.24

Balance Sheet (Mar '12) (In Rs Cr)

Total Share Capital Net Worth Total Debt Net Block Investments Net Current Assets Total Assets

551.69 2011.73 481.62 1282.43 15.32 1104.76 2493.35

Consolidated Profit & Loss account of Rashtriya Chemicals and Fertilisers Mar '11 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 3,039.29 3,558.53 4,714.27 871.85 377.43 552.12 1,369.03 358.67 382.21 5,573.94 5,697.18 8,455.32 69.2 55.25 88.93 Mar '10 12 mths Mar '09 12 mths

5,504.74 5,641.93 8,366.39 159.6 -19.5 179.75 -92.43 118.9 -384.75

5,644.84 5,729.25 8,100.54

0 0 822.61 0

0 663.79 105.83 0

0 631.54 480.51 0

5,111.18 5,238.94 7,577.56 Mar '11 Mar '10 Mar '09

12 mths Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extraord Items) Tax Reported Net Profit Minority Interest Share Of P/L Of Associates Net P/L After Minority Interest & Share Of Associates Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax 374.06 533.66 66.1 467.56 112.87 0 354.69 4.97 359.66 114.27 245.39 0 0

12 mths 310.56 490.31 70.55 419.76 105.81 0.11 313.84 2.37 316.21 111.73 234.44 0 0

12 mths 404.08 522.98 110.72 412.26 86.63 0.95 324.68 -0.01 324.67 114.12 210.6 0 -0.02

240.42

232.07

210.63

2,071.89 1,680.41 2,863.29 0 60.69 9.84 0 60.69 10.08 0 66.2 11.25

Per share data (annualised) Shares in issue (lakhs) 5,516.88 5,516.88 5,516.88 Earnings Per Share (Rs) 4.45 4.25 3.82 Equity Dividend (%) 0 0 0 Book Value (Rs) 36.44 33.27 30.31

SWOT Analysis: Strengths: Companys strength lies in its skilled manpower. High Brand Equity for the Products manufactured such as Ujjwala, Suphala,Microla, Biola, and Sujala. The wide spread marketing network ensures the reach of the products to all partsof the country. The Farmer s Training Institute and R&D Centre ensure that quality services are provided to the farmers/ dealers by educating them and providing inputs for better crop realisation. Company has a wide portfolio of chemical products and can withstand difficult economic situations by adopting optimal mix of production. The well maintained plants and equipment ensure uninterrupted production and distribution of goods. Weaknesses: The Plants have been in operation for a very long time, some of them since1965 by carrying out regular upkeep, maintenance and up-gradation.The complex fertilizers are based on imported raw materials which can face severe volatility in raw material prices and foreign currency exchange rateaffecting the profitability of the company. Opportunities: Due to Companys good reputation, several opportunities exist, abroad, for Collaborations / Diversification in manufacturing and, mining of raw materials and marketing of varieties of products. The increased availability of feedstock gas would permit for undertaking major expansion at Thal. Alternate feedstock like Coal gasification gives an opportunity for undertaking Fertilizer Projects in other parts of the country. All these opportunities would lead to substantial increase in the turnover of the Company by marketing varieties of fertilizers. Clean Development Mechanism (CDM) activities enable realization of Carbon Credits. Experienced and Skilled Manpower of the Company has been in demand for rendering O&M service in India and abroad. Threats: Manufacturing and marketing of Fertilizers is the core business of the Company. Agro-climatic conditions have a large effect on the performance of the Company. In the recent years, there has been high volatility in the prices of raw material and creation of scarcity impeding production and marketing plans. The chemicals business is highly susceptible to cut throat global market competition.

Various strategies employed by the company in the course of conducting business: RCF is in the business of manufacturing and marketing Fertilizers, Industrial Chemicals such as Methanol, Methylamines, Ammonium bicarbonate, Ammonium Nitrate etc. from its 2 operating units at Trombay and Thal in Maharashtra and marketing of these products through its Zonal/ Regional/Marketing /Area offices located in different states of the country. The company

has one subsidiary namely Rajasthan Rashtriya Chemicals and Fertilizers Ltd. (RRCF) and 3 joint ventures with share holding ranging between 50 to 33.3%. The Company is also engaged in trading of fertilizers in a big way and the performances of the same during the past 3 years are as under:-

Main Product/s Units Imported DAP MT Imported MOP MT Imported Urea MT

2010200911 10 2008-09 99202 230923 119241 277805 436860 478857 831970 766872 1651475

Nutrient based Subsidy (NBS) scheme for decontrolled phosphatic and potassic fertilizers has come into effect from 01-4-2010. The same provides scope to improve the market share and offers a challenge to market the products in a dynamic scenario. The Plants have been in operation for a very long time, some of them since 1965 and by carrying out regular upkeep, maintenance and up-gradation the operations are sustained at full capacity.The P&K fertilizers manufactured by the company are based on imported raw materials like Rock Phosphate, DAP/MAP, and MOP etc which face severe volatility in prices and foreign currency exchange rate affecting the profitability of the company. Agro-climatic conditions have also a large effect on the performance of the Company. In the recent years, there has been a high volatility in the prices of raw materials and creation of scarcity impeding production and marketing plans. The chemical business is susceptible to cut throat global market competition. The company has taken up Thal revamp project which is currently underway at a cost of ` 488 crore where in Urea capacity will be increased by approximately 3.00 LMT per year and energy consumption of Urea will be brought down by 0.6 Gcal/MT.