A Brief Analysis HINDUSTAN FERTILIZER CORPORATION LIMITED. Presented by : Group 8 Gunjan Garg Megha Agarwal Shreyans Golchha Kartikeya Sharma Shaurya Vikram Singh
CONTENTS About the Company Profit and loss account of the company Fertilizer Industry in India : Performance Type of Market : Fertilizer Industry Regression Analysis of the Industry Reasons for the decline in industry Recommendations
ABOUT THE COMPANY Incorporated on 14.3.1978 consequent upon the reorganization of the Fertilizers Corporation of India Ltd. Owns production units at Namrup-Assam, Barauni-Bihar and Durgapur-West Bengal besides the Haldia Fertilizer Project in West Bengal. Ason 31.3.2000, the company held an authorized share capital of Rs. 1200 crore and a paid up capital of Rs. 776.11 crore.
CONT.. Production Performance: The total annual installed capacity at the 5 manufacturing units of HFC at Barauni Durgapur & Namrup (I, II & III) was 6.53 lakh MT of nitrogen which has been derated to 4.03 lakh MT. Financial performance: The Company has incurred a loss of Rs.532.64 crore in the year 1996- 97 and expected loss: Year1997-98 Rs.580.70 crore 1998-99 Rs.707.62 crore HFC was declared sick in November 1992 by the Board for Industrial and Financial Reconstruction (BIFR) in terms of Section 15 of the Sick Industrial Companies (Special Provisions)Act, 1985 (SICA)
FERTILIZER INDUSTRY IN INDIA :PERFORMANCE The Indian fertilizer industry Agriculture the backbone of Indian Economy still holds its relative importance for more than a billion peoples Fertilizer industry in India has succeeded in meeting the demand of all chemical fertilizers in the recent years. Total capacity of the industry as on 30.01.2003 had reached a level of 121.10 lakh MT of nitrogen Presently there are 57 large fertilizers plants in the country producing urea, DAP, Complex fertilizer, Ammonium Sulphate (AS) and Calcium Ammonium Nitrate (CAN).
TYPE OF MARKET : FERTILIZERINDUSTRY Oligopoly Market Few large suppliers like Bharat Fertilizer Industries Limited Chambal Fertilizers and Chemicals Limited National Fertilizers Limited Paradeep Phosphates Limited etc.. Few number of firms selling same kind of product. Firms are competing on price so that price and profits will be the same as a competitive industry
Some Facts About the Fertilizer IndustryYear Production Import1995-96 15,805 37821996-97 15,628 681997-98 18,594 5331998-99 19,292 5561999-2000 19,807 23892000-2001 19,734 2328Fig 1 : Figures showing the production and imports of urea.•Total fertilizer consumption in the country reached a level of 18.069 million tonneduring 1999-00 and in next four years it ranged between 16.09 to 17.35 milliontonne.•Similarly, per hectare use of NPK reached 95.4 kg during 1999-00 but it remainedbelow 92 kg during next four years•After 1991 -92 growth rate in fertilizer consumption turned out to be only a littlemore than one third of what it was during 1966-67 to 1991-92•The growth rate in fertilizer consumption declined further after 1998-99, the growthrate in output of crop sector became statistically non significant.
Table 3.1: Maximum retail prices of fertilizers in terms ofnutrients (50 kg pack) exclusive of central VAT,/ state salestax and local taxes Year Urea (46% N) 1986-87 5.11 1987-88 5.11 1988-89 5.11 1989-90 5.11 1990-91 5.11 1991-92 6.91 1992-93 6.00 1993-94 6.00 1994-95 6.81 1995-96 7.22 1996-97 7.46 1997-98 7.96 1998-99 8.33 1999-00 9.35 2000-01 10.00 2001-02 10.50 2002-03 10.76 2003-04 10.50 2004-05 10.50 2005-06 10.50 2006-07 10.50 Annual growth rate % 3.94 Trend in fertilizer use in India
REGRESSION ANALYSIS OF THE INDUSTRY Shows that 1 percent increase in real price of fertilizer reduces fertilizer Coefficient Std. Error t-Statistic Prob. use by 0.616 percent.Constant C(11) 4.746 0.355 13.358 0.000Area irrigated C(12) 1.456 0.117 12.440 0.000Real price C(13) -0.616 0.075 -8.219 0.000ST credit C(14) 0.098 0.024 4.090 0.000Equation: FERT =C(11)+C(12)*GCAIR +C(13)*FERTRPRICE+C(14)*CRST 98.8% of the variation in fertilizer’sObservations: 25 use is explained by the variation inR-squared 0.990 Mean dependent var 7.073 priceAdjusted R-squared 0.988 S.D. dependent var 0.375S.E. of regression 0.041 Sum squared resid 0.035Durbin-Watson stat 1.856
FERTILIZER INDUSTRY IN INDIA :PERFORMANCE The Indian fertilizer industry Achieved phenomenal growth in 80’s Witnessed decline in 90’s Hasn’t seen any multinational investment in recent times Government is also considering disinvestment of its equity of public sector fertilizer Average price of fertilizer (weighted for N.P and K) was Rs. 12.5 per kg and subsidy works out to Rs. 8.63. If subsidy on fertilizer is removed completely then price of fertilizer increase by 69 percent which would lead to decrease in use of fertilizers. High cost of production, and less revenues due to non- negotiable prices.
REASONS FOR THE DECLINE ININDUSTRY Trickle down effect of downturn in whole fertilizer industry Closing of Haldia Project: due to a variety of equipment related problems, the suspension of commissioning activities had to be ordered in October 1986. Unavailability of Natural gas Problems at Namrup Unit: Under utilization of current resources Mismanagement, and wrong decisions regarding procuring the new ones. Huge inventory and ideal lying machinery.
REASONS CONTINUED… High raw material procurement cost. Increasing cost of production. Obsolete technology and machinery Constant prices, leading to decreasing margins of revenue. High In fructuous Expenditure on Import of Material Loss due to delayed submission of returns to a Bank.
Raw material detailsHindustan Fertilizer Corpn. Ltd.Product/s Quantity Value Quantity Value Quantity Value /Units Rs. Crore /Units Rs. Crore /Units Rs. Crore Mar 2001 (12 mths) Mar 2002 (12 mths) Mar 2003 (12 mths)Ammonia 136 0.02 264 0.04 Tonnes TonnesBurntRiceHusk/CharCoal 157 0.04 166 0.05 89 0.03 Tonnes Tonnes TonnesFuel Oil 28 0 3 0 6 0.01 Kls Kls KlsNaptha 357 0.28 115 0.09 138 0.11 Tonnes Tonnes TonnesNaturalGas 91053 15.04 50606 8.25 000 cu.metres 000 cu.metresSulphur 280 0.11 Tonnes
RECOMMENDATIONS Should bring in a change in the technology of production and diversify Should opt for disinvestment to do away with the official lethargy and red-tapism Should aim to have a high Inventory Turnover Ratio
REFERENCES www.cag.gov.in www.ncap.res.in www.fert.nic.in www.fertilizer.org Fertilizers Association of India