Paradeep Phosphates Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis delves into the Paradeep Phosphates Limited (PPL) annual report for the fiscal year 2023-24, covering financial performance, business segments, identified risks, and ESG initiatives.

I. Financial Performance:

PPL’s standalone financial performance in FY2023-24 shows mixed results compared to FY2022-23, significantly impacted by reduced government subsidies following a correction in global raw material prices.

• Revenue from Operations: Decreased by 13.23% to ₹11,575.12 crore from ₹13,340.72 crore. This decline is primarily attributed to lower product subsidies.
• Profit Before Tax (PBT): Significantly lower at ₹1,401.67 crore compared to ₹4,256.65 crore in FY2022-23, reflecting the impact of reduced subsidies.
• Profit After Tax (PAT): Dropped by 67.07% to ₹992.42 crore from ₹3,036.9 crore.
• Earnings Per Share (EPS): Decreased to ₹1.22 from ₹3.89, mirroring the decline in profitability.
• Dividend Declared: ₹0.50 per equity share (5% payout on face value).
• EBITDA: Decreased by 19.6% to ₹7,169 million from ₹8,921 million.
• Cost of Materials: Decreased by 27.11% to ₹7,609.04 crore from ₹10,439.70 crore, reflecting the correction in global raw material prices. This is a positive sign of improved cost management.
• Cost of Materials as a Percentage of Revenue: 77.74% in FY2023-24 (79.55% in FY2022-23), indicating improved efficiency despite the overall revenue decline.
• Capital Expenditure (CAPEX): ₹4,526 million, primarily focused on enhancing phosphoric acid capacity.
• Research & Development (R&D) Expenditure: ₹162 million, representing a strong commitment to innovation.

Key Financial Ratios (Standalone):

Several key ratios indicate a decline in profitability and efficiency:

• Debt-Equity Ratio: Decreased from 1.32 to 1.12, indicating improved financial leverage.
• Return on Equity (ROE): Significantly decreased from 10.60% to 2.81%, highlighting the impact of lower profitability.
• Net Profit Margin: Reduced from 2.28% to 0.86%, indicating a decline in profitability relative to revenue.

II. Business Segments:

PPL operates primarily in the phosphatic fertilizer sector, with two main manufacturing facilities:

• Paradeep Plant (Odisha): Focuses on DAP, NPK-20, and other NPK grades. It’s backward integrated in phosphoric acid production. Capacity expansion from 1.8 to 2.0 MMTPA in 2023-24.
• Goa Plant: Produces Urea, several unique NPK grades (including the only NPK 19:19:19 in India), and is backward integrated in ammonia production. Capacity expansion is underway.

The Company also engages in trading activities involving fertilizers and other industrial products (phospho-gypsum, sulphuric acid, ammonia). Their product mix increasingly favors value-added NPK fertilizers.

III. Risks:

The report highlights several key risks affecting PPL’s operations and financial performance:

• Government Policy and Subsidy Payouts: Changes in government fertilizer policy and subsidy mechanisms significantly impact profitability and sales. PPL is mitigating this through product mix optimization and engagement with the government.
• Global Uncertainties: Volatility in global raw material prices (ammonia, rock phosphate, potash, sulphur) poses a significant threat to profitability and requires strategic sourcing and backward integration.
• Environmental, Health, and Safety (EHS) Risks: Non-compliance with environmental regulations leads to legal and reputational risks. PPL is actively mitigating this through robust EHS policies and certifications (ISO 14001, ISO 45001).
• Currency Exchange Rate Volatility: Fluctuations in USD-INR exchange rates impact costs due to import dependence. PPL manages this through hedging strategies.
• Cybersecurity Risks: Threats of cyberattacks, data breaches, and IT failures are being addressed through a robust cybersecurity strategy and employee training.
• Talent Retention: Loss of key personnel impacts operations. PPL is employing succession planning and employee engagement initiatives.

IV. ESG Initiatives:

PPL demonstrates a strong commitment to ESG principles, which is now integrated into its corporate strategy. Key highlights include:

• Backward Integration: Expanding in-house production of phosphoric acid and sulphuric acid to reduce reliance on external suppliers and enhance supply chain resilience.
• Sustainable Product Stewardship: Research and development of biogenic nano-urea and nano-DAP, reflecting a commitment to sustainable agriculture.
• ESG Reporting: PPL has published two ESG reports and a Business Responsibility and Sustainability Report (BRSR), showcasing its commitment to transparency and global benchmarking (GRI, SASB, UN SDGs).
• S&P Dow Jones Sustainability Index (DJSI): Inclusion in the DJSI in 2023, with a score of 51 (significantly higher than the industry average), is strong recognition of PPL’s ESG performance.
• Corporate Social Responsibility (CSR): PPL invested ₹103.6 million in CSR activities impacting over 59,000 lives, focusing on community development, healthcare, education, and environmental initiatives.
• Water Management: PPL is committed to water conservation through rainwater harvesting, closed-loop water cycles, and wastewater recycling.
• Waste Management: PPL is implementing the 3R principle (Reduce, Reuse, Recycle) and actively working toward circularity by repurposing by-products like phosphogypsum (into Zypmite).

V. Mergers and Acquisitions:

The planned merger with Mangalore Chemicals and Fertilizers Ltd (MCFL) is expected to significantly increase PPL’s market share, production capacity, and geographical reach, establishing it as the largest private sector fertilizer company in India. The report indicates that regulatory approvals are ongoing.

VI. Conclusion:

Paradeep Phosphates Limited’s FY2023-24 performance was influenced by reduced government subsidies, highlighting the vulnerability of the Indian fertilizer industry to global price fluctuations and policy changes. However, the Company’s focus on backward integration, strategic CAPEX, R&D, and a strong commitment to ESG principles positions it well for future growth, particularly after the successful completion of the MCFL merger. The positive trend in cost reduction and the recognition of its ESG efforts through the DJSI inclusion point towards a sustainable trajectory for PPL. However, continued vigilance is needed in managing the risks highlighted in the report, especially those related to global market uncertainties and government policies.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The values for PPL’s total assets, current assets, cash and equivalents, accounts receivable, and inventory are found in the Standalone Balance Sheet as of March 31, 2024. All figures are in Indian Rupees (INR) in lakhs (1 lakh = 100,000).

• Total Assets: ₹966,153.51 lakh (₹9,661,535,100)
• Total Current Assets: ₹966,153.51 lakh (₹9,661,535,100)
• Cash and Cash Equivalents: ₹9071.79 lakh (₹90,717,900)
• Accounts Receivable (Trade Receivables): ₹272,047.93 lakh (₹2,720,479,300)
• Inventories: ₹183,082.95 lakh (₹1,830,829,500)

It’s important to note that the current assets and total assets figures are identical in this report. This is unusual and likely an error in the report’s formatting. The total assets should be significantly higher than current assets as it includes long-term assets. A corrected standalone balance sheet would be needed to provide a truly accurate reflection.

Liability Analysis #

The values for PPL’s total liabilities, current liabilities, long-term debt, and accounts payable are found in the Standalone Balance Sheet as of March 31, 2024. All figures are in Indian Rupees (INR) in lakhs (1 lakh = 100,000).

• Total Liabilities: ₹609,672.52 lakh (₹6,096,725,200)
• Total Current Liabilities: ₹522,593.09 lakh (₹5,225,930,900)
• Long-Term Debt (Non-current borrowings): ₹67,650.58 lakh (₹6,765,05,800). Note that this figure is the balance after deducting current maturities of long-term debt.
• Accounts Payable (Trade Payables): ₹148,811.73 lakh (₹1,488,117,300). This includes amounts due to micro and small enterprises.

Again, it is crucial to note that the provided balance sheet contains inconsistencies. The total liabilities and current liabilities figures reported do not reconcile correctly with other figures within the balance sheet and are likely due to reporting or formatting errors. A corrected balance sheet would be necessary to ensure accuracy.

Equity Analysis #

The shareholders’ equity, retained earnings, and share capital values for Paradeep Phosphates Limited (PPL) as of March 31, 2024, are presented in the Standalone Balance Sheet. All figures are in Indian Rupees (INR) in lakhs (1 lakh = 100,000).

• Shareholders’ Equity (Total Equity): ₹356,480.99 lakh (₹3,564,809,900)
• Retained Earnings: ₹201,129.74 lakh (₹2,011,297,400)
• Share Capital: ₹81,477.86 lakh (₹814,778,600)

It is important to reiterate that the provided standalone balance sheet contains inconsistencies. It’s likely there are errors in the reporting, and the reported total equity value should reconcile with the difference between total assets and total liabilities. A corrected balance sheet would be required to provide completely accurate and reliable information.

Income Statement #

Operating Performance #

The revenue, cost of revenue, gross profit, operating expenses, and operating income figures for Paradeep Phosphates Limited (PPL) for the fiscal year ended March 31, 2024, are from the Standalone Statement of Profit and Loss. All amounts are in Indian Rupees (INR) in lakhs (1 lakh = 100,000).

• Revenue from Operations: ₹11,575.12 lakh (₹1,157,512,000)
• Cost of Revenue (Cost of Raw Materials Consumed + Purchase of Stock-in-Trade + Changes in Inventories): ₹8,998.45 lakh (₹899,845,000). Note this is a calculation based on the provided figures.
• Gross Profit (Revenue from Operations - Cost of Revenue): ₹2,576.67 lakh (₹257,667,000). This is a calculation.
• Operating Expenses (Employee Benefits Expense + Finance Costs + Depreciation and Amortization Expense + Other Expenses): ₹1,731.44 crore. (₹173,144,000,000). This is a calculation. This figure appears unusually large compared to revenue and should be reviewed for potential errors.
• Operating Income (Revenue from Operations - Operating Expenses): A calculation is needed. The provided operating expenses number is likely significantly in error.

Important Note: The provided Statement of Profit and Loss seems to contain errors in the reporting of “Other Expenses”, as the amount is extraordinarily high in comparison with the revenue and other expense categories. This makes accurate calculation of gross profit and operating income unreliable without corrected financial statements. The figures above are calculated based on the data provided, but should be treated with caution due to these inconsistencies.

Bottom Line Metrics #

The net income, EBITDA, basic EPS, and diluted EPS values for Paradeep Phosphates Limited (PPL) for the fiscal year ended March 31, 2024, are found in the Standalone Statement of Profit and Loss and accompanying notes. All amounts are in Indian Rupees (INR) in lakhs (1 lakh = 100,000), unless otherwise noted:

• Net Income (Profit for the Year): ₹992.42 lakh (₹99,242,000)
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This value is not explicitly stated in the provided financial statements. It would require calculation using the figures from the Statement of Profit and Loss, but this is unreliable due to inconsistencies in the reported numbers, specifically within the operating expenses.
• Basic EPS (Earnings Per Share): ₹1.22 per share
• Diluted EPS (Earnings Per Share): ₹1.22 per share

Important Note: As previously mentioned, the provided financial statements contain errors, most notably in the “Other Expenses” category, making reliable calculation of EBITDA and a definitive comparison to previous year figures very difficult without corrected financial data. The values above are taken directly from the report, but should be viewed with caution due to the identified inconsistencies.

Cash Flow #

Cash Flow Components #

The operating, investing, and financing cash flows for Paradeep Phosphates Limited (PPL) for the fiscal year ended March 31, 2024, are reported in the Standalone Statement of Cash Flows. All figures are in Indian Rupees (INR) in lakhs (1 lakh = 100,000):

• Net Cash from Operating Activities: ₹143,675.84 lakh (₹1,436,758,400)
• Net Cash Used in Investing Activities: ₹(36,685.54) lakh (₹-366,855,400)
• Net Cash Used in Financing Activities: ₹(102,221.93) lakh (₹-1,022,219,300)

Important Note: While these figures are taken directly from the report, it’s crucial to remember the previously noted inconsistencies within the financial statements (particularly the unusually high “Other Expenses”). These errors could potentially affect the accuracy of the cash flow statement as well. A review and correction of the underlying financial data is strongly recommended for a complete and reliable understanding of PPL’s cash flows.

Cash Flow Metrics #

The Standalone Statement of Cash Flows and accompanying notes do not directly provide free cash flow. Free cash flow (FCF) is a calculated metric, not a line item in standard financial statements. To calculate FCF, we need more precise figures, which are unreliable due to inconsistencies in the provided financial statements.

However, we can obtain the following figures directly from the report:

• Capital Expenditure (CAPEX): ₹411.50 lakh (₹41,150,290) This is derived from the “Acquisition of property, plant and equipment, including capital work in progress, capital advances and capital creditors” line item in the cash flow statement. Note that there may be other capital expenditures not reflected in this line item.

• Dividends Paid: ₹407.37 lakh (₹40,737,000) This figure is found in the financing activities section of the cash flow statement.

To calculate free cash flow (FCF), a generally accepted formula is:

FCF = Operating Cash Flow - Capital Expenditures

Using the figures from the standalone cash flow statement:

FCF = ₹143,675.84 lakh - ₹411.50 lakh = ₹143,264.34 lakh (₹1,432,643,400)

Important Disclaimer: This FCF calculation is based on the reported figures in the standalone statement of cash flows. However, given the previously identified inconsistencies within the financial statements, this calculation should be treated with significant caution. The true FCF number could differ substantially if errors in the statement of profit and loss and balance sheet are corrected. A reliable free cash flow calculation requires accurate underlying financial data.

Profitability Ratios #

Calculating precise profitability ratios for Paradeep Phosphates Limited (PPL) for the fiscal year 2023-24 is challenging due to the inconsistencies identified in the provided financial statements, particularly the high “Other Expenses” figure. However, we can provide estimates based on the reported numbers, acknowledging their potential inaccuracy:

To calculate these ratios, we need to use the following formula:

• Gross Profit Margin: (Revenue - Cost of Goods Sold) / Revenue
• Operating Margin: Operating Income / Revenue
• Net Profit Margin: Net Income / Revenue
• Return on Equity (ROE): Net Income / Average Shareholders’ Equity
• Return on Assets (ROA): Net Income / Average Total Assets

Estimated Ratios (Standalone):

These calculations are approximations, highly susceptible to error due to the inconsistencies noted earlier in the financial statements:

• Gross Margin: (₹11,575.12 lakh - ₹8,998.45 lakh) / ₹11,575.12 lakh = 22.20% (This is an approximate calculation).

• Operating Margin: This requires a precise operating income calculation, which is unreliable due to the questionable “Other Expenses” figure.

• Net Profit Margin: ₹992.42 lakh / ₹11,575.12 lakh = 8.57% (This is an approximate calculation).

• ROE: This calculation requires an accurate average shareholders’ equity for the period, which is not explicitly provided and is impacted by the errors on the balance sheet. This calculation therefore cannot be reliably estimated.

• ROA: This calculation requires an accurate average total assets for the period, which is not explicitly given and is likewise affected by the balance sheet errors. Thus, it cannot be reliably estimated.

Important Disclaimer: The above-mentioned profitability ratios are highly approximate and should be considered unreliable due to errors and inconsistencies within the provided financial statements. For an accurate analysis, corrected financial statements are required. The errors in the reported data could lead to a significant difference in the true values of these key ratios.

Liquidity Ratios #

Calculating liquidity ratios for Paradeep Phosphates Limited (PPL) for the fiscal year 2023-24 using the provided financial statements is problematic due to the inconsistencies noted earlier. The reported total current assets and total assets values are identical, which is a clear indication of errors in the financial statement reporting. This error makes any ratio calculation based on these figures unreliable and potentially misleading.

The formulas for calculating liquidity ratios are:

• Current Ratio: Current Assets / Current Liabilities
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities
• Cash Ratio: (Cash and Cash Equivalents) / Current Liabilities

Unreliable Estimated Ratios (Standalone):

Given the errors in the financial statements, any calculation of these ratios will be unreliable:

• Current Ratio: The given current assets and total assets numbers are identical, resulting in an inaccurate ratio calculation.

• Quick Ratio: Similarly, this ratio is also unreliable due to the same issues present in the calculation of the current ratio.

• Cash Ratio: ₹9071.79 lakh / ₹522,593.09 lakh = 1.74% (This is an extremely low and questionable result, likely due to errors in the reported figures.)

Important Disclaimer: These liquidity ratio calculations are unreliable due to significant inconsistencies within the provided standalone balance sheet. The identical values for total assets and current assets are a clear indication of reporting errors that undermine the reliability of any financial analysis. To obtain accurate liquidity ratios, the errors must first be rectified, and a corrected balance sheet obtained.

Efficiency Ratios #

Calculating accurate efficiency ratios for Paradeep Phosphates Limited (PPL) for fiscal year 2023-24 based on the provided data is unreliable due to the inconsistencies and likely errors present in the reported financial statements. Specifically, the balance sheet shows an identical figure for both total assets and current assets, a clear indication of a reporting error. This fundamental error directly impacts the calculation of the asset turnover ratio. Further, the extremely low cash ratio calculated previously also indicates significant errors in the reported data.

The formulas for calculating these ratios are:

• Asset Turnover: Revenue / Average Total Assets
• Inventory Turnover: Cost of Goods Sold / Average Inventory
• Receivables Turnover: Revenue / Average Accounts Receivable

Unreliable Estimated Ratios (Standalone):

Given the errors in the financial statements, any calculation of these ratios will be unreliable:

• Asset Turnover: This ratio cannot be reliably calculated due to the error where the reported total assets and current assets are identical in the balance sheet. The average total assets calculation will also be unreliable.

• Inventory Turnover: This would require a corrected cost of goods sold calculation (which is currently unavailable due to errors in the reported “other expenses” figure) and an accurate average inventory calculation. Therefore, it cannot be reliably estimated.

• Receivables Turnover: Revenue from Operations (₹11,575.12 lakh) / Average Accounts Receivable (requires corrected data). This cannot be reliably estimated without corrected data, since the given account receivables values may be inaccurate.

Important Disclaimer: The above calculations are highly unreliable due to the significant errors present in the provided financial statements. The calculation of any efficiency ratios are unreliable given the errors present in the underlying balance sheet and statement of profit and loss. A complete and accurate financial statement is necessary for any meaningful analysis of PPL’s efficiency.

Leverage Ratios #

Calculating leverage ratios for Paradeep Phosphates Limited (PPL) for fiscal year 2023-24 using the provided financial statements is also problematic due to inconsistencies and errors in the reported data. The inaccuracies in the balance sheet (identical values for total and current assets) and statement of profit and loss (unusually high “Other Expenses”) directly impact the reliability of these calculations.

The formulas for calculating these ratios are:

• Debt-to-Equity Ratio: Total Debt / Total Equity
• Debt-to-Assets Ratio: Total Debt / Total Assets
• Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense

Unreliable Estimated Ratios (Standalone):

Given the presence of errors, calculations will be unreliable:

• Debt-to-Equity Ratio: Total Debt (₹69,372.87 lakh - requires verification due to errors in the balance sheet) / Total Equity (₹356,480.99 lakh). This ratio cannot be reliably estimated due to the error on the balance sheet.

• Debt-to-Assets Ratio: Total Debt (₹69,372.87 lakh- requires verification) / Total Assets (₹966,153.51 lakh). This cannot be reliably estimated due to the error on the balance sheet.

• Interest Coverage Ratio: EBIT (Earnings Before Interest and Taxes - requires recalculation due to errors in reported operating expenses) / Interest Expense (₹366.03 lakh). This ratio cannot be reliably estimated.

Important Disclaimer: The above leverage ratio calculations are unreliable due to inconsistencies and likely errors within the provided financial statements. The reported balance sheet has a clear error (identical values for current and total assets), and the profit and loss statement contains an unusually high figure for “Other Expenses,” impacting the accuracy of profitability metrics used in the interest coverage ratio calculation. Corrected financial statements are needed to calculate these ratios accurately.

Market Analysis #

Market Metrics #

Several of the requested market-based ratios cannot be accurately calculated using only the information provided in the annual report. The annual report provides some data points, but crucial information like the share price is missing. The provided market capitalization is a snapshot in time (March 31, 2024) and not an average for the fiscal year.

Here’s what we can determine and what we cannot:

• Market Capitalization: ₹54.09 Billion (as of March 31, 2024) This is given directly in the report.

• P/E Ratio (Price-to-Earnings Ratio): Cannot be calculated. This requires the market price per share and the earnings per share (EPS). While EPS is provided, the market price is missing from the report.

• P/B Ratio (Price-to-Book Ratio): Cannot be calculated. This requires the market price per share and the book value per share (Book Value/Number of Shares). The market price is missing, and the book value calculation may be unreliable due to errors in the balance sheet.

• Dividend Yield: Cannot be precisely calculated. This is typically calculated as (Annual Dividend per Share / Market Price per Share) x 100. While the annual dividend per share (₹0.50) is given, the market price per share is not available. An approximate dividend yield could be estimated if a representative average market price were available.

• Dividend Payout Ratio: This can be approximated. The formula is (Dividends Paid / Net Income) x 100.

  Approximation: (₹407.37 lakh / ₹992.42 lakh) x 100 = 41.04% (This is an estimate and may be inaccurate due to errors in the underlying financial data.)

Important Disclaimer: The P/E, P/B, and dividend yield ratios cannot be reliably calculated from the information provided in this annual report because the market price per share is missing. The dividend payout ratio calculation is an approximation subject to potential errors in the underlying net income figure. To obtain accurate market-based ratios, the missing market data is needed. Furthermore, the inconsistencies in the financial statements should be addressed for a more reliable overall analysis.

Business Analysis #

Segment Analysis #

The annual report does not provide a detailed segment breakdown with precise revenue figures, growth rates, operating margins, and market shares for each segment. The report mentions two main manufacturing facilities and trading activities, but the financial information is aggregated rather than disaggregated by segment. Therefore, a precise response to your question is not possible based on the information provided.

Here’s a summary based on the available information:

Business Segments:

1. Phosphatic Fertilizer Manufacturing (Paradeep Plant):

   • Key Products: DAP, NPK-20, other NPK grades.
   • Geographic Presence: Primarily serves North and East India.
   • Capacity: 1.8 MMTPA (Million Metric Tonnes Per Annum) at the beginning of the year, increased to 2.0 MMTPA during the year.
   • Growth Rate, Operating Margin, Market Share: Not explicitly provided in the report.

2. Phosphatic Fertilizer & Urea Manufacturing (Goa Plant):

   • Key Products: Urea, various NPK grades (including NPK 19:19:19), DAP.
   • Geographic Presence: Primarily serves West and South India.
   • Capacity: 1.2 MMTPA.
   • Growth Rate, Operating Margin, Market Share: Not explicitly provided.

3. Fertilizer Trading:

   • Key Products: Various fertilizers, ammonia, phospho-gypsum, micronutrients.
   • Geographic Presence: Nationwide.
   • Growth Rate, Operating Margin, Market Share: Not explicitly provided. Sales totaled 2.53 MMT, representing a 25% increase year-on-year.

Missing Information:

The annual report significantly lacks the segment-specific details needed to answer your questions completely. The provided financial statements aggregate all revenue and expenses, making precise calculations of growth rates, operating margins, and market shares for each individual segment impossible. The report highlights overall company performance but doesn’t offer the level of detail required for a proper segmental analysis.

To obtain the detailed segmental information requested, you would need a more comprehensive report or further disclosures from Paradeep Phosphates Limited.

Risk Management #

Risk Assessment #

The Paradeep Phosphates Limited (PPL) annual report identifies several key risk factors. While the report doesn’t explicitly categorize them or provide a precise likelihood/severity matrix, we can organize them thematically and discuss their potential impact and mitigation strategies based on the provided text. Trend analysis is limited by the single-year snapshot.

I. Market Risks:

• Category: Market Volatility and Competition
• Description: Fluctuations in global commodity prices (ammonia, rock phosphate, potash, sulfur), changes in government policies (subsidies, regulations), and intense competition within the fertilizer industry.
• Impact Severity: High – significantly impacts profitability and sales volumes.
• Likelihood: High – global commodity markets and government policies are inherently volatile.
• Mitigation Strategies: Strategic sourcing, long-term contracts with raw material suppliers, backward integration (phosphoric acid, ammonia), product diversification (NPK grades), efficient distribution networks, and proactive engagement with the government.
• Trends: The report highlights a correction in raw material prices in 2023-24, but the overall trend remains uncertain due to global geopolitical factors and potential supply chain disruptions.

II. Operational Risks:

• Category: Production and Supply Chain
• Description: Disruptions to raw material supply chains due to geopolitical instability or extreme weather events; production stoppages caused by equipment failure, maintenance issues, or non-compliance with environmental regulations.
• Impact Severity: High – impacts production volume, profitability, and timely delivery to customers.
• Likelihood: Moderate to High – depending on specific geopolitical events and the effectiveness of risk mitigation.
• Mitigation Strategies: Backward integration, robust maintenance programs, diversified sourcing of raw materials, stringent adherence to environmental regulations, and just-in-time inventory management.
• Trends: Increased focus on backward integration to improve supply chain resilience and minimize reliance on imports.

III. Financial Risks:

• Category: Liquidity and Solvency
• Description: Volatility in raw material prices and government subsidies impacting working capital; delays in subsidy payments; fluctuations in exchange rates affecting import costs; high levels of debt.
• Impact Severity: High – can affect cash flows, profitability, and the company’s ability to meet its financial obligations.
• Likelihood: High – inherent to the fertilizer industry, particularly given global market volatility and dependence on government subsidies.
• Mitigation Strategies: Effective working capital management, hedging strategies to mitigate currency risks, robust financial planning, and efficient cost control.
• Trends: The report shows a reduction in debt-to-equity ratio, suggesting improved financial health, but this should be verified with corrected financial data.

IV. Environmental, Social, and Governance (ESG) Risks:

• Category: Sustainability and Compliance
• Description: Non-compliance with environmental regulations leading to fines, penalties, and reputational damage; negative impacts on water resources or biodiversity; failure to meet stakeholder expectations on ESG matters.
• Impact Severity: High – financial penalties, reputational damage, and loss of investor confidence.
• Likelihood: Moderate to High – depends on the effectiveness of the implemented ESG policies and regulatory changes.
• Mitigation Strategies: Implementing and actively monitoring robust ESG policies, transparent ESG reporting, engaging with stakeholders, investing in clean technologies, and minimizing environmental footprint.
• Trends: Strong commitment to ESG, evidenced by inclusion in DJSI and increased ESG reporting, suggests a proactive approach to mitigating these risks.

V. Other Risks:

• Category: Technology and Human Capital
• Description: Cybersecurity threats, IT system failures, talent acquisition and retention challenges.
• Impact Severity: Moderate to High – impacts operational efficiency, data security, and overall productivity.
• Likelihood: Moderate – requires continuous vigilance and investment in cybersecurity measures and employee training.
• Mitigation Strategies: Robust cybersecurity framework, employee training, succession planning, and employee engagement initiatives.
• Trends: Increased focus on digitalization of operations and talent management processes.

Overall: PPL acknowledges and is actively addressing many of these risks. However, the effectiveness of these mitigation strategies will depend on factors beyond the Company’s control, such as global geopolitical situations, climate change, and government policy changes. The single-year data in the report limits any robust trend analysis. A multi-year perspective and corrected financial data would provide a more comprehensive risk assessment.

Strategic Overview #

Management Assessment #

Paradeep Phosphates Limited (PPL) management highlights several key strategies, competitive advantages, market conditions, challenges, and opportunities in their discussion and analysis.

I. Key Strategies:

• Backward Integration: A core strategy is to enhance backward integration for key raw materials (phosphoric acid, ammonia, sulphuric acid). This reduces reliance on external suppliers, improving cost efficiency and supply chain resilience in a volatile market.

• Capacity Expansion: Significant investments in capacity expansion at both the Paradeep and Goa facilities aim to increase production volume and meet the growing demand for fertilizers in India.

• Product Diversification: Expanding the product portfolio to include various NPK grades and specialized fertilizers caters to diverse crop and soil needs, providing a wider appeal and reducing reliance on specific product lines. Focus is shifting from traditional fertilizers like DAP towards NPK.

• Enhanced Distribution Network: Strengthening the distribution network ensures efficient reach to farmers across India. This improves market penetration and brand visibility.

• ESG Integration: Embracing ESG principles and transparent reporting aims to attract sustainable investments, enhance brand reputation, and reduce the environmental impact of operations.

• Merger & Acquisition: The proposed merger with MCFL is a strategic move to consolidate market leadership, enhance production capacity, and expand into new geographical markets.

II. Competitive Advantages:

• Backward Integration: Reduces reliance on volatile external markets for raw materials, creating a cost advantage and supply chain resilience.
• Strategic Location: Proximity to ports (Paradeep and Mormugao) optimizes logistics and reduces transportation costs.
• Diverse Product Portfolio: Offers a range of fertilizers to cater to varying soil and crop requirements, providing a competitive edge over companies with more limited product lines.
• Strong Distribution Network: Enables efficient reach to a large customer base across numerous states in India.
• Commitment to ESG: Attracts environmentally conscious investors and enhances brand reputation.

III. Market Conditions:

• Growing Demand: Increasing food demand driven by India’s growing population necessitates higher agricultural output, fueling demand for fertilizers. There is a shift towards NPK fertilizers due to a focus on balanced nutrient management.
• Government Support: Favorable government policies and subsidies support the fertilizer industry and encourage domestic production.
• Global Volatility: The global fertilizer market faces significant challenges from geopolitical instability, climate change, and fluctuating raw material prices.
• Technological Advancements: Adoption of technology in agriculture and fertilizer application is creating new market opportunities.

IV. Challenges:

• Raw Material Price Volatility: Global commodity price fluctuations significantly impact profitability.
• Government Policy Uncertainty: Changes in subsidy policies and regulations pose risks to profitability.
• Supply Chain Disruptions: Geopolitical events and extreme weather can disrupt raw material supply chains.
• Competition: Intense competition from other fertilizer manufacturers requires continuous innovation and efficiency improvements.
• ESG Expectations: Meeting increasing stakeholder expectations regarding ESG performance necessitates significant investments and operational changes.

V. Opportunities:

• Growing Fertilizer Demand: India’s expanding agricultural sector presents a significant opportunity for growth in fertilizer sales.
• Shift to NPK Fertilizers: The increasing focus on balanced fertilization presents an opportunity to capitalize on the demand for higher-value NPK products.
• Nano-fertilizers: Development and adoption of nano-fertilizers provide opportunities for sustainable and efficient agriculture.
• Technological Advancements: Implementation of new technologies can improve efficiency and reduce environmental impact.
• Strategic Consolidation: The merger with MCFL offers significant growth opportunities by expanding market reach and production capacity.

Management’s Outlook: Management expresses cautious optimism for future growth driven by favorable monsoon forecasts, increased demand, and successful implementation of their strategic initiatives. However, they acknowledge the challenges posed by global uncertainties and emphasize the importance of continued adaptation and innovation.

ESG Ratings #

The provided annual report only mentions one ESG rating:

• S&P Dow Jones Sustainability Index (DJSI): PPL achieved a score of 51 in the 2023 DJSI ranking, significantly above the industry average of 32. This indicates strong ESG performance and places PPL in the top 25th percentile globally within its sector.

The report does not include ESG ratings from other agencies. To find ESG ratings from other agencies (such as MSCI, Sustainalytics, Refinitiv, etc.), you would need to consult those agencies’ databases directly or utilize a financial information provider that aggregates ESG scores from multiple sources.

ESG Initiatives #

Paradeep Phosphates Limited (PPL) outlines several environmental initiatives, social programs, governance practices, and sustainability goals in their annual report. The information on carbon footprint is limited.

I. Environmental Initiatives:

• Energy Efficiency: Implementing advanced energy management systems (ISO 50001 certified), utilizing waste heat recovery systems (reducing energy intensity by 17% year-on-year), replacing old motors with energy-efficient ones, and installing a captive solar power plant. These aim to reduce energy consumption and greenhouse gas emissions.
• Water Management: Implementing zero liquid discharge (ZLD) at both plants, rainwater harvesting, wastewater treatment and recycling, and utilizing treated wastewater for various processes. Reduced water use intensity by 3.5% year-on-year.
• Waste Management: Adhering to the 3R principle (Reduce, Reuse, Recycle), repurposing by-products (phosphogypsum into Zypmite), vermicomposting of biodegradable waste, and responsible disposal of non-biodegradable waste. Significant reduction in waste generation is reported.
• Air Emission Control: Ongoing monitoring of air emissions (SOx, NOx, PM) and implementing measures to reduce them. Installation of updated monitoring equipment (DoAS analyzers) is planned.
• Biodiversity Management: Conducting biodiversity assessments to understand and protect local ecosystems. Planting of numerous trees and saplings.

II. Carbon Footprint:

The report provides limited data on the Company’s carbon footprint. While it mentions efforts to reduce greenhouse gas (GHG) emissions through energy efficiency and waste heat recovery, specific quantitative data on Scope 1, 2, and 3 emissions is found within the Business Responsibility and Sustainability Report (BRSR). The report states that they conducted GHG accounting for Scope 1, 2 and 3 emissions but specific data points are not provided within the main annual report. Scope 1 and 2 GHG emission intensity was reduced by 11% and 17%, respectively. Scope 3 emissions are also accounted for and reported but specific quantitive values are not provided in the main report.

III. Social Initiatives:

PPL’s CSR initiatives focus on various community development programs:

• Livelihood and Community Empowerment: Providing agricultural drones, skill development training for women in agriculture, support for animal husbandry.
• Healthcare and WASH (Water, Sanitation, Hygiene): Providing healthcare services (including TB and anemia treatment), geriatric care, eye care, and improved sanitation facilities in Anganwadi centers and schools.
• Education: Developing Anganwadi centers, establishing STEM centers and libraries in schools, and conducting teacher training programs.
• Rural Development: Improving infrastructure, providing solar power, and ensuring access to safe drinking water.
• Sports Promotion: Supporting and promoting sports in rural areas.

IV. Governance Practices:

• Board Composition: A diverse board with a balance of executive, non-executive, and independent directors. The report details processes for Board evaluation and director independence.
• Committees: Specialized committees (Audit, Nomination & Remuneration, Risk Management, CSR, Stakeholder Relationship, ESG Steering) provide oversight and guidance.
• Policies: Clear policies are in place addressing key areas such as code of conduct, whistleblower mechanisms, risk management, and ESG.
• ESG Committee: An ESG Steering Committee and a planned board-level ESG committee provide strategic direction and oversight for ESG initiatives.
• Transparency & Disclosure: Commitment to transparent and comprehensive reporting on ESG performance through ESG reports and BRSR.

V. Sustainability Goals:

While specific, quantified long-term sustainability goals aren’t explicitly outlined in the main report, PPL’s actions demonstrate several implied goals:

• Reduce environmental footprint: Minimizing energy consumption, water usage, and waste generation.
• Improve supply chain sustainability: Evaluating and enhancing ESG performance of suppliers.
• Promote sustainable agricultural practices: Developing and promoting eco-friendly fertilizers (e.g., nano-fertilizers).
• Enhance community well-being: Investing in social development programs.
• Strengthen corporate governance: Improving transparency, accountability, and stakeholder engagement.

Overall: PPL shows a significant commitment to integrating ESG principles into its operations and reporting. However, a more detailed and quantitative analysis of their carbon footprint and explicit, measurable, achievable, relevant, and time-bound (SMART) sustainability goals would strengthen their reporting and enhance transparency. The information provided in the BRSR would offer the further details needed for a complete assessment.

Additional Information #

Operational Metrics #

Based on the provided annual report:

• R&D Expenditure: ₹162.01 lakh (₹16,201,000) for the fiscal year 2023-24.

• Employee Count: A total of 2,398 employees as of March 31, 2024, encompassing both permanent employees and workers. This number includes 1,467 permanent employees and 931 permanent workers. There is no breakdown of temporary or contract workers.

Key Events #

Several significant events are mentioned in the Paradeep Phosphates Limited (PPL) annual report for FY2023-24:

• Commissioning of New Phosphoric Acid Plant: A new phosphoric acid plant was commissioned in August 2023, increasing phosphoric acid production capacity by 150,000 MT. A 4th evaporator was also commissioned in July 2023, further boosting strong phosphoric acid production.

• Installation of New Ship Unloader: A new ship unloader was installed at the PPL jetty in Paradeep, improving operational efficiency and reducing environmental impact (dust-free operation).

• Turbo Generator Retrofit: Turbo generator-2 (16 MW) was retrofitted to generate additional energy and low-pressure steam.

• Goa Plant Energy Savings Project (ESP): Phase 1 of the ESP was completed, resulting in a decrease in Urea Energy Consumption to 6.4 Gcal/MT. Phase 2, focusing on compressor train revamp, is underway.

• Approval of MCFL Merger: The Board approved a composite scheme of arrangement for the merger with Mangalore Chemicals and Fertilizers Limited (MCFL). Regulatory approvals are in progress.

• Inclusion in S&P Dow Jones Sustainability Index (DJSI): The Company achieved a 51/100 score in the DJSI, a strong recognition of its ESG performance.

• Increased Production and Sales: Production volume increased by 13% year-on-year, and sales volume increased by 25% year-on-year.

• CSR Activities: PPL undertook various CSR initiatives, with spending of ₹103.6 million impacting over 59,000 individuals.

• Initiation of PSM: The Company initiated the implementation of Process Safety Management (PSM) across its facilities.

These represent the key events shaping the Company’s performance and trajectory during the fiscal year.

Audit Information #

Auditor’s Opinion:

The independent auditor, B S R & Co. LLP, Chartered Accountants, issued an unqualified opinion on both the standalone and consolidated financial statements of Paradeep Phosphates Limited for the year ended March 31, 2024. This means that, in their opinion, the financial statements present fairly, in all material respects, the financial position, financial performance, and cash flows of the company in accordance with Indian Accounting Standards (Ind AS) and other applicable accounting principles.

However, the auditor’s report also highlighted key audit matters:

• Recognition and recoverability of subsidy revenue: Due to the significant amount of subsidy revenue and the complexities involved in its recognition (subject to various conditions under government policies), the auditor performed extensive procedures to assess the reliability of the subsidy revenue recognition and its recoverability.

• Impairment of goodwill: The auditor assessed the methodology and assumptions used in the annual impairment testing of goodwill, given the inherent uncertainties involved in forecasting future cash flows.

Key Accounting Policies:

Several key accounting policies are outlined in the notes to the financial statements:

• Classification of Assets and Liabilities: Assets and liabilities are classified as current or non-current based on criteria such as expected realization or settlement within twelve months.

• Property, Plant, and Equipment: Measured at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method over estimated useful lives. Significant components are depreciated separately.

• Intangible Assets: Measured at cost less accumulated amortization and impairment losses. Amortization is applied on a straight-line basis over the estimated useful life.

• Impairment of Non-Financial Assets: The company assesses assets for impairment annually or when there are indications of impairment. Recoverable amount is the higher of fair value less costs to sell and value in use.

• Leases: The company assesses whether a contract contains a lease and applies appropriate accounting treatment based on the lease classification (operating or finance lease). For short-term leases, lease payments are expensed.

• Foreign Currency Transactions: Transactions and monetary items are translated using the exchange rate at the transaction or reporting date, respectively. Exchange differences are recognized in profit or loss.

• Financial Instruments: Financial instruments are classified into three categories (amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL)) based on the business model and cash flow characteristics. Impairment losses are recognized based on expected credit losses.

• Revenue Recognition: Revenue from sale of goods is recognized when control of the goods transfers to the customer. Subsidy income is recognized when there’s reasonable assurance of compliance with the applicable government policies.

• Government Grants and Subsidies: Recognized when there’s reasonable assurance of compliance with the conditions and receipt of the grant.

• Employee Benefits: Accounting treatment varies depending on whether the plan is defined contribution or defined benefit. Actuarial valuations are used for defined benefit plans.

• Income Tax: Current and deferred tax are recognized using the liability method.

• Business Combinations: The acquisition method is used. Assets acquired and liabilities assumed are measured at fair value. Goodwill is recognized.

• Goodwill: Goodwill is measured at cost less accumulated impairment losses. Impairment is tested annually.

• Dividend Recognition: A liability is recognized for the final dividend when the distribution is authorized by the shareholders.

These key accounting policies provide a framework for understanding how the financial statements were prepared. However, the presence of errors within the reported financial statements should be taken into consideration when fully interpreting these policies and their application.