Southern Petrochemicals Industries Corporation Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis looks into the 2023-24 annual report of Southern Petrochemical Industries Corporation Limited (SPIC), covering its financial performance, business segments, risks, and ESG (Environmental, Social, and Governance) initiatives.

I. Financial Performance:

SPIC’s financial year 2023-24 shows a significant decline in overall performance compared to the previous year. Key financial highlights:

• Revenue from Operations: A substantial drop from ₹2,828.82 crore in 2022-23 to ₹1,943.86 crore in 2023-24. This is primarily attributed to lower production due to plant machinery disturbances and flooding caused by Cyclone Michaung.
• Net Profit: A sharp decrease from ₹284.44 crore to ₹87.91 crore. This decline reflects the impact of lower production and increased costs.
• Profitability Ratios: The Net Profit Ratio decreased from 10.09% to 4.55%, indicating reduced profitability. The Debt Service Coverage Ratio plummeted from 2.46 times to 0.89 times, raising concerns about the company’s ability to service its debt.
• Dividend: The Board recommended a dividend of ₹1.50 per share (15% of face value), subject to shareholder approval. This is consistent with the previous year, despite the significant drop in profitability.
• Debt: SPIC raised ₹50 crore through a private placement of debentures during September 2023. The company’s overall debt level and the impact of increased interest rates are essential factors to monitor in future reports.

II. Business Segments:

SPIC’s core business revolves around the manufacturing and sale of urea fertilizers. However, the report also reveals involvement in other areas:

• Urea Production: The primary revenue generator. Production was significantly affected by operational disruptions (plant machinery, flooding), resulting in a lower output of 522,535 MT compared to 759,199 MT in the previous year. The company successfully transitioned to 100% natural gas-based production by the end of the fiscal year.
• Tamil Nadu Petroproducts Limited (TPL): A joint venture with lower revenue due to fluctuating crude oil prices, increased raw material costs, and cheaper imports. The cyclone also impacted plant operations.
• Tuticorin Alkali Chemicals and Fertilizers Limited (TFL): Focused on soda ash and ammonium chloride. Despite reduced selling prices, TFL maintained profitability after years of losses, indicating operational improvements.
• Greenam Energy Private Limited (GREENAM): Operates a 22 MW AC Floating Solar Project, contributing to renewable energy and reducing the company’s carbon footprint. Flooding briefly disrupted energy export.

III. Risks:

The annual report highlights many significant risks facing SPIC:

• Operational Risks: Plant machinery malfunctions, natural disasters (cyclones, floods), and reliance on natural gas supply are major operational risks impacting production and profitability.
• Financial Risks: High debt levels, fluctuating commodity prices (natural gas), and potential for increased interest rates pose significant financial risks. The Debt Service Coverage Ratio being below 1 is a major red flag.
• Market Risks: Competition from cheaper urea imports and the introduction of Nano Urea present considerable market risks. The acceptance of Nano Urea among farmers remains a significant uncertainty that could affect urea demand.
• Regulatory Risks: Dependence on government subsidies makes the company vulnerable to changes in government policies and the timely release of subsidy payments. Pending litigations (e.g., lease rent dispute, TWAD water charges) represent additional legal and financial risks.

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

SPIC demonstrates commitment to ESG through various initiatives:

• Environmental: Transitioning to natural gas-based urea production, installing a floating solar power plant, replacing conventional bulbs with LEDs, and planting trees contribute to reducing carbon emissions and improving energy efficiency. The company actively participates in plastic waste management (EPR compliance). Efforts in water conservation and the treatment of wastewater are evident.
• Social: The company undertakes many voluntary social responsibility (CSR) programs, including providing drinking water, educational support, and community assistance. They also support farmers through initiatives such as soil testing, training programs, and dissemination of improved agricultural practices.
• Governance: SPIC has established various committees (Audit, Nomination & Remuneration, Stakeholders’ Relationship, Risk Management) to ensure good corporate governance. They also have policies on insider trading, sexual harassment, and a whistleblower mechanism in place. The report details the Board’s performance evaluation processes and emphasizes compliance with relevant regulations.

V. Conclusion:

SPIC’s 2023-24 annual report reveals a year marked by operational challenges, impacting profitability and key financial ratios. While the company has made strides in transitioning to cleaner energy sources and engaging in various ESG initiatives, many essential risks, especially operational and financial risks, need careful management. The significantly lower profitability and the low Debt Service Coverage ratio are major concerns. Future reports should show tangible improvements in operational efficiency, debt management, and mitigation of the identified risks to restore investor confidence. A detailed analysis of the segmental performance (including TPL, TFL, and GREENAM) and their individual contributions to overall profitability would provide a more holistic understanding of the business. Further, a more granular breakdown of the environmental impact, specifically quantifying GHG emissions (Scope 1, 2, and 3) and reporting on their reduction strategies would improve transparency.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

Based on the provided financial statements:

• Total Assets: ₹1,638.54 Crore (Standalone) and ₹1,762.97 Crore (Consolidated)

• Current Assets: ₹577.76 Crore (Standalone) and ₹577.76 Crore (Consolidated)

• Cash and Cash Equivalents: ₹69.06 Crore (Standalone) and ₹69.06 Crore (Consolidated)

• Accounts Receivable (Trade Receivables): ₹17.71 Crore (Standalone) and ₹17.71 Crore (Consolidated)

• Inventory: ₹95.15 Crore (Standalone) and ₹95.15 Crore (Consolidated)

Important Note: The consolidated and standalone figures for current assets, cash and equivalents, and inventory are identical in this report. This is unusual and suggests a potential error in the report’s presentation or a lack of significant current assets and inventory in the subsidiaries/joint ventures. This discrepancy warrants further investigation and clarification.

Liability Analysis #

Here’s a breakdown of the liability figures from SPIC’s 2023-24 annual report:

• Total Liabilities: ₹1,078.12 Crore (Standalone) and ₹1,215.78 Crore (Consolidated) Note the discrepancy between the standalone and consolidated figures.

• Current Liabilities: ₹687.35 Crore (Standalone) and ₹687.35 Crore (Consolidated). Again, note the unusual identical figures for standalone and consolidated current liabilities.

• Long-Term Debt: ₹24.09 Crore (Standalone) and ₹24.09 Crore (Consolidated). This includes non-convertible debentures.

• Accounts Payable (Trade Payables): ₹60.88 Crore (Standalone) and ₹60.88 Crore (Consolidated).

Important Note: The striking similarity between the standalone and consolidated values for current liabilities and accounts payable indicates a possible reporting anomaly or an insignificant contribution from subsidiaries/joint ventures to these specific liability categories. This discrepancy needs further investigation and clarification. The difference between the standalone and consolidated total liabilities suggests the subsidiaries/joint ventures have significant long-term or other liabilities not reflected in the standalone statements.

Equity Analysis #

Here’s a breakdown of the equity figures from SPIC’s 2023-24 annual report:

• Shareholders’ Equity: ₹951.19 Crore (Standalone) and ₹1,075.62 Crore (Consolidated) Note the difference between standalone and consolidated equity.

• Retained Earnings: ₹445.10 Crore (Standalone). The consolidated retained earnings are not explicitly stated as a separate line item but are included within the “Other Equity” figure.

• Share Capital: ₹203.64 Crore (Standalone) and ₹203.64 Crore (Consolidated). This represents the par value of issued and outstanding equity shares.

The difference between the standalone and consolidated shareholders’ equity arises from the inclusion of the equity interests in the associate companies and joint ventures in the consolidated figures. The consolidated retained earnings are not directly presented but are implied within the larger “Other Equity” balance. It’s important to remember that the consolidated statements reflect the financial performance of the entire group, including its investments in other entities, whereas the standalone statements only reflect SPIC’s own financial position.

Income Statement #

Operating Performance #

Here’s the breakdown of SPIC’s revenue, cost of revenue, and profit figures for the fiscal year 2023-24, based on the provided financial statements: Note that there are some inconsistencies and a lack of clarity in the provided report, especially regarding how certain items are categorized.

Standalone Financial Statements:

• Revenue: ₹1,962.16 Crore (This includes revenue from operations and other income.)
• Revenue from Operations: ₹1,943.86 Crore (This excludes other income.)
• Cost of Revenue (Cost of Materials Consumed + Purchases of Stock-in-Trade + Changes in Inventories): ₹1,276.46 Crore + ₹19.13 Crore + ₹14.36 Crore = ₹1,309.95 Crore (Note that this calculation uses figures from the Statement of Profit and Loss, and there might be slight differences depending on how the company internally accounts for these items)
• Gross Profit: ₹1,943.86 Crore (Revenue from operations) - ₹1,309.95 Crore (Cost of Revenue) = ₹633.91 Crore (This is an approximation based on the available data and might differ slightly from the company’s internal calculation)
• Operating Expenses (Employee benefit expenses + Finance costs + Depreciation and amortisation expense + Other expenses): ₹68.07 Crore + ₹37.98 Crore + ₹38.18 Crore + ₹316.38 Crore = ₹460.61 Crore
• Operating Income (EBIT): ₹191.60 Crore (This figure is presented directly in the Statement of Profit and Loss as “Profit before exceptional items and tax”)

Consolidated Financial Statements:

The consolidated statement of profit and loss uses a slightly different structure. Calculating the exact figures for cost of revenue, gross profit, and operating expenses is not directly possible due to the presentation of these items. However:

• Revenue: ₹1,962.16 Crore + ₹18.30 Crore = ₹1,980.46 Crore (Total Income from Consolidated Statement of Profit and Loss)
• Operating Income (EBIT) is implicitly calculated as ₹191.60 Crore + ₹27.06 Crore = ₹218.66 Crore based on the Standalone profit before tax, exceptional items, and the share of profit of joint ventures and associates. There may be other small differences depending on how these items are calculated internally.

Important Considerations:

• Data Discrepancies: There are inconsistencies in the financial statement presentation, making precise calculations challenging. The exact figures used by SPIC in its internal accounting may differ slightly from these estimations.
• Exceptional Items: The standalone statement includes exceptional items (₹48.61 Crore loss), affecting the profit before tax. This should be taken into consideration when comparing year-on-year performance.
• Segment Reporting: The report lacks detailed segmental reporting, making it difficult to analyze each business unit’s contribution to revenue and profitability independently. More detailed information is needed to properly analyze the profitability of the different business units (TPL, TFL, GREENAM).

Therefore, the provided figures represent approximations based on the available data, highlighting the essential need for consistent and transparent financial reporting from SPIC.

Bottom Line Metrics #

Here’s a summary of the profitability metrics for SPIC’s 2023-24 fiscal year, again noting some complexities due to inconsistencies and lack of clarity in the report’s presentation:

Standalone Financial Statements:

• Net Income (Profit After Tax): ₹87.91 Crore
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This is not explicitly provided. To calculate it, we’d need to add back interest expense, depreciation, and amortization to the profit before tax. Using the figures available: ₹142.99 Crore (Profit before tax) + ₹37.98 Crore (Finance costs) + ₹38.18 Crore (Depreciation & Amortization) = ₹219.15 Crore (Approximation). However, the accuracy of this calculation depends on the company’s internal accounting practices and how certain items are classified.
• Basic EPS (Earnings Per Share): ₹4.32
• Diluted EPS: ₹4.32 (The report indicates that basic and diluted EPS are the same)

Consolidated Financial Statements:

• Net Income (Profit After Tax): ₹113.06 Crore
• EBITDA: Cannot be precisely calculated from the available data in the consolidated statements for the same reasons outlined for the Standalone calculation.
• Basic EPS: ₹5.55
• Diluted EPS: ₹5.55 (Again, basic and diluted EPS are reported as identical.)

Important Note: The EBITDA calculation is an approximation. There might be small differences based on how SPIC classifies specific line items internally. The identical basic and diluted EPS values in both standalone and consolidated statements are unusual and suggest a potential area for further investigation. A more detailed breakdown of the items included in calculating both the standalone and consolidated profits would be necessary to increase the accuracy of these calculations.

Cash Flow #

Cash Flow Components #

Here’s a summary of SPIC’s cash flow statement data for the fiscal year 2023-24, again noting some complexities and potential discrepancies in the report:

Standalone Cash Flow Statement:

• Cash Flow from Operating Activities: ₹227.41 Crore (This is after deducting direct taxes paid.)
• Cash Flow from Investing Activities: ₹(175.20) Crore (Negative, indicating net cash outflow from investments)
• Cash Flow from Financing Activities: ₹227.41 Crore (Net cash inflow from financing activities, largely driven by proceeds from long-term borrowings and offset by repayments.)

Consolidated Cash Flow Statement:

• Cash Flow from Operating Activities: ₹227.41 Crore (Again, after deducting direct taxes paid)
• Cash Flow from Investing Activities: ₹(175.20) Crore (Net cash outflow)
• Cash Flow from Financing Activities: ₹0.43 Crore (Net cash inflow - a low figure)

Important Note:

• Identical Operating Cash Flows: The standalone and consolidated cash flows from operating activities are identical, which is unlikely unless the subsidiaries and joint ventures had minimal operating cash flows during the year. This is a significant area for further investigation and should raise concerns about the accuracy of the financial reporting.

• Discrepancies and Approximations: The cash flow figures should be interpreted cautiously, considering the possibility of reporting errors. The report doesn’t offer a detailed breakdown of various cash inflows and outflows within each category, making independent verification difficult.

To obtain a more precise and reliable picture of SPIC’s cash flows, a review of the complete and detailed cash flow statement, with detailed explanations of the line items would be necessary. The inconsistencies identified suggest a potential need for improved transparency and accuracy in the company’s financial reporting practices.

Cash Flow Metrics #

Precise calculation of free cash flow (FCF) for SPIC requires more detailed information than is provided in the summarized financial statements. However, we can make some estimations and highlight the limitations.

Estimating Free Cash Flow (FCF):

FCF is typically calculated as operating cash flow less capital expenditures. Based on the available data:

• Standalone: Operating cash flow (after taxes) is ₹227.41 Crore. Capital expenditure (CAPEX), which is not directly stated, can be approximated from the investing cash flow statement. Investing activities show a net cash outflow of ₹175.20 Crore. Assuming most of this is CAPEX (which is often the largest component of investing cash flow), a rough estimate of FCF would be ₹227.41 Crore - ₹175.20 Crore = ₹52.21 Crore. However, this calculation ignores other components within the investing cash flow (like dividend income from investments) and is therefore a simplification.

• Consolidated: Again using the same method, starting with the consolidated operating cash flow (after taxes) and approximating CAPEX from the investing cash flow section, we can estimate a consolidated FCF. Note the discrepancy between the standalone and consolidated operating cash flows. This would again require a detailed breakdown of the investing cash flow to determine whether all outflows can be attributed to CAPEX.

Capital Expenditure (CAPEX):

The annual report does not directly state the CAPEX figure. As mentioned earlier, the investing activities section in the cash flow statements may offer some clues. The net cash outflow from investing activities is the main source for determining CAPEX, but that requires accounting for other items within that section (like proceeds from asset sales). For a more accurate CAPEX value, refer to the complete, detailed financial statements.

Dividends Paid:

• Standalone: ₹30.54 Crore (This is explicitly mentioned in the report, though it notes that this is subject to shareholder approval.)
• Consolidated: The consolidated financial statements do not explicitly state the total dividends paid.

Limitations:

These calculations are estimations due to the limitations of the data provided. To obtain the precise values of FCF and CAPEX, we need access to the complete detailed financial statements. Specifically, a detailed breakdown of investing cash flows is needed to isolate CAPEX accurately. The consolidated dividends paid would also need to be explicitly stated or calculated from the individual entity’s dividend payments.

Financial Ratios #

Profitability Ratios #

Calculating precise profitability ratios for SPIC requires more detailed information than is provided in the summarized financial statements. However, we can make some estimations and highlight the limitations:

Standalone Financial Statements:

• Gross Margin: This requires the gross profit and revenue from operations. Using the estimated gross profit from the previous response (₹633.91 Crore) and the revenue from operations (₹1,943.86 Crore), the gross margin would be (₹633.91 Crore / ₹1,943.86 Crore) * 100% ≈ 32.6%. This calculation relies on our approximate gross profit figure, and the actual gross margin may differ slightly.

• Operating Margin (EBIT Margin): Operating Income (EBIT) is given as ₹191.60 Crore. The operating margin would be (₹191.60 Crore / ₹1,943.86 Crore) * 100% ≈ 9.85%.

• Net Profit Margin: Net income is ₹87.91 Crore. The net profit margin would be (₹87.91 Crore / ₹1,962.16 Crore) * 100% ≈ 4.48%.

• Return on Equity (ROE): To calculate ROE, we need net income and average shareholder equity. The report provides the ending shareholder equity, but not the beginning balance. Without the beginning equity, we cannot accurately calculate the average equity needed for ROE calculation.

• Return on Assets (ROA): To calculate ROA, we need net income and average total assets. Similar to ROE, the report provides only the year-end total assets, not the beginning balance. Therefore, an accurate ROA calculation is not possible.

Consolidated Financial Statements:

Similar limitations apply to the consolidated statements. Calculating precise ratios requires the complete financial statements with a breakdown of items contributing to cost of revenue, gross profit, and operating expenses. The absence of a clear “Other Detailed Income” breakdown makes these calculations highly complex for the consolidated data.

Important Considerations:

• Approximations: The gross profit and resulting gross margin are approximations because we estimated the gross profit based on available data from the Profit & Loss Statement. The exact figures used by SPIC for cost of goods sold could differ slightly.

• Missing Data: The absence of beginning-of-year equity and total asset values prevents the accurate calculation of ROE and ROA for both standalone and consolidated statements.

• Data inconsistencies: Again, the lack of consistent and detailed financial reporting makes accurate calculation of the above profitability ratios challenging and highlights a need for more transparent financial disclosures.

To obtain precise profitability ratios, consult the full annual report with a complete detailed breakdown of the income statement and balance sheet information.

Liquidity Ratios #

Calculating liquidity ratios for SPIC requires using the balance sheet figures. However, as previously noted, there are inconsistencies in the reported data that affect the accuracy of these calculations. Let’s proceed with estimations and highlight the limitations:

Standalone Financial Statements:

• Current Ratio: Current Assets are ₹577.76 Crore, and Current Liabilities are ₹687.35 Crore. The current ratio is ₹577.76 Crore / ₹687.35 Crore ≈ 0.84. This indicates that the company’s current assets are less than its current liabilities, a sign of potential liquidity problems.

• Quick Ratio (Acid-Test Ratio): The quick ratio excludes inventories from current assets. Therefore, Quick Assets would be ₹577.76 Crore - ₹95.15 Crore = ₹482.61 Crore. The quick ratio would be ₹482.61 Crore / ₹687.35 Crore ≈ 0.70. This is even lower than the current ratio and further emphasizes liquidity concerns.

• Cash Ratio: The cash ratio only considers the most liquid assets, cash and cash equivalents, against current liabilities. Cash and cash equivalents are ₹69.06 Crore. The cash ratio is ₹69.06 Crore / ₹687.35 Crore ≈ 0.10. This extremely low ratio suggests a very limited ability to meet short-term obligations using only cash on hand.

Consolidated Financial Statements:

The same calculations can be performed using the consolidated balance sheet data. However, because current assets and current liabilities are identically reported for both standalone and consolidated statements, the resulting liquidity ratios would also be identical. The consolidated figures should be different. This suggests an error or omission in the consolidated balance sheet.

Important Note:

These calculations are based on the provided, potentially inaccurate, data. The identical current assets and current liabilities in standalone and consolidated statements are especially concerning and indicate the need for a more reliable source of financial information. The low liquidity ratios calculated, especially the cash ratio, raise significant concerns about SPIC’s short-term financial health and liquidity position. A detailed analysis would require reviewing the full, detailed financial statements to confirm the accuracy of the balance sheet figures.

Efficiency Ratios #

Calculating SPIC’s efficiency ratios accurately requires more detailed data than what’s available in the summarized financial statements. The provided data has limitations and inconsistencies, making precise calculations challenging. We can, however, offer estimates and highlight the significant limitations.

Standalone Financial Statements:

• Asset Turnover: This ratio measures how efficiently a company uses its assets to generate sales. It’s calculated as Revenue / Average Total Assets. We have the year-end total assets (₹1,638.54 Crore), but we lack the beginning-of-year assets to calculate the average. Therefore, we cannot calculate the precise asset turnover.

• Inventory Turnover: This ratio shows how many times a company sells and replaces its inventory during a period. It’s typically calculated as Cost of Goods Sold / Average Inventory. We have the year-end inventory value (₹95.15 Crore), but lack the beginning-of-year inventory. Also, the exact cost of goods sold isn’t clearly stated. Hence, we cannot calculate the inventory turnover.

• Receivables Turnover: This ratio indicates how efficiently a company collects its receivables. It’s calculated as Net Credit Sales / Average Accounts Receivable. We have year-end accounts receivable (₹17.71 Crore), but not the beginning-of-year balance. Furthermore, net credit sales aren’t directly provided. Therefore, we cannot calculate the receivables turnover.

Consolidated Financial Statements:

Similar limitations apply to the consolidated financial statements. The lack of detailed segment information and the absence of beginning-of-year values for assets, inventory, and receivables prevent the precise calculation of these efficiency ratios.

Important Note:

The inability to accurately compute these key efficiency ratios underscores the need for more detailed financial reporting by SPIC. The lack of beginning-of-year figures for key balance sheet items prevents the calculation of the average values essential for these ratios. A detailed income statement with a clear cost of goods sold breakdown and information on credit sales would also be needed. Until these data points are available, any calculation would only be a rough estimate and might not accurately reflect the company’s operational efficiency.

Leverage Ratios #

Calculating SPIC’s use ratios precisely requires complete financial statement data, which is not fully provided in the summarized report. The available data has inconsistencies and limitations, impacting the accuracy of the estimations.

Standalone Financial Statements:

• Debt-to-Equity Ratio: This ratio indicates the proportion of a company’s financing from debt relative to equity. It’s calculated as Total Debt / Shareholders’ Equity. Total debt can be approximated as total borrowings (₹464.43 Crore) less cash and cash equivalents (₹69.06 Crore) and less liquid investments (₹31.25 Crore), which makes the approximate total debt ₹364.12 Crore. Shareholders’ equity is ₹951.19 Crore. Therefore, the debt-to-equity ratio is approximately ₹364.12 Crore / ₹951.19 Crore ≈ 0.38.

• Debt-to-Assets Ratio: This ratio shows the proportion of a company’s assets financed by debt. It’s calculated as Total Debt / Total Assets. Using the approximate total debt (₹364.12 Crore) and the total assets (₹1,638.54 Crore), the debt-to-assets ratio is approximately ₹364.12 Crore / ₹1,638.54 Crore ≈ 0.22.

• Interest Coverage Ratio: This ratio measures a company’s ability to meet its interest obligations. It’s calculated as Earnings Before Interest and Taxes (EBIT) / Interest Expense. EBIT (operating income) is ₹191.60 Crore, and interest expense is ₹37.98 Crore. The interest coverage ratio is approximately ₹191.60 Crore / ₹37.98 Crore ≈ 5.04. This suggests that the company’s earnings are more than five times its interest expense.

Consolidated Financial Statements:

Similar calculations can be done for the consolidated figures. However, accurately determining total debt requires considering the debt levels of all subsidiaries and joint ventures within the consolidated financial statements. Also, to calculate the interest coverage ratio accurately for the consolidated financial statements would require adding the interest expenses of all subsidiaries. The available consolidated financial statements lack this detail.

Important Considerations:

• Approximations and Assumptions: These calculations are approximations due to the limited data. The calculation of total debt involved assumptions and might vary depending on the exact details within the full financial statements.

• Data Inconsistencies: The discrepancies across standalone and consolidated statements for many key balance sheet items (as discussed earlier) further reduce the reliability of any ratio calculated.

To determine the precise use ratios, you need access to complete and accurate financial statements for both standalone and consolidated entities. The discrepancies highlight a potential need for greater transparency and consistency in the financial reporting by SPIC.

Market Analysis #

Market Metrics #

Calculating these market-related ratios for SPIC requires information not directly provided in the annual report. We need additional data points that are typically found outside of the annual report itself. Here’s what we would need and why we can’t calculate these ratios from the provided information:

• Market Cap (Market Capitalization): This is calculated as the current market price per share multiplied by the total number of outstanding shares. The annual report provides the number of outstanding shares, but not the current market price per share. This information would need to be obtained from a financial website that tracks real-time stock prices, such as Google Finance, Yahoo Finance, or Bloomberg.

• P/E Ratio (Price-to-Earnings Ratio): This ratio compares the market value of a company to its earnings per share (EPS). It’s calculated as Market Price per Share / Earnings Per Share. We have the EPS from the income statement, but we lack the current market price per share, again requiring information from external sources.

• P/B Ratio (Price-to-Book Ratio): This ratio compares a company’s market value to its book value. It’s calculated as Market Price per Share / Book Value per Share. While the annual report contains the book value of equity, we need the market price per share from an external source to calculate this ratio.

• Dividend Yield: This is the annual dividend per share divided by the market price per share. The annual report provides the dividend per share but lacks the current market price per share.

• Dividend Payout Ratio: This ratio measures the percentage of net income paid out as dividends. It’s calculated as Dividends Paid / Net Income. For the standalone report this would be ₹30.54 Crore / ₹87.91 Crore ≈ 34.7%. However, the consolidated dividend needs further information as the consolidated dividends are not directly reported.

In summary: The provided annual report gives essential data for profitability and liquidity analysis. However, it does not contain the information required to calculate market-related ratios such as market cap, P/E ratio, P/B ratio, and dividend yield, which depend on the current market price of the share. These values must be obtained from external financial data sources. The dividend payout ratio could be calculated from the standalone report based on the assumptions above, but requires additional data for the consolidated report.

Business Analysis #

Segment Analysis #

The annual report provides limited information to fully analyze SPIC’s business segments. While it names the segments, it lacks essential details such as precise revenue figures, growth rates, market shares, and a detailed geographic presence. Here’s a summary based on available information, highlighting the significant data gaps:

Business Segments:

1. Fertilizer Division (Urea Production): This is SPIC’s core business. The report states that this segment accounts for approximately 91.58% of the company’s turnover. The only explicit revenue information is found in Note 23, but this is not a clear segmental breakdown in line with accounting standards. Exact revenue, growth rate, and operating margin for this division are not provided. The key product is neem-coated urea, sold primarily within India. The geographic presence is limited to the national market.

2. Tamil Nadu Petroproducts Limited (TPL): This is a joint venture. The report mentions its revenue as ₹1,697 crore in 2023-24, compared to ₹2,170 crore in 2022-23, implying a negative growth rate. However, the operating margin is not stated. Key products include Linear Alkyl Benzene (LAB) and Caustic Lye. Geographic presence is within India. The report doesn’t provide market share information.

3. Tuticorin Alkali Chemicals and Fertilizers Limited (TFL): Another associate company. While stating that it is profitable for the year, the report doesn’t provide specific revenue or operating margin details. Key products are soda ash and ammonium chloride. Its market share is not given. Geographic presence is within India.

4. Greenam Energy Private Limited (GREENAM): This company operates a floating solar power plant. The report provides its revenue as ₹18.57 crore and profit as ₹2.28 crore for 2023-24. Market share information and operating margin are not given.

Missing Data:

The major shortcoming of the provided annual report is the lack of a proper segmental analysis. This makes it very difficult to perform proper ratio analysis. The report fails to provide:

• Detailed Revenue Breakdown: Specific revenue figures for each segment (except TPL and GREENAM) are absent.
• Growth Rates: Year-on-year revenue growth rates for each segment are not calculated.
• Operating Margins: Operating margins for each segment (except GREENAM) are not provided.
• Market Share Data: No information is given about the market share of each segment’s products.
• Geographic Presence Details: Information on the geographic reach of each segment beyond “national” is limited.

Conclusion:

Without this missing information, a thorough analysis of SPIC’s business segments is not possible. The available data paints an incomplete picture. To perform a proper analysis, access to a more detailed segmental report is essential, including the required data points listed above.

Risk Assessment #

SPIC’s annual report identifies many key risk factors, but the presentation lacks a structured format specifying impact severity, likelihood, and detailed mitigation strategies according to established risk management frameworks. We can categorize the risks and describe them based on the information provided but cannot assign numerical likelihood or severity scores.

I. Key Risk Factors:

A. Operational Risks:

B. Financial Risks:

C. Market Risks:

D. Regulatory Risks:

II. Mitigation Strategies and Trends:

The report mentions general mitigation strategies, such as improved maintenance, robust disaster management planning, insurance coverage, hedging, cost optimization, and active engagement with regulatory bodies. However, a quantitative assessment of the effectiveness of these strategies is not given.

The identified trends suggest that operational disruptions, financial pressures, and intense market competition will likely persist or worsen in the coming years. Adaptability, innovation (including incorporating Nano Urea into the business), strategic partnerships, and robust risk management will be critical for SPIC to navigate these challenges successfully. A more detailed and structured approach to risk reporting, clearly defining likelihood and severity, and quantifying the efficacy of mitigation strategies is needed to provide greater transparency and assurance to stakeholders.

Strategic Overview #

Management Assessment #

SPIC’s management discussion and analysis section highlights key strategies, competitive advantages, market conditions, challenges, and opportunities. However, the report lacks a clear, concise summary of these aspects, requiring piecing together information from different sections.

I. Key Strategies:

• Operational Efficiency: Improving plant operational efficiency to improve production volumes and reduce costs. This includes transitioning to 100% natural gas-based production in the urea plant and undertaking regular maintenance to mitigate unplanned shutdowns.

• Cost Optimization: Implementing measures to reduce operating costs across all business segments. This includes strategies to improve energy efficiency, water conservation and waste management.

• Product Diversification: Although the report doesn’t specify concrete plans, there’s implicit acknowledgement of exploring new opportunities beyond traditional urea fertilizer production. This likely includes strategies to research, develop, and potentially incorporate Nano Urea into its offerings, if it proves commercially viable.

• Strategic Partnerships: Maintaining and strengthening relationships with key stakeholders (government, suppliers, distributors, and farmers) to secure raw materials and ensure market access.

• Sustainability Initiatives: Investing in and promoting various environmentally friendly and socially responsible initiatives to improve its long-term sustainability and improve its reputation. This includes increased focus on renewable energy and waste management.

II. Competitive Advantages:

• Established Market Presence: SPIC benefits from its long-standing presence in the Indian fertilizer market, especially its strong network of dealers and distributors.

• Government Support: As a lead fertilizer supplier in many states, the company enjoys some level of government support and access to subsidies. (Note that this is also a risk factor, depending on government policies.)

• Integrated Operations (Partially): The company demonstrates some degree of vertical integration through its associates and joint ventures (TPL, TFL, Greenam). This partial integration can offer operational synergies in some areas, but a full assessment requires more data.

III. Market Conditions:

• Erratic Monsoon: The impact of erratic monsoon seasons affecting crop yields and consequently impacting fertilizer demand.

• Reduced Agricultural Production: Overall agricultural production decreased compared to the previous year, mainly due to unfavorable weather conditions.

• Satisfactory Urea Availability: Despite reduced imports, the overall availability of urea in India remained satisfactory due to increased domestic production.

• Nano Urea Introduction: The emergence of Nano Urea as a potential alternative to conventional urea presents both a threat and an opportunity.

• Price Pressure: Increased cost of raw materials and price pressure from cheaper imports negatively impact profitability in some segments (like TPL).

IV. Challenges:

• Operational Disruptions: Frequent plant machinery issues and natural disasters (flooding from Cyclone Michaung) severely impacted production and profitability.

• High Debt Levels: Significant levels of debt increase financial vulnerability.

• Nano Urea Competition: The uncertain market acceptance of Nano Urea could significantly impact urea demand in the future.

• Government Policy Uncertainty: Reliance on government subsidies creates vulnerability to policy changes and delays in subsidy payments.

• Competition: The Company faces intense competition in the Fertilizer Industry.

V. Opportunities:

• Nano Urea: Researching and potentially developing Nano Urea products and services to adapt to changing market dynamics and exploit the evolving technology.

• Improved Technology: Investing in technology upgrades for greater efficiency, reduced emissions and enhanced operational reliability. The successful switch to natural gas is an example.

• Expanding Product Portfolio: Expanding beyond urea fertilizers to provide a wider range of agricultural inputs and services. This diversification is a key component of the company’s future strategy.

• Strengthening Value Chain: Further optimizing the value chain by improving sourcing, manufacturing, and distribution of products.

Overall:

Management recognizes the need for improved operational efficiency, cost reduction, and product diversification to address the challenges and capitalize on emerging opportunities. However, the report lacks a precise quantitative analysis of the success or failure of the strategies outlined, creating difficulty for external analysis and investor assessment. A clearer articulation of these strategies, with specific measurable targets and timelines, would significantly improve transparency and investor confidence.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report details SPIC’s ESG initiatives, it does not provide any scores or ratings from organizations that specialize in ESG assessments (e.g., MSCI, Sustainalytics, Refinitiv). To find ESG ratings for SPIC, you would need to consult independent ESG rating providers directly or through financial data platforms that aggregate such information.

ESG Initiatives #

SPIC’s annual report details various environmental, social, and governance (ESG) initiatives. However, the presentation lacks a detailed, structured summary of their sustainability goals and quantitative data on some key aspects, such as the overall carbon footprint.

I. Environmental Initiatives:

• Energy Efficiency: Transitioning from naphtha and fuel oil to 100% natural gas in the ammonia plant, resulting in reduced CO2 emissions. Replacing 220 conventional bulbs with LEDs across facilities. Utilizing a floating solar power plant (Greenam) to meet a portion of electricity needs. These actions demonstrate efforts towards lowering energy consumption and reducing reliance on fossil fuels. However, the report does not provide quantitative data on the overall reduction in greenhouse gas emissions.

• Water Management: Implementing an integrated effluent management system, recycling treated water, and monitoring water consumption. The company emphasizes water conservation, though specific metrics on water usage and reduction are not detailed.

• Waste Management: Actively engaging in plastic waste management, complying with Extended Producer Responsibility (EPR) regulations. Implementing procedures for managing hazardous waste (spent catalysts, used oils) and other waste streams (biomedical waste, etc.). The report provides some figures on plastic waste collected but lacks an overview of waste generation and management across all sites.

• Green Belt Development: Planting over 1075 trees during the year as part of a green belt development initiative.

II. Carbon Footprint:

The report does not provide a quantitative measure of SPIC’s overall carbon footprint (Scope 1, 2, and 3 emissions). While mentioning specific initiatives to reduce emissions, the report lacks a detailed carbon accounting framework and overall reduction targets.

III. Social Initiatives (CSR Activities):

SPIC’s CSR activities, though voluntary given their lack of profits according to Section 198 of the Companies Act, 2013, include:

• Community Support: Providing safe drinking water to many villages, donating water purifiers, and offering educational support to underprivileged children.

• Farmer Support: Continuing to conduct farmer training programs, promote improved agricultural practices (soil health management, integrated nutrient management), and distribute farm journals. Supporting the Pradhan Mantri Kisan Samridhi Kendra (PMKSK) initiative.

IV. Governance Practices:

• Committees: SPIC has established various board committees (Audit, Nomination & Remuneration, Stakeholders’ Relationship Committee, Risk Management Committee) to improve corporate governance.

• Policies: Policies are in place for preventing insider trading, addressing sexual harassment (POSH), implementing a whistleblower mechanism, and managing related party transactions. The report mentions these policies but lacks detailed descriptions.

• Board Evaluation: The report mentions processes for evaluating the performance of the Board of Directors, its committees, and individual directors.

V. Sustainability Goals:

The annual report does not explicitly state specific, measurable, achievable, relevant, and time-bound (SMART) sustainability goals. While describing many initiatives, the report lacks quantified targets for emission reductions, water conservation, waste management, or social impact.

Overall:

SPIC is undertaking many environmental and social initiatives. However, the report needs significant improvement in presenting a detailed picture of its sustainability performance. Specifically, the report should include:

• Quantified Targets: Setting measurable targets for carbon emission reductions, water consumption, waste generation, and social impact metrics.
• Comprehensive Data: Providing data on various environmental and social indicators (e.g., total GHG emissions, water usage, waste generated, employee safety, and diversity statistics).
• Reporting Framework: Adopting a widely recognized sustainability reporting framework (e.g., GRI, SASB) to improve the transparency and comparability of its ESG performance.
• Stakeholder Engagement: Demonstrating engagement with relevant stakeholders (e.g., employees, communities, investors) on its sustainability objectives.

Without this enhanced level of detail and transparency, the true extent of SPIC’s commitment to sustainability remains unclear.

Additional Information #

Operational Metrics #

Based on the provided annual report:

• R&D Expenditure: The report does not explicitly state the R&D expenditure for the fiscal year 2023-24. While mentioning research tie-ups (e.g., with Tamil Nadu Agriculture University on Nano Urea), it does not provide a numerical value for R&D spending.

• Employee Count: As of March 31, 2024, SPIC had a total of 666 employees (including 535 permanent employees and 131 other employees) and 114 workers (mostly permanent). Note that this figure includes employees of various categories; including contract workers, trainees and apprentice.

To find the precise R&D expenditure, you would need to refer to the complete, unsummarized annual report or other financial disclosures. The absence of R&D expense in the provided summary is noteworthy, especially considering the mention of research initiatives.

Key Events #

Several significant events shaped SPIC’s 2023-24 fiscal year, as detailed (though not always comprehensively) in the annual report:

• Cyclone Michaung and Flooding: Cyclone Michaung caused severe flooding at the Tuticorin plant in December 2023, resulting in significant operational disruptions, production losses, damage to assets, and increased costs (shutdown, restart, repairs). This event significantly impacted the company’s financial performance.

• Transition to 100% Natural Gas: The successful completion of the transition of the Ammonia plant from naphtha to 100% natural gas as fuel and feedstock by the end of the fiscal year, lowering energy intensity and environmental impact. This was a significant technological achievement.

• Completion of Gas Pipeline: The completion of the natural gas pipeline from Ennore to Sayalkudi, improving the supply of natural gas for urea production.

• Private Placement of Debentures: The company raised ₹50 crore through a private placement of debentures.

• Board Changes: Changes in the composition of the Board of Directors occurred due to resignations and appointments of nominee directors from Tamil Nadu Industrial Development Corporation (TIDCO). Ms. Devaki Ashwin Muthiah joined the board and Mr. S.R. Ramakrishnan resigned.

• Insurance Claim: The company lodged a significant insurance claim for losses incurred due to the cyclone, covering damages to assets, loss of inventory, shutdown expenses, and loss of profits. The company received an interim payment but is awaiting final assessment.

• Legal Disputes: Ongoing legal disputes continued, including a major lease rent dispute and water charge claims from TWAD. The single judge hearing directed the company to pay ₹168.74 crore, which was stayed pending further hearing by the division bench. The company had paid ₹50 crore as per the interim order.

These events, especially the cyclone and resulting operational disruptions, heavily influenced the company’s financial performance and highlight its vulnerability to both operational and regulatory risks. The successful switch to natural gas is an important positive development.

Audit Information #

Auditor’s Opinion:

The independent auditor, MSKA & Associates, Chartered Accountants, expressed an unqualified opinion on both the standalone and consolidated financial statements of SPIC for the year ended March 31, 2024. This means that, in their professional judgment, the financial statements present a true and fair view of the company’s financial position and performance in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. However, the report did highlight the recognition, measurement, and valuation of subsidy income and related receivables as a key audit matter, indicating that this area required significant judgment and interpretation by the company’s management.

Key Accounting Policies:

The annual report outlines many key accounting policies followed by SPIC, notably:

• Basis of Preparation: The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS), following the historical cost convention with certain exceptions for fair value measurements of specific financial instruments.

• Revenue Recognition: Revenue from urea sales is recognized upon transfer of control to customers, adjusted for discounts and incentives. Subsidy income is recognized based on government notifications and estimates for periods where final rates are not yet determined.

• Property, Plant, and Equipment (PPE): PPE is stated at cost less depreciation, using the straight-line method with useful lives determined based on technical advice and periodic review.

• Inventories: Inventories are valued at the lower of cost and net realizable value, using the weighted average cost method for raw materials and calculating net realizable value based on estimated selling prices less costs to complete and sell.

• Impairment of Non-Financial Assets: The company assesses impairment at each year-end based on objective evidence, using the recoverable amount (higher of value in use and fair value less costs to sell).

• Financial Instruments: Financial assets are classified as amortized cost, fair value through other detailed income (FVOCI), or fair value through profit or loss (FVTPL) depending on the business model and contractual terms. The expected credit loss (ECL) model is applied for impairment of financial assets.

• Taxes: Current and deferred taxes are recognized based on enacted or substantially enacted tax rates and laws at the balance sheet date.

• Borrowing Costs: Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets are capitalized; other costs are expensed.

• Subsidies: Government subsidies are recognized when there’s reasonable assurance of receipt and compliance with conditions. The method of recognition depends on whether the subsidy relates to an expense or an asset.

• Provisions and Contingent Liabilities: Provisions are recognized when obligations are probable and reliably estimable. Contingent liabilities are disclosed when possible obligations exist.

• Rounding: Amounts are rounded to the nearest crore (ten million) unless otherwise stated.

These key accounting policies are essential for understanding how SPIC measures and reports its financial performance. The auditor’s unqualified opinion, while positive, should be considered in conjunction with the highlighted key audit matter regarding subsidy income recognition. Independent verification of the appropriateness and consistency of the application of these policies would require a review of the full annual report and supporting documentation.