Zuari Agro Chemicals Ltd:Annual Report 2023-24 Analysis

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue (Standalone): Decreased from ₹27,883.04 Lakhs (discontinued operations FY 2022-23) and ₹16,500.34 Lakhs (continued operations FY 2022-23) to ₹8,300.26 Lakhs (continued operations FY 2023-24).
• Revenue (Consolidated): Increased from ₹4,55,261.73 Lakhs (continued operation FY 2022-23) and ₹27,883.04 (discontinued operation FY 2022-23) to ₹4,59,545.85 Lakhs (continued operation FY 2023-24).
• Profit Before Tax (Standalone): Increased from a profit of ₹38,667.06 Lakhs (continued operation FY 2022-23) and loss of ₹1,521.52 Lakhs (discontinued operations FY 2022-23) to a profit of ₹2,140.05 Lakhs (continued operations FY 2023-24). The FY 2022-23 Standalone includes exceptional expense of ₹44,342.30
• Profit Before Tax (Consolidated): Decreased from a profit of ₹68,336.65 Lakhs (continued operations FY 2022-23) and loss of ₹1,521.52 (discontinued operations FY 2022-23) to a profit of ₹25,057.15 Lakhs (continued operations FY 2023-24).
• Profit After Tax (Standalone): Decreased from a profit of ₹29,386.36 Lakhs (FY 2022-23, continuing and discontinuing operations) to a profit of ₹2,140.05 Lakhs (FY 2023-24, continuing operations).
• Profit After Tax (Consolidated): Decreased from a profit of ₹53,903.92 Lakhs (FY 2022-23, continuing and discontinuing operations) to a profit of ₹17,094.95 Lakhs (FY 2023-24, continuing and discontinuing operations).
• Earnings Per Share (EPS) - Basic and Diluted (Standalone): Decreased from ₹69.87 (FY 2022-23) to ₹5.09 (FY 2023-24) for continuing and discontinued operations.
• Earnings Per Share (EPS) - Basic and Diluted (Consolidated): Decreased from ₹113.33 (FY 2022-23) to ₹23.74 (FY 2023-24) for continuing and discontinued operation.

Business Segment Performance #

• SSP-Granular Sales: 49,302 MT.
• SSP-Powdered Sales: 8,716 MT.
• SSP-Granular (Zincated & Boronated) Sales: 2,940 MT.
• Total SSP Sales: 60,959 MT, a 32% decrease compared to the previous year (90,174 MT).
• State Wise performance: Sales degrowth by 38% in the target states.

Major Strategic Initiatives and Their Progress #

• Proposed Transaction: Transfer of 3,92,06,000 equity shares of Mangalore Chemicals & Fertilizers Limited (MCFL) to Zuari Maroc Phosphates Private Limited (ZMPPL) as part of a composite scheme of arrangement. Approved by the Audit Committee and Board of Directors; shareholder approval is pending.
• Liquidation of Adventz Trading DMCC: Approved by the Board, subject to regulatory approvals, and is in process. DMCC Authority informed dissolution w.e.f. 13 June 2023.
• Zuari Farmhub Limited (ZFL) Capital Reduction: Capital reduction of ’ 698.97 Crores completed, effective 1st July 2022.
• Issuance of Non Convertible Debentures (NCDs) The Board has approved raising funds by way of issuance of NCDs up to ’ 500 Crores.

Risk Landscape Changes #

• Fertilizer Subsidy Payments: Delays in subsidy payments from the Government of India continue to create working capital pressure.
• Freight Subsidy: Non-continuation of freight subsidy from January 2023 has created a challenge.
• Raw Material Price Volatility: Potential increase in rock prices and supply disruptions due to unrest in the Middle East and Red Sea zones.

ESG Initiatives and Metrics #

• Environmental Initiatives: The company’s fertilizer plant operates as a ‘Zero Effluent Discharge Plant.’ Compliance with statutory environmental requirements is maintained. Plantation activities planned 2024-25.
• Safety: Continuous safety training and refresher programs are conducted for employees and workers.

Management Outlook #

• Sales Plan (2023-24): 1 lakh MT of SSP, targeting Maharashtra and northern Karnataka.
• Challenges: Dependence on subsidy receipts, potential raw material price increases, and logistical disruptions.
• Government Initiative: Favorable impact is expected from the ‘Make in India’ and measures planned for production, automation, and low-cost sourcing.

Detailed Analysis #

Zuari Agro Chemicals Limited - Financial Analysis (FY2023-24) #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(INR in Lakhs)

Note: The value for Equity attributable to equity holders as on 31 March 2022 has been computed. Other Equity has been considered as balancing figure.

Significant Changes in Major Line Items (>10% YoY) #

• Other Equity (Consolidated): Increased significantly from INR (19,322.84) lakhs in FY22 to INR 153,911.02 lakhs in FY23.
• Current Assets: Decreased by 17.42% from INR 178,811.32 lakhs in FY23 to INR 147,661.60 lakhs in FY24. Also Decreased by 13.6% between FY22 and FY23.
• Current Liabilities: Decreased by 15.21% from INR 220,711.26 lakhs in FY23 to INR 187,140.18 lakhs in FY24.

Working Capital Trends #

(INR in Lakhs)

Analysis: #

• The Group consistently exhibits a negative working capital, indicating that current liabilities exceed current assets.
• The negative Working Capital decreased from FY23 to FY24.

Debt Structure and Maturity Profile #

(INR in Lakhs)

Analysis: #

• A significant portion of the Group’s borrowings are short-term (less than 1 year).
• Long-term borrowings have shifted towards shorter-term maturities from FY23 to FY24.
• The Group has lease obligations that extend beyond 5 years.

Off-Balance Sheet Items #

(INR in Lakhs)

Analysis: #

• The Group has significant contingent liabilities in the form of demands/claims from Government Authorities.
• The amount of Bank Guarantees has slightly increased from previous year.
• Other claims decreased by 4.49%.

Zuari Agro Chemicals Limited Financial Analysis #

Revenue Breakdown #

Standalone Revenue #

• Continuing operations revenue for FY 2023-24: INR 8,300.26 Lakhs.
• Continuing operations revenue for FY 2022-23: INR 16,500.34 Lakhs.
• Discontinued operations revenue for FY 2022-23: INR 27,883.04 Lakhs.
• Year-over-year revenue from continued operations decreased.

Consolidated Revenue #

• Continuing Operations Revenue for FY 2023-24: 459,545.85.
• Continuing Operations Revenue for FY 2022-23: INR 455,261.73.
• Discontinued operations revenue for FY 2022-23: 27,883.04.
• Year over Year revenue from continued operation increased.

Cost Structure Analysis #

Standalone Costs #

• Cost of Materials Consumed (FY 2023-24): INR 5,609.29 Lakhs, a significant decrease from INR 11,824.83 Lakhs in FY 2022-23.
• Purchase of Traded Goods (FY 2023-24): INR 0 Lakhs, decreased from INR 1,589.10 Lakhs in FY 2022-23.
• Employee Benefits Expense (FY 2023-24): INR 308.79 Lakhs, down from INR 553.65 Lakhs in FY 2022-23.
• Finance Costs (FY 2023-24): INR 10,129.61 Lakhs, a slight decrease from INR 10,034.55 Lakhs in FY 2022-23.

Consolidated Costs #

• Cost of raw material and components consumed:
  • FY 2023-24: 200,159.82
  • FY 2022-23: 218,747.66
• Purchase of Traded Goods (FY2023-24): 96,316.60, increased from 83,390.68
• Employee Benefit Expenses (FY 2023-24): 13,089.85 Increased from 11,965.81
• Finance Costs (FY 2023-24): 21,125.76, Increased from 20,545.08.

Margin Analysis #

Standalone Margins #

• Operating Profit Margin: 0.83% (FY 2023-24) vs. 19.33% (FY 2022-23), indicating a significant decrease.
• Net Profit Margin: 26% (FY 2023-24) vs. 187% (FY 2022-23), a substantial decrease.

Non-Recurring Items #

• Standalone Exceptional Expenses (FY 2022-23): INR 44,342.30 Lakhs, related to the gain on the slump sale of the fertilizer plant at Goa and associated businesses, and impairment loss on investment in Zuari Farmhub Limited. There were no exceptional items in FY 2023-24.
• Consolidated: Gain on transfer of fertilizer plant, investment in subsidiary written off.

EPS Analysis #

Standalone EPS #

• Basic and diluted EPS from continuing operations (FY 2023-24): INR 5.09, a decrease from INR 73.49 in FY 2022-23.
• Basic and diluted EPS from discontinued operations (FY 2022-23): INR (3.62).

Consolidated EPS #

• Basic and diluted EPS from Continuing operations (FY2023-24): 23.74, decreased from 116.95

Zuari Agro Chemicals Limited: Financial Analysis of Cash Management #

Operating, Investing, and Financing Cash Flow Components (Consolidated, in INR Lakhs) #

Operating Cash Flow (OCF) #

• Profit before tax (Continuing Operations): 25,057.15 (FY24), 68,336.65 (FY23)
• Profit before tax (Discontinued Operations): Nil (FY24), (1,521.52) (FY23)
• Adjustments for non-cash items: -ve adjustments of (10,123.11) (FY24) & -ve adjustments of 23,835.53 (FY23)
• Working Capital Changes: 21,329.43 (FY24), (14,748.92) (FY23)
• Income Tax Paid (net): (10,629.22) (FY24), (5,220.95) (FY23)
• Net OCF: 47,313.68 (FY24), 9,483.32 (FY23)

Investing Cash Flow (ICF) #

• Purchase of property, plant, and equipment: (14,383.78) (FY24), (31,669.53) (FY23)
• Proceeds from sale of property, plant, and equipment: 12,416.34 (FY24), 7,140.75 (FY23)
• Proceeds from sale of non-current investments: 635.60 (FY24), 954.27 (FY23)
• Proceeds from sale of Fertiliser Business: Nil (FY24), 53,700.00 (FY23)
• Investment in bank deposits: -1,448.00 (FY24), 10,320.08 (FY23)
• Net ICF: 280.34 (FY24), 42,593.72 (FY23)

Financing Cash Flow (FCF) #

• Proceeds from long-term borrowings: 13,747.30 (FY24), 26,820.59 (FY23)
• Repayment of long-term borrowings: (23,243.75) (FY24), (20,356.95) (FY23)
• Proceeds/ (Repayment) from /of Lease Liabilities 3,382.73 (FY24), -567.12 (FY23)
• Proceeds from short-term borrowings: 51,851.03 (FY24), 18,470.00 (FY23)
• (Repayment) of short term loans: (76,379.93) (FY24), (74,947.75) (FY23)
• Dividend paid on equity shares: (817.30) (FY24), (768.34) (FY23)
• Interest paid: (21,271.97) (FY24), (18,358.41) (FY23)
• Net FCF: (52,731.89) (FY24), (69,707.98) (FY23)

Working Capital Management Efficiency #

• Debtors Turnover (Debtors/Revenue*365): 150.91 days in FY24 vs 59.38 days in FY23 (standalone).
• Inventory Turnover (COGS/Average Inventory): 174.38 days in FY24 vs 85.8 days in FY23 (standalone).
• Trade Payables Turnover (Total Purchase/ Average Trade Payable): 0.40 (FY24), 0.83 (FY23) (consolidated).

Dividend and Share Buyback Trends #

• Dividend: A final dividend of INR 1.50 per share (FY23) was paid by a subsidiary. No dividend declared/recommended by the Parent company(ZACL).
• Share Buyback: No share buyback activity.

Debt Service Coverage #

• Debt Service Coverage Ratio (DSCR): 1.00 (FY24), 0.61 (FY23).

Liquidity Position #

• Current Ratio: 0.13 (FY24), 0.16 (FY23) (standalone parent). 0.79 (FY24), 0.61 (FY23) (Group).

Financial Analysis of Zuari Agro Chemicals Limited #

Profitability Ratios (3-Year Trends) #

Return on Equity (ROE) #

• 2023-24: 0.11
• 2022-23: 32.71 *There is a drop in Consolidated ROE is due to Previous financial year profit due to sale of major undertaking is recognised.

Operating Profit Margin #

• 2023-24: 0.83% (Standalone)
• 2022-23: 19.33% (Standalone)

The Standalone Operating Profit Margin has severely declined.

Net Profit Margin #

• 2023-24: 26% (Standalone)
• 2022-23: 187% (Standalone)

Liquidity Metrics #

Current Ratio #

• 2023-24: 0.13 (Standalone)
• 2022-23: 0.16 (Standalone)

Efficiency Ratios #

Inventory Turnover #

• 2023-24: 174.38 (Standalone)
• 2022-23: 85.8 (Standalone)

Inventory turnover Ratio has Increased due to plant shut down in major portion of the Current financial year.

Leverage Metrics #

Debt/Equity Ratio #

• 2023-24: 3.11 (Standalone)
• 2022-23: 3.86 (Standalone)

The standalone Debt to equity ratio is improved due to higher servicing of loan in Current financial year.

Interest Coverage Ratio #

• 2023-24: 1.21 (Standalone)
• 2022-23: 4.85 (Standalone)

Standalone Interest Coverage Ratio Reduced due to sale of major undertaking on slump sale basis and one time gain is recognised during the previous financial year.

Working Capital Ratios #

Net Capital Turnover Ratio (Total Sales/ Working Capital) #

• 2023-24 : (0.13)
• 2022-23 : (0.28)

Reduced due to plant is shut down in major portion of the current financial year.

Financial Performance Analysis of Zuari Agro Chemicals Limited #

Revenue and Profitability Metrics with Growth Rates #

• Consolidated Revenue (Continuing Operations): FY 2023-24: ₹4,59,545.85 Lakhs, FY 2022-23: ₹4,55,261.73 Lakhs. Growth Rate: 0.94%.
• Consolidated Profit Before Tax (Continuing Operations): FY 2023-24: ₹25,057.15 Lakhs, FY 2022-23: ₹68,336.65 Lakhs. Growth Rate: -63.33%.
• Consolidated Profit after tax (Continuing operations): FY 2023-24: 17,094.95 Lakhs. FY 2022-23: 55,425.45 Lakhs. Growth Rate: -69.15%
• Standalone Revenue (Continued Operations): FY 2023-24: ₹8,300.26 Lakhs, FY 2022-23: ₹16,500.34 Lakhs. Growth Rate: -49.7%.
• Standalone Profit Before Tax (Continuing Operations): FY 2023-24: ₹2,140.05 Lakhs, FY 2022-23: ₹38,667.06 Lakhs. Growth Rate: -94.46%.
• MCFL (Subsidiary) Revenue: FY 2023-24: ₹3,79,544.16 Lakhs, FY 2022-23: ₹3,64,152.40 Lakhs. Growth Rate: 4.23%.
• MCFL Profit Before Tax: FY 2023-24: ₹24,067.02 Lakhs, FY 2022-23: ₹17,602.59 Lakhs. Growth Rate: 36.72%.
• Zuari Farmhub Limited Revenue: FY 2023-2024: 78,167.61 Lakhs, FY 2022-2023: 83,311.18 Lakhs. Growth Rate: -6.17%
• Zuari Farmhub Limited Profit before tax: FY 2023-2024: (1,821.95) Lakhs. FY 2022-23: 3,166.02.

Market Share and Competitive Position #

• Zuari Agro Chemicals, through its subsidiary MCFL, holds a significant market share (72%) for fertilizers in Karnataka, and meets approximately 11% of the state’s total fertilizer needs.

Key Products/Services Performance #

• Statewise sales of SSP fertilizers for ZACL:
  • Maharashtra: 51878 MT
  • Karnataka: 9081 MT
• SSP sales for ZACL in Maharashtra and Karnataka decreased by 32%, while industry SSP sales in these states decreased by 38%, showing a 1% relative growth in market share.
• Sale of Single Super Phosphate ( SSP) fertilizers at ZACL declined in 2023-24 which reported sales of Rs 82.86 Cr as compared to 146.02 Cr of previous year.

Geographic Distribution and Market Penetration #

• MCFL’s primary market is Karnataka (72% of sales). It also has a presence in Kerala, Tamil Nadu, Andhra Pradesh, Telangana, and Maharashtra.

Operational Efficiency Metrics #

• Inventory Turnover Ratio (Consolidated, Continuing Operations): Decreased from 4.25 in FY2022-23 to 2.09 in FY2023-2024, primarily due to ZACL plant Shut-Down.
• Operating profit Margin: Decreased from 19.33% in previous year to 0.83%
• Debtors Turnover (Consolidated, Continuing Operations): Increased from 59.38 days in FY2022-23 to 150.91 days in FY2023-2024, primarily due to ZACL plant Shut-Down.

Growth Initiatives and Challenges #

• Growth Initiatives: The company continues its environment and safety initiatives, safety training.
• Challenges: A key challenge is the delay in receiving subsidy payments from the Government, putting pressure on working capital management. Also, the fertilizer business faced headwinds from poor/scattered rainfall impacting consumption. Potential increases in rock phosphate prices and supply disruptions due to unrest in the Middle East and Red Sea Zones are significant operational and financial risks.

Risk Assessment: Zuari Agro Chemicals Limited (ZACL) - SSP Business #

Strategic Risks #

• Severity: High, due to reliance on a single product (SSP) and geographic concentration (Maharashtra and Karnataka).
• Likelihood: Increasing, evidenced by a 32% degrowth in ZACL SSP sales in the target states.
• Trend: Negative. Market share grew by 1%, but because consumption reduced because of low, and scattered rain.
• Mitigation Strategies: Indicated plan to produce fortified new grades, potential automation in raw material mixing.
• Control Effectiveness: Not directly measurable from the provided data.
• Potential Financial Impact: Revenue from SSP sales decreased from ’ 146.02 Crores (2022-23) to ’ 82.86 Crores (2023-24).

Operational Risks #

• Severity: High, due to dependence on imported raw materials (rock phosphate from Egypt & Jordan).
• Likelihood: Medium. Disruption in Supply and prices of Rock Phosphate is linked to the unrest in the Middle East & Red Sea Zones.
• Trend: Potentially increasing, linked to geopolitical events.
• Mitigation Strategies: Not explicitly mentioned, besides adopting collaborative approach for marketing products, and promotion of organic products.
• Control Effectiveness: Not directly measurable.
• Potential Financial Impact: Indirect impact, reflected in cost of raw materials, and potential supply chain issues.

Financial Risks #

• Severity: High, specifically concerning subsidy receipts and interest expenses.
• Likelihood: High, indicated by delays in subsidy payments and high finance costs.
• Trend: Negative. finance costs, interest rates.
• Mitigation Strategies: Risk Management Committee Policy.
• Control Effectiveness: The internal control using SAP S/4 HANA system is in place, but adequacy is only generally stated.
• Potential Financial Impact:
  • Finance Costs (Continue and Discontinue) operation for 2023-24 was ’ 10,129.61 Lakhs.
  • Interest Coverage Ratio decreased significantly from 4.85 (2022-23) to 1.21 (2023-24), a 75% reduction, indicating increased financial risk.
  • Debt Equity Ratio is high (3.11 in 2023-24), slightly improved from 3.86 (2022-23).

Compliance/Regulatory Risks #

• Severity: High, related to fertilizer subsidy schemes and potential disputes.
• Likelihood: Medium to High. Shown by presence of significant ongoing litigations with authorities.
• Trend: concerning, with pending litigations and potential changes in government policies (e.g., eligibility for product subsidy from April 2025).
• Mitigation Strategies: Compliance with statutory requirements is mentioned. Seeking legal opinion
• Control Effectiveness: Adequacy of systems for compliance is asserted, but contingent liabilities indicate ongoing issues.
• Potential Financial Impact: Contingent liabilities related to tax demands, and penalties are material. For e.g., Demand on suppression of sale and disallowance of ITC on purchases per MVAT Act 2002 for FY 2016-17 is INR 290.36L, and similar demand for FY 2017-18 is INR 15.27L.

Risk Metrics Summary #

Strategic and Management Analysis of Zuari Agro Chemicals Limited #

Long-Term Strategic Goals and Progress #

• Focus on the Single Super Phosphate (SSP) business after exiting Urea business.
• Reduction of Capital: ZFL cancelled and extinguished 698,967,400 equity shares due to reduction of capital resulting in impact of INR 698.97 Cr

Competitive Advantages and Market Positioning #

• Zuari’s “Jai Kisaan” brand holds a strong position in its core markets of Maharashtra and Northern Karnataka.
• Market share in the target states grew by 1%, even with a reduction of consumption.

Innovation Initiatives and R&D Effectiveness #

• No mention of R&D expenditure.
• Promoting the concept of integrated Nutrient Management.

M&A Strategy and Execution #

• Transfer of 39,206,000 equity shares of Mangalore Chemicals & Fertilizers Limited (MCFL) to Zuari Maroc Phosphates Private Limited (ZMPPL) is a significant part of a composite scheme of arrangement with Paradeep Phosphates Limited (PPL), valued at INR 564.57 crore.
• Post-transaction, Zuari Agro will hold 24,822,362 equity shares of MCFL and receive 46,417,817 equity shares of PPL, reflecting a strategic consolidation within the group.

Management’s Track Record in Execution #

• Sale of Land: During the year under review, the company has executed sale deed for sale of land parcels.
• NCD: Approved and issued NCD.
• Winding of the subsidiary Adventz Trading DMCC: Approved by the board.

Capital Allocation Strategy #

• No dividend was recommended due to the reported loss for FY 2023-24, indicating a focus on conserving capital.
• Proceeds from the Proposed Transaction (transfer of MCFL shares) will enhance financial flexibility, potentially for debt reduction or reinvestment.

ESG Framework #

Environmental Metrics and Targets #

• The Company’s Fertilizer Plant operates as a ‘Zero Effluent Discharge Plant’.
• 150 trees are planned for plantation in FY 2024-25, indicating a reforestation initiative.
• Water sprays are utilized to mitigate dust during rock unloading.
• Dumpers were used for rock movement in place of wooden trucks for dust reduction.

Social Responsibility Programs #

• The Company has a CSR policy and committee.
• CSR initiatives focus on skills development, rural development, healthcare & WASH, and education.
• CSR activities are undertaken, expenditure is recommended by the committee and monitored.
• CSR spend was not applicable for FY 2023-24 as per Section 135 of the Companies Act, 2013.

Governance Structure and Effectiveness #

• The Board of Directors comprises eight members: one Executive Director, three Non-Executive Directors, and four Independent Directors.
• Audit Committee consists of three Independent Directors and one Non-Executive director.
• Nomination and Remuneration Committee and Stakeholder’s Relationship Committee are in place, and follow up meetings with them.
• A Risk Management Committee is constituted to monitor and review risk management.
• The Company has a Code of Conduct for Directors and Senior Executives, and a Code of Conduct for Prevention of Insider Trading.
• The Company complies with the Sexual Harassment of Women at Workplace Act, 2013 and received no related complaints during FY 2023-24.
• Declaration that all Board Members and Senior executives of the Company have affirmed compliance with the code of conduct.

Regulatory Compliance #

• The Company states compliance with all statutory requirements set out in the consent to operate for its fertilizer plant.
• Annual listing fees were paid to stock exchanges.
• Compliance with Schedule V of SEBI (LODR) Regulations, 2015, is reported.
• Secretarial Standards issued by the Institute of Company Secretaries of India have been complied with.
• Compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, is confirmed.
• The Company has filed Form CHG-9 in respect of Non-Convertible Debentures (NCD) on private placement basis.
• The Company has complied with mandatory SEBI circulars.

Future Projections and Guidance #

Management Guidance and Assumptions #

• The management considers the business of manufacturing, trading, and marketing chemical fertilizers and fertilizer products as a single business segment.
• Management’s useful life estimations for certain plant and equipment components are 5 to 20 years, lower than Schedule II of the Companies Act.
• Useful lives of certain plant and equipment are estimated as 30 to 40 years, which is higher than schedule II.
• Useful lives of certain buildings are estimated from 5 to 15 years.
• Management assumes the recoverability of subsidy receivables from the Government of India.
• Management has made judgements on the probability of recovering deferred tax assets, based on future profitability projections.
• Management of a subsidiary, assessed the utilisation of Minimum Alternate Tax (MAT) on the basis of future profitabilty projection.
• Management made an assessment that the Group’s share of undistributed profits of its Joint Venture will not be distributed in the forseeable future.

Market Growth Forecasts #

• The Single Superphosphate (SSP) market is projected to exhibit fluctuating growth patterns in the near term.
• Improvements in the economy and alleviation of supply chain issues are expected to drive a rebound in SSP demand, especially in the latter half of 2024.

Planned Strategic Initiatives #

• The company plan of SSP sales is of 1 lakh MT in the states of Maharashtra & northern Karnataka.
• The Company is exploring automation in raw material mixing for better product quality and low-cost sourcing.
• Transfer of 3,92,06,000 equity shares of Mangalore Chemicals & Fertilizers Limited (‘MCFL’), representing 33.08% of the paid-up equity share capital of MCFL held by the Company to Zuari Maroc Phosphates Private Limited, approved by board.

Capital Expenditure Plans #

• The company spent on capital expenditure of Rs.318.56 Lakh and Rs. 282.89 Lakh capital work in progress during the financial year 2023-24.
• Plantation of 150 trees planned for FY 2024-25 as a green initiative.

Efficiency Improvement Targets #

• Production of fortified new grades of Single Super Phosphate.
• The Company is taking steps to increase their market share in the states of Maharashtra and Karnataka.

Potential Challenges and Opportunities #

• Challenges:

  • Delay in receipt of subsidy payments from the government, impacting working capital.
  • Potential increase in rock prices and supply disruptions due to unrest in the Middle East and Red Sea Zones.
  • Pricing pressure and competition from lower-quality products from small players in the unorganized sector.

• Opportunities:

  • Government of India’s ‘Make in India’ initiative is expected to aid SSP industries.
  • Strong ‘Jai Kisaan’ brand and wide market network.

Scenario Analysis and Sensitivity to Key Assumptions #

• Sensitivity to Discount Rate (for defined benefit obligations): A 1% increase/decrease in the discount rate in respect of the Parent company will (decrease)/increase the defined benefit obligation.
• Sensitivity to Future Salary Increases (for defined benefit obligations): A 1% increase / decrease in future salary would result in a variation in defined benefit obligation.
• Sensitivity of the input to fair value: Increase in WACC and decrease in LTGR by 0.50% would result in decrease in fair value by INR 142 lakhs and Decrease in WACC and increase in LTGR by 0.50% would result in increase in fair value by INR 159 lakhs respectively of Indian Potash Limited.

Audit and Compliance Analysis of Zuari Agro Chemicals Limited (2023-24) #

Auditor’s Opinion and Qualifications #

• Standalone Financial Statements: Unqualified opinion. Financial statements give a true and fair view in conformity with generally accepted accounting principles in India.
• Consolidated Financial Statements: Unqualified opinion.
• Emphasis of Matter:
  • Transfer of 3,92,06,000 equity shares of Mangalore Chemicals & Fertilizers Limited.
  • Subsidiary company recognized urea subsidy income without the required benchmarking.

Key Accounting Policies and Changes #

• Basis of Preparation: Standalone and consolidated financial statements are prepared in accordance with Indian Accounting Standards (Ind AS).
• Revenue Recognition: Revenue from the sale of goods is recognized when control is transferred to the customer. Subsidy income is recognized as per rates notified by the Government of India.
• Property, Plant, and Equipment: Stated at cost, net of accumulated depreciation and impairment. Depreciation is calculated on a straight-line basis.
• Intangible Assets: Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful economic life.
• Impairment: The Group assesses impairment indicators for assets at each reporting date.
• Leases: The Group assesses leases at the inception and recognizes lease liabilities using incremental borrowing rate.
• Inventories: Valued at the lower of cost and net realizable value. Cost is determined using the moving weighted average method.
• Borrowing Costs: Borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized.
• Employee benefits: Defined benefit plans including Gratuity & Post-Retirement medical benefits, valued based on actuarial assessment.
• Change in Accounting Policy: As of April 1, 2023, MCA has not notified any new standards or amendments applicable to the company.
• Segment reporting: The company operates in a single business and geographic segment.

Internal Control Effectiveness #

• The Company maintained adequate internal financial controls over financial reporting, and these controls were operating effectively as of March 31, 2024. However, existing policies, systems, and procedures need to be completely and appropriately documented.

Regulatory Compliance Status #

• The Company has generally complied with applicable statutory provisions.
• Temporary delay in resubmission of an e-form for modification of charges with the MCA (related to Non-Convertible Debentures, which have since been redeemed). The relevant E-forms related to this were filed.
• The shareholders of the company have approved the waiver of recovery of excess remuneration paid to ex-managing Director and an application to regulatory body is under process.
• The annual return is available on the Company’s website.
• The Company has complied with mandatory Corporate Governance requirements of Schedule V of SEBI (LODR) Regulations, 2015.
• The Company has complied with the conditions of Corporate Governance as stipulated in LODR Regulations.
• No penalties or strictures were imposed on the Company by Stock Exchanges/ SEBI and Statutory Authorities on matters related to capital market.

Legal Proceedings and Potential Impact #

• Contingent Liabilities: The Company discloses various demands/claims from Income Tax and Sales Tax/GST authorities. Impact of pending litigations on its financial position is disclosed.
• Inspection of the Company: The Regional Director has ordered an inspection under Section 206(5) of the Companies Act, 2013.
• The Parent Company has filed a writ petition with Hon’ble High Court of Karnataka at Bangalore challenging the KIADB order and the matter has not been listed till date.

Related Party Transactions #

• All related party transactions during the financial year were on an arm’s length basis and approved by the Audit Committee and the Board.
• The Company has a Related Party Transaction Policy, and details of transactions are disclosed in Form AOC-2 (Annexure ‘K’) and notes to the financial statements.
• During the year under review, 5 Audit Committee Meetings were held and all the recommendations of the Audit Committee were accepted by the Board.
• The Proposed Transaction (transfer of MCFL shares to ZMPPL) is a material related party transaction, requiring shareholder approval.

Subsequent Events #

• Shareholders’ approval by way of postal ballot was obtained on 9 th July, 2024 for continuation of directorship of Mrs. Reena Suraiya.

Accounting Quality Analysis #

• The adoption of Ind AS ensures compliance with globally accepted accounting standards, enhancing transparency.
• The Company discloses its significant accounting policies, and the auditor’s report gives an unqualified opinion, both indicators of good accounting quality.

Regulatory Risk Assessment #

• High Regulatory Risk: The fertilizer industry is subject to significant government regulations, especially regarding subsidies.
• Litigation Risk: Ongoing litigations exist.
• Compliance risk: The Company must continue to comply with applicable corporate governance and SEBI regulations.