Interview

'Meltdown did not have a direct impact on our profitability'

Posted on 21 January, 2010 | Tags:

GNFC sells all the manufactured chemicals in the domestic market, thus exports are not a deciding factor for the company's profitability. Guruprasad Mohapatra, Managing Director, Gujarat Narmada Valley Fertilizers Company Ltd shares his views on GNFC's performance during the downturn and future plans in an E-mail Interview with Chemical Engineering World

- Guruprasad Mohapatra Managing Director, GNFC

How has GNFC maintained the competitive edge during the times of high competition, fluctuating feedstock prices and product demand?
Despite the meltdown Gujarat Narmada Valley Fertilizers Company Ltd (GNFC) has set 33 new records in terms of production, marketing and dispatch. GNFC is the country's largest manufacturer of Acetic Acid, Methanol, Formic Acid and Aniline. It is the only manufacturer of TDI in India for products where the company enjoys competitive edge viz nitric acid, acetic acid, formic acid and Toluene Di-Isocyanate (TDI). The production was maximized to reduce costs and to maintain its top line.
Production was optimized in case of certain products to avoid any stock built up at GNFC since the costs were sliding almost on daily basis. Competition from imports could be managed through right pricing. Imports became costlier due to appreciation of dollar that led to higher CIF prices on account of global meltdown. Domestic demand in some of the imported material reduced leading to higher stocks thereby creating liquidity crunch for importers. This resulted in minimizing / stopping the imports flowing into the country thus maintain the domestic market share.
GNFC being the largest domestic supplier for many of its products has developed niche market in prominent consuming areas like Gujarat, Rajasthan, Madhya Pradesh and Maharashtra etc. We observed better price realizations in these areas due to location advantage, consistent supplies, excellent dealer's network and sound marketing practices.
 
How did the meltdown impact the business of GNFC in the domestic as well as overseas market?
Profitability of GNFC did not get affected directly at all during the global meltdown, as all the chemicals manufactured by GNFC are sold in the domestic market. We resort to exports only if need be hence dependency of GNFC on exports is almost nil. Last year surge in USD vis-à-vis Indian Rupee helped reduce the imports of various chemicals and thereby enable GNFC charge a fair piece from the market.
However, the meltdown did have an impact over the business of GNFC in the overseas market indirectly.  Since the customers who were into the business of export were severely affected because of the demand destruction of certain products like Aniline and Methanol.

What were the main areas of focus during the last fiscal and what is the strategy going to be during the current fiscal?
During the last fiscal key focus areas included maintaining production levels, increasing sales volume and realization and cost cutting. However this year we are focused at maximizing production at the lowest production cost, reducing cost on repairs and maintenance, procurement of raw material at cheaper rate, exploring new avenues, increasing sales realization, exploring and developing new markets, developing marketing intelligence and faster project implementation.

Please tell us about the new TDI facility GNFC is setting up and how will the production substitute for the imports into the country?
GNFC is the only manufacturer of Toluene Di-Isocyanate (TDI) in India and produces 15000 MTPA at the TDI plant in Dahej. GNFC is implementing a new 50000 MTPA TDI plant at Dahej, scheduled for commissioning by June 2011. Current domestic demand is 28000 MTPA, which is expected to increase to 45000 MTPA by 2012-13. The share of GNFC, which presently stands at  53.9 percent will rise to 91 percent by 2012-13. Presently, the imports that are around  13000 MTPA  are expected to fall to 4000 MTPA and finally export is marginal and may be 24000 MTPA by 2012-13. In the first full year of operation 2012-13, the plant is expected to be operational at 100 percent capacity.

How do you see the growth of Fertilizer Industry in India? How long will it take to reduce our dependence on imports?
India is world's second largest consumer of fertilizers. Total nutrient consumption (N+P+K) is about 23 million tonnes. Consumption growth rate of fertilizers was 4.2 percent during 2007-08, which was 6.45 percent during 2006-07.
About 20 million tonnes of urea is produced in the country, which is at almost 100 percent capacity. Production of P and K fertilizers including DAP is between 10 to 12 million tonnes. Stagnant domestic production against large increase in demand and consumption has resulted into increase in import since 2004-05. Since last three to four years, 6-7 million tonnes of urea has been imported into the country. Import of DAP increased from 0.6 million tonnes to 3.5 million tonnes during the same period. Entire requirement of Potash, which is about 4.5 million tonnes, is met through imports due to lack of source of potash in our country. Import of fertilizers is likely to continue, as it takes 3-4 years to build up own capacities.
Growth of the fertilizer industry on the production front is almost stagnant since the last decade since no major investments have been made on the production front. Dependency on import will continue in near future.

What are the major issues related with the growth of the Indian Fertilizer Industry?
Food security is an important concern because of the increasing population and enhancing farm productivity is vital to handle this challenge. While the fertilizer consumption has shown growth during the last few years, it is not commensurate with farm productivity. Though fertilizers are an imperative, but seeds, irrigation facilities, improved and modern farm practices are equally important.
Long-term stable policy announcement from the Government of India (GoI) and assurance of availability of Natural Gas / LNG, which is cost effective for production of fertilizers and its intermediates will reduce the subsidy burden. The Nutrient Based Subsidy (NBS) for fertilizers will also encourage fresh investment in installation of new fertilizer capacities, which will reduce the dependence on import and in turn will save the valuable foreign exchange outgo.  NBS will help in correcting the imbalance in use of primary nutrients. This will result in enhanced food grain production, development of agriculture sector and overall improvement in farmers' economy.

May we have your comment on Fertilizer Subsidy Policy announced by the GoI and its impact on the industry?
The announcement made by the Honorable Finance Minister in his budget speech on the 6th July, 2009 for policy direction in the budget speech is in line with the stand of the fertilizer industry of total de-control and to move towards new nutrient based subsidy instead of product based pricing which will unshackle the fertilizer industry and bring in fresh investment. The Honorable Finance Minister has stated in his budget speech that the subsidy given to the farmers will be nutrient based.  The objectives of the proposed policy are as follows

• The farmers' price ie MRP at which the subsidized fertilizers should be available to the farmers.
•  The policy is to be linked to international prices of major fertilizers like Urea, DAP and MOP. 
•  Products which are presently under the subsidy/concession scheme will be eligible for subsidy including the existing N, P and K products.
•  To develop mechanism for ensuring equitable distribution of imported as well as indigenous material across the country.
•  Government's intention to move towards a nutrient based subsidy regime instead of product pricing regime.

As the policy is yet to be announced, it is pre-mature to comment on its impact on GNFC. Company has already gone ahead for conversion of Ammonia plant from oil based to gas based.

How has the industry reacted to the stand of GoI on gas availability and pricing?
GNFC expects to receive the sanction shortly from Government for feedstock conversion from oil to gas. Completion of project will take about 32 months from the day of start up. We expect that GoI may finance approximately 95 percent of project cost, which is in line with the policy. GNFC has already tied up with GSPC for current requirement of gas and also with GAIL and RIL through Directorate of Fertilizers (DoF), Government of India for existing need of gas.

What are the initiatives taken by GNFC to combat global warming?
Under the Kyoto Protocol, GNFC has undertaken few projects on the clean development mechanism front and company is contributing to the global efforts to combat global warming.
The existing weak nitric acid (WNA) plant produces unwanted by-product nitrous oxide, which is vented into atmosphere. N2O is considered as greenhouse gas like carbon-di-oxide (CO2) and has 310 times higher global warming potential than CO2. There is an existing potential to reduce about 300000 MT pera annum of CO2 and the project is expected to be registered with UNFCCC by November 2009. GNFC has commissioned 21 MW capacity of windmill power project in Kutch region at the cost of Rs 127 crores. The 9 MW wind power plant was commissioned in December 2007 and in November 2008, 12 MW capacity power project was commissioned.
These projects have the potential to reduce 38,000 MT CO2 per annum. Currently, the 9 MW wind power project is under the validation stage and the 12 MW project Host Nation approval (HNA) from MoEF has already been received and the Project design Document (PDD) has already been submitted for validation.

Enlighten us about the mega joint venture planned between GSFC, GNFC and GACL.
GNFC, GACL and GSFC have identified the synergy of various projects with each Company to be taken up jointly by forming a joint venture company. The objective of such joint venture between the three companies is to build global capacity plants to take advantage of scale of economy, share the best practices, investments and risks and to establish and successfully run the joint venture (JV). This would ensure integration in upstream, downstream and related projects across and provide growth opportunity to the promoting companies.

What is the investment plan of GNFC during the next few years in the fertilizer sector and chemicals businesses?
GNFC has planned investments of the order Rs 4000 crores during the next five years. We are setting up feedstock conversion for ammonia plant at an estimated investment of Rs 1250 crores. New Formic Acid plant of 50 000 MTPA capacity at the cost of Rs 450 crores and Acetic Acid plant of capacity 6,00,000 MTPA at the cost of Rs 2400 crores. The company will also invest Rs 1200 crores to set up  Methyl Diphenyl Di- Isocyanate (MDI) plant of capacity 50000 MTPA.