Annual Report - Nagarjuna Fertilizers and Chemicals - 2009-2010

NAGARJUNA FERTILIZERS AND CHEMICALS LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

REPORT OF THE DIRECTORS

Your Directors have pleasure in presenting the 34th Annual Report together
with the Audited Accounts of your company for the year ended March 31,
2010.



The Financial Results and the Consolidated Financial Results of the company
for the year ended March 31, 2010 are as under:

FINANCIAL RESULTS Rs. in Crores

Particulars 2009-2010 2008-2009
Current year Previous year

Net Sales/Income from Operations 1987.91 2371.91

Other Income 21.77 11.99

Total Expenditure

a. (Increase)/decrease in Stock 13.45 106.15

b. Consumption of Raw Materials 406.72 731.32

c. Staff Cost 77.34 66.26

d. Purchases - Traded Products 526.19 395.93

e. Power and Fuel 311.91 470.42

f. Marketing, Operating,
Administrative and other
Expenses 285.43 273.26

Total 1621.04 2043.34

Interest 149.04 169.32

Depreciation 128.18 120.96

Profit before tax 111.42 50.28

Provision for tax 45.11 31.96

Deferred Tax Cr 0.06 15.34

Fringe Benefit Tax - 1.25

Profit/(loss) after Tax 66.37 32.41

Transfer to General Reserve 15.00 -

Dividend - Preference Shares * 0.0037 0.0037

Equity Shares * 21.41 -

Dividend Tax 3.64 -

Balance c/d to Balance Sheet 184.52 158.20

Paid Up Equity Share Capital
(Face Value of Rs.10/- per share) 428.18 428.00

Reserves excluding revaluation
reserve 524.41 481.97

Earning per share
(annualised) - in Rs.

* Basic 1.55 0.76

* Proposed

CONSOLIDATED FINANCIAL RESULTS

Rs. in Crores

Particulars 2009-2010 2008-2009
Current year Previous year

Net Sales/Income from Operations 1987.91 2371.91

Other Income 21.77 11.99

Total Expenditure

a. (Increase)/decrease in Stock 13.45 106.15

b. Consumption of Raw Materials 406.72 731.32

c. Staff Cost 77.34 66.26

d. Purchases-Traded Products 526.19 346.52

e. Power and Fuel 311.91 470.42

f. Marketing, Operating,
Administrative and other
Expenses 285.48 327.16

Total 1621.09 2047.83

Interest 149.04 169.32

Depreciation 128.18 120.96

Profit before tax 111.37 45.79

Provision for tax 45.11 31.95

Deferred Tax Cr 0.06 15.34

Fringe Benefit Tax - 1.25

Profit/(loss) after Tax 66.33 27.93

Transferto General Reserve 15.00 -

Dividend-Preference Shares *0.0037 0.0037

Equity Shares *21.41 -

Dividend Tax 3.64 -

Balance c/d to Balance Sheet 180.00 153.71

Paid Up Equity Share Capital
(Face Value of Rs.10% per share) 428.18 428.00

Reserves excluding revaluation reserve 519.92 477.53
Earning per share (annualised)-in Rs.

* Basic 1.55 0.65

* Proposed

Consolidated financial statements are also attached along with the
financial statements of the company.

RESERVES

It is proposed to transfer an amount of Rs.1500 Lakhs to the reserves.

DIVIDEND

Your Directors recommend 0.01% dividend to the preference shareholders of
the company for the year ended March 31, 2010 amounting to Rs.37204/-.

Your Directors after careful consideration of the accounts of the company
recommended a dividend of Rs. 0.50 ps (Previous Year-NIL) per equity share
to the equity shareholders of the company for the year ended March 31,
2010.

FORFEITURE AND REISSUE OF PARTLY PAID SHARES

Pursuant to the approval of the shareholders at the 33rd Annual General
Meeting held on September 17, 2009, 3,75,151 forfeited equity shares of
Rs.10/- each at an issue price of Rs.33.50/- per share (including a premium
of Rs.23.50 ps. per share) were re-issued and allotted to Nagarjuna
Holdings Private Limited.

PLANT OPERATIONS

Urea

Your company during the year manufactured 14.82 LMT of Urea as against
13.78 LMT in the previous year. This is the highest ever production
achieved surpassing the previous best of 2004-05 which was 13.93 LMT.

Your company's plant achieved Lowest Annual Urea Specific Energy of 5.588
Gcal/ MT Urea surpassing the previous best of 5.607 Gcal / MT Urea achieved
during 2007-08.

Your company during the year undertook various initiatives for improving
energy efficiency, reliability and cost reduction. Following are the major
initiatives taken for improving Plant Production, energy efficiency,
reliability and cost reduction.

* The Annual Turn Around & Revamp Schemes were successfully implemented
ahead of schedules.

* With the commencement of supply of gas to both the plants, your Company
has phased out usage of Naphtha in a phased manner and has completely
changed over to Natural Gas feed Stock from August '09 onwards.

Carbon Dioxide Recovery (CDR) Plant/ De-bottlenecking & Revamp

Your company during the year, commissioned the Carbon Dioxide Recovery
(CDR) Plant of 450 metric tons per day capacity from the gases for
commercial use in the company's existing urea production facilities.

The revamp / de-bottlenecking Phase II has been completed by September
2009 and this has resulted in increase of production by about 2 lakh
metric tons per annum. Both the projects were carried out at a cost of
approximately Rs.200 crores.

Micro Irrigation

Your company achieved highest ever production of 801 Lakh Mtrs against of
511 Lakh Mtrs during the previous year.

MARKETING

Urea

Your company achieved the highest ever sale of manufactured urea of 15.05
LMT surpassing the previous best: of 13.97 LMT in the previous year.

The total urea sales both manufactured and imported was 21.19 LMT compared
to 23.08 LMT of previous year.

Specialty Fertilizers

Your company sold 8263 MTS during the year, in comparison with sales of
9890 MTS during the previous year.

Micro Irrigation

Your company during the year achieved 55% growth in sales aggregating to
Rs.101.70 crores which is the highest cumulative sales as compared with
that of the previous year (Rs.60.88 crores).

Government Policy

The Government of India (GOI) has announced in February 2010 major policy
changes for the domestic fertilizer sector, with such changes including
among other measures, an increase in the farm gate prices of urea (by 10%),
decontrol of retail prices of non-urea fertilizers and a calibrated shift
towards a Nutrient Based Subsidy (NBS) mechanism for non urea fertilizers.

The NBS regime is expected to promote balanced fertilization and
consequently increase agricultural productivity in the country through
higher usage of secondary and micro nutrients. Urea which is the maximum
tonnage consumed nitrogenous fertilizers in the country, will continue to
be under the current controlled regime. Hike in urea price may not have a
great impact on the major companies in the industry, as the price hike may
not result in higher margins but will only reduce the subsidy burden for
the government.

The Government of India is yet to bring urea also under the NBS regime
although in the Budget for 2009-10, announcements were made to this effect.
The present pricing policy for urea expired on March 31, 2010 and a new
policy is in the process of being formulated. It is expected that the new
policy will be favorable to urea manufacturers and a level playing field is
ensured to the manufacturers of urea.

Your Directors believe that long pending reforms to unshackle the
fertilizer industry is required to attract investment in this vital sector
and reduce dependency on costly imports.

NEW PROJECTS

Your company at their 15th Extra-ordinary General Meeting informed that
various growth options were being considered to enhance the company's
future revenues and for the expansion of one of its core businesses i.e.,
fuels and feedstock.

Your company is venturing into the field of manufacture of chemicals for
solar and semi-conductor applications businesses.

Pursuant to the consent of the members a wholly owned subsidiary company
under the name and style of Nagarjuna Mauritius Private Limited' has since
been incorporated with the Registrar of Companies, Republic of Mauritius,
Mauritius. The investment of a sum not exceeding Euro 5 million in the
equity capital of the wholly owned subsidiary company Nagarjuna Mauritius
Private Limited, Mauritius is yet to be made.

ENVIRONMENT, SAFETY AND AWARDS

Environment

Your company continues its mission of protecting the environment and has
inculcated the concept right down the organization.

The statutory compliance of the company on environmental matters are being
complied from time to time.

Safety

Your company has successfully implemented the Process Safety Management
Systems (PSMS) and has complied with all the requirements of the system.
Your company is now in the process of implementing a Responsible Care
Management (RCM):system for Kakinada Plant.

As a part of off-site emergency preparedness plan a booklet on 'Off-site
emergency preparedness by public' is prepared and made ready for public
awareness programs.

Your company's plant for the first time since inception of the Plant has
achieved the milestone of FIFTEEN million safe man-hours (1505 Man days)
without any lost time injury on 23 'd March 2010, taking into account the
man-hours worked by both associates and contract workmen.

Awards

Your company during the year bagged various awards, the prestigious awards
being

- The 'FAI Excellent Environmental Protection Award' in Nitrogenous
Fertilizer Plants category for the year 200809. Your Company won this award
for the fifth time & third time consecutively.

- 'The Excellence in Safety' for the year 2009 from FAI.

- 'Excellence in Management of Health, Safety and Environment' from ICC
(Indian Chemical Counsel), Delhi for the year 2008.

- Runner-up Award for 'Excellence in Energy Conservation' for the year
2008-09 under the Chemicals & Fertilizer Sector from NEDCAP (Non-
Conventional Energy Development Corporation of Andhra Pradesh Limited),
Hyderabad

RESEARCH AND DEVELOPMENT

Your company has been actively focusing on developing technologies by
building powerbase for sustainable growth and development of cutting edge
tools and technologies to turn them into lucrative businesses to propel the
company's growth. The research focus is in the areas of Plant Nutrition
Solutions and Fuels & Feedstock.

In Plant Nutrition Solutions your company is focused on using new
technology platforms to develop new products and processes. Your company is
also developing Biohydrocarbons to be used as sustainable Fuels and
Feedstocks. Your company has made a significant progress in all areas and
necessary Intellectual property has been generated and suitably protected.
POLICY MATTERS

Your company's endeavor has always been to maintain high levels of
transparency and accountability to its stakeholders. In this direction,
various policies mentioned in the Corporate Governance Report have been put
in place to enable the stakeholders to appreciate the various interventions
the company has taken in areas connected with the stakeholders of the
company.

The implementation of these policies are reviewed periodically by the Board
of Directors and updated from time to time.

The company has set up a Grievance Redressal Mechanism for all its
associates. The Grievance Redressal Mechanism is aimed to redress the
grievances of associates expeditiously to ensure good working atmosphere
and culture in the organization.

CORPORATE GOVERNANCE

Your company driven by a desire to be more competitive and recognized
globally had inculcated more than a decade ago, the rules that define
ethical business, much before it was introduced as statutory compliance
through Clause 49 of the Listing Agreement.

Your company firmly believes that building a culture of compliance is more
than meeting regulations and standards. Your company is always proactive in
meeting mandated standards and practicing corporate governance in spirit
and not just the letter of the law.

A report on Corporate Governance along with the Practicing Company
Secretary's Certificate on its compliance is annexed hereto. Your company
is happy to inform you that there were no adverse remarks / qualifications/
reservations raised in the Corporate Governance Report.

Disclosure in terms of Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997

The list of persons constituting Group of your company (within the meaning
as defined in the Monopolies and Restrictive Trade Practices Act, 1969) for
the purpose of availing exemption from applicability of the provisions of
Regulation 10 to 12 of Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 ('the said
Regulations'), as provided in Clause 3(1)(e) of the said Regulations:

Mr. K S Raju; Mr. K Rahul Raju; Mrs. K Lakshmi Raju; Mrs. K Renuka Raju;

Nagarjuna Management Services Private Limited; Nagarjuna Holdings Private
Limited; Fireseed Limited; Nagarjuna Corporation Limited; Baron Properties
Private Limited; White Stream Properties Private Limited; Growth Stream
Properties Private Limited and NCL Enterprise LLP.

DIRECTORS

In accordance with the Articles of Association of the company, Dr. N.C.B
Nath, Shri B Sam Bob and Shri Chandra Pal Singh Yadav, retire at the
forthcoming Annual General Meeting and being eligible, offer themselves for
re-appointment.

The Board of Directors at their meeting held on January 21, 2010 re-
appointed Shri P.P Singh as Director (Technical) of the company for a
period of one year with effect from February 24, 2010.

The Board of Directors at their meeting held on May 27, 2010 re-appointed
Shri R S Nanda as Director & Chief Operating Officer of the company for a
period of one year with effect from June 26, 2010.

The requisite resolutions for the appointments have been included in the
notice to the ensuing Annual General Meeting.

AUDITORS AND AUDIT REPORT

M/s. M Bhaskara Rao & Co., Chartered Accountants, Hyderabad, the company's
auditors retire at the conclusion of the ensuing Annual General Meeting.
They have signified their willingness to accept re-appointment and have
further confirmed their eligibility under Section 224 (1 B) of the
Companies Act, 1956.

The Company's Statutory Auditors have also furnished us a certificate from
the Peer Review Board of the ICAI confirming that they have undergone the
process of peer review.

COST AUDITOR

Pursuant to Section 233 B of the Companies Act, 1956 the Central Government
has directed that the cost accounts maintained by the company be audited by
a cost auditor. Subject to the approval of the Central Government, the
company has appointed Shri Dantu Mitra, Cost Accountant, as the Cost
Auditor of the company for the financial year 2010 - 2011.

SUBSIDIARY COMPANIES

Your company acquired 100% of the equity capital of Kakinada Fertilizers
Limited on December 15, 2009, pursuant to the approval of the members at
their 33rd Annual General Meeting held on September 17, 2009 and Kakinada
Fertilizers Limited has become a wholly owned subsidiary of your company.

Your company incorporated a wholly owned subsidiary under the name and
style of Nagarjuna Mauritius Private Limited on April 20, 2010, pursuant to
the approval of the shareholders at the 15th Extraordinary General Meeting
of the company held on April 15, 2010.

A statement of the holding company's interest in the subsidiary companies
viz., Jaiprakash Engineering and Steel Company Limited (JESCO), Nagarjuna
Oil Corporation Limited (NOCL) and Kakinada Fertilizers Limited (KFL), is
enclosed in accordance with Section 212 (2)(a) of the Companies Act, 1956.
Nagarjuna Mauritius Private Limited has not been included in the above
statement as it was incorporated only on April 20, 2010.

In accordance with the approval granted by the Central Government, the
Balance Sheet and Profit and Loss account, Report of the Directors' and
Auditors' Report of subsidiary companies viz., Nagarjuna Oil Corporation
Limited, Jaiprakash Engineering and Steel Company Limited and Kakinada
Fertilizers Limited are exempted from being appended to the Annual Report.
Any member seeking information on any of the subsidiary companies may write
to the company to enable the same to be forwarded.

Jaiprakash Engineering and Steel Company Limited (JESCO)

Your company is considering various options for the optimum use of the land
acquired for the Steel project.

Nagarjuna Oil Corporation Limited (NOCL)

Nagarjuna Oil Corporation Limited, your company's subsidiary, is setting up
6 million metric tons per annum refinery project at Cuddalore, Tamil Nadu.
NOCL has made substantial progress. The refinery project was appraised by
IDBI in 2006 at a total cost of Rs.4790 crores. The project was again
appraised by SBI in 2007 at the same cost. The project of Rs.4790 crores is
to be financed by equity of Rs.1372 crores, subordinated debt (treated as
quasi-equity) of Rs.225 crores and rupee term loans of Rs.3193 crores. The
Debt/Equity ratio including quasi-equity was 2:1.

Since the appraisal, the following developments have taken place which have
a bearing on the cost as well as direction of the project.

* Increase in Crude prices (from USD 35 to 80 / bbl)

* Increase in forex rates

* Increase in Interest rates

* Delay in the recommencement of implementation of the project which has
resulted in increase in the pre operative expenses

* Changes in design in the refinery for increased sour crude processing as
it would fetch additional refining margins.

In view of the above reasons NOCL had appointed a reputed consultant to
assess the project cost and the consultants have submitted a report
indicating a revised project cost of Rs.6960 crores.

Your company proposes to further invest a sum of Rs 77 crores in the equity
capital of the subsidiary company NOCL in view of the increase in the
project cost.

The progress of the project has been on various fronts such as Engineering
activities for all the Relocated Units of the Project in the Hague and in
India, selection of all the EPCM Contractors for the various Process Units
have been completed and engineering work is well advanced. Enquiries for
29 critical long lead items have been ordered and manufacturing has
commenced.

Shipment of equipment from European ports has been completed in September
2009. The Contractors for refurbishment of various equipment have been
lined up and refurbishment work is in full swing. Arrangements for setting
up a 3x 60 MW coal based power plant is in progress The Crude supply and
product off-take (export) contract with British Petroleum is in place, as
also the agreement with domestic marketing with Indian Oil Corporation.

The drawdown of term loan sanctioned by the Financial Institutions are
being availed to meet the financial requirements of the project.

Kakinada Fertilizers Limited (KFL)

The company has been exploring various opportunities in the areas of
manufacturing/ trading in Urea, Complex Fertilizers, Micronutrients and
other fertilizers.

No major activity has commenced which needs to be reported to the
shareholders of the company.

DISCLOSURES

Disclosure in terms of Companies (Particulars of Employees) Rules, 1975 and
Companies (Disclosure of particulars in the Report of the Board of
Directors) Rules, 1988 in respect of conservation of energy, technology
absorption, earnings and outgo of foreign exchange are attached and forms
part of this Report.

AUDIT COMMITTEE CONSTITUTION

In compliance with the provisions of the Section 292A of the Companies Act,
1956 and the listing agreement entered into with the stock exchanges, the
company had constituted an Audit Committee consisting of highly qualified
and experienced members from various fields. The committee consists of four
independent Directors and one Whole-time Director. The Chairman of the
committee Dr. N C B Nath, is an Independent

Director and the committee meets periodically to review the quarterly
financial statements and recommends its findings to the Board apart from
taking action independently whenever required. The Statutory Auditors,
Secretary, the Internal Auditors and Cost Auditors attend and participate
in the Audit Committee Meetings.

The Audit Committee comprises of

Dr. N C B Nath Chairman, Independent Director
Shri B K Batra Member & Independent Director
Shri S R Ramakrishnan Member & Independent Director
Shri M P Radhakrishnan Member & Independent Director
Shri K S Raju Member & CMD

CORPORATE SOCIAL RESPONSIBILITY

Your company has always been a responsible corporate citizen and has made
significant contributions towards community development. NFCL has always
lived by its philosophy of 'Serving Society through Industry'. The company
believes in living every moment of life in harmony with nature to create
value for ourselves, our stakeholders and the society.

To have a systematic, dynamic and result oriented approach, a CSR Core
Group was constituted to assess the as is' condition on CSR in the company
and to steer forward the initiative. It was further strengthened by
encouraging associates of the company to be part of the initiative and with
their contribution give impetus to the movement. Your company made
significant contributions towards education, sports, health care and
community welfare.

Your company has under the Aegis of Nagarjuna Foundation carried out
various CSR activities during the year including setting -up a 1000 liters
per day Community Safe Drinking Water plant at Ramanayyapet, Kakinada
Rural. as publicprivate partnership (PPP) between Ramanayyapet Panchayat,
Nagarjuna Foundation and Naandi Foundation.

The plant will support the drinking water needs of villages Ramanayyapeta,
Valsapakala and Vakalapudi, which are villages surrounding Kakinada.

Your company made other significant contributions towards education,
sports, health care and community welfare under the aegis of Nagarjuna
Foundation, as per details given below

* Distributed clothes donated by the associates to Old Age Homes and
Orphanages.

* Contributed Rupees 2.50 Lakhs towards renovation of Ambedkar Bhavan,
Kakinada.

* Supply Cool Drinking Water to the public of Hyderabad at Investor
Services Cell of your company.

* Contributed by way of sponsorship various sporting activities.

* Organized free books distribution camps at all schools and colleges in
Alampur Mandal, Mahbubnagar District to the flood affected children.

All the Nagarjuna Group companies including your company contributed Rs.25
lakhs to the Chief Minister's Relief Fund for the rehabilitation of the
flood affected victims.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, Your Directors
hereby report:

a. That in the preparation of Annual Accounts for the year ended March 31,
2010, the applicable accounting standards have been followed.

b. That the Directors have selected such accounting policies and applied
them consistently and made Judgements and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
company as at March 31, 2010 and of profit and loss account for the period
ended March 31, 2010.

c. That the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956 for safeguarding the assets of the
company and for preventing and detecting fraud and other irregularities.

d. That the Directors have prepared the Annual Accounts on a going concern
basis.

ACKNOWLEDGEMENT

Your Directors place on record their gratitude to the Government of India,
Government of Andhra Pradesh and Government of Tamilnadu and the financial
institutions and company's bankers for their assistance and co-operation.

Further, the company places on record its sincere appreciation for the
continuing support and unstinting efforts of investors, dealers and
associates in ensuring an excellent all round operational performance.

On behalf of the Board

Place: Hyderabad K.S Raju
Date : May 27, 2010 Chairman & Managing Director

FORM A:

Form for disclosure of particulars with respect to conservation of energy

I. Urea

Particulars Unit Year ended
31.03.2010 31.03.2009

Power & Fuel Consumption

1. Electricity

a) Purchased

Unit 1000KWH 2953.2 2884.933

Total Amount* Rs.Lakhs 238.44 231.634

Rate/KWH Rs./KWH 8.07 8.03

b) Own Generation

Through Gas Turbine Units 1000 KWH 227647.2 220976.0

KWH per SM3 of Gas 5.246 5.796

Cost of gas per Unit of
Power generated Rs./KWH 1.17 0.82

2. Fuel

(Including Ammonia-fuel,
steam & power)

Quantity - Natural Gas 1000 SM(3) 428724.516 264506.578

NG LHV Kcal/SM(3) 8133.817 8823.356

Total Cost Rs. Lakhs 26810.49 12631.90

Rate per Unit of
Natural Gas Rs./1000 6253.55 4775.65
SM(3)

Quantity-Naphtha MT 11230.819 71123.032

Naphtha LHV Kcal/kg 10442.812 10423.448

Total Cost Rs. Lakhs 3629.94 26757.10

Rate per Unit of Naphtha Rs./MT 32321.275 37620.866

Quantity - LS H S MT 1634.099 19538.770

LSHS LHV Kcal/kg 9767.700 9619.468

Total Cost Rs. Lakhs 362.79 5857.52

Rate per Unit of LSHS Rs./MT 22201.24 29978.98

Quantity - Furnace Oil MT - 5236.088

Furnace Oil LHV Kcal/kg - 9536.805

Total Cost Rs. Lakhs - 1478.50

Rate per Unit of
Furnace Oil R/MT - 28236.68

3. Consumption per MT of Urea Production (including Ammonia - fuel, steam &
power)

Year ended

Particulars Unit Standard 31.03.2010 31.03.2009

Electricity
(Incl. Internal
Generation)*** KWH 132.8 155.59 162.43

Naphtha at 10500kcal/kg Kg 64.5 7.54 51.23

LSHS (Atactual
calorific value) Kg Nil 1.10 14.18

Furnace Oil (At actual
Calorific value) Kg Nil - 3.80

Natural Gas (Fuel)**
at 8168 Kcal/S M3 Sm3 251 288.057 207.326

RIL Natural Gas supply to the Company commenced from 9th April 2009.

* This amount is paid towards purchased power to APTRANSCO.

** 8168 KCal per SM3 is as per Design Norms.

*** Against the design. intention of running the units in steam intensive
mode, the units are being run in electric power intensive mode to optimize
these networks and Tower the specific energy. This is reflected in high
specific power consumption and lower specific steam consumption.

II. Micro Irrigation

Particulars Unit Year ended
31.03.2010 31.03.2009
Electricity

a) Purchased 1000 KWH 2092.37 1742.29

Total Amount Rs. in Lac 81.08 67.69

Rate/KWH Rs./KWH 3.87 3.88

b) Own Generation

Diesel 1000 KWH 1000 KWH 515.16 187.09

Total Cost Rs. in Lac 58.54 20.60

Rate per unit Cost of diesel per
unit of power
generation 11.36 11.01

Consumption per meter of Lateral

Particulars Unit Standar Year ended
31.03.2010 31.03.2009

Electricity
(incl. Internal
Generation) KWH - 0.023 0.032

III. Micro Irrigation - PVC Plant

Particulars Unit Year ended
31.03.2010 31.03.2009

Electricity

a) Purchased 1000 KWH 158.164 -

Total Amount Rs. in Lac 7.03 -

Rate/KWH Rs./KW H 4.44 -

b) Own Generation -

Diesel 1000 KWH 1000 KWH 53.233 -

Total Cost Rs. in Lac 6.12 -

Hate per unit Cost of diesel per
unit of power
generation 11.5 -

Consumption per meter of PVC Pipe

Particulars Unit Standar Year ended
31.03.2010 31.03.2009

Electricity
(incl. Internal
Generation) KWH - 0.460 -

FORM-B

Form for disclosure of particulars with respect to technology absorption
for the year 2009-10 A. Research and Development (R & D):

1. Specific areas in which R & D was carried out by the Company at Kakinada
Plant:

Engineers engaged in Process, Production, General Engineering and
Maintenance departments undertake activities which are aimed at
improvements in the following areas through innovative ways:

a. Fee/Fuel Changeover to Natural Gas

b. Energy Conservation

c. Capacity Enhancement

d. Environmental Protection

e. Process and Personal Safety

f. Enhancement of Plant reliability.

g. Development of Cost effective couplers, better equipment utilization,
indigenization of major imports and critical spare parts etc. in Micro
Irrigation.

2. Benefits derived as a result of the above efforts

The improvements achieved in the areas of Production Performance, Specific
Raw Water Consumption, Treated Effluent Generation, Environmental
Protection, Process & Personal Safety are given below:

i. Complex operations were switched over to full Natural Gas operations
subsequent to receipt of RIL Gas from 9'h April 2009 and Naphtha usage was
phased out.

ii. Complex achieved Highest Annual Urea Production of 14,82,103 MT
surpassing the previous best of 13,92,538 MT achieved during 2004-05 and
Highest Annual Ammonia Production of 8,46,533 MT surpassing the previous
best of 8,03,482 MT achieved during 2004-05.

iii. Complex achieved Lowest Annual Urea Specific Energy of 5.588 Gcal / MT
Urea surpassing the previous best of 5.607 Gcal / MT Urea achieved during
2007-08.

iv. Complex achieved Lowest Specific Raw Water Consumption of 5.173 m3 / MT
of Urea, surpassing the previous best of 5.292 m3/ MT of Urea achieved
during the year 2008-09.

v. The Specific Effluent Generation for this year is 0.77 m3/ MT of Urea,
which is better than the previous year Specific Effluent Generation of 0.78
m3/ MT of Urea.

vi. Site Achieved 15 Million Man-hours Accident Free period for the first
time since inception of the company taking into account of manhours worked
jointly by associates and contract workmen.

vii. Complied with all the Management Systems (QMS, EMS, OHSAS & PSMS).

viii. Micro Irrigation division the capacity of IDL 04 line increased from
70000 Mtrs. to 100000 Mtrs. without any additional cost. Established new
indigenous stretch wrap packing for Flat Type IDL, increased No. of coils
per truck and also lateral length per coil of 12mm Super line thereby
significance saving in packing charges.

ix. Developed new products like mini sprinklers, HDPE sprinkler pipes etc.
Identified, critical spare parts indigenously, instead of importing the
same. Down time reduced with improved preventive maintenance practices and
achieved 100 % utilization of prime lines in Micro Irrigation Division.

x. NFCL was awarded the 'FAI Excellent Environmental Protection Award' in
Nitrogenous Fertilizer Plants category for the year 2008-09. NFCL won this
award for the fifth time & third time consecutively.

xi. N FCL was awarded 'The Excellence in Safety' for the year 2009 by FAI.

xii. NFCL received the Award for 'Excellence in Management of Health,
Safety and Environment' from ICC (Indian Chemical Counsel), Delhi for the
year 2008.

xiii. NFCL received the Runner-up Award for 'Excellence in Energy
Conservation' for the year 2008-09 under the Chemicals & Fertilizer Sector
from NEDCAP (Non-Conventional Energy Development Corporation of Andhra
Pradesh Limited), Hyderabad

3. Future Plan of Action:

The following action plans have been made to improve Production,

Plant Reliability, Specific Energy Consumption & in the EHS Areas as
mentioned below:

i. Feasibility study is in progress for further Revamp of Process Plants.
This has been taken up with Technology Suppliers.

ii. Setting up of Power Plant for backup of entire complex.

iii. Urea Prill Quality improvement through Installation of Vibro Prill
Buckets & Prill Cooler.

iv. Installation of Suction Cooling of PAC-II, SGC-I & C02 Compressor.

v. Urea Plant-II Reactor Conversion improvement.

vi. Installation of Variable Frequency Drives for improving the efficiency
of Pumps.

vii. Tap the Renewable Energy sources like Solar power generation & Solar
water heating / cooking system.

viii. Development of Rain water harvesting system.

ix. Turbo Expander for Natural Gas in order to generate power while letting
down High Pressure Natural Gas to Low Pressure.

x. Necessary steps have been initiated for implementing Responsible Care
Management (RCM).

xi. At Micro Irrigation Division:

* Capacity enhancement

* LIN dripper commercial supply after field trials.

4. Research and Development (R &D)

a. Specific areas in which R & D was carried out by the company Alternate
Fuels and Feedstocks

This programme has been taken upwith an aim to develop sustainable,
economical alternative Fuels and Feedstocks using the latest cutting edge
technologies. The programme is focused on developing 2nd and 3'd generation
renewable and sustainable fuels and feedstock alternatives with the
complete end to end production technologies in place. The company has
completed establishing the Proof of Concept and has started technology
scale up to establish the Proof of Value and Department of Biotechnology
(DBT), Government of India has recently agreed to support the company in
this endeavor.

Development of Plant Nutrition Business

The Company is aiming to offer effective and sustainable solutions in the
area of Plant nutrition and capture better market share. The Company is
developing cutting edge platform technologies for new products and
processes in Plant Nutrition Use Efficiency (PNUE), Plant Nutrition
Supplements (PNS) and Plant Nutrition Knowledge and Application (PNKA)
areas.

b. Benefits derived as a result of the above efforts:

Alternate Fuels and Feedstocks

Development of economical, renewable and sustainable fuels and feedstocks
will give independence from Hydrocarbon based fuels and feedstocks. This
will also be carbon negative and environmentally safe.

Plant Nutrition Business

The new products and processes developed will provide a sustainable
competitive advantage and better market share thereby propelling the
business growth.

c. Future Plan of Action

The company plans to intensify research & technology development and
upscaling in the areas of Biohydrocarbons and Plant Nutrition Solutions
including forming necessary external collaborations. The company is also
planning to develop 2nd and 3rd generation products and technologies in the
area of Silane chemicals as alternative fuels and feedstocks.

d. Expenditure on R & D

A separate record of the expenditure incurred in R & D is maintained for
the R & D division.

B. Technology Absorption, Adaptation and Innovation:

1. Efforts, in brief, made towards technology absorption, adaptation and
Innovation:

Revamp Phase-II of both Ammonia & Urea Plants was successfully completed in
September 2009 by adopting the latest available technology.

The following are the major Energy saving / Production enhancement schemes
implemented:

* Suction cooling of Process air Compressor in Ammonia Plant-I and
Synthesis Gas Compressor in Ammonia Plant-II.

* Installation of Additional 4 rows in Process Gas & Steam pre-heater in
Convection section of Primary Reformer in Ammonia Plant-I.

* Installation MP Process Condensate Stripping system in place of LP
condensate stripping system in Ammonia Plant-I.

* Modification of C02 Removal Section in both Ammonia Plants.

* Replaced the old Synloop Cooler with improved design and higher capacity
in Ammonia Plant-II.

* Dedicated LP NG pipeline to Ammonia Plant-II to reduce pressure drop in
NG Network.

* Usage of LS Steam from Urea Plants in CDR Plant to improve the efficiency
by reducing the heat rejection to Cooling Water System.

* Installation of Pre-decomposer and Dedicated Vacuum system in Urea Plant-
I.

* Installation of Pre-decomposer system in Urea Plant-II.

* Enhancement of heat exchangers surface area by installing new heat
exchangers to reduce specific consumption in both Urea Plants.

* Additional Cooling Tower with 2 Cells to cater the cooling water
requirement.

* Additional HPAmmonia Feed Pump (Ebara Make) is being installed in Urea-I
I. This equipment is expected to be commissioned by April 2010.

* Replacement of existing HP Carbamate Pump in Urea- I with higher capacity
has been undertaken as part of Revamp. This Pump is expected to be
commissioned in May 2010.

* At Micro Irrigation Division: Commissioned and streamlined the production
of new Flat type IDL line successfully. Improved the product range with
32mm plain laterals for mini sprinkler business. Added 110 mm
sprinklersystem in existing product range. Improved finished goods
packaging, indigenization of spare parts & development of components and
initiated to set up a plant at G ujarat.

2. Benefits derived as a result of the above efforts ex. Product
Improvement, Cost Reduction, Product Development Import Substitution etc.

Benefits realized are mentioned under item A.2 above.

3. In case of import technology (imported during the last five years
reckoned from the beginning of the financial year), following information
may be furnished:

NFCL has successfully installed the CDR (Carbon Dioxide Recovery) Plant in
March 2009 under the License of M/s Mitsubishi Heavy Industries (MHI),
Japan. M/s MHI had been the Technology Supplier & Basic Engineering
Contractor for this Project.

Form C

Particulars of Foreign Exchange Earnings and outgoings for the year 2009-10

A. Activities relating to exports, initiatives taken to increase exports,
development of new export markets for products and services, export plans:

B. 1. Foreign Exchange Outgo Rs. in lacs

a) Technical know-how (net of Tax) Nil

b) Interest 268.11

c) Dividend

* Equity Nil

* Preference Nil

d) Others 1496.71

2. Foreign Exchange earnings 328.16

MANAGEMENT DISCUSSION AND ANALYSIS

1. INDUSTRY SCENARIO AND DEVELOPMENT

There is a growing consensus across the world, that the worst of the
financial crisis is over. Economies have started to stabilize and recover
from the recession of the past two years. The Indian Economy has displayed
remarkable resilience over the course of the downturn and as per the recent
announcements made by the Government, it is expected to have a growth rate
of 8% in 2010- 11.

The prices of fertilizers which saw new highs in the previous year have now
dropped and are stabilizing. In certain cases they are lower than the
earlier threshold.

In February 2010 Government of India announced major policy changes for
the domestic fertilizer sector wherein non-urea fertilizers have been
brought under Nutrient Based Subsidy (NBS) policy. Manufacturers of non-
urea fertilizers are free to fix their MRP and the subsidy component is
fixed for an entire year unlike in the past.

The government has gone ahead with the NBS policy only for non-urea
fertilizers. The present policy for urea expired on March 31, 2010 and a
new policy is expected to be announced soon. It is to be hoped that further
changes in the government policy are favorable and a level playing field is
also ensured to the manufacturers of urea.

The implementation of NBS would lead to uncertainties for the fertilizer
companies till such time the dynamics of the policy are fully understood.
There is every likelihood of increased volatility in the profitability of
companies in the fertilizer industry under the new regime. Efficient
companies will be better placed to handle this volatility as they will be
in a better position to control costs. The subsidy component is fixed but
any major changes in raw material prices will impact the profitability of
companies in the complex fertilizer segment more than before. NBS regime is
also expected to bring down the government's subsidy bill for complex
fertilizers under control as the subsidy will now be fixed for an entire
year.

One welcome announcement made in the Union Budget 2010-11 is that the
fertilizer subsidy payout will be in the form of cash instead of fertilizer
bonds. This will help in having greater working capital flexibility. Higher
allocation towards agricultural sector in the form of higher agricultural
credit, renewed emphasis on expansion of the Green Revolution and
subsidised interest on farm loans are expected to increase demand for
fertilizers in the long term.

While the announcement of the NBS policy is a step in the right direction,
more needs to be done quickly to encourage further investment in this vital
sector. Direct payment of subsidy to farmers which is a long pending reform
should be brought out without further delay. This would encourage judicious
use of fertilizers by the farmers. Government should also remove pricing
and distribution controls on all fertilizers including urea. Urgent steps
should be taken in the immediate future and the industry should move
towards a decontrolled regime which will make a big dent on the ballooning
subsidy bill and reduce dependence on costly imports.

2. COMPANY'S STRENGTHS AND WEAKNESSES

With the commissioning of the CDR Plant of 450 metric tonnes per day of CO
capacity, completion of revamp and debottlenecking projects, your company
expects to increase its production by about 2 lakh metric tonnes per annum.
Necessary arrangements for additional gas has been tied up by your company.

Your company's main strength lies in an excellent track record of project
execution, achieving high production levels and safety coupled with a
captive market of urea around the plant location.

The government has announced major policy changes for non-urea fertilizers,
whereas urea continues to be under the regulatory regime. This has led to
uncertainty regarding timing of the receipts of subsidy payments coupled
with leading to strained working capital requirements of the company.

3. RISKS AND CONCERNS

Your company's product, urea continues to be under the regulatory regime
and this continues to affect your company adversely. There is also some
element of uncertainty on stage IV policy declaration for Urea by
Department of Fertilizers and the impact it shall have on different
manufacturers of the commodity.

4. INTERNAL CONTROLS AND RISK MANAGEMENT

Your company has adequate internal control systems in place. The company
has a well established Internal Audit & Risk Management framework which
covers the entire gamut of financial, marketing, plant operations and other
service functions.

A Structured Enterprise Risk Management System is in place in the company.
During the year under review, a reputed consultant conducted an audit of
the ERM System and the entire gamut of ERM activities of the company. Their
observations have been encouraging and have been taken cognizance of and
necessary follow through actions have been initiated.

The company's Internal Audit function has obtained the Quality Management
System (ISO 9001 : 2000) Certificate in December 2006 and the continuation
of Quality Management System certification has been confirmed by M/s. BSI
Management System.

The company is also in the process of establishing a structured legal
compliance management system to further strengthen its compliance levels.

5. FUTURE STRATEGIC DIRECTIONS

Your company during the year under review, commissioned the Carbon Dioxide
Recovery (CDR) Plant of 450 Metric Tones per day capacity for commercial
use in the company's existing facilities.

The Revamp and De-bottlenecking Phase-11 projects have been completed and
these measures are expected to increase the production by about 2 lakh
Metric Tonnes per annum.

The Micro Irrigation business is also expanding by establishing new
production lines to meet the growing requirements in the country. The
growth rate of our MI business was several times higher than the industry
growth rate.

Your company is also exploring various growth options to enhance its future
revenues by expanding one of its core businesses - fuels and feedstock.

In this regard, your company has identified investment opportunities in a
joint venture company in Germany for manufacture of chemicals for solar
energy and semiconductor applications. The technology involved is a new
state of the art technology, which is also cost effective.

To take the above proposal forward, your company is in the process of
investing an amount of Euro 5 million in the equity capital of its wholly-
owned subsidiary Nagarjuna Mauritius Private Limited , which investment
would in-turn be re-invested in Nagarjuna Spawnt GmbH, Germany, in Germany.

The above investment would be advantageous to your company's future
prospects as there is a growing market for these chemicals in solar
applications.

6. HUMAN RESOURCES/INDUSTRIAL RELATIONS:

Your company during the previous year continued to have good industrial
relations with all its employees at all levels.

Your company's constant endeavor has been to attract, retain and nurture
human talent by developing a culture of family and human values. The Human
Potential Development activities in the company are directed to enable
associates to realize their individual goals which is in consonance with
organizational goals. Various initiatives have been taken for training
associates in various programmes so as to enable them take up higher
responsibilities.