The Hindu Business Line : `MFL's future hinges on change in urea pricing policy'

MADRAS Fertilizers Ltd (MFL) could come under the purview of BIFR unless the urea pricing policy is altered, according to its Chairman and Managing Director, Mr Sukumar N. Oommen.

It has reported severe losses in 2003-04, and with its accumulated losses exceeding Rs 200 crore its net worth has been completely wiped out. But the company has its strengths and can stage a comeback if not for the adverse policy, he said in an interview with Business Line.

Excerpts:

How was 2003-04?

It was a tough year. MFL has reported a loss of Rs 60 crore, the net worth of Rs 175 crore was totally wiped out and the accumulated losses are Rs 206 crore. In 2002-03, MFL made a modest profit of Rs 8 crore; we would have done better but for the new urea pricing policy. MFL would have made a profit of Rs 15 crore under the VIII pricing policy.

What options do you have?

We are pushing for a change in the policy for urea pricing. If there are some positive changes - I have represented the problems to the Centre - MFL could make an additional Rs 41.11 crore in 2003-04 and report a profit. But we are running out of time. Unless corrections are made early MFL will go to the BIFR. The company has extended its accounting year up to June.

How did the policy affect you?

The formula for the urea price, for the pre-1992 naphtha group in which MFL is put, does not take into consideration MFL's position. Particularly on depreciation and capital related charges. On depreciation we have not been allowed the entire cost MFL is entitled to. In 1993-94, the government invested Rs 700 crore for modernisation. Our depreciation cost on a tonne of urea is Rs 885 but the group average is Rs 280.

On capital related charges also MFL's cost is Rs 2,325 a tonne but the group average is Rs 1,035. Similarly, energy cost and naphtha cost are also adverse. While energy efficiency is improving, other factors such as depreciation and capital related charges are not in our control. The Government of India has set us impossible targets and made MFL sick.

But how competitive are you?

Look at the indices of performance and employee productivity. In 2002-03 MFL started with 1,367 employees and ended with 1,195. Productivity in 2002-03 was 581 tonne per employee and in 2003-04, 901 tonne. In value terms that is Rs 85 lakh an employee in 2002-03 and Rs 101 lakh in 2003-04. The turnover is Rs 1,133 crore. It is a lean organisation.

Overtime has been brought down from Rs 4.55 crore in 2001-02 to Rs 70 lakh in 2003-04 through higher productivity and strict accountability. The total employee cost to revenue is about 3-3.5 per cent.

Whereas, take RCF, a profit making company, which has over 4,500 employees on a turnover of Rs 2,500 crore.

Another index - energy consumption. We are continuously improving. For instance, consumption of steam per tonne of urea has improved to 3.97 tonnes in 2003-04 from 6.05 tonnes in 1998-99; furnace oil 0.29 tonnes in 2003-04 against 0.42 tonnes in 1998-99; and power 0.32 tonnes from 0.40. This compares with the best in industry.

Carrying cost was one of your concerns; have you been able to tackle that?

We have saved and rationalised our warehousing to bring down costs. Between September 2003 and March 2004 over 30 warehouses were closed and a part of the benefits were passed on to the dealers who were encouraged to hold stocks.

That has saved us Rs 4 crore on transportation and brought down warehousing costs to about Rs 125 a tonne against Rs 138 earlier. Rebates and discounts have been substantially cut and we are selling higher volumes, a record 4.16-lakh tonnes in 2003-04, of urea at a lower cost.

But does not the production of complexes help you?

We have a capacity to produce about 8.40 lakh tonnes of complex fertilisers but are unable to procure raw materials. We could only procure 1.17 lakh tonnes Muriate of Potash against the needed 2.50 lakh tonnes and phosphoric acid only 82,000 tonnes against 1.50 lakh tonnes.

I don't have cash supplies and commercial banks are not enhancing working capital limit, which is Rs 138 crore against Rs 180 crore we are asking for.

The pricing policy does not recognise that MFL uses solid urea for producing complexes. The prices are based on ammonia and we are losing about Rs 18 crore a year.

The cost of naphtha supplied by CPCL is not being reimbursed fully but only at the lowest price of naphtha supplied by Kochi refineries to FACT. There we are losing about Rs 8 crore due to a price difference of Rs 1,333 a tonne. Our working capital is low and this is a constraint.

What is the outlook in the current year?

The current year, if there is an improvement in policy, we could make a profit of about Rs 100 crore and can wipe out accumulated losses. Otherwise MFL will incur a loss of Rs 50-60 crore.

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