PARTICULARS PAGE NO. · particulars page no. executive summary 1. preamble 2. the company 3. the...

CEE VEE AGRIENCE PVT. LTD

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PARTICULARS PAGE NO. EXECUTIVE SUMMARY

1. PREAMBLE 2. THE COMPANY 3. THE PROMOTERS 4. THE PROJECT 5. COST OF PROJECT 6. MEANS OF FINANCE 7. SALIENT FEATURES 8. KEY PROJECTED FINANCIALS

PROJECT INFORMATION

9. INDUSTRY OVERVIEW 10. MARKET SCENARIO 11. NEW PROJECT 12. COST OF THE PROJECT AND DESCRIPTION

a. LAND AND SITE DEVELOPMENT b. BUILDING AND CIVIL WORKS c. PLANT AND MACHINERY d. MISCELLANEOUS FIXED ASSETS e. CONTINGENCIES AND ESCALATION f. PREOPERATIVE EXPENSES g. MARGIN MONEY FOR WORKING CAPITAL

13. MEANS OF FINANCE 14. MANUFACTURING PROCESS 15. RAW MATERIAL AND UTILITIES 16. MANPOWER REQUIREMENT 17. TECHNICAL ASPECTS AND LAYOUT AND FACILITIES 18. GOVERNMENT APPROVALS 19. SCHEDULE OF IMPLEMENTATION 20. SWOT ANALYSIS 21. FINANCIAL INDICATORS 22. SENSITIVITY ANALYSIS 23. ASSUMPTIONS

24. FINANCIAL PROJECTIONS

a. PROJECTED PROFITABILITY b. PROJECTED BALANCE SHEET c. PROJECTED CASH FLOWS d. DEBT SERVICE COVERAGE RATIO e. BREAK EVEN POINT f. INTERNAL RATE OF RETURN g. PAY BACK PERIOD h. DEPRECIATION CALCULATION i. REPAYMENT

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56 58 60 61 62 63 63 64 66


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EXECUTIVE SUMMARY

PREAMBLE

Agriculture plays a vital role in Indian economy. Large population in the country depends

upon agriculture for its survival. Approximately 620 million rural Indians depend on

agriculture. Agriculture sector represents 17% of India’s GDP. Agriculture productivity is

dependent on various factors like soil properties, climate conditions, irrigation facilities, seed

qualities, technique of farming, prevention from pests etc, but more importantly usage of

primary, secondary and optimum nutrient. The loss of soil fertility in many developing

countries posses an immediate threat to food production. Chemical fertilizers have played

an important role in making the country self reliant in food production. It is essential to

encourage the use of nitrogenous phosphatic and pottasic fertilizer so as to achieve the

desirable consumption ratio according to agro climatic and crop requirements to maintain

the soil health and to sustain the crop productivity.

PIONEER INDUSTRY OF THE COUNTRY

About 60 percent of the India’s workforce is dependent on agriculture for their livelihood.

Substantial evidence has demonstrated that chemical fertilizers have played a vital role in

success of India’s Green Revolution and consequent self reliance in food grain production.

Fertililizers consumption has increased from less than 1 kg per hectare in 1951-1952 to

143.13 kgs in 2011-12.

The fertilizer industry presents one of the most energy intensive sectors within the Indian

economy and is therefore of particular interest in the context of both local and global

environmental discussions. Increase in productivity through the adoption of more efficient

and cleaner technologies in the manufacturing sector will be most effective in merging

economic, environmental, and social development objectives. A historical examination of

productivity growth in India’s industries embedded into a broader analysis of structural

composition and policy changes will help identify potential future development strategies

that lead towards a more sustainable development path.


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Green revolution in the late sixties gave an impetus to the growth of Fertilizer industry in

India. The seventies and eighties then witnessed significant additions to the fertilizer

production capacity.


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THE COMPANY

Name Cee Vee Agrience Pvt. Ltd. (CVA)

Address Santushti , Mahanadi Road , Madhusudan Nagar , Tulasipur ,

Cuttack , Orissa - 753008

Location of Plant Nua Sasan , Nuasasan Industral Estate , Athgarh , Orissa

Sector Private

Constitution Private Limited Company

Industry Agriculture - Fertilizers

INTRODUCTION

Cee Vee Agrience Pvt. Ltd. (CVA) was incorporated for setting up a fertilizer plant,

manufacturing the economical and widely used Single Super Phosphate (SSP) unit in

Orissa. Due to omnipotent qualities, it can be used in various types of agricultural produce

ranging from coconut to flower, wheat to fruits and vegetables. SSP is most viable when

produced and distributed, focused on localized market. Orissa government is encouraging

multi cropping and diversification into cash crops. Therefore, we feel that our product will

find ready and receptive market due to this encouraging scenario. However, the company

has held discussions with Paradeep Phosphates Limited wherein they have shown

inclination to enter into a long term marketing arrangement. Thus we do not foresee any

possible difficulty in marketing of the product.

PROMOTERS

The Promoter, C.V. Ramu, hails from Cuttack, Orissa. He has completed his education from

Cuttack and Delhi. He has done his MBA from the prestigious IMT, Ghaziabad. Mr. Ramu

completed his college education from the well known Ravenshaw College, Cuttack in 1989

and then went on to complete his MBA course. He successfully completed the same in

1992 and started his working in Delhi. He is a Marketing & Finance professional, with

exposure and experience with very large Multinationals and Indian companies. He has

experience in both manufacturing as well as Service industries and has worked for some


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large companies like Escorts, TATA Group & Reliance. The promoter comes from a well-to-

do and meritorious family in Orissa.

THE PROJECT

CVA proposes to set up a 100 TPD plant manufacturing the economical and widely used

Single Super Phosphate fertilizer. It can be used in various types of agricultural produce

ranging from coconuts to flowers, wheat to fruits and vegetables, floriculture to cotton

cultivation etc. The production process is very simple and economical and the fertilizer

yields good results in all kinds of soil conditions. In markets like Orissa, where the

Government is encouraging multi-cropping and diversification into cash crops, it turns out to

be a viable product. Currently, the Orissa market is serviced by manufacturers from

neighbouring states resulting in inconsistent supplies as they give priority to their home

consumers and only supply the residual quantity to Orissa. Thus a plant in Orissa is in great

demand. The installed capacity of the plant is proposed to be 30,000 TPA.

COST OF THE PROJECT

SI. No. PATICULARS AMOUNT

Rs. in Lacs

1. Land & Land Development Cost 13.00

2. Building & Civil Construction 85.00

3. Plant & Machineries 252.70

4. Miscellaneous Fixed Assets 20.00

5. Provision For Contingencies 17.90

6. Pre-Operative Expenses 33.40

9. Margin For Working Capital 62.00

TOTAL COST OF THE PROJECT 484.00


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MEANS OF FINANCE


1. Equity Share Capital /Unsecured loans 184.00

2. Term Loan 300.00

TOTAL 484.00

GOVERNMENT SUPPORT

SSP is covered under the NBS (Nutrient Based Subsidy) scheme of Ministry of Fertilizers,

Govt. of India. The lead time for the same is 60 days from the date of submission of claims.

The current Rate of subsidy is Rs.3173/-per tonne. Fast track clearance of NBS amount to

SSP manufacturers listed under the ministry of fertilizers will be credited directly to

manufacturer account on monthly basis from April, 2013.

ENVIRONMENTAL /REGULATORY CLEARANCES

CVA has received the Environmental Clearance for setting up of the proposed SSP

manufacturing unit, from the Ministry of Environment & Forests, Govt. of India. The unit has

also been accorded the Consent to Establish the proposed unit by the Orissa State

Pollution Control Board. Consent from CESU for required Power supply has also been

obtained. All solid as well as liquid effluents will be recycled to the maximum, minimizing

chances of effluents affecting the local area.


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SALIENT FEATURES OF THE PRODUCT

Single Super Phosphate is a very simple, convenient and cheapest fertilizer that

supports various types of agricultural produce.

SSP enhances the Phosphatic content in the soil, thereby enabling the soil to be more

porous for effective growth of the roots and fulfill 15% of the total phosphate requirement

of the company.

SSP is extensively used in agri-economies as it is cheap, affordable and provides the

basic ingredient to soil. Lowest price per kg (in non-urea space), preferred by small and

marginal farmers.

Multi-nutrient fertilizer containing P2O5 as primary nutrient and Sulphur and Calcium as

secondary nutrients.

Utilizes acid effluent from other chemical industry and thus reduces nation's cost of

effluent disposal.

It is the cheapest source of Sulphur for the soil.

Only phosphatic fertilizer that can utilize Indian rock phosphate deposits.

ROLES OF SSP COMPONENTS

PHOSPHORUS SULPHUR CALCIUM

Plant growth Chlorophyll & Protein

formation

Plant cell elongation

and stability

Quality & yield improvement Oil synthesis Improves lodging resistance

Root development Formation of enzymes and

vitamins

Removes acidity and restore

soil health

Enhance crop maturation

Promotes nodulation in

legumes for N-fixation

Remove soil compaction

increases crop yield by 15-

25% in S deficient soils


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FINANCIAL INDICATORS

Amount ( Rs. In lacs )

Year

2014 2015 2016 2017 2018 2019 2020

Equity Share 184.00 184.00 184.00 184.00 184.00 184.00 184.00

Reserves &Surplus 63.58 158.80 280.71 413.05 556.66 697.18

Tangible Net Worth 184.00 247.58 342.80 464.71 597.05 740.66 881.18

Term liabilities 300.00 287.50 237.50 187.50 137.50 87.50 37.50

Working Cap. Loans - 200.00 210.00 240.00 250.00 270.00 270.00

Net Block 422.00 402.00 381.00 358.00 334.00 308.00 281.00

Net Current Assets 62.00 387.70 487.70 635.09 761.95 913.00 1031.50

Current Liabilities 54.57 78.40 100.87 111.39 122.85 123.82

Net Sales 1364.00 1591.00 1818.00 1932.00 2045.00 2045.00

Profit before tax 84.17 135.92 179.71 197.96 217.99 215.88

Profit after tax 55.84 90.17 119.22 131.33 144.62 143.21

Depreciation 35.00 36.00 38.00 39.00 41.00 42.00

Cash Accruals 90.84 126.17 157.22 170.33 185.62 185.21

Debt Equity Ratio 1.58 1.16 0.69 0.40 0.23 0.12 0.04

TOL/TNW 2.19 1.53 1.14 0.84 0.65 0.49

FACR 1.41 1.40 1.60 1.91 2.43 3.52 7.49

Average DSCR 2.95

Pay Back period 1.83 Years

IRR 29.58%

BEP at 90% capacity 29%


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INDUSTRY SCENARIO OF SSP

SECTOR BACKGROUND Single super phosphate (SSP) is a high-in-demand fertilizer mostly used at the time of

preparation of land for farming. It is a straight phosphatic multi-nutrient fertilizer which

contains 16% water soluble P2O5, 12% sulphur, 21% calcium and some other essential

micro nutrients in small proportions. The first SSP plant is said to have been established by

EID Parry in the year 1906. Manufacturing of SSP is based on perhaps the simplest

chemical reaction amongst chemical fertilizer industry. The main raw materials required are

Rock phosphate and sulphuric acid. SSP, a poor farmer's fertilizer (price-wise compared to

DAP- Diammonium phosphate), is an option to optimise the use of phosphatic fertilizers and

helps treat sulphur deficiency in soils (40% Indian soil is sulphur deficient). Several crops

such as oilseeds, pulses, sugarcane, tea etc require more sulphur and phosphate, a

phenomenon that is fulfilled with the use of SSP. SSP is classified into two categories,

namely Single Super Phosphate (SSP) and Granulated Single Super Phosphate (GSSP).

HISTORY OF REGULATION:

After decontrol of fertilizers in India in August 1992, the Government of India has been

implementing a Concession Scheme for decontrolled Phosphatic and Potassic (P&K)

fertilizers. SSP is one the decontrolled fertilizers covered under the Scheme. The

Department of Fertilizers (DOF), after taking over the Concession Scheme from the

Department of Agriculture and Cooperation in 2000, modified the guidelines for the Scheme

so as to promote use of specified grades of rock phosphate purchased from notified

sources for manufacture of SSP, with a view to ensure availability of quality SSP to farmers

and to minimize possibility of sale of non-standard SSP to farmers. Till April 2010, the

government, kept prices artificially low to maintain affordability and controlled retail prices of

all fertilizers. As a result, Indian farmers were insulated from international price hikes.

The Ministry of Chemicals and Fertilizers approved the Nutrient Based Subsidy (NBS) in

March 2010 in an effort to decontrol prices. Since the announcement, fertilizer sales

volumes have risen significantly. For example, in FY11, sales of complex fertilizers other

than DAP rose by ~40% despite a significant increase in prices. Under the new regime,


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there is a fixed subsidy for nutrients and unlike in the past, when the government set the

MRP, the current regime lets manufacturers determine their own selling prices. However,

we cannot totally rule out the possibility of government intervention returning in the case of

large fluctuations in price in future. On 5th May 2011, the Government announced the

revised nutrient subsidy rates applicable for FY12. Nutrient subsidies increased

substantially from the rates in FY11. On an annual basis, subsidy on Phosphorous has

increased the most due to the rapid rise in DAP and Phosphoric Acid prices. This is

because raw material prices have increased sharply in the international market, leading to

high finished goods prices. However for FY13, the ministry reduced subsidy on all nutrients

with the largest change in Phosphorous. While this move was to reduce subsidy outgo in

line in a drop in global raw material prices, MRP could rise a little. At the same time, the

government didn’t announce any scheme in Urea. Urea remains the cheapest fertilizer and

farmers could continue to overuse urea impacting soil quality.

Subsidies to DAP and MOP fertilisers were slashed by 27.4% and 10% respectively. But

urea, the most used crop nutrient that accounts for the bulk of the government's spending

(~Rs. 21,500 cr in FY11) on fertilisers, was left unchanged. The subsidy for DAP will stand

at Rs. 14.4/kg in FY13 compared to Rs. 19.8 in FY12. For MoP, the same has been fixed at

Rs. 14.4/kg against Rs. 16.1 in FY12.

The NBS for the FY 2013-14 has been announced vide Office Memorandum dated 3rd

May, 2013 and for MRP dated 26th

June, 2013 by the Ministry of Chemical &

Fertilizers. For this fiscal year, the subsidy shall be Rs. 3173/MT and MRP Rs. 7004/

MT.

INDIAN FERTILIZER MARKET:

Fertilizer consumption increased from 20.3 mn tonnes in FY06 to ~29.2 mn tonnes in FY11

led by a rise in phosphorous consumption, which rose from ~5.2 mn tonnes in FY06 to ~9.4


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mn tonnes in FY11. The consumption of fertilisers increased by 7% during FY2012 but the

consumption growth was lower as compared with that in FY2011 (when consumption had

grown by 14%). Fertilizer demand is expected to rise at a CAGR of ~8% to ~40-45 mn

tonnes in FY16. Phosphorous is expected to account for a bulk of that increase at a CAGR

of ~15% to ~16-18 mn tonnes in FY16 following increased availability of complex fertilizers

after the Nutrient Based Scheme (NBS) came into effect. Producers are now given a

subsidy on the volume of nutrient sold as opposed to that on the volume of product sold

earlier. This gives the producers incentive to sell other fertilizers besides urea and DAP.

Fertilizer consumption per tonne of grain production has increased over the years as shown

in the table below but the increase is largely due to an increase in usage of urea. Soil

fertility in India has deteriorated due to the excessive use of urea and hence, a greater

usage of Phosphorous (P) and Potassium (K) fertilizers is required to balance fertilizations

and optimise soil productivity.

India accounts for approximately 45% of the phosphoric acid global trade, ~16% of the

global rock phosphate trade, ~9% of ammonia trade and ~11% of MOP (Muriate of Potash)

trade. With such a strong global presence, we believe India can enjoy bargaining power

with raw material suppliers; however, this would depend on input costs and global demand-

supply. India is dependent on imported feedstock (rock phosphate, phosphoric acid), as

domestic capacities have not matched the growth in demand. Any expansion/benefit can be

contingent on the ability of the company to source raw material. SSP imports vary

significantly as per the demand and supply in the country. For most of FY12, imports were

far below their levels in 2009 however, imports increased significantly toward the end of

2011. Import prices are at all time highs because raw material prices are soaring. Import

prices in December were ~Rs. 29,000/tonne.


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Domestic production has been stagnant for the past 4 years around 2.8 million MT/year.

Growth in production has slowed down significantly but is expected to pick up going

forward. Several leading fertilizer companies have indicated their interest in the SSP field

and have already announced plans to set up plants. The total domestic capacity is expected

to increase significantly over the next couple years, which could reduce the country’s

dependence on imports. However, such an increase in capacity could also adversely affect

raw material prices (which have been on the uptrend) as there are no significant phosphate

rock capacities expected anytime soon across the globe. India imports majority of its raw

material for SSP production and being a large player in the global market, could pressurize

suppliers to maintain prices.

TURNAROUND IN THE FORTUNES OF FERTILIZER INDUSTRY:

The fertiliser industry was a laggard sector for years due to overhang of policy control,

higher manufacturing costs (due to naphtha cost) and no capacity expansion. Since 2009,

fertilizer policy has, however, shifted away from regulated returns in complex fertilizers to

import parity realizations. NBS has sparked hopes of prosperity in the industry. NBS policy

for decontrolled Phosphatic & Potassic (P&K) fertilizers has been implemented wef April

2010. Under NBS, the subsidy on decontrolled P&K fertilizers is determined for each

nutrient on per kg basis and fixed by the Government on annual basis. NBS is fixed taking

into consideration affordability of the farmer and prevalent price level of fertilizers and

fertilizer inputs in the international market at that time. Since the subsidy for each grade of


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fertilizers is fixed for a year, the Maximum Retail Price (MRP) of fertilizers at farm gate level

has been freed. Accordingly, the MRP of P&K fertilizers is decided and fixed by the fertilizer

producing companies or the importers. However, they are required to print MRP along with

applicable amount of subsidy on each fertilizer bag clearly.

The international prices of fertilizers and its raw materials in the year 2011 increased

substantially as compared to the prices in the year 2010. This increase in international

prices of fertilizers and its raw materials were taken into account while fixing the subsidy

rate under the NBS Scheme for the year 2011-12. However, any further increase or

decrease in international prices of fertilizers and its raw material is expected to have some

effect in the MRP of these fertilizers. The NBS was a life-changer for the industry and

potential for profits of companies has increased.

SSP IMPORTS AND IMPORT PRICES HAVE INCREASED SIGNIFICANTLY IN FY12 AND COMPLEX

FERTILIZER OUTPUT IS EXPECTED TO INCREASE IN FY13:

SSP imports in 9MFY12 were ~32% higher than that in 9MFY11. SSP import prices in FY12

have been significantly higher as well. As seen in the chart above titled “Import Trends and

Prices”, a spike in import prices is observed from May 2011 along with a rise in import

quantity. This has resulted in ~80% rise in value of imports of SSP. It is evident that the

demand for SSP remains robust despite higher prices however, domestic supply is unable

to cater to the demand (as shown in the graph below, domestic production of SSP has

remained in the 225,000 MT to 240,000 MT for almost 3 years). Domestic players are

adding capacities but additional supplies could take over a year to reach the market. In the

meanwhile, the present SSP manufacturers could experience good times in the form of

higher demand and realizations in an era where NBS provides incentives listed above.

India’s fertilizer production is pegged at 36.87 million tonnes in 2012-13, up over 8% from

last fiscal. While urea production is estimated at previous year's level of 22.57 million

tonnes, the output of complex fertilizers and DAP has been pegged higher at 9.98 million

tonnes and 4.31 million tonnes, respectively, this year. Last fiscal, production of complex

fertilizers and DAP was estimated at 7.82 million tonnes and 3.71 million tonnes each. As


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estimated by the government, complex fertilizer output is expected to increase by ~28% in

FY13, indicating a possible good year for SSP.

POSSIBLE DECONTROL OF UREA PRICES:

In an effort to decontrol prices, the Ministry of Chemicals and Fertilizers approved the NBS

in March 2010. The introduction of this subsidy led to the freedom of pricing. However, due

to its high demand and usage and low price, urea price was not decontrolled. The

government has increased urea prices at times indicating an effort to decontrol them as well

but the final plunge is yet to be taken. Indian farmers overuse urea, as it is cheap because

of high government subsidy. This also results in the government spending close to Rs.

21,500 cr on Urea subsidy (FY11), which accounts for ~40% of the government’s total

fertilizer subsidy expense. An overdose of urea has led to degradation of land quality, a

problem that could be solved by using phosphoric fertilizers to neutralize the land. A

possible decontrol in urea pricing could lead to a significant jump in its price and hence, loss

of attractiveness. Presently the price of Urea is ~Rs. 5.3/kg while that of SSP is ~Rs. 6.0/kg

and DAP ~Rs.19.0/kg. While the difference between urea and SSP does not seem too

large, that between SSP and DAP is wide enough. Hence to restore soil quality, the farmer

will be willing to buy SSP (slightly expensive compared to urea – but far cheaper than DAP).

If Urea prices are decontrolled, they are likely to become higher than those of SSP and


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farmers would consider shifting to SSP even more to enhance the quality of their land. That

being said, the timing and certainty of such decontrol (of urea) cannot be ascertained

presently. As per reports, the fertilizer ministry is likely to send the new urea policy

proposing a 10% hike in prices to the Cabinet for approval. In the past ten years, the

government has raised urea prices only once by 10% to Rs. 5.3/kg. If the prices are revised,

it will help the government to reduce its subsidy bill by ~ Rs. 2,000 crore.

POSITIVE OUTLOOK FOR THE FERTILIZER INDUSTRY IN THE BUDGET FOR 2012-2013:

Finance Minister Pranab Mukherjee in his budget speech for FY13 made announcements

that are likely to benefit fertilisers and agriculture related companies. The provision for

fertiliser subsidy was reduced to Rs. 60,794 crore from Rs. 67,199 cr in FY12.

The government announced that investment -linked deduction of capital expenditure

incurred is proposed to be provided at the enhanced rate of 150% as against 100% at

present for fertilizer. It exempted 5% customs duty on import of equipment for initial setting

up or substantial expansion of fertilizer projects for a period of three years. The finance

minister in his speech also said that the focus would now be to encourage the use of SSP

more because for the government that subsidy is easy to control and good for the crops as

well. Basic customs duty on a few soluble fertilizers and liquid fertilizers, other than urea,

has been reduced from 7.5% to 5% and from 5% to 2.5% respectively. Also, complete

exemption from basic customs duty will be provided to new fertilizer projects, a move that

will encourage new entrants and push existing players to set up new plants.

FALL IN DAP IMPORTS AND CONTINUED PRICE DIFFERENTIAL DENOTE SHIFT IN BUYING FROM

DAP TO SSP:

Import of key fertiliser DAP has declined by 7% to 6.87 million tonnes in the April-February

period of FY12. India had imported 7.41 million tonnes of the important crop nutrient in the

year-ago period. The requirement of DAP in the rabi 2011-12 season (October-February)

stood at 5.16 million tonnes, while the availability of the soil nutrient was 5.62 million tonnes

during the period. Reduction in DAP usage could indicate an increase in SSP usage in the


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same period. DAP is significantly more expensive than SSP and Urea. DAP costs ~Rs.

19/kg while SSP costs only Rs. 6/kg and Urea costs ~Rs. 5.3/kg. The huge price differential

discourages farmers from using DAP. Moreover, over the years, the price difference

between DAP and Urea has widened from ~50% in FY11 to ~70% in FY12. However, the

landed cost of imported DAP has fallen in the last six months, from $ 675-660 a tonne to

around $ 540, with expectations of it easing further to $ 510-520 levels. As DAP consists of

46% phosphorous (compared to 16% in SSP), it is more impacted by phosphorous prices. A

higher reduction in subsidy on phosphorous and in turn on DAP has helped SSP become

more competitive vis-à-vis DAP. This situation could reverse only if there is a sharp

reduction in prices of phosphorous. In such an event, reduction in DAP prices could

cannibalise SSP consumption. Till then SSP consumption could keep rising steadily.

CONCERNS

AGRICULTURAL PRODUCTIVITY AND SEASONALITY:

The fertilizer industry is entirely dependant on the agriculture industry, which in turn is

dependant on several factors such as quality of seeds and soil, irrigation and weather.

Weather is a factor beyond the control of any individual and any extreme weather in a year

(drought, flood, excess heat/cold etc) could negatively impact the sales of the industry.

Moreover, the kharif and rabi seasons in the agriculture industry make demand for fertilizers

seasonal. Q4 is traditionally a dull quarter across the SSP industry with low volumes

followed by Q2, which means that the results of Q4FY12 might not be impressive across the

board.

RAW MATERIAL PRICES:

Major raw materials of the industry are Phosphate rock, Sulphuric Acid, Sulphur and

Calcium. Sulphur prices have been rising and landed cost for the raw material in September

2011 was close to 40% higher than that in September 2010. While prices are still far below

their 2007-2008 highs, the current uptrend could diminish margins. Phosphate rock prices

have been rising steadily for a couple of years as well and are currently close to 70% higher


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than they were two years ago and close to 35% higher than they were a year ago. A steady

increase in phosphate rock prices has led to an increase in SSP prices globally. However,

urea prices have also increased significantly over the years as well and a possible

liberalization/decontrol in urea prices by the government will increase the attractiveness of

SSP. A further increase in phosphate rock, sulphur or sulphuric acid prices could put

pressure on SSP manufacturers’ margins. While the NBS permits manufacturers to

determine MRP, they do maintain the right to interfere in case of a high increase in farmgate

prices. Hence the increase in raw material cost in such circumstances cannot be completely

passed on to the farmers. The competitive advantage now lies in robust backward linkages

and companies that are able to negotiate long-term contracts for raw materials at a

relatively low rate win.

GOVERNMENT INTERVENTION ON SUBSIDIES/PRICES:

The Government of India is likely to make efforts to reduce its subsidy burden through

partial decontrol of Urea prices. The government’s effort to reduce subsidies is closely

linked to international prices of the fertilizers as well as prices of raw materials. Phosphoric

Acid (a significant raw material for the industry) prices have risen significantly. A future

reduction in subsidy to bring down its burden or to stay in line with international finished

goods prices cannot be ruled out. Such a reduction could pose a significant threat to the

SSP companies’ topline and margins. Further any policy changes by the Government (on

subsidy, imports, distribution etc) could also impact the fortunes of the fertiliser companies.


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FOREX RISK:

Forex risk is a major concern for most players in the industry as most of the raw material

used in the industry is imported. Rama Phosphate used Rs. 75.5 cr of forex in FY11.

Khaitan Chemicals used ~Rs. 94.8 cr in FY11 and earned only Rs. 0.9 cr in the year.

Liberty Phosphates used Rs. 74.6 cr of forex in FY11 and earned only Rs. 0.3 cr of forex in

the year. As mentioned earlier, India is dependent on imported feedstock (rock phosphate,

phosphoric acid), as domestic capacities have not matched the growth in demand. With the

current depreciation in the value of the Rupee, companies could report forex losses in the

coming quarters/year. Forex loss for 9MFY12 for Khaitan Chemicals and Liberty

Phosphates was Rs. 13.8 cr and Rs. 5.5 cr respectively.

CONCLUSION

After the NBS was put into effect in 2010, non-urea fertilizers have seen good times. SSP

is highly nutritious for the soil and the government is trying to promote its use to prevent soil

from getting exhausted due to overuse of Urea. The India fertilizer market has been growing

with the fertilizer quantity per kilo of food grain steadily rising. While the NBS’ goal is to

decontrol the fertilizer industry, the government could still interfere when required. India is

one of the largest fertilizer consumers in the world and with stagnant domestic supply,

imports have been increasing. Several large players are in the process of adding SSP

capacities as the current market structure makes it an extremely profitable venture. Finished

goods prices have increased significantly due to decontrol and an increase in global raw

material prices. Despite a fall in DAP prices, there is a large price difference between DAP

and SSP and a relatively small price difference between SSP and Urea. In the possible

scenario of decontrolled Urea prices, SSP companies will benefit significantly. SSP sales

depend on agriculture, which makes it a seasonal industry. All SSP manufacturers import

raw material, exposing them all to forex risk. Moreover, government regulation in a farmer-

sensitive industry is always a major concern. Seeing the niche price-nutrient advantage, it

is believed that the SSP space is expected to perform well in the near to medium term.


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MARKET SCENARIO

Fertilizer in the agricultural process is an important area of concern. Fertilizer industry in

India has succeeded in meeting the demand of all chemical fertilizers in the recent years.

An impetus to the growth of fertilizer industry in India was given by Green revolution in

Sixties. Further a significant addition to the production was witnessed in seventies and

eighties. The fertilizer industry has played a pivotal role in achieving self sufficiency in food

grains as well as in rapid and sustained agricultural growth.

India is third largest producer and consumer in the world after China and the United States.

According to given Statistics, total capacity of the industry as on 30.01.2003 has reached a

level of 121.10 lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of

urea after reassessment of capacity) and 53.60 lakh MT of phosphate nutrient. The growth

of Indian fertilizer has been largely determined by the policies pursued by the government

which mainly confine to controls on the pricing, distribution and movement of fertilizers. The

industry is capital intensive and the production process energy intensive with the combined

cost of feedstock and fuel accounting for anywhere between 55 and 80 per cent of cost of

production, depending on the type of fertilizers.

PRESENT STATUS OF FERTLIZER INDUSTRY

India being the third largest producer and consumer of fertilizers in the world with an

installed capacity of Nitrogen (N) and Phosphate (P) nutrients at 14 million tones p.a. Urea,

a nitrogenous type of fertilizer, is most widely consumed in India. Currently the urea

capacity is 20.2 million tonnes while consumption is 21.7-million tonnes. Fertilizer

production is highly energy intensive with cost of feedstock and fuel alone accounting for

between 55 to 80 per cent of the cost of production. Plants in India is based primarily on

three feed stock naphtha, fuel oil and natural gas with a significant proportion of domestic

capacity of urea plants based on naphtha or fuel oil which cost more than natural gas. High

cost feedstock and increased production/consumption have caused a steady increase in

fertilizer subsidy. The investment in the fertilizer industry witnessed a rapid growth rate over

the successive plan periods for creation of new capacities and expansion of the existing

units. The amount increased to Rs 154.77 bn by the end of the Eighth Plan and to Rs

256.44 bn by the end of the Ninth Plan.


19

Over the past few years, the import dependence for the supply of urea, phosphatic fertilizers

and DAP has increased as the domestic production has not been sufficient to meet the

demand, thus leaving a gap between demand and supply. The entire demand for potassium

fertilizer is met through imports as the domestic sources of potash are of low-quality and are

uneconomical for exploitation. This has also led to an increase in the subsidy outgo. To

support the domestic fertilizer production, the government has announced a cut back in the

customs duty on crude and unrefined sulphur from 5% to 2% during FY09 and has

exempted naphtha from the import duty. India is capable of attaining self-sufficiency in urea

production considering the current availability and projected availability of hydrocarbon

(natural gas) resources in India; natural gas is an important feedstock for urea. In the past

years, the import dependence has increased in the sector due to the lack of significant

investments and rising demand and supply gap. India has been importing urea from the

UAE and the CIS countries continuously over the years, however, currently China has been

emerging as the largest-importing country.

Over the years, near stagnation in capacity expansion and lack of investments in the

fertilizer sector increased the demand-supply gap, and therefore, the imports. Unless,

sufficient capacity expansion and exploitation of new sources of raw material does not take

place, the burden of subsidy is not likely to come down.

FERTILZERS DEMAND & CONSUMPTION

Growing population and shrinking land resources have led to vertical expansion of

agriculture, that is, have increased the number of crop cycles. Fertilizers play an important

role in increasing the fertility of the soil and thus productivity. However, fertilizer

consumption also depends on various agriculture related factors such as soil quality,

farming methods, cropping pattern, rainfall and irrigation patterns, different geographical

aspects, calamities, availability of technology and information, varieties and quality of seeds

as well as access to capital and credit and other inputs. Moreover, macro oriented factors

such as crop-related market forces and fertilizer pricing policies also influence fertilizer

consumption. The average annual growth of fertilizer consumption achieved at the end of

the Tenth Plan was about4%. During the start of the Tenth Plan Period, that is, FY03, the

country was drought affected, and therefore, its consumption of fertilizers fell by about

7.30% over the previous year. However, the growth in consumption started picking up


20

during the following years. In fact, the increase in consumption was higher than the growth

in production and the balance was met with imports.

INVESTMENT AND GROWTH IN SSP FERTILIZERS

SSP is a cheaper alternative to the popular diammonium phosphate (DAP) and is obtained

through a chemical reaction between rock phosphate and sulphuric acid. It provides critical

potassium nutrients to soils while also adding calcium and sulphur micronutrients at a

relatively low price.

SSP DEMAND GROWTH

SSP demand in India has grown in recent years as the cost of its more expensive

substitute, DAP, has risen. DAP prices have gained in recent years due to rising demand for

phosphate products, which has put the product out of reach for many of India’s food

producers. The situation was exacerbated when the Indian government announced a 27.4-

percent reduction in phosphate fertilizer price support for the 2012 to 2013 fiscal year in

March of last year.

India’s modern nutrient-based subsidy policy for complex fertilizers was introduced in 1992

after the sector was “decontrolled” and witnessed rapidly expanding prices. Subsidies were

extended to SSP in 1993, and a number of changes to the subsidy formula occurred along

the way.

But with recent claw backs in the nutrient-price assistance that is provided to farmers, SSP

has become the only phosphate fertilizer that many Indian farmers can afford.

SSP production is primarily attractive because of its low price point. The relative ease of

production and the fact that it can be produced using locally sourced rock phosphate, a

quality of phosphate that is not appropriate for DAP production, are also making it an

increasingly popular product. Currently, all Indian DAP products are imported from foreign

producers like Moroccan phosphate producer Office Cherifien des Phosphates and Russian

fertilizer group Phosagro (MCX:PHOR). That is problematic because in 2011 India used

about twice as much DAP as it did SSP, with 7 and 3.1 million tonnes respectively being

consumed, according to Fertilizer Association of India data provided by Reuters.

http://in.reuters.com/article/2012/03/01/india-fertiliser-subsidy-idINDEE8200AD20120301

http://fert.nic.in/page/fertilizer-policy

http://www.google.com/finance?q=MCX%3APHOR&ei=vZ8JUdq-J6ajiAL83wE

http://in.reuters.com/article/2011/11/30/india-ssp-idINDEE7AT09420111130


21

The belief is that higher DAP prices will cause SSP demand to increase, allowing it to

potentially rise to 4 million tonnes in 2012.

NUTRIENT BASED SUBSIDY

In the context of Nation’s food security, the declining response of agricultural productivity to

increased fertilizer usage in the country and to ensure the balanced application of fertilizers,

the Government has introduced the Nutrient Based Subsidy (NBS) Policy with effect from

1.4.2010 for decontrolled P & K fertilizers (w.e.f. 1.5.2010 for SSP). As per this policy, the

fertilizers namely DAP, MOP, NPKS complexes, MAP, TSP, Ammonium Sulphate (AS) and

Single Super Phosphate (SSP) are provided to the farmers at the subsidized rates based on

the nutrients (N, P, K & S) contained in these fertilizers.. NBS has been announced for

2010-11 on annual basis based on prevailing international prices and price trends. The

details of Nutrient Based Subsidy Policy are as under:

NBS is applicable for Di Ammonium Phosphate (DAP, 18-46-0), Muriate of Potash (MOP),

Mono Ammonium Phosphate (MAP, 11-52-0), Triple Super Phosphate (TSP, 0-46-0), 12

grades of complex fertilizers and Ammonium Sulphate (AS - (Caprolactum grade by GSFC

and FACT), which were covered under the earlier Concession Scheme for Phosphatic and

Potassic (P&K) fertilizers up to 31st March 2010 and Single Super Phosphate (SSP).

Primary nutrients, namely Nitrogen 'N', Phosphate 'P' and Potash 'K' and nutrient Sulphur

'S' contained in the fertilizers mentioned above are eligible for NBS.

Any variant of the fertilizers mentioned above with secondary and micro-nutrients (except

Sulphur 'S'), as provided for under FCO, is also eligible for subsidy. The secondary and

micro-nutrients (except 'S') in such fertilizers attracts a separate per tonne subsidy to

encourage their application along with primary nutrients.

NBS to be paid annually on each nutrient namely, 'N', 'P', 'K' and 'S' has been decided by

the Government for 2010-11 on recommendation of IMC. For 2010-11, per kg NBS and per

tonne NBS for each subsidized fertilizer w.e.f 1st April 2010 has been announced.

Distribution and movement of fertilizers along with import of finished fertilizers, fertilizer

inputs and production by indigenous units continues to be monitored through the online web


22

based "Fertilizer Monitoring System (FMS)" as being done under the outgoing Concession

Scheme for P&K fertilizers.

20% of the price decontrolled fertilizers produced/imported in India is now in the movement

control under the Essential Commodities Act 1955 (ECA). Department of Fertilizers will

regulate the movement of these fertilizers to bridge the supplies in under-served areas.

In addition to NBS, freight for the movement and distribution of the decontrolled fertilizers by

rail and road is being provided to enable wider availability of fertilizers in the country.

Import of all the subsidized P&K fertilizers, including 13 grades of complex fertilizers has

been placed under Open General License (OGL). Earlier, no concession was available for

imported complex fertilizers. Now, NBS is available for imported complex fertilizers also.

However, subsidy will not be applicable on imported Ammonium Sulphate (AS), as NBS is

applicable only to Ammonium Sulphate produced by FACT and GSFC, both Public Sector

entities. Import of Urea is canalized during the first phase of NBS Policy and Urea continues

under Government control. MRP of Urea has been increased by 10% w.e.f. 1.4.2010 and is

' 5310 PMT.

Though the market price of subsidized fertilizers, except Urea is determined based on

demand-supply balance, the fertilizer companies are required to print Maximum Retail Price

(MRP) along with applicable subsidy on the fertilizer bags clearly. Any sale above the

printed net MRP is punishable under the EC Act.

Manufacturers of customized fertilizers and mixture fertilizers are eligible to source

subsidized fertilizers from the manufacturers/ importers after their receipt in the districts as

inputs for manufacturing customized fertilizers and mixture fertilizers for agricultural

purpose. There is no separate subsidy on sale of customized fertilizers and mixture

fertilizers.

The NBS is being released through the industry during the first phase. The payment of NBS

to the manufacturers/ importers of DAP/MOP/Complex Fertilizers/ MAP/TSP, SSP and AS

is released as per the procedure notified by the Department.


23

BENEFITS OF NUTRIENT BASED SUBSIDY (NBS):

The NBS announced in March 2010 has had several positive implications for non-urea

fertilizer manufacturers. Some benefits include:

Companies can now compete on cost efficiency, brand equity, distribution network

etc by charging competitive prices.

Companies can introduce various innovative products as opposed to the specific

products as mentioned under the Product Based Subsidy Scheme earlier.

Companies with stronger bargaining power with raw material suppliers can broaden

their margins.

Non-urea companies can compete as in a free market.

Companies can develop brands, an exercise that could benefit the company in the

long-term.

The government can reduce its subsidy related administrative expense.

MARKET DEMAND

SSP companies are currently on a good run. After the NBS was put into effect in 2010, non-

urea fertilizers have seen good times. SSP is highly nutritious for the soil and the

government is trying to promote its use to prevent soil from getting exhausted due to

overuse of Urea. The India fertilizer market has been growing with the fertilizer quantity per

kilo of food grain steadily rising. While the NBS’ goal is to decontrol the fertilizer industry,

the government could still interfere when required. India is one of the largest fertilizer

consumers in the world and with stagnant domestic supply, imports have been increasing.

Several large players are in the process of adding SSP capacities as the current market

structure makes it an extremely profitable venture. Finished goods prices have increased

significantly due to decontrol and an increase in global raw material prices. Despite a fall in

DAP prices, there is a large price difference between DAP and SSP and a relatively small

price difference between SSP and Urea. In the possible scenario of decontrolled Urea

prices, SSP companies will benefit significantly. SSP sales depend on agriculture, which

makes it a seasonal industry.


24

In the state of Orissa, the entire market is currently supplied by manufacturers of SSP from

either Andhra Pradesh or West Bengal resulting in inconsistent supplies as these states

meet their home demands and supply only the residual production to Orissa. Being a cost-

effective fertilizer, SSP is critical for the small and marginal farmers who don’t have the

financial strength to purchase other high priced fertilizers. With a low cost fertilizer easily

available, added with suitable incentives to the stockists, consumption would be high.

Additionally, with a local production facility and transport subsidy available, the

transportation costs would be substantially reduced. Alternatively, SSP can be sold to large

companies wishing to increase their product mix by procuring SSP from small

manufacturers on a regular basis. SSP is also an exportable commodity with key markets

like Thailand and Bangladesh identified by the Government of India.


25

NEW PROJECT

CEE VEE AGRIENCE PVT. LTD. proposes to set up a 100 TPD capacity Single Super

Phosphate (SSP) manufacturing plant in Nua Sasan, Athgarh located in Orissa. The site is

approximately 20 kms away from the nearest urban centre of Cuttack and approximately 110

kms from the port town of Paradip. The main raw material for manufacturing SSP is Rock

Phosphate which can be easily available from domestic as well as international market. The

estimated Cost of Project of Rs. 484 lakhs, is proposed to be financed by way of Promoter’s

Contribution of Rs. 184 Lakhs and Term Loan of Rs.300 lakhs. The Plant & machinery

vendor has already been identified and the promoters have so far invested Rs. 20 lakhs into

the project.

DETAILED COST OF THE PROJECT

The cost of project as envisaged by the company after discussion with suppliers of

equipment and Technical professional is as under:


Rs. in Lacs

1. Land & Land Development Cost 13.00

2. Building & Civil Construction 85.00

3. Plant & Machineries 252.70

4. Miscellaneous Fixed Assets 20.00

5. Provision For Contingencies 17.90

6. Pre-Operative Expenses 33.40

9. Margin For Working Capital 62.00

TOTAL COST OF THE PROJECT 484.00

* Including Interest during construction period of Rs.13 Lacs.


26

The Item wise details of cost are provided below: -

LAND AND SITE DEVELOPMENT

The Plant is proposed to be set up at Industrial estate, Nuasasan in Athgarh near Cuttack,

in the state of Orissa. The land has already been acquired measuring 8092 sq. mts. Since

land belongs to promoters and no provision has been made for acquisition of the land.

However a provision of Rs. 13 lacs have been made for site development etc as per

following details:.

Sl. No.

Particulars

Rs. in Lacs

1 Land 8092 Sq. Mtrs -

2 Registration / Legal Expenses -

3 Boundary Wall 7.00

4 Gate 2 No.s 1.00

5 Internal roads 2.00

6 Land filling and leveling/Survey 3.00

Total 13.00

The location is very well connected with Roads, Rail and other means. The nearby airport is

around 35 km from Factory. The major raw materials shall be received by road/rail and the

products shall also be dispatched by road/rail.

BUILDING AND CIVIL WORKS

The estimated total cost for building and civil works for the proposed project have been

worked out at Rs. 85 lacs for all the sections. The civil work comprises mainly the ACC and

RCC construction, Structure and other building. The structure and other detailed drawing

are being prepared. The entire building will be first class construction and earthquake

resistant.

The brief details of the building and civil work are required for main sections is as under:


27

S. No. Particulars Type of

Construction

Area in

Sq. Mts.

Rate Total Cost

Area. Rs. In lacs

1 Green SSP & Rock Phosphate Shed ACC Roofing 750 4500 34.00

2 Acid Dilution Shed ACC Roofing 200 4500 9.00

3 Product Godown ACC Roofing 250 4500 11.00

4 MCC /Control Room ACC Roofing 50 4500 2.00

5 Shed for packing plant ACC Roofing 100 4500 5.00

6 Work shop Electrical etc ACC Roofing 50 4500 2.00

7 Office & Administrative Block RCC Roofing 150 5500 8.00

8 Security Room, Canteen and rest room

RCC Roofing 50 5500 3.00

9 Borewell/ Pump Set LS 11.00

TOTAL 85.00

PLANT AND MACHINERY

<

SELECTION OF PLANT AND MACHINERY

The company has finalized the main plant and machinery after discusssion the detailed

technical specifications and pricing from the following:

i. Shiva Enterprises Muzaffar Nagar

ii. Vimal Organics Limited, Ghaziabad

iii. Gayatri Ferti Plants International Private Limited, New Delhi (GFP)

iv. Patel Enterprises, Udaipur, Udaipur

v. R. K. Technologies, Akola

vi. Apex Engitech Private Limited, Udaipur

vii. Jobson Enterprises, Faridabad

viii. Megatech International Private Limited, Alwar

After considering the all aspects the company has decided to purchase the complete plant

from Gayatri Ferti Plants International Private Limited, New Delhi on Turnkey basis till


28

the erection and commissioning. GFP’s team of technical personnel will assemble, erect, &

take trials of the equipments and commission the plant. The erection and commissioning of

the plant at site takes about 3 months under normal conditions. GFP will send the erection

team at site as 70% of the material exported to save time in erection and commissioning.

The inspection of equipments may be done before dispatch or any time during fabrication at

our site by the client or their representative at their own cost. We shall be sending the

photographs of the equipments on weekly basis to the clients on mail.

The total cost of plant and machinery in all respect of each section as estimated by the

company after consultation with Technical Professional and based on the

quotations/enquiries received has been worked out to Rs. 252.70 lacs. The major plant and

machinery are indigenous and mostly will be fabricated at site only. The details of plant and

machinery are as under:

Sl. No. PARTICULARS QUANTITY TOTAL

Rs. in Lacs

1 CLOSED CIRUIT BALL MIL 1 No. 70.00

2 RAW FEED ELEVATOR: 1 NO. 5.63

3 FEED HOPPER 1 NO. 2.51

4 FEED BELT TO RECYCLE BELT 4.86

5 RECYCLE BELT 4.86

6 ROTARY GRANULATOR 1 NO. 8.36

7 GRANULATOR TO DRYER BELT 1 NO. 4.33

8 ROTARY DRYER 1 NO. 10.00

9 GROUND FURNACE 11.50

10 ATOMISING BLOWER 1 NO. 1.50

11 HEATING & PUMPING UNIT 1.38

12 SECONDRY FAN 1 NO. 1.81

13 TEMPERATURE INDICATOR 1 NO. 0.36

14 SERVICE DAY TANK 1.25

15 DRYER & COOLER CYCLONE FANS 2 NO. 3.00

16 DRYER AND COOLER CYCLONES WITH DUCTINGS

2 NO. 3.00

17 CHIMNEY: 1 NO. 5.00


29

18 WET SCRUBBER 1 NO. 1.25

19 DRYER TO COOLER BELT 1 NO. 4.69

20 COOLER DRUM 1 NO. 10.00

21 SCREEN FEED ELEVATOR: 1 NO. 5.77

22 VIBRATING SCREEN 2 Nos. 2 NO. 3.62

23 RECYCLE BELT 1 NO. 5.00

24 CHAIN MILLS 2 Nos. 2 NO. 2.81

25 PRODUCT HOPPER 1 NO. 2.26

26 WEIGHING MACHINE 4 NO. 3.00

27 STITCHING MACHINE 2 NO. 1.50

28 SLAT CONVEYER 1 NO. 3.00

29 HAND STITCHING MACHINE 2 No 1.00

30 BAGS SHIFTING TROLLEYS 6 NO 1.25

31 FURNACE OIL / L.D.O. TANK 6.00

32 ELECTRICAL PANEL BOARD : 1 No. 1 NO. 5.50

33 REMOTE CONTROL PUSH BUTTONS UNIT

1 LOT 1.21

34 CAPACITORS BANK : 1 Lot 1.75

35 SULPHURIC Acid ( 98%) tank 1 11.50

36 SPENT SULPHURIC Acid tank 1 7.00

37 Acid pumps 4 4.00

38 Scrubber pump / recycle pump 4 3.50

39 PIPE LINE HDPE 1 SET 3.50

40 Agitator 2 2.25

41 Conventional Scrubber 1 2.00

42 Venturi Scrubber 2 6.00

43 Cyclonic separator 1 3.75

44 Electric Panel for Ball Mill 1 2.00

45 Electrical Cables 5.00

46 Other Sundry Items 3.29

TOTAL 252.70


30

MISC. FIXED ASSETS

The cost of misc. fixed assets has been considered Rs. 20 lacs. Miscellaneous fixed assets

include costs towards Office Equipment, Furniture, Fire fighting facilities, and Workshop

equipments etc. The estimates also include costs towards spares, taxes, duties, transit

insurance and transportation to factory site. The details of the cost is as under

Sl. No. Items Rs. in lacs

1 Office Equipments 2.00

2 Office Furniture and Fixtures 1.00

3 Workshop equipments 3.00

4 Fire Protection Equipments 2.00

5 Misc Equipments 12.00

Total 20.00

CONTINGENCIES

Contingencies at the rate of 5 % of the machinery and building and civil works have been

provided to cover unforeseen aspects of the estimate which works out to Rs. 17.90 lacs

crores as per details given in the later part of the report.

No. Particulars Amount Rate(%) Contingencies

Rs. In lacs

1 Building and Site Development 85.00 5.00 4.25

2 Plant & Machinery 252.70 5.00 12.65

3. MFA 20.00 5.00 1.00

Total 357.70 17.90


31

PRE-OPERATIVE EXPENSES

The preoperative expenses have been arrived to Rs. 33.40 lacs which includes Interest

during construction period (Rs. 13.00 lacs), establishment, rent, rates and taxes, traveling

expenses, insurance during construction, start-up expenses, security deposit for power

connection and other miscellaneous expenses likely to be incurred during implementation of

the expansion project.

Sl. No. PARTICULARS Rs. In lacs

1 Salaries & Wages 3.00

2 Establishment costs 1.00

3 Travelling 1.00

7 Miscellaneous Admn. Expenses 2.00

8 Factory start-up expenses 3.00

9 Interest During Const. Period 13.00

10 Security Deposit etc. 5.00

11 Technical ,Legal and Professional Charges 3.40

12 Power Line Cost and other cost 2.00

Total

33.40

INTEREST DURING CONSTRUCTION PERIOD

The project has been assumed to be with term loan bearing a weighted average interest

rate of 13% for 4 months as against the actual implementation period of 6 months. Interest

during construction has been calculated considering a construction schedule. A provision of

Rs.13 lacs has been made in the project.

MARGIN MONEY FOR WORKING CAPITAL

Necessary provision has been made in the estimate for margin money for working capital

based on the estimates of the holding period of various stock items and manufacturing and

other expenses as per details given as under:


32

Sl. No. Particulars Period Working Margins Promtrs. Bank

(in

Months) Capital Rate Margins Borrowings

1 Raw Material 0.75 99.79 25% 24.00 76.00

2 Consumables 1.00 2.85 25% 1.00 2.00

3 Work in Process 0.05 7.31 25% 1.00 6.00

4 Finished Goods 0.50 72.80 25% 18.00 55.00

5 Debtors (Domestic) 1 113.67 25% 28.00 86.00

6 Less Creditors 0.25 33.98 25% 10.00 24.00

Total 262.00 62.00 200.00

MEANS OF FINANCE


1. Equity Share Capital /Unsecured loans 184.00

2. Term Loan 300.00

TOTAL 484.00

DEBT : Equity : 1.63 : 1

Equity Share Capital of Rs. 184 lacs

A part of the project cost is proposed to be raised by Equity Share Capital of Rs. 184 lacs

The said contribution would be raised by Promoters, Relatives, Friends and Associates. The

promoters are having enough resources to raise this amount.


33

Rupee Term loan from Banks of Rs. 300 lacs

A part of the project requirement is proposed to be met by way of Rupee Term Loan of

Rs.300 lacs on following broad terms:

Interest rate - 13 %

Repayment Schedule

The loan is proposed to be repaid in 28 equal quarterly instalments of Rs. 12.50 lacs

starting from 4th Quarter of financial year 2014-15 after a period of 9 months from the date

of commencement of Commercial Production i.e April 2014.

Security

The term loan would be secured by way of a first pari passu charge over the Fixed Assets

of the Company both present and future and personal guarantees of the following persons:

Sl.

No.

Name Net Worth*

Rs. In Crores

As on

1. Mr. C. V Ramu 3.93 31.03.2013

2. Mrs. C Suryakantam 4.16 31.03.2013

3. Mr. C.V Raghu 12.51 31.03.2013

*In the form of Tangible Security

Collateral Security

Collateral security in the form of land with Market Value of Rs 2.05 Crores


34

MANUFACTURING PROCESS

PRODUCTION CHEMISTRY Superphosphate is manufactured from the reaction between Phosphate rock and Sulphuric

acid. Phosphate rock is rich in the mineral fluarapatite, which reacts with the Sulphuric acid

to give superphosphate. The chemical reaction is as follows:

2Ca5 (PO4)3F + 7H2SO4 + 3H20 7CaSO4 + 3Ca(H2PO4)2H2O + 2HF

The production of single phosphate (SSP) is basically the conversion of insoluble P2O5 to

soluble P2O5 by chemical reaction between phosphate ore and dilute Sulphuric acid in

definite proportion. Rock Phosphate contains Tri Calcium Phosphate, which is insoluble in

water and hence cannot be taken by plants, however, the product of reaction is Mono

Calcium Phosphate, which is soluble in water and can be taken by plants. The reactants,

originally thin slurry, set to a solid mass during the reaction. The entire process could take

up to 21 days. Granulated Single Super Phosphate (GSSP) is manufactured by feeding

SSP powder to a rotating Granulator drum in which the powder SSP is mixed with water

resulting in the formation of granules. The granules are then discharged to a rotary dryer

drum and consequently cooled in a cooler drum. After cooling of the granules, granules are

passed through vibrating screens of desired mesh and then packed in 50 kg HDPE bags for

sale as GSSP. The use of granulated product is more beneficial than the use of powder.

The powder dissolves immediately in irrigation water and becomes readily available. Plants

use some part of it while the remaining goes to the sub soil with water and remains useless.

The powder can be used only during sowing of seeds. It cannot be used on growing crops

as it gets deposited on the leaves of the plants and being slightly acidic, burns them. The

granulated product rolls down the plant and can be used harmlessly on standing crops. The

biggest advantage in using the granulated product is that it is available to the crops for a

longer time because it dissolves slowly.


35

MANUFACTURING PROCESS

Superphosphate is the fertilizer most commonly used in agriculture, to ensure that soil has a

sufficiently high phosphorous content. It is manufactured from the reaction between sulfuric

acid and ’phosphate rock’ (rock rich in the mineral fluorapatite, Ca5(PO4)3F) :

2Ca5(PO4)3F + 7H2SO4 + 3H2O → 7CaSO4 + 3Ca(H2PO4)2.H2O + 2HF

The basic reaction in the manufacture of superphosphate is the reaction of insoluble

phosphate rock with sulfuric acid to form the soluble calcium di-hydrogen phosphate,

Ca(H2PO4)2. This is described by the following equation:

PO4 3- + H2SO4 → H2PO4- + SO42-

The phosphate rock, imported from Egypt, Jordan, Morocco, Algeria and the USA, is mainly

fluorapatite, Ca5(PO4)3F and is equivalent to 70 - 85% Ca3(PO4)2 by weight. The actual

composition of the phosphate rock varies with the source. The sulfuric acid is produced on

the site as described in the previous section. The reactions occurring during the production

of superphosphate are complex and are usually summarised as follows:

1. Ca5(PO4)3F + 5H2SO4 → 5CaSO4 + 3H3PO4 + HF

2. Ca5(PO4)3F + 7H3PO4 + 5H2O → 5Ca(H2PO4)2.H2O + HF

These reactions can be combined to give the overall equation:

2Ca5(PO4)3F + 7H2SO4 + 3H2O → 7CaSO4 + 3Ca(H2PO4)2 .H2O + 2HF

The production of Single Super Phosphate (SSP) is the conversion of insoluble P2O5 to

soluble P2O5 by chemical reaction between phosphate ore and dilutes sulphuric Acid in

definite proportion. Rock Phosphate contains Tri Calcium Phosphate which is insoluble in

water and hence cannot be taken by plants, however, the product of reaction is mono

calcium phosphate, which is soluble in water and can be taken by plants . The reactants,

originally thin slurry, set to solid mass during the reaction.

There are other reactions occurring at the same time. For example, virtually all the HF

reacts with other silica minerals associated with the fluorapatite (silicates, quartz) to form

silicon tetra fluoride. These gaseous emissions are recovered as hydrofluosilicic acid


36

(H2SiF6) in the scrubbing system. Carbonates in the rock also react with sulfuric acid. The

production of superphosphate consists of three distinct steps. See the process flow diagram

Step 1 - Phosphate rock blending and grinding

Phosphate rock from different sources have different phosphate, fluoride and silica

contents. These rocks are mixed in the blending plant to produce a product with a total

phosphate concentration of 15%. The phosphate rock mixture is passed through a hammer

mill which reduces the particle size to 0.5cm or less. The coarsely ground rock is then

passed through an air swept roller mill (Bradley Mill) to attain a rock grist of approximately

75% less than 75 microns. The powdered rock is stored in a large hopper. The powder

handling system is fitted with a dust collection system.

Step 2 - Superphosphate manufacture

The ground rock and sulfuric acid are reacted in a horizontal mixer. The feed rates are

approximately:

• Phosphate rock - 25 tonnes/hour

• 98% Sulfuric acid - 14.5 tonnes/hour

• Water - 6 tonnes/hour

A continuous flow of the sloppy mix drops out of the mixer into the Broadfield Den. The den

consists of a slowly moving floor (approx. 300 mm/min) to enable setting of the .cake. and

reciprocating sides, which prevent the superphosphate adhering to the walls. The partially

matured superphosphate cake is cut out of the den with a rotating cutter wheel after a

retention time of approximately 30 minutes. Additives such as limestone, potassium chloride

(potash) and ammonium sulphate may be added to the superphosphate before it is worked

further in the conditioner.The conditioner consists of a set of rotating paddles which break-

up and knead the product. Water is usually added to improve the product consistency for

granulation.

Step 3 - Granulation


37

The granulation process is important in producing superphosphate of the required physical

properties. The granulation circuit consists of a pulveriser, granulation drum and classifier.

The pulveriser breaks up any lumps in the product before it is fed to the granulation drum.

The granulation drum rolls and agglomerates the superphosphate to form granules. The

incline of the drum and the feed rate determine the retention time and bed depth. The

granules are passed out of the end of the drum and through a classifier (wire screen).

Oversize granules (>6 mm) are recycled through the drum via the pulveriser while the

finished product is conveyed to the product stores. The superphosphate continues to cure in

the store for about two weeks and the product is .dressed. (oversize is passed through a

hammer mill after screening) before dispatch. Trace elements and other nitrogen or

potassium-containing compounds can be dryblended with superphosphate to give complete

fertilisers to meet different requirements.


38

RAW MATERIAL AND UTILITIES

RAW MATERIALS

Inputs for the fertilizers industry vary according to the fertilizer type. Phosphate rock is

considered the main raw material for the production of phosphate type fertilizers Large

quantities of acid are also used, namely Sulphuric acid. The plant shall require Phosphate

rock, Sulphuric acid and Gypsum as raw material feed. The annual requirement of various

raw materials at 100% capacity utilization is given below:

Sl. No. Items Annual

(TPA)

Daily

(TPD)

1. Phosphate rock 17700 59

2. Sulphuric acid 11700 39

3. Sand/Gypsum(as filler if required) 1800 6

The company is proposing to procure Imported Rock phosphate( basic raw material) and

would like to import from Egypt. The company is choosing imported Rock phosphate due to

logistic reasons and also cheaper in price. The nearest port is Vizag and the consignment

will import there and from there the same will reach to site by train. The company is not

envisaging any problem in the availability of the Rock Phosphate.

Sulphuric Acid is available in abundance. The company is proposing to purchase the same

from nearby Aarti Steel P Ltd., Visakha Enterprises, Sterlite Indstries Ltd. and Tanfac

industries Ltd. Pondicherry


39

PLANT FACILITIES

Raw materials, storage and handling – The raw material storage capacity in the yard shall

be as shown below:

Sl. No. Material No. Of days Storage

1. Phosphate rock 15

2. Sulphuric acid 15

3. Gypsum/Effluent Filler 30

UTILITIES

ELECTRICALS

POWER SUPPLY DISTRIBUTION

The power requirement after implementation of the ongoing and further expansion scheme

would be 100 KVA at 100% capacity utilisation. The company proposes to fulfill the

requirement from the state grid. The power supply position in Orrisa is regular and there is

hardly any tripping.

DESIGN CONSIDERATION

Power will be distributed through a simple radial system with supply feeders to each load

centers. Redundancies in in-coming feeders have also been envisaged wherever

necessary. Design of power distribution system and selection of equipment will be based

on the main considerations of simplicity, safety, reliability and ease of operation and

maintenance, as well as convenience of future expansion. The electrical equipment will

conform to the relevant IEC/BIS specifications and code of practice to meet the exact

operational duties as well to guarantee reliable and trouble free service in the prevailing

tropical and humid climate.

MAJOR FACILITIES

HT SWITCHGEAR

The 11 kV switch gears will be indoor, sheet metal clad, draw out type with vacuum or SF6

breakers. The HT circuit breakers will be electrically and mechanically trip free. The circuit


40

breakers will be electrically operated stored energy type and operated from 220V DC

control source. All necessary protection, metering and signaling arrangements will be

provided.

LT SWITCHGEAR

The 415V circuit breaker will be of indoor construction, sheet metal clad, air break draw-out

type. The breakers will have a short-circuit rating of 40 kA (symmetrical). The circuit

breaker will be arranged for power closing and shunt tripping. The switch boards will be of

unit type construction with facilities for addition of switchgear on both sides.

TRANSFORMER

The transformers 500 KVA will be designed for temperature rise not exceeding 450 C in

winding when measured by resistance method and 350 C in oil when measured by

thermometer method, after continuous full load run. All transformers will be equipped with

the standard relevant fittings and accessories and would confirm to relevant IS

specifications.

CABLING

Power inside the plant will be transmitted and distributed through underground cables.

Wherever necessary and where the cables are in small number, they will be directly buried

underground. These underground cables will have steel armoring. In covered building and

in sub-stations wherever possible, cables will be run in covered concrete ducts or column

mounted cable structures. Cable sizes will be selected after taking into account all the

derating factors for the ambient conditions.

ILLUMINATION

The illumination levels envisaged for different areas, indoor and outdoor, will be as per the

existing practices and confirm to the norms for industrial production units to ensure

comfortable and safe working conditions.

WATER SUPPLY FACILITIES

Most of the water is used for indirect cooling purpose and the rest for process use,

conveyance of sludges, fire and drinking needs, etc. In order to conserve the requirement

of raw water drawn from the source as well as to minimise effluent treatment facilities,


41

recirculation systems are considered. Cascading will be adopted to further reduce the

water requirement and the effluent discharge from the plant will be reduced to minimum.

REQUIREMENT OF WATER

The make-up water requirement of the plant is estimated as 1 m3/h including drinking water

needs for plant and few residences. The source of water for the proposed plant will be from

Bore wells and a provision for the same has been made in the project.

MANPOWER:

The category-wise break-up of additional manpower that shall be required extra is given

below:

Sl. No. Category No. of Employees

1. General Manager 1

2. Operators 5

3. Helpers 6

4. Unskilled 10

5. Accountant 1

6. Storekeeper 2

7. Electrician 2

Total 27


42

TECHNICAL ASPECTS (LAYOUT AND FACILITIES)

SELECTION OF PLANT AND MACHINERY

The company has finalized the main plant and machinery after considering the detailed

technical specifications and pricing from the following:

i. Shiva Enterprises Muzaffar Nagar

ii. Vimal Organics Limited, Ghaziabad

iii. Gayatri Ferti Plants International Private Limited, New Delhi

iv. Patel Enterprises, Udaipur, Udaipur

v. R. K. Technologies, Akola

vi. Apex Engitech Private Limited, Udaipur

vii. Jobson Enterprises, Faridabad

viii. Megatech International Private Limited, Alwar

After considering the all aspects the company has decided to purchase the complete plant

from Gayatri Ferti Plants International Private Limited, New Delhi (GFPL)on Turnkey

basis till the erection and commissioning.


43

ABOUT THE SUPPLIER

GFPL is having manufacturing facility of SSP plants at RIICO Industrial.Area, Khushkhera,

Distt. Alwar, Rajasthan is located at national highway No. 8 Delhi Jaipur highway, 55 km

from Indra Gandhi International Airport, New Delhi. The company manufactures and export

plant & machinery for making fertilizers like SSP, TSP, GSSP, NPK, Zinc Sulphate Gypsum

Granulation and Alum etc. on turnkey basis. The company also does erection &

commissioning, run the plant for one month under their supervision, Train the manpower in

running and maintenance of the plant and hand over to the party. We work further to keep

the company up front suggesting innovation, & modification. They also supply the spares

timely and help the party in developing spares in-house / locally.

Mr. K. R. Sharma, M. Tech IIT Delhi, Managing Director of Gayatri is having 30 years

experience in

1. Top management: Administration, Production, Maintenance, Quality Control,

Pollution Control, Liaison with Govt. Agencies, Purchase, Inventory Control and

logistics.

2. Consultant : Supplied complete consultancy for fabrication, erection, Commissioning

and commercial running of SSP, GSSP, NPK, ZnSO4 Hepta Hydrate and mono

Hydrate, Ferric and Non ferric Alum, Renovation and Refitting of Sulphuric Acid

Plants

3. Industrialist (exporter) Design, Fabricate, Export, Assemble, Erection, Commission,

commercially run, Train the manpower in operation and maintenance of the plant

and supply spare parts.

GFPL have done so many projects and has experience in doing the projects successfully in

the countries / regions beside India having no or less infrastructure. The following are the

project done by GFPL:


44

Sl.

No

CLIENTS DETAILS

1 Khushhaal Fertilizers Pvt. Ltd, Roorkee 250 TPD SSP Plant

2 Neera Chemical Pvt. Ltd. Ghaziabad. (UP) 150 TPD SSP & NPK Plant

3 Ravi Pesticides Ltd, Bijnor (UP) 150 TPD SSP 160 TPD NPK

4 Ravi Pesticides Ltd, 20 TPD Zinc Sulphate Plant

5 Arkan Chemi Jonoub Co., Bushehr, Iran 200 TPD SSP / TSP Plant

6 Agro Bala. Fert. Ind.. Pvt. Ltd Bangladesh 160 TPD NPK Granulation Plant

7 Kigali Cement Company, Kigali.Rwanda 50 TPD Clinker Grinding Unit

8 Kigali Cement Company, Kigali.Rwanda 100 TPD Clinker Grinding Unit

9 Dubai Cement Factory, Khartoum (Sudan) 100 TPD Clinker Grinding Unit

10. El Sharq Cement Company, Sudan 400 TPD Clinker Grinding Unit

11. Adil International Lda , Mozambique 200 TPD Clinker Grinding Unit

12. Silk Way Construction , Azerbaijan 20 TPD White Cement Plant

13. Silk Way Construction , Azerbaijan 100 TPD Clinker Grinding Unit

14. Govt. of Madagascar, Madagascar 200 TPD NPK Granulation Plant

15. Passion Agro, Beawer (Raj) 100 TPD Gyp. Granulation Plant

16. Agrigreen Fertilizers P. Ltd , Cuddapah (AP) Reactor for 300 TPD TSP Plant

17. Indra Organic Ltd., Indore (MP) Equp. For 300 TPD SSP Plant

18. Modern City Electronics , Dubai 500 TPD SSP PLANT

19. Kemyan Yanbu Limited , Saudi Arabia 300 TPD GSSP Plant


45

GENERAL LAYOUT

The general layout of the proposed project would be finalized after considering the

following main factors.

i) Smooth and sequential flow of materials

ii) Maximum utilisation of area with space provision for future expansion.

iii) Shortest possible lead for communication network

iv) Predominant wind direction

v) Profile of the land

vi) Adequate green belt along the plant boundary

There are various steps for the manufacture of SSP. The layout will ensure smooth

movement of various materials to and from the plant as well as smooth movement within

the plant. The layout will also ensure smooth operation of the facilities and improved

working conditions.

GENERA PLANT STORAGE

One central store with adequate storage racks and handling facilities for storage of spares,

equipments, electrics, etc. has been envisaged. Consumables and oil & lubrication will be

stored in the lean to portion of the store-building.

INSPECTION AND QUALITY CONTROL FACILITIES

The proposed SSP unit will produce high quality products as per specifications/grades of

the end users and according to the stipulations of various standards. In order to achieve this

objective, efficient and stringent quality assurance measures are to be enforced at every

stage of production. Quality assurance can be implemented effectively.

The laboratory therefore, will have the following responsibilities:

- Testing of incoming raw materials, etc

- Testing of finished products

- Feedback assistance to the main production units for timely


46

Corrective measures to eliminate process irregularities

- Undertaking short term investigations for in-plant failures

- Investigation of customers’ complaints.

REPAIR AND MAINTENANCE FACILITIES

To ensure uninterrupted operation of various production and service equipment, the plant

will be provided with repair and maintenance facilities which will help to maintain the various

technological equipment in healthy working condition. There in plant repair and

maintenance facility will help in providing appropriate and timely action for repair of

important equipment with appropriate checks at different stages. Facilities for capital

repairs and major overhauls are not envisaged as provision for such specialised

arrangement inside the shop will not be economically viable.

VENTILATION FACILITIES

Buildings and production will generally be provided natural ventilation. Mechanical

ventilators will be provided for premises where adequate ventilation cannot be provided by

natural means. Depending upon the specific requirement, the shops/buildings will be

provided with either exhaust ventilation or plenum ventilation. The system design will take

into account the requirements of air change as well as excess heat removal. Hot work areas

will be provided with portable man-coolers for localised cooling. Man-coolers will be

provided also in a few other areas where the premises are manned and have high heat

radiation.


47

GOVERNMENT APPROVALS

The status of the necessary Government Approvals/ Registration are as under

Particulars Competent Authority Status

Environment Clearance Central Government Obtained

Registration of the land State Government Registered

Change of Land use N.A. In Industrial area

Permission for construction District Town Planning To be obtained

Consent to Establish Orrisa Pollution Control

Board

Obtained

Electricity Connection CESU To be obtained


48

Barring unforeseen circumstances, the company proposes to implement the project as

per following schedule.

Activity Commencement Completion

Land Acquisition Already Commenced Existing land

Site Development Already Commenced October 2013

Building September 2013 February 2014

Plant & Machinery

- Orders September 2013 December 2013

- Deliveries December 2013 February 2014

Erection February 2014 March 2014

Trial Runs March 2014 March .2014

Commercial Production 1st April 2014 --

SCHEDULE OF IMPLEMENTATION


49

SWOT ANALYSIS

STRENGTH

The Promoter has immense exposure & experience with large Multinationals and

Indian companies like TATA Group, Reliance, Ranbaxy and Maruti Udyog Limited,

Single Super Phosphate is a very simple, convenient and cheapest fertilizer that

supports various types of agricultural produce. SSP is extensively used in agri-

economies as it is cheap, affordable and provides the basic ingredient to soil. Lowest

price per kg (in non-urea space) preferred by small and marginal farmers.

As per the State Government’s estimate, Orissa faces an annual shortfall of over 2

lakh Tons of SSP as there are no SSP manufacturers in the state.

The complete plant and machinery will be supplied by Gayatri Ferti plants an

experienced technical people and has done 18 projects in 14 countries worldwide

WEAKNESS

The operations of the company will be sensitive to the variation in the raw material

price i.e. Rock phosphate and Sulphuric Acid, affect the profitability of the company.

OPPORTUNITIES

There is huge potential of SSP as one of the important input input in Agriculture

Vast & growing market of Fertilizers and the demand of SSP are increasing rapidly.

There is an acute shortage of SSP in Orissa state therefore enough scope for

expansion.

THREATS

SSP is covered under the NBS (Nutrient Based Subsidy) scheme and therefore

depends upon the Government policies. Any change in the policy may affect the

profitability of the company.

The major raw material requires for SSP is Rock phosphate and the same is

available from the mines located at Rajasthan. Any change in the policy may affect

the operations of the company. However this can be mitigated by an option to import

the same.


50



Rs. In lacs

Year

2014 2015 2016 2017 2018 2019 2020

Equity Share 184.00 184.00 184.00 184.00 184.00 184.00 184.00

Reserves &Surplus 63.58 158.80 280.71 413.05 556.66 697.18

Tangible Net Worth 184.00 247.58 342.80 464.71 597.05 740.66 881.18

Term liabilities 300.00 287.50 237.50 187.50 137.50 87.50 37.50

Working Cap. Loans - 200.00 210.00 240.00 250.00 270.00 270.00

Net Block 422.00 402.00 381.00 358.00 334.00 308.00 281.00

Net Current Assets 62.00 387.70 487.70 635.09 761.95 913.00 1031.50

Current Liabilities 54.57 78.40 100.87 111.39 122.85 123.82

Net Sales 1364.00 1591.00 1818.00 1932.00 2045.00 2045.00

Profit before tax 84.17 135.92 179.71 197.96 217.99 215.88

Profit after tax 55.84 90.17 119.22 131.33 144.62 143.21

Depreciation 35.00 36.00 38.00 39.00 41.00 42.00

Cash Accruals 90.84 126.17 157.22 170.33 185.62 185.21

Debt Equity Ratio 1.58 1.16 0.69 0.40 0.23 0.12 0.04

TOL/TNW 2.19 1.53 1.14 0.84 0.65 0.49

FACR 1.41 1.40 1.60 1.91 2.43 3.52 7.49

Average DSCR 2.95

Pay Back period 1.83 Years

IRR 29.58%

BEP at 90% capacity 29%


51

SENSTIVITY ANALYSIS

The profitability of the company is sensitive to following:

a) Selling Price

b) Raw Material prices

c) Interest Rate

The sensitivity has been carried out on the above parameters and movement of key

financial indicators are given below:

Sensitivity Analysis

Indicators Base Case Decrease in

Sales Price by

5%

Increase in Raw

Material cost by

5%

ROI Increased

by 1%

DSCR 2.95 2.03 1.82 2.89

IRR 36.93% 24.35% 21.08% 36.86%

BEP –at 90%

capacity

29% 40% 51% 29%

Pay Back Period

(Years)

1.83 2.49 2.72 1.83

As may be observed from the above the financial parameters would withstand the sensitivity

tests and the project Cash flows are at satisfactory levels to service the debt under adverse

scenarios also.


52

ASSUMPTIONS

The future statement of production, sales and annual profitability for the expansion project

have been worked out on the basis of following assumptions.

1. The unit will have an annual installed capacity at is as under :

Particulars 2019

No of working days p.a 300

Capacity of Plant( TPD) 100

No. of months of operation 12

Installed capacity(TPA) 30000

2. The above installed capacity is proposed to be utilised as under:

CAPACITY UTILISATION

Particulars 2015 2016 2017 2018 2019

Capacity Utilisation 60% 70% 80% 85% 90%

Output of SSP(TPA) 18000 21000 24000 25500 27000

3. SELLING PRICE

Selling Price per MT of SSP has been assumed to be Rs. 7004 which is in

congruence with the relevant govt. norms. And the applicable excise duty is

8.16%.

4. SSP is covered under the NBS (Nutrient Based Subsidy) scheme of Ministry of

Fertilizer, Govt of India. The current rate of subsidy is Rs.3173/- per ton. Fast

track clearance of NBS amount to SSP manufacturers listed under the Ministry of

Fertilizers, will be credited directly to manufacturer account on monthly basis

from April, 2013. The same has been duly incorporated for the purposes of

financial projections.


53

5. The calculation of cost the raw materials have been worked out as per following:

Particulars Rock

Phosphate

Sulphuric

Acid

Fillers

Price per MT (Rs.) 9933 6365 500.00

Requirement per MT of Output (T) 0.59 0.39 0.06

Reqmt. at 100% Cap.Utilization

(TPA)

17700 11700 1800

The details of imported Rock Phosphate is as under

Per ton pricing Price

USD Rate

30% Rock CFR Vizag 130 67 8710

Custom duty 2.57% 223.85

TOTAL 8933.85

per ton

Port Handeling Charges VIZAG 50 50

By Rail VIZAG Port to Station 280 280

By Rail VIZAG to Nergudi Junction 580 580

Nergudi Jn to site 50 50

Other Charges 40 40

Total Cost 9933.327

Say 9933.00

6. CONSUMABLES

The only consumable required for the project is HDPE sacks, the cost for which

Rs. 190 for per MT output of SSP.

7. The other expenses have been taken as per following details :


54

Particulars Assumption

Other factory overheads Rs. 3.00 lacs/ month for facility.

Repairs & Maintenance 2.50% on fixed assets with 3% annual increase

8. The depreciation on the fixed assets has been calculated on the straight line

method basis for the profitability and on the written down value basis for taxation

purposes on the rates specified in the company’s act 1956.

9. The interest on the proposed term loan has been worked out @ 13 %. The

interest on the bank borrowings have been provided @ 13 % p.a.

10. The Selling expenses and Administrative expenses has been provided

at @ 3.75% of the Gross Turnover.

11. MAN POWER

Category Total Monthly Salary Total in Lacs

General Managers 1 25000 3.00

Operators 6 8000 5.76

Helpers 8 5000 4.80

Unskilled Labour 12 3500 5.04

Accountant 1 4000 0.48

Storekeeper 2 4000 0.96

Electrician 2 4000 0.96

Total no. of Staff 32 18.00

Other Benefits (12%) 2.16

Annual Manpower Cost 20.16

Annual increase in manpower cost 5%


55

12. POWER

The estimated power requirement for the unit is 31 KWH and cost is Rs. 4 per

unit. The Cost of Power has been calculated as under:

ANNUAL REQUIREMENT 2015 2016 2017 2018 2019

Total power requirement 5.55 6.48 7.41 7.87 8.33

Total 22.00 26.00 30.00 31.00 33.00

13. The Project will commence the commercial operation from 1.04.2014.


56

PROJECTED PROFITABILITY

PARTICULARS 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. In lacs

CAPACITY UTILISATION 60% 70% 80% 85% 90% 90% 90% 90% 90%

Gross Sales

Domestic Sales 1364 1591 1818 1932 2045 2045 2045 2045 2045

Less: Net Excise Duty 65 75 86 92 96 96 96 96 96

Net Sales 1299 1516 1732 1840 1949 1949 1949 1949 1949

Cost of Sales

Raw Materials 1597 1769 2022 2148 2275 2275 2275 2275 2275

Consumables & Spares 34 40 46 48 51 51 51 51 51

Power & Fuel 22 26 30 31 33 33 33 33 33

Factory Wages & Salary 20 21 22 23 25 26 27 28 30

Other Manufacturing Exp.

i. Factory Overheads 36 36 36 36 36 36 36 36 36

ii. Repairs & Maint. 11 11 11 12 12 12 13 13 13

Total OME 47 47 47 48 48 48 49 49 49

Depreciation 35 36 38 39 41 42 44 45 45

Sub Total 1755 1939 2205 2338 2473 2475 2479 2482 2483

Add: Op. stocks-in process 7 8 9 10 10 10 10 10

Less :Cl. stocks-in-process 7 8 9 10 10 10 10 10 10

Cost of Production 1747 1939 2204 2337 2472 2475 2479 2482 2483

Add : Op. Stock of FG 73 81 92 97 103 103 103 103

Less :Cl. Stock of FG 73 81 92 97 103 103 103 103 103

Total 1674 1931 2193 2332 2466 2475 2479 2481 2483


57

PROJECTED PROFITABILITY (Contd.)

PARTICULARS 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. In lacs

Less Govt. Subsidy 571 666 762 809 857 857 857 857 857

Total Cost of Sales 1103 1264 1431 1523 1610 1618 1622 1625 1627

Gross Profit 196 252 301 318 339 330 327 324 322

Selling, & Adm. Exp. 51 60 68 72 77 77 77 77 77

Op. Profit before Interest 145 192 233 246 262 253 250 247 245

Interest

i Int. on Term Loan 35 28 22 15 9 2

ii. Int. on Bank Borrowing 26 27 31 33 35 35 35 35 35

Total Interest 61 56 53 48 44 38 35 35 35

Operating Profit after Interest 84 136 180 198 218 216 215 212 210

Profit Before Tax/Loss 84 136 180 198 218 216 215 212 210

Provision for Taxes 21 41 58 66 74 75 76 77 77

Deferred Tax Liability 8 5 3 1 -1 -3 -4 -5 -6

Profit After Tax/Loss 56 90 119 131 145 143 142 141 139

Retained Earnings 56 90 119 131 145 143 142 141 139

Cash Accrual 91 126 157 170 186 185 186 186 184


58

PROJECTED BALANCE SHEET

PARTICULARS 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. In lacs

LIABILITIES

Share Capital 184 184 184 184 184 184 184 184 184 184

Profit & Loss A/c 56 146 265 397 541 684 827 967 1107

Deferred Tax Liability 8 13 15 16 15 13 9 3 (3)

Net Worth 184 248 343 465 597 741 881 1020 1155 1288

Term Loan 300 238 188 138 88 38 - - - -

Unsecured Loan - - - - - - - - -

Other Term Liabilities - - - - - - - - -

Term Liabilities 300 238 188 138 88 38 - - - -

Bank Borrowing 200 210 240 250 270 270 270 270 270

Sundry Creditors (Trade) 34 38 43 46 48 48 48 48 48

Provisions 21 41 58 66 74 75 76 77 77

Other Current Liabilities - - - - - - - - -

T L Inst.(Due within 1 Yr) 50 50 50 50 50 38 - - -

Current Liabilities - 305 338 391 411 443 431 395 395 395

Total Liabilities 484 790 869 993 1096 1221 1313 1414 1550 1683


59

PROJECTED BALANCE SHEET(Contd.)

PARTICULARS 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. In lacs

ASSETS

Gross Block 422 437 452 467 482 497 512 527 542 557

Capital Work-in-Progress

- -

Less: Depreciation - 35 71 109 148 189 231 275 320 365

Net Block 422 402 381 358 334 308 281 252 222 192

Inventory

-Raw Materials 100 111 126 134 142 142 142 142 142

-Consumables 3 3 4 4 4 4 4 4 4

-Work-In-Process 7 8 9 10 10 10 10 10 10

-Finished Goods 73 81 92 97 103 103 103 103 103

Sundry Debtors 114 133 152 161 170 170 170 170 170

Advance Tax Paid 21 41 58 66 74 75 76 77 77

Cash & Bank Balance / Surplus 71 112 195 290 408 526 656 821 984

Total Current Assets 62 388 488 635 762 913 1032 1162 1328 1491

Other Non-Current Assets - - - - - - - - -

Total Assets 484 790 869 993 1096 1221 1313 1414 1550 1683


60

PROJECTED CASH FLOW

PARTICULARS 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. In lacs

SOURCES OF FUNDS

Increase In Share Capital, 184

PADBIT 145 192 233 246 262 253 250 247 245

Depreciation 35 36 38 39 41 42 44 45 45

Incr. In Term Loan 300

Incr. In Unsecured Loan

Incr. In Bank Borrowings 200 10 30 10 20

Incr. In Current Liabilities 34 4 5 3 3

TOTAL SOURCES OF FUNDS 484 414 241 306 298 326 295 294 292 290

UTILISATION OF FUNDS

Incr. In Capital Expenditure 422 15 15 15 15 15 15 15 15 15

Incr. In Current Assets 62 234 39 47 24 24 0 0 0 0

Decr. In Term Loan 13 50 50 50 50 50 38

Interest 61 56 53 48 44 38 35 35 35

Tax 21 41 58 66 74 75 76 77 77

TOTAL UTILISATION OF FUNDS 484 343 200 223 202 207 178 164 127 127

Opening Balance 71 112 195 290 408 526 656 821

Surplus/Deficit (a-b) 71 41 83 95 119 117 130 165 163

Closing Balance 71 112 195 290 408 526 656 821 984


61

DEBT SERVICE COVERAGE RATIO(DSCR)

PARTICULARS 2015 2016 2017 2018 2019 2020 2021 Total

Rs. In lacs

Profit After Tax 55.84 90.17 119.22 131.33 144.62 143.21 142.42 826.81

Depreciation 35.00 36.00 38.00 39.00 41.00 42.00 44.00 275.00

Cash Accrual 90.84 126.17 157.22 170.33 185.62 185.21 186.42 1101.81

Interest on Term Loan 34.94 28.44 21.94 15.44 8.94 2.44 - 112.13

Total (A) 125.78 154.61 179.16 185.77 194.55 187.65 186.42 1213.94

Interest on Term Loan 34.94 28.44 21.94 15.44 8.94 2.44 - 112.13

Total Repayment 12.50 50.00 50.00 50.00 50.00 50.00 37.50 300.00

Total (B) 47.44 78.44 71.94 65.44 58.94 52.44 37.50 412.13

D.S.C.R. (A/B) 2.65 1.97 2.49 2.84 3.30 3.58 4.97 2.95

Average D.S.C.R. 2.95


62

BREAK EVEN POINT

Particulars 2015 2016 2017 2018 2019

Capacity Utilization 60% 70% 80% 85% 90%

Net Sales 1299.47 1515.88 1732.29 1840.49 1948.70

Add Govt. Subsidy 571 666 762 809 857

Net sales + Govt. subsidy 1871 2182 2494 2650 2805

Variable Cost.

Raw Materials 1516.58 1769.35 2022.11 2148.49 2274.88

Consumables & Spares 34.20 39.90 45.60 48.45 51.30

Power & Fuel 22.00 26.00 30.00 31.00 33.00

Factory Wages & Salries 20.16 21.17 22.23 23.34 24.50

Interest on Bank Borrowing 26.00 27.30 31.20 32.50 35.10

Selling, General & Admn. Expenses 51.00 60.00 68.00 72.00 77.00

Total Variable Cost 1669.94 1943.72 2219.14 2355.78 2495.78

Contribution (b-c) 200.66 238.49 274.67 293.83 309.63

Fixed & Semi-invariable cost.

Factory Overheads 36.00 36.00 36.00 36.00 36.00

Repairs & Maintenance 10.55 10.87 11.19 11.53 11.87

Interest on T.L. liabilities 34.94 28.44 21.94 15.44 8.94

Depreciation 35.00 36.00 38.00 39.00 41.00

Total Fixed Cost 116.49 111.30 107.13 101.97 97.81

Break Even point 34.83% 32.67% 31.20% 29.50% 28.43%


63

INTERNAL RATE OF RETURN

CASH OUTFLOWS CASH INFLOWS NET CASH FLOW

Rs. in Lacs

Increase in Fixed Assets 422.00 -422.00

Investment in C.A. 234.43 EBDIT 180.11 -54.31

Increase in C.A. 38.92 EBDIT 227.66 188.74








Residual value of Land Development 13.00

Residual value of Fixed Assets 17.89

Residual value of Current Assets 368.69

IRR 36.93%

PAY BACK PERIOD

PARTICULARS 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. in lacs

Profit Before Tax 84.17 135.92 179.71 197.96 217.99 215.88 214.69 211.92 210.07

Depreciation 35.00 36.00 38.00 39.00 41.00 42.00 44.00 45.00 45.00

Interest On Term Loan 34.94 28.44 21.94 15.44 8.94 2.44

Gross Operating Surplus (G.O.S.) 154.11 200.36 239.65 252.40 267.93 260.31 258.69 256.92 255.07

Cumulative G.O.S. 154.11 354.47 594.12 846.52 1114.45 1374.76 1633.45 1890.36 2145.43

PAYBACK PERIOD 1.83 Years


64

DEPRECIATION SCHEDULE

PARTICULARS OF ASSETS BASIC COST CONTINGENCIES. PRE-OP

EXPENSES

TOTAL COST

Rs. in Lacs

Land 13.00

Building & Civil Construction 85.00 4.25 7.94 97.19

Plant & Machinery 252.70 12.65 23.60 288.94

Miscellaneous Fixed Assets: 20.00 1.00 1.87 22.87

TOTAL 357.70 17.90 33.40 422.00

DEPRECIATION SCHEDULE FOR INCOME TAX PURPOSES (WRITTEN DOWN VALUE METHOD)

PARTICULARS RATE 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. in Lacs

Building & Civil Construction 10.00% 9.72 8.75 7.87 7.09 6.38 5.74 5.17 4.65 4.18

Plant & Machinery 15.00% 45.59 40.67 36.48 32.92 29.89 27.32 25.14 23.28 21.70

Miscellaneous Fixed Assets: 10.00% 2.29 2.06 1.85 1.67 1.50 1.35 1.22 1.09 0.98

TOTAL 58.00 51.00 46.00 42.00 38.00 34.00 32.00 29.00 27.00

Written Down Value of Assets

364.00

313.00

267.00

225.00

187.00

153.00

121.00

92.00

65.00


65

DEPRECIATION SCHEDULE AS PER COMPANY COMPANY’S ACT (STRAIGHT LINE METHOD)

PARTICULARS RATE 2015 2016 2017 2018 2019 2020 2021 2022 2023

Rs. in Lacs

Building & Civil Construction 3.34% 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25

Plant & Machinery 10.34% 29.88 31.43 32.98 34.53 36.08 37.63 39.18 40.73 40.73

Miscellaneous Fixed Assets: 6.33% 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45 1.45

TOTAL 35.00 36.00 38.00 39.00 41.00 42.00 44.00 45.00 45.00


66

REPAYMENT SCHEDULE

PARTICULARS 2015 2016 2017 2018 2019 2020 2021

FIRST QUARTER

Rs. in Lacs

Opening Balance - 287.50 237.50 187.50 137.50 87.50 37.50

Repayment - 12.50 12.50 12.50 12.50 12.50 12.50

Loan Availed During the Quarter 300.00 - - - - - -

Closing Balance 300.00 275.00 225.00 175.00 125.00 75.00 25.00

Interest 9.75 9.34 7.72 6.09 4.47 2.84 1.22

SECOND QUARTER Opening Balance 300.00 275.00 225.00 175.00 125.00 75.00 25.00

Repayment - 12.50 12.50 12.50 12.50 12.50 12.50

Closing Balance 300.00 262.50 212.50 162.50 112.50 62.50 12.50

Interest 9.75 8.94 7.31 5.69 4.06 2.44 0.81

THIRD QUARTER Opening Balance 300.00 262.50 212.50 162.50 112.50 62.50 12.50

Repayment - 12.50 12.50 12.50 12.50 12.50 12.50

Closing Balance 300.00 250.00 200.00 150.00 100.00 50.00 -

Interest 9.75 8.53 6.91 5.28 3.66 2.03 0.41

FOURTH QUARTER Opening Balance 300.00 250.00 200.00 150.00 100.00 50.00 -

Repayment 12.50 12.50 12.50 12.50 12.50 12.50 Closing Balance 287.50 237.50 187.50 137.50 87.50 37.50 -

Interest 9.75 8.13 6.50 4.88 3.25 1.63 -

TOTAL INTEREST 39.00 34.94 28.44 21.94 15.44 8.94 2.44

TOTAL REPAYMENT 12.50 50.00 50.00 50.00 50.00 50.00 37.50


67

NOTES

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