Ladies and gentlemen,
It gives me immense pleasure to welcome you all to the 34th Annual General Meeting of your Company. The Annual Report for the year 2003-04, detailing your Company’s performance, would have been reviewed by you and I shall take it as read.

NEW ISSUES AT THE FARM
Internationally, the chemical fertilizer industry is the only industry that impacts on and is impacted by both agricultural and industrial factors. Chemical fertilizers today play an indispensable and irreplaceable role in meeting global food needs.

We live in an era where the management of food security has become just as important as food production itself. The issues that confront the producers of food and the managers of food security are fertilizer and water availability and their usage efficiency. Presently, these are issues that govern policy making in most countries because of their immense importance.

THE INDIAN ECONOMIC SCENE
Good monsoons in 2003-04 ensured that the Indian economy grew at 8.1 per cent, the best growth ever since 1988-89. There was a strong agricultural recovery of 9.1 per cent. Food grain production increased from 174 million tonnes in 2002-03 to 212 million tonnes in 2003-04. There was a 22 per cent increase in food grain output with only an 8.7 per cent increase in fertilizer consumption during the period. The prospects of agriculture in 2004-05 are good with normal monsoons being forecast. Industry and services sectors also recorded higher growth. Industrial growth was put at 6.5 per cent with power and manufacturing leading the growth. The manufacturing sector too revived with a strong growth of 7.1 per cent. The economy seems to be in a resilient mode in terms of growth and a strong balance of payments position. India’s foreign exchange reserves have consistently been around the USD 100 billion level for several months now. The year was characterized by a relative stability of prices. Overall, there is an assurance of macro-economic stability and of the growth momentum being sustained.

There is a major cause for worry, however, in the combined central and states’ fiscal deficit ballooning to reach 10.1 percent of the year’s GDP. That the Center and several states have initiated fiscal responsibility legislation is a welcome step in establishing fiscal discipline.

Indian agriculture would need to do better. Our population by 2012 will be around 1.25 billion, generating a demand for nearly 340 million tonnes of food grain annually. This implies a rise in fertilizer demand by two times the present consumption of 18 million tonnes. This projection clearly points to either a considerable increase in imports or to a massive investment in fast-track fertilizer projects, either new or modified. With production economics and Government policy being extremely orthodox, the former seems a distinct possibility. I am afraid, if any such thing were to happen, our indigenous industry would be severely hit. But there are companies like yours that are readying themselves not only to survive, but actually thrive, in the changed conditions.

THE FERTILIZER INDUSTRY
It is pertinent for me to dwell briefly on fertilizer subsidy per se. Many people have the mistaken view that the fertilizer industry profits from the subsidies that the Government offers. In the first place, it is subsidy to the farming community and not to the fertilizer industry. Accordingly, the Government only fills the difference between the production cost of fertilizers and the substantially low prices at which they are sold to farmers. The subsidy system is no more than an intra-economy transfer of funds and the fertilizer companies are conduits to facilitate the same. The fertilizer companies do not gain anything at all in this transaction. If anything, they have to suffer several months of delay to get their legitimate claims from the Government because of administrative procedures.

Also, it is relevant to note here that the Central Government, in order to contain the prices of food grain, has maintained the price of fertilizers to farmers at abnormally low levels over the years, thereby increasing its fiscal burden and for which the industry is being squeezed.

Further, while the energy consumption of naphtha per tonne of urea is only marginally higher than that of natural gas, given the policies of the oil sector, the price of naphtha for naphtha-consuming units such as yours is four times that of natural gas of equivalent energy content. This, again, seemingly, increases the subsidy given to naphtha-based units, prompting further cuts in subsidy to such units! The Government of India notified the Group Pricing Scheme or New Pricing Scheme (NPS), effective 1 April 2003, which is a marked departure from the Unit-wise Retention Pricing System. The emphasis of the NPS is on operational efficiency, particularly on energy consumption. This resulted in some plants that were energy inefficient being shut down, giving rise to justified apprehensions of a shortage of fertilizers.

The NPS definitely needs greater examination in the light of what has happened over the last 18 months that it has been in effect. The NPS groups urea units on the similarity of their feedstock and vintage. But some of these units are heterogeneous, in that within the group, some units use low cost fuels such as coal, whereas others use expensive fuel oil. The absence of a level playing field means that companies such as yours, that use fuel oil, despite being energy efficient, end up running higher costs and getting a much lower average price for their Urea.

It is clear, therefore, that, while the objective of the NPS is to encourage energy efficient units, it does not reward them for being so, grossly impacting their profitability. The erstwhile Unit-wise Retention Pricing System (RPS) was a far better and logical scheme, judged by what it achieved. In the two decades that the RPS was in effect, the country crossed the 200 million metric tonne mark in food grain production and fertilizer consumption rose to 18 million metric tonnes per annum.

There has been some talk of moving towards a regime of total decontrol of fertilizers. While the Government will greatly reduce its subsidy burden if this becomes reality, the socio-economic ramifications of the move, particularly with regard to fertilizer availability and price need to be given a good thought before any decision is taken.

The fertilizer industry also needs to be looked at by the Government as providing reasonable returns to its investors. The policy-direction that the Government sets should assure the investors to think well of the industry and attract their investment, not discourage it.

COMPANY’S PERFORMANCE
Your Company registered a cash profit of Rs.31.83 crore for the year. There has been a dramatic reduction in the loss, down to Rs.9.41 crore from Rs.375.69 crore last year. The net worth of your Company, excluding revaluation reserve, improved to Rs.21.13 crore on 31 March 2004 as against Rs.10.93 crore on 31 March 2003.

I am also very happy to inform you that your Company crossed the one million tonne mark of fertilizer sales for the 24th year in succession this year. The market share of your Company’s urea in the southern states improved to 21 per cent by one percentage point, while that of DAP rose by 4 per cent to 34 per cent.

Your Company has identified four key result areas--debt-restructuring, operational optimization in production, cost controlled marketing and divestment--to substantially increase its productivity and profitability.

The implementation of the Corporate Debt Restructuring Scheme formulated by the CDR Cell of financial institutions led by the Industrial Development Bank of India and banks led by Indian Bank is already in place. This and other such prudent debt-restructuring initiatives will help your Company to regain its financial health.

Operational optimization measures undertaken by your Company include further energy reduction plans, improvements in operational methodologies, the use of a mix of low-grade, low-cost raw materials for the phosphatic plants without jeopardizing product quality, outsourcing its logistics wing and strict controls on overheads. It is not out of place to mention here that the energy consumption level of your Company’s ammonia-urea plant at Tuticorin has been reduced substantially since its commissioning in 1975. This is a significant achievement considering how important energy efficiency is under the NPS regime.

Your Company is currently working on the future usage of natural gas as its feedstock. This will reduce production costs significantly, facilitating far more competitiveness in the market, particularly if the Government were to dismantle administered pricing.

Given these positive developments, your Company will see the end of most of the pressing challenges it has faced in the recent past and enter a fresh era of growth and profitability.

ACKNOWLEDGEMENTS
Before concluding, I wish to place on record my thanks and appreciation for the focused and sincere efforts of all employees of the Company. To my colleagues on the Board, the Central and State Governments, the Tamilnadu Industrial Development Corporation Limited, Financial Institutions and Banks, I convey my deep gratitude for their constant and constructive support. Dear shareholders, may I say to you all how much we, your Board and myself, treasure your support, particularly now, when your Company is at the threshold of a turnaround growth and new opportunity. I am sure the spirit of our collective effort will see a turn of fortune for your Company soon.

Thank you.