Nagarjuna Fertilizers and Chemicals Ltd. - Quarterly/Annual Result Disclosures and Notes dated 31 Mar 2020

1. The above results were reviewed by the Audit Committee and approved by the Board of Directors at their respective meetings held on August 14, 2020.



2. The financial results comprise the combined operations of the Company relating to Fertilizer, Micro Irrigation and Agri Services businesses. The financial results of Micro Irrigation and Agri Services being below the reportable thresholds, and since they do not have similar economic characteristics and do not share any of the aggregation criteria, are neither disclosed as separate segments nor are combined as "all other segments" for the purposes of disclosures under Ind AS 108 - Operating Segments.



3.The Company is operating in a regulated environment under the Essential Commodities Act and supported by Government Subsidy. Due to inadequate working capital, financial stress and continued losses on account of stoppage of production activities at plant during 2018, the company has taken up with its Lenders for a long-term financial Resolution Plan (RP). The lenders have initially permitted 'Holding on Operations' (HOO) from December 2018 which now stands extended till October 31, 2020, which has facilitated operations of one Urea Plant from December 2018 till end of the current quarter March 31, 2020.



In view of operating with single plant under HOO, the losses continued with substantial erosion of net worth and the company faced severe liquidity crisis and was unable to meet payments to its secured lenders, employees, vendors and statutory remittances on time. As at the year end, the Company’s current liabilities exceeded current assets by Rs 1,89,403.27 Lakhs.



In view of these circumstances, the Company had submitted a revised draft resolution plan in terms of extant guidelines issued by the Reserve Bank of India to its lenders for their consideration and approval. The said resolution plan, amongst other things, include Seggregation of debt into sustainable and unsustainable debt, Reduction in the rate of interest and Induction of new investors and infusion of funds.



Lenders held a series of Joint Lenders Meetings since the company requested the resolution plan for suggestions of all the other lenders. Several meetings were held during the months from February 2020 to June 2020, there was an in principle discussion on the terms of the proposed debt under RP. All the lenders have favorably agreed to the way forward in the key lenders meeting. The lead bank had organized various third-party studies for Techno Economic Viability (TEV), Rating agencies and valuers.



Keeping in view the status of discussions of lenders with potential investors, the Company is hopeful of a positive outcome and approval of resolution plan.



Accordingly, the financial statements for the year 2019-20 are drawn on a going concern basis, pending finalization of resolution plan by the lenders.



4. The Company has continued to default on repayment of principal and interest during the year on the borrowings from various lenders on account of continued losses and the lenders have accordingly classified the company’s account as NPA in the financial year 2018-19. Pending completion of the resolution plan and receipt of confirmation of balances from various lenders, the Company has accounted for the interest / penal interest during the year based on the prevailing rate of interest and internal working. Adjustments, if any, for the interest and penal interest accounted will be dealt on completion and on the outcome of Resolution Plan.



5. In relation to some of the contracts, international Arbitration Awards have been passed against the Company



(i) in September 2016 for USD 14,398,188 and GBP 690,630 and interest as applicable apart from costs based on a claim filed by one of the Suppliers of Fertilizers to the Company. The Company is of the view that the Award has been obtained based on documents tampered with and mis-representations of facts by said supplier. The Company has been legally advised that the award is not maintainable and has also filed a Criminal Complaint before the Metropolitan Magistrate of Hyderabad against the supplier and its officials. In view of the current pandemic Covid-19, the Matter yet to be listed for hearing.



(ii) in October 2017, for USD 877,500, EUR 455,000 and INR 221.39 Lakhs and interest as applicable apart from costs based on a claim filed by one of the Vendors based on the work orders issued for proposed Project -Plant 3. The Company is of the view that as per the contract entered, the amounts are payable only upon (a) the announcement of a fertilizer policy and (b) that the fertilizer policy being found favourable for the Project of the Company. Since the policy announced by the Government of India was not favourable / conducive for the project, hence the Company could not proceed further and the said award is not maintainable. In view of the current pandemic Covid-19, the Matter yet to be listed for hearing.



While the Company is contesting the enforcement of the Awards in the Courts in India a sum of Rs. 557 lakhs have been provided for in the books in FY 2018-19 in respect of matter stated in para 5 (ii) above. Further, since the matter being sub-judice, the said claims have been treated as contingent liability.



6. Government of India announced New Urea Policy (NUP)-2015 and Gas Pooling Policy for Fertilizer (Urea) Sector which are effective from June 1, 2015 to 31st Mar 2019. Government of India extended the NUP -2015 from 1st April, 2019 until further orders. Income from Urea Operations has been accounted in accordance with the said policies. Income towards freight subsidy, Reimbursement claims towards additional fixed cost, Input escalation / de-escalation, have been accounted during the quarter in terms of the said policies and Department of Fertilizers Letter dated March 30, 2020 issued with reference to Modified NPS-III policy notified on April,02,2014. Adjustments, if any, required will be considered on notification of final prices.



7. The Company has reviewed the requirements of IND AS 116 in respect of its lease arrangements entered into prior to application of the standard. The impact on adoption of the Standard is not material on the applicable leases and hence no adjustments are required to be made.



8. In view of rapid spread of virus causing Covid-19 pandemic, Government of India imposed lockdown from 25th March 2020 to curb the spread of virus. The nationwide lockdown temporarily impacted the operations of the company due to non-availability of labour, transportation and supply chain disruptions. However, the Government classified urea and micro irrigation business of the company as “Essential Commodity” and granted certain relaxations and guidelines so that production and distribution of Urea will not be effected. The Company operated one Urea plant during the lockdown period, following safety measures as per guidelines. Thus, the impact of Covid-19 on the Company is minimal at this point of time. The Company has assessed the recoverability of receivables, inventories and other financial assets considering the available internal and external information up to the date of approval of these financial statements. Considering the nature of these assets, the Company expects to recover the carrying amount of these assets.



9. The consolidated results include results of subsidiary, i.e Jaiprakash Engineering and Steel Company Ltd and excludes associates Nagarjuna Agricultural and Research Development Insititute Pvt Ltd and KVK Raju International Leadership Ltd. The said associates are excluded as there are no operations in the said Companies.



10. The figures of the current quarter and quarter ended March 31, 2019 are the balancing figures between the audited figures of the full financial year ended March 31, 2020 and March 31, 2019, respectively and the published year to date figures upto third quarter ended December 31, 2019 and December 31, 2018, respectively.



11. The figures for the corresponding previous periods have been regrouped, wherever necessary, to make them comparable.