The Directors are pleased to present your Company’s Fortieth Annual Report together with the audited statement of accounts for the year ended March 31, 2007.

Corporate Results
The Financial highlights for the year under review are given below:

(Rs. Crores)

*includes Revaluation Reserve of Rs. 94.91 crores and Rs. 97.25 crores respectively.

DIVIDEND
The Board of Directors recommended a dividend of Re. 0.60 per equity share of Rs. 10/- each.

Performance 2006-07 was a year of growth and improved performance, with your Company registering the highest ever sale of phosphatic fertilizers and granulated fertilizers. The turnover for the year at Rs.1371.05 crores was up 27% over the previous year and the Profit after Tax at Rs. 27.46 crores was up 9% over the previous year. The Profit after Tax would have been significantly higher but for the substantially higher interest liability for the year at Rs.16.27 crores in relation to the previous year (Rs. 6.72 crores) attributable to undue delay in receipt of subsidy from the Government of India. Production Urea The Urea production for the year 2006-2007 was restricted to 3,60,000 MTs against the installed capacity of 3,80,000 MTs, in view of the additional quantity of 20,000 MTs of Urea produced during 2005-2006 with the special permission of the Government of India which was to be accounted for in 2006-07. This was done to compensate for loss of production due to the major revamp of Ammonia/Urea plants scheduled in April and May, 2006. Di-Ammonium Phosphate (DAP) & Complex Fertilizers Your Company reached yet another milestone with the highest ever production of 2,55,500 MTs [P.Y. 1,94,275 MTs] of DAP and NP during the year under review. Ammonium Bi-Carbonate (ABC) The production of ABC was lower at 12,002 MTs compared to the previous year at 14,089 MTs. The shortfall in production of ABC was mainly due to non-availability of CO2, consequent to major revamp and annual turnaround of Ammonia/Urea plants taken up in April and May 2006.

Sales
The sales for the year 2006-2007 were quite encouraging for the manufactured products. The sale of DAP and NP [20:20:0] was higher by 37% and 142% respectively compared to the previous year. The sale of traded products, registered a good growth, especially granulated fertilizers, sales of which increased by 36% over the previous year and contributed significantly to the bottom line.

Increasing demand for food production in the context of population growth, urbanization and industrialization has to be met through efficient use of nutrients both organic and inorganic. Recognizing the need for the development of an Integrated Nutrient Management System, your Company established a separate “Integrated Nutrient Management Unit” at Hassan to undertake R&D to develop crop specific and soil specific grades of fertilizers and to provide extension support to farmers and dealers.

At the field level, product promotion and training to farmers were given major focus during the year. To motivate the dealers, Mangala Dealer Award Function cum Plant visit was organized during February 2007. More than 350 Mangala dealers from all regions participated in the award function and 72 dealers were honored for outstanding sales performance for the years 2004-05 & 2005-06.

Working Capital
During the year under review, your Company faced a severe liquidity crunch due to inordinate delays in payment of the monthly concession bills and settlement of quarterly escalation claims by the Government of India. The recurrent problem of inordinate delays would not appear to have been addressed adequately and resolved, despite several representations made by the industry. Added to this, steep increase in hydrocarbon prices has further aggravated the situation. Though the New Pricing Policy announced by the Government of India provides for recognition of price increases on a quarterly basis, there have been delays of more than a year in recognizing the price increases and notifying the revised rates of concession.

This situation has not only resulted in critical cash flows, but also a heavy interest burden on increased borrowings to meet the working capital requirements of the Company, significantly impacting the bottom line of the Company.

Fertilizer Policy
Stage III of the New Pricing Scheme for Urea, was announced by the Government of India in March 2007. The duration of this policy is from October 1, 2006 to March 31, 2010. While the broad policy parameters of the stage I and II have been retained, there are quite a few departures as well. Some of the policy parameters such as tightening of energy consumption norms, capacity utilization and reduction in capital related charges do not augur well for the industry. Another major thrust of the policy is conversion of all existing Naphtha/FO/LSHS based units to gas within a period of three years. On the expiry of this deadline, subsidy will be restricted to the prevalent import parity price or the retention price of the individual unit, whichever is lower. While the policy does not recognise the investment made by the units for conversion, there will be no mopping up of energy efficiency for a fixed period of 5 years for Naphtha/FO/LSHS based units.

The preliminary study required for conversion of the plant to gas has already been conducted and the cost for conversion is estimated to be about Rs. 280 crores. This includes a provision of Rs. 150 crores for gas based captive power plant. Your Company is in constant touch with Petronet LNG for supply of LNG from Cochin and Reliance Industries Limited for supply of gas from KG Basin. Based on the discussions held with Reliance Industries Limited, supply of gas appears likely by 2010.

Though the policy on Phosphatic fertilizers based on the recommendations of Dr. Abhijit Sen Committee has been implemented partially, certain issues like recognition of increase in conversion costs, increase in railway freight and interest burden on increased working capital are still under consideration. The Government has now entrusted the task of studying the costing of DAP to the Tariff Advisory Committee whose final recommendations are expected shortly.

Subsidiary Company
A wholly owned subsidiary Company, MCF International Limited, was incorporated on August 28, 2006 with the objective of carrying out, inter alia, the business of dealing with all kinds of agricultural & industrial chemicals, agricultural commodities, industrial products and providing technical consultancy services. Being the first year of incorporation, there was no significant activity in the subsidiary Company during the year.

Your Company has received approval from the Ministry of Corporate Affairs, Government of India, granting exemption from attaching the audited accounts of the subsidiary Company to the annual accounts of your Company for the year ended March 31, 2007. Audited accounts of the subsidiary Company are available at the registered office of the Company for inspection by the members.

Safety, Environment and Pollution Control
Your company has obtained Occupational Health and Safety Management System certification OHSAS 18001 as part of its commitment to continual improvement. An external safety audit was conducted during the year under review, to test the effectiveness. Extensive training programs including rescue operations, usage of personal protective equipment and usage of fire extinguishers were organized for permanent and contract employees and regular mock drills were conducted.

The On-Site Emergency Plan was updated and the same was approved by the Director of Factories and Boilers, Karnataka. Your Company was awarded the prestigious “Unnatha Suraksha Puraskar 2005” by National Safety Council, Karnataka Chapter in January 2007. As a part of fire service week, a LPG safety clinic with the participation of BPCL officials was organized at the Township in April 2006, to explain the safety precautions to be taken during usage of LPG at houses.

Periodical medical examination was conducted for all the employees, which included general physical examination and laboratory tests for diabetes & lipid profile. Special tests like pulmonary function test & audiometry tests were performed wherever required. Medical examination of canteen workers including their personal hygiene was conducted twice during the year. Regular check-up of canteen premises and the canteen food was carried out for hygiene and the quality of food. Training on first aid and basic life support, benefited about 200 employees.

As an ISO 14001 Certified Company, many environ-mental management programmes have been imple-mented to improve the environmental performance of your Company. Environment Management System has been upgraded to meet the requirements of ISO -14001:2004 version. During the year under review, your Company maintained zero liquid effluent discharge by recycling the entire quantity of treated effluent for process use and irrigation of the green belt within the factory premises.

As a corporate responsibility and in order to conserve water, your Company implemented rainwater harvesting system to treat sewage water at its township which is used for gardening.

1. Employed throughout the year and in receipt of remuneration aggregating Rs.24,00,000/- or more p.a. - NIL

2. Employed for part of the year and in receipt of remuneration aggregating Rs.2,00,000/- or more p.m. - NIL

On behalf of the Board of Directors