RISK MANAGEMENT AT GNFC

CREATED BY:

KHUSHALI MISTRY Enroll: 09771059251

Guidance by Ms. Rashmi Ghamawala (Kimcos)

SHRI M. H. KADAKIA INSTITUTE OF MANAGEMENT & COMPTER STUDIES, ANKLESHWA

COMPANYS PROFILE

Introduction

FERTILIZERS: Urea Ammonium Nitro Phosphate Calcium Ammonium Nitrate CHEMICALS: Ammonia Methanol Methyl Format Acetic acid

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Major Raw Materials Natural Gas - product price is decreasing Coal Rock Phosphate increasing cost LSHS \ Furnace Oil - only one supplier IOC Caustic Soda Lye Ordinary Portland Cement

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List of competitors IFFCO: Indian Farmers Fertilizers Co-operative Ltd. KRIBHCO : Krishak Bharti Co-operative Ltd, Hazira, Gorakhpur. Tata : Tata Chemicals Ltd., Babrala (UP) ZIL : Zuari Industries Limited NFL : National Fertilizer Ltd. Panipat, Nangal & Bhatinda

Plays an important role for smooth working.

I.
II. III. IV. V.

VI.
VII. VIII. IX.

Divide into 9 various sections which are as follows: Bills Payment Section. Establishment Section. Banking Section. Insurance Section. Budget and Costing. Central Accounting Section. Marketing Account. Indirect Tax Section. Concurrence Section.

DEPARTMENTS

HUMAN RESOURCE DEPARTMENT MARKETING DEPARTMENT

INTRODUCTION

First What is Risk?? What is Risk Management?? Risk management has now become compulsory for any industry due to the mishap of Bhopal Gas disaster in 1984. Type of Risk

OBJECTIVES OF RISK MANGEMENT

To study the practical aspect of financial risk management To know about the possibility of a risk event, sources of such event and adverse impact of such event. To check that, There is interest risk or not To minimize cost and maximize the profitability. To check that, There is interest risk or not

Research Methodology
Problem : To study the Risk Management at GNFC. Research Design : Descriptive Data Source : Secondary Source : Books and magazines related to Risk Management. Government websites Facts and Figures Provided by the company

Risk Management at GNFC

RISK MANAGEMENT METHODOLOGY

Raw Material Price Risk

VALUE AT RISK It means maximum expected loss for a given exposure with the given probability defined as confidence level, over a given period of time.

List of raw materials used for calculating VAR

LSHS/ FUEL OIL NATURAL GAS ROCK PHOSPHATE BENZENE SULPHURIC ACID CAUSTICSODA LYE TOLUENE CHLORINE

METHODLOGY
STEP 1 Price Returns are calculated Formula: P2 P1 P1 STEP 2 Volatility is calculated Formula:

STEP 3 Value at Risk Confidence level -2.3326(99%) Formula: Pn * Qn *2.3326 * 1 * Volatility

Calculation
Type of Raw Material Rock Phosphate

Volatility
9.385

Value at Risk
12,21,141

LSHS/ Fuel Oil

Natural Gas Benzene Sulphuric Acid Toluene Caustic Soda Lye Chlorine

10.795
11.92 1.659 1.443 2.368 3.38 0.5

16,08,486
2,95,133 59,536 1090 24261 2587 975

Analysis

Maximum volatility is of Natural Gas at11.92 with value at risk (VAR) 295133.61 lakhs. another high volatility is of LSHS/FUEL i.e. 10.79 with VAR of 1608486.3675 lakhs. But it is used in more quantity in production process. So accordingly efforts should be made to maintain the stock level of all the essential inputs. In this way company has to manage these raw material stocks more effectively there by reducing the probability of losses arising due to price risks.

Interest Rate Risk

The risk of interest rate on all such loans arise along with swings in money market negotiating to avail ECB with full hedge.

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Interest Rate Cap :

used to protect a company against interest rate setting an upper limit (or cap) on interest rate that the company has to pay. If the variable interest rate goes over the capped rate..

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As in GNFC, Data for last three years are as follows: Year 2006 -07 2007 -08 2008 -09 Rs (in crore) 10.05 11.59 26.92 % 12 14 30

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Lets decide GNFCs capped level interest rate is 25%

So, the difference for the year 2008-09 for 5% is filled by the bank

Analysis Companys Interest Rate is increased by 16% It is very high

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Interest Rate Collar:This is where a company buys a cap and sells a floor. Protect itself against higher interest rate but gives up some of the possible benefit of lower interest rates reduce the cost of the up font premium of a cap

Foreign Exchange Risk

change in the domestic currency value of assets and liabilities to the change in the exchange rates The foreign currency loan is very based on LIBOR rates prevailing to RBI policy Hedging refers to the technique, by using

currency option Forward Contracts currency Futures

Currency Option

giving the right, not the obligation, to buy or sell a specific quantity of one foreign currency in exchange for another at a fixed price; called the exercise Price or Strike Price Call option are used if the risk is an upward trend in price Put option are used if the risk is an upward trend in price

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Foreign Exchange loss For the year 2007 is 5.55 Lakhs For the year 2008 is 6.44 Lakhs. Analysis : According to data company has face loss

Purchase Call Option:

Market Rate Exercise Rate Call @45.5 Premium Gain/ Loss

43
43.5 44 44.5 46 46.5

0
0 0 0 0.5 1

0.3
0.3 0.3 0.3 0.3 0.3

-0.3
-0.3 -0.3 -0.3 0.2 0.7

47

1.5

0.3

1.2

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Forward contracts are (obligation): forward contracts are a commitment to settle at a fix forward price, this provides only upside benefit from a favorable movement in the underlying exchange rates, but not downside protection

FINDINGS

Objective : To study the practical aspect of financial risk management Findings : Planning Design making Organizing Control Objective : To know about the possibility of a risk event, sources of such event and adverse impact of such event. Findings : Ammonia plant is based on LSHS sourced from IOC..

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Objective : To minimize cost and maximize the profitability Finding: Increase cost of Rock Phosphate affected the profit of Nitro phosphate plant Objective : to check the risk volatility through value at risk Finding: The Natural Gas and LSHS has high Risk volatility

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Objective : To check that, There is interest risk or not I found that company has taken loan from banks of Rs.2001 crore fro the project of Rs.2859 crore

CONCLUSION
Due to possibility of Non Availability of LSHS, efforts have been made to set up LNG conversion plant. In addition suitable strategy is being worked out to source cheaper ammonia to mitigate high LSHS Price. Non availability of rock phosphate could lead to stoppage of ANP, CAN and ANM production. So for rock phosphate efforts are continued to mitigate quantity risk by various means, including contract with RSMM. For Variations in foreign exchange rates no serious efforts to mitigate this risk is in place.

Suggestions

totally a new concept.. - seminars have to be conducted. To form Risk management committee Foreign exchange Risk Management should be To make alternate arrangement for LSHS. It is necessary to maintain the stoke level To concern with Marketing department for the Natural Gas increasing price and decreasing its product price

Thank You