MANAGEMENT DISCUSSION AND ANALYSIS

(A) INDUSTRY STRUCTURE AND DEVELOPMENT

Your Company opérâtes in the business segment of Foods comprising of Bakery and Dairy Products.

I. Bakery

Bakery industry brsently comprises primarily of four traditional products viz. Biscuit, Cake, Rusk and Bread. Biscuit is the largest category accounting around two-third of the overall bakery industry growing at 10-14% per annum in the last five years. Cake, Rusk and Bread constitute the rest. While Cake and Rusk categories have seen growth in mid-teens, Bread category has experienced growth of mid to high single digit over the last five years.

a) Biscuit

Although biscuit category is large in size, consumption per capita is modest in comparison to other developing countries. Countries such as Indonesia and Philippines have a significantly higher per capita spend at 1.7x and 2.2x respectively. This gap is caused by lower volume consumed per capita as well as the extent of value addition that as compared to other developing countries. As India continues on the path of income enhancement, biscuit consumption is expected to increase thus sustaining the growth rates of the past.

Competition in biscuit market is vigorous and participation is from large Indian Companies with national foot print such as yours, medium sized companies with regional foot print and multinationals. In response to the trend of format upgradation, most significant players including regional players have been making investments in technology.

b) Cake

Relatively speaking, Cake is a nascent category in India with basic and less differentiated products dominating the market. There is immense scope for organoleptic value addition and building consumption. Your Company has introduced value added products in the last couple of years which has been greeted by a warm reception by trade and consumers. This reaffirms our belief that value added products at the right price can change the growth trajectory of the category.

Cake market in India has one national player viz. your Company and some notable regional players strong within their region.

c) Rusk

Rusk is similar to cake in its market and competitive structure. Per capita expenditure on rusk is modest as it is in other bakery categories. Growth in this category is expected to come from format upgrades as well as consumption increase through specific product and marketing solutions.

d) Bread

Bread on account of its relatively low shelf life is a category with localized production reaching the proximate market. Your Company while being the largest national player encounters local competition.

II. Dairy

India remains the largest producer and consumer of dairy. However, as in the case of other food products, Indians trail much of the world in per capita dairy consumption. This gap is getting bridged rapidly with demand growing at a faster pace than supply. Many industry experts opine that this is likely to cause a supply deficit in the near future.

Largeness of the Dairy opportunity is visible to all; as a result the industry this year saw heightened activity with several private companies announcing entry, cooperatives expanding footprint and multinationals formally entering.

While the growth in the last few years has been on account of increasing milk consumption; value added segments of dairy such as Cheese and Set Dahi in which your Company participates have grown at a faster pace.

A range of factors will drive the growth of dairy industry going forward:

i) With time available to manage households declining; consumers will seek day-to-day needs in ready to consume and convenient forms.

With this, dairy industry which is overwhelmingly unorganized today, will shift steadily towards the organized sector;

ii) With increasing affluence there will be demand for value added products; as a result dairy market will shift from basic to processed;

iii) Consumption of all dairy products will go up as consumers gravitate towards a more balanced diet as income levels increase.

The levers of success going forward are likely to be:

a) Access to quality milk as basic raw material;

b) The right product value addition capability;

c) Access to a cold chain.

BUSINESS STRATEGY

As India's economic landscape changes for the better, the proportion of packaged goods in the overall consumption basket will increase. Consumer and market studies conducted by your Company indicate that this increase will be driven by delivery on three axes viz. pleasure, health and convenience. In other words Indian consumers will seek higher pleasure, better health and greater convenience. Categories that inherently deliver on the above axes or are capable of redesigning themselves to deliver the above will grow faster than overall market. This will cause packaged food industry of future to be significantly larger in size and substantially different in form. Categories such as chocolates, foods, salted snacks that help in health management and ready to eat solutions are seeing wider and deeper consumer traction than ever before.

To remain relevant and improve relative significance in future Indian market, companies such as yours will have to venture outside of their traditional bastions and build brsence in adjacent categories. We believe that your Company is well positioned to undertake this transition even while strengthening its hold on the bastion categories.

In this context, your Company's strategy to increase consumer relevance in a changing food landscape and grow ahead of direct and indirect competition is:

1. Strengthen position in bastion categories (Biscuit, Cake and Rusk) by:

a. Increasing demand for current assortment through a combination of superior brand promotion and aggressive distribution expansion;

b. Creating fresh demand through innovation on pleasure, health and convenience axes;

c. Running the supply chain for better cost efficiency and superior delivered quality.

2. Successfully enter attractive adjacencies for an accelerated future growth.

3. Evaluating transition of the dairy model to a fully Integrated One.

Strengthen position in bakery

Strengthening and expansion of sales and distribution network accelerated this year with direct reach increasing by nearly 25%, a noteworthy feat in the Indian retail-scape. Additionally, your Company embarked on an ambitious rural expansion through the Rural Preferred Dealers Program. With these initiatives your Company is establishing a wide and reliable pipeline which will be of great value as more Indians switch from home-made/local to packaged foods.

Your Company continued the high-visibility promotion of its pillar brands this year too through association with widely loved entertainment genres of film and sports. Additionally, a lot more emphasis was placed on activation which helps convert a consumer connect into an emotional bond. Activation programs executed to support the relaunch of Good Day were loved by consumers and went on to win several awards from professional bodies.

Your Company continues to work on breakthrough innovation and some of the qualifying innovations have gone through the test market phase during the year. Upon fine-tuning of product (basis consumer and market feedback), a market introduction will be considered.

Breads continue to strengthen its more profitable Health portfolio through healthier recipes, new packaging and availability in more number of stores. This business maintains a sharp focus on distribution expansion across metro and urban markets in addition to the new age channels like Modern trade, Institutions and E-commerce.

Dairy

Your Company continues to drive development of a differentiated portfolio and in line with the overarching corporate strategy has been working on further strengthening the organoleptic performance of its products.

While there are multiple players entering this Industry, your Company is also evaluating various options to strengthen its position in this Industry. Your Company is continuously extracting benefits from an integrated sales and distribution system and is also evaluating the viability of fully integrated business model.

In the coming year, your Company will implement various initiatives in all areas of operations to create an efficient and robust supply chain and build cold chain capabilities to enhance sales and service to the trade and final consumers. The business will identify more opportunities to reduce recipe cost and optimize cost structurally across the value chain.

(C) SEGMENT INFORMATION

The primary business segment of your Company is Foods comprising Bakery and Dairy Products.

(D) OUTLOOK

Indian economy has been facing headwinds these past couple of years. For the first part of the year your Company had remained less affected by the larger economic slowdown through focused execution. The second half of the year has seen a slight slowdown which is expected to remain for the next 12-18 months. However, Your Company expects industry to bounce back to double digit growth on the back of the socio-economic fundamentals.

Your Company has instituted a sense of thrift through out the organization which will help it perform swim against the brsent economic tide.

FINANCIAL AND OPERATIONAL PERFORMANCE

Sale of Products in the domestic market for bakery business and exports from India rebrsenting the standalone performance of your Company grew 11.4% from Rs. 7,269.26 Crores in 2014-15 to Rs. 8,097.81 Crores in 2015-16. Net Profit grew 20.4% from Rs. 622.41 Crores in 2014-15 to Rs. 749.09 Crores in 2015-16. The key financials are as under:

(F) OPPORTUNITIES AND THREATS

Bakery

Rising income and aspiration of consumers is the largest opportunity for your Company.

To exploit this opportunity, your Company is actively seeking technology solutions which help service consumer needs in a differentiated manner while effecting cost savings/efficiencies. Your Company is uniquely positioned to encash on the following opportunities:

a) Disruptive innovation in Biscuits

b) Nascent categories of Rusk & Cake

c) Large & profitable international markets

d) Growing consumer brference for Healthy Breads

e) Rural growth in India

f) Untapped geographies in India

These opportunities are equally visible to the current and future competitors of your Company and that constitutes the primary threat. Intensified competition due to lower industry growth, challenges in retaining a pool of talented human capital & fast changing regulatory needs are some of the major threats seen by your Company.

A combination of ahead-of-market innovations, consistent quality delivery, supporting the brand aggressively through consistent and competitive investment and continuous enhancement of capability and efficiency of distribution pipeline will help your Company address the threats.

Dairy

Increasing consumer and industry appetite for value added dairy constitutes the single largest opportunity. Infrastructure improvement including cold chain that aids easier distribution is another opportunity.

Increased competitive activity and good quality milk availability are two of the biggest challenges seen by your Company.

Your Company is working actively to evolve strategies to manage these challenges.

Adjacencies

The opportunity in adjacencies such as chocolate products, breakfast, salted snacks and other ready-to-eat foods is huge. This is not only borne out by the observed growth rate in India but also by the experience of countries such as Brazil, Malaysia etc., that are one step ahead on the development ladder.

Your Company is evaluating several of these categories carefully and working on business model options before choosing a few for entry.

(G) RISKS AND CONCERNS

Growth of individual categories is linked to the overall economic growth. Primary risk to the business will be on account of adverse changes to the economy. Volatility in commodity prices is the other significant risk.

(H) INTERNAL CONTROL SYSTEMS AND ADEQUACY

Your Company's Internal Control Systems are commensurate with the nature, size and complexity of its business and ensure proper safeguarding of  assets, maintaining proper accounting records and providing reliable financial information.

The Directors have laid down internal financial controls to be followed by the Company and such policies and procedures have been adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Company's policies, the safeguarding of its assets, the brvention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely brparation of reliable financial information.

An external independent firm carries out the internal audit of the Company operations and reports its findings to the Audit Committee and Risk Management Committee on a regular basis. Internal Risk & Control function also evaluates organisational risk along with controls required for mitigating those risks. Internal Audit provides assurance on functioning and quality of internal controls along with adequacy and effectiveness through periodic reporting.

Your Company has a Code of Business Conduct for all employees and a clearly articulated and internalized delegation of financial authority. These authority levels are periodically reviewed by management and modifications, if any, are submitted to the Audit Committee and Risk Management Committee and Board for approval. Your Company also takes prompt action on any violations of the Code of Business Conduct by its employees.

The Audit Committee and Risk Management Committee reviews the effectiveness of the internal control system and also invites senior management personnel to provide updates on operating effectiveness and controls from time to time. A CEO and CFO Certificate confirm the existence and effectiveness of internal controls and reiterate their responsibilities to report deficiencies to the Audit Committee and Risk Management Committee and rectify the same. The Audit Committee and Risk Management Committee also reviews the risk management framework periodically and ensures it is updated and relevant

During the year under review, the Internal Financial Control (IFC) Audit was carried out by the Statutory Auditors, the Report of which is forming part of this Annual Report.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Your Company is committed to create an environment of learning and development, promote internal talent and build an apbrciating culture. Your Company has created platforms for recognizing and motivating employees for the good work they do in the organization.

Your Company has established listening and feedback systems from employees through usage of employee engagement surveys, 360 degree feedback for leadership team. Such feedbacks help your Company to have a collaborative, open and transparent culture.

During the year under review, your Company has focused on functional training programs such as bakery technology, machine training, Food Safety Regulations, industrial safety, crucial conversations to name a few.

In 2015-16, your Company has continued to maintain amicable Industrial Relation footprint by focusing on increased worker level engagement through formal and informal communication and training forums.

As of 31 March 2016, your Company had 3,027 employees on its rolls.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Company's objectives, expectations or brdictions may be forward looking within the meaning of applicable laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to your Company's operations include raw material availability and prices, cyclical demand and pricing in the Company's principal markets, competitive actions, changes in Government regulations, tax regimes, economic developments in India and in countries in which the Company conducts business and other incidental factors.