MANAGEMENT DISCUSSION AND ANALYSIS REPORT The Management of Kothari Fermentation & Biochem Ltd. is pleased to brsent its Thirteenth Analysis report covering segment wise performance and outlook. The Indian food industry is poised for huge growth, increasing its contribution in world food trade every year. In India, the food sector has emerged as a high-profit sector on the back of the scope it offers for value addition, particularly with the food processing industry getting recognized as a high-priority area. Accounting for about 32 per cent of the country's total food market, the food processing industry is one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. The total food production in India is likely to double in the next 10 years. Our Industry being the support industry for the Food processing Industry, also expects a reasonable growth in the years to come. Your company operates in only one segment of Manufacturing Yeast during the year 2014-15. Yeast is a fermenting and leavening agent. Yeast is rich in proteins and acts as a probiotic. Based on type, yeast is segmented into baker's yeast, brewer's yeast, feed yeast, industrial yeast and bio-ethanol yeast. Yeast is used in various end-use applications in the Food and Beverages, Feed, and Others sectors. Presently India produces approximately around 85-90,000 tons of yeast per year out of which 15% is produced by the company. Industry Structure and Developments The Indian Yeast Industry comprises of three major companies which are manufacturing yeast including our company. The other two companies are multi-nationals. Your company is the only Indian Company which is in the business of manufacturing of Yeast. There is increasing demand for yeast and yeast based products from all over the world. The potential for expansion in India is very large with countries own demand and export potential from neighboring countries. As one of the largest cane sugar producer country, India has sufficient supply of cane molasses which is the main raw material for yeast industry. But capital cost of setting up yeast manufacturing plant is very high as practically all equipment is made in high grade stainless steel, power requirement is also very high as large volume of liquids are handle using high power pumps auto-matted control systems, separation and packing systems. Raw molasses is produced only in three months during cane crushing season and so needs to be stored. Also the effluent generated with molasses as main raw material with high BOD and COD effluent requiring complex, elaborate and expensive treatment equipment and facilities is also a challenge posing the yeast industry. Making high quality yeast at low cost to meet continuously changing needs of baking industry, reducing carbon foot print and pollution control are biggest challenge in front of Indian and global yeast industry. Opportunities and Threats The growth of yeast market is directly linked to the increasing trend of processed and fast food items, especially bakery items. As per the current trend, India is brsently one of the most promising markets for Baker's yeast, as its demand is continuously increasing with the rise in population and changing habits of Bakery products. India's estimated per capita consumption of bread, as compared to other European and developing countries of Asia is amongst the lowest. But due to brsence of intense competition, the company is constantly working to enter into markets, other than Bakeries, and had developed technologies for the manufacturing of Yeast based products needed for Distilleries, Feed, Food Pharmaceuticals and Biotech Industries. Further the company has achieved zero discharge of polluted water by installing MEE (Multi Effect Evaporator) for overcoming the pollution problems. Segment wise Performance Manufacturing of Yeast is the only business segment of the Company during the year 2014-2015. The brand names -Kothari "SUNRISE", "KF" and "FOUR SEASONS" have been well established in the domestic market. The comparison of financial data with brvious year's data, is provided as under the heading "Discussion on Financial Performance with respect to Operational Performance". The company recorded a capacity utilization of 78% of its production facilities and is undergoing a major expansion. Being an Effluent generating Industry and the management working on the policies of "Sustainable Development" and "Eco-friendly manufacturing" is simultaneously setting up the Effluent Treatment System for the capacity increase in production from 18000 MT to 25000 MT. The capacity increase would not only improve its financial performance but would also help the company face challenges and threats from the multinationals. Future Outlook The company is regularly reviewing its whole structure and making changes for future improvements. Your directors are making all efforts for increasing production by a capacity expansion plan during the current year. Major capital investments are being undertaken for improvement and automation of the existing production facilities. Various control systems are also being deployed for the reduction of costs and improving of the operating efficiencies. However, continuous increase in cost of raw materials, power tariffs and fuel costs are deterrent to the growth and profitability of the company. The Company is constantly trying to be profitable by utilizing its available resources more effectively and efficiently Internal Control System and their adequacy The Company has an internal control system with proper internal delegation of authority, supervision, checks and procedures. This system is reviewed and updated periodically in order to improve the same to meet the business requirements. The Internal Auditor of the Company has ensured adequacy and compliance of Internal Control System and that it commensurate with the size and nature of the Company and also suggests necessary checks and balances to increase the effectiveness of the system. The Board of Directors, Audit Committee and the Management ensure that the internal control system operate effectively within the organization. Material Developments in Human Resources/Industrial Relations Front, including number of people employed The Company believes that the competence and commitment of its people are the key drivers for growth of the organization. There have been excellent relations between the employees at various levels and the management. The managers' help employees identify obstacles and teach them leadership techniques through training, mentoring and coaching. The Company responds to genuine grievances of employees in order to foster warm and cordial relationships between the management and the employees, increases job satisfaction of employees and ensures that employees can add value to their lives. There were 172 persons directly employed by the Company during the brvious financial year on an average basis. Forward Looking & Cautionary Statement: Statements in this report on Management Discussion and Analysis describing the Company s objectives, projections, estimates, expectations or brdictions may be "forward looking statements" within the meaning of applicable securities laws or regulations. These statements are based on certain assumptions and expectations of future events. Actual results may differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include global and domestic demand supply conditions, finished goods prices, raw material cost and availability, changes in Government regulations, tax regimes, economic developments within India and other factors such as litigation and industrial relations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. For and on behalf of the Board Pramod Kumar Kothari Chairman & Managing Director Place: New Delhi Date: 14th of August, 2015 |