MANAGEMENT DISCUSSION AND ANALYSIS REPORT The Management Discussion and Analysis Report is a part of the Director's Report. It aims to elucidate developments in the business environment, performance of the Company and future outlook. The State of Indian Agriculture: 1. Market Size of agriculture and allied activities 2. Investments Several players have invested in the agricultural sector in India, mainly driven by the government's initiatives and schemes. According to the Department of Industrial Policy and Promotion (DIPP), the Indian agricultural services and agricultural machinery sectors have cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about US$ 2,261 million from April 2000 to December 2015 3.Budget 2016-17 Budget 2016-17 proposed number of measures to improve agriculture and increase farmers' welfare as given below: • 2.85 million hectares to be brought under irrigation, Rs 287,000 crore (US$ 42.11 billion). • grant in aid to be given to gram panchayats and municipalities. • 100 per cent village electrification targeted by May 01, 2018. • Doubling farmers income in 5 years. • Issuance of soil health cards to farmers. • Launch of E platform for marketing agricultural produce. • Incentives on pulses production. • Agricultural credit Rs. 9 Lacs. • Allocations of Rs. 38,500 Crore for MGNREGS, Rs. 27,000 Crore for Pradhanmantri Gram Sadak Yojna. and Rs. 87,765 Crore for development of Rural Sector. Government Initiatives:- Some of the recent major government initiatives in the agriculture sector are as follows: • Prime Minister Mr. Narendra Modi has unveiled the operational guidelines for the Pradhan Mantri Fasal Bima Yojana which aims to provide farmers with crop insurance. • The Cabinet Committee on Economic Affairs (CCEA) has approved 'Blue Revolution', an umbrella scheme for integrated development and management of fisheries by Government of India, with total financial outlay of Rs 3,000 crore (US$ 440.15 million) for a period of five years. • Ministry of Power, Coal, New and Renewable Energy has announced that government's plans to invest Rs 75,000 crore (US$ 11.08 billion) in an energy-efficient irrigation scheme over the next three to four years. • The new crop insurance scheme for farmers 'Bhartiya Krishi Bima Yojana' aims to cover 50 per cent of the farmers under the scheme in the next two-three years. • India and Lithuania have agreed to intensify agricultural cooperation, especially in sectors like food and dairy processing. • Gujarat Government has planned to connect 26 Agricultural Produce Market Committees (APMCs) via electronic market platform, under the National Agriculture Market (NAM) initiative. • The State Government of Telangana plans to spend Rs 81,000 crore (US$ 11.88 billion) over the next three years to complete ongoing irrigation projects and also undertake two new projects for lifting water from the Godavari and Krishna river. Source: 1 to 4 www.Ibef.org 5. Challenges :- 1. Small and fragmented land-holdings: 2. Ignorance of farmers specially in undeveloped states. 3. Farmer's Poor knowledge about benefits of Seeds, Fertilizers and Pesticides. 4. Irrigation- only 40% irrigated area. Rest 60% depends on monsoon. 5. Inadequate storage facilities. Indian Crop Protection market:- Modern agriculture depends on the four main factors viz: water, fertilizers, seed and pesticides. Pesticides are the integral part of modern agriculture. About 35-45 % crop production is lost due to insects, weeds and diseases, while 35% crop produces are lost during storage. Increasing demand of food grains & declining farmlands in India have increased brssure on farm yield improvement and reduction in crop losses due to pest attacks. Indian crop protection market was estimated at $ 3.8 billion in FY12 with exports constituting about 50% of the market. The crop protection market has experienced strong growth in the past and is expected to grow further at approximate 12% p.a. to reach $ 6.8 billion by FY17. The growth would be largely driven by export demand which is expected to grow at 15-16% p.a, while domestic demand is expected to grow at 8-9% p.a. Biopesticides, which currently rebrsent only 4.2% of the overall pesticide market in India, are expected to exhibit an annual growth rate of about 10% in the coming years. The per capita consumption of pesticides in India is 0.6 Kg/ha which is one of the lowest in the world. The per capita pesticide consumption in China and USA is 13 Kg/ha and 7 Kg/ha, respectively. The main reasons for low per capita consumption of pesticides in India are low purchasing power of farmers, non-awareness and small land holdings. The majority of agricultural farm land belongs to marginal farmers but maximum contribution to the produce is also from marginal farmers. The large scale farming is increasing and therefore, there is good scope for increase of per capita consumption of pesticides in India Pesticide Consumption over the years in India Dhanuka's Overall Performance:- From time to time, agricultural production is affected by El Nino, an abnormal warming of the Pacific waters near Ecuador and Peru, which disturbs weather patterns around the world. The 2015 year El Nino has been the strongest since 1997, debrssing production over the past year. During the financial year 2015-16, your Company has sustained its moderate growth rate in terms of revenue and margin amidst all the adversities in Agro Chemical Industry in India. This was resulted due to existing feedback mechanism of the Company that keeps assessing the farmers' need round the year and accordingly innovative products are launched to cater to the need of the farmers within time every year. Key opportunities:- The agrochemical market in India is expected to grow steadily at a CAGR of over 9% during the years 2016 to 2020. Availability of credit facilities to purchase agrochemicals is the primary driver for the market. The government of India has initiated several policy measures to enable farmers to gain access to credit facilities. These policies emphasize in providing timely and adequate credit support to all farmers. The Indian government has been focusing mostly on small and marginal farmers and the weaker sections of the society, to enable them to adopt modern technology and improved agricultural practices, thereby increasing agricultural production and productivity. The implementation of integrated pest management (IPM) as a new method of crop protection is another trending factor driving the growth of the agrochemicals market in India. The IPM method is a sustainable approach to pest management that combines biological, mechanical, physical, and chemical methods. These methods are executed in three stages, namely brvention, observation, and intervention. Source: <http://www.prnewswire.com/news->releases/agrochemical-market-in-india-2016-2020-300196917.html Monsoon: Indian Metrological Department has brdicted "above normal" monsoon this year, easing fears over farm and economic growth after two consecutive years of drought. Challenges & Threats:- 1. Low awareness among farmers (only 25-30% of the farmers are aware of agrochemical products and their usage). 2. Rising sale of spurious pesticides and spiked biopesticides pose a major threat to industry growth. 3. With large number of end users sbrad across the geography, managing inventory and distribution costs is a challenge for the industry players. Effectiveness of current supply chain management (SCM) practices in agrochemicals is another area of concern for the industry. 4. The industry needs simplified registration norms for pesticides exports and increased scope of regulations to include all types of pesticides (including bio pesticides). 5. There is also a need to encourage R&D and ease registration process for development of new molecules. Substantial Expansion in Udhampur unit After having received suitable approval from authorities, total pesticide formulation capacity of Udhampur manufacturing unit of the Company has been doubled i.e. existing capacity 5900MT + additional grant capacity 5900 MT= 11800MT /annum. With this approval, the Company will also be entitled to avail Excise Duty Refund for a further period of ten years on the production of Udhampur unit of the Company. Marketing Strength:- 1. Team of 1, 500 Dhanuka Doctors each covering 12-18 villages every week. 2. Wide and deep pan India distribution network (more than 8800 distributors and approx. 80,000 retail counters.) 3. Strong Brand portfolio comprising over 80 products. 4. Enduring relationships with global innovators resulting in the introduction of Specialty molecules. 5. Dhanuka connects well with farmers, scientist community and opinion leaders. 6. Continuing engagement of Mr. Amitabh Bachchan as the Company's Brand Amabassdor. Risk Identification, Assessment & Mitigation Document Risk is the uncertainty associated with the outcome of an event, depending on factors influencing it. Risk is inherent in every form of enterprise and different risks have different impact on business. Risk in agricultural-inputs sector is considered to be relatively high, due to the dependency on Environmental factors. Risk Management Risk Management is a pro-active approach towards better control and management of an organization. It comprises risk identification, assessment and mitigation. The first step is to identify all relevant risks - internal and external. The next step is to assess the probable impact of the risks on the business - high, medium or low. Finally, the Management has to decide its response strategy to manage each risk and take appropriate action. A formal Risk Management process and its periodic review help in establishing a culture that results in better business and risk management. It puts Management in a better position to determine the best course of action to mitigate the risks. Objectives of Risk Mitigation Plan The objectives of risk mitigation plan are to decide risk response strategies for the various risk items which have been identified and assessed during the risk analysis, to enable appropriate action in the right direction to manage risk. The following three key questions can be posed while planning risk mitigation measures: 1. What options are available and which ones are appropriate for us in current scenario? 2. What are the tradeoffs in terms of costs, benefits and risks among the available options? 3. What shall be the future impact of current decisions? Risk Response Strategy A well-defined risk response strategy can help to avoid or reduce the identified risks. A risk may be: • Unidentified, unmanaged or ignored (by default). • Recognized, but no action taken (absorbed as a matter of policy). • Avoided (by taking appropriate steps). • Reduced (by an alternative approach). • Transferred (to others through contract or insurance). • Retained and absorbed (by prudent strategy). • Handled by a combination of the above. |