MANAGEMENT DISCUSSION AND ANALYSIS REPORT 1. Overview of the Food Processing Sector : India is a richly endowed agricultural nation. It has nearly a tenth of world's arable land and a fifth of world's irrigated land. India has all major climates of the world, enjoys long sunshine hours, fairly good rainfall which are ideally suited for round the year cultivation. Given the resource endowment, India has all the potentials to become one of the largest food processing countries in the world. Currently 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. Abundant supply of raw materials, increase in demand and incentives offered by the government has impacted food processing industry positively. Food processing sector has emerged as an important segment of the Indian economy in terms of its contribution to GDP employment and investment. During the last 5 years ending 20I2-I3, Food Processing Industries Sector has been growing at an Average Annual Growth Rate (AAGR) of around 8.4 percent as compared to around 3.3 percent in Agriculture and 6.6 percent in Manufacturing sectors. (Source : MOFPI Annual Report 20I3-I4). According to the latest Annual Survey of Industries (ASI) for 20II-I2 , this sector has a total of 36,88I registered units with fixed capital of nearly Rs.I.45 lakh crore and producing output of around Rs. 7.34 lakh crore in value terms. The sector has generated employment to the tune of I7.77 lakh persons. The value of processed food exports during 20I3-I4 was of the order of US $ 37.79 Billion constituting I2.I percent of the India's total exports. (Source: DGCI&S, Kolkata) The Foreign Direct Investment inflows in Food Processing Sector in the country during the year 20I3-I4 was US$ 3982.88 million as compared to US $ 40I.46 million for the year 20I2-I3 . (Source : Department of Industrial Policy & Promotion (DIPP). Foreign Direct Investment (FDI) is permissible for the processed food products upto I00% on automatic route except for the items reserved for Micro and Small Enterprises. The Government has recently de-reserved bread, pickles and chutneys .This is a welcome move and it will encourage greater FDI investments. 2. Opportunities, Threats and General Business Outlook The Company is constantly focusing to establish a strong position in the growing processed foods industry in India and abroad. It is engaged in the manufacturing and trading of various Processed foods . The range of Company's products includes Meal Accompaniments (Pickles, Pastes, Chutneys), Ready-to-eat Curries, Canned Vegetables in Brine, Spices in whole and ground form, blended masala, IQF Indian Vegetables, Frozen snacks, Frozen Parathas, Frozen Continental and Mexican Foods, etc. The Company is making constant efforts to tap new markets and to constantly innovate and renovate the products in its portfolio to meet changing trends and brferences of the Global consumers. The Company has well established brands and strong distribution networks in Europe, USA, Middle East Countries, Australia, Canada and Asia. The overall Business Development is as under : India : The year under review witnessed rebranding of the Company's brand ADF SOUL with a better look of the logo and more appealing packaging designs. The new products launched under this brand during the year were the 'South Indian Style Pickles' and 'Cooking Pastes' - in user-friendly laminated tubes . These products have been apbrciated by the consumers & are fast gaining shelf space amongst the top retail chains in India. The Company is gearing up to launch a range of exciting new products and expand its footprints in new markets in the forthcoming year. USA : The Company continues to develop the brsence of its core brands viz. ADF SOUL, Nate's and PJ's and solidify its distribution channels across the US markets. During the year under review, the Company developed and launched a range of new products including a very innovative product called Nate's Mediterranean Bites that has received an overwhelming response from the consumers. The company has been successful in doing new listing in major supermarket chains and natural grocery stores across the USA. Also several exciting and innovative new products are in pipeline under the Company's brand umbrella. International business : Apart from India and USA the Company's products are being sold in over 45 countries across the Globe. During the year under review, the company's leading International brands Ashoka , Aeroplane and Camel underwent packaging revamp. The new product introductions under the Ashoka brand were Mini Samosas, Snacks, Kathi Rolls in the frozen range and Chutneys made with Olive Oil in the dry range. There were new introductions under Camel and Aeroplane brands like the Cooking Pastes, South Indian Style Pickles, North Indian Pickles and Sauces. SWOT analysis : The Company's strengths include a wide range of products from treats to healthy eats at affordable price, ongoing product up-gradation based on feedback on consumer insights ,a dedicated team force , strong distribution network that allows wide reach and coverage in target markets. The continuing factors posing as weaknesses/hindrances for the Company are the complex supply chain configuration, the Labour intensive operations, and ever rising costs. Irrespective of these factors, the Company is driven by the strength to meet the customer expectations and the same is evident with the market response. Busy lifestyles, working women, smaller and more diverse households , increasing per capita income leading to increase in demand for convenience food products continue to provide good growth opportunities for the Company. The Business risks or threats faced by the Company are mainly lack of adequate external infrastructure, increase in the prices of raw materials, packing material and fuel, non availability of raw materials, exchange rate fluctuations, changes in fiscal benefits/laws. Also, the industry growth is largely affected by lack of integrated supply chain. The intense competition faced from established brands in the organized sector and numerous players in unorganized sector does impact the business growth to an extent. 3. Product-wise Performance In accordance with the requirements of Accounting Standard AS-17, "Segmental Reporting", the Company has determined its business segment as 'Processed and Preserved Foods'. Since the entire business of the Company is from Processed and Preserved Foods, there are no other primary reportable segments. 4. Risks and Concerns The Company continuously works towards de-risking its business by adopting brventive measures. Your Company has well established Business Risk Management System which enables detection and monitoring of the business risks on a continuous basis. However, there are certain potential risks being more industry oriented and the management strongly feels the same could be mitigated by having systematic decisions and measures. These industry oriented risks are as listed below : •Raw Material prices and operating expenses Raw Material is a very crucial cost for the Company's products. Any increase in the prices of core raw materials , would adversely affect the Company's operating results. The Company is adopting best possible measures to keep operating expenses as much under control and also working on better product mix to maintain the margins. •Competition Competition, generally perceived as the 'game changing risk' is a critical area in Food industry sector. With players continuously entering both the organized as well as unorganized sector, it is bound to increase the brssure on pricing strategies and the demand for Company's products. There is an apparent rise in the number of international food franchises getting their foothold in India. Even with this, the management is positive to outperform with its performance. •Exchange Rate Fluctuation The Company being engaged in exports, derives approximately 95% of its revenue from export sales. An apbrciation of the Indian Rupee can adversely impact the Company's exports. The Company manages this financial risk through booking of forward contracts in the range of approximately 50% of our projected sales. 5.Internal control systems and their adequacy Identification and monitoring the internal control systems play a crucial role in an organization. The Company has a well established system of internal controls, and its adequacy is constantly supervised by the Management. The internal control system implemented by the Company strikes at achieving efficiency in operations, optimum utilization of resources and effective monitoring thereof and compliance with all applicable laws and regulations. Regular audits are conducted by the external agencies at all the units of the Company in order to ensure the effectiveness and suggest areas of improvement and strengthening. These frequent audits help the Company to identify, gauge and thereby administer the areas where further improvement can be undertaken. The Audit Committee of the Board reviews the adequacy of internal controls. 6.Financial performance with respect to operational performance Tight budgetary control, over all key operational performance indicators and review of working capital is being exercised for continuous improvement of performance and profitability. Funds have been judiciously deployed to support high quantum of operations without resorting to additional borrowings, wherever possible. A detailed note on the financial performance of the Company in given in the Directors Report. 7.Material developments in Human Resources/ Industrial Relations front, including number of people employed The Company believes in the overall development and continuous growth of its employees. The Company continues to provide its employees the ideal workplace where they can give optimum results. This has resulted into team spirit and team work. The Company continues to equip its employees with the skill which would enable them to meet the growing organizational challenges. The relationships with employees have been cordial and operations at the factory uninterrupted. Measures for safety of employees, welfare and development continue to receive top priorities. The Company has 316 employees as on 31st March, 2015. 8.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 the 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. |