MANAGEMENT DISCUSSION AND ANALYSIS REPORT Indian seed Industry is one of the vibrant ones in the world. In value India is estimated at 12154 Cr and 6th in rank after USA, China, France, Brazil and Canada. i. AGRICULTURE ECONOMIC SCENARIO Over 3 billion people - half the world's population live in rural areas. Agriculture is the livelihood of approximately 2.5 billion of them. With the world population growing @ 1% a year, an estimated 752 million people are going to be added by 2022 thus putting additional demand on food while the area for farming remains static. Against this backdrop, it's imperative that the additional food needs be met from enhancing productivity. For many emerging economies, especially those like India, agriculture is the engine of economic growth. Agriculture in most of the developing economies is known for the larger contribution to national GDP. Whereas in case of developed economies percentage contribution of agriculture to the national GDP is inconspicuous. Experts believe that developing countries and emerging economies will play an increasingly important role in agricultural markets in near future. ii. SEED INDUSTRY OUTLOOK Cotton, Maize and paddy are expected to be the main growth drivers. With ascendency in income levels and lifestyle, the demand for vegetables is likely to go up concomitantly subscribing to the growth of vegetable seed market. In the near future, organised players and seed companies with a strong R&D and diversified portfolio of products are expected to reap the benefits. iii. INDUSTRY STRUCTURE AND DEVELOPMENT At 179.9 million hectares, India holds the second largest agricultural land in the world. A majority of the Indian population relies on agriculture for employment and livelihood. Steady investments in technology development, irrigation infrastructure, emphasis on modern agricultural practices and provision of agricultural credit and subsidies are the major factors contributing to agriculture growth. iv. BUSINESS STRATEGY The size, diversity and the overall steady growth of the Seed industry in India offer great potential for the company to proactively adopt strategies to sustain leadership position in the Industry. Also, the company is focused on strengthening the front end and back end business activities with a view to have better visibility of end products in the market place across the spectrum and sustainable sourcing and origination capabilities to capture the value chain. The focus is also targeted towards achieving continuous improvement in products, processes and service offerings to serve customers. The company is in the process of adding businesses with diversification to support growth strategy, leverage upstream and downstream strengths and sustain brsence in agriculture segments, within the overall product portfolio in agriculture sector. v. OPPORTUNITIES AND THREATS Global population has been growing at ever faster rates and has crossed the 7 billion mark. Asia is home to approximately 60% of the world's population with India accounting for 1.2 billion people. This large and growing population has material ramifications on the global food production and supply dynamics. The global demand for cereals for food and animal feed is forecast to grow from the current 2.1 billion tons a year to nearly 3 billion tons by 2050. Economic development and the resulting income growth in the developing nations will drive dietary consumption practices to high-protein diets which are more food grain intensive. The implication of all the above factors is that the productivity of agricultural land will need to increase to meet the growing demand. Agriculture in the current environment faces challenges from multiple fronts; it has to produce sufficient food and fibre to feed the growing population with a smaller rural labor force, contribute to inclusive development in developing Nation while adopting sustainable agricultural practices and adapt to climate change. vi. INDUSTRY OUTLOOK While the growth in agricultural sector has slowed, India continues to be one of the largest agricultural producers with over 50% of its population engaged in various parts of the agriculture value chain. In addition, with over a billion people to feed, food security is of strategic importance to India. Now, Food Security Bill is on the cards for introduction in both the houses of Indian Parliament by the Government of India vii. RISK AND CONCERNS a) PRICE VOLATILITY Your Company is exposed to commodity price fluctuations in its business. All major raw materials as well as finished goods being agro-based are subject to market price variations. Prices of these commodities continue to be linked to both domestic and international prices, which in turn are dependent on various Macro/Micro factors. Also Commodities are increasingly becoming asset classes. Prices of the Raw materials and finished products manufactured by your Company fluctuate widely due to a host of local and international factors. Your Company continues to place a strong emphasis on the risk management and has successfully introduced and adopted various measures for hedging the price fluctuations in order to minimise its impact on profitability. Also, your Company has initiated setting-up of a government framework to upgrade itself to a robust risk management system. b) GOVERNMENT POLICIES The policies announced by the Government have been progressive and are expected to remain likewise in future, and have generally taken an equitable view towards various stake holders, including domestic farmers, industry, consumers etc. c) CLIMATE RISK Changing climate conditions such as continuous dry spell, or excessive rainfall may drastically impact commercial seed production of the Company. The Company's diverse product portfolio of commercial crops (cotton and sunflower) food crops (corn, rice, and millets), vegetable crops and quantum of seed reserves help de-risk from any contingency. Further, the Company's hybrids with enhanced buffering capacity to withstand a biotic stress help overcome the weather aberrations. d) COMPETITION RISK In the extremely competitive seed business, cut-throat competition from peers can impact the Company's trade. The Company's ability to innovate from long term investment in R&D for knowledge driven products and sustained quality assurance serves as imbrgnable barriers to the Company's business. In addition to this, the Company has an aggressive market which helps in marketing the Company's products across the country e) DEPENDENCY RISK Dependency on any one particular product/seed may affect the growth prospects of the Company. The Company has developed an array of wide ranging products with the judicious use of genetic wealth of germplasm in order to minimize its dependency on any single hybrid or single crop. In addition to this, the Company continuously refurbishes its product portfolio by phasing out extant products and focusing on new and improved products. f) PRODUCT LIFE-CYCLE RISK Technological advances at a fast pace are accelerating the innovative product development which in turn is shortening the shelf life of a product/ seed. The Company's continuous investment in Research & Development and the ability to develop an array of new product pipeline helps to mitigate the product life-cycle risk and keeps it ahead of competition viii. RISK MANAGEMENT INITIATIVES Persistent volatility in commodities and currency highlights the importance of risk management practices and their role in protecting the structured margin of the organisation. Given the nature of the business, your Company is exposed to market risks primarily arising from movements in currencies and commodity prices. To manage these risks, we have put in place integrated risk management program which is designed to capture underlying risks from each business and put in place limits and mitigates to address these risks. Risk management continues to be the cornerstone of our business decisions and efforts to protect business margins. Your Company has put in place a system of limiting exposures to market on the principles of value at risk. It is also engaged in commodity hedging to reduce the impact of volatility in the prices of the agricultural commodities. Your Company also pro-actively engaged in foreign exchange hedging to manage currency risks. ix. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company has in place adequate and appropriate systems of internal controls commensurate with its size and the nature of its operations and these have broadly withstood the test of time. The systems have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorizations and ensuring compliance of corporate policies. The internal audit is being carried out by a firm of Chartered Accountant having considerable expertise and experience. The audit is carried on a monthly basis and monthly audit reports are submitted to the management. The Audit Committee reviews the internal audit reports, statutory audit reports, the quarterly and annual financial statements and discusses all significant audit observations and follow up actions arising from them. The statutory auditors of the Company also scrutinize the internal audit reports as part of their statutory audit functions. x. CAUTIONARY STATEMENT "Management's Discussion & Analysis Report" contains forward looking statements, which may be identified by the use of the words in that direction, or connoting the same. All statements that address expectation or projections about the future, including, but not limited to statements about the Company's strategy for growth, product development, market position, expenditures and financial results are forward looking statements. The Company's actual results, performance or achievements could thus differ materially from those projected in such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward - looking statements on the basis of any subsequent development, information or events. By Order of the Board For Omega AG Seeds (Punjab) Limited Sd/- [N.V.R. MOHAN RAO] Managing Director Place: Hyderabad Date : 29th August , 2015 |