Management Discussion and Analysis Report Clause 49 of the Listing Agreement stipulates disclosure under specific heads which are given in the following paragraphs and which continue to be followed in the usual course of the Company's business over the years in discussions amongst the Directors and other Senior Management Personnel. (a) Industry Structure and Developments Food Processing The food processing industry is of enormous significance for India's development owing to the vital linkages and synergies it promotes between industry and agriculture. It constitutes a share ofaround 9 - 10% ofGDP and is currently growing at more than 10% per annum. The fruit and vegetable processing in India is divided almost equally between the organised and unorganised sector. Whilejuices, pulps and concentrates are largely manufactured by the organised sector, the unorganised sector's foothold is in the traditional areas of processed items such as pickles, sauces and squashes. Most units engaged in the above are currently export oriented. Domestic consumption of processed fruits and vegetable products is low, indicating a potential for growth through increased penetration of the domestic market. Calcium Carbide, Charcoal, Ferro Silicon and Anthracite coal Calcium Carbide, Charcoal, Ferro Silicon and Anthracite coal constitute raw materials to various industries, particularly the iron and steel industry. The rate ofgrowth in the manufacturing sector has declined. Our Finance Minister, while talking about the state of the economy in his interim budget speech, said "Manufacturing is the Achilles heel ofthe Indian economy". There has been an alarming deceleration in investment in the manufacturing sector. Companies have shrunk their expansion plans. Although domestic demand for steel is weak, some companies are increasing exports to gain from the weak rupee. The performance of our metals and minerals trading division is linked to the growth of the manufacturing sector. Retail India's retail industry is aggressively expanding itselfwith a noticeable shift towards organized retailing formats. Favourable demographics, increased urbanization, nuclearfamilies, purchasing powerofconsumers, brference for branded products and higher aspirations are the key drivers of retail consumption in the country. (b) Opportunities and threats Food Processing Large material base, rising income levels and changing consumption patterns coupled with favourable demographic profile and changing lifestyles have opened up a plethora ofopportunities for players in this sector. However, proliferation of competition and the pro activeness of the competitors in product development, from both branded competitors and low cost local players are major threats to the Company. Branded players are aggressively marketing their range, offering good retail schemes coupled with attractive packaging as well as innovative, consumerfriendly packs. Unbranded players are taking advantage ofcompromise in quality benchmarks as well as barest of logistic costs factoring in local manufacturing. DRUK continues to be at a disadvantage in fighting both ends ofthe competition. Calcium Carbide, Charcoal, Ferro Silicon and Anthracite coal There has been a decline in the demands for Calcium Carbide and Anthracite coal. Demand for Ferro silicon has been steady and there had been an increased demand for Charcoal. Threats are in the form of suppliers increasing their prices by withholding material, passing off of inferior material in the name of "DRUK" brand, fluctuating supplies and cheaper Chinese supplies of Calcium Carbide flooding the Indian market. Retail Opportunities in food and grocery retail are immense. However the challenges faced are escalating real estate prices, shortage oftrained manpower, supply chain management and supervision and administrative concerns. (c) Segment-wise or Product-wise Performance The performance of the Fruit Product Division during the year was not satisfactory as the Company was severely challenged by seasonality of raw materials and demands, high requirement ofworking capital, high inventory carrying costs, high taxation and high packaging cost. The overall performance ofthe industrial division was good during the year. The performance of C3 was consistent and good during the year. Turnover increased by 19.5% over the last year. (d) Outlook Your company will continue to focus on both development and expansion of markets and share gains as appropriate to secure competitive growth. Managing margins through judicious pricing and sustained efficiencies and cost saving will receive constant attention. (e) Risks & Concerns Despite the prospects being good, the severe competition and seasonality continue to govern demand and therefore results. Vital areas of concern are the transport system for movement of goods from warehouses to the distributors and the dependence on IT sector for solutions that help automate and integrate the transactional and control system. (f) Internal Control Systems & their Adequacy The statutory requirements ofthe Audit Committee are being met. In meetings ofthe Audit Committee, the Statutory Auditors and Partners of Internal Audit Firms participate. Such Internal Auditors also periodically visit various divisions of the Company. Activities of each sector are being programmed on a quarterly basis, which get translated into an Annual Activity Plan. Each departmental head is involved in the brparation ofthe activity plans and identifying and categorising the areas of risks, which are closely monitored. Such documentations thereafter undergo a further layer ofscrutiny and implementation underdirectsuperintendence ofthe Managing Directorofthe Company. (g) Financial & Operational Performances This has been adequately stated in the Directors' Report. (h) Material Developments in Human Resources / Industrial Relations Front Industrial Relations remained cordial throughout the year. Your Company strongly believes that its intrinsic strength lies in the quality of its pool ofdedicated and motivated employees. |