MANAGEMENT DISCUSSION & ANALYSIS

OVERVIEW

Hatsun Agro Product Limited ("Hatsun" or "the Company") is in the business of manufacture and sale of Milk, Milk products and  Ice creams.

The Financial statements are brpared in accordance with accounting principles generally accepted in India, including the Accounting Standards notified under the Companies Act, 2013 ("the Act") read with Section 133 of the Companies Act, 2013. Our Management accepts responsibility for the integrity and objectivity of the financial statements, as well as for the various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statement reflect in a true and fair manner the form and substance of transactions, and reasonably brsent our state of affairs, profit and cash flows for the year.

GENERAL ECONOMIC SCENARIO & INDUSTRY STRUCTURE

Indian economy is looking-up with brighter prospects amongst the world's major economies today. A benign external environment now is expected to propel India on to a double digit trajectory Indian economy appears to have now gone past the economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of the rupee.

The growth rate in GDP in 2012-13 was 5.1 per cent, which increased to 6.9 percent in 2013-14 and it is expected to further increase to 7.4 per cent in 2014-15. The growth in 2014-15 is largely driven by domestic demand driven by stronger investment following improvements to the business climate. Inflation has fallen by half to around 5 percent, after hovering around 10 percent for several years. The Indian government's efforts to improve the business climate has gained momentum, including a "Make in India" campaign to attract investment.

With the creation of specific business zones by setting up of manufacturing hubs, industrial parks, more special economic zones, freight corridors, among others, by the Indian Government, it is expected to give a boost to the manufacturing sector in the near future. There has also been a significant rise in the money brought into India by foreign institutional investors (FIIs) in the past 12 months. However, India needs more foreign direct investment (FDI) as it brings in more stability and liquidity coupled with the policy reforms on the FDI to encourage the much-needed foreign investments into the country.

India is the world's largest milk producer, accounting for more than 13% of world's total milk production. India is the world's  largest consumer of dairy products, consuming almost 100% of its own milk production. Dairy products are a major source of economical and nutritious food to millions of people in India and the only acceptable source of animal protein for large vegetarian segment of Indian population. Dairying has been considered as one of the activities aimed at alleviating the poverty and unemployment, especially in the rural areas in the rain-fed and drought-prone regions.

The milk production is expected to increase to 151 million tonnes by FY16 from 138 million tonnes in FY14. It is expected that the Government will continue to support the dairy sector, especially cooperative sector, in the form of capex and technological improvements. The dairy sector's market size is to increase 15.6 per cent year-on-year in FY16 and the Milk production is forecast to grow at 4.6 per cent y-o-y in FY16.

Owing to conventional dietary habits of Indian households, about 60% of milk produced is consumed in the liquid form and the remaining is consumed in the form of butter, cheese, curd, paneer, ice cream, dairy whiteners and traditional sweets.

Your Company is well aware of the industrial scenario and being alert, focuses mainly on long-term goals, steady and profitable development. Its strong brand coupled with the varied product portfolio enables it to meet adverse conditions confidently and overcome it. Your Company remains confident of its long term business prospects and its ability to sustain a fair return to the shareholders.

FINANCIAL PERFORMANCE OF THE COMPANY

The financial performances are covered in the Directors' Report and the same can be referred to in the said Report.

OPPORTUNITIES

Milk is a regular part of the dietary programme, which results in steady rise in milk consumption and hence demand is likely to rise continuously and there is substantial growth potential for your Company

There is a phenomenal scope for innovations in product development, packaging and brsentation. With technological advancement and availability of balancing equipment, the flexibility of product mix is tremendous and the Company can keep on adding to its product line. Your Company is already in the forefront of these initiatives which is reflected by the increasing turnover of the Company. There is enormous scope seen ahead before the dairy industry for value-added products including custards, desserts, puddings, sauces, mousse, stirred yogurt and nectars and the increasing demand for processed and packaged dairy produce in urban centres due to growing population with higher disposable income and greater health consciousness will definitely create a positive impact on your Company's line of business.

Your Company follows stringent quality measures in ensuring manufacturing of quality products available to consumers at an affordable price. Your Company is also conscious of brand building. Some of the brands of the Company like "Arun", "IBACO" ice creams and "Arokya" are familiar to the common man.

The main advantage of your Company's strength lies in its efficient and effective supply and cold chain management and this allows it wide reach and targeted coverage in its markets. Your Company has a professionally-trained, technical human resource pool, built over years to meet the challenges in the dairy industry and who work as a team to the attainment of organisational objectives.

THREATS

Today the challenges that Indian dairy industry brdominantly face is the clean milk production, brservation of raw milk, adoption of newer processing methods, mechanization of indigenous dairy based products, new product development with value-addition, cost reduction of dairy products, storage and packaging technologies, promoting export of dairy products, energy saving, environment-friendly effluent treatment methods, reducing carbon foot print etc.

The quality of milk produced needs upgradation to avoid the wastage from spoilage of the perishable dairy commodities. The Indian dairy industry is becoming very competitive to compete in the global market, especially with the advent of "Foreign Direct Investment" (FDI).

There is a gross lack of awareness among farmers about the quality parameters, including microbiological and chemical contaminants as well as residual antibiotics. Milk, being a highly perishable commodity, needs efficient cold chain management that can be provided only by organised players as the same involves more capital investments. Your Company is continuously developing and applying scientific methods to improve the quality of milk processed and extend its shelf life. Lack of proper infrastructure facilities like good roads, continuous power supply and adequate transport support is another major deterrent faced by the Dairy Industry

Your Company has been leveraging on the improvement given its economies of scale and with its inherent ability to adopt new technologies, which involves large investment in the production and distribution infrastructure affordable only by bigger companies like us.

Your Company is focusing on the consistent availability and procurement of quality milk throughout the year by improving the per capital yield of animals by applying scientific methods, genetic improvement, scientific feeding, properly managed animal husbandry practices etc.. Your Company constantly educates the farmers on how to maintain quality and improve milk yield by arranging supply of good quality feeds to farmers.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The CEO and CFO certification provided in the CEO and CFO certification section of the Annual Report discusses the adequacy of our internal control systems and procedures.

INFORMATION TECHNOLOGY

Successful implementation of SAP ERP facilitates an effective online MIS system, which helps in centralised control of operations at all the units of the Company. Your Company constantly upgrades and reconfigures this application to effectively monitor the increasing scale of operations of the Company. The hardware and network infrastructure is being constantly reviewed to increase the bandwidth and reduce operational costs. This is an ongoing process and your Company is committed to leverage the benefits of IT to enhance and optimise benefits to itself and its customers. Constant training and guidance has been provided to all the end users.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

Your Company values its human resource as the most significant asset and the key focus is to attract, retain and develop talent as a resource. Your Company provides a congenial working atmosphere which will foster creative thinking. As part of manpower development and to enhance operational efficiency, training programmes have been organised for employees at all levels, wherever necessary.

The HR programmes of the Company focus on building capabilities and engaging employees through various initiatives to help the organisation consolidate and achieve sustainable future growth for the business.

Industrial Relations remained cordial at all manufacturing locations during the year.  Effective employee communication through various channels ensured that all the employees are kept abreast of the current business situation. This has helped your Company to build mutual trust and confidence with the employees. The total strength of the Company as on 31st March, 2015 was 4004.

OUTLOOK AND RISKS & CONCERNS ARE COVERED  UNDER OPPORTUNITIES AND THREATS.  FORWARD LOOKING STATEMENTS

Statements in this report describing the Company's objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations that involve risks and uncertainties. Such statements rebrsent the intention of the Management and the efforts being put into place by them to achieve certain goals. Actual results might differ materially from those either exbrssed or implied in the statement depending on the circumstances. Therefore, the investors are requested to make their own independent assessments and judgments by considering all relevant factors before making any investment decision.