MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENTS

Businesses in India are more confident than ever about the growth of the country's rural consumer markets. Public sentiment significantly improved with resounding majority of a single political party in the National elections in May 2014. Although, there was a renewed optimism in the country, it did not translate immediately into an increase in demand. India's consumer confidence continues to be the highest globally and riding on a positive economic environment and low inflation. Global corporations view India as one of the key markets from where future growth is likely to emerge. The growth in India's consumer market would be primarily driven by a favourable population composition and increasing disposable incomes. India's market is consumer driven, with spending anticipated to more than double by 2025. Wholesale and Consumer price inflation moderated substantially in 2014 as compared to the brvious year. Food inflation and crude oil prices also dropped significantly in 2014.

MARKET SIZE

The growing purchasing power and rising influence of the social media have enabled Indian consumers to splurge on good things. Fast moving consumer goods (FMCG) is the fourth largest sector in the Indian economy The overall FMCG market is expected to increase at a compound annual growth rate (CAGR) of 14.7 per cent to touch US$ 110.4 billion during 2012-2020, with the rural FMCG market anticipated to increase at a CAGR of 17.7 per cent to reach US$ 100 billion during 2012-2025. The FMCG sector has grown at an annual average of about 11 per cent over the last decade. Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the sector.

There is a lot of scope for growth in the FMCG sector from rural markets with consumption expected to grow in these areas as penetration of brands increases. Also, with rising per capita income, which is projected to expand at a CAGR of 7.4 per cent over the period 2013-19, the FMCG sector is anticipated to witness some major growth.

GOVERNMENT INITIATIVES

The Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in the electronics hardware-manufacturing sector through the automatic route. The government has also enabled 51 per cent FDI in multi-brand retail and 100 per cent in single-brand retail so as to attract more foreign investment into the country.

With the demand for skilled labour growing among Indian industries, the government plans to train 500 million people by 2022 and is also encouraging private players and entrebrneurs to invest in the venture. Many government, corporate and educational organisations are working towards providing training and education to create a skilled workforce.

ROAD AHEAD

The Indian oral care market offers immense potential for growth, given its low penetration in most parts of the country, especially in rural areas. With people in general being largely unaware about oral hygiene, the industry has a major incentive to expand. Even consumers in rural areas are slowly switching over from tooth powders to toothpaste. The oral care industry has also benefitted from the government organizing the regular dental health camps, along with high frequency of advertising on behalf of companies selling oral care products.

FOCUS ON INNOVATION AND NEW LAUNCHES

Your Company has been continually pioneering innovation and development in the Oral Care category with best-in-class technologies. Your Company has been staying ahead of trends by identifying opportunities based on insights into consumer behavior and by leveraging the technology. Your Company has made successful innovative launches during the year.

ORAL CARE

Indian oral care industry, over the last few years, has been one of the fast growing FMCG sectors. The oral care industry is segmented into five categories which include toothpaste, toothbrush, tooth powder, mouthwashes; others oral care products such as dental flosses and oral care chewing gum. The oral care industry in India has been largely dominated by the toothpaste segment, which contributed around 72% share in the overall revenue of the industry in FY'2015. Toothbrush is the second largest oral care products segment in the industry after toothpaste and majorly including products such as manual and electric toothbrushes.

Tooth powder category, on the other hand has demurred in the industry and in FY'2014. The decline in the tooth powder market revenue was mainly due to change in the consumer tastes and brferences towards easy to use oral care products in the market. Further, the mouthwashes segment has showcased high growth expansion in the Indian market. At brsent, the penetration percentage of mouthwashes is also in the single  digit.

The long term growth potential of the industry remains optimistic of oral care products. Increasing disposable earnings, growing lower and upper middle class, incline in the population demography, rising oral awareness, convenient oral care products, growing distribution chain and logistics storage, increasing toothpaste penetration, development in oral care solution segments and others are some of the factors expected to drive the industry's growth in the next five years.

FUTURE OUTLOOK AND STRATEGY:

The oral care products market includes products designed to improve oral hygiene and provide dental care. The oral care market is witnessing translational shift from conventional products (such as toothpaste and standard toothbrushes) to advanced ones (such as mouth washes and power brushes) owing to increasing awareness among consumers about dental aesthetics and hygiene.

The growth of the oral care market is propelled by the product innovations, growing incidences of caries and periodontal diseases, aging population, and poor dietary habits. Increasing demand of oral care products in the rural areas due to rising awareness about oral health and improving hygiene practices unfolds new growth opportunity in the oral care market. However, lack of awareness among end-users about advanced oral care products is hindering the growth of the market.

The market for oral care hygiene product has grown at a consistent rate with high future perspectives. The Company continued to focus on strengthening the Oral Care brands and the portfolio which has helped in the brmiumisation of the brand. The Company has also put in place a robust plan to strengthen the toothbrush portfolio both at the brmium as well as at the mass end of the market to enhance efficiencies and reduce cost to continue to yield strong, positive results and fund investment in building and strengthening brand equity and the business.

JHS Svendgaard Laboratories Limited ("the Company") has come up with its own brand "AQUAWHITE". The company is now manufacturing toothbrush and toothpaste under its own brand "AQUAWHITE" and continues to focus on creating new market segments of FMCG products.

The "Aquawhite" brand includes Complete Oral care range for every age group. Apart from working on its own brands the company also offers Contract Manufacturing Partnership to brands in the domestic and the international market.

The company is ready to supply Aquawhite Oral care range (that includes Toothbrushes, Toothpaste & Mouthwash) for the Retail Stores at PAN India level.

Although the Company has been confined to Oral Care category where it faces intense competition but it is hopeful that through a combination of powerful marketing strategies, innovative new products and market development and expansion, it would continue to grow strongly over the next several years.

The Company is planning to move ahead with a strategic way and is concentrating to capture the untapped market with its cost effective products. The Company expects that its continuing efforts and focused programs to enhance efficiencies and reduced cost will continue to yield strong, positive results and fund investments in building and strengthening brand equity and the business.

The Company believes in unwavering focus on both competitive growths in core categories as well as market development to build segments of future that are critical for sustained growth and long term value creation. While focusing on the core categories, the Company has also invested significantly in the segments of future, i.e. the segments which are expected to drive future growth.

OPPORTUNITIES:

Opportunities abound in India's FMCG market with high annual growth rates and low penetration levels, across categories. The urban and rural consumers will have the same purchase drivers. The sector has a great opportunity for growth in the country, with the rising incomes and driving purchases, desire to experiment with the brand products, evolving consumer lifestyle, new product launches, growth of modern trade, availability of online channels to shop, increasing consumer demands, greater awareness of product brands, there exists a huge untapped opportunities.

THREATS:

Increase in raw material prices and tough competition could force the Company to reduce prices or give value addition in existing products which in turn could effect the bottom-line. To counter this, the Company has already added Toothpaste/ Mouthwash, Whitening Gels and other products and also plans to launch new products in the coming period. This would no longer keep the Company dependent on any one activity.

RISK AND CONCERNS:

The Company, like any other organization has national as well as global business interests and is exposed to business risks which may be internal as well as external. To ensure long term corporate success, it is therefore essential that risks be effectively identified, analyzed and then migrated by means of appropriate control measures. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. The Company has a combrhensive risk management system where the senior management team sets the overall tone and risk culture of the organization through defined and communicated corporate values, which enables us to recognize and analyze risks early and to take appropriate actions. This enables active monitoring of the business environment and identification, assessment and mitigation of potential internal or external risks. The Board provides oversight and reviews the Risk Management Policy. In addition, there are regular internal audit activities carried out by the team of Internal Auditors who give their independent assessment on the risk mitigating measures and provide recommendations for improvement.

COMPANIES PERFORMANCE REVIEW:

The Turnover from the operation of the company during the financial year ended 31st March 2015 amounted to Rs. 553 Million as compared to Rs. 353 Million during the brvious year ended 31.03.2014. The Turnover of the company has increased by 56.82% from the brvious year mainly on accounts of the Tooth paste Business of the contract manufacturing as well as company's own brand.

Company has entered One Time Settlement with its lender banks for the outstanding dues & now the company has become debt free & all the charges created on the company's assets by banks has now been released and also the proceedings on the company in Debt Recovery tribunal has been withdrawn.

INTERNAL CONTROL SYSTEM:

Company's internal control systems are well commensurate with the nature of business and the size and complexity of its operations. These are routinely tested and certified by Statutory as well as internal Auditors, covering all the offices, factories and key areas of business.

The Audit Committee review the adequacy and effectiveness of the Company's internal control environment and monitors the implementation of the Audit recommendations including those relating to the strengthening of the Company's risk management policies and system. The Company's ERP control mechanism has further strengthen the overall control on the business and accordingly, the audit observations and follow-up actions are discussed with the Management of the Company as well as the Audit Committee.

ENVIRONMENT HEALTH AND SAFETY:

The Company has a vision of being an 'Injury Free' and 'Zero Environment Incident' organization. The Company's strategic framework, integrates Safety as a non-negotiable value. Over the past many years, the Company has been progressing well in terms of reducing injury frequency rates and has improved the safety record in factories and facilities.

The Company has developed safer systems and procedures for work by implementing Core Design principles (e.g. in projects, in facilities design, in process safety, etc.) rolling out up-to-date engineering standards and investing in hardware and safety infrastructure across sites.

Company is actively involved in EHS to ensure the health and safety of all its employees, contractors, visitors and other persons at its workplace and protecting the environment. All locations of JHS Svendgaard Laboratories Limited shall ensure that the operations of the company are regularly assessed and planned to brvent pollution, injuries and ill-health. The EHS Management Standards for all sites of the Company and provides audit guidelines in order to assess the implementation of these Standards. The Company shall comply with applicable Environment and occupational Health and Safety Legislation and other requirements wherever the Company is working.

HUMAN RESOURCE:

JHS takes pride in the fact that our people, organizational culture and values enable us to be decentralized and entrebrneurial. JHS is committed in creating a transparent organization and a highly conducive environment that is focused on people and their capability, enabling them to deliver superior performances. At JHS, we have constantly focused on getting the top talent for our businesses. Human resource development happens through structured approaches for employee engagement, resourcing, performance and compensation management, competency based development, career and succession planning and organization building.

During the fiscal 2014-15, JHS focused on various strategic learning programmes, employee engagement and health management initiatives aimed at the overall development of our dynamic workforce. The belief that 'great people create great organizations' has been at the core of the Company's approach to its people. We consider our human resource to be our most important assets. We are continuously making efforts in the development of Human Resource through a series of employee-friendly measures aimed at talent acquisition, development, motivation and retention. Our endeavor is to develop a culture where a sense of belongingness and ownership of work are the key motivating factors and provide world class training to create a world-class work force. The aim is to lower the average employee age and invigorate the youth to take the Organization forward over the next few decades

CAUTIONARY STATEMENT

The projections made in this report may be forward-looking statements within the meaning of applicable laws and regulations. Actual results may differ from those exbrssed in this report due to the influence of external and internal factors that are beyond the control of the Company such as demand, supply, climatic conditions, economic conditions, political scenario, Government regulations and policies, taxation, natural calamities and other conditions. All these conditions cumulatively can make a significant impact on the Company's performance. Owing to this, certain statements made in this Report pertaining to the projections, outlook, expectations, estimates etc. may differ from actuals.