MANAGEMENT DISCUSSION AND ANALYSIS REPORT I. INDUSTRY STRUCTURE AND DEVELOPMENTS OTC Category Overview India's OTC category is valued at Rs. 16,800 crores and comprises of Rubefacients, Digestives, Inhalers, Analgesics and Acne brparations. This category is a part of the Rs. 2,40,000 crores FMCG industry. The rubefacient segment contributes to 16% of the OTC category and is growing steadily due to increased consumption of allopathic balms. Your company is a Top 5 player in the overall rubefacient segment with second position in the Headache space. Your company has three offerings for the headache space: the storied Amrutanjan Pain balm (yellow) and the stronger neutral colored white balm ( Amrutanjan Strong Double Power ) which is also offered in a roll-on format. These three products address most needs of the consumers: mild to severe pain in addition to offering easy to use roll-on format which can be easily carried on the go. We wish to gradually expand our share of revenue from the neutral (strong) colored balms and the roll-on formats. Your company's management sees immense opportunity in the fast growing body ache space and has a line of innovative products lined up to gain share in this segment and grow. The brand Relief, comprising of Cold Rub, Inhaler, Cough Syrup and Mint, offers a range of products for congestion, cough and cold treatments. The OTC segment in India is still nascent in terms of size and offerings but this is changing fast owing to the entry of large pharmaceutical companies, domestic and multi-national, recognizing the potential in this category. Your company wishes to capitalize on its position by consolidating its position in pain management and also looking into new areas of entry. Pain Management The category of pain management is fast evolving with entry of large Pharmaceutical companies bringing their allopathic products into the OTC space. The consumers' brference towards using specific products for specific ailments is also aiding this. Your company has segmented its Pain business into headache and body ache management and this specialized focus has helped us grow the business over the last five years. Our focus on Body space, which is the fastest growing space in the rubefacient category, has resulted in its share of revenue growing over the last three years. Headache Pain Management For Headache Your company, as mentioned above, holds the second position in terms of market share in the Headache segment. We have products for headache space specifically targeting both the urban and the rural consumer. The Roll-On format which was the brcursor to our Body Roll-On innovation has been a growth driver for your company and is being increasingly sought out by the urban and even the millennial consumers! We continue to see slack in the flagship Amrutanjan balm (yellow) as consumers brfer more potent, non-colored and instant acting products. Plans are under way to make the product suitable to the contemporary consumer. Body Pain segment The changing lifestyle of the modernFor Body Pain consumer, characterised by longer work hours, poor ergonomics at the workplace and prolonged inactivity, has led to back and joint pain which are the leading causes for visit to doctor's office (internal data from our Pain Clinics). This has led to a rapid increase in per capita usage of painmanagement products. A further increase in advertisements of allopathic pain management formulations by large pharmaceutical firms has created more awareness in the category and has driven consumer trends. The spurt in marketing activity has created several segments in the minds of the consumer who uses different products for different pains. The Body portfolio boasts of three brands viz. Amrutanjan Back Pain Roll-On, Amrutanjan Body Pain Creme and Amrutanjan Joint Muscle Spray. Operating in a growing segment, Amrutanjan Back Pain Roll-On (ABPRO), with a unique natural formulation more effective than its allopathic counterparts, has been a star in the list. Buoyed by favourable customer response and an aggressive marketing campaign, the brand grew by over 300%. Priced at a brmium and sold in just one size, your brand could garner a lot of trials and awareness across the country. In a segment dominated by Volini, Moov and Omni Gel and new competition from the house of P&G and Novartis in 2014, your brand showed promise and performed better than the new peers despite relatively lesser marketing spends. The brand is set to achieve newer heights and rake higher revenues than some of its counterparts in the year 2015-16. Congestion Management Our Relief brand operates in the Congestion space with offerings in cough syrups, lozenges, rubs and inhalers. This is a categorydominated by one player with very large investments in brand. We are passively managing this brand as it requires larger investments to counter the competition's spends. We will pursue this category aggressively in the coming years as we will be able to allocate more investments. Feminine Hygiene Category The Feminine Hygiene category is one of the largest and fastest growing segments of the OTC industry. The penetration level of the category is at only 20% and the industry is served by a duopoly of brands. This is fast changing with both Indian and multinational FMCG companies recognizing the potential for growth as more Indian women switch from using traditional methods to modern technologies to serve their hygiene needs. Your company has entered this category with the Comfy brand of napkins in 2011-12 but had mixed success owing to supply chain issues. This year we have entered into a long term agreement with a multinational supplier and foresee a sustainable supply agreement that could facilitate the building of the brand. Our focus for brand and distribution expansion will primarily be in towns of population below 10 lakhs. Modern Format Store Focus The number of Modern trade outlets in which Amrutanjan products available has increased from 4250 to 5100.The turnover through modern trade has increased from Rs. 607 Lakhs to Rs. 767 Lakhs ( 26 % growth ) in OTC segment. This is a considerable improvement over the last 3 years. Visibility drive to show case the Amrutanjan range of products have been initiated in 650 stores across all the region through FSU (Floor Standing Unit shown above) and Parasite as done in the last year. Distribution In the year 2009-10, your company launched a distribution restructuring program to increase direct coverage of retail outlets. This was a critical step that facilitated the distribution of other products in the retail outlets which used to sell only 9 ml balm. The year 2014-15 saw a renewed focus on rural distribution to tap the immense underlying potential. The towns were divided into two classes based on population viz. the towns which have a population of more than 5 lakhs and the ones which have less than 5 lakhs. The individual brands were accorded different focus in different towns as per the respective potential of the towns. Further focus in rural distribution led to addition of more towns under direct distribution and an increase of 26% in revenue from these towns. Your company has segmented the retail outlets into different categories and classes and accorded higher focus to grocery outlets in larger towns. Marketing Head Range New Amrutanjan Strong Pain Balm Double Power Your company's management has recognized the need to strengthen and grow its entire range of pain products to counter competitive brssures and to better serve the consumer. As stated already over the years, there is a shift in consumer brferences towards fast-acting pain balms. This phenomenon has driven the growth in Rx products. To address the drop in share of the flagship Amrutanjan Balm (yellow) and to enter new markets in the Eastern and Western region as well as parts of AP and Karnataka, we have reformulated and re-launched the Amrutanjan Faster Relaxation Balm(white) along with a campaign targeting semi-urban and rural women. The product was launched with increased active ingredients and under the new name Amrutanjan Strong Pain Balm-Double Power along with a high decibel ad campaign. In addition we are actively targeting consumers directly with free samples to initiate trials as the advertisement runs on TV to reinforce the message. This model of trials with awareness on mass media is a model that has helped us with other recent launches positively. Communication Your company had developed a new television communication for the products in both the head and body range with "Kick Out Pain" theme to establish the Positioning of Aromatic Balm for everyday headaches, Strong balm for Strong Headache and Back pain and Roll-on for Headaches on the go. Headache Faster Relaxation Roll-On Flow Wrap packaging Your Company launched the Amrutanjan Headache Faster Relaxation Roll-on 10ml SKU in an all-new attractive flow wrap packaging. The new pack has the advantage of high visibility in retail outlets and is easier to stack in the retail outlets. The new pack received an encouraging response from the trade and consumers. Body Marketing To break the clutter of similar looking products across different categories, your brand assumed a new identity owing to a rebranding exercise. The brand saw a differently shaped and relatively bigger bottle which stands out at the retail counter and catches the eyes of the potential customers. The bigger size allows more space for Brand- name and enough room for communication of value proposition. Exports Amrutanjan Health Care- Grow Global Vision: Amrutanjan enjoys tremendous brand equity globally due to the Indian diaspora living in all corners of the globe. Our consumer contact email address gets mails from even non-Indians having heard the potency of the Amrutanjan products- old and new. Our website is also aiding this awareness. Our vision is to sell the product in every continent. There was a story in the brss that when Mr. Viswanathan Anand, Grandmaster of Chess, met the yesteryear Grandmaster from US Mr. Bobby Fischer in Iceland for an exhibition match, the US Grandmaster had reportedly asked Mr. Anand, "Have you brought a bottle of Amrutanjan with youRs." This is the rich legacy that Amrutanjan has built over a century. We have over the last two years actively registered our products across Africa, Middle East and parts of East Asia. At the moment Uganda is the biggest importer of our products. We wish to use this space to showcase of expenditure control and gross margin improvement methods via smart procurement and product design: In OTC division, FY 2014-15 was found to be favorable when compared to FY 2013-14 particularly for menthol, crude and forex (marginal impact) prices. • As in brvious FY, for menthol, we continued short term contract with multiples sources, which resulted in reduced average purchase price of Rs. 1002 per kg when compared to Rs. 1283 per kg and on account of this we saved Rs. 250 lakhs as compared to last year. In Beverages division, in this FY, though the input price for mango pulp went up significantly (35% increase in price as compared to last year) due to poor crop of mango, we could minimize the impact by carrying out the following activities: • In PET(plastic bottle) br-form, changeover from long neck to short neck was carried out along with weight reduction which resulted in savings of Rs. 13 lakhs • Sugar procurement was done from multiple manufacturers through healthy competition which resulted in savings of Rs. 3 lakhs • To reduce outbound logistics cost, throughput per truck was increased and 'regional sourcing' was introduced in eastern zone which resulted in savings of Rs. 4 lakhs. Indian Beverage Industry Indian beverage industry is valued at Rs. 33,670 crores. It comprises of carbonated drinks, juices, bottled water, ready-to-drink tea and coffee, and sports drinks. This category is part of the Rs. 2,44,000 crores FMCG industry. The Fruit juice segment of Juice category is valued at Rs. 8000 crores while the carbonated drinks segment stands atRs. 25,000 crores. The category is dominated by Pepsi and Coke who enjoy duopoly like market shares of almost 70% with Parle Agro (Frooti) coming to a distant third place and local players claiming the rest of the share. Amrutanjan Pain Services Business The Pain Experts are here! Amrutanjan APMC which was started in 2011 is Chennai's first and only combrhensive pain management center, established by a 120-year old corporate. This is a specialized center for pain management that brings together medical specialists from various disciplines to formulate a customized allopathic cure for each patient. This helps patients manage pain without having to resort to surgery or invasive procedures. This technology intensive center brings the best of advanced pain management procedures which is a well established practice in the U.S.A. It currently operates five centers in Chennai, T. Nagar, Mylapore, Madipakkam, Chrompet and Perambur. All these centers have state-of- the-art infrastructure and since operations started, they have successfully treated over 7500 patients. You can avoid surgery with proper pain management Pain makes many people resort to surgery. However, on analysis, in almost 90% of the cases surgery can be completely avoided. Proper pain management not only helps you avoid surgery but is 60% cheaper as well. It also saves you from unnecessary trauma and disruptive impact surgery can have on your day-to-day activities. Customized pain management Amrutanjan APMC understands that each patient's pain is unique. A one-size-fits-all approach would never work and so each patient's medical history is carefully scrutinized by a team of doctors, evaluated and based on tests performed, a customized program is developed. This ensures that it will suit his/her physiological and unique needs with the help of a qualified team of medical practitioners. II. CORPORATE SOCIAL RESPONSIBILITY Section 135 of the Companies Act and the rules made there under insists on Corporate Social Responsibility. However Amrutanjan has strong roots in social causes as evidenced by the work done by its founder Dessodaraka Nageswararao Pantulu. The community park named after our founder and situated adjacent to our corporate office in Chennai is an example of his generosity as this was donated by him for the use and well being of citizens and families. Till today these values continue with the company as it supports social causes spanning rural development and animal rights. Your company supports People for Animals, an organization for welfare of Animals and Arogyamaiyam, a rural clinic in Kodaikanal. Your Company also supports the organization IIMPACT, which is helping poor girls get better education. Amrutanjan Limited has been helping IIMPACT in providing education to out-of-school girls in five villages of Jaunpur District in Uttar Pradesh. Under this project, IIMPACT is providing high quality primary education to over 150 girls, in the age group of 6-14 years. The project is operational in the following villages III. OPPORTUNITIES AND THREATS 1. OTC The Rubefacient category is the core area of business of your company. This somewhat dormant category has become highly competitive in the recent years due to consumer needs shifting and also from the Rx to OTC switch by large pharmaceutical brands. Your company has a highly focused business strategy based on distribution, consumer centric product offering and brand investments. This has resulted in CAGR of 12.83 % in the past five years (2010-2015) compared to the 4.31% CAGR of the brvious five years (2005-2010). Your company has embarked on operating cost control efforts and invested these proceedings into brands as evidenced by chart below (Advertisement to sales ). These savings have come from areas as diverse as COGS (Chart showing Gross Margin %) and Administrative overheads as well (Administrative expenses to Sales). The threats we foresee is increasing competitive brssures from new entrants with unique distribution and technological capabilities (Rx brands) as well as internal abilities to scale up our new launches and demographic expansion strategies. Our brand Amrutanjan with its 122 years of existence enjoys a position of trust and equity with consumers that is matched by none and has a core competitive advantage due to its platform of natural healing. This cannot be replicated by an allopathic brand. Our core execution capabilities have also been steadily improving as evidenced by data brsented in sections above. Building a successful business for the long term is a marathon and not a sprint and we are continuously building on our strengths and working towards eliminating weaknesses. 2. Non Carbonated Beverages (Fruitnik) There is an opportunity for a regional brand to build market position in this industry as evidenced by the success of the recent listing of a regional domestic brand. The duopolies of Coke and Pepsi have their own structural issues as they fight consumers increasingly moving away from carbonated products to fruit-based beverages. Your brand Fruitnik has tested very high in taste and quality in blind tests compared to the top brands. This is evidenced by the positive initial rate of success we have experienced in our launch last year in Orissa and West Bengal. We have to recognize that this is a long term business building effort as we develop distribution capabilities in new states as well as brand awareness. The data below underscores our efforts in brand and distribution.Further, we have developed a strategy that we follow in our OTC business of distribution segmentation and product segmentation. For instance we have a Rs 10 small pack to enter new markets while we focus on the more profitable larger volume pack for bigger towns. Non-Carbonated Beverages The regulators, owing to the fact that it is a food product, closely scrutinize the industry and manufacturers have to constantly develop systems and controls to ensure that consumer safety is always at the forefront. The volatility in cost of key input materials is a concern here as well. V. OUTLOOK Your company has delivered top line and bottom line growth for two consecutive years (and four out of last five) owing to success in new product launches, expansion into new geographies and channels, cost control measures as well as overall execution improvement. We have as an organization doubled our business in the last seven years and continue to focusing on building a sustainable competitive corporation for the long term. We wish to focus on areas of product development and talent development as keys to long term growth. VI. RISK MANAGEMENT SYSTEM Your Company has implemented a Risk Management System in consultation with a leading Chartered Accountants Firm. Risk registers are created to ensure that the process controls are maintained consistently. Risk Based Internal Audit is being done. Your Company has a Risk Management policy in place and the same is hosted on the website of the Company VII. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Your Company has policies and procedures for every transaction which are strictly followed. Advanced tools and techniques are used, as far as possible, by your Company, to implement control systems. Proper and adequate internal control systems have been put in place by your Company to safeguard and protect all its assets against loss from unauthorized use or disposition. This further ensures that transactions are authorized, recorded and reported correctly. All the issues and observations raised/made by the internal auditors are suitably addressed, acted upon and followed up. IX MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED. Amrutanjan has invested in identifying, developing and engaging the employees of the company who are the key resources. Your company had total employee strength of 554 as on 31st March, 2015 which includes OTC, Beverages and Amrutanjan Pain Management Centre The Human Resource function had the following challenges during the year: Human capital Your Company believes in acquiring, cultivating and retaining human capital. There is a bigger need for organizations to retain talent and AHCL empowers its employees by giving them ample opportunities to enrich and nourish their work abilities and talents. Your Company through its various interventions/initiatives has groomed and has retained its employees as a continual process. Our performance management system has undergone various changes and the brsent system is a combrhensive scheme by which employees can be assured of a transparent system which reflects their performance and your Company believes in inculcating talents among employees and promote/elevate them to various positions within the organization. Performance Management System in the company focuses on the skill development of a particular position and through which your company has been able to retain the high potential employees. Talent Acquisition Sourcing right talent is the biggest challenge for any company today, lack of talent for the right job has created a huge gap in the acquisition of talent which resulted in revenue loss. Your Company has been able to assess the requirements and the talents required for working propositions for a particular job and we are using behavioral tools for assessing the candidates which helps the recruitment at a faster rate which means quick decisions can be taken. "Right people at the right place and at the right time". Young management graduates from IIMs have joined in the departments of Finance and Marketing indicating an organization that is seen as a career enabler by many. We wish to be in the "best places to work" list someday. Leadership Amrutanjan as a company believes and empowers its employees to enhance the quality of leadership within the company. Development of leadership skills has been done through a measure of setting up an Assessment Centre for identifying the future leaders as part of Succession Planning. Employee Engagement Higher the level of engagement among employees; higher the value of their output. Amrutanjan has established a process of measuring the engagement levels among employees through a survey called the "PULSE", the reports of which emphasis the areas of development, which needs to be concentrated by the HR for better performance in the years to come. Rewards and Recognition The Company constantly creates new incentive programs to motivate the sales force towards achieving their goals and rewarding them for the same. Your company has a vibrant variable pay policy which measures the Company's performance and the individual performance for disbursement of the variable pay. The Company would be benefited from the good performance of the individual and vice versa. Long service of employees is being valued and recognized to motivate other employees to stay and build a career within the company. Relationship with Union Amrutanjan has excellent relationship with its affiliated Union, Amrutanjan Health Care Limited Employees' Union. It has cordial relationship with the Union and they are taken into confidence on IR issues whereby no conflicts arises between the Union and your management. With the full support of the Union your factory is being shifted to the new location for better infrastructure facility and work environment due to new location located at the industrial area. The Company is poised for growth in the coming years and the Human Resources practices at Amrutanjan is fully in tune with the business requirements of the organization. Cautionary Statement Statements in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward looking' within the ambit of applicable laws and regulations. Actual results, performance and achievements might differ substantially or materially from those exbrssed or implied. The Company's performance could also be affected due to the failure of monsoon which in turn may increase the input costs, major political and economic changes in India and changes in tax laws. For and on behalf of the Board S. Sambhu Prasad Chairman and Managing Director Date : 13th August, 2015 Place : Chennai |