MANAGEMENT DISCUSSION AND ANALYSIS REPORT INDIAN AGROCHEMICAL INDUSTRY Indian Economy has undergone a tremendous change over the past three decades. From being primarily agrarian it has continuously progressed towards secondary and tertiary sectors. Still agriculture continues to contribute extensively to the Indian GDP due to its significant implications on food security, employment and poverty. The growth of agrochemical industry is directly proportional to the growth of the agriculture sector. Any improved situation like increased purchasing power with the farmers to buy more of agro-chemicals is a further to the industry. The scope of the agro-chemical industry in India is quite wide given the fact that there is still a considerable part of the country not touched by the modern technology and irrigation facilities. The use of high-yielding variety seeds also has not been able to offset the decline in usage of irrigation and fertilizers. There is an urgent requirement of educating the farmers to understand the need of proper irrigation and use of agro-chemicals to enhance productivity. Since, the cultivable land cannot be further increased due to an aggressive industrial and residential demand due to urbanization, the only viable solution to bridge the demand-supply gap is through reduced crop losses through judicious and adequate use of agro-chemicals. Agrochemicals are manufactured as technical grades and converted into formulations for agricultural use. Technical grade Manufacturers, formulators producing the end products, distributors and end use customers constitute the Indian Agrochemical market. Technical grade manufacturers sell high purity chemicals in bulk to formulators. Formulators brpare the formulations by adding inert carriers, solvents, surface active agents etc. These formulations are then packed for retail sale, supplied to the distributors and finally sold to the end use customers (farmers). India due to its inherent strength of low-cost manufacturing and qualified low-cost manpower is a net exporter of pesticides to countries such as USA & some European & African countries. KEY CHALLENGES FOR THE INDUSTRY Amidst the wide scope of the industry in India, there are some formidable challenges that stand in the way of the Indian agro-chemical industry. While many companies in India as well as the World are able to apply their risk strategies to a considerable extent, some factors still make it difficult to be curtailed. • Monsoon: The most apparent challenge is the advent and degree of monsoon that the country receives in a year. For both Kharif and Rabi cultivation, rain is the most important factor and a good rain is always conducive to a good harvest and good business for the agro-chemicals market. • Use of Bio Products: The growing awareness amongst the farmers about the usage of bio-products is eating away the share of agro-chemicals from the Indian market. • R&D Investments: The industry being a volatile offshoot of the wider chemicals market, mostly sees an advent of manufacturers from Global arena participate and produce generic products itself, which contributes to almost 65% of the business, globally. There is however, a lesser investment into new products as there is a huge R&D cost involved, which is not feasible for every small or middle cap player of the industry. Indian companies usually spend approx. 1-2% of their turnover on R&D while corresponding spend by MNC's is 12-15%. • Distribution Systems: The smaller your reach, the poorer your market. The outreach of these companies has to be larger in view of the end users who are widesbrad. To this effect, these companies need to operate with good network of sellers and effective network. Most manufacturers operate with 400-1000 distributors catering to 25,000-30,000 retailers if they have a Pan India brsence. Companies keep their stocks in warehouses or depots from where it is supplied to distributors. OUTLOOK Regarding the Company's outlook, it can confidently claim that the Company will upgrade its manufacturing technology and add new molecules to its portfolio to further consolidate its position in the industry in future. Your Company has highly qualified and dedicated team of professionals in various work profile to focus on quality improvement in existing products, marketing the products to brvailing customers and exploring new domestic and overseas customers for the Company. We are pleased to inform that during the Financial Year 2014-15 the Company has achieved turnover of Rs.43875.86 Lacs. Apart from loyal customer base that the Company is enjoying since last several years now, many more new domestic as well as overseas customers are added to the portfolio of the Company during the year & same is expecting to increase in near future due to Company's commitment of supplying high quality product in a time bound manner. RISKS AND CONCERNS • Consumer Preference Risk: Agriculture production has to be beneficial to the demand pattern in order to be useful. Due to which the Company may be under the risk of change in consumer brferences. However, the Company has been pioneering in adapting itself quickly to the observed and expected changes in the demand pattern through a drift in production. • Natural Risks: The Company has diversed its operations to different and diverse varieties of Agrochemicals that could serve the farmer at different times as per the climatic conditions. • Raw Material Risks: Rising raw material prices or input prices have therefore, been bit easier to be passed on to the farmers due to non-aggressive pricing mechanism. • Technology Risk: This risk has always been on the top priority for the Company as it has been focusing on the R&D and Technology upgrading and adoption since its inception. The Company is trying to broaden the product basket in order to minimize this risk. • Foreign Exchange Risk: Due to its International supply mechanisms, there is a foreign exchange risk to the Company; however it mitigates it through suitable hedging mechanisms. In order to minimize the risk, a combrhensive and integrated risk management framework is followed by the Company. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY The Company has created internal control systems which are commensurate with the size, scale and complexity of its operations. The Company has also identified entity level controls for the organization, covering integrity and ethical values, adequacy of audit and control mechanisms and effectiveness of internal and external communication, thereby strengthening the internal controls systems and processes with clear documentation on key control points. The internal controls are formulated and implemented by the management with an objective to achieve efficiency in operations, optimum utilization of resources and effective monitoring and compliance with applicable laws. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE The highlights of Company's performance during the year under review are as follows: • Increase in Gross sales from Rs.38596.86 lacs to Rs.46729.23 lacs, thereby registering a growth of 21.07%. • Increase in Profit before Tax from Rs.3006.46 lacs to Rs.4806.39 lacs, thereby registering a growth of 59.87%. HUMAN RESOURCES DEVELOPMENT The Company invested in a strong workforce and working environment to report sustainable growth, reflected in the continuous improvement in operating processes and new product introduction. The Company believes in a performance-driven culture. The Company organized training programmes based on emerging requirements, covering technical, behavioral, customer orientation, safety, code of ethics, product training and other needs. The Company continued to recruit skilled scientific, technical and managerial personnel. CAUTIONARY STATEMENT Certain Statements made in this report relating to Company's objectives, outlook, future plans etc. may constitute "forward looking statement" within the meaning of applicable laws and regulations. Actual performance may differ materially from such estimates or projections, whether exbrss or implied. Important factors that could make a difference to the Company's operations; include Government Regulations, Tax regimes, Economic developments within India and countries in which the Company conducts business and other allied factors. |