MANAGEMENT DISCUSSION AND ANALYSIS The financial year 2014-15 was the year of revival for the Indian Economy as it grew in excess of 7% for the first time since the financial year 2010-11. The key driver of the growth was the service sector which grew by 10.6% during the year. The performance of the industrial sector also improved during the year and registered a growth of 5.9% compared to 4.5% growth registered during 2013-14. Agriculture and allied sectors witnessed a slowdown during the year as they grew by just 1.1% during the year compared to 3.7% growth registered during 2013-14 (Source: Monthly Economic Report, March 2015, as published by the Ministry of Finance, Govt. of India). The average Wholesale Price Index (WPI) inflation rate, which is the measure of increase in the prices of commodities, displayed a declining trend during the year 2014-15. In the initial four months of the year, it remained in the range of 5% to 6%. However, from the month of August 2014, it began to fall sharply and in the month of November, 2014, it became nil. The last three months of the financial year registered negative WPI inflation. Overall, the WPI inflation rate for the financial year was 2% as against 6% registered during the year 2013-14. The last quarter of the financial year saw reduction in the Bank Rate and Repo Rate by 50 basis points each by the Reserve Bank of India on account of brvailing disinflationary brssures in the economy (Source: Monthly Economic Report, March 2015, as published by the Ministry of Finance, Govt. of India). The performance of the Indian Rupee against the US Dollar was stable during the year as it remained in the range of Rs. 60 to Rs. 63 per US Dollar during most part of the year. However, the Indian Rupee apbrciated significantly against the other global currencies like the Euro and Japanese Yen (Source: Monthly Economic Report, March 2015, as published by the Ministry of Finance, Govt. of India). The Company has made Net Profit of Rs. 1242.59 lacs during the financial year 2014-15 in comparison to Net profit Rs. 308.82 lacs in the brvious year 2013-14, registering the growth of 302% this is inspite of turnover has decreased to Rs. 583053.52 lacs as compared to Rs. 622701.84 lacs due to falling of commodity prices. Global Outlook- Edible Oil World's consumption of edible oil was to the tune of 82 million MT in 1990-91 and has doubled in the two decades. Palm, Soya and Rapeseed oil/ Mustard oil are expected to constitute 77% of the total global oil consumption. From the last two decade, global Palm oil consumption is growing faster than the global edible oil consumption. Global palm oil consumption has grown by 8.7% Cumulative Annual Growth Rate (CAGR), where as global edible oil consumption has grown by 4.4% only. Palm oil is the more popular oil because of its lowest production cost per ton as well as its worldwide acceptability. The proportion of Palm oil out of total world's oil consumption has increased from 13.8% in 1990-91 to approximately 30% in 2014-15. More than 84% of global palm oil is produced by Malaysia and Indonesia. India is the 4th largest edible oil economy after U.S, China and Brazil. As we can see that Asian Industries are emerged as the most promising industry at the world and the Global cues suggest that the next round of growth will come from Asian economies like China and India which have a growing population to feed, younger demographics, better lifestyle choices and increased purchasing power due to local development. The future for food Companies will be fortified by giving the discerning consumer a sustainable, healthy and value added choice to create a better life. Edible oil Companies will create customer loyalty through sustained brand building efforts by catering to the local tastes of the consumers. Overview of Indian Market The Indian market brsents a significant growth opportunity for edible oil players owing to a growing population, income growth, low current per capita consumption, low penetration and the fact that edible oils are a necessary part of the daily diet for a majority of Indian consumers. India accounts for a major part of global edible oil demand, which has grown over the years but the Indian oilseed crop has historically been insufficient to match oil demand. India plays an important role in the global edible oil market, accounting for approximately 10.2 % share in consumption, 8% in oil seed production, 5.2% in edible oil production and 13.6 % in world edible oil imports for oil year (OY) 2014-15. The Indian edible oil market is currently at 20.32 million tonnes and is currently growing at a rate of 3%- 4% per annum but still India's total requirement of edible oils for projected population of 1.27 billion is at the projected per capita consumption of about 16 kg per annum, which is very low as compared to the world average of 25.91 kg/ annum. As per Solvent Extractors' Association of India, demand for edible oil is expected to increase to 23.1 million tonnes by 2020. Import of edible oil has already been increased from approx 4.71 million ton in 2006-07 to approx 12.6 million ton in 2014-15 which is now 62% of total consumption. Palm oil has the highest consumption in India followed by soybean oil and mustard oil. India has imported approx 8.2 million MT of palm oil and approx 4.30 million MT of soft oils in comparison of approx. 7.80 million MT of palm oil and approx 3.3 million MT of soft oils in last year. The import of soft oils like Soya degummed oil and Sunflower oils are increasing because of lower price differential with palm oil. In December, 2014, Government has increased import duty on imported RBD olein from 10% to 15% to protect interest of Indian Refiners. Now Government is maintaining duty difference of 7.5% between crude oils and refined oils for this year. The edible oil sector in India is largely unorganized with a few organized players. There is a lot of potential and opportunity for organized players in Indian market because of growing population to feed younger demographics, better lifestyle choices and increased purchasing power due to local development. Integrated players typically operate at higher capacity utilizations and enjoy better price realizations and margins in addition to being more equipped to deal with fluctuation in prices and availability of raw material. Castor oil India, largest producer of Castor seeds in the word, with share of approximately 80% of total world crop, followed by Brazil & China. In India, Gujarat leads in castor seed production with 75% of total seed production followed by Rajasthan & Andhra Pradesh reduction with 18% & 7%. Majority of the castor oil produced in India is being exported through Gujarat Ports like Kandla & Mundra, estimated total production of castor seed in India for the year 2015 - 12.70 lakh. It has increased by 2.2% as compare to brvious year. World market demand for castor oil and Castor oil derivatives are increasing at a pace of 6-7%. Focus on Brands and packed goods The Indian housewife, both in the urban and rural sector is becoming increasingly conscious about quality and purity, thus demanding branded edible oil products. This has resulted in a shift of the Indian consumer from loose and adulterated edible oils to branded offerings. With increasing quality consciousness, rising incomes and consolidation, branded sales are likely to grow at 25-30% over the next few years. As per feedback and response, we believe that consumers relate our brands with purity, smell and taste. The Company has launched two new brands i.e. Premium brand Gurjari for Cotton oil and groundnut oil for Gujarat and Rozana for mass consumers. Gokul Refoils' flagship brands Gokul, Rozana, Gurjari and Bakery Brand performed exceptionally well in the current year. Today, Gokul is positioned as the brmium brand for the loyal housewife while Rojana is affordable brand. All major brands of Gokul Refoils reported robust growth for the year. Today, nearly 50% of the Company's edible oil sales come from the branded segment and retail sales are also significantly increasing in the proportion. Marketing & Distribution Strategy The Company is following a threefold strategy for increasing sales, penetrating newer markets and strengthening the market share and brands in its current markets. Integrated manufacturing facilities supported by a strong distribution network would allow the Company to increasingly focus on branded retail sales. The FMCG edible oil market can be divided in two Sections in India- urban and rural. During the year, Gokul Refoils developed a twin strategy for both these markets. Also, it sees significant growth opportunity coming from urban areas which are currently under-penetrated and not exposed to its brands and products in the future. As an initiative to increase its branded sales proportion and visibility of products in the urban markets, the Company has placed its products in Big Bazaar and Reliance Retail. The semi urban and rural markets are under-penetrated, scattered and operate through "mom and pop" stores. Thus distribution and reach are critical to ensure products reach the consumers. Gokul Refoils is creating a pan-India distribution and retail network both in cities and in the interior heartlands through a combination of C&F agents, distributors and local retailers deepening our retail penetration. With a well sbrad and intricately connected distribution network the Company has a well established brsence in the states of North East states , West Bengal, Bihar, Jharkhand, Orissa, Maharashtra, Uttar Pradesh, Uttaranchal, Madhya Pradesh, Delhi, Punjab, Haryana, Himachal Pradesh, J&K, Rajasthan and Gujarat. Addition in Production Capacity during the Year 2014-15 During the year 2014-15 Company has increased the capacity of refining Crude palm oil by 200 TPD at Sidhpur plant along with Fractionation by adding 250 TPD with the existing capacity. During the year 14-15 Company has also increased capacity of Castor Solvent plant by 400 TPD at Sidhpur plant. Financial Review Standalone Turnover achieved for the year ended 31st March, 2015 was Rs 583053.52 lacs as compared to Rs. 622701.84 lacs of brvious year. Employee cost was Rs. 2,655.94 lacs for the year 2014-15 as against Rs. 2769.52 lacs for the year 2013-14. Earnings before interest, tax, debrciation and amortization (EBITDA) increased from Rs. 13751.21 lacs to Rs. 15597.13 Lacs The finance cost of the Company has increased from Rs. 9,025.37 lacs to Rs. 10,759.69 lacs This is on account of increase in the interest rates during the year as well as higher utilisation of facilities. Debrciation (including amortization) has decreased to Rs. 3261.89 from Rs. 3743.21 lacs in the brvious year. Net Profit after tax for the current year Rs. 1,242.59 lacs against Net Profit for Rs. 308.82 lacs for the brvious year. Earnings per share (EPS) for the year Rs. 0.94 compared to brvious year Rs. 0.23. Balance sheet Reserve and surplus is increased from Rs. 32,039.25 lacs in the brvious year to Rs. 33,281.84 lacs in the year under review due to net profit of Rs. 1,242.59 lacs. Long term borrowing is decreased from Rs. 5100 lacs to Rs. 5000 lacs in the current year as compared to brvious year due to repayment of the term loans. Fixed Assets has increased to Rs. 35310.44 lacs in the current year as compared to brvious year Rs. 33801.56 lacs. Trade payable has decreased from Rs. 107617.95 lacs to Rs. 101245.48 lacs. Trade receivables has increased from Rs. 42099.09 lacs to Rs. 45881.01 lacs. Cash and bank balance has reduced from Rs. 47170.90 lacs to Rs.21109.92 lacs. Consolidated Consolidated Turnover achieved for the year ended 31st March, 2015 was Rs. 583053.52 lacs and for brvious year was Rs. 622701.84 lacs. Consolidated Employee cost was Rs. 2655.94 lacs for the year 2014-15 as against Rs. 2769.52 lacs for the year 2013-14. Consolidated earnings before interest, tax, debrciation and amortization (EBITDA) increased from Rs. 13805.77 lacs to Rs 15276.39 lacs. The consolidated finance cost of the Company has increased from Rs. 9028.72 lacs to Rs. 10,763.18 lacs. This is on account of increase in the interest rates during the year as well as higher utilisation of facilities. Consolidated Debrciation (including amortization) has decreased to Rs 3262.72 lacs from Rs. 3744.02 lacs. Consolidated Net profit after tax for the current year Rs 917.20 lacs against consolidated Net Profit of Rs. 358.20 lacs for the brvious year. Consolidated earnings per share (EPS) for the year Rs. 0.70 as compared to brvious year Rs. 0.27. Balance sheet Consolidated Reserve and surplus has increased from Rs. 34131.26 lacs to Rs. 35163.09 lacs due to increased in net profit of Rs. 917.20 lacs. Consolidated Long term borrowing has decreased from Rs. 5100 lacs to Rs. 5000.00 lacs in the current year as compared to brvious year due to repayment of the term loans. Consolidated Fixed Assets has incresed to Rs. 35472.70 lacs in the current year as compared to brvious year Rs. 33807.33 lacs. Consolidated Trade payable has decreased to Rs. 101568.35 lacs from Rs. 107523.94 lacs as compared to brvious year. Consolidated Trade receivables has increased to Rs. 56110.76 lacs from Rs. 52314.86 lacs as compared to brvious year. Consolidated Cash and bank balance has reduced from Rs. 47989.22 lacs to Rs 21828.36 lacs due to fixed deposit placed with various banks as margin money for opening of Letter of credits. Human Assets At Gokul, people are our most important asset and a source of competitive advantage. Gokul is committed to creating an open and transparent organization that is focused on people and their capability, and fostering an environment that enables them to deliver superior performance. The Human Resources strategy is aimed at talent acquisition, development, motivation and retention. The HR function acts as an effective lever for driving the company's strategic initiatives and helps in integrating and aligning all people practices to Gokul's business priorities. The company has an unrelenting focus on talent development. Green Initiative- Wind Energy and Captive Power Plants The world is seriously concerned with the matter of global warming and the consequential impact on the global economy and the environment. It would be, therefore necessary for your Company to undertake initiatives to support the global movement combating the adverse impact. As corporate citizens, we ensure that we conduct our business in a responsible and sustainable way. Energy savings, green power generation, waste recycle and pollution reduction are some of the key areas where we ensure strict internal control. We are carbon neutral and sensitive to sustainable development for the next generation. We strive to facilitate an environment policy framework that enables sustainable development. Today Gokul Refoils and Solvent Limited has 6 Wind Turbine Generators (WTGs) with a total power generation capacity of 7.5 MW in the states of Gujarat along with co-generation captive power plant at Haldiya and Gandhidham with the total capacity of 3.7 MW. The investment in green power is with a single aim to create a cleaner and pollution free environment. As a step ahead towards Green business, we are also using castor de-oiled cake as a fuel to generate steam for our Gandhidham plant operations. Corporate Governance- Self control is the Best Control At the heart of the Company's Corporate Governance policy is the ideology of transparency and openness. The senior leadership at Gokul Refoils and Solvent Limited, comprising of the Board of Directors and Senior Management, sincerely believe that corporate accountability and corporate governance enable wealth creation. It is believed that the imperative for good Corporate Governance lies not merely in drafting code of Corporate Governance but in practicing it. Company's Philosophy on Corporate Governance is built on rich legacy of fair, transparent and effective governance which includes strong emphasis on human values, individual dignity and adherence to honest, ethical and professional conduct. Going ahead, we see qualitative participation from the independent Directors in the board to ensure strategic inputs and world class governance practices. Risk and Concern The main areas of concerns are: 1. The overall scenario is also impacted by volatility in commodity and currency prices. Your Company makes use of forward cover/ hedge mechanism to manage these risks. The Company's raw materials as well as finished products are traded in futures market which gives opportunity to hedge the price risks related to raw material and finished goods. 2. Government policies play an important role in the businesses of your Company. The policies announced by the Government have been progressive and are expected to remain likewise in future, and have generally taken an equitable view towards various stake holders, including domestic farmers, industry, consumers etc. 3. Ocean freight, port congestions, storage infrastructure could contribute to challenges faced by your Company, as substantial part of the international operations of your Company is within the Asian region, and given the growing import and export activities of your Company, the element of freight is not likely to cause any adverse effect on the operational performance. Your Company has a proactive information and management system to address the issues arising out of port congestions to the maximum extent possible and has also made sufficient arrangements for storage infrastructure at the ports. 4. Domestic availability of oil seeds also depends upon weather and monsoon conditions Your Company has processing facilities at two ports as well as inland location and therefore, the business model of your Company is designed to carry-on a majority of its production operations in situations of extreme changes in weather conditions. 5. Your Company is exposed to risks arising out of changes in rates of foreign currencies, the exposures on this account extends to products imported for sale in domestic markets, exported to other territories. Your Company utilizes the hedging instruments available in the markets on an ongoing basis and manages the currency exposures pro-actively. 6. Fuel prices continue to be an area of concern as fuel is widely used in manufacturing and distribution operations and has a direct impact on total costs. Internal Control System and their adequacy In view of the management, the Company has adequate internal control system for the business processes followed by the Company. External and internal Auditors carry out periodical review of the functioning and suggest changes if required. The Company has also a sound budgetary control system with frequent reviews of actual performance as against those budgeted. The Audit Committee of the Board meets periodically to review various aspects of performance of the Company and also reviews the adequacy and effectiveness of the internal control system and suggests improvement for strengthening them from time to time. External Auditor also attends this Meeting and conveys their views on the business process and also of the policies of financial disclosures. When found necessary, the Committee also gives suggestions on this matter. Risk Management The Company has set in place the policy for corporate risk assessment and mitigation Business Risk Assessment procedures and for self-assessment of business risks, operating controls and compliance with Corporate Policies. There is an ongoing process to track the evolution of the risks and delivery of mitigating action plans. Gokul, like any other enterprise having national as well global business interests, is exposed to business risks which may be internal as well as external. In the broadest sense, we define risk as the eventuality of not achieving our financial, operative, or strategic goals as planned. To ensure our long-term corporate success, it is therefore essential that risks be effectively identified, analyzed and then mitigated by means of appropriate control measures. We have a combrhensive risk management system in place, which enables us to recognize and analyze risks early and to take the appropriate action. This system is implemented as an integral part of our business processes across the entire Gokul operations and includes recording, monitoring, and controlling internal enterprise business risks and addressing them through informed and objective strategies. Procurement It has been a tough year for consumer goods companies in India with input brssures and adverse currency movements squeezing margins. Controlling costs in an in inflationary scenario was one of the biggest challenges faced by your Company during the year under review. Gokul effectively tackled this challenge with a mix of strategic planning and use of intelligent sourcing mechanisms like calibrated hedging and e-sourcing of raw materials. Sustainability in Challenging Times Successful businesses are sustainable businesses -in good times and even more so, in periods of uncertainty. In good times, such companies thrive and set new performance benchmarks. In times of challenge, they possess the inner resilience and the robust systems that help them navigate through cross currents and pull through to the future. Tough times pose searching questions about the caliber of an organization's people, policies and practices. They also test the organization's resolve to remain steadfastly by its values. Gokul's success in addressing and overcoming challenges is a 'live' and continuing demonstration of the quality of its systems and the caliber of its people and processes. A Way Forward During the year the Company has considered the Composite Scheme of Arrangement in the nature of de-merger and transfer of Gandhidham Undertakings (Gandhidham Undertaking and Gandhidham Windmill Undertaking)of Gokul Refoils and Solvent Limited to Gokul Agro Resources Limited, transfer of Sidhpur Undertakings (Sidhpur Undertaking and Sidhpur Windmill Undertaking) of Gokul Refoils and Solvent Limited to Gokul Agri International Limited. The said scheme will be more advantageous Unlocking the value of shareholder, Realignment of various business units, More focused leadership and dedicated management, take advantage from different markets, different products and different risk & exposures, Greater visibility on the performance of Gandhidham Unit and Sidhpur Unit, Focused Attention to operation and higher capacity utilization. To meet the challenges amidst growing industry size and the need to consolidate, your Company has initiated several measures on proactive basis, which will allow your Company to build-on its current brsence and market share in the edible oil and Industrial products like castor oil and meals. Your Company is thus poised to undertake the business opportunities arising from leadership position in the industry. Your company is focusing on driving cost and operational efficiencies by use of latest and modern technology confirming to global standards will provide an edge to itself and its business partners and place it at a better pedestal as compared to its peers. Your Company will continue to strengthen itself in areas of sourcing raw materials from points of origin, reducing inefficiencies in supply chain and logistics, capabilities to process at multiple locations, improvements in product quality and increased sales of branded products in retail segment. The consumption of edible oil in packed form, given its current low base and vast untapped potential, offer tremendous business opportunities to expand business volumes in retail segment. Your Company, having a large base of branded sales, is strongly oriented to capitalize the growing business opportunities in this direction and set ambitious targets to scale up its brsence in branded segment. Your Company will significantly undertake strengthening business processes for quality, scalability, sustainability and visibility in the area of branded products. Your Company will expand its distribution channels across the country, broad base its product range and invest in brand position / promotion programs to achieve the objective. Cautionary Statement Statements in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be forward looking statements' within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those exbrssed or implied. Important developments that could affect the Company's operations include a downward trend in the FMCG industry, rise in input costs, exchange rate fluctuations, and significant changes in political and economic environment in India, environment standards, tax laws, litigation and labour relations. Shareholders are cautioned that certain data and information external to the Company is included in this section. Though these data and information are based on sources believed to be reliable, no rebrsentation is made on their accuracy or combrhensiveness. Further, though utmost care has been taken to ensure that the opinions exbrssed by the management herein contain their perceptions on most of the important trends having a material impact on the Company's operations, no rebrsentation is made that the following brsents an exhaustive coverage on and of all issues related to the same. The opinions exbrssed by the management may contain certain forward-looking statements in the current scenario, which is extremely dynamic and increasingly fraught with risks and uncertainties. Actual results, performances, achievements or sequence of events may be materially different from the views exbrssed herein. Shareholders are hence cautioned not to place undue reliance on these statements, and are advised to conduct their own investigation and analysis of the information contained or referred to in this section before taking any action with regard to their own specific objectives. Further, the discussion following herein reflects the perceptions on major issues as on date and the opinions exbrssed here are subject to change without notice. The Company undertakes no obligation to publicly update or revise any of the opinions or forward-looking statements exbrssed in this section, consequent to new information, future events, or otherwise. |