MANAGEMENT DISCUSSION AND ANALYSIS REPORT a. INDUSTRY STRUCTURE AND DEVELOPMENTS Rossell Tea World crop for 2014 was at 2,130.60 million kgs. as against 2,142.50 million kgs. in 2013 with deficits coming from India by 15.0 million kgs. and Indonesia by 4.50 million kgs. and surplus being witnessed in Kenya by 12.6 million kgs. over their record crop in 2013. The year 2014 witnessed a deficit in All India crop by 15.6 million kgs. as against the brvious year at 1,184.8 million kgs. The major deficit came from Assam Valley which was lower by 35.0 million kgs. However, this loss was made up by excess crop from Dooars, West Bengal by 16.43 million kgs. with South Indian being almost at par with year 2013. The year 2014 was indeed a year of fluctuating and extreme weather conditions, particularly in the Assam Valley, resulting in loss in crop, mainly from the organized sector. In effect due to the rainless winter and a very dry start to the season, even quality came to be negatively affected in the Assam Valley. The market for CTC started on a good note from the very beginning of the year, primarily owing to low crops in Assam. Upto the second flush, plain and medium varieties witnessed maximum gain in prices and thereafter, price concertina between the good teas and others widened with the good varieties being readily absorbed and others being discounted. However, at the end of the season, large quantities of teas were suddenly released to the auction system owing to implementation of the Tea Board of India's Plant Protection Code. This resulted in a glut and low prices in the last quarter which continued even till the beginning of the new season for such varieties of teas. The year ended with the CTC average being Rs. 150.76 per kg. as against Rs. 144.28 per kg. in the brvious year i.e. ahead by Rs. 6.48 per kg when compared to the financial year 2013-14. The orthodox market on the other hand was uncertain from the beginning of the season owing to lack of demand, particularly from Iran and it only firmed up later in the year when the shortage of 11.59 million kgs. or 25% less manufacture was felt by the buyers. Orthodox averages, therefore, finished at Rs. 198.31 per kg. as against Rs. 203.80 per kg. in the brvious year-behind by Rs.5.49 per kg. However, the orthodox category continued to achieve higher prices over CTC by Rs. 50.89 per kg. Our average for orthodox teas was Rs.249.20 is + Rs. 2.13 over 2013-14. These averages are also higher than Assam averages by Rs. 50.89 per kg. Your Company with its concentration on quality teas produced an excellent product mix of orthodox and CTC teas which was in demand. Overall our average for the financial year 2014 -15 was Rs. 222.83 per kg. against the Assam district average of Rs. 153.82 for the year. In the financial year 2013-14, Rossell's average is Rs. 220.70 per kg. i.e. a marginal increase in spite of severe adversities in growing conditions and lack of market support for the orthodox category in particular, for which Rossell is primarily known for. We held our orthodox prices, despite the Assam averages being lower by Rs. 5.49 per Kg for this category. We are happy to state that the Company's export reached a new milestone of 15.12 lakh kgs with revenue of Rs. 41.31 crores. This shows an increase of 17.93% in volume term and 13.90% in value term over the last year. This is on the back of outstanding performance of exports by Rossell in 2013-14. Quality production and enhanced exports continue to be a focus area for the Company for sustained revenue in the coming years. Aviation Products and Services Rossell Techsys Division has come to be known as synonymous with excellent infrastructure, people and quality. The division has 4 strategically selected competency areas - (a) Wire Harness or inter-connect competency (b) Embedded Systems (c) Test Solutions (d) product support. The wire harness competency has reached significant growth phase. In the wire harness competency, the Division has set up a state of the art wire harness manufacturing facility Rossell Hospitality Quick Service Restaurant is identified by acronym QSR in the industry and is typically characterized by "food served fast" not necessarily fast food and minimal table service. QSR chains have thrived in the Indian states and around the world because they cater to the busy lifestyles of modern consumers. b. OPPORTUNITIES AND THREATS Rossell Tea The World Crop in 2014 was 2,130.6 million kgs. against 2,142.5 million kgs. in 2013 a minor deficit of 12.5 million kgs. (-)0.58%. Kenyan production was +12.6 million kgs. whilst Indonesia was (-) 4.5 million kgs. and India recorded a reduced crop to the extent of 15.6 million kgs. We continue with our belief that on a three year moving average world crops will not show huge increases or decreases and would therefore be largely stationery. In the mid-term we will not see untrammeled growth. Kenya has shown positive growth but India on the other hand, with its ongoing replanting programme is not likely to show increase for the next 5 - 6 years. Weather conditions will also determine any variation in crop especially in India. With the recent wage agreements in Assam,no doubt costs will continue to escalate. In India clearly, consumption is rising for Black Tea, while a similar trend is observed in China's Green Tea consumption. In India, consumption is growing at 3 - 3.5% annually and this indicates a stable market, which at best will be demand led. A robust uprooting and replanting programme will in the medium term slow down increase in Indian production, and this reinforces our belief that the market could be strong. Further we are convinced that distinct market segmentation into best, good, medium and plain categories is here. The consumer is willing to pay for quality and this we see as a great opportunity. Rossell's creed is quality albeit consistent quality and we receive just reward. The price concertina between good quality and other categories continues to widen. What must not happen is that the industry must avoid producing large volume of poor teas, as this can easily upset the market, and pull prices down through large crops and inferior teas. Your Company's stated policy and practice is to produce the best possible quality teas, CTCs or orthodox. In this area our record is very good and consistent. With this has come continuing international recognition for Rossell and continuous enhancement of brand equity for the Company. Whilst there is reason to be optimistic in the medium term, one cannot discount the impact of climate change, especially as seen in the year 2014-15, when a severe drought negatively and majorly impacted production at Rossell and raised the cost of production significantly. These episodes will continue to be omnibrsent in the future as well. Sustainable agriculture is being practiced at Rossell and this with other strategies will help mitigate the minor aberrations of such change.The Company has made significant investments in Irrigation; the benefits of such investments are already visible. Significant wage increase of 22% in Assam with phased withdrawal of fertilizer subsidies, inflation and migration of workers to urban areas are bound to impact the working environment. Internationally the Middle East an important market is in a state of uncertain flux politically. Nonetheless there is strong demand emanating from Iran and other markets. With consumption of tea increasing worldwide there is need to position tea as a youthful and healthy beverage. With the Indian economy growing robustly there is an opportunity for value addition and thereby offer sophisticated choices to the consumer. Initial efforts in the US and other markets indicate a favourable response from consumers. In India too, a start has been made but much needs to be done. Aviation Products and Services Government of India in May, 2013 had put in abeyance the "services" for offset eligibility. The Defence Minister has indicated in his various interviews that the ban will be lifted shortly. Once this is lifted, foreign companies will look for availing more and more services from Indian companies which are offset eligible. In spite of this, Aerotech Services Division have signed additional contracts for providing services during the year under review. Foreign OEMs are keen to partner with Indian companies that have the right mix of the four critical areas (i) management and people (ii) infrastructure and spare capacity (iii) process and certifications (iv) Safety and Security of Intellectual property. It is also experienced that once credentials are established, foreign OEMs tend to be "loyal" in their business. The Division has just the right mix of the four areas as well as the credentials and, therefore, sees enormous opportunities in all its four competency areas. In addition, it also visualizes scope for inorganic growth to meet the potential of business that it envisages in the next 4 to 5 years. The time is right to pursue aggressive marketing strategies to capture a significant volume of emerging business. The Division also plans to take steps to fortify its global supply chain relationships. The threats as envisaged by the RossellTechsys Division are minimal. The gestation period for any investment is a minimum of 4 to 5 years. While the entry barrier is basically financial capital, the gestation period could be a deterrent. Further, establishing credentials with a foreign OEM is the most difficult part. With the Government of India diluting the FDI requirements in JV's, this step is assessed to be the biggest threat with the possibility of foreign OEMs tying up with an Indian Entities. Rossell Hospitality In Food Service Industry, the opportunities are a Burgeoning middle class, increase in malls and multiplexes, increasing youth spending, and urbanization. Threats are food inflation, product imitation, price competition, local competition i.e. building a cost effective supply chain and multiple licensing. c. SEGMENT-WISE BUSINESS PERFORMANCE Rossell Tea The market for CTC teas was strong and there was good demand all round, due to lower cropping in 2014. The market clearly rewarded the best quality whilst poor sorts were neglected. The orthodox market was sluggish resulting in lower production of 25% and also lowerall Assam averages by X 6.04 per kg. Only later in the year did the orthodox market pick up with some renewed interest from Iran. Your Company continued to see attractive prices for its orthodox and CTC teas, and is reflected in the combined average of Rs.222.83 per kg. These averages are among the highest in Assam for any group. It was in fact a good and consistent effort at Rossell, despite all odds; once again your Company outperformed the Market. Exports, despite a difficult market for orthodox, grew by 22% in volume terms, touching 1.51 million kgs. In value terms the increase is 14.19% over the brvious year. This is of course on the back of an excellent showing in the financial year 2013-14. Overall with crops being impacted by a severe drought and the market being a slow starter, the financial year 2014-15 was a very difficult year. It is pertinent to mention that all our Tea Estates are certified FSSC ISO 22000/205 in keeping with our high food safety commitments and standards. Aviation Products and Services For aviation Products, RossellTerchsys Division has adopted a two pronged strategy for certifications, at the Division level and Individual level. The Division is certified to AS9100, IS9001, ISO14001 and ISO27 0 01. The Division is also CEMILAC approved. The OHSAS 18001 certification is in progress. The division was also awarded the best SME in the aerospace and defense sector for the year 2015, just prior to the Aero India 2015. Rossell Hospitality The Division ended the financial year 2014-2015 with a total of 9 operational outlets of Kebab Xbrss in NCR and now looking to open additional 18 outlets in the financial year 2015-2016 in NCR region. The Division will be commencing Kebab Xbrss operations outside NCR too. Initial target is to open with a new commissary and 5 outlets by March, 2016. d. OUTLOOK Rossell Tea The winter of the year 2014-15 was a rather dry period with poor rains from November to early March. The cropping year 2015-16 started slowly, picked up as weather improved. Prospects can be described as "most-satisfactory". We could be in line to produce crops similar to that in the year 2013-14. The market like last year has started well for CTC teas. Orthodox has as usual for 1st flush started slowly but, with the onset of the 2nd flush, enquiry is picking up from traditional buyers from the Continent, Iran and Russia. Iran should import aggressively this year. Given their current stock position, we expect better export enquiry and hope to further increase our exports. At Rossell, export of quality teas is a Key Result Area. Overall, we are optimistic that the year 2015-16 will be a rebound year for Rossell Tea, on the performance front. Aviation Products and Service Aerotech Services Division meets its commitment on time to the satisfaction of the both the OEM and the end customer. This aspect is helping the Division being approached by other OEMs to provide technical product support services. In a recent annual review the OEM exbrssed complete satisfaction of our performance. In RossellTechsys Division, the focus areas for the financial year 2015-2016 are going to be the embedded systems and test solutions competency areas. The Division has just begun to see traction in the later part of the financial year 2014-2015 and is optimistic of making its first breakthrough in these competencies in the financial year 2015-2016. One of the key features at the Division is the emphasis on training, externally as well as internally driven. The Division has set up a state of the art training facility for its all the four competencies stated above. Rossell Hospitality Familiar cuisine, fresh concept, consistent taste/quality and hygienic food served in disposables, competitive pricing and mechanical approach to traditional manual process is brferred. Low cost in terms of initial investment and operating costs, low risk, high impulse products, all add to the positive growth of QSR industry domestically. e. RISKS AND CONCERNS Rossell Tea Tea is an agri-horticulture pursuit. It is, therefore, natural that weather plays an important part. Since the last several years "climate change" has become a very topical issue. As a risk mitigation initiative, your Company continues to make significant investments in irrigation. Higher wages, reduction of subsidies and some inflationary impact will add to further challenges this year. The Industry should be able to face these new challenges. Stability in importing continues to be a threat; however, given the current optimistic, political climate brvailing in Iran, this country is expected to increase its imports of Orthodox teas, especially from India. The internal market indicates stable demand and with increasing per capita consumption trends, the demand will be good and quality will continue to be rewarded. Aviation Products and Service Whilst services were put in abeyance for offset eligibility, it has had no impact on Aerotech Services; however, once it is lifted there will be enhanced opportunities. In our new contracts, penalties will be imposed in case of delay in providing services. Our engineers are being trained at the foreign OEM facility to ensure that knowledge and technical capabilities are kept at the highest levels. We will continue to perform as we have done in the past and have had no adverse comments/penalties. In RossellTechsys Division, while the order acquisition in the last year has been extremely positive, there is also reason to be cautious and circumspect. This is due to imbalances in the business sbrad and dependencies on few customers. Also, as in any export oriented business, and with long term contracts in place, the risk of variations in foreign currency exchange rates is real. Rossell Hospitality Retention of Existing staff, Maintaining Set Quality Standards, Developing right talent, Learning Curve and Brand Positioning are some of the concerns for the QSR model. f. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY All the Divisions of the Company have internal control systems at all levels of Management, which are reviewed from time to time and improved, where required. The Internal Audit is carried out largely by Firms of Chartered Accountants and for certain Divisions in-house. The Audit Committee of the Board looks into Auditors' review, which is deliberated upon and corrective actions taken. g. FINANCIAL AND OPERATIONAL PERFORMANCE Along with the continual emphasis on quality up gradation of the product and services, prudent management of costs has been the stated objective of all the Divisions of the Company. In the year under review, the Company's financial performance has been a setback for the management for various justifiable reasons,keeping in view the various odds. The operating profit before debrciation in respect of Rossell Tea for the year was Rs.1,906.22 lakhs against Rs. 3,358.04 lakhs in the brvious year. The Aviation Products and Services business segment of the Company made a profit of Rs. 277.80 lakhs before debrciation, as against loss before debrciation of Rs.17.75 lakhs in the brvious year. Rossell Hospitality Division posted a loss before debrciation of Rs.839.55 lakhs as against Rs. 472.76 lakhs in the brvious year. The overall operating profit before debrciation of the Company is Rs. 1,531.36 lakhs as against Rs. 3,289.19 lakhs in the brvious year. The financial base of your Company remains strong and we expect further strengthening thereof with better financial and operational performance in the future. h. HUMAN RESOURCES DEVELOPMENT Human resources are a valuable asset at the Corporate Office as also at the various Divisions/ Units of the Company and adequate attention is paid to their development and well-being. Training and development is one of the integral branches of Human Resources function. Emphasis is given by the Management on talent acquisition, correct recruitment practices and retention planning with effective organizational development. In these ever dynamic conditions, the training and development of teams is focused on the behavioral and process oriented training. A Career development programme is centric to such training.The Human resource policy of the Company is to ensure that the best talent is retained and developed so that each of the Divisions of the Company maintains its competitive position with respect to execution. Industrial relations at all the units remain satisfactory, where your Company employs 6,195 personnel on its roll. |