Modern Dairies Ltd

INDUSTRY STRUCTURE & DEVELOPMENTS

The dairy industry in India is growing at a rapid pace. With India maintaining itsstatus as the largest producer of milk in the World and annual growth rate of 3-4%, thedairy industry in India is poised for major development.

Of the total milk produced in the country it is estimated that only 18% to 20% isprocessed by the organized sector. The remaining balance milk is consumed throughunorganized channels. With the growth of organized sector which is providing regular andremunerative market to the milk producer, this share is expected to go up at a fast rate.This will ensure a regular availability of raw material to the industry. The continuouseconomic growth in the country has lead to increased demand for liquid milk and milkproducts.

OPPORTUNITIES AND THREATS

The world milk production is growing at the rate of about 1.5% where as the demand formilk products are growing at about 2.4%. This difference in demand and supply is likely tobe available to India which is growing at 3.5-4%.

Due to recent global economic crisis, many developed nations including EU has increased/reintroduced the subsidies to their dairy sector, thereby affecting other developingnations.

The Indian Dairy Industry is still facing technical barriers to trade like restrictionon exports of Edible Grade Dairy Products from India into the EU nations. There are othercountries too like Russia, Mexico, Malaysia, Brazil, where Indian products can not beexported due to non availability of Mutual Trade Agreement between India and respectivecountries.

RISK & CONCERN

Like any agro based industry, the dairy industry is also dependent on the vagaries ofnature which affect the production of milk. The milk being perishable can't be stored forprocessing at a later stage.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a proper and adequate system of internal controls to ensure thattransactions are properly recorded, authorized and reported. The Company has in place welldocumented and structured systems and procedures in line with the best of practices andwell defined roles and responsibilities for people in all functions at various levels. TheCompany is certified as ISO 9001:2000 (Quality System), ISO 14001 (Environment System) andHACCP (Food Safety System) by DNV, Netherlands.

There is adequate Management Information System. Management review meetings are heldperiodically to monitor and control functions of the Company. Internal audit on regularbasis is carried out to ensure proper control.

FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS

During the year under review the Company achieved net sales and other income of Rs459.83 crores as against Rs. 413.60 crores in previous year. It has net loss of Rs. 26.00crores as compared to profits of Rs.6.60 crores during the previous year. The Companyexported products worth Rs 95.26 crores during the year as compared to Rs. 126.59 croresduring the last year.

HUMAN RESOURCES

The Company regards its employees as valuable asset and continuously reviews andevolves policies and procedures to attract and retain its pool of technical and managerialpersonnel through a conducive work environment.

CAUTIONARY STATEMENT

The Management Discussion and Analysis report may contain statements that might beconsidered forward looking. These statements are subject to certain risks anduncertainties. Actual results may differ materially from those expressed in the statementas important factors could influence the Company's operations such as Government policies,local, political and economic development, risk inherent to the Company's growth and suchother factors.