MANAGEMENT DISCUSSION AND ANALYSIS
INDUSTRY SCENARIO AND RALLIS GROWTH STRATEGY
Agriculture provides much more than food. It offers essential commodities,environmental services and social goods that facilitate economic development,industrialization and diversification. From its inception, the purpose of agriculture hasbeen to feed and fuel human activity. And now, it is more important than ever.
More than 3 billion people almost half of the worlds population - live inrural areas. Roughly 2.5 billion of these rural people derive their livelihoods fromagriculture. For many economies, especially those of developing countries, agriculture canbe an important engine of economic growth. Approximately three-quarters of theworlds agricultural value added is generated in developing countries, and in many ofthese, the agriculture sector contributes as much as 30 percent to gross domestic product(GDP).
Although the global population growth rate is projected to decline to just over 1% p.a.in the next decade, this will still result in an additional 752 million people being addedto the planet by 2022, and placing additional demands on the global food system.Additional production will also be necessary to provide feed stocks for expanding biofuelproduction which has become an important source of additional demand. The scope for areaexpansion remains limited and geographically concentrated in a few regions. In thesecircumstances, most of the additional agricultural production will need to come fromincreased productivity, as has been the case in the past. It is estimated that by 2050,agricultural production needs to increase by 60% to meet the rising demand.
Experts believe that developing countries and emerging economies will play anincreasingly important role in agricultural markets in near future. Developing countriesare expected to be the leading source of demand growth for agricultural products, with theprojections indicating that consumption in these countries will increase for all products.Higher consumption of agricultural products is being driven by growing populations andtheir increasing concentration in large urban centers and mega cities, rising per capitaincomes, expanding middle classes, and with the growing affluence of the large emergingeconomies and developing countries contributing to dietary changes. These developments areexpected to sustain strong demand for agricultural products of food, feed and fibre to2022 and be reinforced eventually by a return to stable economic growth and demand in thedeveloped countries. The developing countries with their higher income propensities toconsume are projected to continue to diversify their diets with a movement away from basicstaples and grains to higher protein foods, including meats and dairy products as theirincomes and general affluence increase.
As per FAO reports, without agrochemicals, food production would decline, many fruitsand vegetables would be in short supply and prices would rise. Some 20 to 40 percent ofthe worlds potential crop production is already lost annually because of the effectsof weeds, pests and diseases.
India ranks first in the world in production of milk, pulses, jute; second in rice,wheat, sugarcane, groundnut, vegetables, fruits and cotton. In addition, it is a leadingproducer of spices and plantation crops as well as livestock, fisheries and poultry. Withthe contribution of about 10 percent of total export earnings, agriculture also occupiesan important place in the countrys trade.
India has the latent potential to become a predominant player in global agricultureproduction as well as trade. Given the hardworking nature and entrepreneurial zeal ofIndian farmers, need of the hour is to provide them exposure to the global best practicesand farm technologies.
Agriculture, with its allied sectors, is unquestionably the largest livelihood providerin India. Most of the industries also depend upon the sector for their raw materials.Steady investments in technology development, irrigation infrastructure, emphasis onmodern agricultural practices and provision of agricultural credit and subsidies are themajor factors that contribute to agriculture growth.
Indian agriculture has undergone rapid transformation in the past two decades. Thepolicy of globalisation and liberalisation has opened up new avenues for agriculturalmodernisation. This has not only lead to commercialisation and diversification, but alsotriggered various technological and institutional innovations owing to investments fromcorporate entities. From a net importing country, India is today consistently producing250 million tonnes (MT) of food grains, 100 MT of rice, 90 MT of wheat, 35 million balesof cotton, and more than 18 MT of pulses.
World Agrochemical Market:
The value of the global conventional chemical crop protection market in 2013 isestimated to have increased by 9.4% in comparison with 2012, to reach $54,208 million. Theglobal planted areas also grew uniformly in 2013, with an exception of cotton. There wasan increase in planted areas and in the production of wheat, maize, rice, soyabean andsunflower. Although there was a marginal increase in global planted area, it cascaded intohigher productivity.
Overall consumption of agrochemicals increased across the globe; however, exceptionalgrowth came from Latin America, primarily Brazil, and Asia. Value growth of the Asiansector was, however, depressed due to currency depreciation. Overall, Europe performedwell, with double digit local currency growth experienced in a number of east and centralEuropean countries.
Indian Crop Protection Market:
India accounts for approx. 4% of the global agrochemicals market estimated at USD 1.8Billion. With the introduction of newer molecules and increasing awareness among farmercommunity, the industry is witnessing higher growth rates in recent times. The cropprotection industry in India is dominated by molecules which are off-patent. Hence, astrong distribution network and brand presence acts as a competitive advantage.
As per published reports, consumption of crop protection products in India is among thelowest in the world. Per capita consumption of crop protection products in India is 0.6kg/ ha compared to 13 kg/ ha in China and 7 kg/ ha in USA. Some of the reasons for lowconsumption in India are low purchasing power of farmers, lack of awareness among farmers,limited reach and lower accessibility of products. This presents an immense opportunityfor the crop protection industry to grow in India.
Building and sustaining relationship has been one of the key strengths of your Company.Your Company has been the fore runner in initiating various engagement platforms for itsstakeholders such as RKK (For Farmers), Bhagidaari Sabha and Anubandh (For ChannelPartners).
Having reached the milestone of 1 Million farmer data base last year, during thecurrent year RKK has focused on the contact plan of the farmers for generating thedemand for Megabrands. IT enablement programs like SAMPARK for increasing theeffectiveness of Crop Advisors and Toll free helpline have helped in enhancing the farmerrelationships. Innovative and scientific approach of creating Package of Practices (PoP)for key crops was stepped up during the current year to demonstrate the power ofusing your Company products in increasing the productivity of Rice, Cotton and Chillicrops. These PoPs have helped in showcasing the positive results to RKK farmers andspreading the word of mouth to other fellow farmers. Expansion of our skill developmentinitiative Tata Rallis Agri Input Training Scheme (TRAITS) in new States likeOdisha and Bihar, apart from continuing the same in West Bengal, Maharashtra andKarnataka, has also helped in creating competent crop advisors to carry on the activitiesof RKK.
Various new growth business initiatives under Non Pesticide Portfolio (NPP) like Seeds,Plant Growth Nutrients (PGN) and Agriservices initiatives: MoPu and Samrudh Krishiand Soil Conditioner business Geo Green: have all helped in increasing the productsand services portfolio in core crop protection markets and created good synergy inenhancing the domestic formulation business. NPP business activities increased the farmerconnect and visibility in the markets and boosted the crop protection business in key cropsegments.
Several innovative dealer motivation platforms under Channel Partner Engagement programinitiated 3 years back have contributed in increasing the sales of selected key productsin all the geographies. Innovative programs like Anubandh, Achievers Incentive andMDs Elite have played important role in making the channel support sales of our keybrands. Online integrated dealer portal for the channel: e-Bandhan which was startedduring the year, is well appreciated and steadily increasing the online order placing andstock reporting.
Your Company launched Rallis Poised growth agenda in May 2007, targeting asustained profitable and balanced growth. Since the launch of Rallis Poised growthagenda, your Company has recorded 16% CAGR in gross revenues. The Rallis Poised growthagenda has seven growth drivers, viz. Contract Manufacturing, Brand Premium, ValueEnhancement (known as "DISHA" initiative), Overseas market expansion (named"Apollo"), Agri Services, Sustainability and Accelerating Growth. This issupported by three enablers, viz. Process orientation, infrastructure support inmanufacturing Units, fields and offices and a committed and competent team of engagedemployees.
Initiatives such as acquisition of a stake in Metahelix Life Sciences in December 2010,setting up a new manufacturing facility at Dahej in Gujarat, operating since June 2011,grow More Pulses programme, Samrudh Krishi, TRAITS, and more recent initiatives, includingthe acquisition of a stake in Zero Waste Agro Organics and investment at new R&Dfacility RICH at Bengaluru during the previous year, have further strengthened the RallisPoised growth agenda. These initiatives are not only to drive growth but also towardsbalancing its business portfolio by focusing on its core business of crop protection aswell as non-pesticide portfolio of Seeds, PGN, Agri Services, Contract Manufacturing, etc.
Business Environment 2013-14:
The global crop protection market for the year 2013 was up 9.4% over 2012. While allregions showed good level of growth over the previous year, the strongest growth was seenin Latin America on account of strong crop prices and increase in demand for maize,soyabean and sugarcane.
In India, the Year 2013-14 started on a positive note with a good monsoon coveringalmost the whole country during the Kharif season. The crop protection industry overallhad a good year. The first half of the fiscal bore well for agriculture, translating intogood gains for the agri inputs industry. Excess rains followed at the beginning of Rabi,thereby helping increased acreage of crops particularly Paddy, Pulses and Wheat. For thecountry as a whole, the rainfall for the crucial period of June - September was 106% ofits long period average (LPA). Gujarat, Maharashtra, Madhya Pradesh, Kerala and Karnatakareceived excess rainfall; the States of Tamil Nadu, Coastal Andhra Pradesh, Odisha,Chhattisgarh, Uttar Pradesh, West Bengal and Himachal Pradesh got normal Monsoon, whileonly in North East, Bihar, Jharkhand and Haryana rainfall was deficient. South westMonsoon was better in the first quarter compared to the second quarter.
Minimum support prices (MSP) of the crops were increased and cotton fetched high pricesin the market. So did the superfine varieties of Paddy - the prices of Basmati and otherfine varieties soared to all-time highs. MSPs of sugarcane, soyabean and groundnut werealso raised in FY14. Cluster beans produce prices dipped though, in comparison to theprevious year.
Sufficient rainfall coupled with good expectation of produce prices resulted in afavourable environment for the industry during the first half. The third quarter howeverdid not shape up as well. It started with Cyclone Phailin hitting the key coastal Statesin the very first fortnight. This damaged the Kharif crops such as paddy, cotton, chilliand Bengal gram badly in the States of Andhra Pradesh, West Bengal, Odisha and Bihar. Thissituation was aggravated by the incessant rains that followed the cyclone. It is estimatedthat the Phailin cyclone affected around 47 lakh acres of these crops as also seriouslyaffecting the usage of crop protection solutions during the period. As a consequence,yields fell coupled with a deterioration in the quality of produce leading to a cashcrunch in the market. In November another Cyclone Helen hit Andhra Pradeshwhich has a high usage of crop protection solutions and further damaged the Paddy, Cottonand Banana crops.
As a result, industry market conditions were muted in the second half of the year andwere also affected by stock returns due to lower consumption. Though the acreage of pulsesand wheat rose, the crop condition subsequently was healthy and did not require normalusage of crop protection products. Therefore inventories, particularly of some high valueproducts went up at an industry level. Overall therefore, the industry grew largely led bythe performance in the earlier part of the year.
RALLIS OVERALL PERFORMANCE
Your Companys gross sales for the year 2013-14 crossed the key milestone ofRs.1,800 Crores, reflecting a growth of 19% over the previous year. The Companysprofit before tax during the year at Rs.214 Crores, grew by 24%. Net profit after minorityinterest rose 28% to Rs.152 Crores.
The gross sales for the year 2013-14 were Rs.1,613 Crores, a 15% rise over the previousyear. Profit before tax was higher by 21% at Rs.209 Crores while net profit for the yearstood at Rs.146 Crores, recording a growth of 23% over the previous year.
REVIEW OF OPERATIONS
(1) Crop Protection:
(a) Domestic Formulations Branded Business:
Domestic Formulations branded business performed well registering a healthy growth overthe previous year. This was driven by a sustained thrust on Mega brands, successfulimplementation of various activities under
Rallis Kisan Kutumb, integration of new business segments (MoPu, Samrudh Krishi,synergy from the Non Pesticide Portfolio), innovative Channel Partner Engagementinitiatives, expansion in growing markets and operational excellence/agility. The goodmonsoon during the Kharif season also facilitated in creating a positive agricultureenvironment for growth.
Megabrands initiative was started 3 years ago to build a portfolio of bigbrands through focused actions and specific deployment of resources. This has givenfruitful results during the current year in increasing the sales of potential Megabrandssuch as Contaf/Contaf Plus, Applaud, Takumi, Taqat, Ralligold and GeoGreen and sustainingthe growth of the Megabrand Asataf. Your Company has stepped up the branding activitiesfor the identified Mega brands, leveraging the well poised customer relationship program Rallis Kisan Kutumb RKK.
Expansion activities in terms of opening new regional offices, Area offices and salesterritories in important and potential states like Punjab, Tamilnadu, Maharashtra andEastern markets during last year has increased the market presence and helped in pacing upthe sales growth.
With good monsoon during the Kharif season, Cotton, Paddy, Soyabean, Groundnut andPulses crop acreages were normal. To capitalize on the buoyant season, your Company hastaken several steps to increase the operational efficiency for timely servicing of themarket and increasing the effectiveness of the critical activities. During the year, thedomestic team has displayed a well-orchestrated performance in reaping the benefits fromall the strategic initiatives and also bringing sharp focus on operational efficiency.
(b) International Business:
The International Business showed a significant growth over 2012-13 and continues to beabove 30% of the overall revenue of the Company for the past two years. Growth came fromall regions, particularly from Asia and Latin America on account of higher demand.
The key highlights for International Business during 2013-14 were the launch of blockbuster brands in overseas markets. Progress in launch of brands was recorded, with onebeing launched successfully in Asia and your Company also leveraged the presence of TataAfrica through which brands were introduced in Nigeria.
International Business received 11 new registrations and has applied for many more newregistrations, which are expected to be received over the next 3 to 5 years.
Order for a new contract manufacturing product was received and trials were conductedfor more than five new contract manufacturing projects in the pilot plant at Dahej.
The main focus in 2014-15 will be the Companys alliance partnership with keycustomers in the European Union and Latin America, growth in Asian and African markets,supported by the Companys direct presence and opening of new offices abroad.
(2) Non-Pesticide Portfolio
Indian maize production rose from 11.15 million tonnes in 2002-03 to 22.5 milliontonnes in 2012-13. Majority of it is used as animal feed, followed by industrialconsumption for starch and other industrial products. The rising demand for corn as animalfeed and food is the key contributor for maize hybrid penetration. Indias maizeyields are very low compared to global standards; dependence on hybrid seeds to increaseproductivity will, therefore, increase. Indias hybrid maize seed sector could morethan double in the next three years to two lakh tonnes a year, from 100,000 tonnes now,driven by demand from poultry and industrial sectors. The penetration of hybrid cottonseed crops in India has almost saturated at around 96 percent. Further growth will bepropelled by usage of more seeds per acre, with compact architecture plant type replacingopen plant type along with mechanisation.
Indian Hybrid paddy segment is highly underpenetrated, with less than 5% area underhybrid paddy as compared to over 55% area under hybrid paddy in China. Government subsidyprograms are the main driver of this segment.
With higher disposable income and changing lifestyle, vegetable segment is also poisedto grow.
The Proprietary Research Seed Category like Selection wheat, Selection paddy andSelection mustard opens up a huge opportunity, as the seed replacement rate is very low.This category is mainly dominated by regional players. This segment is a profitable, lowrisk segment. Your Company has an advantage of emerging as a leader in this space, withits brand equity in the rural area, along with its strengths of reach and penetration.Rallis has several offerings in this new segment in wheat, mustard and paddy.
The Companys acquisition of a majority stake in Metahelix Life Sciences(Metahelix), a research-led Seeds Company in December 2010, has started yielding results.In three years, the revenue of Metahelix has grown significantly. The Company continues tofocus on building a strong pipeline of new hybrids.
(b) Plant Growth Nutrients:
The Company has built its portfolio with differentiated products, unique technology,eco friendly products or with unique delivery mechanism. New products launched during thepast 3 years, like Tata Bahaar, Glucobeta, Tata Uphaar, have helped the Company achieve aCAGR of over 35% in this segment and has added to its profitability. The focus is todevelop and market eco friendly, environmentally safe and differentiated products. Duringthe year, the Company was successful in establishing and scaling up the sales of its neworganic product Gluco Beta, which was possible through the use of innovative marketingapproach. New geographies and crops have been identified for establishing Gluco Beta.
(c) Agri Services
The Companys efforts in expanding the reach of its agri services have received anencouraging response from the farmers. They aim to increase the productivity of thefarmers, help them in marketing their produce, while embracing the entire value chain ofproducts and services to serve the emerging needs of the agri sector.
The Pulses Productivity programme of Rallis has received acclaim from MaharashtraGovernment. The Public Private Partnership Project (PPP) between Maharashtra Governmentand Rallis, for Pulses, was evaluated by FICCI and improvement in pulses productivityrecorded by target farmer groups was validated. This initiative was recognized for itsshared customer value creation and was awarded the prestigious "Porter Prize".The MoPu (More Pulses) initiative has now been extended to Madhya Pradesh,Karnataka and Tamilnadu and over 3.5 lakh farmers have been covered. As a part of theproject, 15,000 MT of pulses were procured from farmers till date, under the IShaktibranded pulses programme, in collaboration with Tata Chemicals Ltd.
The farmer advisory services initiative, Samrudh Krishi was expanded to cover moregeographies. The paid farmer base is showing an increasing trend as more farmersappreciate the value of our services. During the current year, for the first time, theSamrudh Krishi APEDA - GAP certified grapes were introduced to Indian consumers throughthe Star Bazaar (A TATA Enterprise) outlets in Mumbai and Pune. As on date, theMaharashtra Government has approved three Public- Private Partnership (PPP) projects underthis initiative, including grapes.
The sprayers offered to farmers have gained acceptance. Furthermore, in order toaddress the acute problem of labour shortage faced by farmers, your Company has deployedon a pilot scale rice transplanters in Odisha State. We are facilitating adoption of SRI(System of Rice Intensification) practice by the farmers using rice transplanters, whichhas resulted in up to 15% higher paddy yields, besides reducing the use of irrigationwater.
Tata Rallis Agri Inputs Training Scheme (TRAITS):
In order to build necessary field force competencies, your Company had launched theTRAITS initiative in 2011-12, whereby non-graduate, rural youths with a farming backgroundwere trained in Agri-marketing and crop advisory activities. TRAITS has helped inproviding employment to and improving employability of rural unemployed youth with Agribackground. Two new centers for TRAITS have been opened at Bhubaneswar in Odisha andNalanda in Bihar during the year.
ZWAOL: Soil Conditioner : organic compost business:
During the current year, the Company has acquired additional stake of equity shares inZero Waste Agro Organics Limited (ZWAOL), increasing its shareholding in ZWAOL from 22.81%to 51.02%. ZWAOL is a subsidiary Company of Rallis, making high quality organic compostunder the brand "GeoGreen". Its sales have picked up well during the year, withits product "GeoGreen" gaining market acceptance. This business is aligned withthe national priority of restoring soil health and the need to boost agriculturalproductivity. The initial focus is on commercial crops. Going forward, the thrust will beon building new production sites to support business plans.
TOTAL SHAREHOLDER RETURN
Your Company firmly believes that its shareholders are a major part of its stakeholderfamily. Enhancing shareholder value and increase in investor returns is a major focus areaand your Company measures the value created for its investors through the TotalShareholder Return (TSR).
TSR is the yearly rate of return of an investment made considering capital appreciationplus dividends over time. The TSR of an investment made in your Company in March 2005 kepttill the last trading day of March 2014 works out to be an attractive 33% per annum. Thismeans that if one had invested Rs.100 in Rallis stock in March 2005, the total valuethat the investment would have earned would be Rs.1,090, if one had sold the stock on thelast trading day of March 2014.
The dividend payout of the Company has improved over the years, from Rs.1/- per sharein 2005 (on Equity Shares of Rs. 10/- each) to Rs.2.30 per share in 2013 (on Equity Sharesof Rs.1/- each). Along with the recommended final dividend of Rs.1.40 per share, thedividend payout of the Company in 2014 will be Rs.2.40 per share. The EVA (Economic ValueAdded) of the Company has also improved from Rs.4,573 lakhs during 2012-13 to Rs.5,688lakhs during 2013-14.
Rallis stock price has significantly out-performed the BSE Sensex during the past10 years. If both the Rallis stock price and Sensex were indexed to 100 as on the lasttrading day of March 2005, the y-o-y performance of the Rallis stock and Sensex till FY2014 is shown in the chart.
| ||FY 2005 ||FY 2006 ||FY 2007 ||FY 2008 ||FY 2009 ||FY 2010 ||FY 2011 ||FY 2012 ||FY 2013 ||FY 2014 |
|Rallis Share Price ||233 ||330 ||248 ||335 ||392 ||1,255 ||1,321 ||121 ||115 ||173 |
|Sensex ||6,493 ||11,280 ||13,072 ||15,644 ||9,709 ||17,528 ||19,445 ||17,404 ||18,836 ||22,386 |
OPPORTUNITIES AND OUTLOOK
The fundamentals of the Agriculture sector continue to be robust and will drive growthin the years to come. The remunerative produce prices for most of the key crops areexpected to continue and will lead to increased investments by the farmers on agri inputsand improving overall productivity.
The enterprise value creation programme, DISHA (Drive Innovative Solutionswith Hyper Achievements) which aims at re-engineering various processes andactivities across the Company to generate value and the International Business growthprogramme, APOLLO are also expected to contribute well to the overall growth agenda of theOrganization in the coming year as well.
The EAGLE (Expansion & Aggressive Growth through Leadership& Excellence) initiative will continue to assist the business to achieve itstargets for 2014-15.
RISKS, CONCERNS AND THREATS
The performance of the crop protection industry and other agri inputs is dependent onmonsoons, pest and disease incidences on crops. Major fluctuations in total rainfall andits distribution affect the crop acreages and overall productivity and have a directcorrelation with sales. Farmers willingness and ability to spend will be animportant driver to demand generation. Strong support produce prices and betteravailability of credit will ease the pressure on the farming community. Tighteningregulations can be looked upon as an opportunity by committed enterprises.
Exchange rate fluctuations between Dollar and Rupee could also impact revenues as wellas costs in the foreseeable future. The rising crude prices could have an impact on thecosts and prices of various products.
RESEARCH & DEVELOPMENT (R&D)
The Companys Research and Development Centre (Rallis Innovation Chemistry Hub - RICH)provides a unique opportunity to all sections of the R&D Department to interact. As aresult, synergy is created, resulting in greater efficiencies in the work.
The Companys Research and Development efforts are focused on new and saferformulations for better efficacy, improved value and services to the farmers. A number ofregistration dossiers have been submitted during the year for supporting domestic andinternational business.
Process Chemistry is focused on developing cost effective processes for molecules thatare off patent/ to be off patent soon in the areas of crop protection and having relevantmarket potential. Five International patents and an Indian patent were filed duringthe year. Process improvement projects as well as backward integration of existingproducts were undertaken for improving product quality, yields and productivity ofmanufacturing processes. Process development for many contract manufacturing opportunitieswas also taken up as a major activity.
A state-of-the-art Pilot Plant has been set up at Dahej to help in scaling up of theprocesses, which is the backbone of commercialization, developed by RICH.
Product Development of new formulations was also undertaken with help of field trialsin different areas so as to assess their bio efficacy and ensuring that these formulationsare safe to use.
The Companys research efforts has resulted in obtaining, for the first time inIndia, the registration of a combination of an insecticide and a fungicide, to offer asuperior solution to the farmer against stem borer and leaf folder insects and sheathblight and sheath rot diseases on rice crop in India.
ENVIRONMENT, HEALTH & SAFETY (EHS)
Environment Health and Safety is deeply entrenched into your Companys valuesystem and it is gaining strength with every passing year. Last year, the Company receivedpermission to use Responsible Care Logo from ICC (Indian Chemical Council) and this year,the Company received Certificate of Merit for Best Compliant Company for the ProcessSafety Code under Responsible Care. This is a testimony to the strong Environment, Healthand Safety system in the Company, going beyond statutory norms. This is also a result ofthe constant focus on Process Safety across all the manufacturing Units.
During 2013-14, the Company continued to focus on its long term strategic goal"Zero lost time accident at the workplace" i.e. "Operations with No injuryand harm". There were no reportable incidents and accidents during the year and therewere no occupational health illness cases or major emergencies across the Organization.This has been achieved through renewed focus and high commitment from the top management,supported by all levels of workforce across the Organization.
During the year, three areas were selected for special focus and the year was named as"Year of Lead by Example" with the theme "Excellence in Behavior BasedSafety (BBS), Process Safety Management (PSM) and Road Safety". Annual plans weredeveloped after taking feedback and involving shop floor/ ground level employees, right upto the top management. Various interventions were planned and executed, including BBStraining, BBS observations, BBS survey, Identification of PSM Critical, implementation andmonitoring of PSM critical, review of risk assessment (Hazop study and other techniques),SIL (Safety Integrity Level) and LOPA (Layer of Protection Analysis) study for Lote Unit.Under Road Safety, we have engaged an NGO "Road Safety Foundation" to provideRoad Safety training to all our employees. We have carried out more than 12 programmescovering more than 1,300 people (employees and other stakeholders).
In addition to the above, Emergency Response training, Responsible Care Managementsystem, Quantitative Risk Assessment, near miss identification, analysis and reporting totop management and contractor safety were few other key focus areas during the year.
As a part of continual improvement in Environment management, various initiatives weretaken to further strengthen the pollution abatement measures. Ankleshwar Unit hassuccessfully commissioned Multi Effect Evaporator and Membrane Bio Reactor in effluenttreatment to strengthen its journey towards zero discharge. The new facility at Dahej isequipped with segregation of effluent, biological treatment followed by MEE (Multi EffectEvaporator) and ATFD (Aqueous Thin Film Dryer) to achieve effective treatment of effluentwater. During the year, odour reduction initiatives at Lote, Ankleshwar and Dahej plantshave helped us in furthering the healthier environment in and around our plants. TheCompany is in the process of strengthening the Pollution Abatement Plan by installingadditional Multi effect evaporator, Aqueous thin film evaporator and Aqueous thin filmdryer at Dahej and Lote plants.
Utility management and energy conservation initiatives continued to be the focus areain all manufacturing Units. This has helped in improving the "Greening Index" ofthe Company.
All Units of the Company are certified for IMS (Integrated Management System), whichincludes ISO-9001, OHASA-18001 and ISO-14001 and are maintaining the standards withregular review at various levels and aligning the system with the CompanysEnterprise Process Management. Members will be happy to know that our new plant at Dahejis recommended for IMS certification by DNV (Det Norske Veritas), which includes ISO-9001,ISO-14001, OHSAS-18001 and ISO-50001 (Energy Management system). At Dahej, energyconservation initiatives resulted in getting IGBC GOLD Rating for theAdministration Building. This Leadership in Energy and Environmental Design (LEED) RatingSystem is driven by Indian Green Building Council.
Product stewardship, transportation and warehouse safety continued to be strengthenedby providing resources, standardization to match benchmark practices, training to driversand warehouse workers for safe transportation, storage and loading/ unloading andemergency plan for road accidents.
The Companys efforts and performance in the area of EHS have been recognizedacross the manufacturing Units, through receipt of several awards. These awards include:
o Best Compliant Company for the Process Safety Code under Responsible Care NSCMaharashtra Chapter Award for Akola and Lote Units.
o National Energy Conservation Award 2013 for Dahej Unit.
o Golden Peacock Award for Eco Innovation (winner) for Dahej Unit.
o Two Awards for Dahej Unit in Green Environment Contest by Baroda ProductivityCouncil:
Category: Food, Agro and Pharma Winner
Overall winner in Safety Vertical Winner
INTERNAL CONTROLS SYSTEMS AND ADEQUACY
The Companys internal audit systems are geared towards ensuring adequate internalcontrols commensurate to the size and needs of business, with the objective of efficientconduct of operations through adherence to the Companys policies and identifyingareas of improvement. Added objectives include evaluating the reliability of financial andoperational information, ensuring compliances with applicable laws and regulations andsafeguarding of assets from unauthorised use.
The risk based annual internal audit plan prepared at the commencement of the auditperiod and approved by the Audit Committee focuses on the key risks as well as the otherrisks and is linked to the Companys objectives and strategies. The focus is onprocess checks and controls and regular monitoring and upgrade along with identificationand suggestions for value creation.
The scope and authority of the Corporate Audit Department is derived from the AuditCharter approved by the Audit Committee. Internal Audit reviews are performed by amulti-disciplinary internal audit team which reviews and reports to management and theAudit Committee. Audit observations focus on compliances, improvement of internal controlsand management of key risks and the efficiency and effectiveness of operations. In thecurrent year, the Company had also engaged the services of an external firm for conductingreview of specialised areas.
As part of the audit reporting process, significant observations are reported to theAudit Committee. These are reviewed and monitored through the Action taken reports.
Additionally, the departmental performance is rated through feedback obtained fromprocess/ function owners/ auditees to gauge and assess the effectiveness of the internalaudit process and use it as an improvement mechanism.
The focus on development and extended use of the e-platform will continue in thecurrent year, with the objective of covering a larger universe, to provide meaningfulassurance and thus raise the bar of control effectiveness.
Risk management includes implementing systems to identify risks, report them and takemeasures to manage them. Through an enterprise risk management program, each function unitaddresses opportunities and risks through a comprehensive approach aligned to theCompanys objectives. The Company has laid down procedures to inform the AuditCommittee of the Board of Directors about risk assessment and management procedures.
This risk management process, which is facilitated by internal audit, covers riskidentification, assessment, analysis and mitigation. The risk structure comprises the riskowners, who identify the key risks, define the mitigation plans with relevantresponsibilities and timelines for actions. Status on key risk management and residualrisks are presented and discussed with the senior management and necessary updates areprovided to the Audit Committee and to the Board of Directors.
Currently, there is a repository of 11 key risks identified as strategic, external andoperational. Further, the major risks forming part of Enterprise Risk Management arelinked to the audit universe and are covered as part of annual risk based audit plan.Thus, risk and audit are complementary to each other.
The overall objective of this process is directed towards optimum utilization of theresources of the Company and to promote and enhance the stakeholders value.
The Company, in its journey to enhance the efficiency and effectiveness of its HumanResources, undertook several initiatives during the year to improve sourcing of talent,enriching the talent, ensuring better employee satisfaction, talent retention and skillsdevelopment. Evidence of employee centric approach can be seen in the recently introducedMaternity
& Infant Care Leave Policy which allows the female employees who havedelivered babies, to work from home and simultaneously do justice to theirresponsibilities as mothers. Another example of focus on employee welfare can be seen inthe newly added cash-less and top-up features of mediclaim policy.The employees can now avail cash-less treatment in the empanelled hospitals and can availof higher Mediclaim coverage by paying additional premium which is less than the marketrates.
On the basis of a comprehensive review of compensation based on compensationbenchmarking survey conducted through Aon Hewitt, the survey findings were addressed byincreasing the monthly take home component of salary for employees in the manager, officerand supervisory grades and salary corrections in appropriate cases.
The Company recently carried out an Internal Customer Satisfaction Survey to look foropportunities to enhance the satisfaction of internal customers. With improving scores,further actions to register better internal satisfaction will be a continuous journey.
Alignment of goals of the entire Organization was carried out through the deployment ofStrategy Deployment Matrix (SDM) and Balanced Scorecard (BSC).
Customized training was provided in various areas, including functional, behavioral,Business Excellence, Customer orientation, Safety, Code of Ethics, Product Training,competency assessment. REGALE (Rallis Employees Growth Acceleration Leading toExcellence), a Company specific programme to create pipeline of future leaders, wasconceptualized and rolled out. Some of the other capability building initiativesundertaken this year are TGELS (Tata Group Executive Leadership Seminar), TGSLS (TataGroup Senior Leadership Seminar), MDP (Management Development Programme), DWM (Daily WorksManagement), Mentoring, CFTs (Cross Functional Teams) and Gyansarovar online accessto TMTC library.
As a continuous endeavor of building functional competencies, the CAD (CompetencyAssessment & Development) initiative has been taken to a higher level.
During the year, the Company continued with its actions related to driving AffirmativeAction and also underwent its first assessment under the Tata Groups externalassessment called TAAP (Tata Affirmative Action Programme) Assessment.
This year, the Company introduced a unique employee engagement initiative called"Karishma Dikhla Jaa", an in-house show for showcasing the latent talent andcreativity of Ralliites. Under this initiative, employees from across all locationspresented their performances depicting various messages and values with themes such asSafety, Sustainability, Green Environment, Value systems, etc. There were three regionalrounds at common locations and a final round was held at Mumbai which was attended byemployees and their families. Karishma Dikhla Jaa created lot of excitement,fun, bonding and camaraderie amongst Ralliites.
As on 31st March, 2014, the employee strength was 881, as compared to 843 as on 31stMarch, 2013 (excluding trainees).
The year 2013-14 witnessed several key events and firm initiatives at Rallis. YourCompany continued the journey of excellence and sustained the high score band, withincremental width in the absolute score, in the Tata Business Excellence Model (TBEM)assessment during the year. The Company was also part of the Tata Chemicals EnterpriseAssessment, which saw a substantial increase in the score band.
Rallis won the JRD QV Award in 2011 and subsequent to that, was awarded the CII-EXIMBank Prize of CII (Confederation of Indian Industry) in 2012. These honours are given toOrganizations that exhibit highest standards of excellence based on the TBEM (adapted fromMalcolm Baldrige National Quality Award of USA) and CII-EXIM Bank Business ExcellenceModel (adapted from European Foundation for Quality Management model). To celebrate andbolster the journey of excellence, the Company celebrated the "Decade of Excellence(2003 - 2012)", where the Senior Leadership Team once again reiterated theircommitment towards journey of excellence with renewed vigour.
These coveted Awards acknowledge the sustained efforts and strong commitment of allemployees of the Company to excel, sustain and grow together. Your Company leadershipacknowledged the contribution of Rallis employees for their focused approach tocontinuous improvement and value creating initiatives in the Organization.
Continuing on the journey of excellence, the Company acknowledges the learning from theBusiness Excellence assessments, which essentially consist of strengths as well as areasfor improvement. Your Company will continue to focus to further improve in its journey ofexcellence including some focus areas such as customer centricity and sustainability.
In line with its overall growth objective, your Company continues to drive improvementsin various business processes with investments in Information Technology (IT). During thecurrent year your Company invested in Cloud and mobile computing, improving the agility ofthe execution team.
Considerable progress has been made with regard to the utilization of ERP (EnterpriseResource Planning) and BIW (Business Intelligence Warehouse) systems from SAP. This hashelped the Company in aligning of new business segments and simplification of businessprocesses, particularly in the areas of logistics management comprising sales distributionand materials management, along with production planning and financial control; to improveagility and customer service. BIW continues to provide analytical reports and key businessMIS at the right time through the system.
Investments are being continuously made in IT infrastructure to support businessapplications. A robust virtual private network using MPLS technology is in place. YourCompany continues to leverage the growing telecom network in the country to provide highbandwidth terrestrial links to all its operating units. This has enabled effectivecoordination of activities across geographically dispersed locations. It has alsoimplemented video conferencing facilities at six of its major offices to have instantmeetings, reduce travelling time and costs and improve the quality of communication whilelowering the Companys carbon footprint. Further, to handle e-waste in a propermanner, your Company has chosen Government approved vendors who specialize in disposal ofe-waste in an environment friendly manner.
Tarang The intranet for Company employees is a strong medium forknowledge sharing and employee self-service. New functionalities have been added to enrichthe knowledge sharing experience.
eBandhan a portal for online interaction with dealers has been implementedand resulted in better services to dealers.
Information Security and reliable disaster recovery management is a critical focusarea, especially as most of our business processes become fully IT-enabled. Your Companyhas an active Disaster Recovery facility in a different seismic zone to ensure businesscontinuity in case of a disaster.
CORPORATE SUSTAINABILITY AND AFFIRMATIVE ACTION
Your Company believes that sustainable business is founded on Corporate Governance(business principles), with triple bottom line i.e. economic, environmental and socialperformance together creating sustainable value for all stakeholders through businessprocesses and continued growth. Business risk assessment with appropriate risk mitigationplans in full compliance ensures protection from internal and external business hazards.The Company has developed an integrated model on Sustainability focusing on Environment,Corporate Social Responsibility (CSR) and Affirmative Action (AA) initiatives. UnderEnvironment, key focus areas are Industrial Waste Management and Energy and Greening.Under CSR and AA, key focus areas are Natural Resource Management and Employability. TheCompany has developed detailed long term and short term plans on all key focus areas. Toensure proper implementation of sustainability initiatives, we have developed and trainedSustainability Champions across all locations. These Champions are responsible for drivingvarious sustainability initiatives at their respective locations.
During the year, some of the key areas on which the Company focused were water footprinting and recycling of water, reduction of energy consumption, reduction of carbonfootprint and use of renewable source of energy. All our Technical manufacturing unitsunderwent water foot printing through Tata Quality Management Services (TQMS). Lote Unithas installed briquette fired boiler to minimize use of furnace oil boilers. This will beinstalled at other Units also.
Being a signatory to Global Compact Principles, your Company files a Communication onProgress (COP) to the Global Compact Society every year on the Companys efforts inprotecting human rights and promoting the conservation of environment.
As a part of its commitment towards climate change initiatives, the Company has startedmonitoring a "Greening Index" consisting of carbon footprint, greening thepremises, reduction in hazardous waste and solvent losses and water conservation. As apart of greening the product initiative, the Company has already phased out its redtriangle (Extremely toxic) products and is giving emphasis to green triangle (less toxic)products. In line with this, the Company is constantly increasing the greening index ofits product portfolio.
Participatory Sustainable Development is an integral part of the CompanysCommunity Development (CD) Policy, which focuses on involvement of all in the communitydevelopment process. Your Company believes in care and concern for all people and iscommitted to improve the quality of life of every member of the community, especially theunderprivileged.
The Companys CSR initiatives efforts have resulted in expanding thecommunity base to over 394 events and benefitting over 21,000 people.
The Key Themes inspiring CSR initiatives as per CD Policy are Leveraging Competence inthe field of Agriculture, Improving Quality of Life through Water Conservation, EmpoweringWomen and Children. The foundation of these key themes is Volunteering by enthusiasticemployees of Rallis.
The focused initiatives under these key themes are:
Improve Quality of Life through watershed Projects:
The Companys Lote Unit is in the Konkan region. This region witnesses very goodrainfall, but most of the water runs off to the sea, thereby creating water shortage forthe villagers. To address this issue, we have decided to harvest rain water at Songaonvillage situated near our Lote Unit. This has helped in increasing the availability ofsurface water as well as ground water level since the last year. During the current year,total three Vanarai bandhara/ Diversion dams and two loose boulder structures were createdto harvest rain water and more than 3000 trees were planted keeping in mind the dualpurpose of increasing ground water level and soil conservation. We have also coordinatedwith the Agriculture Department, who came forward and constructed a check dam at Songaon.This has helped in enhancing availability of water to the villagers for irrigation andsupported their livelihood, as the farmers could opt for second crop of vegetable andpulses cultivation, thus increasing their household income.
Women empowerment (TARA initiative):
SHG (SELF Help Group) (TARA initiative): Four SHGs was mentored during the year atSongaon (Lote). Exposure was given to these SHGs in various areas, to encourage them tostart their own HBB (Home based business).
The members of SHGs were given exposure and skill training in various areas such asfood processing, candle making and tie and dye. Five days basic business planningskill was imparted, which helped the SHG members to plan their dream business and initiatetheir dream business into reality.
Based on above, the women are initiating home based business. The Company encouragesand supports these women by providing them a platform for exhibition cum sale of theproducts produced by the SHG groups. The women have received an overwhelming response fromLote MIDC and each group was able to earn a good profit. This has encouraged the women toput up such exhibitions every quarter.
Major initiatives in this area included:
o Afforestation project: On the deforested land of 5 hectares near Mumbai, 5,000 mixedspecies were planted to convert it into afforested land. This was done by involving theForest Department and an NGO.
o Tree plantation drives: More than 550 trees were planted across various locations.
Under educational intervention your Companys focus is to cover majority ofstudents belonging to Affirmative Action group. Under this initiative, the Companyundertook the following:
o A kitchen garden project was initiated during the year by the Bengaluru Zone. Threeschools were selected for the project. Demonstration plots were made in the schoolpremises to train students to develop kitchen garden in the backyard of their house.
o Soft and hard skill programmes for students such as computer training, personalitydevelopment and SSC preparatory series were conducted at Lote, Akola and Dahej.
o Career guidance was imparted to 10th and 12th standard students at Lote, Shenva inThane District and Dahej.
o Self defense training for girls and women were conducted at Mumbai, Lote, Bengaluruand Ahmedabad. Train the Trainer Programme was conducted for women at Ratnagiri incollaboration with Sakaal newspaper.
o Spoorthi initiative Through this initiative, focus was on creating awarenesson importance of educating the girl child, health awareness for women and importance ofsafe drinking water at Secunderabad and Guntur.
o Training programmes on road safety, home safety and fire safety were organised forstudents and villagers at Lote, Akola, Dahej and Shenva.
o First Aid training was conducted for Students at Shenva.
o 2,000 notebooks, 100 crayons and 100 instrument boxes were distributed to needy andpoor students at Lote.
o Green Rakshabandhan concept was introduced for college students at Dahej.
Rallis volunteers are involved in various initiatives across all locations. Ourphilosophy for Volunteering is - Encourage collective giving of time and skills bycreating an enabling environment for employees to volunteer, demonstrating group ethos ofgiving back to society. The Company encourages volunteering under its SAATHIprogramme.
With the help of Saathis, our Employee Volunteers, various CSR and AA activitiesare implemented across all locations. Our Volunteer Champions take the lead inimplementing various CSR and AA initiatives at their respective locations with the help ofSaathis.
Following are glimpses of some of the volunteering programmes and their benefits:
o Safety awareness programmes for community like home safety, fire safety, LPG safety,road safety, etc.
o Health awareness and check-up programmes like AIDS awareness, de-addiction, blooddonation drives, pulse polio campaign, dental check-up, run for cause, blood groupcheck-up for students, etc.
o Flood relief for villagers of Lakhigam near Dahej.
o Women day celebration by organising various competitions for women.
o Awareness sessions on water conservation: Various locations conducted severalawareness programmes for the community. Programmes like Save Water Campaign and rally tocreate awareness for water conservation; Session on Soil and Water conservation forstudents, villagers and farmers; awareness through various means like showingdocumentaries, slogan competition, poster making, demonstrations etc at Dahej, Ahmedabad,Akola, Lote and Bengaluru R&D.
o Safe use of pesticide program for farmers family members at Ahmedabad.
o Enhancement in employability, improvement in Agri output and generating ruralemployment.
o Increase in green belt.
o Increase in ground water level.
o Increase in confidence level of students.
o Creating awareness about various career options available to students.
o Women started their own businesses and are financially independent.
o Increase in self confidence and self image of girls and women.
The above efforts have resulted in planting more than 8,700 trees during the year2013-14 and 49% of Saathis volunteered for more than 2,800 hours for achieving the aboveresults.
Your Company is also focusing on working towards upliftment of SC/ ST communitiesthrough its Affirmative Action (AA) initiatives. Under AA initiatives, four themes to workupon are: Employment, Employability, Entrepreneurship and Education.
Rallis is focusing on Employability under AA initiatives along with working in theother three areas. Your Companys flagship programmes are TRAITS (TATA Rallis AgriInput Training Scheme) and FTT (Fixed Term Trainee). The Company has been able to generatedirect employment to 3% of its workforce belonging to AA community and 23% throughcontract workforce.
8% of the participants under the TRAITS programme are from AA communities. TRAITS hashelped in providing employment/ employability to rural unemployed youth with Agribackground at Baramati, Hubli, Birbhum, Bhubaneswar, Patna and Bhopal.
Your Company, in its endeavor to add more and more value to the society, with specialfocus on rural India, has decided to focus on "Natural Resource Management" and"Employability", with Water and Skill Development respectively as key focusareas.
The Companies Act, 2013 (the Act) has introduced the concept of undertakingCorporate Social Responsibility ("CSR") activities as part of a companysoperations. Your Company is committed and fully geared to meet all the requirements underthe Act.
Statements in the Management Discussion and Analysis describing the Companysobjectives, projections, estimates, expectations may be "forward- lookingstatements" within the meaning of applicable securities laws and regulations. Actualresults could differ materially from those expressed or implied. Important factors thatcould make a difference to the Companys operations include climatic conditions,economic conditions affecting demand/ supply and price conditions in the domestic andoverseas markets in which the Company operates, changes in the Government regulations, taxlaws and other statutes and other incidental factors.