MANAGEMENT DISCUSSION AND ANALYSIS REPORT1. Industry Structure and Development :
The global economic growth slowed down during the last year which has also affected theIndian economy to the extent it affected certain other countries. The agricultural sectorin India has been growing at a slow pace in the past couple of years. For the year 2011-12the Indian GDP has grown by 6.5% as compared to 8.5% in 2010-11. While there is fairamount of uncertainty in GDP growth rate for the current year, we are surrounded byseveral negative factors, like spiraling inflation, high fiscal deficit level, currencyvolatility and constraints in infrastructure front. However, in this backdrop the poultryindustry continued to grow at satisfactory rates i.e. 15% to 20% in broilers and 8% to 10%in layers.
The growth rate witnessed by the poultry industry in the recent years is likely tocontinue for the foreseeable future. Presently the poultry industry is a Rs.75,000 croreindustry that provides direct and indirect employment to 5.00 million people and alsosupports the economy of over 2 crore agricultural farmers, especially the maize and soyagrowers, dependent on this industry. 75% to 80% of the cost of production in the poultryindustry consists of feed ingredients, like maize and soya. With an annual production ofover 65,000 million eggs, India ranks second in the world in egg production. The broilerproduction is estimated at 3.5 million tons of chicken meat and India ranks 3rdin the world.
2. Opportunities, Threats, Risks and Concerns :
The vast gap between our present per capita consumption (54 eggs and 3.5 kg. of poultrymeat) and National Institute of Nutrition (NIN) recommended level (180 eggs and 11 kg ofpoultry meat) offers a tremendous opportunity for the growth of poultry industry at leastfor the next two decades. As the disposable income rises steadily over the years coupledwith urbanization in most part of India, the growth in demand for poultry products islikely to sustain.
Lack of adequate cold-chain at key locations and retail infrastructure are the reasonsfor slower than anticipated growth of the processing segment of poultry industry. Highlyvolatile behaviour of feed ingredients prices is also one of the concerns of the poultryindustry.
3. Segmentwise Performance :
a. Poultry and Poultry Products
The Company’s major business segment is poultry and poultry products whichconsists of production and sale of day old broiler and layer chicks, specific pathogenfree eggs, processed chicken products and poultry feed. In 2011-12 this segment’sturnover was Rs. 71,323 lakhs as compared to Rs. 59,408 lakhs in the last year. The profitbefore tax and interest of this segment was Rs. 5,648 lakhs as compared to Rs. 9,158 lakhsin the previous year.
b. Animal Health Products
The Company has its animal health products manufacturing facility at Pune. Thissegment’s sales turnover was Rs. 9,536 lakhs as compared to Rs. 8,678 lakhs. Profitbefore tax and interest was Rs. 1,596 lakhs as against Rs. 1,658 lakhs in the last year.
c. Oilseed
This segment registered a sales turnover of Rs. 25,867 lakhs as compared to Rs. 23,485lakhs last year. Profit before tax and interest was Rs. 1,508 lakhs as against Rs. 1,625lakhs in the previous year.
4. Outlook
The outlook for the year 2012-13 appears to be better in terms of overall growth forthe Company. However, the steep increase in cost of poultry feed prices in the last coupleof months remains a challenge and may impact the profitability.
5. Internal Control Systems and their adequacy
The internal control system is designed to ensure that all the financial and otherrecords are reliable for preparing financial statements and for maintaining accountabilityof the assets. The Company has a proper and adequate system of internal controls to ensurethat all assets are safeguarded and protected against loss from unauthorised use ordisposition and that transactions are authorised, recorded and reported correctly.
Commensurate with the size of operation, your Company has Internal Audit Departmentwhich continuously reviews the internal control system by an exclusive programme ofInternal Audit. The significant findings are then discussed by the Audit Committee ofDirectors and corrective measures initiated. The Audit Committee also monitors theimplementation of recommendations made by it.
6. Discussion on Financial Performance with respect to Operational Performance :
The turnover of the Company registered growth of 16.3% over the last year from Rs.85,306 lakhs to Rs. 99,246 lakhs. The profit before tax from operations declined by 47%from Rs. 10,776 lakhs to Rs. 5,719 lakhs.
The borrowings of the Company during the year were increased by about 67.8% from Rs.11,217 lakhs to Rs. 18,821 lakhs. The borrowed funds are being utilized for theexpansion-cum-modernisation programme, at an estimated cost of Rs. 10,700 lakhs. Interestcost of the Company has increased by 229% from Rs. 468 lakhs to Rs. 1,541 lakhs.
Keeping in view liquidity, returns and also safety, the Company has invested certainfunds in bank deposit and debt/liquid schemes of mutual funds.
7. Material Development in Human Resources / Industrial Relations front,including number of people employed :
In line with VH Group’s corporate philosophy, the Human Resource is considered asthe most valuable resource in the Company. The focus is on developing a performanceculture with high standards of efficiency and innovation. Employee relations at all levelscontinue to remain cordial. As on 31st March, 2012 the Company had 4,343employees.