AVT Natural Products Ltd Management Discussions

Overview

The following operating and financial review intends to convey the managements perspective on the financial and operating performance of the Company at the end of the Financial Year 2024-25. This report should be read in conjunction with the Companys financial statements, schedules and notes, and other information included in the integrated report. The Companys financial statements have been prepared in accordance with the Indian Accounting Standards (‘Ind AS), complying with the requirements of the Companies Act, 2013, as amended, and regulations issued by the Securities and Exchange Board of India (‘SEBI) from time to time.

This report is an integral part of the Boards Report. The report covers aspects of industry structure and developments, outlook, risks, internal control systems, adequacy, and material developments in human resources and industrial relations.

AVT Natural Products operates in the business segment of Food and Feed Ingredients (Natural Raw materials) business segment. There are five primary business categories:

Marigold Extracts : Eye Care, Food Coloring and Poultry Pigmentation

Spice oleoresins and Oils for Food Colouring andFlavouring

Value added Teas: Decaffeinated Teas and InstantTeas

Animal Health & Nutrition Products

Agricultural Crop Inputs

The Company has three wholly owned subsidiaries, AVT Natural Europe Ltd, UK. AVT Natural S.A. De C.V., Mexico and AVT Natural FzCO, Dubai, AVT Natural Europe Ltd has one subsidiary, AVT Natural North America Inc. The wholly owned subsidiaries sell challenges to growthand maket value-added teas, animal nutrition products and other natural extracts.

For the year ended 31 March 2025, the Company generated revenues of Rs.519.22 crores, compared to Rs.503.31 crores in 2023-24. The profit after tax was Rs.38.07 crores in 2024-25, compared to Rs.46.37 crores in the preceding year. Adverse weather patterns and two consecutive years of drought severely impacted marigold crop yields, resulting in flower shortages and lower sales volumes.

Poor growing seasons have also prevented the Company from building up stock levels to service customers during low cropping years. The poor crop performance and subsidized global pricing from Chinese suppliers directly impacted the marigold divisions performance.

The demand for value-added teas faced headwinds and was dampened in the first two quarters due to economic conditions in key markets. However, the markets rebounded in the last two quarters, with demand finishing strong across all product offerings and markets. The

Company continued working closely with key accounts, ensuring high-quality product offerings and a robust and reliable supply chain. A strong focus on raw material procurement and process efficiencies ensured a strong performance for the tea beverage division. Spice Oleoresins and Extracts continued to be an essential division of the Company. The division witnessed lower performance due to weakened demand for key value-added products across Asian markets. However, the Companys control over the supply chain helped ensure stable and healthy margins despite slowing market conditions. The Company continued to make inroads in the Animal Nutrition division. The products are well received by existing customers, with many new customers completing trials and beginning to onboard products. Despite new regulatory hurdles and viral outbreaks in key markets, the division grew and expanded its market footprint. The Company also expanded the test marketing of its Agricultural Crop Inputs and plans to expand commercialization in the coming financial year.

Climate change and evolving weather patterns continue to be a concern. Competing high-value vegetables, fruits, and cash crops also pose a challenge for increasing marigold acreages. Constantly evolving regulatory requirements over pesticide usage and residue levels continue to pose significant compliance. The education of farmers and the adoption of new farming practices have proven to be challenging, with many farmers unable to adapt as fast as regulatory norms. The Red Sea issues and regional tensions severely hamper shipping routes and times. To counter this, the Company has increased its stock of finished goods and is working closely with customers to improve forecasting and optimizing shipping volumes. The Company continues to invest in our farmers and is working towards more sustainable growing programs for marigolds and other crops. Inroads were also made with our hybrid seed production, and the Company reduced its reliance on outsourced seed supply for its Marigold operations. We continue to work on new seeds to ensure higher yields and Xanthophyll, which will help combat the growing costs. The Company has embarked on various internal programs to address concerns about increasing employee costs and improve employee productivity and operational efficiencies. Costs are diligently monitored, and cost reduction measures are taken wherever possible with automation. Process improvements and new technologies help offset potential cost increases. Automation also continues to be an area for investment. Currency risk is mitigated through careful forex hedging. The Company follows an appropriate hedging policy commensurate with its business needs.

New businesses take time to mature, but the Company maintains a positive outlook for the future with its foray into new segments while strengthening the existing businesses. Marigold will remain a key business segment. Improved growth and supply, focusing on efficiency and costs, will be key to sustaining growth in the marigold division. The Company will continue strengthening its agricultural growing base by adding new areas while focusing on process and cost improvements. The Company continues to invest in R&D and new processes that can improve costs.

New hybrids will continue to be rolled out phased to ensure sustainable growth in flower volume.

In Spice Oleoresins and Extracts, the Company continues to expand its customer base and geographical regions. A stronger focus will be placed on growing its value-added specialty product market while improving efficiencies in its core offerings. Greater emphasis will be placed on compliance to meet new global norms and differentiate internal our offerings in highly regulated markets.

The value-added Tea segment continues to be a continue significant to work closely with large key accounts and expand into new regions. The Company will be exploring added capacity to service our growing list of customers, aiming to double the business in the coming years. Our growth will consolidate our position as a key player in the value-added tea market. The Animal Nutrition division continues to grow and will be a focus area for the Company. The products are making inroads in key markets, and we expect sustained growth over the next few years. The Company continues to expand its operations in LATAM and South East Asia directly and through strategic partnerships.

The Crop Science division will be next financial year. It will focus on strategic regions and corporate customers in the Indian market. The portfolio will focus on reducing pesticide usage and ensuring sustainable agriculture practices.

As always, the Company will continue to invest in R&D. We will leverage our knowledge and technology in Botanicals to establish new divisions for the Company, with our first clinical studies for human Nutraceuticals.

The Company has effective internal audit and control systems commensurate with the increasing business size to safeguard its assets and protect against loss from any unauthorized use or disposition. Regular internal and statutory audit visits are undertaken to ensure that the highest standards of internal controls are maintained at all levels of the organization. The Companys internal controls are supplemented by an extensive program of internal audits periodically reviewed by the management. All policies, guidelines, and procedures are well documented.

The summary of the Internal Audit findings and status of implementation of action plans for risk mitigation are submitted to the Audit Committee for review, and concerns if any, are reported to the Board. This process ensures robustness of internal control systems and compliance with applicable laws and regulations and ensures optimal resource utilization and system efficacy.

The Company has implemented new SAP system across the organization streamlining much faster access to data and reports available in full compliance to SEBI while also building robust internal controls and systems in the coming years.

All Investment decisions are subjected to formal systematic detailed evaluation and approved by the relevant authority as defined in the delegation-of-authority mechanism. The Audit Committee reviews the plan for internal audit. It also reviews all significant observations and overall functioning of the Company on a periodic basis.

Revenue and capital expenditure are strictly governed by approved budgets and the expenditure approval levels are defined by a delegation-of-authority mechanism.

Review of capital expenditure is undertaken based on the expected benefits for the Company. .

The Company strongly believes that Human Resource is its most critical asset. We strive to offer our employees a dynamic and rewarding environment based on strong organizational values and the individuals ability. While the overall emphasis is on driving the organizations business goals, we encourage individuals entrepreneurial spirit coupled with a strong sense of accountability to achieve the objective contributing to every individuals growth together with building a strong business.

The Company continues to leverage its human capital by attracting the right talent as well as nurturing and developing its internal talent. The company has a carefully designed appraisal and performance rewarding system which fosters a growth mindset in its employees. We emphasize nurturing and rewarding our internal talent. In this endeavor, our employees undergo carefully designed training program which prepares them for the challenges ahead and developing future leaders. The company follows a structured and well-defined system of internal promotions which ensures high levels of employee satisfaction with adequate talent in the pipeline to sustain the business growth.

The company has been successful in building an internal talent pool at every level to cater for growth. Employees are provided cross-functional exposures, on-job training as well as carefully chosen external training programs to prepare them for their growth into higher roles. HR team works closely with the Superiors to assess the training needs of their subordinates. The Superiors are accountable for the continuous development and growth of their subordinates.

As we aggressively pursue new business opportunities, we have tapped into external talent pool as and when necessary. We are happy to note that the Company is an attractive destination to talented individuals. The company follows a carefully designed recruitment and staffing process to ensure that all employee addition is immediately value accretive. The process followed has helped the company to reduce the learning curve sharply while pursuing new businesses.

We continuously improve and update our HR systems to meet the demands of the changing business environment to ensure that the Company will remain an attractive destination for both its internal and external talent. The company has enjoyed a very cordial and peaceful work environment with a committed, strong, supportive and co-operative work force on the Shop floor.