We herewith submit Management Discussion and Analysis Report on the business of the
Company for the year ended 31st March, 2017 in this we have attempted to
include discussion on all the specified matters to the extent relevant or within limits
that in our opinion are imposed by the Companys own competitive position.
ECONOMY
The year 2016-17 started on a positive note with India emerging as the fastest growing
major economy in the world. The International Monetary Fund (IMF), in its Regional
Economic Outlook for Asia and the Pacific at the beginning of the year, retained its
growth forecast for India at 7.5%, largely driven by private consumption even as weak
exports and sluggish credit growth weighed on the economy. The Indian Economy seemed set
to revive and consumer spending seemed poised to make a strong comeback. The favorable
tailwinds notwithstanding, consumer sentiments remained low for most part of the first
half of the financial year 2016-17. Consumption started to witness an uptrend with the
festive season in the third quarter of the fiscal. However, this positive trend was
interrupted as the government announced demonetization of high value bank notes on 8th
November 2016. The cancellation of 86% of the currency in circulation led to acute
liquidity squeeze in the economy which resulted in a severe impact on consumption and
trade, pushing demand into a downward spiral.
Though IMF categorized the slowdown as temporary, its latest World Economic Outlook
pointed out that Indias growth slowed to 6.6% in 2016-17, down from 7.6% a year earlier
The one percentage point cut, IMF said, was primarily because consumers tightened their
purse-strings after Novembers demonetization move. The CSO also revised its GDP growth
estimates downwards to 7.1% in the 2016-17 fiscal year, compared to 7.6% a year earlier.
FMCG
The FMCG sector is the fourth largest sector in India and provides employment to around
three million people, accounting for approximately 5% of the total factory employment in
the country. After remaining somewhat resilient to the overall economic turbulence for
nearly two years, the FMCG sector faced severe demand headwinds in 2016-17. Despite
softening of Inflation and announcement of the new Pay Commission report a year earlier,
offering substantial wage hikes for millions of government employees, household
consumption of fast-moving consumer goods slipped. With rural India still smarting under
the impact of three years of deficient monsoons, rural consumption also stayed muted
during 2016-17.
The first six months of the financial year 2016-17 saw FMCG demand remain at low
levels. A slow recovery was in place and was primarily driven by rising optimism in urban
markets. The festive season, beginning October, brought in some cheer as consumers
loosened their purse strings and demand for packaged consumer goods witnessed an upward
movement. However, this positive trend was short lived as the demonetization move impacted
trade severely, leading to massive amount of destocking across the entire trade channels.
Wholesale channel bore the brunt due to high dependence on cash transactions and severe
liquidity crunch post demonetization. Impact of demonetization was more pronounced in the
hinterland and regions where wholesale trade is more dominant. Small traders were also
more impacted due to liquidity crunch and this led to major reduction in stock pipelines
across distributor, wholesale and retail channels.
These temporary setbacks notwithstanding, various surveys and studies suggest that the
Indian FMCG market is poised for good growth in years to come. As per ASSOCHAM-TechSci
Research report titled Indian FMCG Market 2020, the FMCG market in India is expected to
more than
double to $104 billion by 2020, from the present level of $49 billion, on the back of
steady economic growth, rising share of organized retail, improving awareness and a
favourable demographic dividend.
GROWTH FACTORS & OUTLOOK
Abundant availability of raw material
Availability of key raw materials and presence across the entire value chain gives
India a competitive advantage over other developing nations. The efforts in increasing
rural reach by leading players have resulted in greater penetration in rural availability
across categories
Increasing Urbanization:
With rising urbanization and development of consumption power, Indias Tire I and Tire
II cities have become an increasingly important battlefield for FMCG players. Also,
increase in the urban population, along with rising income levels and the availability of
new categories, would help the urban areas maintain their position in terms of
consumption.
Raising prosperity of the consumer:
The industry is likely to get benefited from growing prosperity of the consumer.
Incomes have risen at a quick pace in India and will continue rising given the countrys
strong economic growth prospects. Evolving middle class, exponential growth in GDP per
capita & Urbanization Consumer sector growth has a high correlation with strong
economic growth. The best example of this is the Seventh Pay Commission, the salary hike
of government employees and pensioners by 23.55%, which was implemented from January 1,
2016.
Growing Awareness:
Indian consumers are changing rapidly related to the education and awareness of the
products. Now even the customer from rural area have become selective and demanding in
their buying preferences. With the rising purchasing power changing consumption pattern
increased access to information & technology and improving infrastructure, the rural
market holds great potential for FMCG players.
Demographic trends
The food industry has a bright future due to demographic environment in India, which is
a key positive.
Rising income levels leading to large customer base
India with its population of more than 1 billion accounts for close to 17% of the
global population. It is one of the most attractive consumer markets in the world with the
increase in income levels across the population segments. Food and grocery comprise the
largest share of the spending pie followed by personal care items, thus offering a lot of
scope for the food industry.
Relatively young population
India has a relatively young population with close to 55% of population in the age
group of 20-59 years. This group is also high in consumption and therefore, this trend is
expected to provide a further boost to the growth of consumption in India.
Changing lifestyles
Lifestyle and premium range products are the new target product segment among Indian
FMCG players. Increase in literacy and exposure to western lifestyles by more and more
urban consumers have led to change in mindset and preference of people. Increase in the
population of workingwomen and increase in nuclear double income families in urban areas
are some of the other factors that are influencing the lifestyles. As a result, there has
been an increase in demand for processed, ready-to-cook and ready-to-eat food.
KEY CHALLANGES:
Competition among leading FMCG companies to win over customers is getting severe and
companies are leaving no stone unturned in making products that not only satisfies
consumers but also retains them for future. With increasing competition, FMCG companies
have to focus more in attracting new customers for the existing products and services, and
to start or develop a new market.
Major Challenges for the Indian Food Industry are:
• Consumer education on nutritional facts of processed foods
• Low price-elasticity for processed food products
• Backward-forward integration from farm to consumers
• Development of marketing channels
• Development of linkages between industry, government and institutions
• Taxation in line with other nations
• Streamlining of food laws
Your Company will continue to rapidly scale up the Branded Packaged Foods business
drawing upon product development capabilities, branding, sales & distribution
competencies to establish itself as the most trusted provider of food products in the
Indian market Your Companys products are named for its quality and taste. Customer
satisfaction is key ingredient for your Company. Comparing to last fiscal year, this year
your Company become popular for its products.
SEGMENT-WISE ANALYSIS
Your Company is dealing in only one segment i.e., Manufacturing and Trading of ready to
eat food products and processed foods.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Your Company has in place, adequate internal control systems and procedures
commensurate with the size and nature of our business. These procedures are designed to
ensure that:
• An effective and adequate internal control environment is maintained across the
Company.
• All assets and resources are acquired economically, used efficiently and are
adequately protected.
* Significant financial, managerial and operating information is accurate, reliable and
is provided timely, and
* All internal policies and statutory guidelines are complied with.
CAUTIONARY STATEMENT
Statements in this Management Discussion and Analysis describing the Companys
objectives, projections, estimates and expectations might be construed as ‘forward
looking statements within the meaning of applicable laws and regulations.
Actual results may differ substantially or materially from those expressed or implied.
Important developments that could affect the Companys operations include a downward trend
in the FMCG industry, rise in input costs, exchange rate fluctuations and significant
changes in political and economic environment, environment standards, tax laws, litigation
and labour relations.
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