duncans industries ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The management of the Company is pleased to present its report pertaining to its core business of cultivating, growing and processing of tea.

1. Industry Structure and Development :

The tea industry is largely dependent on the vagaries of nature. As a result of deforestation and other environmental degradation, rainfall in some of the tea areas has become scarce with long dry spells. The first significant rainfall in this season was received as late as in the first week of May, 2014 and that too it was not widespread. Plucking was suspended at almost all the Companys tea gardens during the month of April, 2014 due to non-availability of leaf. Generally tea production picks up from the month of April, but of late harsh weather conditions in the beginning of the season have delayed tea production in many tea gardens. Irrigation, which was something unnecessary, has now become essential and the Company has given a thrust for extension of its irrigation facilities in more areas of its operations including up-gradation and modernization of the machinery and other assets. Priority has also been given for uprooting and replanting of age old tea bushes in the tea estates of the Company.

2. Opportunity and Threats:

Tea being an agricultural product, occupies a predominant place in the national economy and is also a highly labour intensive industry. The high cost of Indian tea is a deterrent against increasing export of tea from India. Good awareness level world over as to the health attributes of tea is leading to growing demand for good quality teas. The diverse agro-climatic conditions prevailing in the tea growing areas lend themselves to the production of a wide range of teas - black, (CTC, orthodox), green teas, etc. It should be the intention of the Government to take over some of the social costs which the industry is bearing on behalf of the State, so that the industry may become more competitive in the world market. In comparison to the major competitors in the world viz. Kenya and Sri Lanka, the areas under tea in India are much older and hence yielding much lower than the comparatively newer tea areas of other countries. The lower yield is also a reason for the high cost of production. High labour cost, social cost, infrastructure costs and increasing energy and other input costs remain the major threats for the tea industry. In this regard, the Company is in the process of revamping its tea estates in order to keep itself cost competitive.

3. Performance:

The all India crop upto September, 2014 was down by 5.5 million kgs compared to the previous year. North India corp was down by 12 million kgs where as South India crop was up by 6.5 million kgs.

The Company has produced 129.80 lac kgs of tea and sold 127.81 lacs kgs of tea at an average price of Rs.144.42 per kg in the current year ended 30th September, 2014. The Company sells its tea mostly in bulk in the auctions. There is no demand in the export markets for the tea produced in the estates of the Dooars and Terai regions of West Bengal.

4. Outlook :

Increase in world consumption of tea without a corresponding increase in production, is expected to lead towards upward trend in prices for quality tea. The medium and plainer varieties of tea are struggling to sell at a remunerative level. About the future of the industry, it can be said that within the domestic market, the demand is largely CTC led and the market is expected to be buoyant. Tea industry in spite of possessing a strong potential in the beverage sector needs to be developed scientifically. Tea has always been a major preference compared to other beverages as a result of peoples consciousness and awareness in health matters.

5. Internal Control Systems and Their Adequacy:

The Company has an independent firm of Chartered Accountants appointed as Internal Auditors and also has an in-house team of management accountants to evaluate the internal control systems and the checks and balances in the system to ensure that they are adequate.

The Audit Committee of the Board reviews internal audit observations and puts suggestions for corrective action for implementation. The Companys internal control systems and its effectiveness are also verified periodically by the Statutory Auditors and reported to the Audit Committee of the Board. Corrective actions wherever found appropriate are taken on a priority basis.

6. Financial and Operating Performance:

The financial and operating performance has been enumerated separately in the Financial Statements and explained in the notes forming part thereof.

7. Material Developments on the Industrial Relations Front:

Industrial relations between the management and the workmen remain cordial.

8. Cautionary Statement :

Statements made in this Report describing the Companys objectives, projections, expectations, estimates, etc. may be forward looking statements within the meaning of applicable laws and regulations. Many unforeseen factors beyond the control of the Company may come into play and affect the actual results, which could be different from what the Board of Directors envisages in terms of future performance and outlook. Market data and product information contained in this Report have been based on information gathered from various published and unpublished reports, and their accuracy, reliability and completeness cannot be assured. Further, the growth of the industry depends upon Government policies, global economic scenario and vagaries of nature and any adverse/favourable situation may change the outlook.