mihijam vanaspati ltd Management discussions

MIHIJAM VANASPATI LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS: Indigenous production of edible oil has not been able to keep pace with the increase in demand. Hence India continues to depend heavily on the supply of imported edible oils. Accordingly, Indian Vanaspati and Edible oil business remain exposed to international market trends and Government policies regarding import. The edible oil industry is one sector in India that may see considerable reform in the foreseeable future. During 2011-12 the country has imported over 9.5 million tonne of edible oils while annual domestic consumption stands at about 13 million tonne. India is the worlds largest buyer of crude palm oil which represents 80% of its edible oil imports. Higher edible oil purchases driven up total vegetable oil imports to around 9.3 million to 9.5 million tonne including 8.2 million tones crude palm oil in 2011-12 from 8.8 million tonne last year. This makes India one of the largest importers of vegetable oils. A large population and rising household incomes make India a key area of growth in edible oil consumption. FINANCIAL AND OPERATIONAL REVIEW: Despite the overall difficult conditions, your Company has recorded satisfactory volume of turnover. The gross sales including other incomes and profit before tax during the year were Rs.8711.25 lakh and Rs.41.42 lakh respectively. The Company has undertaken vigorous efforts to streamline its operations and to broad-base its product profile for achieving better net sales realization. This has resulted in reduction in the cost of production/operations, besides improvement in profitability and long term sustainability. Due to the volatility in the foreign exchange market, particularly the steep increase in the exchange rate of U.S. Dollar, the Company has suffered certain losses in its operations resulting in the decline in the profitability. The Management has decided to take steps to hedge the exchange risks by booking forward contracts with the banks. The Management has also initiated steps to register itself with the National Stock Exchange for the purpose of risk coverage, by availing of screen based trading facility including futures and options through electronic exchange. The Company hopes to do better in the years to come. OPPORTUNITIES AND THREATS: The products of the Company are for essential and daily human- consumption. The per capita consumption of edible oil/fats in India is though on rise but still at a very low level in comparison to average consumption world- wide. With growing awareness towards health and rise in per capita income of the Indian consumers in recent years, the Company perceives a significant growth in the demand for its products in the years to come. Further, with broad basing of the products, the Company expects fresh in- roads in different market segments to have stability in its operations throughout the year. Thus, the outlook for the sector continues to remain positive. The threats are perceived mainly from reduced demand in domestic markets owing to erratic supply on account of unpredictable monsoon conditions in the palm-kernel growing countries and erosion in purchasing power of the domestic consumers. The products of the company being price sensitive, any change in global scenario or change in import duty on raw edible oil may have significant bearing on cost of production and consequent erosion in margins. OUTLOOK: Vanaspati and Refined Oils, being items of essential consumption, will always be in demand from household as well as institutional segments. Robust economic growth in the country augurs well for the demand of edible oil products. While consumption pattern in urban markets has shifted to refined oils, semi-urban and rural markets consume a mix of Vanaspati, raw/filtered oils and less expensive refined oils. The demand for Vanaspati and Refined Oils will continue to grow with increase in population and income levels. RISKS AND CONCERNS: The Companys brands may not have a pan India visibility. So the major brands with all India customer base may easily take a march over the Companys products. But the Company feels that with consistent efforts to maintain and improve the quality, its brands are well positioned in the State of Jharkhand which is showing commendable economic activities in the recent years. Thus, we can surely have a niche in the targeted markets. Further, the Company has plans to launch new brands in the premium segments keeping the burgeoning health conscious high end middle class and high net worth families. Location risk may place the Company away from its raw material sources making its presence unviable. But with the revolution in containerization of the international trade and the improvements in communication facilities in recent years the entire world has become a global village. So, sourcing the raw materials does not pose any problem. Moreover being in a backward area, the Company gets cheap labour on regular basis. It will also serve the Governments policy of decentralization of industries to provide employment to the local population. INTERNAL CONTROL SYSTEMS: The Company has adequate internal controls, systems & procedures with regard to purchase of stores, raw materials including components, plant & machinery, equipment and other assets and for sale of goods etc. The Company has clearly defined roles and responsibilities for all managerial positions and all operating parameters are monitored and controlled. The Company has internal audit system commensurate with size and nature of its business. Compliance with laws and regulation etc. are ensured and it is reported to the Board of Directors in every Board meeting. There is sufficient Management Information System in place to ensure that the books of accounts are properly maintained checked and kept up to date, various consents/licences/permission etc. stand renewed or followed up with the concerned authorities and various statutory statements/returns etc. are regularly submitted to different authorities. The finance and commercial functions have been structured to provide adequate support and controls for the business of the Company. Standard operating procedures and guidelines are issued from time to time to support best practices for internal controls. All financial, operating and information technology systems are being evaluated from time to time. ENVIRONMENT & SAFETY: The Company recognizes the importance of achieving and demonstrating sound environmental safety norms by controlling the impact of its manufacturing activities on the environment. The Companys environmental policy requires compliance with environmental legislations and prevention of pollution and to make efforts for constant improvements in the environmental safety. The Company regularly renews Consents under Section 25 of the Water (Prevention and Control of Pollution) Act, 1974 and under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981 and Authorization under the Hazardous Waste (Management & Handling) Rules 1989 as amended from time to time under Environment Protection Act, 1986. The Company is making constant efforts to keep the ambience in a pollution free manner by laying gardens, planting trees and beautifying the precincts of the factory. Fire-Extinguishers and sand bags are placed at the required places. Medical facilities/first aid kit etc. is in readiness for the safety of the employees. INDUSTRIAL RELATIONS & HUMAN RESOURCE DEVELOPMENT: The Company firmly believes that the human resources are the most important resources at its disposal. Constant efforts are being made to interact with the employees/workers with a view to improving their knowledge, skill and problem solving capacities. The Company is committed to provide training opportunities to employees in order to equip them with belle: skills which enable them to adapt to contemporary technological advancements. Industrial relations continue to be harmonious thorough-out the year. CAUTIONARY STATEMENT: Statement made in the Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations may be Forward- Looking Statements within the meaning of applicable securities law & regulations. Actual result could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include global and domestic demand-supply conditions, price fluctuations in the raw materials, technological changes, changes in government regulations, tax laws & other statutes, conditions impacting conduct of business and other incidental factors.