Indian economic overview
The Indian economy moderated to 7.1% in 2016-17, from 8% in 2015-16 owing to the shocks
of demonetisation across sectors. Other factors which impacted growth were excess
production capacity, stressed balance sheets due to overinvestment and restricted lending
from banks. Growth was sustained by government services and a strong agricultural sector.
A healthy monsoon helped agriculture grow by 4.4% with food grain production growing by a
record 8.1%. Growth in government services such as public administration and defense
happened on account of salary hikes for central government employees. The industrial
sector shrunk to 5.8% as compared to 8.2% in the previous year. Manufacturing value added
moderated to 7.7%, helped in part by lower input costs. Construction grew by a modest
3.1%, as the demonetisation move affected real estate activity. Services growth moderated
to 7.9% as finance, real estate, trade, hotels, transportation and communication services
witnessed a slowdown. Inflation was kept in check for the second consecutive year at 4.7%,
mostly in line with the government target of containing it within 5%. Going forward, the
economy is expected to grow by 7.6% in 2017-18 and 7.8% in 2018-19. (Source: ADB 2017
outlook, World Bank)
Indian liquor industry, FY2016-17
India is the third-largest liquor market in the world, with an overall retail market
size of $35 billion per annum. Consumption of alcohol in India is rising at 8.9% annually
for the past six years and the industry is expected to grow at a CAGR of 7.4% to $76.11
billion by 2026. The fiscal gone by was marked by a weak growth as the industry faced new
hurdles like the Bihar Government prohibiting sale, distribution and consumption of liquor
in the state. The next impact came from the Supreme Court’s ruling to barring of
outlets near state or national highways. Taxes on alcoholic products increased in 2016,
which meant higher costs were passed on to the customer. For beer manufacturers, higher
input costs and increased taxes stalled growth. Demonetisation further stressed the
industry as with a lower discretionary spending, customers switched to smaller packs or
cheaper brands. Over the festive months of November and
December, the IMFL sector witnessed a decline of 25-30% while country liquor sales
declined by 30%.
IMFL segment
IMFL dominates the country’s liquor industry with whiskey being the most popular
drink with a 57% of the market share. Whiskey consumption is expected to go up by 8.5%
annually. Rum is the second-largest in terms of volume, with 23 million cases sold
annually. The IMFL segment is witnessing steady growth as consumers are becoming aware of
the risks associated with cheap country liquor. Vodka accounts for 4% of the IMFL market
and is witnessing a steady rise in consumption as its popularity among youngsters,
especially women, increases. Going forward, the IMFL segment is expected to grow in line
with rising incomes. The per capita consumption of IMFL is estimated at 0.82 litres, far
lower than the global average of 4.63 litres, indicating a vast room for improvement.
IMIL segment
IMIL is made from rectified spirits of grains or molasses. The cost of production of
such liquor is extremely low. IMIL is the market leader in terms of alcohol consumption,
with a massive 50% share of the total market. The IMIL segment primarily caters to the
bottom-end of the alcohol consumption pyramid, averaging 230 million cases annually. This
is expected to increase to 352 million cases annually by 2021 as regulations become
tighter and the Central Government cracks down on illegal country liquor manufacturers.
Price-sensitive consumers are expected turn to branded products as incomes increase and
awareness about the health hazards of illicit liquor rises. However, the IMIL segment
actually reported declining offtake as consumers switched to premium quality liquor from
the IMFL segment. Health and hygiene played a vital role in propagating this shift, along
with increased discretionary spending. Estimates indicate that country liquor will
eventually lose market share to other segments owing to higher aspirations and brand
recognition. The challenges that this industry faces is primarily from regulations and
policies defining manufacture and sales. Additionally, rising input costs and restrictions
on advertising also affect the industry.
Industry drivers
Increasing urbanisation: India’s population is booming, which is expected to drive
urbanisation. Estimates indicate 40% of the population will be living in urban locations
by 2025.
Income growth: Consumer expenditure is on the rise, propelled by rising incomes. Tier
II and III cities are reporting a 14% increase in expenditure, while metros are reporting
an expenditure increase of 12%. This, along with a growing middle class is expected to
drive India’s consumption story.
Evolving social norms: The social taboo of alcohol is slowly dissipating, as a younger
and liberal India views alcohol as leisure than a stigma. This coupled with the wine
‘n dine trend is influencing alcohol consumption in the country.
Demographic dividend: India is home to one of the youngest markets with 45% of the
population less than 25 years of age. This offers a favourable consumption market for the
coming years.
Wide range: India is one of the largest alcohol markets, prohibition notwithstanding.
The market has alcoholic beverages for every wallet size and preference. These are sold
through government-owned shops, government-licensed shops, private licensed shops, retail
chains, restaurants and bars.
Business segments
IMFL
The Company is engaged in blending, bottling and marketing 12 of its proprietary brands
across seven states. Pincon is the only player that has extended from wholesale and retail
of liquor to production.
Wholesale distribution
The Company has a strong presence in the distribution chain, with tie-ups of more than
9,800 licensees across the country. Pincon has a robust understanding of the customer
requirements and preferences around certain regions which enable it to market specific
products to specific markets. This resulted in the IMFL division registering a robust 30%
growth y-o-y.
Proprietary products
The Company produces proprietary liquor brands with an offtake of 8.86 lakh cases in
FY17. The Company’s product portfolio comprises 12 brands across five categories
(rum, whisky, vodka, brandy and gin).
Highlights, 2016-17
• Launched the ‘Bankers Choice’ prestige whiskey
• Revised prices by 15-20% across all brands
Agenda for 2017-18
• Consolidation of operations through acquisitions
• Plans to enter the Kerala market in FY18
• Evolving from a localised player to a pan-India player
IMIL
Pincon is the market leader in the IMIL segment in West Bengal. Through prudent
acquisitions and capacity expansion, Pincon has successfully become an organised entity in
a segment which was previously dominated by unorganised players. The Company has a unique
manufacturing process, utilising grain-based ENA, demineralised water and a
state-of-the-art bottling facility with a total production capacity of 1.2 crore bottles
per month. Pincon’s key brands like Pincon Bangla No. 1, Udaan and Bengal Tiger
reported sustained growth as the Company focused on increasing market penetration and
rising acceptance of the brands in untapped districts. The Company also gained regulatory
approval to raise prices by 20% across brands which is expected to widen margins. Pincon
has three manufacturing facilities in Central and South Bengal. Overall, the IMIL division
reported a 4x growth over the previous year.
Highlights, 2016-17
• Key brands – Pincon Bangla No. 1, Uddan Pincon and Bengal Tiger
continue to show healthy growth
• During FY17, the regulator approved a 20% price increase across the segment.
Agenda for 2017-18
• The revision in pricing is expected to enhance margins in FY18.
• The Company is focusing on increasing penetration in existing regions and
enhancing its presence and acceptability.
FMCG
Pinon entered the FMCG industry in 2013 and markets its products in West Bengal and the
North East. The Company owns a refining and packaging unit with a production capacity of
55,000 metric tonnes per annum. This foray into the edible oils segment mitigates risk
from the alcohol business and offers an additional revenue stream for the Company.
Highlights, 2016-17
• The edible oils division continued to grow steadily through the year.
Agenda for 2017-18
• The Company is enhancing its presence in more territories to drive off take
of the edible oils division.
Risk management
Every business has an element of risk which needs to be managed effectively. A
company’s risk profile is dependent on its scale, operations and sensitivity to risk.
At Pincon, we have a robust risk management structure in place, based on our domain
knowledge, operations, product portfolio, geographies and market cycles.
This has resulted in Pincon becoming one of the fastest-growing Companies in the
segment.
Regulatory risk: Non-compliance with regulations, standards or laws could affect
operations and attract penalty.
Mitigation: The Company has a dedicated team to track and ensure that the operations
are compliant to all the required regulations and laws. Moreover, the Company has
facilities in States which have low prohibition risk.
Location risk: The Company is exposed to adverse conditions if it depends on a single
market.
Mitigation: The Company largely focuses on the West Bengal market, but it is expanding
into other markets such as Jharkhand, Odisha and Karnataka. Additionally, the Company is
also entering the Delhi and Chhattisgarh markets. This, coupled with acquisitions will
allow it to sell in ASEAN markets also, significantly lowering dependence on a specific
location.
GST impact risk: GST will result in a credit loss of VAT input as alcoholic products
are not in the GST purview.
Mitigation: Pincon is an organised player in the industry and is bolstered by strong
fundamentals and significant backward integration to mitigate losses caused by the GST
rollout.
Liquidity risk: The inability to secure attractive low-cost funds could affect the
Company’s expansion plans.
Mitigation: As the Company’s operations are working capital-intensive, the Company
manages a prudent mix of debt and equity to have adequate access to liquid funds and
maintain a strong balance sheet. Increasing revenues from growth in sales volumes is
further expected to increase cash flows for working capital needs or to repay debts.
Product risk: Changing consumer preference against products or switching to other
brands due to increasing taxes raising prices could affect profitability.
Mitigation: The Company’s diverse product portfolio caters to a diverse range of
preferences. The various products are also priced attractively to be available in every
price bracket. Pincon regularly surveys the market condition and demand to be able to
offer products with an attractive value proposition.
Revenues (in rupees):
| IMFL |
2,67,04,01,781.00 |
2,54,98,97,706 |
| IMIL |
5,56,25,96,690.00 |
1,22,74,94,005 |
| Trade |
2,060,928,105.00 |
2,873,214,281.00 |
| FMCG |
3,906,551,525.00 |
2,809,982,201.00 |
INTERNAL CONTROL SYSTEM
We have developed our Corporate Audit Division which continuously monitors the
electiveness of the internal controls as well as an objective which provides independent
and reasonable assurance of the adequacy and electiveness of the organization’s Risk
Management, Control and Governance process to the Audit Committee and the Board of
Directors. The division also assesses opportunities for improvement in business processes,
systems & controls; provides recommendations, designed to add value to the
organization and follows up on the implementation of corrective actions and improvements
in business processes over review by the Audit Committee and Senior Management.
The scope and authority of the Corporate Audit division is derived from the Audit
Charter approved by the Audit Committee. The Charter is designed in a manner that the
Audit Plan is focused on the following objectives:
• All operational and related activities are performed efficiently and
electively.
• Significant financial, managerial and operating information that is
relevant, accurate, and reliable is provided on Time.
• Review of identification and management of Risks.
• Resources are acquired economically used efficiently and safeguarded
adequately.
• Employees’ actions are in accordance with the Company’s policies
and procedures, Code of Conduct and applicable laws and regulations.
• Significant legislative and regulatory provisions impacting the organization
are recognized and addressed appropriately. Opportunities identified during audits, for
improving management control, business targets and profitability, process efficiency and
the organization’s image, are communicated to the appropriate level of management.
Corporate Audit division develops an annual audit plan based on the risk profile of
business processes/sub-processes of various functions and the audit activities are
undertaken accordingly. The audit plan is approved by the Audit Committee which regularly
reviews compliance to the plan.
During the year, the Audit Committee met regularly to review the reports submitted by
the Corporate Audit Division. All significant audit observations and follow-up actions
thereon were reported to the Audit Committee.
The Audit Committee also met the Company’s Statutory Auditors to ascertain their
views on the adequacy of internal control systems in the Company and their observations on
financial reports. The Audit Committee’s observations and suggestions were acted upon
by the Management.
The company has a well-established internal audit function that reports to the Board of
Directors on monthly basis and has direct access to the chairman of the Audit committee,
who meets with the Director Audit several Times each year. The Audit committee receives
reports from the internal audit function four Times a year and also considers the terms of
reference, plans and electiveness of the function. The internal audit function works
closely with the external auditors. It provides independent and objective assurance to the
Board and the Audit committee and provides a systematic, disciplined approach to
evaluating and improving the electiveness of risk management, control and governance
procedures.
HUMAN RESOURCE
Today, the HR function has become a critical catalyst for continuous transformation
during a phase of rapid growth and transition; shaping not only processes, people and
mindsets, but creating a culture that personify MUL and unleashes innovation at every
level within the organization. For us, human resources are the most prestigious assets of
the company. We believe it is a long term investment in the company and hence we train
them to cope with the changing environment of the industry. During the year under review,
your company has pleasure to take several initiatives to ensure that the knowledge and
wisdom gained over period is available for all as well as next generation employees.
FORWARD LOOKING STATEMENTS
The report contains forward-looking statements, identified by words like
‘plans’, ‘expects’, ‘will’, ‘anticipates’,
‘believes’, ‘intends’, ‘projects’, ‘estimates’ and
so on. All statements that address expectations or projections about the future, but not
limited to the Company’s strategy for growth, product development, market position,
expenditures and financial results, are forward-looking statements. Since these are based
on certain assumptions and expectations of future events, the Company cannot guarantee
that these are accurate or will be realized. The Company’s actual results,
performance or achievements could thus differ from those projected in any forward-looking
statements. The Company assumes no responsibility to publicly amend, modify or revise any
such statements on the basis of subsequent developments, information or events
|
For and on behalf of the Board of Directors |
|
Sd/- |
|
Monoranjan Roy |
| Place: Kolkata |
Chairman & Managing Director |
| Date: 22.05.2017 |
(DIN: 02275811) |
+91-9892691696
