Annexure V
Indian Economy
India continues to remain the fastest growing major economy in the world in 2018- 19,
despite a slight moderation in its GDP growth from 7.2 per cent in 2017-18 to 6.8 per cent
in 2018-19. This moderation in growth momentum is mainly on account of lower growth in
Agriculture & allied sector which was lower in 2018-19 at 2.9 per cent after two years
of good agriculture growth.
Since 2010, production as well as yield of both major crops - rice and wheat has
increased significantly. As per fourth advance estimates, production of rice is estimated
at record 112.91 million tonnes while production of wheat is estimated at 98.70 million
tonnes in 2017-18 crop year.
Indian Rice Industry
Rice is the staple diet for nearly half of the global population. Over 90% of the
global rice output and consumption is centred in Asia, wherein the world s largest rice
producers, China and India, are also the world s largest rice consumers. India is the
second largest producer of rice after China and the largest exporter in the world.
Rice production in India increased at 1.43% CAGR during FY03-FY18. Rice production in
FY2017-18, at 111 million tonne (MT), constituted 40% of the total food grain production
of 278 MT in the country. India s total cereal export stood at Rs. 56,259 crores, with
rice exports at Rs. 54,061 crores (96.1 %).
India rice industry is expected to grow at CAGR of 2.0% over the forecast period. India
s fourth advance estimates, production of rice is estimated at record 112.91 million
tonnes. The factors such as government support in rice production, favorable monsoons,
rising number of rice processing companies, increasing exports are majorly impacting the
growth of India rice industry.
Export scenario
Rice grown in India can be broadly categorised as basmati and non-basmati.
Indian basmati, being one of the finest rice in the world, is exported to more than 100
countries, and the market is expected to reach Rs. 32,000 crore in FY 2018-19. Similary
non basmati rice export is indeed down in 2018-19 to nearly 21,000 crore but volume of non
basmati rice export is much higher than that of basmati rice i.e. by nearly 70% higher.
Export data of Basmati rice and Non-Basmati rice (Amount in Cr, Qty in metric tonnes)
| Cereals |
2016-17 |
2017-18 |
2018-19 |
|
QTY |
Amount |
QTY |
Amount |
QTY |
Amount |
| Non Basmati Rice |
67,70,804 |
16,929.87 |
86,48,488 |
22,967.82 |
75,99,674 |
21,185.27 |
| Basmati Rice |
39,85,195 |
21,512.90 |
40,56,758 |
26,870.16 |
44,14,584 |
32,804.30 |
Source: http://agriexchange.apeda.gov.in/indexp/exportstatement.aspx
Non-Basmati Rice varieties are mainly exported to Nepal, Benin, Senegal, and other
African nations. In FY 2017-18, India exported 8.6 million Tonnes of non-basmati rice
worth Rs. 22,000 crore as against 6.8 Million Tonnes worth Rs. 17,000 crore in FY 2016-17,
an annual increase of 35% in value terms. Non-basmati rice faces stiff competition from
other rice exporters, primarily Thailand and Vietnam. Moreover, the export of non-basmati
rice is susceptible to changes in government policies.
Domestic Scenario
The non-Basmati variety is known to be almost 50% or more cheaper than the Basmati
variety. In India, states like West Bengal, Uttar Pradesh, Odisha, Andhra Pradesh, Bihar,
Jharkhand, Assam and Telangana are among the largest consumers of non-Basmati rice.
The rice market, especially the non-basmati segment is largely unorganised and
unbranded, with low entry barriers. Stiff competition exists in both domestic and
international markets, but now non basmati rice companies aggressively focus on brand
building through organised retail and marketing. Indeed there is stable demand for
non-basmati rice from both domestic and international markets, demand of branded rice
& Premium Non Basmati Rice in domestic market is on an upward swing due to rising
affluence and shift in customer preference towards branded products.
Demand & Supply Scenario
Rice production in India accounts for 40% of total food grain production and most of it
is consumed within the country. Rice production during FY 2017-18 was 111 MT as against
110 MT in FY 2016-17, depicting an annual increase of about 1.2%. The agriculture ministry
aims to increase rice production further to 113 MT in FY 2018-19.
More than 4,000 varieties of rice are grown in India to meet diversified consumer
demand. 40-45% of the produce is retained by farmers for their own consumption and seed
use. Of the balance, common coarse variety, which is most widely eaten in the country, is
mandatorily procured by the government to ensure food security under the Public
Distribution system (PDS). Rice millers procure the rest for marketing to consumers. 90%
of rice grown is non-basmati variety, which witnesses stable domestic demand being the
staple food for majority Indians. Rice mill players also revenue from sale of by-products
such as bran and rice bran oil.
On the supply side, rice production remains highly dependent on monsoon and faces
agricultural risks such as outbreak of diseases, which could lead to variance from the
projected production levels impacting supply and hence prices, and damages caused by poor
storage facilities.
Demand risk to the sector is moderate; 90% of rice grown in India is non-basmati
variety, which witnesses stable domestic demand being the staple food for majority
Indians.
Nature & Extent of Competition
In India, rice sales are largely unbranded in nature. The unbranded unorganised sector
accounts for around 60% market share, despite the spread of modern trade as well as the
huge network of branded market to the Tier-2 and Tier-3 cities and towns in the recent
years. But, the rising penetration of organised retail and increasing customer awareness
have forced players to turn their attention towards establishing brands. This is true
especially in the case of non basmati rice, which enjoys a premium position in the rice
industry. Brand development allows for differentiation in a commoditised industry, and
hence paves the way for better command on pricing in the long term.
Of late, there has been a gradual shift to rice being sold in packs in lower and higher
quantities, following the move by a large number of traders and millers launching their
own rice brands, following the footsteps of the big players. Though, the share of branded
rice in the overall domestic rice market is small in terms of volume.
Entry barriers are huge for new basmati entrants due to high working capital
requirement and stiff competition from known brands. Reputed companies with established
contract farming and paddy procurement relationships, wide distribution networks and
state-of-the-art manufacturing facilities, have competitive advantage over smaller and
less organised players.
Although the basmati category faces tough competition in the domestic market, Pakistan
is the only competitor internationally. And India enjoys an edge over it due to high
production and superior quality of the aromatic product.
The non-basmati segment is characterised by high competition as low entry barriers have
led to numerous industry players, both in domestic as well as the export markets. Low
upfront capital investment requirements, low technical intensity with largely standardised
equipment, low skilled manpower requirement, easy availability of raw material and steady
demand characterise the segment. The main export competitors in this category are Thailand
and Vietnam.
The competitive risk, especially in the non-basmati segments, will continue to remain
high given the low entry barriers and large number of players. However, in the case of
basmati rice, the rising penetration of organised retail and increasing customer
awareness, is paving the way for better command on pricing in the long term.
Higher Procurement and Increase in MSP
The total rice procured by Food Corporation of India (FCI) in the 2018-19 marketing
season was at a higher level of 440 Lacs tonnes, compared to 381 Lacs tone procured in the
previous season.
Similarly, The total paddy procured by Food Corporation of India (FCI) in the 2018-19
marketing season 655 Lacs tonnes, compared to 568 Lacs tone procured in the previous
season.
The government in the last July increased the paddy MSP by 13% to 1,750/quintal, the
biggest hike in six years. It was part of an electoral promise to ensure farmers get at
least 50% profit over cost of crops for which MSPs are fixed. Further to support the
farmers, the Government again increased the MSP of kharif crops in line with the rising
cost of production. The support price of common variety rises from 1,750 a quintal to
1,815 while higher quality Grade A variety rises from 1,770 to 1,835 a quintal.
Our Company Overview
"12 YEARS AGO, A SEED WAS SOWN. TODAY, WERE STILL REAPING THE HARVEST"
Starting off from humble beginnings in 80 s as agricultural commodities traders in
eastern region of India, Promoters started with 8 TPH rice mill at Ranchi Jharkhand and in
very 12 years of time, Today, We are the leading processor of rice in Eastern Region of
India.
The delicious journey of Company began under the brand name "Baba". The
journey starts with manufacturing rice taking pride in its quality and retaining the taste
and aroma of purity.
The Company has emerged not just as one of the major non basmati rice producer company
but also as one of the largest branded non basmati rice manufacturers in India with one of
most efficient rice company in India as well as highest GST payer in Non Basmati segment.
Our company is in the business of processing of non-basmati and basmati rice in India.
We are one of the largest processors of non-basmati with a milling capacity of 1104 metric
tons (after expansion) per day in the State of Jharkhand. We have expanded our capacity by
144 metric tons per day during the year.
Our Company is establishing a new ultra modern highly automated continuous Buhler s
Swiss Technology Paddy Processing & Rice Milling Plant with a installed capacity of 20
tons per hour i.e. 480 metric tons per day at Aurangabad, Bihar with storage capacity of
65000 metric tons of paddy to produce Premium Non Basmati Steam Rice with target to cater
the market of East, North East, North, few area of West and south as well as export to
Gulf & Nepal.
Despite the stiff competition in the domestic market, demand for rice in India remained
quite strong during the year. Although domestic markets remains one of the highly price
sensitive rice markets, the organized players like us performed relatively better during
the year compared to the unorganized players, thanks to the implementation of GST in the
previous financial year.
The FY19, a year of exceptional performance for the Company, was year when we had
passionate developments in our company. To improve our profitability we focused in our
competencies viz., brand, product mix, capacity enhancement, cost control. A favourable
industry scenario, coupled with the seamless execution of our strategic plans led to
visible growth in terms of revenues, profits, volumes as well as values. During the year,
the Company reported 86% y-o-y volume growth and 112% y-o-y value growth at the back of
our strong focus on branding, customer engagement, and wide distribution network.
With brand "BABA", company is able to couple a strong brand image with an
impressive product range, catering the needs of the customers across different income
segments, is what helped the Company stay ahead of the curve. In few years, company with
wide portfolio is able to translate its ability to engage with different kinds of
customer, grow their exposure, emerge as the preferred supplier and attract new customers,
creating a virtuous cycle of growth and profitability.
Making of Baba
We were persistent and determined to grow. Over the years, we devised strategies
and persevered to create a business model that was robust, relatively non-cyclical and
resistant against weather vagaries.
The result is evident for all to appreciate. While unorganized rice millers focused on
unbranding due to GST, we focused extensively on our brand value, maintaining quality
& supply under our brands and that stand tall, that are truly premium. Today we
are among few rice millers selling under brand.
When others looked for quick returns with rigorous cost-control, we invested in
state-of-the-art manufacturing and large scale warehousing facilities that are our assets
today and our biggest strength for tomorrow.
When others treated rice as a commodity, we painstakingly created premium, aromatic,
well-aged non basmati brands coupled with a range of rice varieties.
It s no surprise then that when we nurture your business with care and confidence, you
defy difficult times and achieve defining results,
And in the process, "BABA" set new benchmarks for excellence.
RISKS MANAGEMENT
Regulatory risk: Any sudden change in the regulatory policies can adversely
affect the industry which in turn can impact the Company s business.
Non Basmati Rice has wide varieties like Banskati & Miniket consumed mostly in West
Bengal, Swarno & BPT in Bihar, Parmal in Jharkhand, Govind bhog in high end families,
Sonam in Bihar Odissa & South etc. Company with its wide basket has ensured its
presence across all the varieties to cater these regions. Normally regulatory policies in
case of non basmati effects export market only but since we deals in both regular and
premium rice with wide varieties, we can change focus from one to other.
Competition risk: Rising competition from the organized and unorganized players and
other major rice producing nations could impact sales and in turn profitability.
BABA is not just rice manufacturer rather is the market leader of branded segment of
Non-Basmati rice with basket of wide varieties of rice targeting almost all the segment.
Due to quality, consistent supply, brand image, wide varieties, convenience in carrying,
value for money peoples are moving towards branded rice now a days instead of loose
unbranded rice. Therefore risk from other unbranded rice producer is mitigated. Enhanced
focus on a 360-degree brand building exercise and engaging customers at multiple points
resulting in an integrated communication approach. Thereby, has been successful in
maintaining its leadership position for years now.
Raw material risk: Non availability of raw materials may impact the production and
which in turn may have an impact on the sales and profitability of the Company. At the
same time, higher cost of raw materials in off seasons may also impact the bottom-line.
At present major raw material Long Grain Paddy is available in around 100 Kms of plant
and in last one decade we have well connected with farmers, traders, aggregators ensuring
regular timely and quality paddy supply and therefore availability is not a constraint.
Further company has infrastructure to store around 50,000 metric tons of paddy (mostly
premium quality) to overcome the supply as well as cost of paddy in off season. Due to
these company productions, sale as well as profitability is not impacted.
Brand risk: If the License agreement through which the company owns the brand is
not renewed than it may affect the company growth. Further in a crowded marketplace,
company might lose recall, resulting in sluggish off-take, lower realizations and reduced
profitability.
License agreement of brand BABA was for 7 years from FY15 which has now been extended
by 15 years before completion of agreement with wider geographic locations. Further in
case of non basmati rice, mostly millers are just producers and trade as commodity and
there are very few miller who have developed brand so there is no crowded market place in
case of branded non basmati rice rather there is huge scope for it. We are Branded non
Basmati Rice manufacturer.
Geographical risk: Company is restricted its market in eastern zone only which
shows high geographical risk. Any substantial happening in this zone markets can impact
the business of the Company.
The Company has started its market from Jharkhand a decade ago and now it has its
footprints in Jharkhand, Bihar, Odissa, West Bengal. Further the company has also started
or planned to start its marketing in Assam, Delhi, Mizoram and Andhra Pradesh. After
operation of Unit at Bihar, Company will further expand its market in Export market i.e.
Gulf & Nepal along with domestic market in Gujarat, Maharastra, Telangana. This will
moderate the risk arising from geographical instability.
COMPLIANCE CERTIFICATE
(As per Regulation 17(8) of SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015)
We, Yogesh Kumar Sahu, Chairman & Managing Director and Rajesh Agrawal, Whole time
Director & CFO of Baba Agro Food Limited (Formerly known as Sri Krishna Metcom
Limited), to the best of our knowledge, information and belief, certify that:
1. We have reviewed Financial Statements and the Cash Flow Statement for the year ended
March 31, 2019 and;
a) These Financial Statements do not contain any materially untrue statement or omit
any material fact or contain statements that might be misleading;
b) These Financial Statements together present, in all material respects, a true and
fair view of the Company s affairs, the financial conditions and results of operations and
are in compliance with applicable accounting standards, laws and regulations.
2. There are, to the best of our knowledge and belief, no transactions entered into by
the Company during the year which are fraudulent, illegal or which violate the Company s
code of conduct.
3. We are responsible for establishing and maintain internal controls over financial
reporting by the Company and we have:
a) Designated such controls to ensure that material information relating to the
Company, is made known to us by others;
b) Designated or caused to be designated, such internal control systems over financial
reporting, so as to provide reasonable assurance regarding the preparation of financial
statements in accordance with Generally Accepted Accounting Principles (GAAP);
c) Evaluated the effectiveness of internal control systems of the Company pertaining to
financial reporting.
4. During the year, we have disclosed to the Company s Auditors and the Audit Committee
of the Board of Directors:
a) Any change, that has materially affected or is reasonably likely to materially
affect, the Company s internal control over financial reporting;
b) Any significant changes in accounting policies during the year, and that the same
have been disclosed appropriately in the notes to the financial statements;
c) Instances of significant fraud, if any, that we are aware especially if any member
of management or employee involved in financial reporting related process. No such
instances were noticed during the year 2018-19;
d) All significant changes and deficiencies, if any, in the design or operation of
internal controls, which could adversely affect the Company s ability to record, process,
summarize and report financial data; and
e) All the material weaknesses in internal controls over financial reporting including
any corrective actions with regard to deficiencies.
5. In the event of any materially significant misstatements or omissions, we will
return to the Company that part of any bonus or incentive which was inflated on account of
such mistakes or omissions.
6. We affirm that we have not denied any employee, access to the Audit Committee of the
Company (in respect of matters involving alleged misconduct) and we have provided
protection to whistleblowers from unfair termination and other unfair or prejudicial
employment practices.
7. We further declare that all Board Members and senior managerial personnel have
affirmed compliance with the code of conduct for the current year.
|
sd/- |
sd/- |
| Place: Ranchi |
Yogesh Kumar Sahu |
Rajesh Agrawal |
| Date: 25/05/2019 |
Chairman & Managing Director |
Executive Director & CFO |
+91-9892691696
