AAR Commercial Company Ltd Management Discussions

ECONOMY OVERVIEW AND DEVELOPMENT

The impact of coronavirus pandemic on India has been largely disruptive in terms of economic activity as well as a loss of human lives. Almost all the sectors have been adversely affected as domestic demand and exports sharply plummeted with some notable exceptions where high growth was observed. An attempt is made to analyze the impact and possible solutions for some key sectors. Indias growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics. The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy. Notably India had also been witnessing a pre-pandemic slowdown, and according to the World Bank, the current pandemic has "magni_ed pre-existing risks to Indias economic outlook".

The World Bank and rating agencies had initially revised Indias growth for FY - 2021 with the lowest figures India has seen in three decades since Indias economic liberalization in the 1990s. However, after the announcement of the economic package in mid-May, Indias GDP estimates were downgraded even more to negative figures, signalling a deep recession. (The ratings of over 30 countries have been downgraded during this period.) On 26 May, CRISIL announced that this will perhaps be Indias worst recession since independence. State Bank of India research estimates a contraction of over 40% in the GDP in Q1. The contraction will not be uniform, rather it will differ according to various parameters such as state and sector. On 1 September 2020, the Ministry of Statistics released the GDP figures for Q1 (April to June) FY - 21, which showed a contraction of 24% as compared to the same period the year before. The governments approach in dealing with the two waves of Covid-19 has been different. The response to the second wave has been localised and driven by the states while in the first wave we went for a national lockdown. The second wave started in the west with Maharashtra, went up North and peaked in the south of the country. While no nationwide lockdown was announced this time, the local restrictions imposed across states have had an equally devastating impact on small businesses and their employees. Data suggests that the pace of unemployment increased sharply in May as smaller firms trimmed jobs at the fastest rate since October last year.

To understand the economic impact of the second wave, lets remind ourselves of the first wave and its impact on the economy. In the first wave, we went through a prolonged national lockdown and a significantly lower number of peak cases. Manufacturing and the urban economy had come to a grinding halt while the rural economy continued to move because of less strict lockdowns. As a result, agriculture, which is the primary driver of our rural economy providing employment to 58% of our population, continued to grow. Agriculture further benefited from good monsoon and cheaper and higher availability of labor. Re_ecting on the GDP figures, our agricultural economy grew by 3.4% while the overall economy contracted with 7.7% in FY21. The first wave was primarily urban in its spread. Urban areas reported more cases than rural areas for the first five months of the spread. In the second wave rural areas started reporting more cases than urban ones from the second month itself. An analysis of more than 50 most severely hit districts, 26 were in rural areas. Rural areas in the state of Maharashtra, Andhra Pradesh and Kerala were the worst impacted. The situation was further aggravated, due to the inadequacy of medical infrastructure in the rural areas and the rush of patients from villages and smaller towns to urban centers.

In view of the scale of disruption caused by the pandemic, it is evident that the current downturn is fundamentally different from recessions. The sudden shrinkage in demand & increased unemployment is going to alter the business landscape. Adopting new principles like ‘shift towards localization, cash conservation, supply chain resilience and innovation will help businesses in treading a new path in this uncertain environment.

OPPORTUNITIES AND THREATS (a) Opportunities

The global economy is still recovering from the rapid destruction imposed by Covid-19 pandemic but it is expected to improve gradually in the coming financial year under the backdrop of new reforms and macro-economic developments. Such a scenario will give our Company the opportunity to increase our stakeholder values and build a expansive, lasting relationship with them. The Company has already started taking initiatives and implementing strategies to diversify its business into other areas.

(b) Threats

The outbreak of the devastating Covid-19 pandemic followed by the lock-down in the country has adversely affected the business operations of the Company. Due to the rapid spread of the Covid-19 in the Country, the health of the employees and workers of the Company has become priority of the Company over the business operations.

The constant fluctuations in the stock market due to the depressed market conditions and excessive competition from fellow competitors are some of the other hindrances affecting our business.

OUTLOOK, RISK AND CONCERNS

Your Company has been trying to make use of available opportunities in the market for share trading as well as trading in cotton/ fabrics and spread its business in other lucrative businesses too for increasing its profitability and size of business. The Company successfully listed its equity shares with BSE in February 2016 which strengthened the credibility of the company among the stakeholders.

The underlying strength of Indian consumption and demand, continues to remain robust. The countrys fabric and clothing markets remain a favorite of global consumers. The growth tendencies in the coming financial years are expected to gradually improve in these areas. Your Company is cautiously optimistic in the current scenario and will focus on a well adjusted expansion of business in other related business, resourceful cost management and risk containment measures in order to sustain profitability. The company is a trading company deals in trading of cotton/ fabrics and trading. However, company also invests its funds in capital and debt market and creates an additional source of income in form of dividends and returns receivables on investment made and held by it in other Companies and the capital appreciation of investments. Any adverse financial impact on the operation / business of the invested companies may impact the revenues of the company and also result in diminution in the value of investments.

FINANCIAL PERFORMANCE AND ACCOUNTING TREATMENT

Gross revenues for this financial year stood at Rs 1,49,219.00 as against Rs 2,67,831.00 in the previous year. After providing for depreciation and taxation the net loss of the Company for the year under review was placed at Rs 18,93,301.00 as compared to the net profit of Rs 23,32,024.00 incurred during the previous year.

However, the Company is looking forward to grasp the available opportunities and focusing on permitted avenues. The uncertain state of the global economy however remains a cause of concern.

In the preparation of financial statements, provisions of prescribed accounting standards has been followed and financial statements produces true and fair view of the business transactions of the Company.

HUMAN RESOURCE DEVELOPMENT

The Companys relation with the employees and investors continues to be cordial which are the most valuable resources of our organization.

ADEQUACY OF INTERNAL CONTROL SYSTEM

The Internal Auditor monitors and evaluates the efficacy and adequacyof internal financial control systems in the Company, its compliancewith operating systems, accounting procedures and policies at all levelsof the Company. Significant audit observations andthe corrective actions thereon are presented to the Audit Committee ofthe Board. The control framework is established and maintained by theCompany. The observations by the statutory auditors is perused by the Management, the Audit Committee as well as the Boardfor proper implementation. The Companys internal financial controls have been found to be adequate and effective.

CAUTIONERY STATEMENT

The statements in the above analysis, describing the Companys projections, estimates, expectations or predictions may be ‘forward looking statements within the meaning of applicable securities laws and regulations. The actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include changes in government regulations, tax regimes, economic developments within the country and abroad, and other related factors.