ABans Enterprises Ltd Management Discussions.

Macro Overview

The global and Indian commodity derivatives market saw significant developments during the year 2019-20. These are elaborated below. Towards the end of the financial year, the spread of the COVID-19 pandemic, which engulfed almost all the countries has impacted commodity markets in a major way.

PRE-COVID-19 PANDEMIC:

The pace of global economic activity during the first three quarters of 2019 remained weak, after slowing down sharply in the last three quarters of 2018.

The Indian economy grew at an estimated rate of 4.2% in Financial Year (FY) 2019-20. As per estimates released by the International Monetary Fund (IMF) in its ‘World Economic Outlook April 2020, the growth in world output moderated to about 2.9% in Calendar Year (CY) 2019. This was the lowest growth rate since the global financial crisis in 2009. Momentum in manufacturing activity, in particular, weakened substantially. Rising trade and political tensions around the world have increased uncertainty about the future of the global trading system and international cooperation, taking a toll on business confidence, investment decisions, and global trade. A notable shift toward increased monetary policy accommodation had cushioned the impact of these tensions on financial market sentiment and activity, while a generally resilient service sector has supported employment growth.

COVID-19 PANDEMIC:

The spread of COVID - 19 has had severe adverse effect on businesses around the world. In many countries, including India, there have been serious disruption to regular business activities due to lockdowns, disruptions in transportation, supply chain, travel bans, quarantines, social distancing and other emergency measures. The COVID - 19 pandemic continues to spread around the world. As a result of this pandemic, global economy is projected to contract sharply by 3 percent in 2020, a much worse scenario than the 2008-09 financial crisis.

The direct and most significant impact of the COVID-19 pandemic has been a disruption in economic activities in ) India, as well as, in most other economies around the world.

The impact of COVID-19 on world commodity markets has been significant as it has affected both the demand and supply of commodities. This has led to a general fall in prices of most commodities, bullion being an exception. With the slump in demand as more and more countries restrict movement of people and goods, the demand for and prices of commodities remain subdued. Expectations of a recovery in CY 2020 have been belied by the global spread of the COVID-19 pandemic and the restrictions put in place to control it.

However, it is expected that as the lockdowns are relaxed or lifted and economies gradually resume to normal functioning, the demand for commodities could revive.

Industry structure and developments

The Indian commodity futures landscape has been evolving and the national commodity exchanges have made a big headway since their inception, with volumes surging with every passing year. The turnover on the Indian commodity bourses has increased exponentially after electronic trading was introduced in 2003. Commodity Exchanges such as MCX and NCDEX are introducing newer and newer commodity derivatives such as option trading in gold and crude oil, futures in copper, cardamom etc.

In recent years, with the globalization of the Indian economy and sensitivity of prices of commodities to global factors, commodities have witnessed heightened price volatility. This has exposed all stakeholders to price shocks, from primary producers, such as farmers, to end/users, such as the manufacturing sector.

A set of conditions such as changing nature of agricultural production, rising price spread, food inflation, nonremunerative returns to the farmer, seemingly outdated agricultural marketing practices and advent of technology created and supported the necessity of reforms in agricultural marketing. Government through its legislative power safeguards the eco-system of agri-produces and integrate the market from producer of agri-products to agri-marketing.

Trading in Agri - Commodities thus is continually evolving with markets being integrated through technological adoptions, regulatory enforcements, Market access to farmers, contract farmings, direct marketing of agri - produces, farmer produces organizations and on-going development of market infrastructure by government and its participants i.e. farmers, traders, warehousing facilities etc.

Although India has to cover a long distance to be able to harness the potential in many commodities, it has substantial opportunities to develop consumer demand and uncover latent consumption. Despite having significant benefits, commodities trading has been mostly limited to large corporates, trading houses and high net worth individuals (HNIs). Steps such as lifting the ban on futures trading in commodities, approving new exchanges which offer modern infrastructure and systems, and removing legal hurdles to attract more participants have increased the scope of commodity derivatives trading in India. This has boosted both the spot market and the futures market in the country. The trading volumes are increasing while the list of commodities traded on the national commodity exchanges also continues to expand.

The commodity markets are at a juncture where investment in education and research is important to sustain their growth. Exchanges in India have been taking various initiatives to systematically develop markets through continuous innovation, education and research focused on spreading awareness of the modern trading mechanisms facilitated by commodity exchanges.

The Indian currency derivatives market has experienced an impressive growth since its introduction of currency futures and options. Currency futures has proved to be a good tool for hedging the risk involved in the currency of a country (currency risk). Currency futures and options are traded under exchange traded and over - the - counter. The growth in terms of volumes and participants in the Exchange Traded Currency Derivative Segment would improve the process of assimilation various global and domestic economic information into the markets while it discovers its exchange rates. Extension of trading hours would also help participation in the exchange traded currency derivatives markets to mature in terms of reflecting information into markets and thereby become efficient in their price discovery process, besides remaining as the cost effective market for participants.

On the other hand, the Indian commodity derivatives markets witnessed robust growth during FY 2019-20, as the aggregate value of commodity futures traded across all exchanges grew by 24% at 89.3 lakh crore compared to 71.97 lakh crore in FY 2018-19. As a result, the Average Daily Turnover of commodity futures traded on Indian exchanges increased to 34,491 crore, the highest since FY 2012-13. In terms of volumes, the Indian commodity futures market expanded by about 23% to 38.87 crore contracts in FY 2019-20 from 31.68 crore contracts in the previous year. The strong growth in futures trading, in tune with the global trends, was primarily driven by the increased volatility in non-agricultural commodities particularly in the bullion and energy segments.

In the precious metals and stones counter, there has been a general decline in the consumption and demand and is expected to remain subdue.

However, it is expected that as the lockdowns are relaxed or lifted and economies gradually resume to normal functioning, the demand for commodities, precious metals and stones could revive.

Financial performance with respect to Operational Performance

On Standalone Basis:

During FY 2019-20, your company continued to follow a focused based approach in trading and focused on select precious metals commodities such as Gold and agri - commodity such as Guar seed and Derivatives on Indian Exchanges.

The key financial indicators stand as follows for the FY 2018-19 and 2019-20:

Particulars 2019-20 2018-19
i. Debtors Turnover (In Days) 19.40 47.06
ii. Inventory Turnover (In Days) 3.02 4.25
iii. Interest Coverage Ratio 3.25 -
iv. Current Ratio 1.75 2.96
v. Debt Equity Ratio 0.67 -
vi. Net Debt to Equity ratio 0.62 -
vii. Operating Profit Margin (%) 0.64% 1.54%
viii. Net Profit Margin (%) 0.32% 1.07%
ix. Net worth 17.10 Cr 16.21 Cr
x. Return on Net worth 6.25% 8.69%
xi. Earnings Per Share 0.77 1.01
xi. N. A. V. (Per Share) 12.26 11.62

Note: The figures have been calculated using average receivables, inventory and payables.

Increased competition and high volume low margin business has warranted company on standalone business to raise working capital in form of debt and therefore change in current ratio from 2.96 to 1.75 as well as change in Debt ratio. Further, As a result of high volume low margin and increase competition, during FY 2019-20, there is positive significant change in Debtors Turnover days and Inventory Turnover Days but lower operating margin, Net profit, return on net worth and EPS compared to FY 201819.

On Consolidated Basis:

<tr>
Particulars 2019-20
i. Debtors Turnover (In Days) 18.11
ii. Inventory Turnover (In Days) 2.68
iii. Interest Coverage Ratio 4.64
iv. Current Ratio 1.07
v. Debt Equity Ratio 2.57
vi. Net Debt to Equity ratio 0.90
vii. Operating Profit Margin (%) 0.80%
viii. Net Profit Margin (%) 0.61%
ix. Net worth 54.68
x. Return on Net worth 50.53%
xi. Earnings Per Share 19.81
xi. N. A. V. (Per Share) 39.20

Note: The figures have been calculated using average receivables, inventory and payables.

Segment-wise or product/wise performance

Your Company currently actively trades in Agricultural Commodities such as Castor Seeds, Coriander, Guar seed and yellow peas etc., precious metals such as Gold, precious stones such as Diamond and derivatives listed on on recognized Indian Exchanges. Hence product - wise performance will not be applicable, however you may

refer to the segment wise performance as set out in notes to the financial statements accompanying this report.

Further through subsidiaries of the Company, Group operates in other unrelated diversified activities such as Pharmaceuticals, Information Technology and Manufacturing as detailed below:

Trading of Commodities, Precious Metals and Stones Domain Abans Enterprises Ltd (Holding Co.) Abans Jewels Pvt Ltd
Abans Gems and Jewels FZE
Splendid International Ltd, Mauritius
Manufacturing Domain Abans Jewels Pvt Ltd
Abans Creations Pvt Ltd
Software Domain Zicuro Technologies Pvt Ltd
Pharmaceuticals Domain Lifesurge Biosciences Pvt Ltd

Opportunities and Threats

Trading in Commodities and Derivatives are subject to inherent risks such as credit risk, margin risk, volatility in prices of commodities and currencies, political risk, leverage risk, operational risk such as high transaction costs, regulatory changes, interest rate risk, warehousing and storage cost etc..

Your Management believes in any market, the biggest risk is not having a complete understanding of the business. Hence your management adopts focused based approaches in trading in order to reduce the risk and create a sustainable value creation for its stakeholders.

Going forward, on account of introduction of more and more agri-commodity derivative products on commodity exchanges and liberalisation of agri - commodity markets, your management believes there are lucrative opportunities in trading in agri - commodities and derivatives by staying disciplined to the trading approaches finalized by the management.

There is a huge opportunity to move the gold and diamond business from unorganized to organized space in many countries including India and China. The organized segment has tremendous growth prospects. Growing consciousness of branded jewellery, increasing purchasing power in the Tier I & II locations, and increasing demand for diamond jewellery are major opportunities for the next 10 to 15 years. The major threat could be changes in government policy with regard to import and export of gold products.

W.r.t Pharmaceuticals, during 2014-19, the domestic market grew at a CAGR of 9.5% to reach US$22 billion. Presently, over 80% of the antiretroviral drugs being used globally to combat acquired Immunodeficiency syndrome (AIDS), are supplied by Indian pharmaceutical firms. Pharmaceuticals exports from India stood at US$20.6 billion in FY20 up from US$19.1 billion in FY19. Pharmaceutical exports include bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgicals. With the raging COVID-19 pandemic disrupting supply chains and the governments increased attention on drug pricing, the market is likely to be volatile and margins will be under constant pressure.

In the Software domain, In the future, we expect intensified competition. In particular, we expect increased competition from firms that offer technology based trading softwares, However the size of market is large and would offer room to all the participant to operate better and in profitable.

Outlook

Your Management is optimistic on the outlook of trading in agri - commodities and precious metals on account of improved regulatory framework, changes in geo - political environment, better integration of markets, developing market infrastructures, warehousing facilities.

With the creation of a new wholly - owned subsidiary named ‘Tout Comtrade Private Limited” and acquisition of “Abans Jewels Private Limited” along with its Dubai based Subsidiary Company, your management looks forward for strategic development of the companys operation and increase the trade volume at a consolidated level.

With the creation of a new wholly - owned subsidiary named ‘Abans Creations Private Limited” on April 16, 2020, you management looks forward for strategic operations in manufacturing activity of products related to precious metals and precious stones.

Since pharmaceuticals are viewed as essential items, the pharmaceutical industry has witnessed relatively less adverse impact of the pandemic, unlike other sectors. Lifesurge continues to distribute its products across the India despite the lockdown and outlook shall remain positive despite COVID-19 outbreak and the lockdown across countries manifested into a healthcare-cum- economic crisis.

In the Software domain, Company has continued commitment in building proprietary intellectual property in software platforms for the trading business and through specific industry domain and technology expertise, and in methodologies we expect to build world class proprietary software and create a value for all the stakeholders.

The strategy to be implemented will focus on delivering value to its shareholders and at the same time, control inherent risks in order to ensure sustainable development of the company and protect the interests of its stakeholders.

Risks and concerns

Risk is an integral part of the business and we aim at delivering superior shareholder value by achieving an appropriate balance between risks and returns. Commodity Trading is subject to continuously evolving market dynamics, regulatory environment due to increasing globalization, integration of world markets, newer and more complex derivative products & transactions and an increasingly stringent regulatory framework. Our senior management along with Managing Director identifies and monitors the risks on an ongoing basis and evolves processes-systems to monitor and control the same to contain the risks to minimum levels. Ongoing monitoring by our officials help in identifying risks early.

Internal control systems and their adequacy

Your Company has a robust system of accounting and administrative controls supported by an internal audit system with an adequate system of internal checks and controls to ensure safety and proper recording of all assets of the Company and also their legitimate and authorised utilization.

The Internal Auditor of the Company reviews all the control measures on a periodic basis and recommends improvements, wherever deemed appropriate, and reports directly to the Audit Committee of the Board. The Audit Committee regularly reviews the audit findings. Based on their recommendations, the Company has implemented a number of control measures both in operational and accounting related areas, apart from the usual security related measures. The internal controls are designed to ensure that the financial and other records are reliable for preparing financial statements and other data and for maintaining the accountability of the assets. Internal Control and Audit is an important procedure and the Audit Committee of the Company has been empowered by the Board to review the adequacy of internal financial controls.

Thus, the audit committee periodically reviews all matters relating to the functioning of the internal control systems.

Human Resources

Your Company firmly reiterates its trust that our employees are the key assets of the organization and is supported by following a well-established approach to hiring and on boarding at all hierarchy levels by employing varied talent sourcing strategies include employee referrals, direct applications through the “Career Section” of our website and channel partners. Our Human Resource Department continuously focuses on employee engagement and motivation which further helps in achieving strategic objective of the organization. Your Company continuously strives to provide its employees with competitive compensation packages.

During the year, we maintained a very cordial relationship with all the employees. There was no loss of production on account of any industrial unrest. As of March 31, 2020, there are 6 (Six) permanent employees on the roll of Company.

Safe Harbour

This report describing our activities, projections and expectations for the future, may contain certain ‘forward looking statements within the meaning of applicable laws and regulations. The actual results of business may differ materially from those expressed or implied due to various risk factors and uncertainties. We are under no obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events and assume no liability for any action taken by anyone on the basis of any information contained herein.