ABans Enterprises Ltd Management Discussions.
After a strong growth in 2017 and early 2018, the second half of 2018 experienced a slowdown. Global economic growth softened to 3.6% in 2018 and it is projected to decline further to 3.3% in 2019. International trade and investments are moderating, trade tensions remain elevated, and financing conditions are tightening. Amid recent episodes of financial stress, growth in emerging markets and developing economies have lost momentum, with a weaker-than-expected rebound in commodity exporters accompanied by deceleration in commodity importers. Downside risks have become more acute. Financial market pressures and trade tensions could escalate, denting global activity
However, growth is expected to pick up in the second half of 2019, driven by the absence of inflationary pressure and monetary policy accommodations by major economies. Moreover, the fiscal and monetary policy stimulus by China has helped to counter the looming negative effects of imposed trade tariffs, improving the outlook for US China trade tensions.
Meanwhile, The Index of Industrial Production (IIP) grew by 3.6% in FY2019 and was majorly driven by growth in Infrastructure/Construction goods sector. Furthermore, inflation has remained well in control. The Wholesale Price Index (WPI) and Consumer Price Index (CPI) based inflation was at 3.18% and 3.41% respectively in FY2019. Additionally, the Reserve Bank of India (RBI) announced multiple rate cuts to ease the liquidity tightening. The Repo rate now stands at 6%.
The Indian economy grew steadily on account of various reforms like recapitalization of public sector banks, amendments to goods and service tax, clean-up of Non-performing assets through National Company Law Tribunal (NCLT), implementation of Insolvency and bankruptcy code. Indias GDP growth for FY2019 is expected at 7.2%
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, 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, non-remunerative 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.
Financial performance with respect to Operational Performance
During FY 2018-19, your company followed a focused based approach in trading and focused on select precious metals commodities such as Silver and Gold and agri commodity such as Guarseed and Currency Derivatives on Indian Exchanges. As a result of focused based trading strategy Return of Net worth increased from 1.18% to 8.69%.
Consequently during FY 2018-19, Total Income of the Company has increased by 88.47% compared to increase of 10.97%. whereas Profit After Tax increased by 709.20% compared to 58.21% and consequent increase in EPS from 0.12 per share to 1.01 per share.
The key financial indicators stand as follows for the FY 2018-19 and 2017-18:
|i.||Debtors Turnover (In Days)||47.06||63.00|
|ii.||Inventory Turnover (In Days)||4.25||10.44|
|iii.||Interest Coverage Ratio||-||4.42|
|v.||Debt Equity Ratio||-||-|
|vi.||Operating Profit Margin (%)||1.92%||0.95%|
|vii.||Net Profit Margin (%)||1.07%||0.25%|
|viii.||Net worth||16.21 Cr||14.80 Cr|
|ix.||Return on Net worth||8.69%||1.18%|
|x.||Earnings Per Share||1.01||0.12|
|xi.||N. A. V. (Per Share)||11.62||10.61|
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 Jeera, Soyabeans, Guarseed etc. and precious metals such as Gold, Silver etc. and derivatives in currency derivatives segment on 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.
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.
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 proposed 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.
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.
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, 2019, there are 5 (Five) permanent employees on the roll of Company.
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.