ADF Foods Ltd Management Discussions

Global Economy

Overview: The global economy has exhibited strong resilience, with projections indicating a stable growth rate of 3.2% for the years 2024 and 2025, reflecting the steady economic performance experienced in 2023.

A disproportionate share of global growth in 2024 is expected to come from Asia, despite the weaker-than-expected recovery in China, weak global consumer sentiment on account of the Ukraine-Russia war and the Red Sea crisis resulting in higher logistics costs.

Growth in advanced economies is expected to see a slight acceleration in growth, increasing from 1.6 per cent in 2023 to 1.7 per cent in 2024 and 1.8 percent in 2025. In contrast emerging markets and developing economies are expected to experience a modest slowdown with growth dipping from 4.3 percent in 2023 to 4.2 per cent in both 2024 and 2025. The global growth forecast for five years from now stands at 3.1 per cent, the lowest in decades. Global inflation is expected to decreased steadily from 6.8 per cent in 2023 to 5.9 percent in 2024 and 4.5 per cent in 2025, with advanced economies reaching their inflation targets more quickly than emerging markets and developing economies.

Regional growth (%)	2024E	2023
World output	3.2	3.2
Advanced economies	1.7	1.6
Emerging and developing economies	4.2	4.3

(Source: UNCTAD, IMF)

E: Expected

Performance of Major Economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022

China: GDP growth was 5.2% in 2023 compared to 3.0% in 2022

United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022

Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022

Germany: GDP contracted by 0.3% in 2023 compared to 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint)

Outlook: Asia is expected to continue to account for the bulk of global growth in 2025. Infiation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years.

(Source: World Bank).

Indian Economy

Overview: The Indian economy was estimated to grow 7.8% in 2024 fiscal against 7.2% in 2023 mainly on account of the improved performance in the mining and quarrying, manufacturing, and certain segments of the services sector. India retained its position as the fifth largest economy.

In FY 2023-24, the CPI inflation averaged 5.4% with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5%, a sharp decline from 6.2% in FY 2022-23. The softening of global commodity prices led to a moderation in core inflation.

The nations foreign exchange reserves achieved a historic milestone, reaching $645.6 billion. The credit quality of Indian companies remained strong between October 2023 and March 2024 following deleveraged balance sheets, sustained domestic demand and government-led capital expenditure.

Growth of the Indian Economy

	FY21	FY22	FY23	FY24
Real GDP Growth (%)	-6.6	8.7	7.2	8.2

Growth of the Indian Economy quarter by quarter, FY 2023-24

	Q1FY24	Q2FY24	Q3FY24	Q4FY24
Real GDP Growth (%)	8.2	8.1	8.4	7.8

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

The FY 2024-25 growth in the economy would be the highest since FY 2016-17, excluding the 9.7% post- Covid rebound in gross domestic product (GDP) in FY 2021-22 from the 5.8% contraction in FY 2020-21.

Indias processed food exports have surged by 150% over the past nine years, driven by the nations diverse food industry and escalating global demand. The rise in processed food exports underscores Indias global food market presence and signifies favorable economic growth and agricultural sector advancement.

By 2025, the Indian food processing market is projected to reach $535 billion, growing at a compound annual growth rate of 15.2%. is growth is expected to extend to Tier-II and Tier-III cities, mirroring trends seen in metropolitan areas as these regions increasingly consume more processed foods.

Indias consumer spending is anticipated to rise to $6 trillion by 2030. In 2022-23, Indias exports of agricultural and processed food products surged to nearly $51 billion, with major destinations including the USA, Bangladesh, UAE, and Vietnam.

Indias Nifty 50 index grew 30% in FY 2023-24 and Indias stock market emerged as the worlds fourth largest with a market capitalization of US$4 trillion. Foreign investment in Indian government bonds jumped in the last three months of FY 2022-23. India was ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Indias unemployment declined to a low of 3.2% in FY 2022-23 from 6.1% in FY 2017-18.

Outlook: India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass US$ 4 trillion in FY 2024-25.

Industry Developments

Global ethnic food market

The global ethnic foods market, reaching US$ 54.0 billion in 2023, is expected to reach US$ 110.4 billion by 2032, exhibiting a growth rate of 8.02% (CAGR) during 2024-2032. A key trend driving this growth is the increasing preference for frozen food products. One significant factor propelling the market is the rising migration and relocation of consumers globally. With 272 million international migrants, comprising 3.5% of the worlds population, there is a growing demand for local and regional food products. Developed regions like the U.K., Canada, Germany, Italy, the UAE, and the U.S., with high relocation rates, are witnessing a continuous increase in consumer demand for Asian and Italian cuisines.

Major drivers include cultural diversity, changing consumer preferences, and the growth of e-commerce and online food delivery. Ethnic foods, deeply rooted in cultural heritage, offer a wide array of flavors and cooking styles, contributing to their global popularity.

(Source: imarcgroup.com, fortunebusinessinsights.com)

Global ready-to-eat food market

The ready-to-eat food market, valued at US$ 181.5 billion in 2023, is projected to reach US$ 262.4 billion by 2032, showcasing a notable CAGR of 4.18% from 2024 to 2032. Its popularity lies in the convenience and time-saving features, with a demand surge for on-the-go items, snacks, and mini-meals due to their portability.

(Source: imarcgroup.com, futuremarketinsights.com)

Indian ready-to-eat food market

The Indian ready-to-eat food market is poised for substantial growth, with an estimated CAGR of 16.4% during 2024 to 2031, reaching US$ 2,933.31 million by 2031 from US$ 870.43 million in 2023. is growth is attributed to changing lifestyles, increased urbanization, expansion of retail chains and evolving consumer preferences. Ready-to-cook (RTC) foods, designed for quick and easy home preparation, have gained popularity due to the practical solution they offer in the face of busy schedules and limited time for cooking. The market caters to diverse culinary preferences, providing traditional Indian dishes, international cuisines, and healthier options, aligning with the growing awareness of nutrition. It is a competitive market with a focus on pricing, innovation, and marketing.

There is a rising demand for plant-based and vegan RTC foods, customizable food kits, and a focus on regional and ethnic flavors. Innovations in sustainable packaging solutions and technological advancements are significantly influencing the industry.

(Source: marketsandata.com, linkedin.com)

Growth Drivers

Health: Demand for nutritious and high-quality food continues to rise as people adopt healthier lifestyles and eating habits.

Nuclear families: Nuclear families are the norm, accounting for the majority of households. Nuclear families make up 58.2% of households working professionals, in particular, do not have adequate time to prepare meals. As a result, on-the-go meals that demand minimal to no time and ingredients seem to have become extremely popular.

(Source: business-standard.com, newsroomodisha.com)

Packaging standards: Product shelf life has been prolonged as packaging quality has improved, thereby increasing convenience.

(Source: imarcgroup.com, globenewswire.com)

Food safety: The global market for Health and Wellness Foods, which was valued at US$ 124.26 billion in 2023 is estimated to achieve a value of US$ 232.46 billion by the end of 2030, exhibiting a CAGR of 9.39% during 2024 to 2030. The growing emphasis on healthy eating, the popularity of organic foods and increasing food preferences are influencing growth in the global health and wellness foods market.

(Source: Verifiedmarketreports.com)

Ready-to-eat: Previously, the ready-to-eat food industry provided limited assortment and had not evaluated multiple segments that would satisfy consumers tastes and choices. Until recently the market for ready-to-eat products has diversified to include complete meal options such as curries, appetisers, breakfast items, soups and snacks, baked food, meat products and more. Millennials and Gen Z now account for approximately 1.8 billion people, or more than 23% of the global population. It is estimated that there are approximately 440 million millennials in India, accounting for approximately 34% of the total population and constituting the worlds largest millennial cohort. The ready-to-eat meals market is expanding as a result of busier lifestyles, rising incomes, an increase in nuclear families and an absence of cooking skills.

(Source: punemirror.com)

Working women: In 2023, Indian organizations saw a notable rise in female representation, reaching 26% from 21% in 2021, as per the Great Place to Work India report.

(Source: Great place to work Report, economictimes.com)

Online grocery market: Improved digital literacy and widespread internet access are driving recent market growth, accelerated by the Covid-19 pandemics impact, which expanded the customer base. Rising demand in Tier 1 and 2 cities, coupled with a shift in purchasing behaviors, is expected to fuel significant market expansion. Nationwide, Kirana stores are increasingly adopting online delivery services via smartphone applications.

(Source: ians.in)

Government Initiatives

The Indian government supported private sector investment in agricultural and allied sectors to enhance value-addition. In the calendar year 2022, 46 new projects worth Rs. 2,218.69 crore were sanctioned under the Operation Greens Scheme.

The implementation of the PLI scheme is expected to facilitate the expansion of food processing capacity by nearly Rs. 30,000 crore and create additional direct and indirect employment opportunities for approximately 2.5 lakh people by FY 2026-27. PLI beneficiary investments are likely to increase food sales and exports. The scheme requires that the entire chain of manufacturing processes, including primary processing of food products, take place in India in order to qualify for the incentive. The scheme will also aid in the promotion of Indian brands abroad. According to data reported by PLI beneficiaries, approximately Rs. 4,900 crores have been invested under the scheme.

(Source: pib.gov.in)

Company Overview

ADF Foods is a market leader in the prepared ethnic food segment. Our products are best suited to serve a wide range of geographies. With a strong distribution network spread across 55 countries, the Company possesses a global customer base with a product for everyone. More than 95% of the Companys revenues are derived from exports to North America, Europe, Asia Pacific and GCC markets. During the year under review, the Company launched 37 new product variants across categories.

ADFs Food product portfolio under 5 main brands is as under

Ashoka	Truly Indian	Camel	Aeroplane	ADF Soul
Ready to eat food	Ready to eat food	Meal accompaniments	Meal accompaniments	Meal accompaniments
Frozen Vegetables / Snacks / Indian Flat bread	Frozen curries/ snacks/Indian Flat bread	Cooking pastes	Cooking pastes	Sauces
Meal accompaniments	Meal accompaniments		Curry powders
Canned vegetables	Cooking pastes		Cooking sauces
Cooking pastes	Cooking sauces
Mango pulp and mango slices	Organic ready-to-eat and organic cooking sauces

The Companys processed food business generated revenue of Rs. 414.12 crore in FY 2023-24.

ADF Foods has production plants in Nasik and Nadiad with an overall capacity of 28,000 MTPA. Hazard Analysis and Critical Control Point, British Retail Consortium and ISO 22000:2005 certifications have been granted to the Nasik and Nadiad plants (both plants invested with automation and debottlenecking resulting in increased capacities).

In addition to the processed food business, the company has ‘agency distribution agreements with two key Principals i.e. Unilever and Ekaterra. These agency businesses have assisted the Company in launching the distribution of Indian tea, soups and other food products in the North America and the United Kingdom.

The Indian government had approved the company under Category III of the PLI scheme for food processing industries. The economic incentive is anticipated to facilitate global branding and marketing (50% of marketing expenditure or 3% of sales, whichever is less, up to a maximum incentive of Rs. 61.35 crores during the schemes tenure from FY 2022-23 to FY 2026-27).

Financial Highlights

(Rs. in Crores except per share data)

Particulars	Standalone		Consolidated
	FY23-24	FY22-23	FY23-24	FY22-23
Total Income	425.03	363.45	531.39	461.50
EBIDTA	112.91	86.89	116.00	91.85
EBIDTA margin	26.57%	23.91%	21.83%	19.90%
Interest	0.80	0.61	2.34	2.65
PAT	79.64	60.00	73.78	55.85
PAT margin	19.23%	16.98%	14.18%	12.40%
Working capital	252.08	246.18	297.91	286.85
ROE	18.17%	15.49%	17.09%	17.66%
RoCE	23.72%	20.50%	22.15%	18.12%
Basic EPS (Rs.)	7.25	5.48	6.85	5.12
Diluted EPS (Rs.)	7.25	5.48	6.85	5.12

Details of significant changes in key financial ratios

Particulars	March 2024	March 2023
Debtors turnover	86 days	78 days
Inventory turnover	4.79 times	4.19 times
Interest Coverage Ratio	133 times	133 times
Current Ratio	7.78 times	9.75 times
Debt-Equity Ratio	-	-
Operating profit margin (%)	27.01%	23.43%
Net profit margin (%)	20.19%	17.28%

Debtors turnover ratio: The ratio has declined due to increase in debtors towards year end due to uptake in the business in the last quarter of FY 2023-24.

Inventory turnover ratio: The ratio has improved because of better inventory management.

Interest coverage ratio: The ratio is in line with the previous year. (Interest represents interest on lease accounting as per Indian Accounting Standard 116).

Current ratio: The ratio has reduced due to companys working capital.

Debt-equity ratio: Not applicable to the Company as the company is debt free.

Operating profit margin: The ratio improved on account of a better operating efficiency and product mix.

Net profit margin: The ratio improved due to a better operating efficiency and reduction in other costs.

Risk and Mitigation

The Company is engaged in de-risking its business through a steady Business Risk Management System, which examines risks. The industry risks are as follows:

Foreign exchange rate fluctuation risk: The majority of the revenue stems from exports. While depreciation in the Rupee benefits exporters like us, an appreciation of the Indian Rupee can impact our global competitiveness.

Mitigation: To mitigate this risk, the Company proactively manages this risk by regularly observing foreign exchange rates and engaging in strategic forward contracts. Additionally, we concentrate on enhancing the value of our offerings and developing robust internal mechanisms to cushion the effects of an appreciating Indian Rupee.

Raw material inflation risk: An increase in raw material costs could impact competitiveness and margins.

Mitigation: The Company monitors significant and bulk purchases closely, leveraging its dependable distribution network to ensure continuous availability of raw materials at predetermined costs.

Competition risk: Increased competition (existing and new), as well as the presence of unorganized forms, may impact market share.

Mitigation: ADF Foods long-standing investment in a brand recognition portfolio has solidified consumer popularity and secured market share. The Company prioritises research and development, resulting in the annual delivery of new innovative and healthy products and innovative and convenient packaging.

Logistics and supply chain risk: Potential operational complexity and coordination challenges.

Mitigation: The Company engages multiple logistic partners and expands the distributor network, along with establishing an in-house distribution company and acquiring additional warehousing space.

Internal Control Systems & Adequacy

Recognising and tracking the internal control systems is a critical part in an organization. The Company has a secured system of internal controls which works together with internal financial controls that are repeatedly administered by the management. The internal control system of ADF Foods shows proficiency in operations; make the best use of resources and adhere with all applicable laws and regulations. Key controls are examined during the year and restorative and precautionary actions are taken in case of any fault. Internal audits are organized systematically by designated audit teams. The Audit Committee sanctions the risk based internal audit plan which also reviews worth and efficacy of the Companys internal financial controls.

Human Resources

The Company provides employees with a conducive workplace, marked by knowledge accretion, respect for dignity, teamwork and career growth. The Companys permanent workforce strength was 354 as on March 31, 2024.

Opportunities and Outlook

The Company is building its business through the following initiatives:

Increasing capacities: The Companys existing manufacturing plants in Nadiad and Nasik have a blended generation capacity of 28,000 MTPA.

Debottlenecking and Brownfield investment undertaken has helped the Company to increase capacity at Nadiad and Nasik and it has hence, surrendered its temporary lease facility at Surat which will save lease overheads and bring operational efficiency. The Company has initiated setting up of a new cold storage with an investment outlay of Rs. 15 crore at the Nadiad plant which will result in better operational efficiency. Initiation of a greenfield expansion project in Surat is aimed at increasing capacities for frozen foods, with a planned investment of Rs. 75 crore in Phase I.

Strengthening Distribution: The Company has wide distribution network across the globe and 6 Country Managers. Additionally two warehouses in the US admeasuring over 1 lakh square feet has helped the Company to ensure uninterrupted product supply with direct reach to the retailers.

During the year under review, the Company created a large freezer capacity in New Jersey warehouse, enhancing our ability to quickly meet the demand for frozen product categories within the US market.

Distribution business: The company has been engaged in the agency distribution business for the past five years, handling a portfolio of distinguished brands like Knorr soups, Lipton, Brooke Bond Red Label, Yellow Label, and Taj Mahal. The said business line has contributed revenue of Rs. 88 crore during FY 2023-24.

Brand strengthening: In FY 2023-24, the Companys flagship brand Ashoka achieved revenue exceeding Rs. 250 crores, reflecting a CAGR of 29% over the past three years. To strengthen the brands expansion, the Company significantly increased its marketing expenditures, encompassing various channels such as digital platforms, television advertising, sampling initiatives, in-store promotions and securing prime shelf space. These efforts contributed to increased brand awareness and an expanded market share.

The Companys brand investments are backed by the maximum incentive of Rs. 61.35 crores received under Category III of the Government of Indias Production Linked Incentive Scheme, spanning from FY 2022-23 to FY 2026-27.

Simultaneously, the Company has initiated the expansion exercise of the ‘Truly Indian brand meant for the Global mainstream population. The Company has added a range of frozen food items and expanded its existing cooking sauces, pastes and ready-to-eat curries under the Truly Indian brand to further satisfy the needs of the foreign consumer and penetrate more supermarket chains. The brand was initially launched in Germany and has seen great success over the last couple of years. The Company hopes to recreate this success with its launch in the US market which is expected to roll out in the coming financial year.

During the year under review, the Companys domestic business has grown as planned. The Products under ‘ADF Soul brand are available pan India on the Companys own E-commerce platform viz. https://soul-foods.in. The products are also available on other leading E-commerce/ Q-commerce marketplaces i.e. Amazon, Flipkart, Swiggy Instamart and BigBasket. The Company has done category extension under chutneys and pickles in olive oil and traditional pickles. The Company is planning to launch many more exciting products in the near future, in the better-for-you foods space. ADF Soul aspires to be a Rs. 100 crore brand in the next three to four years. The Company has committed an additional investment of Rs. 13 crore in order to support the growth plan of ADF Soul.

Cautionary statement

Statements in this Management Discussion and Analysis describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, competitive actions, changes in Government regulations, tax regimes, economic developments in India and in countries in which the Company conducts business and other incidental factors.