Agrimony Commodities Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

INDIAN INDUSTRY AND DEVELOPMENTS

India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF). The Government of India has forecasted that the Indian economy will grow by 7.1 per cent in FY 2016-17. As per the Economic Survey 2016-17, the Indian economy should grow between 6.75 and 7.5 per cent in FY 2017-18. The improvement in Indias economic fundamentals has accelerated in the year 2015 with the combined impact of strong government reforms, Reserve Bank of Indias (RBI) inflation focus supported by benign global commodity prices.

Agriculture plays a vital role in Indias economy. Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). As per the 2nd advised estimates by the Central Statistics Office (CSO), the share of agriculture and allied sectors (including agriculture, livestock, forestry and fishery) is expected to be 17.3 per cent of the Gross Value Added (GVA) during 2016-17 at 2011-12 prices.

India is the largest producer, consumer and exporter of spices and spice products. Indias fruit production has grown faster than vegetables, making it the second largest fruit producer in the world. Indias horticulture output, is estimated to be 287.3 million tonnes (MT) in 2016-17 after the first advance estimate. It ranks third in farm and agriculture outputs. Agricultural export constitutes 10 per cent of the countrys exports and is the fourth-largest exported principal commodity. The agro industry in India is divided into several sub segments such as canned, dairy, processed, frozen food to fisheries, meat, poultry, and food grains.

• INDUSTRY OVERVIEW

1. Iron and Steel Industry

4- Global Scenario

Global economic output grew by 3.8% in 2017, as estimated by IMF in its April, 2018, World Economic Outlook update. The growth momentum increased in 2017, with growth in advanced economies (estimated 2.3% growth in 2017) as well as in emerging market and developing economies (estimated 4.8% growth in 2017). The strong growth momentum is expected to continue in 2018 and 2019, driven mainly by growth in advanced economies, expectation of favourable financial conditions and acceleration in demand. Growth in emerging market and developing economies is also expected to strengthen further. Global economic activity is forecast to grow by 3.9% in 2018 as well as 2019

4- Domestic Scenario

According to Word Steel Association, India produced 101.4 MT of Crude Steel during calendar year 2017, up by 6.2% over 2016. As per Joint Plant Committee (JPC), production of Crude Steel during Financial Year 2017-18 stood at 102.3 MT, at a growth of 4.5% over same period last year. Finished steel production (non alloy+alloy/stainless) also registered a growth of 3.1% to reach 105 MT during Financial Year 2017-18, compared to same period last year. Exports of total finished steel increased by 16.7% to 9.6 MT during Financial Year 2017-18 over last year, while impor ts increased by 3.5% to 7.5 MT. Consumption of total finished steel in India stood at 90.7 MT in Financial Year 2017-18, up by 7.9% over same period of last year. Demand for finished steel in India is expected to grow at 5.5% in 2018, as projected by World Steel Association.

Analysts are upbeat over the expected above normal monsoon and higher GDP growth. The slow pace of public and private sector projects is expected to improve with the Government of Indias thrust on infrastructure projects. Further, Make in India initiative has got a boost by a slew of measures aimed at improving the ease of doing business in the Country. Small and medium industry- a major employment generator for the economy- has been liberated to participate in the Nations development in accordance with its potential. Bold measures by the Government such as improved targeting of subsidy, broadening of the tax base and expected buoyancy in tax revenue are all aimed at achieving the fiscal consolidation which had been an area of concern in the recent past.

2. Textile Industry

4 Domestic Scenario

The Retail market in India has undergone a major transformation and has witnessed tremendous growth in the last 10 years. The Retail market is set to cross the $ 1 tn mark by 2020 from $ 672 bn in 2017. Indias e-commerce market is also set to grow at a CAGR of 30% for gross merchandise value to be worth $ 200 bn by 2026.

India ranks among the best countries to invest in Retail space. Factors that make India so attractive include the second largest population in the world, a middle class of 600 mn people, increasing. urbanisation, rising household incomes, connected rural consumers and increasing consumer spending.

India has overtaken China to grab the top spot in A.T. Kearneys 2017 Global Retail Development Index.

Retail is Indias largest industry, currently accounting for over 10% of the countrys GDP and 8% of total employment.

Recent policy changes allow 100% FDI under the automatic route for single-brand retail trading.

3. Pulses Segment

i- Global scenario

Agriculture is the primary source of livelihood for about 58 per cent of Indias population. Gross Value Added by agriculture, forestry and fishing is estimated at Rs 17.67 trillion (US$ 274.23 billion) in FY18

The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. The Indian food and grocery market is the worlds sixth largest, with retail contributing 70 per cent of the sales. The Indian food processing industry accounts for 32 per cent of the countrys total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. It contributes around 8.80 and 8.39 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture respectively, 13 per cent of Indias exports and six per cent of total industrial investment.

A- Domestic Scenario

During 2017-18 crop year, food grain production is estimated at 279.51 million tonnes, as per third advance estimates while rice and wheat production in the country is estimated at 111.52 MT and 98.61 MT, respectively in the same period. Milk production was estimated at 165.4 million tonnes during FY17, while meat production was 7.4 million tonnes. Total area in India, sown with rabi crops reached 64.29 million hectares in February 2018.

India is the second largest fruit producer in the world. Production of horticulture crops is estimated at record 307.16 million tonnes (mt) in 2017-18 as per second advance estimates.

Total agricultural exports from India grew at a CAGR of 16.45 per cent over FY10-18 to reach US$ 38.21 billion in FY18. In April-May 2018 agriculture exports were US$ 6.43 billion. India is the largest producer, consumer and exporter of spices and spice products. Spice exports from India reached US$ 3.1 billion in 2017-18. Tea exports from India reached a 36 year high of 240.68 million kgs in CY 2017 while coffee exports reached record 395,000 tonnes in 2017-18.

Food & Grocery retail market in India was worth US$ 380 billion in 2017.

India is expected to achieve the ambitious goal of doubling farm income by 2022. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to concerted efforts of scientists to get early-maturing varieties of pulses and the increase in minimum support price. The government of India targets to increase the average income of a farmer household at current prices to Rs 219,724 (US$ 3,420.21) by 2022-23 from Rs 96,703 (US$ 1,505.27) in 2015-16.

• COMPANY OPERATIONS

The Company initially was engaged in the business of imports and exports since 1991 for a period of 19 years but due to the change in management in the Year 2010 it discontinued the import export business and thereafter commenced business of trading in commodities. The Company again underwent a further Change in Management in the Year 2013 after which the company continued the business of trading of commodities but also undertook trading in all types of natural resources, precious metals, textiles and agricultural products on spot basis and from financial year 2014-15 it also entered into Trading of Rice and Pulses.

• OUR COMPETITIVE STRENGTHS

Experienced management team and a motivated and efficient work_ force

Our Company is managed by a team of experienced and professional personnel having knowledge of all aspects of marketing, finance and broking. The faith of the management is in the staff and their performance has enabled us to build up capabilities to expand our business.

SWOT Analysis 4- Strengths

• Experienced Promoters and management team

• Domain knowledge in dealing in pulses

• Low cost of processing orders and procurement

4 Weaknesses

• Dependence upon Specific Commodities.

• Dependence upon few suppliers and customers for business

4 Opportunities

• Potential to introduce new commodities and concentrate on higher value addition

• Exiting a particular segment and entering a new segment easier.

• Venturing into Fruits segment

4 Threats

• Commodities are prone to risk changes in natural environment.

• Industry is prone to change in government policies

• There are no entry barriers in our industry which puts us to the threat of competition from new entrants

• FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The total operating income of the company for the year under review is Rs. 82,388,483/- as compared to previous years operating income of Rs. 98,145,834/- signifying a drop of 16.05% in the Turnover. The chief reason for this is the drop-in margin on Steel Products and Fabrics due to which Your Company stopped Trading on these commodities. Your Company further continued its trading on Rice and Pulses.

The gross profit margin however marginally went up from 2.38% from previous year to 2.46% in the current year. The companys profit after tax in value terms went up to Rs. 6,99,711/- during the year as compared to Rs. 154,361/- during previous financial year. In terms Net Profit Margin after Tax the Margin for the current year stood at 0.85% as compared to 0.16% in the Previous Year.

The financial performance of the company is as follows:

Particulars As on March 31, 2018 As on March 31, 2017
Revenue from Operation 82,388,483 98,145,834
Purchases 80,360,706 95,811,727
GP Ratio 2.46% 2.38%
Other Income 7,873,217 7,529,159
Finance Cost 721,247 182,673
Employee benefit expenses 4,435,533 3,037,887
Net profit before tax 1,018,299 284,196
1.24% 0.29%
Net profit after tax 699,711 154,361
0.85% 0.16%

The Profitability of the different commodities and other income year-wise are as follows:

2017-18

Garment

Pulses

Rice

S S Pipes

Others

Total

Income 17755936 29024374 25820649 9787524 7873217 90261700
Expense 17319374 28309923 25185441 9545968

721247

81081953
Net 436562 714451 635208 241556 7151970 9179747
% 2.46% 2.46% 2.46% 2.47% 90.84% 10.17%
Other Exp 387912 634833 564421 214637 6354955 8156757
Net Profit Before Tax and Exceptional Items 48650 79618 70788 26919 797015 1022990
0.27% 0.27% 0.27% 0.28% 10.12% 1.13%

 

2016-17

Garment

Pulses

Rice

S S Pipes

Others

Total

Income 28137817 29007539 25624996 15375482 7529159 105674993
Expense 27510959 28300030 25000268 15000470 182673 95994399
Net 626858 707509 624728 375012 7346487 9680594
% 2.23% 2.44% 2.44% 2.44% 97.57% 9.16%
Other Exp 595913 672582 593888 356499 6983823 9202705
Net Profit Before Tax and

Exceptional

Items

30945 34927 30840 18513 362664 477889
0.11% 0.12% 0.12% 0.12% 4.82% 0.45%

The above table reveals the performance of different commodities during the current and the previous year. The Profitability of the commodities have gone up to 0.27% in the current year from 0.12% in the previous year.

As far as the Other income by way of Interest Income is concerned the Company has earned an amount of Rs. 78.73 Lakhs in the current year as compared to Rs. 75.40 Lakhs in the previous year showing an increase of 4.42% of the previous year.

• ADEQUACY OF INTERNAL CONTROL SYSTEM

The Company has adequate internal control systems for the business processes in respect of all operations, financial reporting, compliance with laws and regulations etc. Internal Control Systems have been designed to provide reasonable assurance that assets are safeguarded and, transactions are executed in accordances with managements authorization and properly recorded and accounting records are adequate for preparation of financial statements and other

financial information. Regular internal audits ensure that responsibilities are executed effectively. The Audit Committee reviews the adequacy of internal controls on regular basis. Internal check is conducted on a periodical basis to ascertain the adequacy and effectiveness of internal control systems.

• RISK MANAGEMENT

The Board of Directors has identified various elements of risks which in its opinion may threaten the existence of the Company and have formulated measures to contain and mitigate risks. The Company has adequate internal control systems and procedures to combat identified risks. The audit committee periodically reviews the risks which may potentially affect the companys operations or performance.

• HUMAN RESOURCE DEVELOPMENT

The Employee Relations with the Management continued to be cordial. The Company regards its employees as a great asset and accords high priority to training and development of its employees. The Company recognizes that its human resource is its strength in realizing its goals and objectives.

• CAUTIONARY STATEMENT

This report contains forward-looking statements extracted from reports of Government Authorities / Bodies, Industry Associations etc. available on the public domain which may involve risks and uncertainties including, but not limited to, economic conditions, government policies, dependence on certain businesses and other factors. Actual results, performance or achievements could differ materially from those expressed or implied in such forward-looking statements. This report should be read in conjunction with the financial statements included herein and the notes thereto. The Company does not undertake to update these statements.