Agro Dutch Industries Ltd Management Discussions.

The principal business of the Agro Dutch Industries Limited is growing of White Button Mushrooms.

Industry Structure and Outlook

Food processing industry in India is increasingly seen as a potential source for driving rural economy as it brings synergy between industry and agriculture. A developed food processing industry is expected to lead increase in farm gate prices translating into increased rural incomes, reduce wastages, ensure value addition, promote crop diversification, generate employment opportunities as well as export earnings. With such a large and diversified production base coupled with low manpower cost and modern technology, the Indian food processing sector is poised for growth, if the advantages are leveraged optimally.

The growth is driven by the fact that the central government has given a priority status to all agro-processing businesses. Government incentives in the field of mega food parks, cold chain and exports benefits are also playing an important role in promoting food processing.

The mushroom industry has a bright future due to increasing demand of mushroom worldwide. India is not a major producer of any of the mushroom varieties but it does cultivate mushrooms and has a great potential as an important producer in the future.

Business Overview

The Company is dealing in White Button Mushrooms only.

Product Performance

Description Current Year Previous Year
Quantity(in Kgs) Value (Rupees in Lacs) Quantity(in Kgs) Value (Rupees in Lacs)
White Button Mushrooms 46320 Kg canned Mushroom 5415730 235212 Kg canned Mushroom 13695939
57943 Kg fresh Mushroom 2287452 310916 Kg fresh Mushroom 15270662

Opportunities and Threats

The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year. In India the food sector has emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly within the food processing industry. In order to facilitate and exploit the growth potential of the sector, the government on its part has initiated extensive reforms. Some of the key measures undertaken by the Government include: amendment of the Agriculture Produce Marketing Committee Act, rationalization of food laws, implementation of the National Horticulture mission etc.

The government has also outlined a plan to address the low scale of processing activity in the country by setting up the mega food parks, with integrated facilities for procurement, processing, storage and transport. To promote private sector activity and invite foreign investments in the sector the Government allows 100% FDI in the food processing & cold chain infrastructure. However, despite continual efforts and initiatives of the Government to provide the required stimulus to the sector, processing activity is still at a nascent stage in India with low penetration. At the same time, though India is a key producer of food products, having an adequate production base for inputs, productivity levels are very low in the country.

The Indian food regulations comprise various food policies that have been enacted at different points of time, and are under the ambit of various ministries of Government of India (GOI). Historically they were introduced to complement and supplement each other in achieving total food sufficiency, safety and quality. The result is that the food sector in India is governed by a number of different statutes rather than a single comprehensive enactment. This incremental approach has led to incoherence and inconsistency in the food sector regulatory scenario.

Segment Review and Analysis

Segment has been identified in line with the Accounting Standard on Segment Reporting (AS-17) taking into account the organization structure as well as the differential risks and returns of these segments.

Future Outlook

The food processing industry is one of the emerging industry throughout the world especially in developing countries like India it is getting a more and more attractive for the agricultural oriented economy. The industry is proving a ray of hope for modernizing the primary sector (agriculture and allied industries) in these developing nations. The primary sector plays a vital role in Indian economy and it is regarded as the back bone of the economy.

Indian food processing industry is poised for explosive growth driven by changing demographics, growing population and rapid urbanization. These factors will increase the demand for value added products and thus improve the prospects of food processing industry in India.

Risks and concerns

Risk is an integral part of business. Risk can be broadly categorized into two broad categories: one Risk Associated at the Transactional Level and the other Risk Associated at the Decision Making Level.

Risk Associated at operational level can arise out of operations, financial dealings and / or compliances of legal system. The Company has appropriate control mechanism and operating effectiveness of Internal Financial Controls & Legal Compliance System.

Risk Associated at the Decision Making levels are political, social & economic, technology, capital structure, foreign exchange & interest rate etc. These risk are evaluated in detail before taking any strategic & financial decision.

Internal Control Systems and their adequacy

The Company has laid down internal financial controls to be followed by the Company and such policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

The Company has also laid down an adequate system for legal compliances. It has created appropriate structures with proper delegations of duties and responsibilities of employees at each level on enterprise basis which ensures the proper adherence and compliance of such systems.

Human Resource Development/Industrial Relations

The company lays due emphasis on sound Human Resource Management practices and appraisal systems with focus on cordial employer-employee relations to ensure higher level of productivity and operational efficiency. Adequate initiatives have been taken to strengthen and develop its human resources as a key strength through continuous training inputs and focused development plan.

Cautionary Statement

Statements in this Report describing the Companys objectives, projections, estimates and expectations may be "forward looking statements within the meaning of applicable securities laws and regulations. Actual Results could differ materially from those expressed and implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the markets in which the Company operates, changes in the Government regulations, tax laws and other statues and other incidental factor.

Analysis of Financial Performance and Operational Performance

The accompanying financial statements have been prepared in accordance with the requirements of the Companies Act, 2013 and Generally Accepted Accounting Principles and Accounting Standards prevailing in India.

A. FINANCIAL CONDITIONS

Fixed Assets

At the end of the year, Companys investment in fixed assets was as under:

Year ended March 31st 2013 2014 2015 2016
Gross block (Rs. in lacs) 37872.84 37199.90 35704.44 35100.34

The composition and growth of assets was as under:

[Rs. in lacs]
Particulars March 31, 2016 March 31, 2015 Growth %
Land 913.57 925.58 NIL
Buildings 15308.57 15316.18
Plant & Equipments 17873.42 18344.60
EDP,WP Machine & Satcom 128.60 128.60
Office Equipments 116.85 116.85
Communication Equipment 28.26 28.26
Furniture & Fixtures 132.35 132.35
Vehicles 598.72 712.02
Total 35100.34 35704.44
Less: Acc. Depreciation 17783.90 16385.53
Add: CWIP 0 18000.11
Net Fixed Assets 17316.44 37319.02

CURRENT ASSETS, LOANS & ADVANCES

Inventories

Inventories include stock of raw material, consumables, work-in-progress, if finished goods and packing material. Total inventories were Rs 1195.39, representing 6.90% of the fixed assets.

Sundry Debtors

Sundry debtors were Rs.652.70 lakhs as at 31st March, 2016 as against Rs. 612.06 lakhs as at 31st March, 2015. Debtors as a percentage of total operating revenue were 98.41% for the current year as against 69.28% for the previous year.

Cash and Bank Balances

Cash and bank balances were 0.55% of total assets as on 31st March, 2016 as against 0.23% as on 31st March, 2015.

Loans & Advances

Loans & Advances mainly comprise of loans to staff, advances recoverable in cash or kind, advance taxes and security deposits. Advances recoverable in cash or kind or for value to be received are mainly towards amount paid in advance for value and services to be received in future. Security deposits mainly represent deposit for electricity.

Net Deferred Tax Assets

Deferred tax liabilities of Rs. 224.25 represent closing balance of net deferred tax liabilities after adjusting total deferred tax assets and deferred tax liabilities as on 31.03.2016. It has been calculated in accordance with Accounting Standard-22 "Accounting for Taxes on Income" issued by the Institute of Chartered Accountants of India.

Current Liabilities & Provisions

Current Liabilities

Sundry Creditors include amount payable to vendors for supply of goods and services. Advances from customers represent amount for which material has not yet been delivered. Other liabilities include amounts payables to staff/ workers for earned leave, bonus, salary and overtime besides taxes.

B. Results of Operations

The summary of operating performance for the year is given below:

(Rs. In Lakhs)
Particulars Year ended as on 31st March,2016 Year ended as on 31st March,2015
Amount Amount
INCOME
Income from operations 663.22 883.43
Other income 32.15 159.06
Total income 695.37 1042.49
EXPENDITURE
Raw Material Consumed 251.06 315.28
(Increase)/Decrease in stock 783.55 627.12
Manufacturing Expenses 441.44 533.55
Payment & Benefit to Employees 135.47 184.44
Administrative, Selling & Other Expenses 343.54 137.43
OPERATING EXPENSES 441.44 533.55
EBIT (32.37) (1328.27)