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Agro Tech Foods Ltd Management Discussions

831.95
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Aug 22, 2025|12:00:00 AM

Agro Tech Foods Ltd Share Price Management Discussions

Your Directors hereby present their Annual Report, together with the audited accounts of the Company for the financial year ended March 31, 2025.

1. PERFORMANCE OF THE COMPANY

1.1 Results

Your Companys Standalone Financial Results for the year ended March 31, 2025 is as follows:

(Rs. Millions)

Particulars

2024-25 2023-24

Net Sales

7,913.66 7,566.39

Other Income*

34.22 34.42

Total Income

7,947.88 7,600.81

Operating Expenses

7,703.06 7,262.79

EBITDA

244.82 338.02

Depreciation

220.56 205.23

Interest

15.96 28.76

Profit before Tax & exceptional item

8.30 104.03

Exceptional items-Income/(Exp.)

(1,467.54) 26.81

(Loss)/Profit Before Tax

(1,459.24) 130.84

Taxes

(352.08) 34.42

(Loss)/Profit After Tax

(1,107.16) 96.42

Other Comprehensive Income/(Loss) #

(2.30) (1.94)

Total Comprehensive Income/Loss

(1,109.46) 94.48

*Includes other operating revenue

# Net of taxes

The Company closed the year with revenue of Rs.791 Crore, 5% higher than FY24. The Foods business closed the year with revenues of Rs.480 Crore, 7% higher than FY24. While your Company witnessed significant inflationary pressures during the year, it was able to largely mitigate the impact of commodity price changes and improved Gross Margin (GM) by Rs.6 Crore. However, EBITDA/Profit before exceptional items declined due to change in accounting estimate for the sales returns, increase in secondary freight & warehousing and higher royalty payout compared to prior year. Exceptional items include i) Provision for Impairment of Rs.70.57 Crore related to identified three cash generated units (CGUs) and Provision for impairment of Rs.65.47 Crore related to specified property, plant and equipment pertaining to certain products not expected to continue and where management will initiate process of disposal in due course, ii) Acquisition related costs of Rs.5.16 Crore on legal and professional, due diligence costs and other fees, iii) Provision for duty paid under protest for Custom Duty related litigation of Rs.5.55 Crore.

1.2 Key Indicators

With 18 years Revenue CAGR in the Foods business of 16.4% and accelerated growth in second half of FY25, your Company continues on track to be amongst Indias best food companies.

FY25 Gross Margin was higher than prior year by Rs.6 Crores led by increase in Foods GM by Rs.10 Crore while Staples GM declined by Rs.4 Crore.

2. ACQUISITION OF DEL MONTE FOODS PRIVATE LIMITED ("DMFPL")

During the year, your Company has completed the acquisition of 100% of the issued and outstanding equity shares of Del Monte Foods Private Limited pursuant to (i) the share purchase agreement dated November 14,2024 executed amongst the Company, DMPL India Limited and Del Monte Foods Private Limited ("DMFPL"); and (ii) the share purchase agreement dated November 14, 2024 executed amongst the Company, Bharti Enterprises Limited, Bharti (SBM) Holdings Private Limited, Bharti (RBM) Holdings Private Limited, Bharti (RM) Holdings Private Limited and Bharti (Satya) Trustees Private Limited (on behalf of Bharti (Satya) Family Trust) and DMFPL. The acquisition was completed on February 6, 2025. Following the completion of the acquisition, DMFPL has become a wholly owned subsidiary of the Company. Consequent to acquisition of DMFPL, subsidiary of DMFPL, Delmonte Foods India (North) Private Limited has also become the step-down subsidiary of your Company.

The boards of directors of DMFPL and its subsidiary Del Monte Foods India (North) Private Limited was reconstituted with:

(a) nominees of the Company along with 1 independent director appointed on the board of directors of DMFPL; and

(b) nominees of the Company appointed on the board of directors of Del Monte Foods India (North) Private Limited.

3. PREFERENTIAL ALLOTMENT OF SHARES

In consideration for the acquisition of DMFPL and to give effect to the share swap arrangement (i.e. consideration other than cash), the Company has allotted 1,33,27,589 fully paid-up equity shares of the Company having a face value of Rs.10/- each at a price of Rs.975.5/- per equity share to the selling shareholders of DMFPL by way of a preferential allotment. The selling shareholders include DMPL India Limited, Bharti Enterprises Limited, Bharti (SBM) Holdings Private Limited, Bharti (RBM) Holdings Private Limited, Bharti (RM) Holdings Private Limited and Bharti (Satya) Trustees Private Limited (on behalf of Bharti (Satya) Family Trust). The preferential allotment was for consideration other than cash. However, for the purpose of accounting of business combination, the Company has considered fair value of Rs.792.75 per equity share on the date of the completion of acquisition i.e. February 6, 2025.

4. MANAGEMENT DISCUSSION & ANALYSIS REPORT (MD&A)

Based on feedback from members on the Annual Report and Accounts, this report includes MD&A as appropriate so that duplication and overlap between the Directors Report and a separate MD&A is avoided and the entire material is provided in a composite and comprehensive document.

5. INDUSTRY STRUCTURE & DEVELOPMENTS

The Indian FMCG market stays poised for remarkable growth in the coming years, fueled by rising disposable incomes, expanding middle-class, strong rural growth and the proliferation of digital commerce. While the industry witnessed a slowdown in 2024 and was impacted by rising raw material costs and inflation, the Company has seen a recovery from second half of 2024 and expect the momentum to sustain in 2025.

To secure a profitable slice of this competitive market, one needs to have a diverse portfolio of products with clear right to win which your Company has already established over many years of sustained investments. Because of the attractive nature of the Indian Foods market, it continues to attract capital both through public and private markets. However, your Companys strengths of a well distributed in-house manufacturing capabilities and a powerful distribution network covering around 493,000 stores across India ensures that your Company is well positioned to defend its turf and drive aggressive growth. Your Company continue to invest on mass media to strengthen the brand imagery and drive new consumer acquisition & consumption expansion from existing consumers. The Company also continue to innovate and expand the consumer base through entry in new segments, formats and taste experiences for the consumers and thereby ensuring that the brands and product offerings remain a preferred choice of the consumers.

6. OPPORTUNITIES AND THREATS

The continued growth of the Indian Foods market and your Companys presence in low penetrated categories in food provides an enormous opportunity for a steady growth in Revenues and Profits for the Company.

The Company has strong Brands and powerful Foods portfolio representing fast growing categories like Ready to Cook Snacks, Ready to Eat Snacks, Spreads and Breakfast Cereals. The directors also believe that the company needs to prioritise resource allocation to proven high growth and high market share categories to power the Company into a strong Foods Company in India.

However, rising input costs, particularly for raw materials in edible oils segment, are impacting margins and potentially leading to price hikes there by impacting consumption and premiumisation. The primary threat to your Companys P&L has been the significant contribution of the Edible Oils business. However, over time this has been significantly reduced and in FY25 the Foods business contributed to 60% of sales and 60% of Gross Margin.

7. STATE OF THE COMPANYS AFFAIRS

Your Company has registered a consistent growth in the Foods business with 16% CAGR over the last 18 years through entry into new categories and fastgrowing segments. Your Company has been pioneers in building the Popcorn based snacks and Peanut butter segment in the country and occupy a leadership or dominant share position in these categories. Key to this continued growth is expansion of distribution and investment in advertising spends. The Company was successfully able to further expand retail coverage in FY25 ending the year with direct retail coverage of around 493,000 retail stores. The Company also invested to build the Brand franchise in emerging channels like E-commerce and Quick Commerce and were able to grow its business in these channels substantially. Overall, A&P spends increased marginally but remained at healthy 6% to foods topline. The expansion of coverage together with steady brand investments sets your Company in a good place for a steady and sustained growth in the Foods business.

8. PRODUCT CATEGORIES

8.1 Ready to Cook (RTC) Snacks:

Revenues from the Ready to Cook Snacks business were up by 7% in FY25 driven by 5% growth in volumes. While your Company enjoy leadership in the segment it operates in, it has significant headroom in this category by driving both penetration and consumption. Thus, the Board has enhanced the investments on mass media in latter part of last year and have seen growth acceleration. The Board shall continue to drive investments and shall innovate on pack size, price points and new flavours to further expand the business going forward.

8.2 Ready to Eat (RTE) Snacks:

Revenues from the RTE Snacks business grew handsomely by 30% in value and 26% in volume. The Company saw significant success in the RTE Popcorn business (grew by 42% vs prior year) and is now in a dominant national leadership position in this category. Going forward, your Company will seek to leverage the learnings, trade relationships and distribution infrastructure of RTE Popcorn business to help scale business in other RTE Savoury and Sweetened snack products in the portfolio and enhance its revenue and profitability of the segment.

8.3 Spreads & Dips:

Revenues from the Spreads business were lower by 7% vs. prior year. The Company has seen multiple new players entering the Peanut Butter segment in last few years which has expanded the category through innovations of natural and / or high protein offerings. The Company has been also innovating through launches of new tastier peanut butter products like Peanut Butter jelly which has seen good success in the last few months. Building on our recent success, the Company now plans to introduce and compete in a fast-growing high protein segment. The Company expects these introductions to significantly aid the expansion of Peanut Butter business in fast growing E- commerce and Quick commerce channels.

Your Company has continued to invest in mass media in the Peanut Butter on-the-table segment and have seen growth in small packs giving the confidence that the Company continue to attract new consumers in this fast-growing segment. Your Company shall also continue to launch newer tastier products and convenient formats in this segment to sustain the strong share and market position. Through this approach, the Board is confident to be able to drive growth and share recovery in the years ahead and strengthen the Companys market position in the overall segment.

8.4 Breakfast Cereals:

Overall, Breakfast Cereals revenue declined by 3% as the Company discontinued some of the product lines launched in the previous year based on the muted market response. Having said that, your Company has also been able to identify winning products which shall allow to build attractive and sizeable portfolio in this segment. A steady expansion of distribution enabled the Company to grow centre-filled Sundrop Popz revenues by 11% in FY25. A distributed supply chain supported by plants across the country places the Company in a strong position to have clear leadership in this important category in the future. The Company also had a strong response in the Masala Oats segment with revenue growth of 15% and volume growth of 4%.

8.5 Chocolates:

The Company saw a decline of 23% in revenue in the Chocolate Confectionery category in FY25. Based on the Board of Directors assessment of the business, they have taken a call to focus on the fast-growing segments and hence not make any further growth investments in this category. In due course of time, the Board of Directors shall also look at opportunities to dispose off or re-pivot the capacities in this segment.

8.6 Premium Staples:

In line with the stated goals of the Company, the focus in FY25 remained on profitability for this category. The 20% additional import duty introduced on edible oils in the second half of the year led to a significant increase in raw material prices of edible oils, there by impacting Gross Margins. While the Company was able to pass on the price increases, it did see the impact on volumes in response to the increased pricing. On a full year basis, your Company was able to increase the premium staples volume by 2% and value by 4%, though the Gross Margin was marginally lower than the Prior Year by 3%. The Company was also successfully able to grow the adjacencies such as Plain Oats by 17% in value terms and is looking to further strengthen the business in this fast-growing segment.

8.7 Mass Edible Oils/Staples:

Due to significant increase in the edible oil prices and to protect the margin, the Company reduced its focus in this Category in FY25 resulting in volume decline of 21% and revenue decline of 17%. Going forward the Company is re-evaluating its play in edible oils segment and shall focus on growth of premium oils while continuing to operate in the mass oil segment as a flanker. The Board believes play in this segment may be needed to sustain the sourcing strengths and scale of operation, which is critical to sustain the margins in this highly competitive category.

9. RESEARCH, QUALITY & INNOVATION (RQI)

Innovation remains the driver of growth for your Company and the Board continues to make investments which ensure that your Company continue to deliver innovative products which address unmet consumer needs and bring delightful food experiences to the consumers. Your Companys unique plant centered innovation model ensures a robust flow of innovation at an efficient cost and quick turnaround time.

10. HUMAN RESOURCES / INDUSTRIAL RELATIONS

Engaged Employees are critical to the success of your Company. In FY25, despite the change of control news at the start of the year, employees have remained engaged and the Company successfully managed the transition with improving revenue growth rates quarter on quarter (from -3% in Q1, +2% in Q2, +8% in Q3 to +12% in Q4). The continuing strong momentum in the Company driven by solid foods business growth and innovation has helped the Company to stay positive on the future outlook for the business.

Your Company will continue to ensure that it has a highly engaged and productive organization to deliver on its vision and goals.

11. KEY FINANCIAL RATIOS

The details of significant changes in the key financial ratios are as follows:

Particulars

2024-25 2023-24 %Variance

(i) Debtors Turnover Ratio

12.13 11.14 8.89%

(ii) Debt Service Coverage Ratio

13.20 7.52 75.78%

(iii) Current Ratio

2.10 2.05 2.49%

(iv) Inventory Turnover Ratio

3.94 3.04 29.43%

12. RETURN ON NET WORTH

The Return on Net worth as compared to the previous financial year is as follows:

Particulars

2024-25 2023-24

(i) Return on Net Worth

(11.43%) 1.96%

13. WHISTLE BLOWER POLICY (VIGIL MECHANISM)

The Vigil mechanism under Whistle Blower Policy has been approved by the Board of Directors on October 17, 2014. This Whistle Blower Policy of the Company provides opportunities to employees to access in good faith, to the Management, concerns (in certain cases to the Audit Committee) in case they observe unethical or improper practices (not necessarily a violation of law) in the Company and to secure those employees from unfair termination and unfair prejudicial employment practices. The policy has also been uploaded on the website of the Company: https://www.sundropbrands.com/pdf/code-of- conduct/Whistle%20Blower%20Policv.pdf

14. INFORMATION SYSTEMS

Your Company continues to focus on the use of technology and automation to drive productivity in engaging with the Customers & Suppliers. We also ensure that our Employees have access to robust information to ensure best in class analysis of the business and identification of opportunities to improve shareholder return.

15. FINANCE AND ACCOUNTS

15.1 Internal Controls

The Company has a robust system of internal controls commensurate with the size and nature of its operations, to ensure orderly and efficient conduct of business. These controls ensure safeguarding of assets, prevention, and detection of fraud and error, accuracy and completeness of accounting records, timely preparation of reliable financial information and adherence to the Companys policies, procedures and statutory obligations.

Your Company has established standard operating procedures for smooth and efficient operations in addition to ensuring internal controls. Your Company has also documented:

• A comprehensive Code of Conduct for the Board Members and employees of your Company

• An Employee Handbook

• Whistle Blower Policy defined to provide channel of communication without fear

• Comprehensive frame work for Risk Management, and

• CEO/CFO Certification for Financial Reporting Controls to the Board

The Company had appointed M/s. Grant Thornton Bharat LLP as Internal Auditors of the Company for FY 24-25 to ensure adequacy of internal control systems and make recommendations there to. Audit reports are circulated to management, which takes prompt action as necessary. The Board of Directors in their meeting held on April 29, 2025, appointed M/s BDO India LLP as the Internal Auditors of the Company for FY 2025-26.

The Audit Committee of the Board meets periodically to review the performance as reported by the Auditors. The Internal and External Auditors also attend the meetings and convey their views on the adequacy of internal control systems as well as financial disclosures. The Audit Committee also issues directives and/or recommendations for enhancement in scope and coverage of specific areas, wherever felt necessary.

15.2. Cautionary Statement

Statements in this Directors Report and Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied.

15.3 Outlook

With a Foods Turnover of Rs.480 Cr in FY25 and 18 year CAGR of 16.4%, your Company is well positioned to be a major player in the Foods industry in India. This proposition is further strengthened by a strong portfolio of products and a powerful retail and online distribution network which enables your Company to ride on the growth opportunities in the segments the Company operate in.

The Company shall continue to strengthen the focus and investments in the business to drive for accelerated growth of Revenue coupled with improvements in margins. The Company stay committed to become a significant player in the Indian Foods Industry and join the ranks of Indias Best Performing Most Respected Food Companies.

The Company shall also invest on building talent and capabilities of people to build a highly engaged and agile organisation. Your Company shall also enhance its investments in technology and automation to improve the distribution effectiveness and efficiency through Sales Force Automation (SFA) and embrace use of technology to streamline supply chains cost and reduce costs at Companys in-house manufacturing facilities. Through, the acquisition of Del Monte Foods Private Limited, your Company shall also explore opportunities to build its business in foodservice segment and also use the expanded and distributed manufacturing set-up to build reach and efficiency of the business in high growth RTE snacks segment. The Company also plans to step up its presence in SAARC countries in the coming years to expand its business beyond India.

While commodity inflation remains a concern, your Company is going to aggressively work on identifying cost savings opportunities across the value chain through operational excellence across manufacturing, logistics, sourcing and sales so as to expand the business profitability going forward.

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