INDUSTRY STRUCTURE AND DEVELOPMENTS:
Some salient points regarding Countrys economy from the economic survey, 2022-23 are as follows:
Recovering from pandemic-induced contraction, Russian-Ukraine conflict and inflation, Indian economy is staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in FY23.
? Indias GDP growth is expected to remain robust in FY24. GDP forecast for FY24 to be in the range of 6-6.8 %.
? Private consumption in H1 was highest since FY15 and this has led to a boost to production activity resulting in enhanced capacity utilisation across sectors.
? The Capital Expenditure of Central Government and the private sector led by strengthening of the balance sheets of the Corporates is one of the growth driver of the Indian economy in the current year.
? The credit growth to the MSME sector was over 30.6 per cent on average during Jan-November, 2022.
FISCAL DEVELOPMENTS
? Inflation - India?s retail inflation rate peaked at 7.8% in April 2022, above the Reserve Bank of Indias (RBI) upper tolerance limit of 6%.
? Tax collection - The gross tax revenue registered a year-on-year growth of 15.5% from April to November 2022 driven by robust growth in the direct taxes and GST.
? With improved and healthier balance sheets of the banking, non-banking and corporate sectors, a fresh credit cycle has already begun, evident from the double-digit growth in bank credit over the past months.
? Indian economy has also started benefiting from the efficiency gains resulting from greater formalisation, higher financial inclusion, and e conomic opportunities created by digital technology-based economic reforms.
To benefit from the improved economic scenario of the country, AYCL also initiated structural reforms and process streamling for better growth and profitability of its three business verticals viz. Tea Division, Engineering Division and Electrical-Chennai Operation (E-CO). Its another unit viz. Electrical - Kolkata Operation has been closed in November, 2021 as part of the structural reform.
TEA DIVISION
AYCL is the only CPSE having Tea Gardens and manufacturing activities in Tea.
Challenges:
1. Adverse weather in Tea Industry: Tea is a seasonal agri-product and naturally exposed to agro-climatic conditions. The rainfall pattern has been changing every year and has become very unpredictable. Temperature has also played a vital role in the above situation as the day temperature for few months are very high with dry air and low night temperature resulting in delay in growth of the leaves. All Assam and Dooars gardens were affected by the erratic weather condition in the financial year 2022-23.
2. Wage hike: The escalation in basic wages by more than 69% over last 5(five) years has been one of the major reasons for increase in the cost of production whereas price realization is not keeping in pace with the price increase, thereby largely affecting the profitability.
3. Increase in infestation of Fungal Diseases: The infestation of fungal and other secondary diseases like fusarium, Violet Blight, Red Rust, Black Rot etc has increased over the last few years which was not experienced earlier at such a scale leading to severe loss of crop. Gardens most affected by fungal diseases in last 3 years are Choonabhutti, karballa, Basmatia, Desam and Khowang.
4. Pricing: It is a buyer dominated market. The price of tea is controlled by six (06) major buyers irrespective of production and substantial increase in cost of all the major inputs like fertilizer, weedicide, gas, coal, pesticide, fungicide etc.
5. Small grower dominance: Almost 51% of the produce are now from small growers which is termed as Bought Leaf tea. These are low quality cheap tea which infiltrates the market and changes the taste and spending pattern of buyers thus affecting the demand and price of tea from tea estate growers.
6. Low Retail presence: Though AYCL has presence in Retail business since 1990, but the market share has remained very nominal.
7. Labour Welfare cost: Estate tea growers have to provide housing, water supply, schooling, subsidized food grains and healthcare facilities to labourers in contrast to small growers and all of these costs are continually increasing.
8. Cost of production not factored into price: Frequent increase in labour wage rates and other input costs cannot be always passed over to the customer, thereby increasing chances of incurring losses. Many tea companies are in red or have downed shutters in past two decades.
9. Import of cheap tea: As Kenya, Sri Lanka teas are available at the cheaper rate which are being exported to major countries like UK, USA, Canada etc., the Indian teas which are produced at a higher cost cannot compete with the price they offer. Darjeeling tea price recovery is also remaining low because of ingress of Nepal tea into India.
Opportunities:
1. Brand Image: Yule Bulk Tea is known for its quality to the renowned packteers and Yule Retail brands are also getting established in domestic market for its orthodox, CTC, green and other specialty teas.
2. Strategic location of facilities: Tea gardens and factories are located in prime tea growing areas of Darjeeling, Dooars and Assam with good connectivity to Auction Houses and other buyers network.
3. Quality: Quality of tea being continually improved and sustained through regular uprooting and replanting, filling vacant patches, plucking cycle reduced from 9 days to 7 days, fine leaf count increased from 45% to 55%, better withering cycle and fermentation, to achieve better price for the produce.
4. Certifications: All gardens have necessary certifications like ISO 22000 (Food Safety Management), Trustea, Rain Forest Alliance etc with continued thrust on Sustainability and Environmental protection.
5. New Capacity enhancement: Tea division has plan for increasing its production capacity from existing 117 lac kg to 129 lac kg by FY27, adding a 5 lac kg CTC line in New Dooars Tea Estate and upgrading total capacity of Tinkong and Basmatia by 7 lac kg by FY27 with CAPEX outlay of INR 5 crore.
6. Retail growth: Retail is poised for substantial growth as AYCL has got Canteen Stores Department (CSD)s approval and has already launched retail tea in Amazon and stepped-up digital campaign for e-Market positioning/visibility. Extensive digital marketing is now being done through a reputed agency for more visibility of our products and brand.
7. Export growth: +431% YoY revenue growth achieved (INR 27.15 crore vs Rs.5.11 crore; 7.22 LKG vs 1.79 LKG) in FY23. There is opportunity for further increase subject to supply situation from other competiting tea producing countries.
Outlook:
With strength and opportunities stated above, AYCL has scope for doubling the tea business till FY32 with a growth of 7% CAGR compared to industry growth by 2.1% CAGR. This will be achieved by enhancement of own production and Bought-Leaf capacity through optimum use of existing/upgraded infrastructure as well as by acquisition of new Tea Estates. Growth is also expected from Retail tea business from present 0.2% to 5% in 2032 by volume i.e 10 lac kg with a revenue of Rs.40 crore. Export growth is expected from present 1.5% to 10% in 2032 i.e 20 lac kg approx. with a revenue of INR 80 crore. Better process control with sensor-based technologies to be adopted for monitoring operating parameters and quality. R&D for integrated pest control, soil health and bush vigor along with use of botanicals are also assuming more significance in view of sustainable business model and environmental protection needs. Tea Research Association (TRA) is closely working with AYCL in the above-mentioned fields to make us "Future Ready".
ENGINEERING DIVISION
Challenges:
1. Low Market Share: Fan market is pre-dominantly a private buyers market. Low transparency in settling the orders and apathy to Government Organization is difficult to overcome.
2. Pricing: It is a buyers? market and getting an order with good margin is difficult.
3. Small supplier dominance: Numerous small manufacturers with low overheads and cut-throat prices dominate the market. Branded suppliers thereby lose majority of the aftermarket sales.
Opportunities:
1. Brand Image: Its industrial fans have a good brand image in terms of good performance and reliability.
2. Good infrastructural facilities: Infrastructural facilities match the best in the industry.
3. Quality: Industrial fans are capital goods and quality is very important to retain customers and add new ones. Products of Engineering Division are known for better quality compared to peers.
>4. Certifications: The division is having ISO 9001, ISO 14001 and OHSAS ISO 45001 certifications.
5. Good Customer Profile: Major customers are SAIL, Tata Steel, RINL, JSW Steel, Ultratech, ACC, L&T, NTPC, ISGEC, Thermax, SMS etc.
6. Capacity enhancement: Engineering division has scope for capacity enhancement from 300 to 360 impellers per annum with a capex outlay of Rs.2 (two) crore in next two years.
In Engineering division, in-house manufacturing capacity is currently valued at Rs.70 crore working in single shift for Fan and Fan spares. This can be increased by another Rs.70 crore by extending operating with 2 (two) production shift with additional manpower, sub-contracting and outsourcing for fan and fan spares with inclusion of modern machineries, high capacity testing beds. By doing this unit can achieve two fold growth in fans and fan spares revenue of Rs.180 crore by FY2027-28.
7. Improvement in Order Booking and Market Share: Order booking was INR 54.70 crore (Market share of 6% approx.) during the FY 2022-23. The unit has already started to explore customers of PAN India especially Southern India and participated in various tenders to book new job orders for industrial fan and fan spares. Current order in hand is Rs.47.70 core as on 01.06.2023.
Outlook:
With strength and opportunities stated above, Engineering division is estimated to have a top line growth of Rs. 62 crore by FY24.
The unit will explore the possibilities to do business in supplying mine ventilation fans for mining industry. Focus will be to increase the business from Air Pollution Control (APC) and Water Pollution Control (WPC) from FY 2025-26.
ELECTRICAL-CHENNAI OPERATION
Challenges:
1. Low Market Share: The Unit is predominantly manufacturer of 8 MVA, 10 MVA, 20 MVA, 31.5 MVA Transformers with low market share, though having capacity for manufacture up to 63 MVA.
2. Pricing: It is a buyers? market and getting an order with good margin is difficult.
3. Cost increase effect: In last one year, abnormal hike in Copper, Core Lamination and Oil prices have increased by 40%, 108% & 57% respectively, made it difficult to execute old orders with customers? denial to increase the contracted price.
Opportunities:
1. Brand Image: Its Power Transformers have a good brand image in terms of good performance and reliability specially in aforesaid segment.
2. Good infrastructural facilities: It has good manufacturing set up with further scope of improvement by adding NABL accredited Lab with a CAPEX spread of INR 0.7 crore over next two years.
3. Quality: Transformer are capital goods and quality is very important to retain customers and add new ones. Products of the unit have zero failures rate in the last 3 (three) financial years.
4. Certifications: The unit is having ISO 9001 and CPRI Certification for 10MVA, 12.5MVA, 20MVA& 31.5MVA.
5. Good Customer Profile: The unit is getting good volume of orders from state utilities and EPC Contractors. Customers include who is in industry viz. Tamil Nadu and Karnataka State Electricity Boards, EPC Projects, SAIL etc.
6. Order in hand: Current order in hand is INR 74.65 crore as on 01.06.2023 and the unit has recently bagged INR 28.11 crore worth of order. In the current year, further orders will be taken depending on execution status of orders in hand.
Outlook:
With strength and opportunities stated above, Electrical-Chennai Operation business is estimated to have a top line growth of 75% by FY24. Considering expected momentum in Tariff Based Competitive Bidding (TBCB) projects and overall transmission program due to increased evacuation of RE generation, demand for power transformer is expected to grow moderately in medium term. With Tea Division, Engineering Division and Electrical-Chennai Operations estimated business growth as stated above, AYCLs business is estimated to have a top line growth of 33% by FY24.
SEGMENT WISE PERFORMANCE
The Company is a multi-segment Company as reported in note no. 49 in the accounts.
RISK AND CONCERN
Business risks are inevitable for any business enterprise. The Company through its Risk Management policy identifies the various risks and challenges, internally as well as externally and takes appropriate measures with timely actions to mitigate them and also recommend the Board about risk assessment and minimization procedures. The risk management procedure is reviewed by the Audit Committee and Board of Directors. The Audit Committee has additional oversight in the area of financial risks and controls. To ensure the mitigation of risk the Company manages, monitors and reports on the principal risks and uncertainties that can impact its ability to achieve its strategic objectives.
FINANCIAL PERFORMANCE
The details of financial performance of the Company are appearing in the Balance Sheet and Statement of Profit & Loss for the financial year 2022-23.
REASON FOR CHANGES IN KEY FINANCIAL RATIOS:
There have been no significant changes in key financial ratios during the financial year 2022-23 as compared to the immediately previous financial year 2021-22 except the followings -
Particulars | FY 2022-23 | FY 2021-22 | Remarks |
Debtors Turnover Ratio | 3.76 | 4.70 | Due to increase in turnover. |
Inventory Turnover Ratio | 2.57 | 2.00 | Increase in input cost |
Interest Coverage Ratio | 1.90 | 2.40 | Increase in interest cost against fresh loan taken from Bank |
Debt Equity Ratio | 1.91 | 1.41 | Increase due to fresh long-term loan taken from bank |
Operating Profit Margin (%) | 5% | 6% | Due to increase in input cost and salary |
Net Profit Margin (%) | 0. 29% | (-)1% | Due to lower tax impact. |
Return on Capital employed (%) | 7.00% | 7.70% | Due to increase in long term liabilities. |
INTERNAL CONTROL SYSTEMS
At AYCL, the internal control procedures include internal financial controls, ensuring compliance with various policies, practices and statutes considering the organizations growth and complexity of operations. The framework constantly monitors and assesses all aspects of risks associated with current activities and corporate profile, including commercial and financial risks. In addition, the Company has management reporting and internal control systems in place, that enable it to monitor performance, strategy, operations, business environment, organisation, procedures, funding, risk and internal control. The internal auditors carry out extensive audits throughout the year across all locations and across all functional areas and submit their reports to the Audit Committ ee.
The CEO and CFO certification provided in the relevant section of the Annual Report specify the adequacy of the internal control system and the procedures of the company.
HUMAN RESOURCES
During the year, employer and employee relationship remained cordial.
CAUTIONARY STATEMENT
Statements made in the Boards Report and Report on Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations, predictions etc. may be "forwarding-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company?s operations affecting demand/supply and price conditions in the domestic markets in which the Company operates, chan ges in the Government regulations, tax laws, litigation, industrial relations and other statutes and incidental factors. Readers are cautioned not to place undue conviction on the forward-looking statements.
For and on behalf of the Board | |
Kolkata, | Sanjoy Bhattacharya |
7th August, 2023 | Chairman & Managing Director |
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