Annapurna Swadisht Ltd Management Discussions

Indian Economy

Indias economy continues to be resilient amidst an uncertain global environment.

Indias GDP grew 7.2% in FY23 against 9.1% in FY22.

India once again showcased its resolve and resilience to report healthy economic growth despite the gloom prevailing in the external world, persistent inflations and the continuing impact of geopolitical fractures. India is estimated to have become a US$3.75 trillion economy in March 2023.

Growth in factory output or index of industrial production was 5.1%, on average, in FY23, as against 11.4% in FY22. The drop was due to high inflation, rising interest rates, and weak external demand.

The Indian agriculture sector grew by 3.5% in FY23. Apart from meeting domestic requirements, India became a net exporter of agricultural products, with agriculture exports touching US$50.2 Bn in FY23. Indias total Kharif crop production at around 149.9 million tonnes was appreciably higher than the previous five-year average.

The CPI has slowed to a 15-month low of 5.66% in March 2023. This figure is below the RBIs target of keeping below the 6% mark.

Annual GST collection registered a robust growth of 22% over the previous year. It reflects the resilience of the Indian economy amid global headwinds. The Governments net direct tax collections increased by 17.63% in FY23.

Advancing into FY24, India will sustain its position as one of the fastest-growing major economies, despite the growth slowdown in advanced economies. Despite sluggish exports, industrial output should remain healthy due to robust domestic demand. GDP estimates for FY24 by international and Government agencies are between 6-6.5%.

Industry Overview

The FMCG Sector

The fast-moving consumer goods market is the fourth largest sector in the Indian economy. The countrys FMCG market consists of food and beverages, household and personal care, and healthcare, with household and personal care, contributing 50% of the shares.

The FMCG industry grew by 7-8% in 2022 in terms of sales. This expansion was primarily due to consumer-driven growth and higher product prices, especially for essential goods.

FY23 was a mixed bag for the FMCG space. The sector faced challenges in FY23 owing to supply chain disruptions for raw materials and inputs stemming from the Russia-Ukraine war creating inflationary pressures on the broader economy. The continually rising prices of wheat, _our, rice and sugar have concerned the food and snack segment.

Despite these headwinds, FMCG companies achieved value-led growth owing to innovative pack sizes, ranging from the smallest entry-level packs to intermediate-size packs to the big packs. In addition, digitisation catalysed the FMCG sectors growth and growth and development in 2023.

Also, with FMCG companies entrenching their presence in Tier II and III cities and the increasing preference for modern retail in these towns, there is a perceptible shift towards the organised segment, which bodes well for recognised brands.

The FMCG sector is expected to sustain its growth momentum in the current year, driven by the increased disposable income of the average Indian. Moreover, reduced inflation and optimised input prices should improve the profitability of FMCG companies,

Rural market to lead FMCG growth

The rural and urban segments generate the demand for FMCG companies. Although the urban segment accounts for 55% of the revenue, the rural markets demonstrate higher growth rates owing to a higher farm income, encouraging winter crop sowing and sustained government stimulus.

Moreover, factors such as reverse labor migration, increased digital penetration, rising awareness, and ease of access have switched rural preferences toward branded products.

Rural markets are expected to drive the growth of the FMCG market. Some of the reasons for this are:

• The Governments thrust on infrastructure development promises to increase the earning potential of the rural masses.

• In the Union Budget 2022-23, the Government has applied a novel approach to the "rural economy" through rural women empowerment, enhanced Agri credit, _sheries scheme, Agri start-ups, natural farming, and other initiatives that have the potential to raise rural demand for the Indian FMCG sector.

Digitisation & e-commerce in the FMCG sector

Continuing the momentum of the past few years ever since the emergence of the pandemic, the FMCG sector in India will benefit greatly from developments in digital technologies and rapidly growing e-commerce platforms. With India adopting 5G and superior technology and digital solutions, FMCG companies are highly likely to leverage advanced technologies to increase business and improve customer experience. According to a recent Nielsen report, eCommerce will contribute 11% of FMCG sales by 2030, eight times the current level.

Indian snack market

Indian Snack Market is anticipated to reach US$ 23.69 Billion in 2028, growing at a CAGR of 12% during 2023-2028. The robust performance and improving prospects of the Indian snack market have increased the competitive intensity. As a result, incumbent players are now focusing on innovative product development, ramping up a distribution network, and price promotions to attain a competitive edge.

Snacking has always been an intrinsic part of Indian culture- Indians have a snack for any reason, season and occasion, no matter the time of the day. The fondness for snacking is now associated with mental health as well. Indians feel satisfied, happy, and excited after consuming snacks, which shows a strong association between the state of mind and snacking. According to some experts, snacking helps people come out of boredom and uplifts the mood of people. There is also a growing popularity of snacks with ethnic favors based on the diversified food culture of the country.

The unorganised sector of the Indian snacks market commands more than 50% of the market. It suggests a significant legroom for the growth of organised players and start-ups.

Customer preference is shifting from top players to mid-size players owing to attractive price points and good value for money, among other factors. The market can also be classified on price tags – Rs. 5 per pack, Rs. 10/- per pack and above. The Rs. 5/- pack also known as the impulsive buying segment accounts for the largest market share.

A strong distribution network, a wide variety of favors and sizes at varied price points and aggressive promotion will be some of the critical factors determining business success in this segment. Annapurna Swadisht is in a favorable position and poised to grow significantly in the coming years.

Indian Savoury & Sweet snack market

Savoury market: The Indian savory snack market remains primarily dominated by ‘Western snacks. The organised sector (well-packed, labelled, branded) accounted for most of the market. Western savory snacks dominate this packaged segment, making up about 57% of the total organised savoury snacks market. The Western snack category includes chips, extruders (corn-based snacks, pu_s, rings etc.) and bridges (like nachos and Kurkure).

The organised traditional snacks market has grown in maturity in recent years and is likely to catch up with its Western counterpart. New products are being added to the product range appealing to the Indian taste and incorporating superior attributes such as good quality and nutrition. Improved packaging and sales practices now allow companies to develop processes to increase the shelf-life of traditional foods and, at the same time, retain their authentic _avor. Therefore, there is considerable scope for this category to grow in the coming years.

Sweet market: The sugar confectionery market in India is dominated by traditional sweets. The unorganised sector, the major part of this market, has the potential to increase the figures in the years ahead moderately.

The Indian packaged sweets market size reached a value of Rs. 5,230.7 crore in 2022. The market is projected to reach a value of Rs.15,057.2 crore by 2028, growing at a CAGR of 19.1% during 2023-2028.

The underlying factors are the growing working population, shifting consumer preferences towards ready-to-serve variants, increasing health consciousness and easy availability of packed sweets through online and offine distribution channels. The market for processed traditional Indian sweets also has substantial export potential.

Some significant trends playing out in the Indian sweets market are:

• Altering consumer demand for new variants of products.

• Greater demand for chocolates like sweets/favored sweets.

• Festivals and seasons, intrinsic to Indian culture, drive the market differently.

• The majority of the organised players are transitioning to online and e-commerce platforms.

The dominance of North & East India

Most snacks have been relished for ages in different parts of the country, celebrating the diverse tastes of India and signifying regional specialties, traditions, cultures and preferences. Demand for savory snacks is highest in North Indian markets. East India also consumes a considerable amount of savory snacks and street food between meals, travels, etc. The growing demand in East India is prompting global multinationals to set up manufacturing facilities in these states.

The sweets market is driven by North India, with a 35% share owing to UP, Delhi NCR, Punjab and Haryana. It is followed by East India, with Bengali Mithais dominating the market. An analysis by Frost & Sullivan mentions that India is the top consumer of sweets as it accounts for 35% of total consumption. Delhi leads the list with 9.8% of the total sweet consumption, followed by West Bengal.

Contemporary trends reveal that consumption of ethnic savories is likely to increase gradually as the organised sector seeks to penetrate this market.

Currently, the unorganised sector dominates in the North Indian markets. Companies in the organised sector are strategising to focus on promoting regional and traditional tastes. In recent years, the Indian snack sector, especially the North Indian companies, has grown faster than their Western counterparts. It is followed by East India, with the market being dominated by West Bengal.

Growth opportunity for Indian snacks & confectionary

Ethnic snacks, Savoury snacks, Ready to Eat snacks, convenient foods, instant snacks, healthy snacks and processed food items are the opportunity areas for the growth of the Indian snacks market. A variety of _avors, sizes and price points and exotic ingredients are likely to appeal to the preferences of the diverse, aspirational Indian community with diverse purchasing power.

The Indian snacking and confectionary industry is experiencing an impressive growth cycle as many domestic and multinational companies seek to make inroads into this market. Growing FDI and collaborations in the industry will speed up this process. The numbers indicate that this business space has considerable growth potential and will contribute significantly to the development of the Indian economy. With these ongoing developments, the unorganised snack sector in India is likely to consolidate in the long term.

Opportunities and Threats

Opportunities	Threats
• The huge addressable market as the Company expands its footprint and entrenches itself deeper in existing markets.	• Competition from the informal segment.
• Brand acceptability, widening product categories and increasing range within each category to drive growth.	• An increase in logistic costs could dampen business profitability.
• Reducing the presence of large national brands in rural markets	• Persisting inflation could adversely impact the Companys cost calculation.
• An increase in logistic costs could dampen business profitability.
• Persisting inflation could adversely impact the Companys cost calculation.

The Company Overview

Annapurna Swadisht is a prominent player in the Indian snack and sweet market. Headquartered in Kolkata, India, the Company has four manufacturing units. It maintains a robust distribution network with more than a hundred super stockists and more than five hundred distributors in Uttar Pradesh, Bihar, Jharkhand, West Bengal, Assam and Odisha, who cater to the customers with ten product categories, namely pellet-based snacks, corn-extruded snacks, potato chips, cake, namkeen, candies, sweet & savories, biscuits, Ready-to-drink beverages and noodles.

In FY 23, the Company enhanced its presence by going beyond the Rs. 5 price point. It forayed into the Rs. 10 market with cakes, rusk and gluco water. Additionally, it entered into the biscuit segment with Rs. 30 as the highest product price point.

Proud to be Indian

Annapurna has positioned itself as one of Eastern Indias leading local food brands. The management harbors ambitions of expanding its footprint across the country. The Company operates primarily from an urban center in the eastern part of India and understands the specific tastes of the rural market and diverse cultures and regions of the nation very well.

Annapurna set up its first manufacturing unit in Asansol, West Bengal, the second and third manufacturing units in Siliguri, West Bengal and the fourth one in Gurap. Gradually it is expanding its marketing footprint to other states in the eastern part of the country, like Bihar, Assam, Uttar Pradesh, Jharkhand and Odisha and is now looking forward to advancing further into the large north and north-east Indian markets.

Business Strategy

1) Product development

The Company will add new product categories to its product offering, including popcorn and jhalmuri. In addition, it will further rejuvenate its existing product categories with newer SKUs in favors and sizes to widen its opportunity horizon.

2) Market Expansion

The Company has entered into Uttar Pradesh and plans to extend its footprint to other contiguous northern states.

3) Channel expansion

The Company will work dedicatedly on growing its distribution network – deepening its presence in existing states and widening its footprint in new states.

4) Brand awareness

The Company will further strengthen its brand awareness in markets of its presence, especially proximate to the points of sale. The Companys marketing team has expanded to 118 people. Further, it will leverage its digital media assets to engage with existing and prospective customers.

The Company was originally incorporated as a Partnership Firm as "M/s Annapurna Agro Industries" vide partnership deed dated November 27, 2015. The Partnership Firm was subsequently converted into Private Limited Company "Annapurna Swadisht Private Limited" on February 11, 2022. Further the Company was converted into a Public Limited Company and consequently, the name of the Company was changed to "Annapurna Swadisht Limited" with effect from July 8, 2022. The figures for FY 2021-22 are for the period February 11, 2022 till March 31, 2022. Hence the figures of the two financial years are not comparable.

Revenue from operations scaled from Rs. 11.83 crore in FY22 to Rs. 160.17 crore in FY23. Likewise, EBITDA increased from Rs. 0.95 crore in FY22 to Rs. 13.54 crore in FY23. Net Profit stood at Rs. 7.14 crore in FY23 against Rs. 0.55 crore in FY22.

Networth increased from Rs. 7.55 crore as on March 31, 2022, to Rs. 59.67 crore as on March 31, 2023. The increase was owing to two reasons 1) the successful IPO, which increased the equity share capital from Rs. 0.10 crore to Rs. 16.42 crore and share premium reserve was at Rs. 35.64 crore. 2) Addition of business surplus to the general reserve.

Total Debt increased from Rs. 7.84 crore as on March 31, 2022, to Rs. 24.11 crore as on March 31, 2023. The debt portfolio increase was due to capital expenditure (to increase capacities) and working capital requirements to fund the significantly increased business operations..

Fixed Assets (property, plant and equipment) increased appreciably from Rs. 9.28 crore as on March 31, 2022, to Rs. 23.57 crore as on March 31, 2023, with the commissioning of new facilities. The Capital Work-in-Progress of Rs. 10.87 crore represents the ongoing capacity enhancement project which should commence operations in the current year.

Significant changes (i.e., change of 25% or more as compared to the immediately previous financial years) in Key Financial Ratios, along with explanation are as under:

Key Financial Ratios	2022-23	2021-22	Reason
Operating Profit Margin (%)	8.43	8.09
Return on Capital Employed (%)	17.75	6.92
Net Profit Margin (%)	4.46	4.68
Debt Service Coverage Ratio	7.78	11.23
Creditors Turnover Ratio	10.06	18.88	Mentioned in the note above
Current Ratio	1.64	1.04
Debt-Equity Ratio	0.37	0.86
Debtors Turnover Ratio	12.28	2.73
Return on Equity (%)	20.95	13.10
Inventory Turnover Ratio	5.77	1.98

Creating a future-ready workforce remains our top priority. Fostering a best-in-class working environment; providing ample learning opportunities; infusing young blood; motivating and nurturing mature talent continue to be the levers that create a bright future for us.

Our team is diverse, experienced, agile and dynamic, an invaluable resource that executes our strategies despite the challenges in an otherwise dynamic business environment. Our people policies help facilitate a harmonious working culture that allows each member to work to their full potential resulting in employee satisfaction and a high retention rate.

We have implemented robust talent management practices, development interventions, productivity improvement initiatives and reward mechanisms that enable us to achieve our operational and financial goals and retain our intellectual capital. We provide continuous learning and development opportunities to our employees to upskill them and prepare them to address future challenges in our industry.

We accord maximum priority to the well-being of our people. To this end, we have calibrated our interventions in Health & Safety to create a safe living and working environment for everyone.

During the year, we onboarded fresh energy into the organisation to manage the fast-growing and expanding business operations. Our team had 845 employees (including contractual) as on March 31, 2023.

Internal Control System & its Adequacy

The Company has in place an adequate internal audit framework to monitor the efficacy of internal controls to provide independent and reasonable assurance to the Audit Committee and the Board of Directors on the adequacy and effectiveness of the organisations risk management, internal control business processes, operations, financial reporting, and compliance. The framework is commensurate with the nature of its business, size, scale, and complexity.

Internal audits and management reviews are undertaken regularly, covering various areas across the value chain, like procurement, manufacturing, information technology, supply chain, sales, marketing, and finance. The management regularly reviews reports of the internal auditors, and corrective and remedial actions are taken to strengthen the controls and enhance the effectiveness of the existing systems. Summaries of the reports and actions taken are presented to the Audit Committee of the Board.

Risk Management

All businesses involve some degree of risk-taking to leverage emerging opportunities. At Annapurna, we take calculated risks in identifying the products and processes that are appropriate as per current industry standards.

Our business is subject to risks and uncertainties that could have short-term and long-term implications for the Company. Moreover, business risks constantly evolve in a rapidly changing business environment with dynamic customer requirements. As a result, there is significant variation in the risks landscape with time.

We identify business operations risks and address those issues by undertaking a root cause analysis. We focus on the early identification of probable risks depending upon the dynamic and evolving external ecosystem. We work on mitigation strategies to prevent business disruptions.

Our robust and resilient risk management framework forms the bedrock of our risk management efforts. Our Risk Management Committee of the Board also guides us, involving Independent Directors and Senior Management. The Risk Management Committee monitors risk management efforts and provides insights for effective risk management across our operations.

Cautionary Statement

Certain statements in this document may be forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties, like regulatory changes, local political or economic developments and many other factors that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statements. The Company will not be responsible for actions based on such statements. It undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.