Aries Agro Ltd Management Discussions.

Forward Looking Statements

This report contains forward looking statements, which may be identified by their use of words like ‘plans, ‘expects, ‘will, ‘anticipates, ‘believes, ‘intends, ‘projects, ‘estimates, or other words of similar meaning. All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market position, expenditures and financial results, are forward looking statements. These forward looking statements, which may include statements relating to future results of operations, financial condition, business prospects, plans and objectives, are based on the current beliefs, assumptions, expectations, estimates, and projections of the Directors and Management of the Company, about the business, industry and markets in which the Company operates. These statements are not guarantees of future performance, and are subject to known and unknown risks, uncertainties, and other factors, many of which are beyond Companys control and difficult to predict, that could alter actual results, performance or achievements to differ materially from those in the forward looking statements. Such statements are not, and should not be construed, as a representation as to future performance or achievements of the Company. In particular, such statements should not be regarded as a projection of future performance of the Company. It should be noted that the actual performance or achievements of the Company may vary significantly from such statements.

OVERVIEW

Overview of Industry:

The Company is part of the growing specialty plant nutrition industry which is a niche sector within the crop nutrition segment of agricultural inputs. During the year under review the monsoon was at 91% of the LPA (Long Period Average) with drought condition in North East India. Only 2/3rd of the country received normal rainfall and 1/3rd of the country received deficient monsoon. Even the monthwise distribution was erratic. After a good start in June 2018 at 95% of the LPA, the rainfall reduced to 76% of LPA in September 2018. This was followed by severe cold wave condition in the Rabi season and poor reservoir levels. Despite this the Company took the efforts to maintain its gross revenues. However, in order to boost lifting in the second half of the year especially in Q4, additional trade discounts was offered. On standalone basis the Companys gross revenue increased marginally by 0.13% from Rs.319.89 Crores to Rs.320.31 Crores. On a consolidated basis, international sales were suspended due to non-manufacturing in UAE facilities.

Manufacturing Base

The total capacity utilization currently stands at 63% of the total installed capacity of 95,400 MT p.a. in India. During the year under review import substitutes continued due to full scale manufacturing of previously imported items at Hyderabad and Chhatral facilities. The manufacturing unit at Fujairah, UAE continued with suspended operations due to continued lack of power and movement restrictions in key raw material inputs. A final decision on similar shifting of this

Unit to an alternate location in India shall be done in 2019-20. In the meanwhile, fixed costs have been reduced to the bare minimum in UAE. Increased focus on the strengthening of Indian manufacturing base has been extremely beneficial to improve the profitability of the Company.

HIGHLIGHTS & KEY DEVELOPMENTS

HighLights

Financial Year 2018-19 was characterized by erratic demand scenario with significant monthly changes in growth patterns. However, the quarterly growth in revenue is as under:

Particulars Percentage Share in Annual Revenue
Q 1 22.20
Q 2 29.80
H 1 52.00
Q 3 26.12
Q 4 21.88
H 2 48.00
Annual 100

Cost control measures strengthened along with continued focus on domestic manufacturing showed increase in profitability (PAT) by 5.29 percentage.

Orders received during these booking bazaars have assisted in better working capital management.

On a consolidated basis despite the restructuring of international operations consolidated P&L showed a slight reduction in PAT in comparison with the previous Financial Year.

Aqua based products were introduced during the financial year namely Aqua Boost, Aquacan, Aquagold, Aquamag, Aquamin Plus, Aquashell, Aqua Zincmag, Aquablend Forte and Aquazin Plus.

Key DEVELOPMENTS

The following were key events during the year;

1) All India planning meeting was conducted in April 2018 at Kolkata with top management, region and state heads and strategic partners to finalize plans for 2018-19.

2) IMMA National Summit in coordination with Aries was organized at Delhi in April 2018

3) Distributors / Dealers Meeting were conducted at Trichy, Puri, Goa, Udaipur, Digha, Lonavala, Kakdwip, Mysore, Guwahati and Shillong in 2018-19. Chairmans club Dealers meeting were conducted in Thailand, Sri Lanka, Indonesia and Nepal.

4) Analyst Meet was conducted in June 2018 and March 2019 to update the stakeholders regarding the Companys performance and future prospects.

5) The Company conducted several training programmes viz.

• Advanced Greenhouse management Training at Krishi Vigyan Kendra, Baramati, Maharashtra

• Farmer Meeting on Chilly Crop at Manikwada in Wardha

• Citrus Fruit Crops & Progressive Farmers Training Programme in Amravati, at Mohanrao Totey Audtorium & Human Resource Development Complex, Amravati

6) Ground breaking ceremony at the newly purchased Raipur Land in August 2018

7) In the step towards precision farming, successful Drone trials were conducted in Gurgaon, Delhi in August 2018

8) Monthly Sales Review Meetings were held in Mumbai, Hyderabad, Coimbatore, Vijayawada, Kolkata, Ludhiana, Delhi and Srinagar. Half Yearly planning Meeting was also conducted in October 2018 at Raipur.

9) Delegation of Farmers from South Africa visited Aries Head Office - January 2019 to explore possible collaborative opportunities.

10) Cii Agricouncil CII IndiaGap February 2019

11) ‘Women Safety program was conducted at Head office in February 2019 whereby the women employees were taught safe and simple techniques that they need in their everyday life to ensure their safety at all times.

12) Open interactive session on "New Age Technologies as well as Eco System of Entrepreneurship" with MBA students from Georgetown Universitys McDonough School of Business, USA - March 2019

13) Apart from the above we had festive and other celebrations throughout the year like Ganesh Chaturthi, Dassera Pooja, Laxmi Pooja, Christmas Celebration, Foundation Day, Family day, Picnic, Potluck Lunch, etc. This enhances cultural values, brings in spirit of togetherness, increases team spirit and boost employee morale.

14) To keep our employees updated with the latest information in their respective field they participated in a series of Programmes/Workshops/Seminars/Conclave:

i) Indian Israel R&D and Technological Conclave - July 2018 - Delhi - organized by Confederation of Indian Industry (CII)

ii) Certificate course on Patent Drafting - Mumbai - October 2018 - organized by Bombay Chamber of Commerce & Industry

iii) Workshop of First Time Managers - November 2018 - Mumbai - organized by Bombay Chamber of Commerce & Industry

iv) Conference on Digital Agriculture Southern Region in Chennai - December 2018 - organized by CII

v) Shipping Conference JNPT Delegate Visit - December 2018 - organized by Bombay Chamber of Commerce & Industry

vi) Business Luxury & Travel Mart (BLTM) - Delhi - January 2019 organized by Fair Fest Media Pvt. Ltd.

vii) Iran Agro 2018 - Tehran - June-July -2018

viii) 20th China International Agrochemical & Crop Protection Exhibition - Shanghai -March 2019

ix) To explore business opportunities in Qatar - January 2019

Recognition:

• Recognition by Insight Success Magazine in March 2019 in their Annual Listing of the "10 Most Recommended Agritech Companies in India" that embraces new Technology to deliver various end-to-end farm solutions on a reliable foundation of rich insights on farming.

• Felicitated by Economic Times as one of the "Champions of Rural Markets 2018-19" for having stood firm in the winds of globalization and having consistently served the rural market.

• For Fourteen consecutive years Aries Quality Management System was audited and certified as NS-EN ISO 9001:2015 with zero non-compliance report showing complete adherence to international quality standards.

Global Sourcing

Aries has sourced 51 % of its total raw materials from overseas suppliers located in China, Belgium, Malaysia, UK, UAE, Taiwan and Germany. Imports constitute 22% of our total purchases and our Company has identified a pool of reliable overseas suppliers.

Cost Management

Though trade scheme as a percentage of sales increased by 0.13% overall profitability stood at 5.12% of Net sales, PAT increased by 5.29% compared to the previous Financial Year. Gross Sales margins (EBIDTA) improved from 18.41% to 19.81%, an increase of 7.89% over the previous year.

Man Power

The total Man Power of the Company increased from 868 to 924 during the year under review. Stringent norms has been set for performance appraisals and manpower costs were in line with pre-sanctioned budgets and funds are released only based on the progress of the season.

Global Distribution:

International clients are located in Nepal and Taiwan. Distributors in Nepal have put up their own manufacturing unit to support and increase sales and distribution network of Aries Products throughout Nepal.

Outlook:

2019 monsoons are expected to be near normal at 96% of LPA. The Company is hopeful of achieving good growth in revenues and profitability. The future of Aries, which is embarking on its golden jubilee year in 2019-20, is being charted by strengthening its focus areas. The Company continued to conduct its digital flash sale this year with "App only" bookings leading to participation of 1431Nos. of dealers/distributors from all states with a total booking of Rs.510/-crores for 2019-20 and we envisage conversion of 75 - 80% of this order book and expect to achieve total gross revenue of Rs.408/-Crores. The current year will also see the introduction of specially designed formulations including major secondary and micronutrients namely Hortistar, Majorsol and crop specific formulations like Grapemin, Soymin and Canemin. Introduction of many innovations viz. effervescent tablets, nano-technology based nutrients, protected cultivation nutrition management, pure neem based products and drone spray guidelines for precision farming. We will be insisting on rapid digitization in many areas - sales force monitoring and reporting (using Aries inhouse app), online payment collection systems, Khazaana loyalty programme, Point-of-sale payment collection machines, inventory management and technical information sharing. We will be phasing out plastics and foil based packaging and adopting new-age environmentally sustainable packs, using dissolvable sachets, paper bags and flexible packaging for liquids. Starting a pilot with the new products being introduced and then moving our flagships and bestsellers into these new generation packs will move us towards the goal of being ‘zero nonrecyclable plastics by December, 2020.

Raipur and Vijayawada will emerge as new manufacturing hubs for Aries. Raipur will also have our first in-house R&D farm and both these locations will have state-of-the-art training centres. Setting up these units will expand our operational capabilities

Segmentwise / Productwise Performance

As the Companys business activity falls within a single primary business segment, the disclosure requirements of Accounting Standard (Ind AS-108) " Operating Segments ", are not applicable.

RISK MANAGEMENT & INTERNAL CONTROLS

Risk Management

The Company has a Risk Management Policy.

The Company manages, monitors and reports on the principal risks and uncertainties that can impact its ability to achieve its strategic objectives. The Companys management systems, organizational structures, processes, standards, code of conduct and behaviours together form the Aries Risk Management Systems (ARMS) that governs how the Company conducts its business and manages associated risks.

The Company has in place adequate Internal Financial Controls with reference to Financial Statements. During the year, such controls were tested and no reportable material weakness in the design or operations were observed.

Internal Control System

The Company has an extensive system of internal controls to ensure optimal utilization of resources and accurate reporting of financial transactions and strict compliance with applicable laws and regulations. The Company has put in place sufficient systems to ensure that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are authorized, recorded and reported correctly.

Threats and Opportunities

The external factors which could serve as possible threat to the business would include erratic spread of the rainfall and water availability in the reservoirs, fluctuations in oil and gas prices, foreign exchange rate fluctuations, shortages of key raw materials, pricing pressure, indirect and direct substitutes, etc.

Opportunities would include growth in product range as well as expansion into unserved markets in India and abroad. Increasing awareness levels amongst existing customers on balanced nutrition will increase number of products the farmers purchase from the Aries range.

Financial Performance:

The Companys Sales Turnover for the financial year ended March 31, 2019 increased to Rs. 32,030.91 Lakhs from Rs. 31,988.68 Lakhs in the previous year, reflecting an increase of 0.13%.

Total expenses for the year was Rs. 25,009.09 Lakhs as against Rs. 24,683.32 Lakhs in the previous year.

Profit Before Tax increased to Rs. 2,273.98 Lakhs during the year as against Rs. 2,177.29 Lakhs in the previous year.

Tax provision for the year was Rs. 784.18 Lakhs as against Rs. 762.40 Lakhs in the previous year which translates to 2.45 % on FY 18-19 Sales.

Profit After Tax for the year was Rs. 1,489.80 Lakhs as against Rs. 1,414.89 Lakhs in the previous year which is 5.62 % of FY 18-19 Net Sales.

Debtors Turnover(on Net Sales) for the year was 137 days as against 131 days in the previous year.

Inventory Turnover(on Net Sales) for the year was 179 days as against 175 days in the previous year.

Operating Profit Margin(on Net Sales) for the year was 19.81 % as against 18.41% in the previous year.

Net Profit Margin(on Net Sales) for the year was 5.62 % as against 5.35% in the previous year.

Resources and Liquidity:

As on March 31,2019, the Net Worth of the Company stood at Rs. 15,679.80 Lakhs as against Rs. 14,619.29 Lakhs.

As on March 31, 2019, the Company had a Debt / Equity ratio of 1.03. The Company has not raised any Deposits from the public.

As on March 31,2019, Interest Coverage Ratio was 1.92 as against 1.97 in the previous year.

As on March 31, 2019, Current Ratio was 1.41 as against 1.46 in the previous year.

DISCLOSURE OF ACCOUNTING TREATMENT

The Financial Statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of the Companies Act, 2013 ("the Act") and other relevant provisions of the Act.

Human Resources:

As at the end of the financial year there were 924 employees under the permanent rolls and 190 plus under contract. We have an ongoing arrangement with few labour supplier organizations for our various locations.

We have 126 workers in our permanent employment and sizeable numbers on contract, working in our factories. The detailed breakup of the same is as under:

Sr. No. Particular Employees
1. Skilled 24
2. Semi-Skilled 8
3. Unskilled 94
Sub- Total 126
4. Contract Labour 190
TOTAL 316

The Department wise breakup of our manpower is as under:

Sr. No Name of the Department No. of Staff
1. Directors 01
2. Accounts, Personnel & Administration, Legal & Secretarial 177
3. Production(Staff and Workers), R&D and Spray Dryer Operators 163
4. Sales 583
TOTAL 924

Health/ safety/Environment Sensitivity

Health through nutrition:

• The Company promotes "Balanced Nutrition as a National Imperative", building resistance of crops to pests and diseases and hence lowering the usage of harmful and expensive pesticides

Environment Sensitivity:

• The Solar Power Generation System at its manufacturing unit in Hyderabad has generated 82176 units of power during the Financial Year 2018-19, of which 55685 units were consumed by the facility and the balance 26491 units were sold to the grid.

• All Aries products are based on the philosophy of "Use less chemicals and use safe chemicals" - low doses of chemically inert and cost effective nutrient complexes

• The entire range of Aries Chelates are environmentally safe

Non Polluting:

• All Aries factories have zero effluents and produce no harmful emissions