Assam Company India Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT TEA

The production of World crop has gone up from 5,698 Million Kgs in 2017 to 5,883 Million Kgs in 2018. The Indian crop too showed an increase from 1325.05 Million Kgs. in 2017-18 to 1350.04 Million Kgs. in 2018-19. The World crop was a mixed bag with Kenya crop showing a decline from 539.7 Million Kgs. to 499.5 Million Kgs and Sri Lanka from 381.9 Million Kgs. to 302.7 Million Kgs. in years 2017-18 to 2018-19 respectively. The Malawi crop was up from 47 Million Kgs in 2017-18 to 51 Million Kgs. in 2018-19.

The Indian exports declined from 256.57 Million Kgs. in 2017-18 to 254.50 Million Kgs. in 2018-19. The domestic demand was constant and the markets were supported by the internal blenders through the year. Whilst the domestic demand is on a growth mode the main growth was seen in the economy brands rather than in the premium brands and the mass market brands too have showed an incremental in the consumption pattern. One can estimate that the growth would be 4% in the loose (packeted) segment whilst the growth in the tea bag segment was about 2% coming mainly from the metro / urban areas.

The industry is experiencing rising input cost, hike in workers wages and other related expenses which has become a major challenge. To give effect to these increases, the tea industries have to give more emphasis on the quality and product mix which can fetch better price realization and adopt innovative ways to reduce the cost of production.

The Company, during its Financial Year ended on 31^st March, 2019, produced 10.19 Million Kgs. of tea as against 8.92 Million Kgs. during its previous year ended on 31^st March, 2018. The Company during its Financial Year ended on 31^st March, 2019, sold 9.80 Million Kgs. of tea at an average price of Rs. 183.26/Kg. as against 8.71 Million Kgs. sold during its previous year ended on 31^st March, 2018, at an average price of 182.51/Kg.

The Company had no export turnover in the year 2018-2019.

In view of certain key decisions taken by the Company in the ‘field practice of all its Estates, we are confident that the Year 2019-20 would yield better results for the Company in terms of revenues. The quality upgradation initiative of the Company will further enhance the Companys image in the Industry as ‘Quality Tea makers.

INDIAN OIL AND GAS SECTOR

In 2017, India remained the third-largest energy consumer in the world with oil and gas accounting for 37 per cent of its total energy consumption. Annual consumption stood at 4.69 million barrels per day (MBPD) of oil and 54.20 Billion Cubic Meters (BCM) of gas. By 2035, Indias energy demand is expected to double to 1,516 Mtoe from 753.7 Mtoe in 2017. According to the International Energy Agency (IEA), India is expected to account for almost one-third of the global growth in energy demand by 2040.

India has proven oil reserves of 600 Million Metric Tonnes (MMT), and gas reserves of 1.2 trillion cubic meters. Production of crude oil and natural gas during 2018-19 reached 0.68 MBPD and 32.06 BCM, respectively.

India has a flourishing crude oil refining industry with an annual capacity of 249.40 MMT, as of April 1,2019. In FY18, Indias public and private sector refineries processed 160.77 MMT and 91.16 MMT of crude oil. Indias oil consumption is expected to grow 129 per cent during 2016-2040.

Several initiatives have been taken by the Government of India including the launch of Open Acreage Licensing Policy (OALP) and Coal Bed Methane (CBM) policy. It has allowed 100 per cent foreign direct investment (FDI) in E&P projects/companies and 49 per cent in refining under the automatic route.

The present Status on Oil and Gas Project with ACIL

The Company has two Oil and Gas Fields/Blocks in Assam Arakan Basin - Amguri (Discovered Field) and AA- ON/7 (Exploration Block) having Participating Interest (PI) of 100% and 35% respectively.

Amguri Oil Field and AA-ON/7 Exploration Block were operated earlier under a consortium with Canoro Resources Limited (CRL), a Canadian based E&P Company where PI of ACIL were 40% and 35% respectively. PI of CRL was 60% in Amguri Oil Field and 65% in AA-ON/7 Exploration Block.

Government of India (GOI) terminated 60% PI and operatorship of Canoro Resources Limited (CRL) with effect from 29th August, 2010 for breach of Production Sharing Contract (PSC). CRL closed the operation of Amguri in December, 2010 and GOI considering its vesting right on 60% PI handed over the Amguri Field to ONGC on 16th March, 2011, to continue the operations till the ownership of 60% PI and operatorship were finalized. The Company had staked its claim on 60% PI in accordance with the provisions of PSC being the sole non-defaulting contractor. After a prolonged delay, GOI had finally appointed the Company as the operator of Amguri Field vide its letter dated 2nd January, 2013.

The Companys rightful claim on 60% PI earlier held by CRL was contested by the Company before an Arbitral Tribunal Board, where GOI was a party. The Arbitral Tribunal Board has on 25.02.2017 pronounced the Award on the Arbitral proceedings of ACIL with GOI in respect of Amguri Field. ACIL is declared the owner of 60% of the PI currently held by GOI and thereby has now become the owner of 100% of PI of the Amguri Field. The contract period of the PSC of the Amguri Field shall stand extended by five years beyond its original term. A sum of US$ 3.54 Million was granted to ACIL as compensation along with interest at 6% per annum from March, 2011, till the date of payment. The cost of Arbitral proceedings amounting to INR 1.25 Crore shall also accrue to ACIL.

Pursuant to the Arbitral Tribunals Award dated 25^th February, 2017, ACIL has proposed GOI for an amicable settlement and submitted an unconditional undertaking to withdraw all its existing claim. GOI vide its letter dated 25th May, 2017, has approved ACILs ownership of 100% PI in the Amguri Field. Pursuant to such approval an amendment to PSC was executed on 7^th June, 2017 where ACIL and the Ministry of Petroleun & Natural Gas, GOI are the parties.

The new promoter, after taking over the control of the Company pursuant to the NCLT order dated 20th September, 2018 has initiated action to resume operation at the Amguri Field. Company has submitted the Work Programme & Budget (WP&B) of the Amguri Field for the FY 2019-20 with Director General of Hydrocarbon (DGH) for their necessary approval.

As per the Award of the Arbitral Tribunal against CRL dated 21st November, 2011, the Company has got a damage claim of US$ 39.12 Million (Rs. 270.60 Crores) against CRL. The Tribunal had assigned a value of US$ 4.16 Million (Rs.28.77 Crores) for 60% PI in Amguri and US$2.2071 Million (Rs. 15.27 Crores) for 52.9% shares of CRL, thereby awarding a net damage claim of US$ 32.75 Million (Rs. 226.53 Crores) against CRL.

For enforcement of the Arbitral Tribunal Award before Canadian Court, the Company had initiated legal steps by filing execution petition on 9th November, 2012, before the Supreme Court of British Columbia. The Honble Court has recognised the Arbitral Award vide its order dated 07.03.2014 as legally enforceable in British Columbia. The Company has taken legal steps for execution and realisation of the damaged claim as recognised by the Honble Court..

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

In the Financial Year ending on 31^st March, 2019, the Company had operations in one geographical segments, viz. domestic market. The entire 100 per cent of the Companys Turnover from Tea Operation is from the domestic market segment.

The Company has 14 Tea Estates and 2 Oil Blocks all in the State of Assam.

In respect of the Tea business, total Sales is aggregated to 9.80 Million Kgs amounting to Rs.179.63 Crores, which was entirely Domestic Sales.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Internal Control Systems of the Company is adequate and commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies. Two Independent Firms of Chartered Accountants carry out Internal Audit at the Head Office as well as at the Tea Estates on a regular basis.

The Company has an Audit Committee, the details of which have been provided in the Corporate Governance Report. The Audit Committee reviews the Audit Reports submitted by the Internal Auditors. Suggestions for improvement are considered and the Audit Committee follows up the implementation of the corrective actions.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES/INDUSTRIAL FRONT

The relationship with the employees and their dependent members at all levels in the Tea Estates, Oil & Gas field and other locales continue to remain cordial.

The Company continues to focus on recruitment and selection of talent from within Assam across all its Tea Estates. The Company strives to engage, retain and develop top talent from within Tea industry as a HR strategy. Behavioral training is conducted for all Management staff at Head Office at periodic intervals.

Employee engagement activities like quarterly open house meetings etc. is being undertaken to understand employee pulse and further assessment of prevailing engagement levels to achieve a more effective workforce.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Our Company is very much conscious of its social responsibilities and the environment in which it operates. We have continued all our welfare activities for the development of our workers. We give stress on health, cleanliness, sports, education, handicrafts, standard diet etc.

The Company views itself as a role model that manages its business for the benefit of all its stake holders through our various development and environmental projects, it has developed strong bonds and makes a difference in the life of its local communities.

HEALTH CARE

We have a very good standard of health care system. We have centrally placed Radio-diagnostic Units for the workers to undertake all necessary investigations. Our Tea Estates are tied up with National Rural Health Mission (NRHM) for the better Health Care system for all the people residing in the Estate.

The Companys estate hospitals have Senior Medical Officers and his team of committed Paramedical staff consisting of Pharmacist, GNM, ANM, Health Assistants, Medical attendant, Dresser etc. to ensure that the workforce is provided with timely medical attention, as and when needed.

Antenatal Checkup of pregnant women and Immunization of children are done every week in the Estate Hospitals. Free medical checkup camp, Eye checkup camp etc. are organized in the Estate Hospital every year for the benefit of the Estate Hospital and neighboring population. The Senior Medical Officer, Welfare Officer and Health Assistant of each estate visit the labor lines at regular intervals to create health awareness among the resident on various preventive aspect of the disease.

“Annaprasan” a nutritious food program for six months old babies is held regularly. “Matri Amrit” a program for pregnant women is also organized in the Estate Hospital where they are provided with nutritional food on that day and knowledge about the nutrients are informed. Medical Checkup with relevant investigation is done for the spraying squad and Factory workers on quarterly basis.

WELFARE AND RECREATIONAL FACILITIES

The Estates have some additional welfare programs like-

1. Mothers Club Its a group of only women, 1 per 500 population in number, was introduced in the year 1999 to promote “Women Empowerment” in Tea Gardens. Since major portion of responsibilities towards organizing the house is shared by the woman in the house, women empowerment would lead to community growth in the long run - was the idea of this Club. It gives stress on schooling, hygiene, better health care, savings, reduce alcohol, ill effect of early marriage etc. Each garden has a Mothers Club consisting of 15-20 volunteers depending on the size and population of the garden.

2. Handicraft Centre: - To impose the hidden skills and generate self-employment, Handicraft Centre was introduced few years back in the Estate. All possible type of training is given in these Centers mainly to women workers that make them employable and economically independent.

3. Schools:- Each tea garden has sufficient schools to provide primary education to all the children of the estate. School buses are provided to the children for further education at the nearby town.

4. Health Awareness Camps:- Its a regular activities in the lines, clubs, hospital and school. School children health checkup is also done on regular basis. World TB day, World Diabetic day are observed in the Estate every year.

5. Anthelminthic treatment and iron folic acid tablets are provided to the workers on the half yearly basis.

The Estates have adequate welfare and recreational facilities like Creche, Labour club, staff club etc. These clubs provide with television and various game items. The Estates have their own sporting sites for football, cricket, volleyball etc. The Tea garden also organizes inter-garden football matches. Canteens are available in the factory premises where tea and snacks are available for the employees.

Drinking water facilities are available at the lines and worksites. Employees are given Protective clothing like slippers, apron, umbrellas, shoes, blankets etc.

ENVIRONMENT

The Estate strives to reduce the environments impact from the use of pesticides and herbicides by only using environmentally friendly chemicals. The Estate have taken measures to reduce environments pollution by creating a vegetated protection zone-buffer zone to prevent chemical run off to terrestrial and aquatic ecosystem.

The pest management system complies with numerous minimal Residual levels and is a source of pride for our code of practice.

CONSERVATION

Each of our 14 tea gardens has within their Nursery, a program designed to grow indigenous flora for planting through the Estate. The Estate have a very good canopy of shade cover of different shade tree species which are host to many birds, monkeys, squirrels and others.

RAINFOREST ALLIANCE/ TRUSTEA CERTIFICATION

The Company has taken up a very challenging project this year, of covering all the Company estates under the Internationally recognized ‘Rainforest Alliance Certification along with ‘Trustea” Certification

Linder this ‘certification our Estates are using methods that protect the health of workers, their livelihoods, their land and the surrounding waterways. Through our training and awareness programs, we are promoting farming techniques designed to protect the land for future generations.

ISO : 22000 CERTIFICATIONS

All the Tea Estates of the Company (Digulturrung, Rungagora, Dinjan, Thanai, Nudwa, Hazelbank, Greenwood, Maijan, Borborooah, Doomur Dullung, Khoomtaie, Mohokutie, Kotalgoorie and Kondoli) have been covered under this certification scheme, to successfully maintain the Food Safety Certification - “ISO : 22000 Certification”.

RESIDENTIAL ACCOMODATION, PIPED WATER AND SANITATION

Our Estate provides free accommodation and sanitation to the employees and meets all legal obligations. SUSTAINABLE AGRICULTURE PRACTISE

Our tea gardens mostly located in remote rural areas that do not have many alternative local employment opportunities. It has also contributed to a system which is seems to be fair and in line with good employment practices. Our estates also practice soil and water conservation through best practice field management system including composting, soil rehabilitation and reforestation.

VERMICOMPOSTING SCHEME

Assam Company India Limited follows an environmentally scheme of composting organic matter by use of earthworms. Increasing number of business worldwide is successfully employing vermiculture technology as an excellent soil conditioner and our Company has taken this sustainable practice to benefit our tea gardens, our environment and to reduce our chemical footprint.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS ALONG WITH EXPLANATION

In compliance with the requirement of the Listing Regulations, the key financial ratios of the Company along with explanation for significant changes (i.e., for change of 25% or more as compared to the immediately previous financial year will be termed as ‘significant changes), has been provided hereunder:

Particulars	2018-19	2017-18	Change (%)
(i) Debtors Turnover Ratio (no. of times)	8.04	17.94	(9.9)
(ii) Inventory Turnover Ratio (no. of times)	13.49	24.67	(11.18)
(iii) Interest Coverage Ratio (no. of times)	(3.46)	(0.72)	(2.74)
(iv) Current Ratio (no. of times)	2.39	0.19	2.20
(v) Debt Equity Ratio (no. of times)	(5.29)	(1.55)	(3.74)
(Vi) Operating Profit Margin (%)	(35.04)	(18.49)	(16.55)
(vii) Net Profit Margin (%)	(45.15)	(41.73)	(3.42)
(viii) Return on Net Worth (%)	39.44	11.92	27.52*

*Dueto giving financial effect of the approved Resolution Plan as per the Order passed by the National Company Law Tribunal, Guwahati Bench, dated 20^th September, 2018.

	By Order of the Board
	Assam Company India Limited
Place: Abu Dhabi, UAE	Binay Raghuram Shetty
Date: 30th May, 2019	Whole Time Director
	DIN:01033122