Bombay Burmah Trading Corporation Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS 2023-24</dhhead>

Segment-wise performance:

Plantation Business:

TEA

WORLD PRODUCTION

CROP - mn kgs	CY 2023	CY 2022
India	1367.70	1366.36
South India (S. India)	235.99	231.82
North India (N. India)	1131.71	1134.54
Kenya	570.26	535.04
Sri Lanka	256.04	251.50
Bangladesh	102.95	93.83

 

INDIAN EXPORTS

YEAR	N.INDIA		S.INDIA		ALL INDIA
	Value	Unit Sale	Value	Unit Sale Price	Value	Unit Sale Price
	Rs.Cr	Price Rs/kg	Rs.Cr	Rs/ kg	Rs.Cr	Rs/kg
CY 2023	4010.83	291.59	2042.06	225.99	6052.89	265.58
CY 2022	4507.28	305.93	1852.27	221.17	6359.55	275.21

 

MRLs in respect of Pyrrolizidine Alkaloids, a group of compounds produced by plants as a defense mechanism against insect herbivores continue to be adopted stringently by the European Union, thereby causing rejections and delays in analysis and shipment for all market players that are exporting teas to European markets Geopolitical situations such as the Ukraine war, the sanctions on Iran ( major importer of Orthodox teas) and the recent embargo in the Red Sea have led to uncertainties leading to reduced demand and delays in shipment of teas.

 

Exports also impacted by increase in freight rates to European base ports from USD 875/TEU in January 2023 to USD 3000/TEU in March , 2024.

 

PRODUCTION: INDIA & SOUTHERN STATES – in mn kgs

	APR ’23 – 24	APR ’22 -23
Tamilnadu	161.79	154.49
Kerala	60.25	65.98
Karnataka	5.12	5.00
Total S India	227.16	225.47
Total N.India	1291.49	1374.97

 

BBTC : Key Performance Indicators

	Apr ’23 – Mar ‘24	Apr ’22 – Mar ‘23
Production Own lk kgs	40.99	33.78
Production Bought lk kgs	1.29	3.60
Total Production lk kgs	42.28	37.38
Sales lk kgs	40.11	39.97
Sale Price Rs/kg	142.92	147.79
Tea Sales Rs. cr	57.32	59.08
Exports Rs. cr	16.83	18.27
Exports %	29%	31%

 

PRODUCTION :

Favorable weather conditions brought about by timely spring showers and non-aggressive monsoons, enabled the Tea Division to increase the crop by almost 5 lk kgs.

SALES REVENUE :

The Average Sale Price is lesser than previous year by almost Rs.5/kg , mainly due to the trend in auction prices in which CTC teas dropped from Rs. 119.81 in April’23 to Rs. 106.90 at end of March 2024 and Orthodox prices, from Rs. 153.78 in April’23 to Rs. 138.08 at end of March 2024.

Major buyers at S. India auction centre of Kochi purchased 15 lk kgs less tea in terms of volumes at lower average sale price by Rs.8/kg.

Combined purchases at all S.India auction centres by major buyers, showed an additional 53 lk kgs compared to last year but at a lower average sale price by Rs.8/kg.

However, the average sale price of BBTC teas continued to be around Rs.25/kg higher than the average S.Indian prices.

The overall drop in sale price was also due to the lesser exports on account of reduced production of organic teas and subdued demand due to the MRLs and geopolitical scenarios mentioned above.

 

GLOBAL FORECAST:

International reports expect tea prices to rise in the coming months owing to concerns about the impact of the El Ni?o weather pattern on production. Despite rising prices in the fourth quarter of 2023, the average full-year prices are still 9.6% lower than in 2022.

Asian consumers will continue to dominate tea consumption, in particular in China and India, which account for a combined 64% of global demand in 2023, up from 56% a decade ago. Tea consumption in India accounts for about 19% of global demand, and is expected to rise by 3.5% in 2024 and 3.8% in 2025.

Consumption will either fall or stagnate in Europe’s two largest tea markets, Russia & Turkey which together account for around 6% of total global consumption. The former, on account of the current geopolitical scenario and resultant struggling economy and the latter due to the saturated market and weak economic performance.

El Nino is also likely to affect tea production in India. In January-October 2023, tea production was slightly lower than a year earlier. Assuming better weather in 2024, production is likely to rise by 1.1% and by another 2.8% in 2025.

 

OPPORTUNITIES:

1) Well diversified portfolio of various categories of tea, both conventional and organic which would cater to different markets to realize optimum sale average and reduce dependence on one/two channels of sale.

2) Scope to improve the harvesting cycle by mechanization and deployment of additional man-days.

3) Automation in factories to reduce costs and improve product safety and quality.

4) Replacement of ageing year old tea plants to improve yield and increase plant density.

5) Large scale expansion into retail tea sales to improve bottom line and increase average sale price.

 

THREATS, RISKS AND CONCERNS :

1) Being an agricultural produce, unpredictable and unseasonal weather leads to an erratic production schedule. Studies also suggest that unusual climatic shifts due to global warming also affect the incidence and population of the various pests and diseases affecting plant productivity and costs. Specifically, the Tea Mosquito Bug could cause almost a 25% crop loss in a matter of 1-2 months

2) Ageing work force and lack of manpower puts pressure on timely field operations affecting productivity, production and quality.

3) The three-year compulsory wage settlement in respect of plantation workers increases wages between 20% to 30% with no co-relation to existing profitability or productivity improvement.

4) Stagnant domestic prices at auctions which also affects private sales barring FY 2020-21, tea prices have recorded the lowest increase in unit price in past six years compared to food grains or other plantation crops.

5) Orthodox production and export subsidies were stopped by the Tea Board, reducing the potential for optimizing returns on this variety of tea and reducing the incentive to export.

6) Shortage of fertilizers due to the Ukraine war and Government policy to reduce subsidies. This has increased the cost of Potash fertilizer by 100%.

 

OUTLOOK:

Mid – long term Strategy:

1) Improving Land Productivity: Integrated nutrient management using conventional and organic inputs to improve soil fertility and plant resistance to pests and diseases

2) Large scale Inclusion of bio fertilizers in our fertilizer programme with a 3 – 5 year objective of reducing urea input costs by around 20%.

3) Greater emphasis on marketing organic teas by direct and frequent interaction with overseas buyers. Visibility of our organic niche product with sustained interaction is required to beat competition.

4) Automation in factories to reduce costs and improve product safety and quality.

5) Large scale expansion into retail tea sales to improve bottom line and increase average sale price.

 

AUTO ELECTRIC COMPONENT BUSINESS (ELECTROMAGS) Industry Structure and Developments Introduction:

India has become the fastest-growing economy in the world in recent years. This fast growth, coupled with rising incomes, boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. The two-wheeler segment dominated the automobile industry because of the Indian middle class, with automobile sales standing at 17.9 million units in FY23-24. Significant demand for automobiles also led to the emergence of more original equipment and auto components manufacturers. As a result, India developed expertise in automobiles and auto components, which helped boost international demand for Indian automobiles and auto components. Hence, the Indian automobile industry has a considerable impact on the auto component industry. India’s auto component industry is an important sector driving macroeconomic growth and employment. The industry comprises players of all sizes, from large corporations to micro entities, spread across clusters throughout the country. The auto components industry accounted for 2.3% of India’s GDP and provided direct employment to 1.5 million people. By 2026, the automobile component sector will contribute 5-7% of India’s GDP.

 

MARKET SIZE:

India’s auto components industry’s market share has significantly expanded, led by increasing demand for automobiles by the growing middle class and exports globally. Due to the remarkable growth in demand for Indian auto components, several Indian and international players have entered the industry. India’s auto component industry is broadly classified into organized and unorganized sectors. While the unorganized sector consists of low-valued items and mostly serves the aftermarket category, the organized sector serves OEMs and includes high-value precision instruments.

The Indian auto-component industry achieved an unprecedented turnover of Rs. 5.6 lakhs crore (US$ 69.7 billion) in FY24. The industry’s size amounted to Rs. 4.20 lakhs crore in the preceding fiscal year. As per the Automobile Component Manufacturers Association (ACMA) forecast, auto component exports from India is expected to reach 24000 crores (US$ 30 billion) by 2026. However, imports of auto components grew at a slightly higher rate, rising by 10.9% to INR trillion (US$ 20.3 billion). The aftermarket segment, valued at Rs. 85,333 crore, witnessed steady growth of 15%.

 

INVESTMENTS:

The Indian automobile sector recorded an inflow of huge investments from domestic and foreign manufacturers. FDI inflow in the sector stood at US$ 1.2 billion in FY24.

 

WAY FORWARD:

The rapidly globalizing world is creating newer opportunities for the transportation industry, especially while shifting towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto component manufacturers. To help them adjust to the shifting dynamics of the sector, the Indian government has already offered various production incentives. India is also investing heavily in electric car infrastructure.

The number of public charging stations stood at 12,146 in March 2024. India may need a minimum of 1.32 million charging stations by 2030 to facilitate the rapid adoption of electric vehicles (EVs), according to a recent report released by the Confederation of Indian Industry (CII). This would make it easier for the auto component industry to take advantage of the EV opportunity and expertise in EV components manufacturing, thus helping India on a global scale. India’s share in the global auto component trade was at US$ 20.1 billion in FY23. India aims to increase its auto component exports to US$ 30 billion by 2026. Moreover, the Indian auto component industry is predicted to become the third largest in the world.

 

PERFORMANCE HIGHLIGHTS:

SEGMENT	FY2023-24	FY2022-23	FY2021-22
PASSENGER, LCV AND HCV	71%	71%	72%
TWO WHEELER	25%	23%	22%
ATM AND OTHER PARTS	4%	6%	6%

 

Opportunities and Threats: Opportunities:

• New vehicles in India being sold through physical dealership and e-commerce

• Multiple used vehicle sales platforms and models providing options to the consumers

• During the 2024 global investor meet, Hyundai Motor India pledges an extra US$ 743 million (Rs. 6,180 Crore) for long-term investments in Tamil Nadu

• Production Linked Incentive (PLI) Schemes for 14 key sectors have been announced with an outlay of US$ 23.84 billion (Rs. 1.97 lakh crore) to enhance India’s Manufacturing capabilities and Exports.

• The Indian government is exempting imports of capital goods and machinery essential for the production of lithium-ion cells used in EV batteries from customs duty.

• Both Indian & global manufacturers are investing in new capacities & newer program to get long term advantage.

• Currently in discussion in RAVAL ISRAEL for the Ventilation system solenoid development Growth drivers for the sector continue to fuel sales of automobiles

• Increasing domestic customer base and favorable demographics

• Rapid urbanization

• Support infrastructure and rising investment by foreign companies Government regulations will provide growth impetus

• Automotive Mission Plan 2016-26

• National Electric Mobility Mission Plan 2020

• National Automotive Testing and R&D Infrastructure Project

The PLI scheme and National Auto Policy will make Indian auto manufacturers globally competitive

• Production Linked Incentive Scheme (PLI): The government announced an outlay of USD 8,149 million 10 over the next five years towards the automobile sector

• National Auto Policy rolls out a long-term roadmap for the automotive industry and defines emission standards.

Rise in digital distribution channels and market entry of established international players is transforming the industry. Reducing duration of ownership and increasing premium vehicles is changing the industry landscape. Increasing finance penetration and proliferation of EVs will shape the industry going forward.

 

THREATS:

• Lack of adequate skilled labor

• Low Information and Communication Technology (ICT) adoption

• Disruptions in the form of new regulations

The backup support from semi-conductor industry is yet to meet the increasing demand of high end versions of passenger vehicles, which will affect the projected growth as well as the numbers as visualized by agencies like ACMA & CII.

 

OUTLOOK:

• The Indian auto market is expected to witness upswing in sales mainly due to increasing focus on digital services offerings and burgeoning EVs market

• Online platforms are well poised to grow and further consolidate their position in the Indian market as post COVID-19, personal transport will increase amongst consumers due to health and hygiene issues

The Division will continue to focus on current business line and efforts will be made to increase the share of business from existing as well as new customers.

 

RISKS AND CONCERNS:

• Customers are putting a premium on quality and are asking suppliers to commit for end of- life warranty for parts. Reliability of parts is a key concern and will entail use of better practices with greater focus on automation and testing.

• With the sharp increase in commodity prices in the last three to four quarters, auto ancillaries have not been able to pass the price increase through entirely, resulting in a decline in gross margins.

• Ongoing Ukraine-Russia geopolitical tension could lead to supply shortages and increase commodity prices, especially Precious metals and neon gas.

• Further, an increase in crude prices will have a bearing on fuel costs for auto ancillaries. Freight rates have increased by four to five times last year, and are likely to remain at elevated levels in the near term. Supply chain uncertainties, inflation and the need for inventory stocking have led to incremental inventory requirements as well.

• Overall, the operating margins for auto ancillaries are likely to be impacted in the near term.

Year on Year discounts are also affecting the Division’s bottom-line, a typical problem faced by small and medium scale companies in the automotive space.

 

MEDIUM-TERM STRATEGY

• Increase in share of business from existing business for Solenoids, Switches and FLWI (Fluid Level Warning Indicator).

• Explore opportunities for moving up the value-chain such as solenoid assemblies, Brush Holder Assemblies and Reservoir.

• Increase in share of after-market business by identifying opportunities with existing customers and also adding new customers in domestic & overseas market.

 

LONG-TERM STRATEGY

• Opportunities for acquisitions, joint ventures, technical collaboration and diversification.

• Migration to new technological products such as Electronic Assemblies, Sensors and Parts for Electric Vehicles, Air conditioning units and Solenoids & Sensors for Hydrogen Fuel based vehicles.

• Investment on new tooling, machinery, testing facility and line set-up for major products of passenger and commercial vehicle.

 

HUMAN RESOURCES & INDUSTRIAL RELATIONS

• The Division has implemented a structured training program at all levels to retain and improve human capital. (DOJO training implemented)

• There were 187 employees on the rolls of the Division as on 31 March 2024.

• Industrial relations at the Division have been cordial.

 

HEALTHCARE BUSINESS

Industry Structure and development

Dentistry is increasingly moving towards minimally invasive treatments that preserve more natural tooth structure. This includes techniques like minimally invasive cavity preparations, adhesive dentistry, and conservative approaches to periodontal treatment and oral surgery.

There’s a growing awareness of the importance of oral health and its impact on overall health and well-being. This awareness has led to increased demand for dental services and products, as well as a focus on patient education and preventive care initiatives. Overall, the dental industry is evolving to meet the changing needs and expectations of patients, driven by technological innovation, a focus on preventive care, and efforts to improve access to dental services.

 

Performance Highlight:

The Dental division reported ~10% growth at a turnover of Rs. 30.59 cr. in FY’24 in compare to Rs. 27.83 cr. in FY’23

 

Opportunities and Threats:

As disposable incomes rise in India, more people can afford dental treatments beyond basic oral care. With the increasing number of dental practices and clinics in India, there’s a growing demand for dental supplies and materials. Companies that supply high-quality dental products, including consumables, instruments, and dental materials, have the opportunity to gain market share.

The dental industry in India is highly competitive, with both domestic and international players vying for market share. Competition lead to price wars and pressure on profit margins for dental companies.

 

Outlook:

We expect a healthy growth in dental business in FY’25 due to several initiatives taken and expansion of product baskets. The division has drawn up following strategies to expand its business operations: a. Planned to conduct 14 Hands-on workshops for dentists during FY’25 to engage more customer’s usage on DPI products. b. To restructure and strengthen the distribution network for better market coverage. c. Introduction of several new products in Restorative and Endodontic segments.

 

Internal control system and adequacy:

The corporation has adequate internal control procedures commensurate with its size and nature of business. These business control procedures ensure efficient use and protection of the resources and also compliance with the policies, procedures and statutory requirements. The internal control systems provide for well documented guidelines, authorization and approval procedures. The corporation carries out audit through external agencies throughout the year. The prime objective of such audit is to test the adequacy and effectiveness of all internal controls lay down by the management and to suggest improvements.

 

Human Resources:

The corporation regards human resources as a valuable asset. The company evaluates performance of all employees on quarterly basis. Key result areas of all employees have been well defined. The corporation has initiated incentive schemes for all employees to reward exceptional performance. The training needs of all employees are periodically assessed and training programs are conducted using internal resources and also by engaging external trainers/facilitators.

 

Financial And Operational Performance:

The key highlights of the financial performance of the Corporation (on standalone basis) are:

Particulars	31.03.2024 (In Rs. Lakhs)	31.03.2023 (In Rs. Lakhs)
Revenue from operation	26,131.66	24,458.75
Operating Profit	233.17	1,728.60
Profit After Tax	(587.97)	878.60

 

CHANGES IN KEY FINANCIAL RATIOS OF THE CORPORATION

Ratios	FY 2023-24	FY 2022-23	Change(%)	Reason for change
Debtors Turnover (in times)	4.83	4.98	(2.98%)	No major variance
Inventory Turnover	2.14	1.87	14.37%	No major variance
Interest Coverage Ratio	1.19	0.59	102.14%	Increase is on account of increase in profit and re-payment of loans in the current financial year.
Current Ratio	0.48	0.67	(28.92)	Decrease is due to refund of Inter- corporate deposit and repayment of loans during the financial year.
Debt Equity Ratio	1.81	4.63	(61.05%)	Decrease is due to repayment of loans during the current financial year
Return on Net Worth ratio	(6.01%)	8.02%	(174.98%)	The Variance is majority on account of exceptional loss on impairment of investments and loans receivables from Go Airlines (India) Limited and exceptional gain on sale of asset of coffee division in the previous year.

 

 

Operating Profit Before Interest and Tax (%) at Segment level

Tea	(78.44%)		(62.45%)	25.60%	Variance is due to increase of losses
Coffee	(18.36%)	coffee	6.93%	(364.85%)	Variance is due to discontinuation division business.
Healthcare	8.90%		8.81%	1.03%	No major variance
Electromags	2.17%		2.14%	1.46%
Investments	31.08%		26.64%	16.66%	Mainly on account of increased Dividend from
					Foreign Subsidiaries
Net Profit Margin (%)	(1.40%)		(93.73%)	(98.51%)	Variance is majority on account of last year exceptional loss on impairment of investments and loans receivables from Go Airlines (India) Limited and exceptional gain on sale of coffee

 

Cautionary Statement:

Statements in the Management Discussion and Analysis describing the Corporation’s objectives, projections, estimates and expectations may be ‘forward-looking statements’ within the meaning of applicable securities laws and regulations. Actual results could differ materially or implied. Important factors that could make a difference to the Corporation’s operations include economic conditions affecting demand/and overseas markets in which the Corporation operates, changes in the Government regulations, tax laws, vagaries of nature and other incidental factors.