Butterfly Gandhimathi Appliances Ltd Management Discussions.

1. Company Overview

The Company is one of the largest Kitchen Appliances companies in India. The Company sells its products branded as "Butterfly" across the country through distributors, direct dealers, modern trade, online channels, Oil Marketing Channel etc. The Company manufactures LPG Stoves, Mixer Grinders, Table Top Wet Grinders and Stainless Steel and Aluminium Pressure Cookers amongst others. The Company is a leading state-of-the-art manufacturer of Domestic Kitchen and Electrical Appliances in India established in 1986. The Company is ranked amongst the top manufacturers in the domestic kitchen appliances sector._

2. Economic Overview a. Global Outlook:

The coronavirus (COVID-19) pandemic is dealing a severe blow to the global economy. Measures needed to protect public health have undercut an already fragile global economy, causing deep recessions in advanced economies and emerging market and developing economies (EMDEs) alike. EMDEs that have weak health systems; those that rely heavily on global trade, tourism, or remittances from abroad; and those that depend on commodity exports will be particularly hard-hit. In the long-term, the pandemic will leave lasting damage in EMDEs through lower investment; erosion of physical and human capital due to closure of businesses and loss of schooling and jobs; and a retreat from global trade and supply linkages. These effects will lower potential output -the output an economy can sustain at full employment and capacity—and labour productivity well into the future. (Source - World Bank).

As a result of the COVID-19 pandemic, the global economy is projected to contract sharply by 3_percent in 2020, much worse than during the 2008–09 financial crisis. In a baseline scenario--which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound—the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support. The risks for even more severe outcomes, however, are substantial. Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health. (Source – IMF – World Economic Outlook 2020).

b. India and growth performance

GDP growth rate is estimated at 5% in 2019-20 as compared to 6.8% in 2018-19 and end up with around 4.5%. It is lowest in nearly 7 years. GDP growth decelerated for the six consecutive quarters. The Indian economy has been experiencing significant slowdown over the past few quarters. The outbreak of COVID 19 has disrupted demand and supply chains across industries, negatively impacting the business of companies and driving the global economy towards a recession and economic growth down below 2.5%. The Government of India has announced a variety of measures to tackle the situation, from food, security and extra funds for healthcare, sector related incentive and tax deadlines extended. The Reserve Bank of India also announced a Regulatory Package to mitigate the burden of debt servicing brought by disruptions on account of COVID-19 pandemic and to ensure to continuity of viable business. With the prolonged country wide lockdown, global economic downturn and associated disruption of demand and supply chains, the economy is likely to face the protracted period of slow down. Governments have imposed stringent lockdown in a bid to contain the spread of the disease. This in turn has forced companies to reconfigure how the current business are supported and delivered. However, it is becoming evident that those who have previously digitized their operations have been more resilient. Particularly, in the medium and long term, it is very likely that business will continue to spend on automation and try to reduce the work force due to social distancing.

Domestic Appliances Industry and Companys prospective:

Indian domestic appliances market continue to show resilience and recorded good growth during the past few years based on the increasing consumer consumption trends and the rise in the per capita income as well as earnings and growing population across various regions of the states. Increased demand is seen for branded products from rural areas. The rural populations better awareness of higher quality and durability, serves as one of the key drivers for the growth of the Indian Domestic appliances market. This is mainly driven by the increasing disposable incomes and the changing lifestyle and food habits, which initiate an inclination toward sophistication of kitchens, seeking to carry out the cooking experience with ease and a sense of comfort, especially for the growing working women population. India is one of the largest online markets with more than 540 million internet users. With the Digital India initiative taken by the present government, internet penetration is giving newer impetus for the market to venture into this strongly emerging channel of distribution to capture maximum sales, and, in turn, meet the consumer demand effectively.

The Company performed well up to 3rd quarter in the financial year 2019-20. The Company launched new products in non-stick cook ware, new model mixer grinder (premium and economy segment) and stainless steel vacuum flasks as well as water bottle with a new and improved version. Oil Company channel sales of LPG stoves deceased unexpectedly due to sudden stoppage of Prime Minister Ujjwala Yojana Scheme; still, the Company achieved the turnover as per plan up to 3rd quarter ended 31st December 2019. In the month of March 2020, the pandemic had paralysed economies due to prolonged countrywide lockdown. The impact of COVID-19 affected the Companys turnover as well as profitability. The Company lost revenue of Rs. 40 crore in March 2020 which resulted in lower profitability for financial year 2020. The Company has reset the business plan and focused on developing a lean structure to steer through the uncertain business environment. The ERP of the company is fully integrated from raw material sourcing to sales and to debtors monitoring that has helped the Company in uncertain times to recover faster and restart operations with minimal manpower.

3. Opportunities and Threats

The brand "Butterfly" is Companys strength along with bench mark for quality in the Domestic appliances segment and the trust it enjoys amongst its customer base. The Company operates multi product manufacturing units, distribution channel, in-house R & D, sourcing and servicing. Urban markets are major contributors of the total revenues in the Consumer Durable sector in India. The industry flourished by latest innovation with untapped potential market. The consumers now consider appliances as lifestyle products and are open to pay increased prices for products that are ergonomically designed and offer multiple features. Aspirational lifestyle and availability of zero financing options, innovative credit facilities by banks and propelling demand for premium products have been a consistent trend over past few years.

Strong presence of the Company in all segments of Domestic appliances industry including LPG stoves, Mixer Grinders, Cookers and Table Top Wet Grinders, planned new launches and expanded network dealers will help the Company to consolidate its gain further and grow ahead of the Industry in the coming years.

The industry is highly fragmented in the hands of several organized and unorganized players. The Kitchen Appliances Industry in India is rising significantly due to the attractiveness of the opportunity, irrational discounting and large potential competition. Several competitors who are attracted to the growth and returns offered by this industry have emerged. These companies have short term agendas and are sourcing lower value/substandard quality products and participating in the Indian markets through unsustainable practices. This can cause temporary distortions in prices and demand, especially to long term players who are focused on quality.

4. Financial Performance:

The summary of operating results is already covered in Boards Report. Revenue from online channels growth is phenomenal during the year. Online channel is now approximately 20% of the revenue of the Company. The Company grew by 13 % in the first 9 months of the financial year. However, due to lockdown in March the overall revenue growth is only 4% in financial year 2020 as compared to financial year 2019. The raw material prices were stable throughout the year. Man power costs increased due to the general hike in salaries granted to retain talent in a competitive environment as well as dearness allowance in line with cost of living index. The operating margin has drastically decreased due to impact of CoVID-19 unexpected lockdown. The depreciation and amortisation was at Rs.1393.74 lakhs against Rs.1289.27 lakhs in the previous year 2019. The Profit before Tax of the Company was Rs. 412.80 lakhs as on 31st March 2020 as against Rs. 1239.28 in the previous year 2019.

5. Sales Performance:

Total net sales stood at Rs.678.70 crores for financial year 2019-2020 as compared to Rs.651.98 crores in the financial year 2018-2019.

Net Sales is as under:

(Rs. in crores)
Product FY 2019-20 FY 2018-19
Kitchen Appliances 517.80 514.30
Cooker/Cookware 123.40 104.40
Others 37.40 33.28

Key Financial Ratios

Particulars 2019-20 2018-19 Change in %
Debtors Turnover Ratio 5.80 5.27 10.16%
Inventory Turnover Ratio 3.99 4.59 –13.05%
Interest Coverage Ratio 1.75 2.13 –17.76%
Current Ratio 1.19 1.24 –4.13%
Debt Equity Ratio(%) 0.90 0.81 10.69%
Operating Profit Margin (%) 6.00 7.01 –14.33%
Net profit Margin((%) 0.48 1.41 –65.91%
Return on net worth 1.69 4.86 –65.12%

 

Note : During the year, due to COVID-19, there is an impact in Q4 Turnover and profitability. Due to that impact, Net profit Margin and Return on Net worth came down comparing with previous year. _

6. Outlook

The global economy is affected due to novel coronavirus pandemic which has forced businesses across the world to suspend operations leading to periodical interruption. There will be a revenue loss in financial year 2020-2021 because of very weak Q1 due to lockdown. However we expect improvements with opportunity from later half of the current financial year. The Company has resumed operations and is targeting maximum capacity utilization from July 2020 onwards. The Company has taken steps to reduce fixed costs to achieve breakeven in profitability in financial year 2020-2021.

7. Risk and Concerns

Risk management is an integral function of the overall management and is embedded across all of the business processes undertaken by the Company. To manage risks, the Companys Risk Management team continuously assesses and monitors business practices, ensuring the smooth flow of operations and adhering to stringent guidelines. The Company has a risk management policy and framework in place, with processes to strategize, monitor, identify, assess and mitigate risks that could impact sustainability of business operations._

All fixed assets are covered by the insurance policy and the renewals are made in time._

BGMAL implements comprehensive risk management practices across its operations. We are committed to providing the highest degree of safety to our employees, especially at factories. Regular machinery inspections are important to ensure that the functionality of the machinery is up to date and does not impose any potential hazards that could cause accidents at the workplace. Periodic maintenance checks to equipment are conducted to assure that they meet acceptable safety requirements._

The Company also actively manages risks arising from credit, raw material price fluctuation and foreign exchange volatility, besides the financial risks which include liquidity management and close monitoring of interest costs.

8. Internal Control Systems

The Company and the Management have adequate internal control systems in place to safeguard and shield the Company from losses and in ensuring proper use of_ its_ assets. The fully integrated Enterprise Resource Planning (ERP) along with Microsoft Power BI software helps the senior management to monitor every aspect of the business closely. The Company always adheres to prescribed guidelines and follows all Accounting Standards prescribed for maintenance of books of account and reporting of financial statements. The appointed independent internal auditors monitor and report on the effectiveness of the internal control systems of the various areas of operations. Key matters that are reported in the Internal Audit are brought to the notice of the Audit Committee of the Board of Directors and corrective measures are recommended and appropriate actions are taken. The Internal Control systems ensure the business operations function efficiently and the applicable laws, rules, regulations, policies of the Company are followed, in addition to safeguarding the reliability of financial reporting.

9. Capital Expenditure

During_ FY_ 2018-2019, Rs. 14.45_ crores_ capital expenditure was incurred towards enhancing our manufacturing capacity. For_FY_2019-2020, a_capital expenditure of_Rs.15.90_crores_were incurred for modernisation of infrastructure facilities, machinery/equipment and tools/dies.

10. Balance Sheet

There was no fresh issuance of equity capital during the year. Debt increased as the Company opted for Long-term Borrowings in order to meet its business requirements and also to improve the current ratio. The debt equity ratio was_continuing_to be at healthy level._

11. Accounting Treatment

In the preparation of financial statements, the Company has not followed a treatment different from that prescribed in Accounting Standards. The Company have adopted the Indian Accounting Standards with effect from April 2017.

12. Human Resources

The Company strives to maintain a cordial relationship and healthy atmosphere with its employees at all levels. Continuous commitment to upgrading skills is an integral part of the human resource development policy of the Company. The Company is an equal opportunity employer and promotes diversity in its workforce. Equal opportunities are given to optimize their potential and improve their standard of living.

The Company lays great emphasis on retention of its human talents. The Company invests in human resource_intangibles from time to time by providing on the job training, in-house and external training programs and workshops related to technical/functional, behavioural/general and health and safety ISO certification standards, etc., which motivates employee productivity and skills. Competitive remuneration is awarded to employees on a timely basis and the Company ably maintains amicable industrial relations at all plants. As on March 31, 2020, the total workforce of the Company stood at 1353_employees.

Employees welfare is a paramount consideration of the Company. Due to COVID-19 pandemic following actions have been taken:

? As per State/Central Government guidelines the Company encouraged the ‘work from home and several initiatives were rolled out to make factory teams and managers effective while working from different locations. Initiatives related to COVID-19 awareness and the new remote way of working with a focus on health and wellness of the employees.

? Established detailed protocol for evacuation and sanitization of our factory premises and corporate office in the event as per guidelines issued by the State/Central Government.

? Increased levels of sanitization of our factory, corporate office, branch offices and transport vehicles and implemented various social distancing measures.

? Ensure availability of thermal scanners, masks, hygiene products and medicines in all our work places.

? Created detailed plans for enabling return-to- work in a phased manner, emphasised social distancing and hygiene.

13. Cautionary Statement

Certain Statements made in the Management Discussion and Analysis Report relating to the companys objectives, projections, outlook, expectations, estimates and others may constitute ‘forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on whether express or implied. Several factors could make a significant difference to the Companys operations. These include climatic conditions and macroeconomic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on, over_which the company does not have any direct control.

PARTICULARS OF CONTRACTS OR ARRANGEMENT WITH RELATED PARTY REFERRED TO IN SUB_SECTION _1_ OF SECTION 188 OF THE COMPANIES ACT, 2013.

FORM NO. AOC_2

S. No. Name(s) of the related party and nature of relationship Nature of contracts/ arrangements/ transactions Duration of contracts/ arrangements / transactions Salient terms of the contracts or arrangements or transaction including the value, if any, Date of approval by the Board / Member at General Meeting Amount paid as advance, if any,
1 East West Combined Industries – The Proprietor is daughter of Mr.V.M.Seshadri, Managing Director Purchase of goods Sale of goods 01.04.2019 to 31.03.2020 Aggregate value of Purchase of goods - not exceeding Rs.1000 lakhs Aggregate value of Sale of goods-not exceeding Rs.10 lakhs 02.04.2019 NIL
2 Sivagurunathan Industries – Partners are relatives of Messrs. V.M.Lakshminarayanan Chairman & Managing Director, V.M.Seshadri, Managing Director and V.M.Gangadharam, Executive Director Purchase of goods Sale of goods 01.04.2019 to 31.03.2020 Aggregate value of Purchase of goods - not exceeding Rs.600 lakhs. Aggregate value of Sale of goods - not exceeding Rs.125 lakhs 02.04.2019 NIL
3 LLM Appliances Private Limited. - Directors viz., Messrs.V.M. Balasubramaniam, Vice Chairman & Managing Director, V.M.Gangadharam, Executive Director and V.M.Kumaresan, Executive Director-Technical, who are the Promoter-Directors of the Company. Purchase of goods Sale of goods 01.04.2019 to 31.03.2020 Aggregate value of Purchase of goods-not exceeding Rs. 100 lakhs. Aggregate value of Sale of goods - not exceeding Rs.100 lakhs 02.04.2019 NIL
4 Bean and Leaf Beverages Private Limited – Directors are relatives of Messrs. V.M.Lakshminarayanan Chairman & Managing Director, V.M.Balasubramaniam, Vice Chairman & Managing Director and V.M. Gangadharam, Executive Director Beverage vending services Sale of goods 01.04.2019 to 31.03.2020 Aggregate value not exceeding the charges of other vendors for similar service - Rs.20 lakhs. Aggregate value of Sale of goods - not exceeding Rs.5 lakhs 02.04.2019 NIL
5 Chrysalis Home Needs Private Limited, Directors are relatives of Messrs.V.M. Lakshmi- narayanan, Chairman & Managing Director and V.M. Seshadri, Managing Director. Sale of goods 01.04.2019 to 31.03.2020 Aggregate value of Sale of goods - not exceeding Rs.10 lakhs 02.04.2019 NIL
6 H&S Supply Chain Services Pvt.Ltd – Directors are relatives of Mr.V.M.Seshadri, Managing Director Providing 3PL Logistic services. Sale of goods 01.04.2019 to 31.03.2020 Aggregate value for the services rendered - not exceeding Rs.3700 lakhs Aggregate value of Sale of goods - not exceeding Rs.10 lakhs. 02.04.2019 NIL
7 Swaminathan Enterprises Private Limited -Directors are relatives of Mr. V.M. Seshadri, Managing Director Purchase of goods Sale of goods 01.04.2019 to 31.03.2020 Aggregate value of Purchase of goods-not exceeding Rs. 1000 lakhs. Aggregate value of sales not exceeding Rs.100 lakhs 02.04.2019 NIL
8 B-Cube Ventures LLP – Partners are relative of Mr.V.M.Balasubramaniam, Vice Chairman & Managing Director Providing Travel and Tour Services 01.04.2019 to 31.03.2020 Aggregate value of the services rendered – not exceeding Rs.300 lakhs. Additional limit of Rs.200 lakhs. 02.04.2019 01.11.2019 NIL
9 Rishaba Industries LLP – Partners are relatives of Mr.V.M.Kumaresan, Executive Director-Technical Purchase of goods 01.04.2019 to 31.03.2020 Aggregate value of Purchase of goods-not exceeding Rs. 300 lakhs. 01.11.2019 NIL
10 Mr.V.M.L.Karthikeyan- son of Mr.V.M. Lakshminarayanan, Chairman & Managing Director Holding office or place of profit in the Company From 01.06.2013 onwards Working as Senior Vice President – Marketing. Salary – Rs.38.07 lakhs p.a.* 26.7.2013 (special resolution at AGM) NIL
11 Mr.G.Viswanathan – son of Mr.V.M.Gangadharam Executive Director Holding office or place of profit in the Company From 01.06.2013 onwards Working as Senior Vice President – Materials Management. Salary - Rs.36.96 lakhs p.a.* 26.7.2013 (special resolution at AGM) NIL
12 Mr.V.M.L.Senthilnathan-son of Mr.V.M. Lakshminarayanan, Chairman & Managing Director Holding office or place of profit in the Company From 01.06.2013 onwards Working as Senior Vice President – Technical. Salary - Rs.36.96 lakhs p.a.* 26.7.2013 (special resolution at AGM) NIL
13 Mr.V.M.L.Ganesan, son of Mr.V.M. Lakshminarayanan, Chairman & Managing Director Holding office or place of profit in the Company From 01.06.2013 onwards Working as Vice President – Sales. Salary – Rs.35.85 lakhs p.a. * 26.7.2013 (special resolution at AGM) NIL
14 Mr.V.M.G.Mayuresan – son of Mr.V.M. Gangadharam, Executive Director Holding office or place of profit in the Company From 01.06.2013 onwards Working as Vice President – Corporate Strategy & Finance. Salary – Rs.35.10 lakhs p.a. * 26.7.2013 (special resolution at AGM) NIL