Butterfly Gandhimathi Appliances Ltd Management Discussions.


1.1. Global Outlook:

Global economy witnessed moderate activity during 2018-19 and the various risks associated with international trade through tariff restrictions, federal reserve moves on interest rates, besides oil related risks significantly clouded global economic prospects. Global financial conditions have tightened and industrial production has moderated. Global economic growth is now projected to slow from 3.6 percent in 2018 to 3.3 percent in 2019 before returning to 3.6 percent in 2020. Chinas growth declined following a combination of needed regulatory tightening and an increase in trade tensions with United States. The euro area economy lost more momentum than expected as consumer and business confidence weakened. Faced with these headwinds, the recovery in emerging market and developing economies has lost momentum. (Source – IMF – world economic outlook 2019)

1.2. India and its growth performance:

The Indian economy witnessed another challenging year 2018-19, yet with a healthy growth of 8.2 percent in the first quarter on the back of domestic resilience. Growth eased to 7.3 percent in the subsequent quarter due to rising global volatility, largely from financial volatility normalised monetary policy in advanced economies, externalities from trade disputes and investment rerouting. The Indian rupee, though weakened during the year because of adverse crude prices managed to stabilize in the latter part of the Financial year. India would remain the fastest growing economy among the emerging economies. The failure of some large Non- Banking Financial Institutions created tight liquidity conditions in the Financial markets. However, the measures taken by Reserve Bank of India as also the Government averted the liquidity crisis in the money market. The Government is determined to focus on Development through a healthy economic growth.

During the year 2018, India made some important strides. It climbed another 23 points in the world bank ease of doing business index to 77th position for the first time.

In the light of the Governments commitment to reforms in 2018-19 through various policy and fiscal measures, our economy is expected to do well in the coming years.

2. Outlook - Growth in Kitchen Appliances Sector and Companys prospective:

India is one of the most vibrant kitchen appliances market today. In Financial year 2018-19, the overall economic scenario towards the growth line is challenging and has been showing sign of good growth as compared to the previous financial year. The consumer appliances especially kitchen appliances market grow at a faster rate than other appliances. The growth in the industry will be due to full fledge tax reform implementation, middle class young population, healthy savings and increasing integration into the global economy.

Your Company mainly operates in the domestic kitchen appliances segment with a wide range of products such as LPG Stoves, Mixer Grinders, Table Top Wet Grinders, Pressure Cookers, Cookware and Domestic electrical appliances. The products above referred market is shared among national and regional/organised and unorganised players.

Consequent to tax reforms and customer preference to reliable brand the share of the unorganised players has come down.

Under Prime Minister Ujjwala Yojana Scheme (PMUY Scheme), the Government of India continued the support to safeguard the health of woman and children by providing the clean cooking fuel and pollution free atmosphere. The scheme continued this financial year 2018-19 with expansion of additional allocation of fund by Government. Your Company also participated in this scheme. Further institutional sales also continued with oil companies such as Indian Oil, BPCL, HPCL, etc., in developing gas stoves which are more fuel efficient. The Company launched 36 SKUs during the financial year 2018–19.

Your Company launched new innovative products in non-sticky cookware items, electrical chimney and power hobs, hand blender and hand mixers, choppers and blender. Your Company re-launched Stainless Steel Vaccum Flasks as well as water bottles with new and improved version. This year also the turnaround plan was successfully implemented, and the company earned profit in the year 2018-19. For the FY 2019-20, the Company is targeting to achieve top line growth with reasonable margins.


3.1. Strengths

The Company is having an in-house ‘state-of-the-art manufacturing facility equipped with latest technology and separate die making tools that allow it to increase the efficiency of the manufacturing procedure and enable a high degree quality control. The brand ‘Butterfly is its strength along with benchmark for quality in the kitchen appliances segment and the trust it enjoys amongst its customer base. Overall quality, safety and reliability of the products and the continuing customer satisfaction over the last three decades have enabled "Butterfly" brand of kitchen appliances to become a household name.

A healthy blend of experience and professionalism in the leadership team has ensured functional expertise as also adoption of best business practices in corporate governance. The Company has built extensive Pan India distribution network reaching to about 25000 retail points across India. The Company has over 550 exclusive distributors across Indian map and developed the entire range of Companys products under one roof. The Company has tie-up with modern trade, on-line, retail and e-commerce formats, for supply with Canteen Stores Department (CSD), Central Police Canteen Stores (CPC) and Tamil Nadu Police Canteen Stores (TNPC). The Company continues addressing the post sales and services requirements of the consumers. Through Customer Relationship Management (CRM), it provides single window redressal of consumer complaints.

All these steps continued with the combined experience of the promoters and professionals laid a strong foundation for sustained growth into the future.

3.2. Weakness

The Company enjoys a high market share in the South India region for the financial year 2018-19 with major revenues coming from these markets. The Company continues its efforts in improving its presence outside South India by promoting its brand strengths and investing in building a strong performance-oriented execution team. The industry faces seasonal demand and ensuring timely and effective festival sales translated to high operation costs. It thus remains challenging to correctly estimate and prepare for demand at a specific time of the year. As mentioned earlier, the Company has developed a strategy and is now implementing measures to leverage its retail reach strengths in building a strong presence in the digital world (e-commerce/on-line), exports, modern trade amongst others.

At the same time compared to traditional sales the margin will be lower and we must establish our own channel relationship. The management is constantly monitoring the mix of these two channels, i.e., traditional sales and modern trade, and is taking appropriate balancing measures as the situation demands.

3.3. Opportunities

The kitchen appliances industry has traditionally been skewed towards unorganised players while a handful of organised players have dominated major regions and key urban markets. Urban markets account for a major share of total revenues in the consumer durables sector in India whereas rural markets have only now begun to contribute recently.

Urban markets account for over 65% of the total revenues in the Consumer Durables sector in India. Urban customers are now considering appliances as lifestyle products and are open to pay increased prices for products that are ergonomically designed and offer multiple features. Positive trends in demographics have further helped to enhance growth. Factors such as the increasing number of nuclear families have led to a rise in the volumes of appliances sold.

The Company has made significant efforts in investing in markets of South India as well as in strengthening the profit centres in North India. While it has spent significantly in this market expansion, the positive benefits of these efforts will be felt in future with Butterfly as a brand reaching its consumers, all India and thus building a strong base for sustainable growth in future.

The advent of 0% finance schemes, credit cards and cash back schemes has changed the perception of consumers and the products that were once considered high-end and expensive are now considered to be accessible due to affordable monthly instalment payments.

Business opportunities like online sales and Customer Relationship Management [CRM] will lead the good performance as well as consumer satisfaction.

3.4. Threats

The industry is highly fragmented in the hands of several organized and unorganized players. Due to the attractiveness of the opportunity and large potential, competition across the Kitchen appliances industry in India is rising significantly. International companies that foray into the kitchen appliances space through mergers, acquisitions and joint ventures, have further intensified the competition in this space.

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 from China 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. Company Overview

Your Company is a leading manufacturer of Domestic Kitchen and Electrical Appliances in India established in 1986. The Company is ranked amongst the top five manufacturers in the domestic kitchen appliances sector.

Headquartered in Tamil Nadu, the Company is a multi-product Company with state-of-the-art-manufacturing units, strong R&D and international industrial design facilities, mainly manufacturing LPG Stoves, Mixer Grinders, Table Top Wet Grinders and Pressure Cookers amongst others. Contribution from the new product categories added to its portfolio through business acquisition will enhance its revenue/profits from operation.

BGMAL has a solid foothold in the Southern market and an extensive distribution network all over India. BGMAL also actively exports its products to the United Kingdom, United States of America, Mauritius, Sri Lanka, Japan and United Arab Emirates.

Inspite of competition from all around ‘Butterfly enjoys high brand quality and trust with Retail, institution and its customer with every passing generation.

5. Sales Performance

Total net sales stood at Rs.651.98 crores (excluding GST/ excise duty) for financial year 2018-2019 as compared to Rs.540.56 crores (excluding GST/excise duty) in the financial year 2017-2018.

Net Sales (including Excise Duty) is as under:

(Rs. in crores)
Product FY 2018-19 FY 2017-18
Kitchen Appliances 514.30 434.44
Cooker/Cookware 104.43 84.67
Others 33.25 30.20
Total 651.98 549.31
Less: Excise Duty 8.75
GRAND TOTAL 651.98 540.56

Details of significant changes (i.e., change of 25% or more as compared to the immediately previous financial year) in the key financial ratios along with detailed explanations therefor.

Sl. No. Particulars Mar-19 Mar-18 Change %
a. Debtors Turnover 5.27 4.95 6.46%
b. Inventory Turnover 4.59 4.39 4.56%
c. Interest Cover 2.13 2.01 5.97%
d. Current Ratio 1.24 1.23 0.81%
e. Debt Equity Ratio 0.81 1.16 -30.17%
f. Operating Profit Margin (%) 7.01 6.42 9.19%
g. Net Profit Margin (%) 1.47 0.89 65.17%


1. The Company repaid its long-term loan and debt got reduced during the year, therefore the variance above 25%.

2. The Company earned net profit based on higher Top line sales, the % of change increased above 25%.

6. Outlook

The Company achieved this turnover through branded sales and its overall growth is commendable. The company will strive hard to come out of the uncertainties prevailing in the market through its strategic planning and tireless effort. We believe the Company has a great deal of opportunities for future growth. There is enormous untapped potential across our established brand equity, target geographies and diversified product portfolio and we continue to take several steps towards capitalizing on these growth drivers. The Company has huge potential to increase the Revenues in new channels like e-Commerce sales, Modern Trade /Retail, CSD, CPC, TNPC canteen stores and exports. At the same time, it continues its general trade through its dealers and distributors. Our vision is being directed towards the innovation of products, further complimented by improved packaging. We believe continual improvement in our business ways will help further increase efficiency and agility of brand ‘Butterfly. The demonetization and the payment in digital mode along with implementation of GST are expected to drive the formal economy and it will render more organised market. The Company also continues to converge on improving business capabilities and enhancing growth levers. Improved R&D capabilities, enhanced retail format expansion, design abilities and better inventory management amongst others will help reinforce our competitive advantages, while simultaneously adding substantial value to brand ‘Butterfly.

Our growth is driven by the many initiatives undertaken by the Company in the past few years such as meeting with customer expectation, strengthening product offering, deriving value from premiumisation of products, focus on marketing and service segment with the help of good Customer Relationship Management and brand awareness activities and entry into underpenetrated markets. In addition to internal drivers, macro-factors such as changing consumer shopping behaviours along with spending power of the consumer are also undergoing a profound transformation, which we believe, will help the Company accomplish its long-term secular growth objectives.

7. Risk Management

Risk management is an integral function of the overall management and is embedded across all of the business processes undertaken by the Company. Your Company believes it is essential to identify and manage risks to reduce uncertainties and ensure continuity of operations. 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 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. This also ensures that the Companys assets and interests are carefully protected, and all the transactions are appropriately authorized, recorded and presented to the management. The Company always adheres to prescribed guidelines and follows all Accounting Standards prescribed for maintenance of books of accounts 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 17-18, Rs.10.44 crores capital expenditure was incurred towards enhancing our manufacturing capacity. For FY 18-19, a capital expenditure of Rs.9.50 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. Short-term borrowings reduced mainly due to better management of working capital. 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 Standard 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. Human resources are considered the most important and valuable asset of the Company. Continuous commitment to upgrading skills is an integral part of the human resource development policy of the Company. The focus has always been towards creating a rewarding and nurturing environment for employees. 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 resources 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 at March 31, 2019, the total workforce of the Company, stood at 1168 employees.

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.