Carol Info Services Ltd Management Discussions

CAROL INFO SERVICES LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS Industry structure and development The Company is engaged in service segment. The primary activities are contract manufacturing and renting of immovable property. The property portfolio, although a non-core activity, generates substantial income. The Company provides contract manufacturing service for nutraceutical and milk-based products. Contract manufacturing in India is growing rapidly catering to both domestic and international pharmaceutical companies. Outlook on opportunities The contract services market in India is set to register 33-34% growth on yearly basis and likely to attain US$ 6 billion by the end of 2013 from US$ 900 million in 2007 (Source: F & S report). Of this Contract manufacturing represents 71% share. In this, work is sub-contracted to a manufacturer by a company that owns the product design and IPR. In some cases, the manufacturer takes the responsibility of marketing the products using the vendors brand and provides after-sales support. The Indian nutraceutical market is expected to grow at approximately 21%. Nutraceuticals in India are considered drugs, unlike the over-the-counter status they have in western countries, The Infant formulae and follow-on segment, Weaning Cereals and Protein Supplements market are expanding rapidly. Increasing awareness and rising disposable incomes is leading growth of this market. The need of the industry is to have an empowered body that will enforce strict regulations on companies but allow them to bypass the medical channels. Currently, Pharma companies have to approach doctors to promote their products. Industry sources also feel that OTC status might be better to boost the segment rather than a drug status, as people associate drugs with curative measures rather than preventive ones. The manufacturing unit at Lalru has been established for more than ten years now and it is necessary to make additional investment in the said facility for expansion and upgradation. Considering that the margins in the contract manufacturing business are not expanding, management is exploring various options regarding the business. Outlook on threats, risks and concerns The Company does not foresee any commercial or other threats, which could disrupt the operations of its business and its manufacturing facility. SEGMENT-WISE PERFORMANCE The Company operates in service segment. For the year ended March 31, 2011, income from contract manufacturing amounted to Rs. 147,699 thousand and income from renting of immovable property amounted to Rs. 52,034 thousand. INTERNAL CONTROL SYSTEMS AND ADEQuACY The Company has set up internal control procedures commensurate with its size and nature of the business. These business procedures ensure optimum use and protection of the resources and compliance with the policies, procedures and statutes. The internal control systems provide for well- defined policies, guidelines, authorizations and approval procedures. The prime objective of such audits is to test the adequacy and effectiveness of the internal controls laid down by management and to suggest improvements. FINANCIAL PERFORMANCE The income from sales and services for the year ended March 31, 2011 amounted to Rs. 206,671 thousand as against Rs. 240,772 thousand in previous year. The total income for the year ended March 31, 2011 amounted to Rs. 611,909 thousand as compared to Rs. 1,102,458 thousand in previous year. The said reduction in total income was due to reduction of interest income and rent income. During the year ended March 31, 2011, total expenditure reduced from Rs. 229,101 thousand to Rs. 758,101 thousand due to substantial reduction of interest expenses from Rs. 552,954 thousand to Rs. 29,738 thousand. Due to reduction of total expenditure, the profit before tax and exceptional items for the year ended March 31, 2011 is Rs. 382,808 thousand, as compared to Rs. 344,357 thousand in previous year, thereby recording growth of 11%. However, the profit after tax for the year ended March 31, 2011 reduced from Rs. 676,089 thousand to Rs. 223,006 thousand. This was due to the net exceptional income of Rs. 579,007 thousand earned by the Company for the year ended March 31, 2010 which mainly comprised of profit on sale of commercial premises. Human resources The Company has 100 employees. Through various interventions like training and development, self learning initiatives, communication channels, cross- functional interventions for nurturing creativity and multi-rate feedback, there has been a continuous effort to build and enhance competencies of employees at every level of the organization.