chamanlal setia exports ltd share price Management discussions


1. Global Economy

The global economy faced a series of severe and mutually reinforcing shocks -the COVID 19 pandemic, the war in Ukraine and resulting food and energy crises, surging inflation, debt tightening, as well as the climate emergency. The most important indicators for the future economy will be the threat of resurge of COVID-19, the war between Russia and Ukraine, and climate change. The IMF predicts in a more recent update, that there will be no global recession. The rapid increase in interest rates by central banks concerned impacted demand and global GDP growth. The commodity prices however have moderated from the high level seen immediately after the Russia-Ukraine conflict. Lower food and energy prices and an easing of the supply chain are positives. Consequently, headline inflation has declined from its peak witnessed in 2022, though core inflation continues to remain high.

A hard landing for the global economy is expected due to persistent inflation and financial sector turmoil. The rapid increase in interest rates to control inflation has brought forth the vulnerabilities of the banking sector. In such a scenario, policymakers must balance controlling inflation and ensuring financial stability while providing much needed fiscal support and international cooperation to sustain economic recovery. According to the IMF, GDP growth is forecast to drop from 3.4% in 2022 to 2.8% in 2023 and settle at 3.0% in 2024. Advanced economies should anticipate a considerable growth decrease, from 2.7% this year to 1.3% the following year. Global headline inflation is expected to drop from 8.7% in 2022 to 7.0% in 2023 because of lower commodity prices, even as core inflation is likely to decline slowly.

Chinas reopening in November 2022 brought back a positive sentiment for the manufacturing sector along with easing out of logistical challenges. The manufacturing cost has increased globally, driven by higher raw material and energy costs, as well as supply disruptions. Despite these challenges, businesses particularly in manufacturing and services have been working hard to maintain their profitability and competitiveness. By adapting to changing market conditions and implementing new strategies, many companies have been able to weather these challenges and continue to thrive in todays economic landscape.

In CY2023, advanced economies are expected to have an inflation of 4.6% while emerging economies will continue toface an inflation of 8.1%. About 84% of countries are expected to have lower headline (consumer price index) inflation inCY2023 than in CY2022. Macroeconomic policies need to be carefully calibrated to strike a balance between stimulating output and stabilizing inflation. It is anticipated that thepen-tup demand in numerous economies, along with a significant reduction in inflation, will contribute to accelerated economic growth in CY23.

The food industry was significantly impacted by high commodity prices, rising interest rates and the continuing impact of Russia-Ukraine war during the year. Further, the long-term effects of these factors continue to be felt extensively, giving rise to fears of an impending recession in major economies Although commodity prices were volatile and inflation was at unprecedented levels, the post-covid normalisation of economic activities supported growth throughout the year.

2. Indian Economy overview

India was one of the fastest growing economies in the world with robust domestic demand backed by significant investments in infrastructure. Projections indicate that Indias economy will continue to progress and expand at a rate of 7% during the fiscal year 2022-23. Additionally, the countrys stable inflation rates, higher disposable income and continued investment in infrastructure development are expected to contribute positively to economic growth in the future.

Various high-frequency indicators, such as GST collections, railway and air traffic, electronic toll collections and E- Waybill volume, suggest a robust economic recovery in India. This persistent growth momentum has positioned India as an attractive investment destination. Moreover, India is expected to retain its status as the fastest growing G-20 nation in the coming years. Indias presidency of the G20 Summit in 2023 has also bolstered its international stature. Despite the challenges, the Indian governments prudent initiatives, such as the PM Gati Shakti - National Master Plan,the National Monetisation Plan (NMP) and the Production-Linked Incentive (PLI), have been instrumental in fostering economic growth. The Reserve Bank of India (RBI) has also taken prudent and proactive measures to ensure financial stability and address liquidity constraints. These factors have contributed to the Indian economys resilience and stimulated substantial investments.

The food industry was significantly impacted by high commodity prices, rising interest rates and the continuing impact of Russia-Ukraine war during the year. Further, the long-term effects of these factors continue to be felt extensively, giving rise to fears of an impending recession in major economies. During the year, the major challenge confronting the food industry was managing inflation in the cost of key commodities like wheat, milk, sugar, palm oil and crude oil, all of which were trading at multi-year high prices.

Your Company was able to successfully navigate these challenging circumstances and deliver strong performance through focused efforts, robust cost efficiency programs, brand marketing and timely price increases. Prudent procurement decisions also helped your Company to ensure availability and overcome volatility in prices of essential commodities like wheat, sugar and palm oil.

In July 2022, a significant development occurred in the form of the Goods and Services Tax (GST) Councils decision to eliminate GST exemption on packaged food items sold under unregistered brands. As a result, these items are now subject to a 5% tax rate, the same as branded food products. This change has leveled the playing field for branded players and contributed to the industrys progress towards greater organization and increased penetration of branded food that adheres to food safety standards. The 5% GST is now applicable to all branded or unbranded SKUs weighing up to 25 Kg.

Rice is the most common staple food in many Asian countries including India. Rice is Indias most significant food crop. Feeding more than half of the global population, just 10 countries produce nearly 84% of the global rice requirement. As per USDA June 2023 outlook, Annual global rice production in the 2023/24 remains projected at a record 520.5 million tons (milled basis), up 8.0 million tons from a year earlier. Global domestic and residual use in 2023/24 is projected at a record 523.8 million tons, up 750,000 from the previous forecast, with India accounting for most of the upward revision.

Global rice trade in calendar year 2024 is projected at 55.8 million tons (milled basis), unchanged from the previous forecast, but almost 1 percent larger than a year earlier. This month, an increase in Indias export forecast was offset by a reduction in Thailands. Over the past month, quotes for Thailands trading prices for most grades of regular (neither parboiled nor aromatic) whole-grain milled rice were nearly unchanged from a month earlier, while Vietnams increased about 2 percent. Indias prices rose over the past month but remain the lowest among Asian exporters. U.S. long-grain milled-rice prices remain near record-high. and nominal quotes for California medium-grain milled- rice remain record-high.

Total global rice supplies in 2023/24 are projected at 694.0 million tons, up almost 4.3 million from the previous forecast but around 900,000 tons below a year earlier and the second consecutive year of declining global rice supplies

Indian Agriculture Sector

India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for ~55% of Indias population. India has the worlds largest cattle herd (buffaloes), the largest area planted for wheat, rice, and cotton, and is the largest producer of milk, pulses, and spices in the world. It is the second-largest producer of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton, and sugar. The agriculture sector in India holds the record for second-largest agricultural land in the world generating employment for about half of the countrys population. Thus, farmers become an integral part of the sector to provide us with a means of sustenance. With around 54.6% of the total workforce involved in agriculture and allied sector activities, the sector contributes to 17.8% of the countrys gross value added (GVA).

The new changes over the last few years have been enormously helpful to contribute more towards economic growth. Recent advancements such as drones, and data-driven facilities help to monitor the process of farming. It has been supporting farmers to increase productivity and contribute more towards the agricultural economy.

The future of Indian agriculture seems bright and promising with the advent of new technologies. The government has increased its focus on the sector, implementing various policies and initiatives to boost productivity and growth. Indias vast and diverse agricultural landscape, coupled with advancements in technology, provides immense opportunities for farmers to harness their potential and increase yield. In addition, start-ups in the agricultural sector are working towards providing innovative solutions to farmers in terms of supporting them with better productivity, measuring tools and other data-driven strategies.

As per third advance estimates of production of major crops for agricultural year 2022-2023, Total Food grain production in the country is estimated at record 3305.34 lakh tones which is higher by 149.18 LMT as compared to previous year 2021-22. Total production of Rice during 2022-23 is estimated at(record)1355.42 lakh metric tonnes (LMT). It is higher by 60.71 lakh tonnes as compared to previous year. The production of Wheat(record) in the country is estimated at 1127.43 LMT which is higher by 50.01 LMT as compared to previous years production.

Production of Maize in the country during 2022-23 is estimated at (record)359.13LMT which is higher by 21.83lakh tonnes than the previous year production.

Production of Nutri / Coarse Cereals is estimated at 547.48lakh tonnes which is higher by 36.47LMT than the previous years production.

The production of Moong is estimated at 37.40 LMT which higher by 5.74 LMT as compared to previous years production.

Total Pulses production during 2022-23 is estimated at 275.04LMT which is higher by 2.02 lakh tonnes than previous years production of 273.02 LMT.

The production of Soybean and Rapeseed & Mustard is estimated at149.76 LMT and 124.94 LMT respectively, which is higher by 19.89 LMT and 5.31 LMT respectively than the production of previous year 2021-22.

Total Oil seeds production in the country during 2022-23 is estimated at record 409.96 LMT which is higher by 30.33 lakh tonnes than the previous years oil seeds production.

Indias agricultural exports are poised to scale a new peak in the financial year ending March 31,2023. Government data show the value of farm exports in April-December 2022, at $39 billion, was 7.9% higher than the $36.2 bn for the corresponding period of the previous year.

Continuing the trend from the previous year, the exports of agricultural and processed food products rose by 13 percent in the nine months of the current Financial Year 2022-23 (April-December) in comparison with the corresponding period of FY 2021-22, according to the provisional data released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S). The overall export of APEDA products increased to USD 19.7 billion in April-December 2022 from USD 17.5 billion over the same period of the last fiscal.

Basmati Rice exports witnessed a growth of 40.26 percent in nine months of FY 2022-23 as its export increased from USD 2379 million (April-December 2021) to USD 3337 million (April-December 2022), while the export of non- Basmati rice registered a growth of 4 percent in nine months of current fiscal. Non-basmati rice export increased to USD 4663 million in nine months of the current fiscal from USD 4512 million in the corresponding months of the previous year.

Indian Rice Industry

Rice is one of the most crucial food crops in the world and a staple diet for nearly half the global population. Over 90% of the global rice out put and consumption is centred in Asia, where in the worlds largest rice producers, China and India, are also the worlds largest rice consumers. India accounts for more than 22% of the worlds rice production through its 48 million hectares of rice plantation area. Due to the favourable climatic condition prevailing in India, the nation has emerged as the second largest rice-growing country worldwide.

It is a Kharif (autumn) crop cultivated in warmer regions during the monsoon season from June to September, rice is extracted from the paddy crop during harvesting. The leading rice-producing states were West Bengal, Uttar Pradesh, Andhra Pradesh, Punjab, Tamil Nadu, Bihar, Chhattisgarh, and Odisha. Over 3,000 varieties of rice are grown across the country, some of which take as less as 60 to 75 days to be grown

Rice is grown in India throughout the year heaving region-wise favourable rice growing seasons. Eastern, North- eastern and Southern are major rice-producing region because of a pleasant climate throughout the year.

Throughout history as per the Archeological evidence,rice has been one of mans most important foods for more than 5000 years. Today, this unique grain helps sustain two- thirds of the worlds population. Mainly the two major varieties of rice that dominate the Indian Market are basmati and non-basmati rice.

Rice is grown in India throughout the year heaving region-wise favourable rice growing seasons. Eastern, North- eastern and Southern are major rice-producing region because of a pleasant climate throughout the year.

India is a major supplier to rice to several important markets in Asia and Sub-Saharan Africa , making their populations vulnerable to rice market disruptions. Forty two countries get more than 50% percent of their total rice imports from India.

The India Rice Market size is expected to grow from USD 51.58 billion in 2023 to USD 58.07 billion by 2028, at a CAGR of 2.40% during the forecast period (2023-2028 As per Third Advance Estimates for 2022-23, total production of Rice during 2022-23 is estimated at(record)1355.42 lakh metric tonnes (LMT). It is higher by 60.71 lakh tonnes as compared to previous year. However India still remains the cheapest supplier in the world today.

The export of non-Basmati rice registered a growth of 4 percent in nine months of current fiscal. Non-basmati rice export increased to USD 4663 million in nine months of the current fiscal from USD 4512 million in the corresponding months of the previous year. Therefore due to high price, the government had banned export of broken rice in 2022 and imposed a supplement tarrif of 20% on exports of non-basmati rice.

Despite the imposition of duty, exports saw a rise from 33.7 lakh tonne between September 2021 and March 2022 to 42.1 lakh tonne between September 2022 and March 2023. The sharp increase in exports can be attributed to the high international prices due to the geopolitical scenario, El Nino, and extreme climatic conditions in other rice- producing countries.

In order to ensure adequate availability of non-basmati white rice in the Indian market and to allay the rise in prices in the domestic market, Government of India has amended the Export Policy of the above variety from ‘Free with export duty of 20% to ‘Prohibited with immediate effect." Further However in July 2023, the Government restricted exports of non-basmati rice to calm down rice prices that had risen more than 30% since October 2022.

Indian Basmati Rice industry

Among the several varieties of rice, Basmati is considered the most superior in terms of product characteristics and therefore, the most premium. "Basmati" is long grain aromatic rice grown for many centuries in the specific geographical are a, at the Himalayan foothills of Indian sub-continent, blessed with character is tics extra-longs lender grains that elongate at least twice of their original size with a characteristics soft and fluffy texture upon cooking, delicious taste, superior aroma, and distinct flavor, Basmati rice is unique among other aromatic long-grain rice varieties. Despite its popularity, basmati rice is not easy to come by outside of its native region. The grain is delicate and requires a specific climate to grow properly. As a result, basmati rice is expensive and difficult to find in most parts of the world.

Basmati is unique to the region. It can be grown where precise climatic conditions, soil quality and temperature exists and this only occurs in the Indo-Gangetic area of the Himalayas.

Grown in the specific regions in India Haryana, Punjab, Himachal Pradesh, Jammu and Kashmir, Western Uttarpradesh, Uttarakhand and Delhi are the major basmati rice producing states in India. India exports basmati rice in the world to Iran, Saudi Arabia, Iraq, UAE, Kuwait, Iraq, the UK, Yemen Republic, USA, Canada and Oman.

Basmati rice is majorly produced in India, with balance quantity from Pakistan. Indian Basmati rice has got Geographic Indication (GI) recognition. India has strong dominance in the export of basmati rice (160+ countries) especially to the Middle East. Basmati Rice exports have witnessed a CAGR growth of 7.1% in last 10 fiscals with its export standing at 38,524 Cr* as on FY23. Introduction of higher yielding and shorter duration varieties has supported strong growth in Basmati production in the last two decades. New variety is increasingly adopted by farmers due to shorter growth cycle, lower irrigation requirements and higher yields compared to other traditional varieties..

Accounting for nearly 85% of the global Basmati exports are from India. In India the Basmati exports is about 37% of the total rice exports by quantity and 60% by value. Exporting basmati rice to nearly 90 countries, nearly 60% of Indias basmati rice production is exported.

Currently, there are 34 Notified Basmati Varieties under Section 5 of Seed Act, 1966 of India. The main varieties of Basmati rice as notified under the seeds Act, 1966 are Basmati 386, Basmati 217, Ranbir Basmati, Karnal Local/ Taraori Basmati, Basmati 370, Type-3 (Dehradooni Basmati), Pusa Basmati-1, Pusa Basmati 1121, Punjab Basmati-1, Haryana Basmati-1, Kasturi and Mahi Sugandha. Pusa Basmati1121 developed by the Indian Agricultural Research Institute (IARI) and released for commercial cultivation in Kharif season of 2003 is the most widely used variety as it requires less water, matures early and yields 19-20 quintals of paddy per acre as compared to 9-10 quintals for traditional tall basmati.

India exported basmati rice worth about Rs 38,524 crore (nearly $ 4.79 billion) in the 2022-23 fiscal (April-March, a jump of about Rs 12,109 crore from 2021-22, as per the data of Directorate General of Commercial Intelligence and Statistics (DGCIS). In terms of value in rupees, Indian exports of the long grain aromatic rice were about 45.84% higher in 2022-23 than the previous fiscal.

Iran was the biggest importer of the Indian basmati rice in quantity at about 9.98 LMT followed by Saudi Arabia at 9.54 LMT and Iraq, a distant third at 3.64 LMT.

Despite pandemic challenges in the short-term, the outlook for the Indian Basmati rice industry remains stable. In, the medium term, demand prospects from key destinations such as Iran and Saudi Arabia will play a significant role and determine trade prospects. Availability of a secure payment mechanism for exports to Iran, easing/ removal of sanctions by the US and response to pandemic in the destination country would be the factors underscoring the Basmati rice trade.

Business Comparatives are given below:-

Ratios F.Y. 2022-2023 F.Y. 2021-2022
1. Trade receivables turnover ratio 44 58
2. Inventory Turnover Ratio 102 118.59
3. Current Ratio 4.27 3.64
4. Debt. Equity Ratio 0.20 0.29
5. Net Profit ratio 8.71 7.11
6. Return on capital employed 24.93 23.10
7 Trade payable turnover ratio 41 70
8 Net Capital Turnover Ratio 2.22 2.23
9 Return on equity ratio 25.84 24.25

(1) There is more than 25 % variation downward in Debt Equity Ratio which is favourable financial credential for the company.

(2) The Trade Payable Turnover Ratio has came down to 41 from 70 shown variation of 25 % downward due to that Trade Payables of the company has considerably reduced to Rs 856.68 Lacs from Rs2665.01 while the Material Purchased has increased to Rs 114336 lacs (2022-23) from Rs 75746 Lacs (2021-22) which is favourable parameter for the company .

Our Business Company Overview

Chaman Lal Setia Exports Limited was founded back in 1974 by Late Mr. Chaman Lal Setia, later on, it was incorporated as a partnership firm in 1983 and then reconstituted as a public limited company in 1994. The company got listed on the Bombay Stock Exchange in 1995 and further on the National Stock Exchange on the 12.05.2021. The company is engaged in the business of milling and processing of basmati rice. The company has been involved in export operations since 1982 and was recognized as an export house by the Ministry of Commerce in 1989, at present the company is a ‘Star Export House. Currently the company exports to more than 80 countries around the world, which included European, Middle-eastern, American, Asian and many other markets.

As of FY 23, the company derived ~88% of its revenue from operations from exports, as compared to ~88% in FY22.

The company has a manufacturing unit located in Karnal (Haryana) which has an installed capacity of 12 metric tonnes per hour, this facility is a state of art and automated rice processing unit.

The company also has grading and sorting facilities in Amritsar (Punjab) and Kandla (Gujarat). The company processes rice in-house and uses parboiled, raw, steam process using the finest equipment to ensure physical, aromatic and taste qualities remain intact. The flagship brand of Chaman Lal Setia Exports Limited is ‘Maharani rice, along with ‘Mithas and ‘Begum as other basmati brands. The company is also involved in selling non-basmati rice - under its brand ‘Green World Aromatic Rice. The company also sells other innovative products such as ‘Maharani Diabetics Rice, ‘Basmati Rice Plus and organic products such as ‘Maharani - Brown Basmati Rice.

Key Strengths and Weaknesses

I. Experienced Management Team

With over 40 decades of experience, the Company has developed resilience to industry challenges and has established strong market position across global markets while maintaining healthy relationships with international customers and suppliers. The management team has an experience of more than 4 decades in the rice industry and are supported by strong and competent 3rd generation promoters. Mr. Vijay Kumar Setia (Chairman & Managing Director of the Company.

II. Favorable Manufacturing Locations

Company has manufacturing unit sin close proximity to paddy producing regions, as well as port to support its export business.

III. Diversified Client Base

The company has a loyal client base of more than 900 buyers spread across more than 90 countries.

IV. Healthy balance sheet and comfortable capital structure

Despite limited bargaining power, the Company has done a good job at maintaining a stable financial profile and improving The Company never faced any difficulty in servicing its debts and other financing arrangements and with the required number of skilled employees, all the financial activities have been carried out on time without any delay/disruption. Further Company has adequate financial resources to meet its working capital requirement. The Company has never in the past defaulted on any interest or loan payment and does not see any issue meeting future obligations too.

Weakness

I. Foreign Exchange Risk

Since the raw material procurement is from within India itself, and around 88% of revenue come from exports, there is an inherent exchange rate fluctuation risk for rice exporters.

II. Changing Government Policies

Factors such as Minimum Support Price, import bans and sanctions, ban on export of non-basmati rice may affect the operations and profitability of the company.

III. Volatility in raw material prices

The prices of paddy might fluctuate subject to the demand and supply scenario, which may ultimately affect the profitability of the business.

IV. Commodity nature of products with little or no differentiation

The company operates in a highly commoditized industry with very little or no product differentiation.

V. Dependency on favourable Climatic Conditions

Besides the quality of the foundational seed itself the cultivation of Basmati closely depends on the vagaries of the weather. Any inclemency can upset the potential sales of the brand.

Opportunities

As Basmati is un-disputedly the king of grains, given its association with being the best, it finds natural up take a cross nations and especially in the middle east where rice preparations are part of culture. Higher usage of Rice as a staple diet again dovetails into higher consumption of Basmati.

Threats

Continuing trade wars and the CoVID-19 pandemic both are likely to significantly lower global trade and resultantly international sales. Being a daily staple Basmati though could be less impacted.

Performance Discussion FY 2022-2023

The company recorded a total operating income of 1387.34 in FY23, up as compared to 932.49 crores in FY22. The profit after tax of the company stood at Rs.117.66. in FY 23 as compared to 64.97 crores. in FY 22.

INFORMATION TECHNOLOGY

Information technology (IT) has been an integral part of the process of the Company and has been one of the key driving forces behind the growth achieved by CLSEL.

HEALTH & SAFETY

The Company continuously focuses on the health and safety of all its workers and staff. Adequate safety measures have been taken at the plant for the prevention of accidents or other untoward incident. The necessary medical facilities are available for the workers and staff to maintain good health. During the pandemic worldwide, the Company ensures proper sanitisation and safety measures. During the worldwide pandemic situation the Company followed all the worldwide pandemic situation the Company followed all the norms and advisory issued by the Government of India/State Government.

STATUTORY COMPLIANCE

All the statutory compliance with respect to Securities and Exchange Board of India (Listing obligations and Disclosure Requirements) Regulations, 2015, Income Tax Act, Sales Tax Act, Companies Act, 2013 and all other applicable Acts, and Rules & Regulations are complied with.

INTERNAL CONTROLS AND ADEQUACY

The Company has in place an adequate system of internal control commensurate with the size and nature of its business. These have been designed to provide reasonable assurance that all assets are safe guarded and protected against loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly and the business operations are conducted as per the prescribed policies and procedures of the Company. authorized and recorded correctly. The Internal Auditors are submitting reports to the Company on a Quarterly basis.

The Audit Committee and the management have reviewed the adequacy of the internal control systems and suitable steps are taken to improve the same.

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

The Company has always valued its workforce as their biggest asset. The Company has pool of competitive, dedicated and enthusiastic personnel which is the driving force behind its accelerated growth. The Companys policies and practices ensure a favourable working environment with innovation and motivation.

Employee relations during the period under review continued to be healthy, cordial and harmonious at all levels and your Company is committed to maintaining good relations with the employees.

CAUTIONERY STATEMENT

Statements in the Management Discussion and Analysis, describing the Companys objective, projections, estimates, expectations, may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the Companys operations include economic and political conditions in India and other countries in which the Company operates, volatility in interest rates, changes in government regulations and policies, tax laws, statutes, and other incidental factors. Company disclaims any duty to update or amend any forward looking statements to represent events or circumstances that might occur in the future.