CIAN Agro Industries & Infrastructure Ltd Management Discussions.

A) Industry Structure & Development:

1) Agro Industry

The Indian vegetable oil economy is the worlds fourth largest after the US, China and Brazil, harvesting about 25 million tons of oilseeds against the world. Since 1995, Indian share in world production of oilseeds has been around 10 percent. Vegetable oil consumption has increased following a rise in household incomes and consumer demand. India imports half of its edible oil requirement, making it the worlds third-largest importer of edible oil. The country buys soyaoil from Argentina & Brazil and palm oil from Malaysia & Indonesia. Currently, India accounts for 11.2 per cent of vegetable oil import and 9.3 per cent of edible oil consumption.

Indias edible oil import registered a fall this year (first time in several years). Import of vegetable oils (largely edible oil and some non-edible oil for industrial use) have been on the rise for many years and almost tripled in ten years to 15.4 million tons last year.

In August 2019, imports were up despite the fall in rupee, which is attributed to the empty pipeline from three months of consistent fall in imports.

In last one year, in international market, prices of various edible oils have gone down in the range of 11% to 20% due to excess supply in the world market, but rupee has depreciated by nearly 6% in last one year.

The central government has prepared a five-year schedule to double Indias edible oil production and reduce import dependence, through expansion in sowing area and yield.

Opportunities and Threats:

1.2 Opportunities:

The external environmental analysis may reveal certain new opportunities for profit and growth. Such opportunities may include:

• Promoters rich experience in the industry

• Leading brand base

• Integrated and Modern State of the Art refinery set up

• Extensive Marketing and Distribution Network

1.3 Threats :

Changes in external environmental also may present threats to the firm. Such threats may include:

• Shifts in customer tastes away from the Companys products

• Emergence of substitute products

• New regulations

• Increased trade barriers

2) Aluminium Industry

World production of Aluminium during the year 2019 was 63.08 Million Tonnes, registering a fall of 1.3% compared to production figures of 63.92 Million Tonnes achieved in 2018. At the same time, worldwide consumption of Aluminium also declined by 1.75% from 65.25 Million Tonnes in 2018 to 64.11 Million Tonnes in 2019. The market, thus, stayed in deficit of around 1.03 Million Tonnes during 2019. China was the largest producer as well as consumer during the year, contributing 55.7% share (35.10 Million Tonnes) of the world production and 55.8% (35.77 Million Tonnes) of the world consumption of Aluminium. China registered a negative aluminium production growth of 3.1% during 2019, while the rest of the world exhibited 1.0% growth in production. As far as Aluminium consumption is concerned, Chinas figures remained flat during 2019, while the rest of the world registered a contraction of 3.8%. During FY 2019-20, consumption of Aluminium in India fell by 5.6%. (Source: CRU)

The average LME Cash Settlement price during the financial year 2019-20 was USD 1,749 per MT, dropping 14.1% against the corresponding figure of USD 2,035 per MT during 2018-19. The price has fallen further during the first quarter of FY 2020-21. This trend is likely to continue for some more time. (Source: CRU)

Estimated global Aluminium stocks at the end of financial year 2019-20 stood at 13.00 Million Tonnes, registering a growth of 6.45% against stocks of 12.21 Million Tonnes at the end of FY 2018-19. (Source: CRU)

In contrast to global market deficit of about 1.0 Million Tonnes in 2019, a huge market surplus of about 5.5 Million Tonnes is expected in 2020, mainly due to sharp drop in demand owing to COVID-19 without any significant production cuts.

2.1 Opportunities :

The Aluminum market is expected to register a CAGR of 3.2% from 2019 to 2026. The growth of the global aluminum market is driven by development in the transport industry, technological advancements in aluminum manufacturing technologies and processing equipment, and increase in usage of aluminum in various industries such as building & construction and foil & packaging. Asia-Pacific is the leading region, in terms of growth, due to massive urbanization, growth in income of people living in urban areas, and rapid industrial development. In addition, continuous advancements in transport industry and ongoing R&D activities to develop innovative, more effective and cheaper aluminum products fuel the growth of the market. Growth in demand from emerging economies such as China & India and increase in use of recycled aluminum products globally provides lucrative opportunities for the market expansion. (Source: https://www.alliedmarketresearch.com/aluminium-market)

Although Aluminium demand in the domestic market dried up during March-May, 2020 after imposition of nationwide lockdown/shutdown by the government, the restrictions are being gradually lifted in phases from May-June onwards. To support the economy during reopening, the government introduced a stimulus package. Nearly three-quarters of the total stimulus package is in the form of credit and liquidity aid. These involve, amongst others, extending collateral free loans with one-year moratorium on interest payments for working capital requirements and liquidity support for power distribution companies. This is expected to help businesses such as automotive casting companies and other downstream industries. Cheap and easily accessible capital will help various companies offset business losses experienced due to COVID-19. Another 4% of the stimulus will be dedicated to infrastructure development. Overall, approximately 12% of the stimulus will come in the form of fiscal aid. (Source: CRU)

During the months of January April, 2020, total manufacturing activity has struggled to gain momentum. With the easing of restrictions and infusion of liquidity into the market through the stimulus package, domestic demand is likely to recover and fullfledged economic activity across the country is likely to be restored in the coming months. (Source: CRU)

2.3 Threats :

Global economic slowdown, as being witnessed currently, is a major threat to the future prospects of the Aluminium industry. During the year 2020, many aluminium consuming economies around the world have imposed temporary lockdowns, which has adversely impacted metal demand. Since the rate of production of Aluminium has not reduced to the same extent, it is expected that a huge surplus of around 5.5 Million Tonnes shall be added to the global aluminium inventory by the end of 2020. Due to availability of such huge quantity of aluminium, the prices are likely to remain under pressure. The threat of cheap imports flooding the market is also real, as many major economies have imposed multiple tariff barriers to safeguard large influx of imports into their countries. In absence of any safeguard measures or tariff barriers to restrict imports into India, possibilities of dumping surplus material in India by overseas countries appears to be more, which will affect the domestic primary metal producers. Another threat includes crackdown by Governments against environmental hazards associated with discharge of effluents like red mud or air pollution due to coal based power plants. Some countries like China have already implemented such crackdowns, resulting in shutting down of significant smelting capacities. The threat of substitutes like improvised steel, PVC, engineered wood, glass, carbon fibre, composites etc. are also perennial in nature.

Domestic primary aluminium manufacturers also face competition from duty-free or preferential duty based imports, which find their way into domestic markets by virtue of Free Trade Agreements (FTAs) signed with India. Being duty-free, these are offered at cheaper prices in the market and pose a formidable challenge to the Indian players.

B) Audit and Internal Controls :

CIAN has well-established processes and clearly-defined roles and responsibilities for people at various levels. This, coupled with adequate internal information systems embedded in business automation software, ensures proper information flow for the decision-making process. Adherence to these processes is ensured through frequent internal audits.

The Executive Committees monitors business operations through regular reviews of performance vis-a-vis budgets. An extensive program of internal audit conducted by the internal audit team, reviewed by the Audit Committee, and requisite guidelines and procedures augment the internal controls. The internal control system is designed to ensure that financial and other records are reliable for preparing financial statements and other information. These procedures ensure that all transactions are properly reported and classified in the financial records.

C) Risk Management :

The Company has a well-defined process in place to ensure appropriate identification and treatment o f risks. Risk identification exercise is inter-woven with the annual planning cycle which ensures both regularity and comprehensiveness. The identification of risk is done at strategic, business, operational and process levels. While the mitigation plan and actions for risks belonging to strategic, business and key critical operational risks driven by senior CIAN leadership, for rest of the risks, operating managers drive the conception and subsequent actioning of mitigation plans.

The key strategic, business and operational risks which are significant in terms of their impact to the overall objectives of the Company along with status of mitigation plans are periodically presented and discussed in the Board Meetings. The Company, through its risk management process, aims to contain the risks within its appetite. There are no risks which in opinion of the Board threaten the operations and existence of the Company.

D) Human Assets :

The Company continued to make significant progress on strengthening HR Processes and Practices to build organization for current as well as future sustainability during the year. The Company focuses on providing individual development and growth in a professional work culture that ensures high performance. The Company has concentrated on enhancing capability of employees that ultimately helps achieving better standards of operations. The Company organizes various Seminars for the upgradation of Employees working skills and management of workload.

D) Forward Looking Statement-Cautionary Statement :

Forward-looking statements in the ‘Management Discussion and Analysis section are based on certain assumptions/ expectations of future events and are stated as required by applicable laws and regulations. Actual results could differ materially from those expressed or implied. Major factors that could make the difference to the Companys operations could be agro-climatic conditions, government policy, domestic & international market conditions and such other factors, which are beyond control of the management.