CIAN Agro Industries & Infrastructure Ltd Management Discussions

Industry structure and developments

A) Agro industry -

Fiscal policy statements highlighted that Indian agriculture sector is projected to grow by 3.5 per cent in FY 2022-23. Apart from meeting domestic requirements, India has also rapidly emerged as the net exporter of agricultural products in recent years. With the agriculture exports touching $50.2 Bn in FY 2022-23. The total kharif food grain production in the country is estimated at 149.9 million tonnes higher than the average Kharif food grain production of the previous five years. Although, the area sown under paddy was about 20 lakh hectares less than compared to 2021.

India imports approximately 56% of its total annual edible oil consumption, which amounts to around 25 million metric tons (MT). The annual imports of edible oil stand at around 13 MT, with palm oil (8 MT), soybean oil (2.7 MT), and sunflower oil (2 MT) being the primary imports. Palm oil is predominantly imported from Malaysia and Indonesia, while soybean and sunflower oils are mainly sourced from Argentina and Ukraine. The share of domestic edible oil includes mustard (40%), soybean (24%), groundnut (7%), and others.

During the first six months of the oil year 2022-23 (November-October), India witnessed a notable 22.29% increase in the imports of edible oils. The rise was driven by a significant increase in inbound shipments of palm oil and sunflower oil during this period. Data from the Solvent Extractors Association of India (SEA) reveals that the country imported 80.02 lakh tonnes (LT) of edible oil from November to April, compared to 65.43 LT in the corresponding period of the previous year.

What drove the surge?

Imports of palm products, including crude palm oil and RBD palm oil, rose to 49.09 LT from November to April of the oil year 2022-23, marking a substantial increase from 30.92 LT in the same period of the previous year. Consequently, the share of palm oil in the total edible oils increased to 61% in the first six months of 2022-23, up from 49% a year ago.

RBD palm oil imports, which refer to refined, bleached, and deodorized palm oil, reached 11.10 LT, compared to 9.20 LT in the previous period, while crude palm oil imports amounted to 37.61 LT. The excessive import of RBD palm oil has resulted in low capacity utilization in Indias palm oil refining industry.

In the first half of this year, sunflower oil imports experienced a robust growth rate of 23.12%, with a significant increase observed in April. This rise can be attributed to an oversupply of sunflower oil in the market and lower international prices compared to soybean oil and CPO (Crude Palm Oil).

The edible oil industry in India is fragmented wherein 13% of oil is sold as loose/unbranded and the consumers are shifting to branded oils, which bodes well for the organised players. Several factors, including weather forecasts, the policies of the Malaysian, Indonesian and Indian governments, Chinese demand, and the situation in Ukraine, will play a crucial role in determining future prices. These factors, along with broader considerations such as macroeconomic fears and geopolitical issues, will significantly impact edible oil prices.

During the Financial year 2022-23 under review, revenue from Agro Division of the Company is Rs. 21,648.85 Lakhs as compared to previous financial year of Rs. 22,742 Lakhs.

B) FMCG Sector -

The FMCG sector in India expanded due to consumer-driven growth and higher product prices, especially for essential goods. FMCG sector provides employment to around 3 million people accounting for approximately 5% of the total factory employment in India. FMCG sales in the country were expected to grow 7-9% by revenues in 2022-23. The key growth drivers for the sector include favorable Government initiatives & policies, a growing rural market and youth population, new branded products, and growth of e-commerce platforms. Resilience needs to be the key factor in the manufacturing process, daily operations, retail and logistic channels, consumer insights and communication that will help FMCG companies to withstand the test of time and create more value for consumers in the long run.

Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector. The urban segment (accounts for a revenue share of around 65%) is the largest contributor to the overall revenue generated by the FMCG sector in India. However, in the last few years, the FMCG market has grown at a faster pace in rural India compared to urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50% of the total rural spending.

Fast-moving consumer goods (FMCG) sector is Indias fourth-largest sector and has been expanding at a healthy rate over the years because of rising disposable income, a rising youth population, and rising brand awareness among consumers. With household and personal care accounting for 50% of FMCG sales in India, the industry is an important contributor to Indias GDP.

During financial Year 2022-23 under review, Revenue from operation of Health & Personal care division of the Company boost to Rs. 1499.07 Lakhs as compared to previous year of financial year of Rs. 197.35 Lakhs

C) Aluminium Sector -

The aluminium market during the year started on a positive note with LME prices steeply rising to all-time high of US$3,849/t in March 2022. However, the market was significantly impacted by volatility in macroeconomic conditions during the year amidst the ongoing Russia Ukraine war, European energy crisis, and high inflation in the key markets. Consequently, the market witnessed price declines as the year progressed; LME price stood at around US$2,350/t level during the end of March 2023.

During the year, global primary aluminium production increased by 2.5% to 69 million tonnes while demand is estimated to have increased by 0.4% to 69.2 million tonnes resulting in global deficit of 0.2 million tonnes. In China, the largest market, primary production increased by 4.5% while demand increased by 1.2%. In rest of the world (RoW), both production and consumption were flat. In India, the domestic demand is likely to have surged 17% from ~3.9 million tonnes in FY 2022-23 to around 4.6 miliion tonnes in FY 2023-24; majorly driven by primary aluminium demand on robust economic growth with high industrial and manufacturing activities supported by government initiatives.

During the Financial Year 2022-23 under review, Infrastructure Division has turnover of Rs. 5851.63 Lakhs as compared to the previous year of Rs. 2,524.42 Lakhs.

D) 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.

E) Risk Management -

The Company has a well-defined process in place to ensure appropriate identification and treatment of 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.

F) 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.

G) 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.