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Coastal Corporation Ltd Management Discussions

245.89
(-2.52%)
Jul 12, 2024|03:32:55 PM

Coastal Corporation Ltd Share Price Management Discussions

Company overview:

Our company is a prominent player in the shrimp processing industry, offering a diverse range of high-quality shrimp and shrimp products. We cater to various customer preferences, providing raw frozen blocks and IQF, as well as cooked frozen blocks and IQF shrimp. Our commitment to excellence has earned us a leading position as one of Indias top shrimp exporters to the U.S. market. Our products are widely distributed across the United States, Europe, Canada, the United Arab Emirates, China, Hong Kong, Japan and Korea.

A significant portion of our revenue comes from the export of value-added products, such as headless shell-on, butter_y, skewers, and more. Our shrimp varieties include the esteemed Black Tiger (Penaeus Monodon) and Vannamei (Litopenaeus vannamei), renowned for their exceptional taste and quality. These shrimp varieties are sold under various brand names, including "Coastal," "Coastal Premium," "Coastal Gold," "Jewel," and "President."

With three state-of-the-art processing facilities strategically located in Visakhapatnam and Kakinada, Andhra Pradesh, we possess a combined approved freezing capacity of 71 metric tons per day for raw and cooked shrimp in block and IQF forms. Our dedication to maintaining the highest quality standards is reflected in our facilities advanced processing capabilities.

Over the years, we have expanded our operations and established fully owned subsidiaries to strengthen our global presence and diversify our business ventures. Notably, we have set up Seacrest Seafoods Inc. in the State of Delaware, U.S.A, aimed at exporting and selling seafood in American markets. Additionally, we established Continental Fisheries India Private Limited in Andhra Pradesh, India, to further our export of marine products. Furthermore, Coastal Biotech Private Limited was established to focus on the production of Ethanol.

Complementing our commitment to sustainability, we have invested in a captive consumption solar power project of 3.6MW at Dowleswaram, Srikakulam District, Andhra Pradesh. This project demonstrates our dedication to environmentally responsible practices and contributes to our long-term vision of responsible growth.

As we continue to excel in the shrimp processing and export industry, we remain focused on delivering excellence, innovation, and value to our customers and stakeholders. With a strategic vision and unwavering dedication, we are poised to lead and thrive in the competitive global seafood market.

Indian overview

In India, the shrimp industry has shown remarkable growth, with the market reaching a volume of 0.85 million tons in 2022. This positive trend is expected to continue, with a projected Compound Annual Growth Rate (CAGR) of 6.72% between 2022 and 2028, resulting in an estimated volume of approximately 1.47 million tons by 2028.

The countrys _sheries sector plays a crucial role in its economy and holds significant potential for further development. Indias abundant and diverse aquatic resources contribute to this favourable outlook. Among the states, Andhra Pradesh stands out as the leading shrimp producer, accounting for over 50% of the total output.

Recognizing the importance of sustainable practices in aquaculture, the Indian Government is actively promoting responsible shrimp farming methods. The focus is on producing high-quality, sustainable shrimp to minimise the environmental impact associated with aquaculture. Additionally, support from key bodies like the Seafood Exporters Association of India (SEAI) and the Marine Products Export Development Authority (MPEDA) has bolstered the export of shrimp, particularly in the ready-to-eat and ready-to-cook product categories. These efforts are expected to foster continued growth and success in Indias shrimp industry.

Shrimp holds a prominent position in Indias aqua marine sector, establishing the country as a leading global producer, processor, and exporter of this sought-after delicacy. Indias extensive coastline and favourable climate provide an ideal environment for shrimp farming, with ponds and tanks serving as thriving hubs for cultivation. Notably, the Vanamei variety dominates Indias shrimp production, contributing to an impressive 90% of the nations total shrimp output.

In the fiscal year 2022-23, India achieved remarkable growth in seafood exports, reaching an all-time high both in volume and value. The country shipped 17,35,286 MT of seafood worth Rs. 63,969.14 crore (US$ 8.09 billion), marking a substantial improvement from the previous year. The export quantity saw a notable increase of 26.73%, while the revenue in rupee terms grew by 11.08% and in US$ terms by 4.31%. Frozen shrimp remained the dominant export item in both quantity and value, contributing significantly to Indias seafood exports. The US and China emerged as major importers of Indian seafood, with frozen shrimp being the principal item exported.

Global overview:

The global shrimp industry comprises key producing countries such as China, India, Vietnam, Indonesia, Thailand, Philippines, Bangladesh, Malaysia, and Latin America. India stands out as a significant supplier of value-added shrimp on the international stage, leveraging its advantages of low labour costs and extensive production of farmed shrimp. With existing robust infrastructure, including hatcheries, feed mills, and processing plants, the foundation for future expansion is firmly established.

Projections indicate that the Global Shrimp Market is set to reach a substantial value of US$ 69.35 Billion by 2028, making shrimp one of the most sought-after and traded seafood species worldwide.

The demand for shrimp extends beyond the food industry and expands into pharmaceuticals, healthcare, and cosmetics due to its recognized beneficial properties, such as antioxidant and anti-aging effects. Rich in protein, phosphorus, and selenium, shrimp remains a highly nutritious and easily accessible source of nutrition.

The shrimp industrys growth prospects remain promising, driven by sustained high demand and increased supply, making it a key contributor to the overall expansion of the global seafood sector. Its popularity as a preferred ingredient, especially in Asian cuisine, further enhances its market appeal.

The Global Shrimp Market is expected to experience steady growth with a compound annual growth rate (CAGR) of 6.72% between 2022 and 2028.

To meet market demands, Asian countries are empowering small-scale farmers through participatory approaches and cluster farming. Governments and organisations are extending fiscal incentives and support to promote sustainable shrimp culture, responding to the escalating global demand for shrimp. Consequently, the seafood sector, particularly shrimp farming, has emerged as a high-priority industry for major producing nations.

The adoption of cluster farming with a participatory approach not only boosts shrimp production but also enhances sustainability and mitigates disease risks. Government backing for cluster farming in countries like China, India, Vietnam, and Thailand is expected to fuel growth in the Global Shrimp Market during the forecast period, attracting new investors to the industry. In 2022, the market size reached US$ 46.94 Billion, reflecting the industrys significant value and potential for further expansion.

Shrimp processing & Export

In 2022, the shrimp export industry experienced robust growth, with exports surging by 12% year-on-year to VND 4.3 billion, reaching record-high levels. This significant increase was primarily driven by two key factors. Firstly, the recovery of consumption in major markets like the EU and Japan post-COVID-19 contributed to a substantial rise in export volume (17% YoY) and average selling prices (5% to 10% YoY). Secondly, Chinese importers prepared for increased demand after reopening their market, resulting in a remarkable 34% YoY surge in export volume, despite the challenges posed by stringent COVID-19 test processes.

However, the US, being the largest market, experienced a slowdown in shrimp imports from India, with a notable decline of 22% YoY in export value in 2022. The soaring imports in 2021 led to a situation where shrimp imports exceeded consumption due to high inflation and high-interest rates, subsequently affecting seafood purchasing power in the latter half of 2022. This downturn offset the uptrend in average selling prices (5.1% YoY) to the US market, resulting in a significant 24% YoY slump in export volume.

Towards the end of 2022, the positive growth in shrimp export turnover experienced a setback, with exports declining by 15% quarter-on-quarter and 13% year-on-year in the fourth quarter. Most markets, including Japan, the EU, and the US, witnessed a gradual decrease in shrimp exports during the latter half of the year. Particularly in the US, the largest market, exports plummeted by 35% QoQ and 4% YoY. The combination of high inflation, transportation costs, and stockpiles impacted the purchasing power of shrimp products in the US market. As a result, the volume of shrimp exports from India to the US declined significantly by 22%

QoQ and 43% YoY in the fourth quarter.

Despite the challenges faced in the latter part of 2022, the overall performance of the shrimp export industry for the year was positive. However, it highlights the importance of closely monitoring market dynamics and adjusting strategies to maintain growth and competitiveness in the ever-changing global market.

Our Vision

Our vision is to be a leading global enterprise that delivers superior quality, highly nutritional seafood at competitive prices to consumers worldwide. We are committed to being customer-driven, quality-conscious, socially responsible, and environmentally friendly, ensuring the delivery of value-added seafood without compromising on taste, hygiene, and purity.

Strategy for sustainable growth

At the core of CCLs strategy, organisation structure, and investment decisions lies customer-centricity. This approach enables us to anticipate trends, seize business opportunities through well-informed investments, and mitigate risks while fulfilling our social and environmental responsibilities.

CCL continually strives to strengthen customer relationships by exploring new opportunities and expanding into untapped areas of their businesses to create added value. Our proactive investments in developing newer capabilities, upskilling our workforce, and introducing innovative products and platforms enable us to effectively address these opportunities and enhance our sustainable growth journey.

Financial performance overview

The discussions in this section pertain to the consolidated financial results denominated in Rupees for the year ended March 31, 2023. The financial statements of Coastal Corporation Limited and its subsidiaries are prepared in accordance with the Indian Accounting Standards (referred to as Ind AS) as prescribed under section 133 of the Companies Act, 2013, and the Companies (Indian Accounting Standards) Rules, as amended from time to time. The significant accounting policies used in the preparation of the financial statements are disclosed in the notes to the consolidated financial statements. Below is an overview of the companys consolidated financial results:

Particulars Year Ended Year Ended
31.03.2023 31.03.2022
(CONSOLIDATED)
Revenue from Operations 35272.45 49109.51
Other Income 1154.09 1328.79
Total Income 36426.54 50438.30
Profit before Taxation 1076.10 1934.71
Current Tax 103.82 559.25
Tax relating to earlier years 3.82 (6.42)
Deferred Tax Credit/(Charge) 298.56 >26.57
Profit After Tax(PAT) 669.89 1355.31
Total Other Comprehensive Income/Loss net of tax 123.68 (67.22)
Total Other Comprehensive Income for the year net of tax 793.57 1288.09

Key Financial Ratios:

Financial Ratio FY 2022-23 FY 2021-22 % Vari- ance Reasons For Change
Current Ratio (Times) 1.18 1.17 0.90 Due to increase in current assets.
Debt Equity Ratio (Times) 0.65 0.78 (16.14) Due to decrease in debts.
Debt Service Coverage Ratio (times) 3.49 5.93 (41.16) Due to enough cash to cover its debt
service obligations.
Net Profit Ratio 2.76 2.98 (7.53)
Return on Equity Ratio 3.62 6.36 (43.12) Due to decrease in revenue from opera-
tions.
Turn on Capital Employed 5.36 10.26 (47.71) Due to decrease in revenue from opera-
tions.
Turn on Investment 0.06 0.06 (2.90) Due to decrease in term deposit interest
rates.
Trade Receivable Turnover Ratio (times) 9.73 12.94 (24.83) Due to good realization of trade receiv-
ables.
Inventory Turnover Ratio 3.54 5.15 (31.22) Due to decrease in sales.
Trade Payable Turnover Ratio (times)54.30 73.22 54.30 34.84 Due to prompt payment of trade paya-
bles.
Net Capital Turnover Ratio (times) 11.84 16.87 (29.84) Due to decrease in sales.

Recent Developments:

The Company has recently signed a strategic agreement with two prominent entities, Mitsubishi Corporations Toyo Reizo Co. Ltd. in Japan and SPC GFS Co Ltd. in Korea, for the export of shrimp products to the Japanese and Korean markets.

Mitsubishi Corporations Toyo Reizo Co. Ltd., Japan: Toyo Reizo Co. Ltd. is a renowned player in the processed marine products industry, committed to delivering safe and reliable products sourced from the worlds oceans to Japans discerning consumers.

Mitsubishi Corporation: As a global integrated business enterprise, Mitsubishi Corporation collaborates with its numerous offices and subsidiaries worldwide, forming a robust network of approximately 1,700 group companies.

SPC GFS Co Ltd., Korea: SPC Global Food Service Co., Ltd. is a prominent South Korean company with its headquarters located in Seongnam. Operating in the Grocery and related Product Merchant Wholesalers industry, the company has built a strong reputation.

Right Issue:

- Right issue of 19,29,800 shares at a price of Rs 225 (share premium of Rs 215) - Paid up on application Rs 56.25 (25%) - Paid up on 1st Call Rs 112.50 (50%) - Paid up on 2nd Call Rs. 56.25 (25%)

Occupational health and safety

At CCL, we prioritise the safety and well-being of our employees through a well-defined Occupational Health and Safety program and supporting processes. We maintain a strong focus on creating ergonomic awareness, promoting correct postures, and implementing workstation stretches to ensure a safe office-based work environment. Additionally, our employees receive training on general safety awareness, including fire safety, office safety, road safety, etc., and are educated on safety incident reporting procedures.

STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS (SWOT ANALYSIS)

STRENGTHS

India enjoys a competitive edge in the aquaculture industry due to its extensive coastline and geographic advantages. The success with L. Vannamei sets a precedent for potential success with other _sh species, bolstering Indias position in the global seafood export market. The companys shrimp processing and export subsidiary is projected to experience significant growth in traditional and value-added product expenditures. With a diversified product range, including vannamei and black tiger shrimp in both raw and cooked forms, the company caters to various markets worldwide. Moreover, its exports to major markets such as the US, Europe, Canada, UAE, Australia, Hong Kong, Korea, China, and Russia enhance its global reach and reputation. The companys processing plants are also FDA approved and hold EU and HACCP certifications, further validating its credibility.

WEAKNESS

Challenges persist in the Indian aquaculture industry, including inadequate infrastructure facilities and unregulated input raw material costs. Additionally, the lack of sufficient cold chain facilities and high freight costs, along with limited financial assistance for aqua-farmers, present obstacles. The industrys vulnerability to disease outbreaks and natural disasters like cyclones poses significant threats to long-term prospects. While the government and stakeholders are making efforts to address these weaknesses, the aquaculture industry still faces various challenges.

OPPORTUNITIES

The demand for shrimp is not limited to the food industry but extends to other sectors such as pharmaceuticals, healthcare, and cosmetics. Shrimps beneficial properties, including antioxidant and anti-aging effects, have garnered attention and increased its potential for diverse applications. Moreover, shrimp is a rich source of protein, phosphorus, and selenium, making it highly nutritious and easily accessible for consumers across various industries. The shrimp industry presents stable and promising long-term growth prospects, driven by its consistently high demand and improved supply chain. As a significant driving force behind the global seafood industrys growth, the shrimp sector stands to benefit from the increasing popularity of seafood consumption worldwide. Furthermore, shrimps widespread use in various dishes, particularly in Asian cuisine, contributes to its expanding popularity and paves the way for further market expansion.

THREATS

The aquaculture industrys dependence on weather makes it vulnerable to natural disasters, such as _oods, which can impact production and logistics. Continued embargoes on international freight movements for imported SPF Vannamei brood-stock may have lasting consequences. Price volatility for shrimp globally, fluctuating exchange rates, rising raw material and ocean freight costs, and anti-dumping duties imposed by the US are significant threats. However, exploring local market prospects, maintaining traceability, adopting scientific pond management, and prudent pricing and foreign exchange management can help mitigate these threats.

GOVERNMENT INITIATIVES:

1. Ministry of Food Processing, Govt. Of India, is encouraging the entrepreneurs for establishing processing factories under "Scheme for Integrated Cold Chain and Value Addition Infrastructure by extending Rs. 10 Crores Grant-in-aid.

2. The Govt. Of India is providing Interest Equalization @ 3% in respect of exports by the Micro, Small & Medium Enterpris-es(MSME) sector manufacturers under the Interest Equalization Scheme on Pre and Post Shipment Rupee Export Credit. 3. There are various schemes under Andhra Pradesh Food Processing Policy 2015-20 for setting up Cold Chain Units for Establishment of Shrimp Processing Units, eligibility upto 50% of Project Cost and Maximum Limit of Grantin-aid upto Rs. 5 Crores and interest Subsidy for 5 years from COD @ 6% (Subject to Max. Rs. 2.50 Crores) 4. The State Govt. also provides Fiscal Incentives like Reimbursement of Power Consumption Charges @ Rs. 1.00 per unit for 5 years for Fish & Shrimp Processing Units and other incentives for establishing shrimp processing units in the State of AP. 5. GST Refund, duty drawback @ 3.0% on FOB value and RoDTEP @ 3.1%

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance with corporate policies. The Company has a well-defined delegation of power with authority limits for approving contracts as well as expenditure. Processes for formulating and reviewing annual and long-term business plans have been laid down. CCL is gradually migrating to enterprise resource planning (ERP) system that connects all parts of the organization, to record data for accounting, consolidation and management information purposes. The process of ERP integration has commenced from last FY

2022. It has continued its efforts to align all its processes and controls with global best practices.

CCL also undergoes periodic audit by specialized third party consultants and professionals for business specific compliances such as quality management, service management, information security, etc. The Audit Committee reviews reports submitted by the management and audit reports submitted by internal auditors and statutory auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. The audit committee also meets CCL statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems and keeps the board of directors informed of its major observations periodically. Based on its evaluation (as defined in section 177 of Companies Act 2013 and Regulation 18 of SEBI LODR), CCL Audit Committee has concluded that, as of March 31, 2023, the companys internal financial controls were adequate and operating effectively.

For COASTAL CORPORATION LIMITED
Sd/- Sd/-
T.Valsaraj G.V.V.Satyanarayana
Place: Visakhapatnam Managing Director Director (Finance)
Date: 12.08.2023 (DIN:00057558) (DIN: 00187006)

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