Comfort Intech Ltd Management Discussions.

Owing to a strict nationwide lockdown due to the novel coronavirus (COVID-19) during the bulk of the first quarter of the financial year 2020-21, Indias Gross Domestic Product (GDP) for the April-June quarter (Q1) slipped by a sharp 23.9 per cent, as per provisional estimates released by Ministry of Statistics and Programme Implementation (MoSPI) on Monday. The GDP had expanded by 5.2 per cent in the corresponding quarter of 2019-20.

The June quarter GDP data is the worst contraction in the history of the Indian economy mainly because the central government on March 25 had ordered a complete lockdown of most of the manufacturing and service sectors owing to the spread of COVID-19. Only essential services such as food items and medicines were allowed during this period as the country tried to curb the spread of the virus across the country.

The GDP for the preceding January-March quarter (Q4) of 2019-20 had witnessed a growth of 3.1 per cent. As per the government data, the gross value added (GVA) at basic price at constant terms during the June quarter shrunk 22.8 per cent. The GVA at Basic Price at Current Prices slipped 20.6 per cent in Q1 2020-21.

The long-term growth perspective of the Indian economy is positive due to its young population, English proficiency, corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. India topped the World Banks growth outlook for the first time in fiscal year 2015–16, during which the economy grew 7.6%. Despite previous reforms, economic growth is still significantly slowed by bureaucracy, poor infrastructure, and inflexible labor laws (especially the inability to lay off workers in a business slowdown).

India is the third-largest and fastest-growing liquor market in the world. Alcoholic beverages is considered a sunrise industry owing to its high-growth potential and increasing social acceptance. According to Netscribes research, the alcoholic beverages market in India is expected to grow at a CAGR of around 7.72% over a 10 year period to reach a value of INR 5.3 trillion in FY 2026.

An average Indian male drinker consumes three times more alcohol than an average female drinker each year. Region wise, south Indian states constitute the highest alcohol consuming region in the country.

The combined annual sales of alcohol companies has grown 3.7 percent in the last five years.

The liquor industry contributes the maximum tax revenue to the government and relaxation in the sale of liquor will help the government generate some revenue during this crises.

Alcohol consumption in India is estimated to touch about 6.5 billion litres by 2020 from about 5.4 billion litres in 2016, data from Statista revealed.

The alcohol market in India divided into different segments such as country liquor, Indian Made Foreign Liquor (IMFL), beer, and imported liquor. Country liquor commands the highest market share given its affordability.

ABOUT THE COMFORT INTECH LIMITED

Business Overview

The Company vide Postal Ballot Result dated March 02, 2019, altered Main Object Clause of Memorandum of Association of the Company to facilitate the Company to enter into new business areas of Liquors, Wines, India Made Foreign Liquor, Country Liquor etc.

The Non-Banking Financial Companies (NBFCs) sectors integral to the Indian financial landscape. It aids in boosting financial inclusion initiative by lending services to the unbanked population in rural/ semi urban and urban areas. It also provides services to the micro, small and medium enterprises (MSMEs) segment. Some of the reasons for the success of the sector include cost efficiency, refined product lines and better customer services. Niche segmentation, simplified procedures and a focused credit approach are believed to be the key factors bolstering the profitability of NBFCs, making them one of the highest value creating business models within the Indian economy.

Appellate Authority of NBFC Registration, Ministry of Finance, Government of India vide its order no. F.No.11/11/2014/BO-II/ BOA-Vol-II dated February 14, 2019 has rejected the appeal filed by the Company against the order dated 28.09.2018 passed by the RBI, Mumbai for cancellation of Certificate of Registration of NBFC of Comfort Intech Limited. Further, Company had filed an Extra-Ordinary Writ Petition before the Honble High Court, Delhi against the above referred order of the Appellate Authority. On September 25, 2019, the Company had withdrawn the writ Petition in the High Court of Delhi at New Delhi, with liberty to approach to RBI for necessary relief. The Company is seeking further legal advice.

PRODUCTS & SERVICES

Our Company offers the vide range of financial services to commercial, industrial and financial clients with a one stop financial solution. The Company is also involved in the activities of trading in consumer appliances products, natural gypsum, tissues, leasing of properties and etc. Further, the Company vide Postal Ballot Result dated March 02, 2019, altered Main Object Clause of Memorandum of Association of the Company to facilitate the Company to enter into new business areas of Liquors, Wines, Indian Made Foreign Liquor, Country Liquor etc

FINANCIAL PERFORMANCE

On a Consolidated basis, the Company registered revenue from operations of Rs. 8346.51 lakhs for the year ended March 31, 2020 as compared to Rs. 5426.96 in the previous year ended March 31, 2019. The Company registered a Loss of Rs. 531.74 lakhs for the year ended March 31, 2020 as compared to Rs. 163.46 lakhs in the previous year ended March 31, 2019. Further details are included in notes to Accounts of Consolidated Financial Statement.

On a Standalone basis, the Company registered revenue from operations of Rs. 8346.51 lakhs for the year ended March 31, 2020 as compared to Rs. 5426.96 in the previous year ended March 31, 2019. The Company registered a Loss of Rs. 363.01 lakhs for the year ended March 31, 2020 as compared to Rs. 124.05 lakhs in the previous year ended March 31, 2019. Further details are included in notes to Accounts of Standalone Financial Statement.

Details of Significant changes, if any, in the Key Financial Ratios:

Key Ratios FY20 FY 19
Debt/Equity Ratio 0.03 0.04
Return on Networth -0.01 0.01
Interest Coverage Ratio 0.03 3.99
Net profit Ratio -0.01 0.01
Return on Capital Employed 0.000 0.010
Basic EPS -0.20 0.24

SWOT ANALYSIS:

STRENGTHS

Focused in new Business: The Company is involved in the activities of trading in consumer appliances products, natural gypsum, tissues, leasing of properties and etc. Further, the Company vide Postal Ballot Result dated March 02, 2019, altered Main Object Clause of Memorandum of Association of the Company to facilitate the Company to enter into new business areas of Liquors, Wines, Indian Made Foreign Liquor, Country Liquor etc.

Growing urbanization has introduced a larger consumer group, mainly young men and women to alcoholic beverages and has resulted in more consumers willing to try new products.

The board of our Company comprises of qualified professionals, experienced in the industry. Chief Executive Officer of the Company, Mr. Anil B. Agrawal, Chartered Accountant, has nearly 30 years of experience in financial services.

WEAKNESS

The ban on alcohol in some states in India, such as Bihar, Kerala, and Gujarat, has adversely affected the sales of alcoholic beverages.

Limited Flexibility in pricing in liquor Industry.

Increase in price inputs can cause upward pricing.

Multiplicity of Taxes in liquor Industry.

Accessibility: We do not have branches on a Pan India basis, so we are not able to explore the business opportunities in those regions. Appellate Authority of NBFC Registration, Ministry of Finance, Government of India vide its order no. F.No.11/11/2014/BO-II/BOA-Vol-II dated February 14, 2019 has rejected the appeal filed by the Company against the order dated 28.09.2018 passed by the RBI, Mumbai for cancellation of Certificate of Registration of NBFC of Comfort Intech Limited. Further, Company had filed an Extra-Ordinary Writ Petition before the Honble High Court, Delhi against the above referred order of the Appellate Authority. On September 25, 2019, the Company had withdrawn the writ Petition in the High Court of Delhi at New Delhi, with liberty to approach to RBI for necessary relief. The Company is seeking further legal advice.

OPPORTUNITIES

The Company is involved in the activities of trading in consumer appliances products, natural gypsum, tissues, leasing of properties and etc. Further, the Company vide Postal Ballot Result dated March 02, 2019, altered Main Object Clause of Memorandum of Association of the Company to facilitate the Company to enter into new business areas of Liquors, Wines, Indian Made Foreign Liquor, Country Liquor etc.

Alcohol consumption in India is estimated to touch about 6.5 billion litres by 2020 from about 5.4 billion litres in 2016

Alcoholic beverages are considered a sunrise industry owing to its high-growth potential and increasing social acceptance.

THREATS

Unpredictable revisions in the tax system, laws and regulations in liquor Industry

Changes in political and economic factors

Increasing Competition liquor Industry

Regulatory Changes

Social and economic disruption caused by the outbreak of Covid-19 Pandemic

HUMAN RESOURCES(HR)

As on March 31, 2020, the Company had a total head count of 8 employees. The Directors wish to place on record their appreciation and acknowledgment of the efforts and dedication and contributions made by employees at all levels during the year under review. The Company continues to focus on attracting new talent & help them to acquire new skills, explore new roles and realize their potential.

RISKS & CONCERNS

The COVID-19 cess levied in varying degrees by revenue-sapped states has taken a toll on alcohol makers -- stretching their working capital and eating into cash flow. In contrast to the early trends when long queues outside shops may have given an impression that the alcohol industry would remain an outlier in a moribund economy, industry executives say that ‘unrealistic tax on alcohol has done more damage to the industry than the pandemic.

Demand in states such as New Delhi, West Bengal, Andhra Pradesh and Telangana has tumbled, with brewers bearing a major brunt. "After the drastic price hike in some states, the industry has registered about 80 per cent decline in overall beer volume in May - a peak season for beer - versus last year. The hike in duty is also having knock-on effects on the ancillary segments as well, especially farmers, the entire supply chain ecosystem with barley malt suppliers and logistics partners. We believe the prevailing duty hike will dampen growth this year," said Kartikeya Sharma, President – South Asia, AB InBev.

Risk management involves identification of risk, assessing the impact on business if a security incident occurs, and making the right financial decision about how to deal with the results of ones assessment. It also includes the implementation of a programme to continually measure and assess the effectiveness of existing safeguards in protecting ones critical assets, Thus, managing risks is not a one-time activity; its an ongoing process. It is also critical to recognize that certain business risks are unavoidable, and have to be dealt with as they arise.

Your Company has directed its effort towards risk management by employing the expertise people and technology to mitigate the risks affecting the growth and profitability of the Company. The risk management approach is based on a clear understanding of the variety of risks that the organization faces, disciplined risk monitoring and measurement and continuous risk assessment and mitigation measures. The Company is constantly engaged in innovating its methods and procedures of risk management.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Board has put in place various internal controls to be followed by your Company to ensure that the internal control mechanisms are adequate and are effective. The Board has automated most of the key areas of operations and processes, to minimize human intervention. The design, implementation and maintenance of adequate internal financial controls are such that they operate effectively and ensure accuracy and completeness of the accounting records. The operational processes are adequately documented with comprehensive and well defined Standard Operating Procedures. This includes the financial controls in the form of maker and checker being with separate individuals. The Board, with a view to ensure transparency, has also formulated various policies and has put in place appropriate internal controls for the procurement of services, materials, fixed assets, monitoring income streams, investments and financial accounting.

Internal control measures includes adherence to systemic controls, information security controls, as well as, role based/ need based access controls. Further, the existing systems and controls are periodically reviewed for change management in the situations of introduction of new processes / change in processes, change in the systems, change in personnel handling the activities and other related activities.

The internal financial controls with reference to financial statements as designed and implemented by the Company are adequate. The internal financial control procedure adopted by the Company is adequate for safeguarding its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information

The Audit Committee of the Company reviews and recommends the unaudited quarterly financial statements and the annual audited financial statements of your Company to the Board for approval. Your Company has appointed a firm of chartered accountants to conduct independent financial and operational internal audit in accordance with the scope as defined by the Audit Committee. The reports from the Internal Auditors are reviewed by the Audit Committee on periodic basis and the Internal Auditor has been advised to issue flash reports, if required. Further, all related party transactions are placed before the Audit Committee and are approved / ratified by it after deliberations.

CAUTIONARY

Statement in the Management Discussion & Analysis, describing the companys objectives, projections and estimates are forward looking statement and progressive within the meaning of applicable laws & regulations. Actual result may vary from those expressed or implied. Important developments that could affect the companys operations are significant changes in political and economic environment in India, tax laws, RBI regulations, exchange rate fluctuation and other incidental factors.