Coromandel Agro Products and Oils Ltd Management Discussions

1. This section shall include discussion on the following matters within the limits set by the listed entity’s competitive position:

(a) INDUSTRY STRUCTURE AND DEVELOPMENTS :

India is a vast country and inhabitants of several of its regions have developed specific preference for certain oils largely depending upon the oils available in the region. For example, people in the South and West prefer groundnut oil while those in the East and North use mustard / rapeseed oil. Likewise several pockets in the South have a preference for coconut and sesame oil. Inhabitants of northern plain are basically consumers of fats and therefore prefer Vanaspati, a term used to denote a partially hydrogenated edible oil mixture of oils like Soyabean, Sunflower, Rice bran and Cottonseed oils. Many new oils from oilseeds of tree and forest origin have found their way to the edible pool largely through Vanaspati route. Of late, things have changed. Through modern technological means such as physical refining, bleaching and de-odorization, all oils have been rendered practically colorless, odorless and tasteless and therefore, have become easily interchangeable in the kitchen. Oils such as soyabean oil, cottonseed oil, sunflower oil, rice bran oil, palm oil and its liquid fraction- Palmolein which were earlier not known have now entered the kitchen. About 57% of domestic demand of edible oils is met through imports out of which Palm oil constitutes about 59%. The consumption of refined palmolein (RBD palmolein) as well as its blending with other oils has increased substantially over the years and is used extensively in hotels, restaurants and in preparation of wide varieties of food products.

The India edible oil market reached a volume of 24.7 Million Tons in 2023. India currently represents the world’s largest importer of edible oil in the world. Increasing disposable incomes, rising urbanization rates, changing dietary habits and the growth of the food processing sector represent some of the key factors driving the demand of edible oil in India.

In India, the rising consumer health concerns towards the high prevalence of coronary heart diseases, diabetes, obesity, gastrointestinal disorders, etc., are primarily driving the demand for healthy edible oil. Additionally, the market is further catalyzed by the growing awareness towards several health benefits of organic and low-cholesterol edible oil. As a result, various regional manufacturers are launching healthy product variants enriched with omega-3, vitamins, and natural antioxidants. Moreover, the changing consumer dietary patterns and their hectic work schedules have led to the increasing consumption of processed food items. The rising demand for edible oil in the food processing sector as food preservatives and flavoring agents is also catalysing the market growth in the country. Additionally, the elevating consumer living standards coupled with the increasing penetration of international culinary trends are further augmenting the demand for high-quality product variants, such as olive oil, sesame oil, flaxseed oil, etc. Apart from this, the expanding agriculture sector along with the launch of several initiatives for enhancing the production of oilseeds in the country is also propelling the market. Furthermore, the Indian government is making continuous efforts to increase the domestic availability of edible oil and reduce import dependency. For instance, the government has proposed the National Mission on Edible Oil (NMEO) for meeting the country’s consumption need for edible oil, such as sesame oil, groundnut oil, safflower oil, palm oil, etc.

The Global edible oils market size has grown steadily in recent years. It will grow from $86.85 billion in 2023 to $89.53 billion in 2024 at a compound annual growth rate (CAGR) of 3.08%. The expansion observed during the historical period can be ascribed to industrialization, the increase in global population, economic progress, political stability, culinary variety, and infrastructure development. The edible oils market size is expected to see steady growth in the next few years. It will grow to $101.4 billion in 2028 at a compound annual growth rate (CAGR) of 3.2%. The anticipated growth in the forecast period can be credited to renewable energy policies, the rise of health and wellness trends, initiatives addressing climate change, the transition towards plant-based diets, government regulations, and emerging market demands. Key trends expected in the forecast period comprise the integration of technology in agriculture, innovations in extraction technology, advancements in packaging, the emergence of clean label products, and the adoption of sustainable practices.

(b) OPPORTUNITIES AND THREATS :

Change in Indian eating habits is a major factor that will drive the demand of edible oils in the near future. Indian population has adopted the concept of convenience foods and is also increasing stepping out of homes for sourcing their meals. The growing trend of ‘eating out’ and high consumption of convenience foods will equate to higher oil consumption which will be palpable in the consumption numbers of edible oils in India. Moreover, the rising income level in urban areas leads to the consumption of processed and fast food which is a major contributor to the rising demand of edible oils. Thus, the impact of western culture on food habit with rising variations in processed food consumption drives the market growth.

The growing popularity of low calorie content oils is one of the market factors for Indias edible oil industry. Indian consumer becomes more health-conscious and they stared preferring edible oil with low cholesterol content such as canola oil, olive oil, and rice bran oil in order to prevent the high risk of coronary heart disease, brain stroke and type- 2 diabetes, associated with the trans-fat consumption. To capitalize on the increasing need for "balanced oils," all of the big oil companies have launched healthier versions of their standard offerings. In addition, edible oil is mostly used for cooking, and increasing customer health consciousness has raised the market for high-quality edible oils. Since they are pressed at a lower temperature, cold-pressed oils are considered high-quality oils because the oils taste and characteristics are preserved, which is likely to fuel the market. Furthermore, the changing dietary patterns along with hectic lifestyle among working people is expected to change the consumer preference and will boost the demand for olive and coconut oil for cooking. Olive oil, which is a staple of the Mediterranean diet, is the healthiest and easiest oil to use. The antioxidant content of extra virgin olive oil is high, and it is completely natural. MUFA are the main fat found in olive oil and are considered a healthy dietary fat. It also helps to avoid heart disease, and as a result, they have become common in Indian markets. Olive oil has attracted significant demand despite its high price, and it is expected to rise exponentially once the domestically produced variant reaches the market.

The Russia-Ukraine war, Israel War and war alerts in middle east has had an immense impact on the edible oil market and once again highlighted India’s vulnerability to the global edible market vagaries. Even before the war, global vegetable oil supplies had tightened due to a drought in South America which resulted in the reduction of soybean yield.

We can see over last 25 years, how the land area under oilseed production has not grown meaningfully. So, whatever increase in our oilseed production has occurred in India is mainly because of our improvement in the crop yields (kg/ha or tons/ha). However, our yields are still nowhere close to the world average yields, leave aside the world best yields.

It is a big challenge to the Company as to the availability of Cotton Seed in enough quantity at a lower price, unless Cotton growing area is improved. Hence these prices of raw materials have also relative impact basing on edible oil prices in Indian market as well.

(c) SEGMENT WISE OR PRODUCT-WISE PERFORMANCE :

Presently the company has dealing in segments of seed processing and Wind turbine generators. Seed Processing : The overall performance of the company is better in spite of low yielding Cotton Seed (main raw material) and onslaught of COVID-19 and Ukraine War. Because of heavy rains in cotton growing areas and delayed procurement, the company could start production from 03^rd November, 2024. Further Cotton Corporation of India started procurement of cotton during 2023-24 crop season, and operated ginning of the cotton and the company could buy seeds from CCI by participating in the electronic auction and this helped the company for better utilization of its processing capacity. Recoveries from processed seed during the current year of 60,516 MT (35,121 MT in the previous year), were low compared to the last year. Only respite for the company was it could get best average sale prices for all the products.

Because of high prices of Cotton Seed and low yields and also Prices of edible oils during the reviewing period were lesser because of heavy fall in international markets when compared during the same period of previous season, a discriminatory approach was adopted by the company in procurement calibrating sale prices and production costs. In addition to fall of edible oil prices, even Hulls and other oil by products prices also fallen down, as the availability had become more abundant in the market during the season. Inspite of the above factors, the company achieved a turnover of Rs. 18,324.03 lakhs as against Rs. 12,860.55 lakhs in the previous year. The gross profit before taxes was Rs. 176.44 lakhs as against Rs. 130.11 lakhs and due to adjustment of differed tax liabilities net profit for the period under review is Rs. 228.66 lakhs against Rs. 196.04 lakhs Loss during the last year.

Wind Turbine Generators : The power project in Gujarat did better and earned Rs. 36.32 lakhs compared to Rs. 33.47 lakhs during the previous year.

In India, the consumption of edible oil is high due to the growing population and rising affordability. The high population density is a critical factor for the consumption of edible oil in the Indian kitchen. Despite having a huge agriculture sector, diverse agro-climatic conditions & abundant land, India is importing most of the oil for its consumption. This is due to the shortage of domestic production of edible oil, which cannot meet the demand. Although Indias government is taking steps to boost the domestic production of edible oil, it could reduce the import dependence and benefit the farmers. Further, Government of India is also proposing to levy import duty on oil imports so as to encourage the domestic farmers to improve the oil seeds cultivation and to augment edible oil production to cater the huge demand in domestic market. The increasing production of oilseeds and stagnant domestic vegetable oil supplies will continue to fill most of the supply-and-demand gap over the next decades.

India is blessed with many positive factors that enable it to stand in a unique position in Agro-based products. After achieving independence, India is positive whereby it has become a net employer of agricultural-based products. India is a major oilseed-producing country among the different countries producing oilseeds; India has the largest area and production of a few oilseed crops, namely groundnut, rapeseed/mustard, sesame, and coconut. Yet, India is the largest importer of edible oil.

India’s edible oil market is estimated at INR 5,19,905 Crore by the year FY 2027-28, with the unorganized oil market showing a decline in the market share with a CAGR of around 5%. The growth in the edible oil industry has resulted from many driving factors; not only from the demand perspective but also from a consumer perspective. From the consumer trends perspective, demand is driven in the area of fat content, health benefits, packaging, and price. This increasing awareness is the reason for the consumer shift from the unorganized market to the purchase of branded edible oil.

The company is looking forward for alternative markets for cotton linters in view of war tensions in Israel, Egypt, Iran, Russia and Ukraine countries.

(d) RISKS AND CONCERNS :

Owing to high import dependence, the edible oil prices in India are directly correlated to international oil price movements and currency movements that make profitability vulnerable to unexpected fluctuations. The domestic edible oil prices are directly linked to the prices of imported palm and soybean oil due to heavy reliance on imports and their substitutability with other oil varieties. While mustard oil is almost entirely produced within the country, soya bean oil is imported in significant quantities, Palm oil is almost entirely imported in crude form (for refining in port-based refineries) as well as in refined form.

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The country has to rely on imports to meet the gap between demand and supply. Import of edible oil is under Open General License. In order to harmonize the interests of farmers, processors and consumers and at the same time, regulate large import of edible oils to the extent possible, import duty structure on edible oils is reviewed from time to time. In a bid to control the continuous rise in the cooking oil prices since past one year, the Central Government has cut the basic duty on Crude Palm Oil, Crude Soyabean Oil and Crude Sunflower Oil from 2.5% to Nil. The Agri- cess on these Oils has been brought to 5%. This duty has been extended upto 31st March, 2025. The basic duty on Refined Soyabean oil and Refined Sunflower Oil has been reduced to 17.5% from 32.5% and the basic duty on Refined Palm Oils has been reduced from 17.5% to 12.5%. Import Duty of Refined Soyabean oil and Refined Sunflower Oil has been reduced to 17.5% from 12.5% on 14th June 2023. This duty has been extended upto 31st March, 2025. The Government has extended the free import of Refined Palm Oils till further orders. The declining landed prices of palm oil, soybean oil, and sunflower oil pose challenges and opportunities for India’s edible oil industry. Farmers face reduced income, and low refining capacity hampers efficiency. Market volatility and import dependence add risks. Imports of crude soyabean and sunflower oil last year were 3.67 mt and 3 mt, respectively. Soyabean oil was sourced from Argentina and Brazil, while sunflower oil was sourced from Russia and UkraineLanded prices of crude palm oil (at Mumbai port), which hold a major chunk in the country’s import basket, declined by 8% to $935/tonne on February 9, compared to $1,015 a year ago. Landed prices of crude soyabean and sunflower oil have fallen 27% and 24% respectively to $927/tonne and $920/tonne.

The global food industry has seen a worrying rise in the prevalence of counterfeit products, and edible oil is no exception. The use of fake edible oils, which often contain harmful ingredients, poses significant health risks.

As domestic production does not meet the increasing domestic demand, India relies highly on imports, with few oils contributing significantly to the exports. Crushing of groundnut, rapeseed/mustard, and sunflower is reserved for the small-scale sector. These makeup over two-thirds of the aggregate oilseed output of the country. This has translated into a lack of significant investments in large, integrated processing plants and poor economies of scale in the operations of existing players. To harmonize the interests of farmers, processors, and consumers and at the same time, regulate the large import of edible oils to the extent possible, the import duty structure on edible oils is reviewed from time to time. The country exports edible oils in small quantities to meet expatriate demand. The rise in exports of edible oils is a positive development for India’s oilseed growers, enabling higher realizations for the crops. The rise in bulk exports is seen as a big boost as it brightens the prospects for better remuneration for the oilseed crops. Edible oils are freely exportable in bulk, while mustard oil is allowed in consumer packs not exceeding 5 kg

Your Company continues to place a strong emphasis on the risk management and has successfully introduced and adopted various measures for hedging the price fluctuations in order to minimize its impact on profitability. Also, your Company has initiated setting-up of a framework to upgrade itself to a robust risk management system. The key determinants of business risk profile of the company are their ability to overcome the regulatory risk and agro-climatic conditions. Other operational factors include operating efficiency, product diversity, market position, and ability to secure raw material as well as the commodity price and forex-risk management systems.

Thus, your Directors are optimistic in utilizing the production capacities and to overcome the Global and domestic risks and issues, to ensure better working results in the ensuing years.

(e) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY :

The Company has well-established processes and defined the roles and responsibilities for people at various levels. The control mechanism also involves well documented policies, authorization guidelines commensurate with the level of responsibility specific to the respective businesses. Adherence to these processes is ensured through frequent internal audits. The internal audits conducted are 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 which ensures that all transactions are properly reported and classified in the financial records.

Cotton Seed is being processed on scientific basis and producing Edible Oil, De-oiled cake, Hulls and Linters. The Operational revenue of the company for the period under review increased to Rs18324 Lakhs as compared to Rs12861 Lakhs registering a growth rate of 42% on an annualized basis. The Operational profit before Tax for the financial year under report is Rs. 176.44 Lakhs as against Rs. 228.66 Lakhs Loss in the previous year.

Statements in the Boards’ Report and Management Discussion and Analysis describing the Companies objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable security laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the company’s operations include, among others, economic conditions effecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

2. DISCLOSURE OF ACCOUNTING TREATMENT :

Where in the preparation of financial statements, during the year there was no different treatment from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements.

Notes: *Debtors Turnover ratio has improved due to increase in turnover. **Inventory Turnover has increased due to increase in turnover. ***Interest Coverage Ratio has increased due to increase in profits. ^Current Ratio has reduced due to increase in short term borrowings and reduction in cash and cash equivalents. ^^Debt Equity Ratio has increased due to increase in short term borrowings. ^^^Operating Profit Margin (%) has increased due to increase in profits. ^*Net profit Margin (%) has increased due to increase in net profit. ^**Return on Net Worth has increased due to increase in profits.

Your Company has been putting high emphasis on driving an effective and transparent performance culture with an open mindset. This is evident in the way performance is closely tracked and its impact on your Company’s financial sustainability monitored. Leaders today provide feedback not only on performance but also on demonstration of Core Values and Leadership skills defined for each layer of Organization hierarchy. Top performers and high achievers are recognized for their exemplary performance as part of the rewards and recognition program. In the year gone by, your Company has focused on functional training programs such as Food Safety and Regulations, Energy Management, Lean Sigma, TQM, Industrial Safety, Your Company provides learning opportunities through facilitator led learning, workshops and experiential learning through projects, programs and assignments. Your Company has continued to maintain amicable Industrial Relation footprints by focusing on increased worker level engagement through formal and informal communication and training forums. As of 31^st March 2024 , your Company had 68 employees on its rolls.

As we mark the second anniversary of the passing of our esteemed founder and chairman, Mr. Maddi Lakshmaiah, we reflect on his unparalleled contributions and enduring legacy. Mr. Maddi Lakshmaiah was a visionary whose dedication and leadership laid the foundation for our company’s success. His values and principles continue to inspire and guide us. We remain committed to upholding his vision and driving the company forward with the same passion and integrity he embodied. His memory remains a beacon for all of us at Coromandel Agro Products and oils Limited.