ECONOMY OVERVIEW
Global Economy Overview
The global economy is demonstrating signs of resilience in CY 2023 after the high market volatility in CY 2022; and the slowdown is less pronounced than previously anticipated. However, higher inflation, tighter monetary conditions, and the ongoing Russia-Ukraine war continue to impact the global economy. Further, the banking crisis in March 2023 and a debt-ceiling crisis in the United States have raised concerns over fragile global economic conditions. However, key factors such as the gradual unwinding of supply chains, and the recent decline in energy and food prices indicate the improvement in economic activity and sentiment in 2023. Moreover, inflation is projected to decline from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024.
As per International Monetary Fund (IMF), global GDP growth is projected to decline from 3.4% in 2022 to 2.8% in 2023 and rise to 3.0% in 2024. Growth across Advanced Economies (AEs) is expected to decline from 2.7% in 2022 to 1.3% in 2023 before rising to 1.4% in 2024. Emerging and Developing Economies (EMDEs) fared better and grew at 4.0% in 2022 and are expected to grow at 3.9% in 2023 and 4.2% in 2024. Asia-Pacific will be the most dynamic of the world?s major regions in 2023, predominantly driven by the buoyant outlook for China and India, which will be the major contributors to global economic growth in 2023.
Indian Economy Overview
India continues to be among the fastest-growing economies in the world. India?s recovery from the pandemic has been remarkable. The Indian economy continues to show strong resilience to external shocks. The accelerated pace of economic reforms has led to strong and sustainable growth and strengthened the position of the Indian economy in the world. India?s GDP growth is pegged at 7% in FY 2022-23 as against 9.1% in FY 2021-22.
Higher inflation remained a challenge throughout FY 2022-23 and prices of fuel, energy, and food items increased. The Reserve Bank of India (RBI) tightened its monetary policy to maintain a balance between inflation and growth. It increased the repo rate by 250 basis points in FY 2022-23 to tame inflationary pressures.
The Indian economy is expected to advance steadily at 5.9% in FY 2023-24 before rising to 6.3% in FY 2024-25. The economic growth is primarily driven by robust domestic consumption, improvement in capacity utilisation, private investments and accelerated manufacturing activities on the back of the government?s growth-enhancing policies such as Make in India? and Atmanirbhar Bharat?, increased allocation for infrastructure and logistics development among others. Infrastructure development is crucial for urban and rural economies, the key pillars of inclusive growth in India. Factors such as agriculture and rural development and employment opportunities through MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) and Deendayal Antyodaya Yojana-National Rural Livelihood Mission (DAY-NRLM) are contributing to the increase of rural income and productivity. According to the International Monetary Fund (IMF), India?s GDP per capita at current prices is US$ 2,600 in CY 2023. Due to increasing disposable income levels and improved affordability, there is a surge in household consumption in both urban and rural regions, boosting the demand across sectors including the fast-moving consumer goods (FMCG) sector.
INDUSTRY OVERVIEW
Indian Packaged Food Industry Overview
The Indian packaged food industry has grown exponentially over the years. The change in consumption patterns, changing lifestyles, and rising demand for convenient food has changed the landscape of the packaged food industry. Factors such as the growing middle-class population, rising disposable income, growth in the retail sector, internet penetration in rural areas, and technological breakthroughs have aided the growth of the Indian packaged food industry. The adoption of digital platforms accelerated the sales of packaged food during and post-pandemic due to changes in lifestyle and demand preferences. After the pandemic, people have become more conscious about hygiene and are preferring hygienically packaged food items over unpackaged products.
There is a major shift in food consumption trends in India as rural consumption has significantly increased, led by increasing income and higher aspiration levels. Another major factor propelling the growth of packaged food including the snacks segment in India is the growing youth population. India has a large base of young consumers who form the majority of the workforce and due to time constraints, prefer convenience packaged food and snacks.
Indian Snacks Industry Overview
Indian snacks market size was valued at Rs.- 38,000 Crore in 2022 and is projected to reach Rs.- 70,500 Crore in 2028, expanding at a CAGR of 10.5% during financial year 2023- financial year 2028. The salty snacks industry grew ~22.5% in FY 2022-23 over the previous year.
Shifting lifestyle preferences of consumers, rising urbanisation, changing consumption patterns, accessibility and availability of snacks in small package sizes, low prices, and a vast domestic market to cater to, are propelling the growth of the Indian snacks industry. Snacks also act as impulse purchases for consumers for snack foods available at retail shops and convenience stores. Another significant growth-inducing factor fuelling the market growth is the growing popularity of savoury snacks with ethnic flavours, based on the diversified food culture of the country. Companies are focussing on diverse product offerings, especially extruded snacks in authentic Indian flavours to cater to the preference of the masses. The demand for western-flavoured snacks is increasing in big cities. Further, increasing foreign investments, collaborations in the industry, and increased penetration of global players will boost the growth of the Indian snacks industry.
Opportunities and Challenges
Opportunities:
Rise in the working population and increased income: Peoples need for convenience has increased due to the rise in dual-income households, increased disposable income, nuclear families and fast-paced lifestyles. There is a growing demand for ready-to-eat and packaged foods owing to their freshness, prolonged self-life and ease of consumption.
Growing demand in urban and rural regions: FMCG market is growing in both urban and rural regions of India. The sector is growing more quickly in rural areas compared to urban areas. The rising awareness, ease of access, and altering preferences have been the primary factors promoting market expansion in rural areas. Further, working from home has become more prevalent than before, which has increased the consumption of snacks and led to an increase in demand for packaged snacks.
Popularity of e-commerce and quick commerce platforms: The growing popularity of e-commerce and quick commerce platforms and new distribution channels have catalysed consumer demand for packaged food including snacks. Moreover, the rising smartphone and internet penetration in rural areas facilitate easy and faster online access for shopping and accelerate the growth of the packaged food industry.
Experimentation with new brands, varieties, and flavours: Higher frequency of consumption is driven by consumers? desire to try new brands, newer packaging formats, varieties, flavours, and textures. The market players are focussed on strategies to attract new consumers and retain the existing ones.
Kids snacks market: Kids are one of the major consumers of snacks who consume snacks more frequently as mini-meals. There has been a significant rise in the consumption of packaged foods including snacks among them since the reopening of schools after the pandemic as kids tend to prefer snacks instead of food. By influencing their parents into making purchases guided by their choice, children contribute to the growth of the snacks industry.
Changing dietary patterns: With changing dietary patterns and a myriad of options, the perception of packaged food is changing among consumers and the demand for light, low-calorie savoury snacks is growing at a rapid rate.
Challenges:
Highly Competitive Market: The Indian snacks market is fiercely competitive with the growing presence of local and regional players. Consumer needs have been served by local and regional brands over the years, and they are growing in the packaged food space. Moreover, the supply chain has been dominated by small traders.
Commodity cycle and rise in palm oil prices: Recent trends of high and volatile commodity prices, especially palm oil and packing materials like laminates, glass bottles, plastic packaging, etc. may increase input costs and significantly impact operating performance, cash flows, and profitability.
Lack of integrated supply chain and infrastructure: Lack of storage infrastructure and transportation infrastructure, especially in rural and remote areas increases logistics cost and time. Nearly 90% of food processing units are small scale and India?s farms lose between 20-25% of fruits and vegetables output due to spoilage at various stages. Due to evolving supply chain and fragmented farming in the country, the raw material sourcing for packaged food items is subject to price fluctuation.
Regulatory Environment: The manufacturers are required to comply with food safety compliances and all the applicable regulations issued by the Food Safety and Standards Authority of India (FSSAI) and the State Food Safety Authorities. The manufacturers shall ensure environment compliances including Plastic Waste Management Compliances under Plastic Waste Management Rules, 2016 (as amended 2022).
COMPANY OVERVIEW
Company Background
DFM Foods Limited (DFM or the Company) specialises in the production and distribution of processed, packaged snack foods. The Company pioneered the entry of packaged snacks into the Indian market with the release of its Crax Corn Rings product. Later, the Company diversified its product line. Our Rings, Natkhat, Curls, Chips and Fritts brands are now among the most popular snacks in the industry.
The Company has state-of-the-art manufacturing units in Ghaziabad and Greater Noida, near the corporate office in Noida, where all our products are manufactured in modern, clean, and automated processing facilities. The Company also operates through third party (3P) contract manufacturer at Kashipur (Uttarakhand) and at Howrah (Kolkata). Our products are sold through an extensive distribution network that stretches pan India.
Product Portfolio
The Company?s flagship product, CRAX Corn Rings was first launched in the Indian market in 1984 and has been a household name ever since. The portfolio has grown to include more than 15 products under the Crax mother brand, including Rings, Curls, Fritts, Natkhat, Cheese Balls, Namkeen, Chips, Pasta Crunch, Noodles, Pipes, and Bowls. In the traditional Indian snack segment, the Company offers a range of 12 distinct product variants including Bhujiyas, Daals and, Mixes. These are available in a variety of pack sizes to suit both casual or impulse consumption and home use.
Business Strengths
1. Robust Distribution Network: Despite an external volatile environment, inflation, price and cost to consumer, your Company steered through challenges, with its growth platforms not being compromised. These were driven by strategies of scale, efficiencies, mix, and pricing. We have contingency plans designed to enable us to secure alternative key material supplies at short notice, to transfer or share production between manufacturing sites and to use substitute materials in our product formulations and recipe.
Increasing the reach in rural markets by putting a sharper focus on increasing mind share and market share will be important. Company expediting their rural distribution strategy, keeping consumers engaged with new offerings and drive the premiumisation strategy to adapt to the changing landscape. Through the cluster-based approach, that is powered by data and technology, your Company has made deeper penetration into newer markets, unleashed growth potential and created a transparent planning process.
2. Diversified Product Portfolio: A wide product portfolio across extruded snacks, and traditional Indian snacks makes the Company more relevant to the consumer by offering a wider range of options. Additionally, there is continued increase in salience of products with price points of Rs.- 10 and above. The Company also introduces festive gift packs occasionally across multiple price ranges.
3. Strong Brand Presence: DFM Foods Limited has maintained a strong brand presence in the market through innovative marketing campaigns and increased visibility across traditional and digital platforms. Increased investment in marketing and brand-building activities and a robust product portfolio have propelled the Company?s status as a market leader in the extruded snacks segment. DFM?s extruded market share in North India during FY 2022-23 was ~ 22.4% in value terms.
Your Company?s business categories witnessed consistency in growth. Its brands and products continued to resonate with consumers because of the strong thrust on innovation, with multiple offerings at different stages of life. Your Company continued to launch new variants.
4. State-of-the-art Manufacturing Units: The Company has modern, automated and hygienic manufacturing facilities in Ghaziabad and Greater Noida and a third-party unit at Kashipur (Uttarakhand) and Howrah (Kolkata).
5. Experienced Management Team: The Company believes that a motivated and capable team plays a critical role in the organisations success. DFM?s leadership team with an average of 20 years of experience across all functions aids in the success of DFM Foods Limited by setting the direction and strategy for the company.
Sales and Distribution
Your Company continued its path of growth, strengthening its presence across geographies and channels.
We use many channels to make our brands available to consumers wherever and whenever they shop. Our products are available in 1.46 million retail outlets.
Through a combination of superior products, impactful innovations and purposeful activations, our brands continue to attract new consumers. Our market leadership position in extruded snacks was further strengthened during the year, enabled by a very strong portfolio that straddles the price-benefit segment serving the different needs of consumers.
While distribution remains the backbone of the Company, we continue to be the market leader in extruded snacks in terms of outlet reach, with close to 14.65 Lakh outlets serviced nationally. During the financial year under review, the Company also focussed on driving direct reach, and increasing the retail contribution by structurally reducing the dependence on wholesale. The Company has witnessed substantial growth in the retail channel. The impetus next year will also be on expanding the urban direct reach by focussing on outlet expansion.
Organised trade has done well in FY 2022-23. The Company is aggressively driving distribution and penetration, both in modern trade and e-commerce channels. Large packs have been placed exclusively in the e-commerce space, and the response has been reassuring. The idea is to scale up further, focussing and capitalising on the realms of e-com, and B2B. Next year would be dedicated to driving visibility in the modern trade channels.
The last fiscal year was marked with new launches of variants, and this has increased its market share in the extruded category. The West and South are also showing traction, and we plan to realign our efforts in the coming year, ensuring growth.
This year, there was a lot of focus on driving the sales fundamentals, and efficiencies, especially following the normalcy that started resuming, post the pandemic lockdowns.
As consumers increasingly rely on digital platforms for easy access, querying and engagement with prospective brands and services, ensuring a meaningful presence across online channels is critical. Your Company is investing substantial time and resources to develop compelling content and presence across various social media platforms, web and mobile applications. These engagements are viewed as meaningful investments to convince and retain consumers towards our brand and services and build long-term relationships.
Supply Chain Operations
The Company has developed a resilient supply chain process to ensure a seamless supply of food products to consumers. Its Business Continuity Plan enabled the availability of material, manpower and manufacturing capacity across factories, daily monitoring of stock and partnering with local communities to ensure an uninterrupted supply of products. This was possible due to DFM?s focus on operational excellence and cost-efficiency programmes across the value chain. The Company mitigates short-term disruptions by shifting to a shorter planning horizon, focussing on priority SKUs, channel-wise planning and up-scaled transport control to enhance stock and transit visibility. Quality, safety and compliance continue to remain the backbone of DFM?s supply chain operations team. The
Company enhanced quality in distribution to deliver fresher products on retail shelves and reduce carbon footprint in operations. It also focusses on optimising vehicle fill rates to ensure sustainable logistics across the value chain.
FY 2022-23 has been a year with significant challenges, owing to inflationary trends across raw materials and packaging. The Company has been agile in managing the overall uncertainties across the supply chain to ensure that the business and customers have been well served. As the year progressed, the Company saw inflation in the commodities, fuelled by an increase in energy and crude prices. This has impacted the prices of raw materials like corn meal and certain other commodities.
To enable data-driven decision-making and drive efficiencies in operations, it is imperative to leverage technology and integrate it into all levels of the business. Over the past few years, we, at DFM Foods Limited, have taken significant strides towards becoming a digital organisation.
In order to maximise our productivity and efficiencies, we have proactively ramped up our technological investments over the last few years.
Procurement
Increased prices of raw materials such as palm oil, cornmeal and packaging materials remained a challenge for the Company during FY 2022-23. However our Cost Management Programme led to unearthing of new efficiencies, value engineering opportunities and optimisation avenues which helped mitigate the inflation to a large extent. DFM?s bulk buying programmes ensure favourable pricing terms. Further, its longstanding relationship with suppliers enables it to procure quality materials in difficult times. Its procurement team has a rigorous process of selecting vendors.
Environment, Health & Safety (EHS)
In our continued journey towards improving EHS standards as per the requirements of ISO 24000 at workplace, we have engaged with a reputed external agency to validate the Environment, Health & Safety practices and suggest necessary improvements at our factories. We are in continual improvement of EHS practices through continuous implementation of these practices at our facilities requirements of EHS standards.
Food Safety and Quality Assurance (FSQA)
The Company prioritises delivering the best quality snack productstoitscustomersthroughbenchmarkingFoodSafety and Quality Assurance Systems, supported by analytical capability, embracing the best scientific and regulatory practices. DFM?s Quality Assurance Systems, strengthened through global standards and process controls in Quality, supported by established processes for Food Regulatory compliance, have led to significant product and brand reputation in the market. Technological intervention with internal audits, followed by a review mechanism involving all internal stakeholders has helped to build a robust quality system in the organisation. DFM Foods Limited prepares and updates itself through regulatory risk assessment for business impact and outlook opportunity through continual engagement with industry and government bodies. Further, it has established a consumer complaint response mechanism to address all consumer concerns and resolve them at the earliest through root cause analysis (RCA) of complaints by the Quality Team.
At DFM, we believe in maintaining the highest quality standards of our products. We have well-defined processes to ensure compliance to all the product and regulatory requirements. We continuously audit our vendor ecosystem and work with them to consistently maintain and upgrade the quality standards.
All manufacturing facilities have completed annual certifications of ISO standards. Our laboratories are well equipped with analytical facilities that cover chemical parameter analysis and packaging testing for day-to-day analysis as well as for supporting the development of new products.
Environment Sustainability Governance (ESG)
We believe that active identification and appropriate management of ESG issues are important for value creation, operational excellence, and risk management. We have engaged an external agency for designing sustainability strategies based on the nine principles outlined in the National Guidelines for Responsible Business Conduct (NGRBC) in a way that aims to accelerate carbon reduction commitments, increases diversity, protects data, promotes transparency, protects biodiversity, maintains responsible supply chains and builds more sustainable businesses for the future. Your Company has conducted gap assessment, materiality assessment with internal and external stakeholders as per NGRBC requirements. Your Company?s sustainability commitment focusses on climate change, packaging, sourcing, and water. From 2020 to 2023, for every tonne of production, your Company reduced the usage of energy, water generation of wastewater and specific direct Green House Gas emissions. Your Company was among the first to responsibly manage quantity equivalent to the post-consumer plastic waste generated by its products, and its brands have remained plastic neutral since 2020.
Apart from plastic waste management, the Company also implemented renewable energy with Solar energy utilisation for extrusion product factory as well as biomass-based heat exchanger for energy conservation in Potato Chips production area.
Plastic Waste Management
DFM Foods Limited undertakes multiple initiatives and compliance requirements during the year to reduce its plastic footprint and protect the environment. The Company addresses plastic waste through Plastic Waste Management as per the Plastic Waste Management Rules, 2016 (as amended 2022), notified by the Ministry of Environment, Forest and Climate Change. DFM Foods Limited was among the few Food Processing companies that duly fulfilled the plastic waste registration process and has obtained Brand Owner Registration from Central Pollution Control Board (CPCB) under the said rules. The Company has contracted with Waste Management Agencies (WMAs) for the construction of a system for the collection, segregation, and co-processing of multi-layered post-consumer waste created and for achieving Extended Producers Responsibility (EPR) goal of 100%. It pursues new waste-reduction initiatives. Most of its product SKUs has been redesigned with reduced dimensions, resulting in lower usage of multi-layered plastic packaging per kg of product and eliminating large quantity of plastic from the waste stream. Further, the Company advocates efficient plastic waste management as per the guidelines of the government and regulatory agency through its active participation as a founder member of the ?We Care?? consortium, an industry body driving plastic waste management concerns of industry with the government. DFM is also the We Care Head Convener of Northern Region for driving plastic waste activities in the Northern region in association with the State Pollution Control Boards. The Company has also conducted plastic waste awareness campaigns with resident welfare associations and college students to generate awareness and educate local communities on the harmful impact of plastic waste. It continues to engage with waste management agencies, for end-to-end management of plastic waste as part of Extended Producer Responsibility and has performed Extended Producer?s Responsibility (EPR) i.e. collection, segregation and recycling of post-consumer plastic waste for the quantity of around 3,000 MT.
Key Business Strategies and Developments
The Company has made rapid progress in its journey into both rural and urban markets, bolstered by its healthy mix of a customised portfolio, deep consumer connections, significant expansion of distribution, an accelerated pace of innovation, redesigning of the supply network, and digital transformation across the value chain.
Business Outlook
DFM Foods Limited is poised to deliver strong growth in the years ahead on the back of economic development and the growth of the organised snacks food industry in India. Its ambition to become a dominant pan-India player in the industry remains unchanged. Despite the intense competition in organised snacks food sector, DFM Foods Limited as an organisation is confident of staying ahead of the competition with the strength of its expertise, brand and quality and healthier products. Being one of the market leaders in extruded snacks, it continues to strengthen its position by investing in brands, sales infrastructure, technology and talent which are vital for the growth of the Company.
DFM Foods Limited is investing in R&D and understanding consumer trends for leveraging them for its portfolio expansion and drive its future growth. Its R&D team is constantly working to develop new flavours and new launches across Snack Food Portfolio to be able to offer consumers healthy, tasty and convenient products. The Company is growing Natkhat, Curls and Fritts to diversify and strengthen the core portfolio by driving reach expansion and share gain. The distribution of these products increased in DFM?s core geography. Further, the Company is scaling up Potato Chips in other regions. DFM Foods Limited continues to increase its prominent products with price points of Rs.- 10 and above.
The Company is focussed to maximise revenue potential through all channels, across geographies and expansion of the consumer base through value options. Apart from the North and East region, it is growing its presence in other regions as well. Its pan-India distribution network and well-established brand have enabled it to effectively and cost-efficiently increase market penetration and expand its footprint across India.
FINANCIAL AND OPERATIONAL PERFORMANCE
Performance Snapshot
The financial highlights for FY 2022-23 are as follows:
Particulars | FY 2022-23 | FY 2021-22 |
Revenue from Operations | 58,608 | 55,445 |
Operating profit before depreciation and amortisation (EBITDA) | (4,346) | (1,709) |
EBITDA% | (7.41%) | (3.08%) |
Operating Profit (EBIT) | (5,757) | (3,148) |
Profit/(Loss) before tax | (6,217) | (3,271) |
Profit/(Loss) after tax | (6,260) | (2,476) |
Operating Profit/(Loss) | (9.82%) | (5.7%) |
Margin (%) | ||
Net Profit/(Loss) Margin (%) | (10.68%) | (4.47%) |
Net Worth Capital | 9,526 | 15,274 |
Employed* | 18,064 | 25,064 |
Borrowings# | 7,782 | 9,141 |
Cash & cash equivalents including current investments | 2,696 | 8,898 |
Net Cash | (5,086) | (243) |
* Total Equity + Total Borrowings (Current and Non-Current) - Right of Use Assets - Intangible assets - Intangible assets under development
#Long-term borrowing and short-term borrowing
Details of Significant Change in Key Financial Ratios
FY 2022-23 | FY 2021-22 | Change | |
Return on Capital Employed (%) | (29.23%) | (9.5%) | Reduction due to higher selling and marketing spend |
Return on Net Worth (%) | (50.48%) | (14.97%) | Reduction due to higher selling and marketing spend |
Basic EPS ( Rs.- / Share) | (12.45) | (4.93) | Reduction due to higher selling and marketing spend |
Cash EPS ( Rs.- / Share) | (9.65) | (3.66) | Reduction due to higher selling and marketing spend |
Debtors Turnover (Days) | 3.5 | 1 | - |
Inventory Turnover (Days) | 34 | 31 | Minor change |
Interest Coverage Ratio | (6.14) | (3.54) | Reduction due to higher selling and marketing spend |
Current Ratio | 0.54 | 0.97 | Due to increase in current liabilities and working capital utilisation |
Debt Equity Ratio | (0.82) | 0.60 | Minor change |
Segment Information
The Company?s business activity falls within a single operating segment, namely snack foods.
INTERNAL CONTROL AND ADEQUACY
DFM Foods Limited has instituted three lines of defence model: (i) Management and Internal control measures, (ii) Financial controls and risk management measures, and (iii) Robust internal audit function providing the third line of defence.
DFM?s internal controls and risk management practices are validated periodically with suitable review mechanisms in place. The Company has an independent internal audit function. The audits are conducted as per the Annual Audit Plan approved by the Audit Committee. The scope of the internal audit covers all aspects of business activities, including regular front-end and back-end operations and internal compliances. It lays emphasis to check on operating controls, measures undertaken by the Company to monitor risk and to check for leakages or frauds. The Company is ensuring that its internal audit and control systems are adequate and commensurate with the nature of business, regulatory prescriptions, and the size of its operations.
The Company?s robust IT systems safeguard its sensitive data and monitors ITGC on a periodic basis. Applicable Accounting Standards are strictly followed while recording transactions. A host of strategies are devised in addition to robust MIS systems, for real-time reporting, to control expenses. Any variance from budgetary allocation is promptly reported and corrected to ensure strict compliance. The controls put forth accurate summary of the organisation?s position at all times.
The Company has also established standard operating procedures as listed below to ensure smooth and efficient operations:
A comprehensive code of conduct for the Board of Directors and staff of the Company,
A Vigil Mechanism - Whistle Blower Policy to provide a safe channel of communication,
Risk management framework, and
CEO/CFO certification for financial reporting and controls to the Board.
RISK MANAGEMENT
Global volatility can put business at the risk of unforeseen inflationary pressures and potential moderation of consumer demands and choices. Churn in geopolitics can impact the landscape of operating macroeconomics and in specific supply chains. Evolving business models and the vulnerability of Information Technology (IT) systems could additionally challenge and sometimes disrupt the normal course of operations. The Company has an integrated risk management framework for the timely and effective identification, assessment, and mitigation of both short and long-term risks which may impact the business. It prioritises the key risks based on severity and probability and places risks and opportunity assessment at the top of the Boards agenda.
DFMs risk capacity is driven by the following objectives:
The Company?s growth should be consistent, competitive, profitable and responsible.
The Company?s actions on issues such as plastic and climate change must reflect the urgency of the situation, and not be constrained by the uncertainty of future impacts.
Its actions must be in line with the Company?s Code of Conduct policies.
Its goal should be to continuously improve the operational efficiency and effectiveness of the Company.
Its risk management strategy should provide reasonable assurance that DFM?s assets are protected, key risks are assessed and mitigated, and all the required information is reported to the Managing Director and CEO, Chief Financial Officer, Audit Committee, and Board of the Company.
The key risks and their corresponding mitigation measures are depicted below:
Risks | Impact on the Company | Mitigation Measures |
Competition risk | Increase in competition from new players as well as present ones can result in market share loss and decline in revenues and profitability. | Active monitoring and analysis of the competition and new trends in the market |
Tracking of monthly competition data on market share, distribution, and sales to keep track of competition results by area and brand | ||
New Product risk | Competitor coming up with superior products which may affect DFM Foods Limited revenue. | We keep scanning the market on a regular basis and strive to create products to counter the competition offering |
The Company also undertakes extensive R&D activities to keep a strong pipeline ready which may have greater reliability and market | ||
Input Cost risk | Unfavourable weather conditions or crop switchovers impact the yield, availability and cost of raw materials such as maize, potato, palm oil, etc. | DFMs procurement team monitors the underlying commodity trends and takes proactive steps to reduce the costs of raw materials and packing |
The ongoing company-wide cost management programme and higher price realisation will help mitigate the cost inflation | ||
Concentration risk | Concentration risk i.e. high dependence on a region, product category, channel, price point | DFM Foods Limited has invested in a new plant in Howrah (Kolkata) which will help ramp up business in the East. It has also taken steps to get listed on modern trade, e-commerce, and eB2B accounts |
High focus on the kids segment | Consulting partners have been roped in to help with increasing the footprint in alternative channels | |
Cyber and data security risks | Technology failures, virus attacks, phishing attacks, cyber security threats, hacking, etc. may severely impact business operations as DFM Foods Limited expands its digital footprint to leverage information technology as a business enabler | A comprehensive vulnerability assessment and penetration testing, adequate IT policies and processes to preserve secured IT systems and installation of anti- virus software to protect the systems from threats like hacking, phishing, etc. |
The inability to timely prevent, respond or recover from cyber security incidents may pose a major risk | DFM Foods Limited upgraded Firewalls to next-generation Firewalls with robust threat protection capability | |
Next-generation Firewalls are being used with robust threat protection capability | ||
Cybersecurity Awareness Week was observed to sensitise employees at all levels to minimise risk of cyber incident. Further, a periodic cybersecurity refresher training module has been launched | ||
Continuous in-house tracking and monitoring of IT systems is done to prevent and remediate security breaches | ||
Regulatory and Compliance risk | The Company is exposed to regulatory risks on account of inadequate compliance of regulations, contractual obligations and intellectual property violations leading to litigation and loss of reputation | The Company implements strict quality and EHS benchmarks which are reviewed and progressed on an ongoing basis to remain compliant with the accepted norms. The manufacturing facilities have the necessary certifications for quality, environmental standards and operational health and safety. It works closely with various Indian regulatory agencies to keep itself updated on the dynamic regulatory obligation |
DFM Foods Limited is part of the core group Industry association (FICCI, CII, AIFPA and We Care) and engaged in advocacy action/representation on HFSS, FOPNL, PWM and LM decriminalisation | ||
DFM Foods Limited has led the delegation on behalf of AIFPA to the Ministry of Food Processing and shared industry concerns related to Front of Pack labelling in relation to HFSS which needs to be voluntary in line with the rest of the world | ||
DFM Foods Limited is a FOUNDER member of "We Care consortium" which is actively involved in advocacy action with govt. DFM Foods Limited has been conferred by AIFPA (All India Food Processors Association) as NORTH ZONE Chairman and also selected as Northern HEAD CONVENER by We CARE consortium | ||
FM Foods Limited is already registered as brand owner under latest CPCB portal on EPR compliance and is 100% plastic neutral since 2020 | ||
Credit and Liquidity risk | Credit risk may impact the Companys creditworthiness when it issues instruments. It also measures the customers creditworthiness when credit is extended | Investment Policy is being followed while making investments basis the cash flow assessments to maximise returns on investments |
Liquidity risk may result in the business lacking sufficient cash to meet its financial commitments on time and facing hurdles to sell its asset in the market | Cash flow is prepared and reviewed periodically | |
Quarterly estimates are prepared and reviewed and corrective actions are executed | ||
Environmental risk | DFM?s inability to comply with ESG (environmental, social, governance) norms and expectations impacts its business growth | The Company is committed to the conservation of the environment, adopting sustainable practices and lowering its emission footprint |
The government may impose obligations on FM Foods Limited for environmental protection | FM Foods Limited ensures to comply with the Extended Producers Responsibility (EPR) requirements as per the Plastic Waste Management (Amendment) Rules, 2022 | |
FM Foods Limited entered into an agreement with a service provider for the collection, segregation and co-processing of multi-layered post-consumer waste generated due to its products being sold across India. It accomplished 100% target for Extended Producer?s Responsibility (EPR) | ||
Quality and Safety risk | Any negligence from the Company in maintaining quality and safety standards may result in loss of business and damage its reputation | Internal food safety and quality standards are inspected regularly to ensure that the products meet the most stringent requirements for delivery of safe and quality products to consumers |
Consumer feedback and complaints may damage DFM?s reputation | A plant quality index and total product quality scoring methodology are developed for owned and contract facilities | |
Consumer Grievance Mechanism is in place and is being addressed on a real-time basis by customer care executives through calls/ emails from consumers | ||
Commodity Cycle risk | Key raw and packing material, prices are subject to volatility which may have a significant impact on operating performance, cash flows and profitability | The ongoing cost optimisation program will help mitigate the cost inflation |
Business Continuity (BCP) and Disaster Recovery Plan (DRP) | High response time in case of external uncontrollable events like natural calamities | FM Foods Limited adapted strategies and prepared Business Continuity Plan (BCP) and Disaster Recovery Plan (DRP) in coordination with all functions |
Failure to effectively prepare for and respond to unanticipated disruptions in operations can delay the delivery of final products to consumers, leading to a negative impact on the business | FM Foods Limited prioritises the safety of its stakeholder community and ensures business survival during unpredictable crises | |
FM Foods Limited has established Disaster Recovery capability for all critical business applications to ensure business continuity | ||
Risk associated to Intellectual Property Rights | Risk associated with the protection of Registered brand under the name of CRAX and Natkhat | Monthly monitoring of the Trade Mark Authoritys watch list is carried out regularly |
Regular tracking of comparable trademarks used by third parties; and timely legal action |
INFORMATION TECHNOLOGY
During FY 2022-23, the Company continued accelerated adoption of information technology for business improvement. Key technology improvements taken up by the Company during the year were as below:
Integrated ERP: During the year, the integrated ERP system was further rolled out for primary sales processes across all billing locations. Key business processes of the organisation including procure-to-pay process, plan-to-produce process and order-to-cash process are now running on the integrated ERP system. This has tremendously improved coordination between different functions and is also helping improve process efficiency and controls.
Data Analytics: During the year, the Company implemented a data warehousing and data visualisation solution to facilitate faster, and sharper data-driven decision-making. This will allow the organisation to leverage business data available in various systems like ERP, Secondary Sales automation etc. The data visualisation dashboards help managers and leaders to get actionable insights into various areas of business.
Data Security: The Company continued its journey to strengthen data security. Users are critical for security as they have turned out to be weak links in many security incidents encountered by different organisations. Several steps were taken during the year to improve security at user end including rolling out an organisation-wise cybersecurity awareness training, implementation of two-factor authentication, rolling out data loss prevention and user data backup solutions.
Secondary Sales Automation: During the year, secondary sales automation application was implemented and stabilised across East, West and South. The solution is now running across all geographies. The automation has helped to shorten claim processing cycle for channel partners. It has also helped to improve governance of sales team in rural areas where visibility was limited before automation.
In the coming year, the Company would continue to focus on IT and make necessary investments required to leverage information technology to the maximum and strengthen data security to support business growth.
HUMAN RESOURCE AND INDUSTRIAL RELATIONS
Resuming Normalcy post Covid
Normalcy resumed across the organisation and geographical locations with a focus on process execution that has got disrupted in the last two years of Covid. The field sales team are being trained regularly on the disciplined way of sales execution and cross-functional team working.
New joinees are inducted in the most effective way through online and face-to-face programmes.
Towards building a future-ready organisation, Management trainees were recruited from reputed Management Institutes such as IIM Ranchi, IMT Ghaziabad, Ashoka University and Lal Bahadur Shastri Institute of Management (LBSIM). Further, towards nurturing the high potential talent within the organisation, Development Centres were created to assess performance and potential of people and create learning paths towards their aspirational career destination.
One of the most important process viz. the Performance Management System (PMS) has been digitised that enables employees and managers document and track their business aligned goals periodically.
Further, goal alignment workshops were conducted to help employees identify their business and functional goals for the year. This enabled them to track the goals on a half yearly basis and course correct through insightful actions, as dialogued between the employees and the manager. Thus, merit-based rewards and strong performance culture has been embarked and this journey shall continue with improvements on the way for effective institutionalisation.
Employee safety and wellbeing has always been one of our top priorities and as a result of which the organisation extends medical support through insurance enhancement to help employees in dire need. As part of continuous improvement in employee welfare, workmen and staff on the rolls of the Company have been covered under Term Life Insurance policy.
CAUTIONARY STATEMENT
The Management Discussion and Analysis may contain forward-looking statements describing the Company?s objectives, expectations or predictions within the meaning of applicable laws and regulations. These statements are subject to certain risks and uncertainties. Actual results may differ materially from those expressed or implied in the Statements depending on the circumstances and factors such as government regulations, tax laws, political and economic developments in India, raw material availability and prices, cyclical demand and pricing in the Company?s principal markets, competitive actions, and other incidental factors.
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This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.