Diamond Agro Industries Ltd Management Discussions

DIAMOND AGRO INDUSTRIES LIMITED ANNUAL REPORT 2003-2004 DIRECTORS REPORT MANAGEMENT DISCUSSION AND ANALYSIS REPORT The management of Diamond Agro Industries Ltd. is pleased to present its analysis report for the year 2003-2004. INTRODUCTION: The company is engaged in the production and manufacturing of edible oil products including Vanaspati and Refined oils under its brand name "AKASH". INDUSTRY OUTLOOK: Unluckily due to radical changes in the duty structure and with so many changes both at national and international levels, the vanaspati Industry has faced lot of problems in the recent years the factors directly or indirectly responsible are as follows 1. After The Finance Act (of 2001) duty structure for vanaspati & Edible oils Industry has seen many changes and subsequently during the years the duty structures has seen many changes quite often. 2. Then in the international market, the rates of oil has changed so frequently that along with the fluctuating rate of Duty it is difficult to plan the production and the cash flow. The import of oil is necessary to maintain the quality as there is no other local oil available compatible with the CPO (Crude Palm Oil) which is imported. 3. There is no long term credit available for import of oil which necessitate more of working capital fund. 4. Then an excise duty of Rs. 1250/- per tonne has also been imposed during this budget 2003 on vanaspati & refined oil whereas the price realization is much lesser than the amount of excise duty imposed & thus making margins very low. 5. The company has to incur extra expenditure on freight etc as the port is at quite a distance from factory site. This along with the increased custom duty has a multiplied effect in lowering the margins. Hence these are the factors which are directly responsible for the losses which are mainly due to inconsistent policies of the Govt. towards vanaspati industries. OPERATIONAL AND FINANCIAL PERFORMANCE Financial performance : 2003-2004 2002-2003 (Rs. in lacs) Sales 78.62 103.41 EBIDTA (-) 130.01 (-) 102.69 Trading activities During the year sales were 16838.759 MT including 10928.758 of Vanaspati & 5909.801 of Refind oil. There is 25% decline in sale volume of vanaspati & 50% decline sales volume of Refind oil due to lower demand factor. The Company continued its efforts in encouraging its sales volume despite lower demand and sales volume. Distribution network: The sales is through dealers network who market both bulk & retail packs of the company. INTERNAL CONTROL SYSTEMS The Company ensures existence of adequate internal control through documented policy and procedures to be followed by the executives at various levels in the organization. While operating managers ensure compliance within their areas, internal audit carries out audit test on the selected samples and report noncompliance weaknesses, if any, through internal audit reports of the respective Department. With the objective of improving the systems and removing bottlenecks, if any, periodic systems review is carried out and Policies and Procedure Manuals are continually reviewed and amended Opportunities and threats Economic liberation, rapid urbanisation , rising consumer awareness, attitudes habits and their prosperity has made the market more competitive. Besides maintaining the quality standards, company has to ensure the quantitative terms of the sale and the fluctuating market of imported oils along with the quite often changing Government policies in terms of custom duty continue to worry the management including other factors. Risks & Concerns Basically the vanaspati industry and Government has to work hand in for the growth of the industry as till today due to unsynchronized Development (in Government policies) and radical changes in duty structure, the industry despite its ample sqope of developments is not able to grow. Cautionary Statement The report may contain certain statements that the Company believes are, or may be considered to be "forward looking statements" that describe our objectives, plants or goals. All these forward looking statements are subject to certain risks and uncertainties, including but not limited to, Government action, economic development, risks inherent in the Companys growth strategy and other factors that could cause the actual results to differ materially from those contemplated by the relevant forward looking statements.