Flex Foods Ltd Management Discussions.

Forward Looking Statement

Forward-looking statement reflects the current expectations regarding future results of operations. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of their dates.

This Report should be read in conjunction with the financial statements included herein and the notes thereto.

Industry Scenario and Developments

Food processing has an important role to play in linking Indian farmers to consumers in the domestic and international markets.

The Indian food processing industry accounts for 32 per cent of the countrys total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. It contributes around 8.80 and 8.39 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture respectively, 13 per cent of Indias exports and six per cent of total industrial investment. The Indian gourmet food market is currently valued at US$ 1.3 billion and is growing at a Compound Annual Growth Rate (CAGR) of 20 per cent (https://www.ibef.org).Indias organic food market is expected to increase by three times by 2020 The Food processing Industry in India is one of the largest in terms of production, consumption, export and growth prospects (http://www.indialawoffices.com),. Demand for instant food, packed food, ready-to-eat food has increased significantly. The food sector has emerged as a high-growth and high-profit sector due to a large agriculture sector, abundant livestock, immense potential of value addition and cost competitiveness. India is the second–largest producer of fruits and vegetables. Currently, food processing accounts for almost one-third of the total food market in India. The food processing industry is valued at US$258 billion, and is the fifth largest industry domestically in terms of production, consumption, export, and expected growth in the country. It contributes to around 14 percent of manufacturing Gross Domestic product (GDp) and 13 percent of Indias total food exports (https://www. india-briefing.com). The Confederation of India Industry (CII) estimates that the food processing sector have the potential to attract as much as US$ 33 billon of investment over the next 10 years and also to generate employment of nine million people-days. Government initiatives were rolled-out to increase the capacities in the entire supply chain of food processing. private consumption combined with ongoing structural reforms are expected to continue to boost economic activity in India. Greater transparent regulatory environment and evolving of food laws are making India emerge as an attractive business destination, creating opportunities for investment and growth especially in the processed foods sector. Consumers in India are fast evolving; they are young, aspirational and have higher disposable income. The young India is more health and fitness conscious. Rise in lifestyle diseases has also prompted the Indian consumers to evaluate their food habits more closely and make lifestyle changes, where required. The global mushroom industry has expanded very rapidly in the last two decades by the addition of newer types of mushrooms for commercial cultivation. The global Mushroom market accounted for US$ 38.13 Bn in 2017, expanding at a CAGR of 7.9% from 2018 to 2026 (https://www.prnewswire. com/news-releases/global-mushroom-market-2018-2026). Rising consumption of processed food items, rising consumer awareness regarding the health benefits offered by mushrooms, and improvement in packaging technologies are some of the key factors influencing the growth of the mushroom market at present. However, mushroom as a vegetable is yet to find regular place among the Indian consumers. Despite of favourable agro- climate, abundance of agro wastes, relatively low-cost labour and a rich fungal biodiversity, India has witnessed a lukewarm response in its growth.

Business Overview

Indias vast agricultural resources alone creates huge potential for investments in its food processing and equipment industry. Major areas holding scope for value added processing are in the canning, packaging, frozen food, Freeze dried food and thermo-processing industries. The Company nestled in the foothills of the Himalayas near the banks of the Holy Ganges is engaged in the growing and processing of Culinary Herbs , Mushrooms, Fruits and Vegetables catering to the Domestic and International markets mainly in Europe, USA, Canada & Australia. The Company offers a wide range of Vacuum Freeze Dried, Air-Dried, Frozen and IQF (Individually Quick Frozen) product range of mushrooms, herbs, spices and fruits / vegetables, meeting strict quality & hygiene standards. Canned button mushroom in various shapes and sizes is also available as per the customer requirement. The Company is a single point source of supply of Frozen / IQF (Individually Quick Frozen), Air Dried, Canned as well as Freeze Dried products to the customers as per their requirements. A tempting food item i.e. retail packs of Culinary Herbs for Indian customers are also available in various varieties. The Company brand stands for Quality, Trust and Commitment. The Companys prime concern is to meet highest quality levels and achieve customer satisfaction by providing natural fruits, herbs, vegetables, mushrooms and other products, fully grown and processed in best natural ways. The Company is always ready to satisfy its customers demand for high value food products.

Product-wise performance
Sale of Finished Goods
Description Current Year previous year
Quantity Value Quantity Value
(in MTS) (Rupees (in MTS) (Rupees
in Lacs) In Lacs)
processed 1856 7414.74 1843 7961.85
Foods
Others 742 743.96 797 796.64
Total 2598 8168.70 2640 8758.49

Opportunities and Threats Opportunities

Large crop and material base offering a vast potential for agro processing activities

Setting of Agri-export zone (AEZ) and food parks for providing added incentive to develop green field projects

Rising income levels and changing consumption patterns

Favourable demographic profile and changing lifestyles

Integration of development in contemporary technologies such as electronics, material science, bio-technology etc. offer vast scope for rapid improvement and progress

Opening of global markets

Threats

Low availability of adequate infrastructural facilities

Lack of adequate quality control and testing methods as per international standards

Inefficient supply chain due to a large number of intermediaries

Higher requirement of working capital.

Inadequately developed linkages between Research organizations and industry.

Seasonality of raw material

High packaging cost

Future Outlooks

Keeping in view the availability of diverse raw material (fruit and vegetable), change in life style, rising income, increased urbanization and positive government support, there exists a good potential for expansion of fruit and vegetable processing industry in the country. Establishment of fruit processing units in rural sector shall help in reducing the post-harvest losses, develop wide variety of value added products, and utilize by-products of food industry to improve the economic lot of growers, processors and nutritional status of Indian population. Rising consumption of processed food items, rising consumer awareness regarding the health benefits offered by mushrooms, and improvement in packaging technologies are some of the key factors influencing the growth of the mushroom market at present. Global mushroom market value is expected to exceed USD 50 billion in the next seven years due to growing mushroom demand in from the recent past. The reason for growth of food processing industry in India are

Increased urbanization in the country has given a boost to the food industry in India.

Majority of the women in the country are working as a result of which families have extra income which they are spending in buying food.

The standard of living in the country has improved as a result of which there has been an increased demand for food.

Supermarkets and malls have opened all over the country and this has helped in making shopping for food a pleasurable experience.

The consumers can select, inspect and pick up food items that they like in an ambience that is comfortable. This too has helped to boost the sale of food products in the country

Risks & Concerns

Risk is an integral part of business. Risk can be broadly categorized into two broad categories: one Risk Associated at the Transactional Level and the other Risk Associated at the Decision Making Level.

Risk Associated at operational level can arise out of operations, financial dealings and / or compliances of legal system. The Company has appropriate control mechanism and operating effectiveness of Internal Financial Controls & Legal Compliance. Risk Associated at the Decision Making levels are political, social & economic, technology, capital structure, foreign exchange & interest rate etc. These risk are evaluated in detail before taking any strategic & financial decision.

Internal Control System, their Adequacy and operative effectiveness

The Company has laid down internal financial controls to be followed by the Company and such policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, the safeguarding of 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 Company has created appropriate structures with proper delegations of duties and responsibilities of employees at each level on enterprise basis which ensures the proper adherence and compliance of statutory laws as applicable to the Company.

The Internal Financial Control is subject to review by the Management in respect of their adequacy and operative effectiveness which in turn are also reviewed by the Internal Auditors, Statutory Auditors and Audit Committee. Finally, the Board of Directors of the Company also review and take note of them.

Human Resources/Industrial Relations

The company lays due emphasis on sound Human Resource Management practices and appraisal systems with focus on cordial employer-employee relations to ensure higher level of productivity and operational efficiency. Adequate initiatives have been taken to strengthen and develop its human resources as a key strength through continuous training inputs and focused development plan. As on 31st March 2019, the total number of permanent employee in the Company was 469.

Environment, Occupational Health & Safety your Company is committed to conducting its operations with due regard to the environment and providing a safe and healthy workplace for employees. The collective endeavor of your Companys employees at all levels is directed towards sustaining and continuously improving standards of environment, occupational health and safety in a bid to attain and exceed international benchmarks.

AnAlysis of finAnciAl And opeRAtionAl peRfoRmAnce

The accompanying financial statements have been prepared in accordance with the requirements of the Companies Act, 2013 and Generally Accepted Accounting principles and Accounting Standards prevailing in India.

A. finAnciAl conditions

The composition and growth of assets was as under:

[Rs. in lacs]

Particulars March 31, 2019 March 31, 2018 Growth %
Land 1203.00 1131.91 6.28
Buildings 2284.15 2185.61 4.51
plant & Equipments 10787.18 10263.95 5.09
Electrical Fittings & Installations 396.86 392.82 1.03
Office Equipments 95.88 91.68 4.58
ERp Software 32.49 32.49 --
Furniture & Fixtures 21.10 20.89 1.01
Vehicles 106.80 127.38 (16.16)
Total 14927.46 14246.74
Less: Acc. Depreciation 6638.23 6130.72
Add: CWIp 76.04 19.76
net Fixed Assets 8365.27 8135.78

B. Results of opeRAtions

The summary of operating performance for the year under review is given below:

(Rs.in lacs)

Particulars Year ended Year ended

March 31, 2019

March 31, 2018

Amount % Amount %
income
Revenue from operations 8536.63 98.11 9122.57 97.38
Other income 164.41 1.89 245.59 2.62
Total Revenue 8701.04 100.00 9368.16 100.00
expendituRe
Raw Material Consumed 1291.45 14.84 1570.81 16.77
purchase of Stock in Trade 22.91 0.26 52.62 0.56
(Increase)/Decrease in stock (200.55) (2.30) 77.23 0.82
Change in Inventory of Biological Assets (7.39) (0.08) (1.99) (0.02)
Gain in change in fair value of Biological Assets (1.74) (0.02) (1.50) (0.02)
Manufacturing expenses 2256.89 25.94 2361.45 25.10
Payment & benefits to employees 1769.97 20.34 1723.31 18.40
Administrative, selling and other expenses 1614.82 18.56 1663.61 17.76
Operating expenses 6746.36 77.54 7435.54 79.37
EBDIT 1954.68 22.46 1932.62 20.63

c. siGnificAnt chAnGes in finAnciAl RAtios

During the year the significant changes in the financial ratios of the Company, which are more than 25% as compared to the previous year are summarized below:

Financial Ratio fy 2018-19 fy2017-18 Change Reason for change
Debt Equity Ratio 0.30 0.40 -24.50% Due to decreased in borrowed funds as loan and unsecured loans were repaid during Fy 2018-19 term
Net Profit Margin 12.7% 7.30% 74.5% Due to Foreign Exchange fluctuation and exemption of tax on agriculture income
Return on networth 12.8% 8.5% 49.6% Due to increase in net margin in Fy 2018-19 as explained in Net profit Margin ratio