Ganges Securities Ltd Management Discussions

Annexure A

Economic Overview

The Indian economy has been consistently outperforming all other leading economies with respect to both GDP growth as well as other macroeconomic factors. The economy has also shown significant resilience to external factors such as supply chain disruptions, growing geopolitical tensions, inflationary pressures, and weakness in global demand, further underscoring the strength of its underlying fundamentals. These uncertainties continue to undermine the confidence among consumers and business to spend and thus impacting economic growth. Despite this gloom market analysis this could well be Indias decade. Despite continuing the global uncertainties Indian economy has fared better during the year.

Risks to the global outlook are now broadly balanced. On the downside, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Israel, could persist persistent core inflation where labour markets are still tight, raise interest rate expectations and reduce asset prices.

Indian tea is one of the finest in the world owing to strong geographical indications, heavy investment in tea processing units, continuous innovation, augmented product mix, and strategic market expansion. The Iran market constitutes nearly 20 per cent of Indias tea exports, and this is causing financial stress for the exporters. Prices have declined by more than 16 per cent in the period January - March 2024 compared to the same period last year. Both North and South India prices took a severe beating in 2023-24. The average All India auction prices declined by Rs 14.81 per kg for the period April to March, 2023-24.

Industry Structure and Developments

Indian markets had a quiet FY2023 with major indices closing fiat. The year started with ongoing Russia-Ukraine geopolitical tensions, accelerated monetary tightening by major central banks, volatility in commodity prices etc.

The NBFCs have played a pivotal role in the Indian financial sector for decades, offering services such as loans and advances, acquiring shares/ stocks/ bonds/debentures/securities issued by the government or local authority, and other market instruments.

As per IMF, medium-term growth forecast for India remains strong, supported by improving macroeconomic fundamentals and resilient domestic demand. Private consumption in India has seen an increase in recent times and is expected to gather momentum in future fiscal years with higher spending expected towards housing, travel and mobility and personal services (health and education) segments.

The Companys subsidiary, Cinnatolliah Tea Limiteds (CTL) main business is manufacture and sale of Tea. The Tea crop period ranges from March to December and the crop yield depends on the weather conditions. The area under plantation is constant and as such the yield depends to a large extent on irrigation facilities, better soil management techniques etc.

The production cost of tea comprises of various inputs, manpower and welfare costs. Manpower accounts for almost 65% of cost. The tea industry in India is grappling with significant challenges in the 2024 season, including production declines, adverse weather conditions resulting in financial strain.

One of the major setbacks is attributed to adverse weather conditions, particularly high temperatures and insufficient rainfall. This crucial season typically yields the finest-quality tea during the first and second flushes. However, the substantial shortage of rainfall has posed significant challenges for the industry.

The soaring temperatures have taken a toll on tea bushes, rendering them ill-prepared to produce leaves effectively. This predicament has emerged as a grave concern for the entire industry, impacting both production and quality.

CTL has taken up adequate soil conservation measures and application of chemical based inputs like fertilizers and plant protection formulations are carefully and scientifically designed to minimize the impact on environment.

Opportunities and Threats

The Company is an unregistered Core Investment Company There are external risks as well, such as a more profound slowdown of the global economy than anticipated. The High volatility in the market along with higher inflation has intensified the competition.

The Indian equity market seems comfortably seated in an optimism zone, on the back of an ebbing fear of rate hikes in a recessionary environment and a lower valuation premium for emerging markets. As the fundamentals of the Indian macro-economic are intact, it is expected that India will continue to remain as a bright spot among other emerging countries and market will continue to move northward.

The future of NBFCs in India looks promising. The sector is expected to grow at a CAGR of 18.5% between 2021 and 2026, according to a report by Research And Markets.com. The growth is expected to be driven by various factors like the increasing demand for credit, the governments initiatives to promote financial inclusion, and the rise of digitalization.

India Tea Market was valued at USD 11,702.3 Million in 2024 and is expected to reach USD 17,934.1 Million by 2033, at a CAGR of 4.19% during the forecast period 2024 – 2033.

Tea remains the favourite Indian beverage with a high consumer preference for boiled milk tea. In Tea growing areas of Assam, we are witnessing intense heat or continuous rainfall, both of which are creating impediments to anticipated production of quality and quantity. Tea is inherently a rain-fed crop, relying heavily on consistent precipitation to thrive. The pronounced lack of rainfall has led to significant wilting of tea bushes, a phenomenon that not only hampers the immediate yield but also threatens the long-term health and productivity of the tea plants. However, at CTL, we practice sustainable agriculture with practices of irrigation, drainage, shade planting etc. which somewhat negates the impacts. Shade trees serve as moderator of light intensity besides contributing about 20 kg of nitrogen per hectare, through leaf fall.

As consumers become more informed and adventurous, the tea industry is sure to offer a diverse and innovative spectrum of teas, brewing methods, and experiences. We can expect to see continued growth in the areas of health and wellness, functional teas, sustainability, and experiential tea journeys.

Performance

The Company operates in single segment which is to invest, deal etc. in securities. Apart from its operations in investment in securities, the Company also continues to be engaged in business of Tea Manufacturing and processing through CTL. There has been no change during the year under review in the nature of business pursued by the Company.

The tea sector faces the formidable challenge of producing an affordable, high quality, and more sustainable product in a highly competitive market and under increasingly harsh and unpredictable weather conditions. Changing climate patterns are interfering with all phases of tea cultivation, such as plucking, pruning, and applying chemical inputs.

According to data released by the Tea Board, tea production in North India, comprising Assam and West Bengal, witnessed a decline of over 21 million kg during the period of January to March 2024. Adding to the industrys woes, tea prices have continued to decline in 2024, exacerbating the financial strain on producers. Data from the Tea Board reveals that prices have dropped by over 16 percent during the period of January to March 2024 compared to last year.

The apex body of the planters, ITA, has estimated that while tea prices increased at a compounded annual growth rate (CAGR) of 4 per cent over the past decade, input costs of coal and gas have simultaneously risen at a rate of 9-15 percent.

With internal consumption almost stagnant and the exports scenario depressed, surplus tea has remained in the system.

The Disclosure as stipulated under Regulation 34(3) read with Schedule V Clause B of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, are as follows:

a. The Debtors Turnover Ratio and Inventory Turnover Ratio as on 31st March, 2024 are Nil;

b. Interest Coverage Ratio and Current Ratio as on 31st March, 2024 are Nil and 344.25 as compared to 88.87 and 70.31 in the previous financial year due to Nil borrowing and more deposits & short term loans respectively;

c. The Operating Profit Margin and Net Profit Margin for the current financial year are 83.49% and 62.56% compared to 87.65% and 70.16% in the previous financial year respectively owing to decrease in dividend income. In addition to above, there was change in return on Net Worth to the tune of 1.30% as compared to 2.26% in the immediately previous financial year due to decrease in dividend income.

Outlook

As per International Monetary Fund (IMF) projections, global inflation is expected to fall from its 2022 peak to 5.8 % in 2024 and 4.4 % in 2025. Further, IMF projects global growth at 3.1 % in 2024 and 3.2 % in 2025, on account of greater than expected resilience in developed economies and large emerging market economies.

The economic growth momentum of the country is largely dependent on ongoing global events that pose downside risk to growth. India is currently the third-largest middle-class market, after China and the United States and is expected to be the largest in another decade. The tailwinds supporting Indias growth story include the effectiveness of RBIs monetary policy to contain inflationary pressures, increase in household consumption, robust digital public infrastructure, decline in systemic financial risks bolstered by stronger balance sheets and healthy capital buffers of financial institutions and government thrust towards capital expenditure. Capital investment is expected to be the dominant growth driver for the Indian economy in medium term. It has been supported through initial revival in the investment cycle.

The Indian tea market is expected to exhibit a CAGR of 4.5% in the period between 2022 and 2027. India is among the largest producers and consumers of tea globally. The increasing consumer preference for premium and packaged tea brands is accelerating market growth. Growing consumer awareness regarding the health and medicinal benefits of organic and Green Tea variants are also contributing to market growth. Over the recent years, the out-of-home market for tea has been expanding as various tea lounges have mushroomed across the globe. Proliferating online retail channels are anticipated to drive market growth, with 5.9% CAGR over the forecast period. The popularity of online apps, coupled with the availability of discounts, and easy product delivery has benefited the markets supply chain. This factor is expected to bode well for the growth of the segment over the forecast period.

Risks and Concerns

Your Company follows a risk management process for identification, categorization and prioritization of various risks like operational, financial, legal and other business risks. The Chief Financial Officer aided by the Internal Auditor reviews the effectiveness of the process at regular intervals and reports the same to the Audit Committee.

As per Risk Management framework and procedures, management treat various category of risks and take appropriate actions for its mitigation. Company has the process of communication, consultation, monitoring and periodical review of the risks and effectiveness of the mitigation plan. The Company has in place a mechanism to identify, assess, monitor and mitigate various risks to key business objectives. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. The Company is mainly exposed to market risks in the form of reduction in value of its investment and fall in return due to dip in the investee companys performance. Delay in repayment by the borrower companies can affect liquidity and redeployment scope. The Company is also exposed to fluctuation of economy and industry cycle.

The Audit Committee periodically reviews the efficacy of Internal Financial Control Systems and risk mitigation process.

The Tea Association of India estimates the cumulative drop in production will be around 60 million kilograms by the end of June 2024 than previous year . The combination of these adverse weather conditions has not only curtailed tea yields but also precipitated a significant liquidity crisis, potentially threatening the future viability of the industry. The Tea Board of Indias latest data paints a grim picture for the tea-growing states of Assam and West Bengal.

Up to April 2024, production in Assam has plummeted by 8 per cent compared to the same period last year, while West Bengal has experienced an even steeper decline of 13 per cent.

Internal Control Systems and their adequacy

The Companys internal audit is conducted as per the Annual Audit Plan approved by the Audit Committee. It lays emphasis to check on process controls, measures undertaken by the Company to monitor risk and to check for leakages or frauds.

Further, Statutory Auditors verified the systems and processes and confirmed that the Internal Financial Controls system over financial reporting are adequate and such controls are operating effectively.

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The Audit Committee periodically reviews the efficacy of Internal Financial Control Systems and risk mitigation process. Your Board believes that appropriate procedures, controls and monitoring assessment procedures are in place and considered adequate.

The Company has an adequate system of internal control implemented by the management towards achieving efficiency in operations, optimum utilization of resources and effective monitoring thereof and compliance with applicable laws. The Internal Auditors were suggested with audit plan based on the risk profile of business activities of the organization, which were approved by the Audit Committee. The adequacy of the internal control system is reviewed by the Audit Committee of the Board of Directors. The efficacy of the internal checks and control systems are verified by the Internal Auditors as well as the Statutory Auditors. The Audit Committee reviews the internal audit plan, adequacy and effectiveness of the internal control system, significant audit observations and monitors the sustainability of remedial measures.

Your Board believes that appropriate procedures, controls and monitoring assessment procedures are in place and considered adequate.

Human Resources

In keeping with our employee-first approach, we have steadily instituted measures to assure ourselves of the well-being of all our employees. The Company is into a continuous process of providing a safe work environment for our employees and stakeholders. Steps have been taken to inculcate a performance-oriented culture by focusing and laying more emphasis on the performance management system. It has been Companys endeavour to attract talent from the most reputed institutions to meet the requirements of various functions. The Company will strengthen its operative staff s as and when need arises.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys outlook, objectives, projections, estimates and expectations may be ‘forward looking statement within the meaning of applicable laws or regulations. Actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include changes in Government regulations and tax-regime, economic developments within India and abroad, financial markets, etc. The Company assumes no responsibility in respect of forward-looking statements that may be revised or modified in future on the basis of subsequent developments, information or events. The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the Accounting Standards notified under Section 133 of the Act read with the Indian Accounting Standards Rules, 2015. The management has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs and profit/ loss for the year. This report should be read in conjunction with the financial statements included herein and the notes thereto.