Ganges Securities Ltd Management Discussions.
Ganges Securities Limited (the Company) a part of K K Birla Group of Sugar Industries, is primarily engaged in investment in securities. The Company has two wholly owned subsidiaries namely Cinnatolliah Tea Limited and Uttar Pradesh Trading Company Limited being engaged in Tea plantation and processing business and investment business respectively.
India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies.
Global growth is expected to remain at 3.0 per cent in 2019 and 2020, however, the steady pace of expansion in the global economy masks an increase in downside risks that could potentially exacerbate development challenges in many parts of the world. Indias GDP is forecast to expand 7.5% in FY20 and 7.7% in FY21. India will further build its lead as the worlds fastest-growing major economy as it picks up pace next year while the global economy is forecast to slow as per the International Monetary Fund. In fact, the effects of the external shocks such as increase in crude price and conditions worsened as recovery in some advanced economies caused faster investment out flows were contained in part by Indias strong macroeconomic fundamentals and policy changes (including amendments to the policy/code related to insolvency and bankruptcy, bank recapitalization, and foreign direct investment.
Industry Structure and Developments
The Government of India has introduced several reforms to liberalise, regulate and enhance the industries. Investments and growth follow a similar pattern, and investments make up a crucial component for overall growth optimization. At the top of the business cycle, investors will naturally be watching for recessionary triggers. But the fundamental indicators of economic health, the labor market and inflation are holding an ideal position heading into 2019. With no obvious financial imbalances emerging, the economy appears remarkably well-balanced and poised to enjoy a good period of full employment and price stability.
India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. Numerous foreign companies are setting up their facilities in India on account of various government initiatives like Make in India and Digital India. The Government of India, under the Make in India initiative, is trying to give boost to the contribution made by the manufacturing sector and aims to take it up to 25 per cent of the GDP from the current 17 per cent. Besides, the Government has also come up with Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy.
At a time when most economies in the world are moving at a sluggish pace, India, by contrast, is seen as a reforming economy with the prospect of strong long-term growth.
Despite uncertainty in the global economies coupled with domestic challenges pertaining to slow progress on certain crucial reforms and the delay in anticipated economic recovery, the Indian market outperformed the emerging markets.
Opportunities and Threats
Your Company being an Investment Company it seeks opportunities in the capital market. The unpredictability in the stock indices in the financial year under report represents both an opportunity and challenge for the Company. There are external risks as well, such as a more profound slowdown of the global economy than anticipated or renewed tensions over trade between the US and China.
Over the years, India has emerged as one of the fastest growing economies in the world and an attractive investment destination driven by economic reforms and a large consumption base. Next few months could off er some good investment opportunities. We continue to believe that the market would still be in watchful mode till Mays centre election results. Overall, in the long term, the fundamentals underlying the business drive the stock returns and they are of at most importance to the investors.
Despite the positive outlook, the economy remains vulnerable to domestic and geopolitical risks, especially economic and political changes that can affect relative prices and hurt current and fiscal account deficit. While expectations of inflationary pressures remain benign, concerns have risen on the twin deficit problem i.e current account deficit and fiscal deficit especially as portfolio investments remain subdued while trade deficit stays high. While fiscal expansion remains key to accelerating growth, it may weigh on government coffers if private investment loses steam.
In the developed markets, whilst Non-Black tea category is growing, Black tea category is shrinking (with different markets witnessing varying rates of decline). The vagaries of monsoon being unpredictable together with increase in wages and input cost could vary the profitability of the Company. The increase in cost of production could be matched if there is corresponding increase in sales realization which depends on market forces. Black tea category in India continues to enjoy good growth. With intent to optimize the deployment of fund and capital across the core business of the Company and its subsidiaries that will enable the Company to create ongoing incremental value and sustainable business growth.
The Company operates in single segment which is to invest, deal etc in securities. The businesses of the Company are carried out by its wholly-owned subsidiaries. Uttar Pradesh Trading Company Limited is a Non-Banking Financial Company registered with RBI and primarily engaged in investment activities and whereas the other wholly owned subsidiary Cinnatolliah Tea Limited is engaged in the Tea Business.
The Company aims to create sustainable vision to grow the business and make long-term strategic investments in various new ventures promoted by the Company and its subsidiaries.
Apart from its operations in investment in securities including through its Wholly Owned Subsidiaries, the Company also continues to be engaged in business of Tea Manufacturing and processing through its subsidiary company i.e Cinnatolliah Tea Limited. There has been no change during the year under review in the nature of business pursued by the Company.
The performance has resulted in a profit before tax of Rs. 43.19 lacs and a profit after tax of Rs. 38.34 lacs in the relevant year as against the loss before tax and loss after tax of Rs. 36.49 lacs respectively in the previous year. The EBIDTA stood at Rs 28.73 lacs as against Rs. 16.75 lacs in the previous year.
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: i. The Debtors Turnover Ratio, Inventory Turnover Ratio are Interest Coverage Ratio as on 31st March, 2019 are NIL. ii. The Current Ratio as on 31st March, 2019 is 2.25 as compared to 9.10 in the previous financial year. iii. The Net Profit Margin for the current financial year is 53.89% compared to 11.75% in the previous financial year. In addition to above, there was change in return on Net Worth to the tune of 3.83%% as compared to 0.69% immediately previous financial year because of lower expenses. During the year under review, the Companys income from investments in the form of dividend and income in the form of Rent was aggregating to Rs 69.91 lacs as against Rs. 58.96 lacs, during the immediately preceding year. Neither any revenue has been earned in foreign exchange nor was there any outgo of foreign exchange during the year in the Company. Demand for Indian orthodox teas witnessed an upswing in the international markets, since Sri Lankan tea production remained stagnant and the competitively-priced Indian teas were able to find entry in the Middle East/ Persian Gulf regions.
With key economic policies on track, the government is expected to focus on faster policy implementation in the year ahead, with a greater focus on infrastructure development. Government push may encourage muted private investors to participate, thereby fostering private sector expenditure and boosting investments. That being said, we believe that a key step toward healthy economic growth lies in reviving private sector investment, given that these have remained at low levels over the past several quarters.
Recent policy measures by the government to improve the investment climate and boost private consumption and investment is expected to lift economic growth in the next two fiscal years. In India, continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the economys growth prospects. Important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of non-performing assets under a simplified bankruptcy framework.
In the run-up to the general elections, the market is filled with anxiety and expectations. So next year we are expecting a year of volatility for the Indian stock market. Investors have always been in favour of a stable government and sustainable economic growth. Elections have a short-term impact on the market, but it is the government policies and economic growth that is more important in the long run. Also, global cues will continue to impact the Indian stock market, before and after the elections. So we should keep one thing in mind that regardless of which party would come in power, after initial reactions, Indian market would continue to follow global trends.
The Indian tea industry will see broad-based growth from unbranded as well as branded business, while more consumers shift to premium products. Tea will remain a durable everyday beverage choice especially in a developing economy and face limited competition from other alternatives.
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 and the Board.
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.
Internal Control Systems and their Adequacy
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.
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
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 Companies (Accounting Standards) Rules, 2006. 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.