Gokul Agro Resources Ltd Management Discussions

Global Economy

In 2023, the global economy experienced a modest recovery, growing at an estimated rate of 3.2%. This growth was propelled by pent-up consumer demand, accumulated savings, and tight labor markets. However, the economy faced significant challenges like supply chain disruptions, geopolitical tensions, and the lingering impacts of the Covid-19 pandemic, putting its resilience to the test. Advanced economies displayed varying results, with the U.S. experiencing 2.5% growth driven by robust consumer spending, while the Euro zone witnessed slower growth at 0.4%, primarily due to high energy prices. Emerging and developing economies performed better, achieving a growth rate of 4.3%, supported by Chinas reopening and Indias strong domestic demand. Global inflation rose to 6.8%, although it began to moderate later in the year. Despite the recovery, inflation rates remained persistently high worldwide, surpassing central bank targets in most countries. However, projections indicated a decrease in global headline inflation to 5.8% in 2024 and further to 4.4% in 2025 as supply conditions improved. Overall, the modest rebound of the global economy in 2023 demonstrated its resilience in the face of significant challenges.

Outlook

In 2024, the world economy is projected to continue its growth trajectory, albeit at a slower rate compared to before. Despite the easing of job markets and sustained high prices, consumer spending is poised to be a key driver of this growth. Major economies like the U.S., China, and India are anticipated to contribute to overall expansion, while Europe faces an increased risk of economic downturn due to high government debt levels.

Several obstacles lie ahead, including high interest rates leading to costly borrowing, weak consumer demand in certain regions, labor shortages, soaring housing costs, disruptions from less global trade, and geopolitical tensions posing threats to energy supply issues. Aggressive interest rate hikes, escalating debt levels, and the potential for financial crises could further impede economic progress. To effectively navigate these complex challenges, policy makers must exercise caution in their decision-making, implement reforms to enhance productivity, foster global cooperation to revive trade, and address common problems like transitioning to sustainable energy sources. By doing so, sustainable growth can be achieved, benefiting all parties amid the nuanced circumstances faced by different countries.

Indian Economy

Indias economy demonstrated remarkable resilience and growth in FY 2023-24, with GDP significantly outperforming expectations. The Ministry of Statistics and Program Implementation revised GDP growth upwards to 8.2% from its earlier estimate of 7.6%, marking a substantial improvement from the 7.0% growth recorded in the previous fiscal year. This robust performance has propelled the Indian economy to a milestone of USD 3.5 Trillion, setting a strong foundation for achieving the ambitious USD 5-Trillion target in the coming years.

As India progresses towards its economic targets, the country is adopting a multi-faceted approach to growth. While infrastructure development remains a priority, the government is also focusing on key sectors such as energy. India aims to boost its oil refining capacity by over 20% within five years to meet rising energy needs, although volatile crude prices pose a persistent concern. Simultaneously, efforts are being made to reduce reliance on imported edible oils through domestic production incentives and strategic trade partnerships, showcasing a balanced approach to energy and food security.

Building on these sector-specific initiatives, India is leveraging broader growth enablers to reinforce its economic trajectory. These include strengthening human capital through skill development initiatives, enhancing the business environment to attract investment, leveraging technology for improved governance, and promoting sustainable development. By focusing on these fundamental drivers of growth, India is positioning itself to not only achieve its economic targets but also to enhance its standing in the global economic landscape, ensuring a more resilient and sustainable path forward.(1)

Outlook

Indias economic prospects remain strong, supported by robust fundamentals like a shrinking current account deficit, high forex reserves, and inflation hovering around 5%. The Reserve Bank anticipates a growth rate of 7% for FY 2024-25, in line with the IMFs forecast of 6.5%, driven by resilient domestic demand. Looking ahead, increasing FDI inflows, a youthful demographic, rising urban incomes, and strategic initiatives in manufacturing, clean energy, export diversification, skills development, business facilitation, and sustainable growth contribute to a positive long-term outlook. Despite challenges like geopolitical tensions and the shift towards cleaner energy sources, post-election policy consistency is expected to reinforce Indias growth trajectory, positioning it as a crucial market for multinational corporations in the long term.(2)

Global Edible Oil

The global market for edible oils reached USD 161,698.9 Million in 2023 and is projected to reach USD 183,507.4 Million by 2025, registering a CAGR of 5.38% during the 2020-2025 period. This growth is driven by increasing consumer demand, changing dietary patterns, and changing government regulations. Additionally, castor oil, a non-edible vegetable oil with a distinctive chemical structure, serves as a suitable bio-based raw material for biodiesel production. The palm oil segment is estimated to hold the largest share due to its widespread use in the food industry and low cost. Other key segments include sunflower oil, soybean oil, rapeseed oil, and olive oil. In terms of packaging, the bottle segment is anticipated to dominate, owing to its versatility and consumers preference for daily usage in cooking and baking.(3)

Global Non-Edible Oils

The castor oil derivatives market is poised for substantial growth, with an expected CAGR of 4.9% during the forecast period. It is anticipated to generate a revenue of USD 1.37 Billion in 2023 and is projected to surpass USD 2.21 Billion by 2033. The surge in demand is driven by the increasing consumption of the product as a biodiesel feedstock, along with its growing utilization in the cosmetics and pharmaceutical sectors. The markets expansion is further bolstered by castor oils versatile applications, including its use in pharmaceutical products for addressing constipation and promoting wound healing, owing to its excellent antiinflammatory and laxative properties.?

Indian Edible Oil

In FY 2023-24, the Indian edible oil market reached a value of USD 39,966.6 Million, and is projected to reach USD 47,631.5 Million by FY 2025-26, registering a CAGR of 7.92% during the forecast period. India holds the title of the worlds largest importer of edible oils, with imports constituting approximately 65%-68% of the countrys total annual consumption of 24-25 Million Tons. The market reached a size of 24.7 Million Tons in FY 2023-24 and is expected to clock in a CAGR of 1.35% to 27.9 Million Tons by 2032. Key drivers of demand include rising incomes, urbanization, changing dietary patterns, and the growth of the food processing sector. Furthermore, there is an increasing consumer demand for healthy variants like organic, low- cholesterol, and oils enriched with omega-3 and vitamins. Palm oil dominates the Indian edible oil market, accounting for approximately 59% of imports, mainly procured from Indonesia, Malaysia, and Thailand. Following palm oil, soybean oil and mustard oil are prominent in the market. However, domestic production of palm oil remains limited, with over 95% imported. Other major oil seeds cultivated in the country include groundnut, rapeseed, sesame, safflower, linseed, and castor, while soybean, sunflower, rice bran oil, and cottonseed oil have seen an increase in importance. Additionally, soybean and sunflower oils are significant imports.

Sunflower oil production is experiencing rapid growth due to increasing recognition of its health benefits. Additionally, the byproduct of sunflower oil extraction, known as sunflower meal, is widely used as animal feed.

Furthermore, the government has proposed the National Mission on Edible Oils to boost domestic production and reduce import dependency. Moreover, edible oil prices, which are currently low, may remain range bound +/- 7% due to prospects of lower global output, economic issues, and key producers diverting oils for biofuel amid supply constraints.?

Indian Non-Edible Oils

The Indian castor oil & derivatives market is anticipated to experience robust growth in the upcoming years, driven by multiple converging trends. Projections indicate a CAGR of 4.8%, with the market size expected to surge from USD 112.2 Million to USD 178.5 Million by 2032, following a CAGR of 3.5% during the period of 2017-2021.

This growth trajectory is propelled by the increasing corporate focus on lowering carbon footprints by utilizing renewable sources like castor oil for biodiesel in lieu of conventional fuels. Castors high oil content and crop yield make it an attractive feedstock for biodiesel production without compromising food availability. Consequently, castor oil derivatives are witnessing increased usage as biofuels in the automotive and aviation sectors, owing to their sulfur-free, aromatic-free nature and excellent lubricating properties. Major automakers are leveraging these derivatives to boost the renewable content of their vehicles.

Indias stands as the leading global producer of castor, contributing 15% to the worlds output, thereby establishing a robust supply chain foundation. Gujarat alone contributes a staggering 75% to domestic production. This indigenous availability, coupled with increasing demand for biomaterial- based products across industries, is driving the utilization of eco-friendly, biodegradable, and versatile castor oil. This versatile resource finds application in diverse areas like polymers, polyurethanes, and polyesters.

Animal Feed Market

Valued at USD 42.01 Billion in 2023, the global animal feed additives market is poised to witness a CAGR of 3.5% from 2024 to 2030. This growth is driven by rising meat consumption worldwide, growing recognition of the advantages of feed additives, and recent disease outbreaks like swine flu and foot & mouth disease, which have necessitated the use of feed additives to ensure the quality and safety of meat products. Animal feed plays a crucial role in livestock production, determining the nutritional content of the final product. The increased productivity in this sector has been facilitated by advancements in feedstock production, factory farming methods, technological and genetic improvements, and the application of fertilizers.?

Company Overview

Gokul Agro Resources Limited (referred to as Gokul Agro or the Company) stands as one of the leading Indian FMCG Company with a global footprint and state-of-the-art manufacturing facilities for various edible and non-edible oils and meals. As an ISO 45001:2018, FSSC 22000:2024, and ISO 9001:2015 certified Company, the Company serves customers worldwide with a range of products, including soybean oil, cottonseed oil, palm oil (palmolein), sunflower oil, groundnut oil, and vanaspati.

With its global operations managed through international trade and a subsidiary in Singapore, the Company has an extensive marketing and distribution network that spans over 20 Indian states, reaching a wide array of customers. Gokul Agros industrial product line centers on the production and export of various grades of castor oil and its derivatives, boasting one of the largest production facilities in this segment.

Throughout its existence, Gokul Agro has nurtured a significant and loyal clientele across continents, supplying its products to countries like the United States, the European Union, China, Singapore, Indonesia, Malaysia, and Vietnam. With state-of-the-art technology, the Companys advanced production facilities, including the Gandhidham site in Gujarat, capitalize on their proximity to ports and major transportation networks. This ensures a cost-effective and uninterrupted supply of raw materials and extensive distribution to domestic and international markets. Gokul Agro also benefits from its infrastructure near Haldia and Krishnapatnam ports, ensuring robust connectivity and smooth logistical operations.

Product Portfolio

Gokul Agro provides two prominent consumer brands, Vitalife and Mahek, offering a diverse array of refined cooking oils like, soybean oil, groundnut oil, sunflower oil, mustard oil, cotton seed oil, palm oil, and vanaspati ghee. These products are carefully crafted to cater to different consumer preferences, supported by extensive market research, and packaged with convenience in mind. In addition, the Company produces bakery shortening items sold under the brands Puff Pride, Bisco Pride, and Richfield to meet the needs of industrial customers. With this varied product portfolio, Gokul Agro effectively serves both consumer and industrial segments.

• Experienced Promoters and Locational Advantage

Gokul Agros promoters have four decades of experience in the edible oil business and long standing relationships with suppliers and customers. The Companys strategic location in Gandhidham, just 20 km from Kandla Port and in proximity to oil seed-growing areas, provides a significant advantage. Additionally, the Company has 60,000 MT of liquid cargo terminal storage and an 80,000 sq. ft. storage space at Kandla Port, facilitating efficient imports and exports.

The acquisition of a 1350 TPD edible oil refinery plant at Haldia, West Bengal, under NCLT e-auction, and the edible oil refinery of 1400 TPD near Krishnapatnam Port, Andhra Pradesh, will further enhance the efficiency of the Companys supply chain.

• Robust Market Position and Strong Clientele

Gokul Agro is a leading Indian edible and non-edible oil manufacturer with a 3,400 TPD refining capacity. The Company offers a diverse product range including soybean, mustard, palm, sunflower, groundnut oils, vanaspati, cottonseed oil, and castor oil. Over the years, Gokul Agro has significantly expanded its production capacity to meet growing demand. The Company serves customers through an extensive network of over 550+ dealers and distributors spanning 36 countries and 20 Indian states.

• Efficient Working Capital Management

The Company efficiently manages working capital with adequate inventory levels and an average debtor cycle of less than 15 days. Additionally, the Company has intended to further tighten this cycle from FY 2024-25 onwards, ensuring sound working capital management.

• Sound Operating Efficiency

Gokul Agro maintains an average capacity utilization of 75% at its refining and seed crushing units. The Company continues to focus on optimizing its operations and improving productivity across its facilities.

Financial Review

Gokul Agro navigated the dynamic economic landscape of FY 2023-24 with strategic focus, resulting in notable financial outcomes. The Companys revenue from operations grew to Rs. 12,922 Crs, a 29% increase from the previous year, underscoring its expanding market presence. This growth translated into an EBITDA of Rs. 327 Crs and a profit after tax of Rs. 105 Crs, reflecting the Companys ability to maintain operational efficiency amidst complex market dynamics. The earnings per share of Rs. 7.11 further reinforces this performance. These interconnected results demonstrate Gokul Agros adaptability and strategic management in an evolving economic environment. By successfully balancing growth with operational efficiency, the Company has not only weathered industry challenges but also laid a solid foundation for future initiatives and continued success.

Significant Changes In Key Financial Ratios (Standalone)

Risk Management

Human Resources

Recognizing its work force as its most valuable asset, Gokul Agro is committed to fostering an inclusive, engaging work environment. The Company employs recruitment strategies to attract and retain top talent, particularly skilled researchers and technical professionals who are enthusiastic about driving innovation. The Company provides comprehensive training opportunities for professional growth and actively advocates for diversity and inclusion, ensuring equal opportunities for all employees. Gokul Agro prioritizes employee well-being through wellness programs, assistance initiatives, and open communication channels. Additionally, regular feedback, coaching, and performance evaluations are integral components of the Companys approach to ensuring effective employee contributions. Furthermore, with an employee count of 450+ as of 31st March, 2024, Gokul Agros HR practices are centered on developing top talent, fostering engagement, and driving organizational success through effective work force management.

Internal Control Systems and their Adequacy

Ensuring operational efficiency and upholding integrity are key priorities for Gokul Agro, which emphasizes the establishment of robust internal control systems. The Company underscores the importance of integrity, accountability, and ethical conduct, with the management leading by example. Regular risk assessments are conducted to proactively identify and address potential risks, while tailored control measures, such as segregation of duties and IT controls, are implemented to align with the Companys specific operations. Effective communication channels, comprehensive training initiatives, and ongoing monitoring mechanisms are in place to ensure the effectiveness of internal controls. Gokul Agro fosters a culture of compliance and accountability, empowering employees to adhere to controls and promptly report any concerns they may have. Moreover, the Company regularly enhances its internal control framework to adapt to evolving risks and industry best practices, with the goal of consistently delivering high-quality products and services.

Cautionary Statement

The statement provided in this section outlines the Companys objectives, projections, expectations, and estimations, which may be deemed forward-looking statements as per applicable securities laws and regulations. These forward-looking statements are based on certain assumptions and anticipations of future events. However, its important to note that the Company cannot guarantee the accuracy or realization of these assumptions and expectations. Actual results may significantly differ from those expressed in the statement or implied due to various external factors beyond the Companys control. The Company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements based on subsequent developments. Its essential for stakeholders to exercise caution and consider the inherent uncertainties associated with forward-looking statements when making decisions based on such information.