gokul refoils and solvent ltd Management discussions

Industry Structure and Developments:

Edible oils

Oilseeds and edible oils are two of the most sensitive essential commodities. India is one of the largest producer of oilseeds in the world and this sector occupies an important position in the agricultural economy

India is fortunate in having a wide range of oilseeds crops grown in its different agro climatic zones. Groundnut, mustard., sesame, safflower, linseed, nigerseed. castor are the major traditionally cultivated oilseeds. Soyabean and sunflower have also assumed importance in recent years. Coconut is most important amongst the plantation crops. Efforts are being made to grow oil palm in Andhra Pradesh, Karnataka, Tamil Nadu and North- Eastern parts of the country in addition to Kerala and Andaman & Nicobar Islands. Among the non-conventional oils, rice bran oil and cottonseed oil are the most important. In addition, oilseeds of tree and forest origin, which grow mostly in tribal inhabited areas, are also a significant source of oils.

There are two major features, which have significantly contributed to the development of this sector. One was the setting up of the Technology Mission on Oilseeds in 1986 which has been converted into a National Mission on Oilseeds and Oil Palm (NMOOP) in 2014. As per a decision regarding merger/ conversions or linkage of Schemes/ sub-Schemes/ programmes, etc. having similar components such as incentive for seed, demonstration, and farm implements including efficient water application tools covered under NFSM and Oil seeds was merged under revamped NFSM from the year 2018-19.

India is the worlds second-largest consumer and number one importer of vegetable oil, and it meets almost 65 per cent of its need through imports. Although the oilseed production in India has grown over the years, the production has lagged its consumption, resulting in continuous dependence on imports.

Import data of edible oil is presented as below:

		(Qty in MT)
Month	2022-23	2021-22
Apr.	900,085	1,029,912
May	1,005,547	1,213,142
Jun	941,471	969,431
July	1,205,284	917,336
Aug.	1,375,002	1,016,370
Sep	1,593,538	1,698,730
Oct.	1,365,995	1,046,264
Nov.	1,528,760	1,138,823
Dec.	1,555,780	1,216,863
Jan.	1,661,750	1,251,926
Feb.	1,098,475	9,83,608
Mar.	1,135,600	1,051,698
Total	15,367,287	13,534,103

The rising demand for edible oil in the food processing sector as food preservatives and flavoring agents is also catalyzing the market growth in the country. Additionally, the elevating consumer living standards coupled with the increasing penetration of international culinary trends are further augmenting the demand for high-quality product variants, such as olive oil, sesame oil, flaxseed oil, etc. Apart from this, the expanding agriculture sector along with the launch of several initiatives for enhancing the production of oilseeds in the country is also propelling the market. Furthermore, the Indian government is making continuous efforts to increase the domestic availability of edible oil and reduce import dependency. For instance, the government has proposed the National Mission on Edible Oil (NMEO) for meeting the countrys consumption need for edible oil, such as sesame oil, groundnut oil, safflower oil, palm oil, etc.

Global Castor Oil Market Drivers/Constraints:

Castor Oil is the primary product obtained from Castor Seed. In terms of production, India is the largest producer of castor seed in the world, followed by China and Brazil and 30 other countries. Gujarat, Rajasthan, and Andhra Pradesh are three major castor-producing states in India.

India, is also the largest exporter of Castor Oil in the world. Indias contribution is more than 90% of total global exports of Castor Oil. Its main trading partners in this specific sector are China, Europe, Thailand and Japan. Castor Oil is unique among all fats and in terms of its uniformity and consistency.

Castor oil and its derivatives have wide ranging applications in the manufacturing of soaps, lubricants, hydraulic and brake fluids, paints, dyes, coatings, inks, cold resistant plastics, waxes and polishes, nylon, pharmaceuticals and perfumes. It is also used for making bio-diesel.

Being an agro commodity castor seed prices are subjected to high volatility as the production depends on the weather conditions and rainfall predominant in the castor growing area.

Castor oil industry is facing challenges of low demand in Europe. Europe is facing a recession due to shortage of gas. Russia has stopped the supply of gas to Europe and due to this industrial production in Europe has taken a major hit.

The inadequate size of the castor crop makes it liable to high fluctuations and speculations in prices as the size of the crop is directly proportional to seed count and yield. Furthermore, to reduce the consequences of uncertain weather, the key players in the market have laid down several considerations for inventory management.

In India, Gujarat accounts for over 65% production of castor seeds.The raw material is easily sourced from prominent castor seed-producing cities such as Patan, Banaskantha, Sabarkantha, Ahmedabad, and Mehsana.

India is the largest exporter of castor oil, exporting mainly to the following countries: China, U.S.A., Japan and European countries. China, on the other hand, is the largest importer of castor oil, globally, as castor oil is an essential bio-based raw material which makes it ideal for various industrial applications:

Comparative castor oil export data is presented as below:

	2022-23		2021-22
Month / Year	Qty MT Bulk +	Value	Qty MT Bulk +	Value
	Container	Rs Cr.	Container	Rs Cr.
April	63104	913.05	68839	720.00
May	80791	1207.60	73883	772.28
June	57011	884.30	76256	797.08
July	40082	634.28	62628	701.93
August	39702	611.23	52194	580.20
September	34042	486.88	38865	471.66
October	39783	611.74	57674	724.22
November	46961	689.85	47412	597.94
December	38147	588.10	42285	559.80
January	51521	763.76	49543	623.45
February	47340	694.90	44628	561.85
March	67892	941.95	48605	694.44
Total	606376		662812

Opportunities and Threats

Opportunities-Edible Oils

In India, the rising consumer health concerns towards the high prevalence of coronary heart diseases, diabetes, obesity, gastrointestinal disorders, etc., are primarily driving the demand for healthy edible oil. Various regional manufacturers are launching healthy product variants enriched with omega-3, vitamins, and natural antioxidants. Moreover, the changing consumer dietary patterns and their hectic work schedules have led to the increasing consumption of processed food items. The rising demand for edible oil in the food processing sector as food preservatives and flavoring agents is also catalyzing the market growth in the country. Additionally, the elevating consumer living standards coupled with the increasing penetration of international culinary trends are further augmenting the demand for high-quality product variants, such as olive oil, sesame oil, flaxseed oil, etc. Apart from this, the expanding agriculture sector along with the launch of several initiatives for enhancing the production of oilseeds in the country is also propelling the market. Furthermore, the Indian government is making continuous efforts to increase the domestic availability of edible oil and reduce import dependency. For instance, the government has proposed the National Mission on Edible Oil (NMEO) for meeting the countrys consumption need for edible oil, such as sesame oil, groundnut oil, safflower oil, palm oil, etc.

The edible oil market is expected to grow significantly, with a projected value of USD 268.9 billion by 2027,up from USD 212.6 billion in 2022, at a CAGR of 4.8% from 2022-27.In response to the increasing rate of non-communicable diseases,global consumers are shifting their purchasing preferences towards edible oils like olive oil, rapeseed oil, soyabean oil and sunflower oil, which are scientifically proven to promote heart health. As a result, growing demand and consumption of edible oils in households and food services is driving the growth of the edible oils market.

Threats- Edible oil

India is one of the largest consumers and importers of edible oil in the world, with a domestic demand of approximately 24-25 million tons/ year. Despite being the third-largest producer of oilseeds globally, India still imports nearly 65% of its edible oil requirements. Due to this fact India is gullible to global factors in this market.

Mustard Seeds Prices And Farmers Woes- Farmers are complaining about mustard seed low prices which are below the governments Minimum Support Price (MSP). The government has been urged to take action to stop mustard seeds trading below the MSP by the Solvent Extractors Association of India (SEAI).

War between Russia and Ukraine still continues and is effecting the production and supply of edible oils all over the world. It is also effecting the pricing and preferences of edible oil all over the world.

Duty-Free Sunflower Oil Imports Discontinued- From the beginning of the new fiscal year (1 April 2023) onwards, India no longer permits duty-free imports of 2 million tons of crude sunflower oil. This move aims to support local oilseed farmers, but it may increase palm oil imports, which were previously taxed. Russia and Ukraine supply sunflower oil to India. The country had also scrapped duty-free imports of crude soy oil earlier this year. This decision has made crude palm oil imports more attractive from April 2023 onwards.

Opportunities-Castor oil

1. Increasing demand for organic cosmetics: The rising demand for organic and natural cosmetics presents a significant opportunity for the castor oil market. Castor oil is widely used in the formulation of organic skincare and haircare products, driven by consumers preference for natural and sustainable alternatives.

2. Expanding applications in the pharmaceutical industry: The pharmaceutical industry is recognizing the therapeutic properties of castor oil, leading to its increased usage in medications and therapeutic formulations. The expanding pharmaceutical sector offers promising opportunities for the castor oil market.

3. Growing popularity of bio-based lubricants: The demand for bio-based lubricants is on the rise, driven by environmental concerns and regulations. Castor oil, with its excellent lubricating properties, is being increasingly used as a key ingredient in the production of bio-based lubricants, opening up new avenues for market growth.

4. Technological advancements in extraction methods: Continuous research and development efforts are focused on improving the extraction methods of castor oil to enhance the overall production efficiency and quality. Technological advancements in this area can create opportunities for manufacturers to expand their market presence.

Threats-Castor oil

1. Fluctuating prices of castor seeds: The prices of castor seeds, the raw material for castor oil production, are subject to fluctuations due to factors such as weather conditions and market dynamics. This volatility in prices can impact the profitability of market players and hinder the growth of the castor oil market.

2. Limited availability of castor seeds: Castor seeds are primarily sourced from specific regions, and their availability is limited. This poses a challenge for manufacturers to meet the growing demand for castor oil, especially during periods of high demand.

3. Environmental concerns: The production of castor oil involves the use of chemicals and energy-intensive processes, which can have environmental implications. As sustainability becomes a priority for consumers and regulators, manufacturers may face challenges in aligning their practices with environmentally friendly standards.

4. Lack of awareness in certain regions: Despite the growing popularity of castor oil, there are still regions where awareness about its benefits and applications remains low. This lack of awareness can hinder the markets growth potential in untapped markets.

Gokul Group business

Edible oils

The group produces variety of edible oils such as groundnut oil ,Mustard Oil, Kachi Ghani Oil, Refined Cottonseed Oil, Refined Soyabean Oil, and Palm Oil and refined sunflower oil.

Non edible oil

Castor Oil

Castor oil and its derivatives have applications in the manufacturing of soaps, lubricants, hydraulic and brake fluids, paints, dyes, coatings, inks, cold resistant plastics, waxes and polishes, nylon, pharmaceuticals and perfumes. Castor meal, the byproduct of the oil extraction process is mainly used as organic fertiliser. The group majorly exports the castor oil.

Organic fertilizer

Gokul is offering wide range of organic manures/ Fertilizers of FCO and Ecocert approved Organic Fertilizer for domestic market ideal for vegetables, High value crop, Tea, Coffee, spices, fruits and horticulture crops.

Most of the Organic Manure available have one or two nutrients and in lower concentrations. Hence higher quantity needs to be applied. Gokul has variety of Organic Manure which contains all major NPK nutrients and also minor nutrients of Calcium and Sulphur in organic form. Additionally micro nutrients like Mg, Zn, Cu, Fe etc are also present making it a balanced Organic Manure ideal for Fruits, Vegetables, Plantation and Horticulture crops.

Gokul has ultra modern plants and R&D facilities for organic fertilizer. Gokul is also a member of Fertilizer Association of India. Presently Gokul produces Organic Castor Doc ( 4:0.8:0.8), Gokul Hipro (NPK 8:0.8:0.8), Gokul PROM and Gokul Potash.

In the FY 2022-23 , turnover of Gokul organic fertilizer products was around 6658MT.

Opportunities- Organic Fertilizer

One of the key factors driving the organic fertilizers market growth is the increasing demand for food due to population growth. One of the main factors that is significantly contributing to the global organic fertilizers market growth is the rapid growth in the population. The increase in population fuels the demand for food which, in turn, will increase the demand for organic fertilizers. Due to the increase in urbanization, there is a significant decrease in cultivable land.

As a result, there is an increase in dependence on environmentally sustainable products such as organic fertilizer due to the rise in food shortage and growing demand for grains, vegetables, pulses, and other agricultural yields.

There is a high demand for organic products in domestic and international markets. The Indian governments promotion of sustainable or organic cultivation practices through various schemes or programs by providing incentives for organic fertilizers is expected to drive the market.

A key factor shaping the global organic fertilizers market growth is the easy recyclability and compostable nature of organic fertilizers. There is an increased preference for organic fertilizers when compared to chemical fertilizers across industries as they are biodegradable. The main reason for their increasing adoption is that they are environmentally friendly and sustainable in nature even after their prolonged use.

Another main advantage of using organic fertilizers is that it enhances the nutrient quality of the soil as it gets easily decomposed with the release of carbon dioxide, methane, and water. Some of the key benefits of organic fertilizers include sustainability, elimination of toxic residues from the soil and enhancement of cultivation practices, and prevention of environmental hazards such as eutrophication and agricultural runoff. Hence, such factors are expected to drive the global organic fertilizers market growth during the forecast period.

Threats and Challenges-Organic fertilizer

The availability of substitutes is one of the key challenges hindering the global organic fertilizers market growth. There is an increasing availability of substitutes such as chemical fertilizers, synthetic fertilizers, pesticides, and other agrochemicals in the market which can negatively impact the global organic fertilizers market growth. Also, the farmers are forced to use synthetic and artificial fertilizers to enhance crop yield as there is a reduction in cultivable land due to rapid urbanization and construction activities.

Furthermore, synthetic fertilizers are relatively cheaper when compared to other organic fertilizers which can lead to an increase in consumption across industries. Hence, such factors are expected to hinder the global organic fertilizers market during the forecast period.

Product wise performance

Edible Oils

Edible oil sale for the FY 2022-23 was Rs 191,052.26 Lakhs while in the previous year , it was Rs 176391.00 Lakhs .

Non edible oils and by product

Sale of non-edible oils and by product for the FY 2022-23 was Rs 121,929.52 Lakhs while in the previous year it was Rs 128,385.06 Lakhs.

6. Productwise sales

		(Rs in Lakhs)
	Revenue
Item	2022-23	2021-22
In India
Edible oils	191010.28	175925.35
Non edible oils	14507.14	18432.66
By product	15470.80	14937.79
Total(A)	220988.22	209295.80
Outside India
Edible oils	41.98	465.65
Non edible oils	86702.39	92900.79
By product	5249.19	2113.82
Total(B)	91993.56	95480.26
Total(A+B)	312981.78	304776.06

7. Discussion on financial performance with respect to operational performance.

Consolidated Financial Highlights Total revenues

During the year under review total revenue from operation was Rs 313656.80 Lakhs as against Rs 305302.67 Lakhs in the previous year. This shows an increase in total revenue by 2.74 % as compared with previous year .Out of this about 99.83% revenue is from wholly owned subsidiary viz.Gokul Agri International Ltd. Gokul Agri International Limited has its production facility at sidhpur, Distinct–Patan, Gujarat, India and is engaged in the business of seed processing, solvent extraction, refining of edible oils and non edibles industrial oil such as castor oil. The Sidhpur Plant currently processes various types of oils including Kachi Ghani Oil, Mustered oil, Groundnut oil, Refined Cottonseed oil Soyabean Refined Oil, Palmolein, Castor oil and sunflower oil.

Profits and margins

The EBIDTA (Earnings before Interest, Depreciation, Taxation and Amortisation and exceptional items) increased by 8.39 % to Rs 6614.79 Lakhs from Rs 6102.54 Lakhs in previous year.

Net profit after tax

Net profit after tax stood at Rs 2413.81 Lakhs as against Rs 2652.40 Lakhs in previous year which is an decrease of 8.99 % from the previous year.

Equity

Consolidated equity attributable to equity holders of the parent Company increased to Rs 32819.57 Lakhs, at the end of March 2023, from Rs 30393.66 Lakhs as at the end of March 2022. Out of this, other equity, which comprises reserves and retained earnings amounted to Rs 30839.67 Lakhs, at the end of FY 2022-23 as against Rs 28413.76 Lakhs last year. The book value per share decreased to Rs 2.44 as on March 31, 2023 from Rs 2.68 as on March 31, 2022.

Debt

The consolidated net debt (adjusted for cash and bank balances and liquid investments) of the Group as on March 31, 2023 stood at Rs 26666.20 Lakhs , as against Rs 30933.4 Lakhs last year. Net debt-equity ratio was 1.28 as on March 31, 2023, against 1.17 as on March 31, 2022.

Fixed Assets and Capital Expenditure

The consolidated Net block (including capital work in progress) at the end of the year was Rs 11160.44 Lakhs increase by about Rs 2534.11 Lakhs from Rs 8626.33 Lakhs last year. The net capital expenditure including capital work in progress during the year was Rs 2937.90 Lakhs. The capex during the year was incurred mainly for Solar Plant for captive green energy.

Capital employed and operating efficiency

The total Capital Employed (CE), at the end of the year was Rs 34624.26 Lakhs Increased from Rs 30727.46 Lakhs at the end of the previous year. Return on Capital Employed (ROCE = Adjusted earnings before interest net of tax / Average CE) stood at 16.88 % for the year.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with explanations therefor, including:

Financial Ratio	Consolidated		Changes %	Reason for change
	FY 2022-2023	FY 2021-22
Debtors Turnover	20.51	22.25	-7.82
Inventory Turnover	10.17	9.43	7.85
Interest Coverage Ratio	2.16	3.05	-29.18	Decrease in operating profit and increase in
				finance cost
Current Ratio	1.34	1.32	1.52
Debt Equity Ratio	1.28	1.17	9.40
Operating Profit Margin (%)	1.86	1.79	3.91
Net Profit Margin (%)	0.77	0.87	-11.49
Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof
RONW	7.39%	8.75%	-15.50%	Due to decrease in operating margin.

Outlook

Global population has increased exponentially and is continuing to increase at an alarming rate.It is projected to increase at 9.7 billion by 2050.Additionally urbanization is taking place at a fast rate. All these factors are expected to favourably impact the demand for edible oils. Edible oils , beside having varied applications in housholds is expanding its horizons in various industries such as pharmaceuticals , cosmetics and personal care etc. Thus, growing population and continuous evolving needs of consumers will fuel the need for edible oil.

Also the global castor oil market reached a volume of 873.35 KMT in 2022. The market is currently being driven by the increasing demand in various industrial applications such as paints, soaps, lubricants, biofuels, and other sectors. The market value is expected to grow at a CAGR of 3.4% in period of 2023-2028.

Risks and concerns.

Within the edible oil sector, certain product segments/categories (such as cold pressed oils, organic ingredient-based categories etc.) that currently have low penetration levels and are gaining consumer acceptance offer higher growth prospects.

The edible oil sector is characterised by higher competitive intensity with the presence of a large number of national as well regional players. In the edible oil industry, companies have a combination of in-house crushing/refining and outsourcing. The competition in the edible oil industry has increased over the years, evident from the increasing pace of product launches and variants, greater marketing push by companies and their efforts to expand geographic presence

As the share of irrigated (by dams/canals/wells) area is relatively low in India, most regions are dependent on monsoon rainfall. Even the irrigated areas are indirectly dependent on monsoons. Thus, production of oilseeds is negatively impacted in the years of drought or deficient rainfall.

The profitability of edible oil companies is significantly influenced by regulatory changes and remains highly susceptible to the changes in the duty differential between import duties on crude and refined oil by the Government of India (GOI). Also, the profitability of these companies depends on the changes in the export tax levied by exporting countries, mainly Indonesia and Malaysia (that account for most of Indias palm oil imports)

Overall, the profit margins of domestic refiners are influenced by changes in the import duty structure by the GOI or modifications in export duty by exporting countries because of limited value addition as well as limited ability of the players to fully pass on duty changes to end customers on account of the highly-fragmented industry structure.

Risk Management

The Company has set in place the policy for corporate risk assessment and mitigation Business Risk Assessment procedures and for self-assessment of business risks, operating controls and compliance with Corporate Policies. There is an ongoing process to track the evolution of the risks and delivery of mitigating action plans.

Gokul, like any other enterprise having national as well global business interests, is exposed to business risks which may be internal as well as external. In the broadest sense, we define risk as the eventuality of not achieving our financial, operative, or strategic goals as planned. To ensure our long-term corporate success, it is therefore essential that risks be effectively identified, analyzed and then mitigated by means of appropriate control measures. We have a comprehensive risk management system in place, which enables us to recognize and analyze risks early and to take the appropriate action. This system is implemented as an integral part of our business processes across the entire Gokul operations and includes recording, monitoring, and controlling internal enterprise business risks and addressing them through informed and objective strategies.

Internal control systems and their adequacy.

In view of the management, the Company has adequate internal control system for the business processes followed by the Company. External and internal Auditors carry out periodical review of the functioning and suggest changes if required. The Company has also a sound budgetary control system with frequent reviews of actual performance as against those budgeted.

The Audit Committee of the Board meets periodically to review various aspects of performance of the Company and also reviews the adequacy and effectiveness of the internal control system and suggests improvement for strengthening them from time to time. External Auditor also attends this Meeting and conveys their views on the business process and also of the policies of financial disclosures. When found necessary, the Committee also gives suggestions on this matter.

Green Initiatives

The world is seriously concerned with the matter of global warming and the consequential impact on the global economy and the environment. It would be, therefore necessary for your Company to undertake initiatives to support the global movement combating the adverse impact.

As corporate citizens, we ensure that we conduct our business in a responsible and sustainable way. Energy savings, green power generation, waste recycle and pollution reduction are some of the key areas where we ensure strict internal control. We are carbon neutral and sensitive to sustainable development for the next generation. We strive to facilitate an environment policy framework that enables sustainable development. Today Group has 3 Wind Turbine Generators (WTGs) with a total power generation capacity of 3.75 MW in the states of Gujarat. The investment in green power is with a single aim to create a cleaner and pollution free environment.The group has also installed Ground Mount Solar System of 4.6 MW for Companys Captive use at Land Situated at Village – Sedrana, Sidhpur, Gujarat – that became operational from FY 2022-23.

As a step ahead towards Green business, we are also using castor de-oiled cake as a fuel to generate steam for our Sidhpur plant operations.

Material developments in Human Resources / Industrial Relations front, including number of people employed. HumanAssets

At Gokul, people are our most important asset and a source of competitive advantage. Gokul is committed to creating an open and transparent organization that is focused on people and their capability, and fostering an environment that enables them to deliver superior performance. The Human Resources strategy is aimed at talent acquisition, development, motivation and retention. The HR function acts as an effective lever for driving the companys strategic initiatives and helps in integrating and aligning all people practices to Gokuls business priorities. The company has an unrelenting focus on talent development. Total Number of Employees of the group as on 31^st March, 2023 was 484.

Sustainability in Challenging Times

Successful businesses are sustainable businesses –in good times and even more so, in periods of uncertainty. In good times, such companies thrive and set new performance benchmarks. In times of challenge, they possess the inner resilience and the robust systems that help them navigate through cross currents and pull through to the future. Tough times pose searching questions about the caliber of an organizations people, policies and practices.

Gokuls success in addressing and overcoming challenges is a ‘live and continuing demonstration of the quality of its systems and the caliber of its people and processes.

Opportunities

There is potential to expand capacity of high earning segments. Promoters of the Company have a long experience in the industry and also the product have a good brand name and standing. There is vast geographical reach of the products and there are continued efforts to expand it. The Company has been taking measures to keep its brands relevant to the customers and also ensuring that they remain competitively priced. It is also exploring all possible avenues to reduce costs of inputs and raw materials without compromising on the quality of the product.

A Way Forward

We have seen the volatile business environment many times since inception. In the backdrop of the trade in which the Company is dealing, the place from where it operates, the destinations where it does business, the Company needs to and is vigilant and informed on changing scenario and do its best to adapt to changing business situation. We are positive on monsoon and economic growth thereby contributing to both raw material supply and demand and thus should be good for Company operations in current financial year.

To meet the challenges amidst growing industry size and the need to consolidate, Group has initiated several measures on proactive basis, which will allow group to build-on its current presence and market share in the edible oil and Industrial products like castor oil and meals. Group will continue to strengthen itself in areas of sourcing raw materials from points of origin, reducing inefficiencies in supply chain and logistics, capabilities to process at multiple locations, improvements in product quality and increased sales of branded products in retail segment.

Cautionary Statement

Statements on the Management Discussion and Analysis and current years outlook are Managements perception at the time of drawing this report. Actual results may be materially different from those expressed in the statement. Important factors that could influence the Companys operations includes demand and supply conditions, availability of inputs and their prices both domestic and global, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.