Gopal Snacks Ltd Management Discussions

Economic Overview

Global Economy

In Calendar Year (CY) 2023, the global economy demonstrated remarkable resilience while navigating geopolitical conflicts, energy and food price volatility and rising inflation. Despite these challenges, global GDP still expanded by an estimated 3.3%1. To address inflation, central banks worldwide implemented calibrated interest rate hikes. The measures, although impacting global economic growth, effectively anchored inflation.

The year under review witnessed the US economy achieve a growth rate of 2.5%, driven by robust consumer and government spending, along with a rebound in international trade2. However, the European Union (EU) faced several challenges, resulting in uneven growth across member states. Nevertheless, the EU, as a whole, saw modest growth, while the Euro area successfully avoided recession.

Among the emerging markets, China, grappling with real estate issues and subdued consumer confidence, achieved a growth rate of approximately 5.2%3. In contrast, economies such as India, Vietnam and Mexico benefitted from diverse economic strategies and foreign investments, leading to positive growth trajectories.

Outlook

The global economy is expected to become by 3.2% in CY 2024 and then increase to 3.3% in CY 2025. In addition to this, global inflation is anticipated to decline to 5.9% in CY 2024 and further to 4.5% in CY 2025. As inflation is declining faster-than-anticipated, economic activities are expected to gain momentum.

Furthermore, major central banks are preparing to ease monetary policy despite ongoing challenges in global trade and investment. Looking forward, the collective effort of governments and the ongoing resilience of economies worldwide will be instrumental in shaping a sustainable and inclusive growth trajectory in the years ahead.

Indian Economy

During FY 2023-24, the Indian economy witnessed consistent growth with real GDP expanding by 8.2%4. Despite a sluggish global growth, the Indian economy maintained its position as one of the fastest-growing economies in the year under review. This robust performance was driven by strong fiscal management, including a significant rise in capital expenditure from H10.5 Lakh Crore in FY23 to H12.7 Lakh Crore in FY245, spurring contributions from both public and private sectors, ultimately enhancing overall economic activity.

With the Government of India focusing on augmenting public capital expenditure, it has helped in maintaining fiscal discipline while setting a positive trajectory for the future. The economy further benefitted from strong domestic demand, driven by resilient private consumption. The services and industrial sectors made significant contributions, enhancing economic activity. Overall, increased focus on sustainability, robust manufacturing sector, effective structural reforms, growing middle-economic class and a young workforce population have been the key drivers for this economic growth.

Outlook

The Indian economy is anticipated to maintain its positive growth trajectory in the forthcoming years6. Strategic investments, changing global manufacturing patterns and Indias robust domestic market are expected to become the primary growth drivers of the Indian economy. Owing to global supply chain shifts, focused governmental initiatives and a large, young workforce, India is slowly emerging as the preferred manufactured hub as countries are following the China+1 strategy and seeking to diversify their production bases.

Furthermore, substantial investments in infrastructure, supported by government spending and improved business conditions, are auguring well for the Indian economy. Overall, Indias economic outlook seems favourable despite global challenges. A combination of sound financial management, ongoing policy improvements and a strong domestic market create a foundation for continued growth in FY 2024-25.

Industry Overview

FMCG Market in India

The Fast-moving Consumer Goods (FMCG) sector accounts for the fourth-largest share in the Indian economy. In FY 2024, the domestic FMCG sector experienced strong growth in its sales value by 10.2%, reflecting positive consumption patterns across various regions of the country.

The FMCG sector is anticipated to experience increased revenue by 7-9% in FY 2025. This growth will be further supported by steady growth in the demand from the urban regions.7 In addition to this, the rising disposable incomes, evolving consumer lifestyles, rapid expansion of the e-commerce industry coupled with increasing urbanisation and modernisation across India is anticipated to further contribute to the growth of the industry in the upcoming years.

Furthermore, the gap in consumption patterns between urban and rural markets is also narrowing. The focus on agriculture, MSMEs, education, healthcare, infrastructure and tax rebate is expected to directly impact the FMCG sector. With the rise in disposable income in the rural areas, it presents lucrative opportunities for companies to expand their business in rural markets.

Packaged Food Market in India

The Indian packaged food industry has undergone significant transformation, influenced by a blend of socio-economic factors and evolving consumer preferences. The industry is poised for substantial growth with a projected market size of approximately H6,767 billion by FY 2027F. This growth is largely driven by changing consumer preferences, with a notable shift towards quality and innovative food products, especially ready-to-eat (RTE) and ready-to-cook (RTC) meals.

The Indian packaged food industry can be segmented into organised and unorganised sectors. The unorganised players have historically dominated the domestic packaged food market. It is anticipated that the unorganised sector will hold a significant market share of 79% by FY 2027.

Additionally, the organised sector is anticipated to grow and account for 21% of the Indian packaged food market by FY 2027.

Overview of Savoury Snack Market

In 2023, the global savoury snacks market was valued at US$ 113 Billion, with the Asia Pacific region leading at US$ 46 Billion. North America and Europe collectively account for approximately 49% of the global market share.

The growth of the savoury snacks market over the past few years, can be primarily attributed to market players launching innovative products for urban and rural customers. Additionally, other significant growth drivers include strategic advertising efforts and the effective use of e-commerce channels. Moreover, increased consumer interest in packaged foods, particularly by the growing young population of our country, has further supported the growth of this sector.

Indian savoury snack market

The Indian savoury snack market was initially dominated by unorganised players who focused on catering to the local demand in specific regions. However, the industry offered more lucrative opportunities to the organised players. The growth of the organised sector was supported by increased sales through supermarkets and hypermarkets. In addition to this, advertisements and the promotional activities undertaken by the key players in the organised sector had significantly contributed towards the sectors within the savoury snacks market in India. Further to this, it is anticipated that the organised players of the Indian savoury snack market will grow at a CAGR 11.7% by 2027, supported by increased urbanisation, change in lifestyle among the individuals.

Organised Namkeen market

The growth of the Namkeen market in India was supported by increased preference among consumers towards branded and packaged snacks. The ethnic namkeen and snacks remained a lucrative sector due to its high profit margins enjoyed by the key players in the market. Moving ahead, the industry is anticipated to grow until FY 2027. This growth in the market is anticipated to be propelled by rising consumption of namkeen and snacks and the extensive range of products offered in the market.

Organised Gathiya Market

Gathiya, a special traditional savoury snack, remained popular across Gujarat. Over time it also gained popularity in other states such as Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh. The organised players in the industry have successfully capitalised on the growth opportunities and established themselves as a major producer.

Organised Western snacks

Western snacks market continued to dominate the Indian savoury snack market, with a market size of H409 Billion, constituting 51% of the market share. The western snack market is comprised of products such as chips, snack pellets and extruded snacks. The Organised western snacks market is anticipated to grow and attain a market value H410 Billion in FY 2027

Organised papad market in India

The organised sector of the papad market in India grew significantly over the years and is expected to expand further until FY 2027. This growth was supported by integration of machines and technologies in the manufacturing unis, as well as increased demand in both domestic and international markets.

Impact of E-commerce and Quick Commerce

The Indian snacking industry has significantly benefited from the growth of e-commerce and quick commerce platforms, enhancing distribution and accessibility of snack products. E-commerce platforms aid in offering a wide variety of products, catering to diverse consumer preferences and expanding availability beyond traditional retail self-spaces. This shift is anticipated to drive growth and innovation in the sector, propelling the industry to achieve a CAGR of over 17% between 2023 and 2027.

Key Government schemes driving the raw materials availability, processing and trade components of Indian savoury market value chain.

To augment the growth and competitiveness of the food processing industry, the Indian government has launched multiple initiatives. These programmes are designed to not only enhance production capabilities but also ensure sustainable development through improved infrastructure and market expansion.

Production Linked Incentive Scheme for Food Processing Industry (PLISFPI): With a budget of H10,900 crore11 , this scheme incentivises the production of ready-to-cook and ready-to- eat items and other specialised products, fostering significant investments and employment opportunities.

Food Processing Fund: Established by NABARD with H2000 Crore, this fund supports modernisation and expansion of processing units within designated food parks, offering accessible financing options to various industry players12.

Creation and Expansion of Food Processing and Preservation Capacities (CEFPPC): This initiative offers financial grants to develop Mega Food Parks and Agro-processing Clusters, aimed at enhancing food processing and preservation capabilities.

Infrastructure for Agro-Processing Clusters: This programme focuses on creating state-of-the-art processing facilities close to production zones, optimising the entire supply chain.

Agricultural Export Promotion Scheme (APEDA): Aimed at bolstering the export of agricultural and processed foods, this scheme supports infrastructure development, quality enhancement and market access, providing substantial subsidies to elevate international market presence.

By improving operational efficiencies, increasing financial accessibility and expanding global market reach, these programmes play a crucial role in positioning India as a leading player in the global food processing industry. The continued support and enhancement of these initiatives are essential for the sectors long-term growth and sustainability.

Company Overview

Gopal Snacks Limited, headquartered in Rajkot is a leading snack manufacturer in India. It ranks among the countrys fastest- growing, fully integrated (FMCG) companies. Founded by Mr. Bipin Hadvani in 1999 as a partnership firm named Gopal Gruh Udyog, it transitioned into a corporate entity in 2009 and now operates as a limited company. The Company produces a diverse array of ready-to-eat packaged snacks, including ethnic namkeen, gathiya, wafers and snack pellets. Its product lineup extends to other FMCG items such as extruder products, noodles, spices and flour, all marketed under its brand.

Key Strengths

The Company has established several core strengths that significantly enhance its market position and operational efficiency:

Diverse product portfolio

Gopal Snacks offers a wide array of packaged snack products. This diverse product range helps the Company mitigate the risk of seasonal sales fluctuations and market disruptions. The Company ensures a consistent revenue flow throughout the year by diversifying their product range.

Forward and backward integration

The Company operates its own besan plant, securing a reliable supply of its essential ingredient. Controlling the supply chain from this foundational level allows the Company to manage costs effectively and maintain its high-quality standards.

In-house machine manufacturing and customisation

Gopal Snacks benefits from its capability to manufacture and customise machinery internally. This reduces reliance on external suppliers and facilitates rapid adjustments in the production process to meet market demands.

Own transportation fleet

The Company optimises its product distribution by managing its own fleet of transport vehicles. This ensures timely and efficient delivery of products across various regions.

Cold storage facilities

Owning cold storage facilities enables the Company to maintain the quality of perishable products, reducing spoilage and supporting the distribution of high-quality snacks.

Strong distribution network

The Company ensures that its products are widely available with its strong distribution network. This enhances consumer access and supports market penetration efforts. This network is crucial for maintaining a strong presence in the urban and rural markets.

Market adaptation and innovation

The Companys ongoing efforts to innovate its products allows it to adapt swiftly to changing consumer tastes and market trends. Regularly updating the product lines and the introduction of new flavours keep the Company relevant and competitive in a dynamic market environment.

Manufacturing Capabilities

Manufacturing Facility	Gathiya	Namkeen	Snack Pellets	Wafers	Extruded Snacks	Papad	Besan	Spices	Raw Pellets	Seasoning
Rajkot, Gujarat (Primary Facility)	0	0	0	-	0	-	-	-	-	-
Modasa, Gujarat (Primary Facility)	-	0	0	0	-	-	-	-	-	-
Nagpur, Maharashtra (Primary Facility)	0	0	0	0	0	0	-	-	-	-
Rajkot, Gujarat (Ancillary Facility I)	-	-	-	-	-	0	-	0		0
Rajkot, Gujarat (Ancillary Facility II)	-	-	-	-	-	-	0	-	-	-
Modasa, Gujarat (Ancillary Facility (III)	-	-	-	-	-	-	-	-	0	-

Business Review

Product Portfolio

Category Type	Number of Products(1)
Ethnic Snacks
Namkeen	31
Gathiya	8
Western Snacks
Snack Pellets	12
Wafers	8
Extruded Snacks	6
Other Products
Spices	6
Papad	5
Besan	1
Others(2)	10
Total	87

Product-wise Revenue Contribution

	FY 2023		FY 2024
Category	Amount (J million)	Percentage of Revenue from Operations	Amount (J million)	Percentage of Revenue from Operations
Ethnic Snacks
Gathiya	4,238.73	30.39%	3871.19	27.60%
Namkeen	4,055.90	29.08%	3854.88	27.49%
Total (A)	8,294.63	59.47%	7726.07	55.09%
Western Snacks
Snack Pellets	3,094.63	22.19%	2904.50	20.71%
Wafers	843.53	6.05%	1176.35	8.39%
Extruded Snacks	165.27	1.18%	158.09	1.13%
Total(B)	4,103.42	29.42%	4238.93	30.22%
Other Products
Papad	529.47	3.80%	545.44	3.89%
Besan	414.92	2.98%	727.62	5.19%
Spices	50.27	0.36%	100.67	0.72%
Others (1)	41.07	0.29%	125.37	0.89%
Total(C)	1,035.73	7.43%	1499.11	10.69%
Others (2) (D)	512.75	3.68%	560.79	4.00%
Total (A+B+C+D)	13,946.53	100.00%	14,024.97	100.00%

(1) Others include sale of chikki, noodles, rusk, soan papdi and washing bar.

(2) Includes sale of by-product, raw materials and wastage and other operating income comprising subsidy income and export scheme incentive.

Financial Performance

Brief standalone financial performance for FY 2023-24

(Rs. in Crore)

Particulars	Year end - 31st March 2024	Year end - 31st March 2023
Total Income	1406.9	1398.5
Operating EBITDA	168.4	196.2
Interest and Financial Charges	5.3	10.8
Profit Before Tax	131.8	151.8
Tax Expenses	32.2	39.4
Net Profit	99.6	112.4
Total Income (Repeated)	1406.9	1398.5

Key financial ratios

Particulars	Year end - 31st March 2024	Year end - 31st March 2023	% change
Debtors turnover (in times)	68.16	109.61	(37.81%)
Inventory turnover (in times)	8.00	12.02	(33.43%)
Payable turnover (in times)	4.32	4.72	(8.45%)
Current Ratio (in times)	2.39	2.13	12.17%
Debt-equity ratio (in times)	0.17	0.37	(53.48%)
Net profit margin (%)	7.1%	8.1%	(11.89%)

Risk Management

Risk and Description	Mitigation Strategy
Supply Chain Disruptions: Potential disruptions in the supply chain such as natural disasters, pandemics, or political instability could impact the availability of raw materials and the distribution of finished products.	The Company diversifies its supplier base geographically and maintains strategic inventory reserves. It uses robust supply chain management software to enhance the visibility and responsiveness. Along with this, the Company also has an inhouse fleet and it also directly procures the raw materials from the farmers.
Market Competition: Intense competition in the Indian snack industry could impact pricing, market position and profitability.	The Company differentiates itself through continuous product innovation and by maintaining quality. It focuses on unique product offerings, such as regional and innovative flavours.
Volatile raw material price: Any fluctuations in raw material cost can increase the production cost of the Company, therefore, significantly hindering its profitability.	The company strategically procures raw materials in bulk during the crop season to leverage favorable pricing and ensure supply stability. Additionally, it maintains its own cold storage facilities to effectively preserve the quality of these materials throughout the year, mitigating the impact of price volatility and supply chain disruptions.
Regulatory Changes: New food safety regulations or compliance requirements could impose additional costs or restrict operations.	The Company invests in proactive legal and regulatory monitoring systems and conducts regular audits and compliance training to ensure adherence to all regulations.
Consumer Preferences: Shifts in consumer preferences towards healthier options or different snack types could reduce demand for some products.	The Company maintains a strong R&D team, which conducts regular market research and consumer surveys to align products with consumer expectations and preferences.
Economic Downturns: Economic downturns may lead to decreased consumer spending on non-essential goods such as snacks.	The Company has developed a diverse product portfolio with budget-friendly options and maintains cost efficiency to withstand economic pressures.
Quality Control Failures: Failure to maintain high-quality standards could lead to product recalls and damage to the brands reputation.	The Company implements stringent quality control measures at every production stage and provides regular training to the staff on quality assurance processes and compliance standards.

Human Resources

The Company believes that its workforce is a critical factor in maintaining the competitive position. The human resource policies focus on training and retaining their employees. Gopal Snacks Limited trains their employees on a regular basis to improve productivity and maintain compliance standards on quality and safety. The Company offers performance linked incentives and certain other benefits to its employees to retain top talent. As of March 31,2024, the Company had 3,397 employees in India of which 969 are employees (excluding skilled and unskilled labours) and 2,428 are skilled and unskilled labours. The table below sets forth a breakdown of their employees by department, as of March 31,2024:

Department	Total
Automation & Maintenance	158
CEO Office	4
Finance and Information Technology	45
Human Resource, Investor Relation and Administration	140
Logistic & Transportation	302
Operations	1,763
Procurement	82
Project	24
Quality Control	42
Sales & Marketing	837
Total	3,397

Opportunities and Threats

Opportunities

• Diversifying the product portfolio to include healthier snack options.

• Expanding distribution into rural and under-served markets.

• Exploring international markets, particularly in regions with significant Indian population.

• Utilising advanced technology to enhance operational efficiency and consumer engagement.

• Introducing new flavours and products tailored to regional preferences across India.

• Enhancing their presence in India to strengthen brand visibility and access across the country.

Threats

• Intense competition from local and international brands.

• Volatility in raw material prices impacting profit margins.

• Regulatory changes leading to increased compliance costs.

Internal Control Systems and Adequacy

Gopal Snacks Limited implements a robust internal control system overseen by the Board of Directors, designed to ensure efficient and orderly business operations. This system encompasses comprehensive risk management, adhering to established plans and policies that include risk assessment, a strong control environment, precise control activities, effective information and communication and continuous monitoring of organisational activities. The internal audit function plays a pivotal role, conducted by an Independent Chartered Accountant Firm, which systematically evaluates the Companys data, records and performance to enhance operational effectiveness, ensure resource protection and uphold the reliability of financial reporting.

The internal control framework is further reinforced by the Board Level Audit Committee, which oversees the integrity and transparency of the internal audit process. Emphasis is placed on independent decision-making, rigorous documentation of process evaluations and rectification of identified deficiencies, fostering a culture of accountability throughout the organisation. Regular reviews and updates to policies and procedures ensure compliance with legal standards and internal guidelines, maintaining Gopal Snacks Limiteds commitment to corporate governance and operational excellence.

Cautionary Statement

The Management Discussion and Analysis section contains statements regarding the Companys objectives, projections, estimates, expectations, or predictions, which may be considered as forward-looking statements according to applicable laws and regulations. It should be noted that actual results may differ significantly from those expressed or implied in these statements. The Company is under no obligation to publicly amend, modify, or revise any forward-looking statements, whether due to subsequent developments, new information, events, or any other reason.