hatsun agro product ltd share price Management discussions

OVERVIEW

Hatsun Agro Product Limited ("HAP" or "the Company") is the largest Private Sector Dairy, in India manufacturing and marketing Dairy Products especially Milk and Milk products such as Curd, Ghee, SMP etc., Ice Creams, and also a Cattle Feed.

The Company is a Public Listed Company, listed its Equity Shares on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited and having its Registered Office in Chennai, Tamilnadu, India.

The Financial Statements are prepared as per the Ind AS (Indian Accounting Standards), the provisions of The Companies Act, 2013 and the guidelines issued by the Securities and Exchange Board of India (SEBI).

GENERAL ECONOMIC SCENARIO & INDUSTRY STRUCTURE

India has been the leading producer and consumer of dairy products worldwide since 1998 with a sustained growth in the availability of milk and milk products. Dairy activities form an essential part of the rural Indian economy, serving as an important source of employment and income. India also has the largest bovine population in the world. However, the milk production per animal is significantly low as compared to the other major dairy producers. Moreover, nearly all of the dairy produce in India is consumed domestically, with the majority of it being sold as fluid milk. On account of this, the Indian dairy industry holds tremendous potential for value-addition and overall development.

Along with offering profitable business opportunities, the dairy industry in India serves as a tool of socio-economic development. Keeping this in view, the Government of India has introduced various schemes and initiatives aimed at the development of the dairy sector in the country. "National Dairy Programme (Phase-I)" aims to improve cattle productivity and increase the production of milk expanding and strengthening the rural milk procurement infrastructure and provide greater market access to the farmers. On the other hand, the private participation in the Indian dairy sector has also increased over the past few years. Both national and international players are entering the dairy industry, attracted by the size and potential of the Indian market. The focus is being given to value-added products such as cheese, yogurt, probiotic drinks, etc. They are also introducing innovative products keeping in mind the specific requirements of the Indian consumers. These players are also improving their milk procurement network which is further facilitating the development of the dairy industry in India.

The evolution of the dairy industry from an unorganised to a relatively organised sector, along with the increasing consumption of different value-added products is currently driving the dairy industry in India.

Based on the product type, the dairy industry in India can be segregated into liquid milk, UHT milk, flavoured milk, curd, flavoured & frozen yoghurts, probiotic dairy products, lassi, butter milk, table butter, ghee, paneer, cheese, khoya, cream, skimmed milk powder, dairy whitener, sweet condensed milk, ice cream, whey, A2 milk, organic milk, milk shake, and dairy sweets. Among these, liquid milk currently holds the majority of the total market share.

Ice Cream Market - India.

The ice cream market in India was valued at INR 194.1 Billion in 2022. It is expected by the experts that the ice cream market in India to exhibit a CAGR of 17.5% during 2023-2028. The changing consumer tastes and preferences, along with the introduction of preservative -free, Genetically Modified Organism (GMO)-free, dairy-free, fat-free, and organic ice cream variants, are currently driving the ice cream market in India. The sudden outbreak of the COVID-19 pandemic has led to the changing consumer inclination from conventional brick-and-mortar distribution channels towards online retail platforms for the purchase of ice cream. Based on the type, the ice cream market in India can be segmented into impulse ice cream, take-home ice cream, and artisanal ice cream. Currently, take home ice cream accounts for the majority of the total market share. Based on the flavour, the ice cream market in India has been divided into chocolate, fruit, vanilla, and others. Among these, vanilla flavour exhibits a clear dominance in the market. Based on the format, the ice cream market in India can be segregated into cup, stick, cone, brick, and others. Currently, cup represents the largest market share. Based on the end-user, the ice cream market in India has been bifurcated into retail and institutional, where the retail sector currently holds the majority of the total market share. Based on the distribution channel, the ice cream market in India can be categorised into general trade, supermarkets/ hypermarkets, ice cream parlors, convenience stores, online, and others. Among these, convenience stores currently account for the largest market share. On a regional level, the market has been classified into Maharashtra, Uttar Pradesh, Andhra Pradesh, Tamil Nadu, Gujarat, Rajasthan, Karnataka, Madhya Pradesh, West Bengal, Bihar, Delhi, Kerala, Punjab, Odisha, and Haryana, where Maharashtra currently dominates the ice cream market in India. Some of the major players in the ice cream market in India include GCMMF, Kwality Walls, Vadilal, Mother Dairy, your Company (Hatsun), and Cream Bell.

Dairy Products

The market growth in Dairy requires support of significant infrastructure investment across processing, chilling, logistics, cattle feed etc. Further, lucrative untapped opportunities exist in areas such as value-added dairy products, organic/farm fresh milk and exports. To facilitate the infrastructure growth, Central/State Governments have released various incentives to attract investments in this sector. Animal Husbandry Infrastructure Development fund (AHIDF) is one of the flagship schemes by DAHD (Department of Animal Husbandry and Dairying), Government of India whereby INR 15,000 Crores fund has been setup for offering financial support to set up new units or expand existing units in areas of dairy processing & related value addition infrastructure and Animal Feed Plant. The benefits available are:

• 3% interest subvention on loans

• 2-year moratorium with 6-year repayment period

• INR 750 Crores credit guarantee

Dairy is the single largest agricultural commodity contributing to 5% of the national economy, witnessing 6.4% CAGR in the past 5 years.

Significant growth in the food and beverage sector, and the presence of a thriving dairy industry represent the key factors creating a positive outlook for the market in India. Moreover, the improvements in cold chain infrastructure, including temperature-controlled storage spaces, procurement of trained operational and servicing personnel, and application of efficient management procedures, are fuelling the market growth. Moreover, rising disposable incomes have enabled consumers to afford premium-quality ice creams, which has prompted several international ice cream brands to expand their businesses in India.

Export of dairy products recorded a growth of 19.45 % as its export rose to $471 Mn in FY 2022-23 till December, 2022 (April-December 2022) from $395 Mn in April-December 2021 of the last fiscal year.

For the fiscal 2022-23, it was observed that the Milk Production remained stagnant due to lumpy skin disease in Cattle, while the domestic demand grew by 8 - 10 percent due to rebound in the post pandemic demand. There is /was no constraint in Milk supply as such in the country and adequate inventory of Skimmed Milk Powder (SMP) ensured. But, in the case of dairy products especially in fats, butter, ghee etc., the stocks were lower than the previous year. The Industry observed that though there was a talk of the government mulling imports to tide over the shortage, equally the government thought of high cost of imports which will not be beneficial to the Industry as a whole. The rise in fodder prices has led to Milk inflation. There was and is a problem in fodder supply as the fodder crop area has remained stagnant in the last few years, while the dairy sector has been growing annually at 6 percent.

Highlights of Union Budget 2023 for Animal Husbandry:

• The Budget 2023 allocated 4,327.85 Crores to the Department of Animal Husbandry and Dairying.

• Allocations to the animal husbandry sector have increased by around 40% compared to FY 2022-23.

• The Department of Animal Husbandry and Dairying under the Union Ministry of Animal Husbandry, Dairying and Fishing received 4,327.85 Crores compared to the 3,105.17 Crores according to the revised estimates for 2022-23.

• Of the total allocated amount, 2,349.71 Crores have been assigned to the livestock health and disease control programme, an increase of 69% from 1,390.02 Crores allocated earlier.

• The provisions also included grants to the Veterinary Council of India and State veterinary councils.

• The National Livestock Mission has been allocated 410 Crores for the sustainable development of the livestock sector, including cattle, ruminants and small livestock.

• The Finance Minister announced that the agriculture credit target would be increased to 20 Lakh Crores as part of efforts to rejuvenate the animal husbandry and fisheries sectors.

As per the 20th Livestock Census, the total Livestock population in the country is 535.78 million, which is the highest in the world.

Over the last three years, India has been severely affected by Lumpy Skin Disease and African Swine Fever, two deadly diseases affecting livestock.

The sector has also been facing a fodder crisis due to a shortage of dry fodder. Adulteration and the growing popularity of plant-based dairy alternatives have affected the growth of the dairy sector. Lack of education on good dairy practices and the shortage of veterinary clinics has adversely impacted livestock numbers. However, the Management observed that the problem of Lumpy Skin disease no longer exists in the first quarter of fiscal 2023-24.

Notable Developments in the Dairy Industry:

The National Programme for Bovine Breeding and Dairy Development (NPBBDD) was created by combining four dairy sector programmes of the Department of Animal Husbandry, Dairy, and Fisheries.

Under the NPBBDD, Milk production and dairying activities have been integrated scientifically in order to boost milk output and productivity and meet the nations expanding milk demand.

With a budget of 2025 Crores, the Rashtriya Gokul Mission was launched in December 2014 with the goal of genetically enhancing the unremarkable bovine population and preserving native breeds through breeding tract selection.

The National Kamdhenu Breeding Centers were introduced with the objective of protecting and promoting indigenous breeds of cattle in India, increasing production and productivity, enhancing genetic quality, disseminating certified material, and halting breed extinction.

The Department of Animal Husbandry, Dairying, and Fisheries is implementing the Dairy Entrepreneurship Development Scheme (DEDS) to develop selfemployment opportunities in the dairy industry by offering back-ended capital subsidies for successful projects.

Increasing milk production, buying, preserving, transporting, processing, and selling milk are some of the endeavours under the DEDS Scheme.

The Kisan Credit Card Yojana provides farmers all over India with short-term revolving credit. In 2004, the programme was further expanded to cover farmers needs for investment loans in allied and non-farm sectors such as animal husbandry, dairying, and fishing with a 12-month debt repayment period.

Way forward

Dairy analogues, plant-based products and adulteration pose a major challenge and threat to the dairy industry. The new regulation for analogues and ghee standards has been amended by the Food Safety Standards Authority of India recently.

The National Dairy Development Board (NDDB) and Bureau of Indian Standards (BIS) together developed a dedicated Dairy Mark logo as a unified quality mark across India to boost confidence of consumers in milk and milk products.

A unified Conformity Assessment Scheme has been chalked out by BIS with the help of NDDB after extensive stakeholder consultations. This is a novel and first-of-its kind certification scheme, considering the perishable nature and short shelf-life of milk and milk products, as well as the extensive cold-chain involved. Awareness on clean milk production and various schemes by the Department of Animal Husbandry and Dairying and the new Ministry of Cooperatives will help dairy farmers evolve in the future.

The concept of churning waste to credible wealth by converting cattle dung and biomass into biogas and bio- fertilisers has opened up a completely new avenue for prompt intervention by all the existing stakeholders and new ventures to tap into. The trend of generating energy from solid and liquid biomass presents vast opportunities for the rural population to earn a livelihood and also helps to enhance the income of farmers. It is an area which is highly lucrative and yet untapped for energy companies, fertiliser manufacturers and other relevant players to initiate base while working with the farmers by implementing programs to educate and train them.

The collective view amongst industry stakeholders for actual growth of the sector is to explore opportunities that generate employment and are profitable such that they pave the way for a technologically advanced and sustainable future.

BUSINESS-WISE PERFORMANCE OF THE COMPANY

MILK PROCUREMENT:

The company procures milk by sourcing it from about 4,50,000 farmers spread across 12,000 villages on a daily basis. This process is done in most of the South Indian states - Tamil Nadu, Andhra Pradesh, Telangana, Karnataka and the state of Maharashtra.

The company has an advanced system for chilling milk right in the villages in the form of ABCs (Active Bulk Coolers). They are present in over 1300 locations helping retain freshness and quality till the milk reaches the dairy plant for further processing. The ABCs also help provide farmers, the flexibility to milk their cows. Their instant chilling capabilities (within 2 hours) lead to improved quality and increased milk quantity while preventing spillage and spoilage.

The quality of milk is determined using Fat and SNF as two parameters, which help calculate the farmers price. Farmers are paid directly by making payments to their bank account every 10 days through a special database. HAP operates more than 1,200 rural milk procurement routes with an assigned route plan, which determines the pick-up timing and schedule for the milk procurement vehicles to reach the Hatsun Milk Chilling Centres (CCs).

During FY 2022-23, your company procured milk at an average of 29.70 LLPD against 29.94 LLPD during FY 2021-22. State-of-the-art plants for processing and packaging milk and milk products are in strategic locations in Tamil Nadu, Andhra Pradesh, Telangana, Karnataka and Maharashtra.

DISTRIBUTION NETWORK - MILK AND MILK PRODUCTS

HAP Daily Fresh

Through HAP Daily Fresh, the company markets milk and curd products under the brand names "Arokya" and "Hatsun". Four different variants of milk are available: standard, full cream, toned and double- toned. Curd is sold in pouches and cups ranging from 50 grams to 5 kgs. Both milk and milk products are marketed in Tamil Nadu, Pondicherry, Andhra Pradesh, Telangana, Karnataka, Maharashtra and Goa through the "HAP Daily" distribution network and outlets.

The products marketed under the Hatsun brand banner include curd, ghee, cooking butter, table butter, lassi, buttermilk, paneer, yogurt shakes, yogurt tops, shrikhand and cheese spread.

DISTRIBUTION NETWORK - ICE CREAMS, ICE CREAM CAKES, CHOCOLATES

HAP Daily I Plus

HAP Daily I Plus mainly stocks Arun Icecreams and Hatsun Long Life products, including HAP Ice cream cakes and kulfis at an exclusive retail store. The former enjoys a strong position in the South with innovative products that are consistent in taste. HAP produces various innovative ice creams in a variety of formats like bars, cones, tubs, cups and more.

HAP Daily stocks a range of delicious ice cream cakes and kulfis that come in a variety of flavours to cater to the wide range of customer requirements.

HAP Daily Outlets

With 3600+ outlets, HAP Daily has expanded its reach in to traditionally strong markets like Tamil Nadu, Pondicherry, Karnataka, Andhra Pradesh and Telangana and has started to make inroads into Maharashtra, Kerala, Orissa, Goa, Chhattisgarh, Madhya Pradesh, West Bengal, Jharkhand, Gujarat and the Andamans.

Through various distribution channels, HAP Daily products are sent to stores from kiranas and premium supermarkets to various outlets. This increases availability and expands the brands reach to a wider consumer base. These retail outlets offer tremendous growth potential to franchisees.

IBACO

Ibaco has gone on to become one of the most beloved ice cream brands. Overwhelmingly positive customer feedback has led to the launch of many parlours, new product offerings and exciting flavours. Rest assured; the brand will keep offering new product experiences for customers to look forward to.

Exports - Ice Creams

During the year, Arun Icecreams was introduced to the new export markets of Singapore and Maldives. With the initial response from consumers being mostly positive, the company is now looking to expand distribution and improve its product range. Arun Icecreams aims to fortify its position in Seychelles through increased marketing efforts. New markets are looking to be tapped in the US, African and Gulf regions.

INFRASTRUCTURE

The company has invested in advanced infrastructure to ensure that the output is of the highest caliber - in terms of quality and quantity.

HAP is leveraging mega cold storages situated in the state of Tamil Nadu at Salem, Kanchipuram, Karur, Palacode, Tirunelveli, Red Hills, in the state of Andhra Pradesh at Kasyapuram, in the state of Telangana at Shadnagar and Govindapur. Govindapur Plant of the Company is Asias biggest plant of ice cream, to meet its peak ice cream demand during the summer months of April and May.

Fresh products:

Since the demand for fresh products is greater, the volume of production would be a lot higher than the desserts.

Milk Pouch - 27 Lakhs Litre Per Day

Curd Pouch - 8.8 Lakhs Litre Per Day

Other Products (Cup Curd, Paneer, Yogurt, etc.,) - 2.7 Lakhs Litre Per Day

Ice Creams, Ice Cream Cakes, Kulfis

When it comes to ice creams, ice cream cakes, and kulfis, the production volume is 1.96 Lakh kg per day, to meet consumer demand.

Chocolates

An indulgent blend of milk and cocoa, these chocolates come with great taste and an irresistible mouth feel to keep customers coming back for more. The Company produces around 8500 kg of chocolates per day.

Cattle Feed

Cattle feed plant in Palani, Tamil Nadu with an installed capacity of 24,000 MT per month to manufacture cattle feed. 1000 MT of cattle feed and 72,000 sachets of AH are produced per day. Besides this, the company has increased the cattle feed capacity in its Sangola Plant by 6000 MT.

NEW PRODUCT DEVELOPMENT & LAUNCHES FOR 2023-24

Hatsun:

Under the Hatsun brand, the Company is launching a series of Cultured Products (CP), one being Yoghurt Sips and other products in a scoopable format, namely Hatsun Greek Yoghurt and Skyr (Icelandic Yoghurt).

Arun Icecreams

Arun Icecreams is known for its range of innovative products. The new Licks range is a series of fruit-iced lollies that are perfect for any season, especially summer. The same goes for the ice cream shakes, available in chocolate, strawberry and cotton candy flavours.

HAP Daily

Consumers looking to top off their ice creams and desserts can look forward to a range of toppings including nuts, fruits and chocolates. HAP Daily is also introducing two new variants - jackfruit and Raj Bhog to add to its delicious kulfi range.

Ibaco

Ibaco is introducing a range of exotic a la mode desserts - cheesecake, pop tart, and muffins - that customers can add to their favourite ice cream flavours if they choose to. The brand also stocks waffles that can be consumed as a crunchy topping to go well with any flavour.

Havia

Havias premium range of exquisite chocolates is available at Ibaco outlets and makes for the perfect gift for any occasion. The product range comprises bars

loaded with the crunchiest of nuts and specialities like bonbons filled with ganache, crushed nuts, dried fruits, barks, and brittles.

CATTLE MONITORING

The Cattle Monitoring team plays an important role in improving the profitability of dairy farms by increasing milk production efficiency and reducing costs. These teams provide farmers with a complete package of forages and concentrates, enabling them to supply milk to the company without any distractions. They also educate the farmers on the practice of best ways to prevent ailments in the cattle.

A team of trained inseminators visits the villages to provide AI services from quality bulls. The goal of this process is to ensure that milch cows produce a calf every year with better genetic qualities. A first-of-its-kind Cattle Management System makes sure that the animals are managed efficiently through tags and recorded data. The Company works closely with large and small farms to implement the right technology that will make the process more efficient - in terms of labour and productivity. This in turn contributes to reduced costs and increased profitability.

CATTLE FEED & SUPPLEMENTS

The cattle feed and supplements are supplied to farmers who regularly supply milk to HAP, with the returns for the feed calculated against the milk supplied by the farmers and cattle supplements to increase milk yield and quality and to meet the high protein requirement of the calves and meet their nutritional needs.

To improve overall supply, immunity, and the quality of milk, a wide range of feed are provided with products like Bypass Pellets, XL and Calf Starter and supplemental products are provided like M Care Plus which helps improve udder health, Immuno Care which increases the performance of the livestock during grazing and trace minerals which improve reproductive health. Other supplemental products include Gut Care which helps control intestinal worms, Immuno Booster which helps reduce fever and heat exhaustion, and Udder Care which helps cure cattle from udder disease and mastitis.

A team of skilled agronomists helps cultivate cattle fodder economically to help meet the nutritional requirements of the animals. The company manufactures and sells cattle feed and cattle supplements to farmers under the brand SANTOSA.

FINANCIAL PERFORMANCE

The financial performance is covered in the Directors Report and can be referred to in the said Report.

DETAILS OF SIGNIFICANT CHANGES (i.e., CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS WITH EXPLANATION:

(i) Debtors Turnover Ratio (in Days) - This stands at 928.92 compared to the previous years 822.37. There is a change to the extent of 12.96 percent. There is no significant change.

(ii) Inventory Turnover Ratio - This stands at 12.23 compared to previous years 10.85. There is a change to the extent of 12.68 percent. There is no significant change.

(iii) Interest Coverage Ratio - This stands at 0.86 compared to previous years figure of 1.04. The change is 16.99 percent. There is no significant change

(iv) Current Ratio - This stands at 0.64 compared to previous years figure of 0.57. The change is 12.40%. There is no significant change.

(v) Total Debt to Equity Ratio - This stands at 1.01 compared to previous years figure of 1.54. The change is 34.77 percent which is significant. The reason for change is due to raising of funds through issue of Rights Equity Shares and subsequent closure of various loans.

(vi) Operating Profit Margin (%) - This stands at 3.10 compared to previous years figure of 4.31. The change is 28.70%. The decrease in % is mainly due to the increase in procurement Prices, Interest, Depreciation and other overheads such as power, repairs and maintenance, service charges etc.,

(vii) Net Profit Margin (%) - This stands at 2.29 compared to previous years figure of 3.41. The change is 32.82 percent which is mainly due to increase in procurement Prices, Interest, Depreciation and other overheads such as power, repairs and maintenance, service charges etc., and reduction in effective tax percentage.

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF.

During the financial year under review, the Companys paid up Equity Share Capital underwent a change due to Issue of Equity Shares under Rights Issue. 71,84,945 Rights Equity Shares were allotted to the eligible Shareholders and the Issue has resulted in the addition to the Paid Up Equity Share Capital and the Equity paid up Share Capital stood at 22,27,48,268. The Companys Operations resulted in transfer of Surplus to Reserves which has resulted in increase in the Net worth of the Company.

OPPORTUNITIES

Along with offering profitable business opportunities, the dairy industry in India serves as a tool of socio-economic development. Keeping this in view, the Government of India has introduced various schemes and initiatives aimed at the development of the dairy sector in the country. For instance, the "National Dairy Programme (Phase-I)" aims to improve cattle productivity and increase the production of milk expanding and strengthening the rural milk procurement infrastructure and provide greater market access to the farmers. On the other hand, the private participation in the Indian dairy sector has also increased over the past few years. Both national and international players are entering the dairy industry, attracted by the size and potential of the Indian market. The focus is being given to value-added products such as cheese, yogurt, probiotic drinks, etc., They are also introducing innovative products keeping in mind the specific requirements of the Indian consumers. These players are also improving their milk procurement network which is further facilitating the development of the dairy industry in India.

Experts expect the dairy industry in India to exhibit a CAGR of 13.2% during 2023-2028.

In recent years, technology-driven products, services, and solutions have substantially improved the dairy business in India. The third white revolution in this country will be largely brought about and sustained by technology. The use of technology in the dairy sector has expanded from automated/mechanised milk collecting and testing milk composition at the village level to real-time milk procurement, evaluation of overall milk quality criteria, automatic dairy plant operation, and other activities. One may now track data and information at the farmer level in the milk pool with the click of a button. Additionally, technology is making significant strides towards modernising and revolutionising the other key areas of the dairy industry.

For the unorganised Indian dairy industry to become more structured, the appropriate technology and its effective application are essential. The majority of the challenges encountered while handling a perishable commodity like milk can only be overcome by adopting technological innovations. The goal is to digitise as many data points as possible.

Some areas where technology has played a key role and where implementation is expected to increase are Freshness and Quality of Milk, Monitoring Supply Chain Systems and E-commerce Marketplace.

Projected Key Trends for 2023

Year 2022 witnessed a number of tech developments in the dairy sector. And Year 2023 already looks to be shaping up to be an interesting one with the increased pressure on companies to script the next phase growth of the dairy sector with new tech interventions. Dairy industry growth will depend on new innovations and the drive to meet new consumer demands. And the top dairy companies are going to be utilising these three distinct dairy industry trends in order to get a head this year.

Digital banking: Digital banking, digital payments, and fintech will play a key role going forward in the livestock industry by making it faster for farmers to get paid for milk and other services they provide.

Sustainable practices: One of the largest trends taking shape in the dairy industry currently is sustainable practices. The year 2023 will see the dairy industrys growth heavily depend on companies taking ownership of their negative impacts by reusing waste, saving water, and making sure the air stays clean.

Tech interventions: In India, dairy farming is

unorganised, so technology penetration is relatively less; however, in the past few years, numerous start-ups have emerged in this space. One of the key areas where digitalisation can play a significant impact is cattle management. Farmers can track cattle feeding patterns and monitor their health by leveraging IoT (Internet of Things) and advanced analytics. This is likely to boost cattle productivity and milk yield. However, cattle monitoring via AI (Artificial Intelligence) based solutions is still in its infancy in India but will mushroom in the times to come.

Achieving Tech Adoption: The Indian dairy industry is truly at a turning point, with countless opportunities to increase its influence globally. The dairy business may play a critical role in democratising Indias entrepreneurial landscape and bringing rural communities into the mainstream as we observe a fundamentally changed global paradigm. With appropriate adoption of technology, the Indian dairy sector can scale to new heights that will benefit the dairy farmers as well as the consumers.

Your Management is glad to inform the Shareholders that, your Company has already taken initiatives in digital banking wherein all the payment to the farmers are made through digital payment process through the banks. Cattle Management through digitisation also is happening and the farmers are educated on feeding pattern of livestock, monitoring their health which will surely lead to higher productivity in the years to come. Your Company has already taken initiatives in minimising the waste, recycling the waste, saving the water and protecting the environment.

Your Company strongly believes that still there is enormous scope seen ahead before the dairy industry for Milk and value-added products including custards, desserts, puddings, sauces, mousse, stirred yogurt and nectars and there will be an increase in demand for processed and packaged dairy produce post Covid 19 scenario in urban centres due to the change in food habits and health awareness created by the Pandemic. Your Company has entered new markets and has established its presence in the State of Maharashtra.

The main advantage of your Companys strength lies in its efficient and effective supply of manufactured products and cold chain management which facilitates wide reach and targeted coverage in its markets. Your Company has a professionally-trained, technical human resource pool, built over years to meet the challenges in the dairy industry and they do work as a team for the attainment of organisational objectives.

In the financial year 2022-23 your Management adopted the required strategies to sustain the profitability despite the negative factors like the inflation which resulted in increase in input costs, increased interest rates for servicing the debts, increased labour cost, shortage of raw materials etc., Price hike was made in the products sold particularly in Milk in line with the Industry standards to mitigate the effect of increased operating cost and sustain the profitability of the Company which paid off well. The quarterly period ended 31.03.2023 showed signs of pick up in sale of all the items of Milk and Milk products and the positive news on the projections given for the Dairy Industry for the financial year 2023-24 and the years to come strengthens the belief of your Company to continue to improve its performance, growth in numbers through planned and executed expansions, capacity additions, entering new markets etc.,

Your Company has the excellent work force to achieve its goals, implement strategies and thus constantly improve its performance and rewarding all its stakeholders. The existing Human Resource is proving to be an opportunity to unearth the potential of the Company, achieve the targets/milestones and mitigate the risks due to the unforeseen external negativities like the pandemic/excess rainfalls.

Your Company took the required steps to reduce the cost involved in its overall operations where it was possible and constantly endeavours to utilise the opportunities thrown like the just experienced pandemic situation to help the Society at large and its Stakeholders in particular.

THREATS

India has a unique pattern of production, processing and marketing/consumption of milk, incomparable to any large milk producing country. India is the worlds largest milk producer and consumer of dairy products, consuming almost 100% of its own milk production. The Indian dairy sector is different from other dairy producing countries as emphasis is placed on both cattle and buffalo milk. In order to achieve greater profitability, quality standards need to be improved.

Following are some of the practical dairy farming challenges in India.

Shortage of feed

Unproductive animals compete with productive dairy animals in the utilisation of available feed and fodder. Due to industrial development, grazing area gets reduced and results in shortage of supply of feed. Ever increasing gap between demand and supply in feed and fodder limits performance of dairy animals. Moreover, provision of poor quality of forage to dairy cattle restricts animal production system. The low capability of purchasing feeds and fodder by the small and marginal farmers and agricultural labourers engaged in dairy development result in inadequate feeding. Non-supplementation of mineral mixture results in mineral deficiency diseases. High-cost feeding reduces the profits of the dairy industry.

Breeding system

Late maturity, in most of the Indian cattle breeds, is a common problem. There is no effective detection of heat symptoms during oestrus cycle by the cattle owners. The calving interval is on the increase resulting in a reduction in efficiency of animal performance. Diseases causing abortion leads to economic loss to the industry. Mineral, hormone and vitamin deficiencies lead to fertility problems.

Education and Training

A vigorous education and training programmes on good dairy practices could result in the production of safe dairy products, but to succeed, they have to be participative in nature. In this regard, education and training of all the employees is essential so that they understand what they are doing and develop a sense of ownership. However developing and implementing such programs in the dairy sector requires a strong commitment from the management, which at times, is a stumbling block.

Health

Veterinary health care centres are located in far off places. The ratio between cattle population and veterinary institution is wider, resulting in inadequate health services to animals. No regular and periodical vaccination schedule is followed, regular deworming programme is not done as per schedule, resulting in heavy mortality in calves, especially in buffalo. No adequate immunity is established against various cattle diseases.

Hygiene Conditions

Many cattle owners do not provide proper shelter to their cattles leaving them exposed to extreme climatic conditions. Unsanitary conditions of cattle shed and milking yards lead to mastitis conditions. Unhygienic milk production leads to a reduction in storing quality and spoilage of milk and other products.

Marketing and Pricing

Given the nature of production and sale of milk in India, milk producers are highly susceptible to even minor shocks as the demand for milk and milk products are sensitive to changes in the employment and income of consumers. Therefore, a lot needs to be done to save this critical sector of Indian economy.

Need to Protect Dairy Sector

• In the farm-dependent population comprising cultivators and agricultural labourers, those involved in dairying and livestock constitute 70 million.

• Moreover, in the total workforce of 7.7 million engaged exclusively in raising cattle and buffalo, 69 percent of them are female workers.

• In the Gross Value Added (GVA) contribution from agriculture, the livestock sector contributed 28 per cent in 2019-20. A growth rate of 6 per cent per annum in milk production provides a great support to farmers, especially during drought and flood.

• Milk production rises during crop failures due to natural calamities because farmers bank more on animal husbandry at that time.

Associated Issues

• Invisible Labour: Farmers keep two to five in-milk animals for livelihood. In this setup, unpaid female family labour supplies a major part of the labour requirement for milk production.

• The landless and marginal farmers among them have no livelihood options to fall back when they fall short of buyers for milk.

• Informal Nature of Dairy Sector: Unlike sugarcane, wheat, and rice-producing farmers, cattle raisers are unorganised and do not have the political clout to advocate for their rights.

• Lack of Remunerative Pricing: Though the value of milk produced outweighs the combined value of the output of wheat and rice in India, there is no official and periodical estimate of the cost of production and Minimum Support Price for milk.

• Negative Impact of Economies of Scale: Even though dairy cooperatives handle about 40 percent of the total marketable surplus of the milk in the country, they are not a preferred option of landless or small farmers. This is because more than 75 percent of the milk bought by dairy cooperatives is at its lower price band.

• Half Hearted Government Efforts: In August 2020, the department reported a requirement of 2.02 Lakh artificial insemination (AI) technicians in India whereas the availability is only 1.16 Lakhs.

• Dairy farmers have been included in the Kisan Credit Card programme. Out of the total 1.5 Crores farmers in 230 milk unions in India, not even one-fourth of the dairy farmers loan applications had been forwarded to banks as of October 2020.

• Dairying was brought under MGNREGA to compensate farmers for the income loss due to Covid-19. However, the budgetary allocation for 2021-22 was curtailed by 34.5 percent.

Major challenges in promoting export of dairy products from India

Despite phenomenal growth in milk production to become the largest milk producing country in the world, dairy exports from India face a number of challenges that may be summarised as follows:

Unclear logistical planning, inexperience with border control and distribution laws like customs clearance, unforeseen tariffs, a check of compliance with local rules and regulations, understanding legalities for each market, financial risk in currency exchange rates, not being sure of the products selling in the export markets, not having a diverse work force etc., — these are just some of the problems that may appear before the goods even enter the market.

As we see in the industry and the investment pattern, slowly the competition in the Dairy Industry is building up and even the MNCs have made sufficient investments in dairy sector considering the performance and the potential for growth. Even, the investments by the domestic players through their own funds and funds raised through capital markets/ venture capitalists/FDI are increasing in the industry sensing the opportunities. Even though the competition is healthy, the market share of a particular Company/establishment may get affected due to competition. Here, the brand, credibility, quality and service play the important roles for sustainability.

Being a seasoned player and standing in the Dairy Industry for decades, Your Company and its Promoters are constantly monitoring the developments taking place in the Industry and adopt and implement the required strategies and technologies innovated/ discovered in Milk and Milk products processing. Constant improvement in all the areas of functioning in the Company is advocated and implemented by the Promoters and the Top Management to retain the position of a Leader in the private sector thanks to the efforts of the Promoters and the Management of the Company.

One of the bottleneck area is lack of proper infrastructure facilities like good roads, continuous power supply and adequate transport support in Rural areas faced by the Dairy Industry. Your Company manages the odds effectively adopting innovative methods to overcome the bottlenecks and particularly in energy consumption and is giving importance to consume the Solar/Wind Power from the Solar/Wind Power generating Companies by way of entering in to long term Power Purchase Agreements at a lesser cost. This ensures the uninterrupted power consumption by the Companys plants wherever possible, which is very important in ensuring the quality and shelf life of Milk and Milk Products.

Your Company has been leveraging on the improvement given its economies of scale and with its inherent ability to adopt new technologies, which involves large investment in the production and distribution infrastructure affordable only by bigger companies like yours.

Your Company is focusing on the consistent availability and procurement of quality milk throughout the year by improving the per capital yield of animals by applying scientific methods, genetic improvement, scientific feeding, properly managed animal husbandry practices etc., Your Company constantly educates the farmers on how to maintain quality and improve milk yield by arranging supply of good quality feeds to farmers.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The CEO and CFO certification provided in the CEO and CFO certification section of the Annual Report discusses the adequacy of our internal control systems and procedures.

INFORMATION TECHNOLOGY

Successful implementation of SAP ERP facilitates an effective online MIS system, which helps in centralised control of operations at all the units of the Company. Your Company constantly upgrades and reconfigures this application to effectively monitor the increasing scale of operations of the Company. The hardware and network infrastructure is being constantly reviewed to increase the bandwidth and reduce operational costs. This is an ongoing process and your Company is committed to leverage the benefits of IT to enhance and optimise benefits to itself and its customers. Constant training and guidance have been provided to all the end users.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCE/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

Your Company values its human resource as the most significant asset and the key focus is to attract, retain and develop talent as a resource. Your Company provides a congenial working atmosphere which will foster creative thinking. As part of manpower development and to enhance operational efficiency, training programmes have been organised for employees at all levels, wherever necessary.

The HR programmes of the Company focus on building capabilities and engaging employees through various initiatives to help the organisation consolidate and achieve sustainable future growth for the business.

Industrial Relations remained cordial at all the manufacturing locations during the year.

Effective employee communication through various channels ensured that all the employees are kept abreast of the current business situation. This has helped your Company to build mutual trust and confidence with the employees. The total strength of the Company as on 31st March, 2023 was 5310.

OUTLOOK AND RISKS & CONCERNS ARE COVERED UNDER OPPORTUNITIES AND THREATS.

FORWARD LOOKING STATEMENTS

Statements in this report describing the Companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations that involve risks and uncertainties. Such statements represent the intention of the Management and the efforts being put into place by them to achieve certain goals. Actual results might differ materially from those either expressed or implied in the statement depending on the circumstances. Therefore, the investors are requested to make their own independent assessments and judgments by considering all the relevant factors before making any investment decision.