Hatsun Agro Product Ltd Management Discussions

OVERVIEW

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

HAP is a Public Listed Company, listed its Equity Shares on the BSE 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

Dairy farming has been an integral part of Indias agrarian landscape for centuries, contributing significantly to the countrys economy and providing livelihoods to millions. In the year 2024, the dairy industry in India is poised for growth, leveraging modern technology, sustainable practices, and a commitment to meeting the rising demand for dairy products.

India has a rich history of dairy farming, with traditional practices deeply ingrained in rural life. The establishment of the National Dairy Development Board (NDDB) in 1965 marked a significant milestone, bringing about a white revolution that transformed India from a milk- deficient nation to one of the largest milk producers globally. To understand the present, its crucial to look back at the history of dairy farming in India. Traditionally, dairy farming has been an integral part of Indian agriculture, with small-scale, traditional methods dominating the landscape. However, the industry has evolved significantly, adopting modern practices and technology to meet the burgeoning demand for dairy products.

India continues to be a powerhouse in dairy production. The cooperative model, pioneered by organisations like Amul has played a pivotal role in empowering farmers and streamlining the dairy supply chain. As of 2024, India stands as one of the largest milk producers globally, surpassing the United States and China. The governments initiatives, such as the National Dairy Plan and Operation Flood, have played pivotal roles in shaping the current situation.

India boasts a diverse range of indigenous cattle breeds like Gir, Sahiwal, and Red Sindhi, known for their adaptability to local climates. These breeds form the backbone of many small and large-scale dairy farms, contributing to the rich biodiversity of the Indian dairy sector.

To enhance milk productivity, cross breeding programs are being implemented extensively. The introduction of high-yielding exotic breeds, such as Holstein Friesian and Jersey, is a part of these initiatives. While this has increased milk production, challenges related to adaptation and healthcare have emerged.

In recent years, dairy farming in India has witnessed a technological revolution, with the integration of automation and robotics. Automatic milking systems, sensor-based monitoring and smart farming practices are becoming increasingly common, streamlining operations and improving efficiency.

Precision nutrition is gaining prominence, ensuring that cattle receive optimal diets to maximise milk production. This involves the use of data analytics and nutritional supplements tailored to the specific needs of each cow, leading to healthier animals and increased productivity.

With a growing emphasis on sustainability, dairy farmers are adopting eco-friendly practices. This includes waste management, renewable energy adoption and the utilisation of organic fertilisers. The integration of sustainable practices not only benefit the environment but also enhance the image of the Indian dairy industry.

India, being the leading producer and consumer of Dairy Products reached the market size of INR 16792.10 Billion in value terms in the year 2023. Experts expect the market size to reach INR 49,953.50 Billion by the year 2032 achieving a growth rate of 13% during the period from 2024 to 2032. The industry is experiencing robust growth, propelled by technological innovation, enhanced retail and e-commerce platforms, and improved cold chain infrastructure, meeting rising consumer demand with a diversified and quality focused product range.

Indian Dairy Industry - a Snapshot:

• Due to the regular/every day consumption of Liquid Milk considering its nutritional importance as a staple food and its universal cultural acceptance, Liquid Milk dominates the market as the primary product segment.

• The growth of Cow Milk (A2 milk) is largely driven by the consumer belief that it has the enhanced digestibility and potential health benefits as compared to the Standard Milk. This Cow Milk represents the fastest-growing segment in the dairy market.

• In terms of regional markets, Uttar Pradesh is the largest. This prominence is due to its position as the most populous state and a strong agricultural economy where dairy farming is a major livelihood source.

• Almost all the Metropolitan Cities report expanding Market for Dairy Products due to the growing population, higher income levels, and a cosmopolitan culture which increase the demand for diverse dairy products.

Increasing Population, Growing Health Awareness - Impact of Pandemic - Escalating Consumption - Driving the Industry

With the continuous expansion of the population, the demand for dairy products is surging, providing a substantial consumer base for the industry. Increased affluence has enabled a larger segment of the population to spend more on nutritious food items, with dairy products being a traditional staple in Indian diets. The Dairy Producers have scaled up the Operations and invested on Innovations taking into consideration, the demographic expansion and enhanced purchasing power of the People, ensuring steady market growth. There is an escalating preference for dairy products as a source of essential nutrients like proteins, vitamins, and minerals. This demand extends beyond conventional dairy items to value-added products such as flavored yogurts, fortified milk, and probiotic drinks. Dairy companies are capitalising on this trend by launching a range of health-centric products, effectively tapping into consumers desire for wellness through diet. The pandemic has led to a significant shift in consumer behaviour, with a growing preference for milk and dairy products as nutritional supplements. This change from procurement centers to retail outlets initially overwhelmed distribution logistics. However, the Indian dairy industry adapted by implementing operational flexibility in business models and supply chain simplification. This resilience and adaptability have been crucial in maintaining the industrys integrity during challenging times.

Changing Distribution Channels and Emergence of B2C Startups

A significant trend reshaping the Indian dairy industry is the evolution of distribution channels, particularly with the emergence of Business-to-Consumer (B2C) startups. These startups often leverage digital platforms for direct delivery. With the rise of e-commerce and online grocery shopping, many new-age dairy startups are offering subscription-based models, home delivery services, and digitally enabled supply chains. This approach not only ensures freshness and quality but also caters to the convenience sought by modern consumers. These startups often focus on premium, organic, or specialised dairy products, differentiating themselves from traditional retail channels. By using data analytics and consumer insights, these B2C startups are able to understand consumer preferences and offer personalised services. This shift is not only changing the consumer buying habits but also forcing traditional players to rethink their distribution strategies, leading to a more consumer-centric dairy market in India.

Technological Advancements in Dairy Processing

Technological innovations are playing a crucial role in transforming the dairy industry. This includes advancements in dairy farm management, milk processing, packaging, and supply chain logistics. Technologies like automation, Internet of Things (IoT), and artificial intelligence (AI) are being employed to enhance efficiency, improve product quality, and ensure safety. These technologies also aid in better farm management practices, allowing for higher productivity and sustainability. Additionally, the adoption of cold chain technologies ensures that dairy products retain their freshness and nutritional value during transportation and storage.

Shift Towards Value-Added Dairy Products

There is a significant shift towards value-added dairy products like cheese, yogurt, flavored milk, and probiotic drinks. These products offer greater margins and cater to the evolving consumer preferences for health, convenience, and variety. The demand for these products is being driven by increasing health awareness, the rising middle class, and changing dietary habits. Dairy companies are investing in new product development and marketing strategies to capture this growing segment, diversifying beyond traditional milk products.

Ice Cream Market - India.

The ice cream market in India, in size, reached INR 228.6 Billion in 2023. Looking forward, experts expect the market to reach INR 956.0 Billion by 2032, exhibiting a growth rate (CAGR) of 17.4% during the years 20242032. The shifting consumer preferences towards premium, indulgent, and innovative ice cream flavours, the rising disposable incomes, and the growth of modern retail formats, such as supermarkets, hypermarkets, and convenience stores are among the key factors driving the market growth.

Ice cream is a frozen dessert that is enjoyed by people of all ages. It typically consists of a mixture of dairy products, sweeteners, flavorings, and sometimes additives like stabilisers or emulsifiers. The ingredients are blended together, chilled, and then frozen to create a creamy and smooth texture. The mixture is then rapidly chilled, often through a process known as continuous freezing, while being stirred to incorporate air and prevent the formation of large ice crystals. This creates the smooth and creamy texture associated with ice cream. Ice cream can be enjoyed in various forms, including scooped into cones or cups, as part of sundaes or parfaits, or as an accompaniment to other desserts. Hence, it has become a popular treat enjoyed around the world, particularly during warm weather or as a dessert option. It provides a refreshing and indulgent experience, offering a wide variety of flavors and options to suit different tastes and preferences.

The market is primarily driven by the expanding food and beverage sector, and the presence of a dairy industry. In addition, the improvements in cold chain infrastructure, including temperature-controlled storage spaces, and application of efficient management procedures, are contributing to the market growth. Besides, ice cream consumption in India is significantly influenced by the climate and seasons. The hot and tropical climate of many regions in India drives the demand for ice cream as a popular refreshing and cooling treat during the summer months. Moreover, the rising number of dining-out options, food delivery services, and dessert parlors has fueled the out-of-home consumption of ice cream. Consumers often indulge in ice cream as a treat or dessert when dining out, attending to social events, or visiting ice cream parlours, which contributes to market growth.

Ice Cream Market Trends/Drivers:

Consumers in India are increasingly seeking out premium and high-quality ice cream options. They are willing to pay a premium price for ice creams that offer unique flavors, premium ingredients, and superior taste experiences. This has led to the growth of premium ice cream brands and specialty ice cream parlors that cater to the demand for indulgent and luxurious ice cream products. Moreover, Indian consumers are embracing flavors beyond traditional options like vanilla and chocolate. Unique flavours such as salted caramel, matcha green tea, tiramisu, cookie dough, and exotic fruit flavours have gained popularity. This trend has led to increased product innovation and the introduction of diverse flavour options in the Indian ice cream market. Besides, consumers are looking for ice cream options that offer healthier alternatives, such as low-sugar, low-fat, dairy-free, and vegan options, thus propelling the market growth.

Nowadays, with higher disposable income, consumers are more inclined to spend on experiences and indulgences. Ice cream is perceived as a treat or a form of indulgence, and consumers are willing to spend on premium and high-quality ice cream products. Moreover, rising disposable income encourages consumers to upgrade their consumption choices. This has led to an increased demand for premium and upscale ice cream offerings that offer unique flavours, better ingredients and enhanced taste experiences. Consumers are willing to pay a premium price for these upgraded products, which has influenced the market to focus on high-quality and indulgent ice cream options.

Retail channels, such as supermarkets, hypermarkets, convenience stores, and local grocery shops, have an extensive and well-established distribution network across India. These channels reach out to both urban and rural areas, making ice cream products easily accessible to a large consumer base. Moreover, retail stores offer a wide range of ice cream brands, flavours, formats, and sizes, catering to diverse consumer preferences. Consumers have the flexibility to choose from various options and explore different brands and flavours. The availability of multiple choices within retail

stores enhances consumer satisfaction and encourages repeat purchases.

The majority of the ice creams across the country are distributed through convenience stores. This includes general trade, supermarkets/hypermarkets, ice cream parlours, convenience stores, online, and others.

Convenience stores are typically located in easily accessible areas, such as residential neighborhoods, commercial centers, and busy streets. Their proximity to consumers daily routines makes them a convenient option for purchasing ice cream. Consumers can conveniently walk or drive to their local convenience store to satisfy their ice cream cravings without the need for long trips or detours. Moreover, consumers can quickly locate the ice cream section, choose their desired product, and proceed to the checkout counter. The streamlined checkout process minimises waiting time and ensures a convenient and efficient purchase, allowing consumers to enjoy their ice cream without unnecessary delays.

Highlights of Interim Union Budget 2024 for Animal Husbandry:

Highlights of the Interim Budget presented for the year 2024 on 1st February, 2024 by the Honourable Finance Minister Mrs. Nirmala Sitharaman:

• Increased budgetary allocations aimed at improving livestock health, boosting milk productivity, and reducing post-harvest losses as part of governments efforts to ensure food security.

• Bolster agriculture and allied sectors, including food processing, through enhanced private and public investment in post-harvest activities such as aggregation, modern storage, efficient supply chains, and marketing.

• Proposed formulation of a comprehensive programme for supporting dairy farmers.

• Efforts to control foot-and-mouth disease. India is the worlds largest milk producer but with low productivity of milch animals, "The programme will be built on the success of existing schemes such as Rashtriya Gokul Mission, National Livestock Mission, and Infrastructure Development Funds for dairy processing and animal husbandry."

• Funding for the Pradhan Mantri Formalisation of Micro Food Processing Enterprises (PMFME) scheme stands at Rs. 880 Crores for FY25, up from Rs. 639 Crores in the previous fiscal year. However, the Pradhan Mantri Kisan Sampada Yojana (PMKSY) saw a budgetary reduction to Rs. 729 Crore.

• Production-linked incentive scheme for the food processing industry received an allocation of Rs. 1,444 Crores for FY25, indicating a focus on encouraging innovation in this sector.

BUSINESS-WISE PERFORMANCE OF THE COMPANY

Milk Procurement and Cattle Care

HAP procures milk from more than 400,000 farmers across several villages on a daily basis, covering most of the southern states of India and Maharashtra. To ensure the freshness and quality of the milk, Active Bulk Coolers (ABCs) are installed in over 1440 locations, and the milk is tested for Fat and SNF levels. The payments are made to the farmers bank accounts directly every ten days via a special database. The company has shown significant growth in milk procurement during FY24 compared to FY23, supported by strategically located processing and packaging plants in southern India and Maharashtra.

The cattle monitoring team of our organization is dedicated to helping dairy farmers enhance milk production efficiency and prevent cattle ailments. We offer an AI service and a comprehensive Cattle Management System to assist farmers in achieving these goals. Our brand, SANTOSA, provides a range of cattle feed and supplements, such as Bypass Pellets, XL, and Calf Starter, as well as supplementary products like M Care Plus, ImmunoCare, and trace minerals. These products are designed to improve milk production quality and quantity while maintaining cattle health. By using these products, farmers can boost cattle immunity and improve both milk production and quality.

Distribution Network

HAP Daily Fresh distributes milk and milk products under two brand names, "Arokya" and "Hatsun". These products are available in over 3100 stores across Tamil Nadu, Pondicherry, Andhra Pradesh, Telangana, Karnataka, Maharashtra, and Goa. The product range includes milk variants such as curd, ghee, cooking butter, table butter, lassi, buttermilk, paneer, yoghurt shakes and cheese spread.

HAP Daily I Plus distributes ice creams and milk products through more than 738 stores, which mainly stock Arun Icecreams and Hatsun products, including HAP ice cream cakes and kulfis.

The company has expanded its reach with over 3850 HAP Daily outlets. These outlets have traditionally been strong in the markets of Tamil Nadu, Pondicherry, Karnataka, Andhra Pradesh, and Telangana. The company is now expanding into new districts in the states of Maharashtra, Kerala, Orissa, Goa, Chhattisgarh, Madhya Pradesh, West Bengal, Jharkhand, Gujarat, Andamans, Chandigarh, and Bihar

Ibaco - premium ice cream outlet

ibaco now has over 210 premium outlets, offering beloved ice cream flavours and exciting new products based on positive customer feedback.

Exports - Arun Icecreams

With significant growth in the existing global market and consumer preference for its products, Arun Ice creams aims to expand its global distribution and explore new markets.

New Product Development

In 2024-2025, a range of new products will be introduced, comprising ice cream, kulfi flavours, premium desserts, chocolates, and fermented dairy products like yoghurt and dairy based spreads.

Infrastructure

HAP has made significant investments to develop an advanced infrastructure that enables the production of high-quality products. The Company has established cold storage facilities in different states to ensure the freshness of its products. HAP continues to increase its production volume every year to meet the growing consumer demand.

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 - This stands at 794.95

compared to the previous years 928.92. There is a change to the extent of 14.48 percent. There is no significant change.

(ii) Inventory Turnover Ratio - This stands at 7.88 compared to previous years 12.23. There is a change to the extent of 35.57 percent. The main reason for the significant change is on account of increase in inventory.

(iii) Interest Coverage Ratio - This stands at 1.45 compared to previous years figure of 0.86. The change is 68.60 percent. The main reason for the increase is on increased earnings (due to the healthy performance) available for debt service .

(iv) Current Ratio - This stands at 0.86 compared to previous years figure of 0.62. The change is 38.71%. The reason for change is on account of increase in inventory.

(v) Total Debt to Equity Ratio - This stands at 1.44 compared to previous years figure of 1.01. The change is 42.57 percent. The reason for change is due to increase in borrowings to meet the increased requirement of funds for Operations.

(vi) Operating Profit Margin (%) - This stands at 4.48 compared to previous years figure of 3.09. The change is 44.55%. The increase is on account of increased profit and revenue due to better performance.

(vii) Net Profit Margin (%) - This stands at 3.35 compared to previous years figure of 2.29. The change is 46.16% percent which is mainly due to due to better performance.

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 did not undergo any change. The Paid Up Equity Share Capital stood at Rs.22,27,48,268. The Companys Operations resulted in transfer of Surplus to Reserves which has resulted in increase in the Networth of the Company.

OPPORTUNITIES

Some of the factors that contribute to the growth of the Industry are as follows:

Increasing Population and Rising Income Levels:

The dairy industry in India is experiencing significant growth, driven by the countrys increasing population and rising income levels. As the largest milk-producing nation globally, Indias dairy sector benefits from a growing domestic demand for milk and milk products. The rising income levels across urban and rural areas have enhanced the purchasing power of the average Indian consumer, leading to a shift in dietary preferences toward protein-rich foods, including dairy products. This demographic and economic transition is catalysing the expansion of the dairy market, encouraging both local and international dairy businesses to invest and innovate within this burgeoning sector. The governments supportive policies aimed at dairy development and rural livelihood enhancement further contribute to this growth, ensuring a steady supply of milk from millions of small-scale producers to meet the increasing demand.

Technological Advancements and Product Innovation:

Technological advancements and product innovation are pivotal drivers of the dairy industry in India. The integration of modern technology in dairy farming practices, such as automated milking machines, advanced cooling systems, and efficient feed management software, has significantly increased milk production efficiency and quality. Additionally, the industry is witnessing a surge in product innovation, with companies introducing a wide range of value-added dairy products such as flavored yogurts, fortified milk, and cheese variants tailored to the Indian palate. These innovations cater to the evolving consumer preferences and open up new market segments, enhancing the competitiveness of the Indian dairy industry on a global scale. The focus on research and development to extend product shelf life and improve packaging for better transportation and storage is further propelling the industry forward, making dairy products more accessible to consumers across the country.

Government Support and Policy Initiatives:

Government support and policy initiatives play a crucial role in driving the dairy industry in India. The Indian government has implemented several schemes and policies aimed at promoting dairy farming as a viable

source of income for rural households. Initiatives such as the National Dairy Plan (NDP) and the Dairy Entrepreneurship Development Scheme (DEDS) are designed to enhance milk production, provide financial assistance to dairy farmers, and improve the infrastructure for milk processing and distribution. These efforts are complemented by training programs on best practices in dairy farming, aiming to increase productivity and ensure the sustainability of the dairy sector. Moreover, the governments focus on strengthening the cooperative model has enabled small and marginal farmers to gain better access to markets, negotiate fair prices, and invest in improving the quality of their produce, thereby contributing significantly to the growth and development of the dairy industry in India.

Export Opportunities:

NDDB Chairman observed that with India set to increase its share in global milk production over the next decade, it is time to look at expanding its share in the export market. India currently accounts for 24 per cent of the worlds milk production. Indias milk production has been growing at a CAGR of 6 per cent, while the world average is at 2 per cent. If this growth trend continues, over the next 7-10 years, we will have a one-third share in the global output. Our share in the world dairy market is less than 0.5 per cent. The dairy exports are largely targeted to cater to the demand of our diaspora. India is uniquely positioned to cater to the world market, especially to the countries in Southeast Asia, Sri Lanka, Bangladesh and also in West Asia which are import-dependent for milk products. The dairy value chain could be replicated in other food value chain segments to reduce wastage and improve supplies.

The growth rate of GVA (gross value added) in agriculture and allied sectors increased from 2.10 per cent in 2018-19 to 3.96 per cent in 2022-23. The government has adopted and implemented several policies, reforms, developmental programmes and schemes for improving the agricultural growth prospects and incomes of farmers since 2014. These have led to a rise in the GVA of the agriculture and allied sectors. The Budget allocation of the Union Ministry of Agriculture and Farmers Welfare (including the Ministry of Cooperation, Department of Animal Husbandry and Dairying, and Department of Fisheries) was only Rs. 30,223.88 Crores in 2013-14. This has been enhanced to Rs. 1,25,035.79 Crores in 2023-24. As a per cent of the Governments total Budget outlay, allocation to the Ministry of Agriculture and Farmers Welfare has increased from 1.8 per cent in 2013-14 to 2.8 per cent in 2023-24. The percentage of workers in the usual status engaged in agriculture and allied sector was at 45.8 per cent in 2022-23.

The dairy industry in India size reached INR 16,792.1 Billion in 2023. Looking forward, experts expect the market to reach INR 49,953.5 Billion by 2032, exhibiting a growth rate (CAGR) of 13% during 2024-2032.

The points discussed above, throw ample opportunities for the entrepreneurs in the Dairy Industry to scale up their existing capacities to increase their business volumes and offer opportunities to the new entrants in the Dairy business. The factors cited above attract foreign investment in a large scale which benefit the Industry as a whole and the Government in particular. Also, the employment opportunities do expand that too both in Urban and Rural Areas and the economic activity thrives in all the geographical areas and contribute to the overall economic development of the Country and the well being of People and the Cattle.

Projected Key Trends for 2024 Special Nutritional Needs:

With the growing demand for fitness and well-being, companies are actively looking for ways to assist their customers with their Nutritional needs.

Probiotics:

Recognising that probiotics offer benefits beyond digestive wellness, dairy companies are shifting their research focus to drive innovation in this field.

Sustainable Alternative to Dairy:

Catering to the growing demand for plant-based dairy alternatives, companies across various industries are committed to continuous innovation.

Finding Innovative ways to to reduce Carbon Emissions:

In response to government policies to reduce carbon emissions, companies are proactively undertaking initiatives to mitigate their environmental impact.

Leveraging Digital Intelligence to enhance Dairy Operations:

The acceleration of digitalisation due to the impact of COVID-19 has prompted dairy companies to adopt digital strategies to improve their daily operations.

The India E-Commerce Market size is estimated at USD 112.93 billion in 2024, and is expected to reach USD 299.01 billion by 2029, growing at a CAGR of 21.5% during the forecast period (2024-2029).

One of the primary factors driving the markets growth is rapid urbanisation. Additionally, rising internet penetration and devices such as smartphones, laptops, and tablets to access e-commerce websites boost the markets growth. E-commerce allows businesses to conduct business without maintaining a physical presence, saving money on infrastructure, communication, and overhead.

Focussing Inside Out with Smart and Sustainable Packaging Solutions:

As government regulations push for sustainable packaging solutions, dairy companies are actively seeking packaging alternatives to meet these demands.

Prioritising Livestock Welfare:

Driven by the urgency to prevent future pandemic outbreaks in cattle, the industrys focus on livestock welfare has intensified. Many initiatives are underway to address this situation.

eFeed, an Indian platform established in 2021, leverages AI-assisted feed recommendations, optimising milk output in cattle. Their specialised premixes improve digestion, increase milk production, and reduce methane emissions.

Regenerative Agriculture to Sustain Natures Balance:

In an effort to transform the industrys negative image, dairy companies are actively seeking methods for positive change. One impactful approach they are adopting is regenerative agriculture.

By combining innovation, sustainability, and consumer engagement, the dairy industry is set to build a path that not only meets the demands of the present but also prepares for future challenges and opportunities.

Recognising the need of the hour, top dairy companies have already started working on the abovementioned trends. Itll be interesting to see how these trends will transform the industry.

Your Company strongly believes the concept of "Change alone is Permanent" and is adaptive to the changing trends in the Consumer behavior and always strive to deliver to the expectations of the Consumers by constantly introducing the new products to meet the expectations of the Consumers. Changing appetite of the Consumers is constantly monitored and they are better served by your Company with the uncompromising quality which proves us and makes us to be one of the leading players in the Industry.

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.

As in the previous year, in the financial year 2023 - 24 too, your Management strategically planned and implemented the required Strategies to sustain the profitability to ward off the negative factors like Inflation, increased Interest rates for servicing the debts, increased labour cost, shortage of Raw Materials etc.,

Following a meticulous correction in selling prices and moderation of purchase prices, Hatsun Agro has experienced a remarkable upswing in milk procurement volume. In the months of September and October, the company achieved an impressive 25% increase in procurement, thanks to the establishment of additional collection centers and the inclusion of more farmers across all the states.

The figures speak for themselves - in September, Hatsun Agro procured over 11 Crore liters of milk, and in October, the company reached an all-time high, collecting over 12 Crore liters of milk in a single month. This exceptional growth in procurement not only signifies the companys commitment to overcoming challenges but also positions Hatsun Agro as a reliable and sustainable source of dairy products.

With the expanded network of collection centers and the inclusion of more farmers, Hatsun Agro confidently asserts that there will be no recurrence of supply shortages experienced last year. The proactive steps taken by the Company have not only addressed past issues but have also set the stage for continued growth and stability in the dairy supply chain.

Hatsun Agro remains dedicated to providing quality dairy products to consumers while ensuring fair practices for farmers. The company expresses gratitude to its stakeholders for their continued support and looks forward to a future of sustained growth and success.

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 target/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.

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.

THREATS Market Dynamics Global Competition

While India is a major player in the dairy industry, global competition is intensifying. The challenge lies in maintaining competitiveness while adhering to quality standards and ethical practices.

Fluctuating Milk Prices and the Yield.

Dairy farmers often face challenges due to fluctuating milk prices. Market dynamics, coupled with external factors impact the income of farmers. Diversification and risk mitigation strategies are becoming crucial in navigating these challenges. Companies also face difficulties when the Milk procurement Price vary due to various reasons like low yield due to seasonal changes, disease in the cattle etc., low availability of Milk from farmers and high demand for Milk and the like. For example, after Covid, there was a surge in demand for Milk but the Animals could not give the adequate Milk to satisfy the demand. In other words, the Animals were not equipped enough to yield more milk.

Inflation plays a major role in determining the Price of Milk and Milk Products. In the previous year/s, we have seen the Inflation affecting the Prices. Once, the Inflation stabilises, the volatility in the Price will be under control.

Disease Threat Like Lumpy Skin Disease:

Disease like Lumpy Skin Disease (LSD) strikes the Cattle Population. In the past, the Country has seen the death of Cattle in large numbers due to this LSD which affected the Milk yield and the retail prices shot up. India has the shortage of skilled veterinarians to treat the Cattle at the times of outbreak of deadly diseases. These things reflect on the low availability of quality Milk and affect the Prices paving the way for volatility.

Government Initiatives

Policy Support

Government initiatives such as the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) and Kisan Credit Card schemes are providing financial support to farmers. Awareness of and access to such schemes are critical for the sustainable growth of the dairy farming sector.

Research and Development

Investments in research and development are imperative for addressing challenges and capitalising on opportunities. Collaboration between government bodies, research institutions, and private enterprises can drive innovation and technological advancements. If adequate attention not given for the above, it will have an impact on the Dairy Industrys efficient functioning.

Market Dynamics

The dairy business in India is dynamic, influenced by factors such as consumer preferences, economic trends, and global market dynamics. With an ever-increasing demand for dairy products, entrepreneurs are exploring opportunities across the value chain, from raw milk production to processing and marketing.

Challenges in Dairy Farming

Despite its promising outlook, the dairy industry faces several challenges. From climate change impacts on fodder availability to the need for improved infrastructure, there are hurdles that require strategic solutions.

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.

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 us.

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 are 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 RESOURCES/ 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 build mutual trust and confidence with the employees. The total strength of the Company as on 31st March, 2024 was 5222.

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 relevant factors before making any investment decision.