Hind Industries Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

OVERVIEW OF ECONOMY

The Indian economy has been going through challenging times that culminated in lower than 5 per cent growth of Gross Domestic Product (GDP) at factor cost, at constant prices, for two consecutive years, i.e. 2012–13 and 2013–14. Persistent uncertainty in the global outlook, caused by the crisis in the Euro-area and general slowdown in the global economy impacting the demand for exports, compounded by domestic structural constraints such as low manufacturing base, delays in project approvals among others, and inflationary pressures, has resulted in a protracted slowdown. GDP performance in 2013–14 from the production side (comprising agriculture, industry and services); India’s GDP, during 2013–14, grew and marginally improved to 4.7 per cent as compared to 4.5 percent in 2012–13. This was due to high growth in agriculture and allied sectors, which grew at 4.7 per cent compared to their long-run average of 3 per cent (during 1999–2000 and 2012–13), owing to favourable monsoons.

Concerns around industrial growth persist as slowdown in the industry continued due to deceleration in mining and quarrying, and a disappointing performance of the manufacturing sector, with growth averaging 0.2 per cent per annum in the past two years. Thus, industrial revival is central to sustained revival of overall growth.

The services sector also recorded slow growth due to dismal performance of trade, transport, and storage. GDP performance in 2013–14 from the demand side (comprising consumption, investment and net exports); On the demand side, growth of private final consumption declined to 4.8 per cent, in 2013–14, from 5 per cent in 2012–13.

Fixed investment rate declined steeply in 2013–14 due to reduction in gross fixed capital formation by 2.1 per cent, which is mainly due to decline in private corporate investment. This decline is because of high interest rates and tight liquidity resulting from contractionary monetary policy followed to control inflation and prevent rupee from depreciating.

Moderate revival of exports, coupled with decline in imports, helped improve net exports. The share of exports in GDP increased from 24 per cent in 2012–13 to 24.8 per cent in 2013-14, while the share of imports declined from 30.7 per cent to 28.4 per cent, resulting in improvement in net exports by 3.1 percent points of the GDP.

Inflation, fiscal deficit and Current Account Deficit (CAD); Although the average Wholesale Price Index (WPI) inflation declined in 2013–14 to 6 per cent, vis--vis 8.9 per cent in 2011–12 and 7.4 per cent in 2012–13, it is still above comfort level and continues to pose significant challenges. Fiscal deficit of 4.5 per cent of the GDP in 2013–14, as compared to the budgeted target of 4.8 per cent of GDP, is indicative of continued focus on fiscal consolidation. With a shortfall in tax revenues and disinvestment receipts, along with higher-than budgeted subsidies and interest and pension payments, fiscal consolidation was mainly achieved through reduction in expenditure from the budgeted levels.

Raising the tax-GDP ratio and furtherance of subsidy reforms are essential for fiscal consolidation.

CAD reduced to 1.7 per cent in 2013–14 from 4.7 per cent in 2012–13. This was due to improvement in net exports brought about by restrictions on non-essential imports and demand slowdown. Improved CAD also brought about improvement in balance of payments.

OUTLOOK FOR 2014–15

With expectation of better performance in manufacturing, improved balance of payments situation and modest global growth revival, the economy is expected to grow in the range of 5.4–5.9 per cent in 2014–15. This is because investment revival will happen gradually; still an elevated level of inflation limits the RBI’s scope to reduce policy rates; along with the expectation of a below-normal monsoon.

Growth in 2014-15 is expected to remain more on the lower side of the range given the above, for the following reasons: (i) steps undertaken to restart the investment cycle (including project clearances and incentives given to industry) are perceived to be playing out only gradually; (ii) the benign growth outlook in some Asian economies, particularly China; (iii) still elevated levels of inflation that limit the scope of the RBI to reduce policy rates; and (iv) the expectation of a below-normal monsoon. Downside risk also emerges from prolonging of geo-political tensions. On the upside, such factors as institutional reform to quicken implementation of large projects and a stronger-than-expected recovery in major advanced economies would help the Indian economy clock a higher rate of growth. Despite some measures undertaken to address structural constraints, reversion to a growth rate of around 7–8 per cent can occur only beyond the ongoing and the next fiscal year.

Priorities for boosting growth include reviving investments, strengthening macro-economic stability, creating non-agricultural jobs, developing infrastructure and fostering agricultural development.

CONDITION OF THE INDUSTRIAL SECTORS

All round high inflation in commodities and manufactured products led to significant increase in input costs across the sectors. In addition, crude prices moved up, which also had an impact on transportation costs and packaging costs. Overall, Financial Year 2013-14 was a very challenging year in terms of input cost inflation and managing material costs.

1. INDUSTRY STRUCTURE & DEVELOPMENT

The Company is engaged in the manufacture and export of fresh, chilled and frozen meat and meat products. The Products of the company are widely acceptable and consumed in a large quantity worldwide. The Company, together with its Subsidiary Company, M/s Hind Agro Industries Ltd. is one of the largest exporter of the meat and meat products from northern India. Your company is trying to increase its margins and turnover by exploring new international markets. The focus of the company is to improve the business strategy, production integration, and enhanced economies of scale, cost reduction and aggressive marketing, thereby increase the business by supplying the existing product range in the existing as well as in the alternative markets.

2. SEGMENTWISE/PRODUCTWISE PERFORMANCE

Your Company has only one segment of product, which is "Fresh & Frozen Meat". During the year under review (i.e.2013-14), as compared to the previous year (i.e.2012-13), there has been increase in the Total Production and in the Sales Value made by the Company.

2.1 PRODUCTIONANDCAPACITYUTILISATION

Production achieved during the year under review is 8289.486 M.T. as compared to 2346.011 M.T. during the previous year, which shows an increase of 253.34% over the previous year. The capacity utilization as a percentage of installed capacity increased from 9.38% to 33.16% over the same period.

2.2 SALES TURNOVER

The Company achieved highest ever turnover of Rs 15607.24 Lacs during the year 2013-14, as compared to Rs 15163.16 Lacs during the previous year 2012-13.

3. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

3.1 RAW MATERIALS AND PACKING COST

The Raw Material Consumed to Sales is 85.72% during the year under review as compared to 23.34% in the previous year. The Consumption of Packing Material Cost to Sales decreased to 0.27% in the year 2013-14, from 0.58% in the year 2012-13.

3.2 INTEREST COST

The Financial Cost in the year 2013-14 was at Rs 1067.61 Lacs as against Rs 1358.83 Lacs in 2012-13.

4. OPPORTUNITIES AND THREATS

4.1 OPPORTUNITIES

With the rich experience of the Promoters of the Company in Meat Industry and having a sound network in the Global Market, the Company will definitely continue to achieve its targets of being a leader in this field. The Company is having the services of a highly qualified and experienced work force and enjoys a very healthy industrial environment for its growth and development. The Company along with its Subsidiary Company i.e. M/s Hind Agro Industries Limited, enjoy a significant share of Meat Export Industry and command a greater acceptability of their products internationally. The Government is extending its full support to the Export Industry and making its efforts in opening-up new alternate markets for the export.

India has the largest livestock population in the world.

The decrease in the rate of INR (Indian Rupee) in comparison with the USD (US Dollar) is the favourable condition as the company is billing to its overseas customers in USD.

4.2 THREATS

High hidden infrastructure costs like indirect taxes, poor roads, erratic power & water supply, oil prices, low economies of scale, that continue to impede global competitiveness and export performance, remains a cause of concern for the company. Emerging of new players in the meat industry results in increase in competition. The quality of raw material depends upon the health of livestock, which needs to be disease free for being worthy of acceptance in the international market.

Since the meat and meat products of the Company are in a chilled and frozen form, the same are highly perishable in nature. So, strict care is required to continuously maintain the temperature to a certain freezing level during transit to avoid any contamination of the high value products of the Company. Political unrest in the importing countries.

5. HIGH SECURITY REGISTRATION PLATE PROJECT

The Commercial Production for the High Security Registration Plate was commenced from 25th March, 2010. The said project at Baddi, in the State of Himachal Pradesh, is in progress and we are applying for the tenders in various states. Your Company is hopeful that the large scale work on High Security Registration Plate will start soon.

6. FUTURE PROJECTS

Your Subsidiary Company, M/s Hind Agro Industry Limited, has completed the construction work at the site of Chennai Municipal Corporation Modern Slaughter House at Perambur, Chennai which was bagged on Design, Build, Operate and Transfer (DBOT) basis. The plant is ready to commence commercial production and the same may be started at any time after redressing some local and political issues.

7. OUTLOOK

India is one of the very few economies in the world which is growing at a commendable speed and promises a huge opportunity for exports. The economy is expected to grow by more than 7% in the fiscal 2014-15. With more than 56% of World’s Buffalo population in India, Buffalo meat export has huge potential. Further, Government is taking measures to increase the export by planning to take steps in areas of increasing the supply of quality livestock through scientific rearing practices, improvement in disease status in respect of diseases like Foot and Mouth Disease (FMD) by creating disease free zones, better implementation of existing plan scheme for livestock health and disease control. With all these measures being taken up by the Government and end of Political unrest in Middle East, your company is hopeful that the Financial Year 2014-15 will be much better.

8. RISKS AND CONCERNS

The following are the areas of concern:

The meat industry is very competitive, and the pressure continues to increase through the entry of new players, consolidation of existing players and expansion of operations by existing players. Changes in Indian as well as Foreign Government Policies and Regulations present a major area of concern for the Industry.

Meat is more prone to disease which affects its export.

Volatility in the exchange rate of Indian Rupee as compared to USD is also an area of concern.

9. HUMAN RESOURCE AND INDUSTRIAL RELATIONS

Hind’s people are the Company’s most important asset and source of competitive advantage. All employees of Hind are considered leaders and encouraged to take responsibility to do their best that they can while meeting business needs. Our success depends entirely on the strength of our talent pool which we build by fostering an environment and continually investing in them to enable them to deliver superior performance. Our Human Resource strategy is aimed at talent acquisition, development, motivation and retention. The Company has been able to maintain an excellent industrial rapport with its employees with no industrial dispute or conflict. The Company’s Commitment to maintain harmony in Industrial Relations has resulted in achieving high productivity standards in the Industry.

10. INTERNALCONTROLSYSTEMSANDITSADEQUACY

As an intrinsic part of the overall Governance process, the Company has in place a well established Internal Audit which covers all aspects of financial and operational controls.

The Company adheres to and abides by the strict Internal Control and Management Information System. The Company has maintained an inbuilt Internal Audit System looked after by a highly experienced and qualified team of professionals. It is also pertinent to note that a summary of audit observations and action taken by the management are placed before and discussed at the Audit Committee Meetings. The suggestions and directions of Audit Committee are recorded and action taken accordingly.

11. SOCIAL RESPONSIBILITY AND COMMUNITY DEVELOPMENT

The Company is making its regular efforts in improving the socio–economic environment in and around the factory, especially towards maintaining clean and green pollution free surroundings, improving the quality of life of its suppliers, employees and all concerned, through its efficient functioning and by taking all precautions against all sorts of environmental hazards. Special care for conserving the scarce natural and infrastructures resources like electricity, fuel energy, water, steam etc. is taken for avoiding wastages. Developing and improving the agricultural resources, especially livestock, is given an utmost priority by the Company. The Company is fully conscious of its social responsibilities and has been discharging them to the fullest extent.

12. FORWARD LOOKING AND CAUTIONARY STATEMENTS:

Statements in this Management Discussion and Analysis describing the Company’s objectives, projections, estimates and expectations may be ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuation in Foreign Exchange, fluctuations in earnings, our ability to manage growth, intense competition, wage increase in India, reduced demand for meat, withdrawal of Government incentives, legal restrictions on export outside India, statutory legislations and regulations affecting operations, including tax obligations and other allied factors. The Company does not undertake to update any forward looking statements that may be made from time to time by or on behalf of the Company.

ON BEHALF OF THE BOARD
FOR HIND INDUSTRIES LIMITED
NEW DELHI SIRAJUDDIN QURESHI
AUGUST 14, 2014 CHAIRMAN & MANAGING DIRECTOR