hindustan foods ltd share price Management discussions



Over the past couple of years, the world has witnessed tremendous change. During the years 2020 and 2021 the global economy plummeted due to the continuing spread of the Covid-19 pandemic, the resultant lockdowns and disruptions of supply chains. Multiple waves of the pandemic worsened the situation and many countries faced difficulties, owing to lack of abilities to cope with such unprecedented tough times.

As Central Banks turned on the liquidity tap, economies and people survived the pandemic with lesser damage than expected. Just as the vaccination-led attack on the pandemic was succeeding, a raging war between Russia and Ukraine has not only proven to be a humanitarian disaster, the resultant economic damage is being felt worldwide. To add to this, China again reinstated partial but severe lockdowns. The combined risks of these recent events are becoming increasingly severe and long-lasting.

According to the World Economic Outlook, published by the International Monetary Fund in April 2022, global growth is expected to decelerate to 3.6% in 2022, reflecting continued Covid-19 flare-ups, diminished fiscal support and lingering supply bottlenecks.

Global GDP Growth Expected in 2022

Emerging from the set of lockdowns and an increased pent- up demand, factories faced a huge backlog of orders which was exacerbated by supply chain and logistics issues. Shipping costs steadily increased in 2021 and delivery times lengthened. Current indications are that these supply chain disruptions will persist well into 2022.

Output and investment in advanced economies are projected to return to pre-pandemic trends next year and their Central Banks have started withdrawing liquidity support while increasing interest rates. Emerging markets, however, continue to be vulnerable, owing to lower vaccination rates, tighter fiscal and monetary policies, and more persistent scarring from the pandemic. (Source: WorldBankj Prior to the war between Russia and Ukraine, global recovery from the pandemic was expected to continue in 2022 and 2023, owing to progressive vaccination efforts, supportive macro-economic policies in major economies and favourable financial conditions. However, if the war continues, global growth is anticipated to be hindered, inflationary pressures will be further aggravated, resulting in supply shocks for the world economy.

Common commodities, raw material and food prices have witnessed a surge. With the global economy yet to fully recover from the Covid-19 pandemic, the impact of the war has only been hugely amplified. High inflation, supply chain bottlenecks, receding liquidity and rising interest rates will require multilateral efforts to respond to a humanitarian and economic crisis of this nature. The need to prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change and end the pandemic cannot be overstated.


As stated by the International Monetary Fund (IMF) in April 2022, war-induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7% in advanced economies and 8.7% in emerging markets and developing economies - 1.8% and 2.8% points higher, respectively, than projected in January 2022.

Despite vaccine rollouts and approvals, renewed waves, constant flare-ups and new variants of the virus pose continuing concerns. The pandemic has inflicted high and rising human costs worldwide and the global fall-out of the war will worsen these impacts.


India has displayed amazing resilience during this period and experts are cautiously optimistic that the economy will bounce back sooner than later.

According to the EconomicSurvey2021-22, Indias merchandise exports and imports rebounded strongly and surpassed pre-Covid levels during FY 2021-2022.

The Survey further states that the services sector was amongst the hardest hit by the pandemic, especially segments that involved human contact. The Sector is further estimated to grow by 8.2% in FY 2021-2022, following previous years 8.4% contraction.

According to www.pib.gov.in, the growth projection for FY 2022-2023 is based on the assumption that there will be no further debilitating pandemic-related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in a reasonable range, and global supply chain disruptions will steadily ease over the course of the year. The above projection is comparable with the World Banks and Asian Development Banks latest forecasts of real GDP growth of 8.7% and 7.5% respectively for FY 2022-2023.

As per the IMFs latest World Economic Outlook (WEO) growth projections released in April 2022, Indias real GDP is anticipated to grow at 8.2% in 2022, projecting India as the fastest-growing major economy in the world for the next three years.

However, as explained in the earlier section, how the combined risks of the recent highlighted events will play out will need to be continuously factored into the years projections.

Rising fuel prices due to the war and inflation in food and edible, oil especially wheat and palm oil, could rock the progress and the rebound of the Indian economy. Owing to higher edible oil and fuel prices, retail inflation in India witnessed a steep increase to a multi-year high of 7.79% in April 2022, breaching upper tolerance levels set by the Reserve Bank of India (RBI). Persistent retail inflation above 6% will result in households cutting down expenditure on non-essential groceries.

Reflecting the cautions highlighted in the previous section, in May 2022 the RBI raised repo rates by 40 basis points to 4.4% and the Cash Reserve Ratio (CRR) by 50 basis points to 4.5%, making loans more expensive for borrowers. The RBI pointed out that heightened uncertainty surrounds the inflation trajectory, which is heavily contingent upon the evolving geopolitical situation. Global commodity price dynamics are driving the path of food inflation in India, including prices of inflation-sensitive items that are impacted by global shortages due to output losses and export restrictions by key producing countries.


Repeated waves of infection, supply-chain disruptions and more recently, global inflation have created particularly challenging times for policymaking. There are trends and contra trends e.g., with the revival of the economy, employment indicators bounced back to pre-pandemic levels during the last quarter of FY 2020-2021.

Supply chain disruptions have large real effects on firm inventories, production and sales. These effects were still in evidence in the first few weeks of 2022. High-frequency data from the United States show that the share of firms that reported foreign supplier delays increased from 9% in October 2020 to 20% in December 2021. A growing share of small businesses have also reported difficulties in locating alternative foreign suppliers. These developments are particularly severe in the manufacturing, construction and trade sectors and have translated into an increase in the share of firms reporting delays in production and delivery to their customers, which reached 14% and 26%, respectively, in December 2021.

The pressure of regaining pre-pandemic levels still remains along with various uncertainties like difference in assessment of the economic situation at hand but also due to the ongoing geopolitical crisis which is fuelling a surge in global commodity prices, most alarmingly in the case of crude oil.

Additionally, with the Russian invasion of Ukraine creating a huge disruption in the commodities market, it is expected that the entire global economy will feel the effects of slower growth and faster inflation. Overall, however, notwithstanding pandemic and global headwinds, macro-economic stability indicators suggest that the Indian economy is well placed to take on the challenges of FY 2022-2025 and one of the reasons that the Indian economy is in such a good position is its unique and calibrated response strategy.

Overall macro-economic stability indicators suggest that the Indian economy is well placed to take on the challenges of FY 2022-2025.


The FMCG market is segmented based on product type, distribution channel and geography. Based on product type, it is classified as food and beverages, personal care (skincare, cosmetics, hair care, others), healthcare (over- the-counter drugs, vitamins & dietary supplements, oral care, feminine care, others) and home care. The distribution channel segment comprises of e-commerce, modern trade (departmental stores, supermarkets, and hypermarkets, among others) and traditional trade (wholesalers, grocery stores, specialty stores, and chemists, among others). Geographical segmentation refers to regions, and/or urban (classes \of cities from metros to small towns), and rural.

The fast-moving consumer goods market expanded 16% in value during CY 2021, compared to the previous year, the fastest in nine years, largely driven by price hikes and the low base effect, even as volume, or actual number of products sold, remained under pressure. (Source:https://economictimes. indiatimes.com/industry/cons-products/fmcg/fmcg-market- growth-hits-a-9-y ear-high-in-2021/articleshow/89232972. cm s?utm_source = contentofinterest&utm_ medium=text&utm_campaign=cppst)

FMCG Market Growth in 2021

In the post-Covid new normal era, the Fast Moving Consumer Goods (FMCG) industry is witnessing significant transformations, owing to changing customer behaviour patterns and demand for more convenience. To cater to surging demand, marketers, retailers and Contract Manufacturers are adopting omni-channel strategies and adopting digitisation along with the new-age technologies in their operations.

The positive news is that businesses have largely stabilised and become almost immune to Covid disruptions. Thus, FMCG players are expecting exponential growth that will be contributed by several factors including e-commerce, technology and understanding the new-age demands. Cautions expressed in earlier sections however need to be factored in.

As per a report by CRISIL, the FMCG sector is set to doubledigit its growth in the FY 2021-2022 to 10-12% as due to the consumption baskets transformation during this Covid period and some of these changes are likely to be permanent. FMCG sectors are at a juncture where they are facing the dilemma of choosing between margins and volumes. Nearly 36% of an FMCG companys sales comes from rural India and a continued rural slowdown could be concerning. Contrarily, people on the urban side too, have started using products on the lower end of the price spectrum.

Rural FMCG Sales

A recent ICE360 Survey stated that the income of the poorest fifth which constitutes 20% of the Indian households has plunged 53% in FY 2020-2021, during the Covid pandemic as compared to their income in FY 2015-2016, whereas the annual income of the top richest 20% of households surged 39% in the same period. The phenomenon of wealth concentration in the hands of the top 20% does not bode well for the consumption sector of India which depends on the spending capacity of the masses in the country. However, as Covid guidelines are easing and with expectations of a good monsoon, rural growth is likely to make a comeback and be more in line with urban growth. This additionally will impact lowest income quintile economics.

Indias FMCG sector seems to have emerged as one of the most resilient segments of the economy despite the repeated waves of the pandemic and widespread disruption in public life. The estimates for the upcoming quarters indicate a steady recovery in FMCG businesses, owing to steady consumption demand. Moreover, various categories are witnessing prominent growth owing to Out-of-home (OOH) consumption. This has advantaged various commodities like snacks, drinks, ice-creams and colour cosmetics with good demand acceleration.

In the opinion of various experts, healthy products are expected to be in great demand, as several customers have switched to healthier options across many available categories of packaged foods. Moreover, consumer convenience and quality will drive the move from non- branded to branded. The large number of women joining the workforce will further accelerate these changes.

Additionally, as far as the FMCG sector is concerned, capacity build will have to keep up with the pace of economic growth fueled by the new generation of entrepreneurship.

Finally, with the Governments push towards increased infrastructure development, the economy is expected to witness a multiplier effect.


The year 2022 will likely be a difficult year as commodity prices are on the increase across global markets. The country still has 8-10% unemployment, job losses have been significant and salaries are mostly on a downward trend; so, the pressure on overall household budgets is being felt. In that context, if commodity costs also play up, it is going to put even more pressure on family budgets. Inflation affects the FMCG sector directly at both ends in terms of raw material prices and incomes earned. (Source: https://www. financialexpress.com/industry/fmcg-segment-bets-on- 2022-to-speed-growth-rate-and-surpass-2021s-double-digit- growth/2429662/)

On a positive note, India has a huge headroom for FMCGs growth as the country has low FMCG per capita consumption even when compared to other emerging nations like Indonesia, China, the Philippines and Thailand. This low penetration manifests across many FMCG categories like Milk Food Drinks, Face Wash, Body Lotions, Washing Liquids, Dishwash Liquids, Hair Conditioners, and Body Wash among others, leaving enough room for growth.

The D2C market is growing enormously in India and around the world. One of the biggest factors for the growth of Direct to Consumer (D2C) brands in the country is digitisation coupled with low penetration of organised retail in India, access to innovative products at affordable prices and delivery of great quality products to the remotest corners of India. All these factors are catapulting this segment ahead.

There has been a steady rise in D2C funding in 2021 with an increasing trend of higher funding magnitude (having grown by 251% over 2020) and higher number of deals witnessed in this space (having grown by more than 50% over the previous year). (Source: https://inc42.com/datalab/indian-d2c- startups-raised-783-mn-in-the-first-seven-months-of-2021/) This undoubtedly signifies more demand for Contract Manufacturing which will play a vital role in making products for brands aiming for customer delight, providing memorable experiences, high repeat purchase and finally brand advocacy. Increasing competition from D2C brands is pushing traditional brands to change their structures and rethink manufacturing processes. This will also create burgeoning demand for Contract Manufacturers as brands would wish to focus on operational and administrative aspects rather than concentrating their time and efforts on manufacturing.

Growth Drivers for the FMCG Sector

Despite the fact that the sector witnessed uncertainties like disrupted supply chain and various other complexities, as explained there are significant positives too. According to Financial Express, with a growth rate of about 15%, the FMCG industry has been projected to grow to a market size of almost USD 220 Bn by 2025.

Expected Market Size of the FMCG Industry by CY 2025, in India

FMCG industry in India has seen a remarkable transformation over the last two decades. Revenue growth is expected to surge owing to many factors like recovery in urban demand and discretionary segments, as well as price rises implemented to counter the impact of rising raw material costs.

Favourable Demographics of India

Indias largest share of population is young and working; this gives an impetus and acts as a huge encouraging sign of sustainable growth in FMCG products in the country.

Besides, as per reports, India is moving towards small family structures; with a large number of Indian households expected to be nuclear in the next few years. This development indicator will prove to be a boon for the FMCG industry and ultimately the Contract Manufacturing sector, as consumption patterns will beneficially change.

Infrastructure development across smaller cities ensures that a large share of the countrys population will be living in cities in the coming years, which will be a key driving growth factor for the Contract Manufacturing segment.

Another factor that will massively affect the growth of the FMCG sector is the rising affluence in rural areas leading to rise in share of FMCG consumption.


It has been observed since the outbreak of Covid-19 that consumers have rapidly increased their technology usage and adaptation. This trend is likely to increase in the coming few years. Increasing smart phone usage and internet penetration will also help people in rural areas to easily access online shopping on various e-commerce websites. Accordingly, Contract Manufacturing companies can pace up their production to meet the ever-rising demands.

Brand Community

Social media allows consumers to easily interact with other people who have bought the same product. Consequently, brands are devising new marketing strategies to build brand communities where they target consumers who are interested in their products as well as have similar social, cultural and political afinities. This allows niche brands to establish and flourish which will also provide added advantage to Contract Manufacturing companies.

Direct Doorstep Delivery

The profit margin earned through direct selling to consumers has tempted even the bigger brands to set up direct sales channels on multiple digital marketplaces and even set up standalone websites and stores. Most brands have started delivering their products directly to the consumers doorstep, thereby capitalising on the trend of online marketplaces. D2C is a popular business model which will only find more relevance in the upcoming years. This allows smaller companies to overcome distribution-led entry barriers. For multiple reasons these trends are hugely beneficial for Contract Manufacturing.


With the new Government regulations regarding investments in FMCG companies and accepting foreign-direct investments, the sector has seen a sudden influx of funds. The FMCG sector saw a robust FDI inflow of USD 18.19 Bn in 2020. The Governments incentives and FDI-infusions have helped the FMCG sector create employment, establish a more robust supply chain and invest in high visibility for FMCG brands. The focus on MSMEs, agriculture, education, healthcare, infrastructure and tax rebates has impacted the FMCG sector directly. In addition, initiatives undertaken to increase disposable income in the hands of vulnerable parts of the population, especially in rural areas, have significantly benefited the sector. It is expected that the Government will further push the growth of the FMCG sector with more such appealing developments, policies and investments in the future. (Source:https://www.indianretailer.com/article/ whats-hot/retail-trends/how-fmcg-industry-is-expected-to- perform-in-2022.a7793/)

Other Factors

Few years ago, the Government, in its initiative to aid the Make in India programme, allowed 100% FDI through the automatic route for Contract Manufacturing. This is expected to attract global companies in India looking to establish alternate manufacturing hubs. The changes to FDI norms may well reposition India on the global map.

Hence, Contract Manufacturing in the FMCG space has an edge and can leverage the benefits available to it, owing to various reforms and changing conditions. Additionally, lower input costs, improved ease of doing business such as trimming of import-export-related red tape and a focused approach to industrial policy helps in catalysing the growth of Indias manufacturing value chains by assisting them in improving productivity, securing knowhow and technology and gaining access to capital.


Due to the distinct competitive advantage of availability of high intellectual capital and low labour cost, India has been a preferred destination fora range of outsourcing activities. In todays times, a Contract Manufacturer is not just a producer and packer, but a value-adding partner across the entire supply chain.

In the current context, FMCG majors rely heavily on Contract Manufacturing companies to meet ever-changing demand dynamic. India stands out as a potential manufacturing powerhouse that is yet to realise its promise. From fiscal year 2006 to 2012, Indias manufacturing-sector GDP grew by an average of 9.5% per year. Then, over the next 6 years, growth declined to 7.4%. In fiscalyear2020, manufacturing generated 17.4% of Indias GDP, little more than the 15.5% contributed in 2000 (By comparison, Vietnams manufacturing sector more than doubled its share of GDP during the same interval). Besides, in the past 15 years, Indias manufacturing-sector share of employment increased by just one percentage point, compared with a five-point increase for the services sector. (Source: https://www.mckinsey.com/industries/ advanced-electronics/our-insights/a-new-growth-formula- for-manufacturing-in-indiaj.

The consumer map in 2022 will consist of a huge population of millennial who would be focusing on self-development and balanced life. These expectations can be met by focusing on customer experience and creating quality products that would provide health benefits as well as peace of mind (Source: Indian Retailer). Experienced, state- of-the-art technology accessing and innovating Contract Manufacturers can play a significant role in these product creations and improvements.

Businesses have largely stabilised and become immune to Covid like disruptions, thus the Contract Manufacturing space is expecting exponential growth that will be contributed to by several factors like e-commerce, technology and understanding a more conscious, better informed consumer in the post-pandemic new normal. Contract Manufacturing companies who are willing to have a cutting edge on their clients need to pivot to be faster and more efficient to adopt innovation are likely to benefit.

Going forward, FMCG companies can significantly minimise their risks in the areas of operations, supply chain, financial and human management by simply opting for Contract Manufacturing. Contract Manufacturing companies act as growth catalysts for FMCG majors. Additionally, the industry is home to many players of much lower scale. Gradually, over the years, FMCG Contract Manufacturing has started gaining popularity to meet the unique requirements of these multitude of players.

The Packaged Food market thrived in India during the pandemic as people became increasingly aware about consuming healthy and immunity-boosting food products. Other factors like rising income levels, preference for healthy and organic products, and increasing urbanisation, among others, also drove growth in FMCG and thereby of the Contract Manufacturing segment.

Accordingly, with a positive outlook in FY 2021-2022, Contract Manufacturers are expected to be prepared to leverage every opportunity with significant product innovations in healthcare and personal care categories.

Leaders in the Contract Manufacturing space will be distinguished by their ability to adopt new technology creatively and make smart technology investments. As Contract Manufacturers position their business models, strategy, business development and operations to flourish in the post-pandemic world, the year 2022 is expected to be a year of investments and new partnerships.

The Covid-19 scenario has enhanced digital transformation in manufacturing like never before as companies had to adapt to supply chain disruptions, remote work and new delivery models. With computing, Al (Artificial Intelligence), ML (Machine Learning) and 5G, Contract Manufacturers can now quickly configure their production lines and assets to support variable contracts and client level customisation. Contract Manufacturers with agile technology adoption are going to hugely benefit as consumers are going to be more digitally active than they were earlier E.g., food companies with strong digital capabilities are the ones that are going to capture consumer interest and these will need very adaptable manufacturing capabilities.

Outsourcing manufacturing 360, allows FMCG players to reduce labour costs, free up capital, and improve worker productivity. FMCG players can then focus on things that enhance brand value - R&D, design and marketing. Facilitating the aforesaid are a top-class Contract Manufacturers strength, this is what has journeyed Contract Manufacturers into an integral part of the FMCG ecosystem.

Listed below are some of the major Contract Manufacturing advantages that can help FMCG companies streamline their business:</p>

• Provide critical support to meet demand surges

• Oversee the complete manufacturing process

• Contract with labour better

• Explore the efficiencies of large scale production

• Generate cost-saving benefits over the long-term

• Comply with strict quality norms

Just like FMCG industry, the Contract Manufacturing industry has evolved multi-fold over the year

Phase 1 k Phase II Phase III Phase IV (The 1980s) ^ (The 2000s) ^ (Present Times) ^ (The Future)
• Small Scale Industry (SSI) Reservations • Area-based Reservation • GST • Global Sourcing Hub like Pharma Generics
> Direct Tax Exemption • One Country-One Market
• Tax Exemptions for SSIs > Indirect Tax Exemption • Changes in Distribution Network • Most product categories in India are duopolies or oligopolies unlike in the US/Europe which have several brands under each category. There are various underlying opportunities for niche brands which can be used to the maximum advantage and this also leads to emergence of more fragmented markets.
• E-commerce and modem trade leading to explosion of small brands, wanting to refrain from manufacturing Facilities Investment


India seeing huge headroom for FMCG growth

• Low FMCG per capita consumption, as compared to other emerging nations like Indonesia, China, the Philippines and, Thailand amongst others

• Low penetration in many FMCG categories like MFD, Face Wash, Body Lotions, Washing Liquids, Dishwash Liquids, Hair Conditioners, Body wash

Increasing consumption

Household consumption in India is growing due to growth in nuclear families, enhancement in lifestyle, growth in purchasing power due to increasing incomes and various other factors. Favourable demographics and rise in income levels will provide a boost to FMCG markets, which will ultimately benefit Contract Manufacturers. A report by Care Edge states that "The FMCG Market in Rural India is expected to show considerable growth driven by internet usage, digitalisation of the economy, increasing mobile phone users, growth in per capita incomes and most importantly the upgraded distribution channels of FMCG companies." The E-commerce segment is forecasted to contribute 11% to the overall FMCG sales by 2030 and this will provide yet another growth vector

Expected Contribution by the E-Commerce Segment for FMCG by 2030

Well-equipped with resources

Todays Contract Manufacturers are well-equipped with technology and warehouses and provide businesses with deeper technical insights, right from the stage of product development to packaging. Contract Manufacturers are also well-equipped to identify potential risks and take measures to mitigate them. This is owed to decades of expertise, supported by skilled management and experts who understand manufacturing and supply logistics in depth. At Hindustan Foods Limited (HFL), we have a winning edge, owing to our decades-long experience in producing across FMCG categories, expertise in product packaging, capabilities in developing new products and constant innovation. We can cater over a wide range of clients and manage the operational complexities of the full spectrum of FMCG players. We have, over the years, developed top-of-the-class project management capabilities, that enables us to set up greenfield projects, adapt brownfields and increase capacities all within challenging lead times. We accomplish this while also ensuring that costs of capital-intensive equipment are seriously contained. This enables brand owners to go asset- light and personnel-light and focus on market value-adding activities in a fruitful manner.

Minimised cost of production for the FMCG players

Contract Manufacturing helps in minimising the cost of production for FMCG companies. It helps companies focus on coreand relevant value-adding functional areas. Marketing, Distribution and Selling are challenging in todays hyper- competitive environment. Companies, through outsourcing of production activities, get more time to focus on these strategic and competitively differentiating functions. This explains best why increasingly FMCG majors are outsourcing their entire production to Contract Manufacturers.

Skilled labour

The backbone of the Contract Manufacturing industry is skilled labour and the availability of such Indian skilled labour at relatively lower costs provides a significant advantage for global FMCG companies to outsource from India. At HFL, we feel fortunate in our excellent labour relations record. We upskill our labour force constantly through various training programmes. These investments meet labour force aspirations and provide us with increasing skill sets in a win-win relationship. Moreover, various programmes and initiatives taken by governments are further enhancing skilled labour availability.

Ability to source resources

For a Contract Manufacturer, the variable costs of acquiring raw materials are reduced due to scale. Likewise, the fixed costs are reduced owing to volume play with various lines producing different categories of products. Therefore, a Contract Manufacturer can offer products at lower prices per unit to customers in the aggregate. At HFL, our ability to source raw materials locally saves time and manufacturing costs. Our ability to procure resources from labour to transport to materials at reasonable prices locally, hugely increases productivity and cost efficiency. We also have best-in-class supplier agreements in place. Backed by excellent supplier management and vendor development skills, we keep sourcing on an ever-increasing efficiency uptick.

Quality products

HFLs unvarying commitment to quality regularly receives appreciation from our clientele. The high degree of difficulty skill is in maintaining the right balance of quality products but at continually lower costs. Quality assurance processes and trained personnel ensure sustained cost-efficient high quality and consistent quality operations.


As a company, HFL continuously collaborates with clients to co-create innovative new products and bring innovative technical efficiency to existing product lines.

Easy entry in markets

Market entry barriers in various regions of India tend to be high. These could be regulatory, environmental, and trade barriers-oriented, among others. Contract Manufacturing facilitates market entry into different regions to a great extent.

Timely delivery

Reliability of product delivery, meeting challenging and agreed-to deadlines, managing faster time to market are HFL hallmarks.


Fluctuation in the prices of raw materials

Prices of raw materials are vital in the FMCG sector. Lingering Covid concerns have dampened consumer sentiments. This adds to the already existing issues of elevated input costs and raw material shortages. The armed conflict between Russia and Ukraine has already impacted prices of agri-commodities since the region is a key exporter of food grains and edible oil. While companies have been finding it difficult to pass the full impact of raw materials price inflation onto customers for the fear of losing out on demand after a prolonged lull due to the pandemic, some increase has still been effected. (Source: Financial Express).

Some geopolitical events, the unpredictable consequences of the pandemic with further threats of looming lockdowns are likely to impact the prices of raw materials of fast moving consumer goods. This could, in turn, affect the Contract Manufacturing companies in determining their price levels.

Dependence on government policies

The Contract Manufacturing and FMCG sector is highly dependent on policies implemented by government. Many FMCG companies set up operations in states where certain benefits and exemptions are granted under existing tax regimes. However, change in government policies may adversely affect the cost dynamics of companies. Moreover, change in taxation policies and the consequent price changes can affect industry economics.

Increasing competition

The Contract Manufacturing sector is prolific, diverse and full of competition. As FMCG companies widen their operational base and deepen their product lines, they tend to take along their manufacturing partners, thus increasing competition. There are some high entry barriers in the industry owing to various reasons like:

• Setting up manufacturing plant is capital intensive

• Lack of skilled labour management

• Efficient allocation of resources to fuel growth is difficult

• Logistics & supply chain management barriers

• Stringent Quality Control (QC) of customers

• Regulatory & environment challenges

• Increasing competitiveness in the industry


The global Consumer Packaged Goods (CPG) market size is projected to reach USD 2382260 Mn by 2027, from USD 1938120 Mn in 2020, at a CAGR of 3.0%. (Source: https://www. globenewswire.com/news-release/2022/01/19/2369656/0/ en/Consumer-Packaged-Goods-CPG-Market-and-FMCG- Mar ket-Size-Types-Applications-Manufacturers-Know- Experts-Detailed-A n a lysis-on-Globa l-M a rket-by-2027- Absolute-Reports. htmlj

From many decades ago when brands were reluctant to use Contract Manufacturers for making their products, ever- rising demand and changing times have resulted in Contract Manufacturers becoming key partners for FMCG players.

Demographics and increasing consumption patterns have resulted in long-term structural growth in demand in the FMCG sector. E.g., the size of the packaged food market alone is projected to be USD 70 Bn by 2025. (Source: https:// www.newindianexpress.com/business/2020/dec/31/ fmcg-firms-ramp-up-in novation-as-consumer-trends- shifttrajectories-2243463.html)

The aforesaid figures clearly indicate that the FMCG manufacturing sector is set to become one of the largest sectors in terms of value addition to the economy and employment generation. Moreover, in light of the Covid-19 pandemic, robust growth opportunities are emerging as the world seriously considers India as a potential contender for the status of production powerhouse as a part of the China + 1 strategy.

Setting up manufacturing facilities in India on a huge scale is a herculean task. An estimate by Reserve Bank of India as cited in a report published by Mckinsey in 2021, lists the average capacity utilisation by Indian manufacturers as around 60% to 70%, which is well below optimum levels; caused by various bottlenecks in raw material procurement and sourcing, availability of trained and competent human task force and regulatory issues.

As the pioneer Company in the Contract Manufacturing space, HFL is now established as the most diversified and versatile Contract Manufacturing company in India. Moreover, we plan to add value by growing organically and inorganically through bolt on acquisitions, which are, in the current context, most appropriate in the Contract Manufacturing space.

HFLs state-of-the-art facilities and well-integrated backend services like processing, packaging, warehousing and logistics provide one-stop solutions for all kinds of manufacturing requirements across a very wide spectrum of products in the FMCG sector. Our clients are assured of complete protection of Intellectual Property, while at the same time leveraging the many benefits of outsourced manufacturing. All this allows our clients the ability to increase focus on their core competencies.

HFL offers one-stop Contract Manufacturing solutions and the promise of consistently delivering quality products on time, every time. We offer flexible business models suitable for any size of customer and across product categories. Our business models provide the right strategic fit not only for existing renowned companies but also for upcoming players and start-ups. Our long history with leading FMCG majors bears testimony to our track record and augurs well for future associations.

We cater to manufacturing a large range of products like Home Care and Personal Care, Foods & Beverages, Mosquito Repellents and Leather, amongst others. Moreover, we are continuously adding new capacities and product categories to cater to the needs of various customers, existing and new.

We are committed to provide world-class solutions for the FMCG industry in the areas of product innovation, manufacturing, sourcing, vendor development and packaging.

HFLs vaunted project management capabilities allow us to increase capacities, adapt brownfields and set up greenfield projects within challenging lead times, while also ensuring efficient reduction in costs of capital-intensive equipment. This enables brand owners to go asset-light and management-right and focus on market value-adding activities in a fruitful manner.


As has been captured in the previous sections, Contract Manufacturing is a derivative of the FMCG segment. Therefore, no separate growth drivers have been listed herein, other than the growth drivers for the FMCG sector.


The Company boasts of being one of the most diversified and organised Contract Manufacturers of FMCG products. The Company has fully integrated plants with processing, packaging, warehousing and logistics facilities equipped with modern laboratories for quality assurance and development centres for innovation.

With 13 manufacturing plants spread all across the country, the Company acts as a one-stop Contract Manufacturing solutions set-up to a vast number of domestic and international clients. The flexible business models of the Company are efficiently adaptable to the changing requirements of clients.


(Rs. in Lakhs)

Particulars FY 2020-2021* FY 2021-2022 Y-o-Y Growth
Revenue from Operations 1,40,717 2,02,070 44%
EBITDA 9.283 12,043 30%
Profit after Tax 3.933 5,008 27%
Basic Earnings per Share (Rs i 1744 22.21 27%

*Previous years numbers are restated

The year ended with another landmark in the history of the Company.

Revenue from Operations increased to Rs. 2,02,070 Lakhs, growing by 44% over FY 2021-2022. EBITDA rose to Rs. 12,043 Lakhs, increasing by 30% as compared in FY 2021-2022, compared to FY 2020-2021. Profit after Tax surged to Rs. 5,008 Lakhs, increasing by 27% over the previous year. The basic EPS increased by 27%, this overall improvement can be accredited to ramping up of new plant and additional capacities.

*Earnings per Share (EPS) is the portion of a companys profit allocated to each share. It serves as an indicator of a companys profitability. It is calculated by dividing profit for the year by weighted average number of shares outstanding during the year.


Types of Ratio Explanation of Ratios FY 2021-2022 FY 2020-2021 % Change
Inventory Turnover (Times) Inventory Turnover is the number of times a company sells and replaces its inventory during a period. It is calculated by dividing cost of goods sold by average inventory. 9.11 8.54 6.71%
Current Ratio (Times) The Current Ratio is a liquidity ratio that measures a companys ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities. 1.29 1.33 -3.11%
Debt Equity Ratio (Times) The Debt Equity Ratio is used to evaluate a companys financial leverage. It is a measure of the degree to which a company is financing its operations through debt versus wholly owned funds. It is calculated by dividing a companys total borrowings (i.e. long-term debt, short-term debt and current maturities of long-term debt) by its shareholders equity. 0.87 0.84 3.80%
Debtors Turnover (Days) Debtors Turnover Ratio is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts. 33.32 32.17 3.60%
Return on Net Worth Return on Net Worth (RoNW) is a measure of profitability of a company expressed in percentage. It is calculated by dividing total Net profit for the year by average net worth for the year. 17.72 % 17.67% 7.72%


The Company being a Contract Manufacturer is exposed to various kinds of risks inherent in the daily business operations. We manage these risks by diminishing the likelihood of their occurrence and financial impact to an acceptable level. Risk mitigation is one of the standard practices at our Company and is a vital part of managing our activities.

Risks Impact Mitigation Risk Level
Economic Risk We face many risks emanating from various macroeconomic factors such inflation changes, Government regulations exchange rates, and political instability, among others. With the changing consumer demand, demand for products can be affected. We carry out Contract Manufacturing for wide variety of essential products. Regardless of any economic downturn, demand for essential consumer items remains less impacted. Our diversified Contract Manufacturing model helps us keep our facilities running. Medium
Liquidity Risk We are exposed to liquidity risk where we may not be able to raise the necessary funds to fulfil a payment obligation in time or at all. We detect and control risks resulting from cash flow fluctuations at an early stage as part of short, medium and long-term liquidity planning. During FY 2021-2022, we did not avail any Reserve Bank of Indias prescribed moratorium. Low
Contract Risk We are exposed to potential losses which can occur due to our inability to meet requirement set by our clients. We have constantly delivered best quality products to all our clients. This has resulted in contract renewal from our existing clients and acquisition of new ones as well. Low
Raw Material Price Risk We are exposed to fluctuation of raw material risks which are primarily driven by fundamental global and regional market data such as availability, demand and inventories. Any rise in raw material prices can increase our operating costs. We have a business model that allows us to pass down the increase in the raw material cost to our principals. We have built a strong network, ensuring smoother procurement of raw material from suppliers at best prices. Our industry experience helps us in mitigating this risk. Low
Personnel Risk We face intense competition with other Contract Manufacturing companies for trained personnel and thus are exposed to being unable to fill various vacancies. We have a recruitment process which is methodological and helps us retain and attract right talent. Our human resources team works persistently in finding the right people for the right job at the right time. Medium
Ouality and Safety Risk We are exposed to safety and protection standard violations risk that could damage our reputation and goodwill in the market. We have a quality management system which covers all processes, right from the procurement of raw materials through the production process itself, to finally delivery. Low


Our employees are at the heart of our organisation. They are our biggest assets and we take all such measures which keep them content throughout the year. Our diverse 3400+ member team is key to our success. We follow a modern approach to attract and retain talent so that a holistic environment is created and maintained in the organisation. Additionally, we track the engagement level of our staff members to ensure optimisation of their contribution.

We provide various training during the year to ensure health, safety and overall development of our human resources. Our strategies are geared to create learning opportunities. It focuses on building careers and fosters an empowering and inclusive culture. The idea is to provide an environment where employees find meaning in what they do while creating value for the Company.

We provide a safe and healthy working environment to all our staff members. Engagement with regulators to increase safety standards at our operation facilities and to ensure that no such incidents occur remains a priority for our business.


Our Company Board laid down Internal Financial Controls within the meaning of the explanations to Section 134(5)(e) (IFC) of the Companies Act, 2013. The Board believes that our Company has sound IFC, which is commensurate with the nature and size of our business. The industry we operate in, however, is dynamic. Therefore, our IFC cannot be static. It must evolve as the business, technology and environment changes in response to competition, industry practices, legislation, regulation, and current economic conditions. With business evolvement, gaps in the IFC are bound to develop. We have a process in place to continuously identify these gaps. We implement newer and/or improved controls when we identify gaps that could potentially have a material effect on our operations.


This document contains statements about expected future events and financials of the Company, which are forward- looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions, and other forward-looking statements may not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as several factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in this section of the Annual Report.