intellivate capital ventures ltd share price Management discussions

GLOBAL ECONOMY

The food industry was significantly impacted by high commodity prices, rising interest rates and the continuing impact of Russia-Ukraine war during the year. Further, the long-term effects of these factors continue to be felt extensively, giving rise to fears of an impending recession in major economies.

The war in Ukraine has upended the fragile recovery from the pandemic, triggering a humanitarian crisis in Europe, pushing up food and commodity prices and exacerbating inflationary pressures worldwide. Geopolitical and economic uncertainties are dampening business confidence and investment and further weakening short-term economic prospects. Against this backdrop, the global economy is now projected to grow by only 3.1% in next two years.

Although commodity prices were volatile and inflation was at unprecedented levels, the post-covid normalisation of economic activities supported growth throughout the year. India was one of the fastest growing economies in the world with robust domestic demand backed by significant investments in infrastructure. During the year, the major challenge confronting the food industry was managing inflation in the cost of key commodities like wheat, milk, sugar, palm oil and crude oil, all of which were trading at multi-year high prices.

Your Company was able to successfully navigate these challenging circumstances and deliver strong performance through focused efforts, robust cost efficiency programs, brand marketing and timely price increases. Prudent procurement decisions also helped your Company to ensure availability and overcome volatility in prices of essential commodities.

INDIAN ECONOMY

Growth of Indian economy is driven by a large, young, and growing upper-middle-income population with a high propensity to spend. Anticipated growth for the year is 5.9%, with a focus on investment expected to play a vital role in setting India on a path of sustained growth over the next two years. More importantly, IMF expects Indian to grow faster over the next 5 years, with the growth rate averaging 6.1%.

Asian Development Bank (ADB) shares the same optimism about India. ADB Country Director for India Takeo Konishi believes that "Despite the global slowdown, Indias economic growth rate is stronger than in many peer economies and reflects relatively robust domestic consumption and lesser dependence on global demand. The Government of Indias strong infrastructure push under the Prime Ministers Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, logistics development, and industrial corridor development will contribute significantly to raising industrial competitiveness and boosting future growth."

Govt. of Indias commitment to significantly increase capital expenditure in FY2023, despite targeting a lower fiscal deficit of 5.9% of GDP, will also spur demand. This should drive improvement in labor market conditions and consumer confidence, that should in turn drive growth in private consumption.

INDUSTRY OVERVIEW & OUTLOOK

Global Food Services Market

The global food services market size reached US$ 2,880.1 billion in 2022 and is projected to reach US$ 3,787.4 billion by 2028, exhibiting a compound annual growth rate (‘CAGR) of 4.6% during 2022-2028. The food services industry is a diverse and dynamic landscape that is influenced by a variety of factors. The industry has evolved due to the rise in the trend of away-from-home food consumption and the rising interest in multiple cuisines. Growing demand for customisation and innovation in food menu options according to the taste, dietary and budget preferences of consumers are among the key factors driving the global food services market.

The rise in dual-income households and increased disposable income have led to increased expenditure on dining out. Millennials and working professionals are the key target consumers for the market owing to their increasing preference for hassle-free food that is readily available and reduced practice of preparing home-cooked meals. Moreover, the development of e-commerce/online platforms and on-the go food service coupled with innovations in packaging, the introduction of low-fat beverages, gluten-free products, etc. are contributing to the growth of the market. The trend for veganism is also visible in the fast-food sector as consumers are demanding vegan alternatives for burgers, sandwiches, etc. Following consumer preferences for healthier and cleaner food, restaurants are now catering to this particular market by expanding their menu range to more organic and vegan friendly options amongst other amazing innovations.

Indian Food Services Market

The food services industry in India has witnessed a paradigm shift in the recent decade due to economic development, young and working population, rapid urbanisation, changing lifestyles, and consumption pattern. The Indian food services market is projected to expand from US$ 41.1 billion in 2022 to US$ 79.65 billion by 2028, growing at an impressive CAGR of 11.19%. The organised chain market under the organised food services market is expected to grow by 20% till 2025, whereas the unorganised segment is expected to grow by 5%. The market growth can be attributed to factors including the rising trend of dining out and online food delivery, the emergence of a branded food service ecosystem, growing fast food chains, and exposure to non-native cuisines, among others. The top international food service companies are strongly engaged in innovating their services and strategizing their food menus as per Indian tastes and preferences.

The Indian food services market is expected to remain highly competitive in 2023, with numerous players operating across various segments. Increased competition may lead to price wars, innovation in business models, and efforts to differentiate offerings. Indian food service companies are likely to invest 4%-6% of their net revenue in marketing, of which 45% is on online and digital media marketing.

Column1	Column2 FY2020	Column3 FY2021	Column4 FY2022	Column5 FY2023E	Column6 FY2024P
Unorganised Market	2519	1196	2015	2070	2876
Organised Standalone Market	1203	543	1080	1426	2180
Chain Market	398	229	430	581	994
Independent Market	116	40	105	123	161

E: Estimated, P: Projected

Opportunities and Challenges in the Indian food services market OPPORTUNITIES

• Rapid Urbanisation

The surge in urbanisation in India is driving demand for food services, with an increasing number of people living in urban areas seeking convenient dining options due to changing lifestyles and busy schedules. Further, urbanisation has exposed consumers to numerous cuisines. The growing inclination of millennials towards fast food consumption further supports the growth of the market.

• Increasing disposable income

Rising disposable income levels in India are leading to increased spending on eating out and exploring new culinary experiences. This presents opportunities for food service providers to cater to evolving consumer preferences and offer diverse and innovative food options.

• Technological advancements

Advancements in technology, such as online food delivery platforms and digital payment systems, are transforming the food services market in India. The increasing adoption of smartphones and internet penetration have made it easier for consumers to order food online, providing opportunities for food delivery and aggregator platforms to expand their reach.

• Culture of experimentation in the food segment and global cuisine trends

The middle-class population is exposed to global trends in terms of newer formats and cuisines through travelling and seamless interaction facilitated by the internet and smartphones. They are willing to spend money on dining experiences similar to those found around the world. Indian consumers are increasingly seeking out regional and global cuisine options, presenting opportunities for food service providers to diversify their offerings and cater to varied tastes and preferences.

CHALLENGES

• Higher inflation

Higher inflation presented challenges for the Indian food services market in FY 2022-23 as the soaring costs of fuel, freight, energy and ingredients impacted the industry. It also drives up menu costs and decreases consumer spending.

• Intense competition

The Indian food services market is highly competitive, with a large number of players ranging from local eateries to international restaurant chains. Competition can be fierce, making it challenging for new entrants to establish their presence and gain market share.

• Quality and safety concerns

Food safety and hygiene are critical concerns for consumers, and ensuring consistent quality across multiple locations can be a challenge for food service providers. Maintaining high food safety standards, adhering to regulations, and managing supply chains to ensure quality can be a challenge in a diverse and complex market like India.

• Changing consumer preferences

Indian consumers are known for their diverse tastes and preferences, and keeping up with changing consumer preferences can be challenging for food service providers. Staying relevant and meeting the evolving demands of consumers, such as changing dietary preferences, can require constant innovation and adaptation.

• Regulatory environment

The food services industry in India is subject to various regulations and compliance requirements, including licensing, food safety, labour laws, and taxation. Companies are required to register and maintain multiple licenses and also adhere to hygiene standards laid by the Food Safety and Standards Authority of India (‘FSSAI). Navigating the regulatory landscape and ensuring compliance can be complex and time-consuming for food service providers.

FINANCIAL REVIEW

Particulars	Standalone		Consolidated
Revenue from Operations	2023 49.15	2022	2023 6172.64
Other Income	285.95	6.12	386.64
Total Income	335.10	6.12	6559.28
Less: Employees benefits expense	15.78	4.49	1315.09
Less: Finance costs	117.14	-	530.97
Less: Other expenses	29.48	25.22	4347.06
Total Expenses	162.40	29.71	6193.12
Profit/(loss) before tax and exceptional items	172.70	(23.59)	366.16
Less: Exceptional Items	-	-	83.77
Profit/(loss) before tax	172.70	(23.59)	449.93
Total tax expense	43.70	(2.95)	102.21
Profit/(loss) for the year	129.00	(20.64)	347.72
Total comprehensive income/(loss)	129.00	(20.64)	332.21

Significant Changes in Key Financial Ratios

Ratio	31 March 2023	31 March 2021	% in change	Reason for variance
(a) Current ratio	1.38	142.25	(99.03%)	Due to significant increase in operations of the Company, the current liabilities have increased in comparison to previous year, therefore, the ratio is declined.
(b) Debt-equity ratio	1.68	N.A	N.A	N.A
(c) Debt service coverage ratio	2.47	N.A	N.A	N.A
(d) Return on equity ratio	10.57%	(4.09%)	(358.32%)	Due to significant increase in operations in Current year, the Company incurred profit in current year so ratio is increased
(e) Inventory turnover ratio	N.A	N.A	N.A	N.A
(f) Trade receivables turnover ratio	1.76	N.A	N.A	N.A
(g) Trade payables turnover ratio	N.A	N.A	N.A	N.A
(h) Net capital turnover ratio	0.16	N.A	N.A	N.A
(i) Net profit ratio	2.62	N.A	N.A	N.A
(j) Return on capital employed	5.55%	(4.78%)	(216.26%)	Due to significant increase in operations in Current year, the Company incurred profit in current year so ratio is increased

HUMAN RESOURCES

The Companys focus is on making efficient and effective use of its human talent to achieve its organisational goals. The human resource team carries out various activities to ensure smooth operations and create an overall positive work environment for all its employees. Periodic employee pulse surveys are conducted in order to understand employee satisfaction levels and gather feedback from its employees, in order to identify areas for improvement and take necessary actions. The Company regards human resource as its most valuable asset. The Company undertakes training and development programmes at regular intervals to encourage a performance driven culture among its employees. The Company has been recruiting and selecting qualified individuals for diverse roles at its restaurants. Various recognition programmes and incentive schemes were introduced to recognise and reward excellent performances and motivate employees contribution towards the organisation.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an efficient and well-defined internal control system for safeguarding its financial information and assets from unauthorised use or disposition, addressing the evolving risks in the business, reliability of financial information, timely and accurate reporting of operational and financial transactions, and stringent adherence to all the applicable regulatory laws and legislations. The Companys overall governance system including all policies and procedures is properly documented under expert supervision.

The Companys internal control team is responsible for continuous monitoring of its controls. It has also appointed an external team to oversee the adequacy and efficacy of the system. The Audit Committee of the Company conducts periodic reviews of audit reports submitted by the internal audit team. Key observations and audit findings are discussed and communicated to the management who undertakes corrective actions for the improvement of the business process and internal control system.

CAUTIONARY STATEMENT

The Management Discussion and Analysis may contain some statements describing the Companys objectives, projections, estimates, and expectations which may be ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or 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 judgements by considering all relevant factors before making any investment decision.