jagatjit industries ltd Management discussions

Economic Overview

The Indian economy is staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in financial year 2022-23. Continuing the recovery from the triple blow of pandemic-induced contraction, Russian-Ukraine conflict and inflation, Indias GDP growth is expected to remain robust in financial year 2023-24. GDP forecast for financial year 2023-24 to be in the range of 6 to 6.8%, while the latest IMFs World Economic Outlook forecasts Indias growth at 5.9% in financial year 2022-23 and at 6.3 % in financial year 2023-24. The Indian economy is well placed to grow faster in the coming decade once the global shocks of the pandemic and the spike in commodity prices fade away.

While Indias retail inflation rate peaked at 7.8% in April 2022, above the RBIs upper tolerance limit of 6.0%, the overshoot of inflation above the upper end of the target range in India was however one of the lowest in the world. Retail inflation was back within RBIs target range in November 2022. The capital expenditure of the Central Government and crowding in the private capex led by strengthening the balance sheets of the corporates is one of the growth drivers of the Indian economy in the current financial year.

[Source: https//www.ibef.org/economy/economic-survey-2022-23 ]

Tentative signs in early 2023 suggests that the world economy could achieve a soft landing with inflation coming down and growth steady, have receded amid stubbornly high inflation and recent financial sector turmoil. Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying prices pressure are proving sticky, with labor markets tight in a number of economies. Policymakers have taken forceful actions to stabilize the banking system.

On the surface, the global economy appears to be poised for a gradual recovery from the powerful back-to-back blows of the pandemic and the conflict and the synchronous tightening of monetary policy by most central banks should help see inflation move backwards too. Global growth is expected to bottom out at 2.8% in 2023 before rising modestly to 3.0% in 2024. Global headline inflation is set to fall from 8.7% in 2022 to 7.0% in 2023 on the back of lower commodity prices, but underlying (core) inflation is likely to decline more slowly. Below the surface, supply-chain disruptions are unwinding, as disruptions to energy and food markets are receding, however, Inflation remains much stickier than anticipated.

(Source: IMF Global Economic Outlook, April 23)

Industry Overview

India is one of the fastest growing liquor markets in the world. Alcoholic beverages manufacturing is considered a sunrise industry due to high growth potential and increasing social acceptance. The Indian made foreign liquor (IMFL) segment constituted 65% in terms of valuation in the Indian liquor industry. This segment is divided into whiskey, rum, brandy, vodka and gin. Growth in urban population coupled with the increasing disposable income is projected to propel the market growth of alcoholic beverages. As per latest data available with global agency IWSR, nearly two thirds of spirits sales in India is accounted for by whiskey. The share of the imported whiskey is estimated at 3.3% of the pie and is projected to rise to 3.7% of the whiskey market by 2027. The numbers suggest that even with a projected 3.8% growth over the next five years, Indian made whiskey will control over 96% of the market.

Unlike other emerging economies, alcoholic beverage Industry in India continues to remain quite traditional and is controlled by State Governments. The governance and pricing models for alcoholic beverages vary widely across the states. The states through their excise policies control the entire supply chain of alcoholic bevearges from manufacturing and distribution to registration and retail. There are frequent and ad-hoc changes in these policies, creating uncertainty and preventing manufacturers/ distillers to plan their investments. Despite this, India is still one of the fastest growing alcohol markets in the world.

In view of the future growth potential of the liquor industry in India, the Liquor Market continue to be mirrored by consumer trend towards premiumisation, motivated by rising affluence, globalised outlook, urbanisation and progressive lifestyles.

The Extra Neutral Alcohol (ENA) market in India size reached INR 97.7 billon in the year 2022. The market is expected to reach INR 125.1 billion by the year 2028, exhibiting a growth rate (CAGR) of 4.1% during 2023-2028. ENA is the primary raw material for producing alcoholic beverages. It typically contains 96% of alcohol by volume. The increasing production and consumption of potable alcohol, which is produced from ENA in India, is fuelled by increasing number of distilleries and microbreweries, rising collaboration of various alcohol beverage brands and the growing need for prescription drugs, which are among the key factors driving the market growth. [Source: IMARC Group Market Overview 2023-2028]

Business Overview

Jagatjit Industries Limited (the Company or Jagatjit) was set up in 1944 in the State of Punjab. Its business comprises of manufacturing and sale of Extra Neutral Alcohol (ENA), Indian Made Foreign Liquor (IMFL), Country Liquor (CL), Malted Milk Food (MMF), Malt Extract (MEX) and Real Estate. The Company has a rich IMFL product portfolio including Whiskies (Blended Indian whiskies and Scotch), Gin, Rum, Brandy and Vodka. The turnaround strategy envisioned in the year 2019 led to significant changes. The improved profitability has instilled confidence in our investors, strengthened our market position, and laid a solid foundation for sustainable growth and success in the future.

Your Companys focus is the operationalization of our grain-based ethanol manufacturing plant by 2024, which is a crucial step in order to significantly contribute to our Companys revenues and profitability. The Company is also aiming to broaden the consumer base and fuel further growth, eventually reaching 22 states. The Company is continuously focusing on production of Extra Neutral Alcohol (ENA) and it had positive bearing on the performance of the Company in Financial Year 2022-23 by utilising its capacity and expects reasonable overall growth in future years also.

Operational Overview A) Liquor

The Companys primary focus is in the business of manufacturing, distributing and selling of IMFL brands with intent to provide superior brands at affordable prices. During Financial Year 2022-23, the Company sold 3.15 million IMFL cases. The Company is also engaged in manufacturing of Country liquor in the state of Punjab & Rajasthan, where it recorded volume of around 2.07 million cases. The Company is continuously focusing on production of Extra Neutral Alcohol (ENA) and it had positive bearing on the performance of the Company in financial year 2022-23 by utilising its capacity and expects reasonable overall growth in future years also.

B) Malted Milk Foods and Dairy Products

The Company has a food division with its own malt house, malt extract plant and a malted milk food manufacturing unit. The malted milk food division (MMF) has four units of tray drying and one unit of spray drying with a total manufacturing capacity of 100 MT per day of high-quality malted milk food. Presently the Company manufactures around 30000 MT per annum Malted Milk Food nutritional powder for Hindustan Unilever Limited under the Brand name of Horlicks and Boost. The Companys modern malt house produces malt from the best barley sourced under strict inspection and quality control processes from selected farms in Punjab and Rajasthan. This malt is utilised for its own requirements in both the divisions –malted milk food division and distillery. It makes two malt grades– food and distillery grade. Food grade malt is being used for manufacturing of cereal extract and being supplied to M/s Hindustan Unilever Limited for further contract manufacturing of malted milk food and to M/s Continental Milkose (India) Limited.

C) International Brand Portfolio

In the international market too, Jagatjit has IMFL product portfolio at various price points. Jagatjit is continuously working to fortify its footprint in the international market with new blends and contemporary packaging. The Company is also planning to expand its export markets from 13 to 15 countries, with Nigeria and Russia as the new destinations for export. The objective of Jagatjit is to gain a sizeable share of volume in the international market in next few years.

D) Real Estate

Jagatjit has various real estate properties. Out of these properties, two main properties, one in Gurugram and other in New Delhi, have been leased out to earn rental income. Its Gurugram property, comprising of approximately 2,00,000 Sq. Ft., is spread over 4 acres of land. The property at Connaught Place, New Delhi, comprises of two floors at Ashoka Estate admeasuring approximately 23,000 Sq. Ft area.

Financial Review

During FY 2022-23, Jagatjits total income (including income from services and other sources) stood at Rs 625.61 Crores, as compared to Rs 503.92 Crores registering a growth of 24 % over the previous year.

Jagatjits beverages segment clocked gross revenue of Rs 335.44 Crores, as compared to Rs 269.94 Crores during the previous year. Its food segment clocked revenue of Rs 155.23 Crores, as compared to Rs 162.36 Crores during the previous year.

Amount (Rs Crores)

	FY 22-23	FY 21-22
Total Income	625.61	503.92
Material Consumption	296.13	250.45
Excise Duty	76.11	6.19
Staff Costs	73.34	70.24
Others	130.90	137.43
EBITDA	49.13	39.61
Finance Cost	30.51	28.82
Depreciation	10.01	9.96
Profit before tax and exceptional items	8.61	0.83
Exceptional items: Income	0	0
Profit Before Tax	8.61	0.83
Tax	0	0.04
Profit/(Loss) After Tax from continuing operations	8.61	0.79
Profit After Tax from discontinuing operations	0.58	(0.17)
Other Comprehensive	1.43	0.27
Income/ (Loss)
Total comprehensive	10.62	0.89
Profit After Tax

The total raw material cost is at Rs 296.13 Crores, as compared to

Rs 250.44 Crores during the previous year, Excise duty is at Rs 76.11 Crores, as compared to Rs 6.19 Crores during the previous year, Employee costs is at Rs 73.34 Crores, as compared to Rs 70.24 Crores during the previous year. The Company earned an EBITDA of Rs 49.13 Crores, as compared to an EBITDA of Rs 39.61 Crores during the previous year.

Jagatjit earned a profit before taxation of Rs 8.61 Crores from continuing operations, as compared to profit before taxation of Rs 0.83 Crores during the previous year. The total comprehensive profit after tax during the year was Rs 10.62 Crores, as compared to a comprehensive profit of Rs 0.89 Crores during the previous year.

KEY FINANCIAL RATIOS

Particulars	2022-23	2021-22	Justification/ Remarks for significant changes
Debtors Turnover Ratio (Days)	19	22	-
Inventory Turnover Ratio (Days)	50	53	-
Interest Coverage Ratio	1.38	1.37	-
Current Ratio	0.57	0.54	-
Debt Equity Ratio	3.54	4.54	-
Operating Profit Margin %	6.7	6.6	-
Net Profit Margin %	1.58	0.14	Due to increase in the revenue from operations and other income.
Return on Net Worth#	-	-	N.A.

Outlook

At Jagatjit, it is a continuous endeavour to modernize technology and upgradation of facilities as way to future growth of the business. The Company is on the path of focusing on the increased productivity, upgradation of manufacturing facilities, optimisation of cost for providing value to its customers and stake holders. It is a multifaceted endeavour to take care long term interest of all stakeholders including society. The Company is working hard to streamline and invest in high contribution brands, develop international markets, and optimize its workings for long term benefit of all.

Risks & Concerns

Risk is an integral and unavoidable component of business. Given the challenging and dynamic environment of operations, your company is committed to manage risk for accomplishment of its goals.

Though risks cannot be eliminated, an effective risk management program ensures that risks are reduced, avoided, mitigated or shared. Following are the identified key business risks of the Company:

Nature of Risk	Risk description	Mitigation Measure(s)
Regulatory risk	Jagatjit operates in a sector which is highly exposed to the risk of changing regulations.	Jagatjit closely monitors the regulatory environment and prepares for any foreseeable changes. In addition, its team of expert and experienced professionals ensures prompt and appropriate measures to meet the changes in regulatory framework. At all times, the Company ensures strict adherence to laws and policies.
Inflation and cost of production risk	Jagatjit like other companies is part of Indian economy and is facing risk of inflation and high fluctuation in commodity prices.	The Companys long-standing relationship with most suppliers ensures steady availability of raw materials at competitive prices. It is also striving to reduce costs by value engineering in dry and wet goods and by using standardized packaging material in all segment of business.
Innovation risk	Innovation is ensuring sustainable growth in a market where there are restrictions on advertisement of alcohol.	The Company is always looking to innovate and renovate to provide high quality products to its customers at affordable rates.
Economic risk	The performance of the Company is dependent on robust consumption, led by rising income levels. This in turn is dependent on robust economic growth, cost of inputs, labour costs and on the basis of disposable income.	T h e C o m p a n y i s f o c u s e d o n d r i v i n g a g i l i t y a n d responsiveness across the value chain. Jagatjit has its presence in several international markets. A good presence in international markets reduces dependence on domestic consumption.

 

Credit Risk	Credit risk is the risk of loss that may arise on outstanding financial instruments if a counterparty defaults on its obligations.	The Companys exposure to credit risk arises majorly from loan, advances, trade and other receivables. The Company management reviews trade receivables/ advances on periodic basis and take necessary mitigative measures, wherever required.
Liquidity Risk	Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities.	The Companys approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities as and when arises under normal and stressed conditions.

Internal Controls

The Company has sound internal financial controls (IFC) systems, which facilitates orderly and efficient conduct of its business including adherence to Companys policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial information. The internal control system facilitates optimum utilisation of available resources to ensure the protection of interest of all the stakeholders.

The Companys policies, guidelines and procedures are designed keeping in mind the nature, size and complexity of its business environment and operations. The Company maintains a proper and adequate system of internal controls which provides for automatic checks and balances. Its resilience and focus is driven to a large extent by its strong internal control systems for financial reporting, supported by a strong set of Management Information Systems. Jagatjit has well established internal control mechanism supported by internal audit carried out by professional firms which helps in ensuring strict adherence to policies, safeguarding of its assets and timely preparation of financial statements, documents and reports.

Human Resources

At Jagatjit, we are committed to sustainable work practices and a transparent work culture which helps in attracting and retaining the talented people in the industry. The Company continues to focus on employee core connect, engagement, learning and development to build a workplace that is safe engaging and productive. Employees are presented with various learning opportunities to enhance career growth.

The Company believes that its human resources are the key enablers for the growth of the Company and, therefore, an important asset. Taking this into account, the Company continues to invest in developing its human capital and establishing its brands in the market to attract and retain the best talent. The Company believes that the quality of the employees is the key to its success and is committed to equip them with skills, enabling them to seamlessly evolve with ongoing technological advancements. Jagatjit boasts of well-defined HR policies which ensure alignment of personal goals with professional growth. As on 31^st March, 2023 its human capital stands at around 1563 employees, including permanent factory workmen. Employee relations during the period under review continued to be healthy, cordial and harmonious at all levels and the Company is committed to maintaining good relations with the employees.

Cautionary statement

Statements in the Management Discussion and Analysis, describing the Companys objectives, projections, estimates and expectations may be forward-looking statements. Actual results may differ from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the Companys operations include economic and political conditions in India and other countries in which the Company operates, volatility in interest rates, changes in government regulations and policies, tax laws, statutes and other incidental factors.