Jhandewalas Foods Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS REPORT </dhhead>

A. THE INDUSTRY:

There has been a sea change in the Indian culinary and food retail sectors, especially after the pandemic. Even though its mostly an unorganized industry, retail sales in India contribute around 10% to the GDP. Moreover, the food and Indian grocery market size is the most significant today, with 63% of the total retail market. The food retail business in India is booming, and its a multi-faceted industry that includes processors, distributors, retailers, and culinary service providers. While modern retailers have been steadily expanding their market share, especially in major cities, traditional merchants such as Kirana stores or local stores have steadily declined. However, they still make up more than 95% of Indias food stores.

According to the IMARC report, the global dairy industry is projected to register a CAGR of 5.79% during the forecast period (2023 to 2028). Milk production in the European Union, the second largest milk producer, is projected to at a slower pace when compared to the world average. Despite a slight surge in domestic milk production compared to the previous decade, China is anticipated to remain the worlds largest importer of milk products. Moreover, population growth has raised the demand for livestock products and is a primary factor in increasing the import of dairy products to Asian countries. In the next decade, the worlds per capita consumption of fresh dairy products is expected to grow by 1.4% per annum, slightly faster than the last decade due to higher per capita income growth.

With the advent of modern retail formats, such as supermarkets and e-commerce platforms, consumers buying patterns have evolved. Along with this, consumers are preferring packaged ghee over loose ghee for reasons such as assurance of quality, hygiene, longer shelf-life, and convenience. Therefore, it is significantly supporting the market. In addition, packaged ghee manufacturers often maintain stringent quality checks to ensure that the products are free from adulteration and meet the specified standards, providing an edge over loose ghee. This shift in consumer preference towards packaged ghee, driven by the promise of quality and convenience, is fuelling the growth of the ghee industry in India. The global ghee market size reached US$ 52.6 Billion in 2023. Looking forward, IMARC Group expects the market to reach US$ 90.5 Billion by 2032, exhibiting a growth rate (CAGR) of 6% during 2024-2032. The escalating health consciousness, surging demand for natural and organic products, cultural and traditional uses, increasing usage for culinary purposes, growth in the dairy industry, and rising disposable incomes are some of the key factors influencing the market growth.

Report Attribute	Key Statistics
Base Year	2023
Forecast Years	2024-2032
Historical Years	2018-2023
Market Size in 2023	US$ 52.6 Billion
Market Forecast in 2032	US$ 90.5 Billion
Market Growth Rate 2024-2032	6%

 

Understanding the market

Any business that sells food to the general public is considered part of the food retail industry. Supermarkets, hypermarkets, grocery shops, convenience stores and specialty shops, some of which are part of larger retail networks and others of which operate independently, make up most of todays retail commerce. As we know, food and grocery stores dominate Indias retail landscape and are likely to expand because of the growing trend of premiumisation and processed food products.

Many factors have contributed to the changes in the grocery industry as a result of the pandemics uncertainty, including:

• Adoption of digital technologies: India has had one of the fastest rates of digital usage in the world. Nearly 880 million people are online and 9,192 crore worth of deals were made digitally in 2022-23.

• Inventiveness: New start-ups have emerged from digitalisation, and have customised their business strategies to fit the Indian market.

• "Direct-to-consumer" transactions: A game-changer in the retail industry that is changing the game for Indian consumers.

Online grocery shopping has been growing since the e-commerce boom in India. With an estimated $2-3 billion in 2020 and a predicted $10-12 billion by 2025, the Indian e-grocery business has had a compound annual growth rate (CAGR) of more than 50%. Retail food and gourmet are projected to rank among the top direct-to-consumer segments by 2027.

In 2023, the online grocery store industry in India was worth more than 669 billion rupees. However, the online grocery market in India accounts for less than 1% of the market, while stores make up over 4%.

Government Initiatives

The Government of India aims to boost growth in the food processing sector by leveraging reforms such as 100 percent foreign direct investment (FDI) in marketing of food products and various incentives at central and state government levels along with a strong focus on supply chain infrastructure. Considering the fact that the development of food industry benefits the most interiors of the country by giving boost to the agricultural sector, the government initiatives to promote the industry is assured.

B. SWOT ANALYSIS:

Strengths

Abundant availability of diverse types of raw material and varied agro-climatic zones.

Leading producer of various agricultural commodities such as milk, fruits and vegetables, marine products, etc.

Priority sector status for agro-processing given by the central Government

Growing domestic market

Proximity to growing international markets like Gulf, Middle East etc. with a sea route.

Weaknesses

Lack of adequate infrastructural facilities, viz., Power, Road & Rail connectivity, Storage, etc

Large number of intermediaries in the supply chain leading to wastage and price rise at each level.

Capital intensive - High requirement of working capital because of the seasonal nature of raw material.

Lack of established linkages between R&D labs and the industry.

Opportunities

Diversification into cultivation of high value agricultural crops by the farmers Setting up of Special Economic Zones (SEZs), Agri- Export Zones (AEZs) and mega food parks for providing the needed infrastructure for small scale units.

Rising income levels and changing consumption patterns of Indian population.

Emerging scope for functional foods, geriatric foods, low fat foods, etc.

Rationalization of food laws and enabling policies of GOI & State Governments for development of the sector. Increased demand for ethnic food in most of the countries due to increased NRI population in those countries.

Threats

Preferences for fresh food than chilled or frozen.

Competition from other countries/players

No barriers to entry - leading to emergence new competitors both at local and national level

Big Competitors - few famous brands also aligned with product portfolio

Challenges being faced:

i. Huge investments in setting up distribution network and promoting brands:

With our future growth strategy of expanding our product range and customer and geographical reach, we need to invest in setting up a strong distribution network. Brand is an important variable which influences the buying decision of a customer, especially in packaged food industry. Though we are an established Brand, we need to make substantial investments towards our brand building and thus further strengthen the brand recognition and preference of the customers.

ii. Spending on advertisements is aggressive:

Spending on advertisements and promotional activities need to be quite aggressive in the FMCG/ packaged food industry which is characterized as quite competitive in India.

iii. Inadequate Infrastructure Facilities:

Development of processed food industry is dependent on infrastructure facilities like storage and transportation. Our country still needs to develop such primary facilities a lot.

RISK & CONCERNS:

To sustain and grow in global market one must be ready for some level of uncertainty. Greater the uncertainty, higher the risk. The risk management function is integral to the Company and its objectives include ensuring that critical risks are identified, continuously monitored and managed effectively in order to protect the Companys business. The Company operates in an environment which is affected by various factors some of which are Controllable while some are outside the control of the company. The Company proactively takes reasonable steps to identify and monitor the risk and makes efforts to mitigate significant risks that may affect it. Some of the risks that are potentially significant in nature and need careful monitoring are listed here under:

i. Procurement Risk: Adequate and uninterrupted availability of key raw materials at the right prices is crucial for the Company. Our raw materials are agri and allied natural products thus production of our products depends on the vagaries of nature. Therefore, any disruption in the supply due to a natural or other calamity or violent changes in the cost structure could adversely affect the Companys ability to reach its consumers with the right value proposition.

ii. Competition from existing Brands: The Branded segment of food industry in India is witnessed by strong hold of a few multinational as well as Indian majors with deep pockets. Their Heavy investment on network and Brand strengthening or any probability of price war poses risk to our company. However ours are established brands and enjoy customer loyalty on account of long history of consistently delivering quality products at reasonable price.

iii. Competition from unorganized sector: Another characteristic of this industry is the presence of unorganized sector offering products in loose/ unbranded form which intensifies competition. The Company has strengthen its distribution channel and has invested significantly in making the brand stronger which helps differentiate their product.

iv. Policy risk: Any sudden change in food security policy and other regulations may hit the profit margins badly. The Company abides by food security policies published by the government to ensure safety as per food quality standards. The products are moved through adequate quality checking procedures.

C. SEGMENT WISE- PRODUCT WISE PERFORMANCE

The Company is engaged in one business segment i.e. manufacturing of food products like different types of ghees, Chai Masala, Spice Mixes, Poha Masala, Ready to Mix product, Ready to eat products and chutneys. Company is also engaged in the marketing of Saffron, Poha, Pasta, Quinoa Pasta, Groundnut Oil, Papad A2 Ghee. Hence, accordingly there is only single reportable segment.

The ghee market in India size reached INR 3,203 Billion in 2023. Looking forward, IMARC Group expects the market to reach INR 6,931 Billion by 2032, exhibiting a growth rate (CAGR) of 8.72% during 20242032. The growing consumption of ghee among the masses, the escalating shift towards organic food products due to the rising health consciousness, and rapidly growing the e-commerce sector are among the key factors driving the market growth.

The rising food services sector in India has significantly contributed to the growth of the ghee industry. Ghee is an integral part of various Indian dishes, and its use in restaurants, hotels, and other foodservice outlets has increased exponentially. Along with this, the exploration of fusion cuisine has led to the creative application of ghee in non-traditional dishes, thereby expanding its usage and popularity. As the food service industry continues to grow, so too will the demand for ghee. In addition, the shift towards organic food products has been a prominent trend in recent years. Consumers are increasingly seeking out organic ghee due to perceived health benefits and environmentally friendly production processes. Organic ghee is free from pesticides and other harmful chemicals, and its production supports sustainable farming practices. The rise in consumer awareness about these benefits, along with the expansion of retail channels selling organic products, is a major driver for the growth of the organic ghee segment in India.

D. OUTLOOK

Strong credit growth, stable financial markets and the governments greater focus on infrastructure and capex are expected to crowd in substantial investments. Although the global economic outlook is challenging, the fact that the Government of India and the Reserve Bank of India have been able to safeguard the Indian economy from an impending global recession underscores Indias robust economic fundamentals. India is showing signs of recovery, and pent-up demand during the last two years offers hope for new growth opportunities in the domestic market.

With the advent of modern retail formats, such as supermarkets and e-commerce platforms, consumers buying patterns have evolved. Along with this, consumers are preferring packaged food over loose for reasons such as assurance of quality, hygiene, longer shelf-life, and convenience. Therefore, it is significantly supporting the market. In addition, packaged food manufacturers often maintain stringent quality checks to ensure that the products are free from adulteration and meet the specified standards, providing an edge over loose ghee. This shift in consumer preference towards packaged food, driven by the promise of quality and convenience, is fuelling the growth of the industry in India.

E. THE WAY FORWARD

With the increasing demand of packaged food, the industry is set to grow. We are leveraging on the growing opportunities and have started our journey to transform our self from a Ghee company to a food conglomerate. Also we need to prepare our self to face the growing competition in the industry.

i. Product Expansion: We manufacture and market our products under the brands: Naman, Godhenu, Nutri Flakes, Sweet Bites, Yumm Yoo, Polki. Our product portfolio includes Buffalo Ghee, Cow Ghee, A2 Gir Cow Ghee, Premium Buffalo Ghee, Kesar ("Saffron"), Poha ("Flattened rice"), Mangodi, Papad, Refined Groundnut Oil, Pasta, Varieties of Chutney, Chai ("Tea") Masala and Poha Masala, Indian Spices, Chilla Pre Mix, Rava Idli Mix and many more.

ii. Market Expansion: We are expanding our footprints by venturing into new markets. The Company over the last few years has created a market leadership position for itself in branded ghee segment in Rajasthan and making its presence in Hyderabad, Jammu & Kashmir, Madhya Pradesh, Uttarakhand and gradually opening in Delhi, Haryana, Maharashtra, Gujarat, West Bengal and Bangalore. On a regular basis we organize marketing and promotional activities line Participation in trade fairs, distributors and caterers meet, hoardings and print media advertisements, canopies etc. We have also associated our self with online market places. We are also increasing our institutional sales by associating our self with corporate clients; Haldirams, Ghasitarams, Baidyanath, Bikaji, Bhika Ram Chandmal, Prashant Corner, Dabur, Om sweets, Bikano, Dadus Sweet.

iii. Product Extension: We have been continuously extending our product line by introducing variants to our existing products. We have Buffalo Ghee, Cow Ghee, A2 Gir Cow Ghee, Premium Buffalo Ghee, Kesar ("Saffron"), Poha ("Flattened rice"), Mangodi, Papad, Refined Groundnut Oil, Pasta, Varieties of Chutney, Chai ("Tea") Masala and Poha Masala, Indian Spices, Chilla Pre Mix, Rava Idli Mix and many more.

iv. Stronger Distribution Channel: We have a strong distribution team, with a network of about 50,000 retailers and have a vast network of 550 distributors all over India. We continuously engage with them and make our relationship stronger. We on a regular basis organize events like Distributors meet, recognition of performing distributors.

v. Diversified sales platforms: We are diversifying our sales platforms and are getting associated with new age retailers - Online market places like Amazon, Flipkart, Paytm, Snapdeal, Big Basket, Meesho and Jiomart. We have a heavy presence in D Mart, Reliance, Walmart and many standalone stores.

vi. Stronger management team: Our management team is a mix of experience and youth energy. We are continuously enriching our self with qualified and experienced management team and workforce.

F. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY / CORPORATE GOVERNANCE:

Our organizational framework, with distinct authority levels and internal protocols, upholds rigorous corporate governance standards. We have a robust internal control framework appropriate for the size and complexity of our operations. This system ensures the timely preparation of financial reports, maintains the accuracy and reliability of accounting records, detects and prevents fraud, and complies with regulatory requirements. The Company has a well-established and comprehensive internal control system. Documents, policies and authorization guidelines comply with the level of responsibility and standard operating procedures specific to the respective businesses. Observation made in internal audit reports on business processes, systems, procedures and internal control and implementation status of recommended remedial measures by Internal Auditors are regularly presented to and reviewed by the Audit Committee of the Board. The system of internal control is being improved to ensure that all assets are safe and protected against loss from unauthorized use or disposition, and that all transactions are authorized, recorded and reported correctly. The Company regularly conducts internal check, using external and internal resources to monitor the effectiveness of internal control in the organization. It strictly adheres to corporate policy with respect to financial reporting and budgeting functions. The Audit Committee of the Board of Directors deals with significant control issues and instructs further areas to be covered.

G. DISCUSSION ON FINANCIAL PERFORMANCE

Looking ahead, we will continue to invest in technology and enhance our digital platforms and marketing strategies. We are well-positioned to capture future growth, improve margins, and maintain operating leverage. Our commitment to balancing growth, investment, and quarterly dividends aims to create sustainable value for our stakeholders. FY 2023-24 presented challenges of moderating consumer demand in an inflationary environment. Viewing this as an opportunity, we leveraged our strengths and delivered a robust operational and financial performance. In the financial year 2023-24, the revenue from operations of the company has increased from Rs. 1925.83 lakhs to Rs. 3591.33 lakhs. Throughout the year, we focused on expanding our customer base, capitalizing on our diverse portfolio, and leveraging our brands presence. Despite challenges, we gained market share and continued to fortify our growth levers, aiming to create a stronger and more sustainable future.

H. HUMAN RESOURCES MANAGEMENT

Our employees are critical to us and play a key role in achieving sustainable growth. We focus on nurturing their growth and welfare through various initiatives and continuous investment in their professional development. Our comprehensive HR policy promotes equality and inclusivity, fostering a safe, transparent, and supportive work environment. We prioritize employee well-being and actively respond to their feedback.

Cautionary statement

Statements in the Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations, or predictions, may be forward-looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those either expressed or implied. Key factors influencing the Companys operations include but are not limited to, economic conditions impacting demand, supply and price conditions, fluctuations in raw material prices, changes in government regulations and tax policies, economic trends and other incidental factors.