Kanco Tea & Industries Ltd Management Discussions

Overview

The Companys business is Plantation, Manufacture and Sale of Black Teas. Tea Industry is seasonal in nature and the production is carried out from March to December, which is subject to vagaries of nature. The Company has been improvising field practices on a consistent manner for better output. The Company being a producer of premium quality teas has been able to cater to the needs of its valued customers. The Company being in quality segment will gain from increase in average realisation of quality teas.

a) Industry structure and developments: Tea is a beverage of choice in India. Indian tea industry provides employment to more than one million people and more than half of whom are women. Originally, the tea plantation sector consisted of tea estates with factories to manufacture their teas but over the last decade or so, there has been an emergence of small tea growers and bought leaf factories contributing to more than 50% of the total countrys tea production. India being the largest producer of black tea, produced 1382.03 million kgs of tea during the year ended 31st March,2024 as against 1370.83 million kgs of tea during the year ended 31st March, 2023. The all India auction average price was Rs.165.33 for the F.Y 2023-2024 as against Rs.180.14 for the F.Y. 2022-2023. (Source: Tea Board of India).

The Tea Industry is divided into two segments viz, top quality segment and medium & low segment. The increase in availability of cheap teas has a negative impact on prices of all category of teas.

b) Opportunities & Threats: India is the worlds second largest tea consumer and the per capita consumption of teas in India is increasing every year. The customers nowadays prefer quality tea and willing to pay more for the same. Increasing consumer awareness for quality, branding and promotion will have positive impact on prices in domestic market.

The share of the unorganised sector is near about than 52% at present. The cost of production of unorganized sector is significantly lower because they dont provide various social security benefits as mentioned in Plantation Labour Act, which the organized sector provides. The lower cost of production of teas produced by small growers, climate change, stiff competition from Kenya, Srilanka, China over pricing in export market and shortage of labour poses a threat to the Industry.

c) Segment analysis and review:

d) Outlook: The demand in international market is low dues to large availability of teas for CTC. However the demand is high for Orthodox teas. Sweltering heat with insufficient rainfall in the Brahmaputra Valley in Assam and West Bengal has adversely impacted production. Prices in the domestic market at present are higher compared to the corresponding period in the previous year. This shortfall in crop is a positive indicator for future prices.

e) Risks & Concerns: The tea Industry is largely dependent on vagaries of weather and weather plays a major role in determining the final output of produce. Both excess and scarcity of rainfall play havoc with the final output of produce.

The Tea Industry is highly labour intensive and is subject to stringent labour laws. The cost of production is substantially higher compared to other tea producing countries and as compared to Small Tea Growers sector due to high labour wage and social cost. Any further increase in wage will substantially hit the bottom line.

The share of unorganized section in Indian Tea Industry is increasing year to year basis and their cost of production is significantly lower than organised section because they operate in a totally different cost structure. To mitigate various type of risks that the Company has to face, the Board of Directors of the Company has adopted a Risk Management Policy and implemented the same.

f) Internal control systems and their adequacy:

The Company has adequate system of internal controls and necessary checks and balances are introduced/ strengthened so as to ensure:-

a) that its assets are safeguarded and protected against losses.

b) that all transactions are authorised, recorded and reported properly.

c) that accounting records are properly maintained and its financial statements are reliable.

The significant findings, if any, are placed before the Audit Committee of the Board and corrective measures are recommended for implementation. The internal audit reports are reviewed by the management and the Audit Committee.

There is no variation than that of as prescribed under the various Accounting Standards as applicable to the Company in preparation of financial statements of the Company during the year under report

g) Discussion on financial performance with respect to operational performance:

The results for the year ended 31st March, 2024 are lower compared to the corresponding previous year mainly on account of lower average sales realization of teas, substantial increase in labour wages, increasing power & fuel and other input costs.

h) Information regarding Human Resources/Industrial Relations:

The Company is an ISO 9001:2015 certified Company. The Company has a favourable working environment that motivates performance, customer focus and innovation and adheres to the highest degree of quality and integrity amongst employees. Industrial relations at the Company remain cordial. Manpower employed with the Company as at 31st March, 2024 was 2362 compared to 2454 as on 31st March, 2023.

i) Details of Significant Changes in Key Financial Ratios

Notes on significant changes in financial ratios, where change is more than 25%:

Note-1 The main difference is on account of decrease in turnover by the Company in the year under review.

Note-2 The main difference is on account of decrease in profit by the Company in the year under review.

j) Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof:

Notes on significant changes in financial ratios, where change is more than 25%:

The change in ratio resulted from decrease in profit after tax in the year under review.

Cautionary Statement

The statements in this report describing the companys policy, strategy, projections, estimation and expectations may appear forward looking statements within the meaning of applicable securities laws or regulations. These statements are based on certain assumptions and expectations of future events and the actual results could materially differ from those expressly mentioned in this Report or implied for various factors including those mentioned in the paragraph "Risks and Concerns" herein above and subsequent developments, information or events.