Karuturi Global Ltd Management Discussions

Industry Structure and Developments

The world production of floriculture is growing at a rate of 10% every year. Floriculture is the sunrise industry in India and Government has granted 100% export oriented status. Owing to steady increase in demand for flower floriculture it has become one of the important commercial trades in agriculture. Floriculture products mainly consist of cut flowers, pot plants, cut foilage, seeds bulbs, tubers, rooted cuttings and dried flowers or leaves. The important floricultural crops in the international cut flower trade are rose, carnation, chrysanthemum, gargera, gladiolus, gypsophila, liastris, nerine, orchids, archilea, anthuriu, tulip, and lilies. Floriculture crops like gerberas, carnation, etc. are grown in green houses. The open field crops are chrysanthemum, roses, gaillardia, lily marygold, aster, tuberose etc.

BUSINESS REVIEW:

During 2016 -17, your Company was able to maintain its position in the Floriculture Industry in the midst of the European Crisis which is its key market. The Company continued to make steady progress in its Agricultural foray developing Land in Ethiopia.

AGRICULTURE:

The company continued its efforts to develop the agricultural farm. Apart from corn, sugarcane, oil seeds and paddy form a part of our agro portfolio.

While wet cultivation during the monsoons is being maximized, agriculture during the dry seasons will be driven by construction of canals and implementation high performance pumps to draw water from the river Baro and further irrigate the agricultural land. This is augmented by bore wells.

The Company now work with expert farming companies from South America, USA, South Africa and India who have been contributing immensely to the farming operations in Gambella. Karuturi is synonymous with responsible and good business in Ethiopia.

FLORICULTURE:

The cut flower business had a stable beginning this year. The Company adopted sustainable initiatives like cutting edge biological controls like Phytoselius (Predatory Mites) we have eliminated spraying for two spotted red spider mites by 95%. Also moving to Hydroponics entailed 10% improvement in production with 30% reduction in consumption of water & fertilizers. Keeping our environmental responsibilities in mind the company has stopped all cultivation on riparian land and is in complete compliance with all regulations.

The Company has established a earth worm project on an area of 2000 square meters and we are consulting organic scientists from the university of Nairobi with view to further refining the leachate. This project has reduced our fertilizer cost by 10-12%

FOOD PROCESSING:

This food Processing business at Karuturi Foods Private Limited (KFPL) has sustained to maintain the business during the year. The Company has tried its reach to newer markets to Africa, Greece , South America and East European countries besides its main markets in Russia & Ukraine Regions. The Company has invested in machinery to increase the efficiency level of its processing to increase line speed. In the current year your Company plans to spread its market across various countries to reducing its dependency on Russia which is a very price sensitive & volatile market.

The factory has been certified by BRC (British Retail Consortium) besides HACCP, FDA & KOSHER as all customers expect these Certifications as pre requisite for placing the Orders with KFPL.

Opportunity threats and risks

The market for floriculture products consists of range of products, which offers various opportunities in supplying products such as flowers, orchids and tropical foliages particularly when there is a scarce for these products in western markets. As a new product emerges in the floriculture industry intends company to make larger investment. Reasons for shortfall are mainly related to trade environment, infrastructure and marketing issues such as high import tariff. The availability of dedicated carriers for carrying perishable products is also low in India and freight rates are high. Other challenges are at production levels mostly related to availability of basic inputs, including seeds and planting material, quality irrigation and skilled manpower in remote areas.

Internal Control system and their adequacy

The Company has chartered accountant who oversees the company internal control systems. The company is utilizing the services of an external team from a auditor to conduct internal audits in various areas throughout the year. The Board audit committee reviews the effectiveness of internal audit function periodically at its committee meetings. The Board of Directors after making reasonable enquires from Secretarial Team, Human resource Department, Accounting Department and with concurrence of audit committee is of the opinion that the internal controls of the company are adequate to address the financial, operational and Compliance risks of the company.

Human Resources

The company has 14 employees on rolls as on 31st March 2017. The Human resource department is facilitated with led interventions and processes in the areas in the talent management, performance, potentials appraisals, and learning and development initiatives for employees at all level. Our approach towards remuneration of our employees and their families enjoy a respectable standard of living.

OUTLOOK:

Your Companys Strategic Goal this year would be to bring a larger area under Agricultural Production and continue to create new opportunities in its Floriculture, Food Processing and Agriculture.

Cautionary Statement

Statements in management discussion and analysis describes the company objectives, projections estimates and expectations may be forward looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that make a difference in companys operation include demand/supply and price conditions in the overseas and domestic markets in which it operates, changes in the government regulations, tax laws and other statues and incidental factors.