Khaitan (India) Ltd Management Discussions

Overall Economy

Indias gross domestic product (GDP) has touched the $3.75 trillion-mark in 2023 so far from around $2 trillion in 2014, said finance minister Nirmala Sitharaman on June 12. FM Sitharaman has called India a bright spot in the global economy, highlighting its position as the fifth largest economy in the world. At current prices, Indias GDP ranks above the UK ($3,159 billion), France ($2,924 billion), Canada ($2,089 billion), Russia ($1,840 billion), and Australia ($1,550 billion) at current prices.

Recent government data revealed that Indias GDP grew by 6.1 per cent in the fourth quarter of fiscal year 2022-23 beating Street estimates. For the entire fiscal 2022-23, the growth rate came in at 7.2 per cent underscoring the countrys economic resilience amid geopolitical conflicts and global headwinds.

Indian Sugar I ndustry Structure

According to the latest release by Indian Sugar Mills Association (ISMA), sugar mills across the country have produced 311 lakh tons of sugar (after diversion for ethanol) between October 1,2022 and April 15, 2023 during the current sugar season, as against 328.7 lakh tons in the same period of the last sugar season. The Indian Sugar Mills Association said in its update that in the current season, which began on October 1 last year, 532 sugar mills started production and 132 of them continued to operate. In the last season 305 mills were operating as of April 15, 2022.

The sugar mills need to buy cane from farmers at state advised price (SAP) but have to sell their produce at either marginal cost above production or in loss. Thus, higher price purchase of sugarcane but low price sale of sugar in open market creates stress on sugar mills and they are unable to make payments to farmers. This leads to accumulation of arrears. Though government decontrolled sugar industry partially in 2013 and allowed them to sell their produce in open, market, the sugar industry faces a bizarre problem that price of its raw material (cane) is fixed by state and central governments as State Advise Price (SAP) and Fair and Remunerative Price (FRP) respectively. The government supported cane prices are attractive to farmers, but loss due to any fall in the prices of sugar in open market has to be borne by the sugar industry. Sugar Industry is also going to be effected by prolonged Corona pandemic, economic crisis developed due to war situation in the world and the production is also expected to decline in near future.

Fan Industry

The electric fan industry is well-established in the country and has grown significantly over the years. Large number of players in both, organized and unorganized market, has helped the fan industry to come a long way. However, much of the growth has been through organized players now as consumers move towards branded and more technologically efficient fans. A concerted move has been seen towards widening distribution reach and improving rural penetration by the organized players. Also threat from Chinese fans lowered. According to "India Electric Fan Market Outlook, 2022-28," the revenues for organized electric fan market are growing with a CAGR of more than 10% from the last five years. Higher disposable incomes, increased availability of continuous power and a faster shift to the organized sector has propelled the electric fan market in India. The electric fan industry is divided into product types like ceiling fans, table fans, pedestal fans, wall fans and others. Others include fans like industrial, exhaust, multi-utility, tower, bladeless, etc. in India, ceiling fans dominate the market heavily both in organized and unorganized sector. According to region, south India caters to the largest revenue share, followed by west and north. Eastern region is expected to grow fast in the coming few years.

Fan Industry is also expected to be effected by prolonged war situation in Ukraine and the production and sale is also expected to decline in near future.

Review and Analysis of Our Performance:

Marketing Division

This is the Sixth full year of operation of the marketing division. This division markets Fans, cooler and Pumps and gets royalty. Fans contribute the highest business in the segment. The company has pan India network of distributors and dealers to market the products. The division achieved turnover of Rs. 5920.51 lacs in FY 2022-23 as against Rs. 5183.70 lacs in FY 2021-22. The Sales are expected to increase in coming periods. The Company is in the process of expanding the footprint of this division pan India and expects to do better in time to come. The Royalty income was Rs. 687.34 lacs as compared to Rs. 611.90 lacs last year.

Sugar Division

During the year and immediately preceding year, company could not start operation of the sugar mill (seasonal) mainly due to paucity of fund to finance the working capital requirement and other direct and operational expenses.

Agriculture Division:

The agricultural Division was also not stable and contributed Rs. 25.05 lacs to revenue as compared to Rs. 42.39 lacs in FY 2021-22 Profitability:

The PBIDT for 2022-23 was - Rs.509.82 lac as against Rs.101.51 lac (loss) in FY 2021-22.

Outlook:

The Outlook for Marketing Division is positive and we expect good demand in electrical products specially fans. However Sugar division would continue to be pain area. Focus would be on reducing costs by increasing crushing. Agricultural division is expected to be stable due to better monsoon.

Opportunity and Threats:

The demand for electrical products like fans and cooler is fairly stable. The company had been focusing on economy segment in fans sees a good opportunity in decorative fans. The company is in the process of marketing decorative fans which would improve profit margins also.

The Support price to farmers to buy sugar cane which is ever increasing due to government policy without any consideration to depressed sugar process is big threat to the sugar industry. Due to labour issues and lack of working capital the sugar mill is not in operations for the last 5 years.

Human Resource and Industrial Relation:

Industrial relation had been harmonious and company gives due credence to betterment of its workforce.

Internal Control and their adequacy:

The Company has adequate internal control system which provides reasonable assurance with regard to safeguarding companys assets. The company has appointed in-house internal auditor who reviews the internal control on regular basis. Report of Internal Auditors is reviewed by the senior management at regular intervals.