khoday india ltd share price Management discussions

Industry structure and developments: The alcoholic beverages Industry in India is made up of Indian Made Foreign Liquor (IMFL), Beer, Wine, Country Liquor and imported alcoholic beverages. The IMFL segment of the Industry recorded a growth of about 9.5 % during the year. However,the Companys aggregate volume of sales recorded a decline in growth of about 6 %. The premium brands of IMFL such as "Peterscot", "Red Knight Select" and "Red Knight Reserve" brands of whisky enjoy a market share of about 2 % in the premium segment. The product distribution in most states is managed through the respective State Beverages Corporation.

Opportunities and threats: The projected GDP growth of about 7.5 % for 2017-18, though modest, presents an opportunity for increased consumer spends on alcoholic beverages. However, the continuing increase in taxes which constitute nearly 2/3rds of shelf price of the premium brands, the absence of uniform rates of taxes and the diverse policies of the state governments on marketing and the restriction on advertising in both the print and electronic media are the major dampeners for higher rates of growth. The consistent reduction in custom duties on imported spirits resulting in easy availability of multinational brands constitutes another challenge for the Company.

Segment wise/ product wise performance:

Out of the operational revenue of Rs. 147.67 crores, the Liquor segment generated a revenue of Rs. 143.87 Crores but posted a loss of Rs.2.20 crores. As regards the other Segments, the "Glass" segment did not earn any revenue but incurred an expense of Rs.0.65 Crores which has been booked as loss. The "Systems" segment did not earn any revenue but incurred an expense of Rs.1.70 Crores and the same has been booked as loss and the "Others" segment comprising sale of raw materials etc., earned a revenue of Rs.4.06 Crores, but posted a loss of Rs.0.02 Crores.

Outlook: The IMFL segment of the industry in particular is expected to register a growth of about 9% and your Company has plans to improve sales volumes during 2016-17 by about 8%.

Business risks and mitigatory efforts: The business risks for the Company could be broadly classified as follows:

(i) Raw material procurement:- The risk of non-availability of extra neutral alcohol in adequate quantities is managed through forward contracts for uninterrupted supplies.

(ii) Timely and adequate availability of working capital:- The Company faces the twin risk of timely availability of funds in adequate measure as also the steep interest rates charged by the banks, which are managed through a close monitoring of the working capital needs and timely borrowing through hard negotiations with the lenders by the top management on a regular basis.

(iii) Product prices and competition The Company operates in a highly competitive business environment characterized by availability of various products both domestically produced and imported, at different price points. The risk from competitive product pricing is managed through adherence to high quality standards and product differentiation.

(iv) Regulatory issues The high incidence of taxes and the absence of the uniform regulatory regime for taxation and distribution through out the country, impedes the Companys efforts to improve its sales volumes. These issues are regularly being taken up with the Government through the industry Associations of which the Company is an active Member.

Internal Control System : The Company follows a system of internal controls to ensure effectiveness and efficiency of operations, safeguard of assets, the reliability of financial reporting and compliance with applicable laws and regulations.

Financial performance vis-a-vis Operational performance:

The Company has registered a net income of Rs.151.64 Crores and an operating loss of Rs.4.75 crores.

Material development in human resources / industrial relations front: The Companys efforts are directed at improving employee output across all levels through operational efficiency and higher levels of motivation. The industrial relations in all the units of the company remained cordial throughout the year.

Cautionary statement: Statements in the Management Discussion and Analysis prescribing the Companys objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable security laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand/supply and price conditions in the markets in which the Company operates, changes in the Government Regulations, Tax Laws and other statues and incidental factors.