KMG Milk Food Ltd Management Discussions.

Your Directors are pleased to present before you the Companys Management Discussion and Analysis Report for the year ended on 31.03.2020.

The management of the company is presenting herein the overview, opportunities and threats, initiatives by the company and overall strategy of the company and its outlook for the future. This outlook is based on managements own assessment and it may differ materially from those expressed or impaired depending upon global and Indian demand-supply conditions, changes in government regulations, tax regimes and economic developments within India and overseas.

INDUSTRY STRUCTURE AND DEVELOPMENT

The Dairy Industry plays an important role in the socio-economic development of India. Indias production of milk has strongly increased over time with significant technical, policy and institutional support. This led to significant changes in the Indian dairy sector. In fact, the Indian dairy sector has undergone significant structural changes over time and some interesting patterns are unfolding along the milk value chain.

Dairy industry in India is instrumental in providing cheap nutritional food to the vast population of India and also generates huge employment opportunities for people in the rural places. Indias dairy industry is largely traditional, local and informal. Milk production is dominated by smallholders. Approximately 78 percent of milk producers are marginal and small farmers and they together contribute around 68 percent to total milk production. This trend holds true more or less across all the states. A series of efforts have been made to promote organized milk marketing in the country and several policy initiatives have been taken to develop formal milk marketing and processing institutions in the country. The Indian foods industry is growing rapidly. The Food Products Export Development Authority (APEDA), under the Ministry of Commerce, is investing a substantial share of its budgeted allocation in promoting technology upgradation and value addition in key segments (rice, wheat, pulses oilseeds, spices, and dairy products among others).

The prospectus of the countrys dairy sector is increasingly attractive. The sectors growth is being catalyzed by modern retail format growth, making it possible to stock a large product variety under one roof coupled with customer centric distribution schemes.

QUALITY & FOOD SAFETY POLICY

The Companys Quality Policy is: -

"Company is committed to manufacture and supply nutritional and safe products to satisfy customer requirements by a motivated team using eco-friendly measures with continual improvement in quality and food safety"

The Company has consistently shown quality improvement with regard to various processes, keeping strict control on deviations. Customer complaints are resolved using laid down systems of quality assurance. Several initiatives are being taken to further improve customer satisfaction in consonance with the Companys quality policy.

OPPORTUNITIES & THREATS

Strengths and Opportunities:

> Great potential for export of milk products.

> Established and expanding domestic market for dairy products.

> Increasing demand for fluid milk as well as value added Products.

> By product Utilization for import substitution.

> Huge Employment generation & opportunities for Self employment.

> Liberalized Government policies in dairy sector.

> Availability of large resources of unconventional feeds and fodders for Dairy owners.

> Availability of diverse germ plasm of dairy cattle and buffaloes that have unique features like heat tolerance, disease resistance, draft ability and ability to survive, breed and produce under stress conditions.

Weaknesses and Threats:

> Entry of Multi National Companies manufacturing dairy products in domestic market.

> Increasing chemical contaminants as well as residual antibiotics in milk.

> Poor microbiological quality of milk.

> Incentive on export of quality feed ingredients particularly cakes.

> Deficiency of molasses, a rich source of energy and binding agent in feed industry and constituent of urea molasses mineral lick.

> Excessive grazing pressure on marginal and small community lands resulting in complete degradation of land.

> Extinction of the indigenous breeds of cattle due to indiscriminate use of crossbreeding programmed to enhance milk production.

The liberalization of the Dairy Industry is likely to be exploited by multi-nationals. They will be interested in manufacturing milk products which yield high profits. It will create milk shortage in the country adversely affecting the consumer.

The analysis also shows that the strengths and opportunities far outweigh weaknesses and threats. Strengths & opportunities are fundamental and weaknesses & threats are transitory.

SEGMENT WISE/PRODUCT WISE PERFORMANCE

The Company is primarily engaged in the business of manufacture, purchase and sales of a wide range of Dairy products like ghee, skimmed milk powder, whole milk powder, dairy whitener, lactose and milk. The income from these activities and export of dairy products is not materially significant in financial terms. Accordingly segment information has not been disclosed.

OUTLOOK

The growth in the Indian economy and the Indian Dairy industries sales is expected further increase in 2020 over 2019.

The future growth expected in the domestics Dairy industries will give a fillip to the dairy industry may face stagnation for couple of years after a phenomenon growth in the past. The Indian dairy industry as whole offers great potential considering the low penetration along with rising income levels and a rapidly growing middle class. These factors will witness a boost in demand for the customers. With the dairy industries fast growing in term of volume.

RISK AND CONCERNS

The major risk and concerns attributed to the performance of the company are:

a. Although the export sales are less in comparison to domestic sales, fluctuation in foreign exchange rates and international prices of dairy products may influence the performance of the company.

b. Increase in input costs, change in tax structure, change in interest rates, changes in Government policies/ laws of land, development and stability of Indian economy against the negative external and internal forces may also impact the overall performance of the company.

c. Profitability may be affected on account of competition from existing and prospective manufacturers of the companys products.

d. Dairy business is primarily influenced by monsoon. Unfavorable monsoon may affect the milk availability and Company may not get milk upto installed capacity and demand.

ADEQUACY OF INTERNAL CONTROL SYSTEMS

The Company has an adequate system of internal controls to ensure that transactions are properly authorised, recorded, and reported, apart from safeguarding its assets. Such internal controls are according to the nature of its business and size of its operations, in order to ensure that all assets are safeguarded against loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly and adequately. The internal control system is supplemented by well-documented policies, guidelines and procedures and reviews carried out by the Companys internal audit function, which submits reports periodically to the Management and the Audit Committee of the Board.

The performance of the Company is regularly reviewed by the Audit Committee and/or the Board of Directors to ensure that it is in consonance with the overall corporate policy and in line with pre-set objectives. The Audit Committee of the Board is headed by a non-executive independent Director and all audit findings are reported on a quarterly basis to it.

HUMAN RESOURCE DEVELOPMENT

Being a manufacturing Company, workers form an important link in the chain of growth. The Company maintained a cordial relationship with its personnel during the year under review. The workers are motivated with better service conditions, which is at par with the best in the industry. During the year under review, the Company had under taken extensive steps for optimizing the use of its manpower through, productivity improvement, and role enrichment. There is a continuous focus on enhancing productivity in all facets of our operations.

INDUSTRIAL RELATIONS

The industrial relations in the Company with the workers at all levels are very cordial and are expected to remain cordial in future as well. The Management acknowledges the contribution of all employees in increasing its turnover manifolds.

FINANCIAL STATEMENT

The turnover of your Company has increased from Rs. 49.60/- lacs in 2017-18 to Rs. 82.08/- lacs in current year. Your company has suffered a loss of Rs. 141.55 as compared to loss of Rs. 160.27 /- in the last year.

DISCLAIMER STATEMENT

Statements in this report describing the current industry structure, outlook, opportunities etc. reflect the assessment and perception of the Company, which are based on certain assumptions, and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate. The Companys actual results, performance, or achievements could thus differ materially from those projected in any such forward-looking statements.