kriti nutrients ltd Management discussions

Global economy

Overview: The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in decades. US consumer prices decreased about

6.5% in 2022, the highest in four decades. The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year would be slower.

The global equities, bonds, and crypto assets reported an aggregated value drawdown of USD 26 trillion from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10 percent. Gross FDI inflows – equity, reinvested earnings and other capital – declined

8.4 percent to $55.3 Billion in April-December. The decline was even sharper in the case of FDI inflows as equity: these fell 15 per cent to $36.75 Billion between April and December 2022. Global trade expanded by 2.7 per cent in 2022 (expected to slow to 1.7 per cent in 2023).

The S&P GSCI TR (global benchmark for commodity performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth ( per cent)	2022	2021
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing economies	3.8	6.3

The performance of major economies comprised the following:

United States: Reported GDP growth of 2.1 per cent compared to 5.9 per cent in 2021 China: GDP growth was 3 per cent in 2022 compared to 8.1 per cent in 2021 United Kingdom: GDP grew by 4.1 per cent in 2022 compared to 7.6 per cent in 2021 Japan: GDP grew 1.7 per cent in 2022 compared to 1.6 per cent in 2021 Germany: GDP grew 1.8 per cent compared to 2.6 per cent in 2021

[Source: PWC report, EY report, IMF data, OECD data]

Outlook

The global economy is expected to grow 2.8 per cent in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7 per cent. Despite these challenges, there are positive elements within the global economic landscape. The largest economies like China, the US, the European Union, India, Japan, the UK, and South Korea are not in a recession. Approximately 70 per cent of the global economy demonstrates resilience, with no major financial distress observed in large emerging economies. The energy shock in Europe did not result in a recession, and significant developments, including Chinas progressive departure from its strict zero-Covid policy and the resolution of the European energy crisis, fostered optimism for an improved global trade performance. Despite high inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these positive factors, global inflation is likely to be still relatively high at 4.9 per cent in 2024. Interestingly, even as the global economy is projected to grow less than 3 per cent for the next five years, India and China are projected to account for half the global growth (Source: IMF).

Indian economy

Overview: Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economic growth is estimated at 7.2 per cent in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy.

India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

Growth of the Indian economy

	FY 20	FY 21	FY 22	FY23
Real GDP growth ( per cent)	3.7	-6.6 per cent	8.7	7.2

Growth of the Indian economy quarter by quarter, FY 2022-23

	Q1FY23	Q2FY23	Q3FY23	Q4FY23
Real GDP growth ( per cent)	13.1	6.3	4.4	6.1

(Source: Budget FY24; Economy Projections, RBI projections)

According to the India Meteorological Department, the year 2022 delivered 8 per cent higher rainfall over the long-period average. Due to unseasonal rains, Indias wheat harvest was expected to fall to around 102 Million metric tons (MMT) in 2022-23 from 107 MMT in the preceding year. Rice production at 132 Million metric tons (MMT) was almost at par with the previous year. Pulses acreage grew to 31 Million hectares from 28 Million hectares. Due to a renewed focus, oilseeds area increased 7.31 per cent from 102.36 lakh hectares in 2021-22 to 109.84 lakh hectares in 2022-23. Indias auto industry grew 21 per cent in FY23; passenger vehicle (UVs, cars and vans) retail sales touched a record 3.9 Million units in FY23, crossing 3.2 Million units in FY19. The commercial vehicles segment grew 33 per cent. Two-wheeler sales fell to a seven-year low; the three-wheeler category grew 84 per cent.

Till the end of Q3FY23, total gross non-performing assets (NPAs) of the banking system fell to 4.5 per cent from 6.5 per cent a year ago. Gross NPA for FY23 was expected to be 4.2 per cent and a further drop is predicted to 3.8 per cent in FY2023-24.

As Indias domestic demand remained steady amidst a global slowdown, import growth in FY23 was estimated at 16.5 per cent to $714 Billion as against $613 Billion in FY22. Indias merchandise exports were up 6 per cent to $447 Billion in FY23. Indias total exports (merchandise and services) in FY23 grew 14 percent to a record of $775 Billion in FY23 and is expected to touch $900 Billion in FY24. Till Q3 FY23, Indias current account deficit, a crucial indicator of the countrys balance of payments position, decreased to $18.2 Billion, or 2.2 per cent of GDP. Indias fiscal deficit was estimated in nominal terms at ~ H17.55 lakh Cr and 6.4 per cent of GDP for the year ending 31st March, 2023. (Source: Ministry of Trade & Commerce) Indias headline foreign direct investment (FDI) numbers rose from US$74.01 Billion in 2021 to a record $84.8 Billion in 2021-22, a 14 per cent Y-o-Y increase, till Q3FY23. India recorded a robust $36.75 Billion of FDI. In 2022-23, the government was estimated to have addressed 77 per cent of its disinvestment target (H50,000 Cr against a target of H65,000 Cr).

Indias foreign exchange reserves, which had witnessed three consecutive years of growth, experienced a decline of approximately $70 Billion in 2022, primarily influenced by rising inflation and interest rates. Starting from $606.47 Billion on 1st April, 2022, reserves decreased to $578.44 Billion by 31st March, 2023. The Indian currency also weakened during this period, with the exchange rate weakening from H75.91 to a US dollar to H82.34 by 31st March, 2023, driven by a stronger dollar and increasing current account deficit. Despite these factors, India continued to attract investable capital.

The countrys retail inflation, measured by the consumer price index (CPI), eased to 5.66 per cent in March 2023. Inflation data on the Wholesale Price Index, WPI (calculates the overall price of goods before retail) eased to 1.3 per cent during the period. In 2022, CPI hit its highest of 7.79 per cent in April; WPI reached its highest of 15.88 per cent in May 2022. By the close of the year under review, inflation had begun trending down and in April 2023 declined below 5 per cent, its lowest in months.

Indias total industrial output for FY23, as measured by the Index of Industrial Production or IIP, grew 5.1 per cent year-on-year as against a growth of 11.4 percent in 2021-22.

India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8 percent.

In 2022-23, total receipts (other than borrowings) were estimated at 6.5 per cent higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1 percent Y-o-Y in RE 2022-23. The total gross collection for FY23 was H18.10 lakh Cr, an average of H1.51 lakh a month and up 22 per cent from FY22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to H1.6 lakh Cr. For 2022–23, the government collected H16.61 lakh Cr in direct taxes, according to data from the Finance Ministry. This amount was 17.6 percent more than what was collected in the previous fiscal.

Per capita income almost doubled in nine years to H172,000 during the year under review, a rise of 15.8 percent over the previous year. Indias GDP per capita was 2,320 USD (March 2023), close to the magic figure of $2500 when consumption spikes across countries. Despite headline inflation, private consumption in India witnessed continued momentum and was estimated to have grown 7.3 percent in 2022-23.

Outlook: There are green shoots of economic revival, marked by an increase in rural growth during the last quarter and appreciable decline in consumer price index inflation to less than 5 percent in April 2023. India is expected to grow around 6-6.5 percent (as per various sources) in FY2024, catalysed in no small measure by the governments 35 per cent capital expenditure growth by the government. The growth could also be driven by broad-based credit expansion, better capacity utilisation and improving trade deficit. Headline and core inflation could trend down.

Union Budget FY 2023-24 provisions

The Union Budget 2022-23 sought to lay the foundation for the future of the Indian economy by raising capital investment outlay by 33 per cent to H10 lakh Cr, equivalent to 3.3 per cent of GDP and almost three times the 2019-20 outlay, through various projects like PM Gatishakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. An outlay of H5.94 lakh Cr was made to the Ministry of Defence (13.18 per cent of the total Budget outlay). An announcement of nearly H20,000 Cr was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An outlay of H1.97 lakh Cr was announced for Production Linked Incentive schemes across 13 sectors. The Indian government intends to accelerate road construction in FY24 by 16-21 per cent to 12,000-12,500 km. The overall road construction project pipeline remains robust at 55,000 km across various execution stages. These realities indicate that a structural shift is underway that could strengthen Indias positioning as a long-term provider of manufactured products and its emergence as a credible global supplier of goods and services

Global soyabean supply and demand (in Million tonnes)

	FY21	FY22	FY23 P
Opening stocks	54.3	55.5	45.4
Production	370.1	355.8	388.1
Imports	159.2	155.2	167.3
Total availability	424.4	411.4	433.5
Crush	325.5	325.5	335.7
Total consumption	368.8	365.9	379.4
Exports	159.2	155.2	167.3
Ending stocks	55.5	45.5	54.0

Indian soyabean market overview

According to Soyabean Processors Association of India (SOPA), the domestic production of soyabean is expected to reach 120.40 lakh tonnes in the 2022-23 season compared to 118.89 lakh tonnes in the last season. Indias soyabean import is pegged lower by 64 per cent at 2 lakh tonnes in 2022-23 season compared to 5.55 lakh tonnes on prospects of higher domestic production. The countrys carry-over stock remains higher at 25.15 lakh tonnes as against 1.83 lakh tonnes in the previous year. The total availability of soyabean is estimated at 147.55 lakh tonnes in 2022-23 season compared to 126.27 lakh tonnes in 2021-22 season. Out of the total soyabean, about 100 lakh tonnes would be available for crushing in 2022-23 season as against 84 lakh tonnes in 2021-22 season. Around 13 lakh tonnes are estimated to be retained for sowing, 4 lakh tonnes are estimated to be directly consumed and about 1 lakh tonnes will be exported in the current season.

According to SOPA, soyabean meal production (used as animal feed) is pegged higher at 79.82 lakh tonnes during the 2022-23 season compared to 67.05 lakh tonnes in 2021-22. The countrys soyabean meal import is expected to be nil in 2022-23 season compared to 6.45 lakh tonnes in 2021-22 season while exports are expected to reach 82 lakh tonnes in 2022-23 season compared to 73 lakh tonnes in 2021-22 season. The government has set the minimum support price for soyabean at H4,300 per 100 kg for the 2022-23 (Oct-Sep) marketing season. Madhya Pradesh,

Maharashtra, Karnataka, Rajasthan and Gujarat are the major soyabean growing states in India. Soyabean production in Maharashtra is pegged at 5.5 to 6.0 Million tonnes in 2022-23 season against 4.5 to 5.0 Million tonnes in 2021-22 season due to adequate rainfall and favourable weather conditions. Madhya Pradesh is the leading soyabean producing state with over 40 per cent share in the countrys total production of around 13 Million tonnes. The ban on future and option trade has left soyabean farmers associated with farmer producer organisations in Madhya Pradesh in lurch as they are forced to sell their produce in local mandis to traders and nearby processing plants in the absence of an efficient price process. (Source: Business Standard, Informist)

India: Oilseed, Soyabean, Production, Supply and Distribution

Oilseed, Soybean	2020-21		2021-22		2022-23
Market Begin Year	Oct-20		Oct-21		Oct-22
India	USDA	New Post	USDA	New Post	USDA	New Post
	Official		Official		Official
Area Planted (1000 HA)	12700	12700	12700	12700	0	12500
Area Harvested (1000 HA)	12700	12700	12500	12500	0	12300
Beginning Stocks (1000 MT)	472	472	420	420	0	530
Production (1000 MT)	10450	10450	11900	11900	0	11800
MY Imports (1000 MT)	548	548	400	400	0	320
Total Supply (1000 MT)	11470	11470	12720	12720	0	12650
MY Exports (1000 MT)	32	32	200	200	0	160
Crush (1000 MT)	9500	9500	10200	10200	0	10300
Food Use Dom. Cons. (1000 MT)	618	618	660	660	0	660
Feed Waste Dom. Cons. (1000 MT)	900	900	1130	1130	0	1150
Total Dom. Cons. (1000 MT)	11018	11018	11990	11990	0	12110
Ending Stocks (1000 MT)	420	420	530	530	0	380
Total Distribution (1000 MT)	11470	11470	12720	12720	0	12650
Yield (MT/HA)	0.8228	0.8228	0.9520	0.9520	0	0.9593

(Source: National Mission on Edible Oils)

Indian packaged edible oil market

Indias edible oil market is estimated at H5,19,905 Cr by FY 2027-28 with a CAGR 5 per cent decline in unorganised oil market share. The consumption of edible oils in India is expected to reach 26-27 Million tonnes by 2025-26 according to estimates by Solvent Extractors Association (SEA). Indias import of edible oil is expected to be lower in the oil year 2022-23 (November-October). The domestic edible oil production has not been able to keep pace with the growth in consumption and the country is incurring heavy costs owing to its dependence on imports. Import growth in edible oils during the last decades is around 174 per cent. The ongoing Russia-Ukraine war has once again highlighted that

India needs to be self-sufficient in edible oils. The countrys imports are estimated at 13.65 Million tonnes during 2022-23 compared to 13.84 Million tonnes in 2021-22. Edible oil import includes a significant (ranging from 1.66 per cent to 2.83 per cent) of total imports during the past ten years. Edible oils are indispensable in the Indian kitchen. The growing consumption of edible oil in the country has been catalysed by increasing population, changing tastes and preferences of consumers, a shift towards branded oil usage and seamless marketing and distribution efforts by edible oil companies. Among the leading key edible oil-consuming countries, including the European Union, Indias dependency on imported edible oil is significantly higher (close to two times) than that of other major countries. Most of the countries were dependent on imported edible oil in the range of 30 per cent-39 per cent in FY21, whereas Indias dependency on imported oil was around 60 per cent, which declined to 55 per cent in FY21 due to the Covid-19- induced decrease in demand. Indias oilseed production was also estimated to reach 38-40 Million tonnes in 2025-26 compared to 33 Million tonnes in 2021-22. Domestic vegetable oil production was also estimated to rise to 13.5-14 Million tonnes by 2025-26 compared to 10 Million tonnes in 2021-22.

Soyabean oil imports jumped sharply to 41.71 lakh tonnes in 2021-22 oil year compared to 28.66 lakh tonnes in 2020-21, while sunflower oil imports rose gradually to 19.44 lakh tonnes in 2021-22 compared to 18.94 lakh tonnes in the year 2020-21. In order to enhance the production and productivity of oilseed crops and area expansion of oil palm in the country the government is implementing the National Food Security Mission (NFSM) – Oilseeds and Oil Palm with the goal to raise edible oil production. Several interventions like improved seed replacement, increased seed production, large-scale demonstrations, supply of critical inputs, arrangement for life-saving irrigation, mechanisation inputs, post-harvest management and promotion of oilseeds in rice fallow are undertaken. (Source: Economic Times, Mint)

Indian food processing industry review

The Indian food processing sector is among the largest in India, accounting for over 32 per cent of the total food market, with the gourmet edible oil market rapidly growing at 20 per cent CAGR. Indias food processing has been among the key sectors, growing due to its response to the changing demographics and lifestyle, affordable workforce availability, free availability of raw materials, growth in export opportunities and government advocacy to develop food manufacturing. The countrys processing sector is the worlds biggest in food production, supply and processing, backed by conducive conditions. Indias output can touch USD535 Billion by 2025-26, while generating jobs to the tune of 9 Million by 2024. Apart from processing industry, packaged and ready-to-eat (RTE) food too is poised to see a huge boom. The growth in these sectors was propelled by the pandemic, hike in expendable incomes leading to increasing appetites for discretionary spends on branded items including processed food-items, a rejuvenated retail sector and state sponsorship. In the aftermath of the pandemic, consumer preferences switched to health and fitness, demand organic, low calorie and natural or low preservatives in the edibles. The norms of labelling and packaging are changing to assure consumers of their health choice. Growing urbanisation, two-income households and a young population have directly led to the demand for convenient packaged, branded food and beverages.

Growth drivers

Demographic dividend: The Indian median age of 28.4 years compared to the world median age of 30 years. Indias young demographics has been a well-documented global story over the past three decades, strengthening domestic demand in a sustainable way. (Source: moneycontrol.com)

Growing population: India is expected to surpass China in 2023 as the most populous country. Indias population has grown from 715.4 Million in 1981 to 1.39 Billion in 2021. By 2050, India is expected to have a population of 1.67 Billion, higher than the 1.32 Billion people forecast for China by the middle of the century. (Source: dw.com)

Growing health awareness: There has been a growing awareness towards health consciousness among the people post-Covid. Increasing awareness regarding the nutritional value of soyabean could drive demand.

Growth of the animal feed market: The Indian animal feed market size stood at H873.7 Billion in 2021. The market is expected to reach Rs1493.8 Billion by 2027, growing at a CAGR of 9.6 per cent during 2022-2027. This is expected to increase the demand of soyabean over the coming years.

Vegan revolution: Plant-based foods have been dominating consumers for the past couple of years. Growing awareness, animal cruelty and environmental sustainability are expected to catalyse demand for soyabean products over the foreseeable future.

Government initiatives

• As per the Union budget 2022-23, H1.24 lakh Cr (US$ 15.9 Billion) has been allocated to Department of Agriculture, Cooperation and Farmers Welfare. H8,514 Cr (US$ 1.1 Billion) has been allocated to the Department of Agricultural Research and Education.

• The government launched the Micro food processing Enterprises (PMFME) scheme for providing financial, technical and business support for upgradation of micro food processing enterprises in the country with an outlay of H10,000 Cr (US$ 1.27 Billion).

• The government is planning to launch Kisan drones for crop assessment, digitisation of land records, spraying of insecticides and nutrients.

• The Government of India approved a PLI scheme for the food processing sector with an incentive outlay of H10,900 Cr (US$ 1,484 Million) over a period of six years starting from FY22.

• In order to speed up the seed replacement rate, 820,600 seed mini-kits will be distributed free of cost in 343 identified districts across 15 major producing States under a special programme.

• The government initiated Digital Agricultural Mission for 2021-25 for agriculture projects based on new technologies such as artificial intelligence, block chain, remote sensing, GIS technology, drones, robots and others.

• The Government plans to triple the capacity of food processing sector in India from the current 10 per cent of agriculture produce • The Government has also committed H6,000 Cr (US$ 936.38 Billion) as investments for mega food parks in the country, as a part of the Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters (SAMPADA).

• The Government of India allowed 100 per cent FDI in marketing of food products and in food product E-commerce under the automatic route.

Company overview

Incorporated in 1993, Kriti Nutrients Limited is engaged in the business of processing soybean, oil refining and the fabrication of soya-based products. The Company emerged among the most respectable companies due to its commitment towards continuous product quality and customer service. The Companys high tech manufacturing facility is spread across 70420 square metres in Dewas. The manufacturing complex includes solvent extraction plants, vegetable oil refinery, lecithin plant, effluent treatment plant, fluidised bed boilers and an in-house tin and jar packaging facility. The plant is ISO-9001:2001-certified and manufactures products like soya oil and other soya-based products. In FY 2022-23, 86.75 per cent of the companys revenues were generated from domestic sales and 13.25 per cent generated from exports. The Company earns its domestic revenues from B2C sales and export revenues from long-standing B2B customers.

Financial review

Revenues:Revenue during the year stood at H801.31 Cr, growing 5.96 per cent as against H756.23 Cr in FY 2021-22.

Interest and finance Net interest and finance costs stood at H353.24 Cr.

Profit after tax: he Company reported a profit after tax ofH20.80 Cr compared to H12.31 Cr in the previous year.

Key ratios and numbers

Particulars	FY 23	FY22
Turnover (H cr)	796.87	752.88
Debt-equity ratio	0.29	0.31
Return on equity ( per cent)	17	12
Book value per share (Rs)	26.42	22.45
Earnings per share (Rs)	4.15	2.46

Business strategy and outlook

The business outlook of the company seems positive due to the revenue growth reported in the previous year, which is expected to improve sustainably across the foreseeable future at better margins. Besides, the Company plans to develop products at better margins that should grow by volume and value.

Information and technology

The Company has consistently invested in information technology (IT) to enhance operational efficiencies through the installation of softwares like SAP Enterprising Resource Planning System, CRM, HRM and sales force mobility. SAP HANA was installed to enhance the process of business analytics and increase efficiencies. The Company will ensure continuous investments in cutting edge technologies to benchmark itself with international standards.

Internal control systems and their adequacy

The Companys internal audit system has been continuously reviewed and upgraded to that assets are protected; existing regulations are followed with and unsettled issues are promptly addressed. The audit committee reviews reports presented by the internal auditors periodically. The committee takes care of the audit observations and takes remedial measures, if necessary. It constantly communicates with statutory and internal auditors to ensure that internal control systems are operating efficiently.

Human resources

The Company believes that its skilled and trained workforce is the biggest asset that it possesses and is instrumental towards the achievement of organisational goals. The Company is dedicated to furnish them with skills, resulting the continuous growth of employees aligning them to endless technological upgradations. During the year under review, the Company conducted training programmes in various areas like technical skills, behavioural skills, business excellence, general management, advanced management, leadership skills, customer orientation, safety, values and code of conduct. The Companys employee strength stood at 244 as on 31st March, 2023.

Cautionary statement

The management discussion and analysis report containing the Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. The statements in this management discussion and analysis report could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operation include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors such as changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.