KSE Ltd Management Discussions.


1. Industry Structure and Development

India currently represents one of the fastest growing animal feed markets in the world. The increasing demand for animal protein and dairy products has resulted in a growing livestock population in India, which in turn has increased the demand for animal feed. Currently the poultry, aqua and dairy industry accounts for the major share of the Indian animal feed industry. Modern animal feed products are manufactured by carefully selecting and blending ingredients to impart highly nutritional diets that both increase the quality of its end products such as meat, milk, eggs and at the same time maintain the health of the animal.

Changing lifestyles and rising per capita income in India have resulted in a shift in the dietary habits in the country leading to increased consumption of milk, egg and meat. The animal population in India is expected to increase continuously in the medium and long terms. India has recorded higher growth of exotic and cross-bred variety of cows, which continue to be preferred by many dairy farmers due to their much higher yield as compared to the indigenous breeds of cows. The Indian government along with private initiatives are increasing the awareness of better feed practices among farmers. Farmers are becoming more aware about animal health and the importance of a balanced and nutritional food for their animals. This all put together, results in growing demand for compounded animal feed.

2. Opportunities and Threats

The advantages to your Company in cattle feed and cake processing industry are (1) its vast experience in these industries of about 50 years (2) its leadership in the market (3) adherence to high quality standards and acceptability of the feed in the market (4) prompt after-sales service and good customer relation (5) a lot of prestigious awards and recognitions to prove consistent quality and leadership (6) good network of dealership (7) talented technical and marketing personnel (8) judicious purchase of materials and (9) financial strength of the Company leading to better purchasing power helping to build up stock on favourable situations. The threats to the Company in these two segments are (1) competition from other manufacturers in organised and unorganised sectors (2) probable entry of multinational entities (3) surge in the fuel prices leading to increase in the price of ingredients (4) the volatile rupee Vs. dollar situation acts as a non-stimulant in import transactions (5) granting of subsidy by the Government on animal feed selectively avoiding private manufacturers (6) indirect control by Government over price of milk acts as a blockade, at times, to pass on the cost escalation to the consumers (7) switching of crop by farmers from oil seeds and grains (from which our ingredients are derived) to other crops (8) severe shortage in availability of manual local labour leads to increase in the cost of labour as these two segments are highly labour oriented (9) import of cheaper oils for bulk consumption leading to fall in demand for refined coconut oil (10) failure of crop and shortage in production of grains and oil seeds due to failure of monsoon/seasonal rain (11) recent increase in sea freights many fold on account of several reasons acts as deterrent to import of copra expeller cake. Your Company is tackling these issues appropriately, by taking timely actions.

The advantages to your Company in Dairy segment are (1) reputation and brand image of the Company for the quality of its products and (2) financial strength of the Company helping to withstand the unhealthy market competitions. The threats to the industry are (1) outbreak of pandemic diseases like Covid-19 requiring lock down of operations of factories and outlets (2) unhealthy competition from small players dealing with inferior quality products and (3) entry of big players including multinational corporations in the segment catered by your Company.

3. Segmentwise Productwise Performance

The segmentwise revenue and year to year change are given hereunder:



Year to year change Percentage
Segments Rs. in lakhs Percentage Rs. in lakhs Percentage
Animal Feed 131006.59 84.89 126428.27 88.50 3.62
Oil cake processing 20488.79 13.28 12993.90 9.10 57.68
Dairy 2831.09 1.83 3429.65 2.40 (17.45)
Total 154326.47 100.00 142851.82 100.00 8.03

The average realisation on cattle feed has reduced by 3.19% compared to year 2019-2020 as the cost of raw materials were steady and soft. This has contained the improvement in the revenue from Animal Feed division at 3.62%, though the volumewise feed sale has recorded an increase of 6.61 %. The main reason for the increase in the revenue in oil cake processing division is due to the betterment in the selling price of coconut oil. The fall in the revenue of dairy division is on account of reduction in the volume of sale of milk, ice cream and other dairy products as a result of after effect of Covid-19.

The year to year change in the volume of operation in different segments are discussed under

2020-21 2019-20 Year to year
Measurement Quantity Quantity change (Percentage)
Animal Feed Tons 593926 557095 6.61
Deoiled cake Tons 13209 10081 31.03
Refined coconut oil Tons 10409 6902 50.81
Solvent Extracted Coconut Oil (unrefined) Tons 1043 2663 (60.83)
Milk Kilo Litres 4178 4992 (16.31)
Ice Cream Kilo Litres 716 1227 (41.65)

In the above table, the volume of sale of animal feed has improved by 6.61 %, despite the issues connected with the Covid-19 and closure of our main animal feed production facility in Irinjalakuda for over a month during July and August, 2020. 123764 tons copra cake was processed in the Cake Processing Division against previous year quantity of 108730 tons. As a result of the increased volume of processing and the improvement in the average realisation of coconut oil coupled with good demand for oil had helped to considerably improve the volume and revenue in the cake processing division. The sale of Milk and Ice Cream has been affected in year 2020-2021 due to lock-down and other restrictions relating to Covid-19 pandemic.

The segmentwise earnings before interest and tax are furnished below:

Segments 2020-21 2019-20 Year to year change Percentage
Rs. in lakhs Rs. in lakhs
Animal Feed 10521.99 2884.28 264.80
Oil cake processing 3537.15 (383.78) 1021.66
Dairy (162.48) (85.38) (90.30)
Unallocated income net of expenditure including interest income 552.39 345.66 59.81
Total profit before exceptional items, interest and tax 14449.05 2760.78 423.37

During the year 2020-21, the annual average raw material cost of feed has reduced by 9.75% and in tune there to the average selling price of feed has also reduced by around 3.19 % compared to previous year. Since for the most part of the year the raw material price was steady, the feed division has performed very well, though there was some issues connected with the spread of Covid-19, which we could manage successfully.

In the cake processing division, we could clear the stock of oil built up during the previous year. The average selling price of coconut oil has improved considerably from the level of around Rs.112/kg. to Rs.185/kg. by the last quarter of financial year 2020-2021. The year to year average selling rate of refined coconut oil improved by 34.43%, compared to previous year. However, only a limited quantity of copra cake is available locally and it is not sufficient to meet even 15% of our requirement. We have to make up the shortfall through imports. During the year we could manage to import sufficient quantity of copra cake at reasonable rates and our annual processing quantity of copra cake also has improved by 15,034 tons, that is an increase of 13.83% over that of previous year. All these put together, the profit of cake processing division improved ten fold, compared to previous year.

In order to relaunch the Vesta ice cream after the first phase of Covid-19 and to establish a considerable market share for Vesta Ice Cream, we had committed for a heavy budget for ice cream branding during the second half of 2020-21. Due to the uncertainties on account of the pandemic, the sales volume of ice cream has dipped more than 40% and that of milk had fallen by 16%. Also there was only thin margin on milk sales and hence taking all the factors together the Dairy division reported loss.

4. Outlook

The price of ingredients to animal feed was softened during the year 2020-21 and was more or less steady through out the year. Despite the spread of pandemic, the demand for the feed is stable which helps us to keep the capacity utilisation and maintain the revenue. In the first quarter of financial year 2021-2022, the price of protein based ingredients is increasing and even in certain cases it had doubled. We also had made a few adjustments to the selling price of feed to cushion the increase in raw material cost.

However, we will not be able to increase the selling price of feed to fully absorb the increase in ingredient prices. We are making appropriate adjustments in the selling price according to the ingredient prices keeping in consideration all the related situations. The indirect control of the Government on the procurement price of milk put the farmers in to lot of hardship and while taking pricing decisions, we have to weigh this fact in the best interest of the Company.

At a time when the second wave of Covid is spreading across the country, the good news is that the weather forecasters have predicted that India is likely to have a normal monsoon again this year. The South-West monsoon is considered vital for the cultivation of Kharif crops, which are heavily dependent on rain as the quantity of rainfall determines the yield in the case of these crops. The monsoon delivers 70% of Indias rainfall and most Agricultural activities depend upon it. Weather plays an important role in agricultural production. It has a profound influence on crop growth, development and yields; on the incidence of pests and diseases; on water needs; and on fertilizer requirements. As the monsoon rain is normal this year, it is reasonably expected that the prices of ingredients will further ease by the start of next season for the crops and there will not be any shortage of supply.

In the cake processing division, we have to process around 1,25,000 tons of copra cake, to meet our requirements for deoiled copra cake, which is one of the major ingredients in our feed. The availability of copra cake both in India and abroad is highly challenging. Since the local arrival is very limited, we are mainly depending on imports for ensuring the steady supply of copra cake. The local price of copra cake is very high as compared to previous year rates. On the import front, the spread of Covid had made the cost of chartering vessels dearer, in many cases it has more than doubled. The supply of copra cake being short in Philippines and Indonesia made the product in short supply and the cost of the same has increased more than 50% that of previous year. The volatility in exchange rate of dollar also makes the task tough. Despite all these issues, we have ensured steady supply of copra cake by booking shipments in advance. The movement of coconut oil is encouraging now though at a lower realisation. We expect a smooth running of this division with reasonable profits under the present circumstances.

The spread of the deadly virus has highly affected the operations of the Dairy division, though we are allowed to operate the Dairy plants. The proclamation of second phase of lock down in Kerala, continuous for about two months, which incidentally was the peak period for ice cream, has seriously affected our market for ice cream and milk. The shops selling the ice cream and tea shops purchasing milk were closed under lock-down and there is a drastic decline in the ice cream consumption due to the absence of festivals and celebrations. We are still not sure how long the impact of corona virus will continue and hence we see a weak market for ice cream in the short run. We have to undertake a relaunch exercise for ice cream on a big budget when the situation is favourable, to reestablish the brand for our ice cream. At the same time the margin on milk and the volume of milk handled is growing, which we hope will make good the loss on the ice cream front. As such we expect that dairy operations as a whole will have to undergo tough testing by the market during 2021-22. However, since the other two divisions remains strong, we are confident of withstanding the set back in the dairy arena, with the support of other two major divisions of the Company.

5. Risks and Concerns

As stated earlier, except the marketing of ice cream, all others operations of the Company remained more or less unaffected as a result of the Covid-19 Pandemic, though we had some minor issues including closing down of our main factory in Irinjalakuda for over one month. However, we have no idea how far the spread of Pandemic will affect us in future and we are closely watching the developments, for taking timely actions. Since normal monsoon is predicted, we do not feel that there will be shortage in supply of ingredients or an abnormal increase in their prices in the near future. As a result of maintaining high quality for the feed, the market acceptability for KS Brand cattle feed is very high in the States of Kerala and Tamil Nadu and we do not expect a significant fall in the sales volume of feed due to the spread of corona virus.

The import cost of copra cake has gone up by 50% and the exchange rate of dollar also is volatile. The shortage of supply and the increase in the cost of chartering vessels has in turn, increased the cost of copra cake considerably. Due to scarcity of local supply of copra cake the domestic price for copra cake is also on the higher side. We have to process around 1,25,000 tons of cake to meet the requirement of cattle feed division, wherein the deoiled cake is used as an ingredient. The price of coconut oil which has crossed Rs.200/kg. in the previous month has since settled around Rs.175/kg. and this will also strain the margins in cake processing division. We are hopeful of improving the situation by the second half of this year.

The performance of Dairy division under the Covid-19 situation is already explained and that we may have to relaunch the ice cream after curtailing the decease. Until such time the ice cream operations will be at a low scale and we may incur losses in such a situation as the level of operation is below the minimum required volumes to meet the overhead costs. The milk operation is expected to neutralize the set back in the ice cream operations and we do not expect negative margins in the Dairy Division as a whole. No other risks or concerns are perceived by the management for the time being.

6. Internal Control Systems and their adequacy

The Company has adequate policies and procedures in place for its current size as well as the future growing needs. These policies and procedures play a pivotal role in the deployment of the internal controls. They are regularly reviewed to ensure both relevance and comprehensiveness, and compliance is ingrained into the management review process. There are adequate internal control systems in vogue in all spheres of operations of the Company so as to ensure safety to its assets against loss. These internal controls are designed in such a way to ensure adequate accounting and financial controls. The internal control system is being continuously reviewed by the management and adequate steps are taken for improvement, wherever felt. Internal audits are being carried out regularly in all the Units. The internal audit reports and the corrective actions taken for the shortcomings reported in those reports, if any, are being discussed in the meetings of the Audit Committee.

7. Financial and Operational Performance

During the year ended 31st March, 2021, the Revenue from Operations improved by 8.03 % to Rs.1543 crores from Rs.1429 crores, Rs.114 crores in absolute terms. The over-all profit after tax improved to Rs.112.25 cores in year 2020-21 compared to Rs.18.05 crores in the previous year. The over all profit includes compensation received from National Highway Authority Rs.6.68 crores on acquisition of properties of Swaminathapuram and Thalayuthu Units as part of development of national highway.

The sales volume of feed has improved by 6.61 % to 5.94 lakhs tons, compared to previous year volume of 5.57 lakhs tons, despite the fact that we had to face lots of issues connected with the lock downs and restrictions on account of Covid-19 through out the year since March, 2020. The ingredient prices was more or less steady through out the year and the animal feed division generated excellent profits. The feed division reported a profit of Rs.105.22 crores compared to previous year profit of Rs.28.84 crores.

We had processed 1.24 lakh tons of copra cake in year 2020-21 as against 1.09 lakh tons of copra cake in year 2019-20, by which the volume improved by 13.83 %. The cake processing division reported a profit of Rs.35.37 crores as against previous year loss of Rs.3.84 crores.

The volume of sales of ice cream for the year 2020-21 was 716 kl. as against 1227 kl. in 2019-20 with a dip in the volume by 41.65%. The negative publicity against ice cream in the covid scenario was a deterrent in pushing the volume of ice cream. The Dairy division reported a loss of Rs.162.48 lakhs in year 2020-21 against the previous year loss of Rs.85.38 lakhs. The market for ice cream has been almost lost in this covid season and we have to rebuild the brand afresh after the eradication/curtailing of covid.

8. Key Financial Ratios

The Key Financial Ratios are given below with comparative figures for the previous year:

Key Financial Ratios Method of calculation 2020-21 2019-20
Debtors Turnover Revenue/Debtors 4064.43 times 3496.13 times
Inventory Turnover Revenue/Inventory 9.08 times 17.34 times
Interest Coverage Ratio EBIT/Finance Cost 97.37 times 18.08 times
Current Ratio Current assets/Current liabilities 3.77 times 4.21 times
Debt Equity Ratio Total Liabilities/Shareholders Equity 0.38 times 0.34 times
Operating Profit Margin EBIT/Revenue 9.36 % 1.93 %
Net Profit Margin PAT/Revenue 7.27 % 1.26 %
Return on Net Worth PAT/Shareholders Equity 46.18 % 12.71 %

The reasons for the improvement in profit for the year 2020-21 compared to previous year has been discussed in detail in the earlier paras of this report and that explains the improvement in the ratios that are related to profit.

The stock of raw materials as at the end of the year as on 31-03-2021 was three times that of previous year closing balance. We put all efforts to store more raw material in March, 2021 to avoid plant shut downs as timely supplies were affected by the lock downs and other related issues with Covid -19 and also in anticipation of increase in the raw material prices in future. For this we had hired many godowns to store the extra quantity of material. As a result there is a fall in the inventory turnover.

9. Industrial Relation

The Company has 895 employees on its rolls as on 31.03.2021. The Company is an exception to the adverse labour conditions existing in Kerala. There were no major labour issues, in any of the Units of the Company during the year 2020-21. During the year, long-term settlement with Unions of Irinjalakuda and Palakkad Units are completed. Further, the long-term settlement with Unions of Vedagiri Unit for revision of their remuneration effective from 01.04.2020 has recently concluded. The long term settlement with the Unions of Koratty Unit from 01.01.2020 is expected to be settled shortly. The long-term settlements with Unions of Swaminathapuram Unit effective from 01.05.2020 is due and will be taken up by Management shortly after subsidising the second wave of Covid -19 as it requires discussions across the table. Further in the year 2021-22, the long term settlements with unions of Konikkara Unit is due from 01.06.2021 and that of Thalayuthu Unit from 01.08.2021. The management continues to maintain cordial industrial relation with all the employees of the Company and is attending to their grievances with an open mind.

10. Caution

The views and statements expressed or implied in the Management Discussion and Analysis are based on the current available information, experience and our own judgement. There could be possibilities for alteration of situations. The Companys actual performance may differ as a result of unforeseen events on which the management has no direct control.

By Order of the Board
Mr. Jose John
Irinjalakuda (DIN : 01797056)
June 30, 2021 Chairman