Kwality Ltd Management Discussions

DAIRY INDUSTRY STRUCTURE AND DEVELOPMENT:

The Indian dairy industry is projected to grow at a CAGR of 15 per cent year-on-year to reach INR 9 .4 trillion by 2020. With India already being the largest dairy producer in the world, its considerable growth can be attributed to the value creation and addition that has been characteristic of this industry. Further disrupting the industry, we saw large-scale technological integration as new-age start-ups began to flourish in the country. These start-ups redefined access to milk by delivering it straight to the consumers doorstep.

Dairy activities form an essential part of the rural Indian economy, serving as an important source of employment and income . India also has the largest bovine population in the world. However, the milk production per animal is significantly low as compared to the other major dairy producers . According to the latest report, the dairy market in India reached a value of INR 10,540 Billion in 2019 .

OUTLOOK

Along with offering profitable business opportunities, the dairy industry in India serves as a tool of socio-economic development . Keeping this in view, the Government of India has introduced various schemes and initiatives aimed at the development of the dairy sector in the country. On the other hand, the private participation in the Indian dairy sector has also increased over the past few years . Both national and international players are entering the dairy industry, attracted by the size and potential of the Indian market. The focus is being given to value-added products such as cheese, yogurt, probiotic drinks, etc. They are also introducing innovative products keeping in mind the specific requirements of the Indian consumers . These players are also improving their milk procurement network which is further facilitating the development of the dairy industry in India. Looking forward, the Indian dairy market is expected to exhibit strong growth during the next five years .

COMPANY AND MANUFACTURING UNITS AT A GLANCE:

Kwality Limited is a public limited company, listed on BSE and NSE, was incorporated on August 21,1992, under the Companies Act, 1956 with the name Kwality Dairy (India) Limited, which name was later on changed to Kwality Limited .

The Company is having two owned milk processing units in UP and Haryana. Companys Softa manufacturing plant at Palwal (Haryana) is a state of Art plant, equipped with all modern techniques .

The Company believes that Customer satisfaction is supreme.

SEGMENT WISE PERFORMANCE:

The Company deals only in one segment i. e. manufacturing of Dairy Products, hence, accordingly there is only single reportable segment. PERFORMANCE HIGHLIGHTS:

(Rs in Crores)

CONSOLIDATED FINANCIAL OVERVIEW:

During FY 2019-20, the Company recorded revenue of Rs .151.32 Cr, EBITDA of Rs . (94.10) Cr. and PAT of Rs . (144.43) Cr. During the previous FY 2018-19, the Company registered revenue of Rs . 2134.69 Cr. , EBITDA of Rs . (2888.58) Cr. and PAT of Rs . (3216 .15) Cr.

COMPANYS STRENGTHS & OPPORTUNITIES:

1. Strong brand with distribution network in key markets

2. Modern production facilities and emphasis on quality 3 . Differentiated product portfolio

4. The Company has received several quality certifications for our products and production facilities.

5 . Skilled and Experienced Management Team

6. Focus on research and development to distinguish products from its key competitors.

The company is endeavouring to progress on the defined path of business transformation and come out of present financial crunch. CHALLENGES FOR DAIRY SECTOR:

1. Competitiveness, cost of production, productivity of animals etc .

2. Production, processing and marketing infrastructure.

3 . Focus on buffalo milk based speciality.

4. Import of value-added products and export of lower value products.

WHOLLY -OWNED SUBSIDIARY:

To enhance International presence, the Company has one wholly owned Subsidiary Kwality Dairy Products FZE, located in Free Trade Zone of UAE., engaged in trading of Milk Products and Import and Export of Skimmed and whole milk powder and other derivatives of milk. As the business operations has been closed in phased manner w. e.f July 11,2018, no revenue is earned during the FY 2019-20 with loss of 15.69 Cr.

The trading license of KDPF, which has discontinued the business during the previous financial years, has expired on 30 October 2019. Consequently, KDPF will no longer be able to carry out any business activities.

RISK & CONCERNS:

We believe that great things never come from comfort zones and so, we are constantly working on way to do things better every single moment. The Company is impacted by the change in the business environment both within the Country and globally and this necessitates continues evaluation . In the current scenario of competitive business environment and open economy across the world, no Company can imagine risk free business environment. Your Company is proactively taken steps to identify and monitor the risk and make efforts to mitigate significant risks that may affected .

The Ministry of home affair vide order No. 40-3/2020-DM-I(A) dated 24 March 2020 exempted manufacturing units of essential commodities from nationwide lockdown imposed on account of Covid-19 pandemic. The Company believes that thus far, there is no significant impact of Covid-19 pandemic on the financial position and performance of the Company. Further, the Company is not expecting any significant change in estimates as of now as the Company is running the business and operations as usual .

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has adopted the policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

Internal Control System has designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable Accounting Standards . The internal financial controls with reference to the financial statements were adequate and operating effectively.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT

At the core of our success are our employees .We look our employees as our most valuable assets and have been working towards keeping them motivated and enthused. We believe the motivated and enthused employees are more satisfied with their jobs and tasks, and more productive and committed .

The Company is under "Corporate Insolvency Resolution Process" and continuing as going concern under constrained resources and sustaining faith of employees on future of the company. As on March 31,2020, the Company had 218 number of employees.

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF

Due to loss during the financial year there is decrease in net worth by Rs . 128 .18 cr.

CAUTIONARY STATEMENT:

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward looking within the meaning of applicable laws and regulations. Actual results may vary from those expressed or implied.