L T Foods Ltd Management Discussions.

Economic Overview

Low commodity prices, low inflation rates, tepid growth in advanced economies and geopolitical uncertainties, continue keep the Global Economys growth in check. According to The International Monetary Fund (IMF), the Global Economy grew by 3.1% in 2016, with expectations for it to improve to 3.4% in 2017.

Despite these tough global conditions, the Indian economys expansion has been noteworthy. Indias GDP grew at 7.1% as opposed to 8% in 2015-16. However, this decline in growth was exacerbated by the shrinking manufacturing sector, the decline in budgetary capital expenditure and the temporary drag from demonetisation. Despite these challenges, in relative terms

India will still be one of the fastest growing large economies in the world.

Looking forward into FY2018, declining borrowing costs; the fading impact of demonetisation and economic dividends from the introduction of the new Goods & Services Tax, are expected to further stimulate private consumption and the demand for goods and services in general. The introduction of GST is expected to bring in multiple forms of efficiencies within the administrative and logistics aspects of businesses; improve the compliance and governance of companies; and give impetus to further domestic and foreign investments into the economy in general. Due to favourable indicators such as moderate levels of inflation, a reduced current account deficit (CAD), fiscal consolidation, and the transitory impact of demonetisation, the country is currently characterised as a stable macroeconomic situation. Going forward, the Government expects Indias GDP to expand at a growth rate between 6.75-7.5% in 2017-18.

Indian Food Industry

Food and Grocery are the backbone of the Indian retail sector. It is valued at Rs20,000 billion and accounts for over 57% of the total retail market. As per industry reports, this category is expected to grow 3.5x to

Rs71,000 billion by 2025. This growth will be driven by growing disposable income, which will lead to higher spend on food. In addition, increasing awareness, health consciousness and changing lifestyles will increase the share of processed and packaged foods. Cereals, pulses and staples form the largest part of this consumption basket, contributing 38% to the overall sector. Further rice constitutes significant portion of this list. As per various reports, the Indian food processing industry is one of the largest industries in India. It ranks 5th in terms of production, consumption and exports; and accounts for 32% of the countrys total food market. It contributes around 14% of manufacturing Gross Domestic Product (GDP), 13% of Indias exports and 6% of total industrial investment. The organised sector is estimated to account for 58% of Indias total food processing industry. Rice mills account for the largest share of processing units in the organised sector.

Indian Rice Market

Rice is the most important food crop in India, contributing to more than 40% of total food grain production. It is one of the most essential food crops in the world, and a part of the staple diet for nearly half the global population. Over 90% of the global rice output and consumption is concentrated in Asia, where the worlds largest rice producers - China and India - are also the worlds largest rice consumers. Among the several varieties of rice, Basmati is considered to have the most superior product characteristics, making it the most premium rice grain available in the market.

Basmati Rice Market

Basmati Rice contributes 37% of Indias overall exports of rice. India exports 108 lakh MT of rice, of which Basmati contributes 40 lakh MT. However, in value terms, Basmati Rice contributed 56% of the total exports. The domestic basmati rice market is estimated to be around Rs12,000-15,000 crore. Indias rice industry has seen a transformation in the last decade, with growth of branded businesses in the Indian market and a strong impetus to exports. As branded basmati is only 26% of the total basmati rice sold in India, the opportunity for large players to gain market share is abundant. Additionally, consumers are gradually switching towards branded Basmati Rice as they are becoming more quality and health conscious. However, the consumption of basmati as a percentage of total rice consumption is at a comparatively low 2% in India, as opposed to 38% in the Middle East.

Iran and China resumes purchases of Basmati rice

Iran as uplifted the ban on import of Basmati rice and this will give boom to the exports of Basmati.

Another positive development for the rice industry comes from China agreeing to import basmati rice from 14 companies in India, including LT Foods. The opening up of the Chinese market as an export destination is a positive for the Indian basmati rice industry, aiding exporters that are recovering from the recent muted global demand and a correction in prices. According to ICRA, India and China together contribute to around 40% of the global rice production, which is estimated to be around 740 million tonnes of paddy.

Company Overview

The Companys vision is to become a Global Food Company with a focus on basmati and other speciality rices, organic food and convenience rice based products. Our aim is to be admired for our wide range of quality products. Being in the basmati business for decades, the Company is leveraging its existing strengths of brands and distribution. Over the years, it has evolved from being a rice trader in the 1980s, to an emerging Food Company with a growing portfolio of complimentary products. Recently, the Company added organic products, staples, sauces, rice based snacks and fast cooking brown rice to its product portfolio. The Company is a fully integrated entity, present across the entire supply value chain – from production, to processing, to distribution, and to sales. Today, LT Foods has a diversified geographical presence across 65 countries, backed by an established marketing network and market-leading brands.

Strengths of the Business

Brand: LT Foods is home to a number of highly visible and enduring brands, renowned for their taste and quality. One of the topmost selling brand ‘Royal, holds the No. 1 position in the US, while the brand ‘Daawat, which has the largest market share of branded premium rice, enjoys the premier position in India. The Company also leads in other geographies, including the Middle East, Australia, and Israel among others.

Market share: While the industry is dominated by unorganised players, LT Foods has a leading market share of 22% in Indias rural and urban markets, with 19% market share within the fast growing modern-trade segment and 35% share in the premium segment. Within the food service category, the Company is ranked as the No. 1 supplier amongst the premium hotels and restaurants, with over 50% share in this segment.

Strong management team: While promoters remain closely involved, preserving the heritage and culture of the organisation, the business is strongly steered and navigated by a highly experienced and professional management team. In addition, its strong advisory team is also helping the organisation to drive its strategic agendas for future growth of the Company.

Strong distribution network in India: With an access to over 1,50,000 traditional retail outlets, and 3,000+ wholesalers, The Company is also associated with 2100+ modern trade stores, including 600+ hypermarkets, 35+ super markets and 1500+ mini markets.

Global presence: LT Foods has a global footprint, selling their flagship basmati rice brands – Royal and Daawat, into 65 countries. Further, LT Foods has dedicated network to expand its global reach. The Companys established onground presence in the US, Europe and Middle East is helping LT Foods to unlock the full potential of these territories. In addition, the Companys other product brand such as ecoLife and Devaaya are being strongly appreciated globally.

Enduring relationships: The Company enjoys long-term partnerships and relationships with farmers for procuring paddy. Regular and on-going engagement by the Company with farmers has resulted in harvest yields improving year after year. LT Foods continuously imparts education on sustainable farming practices, provides farmers with technical assistance and promotes the use of sound agriculture technologies.

Integrated Player: LT Foods has an integrated business model spanning across the entire rice value chain – right from farm to fork. The supply chain includes production, processing, distribution, and sales. Furthermore, the Companys expertise in paddy procurement and its state-of-the-art manufacturing facilities adds to its competence.

Food Safety: LT Foods is renowned for its stringent practices towards food safety. Strict quality protocol and procedural guidelines are followed across its manufacturing facilities.

Building Future Growth Drivers

Widening Reach through Inorganic Route

‘Gold Seal Indus Valley and ‘Rozana brands: LT Foods recently acquired HULs branded rice businesses, ‘Gold Seal Indus Valley and ‘Rozana. These acquisitions have strengthened the Companys position within the Middle-East markets, and marks LT Foods entry into specific markets of Qatar, Oman, and Bahrain. They also reinforced the Companys existing presence in Saudi Arabia, UAE, and Kuwait. Furthermore, these acquisitions have broadened the Companys basket of offerings, and expanded its distribution reach.

817 Elephant Brand: LT Foods acquired the rice brand ‘817 Elephant from the company Deva Singh Sham Singh (DSSS). This acquisition has further strengthened the Companys presence in Canada, USA, Australia, and Israel.

LT Foods has successfully strengthened its brand portfolio through these acquisitions. These brands are having a positive synergistic effect on the overall business of the Company. During the year, the performance for all the three brands has been in line with the Companys expectations.

Widening Reach through Joint Ventures (JV)

JV with Future Consumer: LT Foods entered into a JV with Future Consumer for promising opportunities to manufacture, regional rice. LT Foods acquired a 50% stake in Genoa Rice Mills, a Future Consumer company, which trades in ‘Sona Masoori – a regional South Indian rice. The Sona Masoori rice under Daawat brand has been successfully launched and is performing well in their respective target markets.

JV with Japanese Snack Food major Kameda: During the year, LT Foods has entered into a JV with KAMEDA SEIKA, of Japan, to manufacture and market rice-based snacks in India. KAMEDA is the global leader in rice based snacks, with a market share of 30% in Japan, and a prominent presence in the gluten free cracker market in the USA. The JV will receive assistance from Kameda in technical matters relating to manufacturing, _avour development, and package design. Kameda will also lend its experience to LT Foods for marketing rice- based snacks globally. The large and expanding urban middle-class in India are ready for a healthy and tasty alternative to fried potatoes and wheat- based snacks. Growing health awareness and the focus on wellness, are expected to drive the growth of this product category. Furthermore, a detailed consumer research has been undertaken and post test runs, the Company expects to launch a range of rice based snacks by the end of 2018.

Organic growth through Rotterdam Plant

Expanding the product portfolio and global geographical reach are central to LT Foods business plans. With this objective, the

Company has incorporated a subsidiary in UK, and has set up a state-of-the-art manufacturing facility in Rotterdam, Netherlands. The facility is being built on 12,000 sq. mtrs of land. This new facility, along with the acquisition of the iconic brand ‘817 Elephant, shall further advance LT Foods foothold in European markets.

Our Business Verticals

LT Foods is an emerging a Global Food Company with a focus on basmati and other speciality rices, organic and value added products. To accomplish this objective, the Company has successfully undertaken several strategic initiatives to venture into complementary and synergic businesses, by leveraging newly acquired and existing brands and its strong distribution network. To create focus on improving the performance and enhance competitiveness of each business, the Company functions through five separate and distinct verticals.

Consumer Business

Brand Royal

LT Foods brand ‘Royal holds the No. 1 position in the premium segment, with more than 40% of the market share in the US branded basmati segment. The brands product portfolio consists of Basmati rice, Jasmine rice, Arborio rice, wheat _our, and _avoured rice. LT Foods has systematically been leveraging the brands equity and distribution network, to expand its product portfolio in the US market. Under the brand ‘Royal Ethnic, the international line - the Company introduced ‘Royal Staples. The products launched include – Besan, Sooji, Poha, Maida, and Daliya.

Brand Daawat

‘Daawat is the flagship brand with a legacy of over 30 years. This premium quality basmati rice is the leading brand within India, with 20% overall market share, and more than 35% share in the premium segment. This flagship brand is also quickly gaining market share in other markets including Europe, the Middle East, and Australia. ‘Daawat is the first rice brand to enjoy high visibility with help of celebrity endorsements across India. The TV Commercials feature renowned actor Amitabh Bachchan and celebrated Chef Sanjeev Kapoor, who resonate well with consumers.

Growing Portfolio of Brands

Within the Consumer business vertical, the Company has been adding new brands to cater to the broader needs of the segment. The Company expanded its reach and diversified the brand product categories through the inorganic route as well. The details are mentioned below:

y LT Foods acquired premium Basmati rice brand ‘817 Elephant to strengthen its existing presence in countries like US, Canada, and in the Middle East. y It acquired HULs branded rice business, including the ‘Gold Seal Indus Valley and ‘Rozana brands. This enlarged the Companys basket of goods, and provided access to HULs established distribution network.

The Companys revenue from the branded business stood at c. Rs 1,900 crore and it contributed c.60% to the overall top line. This business has been growing at a 5-year CAGR of 16%.

Strategic Private Label Business

Contributing 27% to the overall revenues, this business vertical deals with large institutional customers. Within this vertical, the Company has long standing relationships with customers of repute. This segment also helps the Company to strengthen its operational processes and increase the bar of quality assurance in line with the stringent requirements from leading corporate customers.

Organic Business

Nature Bio-Foods Ltd (NBF) is a wholly owned subsidiary of LT Foods dedicated primarily to its organic business. The segment has continually been following its growth trajectory since its formation. The orgnaic business have been contributing to the Companys success story by creating one of the worlds largest and the most integrated and sustainble orgnaic food supply chains right from the farm to fork. This business has been one of the fastest growing segments in the Company, growing at CAGR 44% from FY2012 to FY2017, and has contributed Rs 240 crore to the top-line in FY2017.

Its Certified Organic groceries range includes Basmati and Non-basmati rice, pulses, oil seeds, cereal grains, spices, nuts, fruits and vegetables. Nature Bio-Foods

Ltd has one of the largest procurement ecosystems for organic foods, that are sourced from approximately 80,000 farmers, cultivating c.115,000 ha of land (8% of the total certified organic land of India) across 15 states.

Amongst the products, Organic pulses and Non-Basmati Rice category were the major contributors to the business growth, during the year. The Company added a new product - Organic Rice Syrup, which was successfully exported to New Zealand.

The Companys dedicated organic brand ecoLife was introduced in USA and India. The brand is equipped with the certifications from various reputable national and international certification agencies, including ECO-CERT, the Control Union Certification, BIO-CERT, ONE-CERT, NPOP Standard of India, EU Organic Standard, USDAS NOP, and Bio-Suisse Standard of Switzerland. These certifications ensure that organic products are grown to go directly from the farm to the family.

In the domestic market, besides ecoLife branded sales, B2B business opportunities are being explored. The first successful tie up has happened to supply the ingredients Amaranth for one of the popular brands ‘Paper Boat which is not only certified Organic but Fairtrade as well. Similar tie up with other brands are being explored.

Nature Bio-Foods Ltd has topped in the export of Organic Grains in India in in The Organic food export from India is on the rise and the value realised in FY 2016-17 stood at USD 370 Million. The contribution of Nature Bio-Foods Ltd in the overall organic food export from India remained significant with a share of 10% (Source: APEDA).

International Trading Business

LT Foods has over 50 years legacy of experience in the international trading of non-basmati rice. The Company continues to support such transactions, owing to its established network, strong familiarity with the business and the relatively low cost of doing business. While now a less significant part of the Companys total business, the vertical continues to contribute meaningfully to the Companys EBITDA and towards the partial recovery of its overheads.

Value Added Products

LT Foods vertical focusing on value Added Products have successfully capitalised on the existing brand equity and global distribution network of the Company. Advantaged by higher margins and lower working capital intensity, this business helps to positively contribute towards improving the Companys over all returns on investment (ROI). This vertical caters to the transforming consumer trends by developing innovative products for health conscious and convenience-seeking consumers. These value added products are the outcome of robust backend and R&D infrastructure set-ups of the Company in Bhopal, Indore, Delhi and the USA.

The Company is expanding its product portfolio based on the properties of rice. LT Foods has launched innovative value added products such as fast cooking brown rice, convenience sauces, and blend of white and brown rice that offers taste and health to the Consumer.

Daawat is always known as the most innovative brand in the category. With changing trends and lifestyles in the consumer segment, the Company launched additional innovative products during FY 2018. A line of seven _avourful Daawat Rice Saute Sauces - Tamarind, Lemon Rice, Hot Garlic, Manchurian, Sweet Sa_ron Pista, Cranberry, and Methi were launched. These products are currently available at modern retail stores across Mumbai and Bangalore. Daawat Fast Cooking Brown Basmati Rice has also been launched across India and this segment is growing at a CAGR of more than 40% over the last three years. The Company also introduced Daawat Rozana Gold Plus, a brand that offers a perfect blend of taste and health, both in one pack. Rozana Gold Plus offers a unique mix of 80% Rozana basmati rice and 20% Daawat brown basmati Rice. It offers great taste of aromatic and _avoursome white basmati rice along with the goodness of _bre rich brown Rice in one pack. Rozana Gold Plus was launched in April 2017 and is presently available in over 30,000 outlets across India.

‘Devaaya caters to the mid-price segment in India, and has expanded its presence in the US and the Middle East too. It offers branded Basmati rice, with staples such as wheat _our, refined _our, fiattened rice, chickpea _our, and semolina. Based on the proposition of ‘Tested Safe, the product is tested for and is free from over 500 types of impurities. The Devaaya staples product range is expected to give steady growth as more and more consumers switch to this brand for being both clean and safe. During the year, under the Devaaya portfolio, the Company added Mongra Basmati, Mini Mongra Basmati, and Mini Dubar Basmati Rice. Devaaya staples are now available in 10 countries apart from India, and are witnessing a growing consumer acceptance.

Other Strategic Initiatives

Modern Wheat Silos: Madhya Pradesh Warehousing & logistics Corporation (MPWLC) had awarded LT Foods two projects in Bhopal and Indore in [year], for the construction, operation, and maintenance (DBFOT) of modern wheat silos, for a period of 30 years, under the PPP mode. All operations in the silos for the handling, preservation, and discharge of wheat are fully automated and computer controlled. This increases the accuracy of the weighing process, helping save farmers time and ensuring only the good quality wheat is accepted for storage.

The Company has been awarded projects in the past as well. Of the 10 similar projects awarded in 2014, only those given to LT Foods were completed within the allotted timeframe. .

Fortified Rice: LT Foods is working with DSM Nutritional products to introduce fortified rice as a new offering in the nutritional range. This venture will strengthen the Companys presence in the nutritional product segment, where it currently offers products such as brown basmati rice. The target audience of new product is every household in general, specifically young children and discerning mothers.

A sophisticated and fully certified food plant has been set up in Mandideep, Bhopal. It has all the modern facilities, and is equipped with a state-of-the-art Quality Laboratory. The lab houses are capable of mycotoxin testing, product and environmental microbiology, as well as in-process quality monitoring and checking. The unit is a FSSC 22000 certified facility and approved by USFDA and certified for Kosher and Halal products.

Pesticide Controlled Farming: With the aim of gaining a competitive advantage, LT Foods launched an ambitious programme to work with farmers in basmati growing areas to encourage the production of paddy in conformity with pesticide residue regulations. This programme is being implemented with the support of the Indian Council of Agriculture Research (ICAR) for Madhya Pradesh and Rallis India, Haryana. As a part of the programme, the Company intends to provide strong IT support to farmers and field o_cials who collect, transmit, and analyse data. This will help to provide them with predictive recommendations, in an attempt to remove or reduce the uncertainty associated with farming.

An additional component of the farmer programme is to encourage Sustainable Rice Production (SRP) methods to optimise water usage and minimise the nutrient intake into the soil, as well as worker health and safety programmes. LT Foods is now a member of the International Sustainable Rice Programme, which helps to preserve the environment and increases farmer incomes. During the year, SRP was launched in Haryana for 50 farmers, and the results were subjected to an external audit in which LT Foods scored favourably. Going forward, it is intended to enlarge the coverage of this program in Haryana and Madhya Pradesh.

MARS Ambassador Programme: LT Foods organised a one-week familiarisation programme for the middle level managers Mars Inc., its key buyer in Europe and USA. Ten managers spent a week in the villages of Haryana, spreading the message of safe pesticide usage through street plays and music. LT Foods will continue to organise other similar programmes in the coming years as well.

Our Business Drivers

1.Branding and Distribution

LT Foods is committed to provide modern contemporary home-makers a range of innovative cooking ingredient products. These products are aimed at enabling convenience and creating a joyful meal experience for family. The Company has an overarching brand strategy to position itself as a premium, contemporary, high quality and innovative product manufacturer. The Companys association with Amitabh Bachchan and Sanjeev Kapoor, has reinforced LT Foods as a premium and quality driven brand respectively. In addition, during the year, the Company engaged on several above the line marketing initiatives for its innovative Quick Cooking Brown rice. This has helped the Company to build its innovative and health brand equity. In India, LT Foods has widespread operations in both, retail and modern trade, reaching 93% of the towns with a population of over 200,000. It has partnerships with more than 1,50,000 retail outlets and 3,000+ wholesalers. The Company has its reach in over 2100+ modern trade stores, including 600+ hypermarkets, 35+ super markets and 1500+ mini markets. LT Foods has a separate team for institutional sales, servicing over 6,000 outlets, which gives it a commanding share of over 50% in the institutional business.

At trade level, LT Foods constantly invested in building relationship with its business partners through various loyalty programmes. Under the modern retail chain, it participated in various annual events, to leverage upon the consumer footfalls, which can be translated to purchase. Globally, the Company has a well-entrenched sales network in USA, Europe and, West Asia. LT Foods is steadily expanding its international presence to over 65 countries by deploying differentiated growth strategies. The Company has recently acquired brands such as ‘Gold seal in Indus Valley, Rozana, as well as ‘817 Elephant. These brands offer LT Foods a pre-established entry into specific global markets, which further intensiries the Companys channel network. It is also working towards expanding its distribution reach in India, the US, Middle East and Europe. The Company has a dedicated team, working on strengthening the Companys presence in Africa, to unlock the full potential of the market.

2. Consistent Quality

LT Foods is committed to provide safe and superior quality products to its valued customers. By way of stringent quality assurance norms, and state-of-the-art technology with a high degree of automation, the Company ensures robust quality control. Critical tests are performed at each stage of manufacturing, and are supplemented by rigorous QC programs, to ensure the consistent high quality of the final product. The Companys unwavering focus on quality and innovation, backed by deep consumer insights, world-class R&D, and an efficient and responsive supply chain, will further strengthen its leadership position.

Certification bodies such as SGS, Intertek, Eurorins and BV among others regularly audit the Company. In addition, retail customers both from India and overseas markets also conduct regularly audits. This ensures that the Companys adherence and compliance to the standards are of the highest standard and maintained at all times. The Company propagates globally accepted and permitted farming methods for the cultivation Basmati. The Companys Integrated Pest Management Program works to prevent and control any pest problems. In order to mitigate any food safety risks, critical control points are established not just at the farm level, but across multiple stages until the product is dispatched from the factory.

Quality certifications
BAHALGARH-SONEPAT
ISO 9001: 2008 (Quality Mangement System)
ISO 14000: 2004 (Environment Management System)
SQF: (Safe Quality for Food Safety)
BRC: (Global Standard for Food Safety)
IFS: (Food Safety)
NABL: (Laboratory Management System)
SA: 8000(Social Standard)
Halal
Kosher Certification: (OU)
fssc 22000: (Food Safety Standard)

NATURE BIO-FOODS LTD. (ORGANIC DIVISION) & DAAWAT FOODS LTD, KA-MASPUR, SONEPAT

NOP (National Organic Programmer) of USFDA
Organic Standard
NPOP (National Programme for Organic Production)
EEC 837:2007 (Europe Organic Standard)
IFS (Food Safety)
Kosher Certification from jk
kosher
Rice Plant - fssc 2000: 2010

DAAWAT FOODS LTD, MANDIDEEP, BHOPAL(MP)

Food Plant FSSC 22000: 2010
Grain Plant BRC: Global Standard for Food Safety
Grain Plant Fssc 22000: 2010

LT FOODS LTD. VARPAL,AMRITSAR

FSSC 22000: 2010 (Inclusive ISO-22000 & ISO/TS 22002-1)

BRC Global Standard for Food Safety version-6

3. Strong Infrastructure

LT Foods has five state-of-the-art manufacturing units to produce high-quality food products in India. These are located in Haryana, Punjab, and Madhya Pradesh, with a combined milling capacity of 82 tonnes per hour (TPH). During the year, the Company achieved 79% of its processing capacity. The Current Packaging capacity in the Bahalgarh unit stood at 2,04,000 MT per annum, with a capacity utilisation of 94%, serving 1,91,000 MT of the annual demand. The annual milling capacity of the Bahalgarh unit is 2,50,000 MT, out of which 68% of the capacity was utilised during FY2017.

To cater to the increasing demand, packaging capacities were enhanced during FY2017. The existing packing section in Bahalgarh was restructured to enhance the packaging capacity by 24,000 MT per annum. The unit was

State-of-the-art Manufacturing Facilities

Sonepat (Bahalgarh) Sonepat (Kamaspur) Bhopal Amritsar Varpal
Rice Capacity 33 5 (Organic) 26 6 12
(TPH)
Key Products Raw rice Organic rice, snack Rice, plain chips, chips seasoning, rice/wheat _our, brown rice Rice, parboiled rice Rice (golden, creamy, boiled, parboiled and raw)
Accreditation ISO, SQF, BRC, SA, Kosher, OU, Halal ISO, NOP, NPOP, EEC and Kosher FSSC, Halal, Kosher and BRC ISO FSSC and BRC
USP First to have com- plete storage in 1 MT bags 100% organic facility with cold and CO2 treatment First to get FSSC 22000 certification Fully integrated and automated facility

also renovated to meet the industry standards in terms of Food Safety and Hygiene. Investments were also made towards enhancing the _our capacity (from 1 TPH to 2 TPH) and setting up a CO2 treatment plant in Bhopal. The annual milling capacity of Bhopal is 1,80,000 MT, of which 85% of the capacity was utilised during the year.

Integrated business model across the value chain

LT Foods has an integrated business model and strong relationships with farmers. This model spans across the entire rice value chain – right from farm to fork. The Companys expertise in paddy procurement and its state-of-the-art manufacturing facilities adds to this advantage. In order to secure the availability of paddy supplies, the Company initiated contract farming since 2006. Under the contact farming mechanism, the Company sells superior quality seeds to the farmers and also provides them with technical knowhow of rice farming.

However, apart from contract farming, the Company purchases majority of paddy capacity from open markets. To ascertain the quality of the paddy procured, the Company has developed a tool for strengthening its paddy procurement process. The Company has a strong procurement network with agents covering mandis across Punjab, Haryana, Madhya Pradesh and Uttar Pradesh. The paddy procured from these mandis go through stringent quality checks at each stage. The Company has a team of over 100 team members to handle the paddy procurement process. Furthermore, the Company has five milling plants with combined capacity of 82 TPH. Domestic packing is carried in all five facilities, while it has three packaging facility in the US.

Asset Light Approach

The Company is gradually moving towards an asset light model. Going forward, LT Foods will steadily outsource the manufacturing of low value items, and utilise its facility for manufacturing value added products. This will help the Company grow its sales volume without any significant expenditure on capacity expansion in the medium to long-term. Taking steps in this direction, the Company has recently entered into a JV with the Future Group, which allows LT Foods to expand its product portfolio while Future Group makes all the required capex investments.

Currently, the Company has utilised 79% of its core capacities, and has the option to continue growing by taking the asset-light model approach of strategically outsourcing from supply partners. It expects that these initiatives and efforts will lead to an improvement in efficiency, therefore resulting in an overall improvement in the EBITDA margin in the near future.

4. People

To achieve successful growth and profitability, the Company relies on its greatest assets - its intellectual capital. The Companys human resource practice revolves around LET: Learning, Empowerment and Togetherness.

Learning and Development

LT Foods values its employees and invests towards capability building with a long-term orientation. The Company has been building its skill-sets by adding new competences through hiring, grooming of internal talent and functional capability building. The Companys learning and development initiatives are geared towards building leadership pipeline and to enhance organisational pro_ciency to compete in the market place. The learning and development initiatives offered during FY 2017 were aligned to this objective. The on-going core programs were fortified to address the emerging capability requirements. In addition, customised programs were undertaken to meet the needs of businesses, aimed at building specific capabilities at various levels of the organisation.

Furthermore, the Companys development plans continued its focus on 3E development model of Experience, Exposure and Education. As on 31st March, 2017, the Company has more than 1000 employees.

Core Values

The Companys value-system guides its actions and behaviour in everyday business, which creates a unique culture at LT Foods. These values are the DNA of the organisation, which are ingrained in every member across hierarchies and geographies.

Engagement

At LT Foods, employees are encouraged to have Fun at Work. A number of employee engagement events are conducted to promote collaborative and conducive work environment. All major festivals are celebrated with enthusiasm across our plants and offices, to bring people together.

Role Goal Clarity

The Companys approach has transitioned from traditional manufacturing set-up, to an empowering and enriching work environment. Cascading of organisational goals using the Intranet driven PMS called PRIDE, helps to bring in role clarity and alignment at all levels. To create a sense of empowerment, it provides the employees with opportunities to explore career mobility options within the organisation. At LT Foods, the elements of LIFE, both from a business perspective and people perspective are interwoven closely with its core values of BIPCO (Business Ethics, Innovation, Passion of Excellence, Customer centricity and Ownership).

5. Information Technology

The Company is enhancing the use of Information Technology tools and applications in their business processes to become more competitive, efficient and effective. Its robust IT infrastructure acts as a growth enabler and helps achieve cost leadership, process orientation and higher productivity. LT Foods is increasingly using IT as part of its strategic planning process and tactical execution of their business strategies. Its goal is to use Information Technology to create the most efficient and effective link between suppliers and consumers. Better IT applications are helping us reach target market segments more cost effectively, track data, improve productivity levels and maximise our returns on investment.

The Company has made investments towards various modules of SAP software, in line with the changing scenario. These modules are being implemented across the organisation.

6. Research and Development

LT Foods has a formidable track record in developing new products. The Companys research and development programme are central to expanding value to its products, and to keeping aligned to new global _avour trends and technologies. The R&D team is dedicated towards deepening the Companys pipeline of products focused on consumers looking for health and convenient options.

During FY2017, LT Foods launched Saut Sauces with regional recipes to bring convenience and ease to the preparation of tasteful rice dishes. LT Foods Americas (the wholly owned North America subsidiary) has been expanding its ecoLife Brand of Organic products in North America. New products like Grains, Ancient Grains, Lentils, and Beans, were developed in organic format and launched with major retailers in USA. Going forward, five new organic ‘Ready to Heat retorted pouch products are planned to be launched under the ecoLife banner. Furthermore, new retort processing capability is being added at Houston site in North America, by LT Foods Americas. During FY2017, LT Foods transformed itself from a company known for its rice, to one known for its range of food solutions. The Company believes that delivering the consumers needs of tomorrow, today, will keep LT Foods on track of delivering sustainable value creation.

Consolidated Financial Performance Overview

PROFIT AND LOSS SUMMARY

(Rs In Lakhs)
FY 2017 FY 2016
Revenue from operations 3,32,210.96 2,97,962.61
Operating EBITDA 40,339.57 36,281.34
Depreciation and amortisation expense 5,415.67 5,151.93
Interest Expense 15,455.02 14,780.20
Other expenses 39,652.95 42,221.90
Profit before prior period items, exceptional items and tax 19,468.88 16,349.21
Profit Before Tax 19,308.58 11954.79
Tax Expense 6,439.37 4,707.29
Profit After Tax 12,869.21 7,247.50

The Revenue of the Company increased to Rs 3,32,211 lakhs, as against Rs 2,97,963 lakhs in the previous year, up by 11.49%

The operating EBITDA of the Company increased to Rs 40,339 lakhs, as against Rs 36,281 lakhs in the previous year, up by 11.18%

The Profit before prior period items, exceptional items and tax for the Company increased to Rs19,469 lakhs, as against Rs 16,349 lakhs in the previous year, up by 19%

The Profit After Tax (PAT) increases to Rs 12,869 lakhs, as against Rs 10,196 lakhs (Normalized) in the previous year, up by 26% (Normalized)

Future Outlook

LT Foods is taking concrete steps to match the evolving consumer trends; and emerge as a Global Food Company with a focus on basmati and other speciality rices, organic and value added products. The Company leveraged its existing strength of brands and distribution to expand its products portfolio and create synergistic businesses. To enhance focus and deliver sustained growth in each of its trades, the Company has segregated its business into five business verticals. This, it believes, will continue to keep LT Foods on the right track to generate sustainable and value accretive growth. Going forward, the Company will continue to deepen its presence in India and advanced markets, and established access to new high-potential markets. Its cutting-edge research and development will enable the introduction of differentiated products. Moving ahead, the Company endeavours to augment its product portfolio with the successful launch of value-added staples and organic products, and strengthen its operational efficiencies, to keep improving its margins.

Risk Management

A corporate is exposed to multiple risks owing to various business transactions it undertakes. The risks are classified broadly into two categories – external and internal risks. External risks can be attributed to the various macroeconomic risks faced by the Company like the slowdown of economic activity, unfavourable exchange rate fluctuations, a change in the regulatory framework, as well as climatic risks. The internal risks comprise of operational risks, raw material uncertainty, human capital risks, and financial risks. The Company has a strong risk management model in place, which identifies the key external and internal risks associated with the Company. After assessing their impact on LT Foods, mitigation measures are evaluated and suitable changes are made, keeping the evolving business scenarios in mind.

Internal Audit Control System

The Company has a well-established system of internal controls and procedures, which commensurate with the size and nature of its operations. A regular Internal Audit of operations, establishments and stockyards are conducted by leading Internal Audit Firms, in order to ensure that the set processes are properly adhered to.

The Audit Committee reviews the reports of the Internal Auditors and monitors the effectiveness and operational efficiency of these internal control systems. The Audit Committee gives valuable suggestions for the improvement of the Companys business processes, systems, and internal controls. The annual internal audit plans are prepared by Internal Auditors in consultation with the Audit Committee. The Company also implemented the worlds leading ERP system - SAP - throughout the organisation, which focuses the approach towards automating the internal control environment.

Cautionary Statement

This document contains statements about expected future events, as well as the financial and operating results of LT Foods Limited, which are forward looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. They face the risk that the assumptions, predictions, and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause the assumptions and actual future results or events to differ from those expressed. Accordingly, this document is subject to the disclaimer and qualified in its entirely by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of LT Foods Limiteds Annual Report, 2016-17.