L T Foods Ltd Management Discussions.

Economic Review

Global Economy

The global economy continued to maintain a slow growth trajectory and recorded an estimated growth rate of 2.9% in 2019, its slowest pace since the global financial crisis of 2008. Persistent trade uncertainties between the US and China, idiosyncratic factors leading to macroeconomic stress in several emerging market economies, and structural factors such as low productivity and an aging demography in advanced economies further contributed to the decline of an ailing economy.

Rising trade barriers and associated uncertainty weighed heavily on business sentiment and activity, globally. In advanced economies and China specifically, these developments magnified cyclical and structural slowdowns. Tighter financial conditions in Argentina, geopolitical tensions in Iran, and social unrest in Venezuela, Libya, and Yemen worsened macroeconomic stress and caused significant stress to overall global economic growth. Towards the end of FY19-20, the COVID-19 pandemic wreaked havoc and disrupted global supply chains and international trade. As earnings dipped significantly, pay cuts, job loss and hiring freeze ensued in the aftermath. However, central banks around the world reacted aggressively and introduced favourable fiscal policies and stimulus packages to revive and restore confidence.

Outlook

The COVID-19 pandemic compelled countries around the world to impose stringent protective measures. It not only brought economic activity to a standstill but, also hampered growth globally. Given the grim economic outlook, the economy is projected to contract by 4.9% in 2020. Macroeconomic policy stimulus in the most exposed economies will help to restore confidence as the effects of the virus outbreak and supply-side disruptions fade in advanced economies. Low interest rates should help cushion demand, although the impact of recent and projected changes in policy interest rates on activity is likely to be modest in the advanced economies.

Indian Economy

In FY 2019-20, Indias GDP stood at 4.2%, as it witnessed persistent decline throughout the year. In Q1 FY 19-20, it registered growth of 5.2%, while in Q4 it further slipped to 3.1%. A synchronised global slowdown, plummeting domestic automobile sales, flattening of core sector growth and declining investment in construction and infrastructure sectors were primarily responsible for the muted growth of the Indian economy. Factors like declining credit disbursements, deceleration in consumption patterns and reduced demand, significantly affected the economy.

Outlook

As the impact of the coronavirus outbreak becomes profound and widespread in FY20-21, economic outlook is severely impaired.

The economy is expected contract by 4.5% in fiscal 201920. The nationwide lockdown posed massive challenges to business continuity and altered the economic forecast quite frequently. Import restrictions on key raw materials from China is expected to affect manufacturing processes and core industries. However, short-term relief measures announced by the Government of India (GoI) and the RBI are expected to decelerate the steep fall and restore investor confidence. Economic relief packages, a combination of moratoriums and liquidity boosting measures is expected to revive economic growth to 6.0% in FY 2021-22.

Industry Overview

Consumer Food

The consumer food market continues to evolve at a rapid scale. The importance of healthier and sustainable food ecosystem continues to find increasing importance today, than it was ever before. Within the consumer food space, the global rice market is valued at approximately $275 billion and is projected to grow at a CAGR of 0.88% during 201924.2 Rice is the staple food for more than half of the worlds population and more than 500 million metric ton of rice is produced annually, across the globe. It is the second-most important cereal crop after maize and ensures food security for numerous developing countries in East Asia and the Southeast Asian regions, with India being among the leading rice producers in the world. Global consumption of rice has increased on year-on-year basis, especially of basmati and regional rice. Of the total global rice industry, Basmati accounts for around 2.1%, valued at $9 billion and is projected to grow at a CAGR of 7% in the next 4 years and is estimated to reach at $11 billion. The consumption of Basmati rice is primarily led by the Middle East, accounting for about 45% of the global consumption of Basmati Rice.

At present, India contributes to about 80% of the worlds share of Basmati rice production. The superior taste and aroma of basmati rice remains a key driver for its increasing preference across diverse consumer groups. In India, other factors such as rising disposable income, desire to consume superior quality food drives growth in the basmati rice market.

Organic Food and Ingredient industry

Organic food is grown in a natural and chemical-free environment, without the use of preservatives or additives. The organic food market is expected to grow at a CAGR of 16.4% between 2014 and 2022, to reach $327.6 billion.4 Increasing health awareness, higher disposable income and its eco-friendly nature augurs demand for this segment. Moreover, rising awareness about the advantages of organic food and government impetus to develop this sector continues to drive reliable and qualitative growth for organic food.

Asia is the third-largest market for organic food products and Southeast Asia is experiencing healthy growth of the organic food segment. North America remains the largest market for organic food consumption with multi-channel sales streams. An ageing population, especially in Western Europe and North America, continues to influence food choices and purchasing habits that fulfil the objective of a healthy life.

India is among the largest producers of organic food, with every state in the country chipping in with their contribution towards this sector. Over the last few years, production has

As per a survey conducted by Assocham, around 79% of Indian households today prefer to have instant food due to time constraints improved considerably owing to growing demand for organic products. By 2024, the market is projected to touch $2 billion5

Health & Convenience Segment

Food consumption patterns and preferences are undergoing significant changes. As dietary patterns change, lifestyles evolve and health awareness grows, food habits are undergoing transformations. With growing incidence of lifestyle-related diseases like diabetes, obesity, etc., consumers worldwide are showing an interest in preventive instead of curative lifestyles. As a result, the demand for healthy, nutritious and convenience food has grown manifold. Companies operating in this space, are therefore geared to deliver innovative products to meet changing customer preferences. The Health and wellness foods industry is pegged at around Rs. 10,352 crore3 and is projected to grow at an average rate of 10%.

A notable shift has also been noticed towards an increasing demand for quick cooking, convenience food. Urbanization,a burgeoning working population and a constant rise of nuclear families mandates the requirement for food that can be cooked or prepared almost instantly. As per a survey conducted by Assocham, around 79% of Indian households today prefer to have instant food due to time constraints.

Growing media awareness, higher literacy rates and improved standards of living have created a greater affinity for this extremely useful segment of healthy yet convenience food. Besides, consumers in urban and semiurban areas are drifting gradually towards the consumption of hygienically packaged, fortified Ready-to-Heat & Eat Products. With these factors driving growth, the Convenience Food industry is projected to grow at a CAGR of 6.1% in 2020-22, from its current market value of $25 billion.

Mega trends in the food industry

• Working Population and Urbanization - It is projected that around 45% of the total population of India will dwell in urban zones by 20 306. The increase in urban populace infers development of standard of living. It also leads to lifestyle changes that increase the demand for convenience food and ready- to-cook meals.

• Channel Shift - We witnessed a shift in the consumer space and consumers have moved towards e-commerce platforms. It has facilitated growth in the consumer foods industry. The COVID-19 outbreak has also accelerated growth of Indias e-commerce market, projected to grow at a CAGR of 19.6% between 2019 and 2023 to reach Rs. 7 trillion by 2023.

• Increasing internet penetration - Greater internet penetration backed by low- cost access to the internet has allowed people to learn about the benefits of quality food. Digital literacy has allowed consumers to make an informed decision to take their pick from a wide selection of finest quality products with high hygiene and safety quality levels.

Government Regulations -

The Government of India is keen to promote Organic Farming in the country and has introduced schemes like Paramparagat Krishi Vikas Yojana (PKVY). Under this scheme, 2 lakh hectares have been allocated for organic farming and is estimated to benefit 5 lakh farmers. Additionally, Food Standards and Safety Authority of India (FSSAI), in December 2017, have mandated all organic food to be certified either under NPOP or PGS-India. It has improved confidence in Indian organic food among the international buyers and has increased its demand in international markets.

• Higher Spending Capacity-

According to a research by the India Brand Equity Foundation, the spending capacity of the Indian middle class is expected to double by 2025. With the rise in disposable income and access to credit, the Indian middle class will have a high spending capacity on convenience and branded food products.

• Growing health awareness

- Eating habits have been significantly influenced on account of rising health awareness. People are not only conscious about their consumption patterns but, are also cognizant about the nutrient content of their food. This drives demand for convenient, healthy and safe packaged food.

Consumer Food India Business Overview

LT Foods is one of the leading consumer food companies in India in specialty rice offering Daawat, one of the most renowned brands in the market. The Company offers premium quality basmati rice, regional rice, rice-based snacks, saute sauces and other products on the health and convenience platform. It has established a prominent presence through brands including DAAWAT, Rozana, Chef Secretz and Heritage across different price points. Leveraging its wide distribution network, LT Foods has strenghtened its presence across various trade channels including General Trade, Modern Trade, HORECA and e-commerce.

Performance review

In FY 2019-20, the overall India business volume grew by 5% YoY, from 1,78,400 MT in FY 2018-19 to 1,88,000 MT in the year under review. The revenues grew from Rs. 947 crore in FY 18-19 to Rs. 986 crore in FY 19-20, with realisation levels sustaining at Rs. 52 per kg in FY 19-20. The sustained revenue growth was driven by balanced performance from multi-channels, backed by our widening product portfolio with consistent quality that now caters to a discerning consumer base.

Segment review

Driven by its resilient focus on building a truly coveted brand, the company initiated measures to strengthen its reach and market presence. Daawat, the Companys flagship brand in India, remains one of Indias leading basmati rice brands with a overall market share of 26% and rural market share of 35%. It also enjoys more than 23% market share of basmati rice at grocery stores and above 30% market share in modern trade segment.

The Companys Daawat Quick Cooking Brown Rice - has emerged as the fastest growing product in the new innovations segment. Launched with a clear-focused brand approach, highlighting the unique Dawaat benefit of a genuine quick cooking brown rice, it has garnered significant appreciation from its targeted consumer base.

The introduction of Daawat Sehat in 2019-20 marked another achievement in our legacy of innovations under health segment. Fortified with iron, Vitamins and Folic Acid, this product highlights the Companys undeterred commitment to develop a need based product portfolio.

The Companys regional rice portfolio comprising Sona Masoori and Lachkari was widely accepted by consumers. Currently, it is available only in selected regions but going forward, the Company plans to expand it to other markets as well. The Companys range of saute sauces, available in 5 different variants, also captured a significant market share during the year under review.

Distribution network

The Companys strong distribution network is a testimony to the Companys sustained financial performance, year after year. FY 19-20 was a watershed year for the supply chain and distribution team, as it helped increase LT Foods presence across all channels of trade. LT Foods now serves customers across ~1,18,000 retail outlets, ~7,200 modern trade channels (including hypermarkets, supermarkets, Cash n Carry etc) and all leading e-commerce platforms. The Company also aggressively scaled up its presence in the food service and HoReCa segment, with more than 2000 new accounts comprising restaurants, Biryani chains, Star Hotels and caterers.

Supply Chain

For LT Foods, digitising the supply chain network was one of the major highlights of FY19- 20. The Company has already recorded an improved vehicle turn-around-time to 14 hours from 36 hours, while the loading time to trucks have been improved to 2 hours from 6 hours earlier.

The implementation of advanced automated systems and daily systematic operating procedures review have further streamlined the operations.

The Sales Force automation journey that started two years back is now perfectly aligned to drive efficiencies with data analytics to deliver targeted results. The backward integration of Document Management System (DMS) with SAP has enhanced operations for improved order tracking and inventory visibility. The new Go-To-Market model, that works on selling based replenishment model with automation tools was introduced on pilot basis in FY 2019-20. It has not only resulted in deriving process efficiencies, but also helped achieving faster delivery of products across our distribution network and improve the Return on Investment of shareholders.

Brand review

To strengthen brand presence and recall, the company undertook various marketing initiatives including participation in various food festivals and others events. Branding initiatives like 360-degree marketing and television campaigns were also undertaken to promote Biryani, Pulav and Brown Rice recipes using Daawat basmati rice. The Company scaled up its secondary marketing with aggressive branding at modern trade stores.

The Company also focused on social media platforms to stay engaged and strengthen its connect with its consumers about its brands. Daawat basmati rice YouTube channel has one of the highest subscribers, keeping users engaged with innovative, traditional and modern rice recipes. To fortify its marketing campaigns and branding initiatives, LT Foods continued their association with Master Chef Sanjeev Kapoor during the year.

International Business

The Companys international business comprises of various leading brands like Daawat,

Royal, Indus Valley, Devaaya, Daawat Rozana and 817 elephant across key international markets. The Company reaches out to consumers in more than 60 countries including North America, Middle East, Europe, Far East and Rest of the World. The overall volume of international business grew from 2,06,000 MT in FY 2018-19 to 2,24,000 MT in FY 2019-20, registering a growth of 9% YoY. The International business recorded a revenue of Rs. 2,322 crore in FY 19-20 as compared to Rs. 2,103 crore in FY 18-19, registered a growth of 10%.

North America

The flagship brand - Royal - is the #1 selling Basmati brand in the United States. In addition, the company also offers Daawat in the U.S. & Canada targeted towards the south Asian diaspora as well as 817 Elephant in Canada. All 3 brands assist LT Foods in achieving more than 50% market share of all Basmati imports into the United States. Royal has roughly 37% market share of the U.S. basmati segment as measured by Nielsen in all mainstream grocery, mass & club accounts. In addition to Basmati rice, the company also offers Jasmine rice, Arborio rice, Wheat Flour, and Ready-to-Heat rice in North America servicing several different channels of business including multi-cultural (Ethnic channel), grocery, club, mass, food service and e-commerce channels. To address the rising consumer need for innovative, value-added, convenient food, the Company recently launched into the ready-to-heat (RTH) segment. Since launch, the business has achieved roughly 30% All Commodity Value (ACV) across a range of 7 SKUs aimed at introducing basmati rice in a fast, simple format to the U.S. general population consumer through both plain and flavored varieties. Key partners in this initiative include Walmart, Kroger, Meijer, HEB, & Albertsons/Safeway.

Middle East

Middle East accounts for ~45% of the worlds total basmati rice consumption. Given the size of the market, it plays a crucial role for the Companys business growth. The Company has a strong market presence in various countries in the region including UAE, Kuwait, Qatar, Oman, Yemen, Saudi Arabia and Iraq. The Company is present across all channels and price points - Modern Trade, Self Service, Traditional Trade and Food Service. The region contributes 9% of the overall revenue of LT Foods, and the company holds 10% market share in Premium Basmati segment (as per AC Nielsen).

The acquisition of 29.91% equity stake by Saudi Agricultural & Live Stock Investment Company marks a landmark moment for the Companys corporate journey in the region. It is anticipated to open up new opportunities for market penetration in the Middle East. To expand its presence in food services, LT Foods partnered with one of largest food services distributors in State of Kuwait. In addition, it also participated in several events in the gulf region, that helped the Company gain a stronger foothold in the region. LT Foods participated in the Gulf Food Show every year and it is a very important event in its yearly calendar. It provides a perfect opportunity for our Global Distribution partners and the Company Management to interact at a common platform. This event provides an forum to talk about the achievements of the year gone by and the Company presents its growth Strategies and Plans for the Year ahead. LT Foods en-cashed this opportunity to introduce its new products- Kari Kari and Daawat Cuppa Rice on the convenience platform to its global partners.

The acquisition of 29.91% equity stake by Saudi Agricultural & Live Stock Investment Company marks a landmark moment for the Companys corporate journey in Middle East.

Europe

During the year, the region recorded more than 80% YoY growth in its revenue that stood at Rs. 468 crore in FY 19-20. Despite macro-economic challenges, the Company registered a healthy EBITDA margin of 3.6%. Driven by strong marketing initiatives, the Company has expanded its retail and geographic presence across Europe. The sustained capex investment in a processing unit in Europe, now runs at 80% capacity with the addition of new machines to improve efficiency. Sustainable Rice Production and other Agri initiatives are undertaken by the organization with 5,000+ farmers across an area of 1,00,000 acres directed towards residue compliant product, that has largely contributed to our brand equity in the region. This has helped produce superior quality products, that meet stringent quality benchmarks across the European region.

During the year, the Company expanded its product portfolio by offering Jasmine & Long grain rice sourced from Thailand & Vietnam, respectively along with its core offering of basmati rice.

Rest of World Business (RoW)

RoW contributed 5% of overall revenue during FY 19-20, maintaining sustained volume growth.

The Company has strengthened its distribution network and market penetration by implementing various initiatives by leveraging its brand and distribution strength across geographies. LT Foods is also working on filling the portfolio gaps in various countries to match the consumers preferences and needs and serve them better at all price points.

Organic Food & Ingredient Business

The Companys subsidiary,

Nature Bio Foods Limited (NBF/ NBFL) drives the ingredient- based organic food segment. Today, it has emerged as a trusted brand, offering authentic organic ingredients to consumers across the markets of the US and Europe. It offers a range of organic products including rice, pulses, oil seeds, cereal grains, spices and nuts. With over two decades of existence and experience, NBF/NBFL now partners with 80,000+ farmer families across India, to build enduring relations with farmers with over 118,000 hectares of certified organic land in India.

The Company has established a strong foothold in various countries including Germany, the Netherlands, Italy, France, Austria, the US, Canada, Australia, New Zealand, the UAE and Israel. The Company resolves to maintain safety across its operations that has enabled it to achieve a rare feat of being the first company in India to be conferred with the coveted CII Food Safety Award in FY 201920. During the year, the segment reported revenues of Rs. 367 crore, and contributing 9% to the overall revenue.

The Company has incorporated two subsidiaries in US and Europe to strengthen its position in these geographies via the stock and sell model. Investment at the backend, strong supply chain and expansion in product portfolio has helped the organization to prove itself as the trusted partner during challenging COVID-19 time.

Health & Convenience business

The Company remains a pioneer to introduce quick cooking brown rice under brand Daawat. With approximate 15-minutes of cooking time, the product remains a frontrunner in our innovation pipeline, aimed to build an integrated portfolio.

As an extension to build our innovative product pipeline, we also launched Daawat Sehat brand of basmati rice, fortified with iron, vitamins and folic acid. With the brand certified as F+ by FSSAI, meeting the quality expectations of consumers as well as delivering health benefits.

The growing consumer preference towards Saute sauces validates our belief in introducing new products that are centered around our consumer business, creating rich and value-added culnary of food choices.

The bouquet of Royal ready-to- heat products recently launched in our international market, have also found increasing acceptance among the consumers.

After the successful launch of Kari Kari in the previous financial year, the Company has set-up a Kari Kari manufacturing unit in Haryana with a production capacity of 3,000 units per day. Based on the success and repeat orders received from exiting channels, the Company will be expanding the reach to more MT and e-commerce outlets and also adding HORECA and GT to the distribution network.

The Company will also expand to international markets such as Middle East, Far East and Europe.

The product is now available in Modern retail outlets and online platforms. In FY 2020-21, it expects to widen the reach to to more Indian cities.

The Companys recent launch of Cuppa Rice - A convenience product, has already garnered a lot of interest, with already a long-term contract signed with the Indian Railways. The Compan shall launch the full line of products in the near-short across its distribution network, expecting to capitalise the growing ready- to-heat market.

3,000 units per day capacity of Kari Kari production unit in Haryana Impact of COVID-19

The already existing business model backed with automated technologies, streamlined supply chain & distribution network and enhanced safety and quality measures ensured zero disruptions during the phased lockdowns due to COVID-19 across the Companys locations. With a robust supply chain network, the Company had adequate inventory of raw material to fulfil the increased demand during the lockdown. Even during the multiple lockdown that was witnessed in the first quarter of FY 20-21, the Companys operational value chain did not face any disruption, the distribution channels were strengthened with new approaches and the organization adapted to the "New Normal" with agility.

The demand for products further gained traction on account of increased home consumption and people started opting for safe, hygienic and branded food. Online sales also witnessed significant growth across all major e-commerce platforms. Additionally, to minimize the impact of the pandemic on the HoReCa segment, the Company partnered with Cloud Kitchens, Shipping rationing/Military, Navy, Air Force Mess and Canteens, NGOs.

Sales and Marketing

• Developed innovative Go-To-Market Strategies

• Expanded Rural Reach

• Enabled tele ordering

• Partnering with delivery partners such as Swiggy, Zomato, Dominos, etc.

• SMS blasts

• Distributor point pick up

• Focused Digital Campaigns

Manufacturing

• Unhindered plant operations at all times

• Ramped up capacity due to increased demand

• Optimization of Conversion Cost

• Inventory optimization through better planning

• Hygiene drives conducted to ensure delivery of safe food

Support Services

• Finance - worked to ensure uninterrupted backend operations and drove cost reduction

• IT - digitization to ensure remote working for all employees

• HR - ensured safety and engagement of employees

• Compliances - ensured timely compliances

Procurement

• Ensured raw material availability at all times

Expanded our Vendor engagement

• Educating the farming community on the new technologies to reduce manpower requirement and increase yield

Distribution

• Serviced with low inventory

• Direct sales from Depot

Financial Review

Standalone financial performance

(Rs. in crore)
FY 2019-20 FY 2018-19 YoY Change
Revenue from operations 2,378 2,210 7.6%
Gross Profit 440 411 6.9%
EBITDA 199 183 8.8%
EBIT 173 160 8.2%
PBT 113 83 35.4%
PAT 85 54 56.3%
EPS 2.66 1.70 56.3%
Cash Profit 112 78 43.4%

Consolidated financial performance

(Rs. in crore)
FY 2019-20 FY 2018-19 YoY Change
Revenue from operations 4184 3915 6.9%
Gross Profit 1117 976 14.4%
EBITDA 509 421 20.7%
EBIT 417 352 18.4%
PBT 281 214 31.4%
PAT 199 137 45.0%
EPS 5.77 3.96 45.8%
Cash Profit 291 206 40.8%

Key Ratios

Ratios Consolidated
FY 2019-20 FY 2018-19
Debtors Turnover (no. of days) 54 50
Inventory Turnover (no. of days) 208 235
Interest Coverage Ratio (in times) 3.2 2.5
Current Ratio (in times) 1.52 1.43
Debt Equity Ratio (in times) 0.90 1.16
Operating Profit Margin (in %) 10.0 9.0
EBITDA Margin (in %) 12.2 10.8
PAT Margin (in %) 4.8 3.5
Return on Net Worth (in %) 12.5 9.6
Return on Capital Employed (in %) 13.6 11.3
Debt-EBITA (times) 2.8 4.0

Reason for increase in RoNW/RoE - The Companys ROE has increased from 9.6% to 12.5% on account of increase in its net profits by 45%. LT Foods is working on increasing its ability to generate profits along with consistently managing the shareholders equity.

Reason for Increase in PAT Margin - Increase in PAT margin from 3.5% to 4.8% on Y-o-Y basis was on account of operational efficiencies at EBITDA level and reduction in effective tax rate from 35.6% to 27.7%.

Reason for Improvement in DEBT-EBITDA ratio - This ratio has reduced from 4 to 2.8x as the company is consistent working on improving its EBITDA level on account of operational efficiencies thereby increasing its coverage to pay of its debt.

Integrated Farm to Fork Business model

The Companys integrated farm to fork business model is a key driver of its sustained market leadership and long-term business growth in its core Basmati business. LT Foods sound business model testifies its ability to deliver value to its growing stakeholder base. With a strong focus on quality, costs, profitability and digital transformation, LT Foods has increased its market share in India and abroad.

Farming via Sustainable Rice Production

The Company sources majority of its paddy from farmers associated with it through the Sustainable Rice Production (SRP) Programs. The Company is a leading partner of Sustainable Rice Platform (SRP), a UN Environment and International Rice Research Institute initiative. More than 5,000 farmers are associated with LT Foods, through its SRP program, growing residue compliant paddy in more than 1,00,000 acres of land. As a part of this initiative, the Company has deployed digital tools like remote sensing, image processing, and artificial intelligence to enable a dynamic advisory on pest and diseases, weather forecasts, water management and yield prediction. These technologies have benefitted farmers with knowledge and skills to take informed farming decisions.

It has also helped to improve farmers income and has also led to a significant reduction in water consumption.

More than 5,000 farmers are associated with LT Foods, through its SRP program, growing residue compliant paddy in more than 1,00,000 acres of land.

The initiative has resulted in conserving 48 billion litres of ground water, resulting in ~30% less greenhouse gas emissions (combined effect of water and fertilizer reduction through use of water saving technologies like laser levelling, micro-irrigation, AWD (Alternate Wetting and Drying), SRI and direct sowing). It has also improved annual household income of farmers by 25%, from the baseline values calculated at the inception of the project.

Further, to source raw material for its organic products, the Company engages in contract farming with small-holding farmers. It encourages farmers to practice organic and sustainable cultivation techniques and procedures.

Procurement

The Company sources its raw materials through an extensive procurement network of agents spread across the basmati paddy producing regions of Northern India. The entire procurement process is divided into two parts - Pre-harvest and Post-harvest. The pre-harvest process comprises of surveys and analysis that determines the estimated paddy supply. This involves field survey, mandi agents survey, remote sensing / satellite survey. Then a thorough anaylsis of the demand-supply factors is made, in alignment with international trade policies. While natural factors like, monsoon amd health of the crop are also important, the preharvest process is concluded with dedicated and structured supplier meets.

The post-harvest season involves a detailed data collection on varieties of paddy collected with a structured 5-tier system.

A weekly quality tracking methodology system provides a better understanding of quality-wise trend. The Company conducts a purchaser feedback mechanism and commission agent feedback mechanism, that allows procurement of paddy at best quality. With more than 270 agents in more than 235 mandis (procurement markets) across the country, that are government authorised, the Company monitors quality control measures and procurement of materials at competitive rates.

Processing and Packaging

LT Foods possesses five state-of- the-art facilities located in Haryana, Punjab and Madhya Pradesh along with one advanced processing unit in Europe. It also has three packaging units in California,

Texas and New Jersey. The manufacturing and packaging units adopt global best practices and has passed stringent national and international certification standards to deliver consistent product of desired quality standards. The shift in consumer preferences towards quality and safe branded products, the Company continues to invest in strengthening its overall processing and packaging units and automating it to add efficiencies at floor level.

Distribution and Sales

The consistent efforts on strenghtening its direibution network across geographies has helped the organisation to make its products available and expand its reach to more than 60 countries and 1 lakh outlets in India. LT Foods responsible marketing and promotion efforts are pivotal for its growing market presence. The Go-To-Market strategies resulted in expansive rural reach and growing market presence. A robust distribtution and sales network, ensures servicing with faster product reach to a global customer base. Over the years, the Commpany has evolved its distrubition framework, that includes several network routes, with a set of optimised logistic services that suit our diverse distributors and dealer network resulting into 26% market share in india and 35% market share in rural market. In US also, LT Foods enjoys leadership position with a 50% market share.

Food Safety

LT Foods abides by stringent food safety standards prescribed at India and international levels to deliver superior quality products to its customers. Through its state-of-the-art testing facilities, it undertakes a wide range of reliable and analytical tests to verify the safety, identity and purity of its products.

The Company also conducts several quality audits to ensure compliance to country specific standards applicable in its areas of operation.

Certificates possessed by our production units

Plant Certification Standards
1. LT Foods Limited ISO 45001 : 2018 ( Health and Safety )
Bahalgarh - Sonepat (Haryana) ISO 9001 : 2015 (Qualiy Management System) ISO 14001 : 2015 (Environment Management System)
SQF (Safe Quality Foods )
BRC Global Standard for Food Safety
IFS ( Food Safety )
ISO 17025: 2005 NABL, EIC & - Laboratory Management System
SA 8000 ( Social Standard )
Halal
Kosher Certification (OU)
2. LT Foods Limited FSSC 22000 : 2010 (Inclusive ISO:22000 & ISO/TS 22002-1)
Varpal. Amritsar BRC Global Standard for Food Safety
Subsidiaries
3. LT Foods Americas FSSC 2200: GFSI Certification for Processing, Storage and Distribution
(International Food Safety)(with Costco Addendum)
Certified Organic Processor NOP (National Organic Program with
Canadian Equivalency) Kosher
Mars Certified External Manufacturer
State Department of Health
FDA Preventive Controls (FSMA) and Site Registration; FDA LACF (Low
Acid Can Food) RTH) , Safe Food For Canadians
4. LT Foods Europe, BRC Global Standard for Food Safety version - 7
BV, Rotterdam, Netherlands SKAL - Organic
GMP + (Feed)
IFS - 6.1
Fairtrade
5. Nature Bio-Foods Limited Organic FSSC 22000 (Food Safety Standard)
Division) NOP (National Organic Programme) of USFDA Organic Standard.
NPOP (National Programme for Organic Production)
EEC 837:2007 (Europe Organic Standard)
IFS ( Food Safety )
Kosher Certification ( OU )
Fair Trade
Halal
BRC
6. Daawat Foods Limited ISO 45001 : 2018 (Health and Safety)
Mandideep, (MP) ISO 9001 : 2015 (Quality Management System)
ISO 14001 : 2015 (Environment Management System)
FSSC 22000 : 2010( Inclusive ISO:22000 & ISO/TS 22002-1)
BRC Global Standard for Food Safety+ Costco Addendum
FSMA
FDA IFS (Food Safety)
HACCP
SA 8000 (Social Standard)
Sedex Halal
Kosher Certification (OU)
NOP (National Organic Programme) of USFDA Organic Standard
NPOP (National Programme for Organic Production
IOPEPC
Registration of Rice mills for USA & China
EIA- IPQC
7. Raghunath Agro Industries FSSC:22000:2015
Private Limited Bhikiwind, Amritsar (Punjab) FDA

Outlook

In FY 2019-20, LT Foods has retained its growth momentum despite headwinds. The COVID-19 outbreak and subsequent lockdown in first quarter of FY 2020-21 did not hamper operations significantly as the Company relied on its efficient processes and advanced methods to ensure continuity in the value-chain. To ensure value accretive business, LT Foods has defined a threefold strategy of growth, margin expansion and strengthening of financial metrics by improving the Return on Capital Employed.

The Company has delivered on all its strategic pillars i.e. as Growth, Margin Expansion and Strengthening the Financial metrics which is visible in our financial performance as the well. The overall revenue of the Company has increased by 7% wherein the Consumer business of the organisation is up by 14%.

Our margin profile has improved and our Gross Margins were up from 24.9% to 26.7%, EBITDA margins from 10.8% to 12.2% and PAT margins from 3.5% to 4.8%.

The financial metrics also improved, Debt/Equity Ratio improved from 1.16 to 0.90, Debt- EBITDA improved from 4.0x to 2.8x, Working Capital Cycle down by 19 days, Net Worth up by 12% to Rs. 1599 Crore and Cash from Operations up by 365% to Rs. 477 crore. The Return on Capital Employed has also improved from 11.3% to 13.6% during the year.

The Company aims to further consolidate and grow its market share by increasing consumer penetration across all segments. LT Foods endeavours to widen its supply and distribution across the globe by expanding and improvising its product offerings, to include unique, healthy and innovative products. To drive margin expansion, it plans to change its product mix with products that assure higher margins, increase efficiency and drive cost synergies.

Going forward, Company will continue to focus on its strategic goal to create progressive, sustainable, profitable and growing business to create value for its stakeholders by growing its core basmati business by recruiting new consumers and expanding distribution and driving growth in organic business, by adding new customers and expanding the product portfolio. It will also keep evaluating opportunities in consumer space to add more products by leveraging our strong brand equity, distribution network and infrastructure with a focus on improving ROCE.

Human Resource

Human Resource development continues to be a key focus at LT Foods and the Company takes great pride in the commitment, competence and passion shown by its workforce in all realms of business. The Company has a dedicated team of over 1780 employees across geographies including India.

The Company has drawn up a comprehensive human resource strategy (the Human Resource strategy) to address key aspects of human resource development. It includes the following: -

• Drive and reinforce the values of the organisation

• Code of conduct and fair business practices

• A performance management system linked to business performance for identifying and differentiating high performing candidates

• Implementation of performance-based compensation packages to attract and retain talent

• Development of comprehensive training programs to impart and continuously upgrade industry/function specific skills

Investment in technologies

LT Foods, has always believed in embracing technology to align its business to changing market shifts. It continues to lead through innovation, as technology continues to be growth enabler by adding more control, efficiency and transparency in the system.

Highlights of Technologies Initiatives

Control System Automation - The Company introduced QR code technique, that was integrated to inventory, enabling its distributors to manage the entire value-chain (right from ordering to invoicing) without any manual intervention.

Remote Real-time Data Capture

- The Cloud-based Sales Force Automation has empowered the Field Force and distributors to capture sales order on their mobile application. The integration of Internet of Things (IoT) has resulted in faster turnaround time for inventory management, strengthening the supply chain system.

Real time Online MIS System

- The Company implemented Cloud-based analytical tools to capture and report data on realtime mode. This internal data analysis has helped the team to present data to the Board on various parameters, thereby resulting in strengthening the operations.

Inventory Management through

QR code - The Company introduced a pilot QR-based inventory tracking project, that helped in inventory management, enabling tracking of goods movement with mobile handheld devices.

Sales Force Automation - We have implemented mobile based Sales Force Automation solution wherein our Field force carries mobile device and follows route as suggested by software. A salesperson also capture Sales Order from Retailer using mobile devices only which get immediately visible to Distributor. This helped us in increasing the service level.

SAP integration with banking system - To make the payment process smooth and simple, the Company has implemented real-time integration of SAP with Banking system. It has helped the Company to settle ledger balances without any manual intervention whenever there are debits / credits in the bank.

Internal Audit Control Systems -

LT Foods has a well-established system of internal controls and procedures, in line with the size and nature of its operations. The Company regularly conducts internal audit of operations, establishments and stockyards to ensure that the set processes are strictly adhered to. The Audit Committee reviews the reports of internal auditors and evaluates the operational efficiency of the internalcontrol systems.

The Committee then suggests improvements in the Companys business processes, systems, and internal controls. Annual internal audit plans are prepared by internal auditors in consultation with the Audit Committee. The Company has implemented SAP, the worlds leading ERP system, to automate the internal control environment and keep track of processes and performance.

Risk Management

LT Foods recognises risk as inherent part of business sustainability. The Company has identified risks under three categories, developing an understanding and preparing a mitigating response for each of them. These risks comprehensively cover the entire value-chain of business wherein it has defined each risks in the context of severity of its consequence, and how would it threaten the business model, solvency, liquidity and future performance, should the risk materialise.

Strategic risk

Shift consumer tastes and choices

From increasing awareness to better product quality to attractive offers - consumer shifts pose a challenge to demand for retaining market for food products

Mitigation

The R&D team collaborates with the strategy team, keeps a tab on the emerging trends to timely develop new food products and also actively monitor the social media trends to spot the changing consumer needs with agility.

Perception

Having started the business as a basmati rice company, the company is still perceived as a commodity player

Mitigation

the Company has over the last 7 decades evolved from being a rice trader to a Consumer Food Company with all the elements in place to be known as a consumer food company such as strong iconic brands, global footprint, integrated Farm to Fork business model, global supply chain network, strong financials and a future ready approach to expand product portfolio based on changing consumer trends.

Unacceptance of new products

The achievements that define a consumer food company solely relies on its ability to achieve success on new products launched at regular intervals that are adaptive to changing consumer preference. In a dynamic food sector space, failure to penetrate the market. Mitigation the Company has a well-defined stage gate process from ideation to execution prior to introducing a new product in the market.

The product goes through this rigorous process in terms of its market demand, commercial viability, return on investment, future demand, etc. Each product is first test launched in a smaller market and then post the success of the same is launched at a larger scale with requite investment in marketing and brand building activities. LT Foods has launched products in the Health and Convenience category and one such example of a successful launch is Daawat Quick Cooking Brown Rice. Riding on the success of this product the Company has launched another product Daawat Sehat (Fortified Rice). A few more products that have been recently launched in the convenience category are Daawat Saute Sauces, Royal Ready-to-Heat, Kari Kari, Daawat Cuppa Rice, etc.

Competitive market conditions

increase in number of competitive brands in the market and aggressive pricing strategies by competition may cause disruption

Mitigation

the Company has made investments in various brand building activities across geographies and enjoys leadership position in India, US, Far East, Europe, etc. Our market share has increased year on year in different geographies. The Company has also diversified its product portfolio and entered into Health and Convenience category to minimize risk. The Company also keeps a close watch on the competitors pricing strategies and responds to the same with agility

Private Label

growth in e-commerce and modern trade channels could lead to emergence of private label brands

Mitigation

Investment in brand building activities to ensure higher recall of our brands in consumers mind and also partnering with modern trade and e-commerce channels in category management. LT Foods holds more than 30% market share in the Modern Trade category as per AC Nielsen.

Operational risk

Volatility in Raw material costs

Challenges in procurement of paddy (prime raw material) due to unfavorable weather conditions or pricing, may result in difficulties to business operations.

Mitigation

LT Foods is a Consumer Food Company with strong brands in place. The strength of our brands acts as a shock absorber in case of any volatility in the raw material prices to a great extent. The Company has an integrated procurement model in place, partnering with the farmers for timely procurement of paddy. The Companys plant at five locations, all strategically located close to the procurement areas that helps the company to procure paddy/ rice in the required quantity at competitive prices. Our procurement team conducts field surveys, commission agent survey and remote sensing/ satellite surveys and all the data acquired from these sources is used to implement an effective procurement strategy that helps to adapt to changing supply patterns in line price volatility across different locations.

Increase in use of Pesticides exceeding MRL (Minimum Residue Levels)

frequent change in a countrys MRLs can pose as a threat to the business performance of a company

Mitigation

LT Foods has been working extensively at the back end with farmers to give them a know-how on the use of pesticides so as to ensure residue compliant paddy to meet the global standards as well as ensuring the farmers income. The Company is associated with more than 5,000 farmers through its Sustainable Rice Production program growing residue compliant paddy in more than 1,00,000 acres of land. The Company is a leading partner of Sustainable Rice Platform (SRP), a UN Environment and International Rice Research Institute initiative. The Companys SRP audited score has increased from 80 to 96.1 in the last 3 years.

Political Instability in Operating Geographies

political instability and unrest in the geographies that we operate can have an adverse impact of the financial performance of the business

Mitigation

LT Foods has a well-defined policy in place to select countries that are politically stable in nature, have future growth opportunities for business expansion and also where the consumption of core product category is increasing.

Compliance & Governance Risk

Non-Compliance with various Regulatory requirements

non-compliance on any account can expose the company to legal consequences thereby causing financial loss and penalty. The same can also adversely impact the reputation of the company.

Mitigation

LT Foods has invested in an extensive IT enabled global compliance tool that has all the requisite compliances mapped for each entity and are monitored on regular basis with a two-step authentication for each completed compliance. Regular workshops are held across all geographies with offices and production facilities to emphasize on the importance of the compliance framework and how noncompliance can severely impact the reputation of the organization.

Violation of ethics & business integrity

Any non-compliance with respect to the Code of Conduct of the company can adversely impact the reputation of the company as well as the business performance.

Mitigation

LT Foods has a Code of Conduct in place that is signed by any new recruitment done and is also a part of the orientation process for new induction. The same is reviewed on a regular basis with the Board of Directors to keep the document updated with the changing governance norms. The Company also has a Whistle Blower Policy that enables all the stakeholders to report any fraud/unethical behavior to the designated Ombudsman.

Liquidity & Financial Risk

Currency Risk

The Companys presence into more than 60 countries exposes it to a potential loss in revenues due to currency volatility

Mitigation

The Company has put in place a well-framed hedging policy that mitigates any potential risk due to currency volatility and cause a financial impact.

Debt Portfolio

Rising borrowing cost and challenges of liquidity at lending institutions pose a risk to secure funding to operate business viably.

Mitigation

the Company continues to secure funds from a consortium of banks at competitive interest rates. The Company has over the last few years improved its interest coverage ratios and the cash flow from operations. The interest coverage ratio improved from 2.5 to 3.2 and the cash flow from operations have improved by 365% to Rs. 477 crore.

Working Capital Intensive Business

Excessive use of capital into inventory might result in increasing debt and impact profitability

Mitigation

The Companys nature of business is working capital intensive in nature as the paddy needs to be aged on an average for c. 6-24 months. The Company has a well devised procurement policy in place so as to ensure c. 65-70% raw material procurement in the season itself. LT Foods has an extensive procurement network in place so as to procure the right quality of paddy at competitive process from strategic locations via its c. 270 agents from more than 235 mandis (procurement markets). The Company has also been working on reducing its working capital cycle year on year so that it does not impact the profitability of the business. The working capital cycle has reduced by 19 days in FY 20 and stood at 231 days

versus 250 days in FY 19 and we plan to further reduce it in the future.

Macro-Economic Factors

Lower GDP growth can lead to shift in consumer demand from branded to unbranded and premium to value range products

Mitigation

LT Foods caters to the requirement of its consumers across all price points ranging from premium to value range. LT Foods also has a robust supply chain network and has presence across channels. The Company is also working on product portfolio expansion to keep itself future ready.

Social Risk

Failure to meet product quality and safety requirements

being a consumer food company any non-compliance in meeting the quality and safety norms with respect to our products can led to reputational risk, loss of customer trust and legal consequences.

Mitigation

the Company has checks at each step of the value chain with respect to the quality and safety of a product. A stringent compliance system is in place to ensure adherence to regulatory requirements. There is also a proper feedback mechanism for the consumers to get in touch with the company at any given point and time.

Talent Acquisition & Retention

A mismatch in hiring of skilled talent may lead impact the Companys ability to achieve its strategic goals

Mitigation

The Human Resource department ensures that the talent acquired is in line with the needs of the organization and are those who understand the strategic goal of the Company. It also ensures that the workforce is provided with suitable training and development tools so as to enhance their productivity at all levels. They also ensure that various workshops, town halls, etc. are conducted from time to time to keep the team members abreast with any new developments in the Company and it also provides them with a framework/ open platform to give their suggestions as well as opinions.

Environmental Risk

Disruption due to climatic changes

any change in the rainfall pattern can have an adverse impact on the crop health.

Mitigation

it is a myth that Basmati as a crop is dependent on rainfall and so an erratic rainfall pattern can have an adverse impact on its production. Basmati as a crop is mostly grown in areas that are not dependent on rainfall and that has access to other ways of irrigation such as canal and ground water.

Opportunities

Basmati Market

The overall rice market is of 500 million tonnes, out of which 7.5 million tonnes is that of Basmati. Approximately 80% of the entire market that exists for Basmati is catered by India. The overall production by India is c.6.50 million out of which 4.5 million tonnes is exported and the remaining is consumed in India. The trends in both India and International markets are changing and are thus creating a huge opportunity for increase in Basmati consumption globally.

In India, the demand for hygienic and packaged products is increasing and also c. 40% of the Basmati market is branded and thus the remaining portion also opens up huge opportunities for players like us in India. In the International markets a lot of new ethnicities are switching to Basmati from other rice varieties. LT Foods is well positioned to tap the opportunity available in the Basmati market globally due to its strong iconic brands, complete control on the value chain from Farm to Fork, robust distribution & supply chain network, consistent quality and food safety measures and strong connect with the farmers at the backend to ensure residue compliant products due to increasing awareness among consumers on changing global food safety norms.

Organic Category

Demand for natural, fresh and locally sourced foods, which are healthier and more wholesome than packaged foods with more shelf life are rising. The demand for global organic food market is expected to rise by 23% CAGR by 2023. LT Foods has a strong backend in place with 80,000+ farmer families across India, to build enduring relations with farmers with over 118,000 hectares of certified organic land in India. The Company has also incorporated two subsidiaries in US and Europe to strengthen its position in these geographies via the stock and sell model. With investment at the backend and strong supply chain we have a right to win in this category as well.

Health and Convenience Category

Consumers are adapting to healthy eating habits for leading a good life. They are looking for options that are indulgent, delicious and produced with quality ingredients. The food sector is also rapidly evolving on the back of various lifestyle- induced changes such as increase in working population and urbanization, growing health awareness, higher spending, etc. Global Health and Wellness Food Market is expected to grow by USD 236 billion by 2024, with at a CAGR of 6%. LT Foods has been keeping a close tap on the changing consumer needs and preferences and has ventured in the Health & Convenience category with products such as Daawat Quick Cooking Brown Rice, Daawat Saute Sauces,

Kari Kari, Royal Ready-to-Heat products, Fortified Rice, Daawat Cuppa Rice, etc. The Company will be leveraging its strong brand equity, integrated business model and distribution network to strengthen this product portfolio.

Threats

Refer to the Risk Management section on page 77 for the same.