Mcleod Russel India Ltd Management Discussions

INDUSTRIAL STRUCTURE AND DEVELOPMENT

World tea production during 2021 reached 6469 million kg, compared to 6279 million kg in 2020, a substantial increase of 190 million kg (+3.02%). China remained the largest producer in 2021 at 3120 million kg (48.2%), followed by India at 1329 million kg (20.5%).The other major producers globally were Kenya at 533 million kg (8.2%), Sri Lanka at 299 million kg (4.6%), Turkey at 280 million kg (4.3%), Vietnam at 180 million kg (2.8%), Indonesia at 127 million kg (2.0%), Bangladesh at 96 million kg (1.5%), Argentina at 73 million kg (1.1 %), Japan at 69 million kg (1.0%) and Uganda at 65 million kg (1.0%). World tea exports in 2021 also grew to reach 1879 million kg, compared to 1830 million kg in 2020, an increase of 49 million kg (+2.7%). The largest exporter was Kenya at 557 million kg (29.6%), followed by China at 369 million kg (19.6%), Sri Lanka at 282 million kg (15.0%), India at 193 million kg (10.3%), Vietnam at 127 million kg (6.7%), Argentina at 69 million kg (3.7%), Uganda at 54 million kg (2.9%), Indonesia at 41.5 million kg (2.2%).Total world exports amounted to approximately 29.1% of world production for the year in 2021, ie. approximately 70.9% of world production was retained at origin for domestic consumption. China and India, aside from being the two largest producers, were also the largest consumers of tea in the world, retaining between 85% to 88% of their production for domestic consumption. The other major world producers who also retain the majority of their produce for domestic consumption are Turkey, Bangladesh, Indonesia, Japan and to a lesser extent, Vietnam. The remaining countries viz. Kenya, Sri Lanka, Argentina, Uganda and the smaller producing countries all export the majority of their production, with minimal or virtually no domestic market to serve as a foil for their exports. In terms of export competition for Indian teas, the two main competitor countries remain Kenya, which produces mainly CTC BlackTeas, and Sri Lanka, which produces mainly Orthodox BlackTeas. China produces predominantly Green Tea and Oolong Tea, most of which is consumed within the country itself and is not considered a direct competitor for India tea exports. (Source: International Tea Committee Bulletin and Tea Board of India).

Global tea production continued to rise year on year in 2021 as some measure of normalcy returned to operations in most production origins, despite the second wave of the Covid-19 pandemic. The increases were mainly on account of Asian producers, China +134 million kg (+4.4%), India +72 million kg (5.7%), Sri Lanka +21 million kg (+7.5%), Bangladesh +10.1 million kg (+11.7%). The major East African producers all lost crop compared to the previous year, mainly on account of inclement weather, notably Kenya -36.5 million kg (-6.4%) and Uganda -10.7 million kg (-14.1%). Tea prices in the Asian origins were marginally lower in 2021 compared to 2020 owing to the increase in production. At the Indian tea auction centres, tea prices dropped on average by 8.4% and at the Colombo auctions in Sri Lanka by 2.2% in 2021 compared to the previous year. Conversely, tea prices at the Mombasa tea auctions in Kenya for East African teas on average rose by 2.1% in 2021 over 2020 owing to lower production during the year. A significant development across the BlackTea production origins in Asia and Africa over the last 5to6 years has been the exponential growth in small holders tea production comprising mainly low cost teas, particularly in India and Kenya, both ofwhom mainly produce CTC Blackteas. As a result, there has been a surfeit in supply ofplain and lowerquality CTCteas globally. This has led to quality polarisation in the global CTC tea market, anda very wide price concertina between good quality teas and lower quality teas. Good quality teas are now relatively short in supply and command a substantial premium of between 50% to 250% over lower quality teas which are in abundant supply globally.(Source: J. Thomas Annual Tea Statistics).

OPPORTUNITIES AND THREATS

The continued growth in domestic consumption in India and the very wide price concertina that now exists between good quality teas and lower quality teas in India presents a significant opportunity for MRIL to move up the value chain and increase both top line and bottom line metrics by upgrading quality. The return to normalcy of business operations and supply chains in India is likely to result in normal operations by buyers in 2022, particularly those in North India and Western India who suffered operational setbacks in 2021 due to the restrictions imposed by local authorities on account ofthe Covid-19 pandemic. This is already evident in the initial months of2022-23 and presents a further opportunity of growth for producers of good quality teas which are compliant with Indian regulations on food safety and otherstandards.

The unexpected and severe economic downturn in Sri Lanka in 2022 has had a debilitating impact on their Tea Industry. Production is considerably reduced compared to last year due to lack offuel and required agriculture inputs. As Sri Lanka is one ofthe leading exporters of Orthodox BlackTeas globally, this has exerted upward pressure on Orthodox prices worldwide and presents a significant opportunity for your company to fill part ofthe gap by maximising Orthodox production and reaping the benefits of higher value export earnings in 202223 from the hard currency Western markets. The only limiting factor to this would be the continuing challenges to exports to the large Orthodox export markets of Russia and Iran due to the prevailing economic and shipping sanctions on these two countries mandated by the West.

International CTC prices, however, continue to remain relatively low in comparison to domestic Indian CTC tea prices. Despite reports of lower than normal rainfall in East Africa in 2022, there appears to be adequate availability of teas from East Africa in the global tea supply pipeline. In addition, international freight rates remain at very high levels (approximately 2 to 3 times higher compared to 2021). In comparison there has been little or no increase in freight rates originating from East Africa, our main competitor in the global CTC market. Further, the strengthening ofthe Indian Rupee vis a vis the British Pound and the Euro in 2022 have also served to render our exports more expensive in relation to our CTC competitors in East Africa, particularly Kenya, who continue to devalue their currencies, making their exports more competitive. As a result, CTC exports in 2022 are likely to continue to prove a challenge as they did in 2021.

SEGMENTWISE OR PRODUCTWISE PERFORMANCE

The Company is primarily engaged in the business of cultivation, manufacture and sale oftea and is managed as a single unit organisation. Accordingly, the Company is a single business segment company.

RISKSANDCONCERNS

The Tea Industry is largely dependent on the vagaries of nature. The Industry is highly labour intensive and is subject to stringent labour laws. Substantial increase in labour wages, high social cost over most other tea producing countries, high infrastructure costs and increasing energy and other input costs remain the major problems for the Indian Tea Industry. Shortage of labour during peak season in some pockets is also a cause for concern. The Company has made substantial investment in irrigation to minimize the impact on crop due to a change in climatic conditions. The draft Code on Wages (Central) Rules 2019, published by the Government of India will increase costs unless employee benefits provided under the Plantation Labour Act are also considered as part of wages in the final notification.

The COVID-19 pandemic also poses considerable risk to the Companys operations at its tea estates. Widespread safety measures have been strictly enforced at all its tea estates in consultation with the concerned Government agencies including social distancing at the workplace, restriction of entry of visitors, compulsory quarantine of returning migrants, regular testing of the workforce, vaccination camps for the workforce etc. to safeguard against this risk.

The Industry is also subject to taxation from the State Government as well as Central Government and while the level of direct taxes has come down over a period, some of the State levies like substantial increase inLand Revenue put the industry at a disadvantageous position. However, the State Government has been very considerate by withdrawal of ASSAM Green Leaf cess for three years from January 2019 to December 2021 and recently Agriculture Income Tax for 3 years for the sustainability of the Industry. The State Government has also announced subvention of interest on term loans and working capital loans and provided a subsidy on Orthodox production of Rs 10/- to partially mitigate the incremental cost of production ofthis exportable variety oftea.

To mitigate various types of risks that the company has to face, the Board of Directors of the Company has adopted a Risk Management Policy and implemented the same at the Tea Estates and at Head Office of the Company. In view of fluctuations in foreign exchange and interest rates, the Company has Risk Management Policy to address the risks concerning the foreign exchange and variable interest rate derivative transactions. The Company has invested in Rainforest Alliance and Trustea certification programs to manage environmental risks and ensure long term sustainability of its tea estate operations. The Company has ISO 22000 certification and Hazard Analysis and Critical Control Points (HACCP) at all the Tea Factories to mitigate possible risks related to food safety and quality of product.

OUTLOOK

Indian tea prices have seen a considerable someupturn at the start of 2022-23 after the lows of 2021-22, following faster auction sales and early closure to the season in 2021. The prevailing inclement weather in 2022 in the main tea producing districts, especially in Assam and the increase in Orthodox production have served to fuel a shortage in availability of good quality CTC teas in the domestic Indian market. On the other hand, the continued growth in production of small holder teas, as their relatively young plantations reach full bearing, has ensured a surfeit of common and plain quality CTC teas in the market. Bought leaf factory CTC teas which are mostly of low / plain and medium quality produced from green leaf procured from the small holders are either selling below cost or proving difficult of sale. As a result, the price concertina in the domestic Indian tea market between good quality CTC teas and medium / plain quality CTC teas has widened to an extent never seen before. Top quality Assam CTC teas are achieving record prices week on week at the Indian tea auctions. This trend is likely to continue through most of 2022-23. The overall outlook for 2022-23 for quality tea is positive and likely to benefit in terms ofvalue gain on good quality teasthat comprisethe bulk of MRILs produce.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has in place adequate systems of internal control commensurate with its size and the nature of its operations which it is planning for further strength. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies. Independent firms of Chartered Accountants carry out the internal audit at the Tea Estates on a regular basis. Another independent firm of Chartered Accountants conducts internal audit at the Head Office.

The Company has an Audit Committee, the details ofwhich have been provided in the Corporate Governance Report.The Audit Committee reviews Audit Reports submitted by the internal Auditors. Suggestions for improvement are considered and the Audit Committee follows up the implementation of corrective actions. The Committee also meets the Companys statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems in the Company and keeps the Board of Directors informed of its major observations from time to time. The Risk Management Policy adopted by the Company has further strengthened the internal control system.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The details of Financial Performance and Operational Performance have been provided in the Report ofthe Directors.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR IN KEY FINANCIAL RATIOS) ALONG WITH DETAILED EXPLANATIONS :-

Ratio	2021-22	2020-21	Change(%)	Reason
Debtors Turnover Ratio	44.60	70.37	(36.61)	Due to higher trade-receivable as on 31st March 2022. This was due to higher sales towards end of FY2021-22, which was partly due to higher quantity of tea manufactured.
(numberoftimes)
Inventory Turnover Ratio	11.74	13.28	(11.55)	Not Applicable
(numberoftimes)
Interest Coverage Ratio	0.62	0.93	(33.23)	Deterioration due to reduction in "Profit before tax, depreciation and interest". This was partly set off by reduction in finance cost.
(numberoftimes)
Current Ratio	0.10	0.11	(11.09)	Not Applicable
(number of times)
Debt Equity	1.27	1.26	0.60	Not Applicable
Ratio (number of times)
Operating Margin Ratio	(10.29%)	(7.57%)	35.94%	Due to reduction in profit before tax, mainly owing to increase in wage-rate and lower selling-price oftea, the effect ofwhich was partly set-off by:
				(i) higherquantityoftea manufactured,
				(ii) lesserinterest-cost,
				(iii) lesserdepreciation.
Net Profit Margin Ratio	(12.28%)	(4.75%)	158.50%	Because of reduction in profit after tax due to :
				(i) increase in wage-rate,
				(ii) lower selling-price oftea,
				(iii) increase in deferred-tax-expense.
				The adverse effect of these was partly set-off by:
				(i) higherquantityoftea manufactured,
				(ii) lesserinterest-cost,
				(iii) lesserdepreciation.
Return on Net Worth	(14.20%)	(4.84%)	193.41%	Due to reduction in profit after tax. Also due to reduction in net-worth, owing to loss in FY 2020-21.

HUMAN RESOURCES

Tea Industry is highly labour intensive. The Company employs around 69,926 personnel, of which 46,721 are permanent personnel and 23,205 temporary personnel at its Tea Estates and other establishments in India with more than 55% being women. Employee relations remained satisfactory during the period under review. The Companywould like to record its appreciation ofthe wholehearted support and dedication from employees atall levels in maintaining smooth production and manufacture oftea from all the Tea Estates during theyear.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis Report in regard to projections, estimates and expectations have been made in good faith. Many unforeseen factors may come into play and affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook. Market data and product information contained in this Report have been based on information gathered from various published and unpublished reports, and their accuracy, reliability and completeness cannot be assured.

	For and on behalf of the Board of Directors
	Aditya Khaitan	Azam Monem
Date: 12th August, 2022	Managing Director	WholetimeDirector
Place: Kolkata \	DIN:00023788	DIN:00023799