The Management of MEGASTAR FOODS LIMITED is pleased to present
its Analysis Report covering its overall performance and outlook.
Wheat flour is used extensively owing to the presence of gluten, a
protein that provides strength and elasticity to the dough as well as adds to the texture
of baked products. Factors such as population growth, increasing disposable incomes,
rising consumption of bakery products and changing lifestyles have further added to the
global demand for wheat flour.
Wheat flour is used as the main ingredient in several bakery and fast
food products such as bread, noodles, pasta and breakfast cereals. Growth in the demand
for these products has led to an escalation in the overall sales of wheat flour across the
globe. Moreover, wheat flour is inexpensive as compared to the flour made from other
grains on account of which it is easily available to consumers belonging to all
socio-economic groups.
INDUSTRY STRUCTURE AND DEVELOPMENTS IN INDIA
The food processing industry in India is estimated to reach $482
billion by 2025. With the increasing use of flour in bakery products and the ease of
availability of raw materials, there is acceleration in the flour market. Furthermore, the
launch of innovative products has fuelled the growth in the market.
Wheat flour is the largest product type in the segment which is widely
consumed due to health benefits and dietary fibers. It has the highest share in the market
and with the advances in technology; there is a significant improvement in the quality of
flour. There are a number of wheat flour suppliers in the country which cater to the
growing demand for wheat. However, it is important to check the quality and consistency of
the flour offered by the mills.
The capital cost of setting up wheat flour manufacturing plant is very
high as practically all equipment is made in high grade stainless steel, power requirement
is also very high as large aeration system and large volume of liquids are handled using
high power pumps automated control systems, separation and packing systems.
WHEAT PRICES AT NEAR RECORD HIGH, UP 55% IN THE LAST ONE YEAR
Global wheat prices are up 55 percent in the last one year, and only 12
percent below the record high reach in February 2008 due to impact of the ongoing war in
Ukraine, trade policy changes, and a forecast fall in global production from the 2021
record level.
Global wheat production in 2022 is predicted to decline from the 2021
record level by 0.8 percent, reaching 771 million tonnes and marking the first drop in
four year.
World wheat prices rose by 23 percent in the last first half of 2021/22
as global supplies tightened, especially of high quality wheat. Following reduced harvests
in several major exporting countries 2021. With markets already tight, the abrupt
suspension of exports from Ukraine a major wheat exporter when it was invaded by Russia,
further exacerbated global supply concerns, sending prices upwards in March 2022.
Prices surged further in may, when India, which had increased shipments
significantly in 2021/22 helping to compensate for lost exports from Ukraine, announced a
ban on exports of wheat.
"The steep increase in wheat prices was in response to an export
ban imposed by India amidst concerns over crop conditions in several leading exporting
countries. As well as reduced production prospectus in Ukraine because of war, said FAO in
its reports.
Source:
https://timesofindia.indiatimes.com/business/india-business/in-charts-wheat-prices-at-near-record-high-up-55-in-the-last-one-year/articleshow/92124045.cms
WHEAT CAUGHT IN CROSSFIRE: HOW AN EXPORT BAN IS AFFECTING WHEAT PRICES
From war to heatwaves and floods to drought, wheat, a crucial global
food, is under attack and is getting more expensive day by day. India was seen as a
collateral beneficiary after the Russia-Ukraine war, but bread became more costly after a
ban on its global sales. But this price change is working differently in the Indian
domestic market.
India exported nearly six times more wheat in April than last year in
the same month. In May, wheat exports are likely to decrease as wheat exports have been
limited.
The Government of India expects five per cent lower wheat harvesting
due to the heatwaves.
After India suspended global sales, wheat prices jumped internationally
even as they started plunging in the domestic market.
Apart from India, wheat production is expected to fall elsewhere as
well, including Ukraine, Australia, the EU, and China.
Government wheat procurement was almost half (161.95 lakh metric
tonnes) of what it was in the previous year (288.42 LMT) as of May 1.
WHY IT MATTERS: The wheat supply shortage could have been poised to
drive up bread prices and lead to social unrest. The government halted overseas sales to
manage its potential food security.
PRICE MOVEMENT: Following the India export ban, wheat prices have
been behaving differently. Wheat futures in Chicago reflected the short supply and hit the
highest price in two months. The prices leapt by 60 per cent this year.
On the flipside, the rally of wheat prices in the Indian spot market
plunged after the export curb. The average price of wheat in India is Rs. 2,047 per
quintal (May 17). Prices are higher than the minimum support price (Rs. 2,015 per quintal)
for the crop year 2021-22.
INCREASED PRODUCTION ACROSS COUNTRIES
Wheat is one of the principal cereal grains produced and consumed
globally. It covers a land area more than any other commercial crop and continues to be
the most important grain food source for human consumption. This is likely due to the fact
that wheat can be cultivated in many areas with heterogeneous types of weather, elevation,
or soil. According to the Food and Agriculture Organization, the global wheat production
in 2018 accounted for 734 million metric ton, and the global area harvested under wheat in
2018 accounted for 214 million hectares. In 2019, global wheat production accounted for
765.8 million metric ton, growing by 3.9% compared to the previous year. However, the
total area harvested under wheat showed a flat trend pattern and stood at 215.9 million
hectares.
The countries with the highest volumes of wheat production in 2019 were
China (134 million metric ton), India (102 million metric ton), and Russia (75 million
metric ton), together accounting for 41% of the global production. These countries were
followed by the United States, France, Canada, Ukraine, Pakistan, Australia, Turkey,
Germany, and Argentina, which together accounted for a further 34%.
PERFORMANCE
The performance of the Company showed upward trend as compared to the
previous years. The company recorded highest volumes in terms of sales revenues and net
profits. Your Company planned and implemented expansion in automation of its various
business processes in operational levels. All this will benefit the Company by reducing
human intervention in operational processes, accurate product analysis for speedy and
efficient results. We largely strengthened our supply chain and synchronised the delivery
of our products with the advanced technological requirements of our bulk corporate buyers.
OPPORTUNITIES
The Company has well- equipped automated plant which gives the
opportunity to attract Multinational Companies and Corporate buyers as they get the best
quality products as per food standards. Due to various Certifications the Company also get
opportunity to get bulk orders from Corporate as these ensure that the Company is meeting
food quality standards that are required by them. The Company has hedge over other
competitors due to procurement of raw material in large quantity i.e. best quality at
minimum cost. It also has workforce which distinguish from other in various aspects such
as in structure of management, capability and talent of workforce.
THREATS
There are various threats to the Company such as the market
Competitors, which indulge in cost cutting of the product, which forces the Company to
sell its product as low cost. This also led to loss to the Company. On the other hand,
Companys raw material is based on agro product which is affected by calamities,
which deteriorate the quality of the product, which is the major threat to the Company.
OUTLOOK
After the initial years of commercial production we are selling about
2/3rd of our product to local vendors and 1/3rd to corporate buyer
now the scenario has got reversed now we are selling 2/3rd of our total
production to corporate buyers even after increasing our installed and utilised capacity.
We have successfully obtained international certification which paves the way for
international trade, which provide us capability to export to European countries and pave
ways for export to United States.
RISK AND CONCERN/RISK MANAGEMENT
History teaches that you cannot move forward effectively and with
purpose until you truly understand what happen in the past. Though informal our investment
committee reported certain key areas which needed attention for allocating funds for best
risk adjusted returns. To reduce our dependency for procurement of raw material we heavily
invested in working capital. Due to dependency on sole government agency for procurement
of raw material we needed very heavy investment in working capital to fetch the
opportunities to procure raw material from other states. To overcome the risk of
procurement and cost of procurement of the raw material we invested substantial part of
our issue proceeds towards working capital.
INTERNAL CONTROL SYSTEM
The Company has adequate internal control procedure for the purchase of
stores, raw material including components, procurements fixed and other assets and for the
sale of goods system is managed by audit committee with the recommendation of the top
management and timely reviews and recommendations are considered to strengthened the
internal control system to ensure that the system is operating effectively and
consistently throughout the period.
HUMAN RESOURCES
The Company has always strived to attract the best talent, provide
invigorative work environment, retain achievers and outstanding performers and to
inculcate in the employees loyalty for the organization. Raising employees involvement in
the decision making process and grooming them for leadership positions has been an ongoing
process. Industrial relations and work atmosphere remained cordial throughout the year
with sustained communication and engagement with work force through various forums.
Employees strength as on 31 March 2023 was 127.
OTHER DISCLOSURES
| PARTICULARS |
2023 |
2022 |
| CURRENT RATIO (Times) |
1.41 |
1.27 |
| DEBT-EQUITY RATIO (times) |
0.66 |
0.16 |
| DEBT SERVICE COVERAGE RATIO (Times) |
2.90 |
3.36 |
| RETURN ON EQUITY RATIO (%) |
23.59 |
15.94 |
| INVENTORY TURNOVER RATIO (Times) |
9.92 |
4.51 |
| TRADE RECEIVABLES TURNOVER RATIO (Times) |
13.01 |
11.34 |
| TRADE PAYABLES TURNOVER RATIO (Times) |
317.41 |
250.02 |
| NET CAPITAL TURNOVER RATIO (Times) |
17.77 |
20.36 |
| RETURN ON CAPITAL EMPLOYED (%) |
26.95 |
25.87 |
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis Report describing
the Companys objectives, projection, estimates and expectations may constitute
"forward looking statements" within the meaning of applicable laws and
regulations. Actual results might differ materially from those either expressed or
implied.
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