Megastar Foods Ltd Management Discussions.

The Management of MEGASTAR FOODS LIMITED is pleased to present its Analysis Report covering its overall performance and outlook.

Your company operates in only one segment of Manufacturing Wheat flour during the year 2018-19. Wheat flour made from the grinding of wheat used for human consumption. Wheat varieties are called "soft" or "weak" if gluten content is low, and are called "hard" or "strong" if they have high gluten content. Hard flour, or bread flour, is high in gluten, with 12% to 14% gluten content, and its dough has elastic toughness that holds its shape well once baked. Soft flour is comparatively low in gluten and thus results in a loaf with a finer, crumbly texture. Soft flour is usually divided into cake flour, which is the lowest in gluten, and pastry flour, which has slightly more gluten than cake flour.

INDUSTRY STRUCTURE AND DEVELOPMENTS IN GLOBE

Wheat is the most widely produced cereal all over the world, most of which is for human consumption. According to FAO, in 2014, the total wheat production is 729 Mn tonnes across the globe. China is the largest wheat producing country with the production capacity of 126 Mn metric tons while India is the second largest wheat producer with the production of around 95 Mn tonnes. India and China together account for around 20% of the total wheat production across the globe. There are different varieties of wheat flour available which are distinguished based on the amount of gluten they contain

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.

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 lead 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 and storage of large quantity of raw material on the other hand the result are evident during the current financial year.

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 31st March, 2019 was 83.

OTHER DISCLOSURES
PARTICULARS 2019 2018
Debtors turnover ratio 12.04 9.38
Inventory turnover ratio 7.15 7.64
Interest coverage ratio * 2.09 1.54
Current ratio ** 1.49 1.19
Debt Equity Ratio (including Financial Liabilities)*** 0.39 0.86
Operating Profit Margin (%) 4.59 4.00
Net Profit Margin (%) * 1.70 1.27
Return On Net worth (%) 12.97 15.08

*Due to increase in net profit (186%)

** Due to induction of additional funds in current assets.

***Due to increase in equity (216%)

Formulae used for calculation of the ratios
Debtors turnover ratio Net Sales/ Average of Opening and Closing Trade receivables
Inventory turnover ratio Net Sales/ Average of Opening and Closing Inventories
Interest coverage ratio * Profit Before interest, Tax and Finance cost/ Finance cost
Current ratio Current Assets / Current Liabilities
Debt Equity Ratio (including Financial Debt (Net of Cash)/ Equity
Liabilities)
Operating Profit Margin (%) Profit Before interest, Tax and exceptional items/ Net sales
Net Profit Margin (%) Profit after tax/ Net Sales
Return On Net worth (%) Profit after tax/ Equity

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.

Date: 09.08.2019 FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
Place: Chandigarh MEGASTAR FOODS LIMITED
VIKAS GOEL VIKAS GUPTA
Chairman-cum-Managing Director Whole Time Director
(DIN: 05122585) (DIN: 05123386)