mishtann foods ltd share price Management discussions


I. GLOBAL ECONOMY OVERVIEW

The global economy was on the path of recovery in 2021 as the economies started opening up and travel restrictions were relaxed post the pandemic. Stepping into 2022, the global economic performance continues to be influenced by Covid-19, as well as supply issues and inflationary pressures. However, the global growth prospects have weakened significantly owing to the start of the war in Ukraine. After rebounding to an estimated 5.5% in 2021, the economy global growth is expected to have decelerated markedly in 2022 to 3.1%, reflecting the economic impact of the geopolitical tension and continued COVID-19 flare-ups, diminished fiscal support and lingering supply bottlenecks. The war in Ukraine has upended the fragile recovery from the pandemic, triggering a humanitarian crisis in Europe, pushing up food and commodity prices and exacerbating inflationary pressures worldwide. Geopolitical and economic uncertainties are dampening business confidence and investment and further weakening short-term economic prospects. Against this backdrop, the global economy is now projected to grow by only 3.1% in 2022 and 2023.

II. INDIAN ECONOMY OVERVIEW

The Indian economy has emerged as one of the fastest growing economies, as India continued to make remarkable economic progress since 2000. According to the government, between 2011 and 2015, over 90 million people have been lifted out of extreme poverty. After growing at very high rates for years, India’s economy had already begun to slow down before the onset of the COVID-19 pandemic. Between FY17 and FY20, growth decelerated from 8.3% to 4.0%, with weaknesses in the financial sector compounded by a decline in the growth of private consumption. However, the Covid-19 pandemic led India’s economy into a contraction in 2022, despite well- crafted fiscal and monetary policy support. Following the severe ‘second wave,’ growth in FY22 is expected to be around 7.5%. According to IMF, India’s economic growth projection for calendar year 2022 is expected to be around 8.8% from the previously forecasted 9.1% earlier, citing high inflation. India is on the path to a sustained economic recovery, thanks to the vigorous countrywide drive to deliver safe and wide-reaching Covid-19 vaccinations, which helped reduce the severity of the third pandemic wave with minimal disruptions to mobility and economic activity. However, owing to the onset of the Russia- Ukraine conflict, the crisis has clouded India’s growth outlook. Rise in prices of crude oil, food and fertilizers are likely to weigh on household finances and spending in the months ahead directly and indirectly. Further, rate hikes undertaken to prevent energy and food inflation from becoming more generalized are expected to slow the recovery momentum. India imports vegetable oils, machines, fertilizers, chemicals from Ukraine and is the largest importer country for Ukraine. It imports crude oil, precious metals and stones, mineral fuels, weapons etc. from Russia. Due to present conflict various items which had been imported from Russia and Ukraine will be seriously impacted. Consumption demand, which has been a concern as the pandemic dented consumer finances and confidence, grew by 8.6% (YoY) - an enormous boost for the Indian economy. However, consumer spending lagged substantially from the pre-COVID-19 levels, suggesting that pandemic uncertainties are still weighing on consumers’ confidence and ability to spend.

Agriculture and other related industries were the least affected during the pandemic. Strong sowing progress and abundant harvest increased output. Moreover, the rise in MSPs along with improvement in rice procurement augmented rural earnings.

OUTLOOK

According to the IMF, India’s prospects for 2023 are marked up on expected improvements to credit growth and, subsequently, investment and consumption, building on better-than- anticipated performance of the financial sector. The GDP is expected to grow in real terms by 8% to 8.5% in 2022-23. The industry expects the coming year to see an increase in private sector investment with the financial system in sturdy shape to support the country’s economic recovery. This projection is in line with the World Bank’s and Asian Development Bank’s recent predictions of 8.7% and 7.5% real GDP growth for FY23, respectively. However, concerns surrounding the slow government spending to consolidate its expenses may pose a threat. India currently has the highest fiscal deficit among its peer nations and debt is at an all-time high. With the economy gradually coming out of the pandemic’s shadow and showing signs of a steady recovery, pent-up demand will probably sustain the growth momentum. This shows there is probably a lesser need for a stimulus package from the government. Besides, the government would like to build its capacity to respond to future adversities in case they arise. Another risk to the economy is the rising inflation rates. Recent spikes in inflation have concerned policymakers as pent-up demand rose faster than supply.

III. RICE INDUSTRY OVERVIEW

GLOBAL RICE INDUSTRY

Rice is one of the three major crops cultivated worldwide, along with wheat and corn. However, rice is the most important crop that is used as a primary food source. In developing countries, the availability of rice is closely tied to the food security and political stability. Feeding more than half of the global population, just 10 countries produce nearly 84% of the global rice requirement. The most important crop to millions of small farmers across the globe, globally over 700 million tons of rice (470 million tons of milled rice) is produced annually and nearly 90% of the production comes from Asia.

Annual global rice production in the 2021- 22 rice sowing season is expected to be around 510.8 million tons (milled basis), down 0.9 million tons from the previous forecast but 3.6 million tons higher than last year’s production. Global rice consumption in the 2021- 22 season is expected to be around 510.9 million tons, down almost 0.4 million tons from the previous forecast, but nearly 8.9 million tons higher than the previous year.

INDIAN RICE INDUSTRY OVERVIEW

Thanks to the favorable climatic conditions prevailing in India, over the years, the nation has emerged as the second largest rice-growing country worldwide. It doesn’t matter how it’s cooked - steamed, boiled or fried - rice is included in pretty much every meal of the day in India. Today, India produces more than 20% of the global rice requirement from its 47 million hectares of rice plantation area - only 2.4% of the global land. Grown across India, different rice varieties are grown at different time of the year. However, the majority of the rice produced in India is during the Kharif season (the Kharif season in India starts from June and ends in September during the southwest monsoon). Eastern, North-eastern and Southern India are major rice- producing region because of a conducive climate throughout the year. Despite being the staple food for majority of the Indians, the rice industry is still largely dominated by unorganized players owing to the easy availability of rice from a large number of local stores (both retailer and small- time dealers). But in the recent years, the organized and packed rice segment has gained traction thanks to India’s growing middle-class population coupled with the increasing consumer consciousness towards food safety and quality. Moreover, the rising penetration of organized food retail outlets offering different varieties of packaged rice is further catalyzing the market growth in the country. Additionally, the shifting consumer preferences towards an energy-rich, carbohydrate-based diet for reducing the risk of numerous chronic ailments, are also propelling the product demand. Apart from this, elevating consumer living standards, particularly across Tier 1 and Tier 2 cities, are further bolstering the sale of premium and specialty packaged rice products. Moreover, the expanding HoReCa sector, along with the growing prominence of high-grade packaged rice with sleek grains, unique aroma and taste, prolonged shelf-life, etc., is positively influencing the regional market.

Further, the implementation of various government initiatives, such as the National Food Security Mission (NFSM), for boosting domestic production and improving the storage capacity of rice in India is acting as another growth- inducing factor for the organized segment. Moreover, several key players have launched innovative packaging solutions in the form of zip lock pouches and flexible pouches for convenient usage and easy storage, which is further expected to India the packaged rice market in India in the coming years. Reaching a volume of 10.96 million tons in 2021, the Indian packaged rice industry is expected to reach a volume of 15.33 million tons by 2027 after growing at a CAGR of 6.10%. In a bid to aid the rice farmers of India, the government has periodically increased MSP and as a result, the MSP almost doubled in the last decade. The government announced the MSP at Rs. 1,940 per quintal for ‘common paddy’ and Rs. 1,960 for ‘Grade-A paddy’ for the marketing year 2021-22.

EXPORT SCENARIO

India is one of the major rice exporters of the world and meets nearly 25% of the global rice demand. Although basmati rice dominates the Indian rice export but in the last few years non- basmati rice has gained traction in the international market. According to the data published by the DGCIS, the Government of India, India registered a 27% growth in export of non-basmati rice to touch $6.12 billion in 2021-22 compared to $4.8 billion in 2020- 21 and $2.01 billion in 2019-20. India’s non-basmati rice exports have gone up by 109% from $2.92 billion in 2013-14.

But for the third consecutive year, exports of Basmati rice saw a fall over the previous year in value terms. In 2021-22, India exported 3.53 billion dollars’ worth of Basmati rice, the lowest since 2019-20. According to the experts, one of the key reasons for the decline is the loss of the traditional market of Iran because of the US sanctions.

IV. Market Trends, Drivers, and Challenges

In the era of technology advancement, there is trend of producing genetically modified (GM) rice to ascertain the quality of rice and food security. Though commercially there is no production of GM rice, but many varieties have been approved for commercial production which is expected to boost the India rice industry.

Rice is a staple crop for 70% of the world and thus the demand for rice is expected to continue to grow over the forecast period. The food security concerns all over the world is driving the growth of the India rice industry, which by exporting rice to various countries is contributing towards global food security.

With the climate change, continuous rising demand by consumers and the food security, rice industry is facing the challenge of producing rice without compromising on efficiency, equitability, environmentally-fTiendly, and more resilience to climate change. It has become imperative to produce rice at lesser land, with lesser water and labor. India is also facing lack of adequate agriculture infrastructure such as technologically advanced equipment, transportation network, and effective public private partnership.

Key Growth Drivers

S Shift in market towards packaged food and branded, organised players S Upsurge of modern retail driving penetration and consumption

S Emergence of the omni-channel consumer comfortable in making both offline and online purchases S Steady disposable incomes driving demand for premium and semi-premium products S Evolving consumer taste to try out new and innovative products

S Rise of large consumer internet companies in the food delivery space creating new consumption avenues

Some of the threats that the company is exposed to are as follows:

• Commodity Price Risks

The Company is exposed to the risk of price fluctuation of raw material as well as finished goods. The company proactively manages these risks through forward booking, Inventory management and proactive vendor development practices. The Company’s reputation for quality, product differentiation and service, coupled

with existence of powerful brand image with robust marketing network mitigation the impact the impact of price risk on finished goods.

^ Legal and regulatory compliance risk

Our activities in India and in the countries where we export our products to is subject to close government oversight. Various laws govern food production, supply and distribution, and it is imperative that we comply to these laws to ensure our status as a going concern.

^ Human Resources Risks

Retaining the existing talent pool and attracting new talent are major risks. The company has initialed various measures including rolling out strategic talent management system, training and integration of learning and development activities.

^ Strategic Risks

Emerging businesses, capital expenditure for capacity expansion, etc., are normal strategic risk faced by the company. However, the company has well-defined processes and procedures for obtaining approvals for investments in new business and capacity expansion etc.

^ Competition Risks

The foodgrains industry is highly competitive, with a number of global, pan-India, regional and local companies. Failure to effectively address competitive challenges could adversely affect our business.

^ Unanticipated business disruption risks

Failure to effectively prepare for and respond to unanticipated disruptions in operations can cause delays in delivering products to our consumers, leading to a negative impact on our business.

V. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUECY

Mishtann Foods Limited believes that safeguarding of assets and business efficiency can be prolonged by exercising adequate internal controls and standardising operational processes.

The Company possesses a robust internal control system to review performance, track operations and gauge liquidity. The system also ensures that all transactions are duly reported and all assets are properly safeguarded. Timely review of operations and recommendations of auditors allow the Company to make corrections whenever and wherever necessary.

Some of the major features of the Company’s internal control systems that reflect sufficient adequacy include the following:

• Adequate articulation and documentation of policies and guidelines

• Preparation and monitoring of annual budgets through ongoing reviews

• Strong compliance management systems that amplify monitoring, surveillance and response

• Well-defined delegation of power with authority limits for approving revenue and capital expenditure, which is reviewed on a needs-based basis

• Use of enterprise resource planning (ERP) system to record data for accounting and consolidation and also for management information purposes

• Periodic engagement of outside experts to carry out independent reviews of the effectiveness of various business processes

Furthermore, internal audit is carried out in accordance with auditing standards to review design and effectiveness of internal control systems and procedures to manage risk, enable operational monitoring control and ensure compliance with relevant policies and procedures. Moreover, the Audit Committee of the Board regularly reviews execution of the audit plan, the adequacy and effectiveness of internal audit systems and monitoring of implementation of internal audit recommendations, including those relating to bolstering the Company’s risk management policies and systems.

VI. HUMAN RESOURCES

The Mishtann Foods family comprises 10 full-time employees and their dependants. The Company believes that its employees are its biggest asset, focusing on their personal and professional advancement through a culture of empowerment, trust and career growth.

HR Aim

Establishing healthy linkages to continuous improvement in productivity, quality, cost competitiveness and efficiency

Carrying out continuous improvements in all areas of work to increase competitiveness and retain customer focus

Simplifying complex problems to focus on critical issues and maintain a lean organisation structure S Empowering and motivating the employees to do their best through decentralised operations S Recruiting the right candidates with positive attitude and growth potential S Specifications of qualifications and experience customised for different jobs

Providing opportunities of employment for all irrespective of caste, religion, region or any other criteria S Rewards and recognition based on meritocracy and achievement of prestated target S Providing proper induction and orientation to all levels and share the group visions for early integration in the group

Developing a sense of pride, belongingness, pleasure and social fulfilment in being a member of Mishtann family

Providing opportunity at all levels to participate in the decision making process of the Company S Providing feedback to the employees on their performance, strengths and weakness to increase efficiency

VII. FINANCIAL PERFORMANCE REVIEW

He company recorded total income of Rs. 49,858 lacs, higher by 41.98% as compared to the previous year. EBIDT of the company stood at Rs. 5,201 lacs as compared to Rs.677 lacs in previous year.

Particulars 2021-2022 2020-2021
Total revenue from operations 498,58,86,777 351,07,13,619
Earnings before interest, depreciation and tax (EBIDT) 52,01,74,468 6,77,07,103
PBT 47,26,94,403 1,01,60,447
PAT 31,41,27,423 73,36,396
EPS 0.01

VIII. KEY FINANCIAL RATIOS

Key financial ratios for FY2021-22 compared to the last financial year are given below

Particulars 2021-2022 2020-2021
Return on capital employed (%) 42.96 7.44
Return on equity (%) 31.05 1.05
Net debt to equity 0.59x 0.83x
Net working capital 72 Days 71 Days
Operating profit margin (%) 10.24% 2.59%
Net profit margin (%) 6.30% 0.21%

CAUTIONARY STATEMENT

The statements in the management discussion and analysis section with regard to projections, estimates and expectations have been made in good faith. The achievement of results is subject to risks, uncertainties and even less than accurate assumptions. Market data and information are gathered from various published and unpublished reports. Their accuracy, reliability and completeness cannot be assured.

For and on behalf of the Board
Date: 07-09-2022 Hiteshkumar Gaurishankar Navinchandra Dahyalal
Place: Patel Patel
Ahmedabad Managing Director Director
(DIN: 05340865) (DIN: 05340874)