modi naturals ltd share price Management discussions


Indian Economy Overview and Industrial Outlook

India witnessed major economic disruptions in Financial Year (FY) 2020-21, as the outbreak of COVID-19 perversely impacted human health and safety of the countrys inhabitants. This prompted the government to undertake one of the worlds tightest lockdowns. Mobility restrictions and social distancing led to unparalleled supply-chain disruptions and consumer demand fallout. This forced the Indian GDP to contract by 8.0% in FY 2020-21 as against a growth of 4.0% in FY 2019-20, marking a recession since 1980.

(Source: IMF World Economic Outlook, April 2021)

Industry experts have pegged the growth of the Indian FMCG industry at 9.4% in the January-March quarter of 2021. This is primarily due to growth in consumption and value growth due to increase in prices. (Source: www.business-standard.com/FMCG Sector/Nielson)

Despite the challenges posed by the pandemic in FY 2020-21, the outlook for FY 2021-22 seems promising. This is largely attributed to mass vaccination drives, normalising business activities, the governments thrust on reviving infrastructure sector and revival in housing demand backed by historically low-interest rates.

(Source: https://www.businesstoday.in/current/economy-politics/india-steps-out-of-recession--gdp-grows-xx-in-dec-quarter/story/432461.html)

Threats and Opportunities

The Indian edible oil market continues to be underpenetrated and thereby holds immense business opportunities.

The Indian edible oil market is expected to witness robust expansion in the near future. However, rising edible oil prices and lower priced competitors are expected to be the challenges for this sector.

Segment, Product wise Performance

FY 2020-21 has been a year with significant challenges, owing to the lockdown due to the first wave of COVID-19. The Company ensured service to the customers by managing the logistics and depot operations, despite the challenges. It has also been agile in managing the overall uncertainties across the supply chain to ensure that the business and customers have been well served.

Today, Modi Naturals is firmly established as a dominant player in edible oil industry, with a pan-India presence, well-diversified product basket and multiple brands. Your Companys flagship brand, “OLEEV” is a leading name in the edible oil market, and it caters to the premium segment of the market.

The companys branded product portfolio includes Oleev Olive oil, Oleev Active oil (Blend of Olive oil and Rice Bran Oil), Oleev Health Oil (Multisource Oil) Oleev Smart Oil (Multisource oil), Rizolo Rice bran oil, Miller Canola Oil and Olivana Wellness Oil. Your Company also owns the ‘PIPOBrand in ready-to-cook foods category. In the non-branded segment, the company manufactures and markets Rice Bran oil, Rice Bran wax and De-oiled cakes.

In the multisource edible oil category, the ‘Oleev Active has continued to increase its dominance. During the year, the response to the ‘PIPO Popcorn range has been promising.

The growth was driven by distribution expansion and innovation, including new age channels of Modern Trade & E-commerce, further backed by significant media investments and promotions.

The company is present on all e-commerce platforms including Amazon, Big Basket, Flipkart, Grofers and JioMart. Further, the company is widely distributed in 2,500 organized modern retail outlets and also has around 450 distributors pan India with a direct reach of about 50,000 retail stores, which we will use to penetrate further in ready-to-cook foods category.

The COVID-19 pandemic, while completely changing the way we live and do business, has also given us an opportunity to be innovative in our approach. The Company constantly aims to meet the evolving needs of its customers and delight them through innovative and value-for-money products. It achieves this through its state-of-the art and modern R&D facilities which is supported by advanced instrumentation and experienced management.

Your Company is placed competitively in the industry and is determined to grow market share and profitability sustainably through focus on developing top-notch products coupled with extensive advertising and promotional campaigns.

Outlook

Despite the short-term slowdown in the economy and the disruptions caused by the pandemic COVID-19, the long-term outlook for the Company remains optimistic. The outlook for FMCG industry seems promising owning to recovery in economic growth and improving consumer sentiments. The industry provides ample growth opportunities, driven by growing population and urbanization, and increasing demand for value-added products. The Company strives to leverage these opportunities and create innovative products that meet diverse consumer requirements. Further, the Companys expenditure on marketing and advertising would help to reinforce its brands.

Risk Management

Business risks exist for any enterprise having national and international exposure. Your Company also faces some such risks, the key ones being - inadequate supply of raw materials and price fluctuations, a longer than anticipated delay in economic revival, competition from new players as well as present ones, and look-alikes and any unexpected changes in regulatory framework.

The Company is well aware of these risks and challenges and has put in place mechanisms to ensure that they are managed and mitigated with adequate timely actions.

Internal Control Systems and its adequacy

Your Company has an adequate system of internal controls in all areas of its operations such as purchase, sale, acquisitions of fixed assets, cash & bank, including suitable monitoring procedures and competent personnel. The Company has set up an Audit Committee comprising of Non-Executive Independent Directors. The Company has also appointed the firm of Chartered Accountants to carry out Internal Audit, where one of their functions is to review the Internal Control system regularly, with a view to further strengthen the same.

Review of Operations and Ratio Analysis

Your Company, during the fiscal 2021, recorded revenue from operations of Rs. 44269.62 lac, a growth of 13.99% over previous year. The Profit Before Tax (PBT) was Rs. 1396.75 lac against Rs. 360.76 lac in the previous year. The Profit After Tax (PAT) was Rs.1051.60 lac against Rs. 462.57 lac in the previous year.

The Company has been continuously striving to strengthen supply chain processes, manufacturing operations, marketing & human resource management and back-end operations which is demonstrated in the Companys performance during the year 2020-21.

Company has four production facilities to cover manufacturing footprints across India. Broadly, Edible Oil products are manufactured at factories situated in Uttar Pradesh & Telangana regions. Out of four manufacturing facilities, two units are located at Pilibhit (Uttar Pradesh), one unit in Hyderabad (Telangana), and one in Sonipat (Haryana) for manufacturing of all variants of edible oil and other food products.

The Company has identified following ratios as key financial ratios in FY 2020-21:

Sl. Units

IND-AS

No. Ratios FY 2021 FY 2020
1. Debtors Turnover Ratio Times 23.52 26.92
2. Inventory Turnover Ratio Times 5.57 4.94
3. Interest Coverage Ratio Times 12.68 2.41
4. Current Ratio Times 2.06 1.68
5. Debt-Equity Ratio Times 0.79 1.09
6. Operating Profit Margin % 3.44 1.59
7. Net Profit Margin % 3.17 0.93
8. Earnings Per Share 8.31 3.69

Human Resource and Industrial Relations

The Company lays great emphasis on proper management of human resources and believes that this is the most important ingredient for achieving excellence in performance and sustainable growth. The Management of your Company put utmost efforts to strengthen the existing work force and retaining them to enhance the human resource capability in the Company.

As on 31st March 2021, the Company had 573 employees on its payroll. The Companys industrial relations are cordial at all locations.

The Directors of your Company deeply appreciate the spirit and commitment of its dedicated team of employees.

Cautionary Statement

Estimates and expectations stated in this Management

Discussion and Analysis Report may be “forward-looking statements” within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to your Companys operations include economic conditions affecting demand/ supply and price conditions in the domestic and international markets, changes in the Government regulations, tax laws, and other statutes and incidental factors.