neopolitan pizza ltd Management discussions

You should read the following discussion of our financial condition and results of operations together with our restated financial statements for the nine months period ended 31^st December 2023 and for the financial year ended on 31^st March 2023, 31^st March 2022 and 31^st March 2021 including the notes and significant accounting policies thereto and the reports thereon, which appear elsewhere in this Draft prospectus. You should also see the section titled "Risk Factors" beginning on page 24 of this Draft prospectus, which discusses a number of factors and contingencies that could impact our financial condition and results of operations. The following discussion relates to our Company, unless otherwise stated, is based on restated audited financial statements.

These financial statements have been prepared in accordance with Ind GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditors dated March 01, 2024 which is included in this Draft prospectus under the section titled "Financial Information as Restated" beginning on page 173 of this Draft prospectus. The restated financial statements have been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. We do not provide a reconciliation of our restated financial statements to US GAAP or IFRS and we have not otherwise quantified or identified the impact of the differences between Indian GAAP and U.S. GAAP or IFRS as applied to our restated financial statements.

This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those described under "Risk Factors" and "Forward Looking Statements" beginning on pages 24 and 16 respectively, and elsewhere in this draft prospectus

Accordingly, the degree to which the financial statements in this draft prospectus will provide meaningful information depends entirely on such potential investors level of familiarity with Indian accounting practices. Our F.Y. ends on March 31 of each year; therefore, all references to a particular fiscal are to the twelve-month period ended March 31 of that year. Please also refer to section titled "Certain Conventions, Use of Financial, and Market Data and Currency Presentation" beginning on page 02 of this draft prospectus.

BUSINESS OVERVIEW

Our Company was originally incorporated as Private Limited Company in the name of "JRM Fertilizer Private Limited" on February 05, 2011 under the provision of the Companies Act, 1956 bearing Corporate Identification Number U24123GJ2011PTC063940 issued by Registrar of Companies, Gujarat, Dadra and Nagar Havelli. Subsequently, the name was changed to "Neopolitan Pizza Private Limited" vide a fresh Certificate of Incorporation consequent upon Change of Name dated June 19, 2012 and since then, commenced its business in bringing the most loved food in the world – "Pizza" to the unique and rich heritage of India, giving Pizza a unique twist as per the Indian dietary preferences. Our journey of offering a single item to our customers to a full-fledged menu as well as Unlimited Fusion Italian Pizza Meal is remarkable and the credit goes to our promoter and founder Mukund Purohit for providing the pillar to create this business model.

Subsequently, our company was converted into Public Limited Company under the Companies Act, 2013 and the name of our Company was changed to "Neopolitan Pizza Limited" vide a fresh Certificate of Incorporation consequent upon conversion from Private Company to Public Company dated October 22, 2014 bearing Corporate Identification Number U24123GJ2011PLC063940 issued by Registrar of Companies – Ahmedabad. Our Company got listed on Emerge ITP Platform of National Stock Exchange of India Limited (NSE) on November 03, 2014. Further, Our Company had made an application for delisting and NSE vide its letter dated May 31, 2018 hereby notified that the securities shall be delisted w.e.f. June 07, 2018 (i.e. w.e.f. closing hours of trading on June 06, 2018). Further the admissions to dealings in the securities were withdrawn w.e.f. June 14, 2018.

Neopolitan Pizza Limited operates in two segments, namely the restaurant business and the trading of agricultural commodities. In the restaurant business, the company owns and operates its own restaurants as well as operates through a franchise model. The company offers Neopolitan-style pizza, which is a traditional Italian pizza made with fresh ingredients. The menu includes a variety of toppings, and the company offers gluten-free and vegetarian options. The brand was named "Neopolitan Pizza" a name derived from little village of Italy where Pizza originated. The concept continued to thrive after adopting the Unlimited Buffet idea "ALL YOU CAN EAT". Neopolitan Pizza is ISO 22000:2018 Certified company. The newly re-designed and rebranded Neopolitan Pizza concept pushes the limits of the regular restaurant experience by offering a variety of Soup,

Exotic Salads, freshly baked Bread, Pasta, Hand Tossed Pizza and Dessert including such popular items as flat bread pizzas and many more. The concept of Neopolitan Pizza is very family oriented and kid friendly.

In addition to the restaurant business, Neopolitan Pizza Limited also engages in the trading of agricultural commodities. The company deals in products such as wheat, rice, tomatoes, onions, and other such products. The trading segment of the business aims to source high-quality agricultural products from trusted suppliers and sell them to customers at competitive prices. The companys strategy is to leverage its expertise in the food industry to offer a unique and high-quality dining experience to its customers while also diversifying its revenue streams by engaging in commodity trading. The companys focus on sourcing high-quality ingredients for its pizza also applies to its trading business, where the company aims to ensure that its products meet strict quality standards.

Neopolitan Pizza specializes in take-out and delivery of pizza made from the freshest and top-quality ingredients. Our franchisees follow the same strict guidelines when preparing any Neopolitan Pizza products, thus guaranteeing consistent quality across all outlets. With the vision of providing quality food with a quick and efficient service at a very affordable price, the group of Indo Canadian Entrepreneurs, led by Mr. Mukund Purohit plans to open ‘Neopolitan Pizza outlet at Multiple locations across India. The choice of the menu and the needed supply chain has already been built for an easy multi location/cities scale up in form of Company stores and the franchisee network.

Our Promoters Mukund Purohit and Arti Mukund Purohit have more than 15 years of experience in Quick Service Restaurants (QSR) Industry as well as Food & Beverages industry and with his innovative business ideas, in-depth knowledge and excellent management skills, we have served our customers proficiently.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST AUDITED PERIOD

In the opinion of the Board of Directors of our Company, since the date of the last audited period i.e., December 31,2023 as disclosed in this draft prospectus, there have not arisen any circumstance that materially or adversely affect or are likely to affect the trading or profitability of our Company or the value of its assets or its ability to pay its material liabilities within the next twelve months except as follows:

1. The Board of Directors have decided to get their equity shares listed on SME Platform of BSE Limited and pursuant to Section 62(1)(c) of the Companies Act 2013, by a resolution passed at its meeting held on November 20, 2023 proposed the Issue, subject to the approval of the shareholders and such other authorities as may be necessary.
2. The shareholders of the Company have, pursuant to Section 62(1)(c) of the Companies Act 2013, by a special resolution passed in the Extra Ordinary General Meeting held on December 14, 2023 authorized the Initial Public Offer.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATION

1. Covid-19 pandemic.
2. Our dependence on limited number of customers/suppliers/brands for a significant portion of our revenues;
3. Any failure to comply with the financial and restrictive covenants under our financing arrangements;
4. Our ability to retain and hire key employees or maintain good relations with our workforce;
5. Impact of any reduction in sales of our services/products;
6. Rapid Technological advancement and inability to keep pace with the change;
7. Increased competition in industries/sector in which we operate;
8. General economic and business conditions in India and in the markets in which we operate and in the local, regional and national economies;
9. Changes in laws and regulations relating to the Sectors in which we operate;
10. Political instability or changes in the Government in India or in the government of the states where we operate could cause us significant adverse effects;
11. Failure to obtain any applicable approvals, licenses, registrations and permits in a timely manner;
12. Occurrence of natural or man-made disasters could adversely affect our results of operations and financial condition and
13. Our inability to successfully diversify our product offerings may adversely affect our growth and negatively impact our profitability.

SIGNIFICANT ACCOUNTING POLICIES:

Our significant accounting policies are described in the section entitled "Financial Statements as Restated"

beginning from page no. 172 of the draft prospectus.

SUMMARY OF THE RESULTS OF OPERATION:

The following table sets forth select financial data from restated profit and loss accounts for the nine months period ended 31st December 2023and for financial year ended on 31^st March 2023, 31^st March 2022 and 31^st March 2021 and the components of which are also expressed as a percentage of total income for such periods.

(Rs in Lakhs)

Particulars	For the year ended
	31-12-2023	% of Total Revenue	31-03-2023	% of Total Revenue	31-03-2022	% of Total Revenue	31-03-2021	% of Total Revenue
(1) Revenue
(a) Revenue from Operations	3032.70	99.98%	2003.54	99.95%	1629.57	99.92%	670.68	99.99%
(b) Other Income	0.56	0.02%	1.07	0.05%	1.24	0.08%	0.07	0.01%
Total Revenue (1)	3033.27	100.00%	2004.61	100.00%	1630.82	100.00%	670.76	100.00%
(2) Expenses
Purchase	2658.38	87.64%	2118.87	105.70%	1478.73	90.67%	588.44	87.73%
Change in Inventories	46.81	1.54%	(417.41)	-20.82%	0.00	0.00%	3.03	0.45%
Employee Benefit Expenses	49.08	1.62%	34.12	1.70%	22.48	1.38%	8.22	1.23%
Other Expenses	32.46	1.07%	43.09	2.15%	36.94	2.27%	25.78	3.84%
Total Expenses (2)	2786.73	91.87%	1778.68	88.73%	1538.15	94.32%	625.47	93.25%
(3) Profit/(Loss) before Interest, Depreciation and Tax (1-2)	246.54	8.13%	225.93	11.27%	92.67	5.68%	45.29	6.75%
Depreciation & Amortisation Expenses	31.57	1.04%	42.07	2.10%	42.81	2.63%	18.58	2.77%
(4) Profit/(Loss) before Interest and Tax	214.97	7.09%	183.87	9.17%	49.86	3.06%	26.71	3.98%
Financial Charges	0.16	0.01%	30.10	1.50%	18.52	0.01	13.95	0.02
(5) Profit/(Loss) before Tax	214.81	7.08%	153.77	7.67%	31.33	1.92%	12.76	1.90%
Tax expense
(a) Current Tax	56.17	1.85%	26.42	1.32%	0.28	0.02%	0.00	0.00%
(b) Deferred Tax	(1.49)	-0.05%	10.27	0.51%	12.89	0.79%	1.15	0.17%
(c) MAT Credit	0.00	0.00%	0.28	0.01%	(0.28)	-0.02%	0.00	0.00%
Total Tax Expenses	54.68	1.80%	36.96	1.84%	12.89	0.79%	1.15	0.17%
(6) Profit/(Loss) for the period/ year	160.13	5.28%	116.80	5.83%	18.44	1.13%	11.61	1.73%

MAJOR COMPONENTS OF OUR STATEMENT OF PROFIT AND LOSS

Income

Our total income comprises of revenue from operations and other income.

Revenue from Operations

Revenue from operations comprises revenues from restaurant sales and agriculture commodity sales.

Other Income

Other income comprises of discount received, interest income and other miscellaneous income.

Expenditure

Our total expenditure primarily consists of cost of Material Consumed, employee benefit expenses, finance costs, Depreciation and Other Expenses.

Employee Benefit Expenses

Our employee benefits expense comprises of Salaries and wages, Director Remuneration, & Staff Welfare Expenses.

Finance costs

Our Finance cost expenses comprises of Interest Expenses & other borrowing costs.

Other Expenses

Other expenses primarily include Rent Expenses, Freight & Transportation, Insurance Charges, Rates and Taxes etc.

Provision for Tax

The provision for current taxation is computed in accordance with relevant tax regulation. Deferred tax is recognized on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or subsequently enacted as on balance sheet date. Deferred tax assets are recognized and carried forward to the extent that there is a virtual certainly that sufficient future taxable income will be available against which such deferred tax assets can be realized in future.

FINANCIAL PERFORMANCE HIGHLIGHTS FOR THE PERIOD ENDED 31^st DECEMBER 2023

Income

The total income of our company for the period ended 31st December, 2023 was ? 3033.27 lakhs.

Expenditure

Cost of Raw Material Consumed

For the period ended 31st December, 2023, our Company incurred cost for raw materials ? 2705.19 lakhs.

Employee Benefit Expenses

For the period ended 31st December, 2023, our Company incurred for employee benefit expenses ? 49.08 lakhs.

Finance Costs

The finance costs for the period ended 31st December, 2023 was ?0.16 lakhs.

Other Expenses

For the period ended 31st December, 2023, our other expenses were ?32.46 lakhs.

Profit/ (Loss) before Tax

Our Company had reported a profit before tax for the period ended 31st December, 2023 of ? 214.97 lakhs

Profit/ (Loss) after Tax

Profit after tax for the period ended 31st December, 2023 was at ? 160.13 lakhs

COMPARISON OF THE FINANCIAL PERFORMANCE OF F.Y. 2022-23 WITH F.Y. 2021-22

The total income for FY 2022-23 has increased from Rs. 1630.82 lakhs for FY 2021-22 to Rs. 2004.61 lakhs for F.Y.2022- 23 mainly due to increase in revenue from operations as detailed below.

Income

Revenue from Operations

Revenue from operations experienced a notable increase of 22.95%, rising from Rs. 1629.57 lakhs in FY 2021-22 to Rs. 2003.54 lakhs in FY 2022-23. This growth was primarily driven by a significant uptick in agricultural trading revenue

Other Income:

However, other income witnessed a slight decline, decreasing by 13.73% from Rs. 1.24 lakhs in FY 2021-22 to Rs. 1.07 lakhs in FY 2022-23. This decrease was primarily attributable to a decline in interest income.

Expenditure:

Cost of Material Consumed:

The cost of material consumed increased by 15.06% to Rs. 1701.47 lakhs in FY 2022-23, up from Rs. 1478.73 lakhs in FY 2021-22. This increase was driven by higher agricultural and restaurant purchases.

Employee Benefit Expenses:

Employee benefit expenses surged by 51.79%, reaching Rs. 34.12 lakhs in FY 2022-23 from Rs. 22.48 lakhs in FY 2021-22. This rise was primarily due to increased salary expenses.

Depreciation & Amortisation:

Depreciation & amortization expenses decreased marginally to Rs. 42.07 lakhs in FY 2022-23, compared to Rs. 42.81 lakhs in FY 2021-22.

Finance Cost:

Financial charges witnessed a significant increase of 62.48%, rising to Rs. 30.10 lakhs in FY 2022-23 from Rs. 18.52 lakhs in FY 2021-22. This surge was attributed to prepayment of loans.

Other Expenses:

Other expenses saw an increase of 16.64%, rising from Rs. 36.94 lakhs in FY 2021-22 to Rs. 43.09 lakhs in FY 2022-23. The rise was primarily driven by increased rent expenses and stamp duty charges.

Profit Before Tax (PBT):

The companys PBT witnessed an exceptional surge, increasing from Rs. 31.33 lakhs in FY 2021-22 to Rs. 153.77 lakhs in FY 2022-23. This remarkable growth, amounting to 390.75%, was primarily attributable to an improvement in profitability margins.

Profit After Tax (PAT):

Consequently, PAT experienced a remarkable surge of 533.26%, soaring from Rs. 18.44 lakhs in FY 2021-22 to Rs. 116.80 lakhs in FY 2022-23. This substantial growth underscores the companys enhanced financial performance and operational effectiveness during the fiscal year.

In conclusion, Company demonstrated commendable financial resilience and growth in FY 2022-23, driven by strategic endeavours and operational excellence across various segments, leading to a significant enhancement in both top-line and bottom-line performance.

COMPARISON OF THE FINANCIAL PERFORMANCE OF FISCAL 2022 WITH FISCAL 2021

Income

Revenue from operations

The revenue from operations witnessed a substantial increase, soaring to ? 1629.57 lakhs in FY 2021-22 from ? 670.68 lakhs in FY 2020-21, marking a remarkable growth of 142.97%. This surge was primarily driven by the expansion of new restaurants and an increase in the volume of agricultural trading.

Other Income:

Other income experienced a reduction of 1593.70%, decreasing to ? 1.24 lakhs in FY 2021-22 from ? 0.07 lakhs in FY 2020- 21, mainly due to a decrease in interest income.

Expenditure:

Cost of Material Consumed:

The cost of material consumed surged by 151.81% to ? 1478.73 lakhs in FY 2021-22 from ? 591.47 lakhs in FY 2020-21. This sharp increase was attributed to both increased material purchases and rising material prices.

Employee Benefit Expenses:

Employee benefit expenses rose by 173.53% to ? 22.48 lakhs in FY 2021-22 from ? 8.22 lakhs in FY 2020-21, driven by an increase in the workforce and salary expenses.

Finance Costs:

Finance costs increased by 32.80% to ? 18.52 lakhs in FY 2021-22 from ? 13.95 lakhs in FY 2020-21 because of increase in borrowings.

Other Expenses:

Other expenses increased by 43.33% to ? 36.94 lakhs in FY 2021-22 from ? 25.78 lakhs in FY 2020-21, proportional to the increase in revenue from operations, commission and brokerage charges, and legal expenses.

Profitability:

Profit Before Tax (PBT):

The company reported a substantial increase in profit before tax, reaching ? 31.33 lakhs in FY 2021-22 from ? 12.76 lakhs in FY 2020-21, representing a remarkable growth of 145.51%. This surge was attributed to higher revenue from operations and cost optimization efforts.

Profit After Tax (PAT):

Profit after tax surged to ? 18.44 lakhs in FY 2021-22 from ? 11.61 lakhs in FY 2020-21, reflecting a significant increase of 58.83%. This increase was primarily driven by the growth in profit before tax.

Cash Flows

Particulars	For 9 months ended December 31, 2023	For the Financial Year ended March 31
		2023	2022	2021
Net Cash flow (used in)/ from Operating Activities	321.44	(272.91)	(508.92)	(19.51)
Net Cash flow (used in)/ from Investing Activities	(302.11)	54.32	(38.70)	(272.96)
Net Cash flow (used in)/ from Financing Activities	(20.85)	236.99	549.07	287.03
Net Increase/ (decrease) in cash/ cash equivalents	(1.52)	18.39	1.46	(5.45)
Cash and Cash equivalents at the beginning	22.64	4.24	2.79	8.23
Cash and Cash equivalents at the end	21.12	22.64	4.24	2.79

Cash Flows from Operating Activities

Net cash from operating activities for the period year ended 31st December, 2023, was ? 321.41 lakhs as compared to the Profit Before Tax at ? 214.81 lakhs. Net cash from operating activities for the year ended 31st March 2023, was ? (272.91) lakhs as compared to the Profit Before Tax at ? 153.77 lakhs. Net cash from operating activities for the year ended 31^st March 2022 was at ? (508.92) lakhs as compared to the Profit Before Tax at ? 31.33 lakhs while for the year ended 31^st March 2021, net cash from operating activities was at ?(19.51) lakhs as compared to the Profit Before Tax at ? 12.76 lakhs.

Cash Flows from Investment Activities

Net cash from investing activities for the period year ended 31st December, 2023 was ? (302.11) lakhs is attributed to the long-term investment made by the company in the agriculture trading sector. Net cash from investing activities for the year

ended 31st March 2023 was ? 54.32 lakhs this was due to the decrease in the long-term loans and advance. Net cash flow from investing activities for the year ended 31^st March 2022 was at ? (38.70) lakhs due to increase in the long-term loans and advance. While for the year ended 31^st March 2021, net cash flow from investing activities was at ? (272.96) lakhs due to purchase of fixed assets.

Cash Flows from Financing Activities

Net cash from financing activities for the period year ended 31st December, 2023 was ? (20.85) lakhs due to repayment of loan. Net cashflow from financing activities for the year ended 31st March 2023 was ? 236.99 lakhs is attributed to issue of the equity shares. Net cash from financing activities for year ended 31^st March 2022 was at ? 549.07 lakhs due to issue of new equity shares, while for the year ended 31^st March 2023, net cash from financing activities was at ? 287.03 lakhs majorly due to the due to issue of new equity shares and loan taken.

AN ANALYSIS OF REASONS FOR THE CHANGES IN SIGNIFICANT ITEMS OF INCOME AND EXPENDITURE IS GIVEN HEREUNDER:

1. Unusual or infrequent events or transactions

Except as described in this Draft Prospectus, during the periods under review there have been no transactions or events, which in our best judgment, would be considered unusual or infrequent.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations. There are no significant economic changes that may materially affect or likely to affect income from continuing operations except the Covid-19 pandemic which is still to be controlled. However, Government policies governing the sector in which we operate as well as the overall growth of the Indian economy has a significant bearing on our operations. Major changes in these factors can significantly impact income from continuing operations.
3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 24 in the draft prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Expected Future changes in relationship between costs and revenues

Our Companys future costs and revenues will be determined by demand/supply situation, Government Policies and Taxation and Currency fluctuations.

5. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or increased sales prices

Changes in revenue in the last financial years are as explained in the part "Comparison of the financial performance of above.

6. Total turnover of each major industry segment in which our Company operates

The Company is mainly engaged in operations of Quick Service Restaurants and trading of Agricultural Commodities and all the activities of the business revolve around this main business. Therefore, there are no separate reportable segments.

7. Status of any publicly announced New Products or Business Segment

Apart from the recent business initiatives discussed in "Our Business" on page 113, we currently have no plans to develop new products or establish new business segments.

8. Seasonality of business

While we do not characterize our business as seasonal, our income and profits may vary from quarter to quarter depending on factors including change in weather, outbreak of viral and seasonal diseases.

9. Competitive conditions

Competitive conditions are as described under the Chapters "Industry Overview" and "Our Business" beginning on page 95 and 113 respectively of the draft prospectus.

10. Details of material developments after the date of last balance sheet i.e., December 31, 2023

Except as mentioned in this draft prospectus, no circumstances have arisen since the date of last financial statement until the date of filing the draft prospectus, which materially and adversely affect or are likely to affect the operations or profitability of our Company, or value of its assets, or its ability to pay its liability within next twelve months.