Nitta Gelatin India Ltd Management Discussions

Gelatin is a translucent, colorless, flavorless food ingredient derived from Collagen, which Is a natural protein found In the skin, bones and connective tissues of animals, typically cows or pigs. Gelatin is not available in nature; it is derived by hydrolyzing Collagen. Gelatin is soluble in hot water and forms a gel-like substance when cooled. It finds its application in food industry, pharmaceuticals, photography, cosmetics and various industrial applications. Gelatin finds various applications in the pharmaceutical industry due to its unique properties. It is commonly used as a coating for tablets and capsules, helping to improve their appearance, stability and swallow ability. Gelatin coatings can also mask unpleasant tastes or odors of drugs and facilitate controlled-release formulations. In addition, Gelatin serves as a key component in the production of softgel capsules, which are widely used for delivering liquid or semi-solid medications.

The global Gelatin stood at approximately 500 thousand tonnes and now anticipated to grow at a CAGR 4.09% volume with respect to the forecast period until 2034. This growth is likely to be driven by the increasing use of softgel capsules, the second most preferred method for delivering medications and supplements. In 2023, capsules accounted for 22.2% of the new drugs approved by the FDA. While the empty capsule market is anticipated to reach USD 5.76 Billion by 2032, with a CAGR of 6.7%, the global softgel capsule market is forecast to reach around USD 1.5 Billion by 2028, with a CAGR of 6.3%. Softgel capsules are a valuable tool for both medications and supplements. They effectively mask unpleasant tastes and odors, making them easier to swallow. For some medications, softgels can even improve how well the body absorbs the active ingredient. This is particularly beneficial for medications that are difficult to formulate into tablets. Softgels also shine in their ability to deliver liquids and semi-solids, making them ideal for oil-based ingredients. Perhaps, the most user-friendly advantage is that many people find softgels easier to swallow due to their smooth and flexible texture.

The global Collagen market size reached USD 10.0 Billion in 2023. It is expected that the market reach USD 16.9 Billion by 2032, exhibiting a growth rate (CAGR) of 5.8% during 2024-2032. The increasing product utilization in the food and beverage industry, growing demand for Collagen in cosmetics and personal care products and extensive research and development activities are some of the major factors propelling the market.

Bovine is dominating the Collagen market owing to its abundant availability, which ensures a stable and consistent supply for manufacturers. Furthermore, bovine Collagen offers a high degree of structural similarity with its human counterpart, thus making it a suitable choice for various applications, including food processing, skincare, and hair care. Apart from this, Collagen sourced from bovine is highly cost-effective, which contributes to its large-scale production and applications across various industries. Moreover, there is an increasing demand for Collagen sourced from bovines as it exhibits excellent compatibility with different formulation processes.

The increasing awareness among consumers regarding health and wellness is one of the factors catalyzing the market growth. Collagen is widely consumed to provide support to structural muscles and strengthen skin, bones, tendons, ligaments, cartilage and blood vessels. In addition, the growing product utilization in health supplements and nutraceuticals owing to the increasing consumer participation in sports and allied activities is favoring the market growth. Furthermore, the rising product adoption in the pet care industry to improve the joint health, mobility, and overall well-being of dogs, cats and other animals is supporting the market growth. Apart from this, the growing demand for natural and sustainable ingredients that offer better health benefits compared to synthetic alternatives is contributing to the market growth. Other factors, including rising geriatric population, widespread product availability across online retail stores, the increasing prevalence of lifestyle diseases and the growing demand for natural and sustainable ingredients are anticipated to drive the market growth.

Segment-wise Performance

Indian capsule manufacturers have been capitalizing on several factors like Compliance-driven approach, focus on Specialties Strategic Partnerships to gain a foothold in regulated markets, which are Countries with stricter quality and safety requirements for pharmaceuticals and nutraceuticals. By strategically combining these approaches, Indian manufacturers are making significant inroads into regulated markets. Their cost-competitiveness, growing compliance focus and adaptability to market trends position them for continued growth. The Company was able to capitalize on this demand which led to operate its Gelatin plant in its full capacity during the year 2023-24.

Due to the rapid growth of the nutraceutical business, Collagen also exhibits significant promise in the home market. We were able to increase our domestic and export revenue during the year 2023-24.

Poultry prices, which dipped during April-August due to religious festivals, had risen again due to increased egg exports. This reversal is driven by several factors:

• Reduced bird population: Two Hindu religious periods lowered demand, affordability, especially for low-income consumers. Additionally, hot temperatures and erratic rainfall led to higher bird mortality and increased feed costs. This resulted in a smaller flock size.

• DCP demand slump: With fewer birds to feed, the demand for Di-Calcium Phosphate (DCP), a poultry feed supplement, remained sluggish compared to the previous year.

• Increased competition: Rising imports and the availability of substitutes like MCP rock Phosphate, and fishmeal further dampened DCP sales.

Overall, these factors have contributed to a decline in DCP revenue compared to the previous year.

Exports

Export of Ossein to Japan in 2023-24 quantity wise was less than in previous year due to less demand from NGI. Ossein Export revenue decreased vis-a-vis previous year due to the reduction in sales quantity and Transfer price.

In the case of Gelatin, the export sales were less than expected due to economic slowdown in certain countries and surplus Gelatin in US market.

Collagen Peptide export revenue was higher than in the previous year due to higher volume.

Domestic Market

The domestic demand for Gelatin is showing high growth trend as India is strengthening its identity as a pharma and nutraceutical manufacturing hub. Collagen also shows great promise in domestic market as the nutraceutical market in India is showing strong growth. In the case of DCP the revenue has dropped compared to the previous year due to lower volume and competition from alternatives such as MCP rock Phosphate, fish meal etc. Furthermore, due to the price reduction by competitors in the DCP market, the Company was forced to reduce the price as well.

Opportunities and Challenges

Growing Pharma Market in India

Indian Gelatin Market is poised for growth for capsule application.

Rising demand for pharmaceuticals: The Indian pharmaceutical industry is experiencing significant growth, which directly translates to a rise in demand for Gelatin capsules used for medication.

Shifting consumer preferences: Theres a growing interest in nutraceuticals and dietary segments. Gelatin capsules are a popular choice for packaging these products due to their tastelessness, odorlessness and ease of swallowing.

There are some challenges, though mainly, the rising cost and scarcity of raw materials for Gelatin production and glut in market due to surplus supplies of bovine hide Gelatin could affect the markets growth. The increasing popularity of plant-based Gelatin alternatives also poses challenges in markets like India. However, the future looks promising for the Indian Gelatin capsule market.

Expanding Indian Nutraceutical Industry

The Indian nutraceutical market was valued at USD 4 Billion in 2020 and is expected to grow by 20% annually, reaching USD 18 Billion by 2025. The nutraceutical market thrives due to a confluence of factors. Time-crunched lifestyles make it challenging to maintain balanced diets and concerns linger about the declining nutritional value of modern food compared to historical norms. The rising importance about preventive healthcare ignited by the pandemic during the commencement of this decade has led to the exponential growth of this sector.

Although there was a brief downturn after the pandemic, industry executives agree that more has to be done to support and grow this field. Indias growing belief in immunity-boosting supplements has driven a shift in consumer healthcare choices. This is evident in the rising popularity of convenient formats like vitamin capsules, chewable tablets and gummies.

Soaring health consciousness among Indias urban citizens is fueling a boom in the nutraceuticals industry, with the market poised for significant growth.

The Indian dietary supplements market is expected to reach approximately USD 10 Billion by 2026 from USD 4 Billion in 2020, with a 22% year-on-year growth rate. The Vitamins & Minerals market is also expected to surge, reaching a revenue of USD 2.63 Billion by 2024, with an estimated annual growth rate of 7.71% from 2024 to 2028.

The formation and expansion of the nutraceutical industry in India is probably going to help the Collagen Peptide market flourish. The hottest ingredient in newly developed products for womens health, fitness, nutrition and healthy aging is Collagen Peptide. The industry is unable to ignore the demand for a component with ample clinical data and several health benefits. The Wellnex line of goods from the Company now has a lot of prospects. A growing emphasis on health consciousness is causing consumers to spend more money on nutritional supplements that maintain and strengthen their immune systems.

Indias Collagen market is driven by the various applications of Collagen in the end-user industries, including supplements, beauty and personal care and food and beverages, among others. Collagen-based products, on the other hand, are consumed across the Country, not only as beauty supplements but also as effective supplements to deal with physical ailments for consumers with osteoarthritis, arthritis and other bone and joint health ailments. The high demand for healthy foods, especially skin-boosting foods, has surged in India over the past few years. Among all the nutrients and proteins, Collagen- based products have been gaining traction across the nation. Hence, the rising demand for fortified food and beverages is expected to drive the demand for Collagen and other such ingredients.

Raw Material Sourcing

The availability of Crushed Bone, which is the major Raw material of the Company has been fluctuating during the year. Particularly in the second half of the year, there was a significant reduction in availability driving an increase in Crushed Bone prices. Apart from South India, Crushed Bone price increase was more in other parts of India. During this period, the slaughtering rate was lower which continues to remain at that level which is impacting the availability of Crushed Bone. The slow movement of Bone meal, which is a byproduct of Crushed Bone has also led to price pressure in domestic Market. Quality improvement due to stringent PCB norms has also been a challenge during the period.

Due to the reduction in global Gelatin price and demand, the price of Gelbone globally reduced significantly during the second half of the year. This opportunity was utilized to import/purchase Gelbone, which has helped to reduce our dependency on domestic raw materials. The Company was able to maintain adequate levels of raw material inventory at all our manufacturing locations.

Considering the domestic Crushed Bone availability scenario, the Company is exploring more possibilities of Importing cost competitive Gelbone in future.

Risks and Concerns

There exists a Risk Management Sub-Committee of executives which meets on a periodic basis for identification of major risks and mitigation plans thereof.

Internal Control System

The Company has in place adequate financial controls commensurate with the size, scale and complexity of its operations.

Reducing Carbon Foot Print

The activities towards Carbon footprint reduction done during the year 2023-24 are as under:

1. Gelatin Division-

a. Specific power consumption reduced in 2023- 24 through the installation of high-efficiency IE3 motors, installation of VFD in motors.

b. The Electrical Street lights replaced with solar lights.

c. New Energy efficient Cooling tower installed for compressor.

d. Hide pit top insulation ongoing which will give significant impact in energy reduction.

e. Followed by the installation of Anaerobic Digestor, Biogas pumping automation implemented.

f. Installation of Higher capacity Drum type wood chipper which will give efficiency improvement and fuel consumption reduction.

g. Usage of Bicycles for the movement inside the factory.

h. Volute Sludge de-watering system for ETP sludge filtration implemented.

2. Ossein Division -

a. Poly house installed for sludge drying

b. Solar lighting installed in plant premises.

c. Newly energy efficient IE3 motors installed.

3. Online meetings- Inter-division travel by employees for meetings is avoided by using digital media for online meetings.

Outlook

Gelatin market is currently shifting towards a buyers market, as there is a high supply of Gelatin especially from Bovine Hide and low demand. This has caused Gelatin prices to drop quickly in recent quarters.

The main reason for this is demand for Collagen, a key raw material in Gelatin production, has plateaued. While there is still strong demand for Collagen, it is not growing at the same rate as it has been in recent years. This has resulted in more Collagen available to be used for Gelatin production.

This is likely to continue in the near future, as there are no major factors that are expected to cause demand for Gelatin to increase. NGIL is making concerted efforts to revisit untapped/previously exited markets, to offer quality Gelatin competitively to ensure that the capacities are filled efficiently and create pathways for growth in consultation with Group Companies sales officers and marketing partners.

Prices of Bovine Collagen Peptides are also softening. The gap between Collagen Peptides and Gelatin prices are narrowing and in some cases, overlapping. The health claim fish Collagen market in Asia is experiencing a downturn. This shrinkage follows a period of intense focus on R&D by many brands to meet earlier consumer interest in health claims. The resulting saturation of the market with similar products makes it challenging for Companies to survive.

The Red Sea crisis continues to impact global shipping. The disruption has caused delays, increased costs and disrupted supply chains, affecting major shipping channels and global trade routes. As a result of these incidents, the volume of maritime traffic in both the Red Sea and the Suez Canal have dropped by 80% compared to pre-crisis levels. Due to the rerouting of ship along the Cape of Good Hope in South of Africa, the transit times has risen significantly higher than normal, which leads to our customers in the western world depend on other nearby suppliers for faster deliveries. The Company has taken measures to deal with such a scenario by taking the orders much earlier, effective forecasting and pre planning the production accordingly and building sufficient inventories in this market to service them better.

Bovine hide raw material suppliers are entering into the Collagen Peptide manufacturing themselves and they are adding capacities. This leads to the adversity of Company competing with reducing market prices of Hide Collagen.

The Company plans to find good and competitive raw material sources and explore new and yet untouched markets with scope to grow.

The Collagen industry faces a confluence of challenges in the near future. Shifting consumer priorities during a potential economic downturn, evolving regulations driven by environmental concerns, volatile raw material costs due to geopolitical tensions and anticipated economic instability are all pressing issues. To navigate these complexities, the Company will strategically invest in acquiring new technologies, securing sustainable and ethically sourced raw materials, optimizing procurement and inventory management, expanding product portfolio and maximizing the existing capabilities to ensure continued growth.

The economic and social challenges are noted to be highly varying between different countries/markets and Collagen manufacturers and associated players are focused on country-specific strategies. Uneven recovery in different end markets and geographies is a key challenge in understanding and analyzing the Collagen market landscape. Hence, the Company intends to make market based strategies to overcome them to effectively penetrate into new markets.

The Company needs to be more cautious of global economic slowdown. The Red Sea crisis, introduction of new players and the risks of stagflation envisaging numerous market scenarios are pressing the need for Collagen industry players to be more vigilant and forward- looking.

Financial Performance

The financial results of operations of the Company for the year under review are detailed under the caption performance forming part of the Directors Report. As per the same, the Companys operations have resulted in a pre-tax profit of 109.88 Crores for the current year as against pre-tax profit of 78.08 Crores for the previous financial year. The post-tax profit for the current year is 82.48 Crores as against post tax profit of 58.76 Crores for 2022-23. Other comprehensive loss (net of tax) for the current year is Nil as against other comprehensive income of 0.09 Crores for the previous year.

During the year, the Company has continued its efforts to optimize financial costs through availing loans in foreign currency thereby resulting in substantial reduction of financial costs.

The basic and diluted earnings per share during the year was 90.85 per share as against 64.72 per share during the previous fiscal year.

Human Resources Development

The number of permanent employees as on 31st March, 2024 is 461.

The Company undertook the following HR initiatives during the financial year:-

1. Succession planning:

The Company has identified the critical positions in the Company for the next 3 years against retirement and started action plans to develop the next level executives in critical positions. There is a plan in place to fill the vacancy against upcoming retirements internally subject to availability of resource with competent skill sets.

2. Training and development

The employees of the Company have been given training based on the Companys requirements in a time bound manner to improve their skill sets to meet emerging challenges. Training calendar has been prepared well in advance in consultation with functional heads to meet the organisational requirements. The Company has given training on Six sigma concepts for L3 and L2 employees. All current L3 executives are now certified Yellow belt holders and 27 out of 28 L2 executives are Certified Green belt holders.

3. Organization culture

The Company is focussing on the culture development initiatives such as Leadership culture, Safety culture, Food safety culture, TPM culture and knowledge culture to improve the overall employee capabilities. The Company has introduced well-done cards for individuals and team cards for team to recognise the performers.

4. Unique Initiative Award

The Company has rolled out a new reward scheme for its employees who take unique initiatives that will fetch considerable benefits to the Company. The identified employees are rewarded by way of cash awards for their initiatives and sets as a model for others to emulate.

5. HR Automation:

As part of paper reduction and Digitalisation initiatives, the Company has implemented Leave and Attendance Management System for its Executive Staff in 2023 and we have developed an Android based Application of LAMS for blue collar so that they can apply leaves using mobile phone. In addition, Digital Management System has been introduced for taking relevant approvals for various capital/revenue expenditure proposals.

6. Competency Development Programme:

Competency assessments have been completed for identified employees at senior levels and HR team has started initiatives to bridge the gaps identified in the competencies of employees.

a. Online programme:

The Company has conducted online training programmes for executives and non-executives. The benefits of the program were assessed using various tools such as quizzes, weekly assignments, and general feedback,

b, E-learning courses: The Company has identified e-learning modules from Udemy, Coursera, Edx, etc, to expand on the training modules for executives,

c, Skill Assessment and Development for

Workmen: The Company conducted skill assessment of workers belonging to all disciplines in categories such as Job Knowledge, Hazard identification, abnormality identification and 5S Awareness, In-house training modules have been developed and are being rolled out for those workmen who have skill gaps in the area mentioned, Safety training is conducted every month to create awareness and has started imposing penalty for safety violations as the last resort,

d, Strategy Meeting: Two days strategy meeting was conducted for senior management for the future development of the Company,

e, Health & Wellness Programmes: The following programmes were conducted with the objective of helping employees to enhance their health, wellness and to promote better engagement among employees:

i, Yoga and Zumba Classes: Zumba/Yoga sessions were conducted every morning in all Divisions,

ii, Breast wellness Screening Camp: The

Company conducted Breast Wellness Screening camp for the female employees in all Divisions,

iii, Post Covid Lung Issues: The Company organised a session by a famous Pulmonologist who described the various post covid issues that affect the lungs and how to prevent the same,

iv, Badminton Court - A new Badminton Court was inaugurated inside the Ossein Division for employees and conducted badminton tournament for employees and local people, Badminton coaching classes were conducted for children of nearby schools,

v, Bone density camp: A session was organised by a reputed ortho specialist for all employees,

vi, Health Talk - Gastrology: A session was organised for employees by a reputed Gastrologist,

Key Financial Ratios

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore, are as below::

Sl. Particulars No.	As at 31.03.2024	As at 31.03.2023	Variance	Reason
1 Current Ratio	3.38	2.41	40%	The augmentation in cash reserves, bank balances and short-term deposits resulting from improved cash flow leads to a higher current ratio.
2 Debt Equity Ratio	0.01	0.03	-67%	The Company has settled all of its long-term borrowings, with the exception of the preference borrowing from NGI.
3 Debt Service Coverage Ratio	18.83	11.87	59%	There is a 33% increase in net operating income and considerable repayments made during the year.
4 Net Capital Turn over Ratio	3.25	5.66	-43%	The decline in sales turnover by 3% alongside an increase in cash, bank balances and short-term deposits has elevated the balances of current assets, consequently augmenting the average working capital for the period. This, in turn, leads to a reduction in the Net Capital Turnover Ratio.
5 Net Profit Ratio	0.18	0.12	50%	Increase in PAT resulted in increased NP ratio based on operational/financial performance.
6 Return on Investment	1.52	1.05	45%	Increase in dividend received from the Subsidiary Company - M/s Bamni Proteins Ltd.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report containing your Companys objectives, projections, estimates and expectation may constitute certain statements which are forward looking within the meaning of the applicable laws and regulations. Actual results may differ materially from those expressed or implied in the statements. Your Companys operations may inter-alia be affected by the supply and demand situation, input price and availability, changes in Government Regulations, Tax Laws, foreign exchange rate fluctuations and other factors. The Company cannot guarantee the accuracy of assumptions and perceived performance of the Company for the future.

The Management believes that the strategic direction of your Company is sound and will fulfill the Shareholders expectations, both short term and long term.

	For and on behalf of the Board of Directors Sd/-
	APM MOHAMMED HANISH IAS
Kochi	CHAIRMAN
10.05.2024	DIN: 02504842