Nitta Gelatin India Ltd Management Discussions.
INDUSTRY STRUCTURE AND DEVELOPMENT
Gelatin is a commonly used excipient for manufacturing capsules for pharmaceuticals and Nutraceu-ticals. The market for gelatin is estimated to grow at a CAGR of 6.6% and expected reach $ 3.6 billion by 2023. The growing demand for functional and convenience food & beverage products, increasing application in the pharmaceutical industry, and the rising demand for clean label products drive the demand for gelatin. The increasing demand for gelatin from the Nutraceutical and sports nutrition industrial segment due to its high protein content and increasing applications in the medical and biomedical industries also drive the demand for gelatin.
Gelatin is a popular excipient in empty capsules and softgel capsules. The empty capsule market size is projected to grow at a CAGR of 7.4% and reach USD 2.79 billion by 2023. While, the global softgel capsules market is expected to reach $316.6 billion by 2025 at a CAGR of 5.4%. Soft-gels make up 25 percent of the total market for nutritional supplements and are the second most-prevalent dosage form behind tablets. They can be used to deliver oils and oil-soluble materials, such as omega-3s, vitamin E and carotenoids; and they may offer advantages in tolerability, ease of swallowing, assimilation and potency. Although animal gelatin-based shells are most common, vegetarian alternatives are on the rise great strides have been made with challenges such as oxidation, shelf stability and cost-effectiveness.
The major factors driving the growth of this market include the growing adoption of capsule formulations, growth of the pharmaceutical market along with the increasing R&D activities & clinical trials, and advancements in capsule delivery technologies. Gelatin capsules holds major market share in empty capsule markets. Gelatin provides rapid drug release, excellent oxygen barrier hence mostly preferred for manufacturing capsule shells. Based on release profile need for molecules, capsules are designed as immediate-release, sustained-release, and delayed-release capsules. Immediate-release capsules are the most commonly prescribed capsules to treat a wide range of diseases and disorders. Other than pharma industry, capsules are being used in Nutraceutical industry, Cosmetic industry, and research laboratories. The growth in pharmaceutical industry is driving the gelatin business.
Investments by manufacturers in research and development activities and advancements in technology have led to the development and usage of other sources for producing capsules which are vegetarian in nature, and also provide seamless manufacturing procedures for softgel capsules. The market of health-conscious consumers seeking natural, green products is booming, which is expected to drive the growth of the vegetarian softgel capsules segment. Europe and North America are expected to gain significant market share in revenue terms for softgel capsules market by 2026 end. Moreover, the softgel capsules market in Asian countries is projected to exhibit lucrative growth during the forecast period. Manufacturers are concentrating on manufacturing capsules using non-gelatin ingredients to cater to the increasing demand from the vegetarian consumer base across the globe.
The global collagen peptides market was valued at USD 716.5 million in 2017; this is projected to grow at a CAGR of 11.6% from 2018, to reach USD 1,337.0 million by 2023.
Collagen peptide being used nutritional supplement as functional food ingredient for promoting bone and joint health, beauty from within, sports performance and healthy aging. Over the last few years, consumer awareness about healthy food products has been fueling the collagen peptides market for nutritive food products. Consumers are increasingly focusing on healthy aging, not only to increase their life expectancy but also to prevent and postpone the onset of diet- and bone-related diseases.
Collagen hydrolysate or Collagen Peptide has wide usage in the areas of culinary and food processing sectors. It is mixed in various drinks, shakes, smoothies, and ice creams to give an anti-inflammatory protein boost, as the ingredient has the tendency to dissolve in the cold liquid easily. Hy-drolyzed Collagen has good organoleptic properties, taste, and is odor-free, while at the same time enabling the food product to maintain its quality. It is used in various formulations due to its property to mix and blend with other forms.
The demand supply balance was affected globally due to capacity reduction of major manufacturers. The imbalance helped manufacturers to put break on falling gelatin prices. Gelatin demand in India shown growth for pharmaceutical applications. During 2018-19, Kerala witnessed one of the worst natural calamity of states history. State was affected with the flood after 100 years. It affected Companys operations including both domestic and overseas business.
Export of Ossein to Japan during the year 2018-19 was 81% lower as compared to previous year mainly due to change in business model of Bamni Proteins Ltd., subsidiary Company. In the case of Gelatin, exports for the year stood 4% higher than the previous fiscal. Although production was affected due to flood, the favorable exchange rate to achieve revenue. The demand was stable. Collagen peptide export revenue was 44% higher than the previous year due to demand from US, higher price realization and favorable exchange rate. Export of Bovine Collagen Peptide during the year was higher than previous year due to demand from US market. The raw material scarcity continued for Fish Collagen Peptide and however situation eased but Raw material price is still at peak and it affected the margin. Raw material shortage is caused by increase in demand for fish collagen in South East Asian countries. The major markets are US and Ko-rea. The average USD/INR exchange rate for the year 2018-19 was 69.45 as against 64.05 for the previous financial year.
The domestic demand for Gelatin is showing steady growth trend as India is strengthening its identity as a pharma manufacturing hub. There was also shortage in supply of Gelatin in India. In-spite of favorable market situation, domestic sale of Gelatin was 9% lower than in the previous period due to inconsistent operations due to various internal and external interruptions. Domestic sale of Collagen Peptide was 9% lower than during the previous financial year. The non-availability raw material for fish collagen peptide affected the domestic revenue. To ensure quality product, the Company still depends on imported raw materials for manufacturing fish collagen peptide. The demand for Di Calcium Phosphate from poultry industry was stable however companys sales was 41% lower than the previous financial year owing to interrupted operations and change in business model of Bamni Proteins Ltd., subsidiary Company.
OPPORTUNITIES AND CHALLENGES
The global demand for gelatin for food and phar-ma is continuing in its growth phase. The capsule and confectionery market is growing worldwide and gelatin is an inevitable ingredient in pharma and food. The market for Gelatin is projected to exceed 480,000 metric tons by 2022, driven by widening applications in food, pharma and nutritional products.
The demand for empty capsules is expected to rise substantially in the years ahead thanks largely to the overall growth and expansion of the global pharmaceuticals industry. Moreover, the greater demand for nutraceuticals will also provide the global capsules market an opportunity to expand as several food supplements and functional foods are encapsulated to make them convenient for consumption. The global soft gel capsule market is expected to register a significant growth. The position of Gelatin as a raw material for capsule manufacturing continues to be predominant as compared to other alternatives. Gelatin capsule industry consumes roughly 90-95% of all bovine bone gelatin production in India and in 2015 about 628 billion gelatin capsules, both soft and hard, were produced.
Indian pharma companies are focusing on regulated markets and such market demands capsules with excellent quality and dissolution properties. Hence gelatin manufacturers are focusing on adding value to gelatin by providing superior quality gelatin. The endeavor to make special grade of gelatin has given birth to special grade gelatin like gelatin with reduced cross linking for long shelf life capsules, gelatin for capsules with faster and delayed disintegration properties, Gelatin for enteric capsules. Gelatin manufacturers are continuing their efforts to add value to Gelatin and be relevant with changing industry norms.
The advancement in healthcare and medical field and change in lifestyle opened huge opportunity for naturally derived ingredients and gelatin. The tissue engineering and regenerative medicine demands highly purified and biocompatible gelatins, which may be potential premium segment for gelatin in the future.
Increase in the population of working women and dominance of nuclear double-income families, especially in urban areas, are trends that shape the changing lifestyles of a majority of consumers and their approach toward healthy lifestyles in emerging economies. Rise in living standards and changes in lifestyles in developing countries contribute to the development of the convenience food market. The collagen peptides market, therefore, is estimated to possess greater potential in newer and untapped markets of China, India, Japan, Brazil, and the Middle East.
Collagen protein is another blockbuster ingredient in the Nutraceutical industry. Once considered as cheapest protein is now gaining popularity due to its functional benefits in skincare, bone and joint health and sport nutrition. Collagen derived peptides are one of the key ingredient in the Nutraceu-tical formulations for above mentioned segments. Several studies are going on to explore other potential benefits of Collagen derived bioactive peptides. Considering the immense potential collagen peptide several manufacturers have already scaled up their manufacturing facilities.
Major challenges of the Company are the cost of operation and limited capacity. The comparatively higher cost of Indian bones and its lower quality makes the Companys product costly for global market. Interruption in operations due to various reasons is also affecting the performance of the organization. Due to low margin, company has not entered into food applications of Gelatin which is the largest segment of gelatin.
The demand for Gelatin, Collagen Peptide and Di Calcium Phosphate is likely to grow at attractive rate. Companys focus is to ensure continuity in operation in the new financial year to meet growing demand. Company is acting on sustainability of operations through various operational excellence initiatives. The Company is striving towards realizing its vision of emerging as the worlds best gelatin manufacturing facility through the implementation of a systematic operational excellence initiative. Cost reduction activities are being strengthened to become cost competitive in the near future.
The Company is in the efforts to commercialize couple of value added and new products. The new products are expecting to pave path for faster growth. Considering the demand for Gelatin & Collagen Peptide, NGIL is also evaluating the scope of expanding its production capacities for Gelatin and Collagen Peptide.
The financial results of operations of your 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 loss of Rs. 3.67 Crores for the current year as against Rs. 10.74 Crores for the previous financial year. The post-tax loss for the current year is Rs. 2.64 crores whereas it stood at Rs. 3.77 Crores for 2017-18. The reason for the loss in the current year is due to the merger of Reva Proteins Ltd. with the Company as per the orders of National Company Law Tribunal. The accounts of the Company have been restated w.e.f. 01.04.2017 as per the NCLT orders. Other comprehensive profit (net of tax) for the current year is Rs. 1.12 crores as against other comprehensive loss of Rs. 0.72 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 loss of Rs. 2.90 as against Rs. 4.16 per share during the previous fiscal.
HUMAN RESOURCES DEVELOPMENT
The following HR initiatives were undertaken by the Company during the financial year:-
1. Employment Engagement Study: An engaged workforce identifies with the mission of the company and is committed to the long-term goals and success of the company. The engagement study was part of an attempt to understand the engagement levels of the employees of the Company and take steps to improve them over a period of time. This would be one by designing new policies or redeploying established ones to increase the effectiveness and involvement of the employees.
2. Job Description: A detailed job and role description gives clarity to the employees regarding expectations of the company and their responsibilities. The company initiated a detailed Job Description Exercise for all executives of the company that clearly defines their roles, responsibilities, scope and expectations from the Company.
3. Organisational Restructuring: In the current turbulent times of the industry, it is imperative that the Company adapts to the new environment to survive. The restructuring of the organisation is a step towards making the Company vibrant with the set vision for itself as well as to realign its internal structure to better cater to the stakeholders interests.
4. Competency Mapping: Competencies refer to the inherent traits and behaviours that separate the good employees from the exceptional ones. Competency Mapping is an exercise wherein the Company establishes the competencies of each employee and the competency required for their existing roles and to bridge gap existing, if any. The results of the exercise will be used to tailor the Learning and Development programme to cater to the needs of the organisation.
5. Succession Plan: A succession plan is a framework put in place to ensure that critical roles in the company would not suddenly become vacant and that there are contingency plans for dealing with emergency situations. This involves systematically identifying and developing employees in the lower levels to fill the shoes of the critical roles of the organisation over a period of time.
6. Reward & Recognition Schemes: Recognising and rewarding the right behaviour pushes employees to perform better as well as clarify what the company expects from each of them. This year, the Company redesigned and revised many of their Reward & Recognition schemes including schemes like "Best Employee Award, "Kaizen Scheme, and the "5S scheme to capture the exceptional performance of employees of the Company.
7. Fun@NGIL It is important for employees at NGIL to have fun! This initiative by the Company is intended to have enjoyable experiences while also ensuring that they approach work with a positive and relaxed attitude. This included practices like morning yoga and exercise sessions, playing sports as a team, playing music during office hours, etc.
As on 31st March, 2019 the total permanent employee strength of the Company was 419.
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|
|Dr. K. Ellangovan, IAS|