Oceanaa Biotek industries Ltd Management Discussions

(Pursuant to Regulation 34 of SEBI (LODR) Regulations, 2015)

1. INDUSTRY STRUCTURE AND DEVELOPMENTS

The countrys growth softened in 2019 as corporate and environmental regulatory uncertainty together with concerns about the health of the non-banking financial sector weighed on demand and applied the brakes on economic growth. Demand slowed more sharply than expected amid stress in the nonbanking financial sector and a decline in credit growth. Added to this, the Novel Coronavirus (COVID- 19) has come to cast a long shadow over the much-anticipated recovery, albeit expected to be a mild one, in the Indian economy in 2020-21, with the World Health Organisation (W.H.O.) declaring the virus outbreak a pandemic.

Indias GDP decelerated to its lowest in over 6 years during 2019-20 and just that when there were signs of mild recovery of the economy with corporate tax rate cut, the outbreak of the COVID-19 has imposed fresh challenges. Steps taken to contain its spread such as nationwide restrictions/lockdown have brought economic activity to a standstill, with serious implications for both consumption and investment. Three major contributors to GDP- private consumption, external trade and investments are already affected. As per the projections of the International Monetary Fund (IMF), Indias growth rate is seen sliding all the way to 1.9% in 2020.

For the global economy too, the COVID-19 pandemic is inflicting high and rising human costs worldwide. As a result, the global economy is projected to contract sharply by -3% in 2020, much worse than during the 2008-09 financial crisis.

Indian Shrimp Market

The India shrimp market attained a volume of 0.71 million tons in 2019. The market is further expected to grow at a CAGR of 9.5% to reach a volume of approximately 1.23 million tons by 2025. In India, fisheries is a significant economic sector and offers vast opportunities for development. This is attributed to the diverse resources and potential of the country. The Indian Government is promoting sustainable shrimp farming practices to produce high-quality sustainable shrimp in order to minimise the environmental effects of shrimp aquaculture. Moreover, the Seafood Exporters Association of India (SEAI) and the Marine Products Export Development Authority (MPEDA) are supporting the export of shrimp, especially for ready-to-eat and ready-to-cook products.

Shrimp refers to an invertebrate marine animal with an elongated body which is often used as a food product. It is regarded as nutritious since it contains proteins, selenium, antioxidants, phosphorus, magnesium, copper, iron and vitamin B12. Some of the health benefits associated with shrimp consumption include weight loss, fighting aging, improving bone health, decreasing menstrual pain and preventing cardiovascular diseases. In India, fisheries represent a significant economic activity and offer vast growth opportunities. This is due to the countrys varied resources and potentials.

Indias shrimp sector has increased production by an average of 21 percent a year over the last decade. And if this trend is to continue then production will be on track to reach between 900,000 and 1 million tonnes during 2020, according to a Study. However, the outbreak of the Covid-19 pandemic made a 20 percent reduction on the 800,000 tonnes harvested in 2019 more likely, with experts now predicting an annual harvest closer to 680,000 tonnes for the year.

The pandemic had also led to a 40 percent reduction in price during its peak, with a reduction of 50,000 tonnes of production in April and May alone. It also resulted in a 30-35 percent reduction in stocking numbers between March and June - normally peak stocking season - which is likely prolong the impact of the outbreak. It also had an adverse cost impact on hatcheries, as they were forced to discard surplus stock. Copyright Notice. Although shrimp stocking has resumed in India over the past month, industry experts are in agreement that the country can expect a drop in production volume by 20-30% in 2020 amid the COVID-19 pandemic.

2. BUSINESS OVERVIEW

OCEANAA BIOTEK INDUSTRIES LIMITED ("OBIL") is engaged in the business of rearing and trading of prawn seeds. Major income is derived from rearing and trading of prawn seeds. The Company Focuses on integration of Aquaculture process from Hatchery to Retail with complete traceability.

The Company owns hatchery in Poompuhar and laboratory in Marakkanam along the coast of Tamil Nadu in the South of India. This coastline along the Bay of Bengal is home to some of the finest seafood varieties in the world. The farms are located at a considerable distance from the nearest population centers, and hence the waters are free from industrial pollutants. The natural advantage of this ideal marine habitat combined with the skill of the coastal fishing families who have lived off these waters for generations ensures that only the finest catch is processed. Meticulous handling techniques and the use of technology ensure that the fragile seafood is allowed to preserve its natural taste and texture.

The Hatchery of the Company is located at Keelaiyur Village, Poombuhar, Sirkali Taluka, Nagapattinam District, Tamil Nadu and closed environment, with regimented production systems that are used to breed the shrimps at controlled environment and produce eggs, which will pass through different stages of nauplii, zoea, mysis and finally larvae.

3. STRENGTH AND WEAKNESS

The Company has been in the field of aqua culture industry over the years and is engaged in manufacturing high quality Shrimp seeds. The Company has well trained technical team in production and marketing of shrimps. The Company also provides technical support to the farmers and assisting farmers with information and knowledge of shrimp farming and also updating developments in culture methods and processes. Presence of strong dealership network, farmer base and committed work force stands in good stead in sustained growth of companys business.

Time gap is longer in adoption of technological advancement used across the world.

4. OPPORTUNITIES & THREAT

i. Opportunities:

To accommodate the growth of the shrimp industry, both in terms of developing new regions and making existing production sites more intensive, support from the entire aquaculture value chain is needed. We have heard that here were bottlenecks with feed a few years ago, but currently this seems to be less of an issue. We have also heard of issues surrounding a lack of quality juveniles.

Another recent development has been the industrys decision to increasingly focus on exporting more processed products, creating more value locally and increasing its competitiveness. Lastly, what is needed - not just in India but across the entire Asian shrimp industry - is a degree of consolidation to create larger, more geographically diverse, shrimp producers.

Geographical diversification is difficult in shrimp due to the different business models deployed in the key regions and the large cultural differences between them. But it can help mitigate the volatility - not just in terms of diseases, which can change a regions competitiveness, but also in trade legislation, and other unforeseen difficulties, such as the widespread practice of slavery in the Thai fishmeal fleet.

ii. Threat:

We have two main concerns when it comes to growth of the sector in India. The first depends on how well the industry deals with disease issues as the sector becomes more mature and a greater density of shrimp farms develops.

The second relates to whether the industry can deal with a potential downturn in price. Inevitably, as with all agro-commodities, the shrimp sector will experience a price decline at some point in the future. This could be due to a rising supply somewhere else in the world - perhaps from Thailand, China, Indonesia, Brazil or even a new producer such as Australia. When this occurs some farmers globally will not be competitive and be forced to reduce their shrimp production, therefore balancing the market.

Our expectations are that the Indian shrimp industry would remain competitive and profitable even in a downturn, but we do not have accurate cost data to analyse. Also, given the changing disease and technology landscape it would be very difficult to predict how cost competitiveness develops in the future.

Due to unfavorable monsoon predictions, our business would be affected and would result in increased costs of feed and other raw materials required for production of seeds. Volume featured with temperature, salinity, pH, rain fall and other climate parameters affect the rearing of seeds.

Weve got to look at the overall production scenario in terms of supply, demand and price, If production is going to be almost the same or 20-30% less than last year, its going to be a lot compared to the hotels, restaurants and catering sectors shortfall. Even if it recovers by 20% or so there will still be a serious drop.

Most shrimp processors are operating at low EBITDAM of 9-10 per cent, of which 5 per cent is generated from Merchandise Export Incentive Scheme. In FY20, the MEIS incentives, as a percentage of EBITDA, were very low and negative for seafood processing companies. Many processors are already trying to lower procurement costs to pass on the impact to farmers. MEIS incentives will be discontinued from January 1, 2021, and replaced by a WTO-compliant Remission of Duties and Taxes on Export Products.

Our performance also depends upon the prices in the International Shrimp markets.

General business and economic conditions and change in government regulations could affect business.

iii. Segment:

Hatchery Development:

Major income is derived from rearing and trading of prawn seeds. During the year under review, your Company recorded total revenue of Rs. 25.65 Crores revenue compared to Rs. 36.28 Crores in the previous FY 2018-19.

iv. Outlook:

Your Company consistently focus on providing good quality with full traceability Prawn seeds to our Customers by using Modern technologies and innovative ideas in Prawn Hatchery operations.

Easy availability of shrimp and their high nutritional content represent the major growth-inducing factors. They form an important part of various cuisines being one of the most traded seafood species. With the rise in demand for disease-free and healthy shrimps, India has become one of the largest shrimp exporters to the US and the European Union.

One of the key trends witnessed in the Indian market is the expansion of the food industry owing to the rising demand for ready-to-eat food products. This is supported by forces such as rapid urbanization, changing lifestyles, hectic work schedules and increasing working women population. As a result, the shrimp market in India is witnessing a healthy growth.

In addition to this, a rising demand for shrimp worldwide has positively influenced shrimp imports from India. Moreover, increasing health consciousness amongst consumers, escalating disposable incomes and improving standards of living remain some of the other major factors which are further augmenting the demand for shrimps. Looking forward, we expects the Indian Shrimp market to reach a volume of 1.13 Million Tons by 2024, exhibiting a Compounded Annual Growth Rate of around 9% during 2019-2024.

5. FINANCE & HUMAN RESOURCE

i. Finance

The Total Income for the year ended March 31, 2020 was Rs. 25.68 crores as against Rs. 36.28 crores during the previous year ended March 31, 2019. During the year under review the Company made Profit before Tax adjustment Rs. 2.49 crores as against the Loss before Tax of Rs. 20.56 crores in the previous year. Profit After Tax was Rs. 2.10 crores as against a Loss After Tax of Rs. 20.05 crores in the previous year. During the financial year ended March 31, 2020, the Board of Directors were unable to recommended any Dividend. The Reserves and Surplus of the Company stood at Rs. 13.80 crores as against Rs. 11.69 crores as on March 31, 2019.

ii. Human Resources

The Company continued to lay emphasis on a high performing work culture to achieve organisational goals of the present as well as those of the future in a sustainable way by establishing a culture of process discipline, organisational oneness and achievement orientation across its businesses through simplification and digitization, empowerment, project-based working, customer centricity and process discipline. The initiatives taken by the Company are in line with its long-term Human Resources Strategy which has been drawn up with three broad thrust areas - capability building, improved accountability and high-performance work culture.

At OBIL, human resource is a key asset capital and an important business driver for the Companys sustained growth and profitability. Hence, we at OBIL believe that training, like all organizational development processes cannot be a function of time, but rather an ongoing process with the developmental needs and business planning processes being formalized constantly. The Company continues to run an in-house training Programme held at regular intervals and aimed at updating their knowledge about food safety issues. A continuous review of the monitoring process is underway and procedures and systems are being institutionalized across the organization. The team consists of skilled crew with experience in their respective fields, production techniques, diverse expertise and professional background in food technology, engineering, finance and marketing.

6. FINANCIAL REVIEW & RISK MANAGEMENT (INCLUDING INTERNAL CONTROL)

Separate report on this is annexed.