(Pursuant to Regulation 34 of SEBI (LODR) Regulations, 2015)
1. BUSINESS ENVIRONMENT
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.
Acewin Agriteck was initially a hardcore software development and information
technology outsourcing company, as a maturing organization we have carefully considered a
multitude of business streams with potential growth opportunities in the near future and
long term. A self-analysis and an educated assessment of the risks involved with the
software business have resulted in our interest and investment in the food industry like
Aqua culture business trading in the third quarter of 2018.
The COVID-19 pandemic has negatively affected shrimp farming activities in India,
incurring losses for farmers, disrupting production, creating "panic
harvesting," and unemployment in the region.
"The sector was badly hit as the lockdown restrictions affected transportation of
shrimp feeds from Tamil Nadu and Andhra Pradesh, which caused a price hike in feeds,"
farmers choose to carry out "panic harvesting" of small-sized shrimp to sell at
lower prices.
Studies say that COVID-19-related lockdowns have resulted in a loss of USD 1.6 billion
(EUR 1.34 billion) for Indias shrimp sector.
Shrimp Industry:
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.
Indian Shrimp Market
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, ACEWIN AGRITECK expects the market to reach a volume of 1.13 Million Tons by
2024, exhibiting a Compound annual growth rate (CAGR) of around 9% during 2019-2024.
2. ACEWIN SERVICE OFFERINGS
i. Shrimp Trade
Seafood is among the most highly traded food commodities, and one will expect trade
patterns to be highly dynamic. Shrimp is the most important commodity, by value, in the
international seafood trade. The shrimp industry has grown exponentially in the last
decades, and growth is expected to continue for years to come. For future success in the
shrimp industry, we attempt to find a thorough knowledge of the economics, market, and
trade as important as an understanding of disease management or husbandry.
ii. Services Strategy - Outsourced Product Development & Extended Engineering
In the software services outsourcing business, we help our customers by designing,
building, testing and maintaining commercial products and digital solutions. Also,
positioning as an extended software engineering development partner providing digital
innovation center to create software possess with the multidisciplinary and
multidimensional skills.
iii. Product Strategy Food Processing ERP
Our ERP product development vertical is focused on addressing the specific needs of the
supply chain and manufacturing industries. As part of the product enhancement, we released
a new version with data analytics to provide comprehensive dashboard for planning and
strategic decision-making. Our Food Processing ERP solution covers the entire spectrum of
enterprise functions through Manufacturing, Supply Chain, Inventory, Customer
Relationship, Asset Management, Project Management, Financial Planning and Optimization.
Quality monitoring is the backbone through forward and backward tracing addressing the
challenges of the dynamical shifts in manufacturing process without any hindrance. A
diluted component based analytical reporting system is available in the system to help
make right inventory and manufacturing decisions.
3. 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. Threats in shrimp sector development
Trends
a. deteriorating tendencies in parts of the production chain, including reduced
availability of wild fries and an increased incidence of shrimp farm diseases;
b. social problems related to a highly skewed distribution of the profits made in the
sector, and high levels of crime and human right violations in shrimp polders;
c. production resources are controlled by a few elite members of the community;
d. expansion of shrimp farming into areas that are not ideal for shrimp production and
conflicts with other land uses.
e. uncertain developments of the world economy and corresponding shrimp prices;
f. difficulties in meeting tightening international standards; and
g. Poor industry image due to perceptions of environmental destruction, social
injustice and in equity and poor quality control leading to rejections at ports of
destination.
Operational
h. Lack of co-ordination mechanism for the stimulus and control of an industry which is
spread over many agencies;
i. Inadequate enforcement of existing rules and regulations;
j. Lack of transparent shrimp land zoning procedure which leads to development of
shrimp farming in unsuitable areas and local conflicts;
k. Difficulty in developing and enforcing national standards to ensure compliance with
emerging international standards (lack of a reliable quality control against product
contamination and the failure of the governments quality assurance enforcement system);
l. Lack of monitoring data and information; and
m. An inadequate mechanism for equitable distribution of profit through taxation.
n. Fiscal support to certain sectors of the industry though important in the early
stages has continued for too long contributing to an inefficient use of resources and has
distorted local markets. Today we are left with an industry comprising an excess
processing capacity with many processing plants remaining idle.
iii. Segment:
Hatchery Development:
During the year under review, the Company has diversified its activities to
Aquaculture-Prawn seed sales, as a favorable outcome of Hatchery business your Company
recorded total revenue of Rs. 30.69 Crores revenue in FY 2019-20 compared to Rs. 19.90
Crores in the previous FY 2018-19.
IT Segment:
The Company has curtailed IT segments on account of the prevailing global economic
crisis, IT services will be used for R&D and in-house development of software for Aqua
Culture activity. Other revenue flow of the company will be from outsourcing of in-house
talents and renting out of work stations that were used for software development
activities.
iv. Outlook:
This is being the second year of operation in Hatchery trading, your Company will
consistently focus on providing good quality with full traceability Prawn seeds to the
Customers by using Modern technologies and innovative ideas in Prawn Hatchery operations.
The Company proposed to take out an existing modern hatchery to operate on lease basis
under Asset Light Model in the current financial year 2020-21. In order to augment
production with minimal capital cost, Hatchery segment is expected to generate Rs.30
Crores additional revenue resulting in additional net profit of Rs.6 Crore. The existing
customer base in trading will be retained and continued after the acquisition of existing
Hatchery Unit.
The Company has curtailed IT segments on account of the prevailing global economic
crisis, IT services will be used for R&D and in-house development of software for Aqua
Culture activity. Other revenue flow of the company will be from outsourcing of in-house
talents and renting out of work stations that were used for software development
activities.
4. FINANCE & HUMAN RESOURCE
i. Finance
This year marked a tremendous growth rate of 56% over the previous year, registering a
Total Income of Rs. 34.37 Crores for the year ended March 31, 2020 as against Rs. 22.02
Crores during the previous year ended March 31, 2019. This was mainly attributable to the
segment trading in Shrimp seeds which contributed to 84% of the total turnover. Profit
Before Tax was Rs. 16.76 Crores as against Rs. 1.72 Crores in the previous year. Profit
After Tax was Rs. 12.41 Crores as against Rs. 1.04 Crores in the previous year. During the
financial year ended March 31, 2020, the Board of Directors has not recommended any Final
Dividend. The Reserves and Surplus of the Company as on March 31, 2020 stood at Rs. 17.70
Crores as against Rs. 5.20 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.
The information relating to employees and other particulars required under Section 197
of the Companies Act 2013 read with Rule 5 of the Companies (Appointment &
Remuneration of Managerial Personnel) Rules 2014 will be provided upon request. In terms
of Section 136 of the Companies Act 2013, the Report and Accounts are being sent to the
Members excluding the information on employees, particulars of which are available for
inspection by the Members at the Registered Office of the Company during business hours on
all working days of the Company up to the date of the forthcoming Annual General Meeting.
If any Member is interested in obtaining a copy thereof, such Member may write to the
Company Secretary in the said regard.
The disclosure with regard to remuneration as required under Section 197 of the Act
read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules 2014 is attached and forms part of this Report.
5. FINANCIAL REVIEW & RISK MANAGEMENT (INCLUDING INTERNAL CONTROL)
Separate report on this is annexed.
FINANCIAL REVIEW 2019-20
(Pursuant to Regulation 34 of SEBI (LODR) Regulations, 2015)
1. EARNINGS
Total Income
The Total Income for the year ended March 31, 2020 was up by 56% at Rs. 34.37 Crores as
against Rs. 22.02 Crores during the previous year ended March 31, 2019. The sustained
growth and consistent higher margins are reflective of the Companys high caliber in the
hatchery trading segment.
Profit before tax (PBT), Profit after tax (PAT) and Total comprehensive income
Profit Before Tax was almost 10 times higher than the previous year at Rs. 16.76 Crores
as against Rs. 1.72 Crores in the previous year and Profit After Tax during the reporting
period was Rs. 12.41 Crores as against Rs. 1.41 Crores in the previous year.
2. FINANCIAL POSITION
Shareholders Funds
Shareholders Funds as on March 31, 2020 was Rs. 27.96 Crores (Previous year Rs. 15.46
Crores).
Loan funds
The secured and unsecured borrowings of the company, as on March 31, 2020 was Rs. 1.58
Crores (Previous year Rs. 2.50 Crores).
Assets
Net block of Property, Plant & Equipment were at Rs. 3.71 Crores, the addition to
Property, Plant & Equipment for the year was Rs. 0.54 Crores. The Capital Expenditure
was funded through internal accruals.
3. RATIOS
Earnings per share
The Basic Earnings per share of face value of Rs. 10.00 each for the year ended March
31, 2020 is Rs. 12.09 (Previous year Rs. 1.37).
Financial Ratios
The key financial ratios of the Company in which there were significant changes (more
than 25%) during the financial year compared to the previous financial year, with reasons
therefor, are as under:
| Sl. No |
Financial Ratio |
FY: 2019-20 |
FY: 2018-19 |
% change over previous year |
Reasons |
| 1 |
Interest Coverage Ratio |
48.42 |
4.77 |
915 |
Reduction in borrowing & finance charges and increase in the Profit before
Interest & Tax. |
| 2 |
Debt-Equity Ratio |
0.06 |
0.16 |
65.21 |
Reduction in debt and increase in net worth due to higher profits. |
| 3 |
Net Profit Margin |
49% |
8% |
522.68 |
Improvement in profits, increase in income from trading in hatcheries reduction of
fixed costs, reduction of interest cost and reduction of tax rate. |
| 4 |
Revenue Growth |
54% |
100% |
46 |
Shifted from IT segment to Hatcheries trading, the sale in terms of volume is much
higher than the previous year irrespective of the Growth Rate. |
4. RISK ANALYSIS AND MANAGEMENT
Risk is an inherent feature of any business activity, more so when the dependence is on
the consistency on the deliverables of the Company and linked to the sustained support
from the customers from the public at large. Like every organization, Acewin Agriteck
Limited ("Acewin") business is also impacted by a number of factors. Given below
is an overview of some of the major risks affecting any business and Acewinsposition
vis--vis these risks.
PRINCIPAL RISKS AND THEIR MITIGATION
a) STRATEGIC RISK
Shrimp farming is considered a "risky business" and often compared to
gambling for farmers. It is associated with a diverse range of risks and uncertainties,
including volatile markets, climate variability, and production risks. Aquaculture
research has paid little attention to the influence played by the evaluation and selection
of different farming practices, risk perceptions associated with shrimp farming, and the
farmers confidence in their own ability to mitigate risk. The risks in small-scale shrimp
farming derived from 8 factors: input and pond preparation; finance and credit access;
production; personal aspects; harvesting and marketing; weather and environment; policy
and institutional aspects; and business environment.
Software development is activity that uses a variety of technological advancements and
requires high levels of knowledge. Because of these and other factors, every software
development project contains elements of uncertainty. This is known as project risk. The
success of a software development project depends quite heavily on the amount of risk that
corresponds to each project activity.
Risk Mitigation
Acewin has a mechanism to identify risks and their triggers, Classify and prioritize
all risks, Craft a plan that links each risk to mitigation, Monitor for risk triggers
during the project, Implement the mitigating action if any risk materializes, Communicate
risk status throughout project.
In order to mitigate the effects of unpredictability farmers may decide on a particular
stocking density and adopt different risk management strategies. The shrimp farmers
perception of risk could significantly influence their risk management behavior.
Furthermore, nine factors were identified for risk management strategies, including
disease prevention; education and technology improvement; production inputs; farm
management; government support; risk sharing and insurance; financial aspects; household
adjustment; and alternative income sources.
b) OPERATIONAL RISK
New, unproven technologies:
Ever-changing tools, techniques, protocols, standards, and development systems increase
the probability that technology risks will arise in virtually any substantial software
engineering effort.
User and functional requirements:
Software requirements capture all user needs with respect to the software system
features, functions, and quality of service. Too often, the process of requirements
definition is lengthy, tedious, and complex. Moreover, requirements usually change with
discovery, prototyping, and integration activities. Change in elemental requirements will
likely propagate throughout the entire project, and modifications to user requirements
might not translate to functional requirements. These disruptions often lead to one or
more critical failures of a poorly-planned software development project.
Organizational:
Organizational problems may have adverse effects on project outcomes. Project
management must plan for efficient execution of the project, and find a balance between
the needs of the development team and the expectations of the customers. Of course,
adequate staffing includes choosing team members with skill sets that are a good match
with the project.
Risk Mitigation
Risk management is an extensive discipline, we in Acewin strategise and have an in
place risk management system to mitigate the risk. Software risk monitoring is integral
with all our project activities. Essentially, this means frequent checking during project
meetings and critical events.Always we have a forward-thinking about risk management. We
use checklists, and compare with similar previous projects and Prioritize risks, ranking
each according to the severity of exposure. We have a system to vigorously watch for
surfacing risks by meeting with key stakeholders especially with the marketing team and
the customer. We strongly encourage stakeholders to think proactively and communicate
about risks throughout the entire project.
c) FINANCIAL RISK
In aquaculture, financial risk refers to the potential loss associated with an
aquaculture investment. Risk is defined as uncertain consequences, usually unfavourable
outcomes, due to imperfect knowledge. Risk can be lowered by reducing or removing hazards,
i.e. sources of risk. Hazards are tangible threats that can contribute to risk but do not
necessarily produce risk. Agriculture and aquaculture are inherently risky financial
endeavours. In aquaculture, the hazards can be broadly classified as production threats or
market (or economic) threats. We at Acewin are concerned most with production yield and
market price variability. Financial risk represents the likelihood of a hazardous event
occurring and the potential financial loss that could result. The presence of hazards
affecting production and market conditions (e.g. price, demand) can bring about financial
loss.
Risk Mitigation
Preliminary information gathering helps to scope and structure a risk problem and lays
the foundation for communicating risk. Acewin consults a variety of resources to identify
the hazards that contribute to financial risk. Stakeholders whose investments are at risk
provide significant in sight when identifying hazards. These stakeholders include the
lenders who provide the financial support to farmers, farm owners, government agencies,
consumers and members of related/affected industries.
d) Leverage Risk
A high debt component could result in an excessive interest drain. Risk Mitigation The
company has a balance debt equity structure.
e) Receivable Risk
Delays in collection of accounts receivable could affect the Companys cash flow, with
poor follow up potentially leading to delinquency and write offs.
Risk Mitigation
The company constantly monitors its debt collection and ensures that the debtors are
periodically reviewed and dues maintained at levels that do not affect its cash flow.
f) Legal And Statutory Risks
Risk on contractual liabilities
The risk arising out of contracts that impose onerous responsibilities.
Risk Mitigation
The Company constantly reviews all agreements, documents and contracts to ensure
compliance with the accepted business procedures.
g) Compliance failure risk
The risk arising out of non-compliance with statutory requirements.
Risk mitigation
At Acewin statutory compliance has been ensured through an internal process and legal
compliance is given due importance in the Companys management process. The Company is
proposing an independent audit and review across all the operational areas to reassess the
existing processes.
5. INTERNAL CONTROL
Weak internal control can jeopardize the Companys financial position.
Risk mitigation
The Company has in place systems and processes, commensurate with its size and nature
of business so as to ensure adequate internal control while ensuring smooth conduct of
operations and compliance with statutory requirements under all applicable legislations.
Independent internal audit is carried out to ensure adequacy of internal control system
and adherence to policies and practices. The Audit Committee reviews the functioning of
the internal audit function.
6. CAUTIONARY STATEMENT
Statements in this Management Discussion & Analysis describing the companys
objective, projections, estimates and expectations may constitute "Forward looking
statement" within the meaning of applicable laws & regulations. Actual results,
performances or achievements could differ materially from those expressed or implied in
such forward-looking statements.
|
On behalf of the Board |
| Place: Chennai |
|
| Date: June 01, 2020 |
|
|
Sd/- |
|
Jesudas Premkumar |
|
Managing Director |
|
DIN: 7008031 |
+91-9892691696
