Oswal Overseas Ltd Management Discussions.

1. OVER VIEW:

Sugar industry is an important agro-based industry located in the rural India. About 50 million sugarcane farmers, their dependents and a large mass of agricultural labourer are involved in sugarcane cultivation, harvesting and ancillary activities. Besides, about 5 Lakh skilled and semi-skilled workers, mostly from the rural areas are engaged in the sugar industry. India is the second largest producer of sugar in the world after Brazil and is also the largest consumer. Today Indian sugar industrys annual output is worth approximately 80000 crores. Surplus production over domestic consumption in the last three sugar seasons and low exports due to subdued international sugar prices have led to building up of sugar stocks with the mills and low realization from sale of sugar. This has adversely affected the financial health of the mills and resulted in accumulation of cane price arrears.

2. SWOT ANALYSIS:

Strength:

• It is an established player in the sugar industry with an installed capacity of 3500 TCD at its Aurangabad, Nawabganj plant.

• OOL is planning to crush the maximum cane in shorter sugar season. The unit is strategically situated in cane rich belt of central Uttar Pradesh.

• Abundant Land at the existing plant site which may be used for the Companys future expansion and diversification programmes

• The unit is empowered with experienced, skilled and young Human Assets

• Presence of temporary labor force during peak period ensures maximum profits.

Weaknesses:

• Being the Seasonal Industry, OOLs growth plan & profitability depends on various cyclic constraints.

• The Company has not been able to achieve desired utilization levels on account of various technical limitations in its manufacturing process.

• Cane price is administered by State Government which may affect profitability and cash flow of Company.

• Quality of raw material largely depends upon natural and seasonal factors.

Opportunities:

• Co-Generation through Bagasse /Biomass, proposed to be used for forthcoming Co-gen Power Plant will qualify for Carbon Credits Mechanism

• OOL is planning to expand its Sugar & Furnace Capacities and setting-up Co-generation plant by consuming the byproduct bagasse/Biomass through external resources. This will give opportunity to make use of capital resources during the offseason even when sugar production remains stopped.

• Production of value added products such as refined sugar, small packs, sugar cubes etc. that shall bring in higher contribution.

• White sugar has the maximum market share in India and OOL will produce maximum white sugar in future also.

Threats:

• OOL has only one manufacturing plant which increases its risk in case of a plant failure or maintenance issues.

• OOL has to face tough competition with the existing competitors.

• Sugar & Alcohol/Ethanol Industries are always poised to threat because of continuous monitoring by Government policies in the form of Regularization or De-regularization & infrastructure changes.

• Cheap sugar imports are harming the existing sugar mills in India and leading them to crisis.

• Sugar industry is very volatile as many factors including rainfall, cultivated area and transportation cost affects sugarcane prices and hence make this industry unpredictable

3. STRATEGY :

The demand & supply gap of the Sugar across the Country may affect the small units like OOL. Hence the Companys near term strategy is to focus on higher cane recovery by improving internal efficiencies and higher production of sugar.

4. HUMAN RESOURCES/ INDUSTRIAL RELATIONS:

The objective of your company is to create a workplace where every person can achieve his or her full potential. The employees are encouraged to put in their best. OOL recognizes that a large part of its success is attributable to the excellent human resources base created over the years. This intellectual capital reflects in the quality of our business strategy, our customers relationship, strong project management and commercialization skills and our development capabilities.

5. INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY:

The efficiency of the internal control system has been improved with implementation of high level of system-based checks and controls through core business process in materials, operations, accounting & HR. Regular internal audits and checks are carried out to ensure that responsibilities are executed effectively and that adequate systems are in place to maintain authenticity and correctness of recorded transactions.

6. FINANCIAL TRANSACTION :

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013, and Accounting Standards in India. Our management accepts the responsibility for the integrity and objectivity of these financial statements as well as for various estimates and judgment used therein. The estimates and judgments relating to the financial statements have been made on a prudent & reasonable basis, in order that the financial statements reflect in a true and fair manner the form and substance of transaction and reasonably present out state of affairs and profits of the year.

7. REVENUE ANALYSIS:

Gross revenues in financial year 2018-19 has increased to Rs. 81,08,07,536/- (P.Y. 2017-18 Rs. 76,80,08,705/-) while the net profit after tax were at Rs. 88,14,563/- (after comprehensive income) in F.Y.2018-19 in comparison of Net Loss Rs. 19,96,45,078 (after comprehensive income) in the F.Y. 2017-18.

8. CAPITAL STRUCTURE:

The paid-up capital of the company is Rs. 12,46,10,500/- as on 31st March, 2019 divided into equity share capital of Rs. 6,46,10,500/- and Preference share capital of Rs 6,00,00,000/-.

9. RESERVE:

Companys Free Reserves was Rs. -17,72,39,051/- in Financial Year 2018-19 in comparison to Financial Year 2017-18 Rs. - 18,57,71,131/-.

10. FINANCIAL OBJECTIVITY , INITIATIVE AND ACHIEVEMENTS :

Your Company is taking proactive measures to ensure all financial costs are effectively reduced to positively impact the bottom line:

(i) Finance Cost: The outflow on account of Finance Cost charges increased from Rs. 1,94,79,192/- in financial year 2017-18 to Rs. 2,46,85,461/- in financial year 2018-19, representing a increase of 26.73%.

(ii) Inventories: In Financial Year 2017-18 the inventory value was at Rs. 492236280/- while in financial year 2018-19 is at Rs. 1,01,56,70,610/-.

(iii) Depreciation and Amortization Exp.: Depreciation and Amortization Exp. increased from Rs. 2,30,19,538/- in financial year 2017-18 to Rs. 2,78,01,469/- in financial year 2018-19 representing a increase of 20.77%.

(iv) Property Plant & Equipment: Property Plant & Equipment in 2017-18 was of Rs. 66,63,68,533/- while in 2018-19 was Rs. 65,16,07,995/-.

(v) Loans & Advances: In Financial Year 2018-19, loans & advances stood at Rs. 2,39,44,771/-, compared to Rs. 2,68,18,448/- in Financial Year 2017-18.

11. SIGNIFICANT ACCOUNTING POLICIES : ( As mentioned in the Auditors Report)

Revenue Recognition, Inventories Valuation, Fixed Assets, Depreciation, Research & Development, Expenditure on new projects & substantial expansions, Cenvat Credit Sales Tax, Borrowing Cost, Earning Per Share, Taxes on Income, Segment Reporting Policy, Intangible Assets, Impairment of Assets, Provisions, Cash & Cash equivalent.

12. 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 explanation therefore, including:

Key Financial Ratios FY 2018-19 FY 2017-18 Change Change %
Debtors Turnover Ratio 0.014 0.015 -0.001 -6.67
Inventory Turnover Ratio 1.25 0.64 0.61 95.31
Interest Coverage Ratio 0.73 -9.59 10.32 107.61
Current Ratio 1.00 0.55 0.45 81.10
Debt Equity Ratio 25.30 17.64 7.66 43.43
Operating Profit Margin (%) 2.22 -24.32 26.54 109.13
Net Profit Margin (%) 1.09 -26.04 27.13 104.18
Return on Net Worth 0.10 -2.58 2.68 103.97

13. RISK MANAGEMENT:

As a Company poised to take on the mantle of industry mainstream, OOL is exposed to various risks. The Company is engaged in the business of manufacturing Sugar. Some of these risks are external and result from the business environment we operate in, while some are internal to the Company. We have developed a risk reporting management process to manage potential risks in an informed manner.

We have a three-pronged risk management process. Our comprehensive risk governance culture ensures that business decisions taken balance risk and reward. Consequently, our earnings-generating initiatives are consistent with our risk standards. Our risk-management revolves around corporate policies that outlined standards and provide measurement guidelines for each risk category. The Company proactively evaluates and puts in place risk-mitigation initiatives, sets prudent limits on quantum of risk undertaken and does risk evaluation of major policy decisions.

We manage the variables impacting business risk with a disciplined risk management process is keeping with established standards. The risk management strategies and processes are regularly reviewed in keeping with the changing environment.

14. RISK ENVIRONMENT:

A number of potential risks in the current environment might make the Sugar Industry mixed prospects over the coming years. These risks may stem from Central/ State Government Policies, Cane availability, State administered Cane Price, Customer Concentration Risk and Geographical Risks amongst others. OOL is, however, well poised to manage and mitigate these risks.

15. STEPS TAKEN TO MITIGATE RISKS

OOL is planning to upgrade its existing plant through expansion and diversification on the basis of latest technology and human expertise. The objectives are:

a) Ability to rapidly commercialize new expanded and diversified capabilities.

b) Access to new opportunities through long-standing strategic partnerships.

16. OTHER RISKS AND KEY MANAGEMENT INITIATIVES :

a) Industry risk management:

Indian Sugar Companies are prone to induced cyclicality, with higher cane prices in spite of the falling sugar realization which are adversely affecting the profitability. OOL operates in an industry where demand & supply is restricted due to seasonality of operations & Government Policies, Administered Cane Prices which may jeopardize future growth of the medium sized group like ours.

b) Regulatory Risk:

The policies of the Government may not be conducive to the growth and development of the Indian Sugar Industry, particularly for a short span of time.

There are various favourable policies expected from the Government in the near future.

c) Working Capital Risk:

The sugar sector is working-capital intensive. The continued slump in the Industry may affect the Companys profitability to manage its working capital requirements.

The Company will manage the enhanced requirement of working capital by means of working capital limits by the banks, short-term loan or unsecured loan from the promoters and issue of share capital to the promoters & others.

d) Business Model Risk:

The Companys business model may not be effective in a year of sugar down turn.

To mitigate the risk our Company has adopted a diversified model comprising Sugar and furnace to minimize the inherent risk of cyclicality of the sugar business. OOL is exploring the business opportunities through expansions of existing infrastructure and diversification into Co-Gen.

e) People risk management:

High quality human resources are vital to the success of our business.

In order to retain talent, the Company promotes a sense of ownership and pride in association with strong HR initiatives, which have helped us keep attrition rates well in control.

f) Cash flow risk:

The Company operates in a cyclic growth oriented industry, especially on account of changing Government Policies of administered prices, control/decontrol and cane availability. Hence, it is imperative to efficiently estimate and manage cash flows in this volatile environment. The Companys working capital arrangement is comparatively low against any uneven or seasonal factors. Hence the Company is trying to tie-up additional alternative financing or cost optimization/ funding the operations. Besides the Company monitors liquidity on a regular basis.

g) Security risk management:

Operations could be disrupted due to natural, political and economic disturbances.

As a part of its ‘Disaster Recovery plan, all related risks have been mapped by the Company and are monitored regularly.

17. DISCLOSURE:

During the year under review, the Company has not entered into any transaction of the material nature with its Promoters, the Directors or the management, their subsidiaries or relatives, etc. that may have potential conflict with the interest of the Company at large.

18. MANAGEMENTS RESPONSIBILITY STATEMENT:

The management is responsible for preparing the Companys financial statements and related information that appears in this annual report. The management believes that these financial statements fairly reflect the form and substance of transactions and reasonably represent the Companys financial condition and results of operations in conformity with Indian Generally Accepted Accounting Principles.

19. CAUTIONARY STATEMENT:

Some of the statements in this report that are not historical facts are forward-looking statements. The forward-looking statements include our financial growth projections as well as statements concerning our plans strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. These risks include uncertainties that could cause actual events to differ materially from these forward-looking statements. These risk include, but are not limited to, the level of market demand for our services, the highly-competitive market for the types of services that we offer, market conditions that could cause our customers to reduce their spending for our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market conditions in India and elsewhere around the world and other risks not specifically mentioned.

For and on behalf of the Board of Directors
OSWAL OVERSEAS LIMITED
Sd/- Sd/-
Anoop Kumar Srivastava Paramjeet Singh
Place: New Delhi Director (Managing Director)
Dated: 26/08/2019 DIN:07052640 DIN:00313352