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Ovobel Foods Ltd Management Discussions

Jul 22, 2024|10:43:00 AM

Ovobel Foods Ltd Share Price Management Discussions

a. Industry structure and developments:

The company operates in the domain of egg powder and frozen egg manufacture and exports.

At present, there are only few other companies that are active in this domain in India. Your Company has identified the new markets and increased its customer base and product range. Your company has built a reputation over the years amongst its customer for quality products. The companys sustainability has been centered around enlarging its presence within profitable and attractive retail niches, capitalizing on robust brand building and manufacturing foundation. The new management is making efforts to capitalize on the existing brand name and taking several other steps to register steady growth. b. Opportunities:

Due to several corrective measures taken by the management, companys products are in high demand both in domestic and international markets. This unique advantage is likely to result in bringing in more and more opportunities of added commercial advantage during the days ahead. The COVID 19 pandemic had re-imposed peoples believe in healthy living and healthy eating, and the Company saw it as on opportune time to increase its customer base in both Indian and international markets. Further with the improvement in the pandemic situation and resumption of international trade, the Company is also looking forward to enter new markets as well. c. Threats:

While international competition could pose a threat to companys future operations, your Directors are confident of effectively countering the same by utilizing its past experience and skills. The slowdown of Indian as well as world economy resulting to decreased levels of trade, outbreak of war and the failing economies, surge in inflation and subsequent rise in interest rates had been testing times for the industry. Though the present situation is stable, however, if the situation deteriorates further the same poses further threat to the Companys business. d. Segment wise or product wise performance:

The company was operating in one predominant segment i.e. manufacture of standard egg powder and frozen egg. At present the company is involved in making specialized products in this segment. e. Outlook:

Despite the rise is raw material prices, your directors have prioritized in improving its quality measures and have been successful in keeping its clients happy on the product quality front. The management looks to the future with optimism. f. Risks and concerns:

The ongoing war, gap in demand and supply of essential food items and their effect on international trade is a concern for the industry. Due to the war, the poultry feed cost has gone up drastically and thereby the raw material prices also increased Due to the constant rise in raw material prices in the country in the recent past the cost of production is on an increasing trend. Rising manpower costs is also a major concern the industry is facing. Slowdown in international trade is a concern. Rise in interest rates is again a concern for the industry. The company is successful in retaining its clients and convincing them to get better realization by catering with high quality products. g. Internal control systems and their adequacy:

The company has got adequate internal control systems in place for the current level of operations of the company and your management would continue to strengthen this. h. Discussion on financial performance with respect to operational performance:

Your Company prepares its financial statements in compliance with the requirements of the Companies Act, 2013 and recognized accounting policies and practices, Indian Accounting Standards (Ind AS) notified under section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015 and other relevant provisions of the Act. These financial statements were prepared on a historical cost basis. Your management accepts the responsibility for the fair presentation of the additional information presented in the notes to the financial statements for the purpose of additional analysis of the financial statements. The financial statements have been prepared as per the requirements of Schedule III (Division II) notified by the Ministry of Corporate Affairs and the operating cycle has been considered as one year. This also enables in reasonably presenting the Companys state of affairs and profits and cash flows for the year ended March 31st, 2023. i. Material developments in Human Resources/ Industrial Relations front, including number of people employed:

The company has experienced, loyal professionals working in production, sales and administration. The company has got very good industrial relations and the employees and the management has very cordial relationship between them. Your Company prides in the commitment, competence and dedication of employees. The Companys structured induction at all levels and management development programs have helped enhance competence. j. Details of significant changes in key financial ratios i. Debt-Equity Ratio the debt equity ratio as on 31 March 2022 was 1.35 whereas as on 31st March 2023 it was 0.49, a considerable variance of -63.83% year on year.

Explanation: During the year the company has not availed any new loans and due to repayment of loans the debt equity ratio has come down. ii. Debt Service Coverage Ratio - the Debt Service Coverage Ratio as on 31 March 2022 was 0.01 whereas as on 31st March 2023 it was 0.18, a considerable variance of 2114.05% year on year. Explanation: Operation levels have increased for the year 2022-23 as compared to the previous year. Though the interest cost for the year 2022-23 has increased due to increase in bill discounting by 45 Lakhs due to change in SOFR rate from 2.5% to 5.05% but due to significant higher profits in current year the debt service coverage ratio is better than previous year. iii. Return on Equity Ratio - the Return on Equity Ratio as on 31 March 2022 was 0.001% whereas as on 31st March 2023 it was 0.98 %, a considerable variance of 118538.64% year on year. Explanation: Operation levels have increased for the year 2022-23 as compared to the previous year. The company has significant margins on sales compared to previous year.

iv. Return on Capital employed - the Return on Capital Employed Ratio as on 31 March 2022 was 1.61% whereas as on 31st March 2023 it was 61.50%, a considerable variance of 3714.26% year on year. Explanation: Operation levels have increased for the year 2022-23 as compared to the previous year.

v. Net Profit % - the net profit percentage as on 31 March 2022 was 0.01% whereas as on 31st March 2023 it was 17.54%, a considerable variance of 129092.53% year on year. Explanation: The profits for the current year have increased to due significant increase in sales price as compared to last year with cost remaining more or less at the same level.

vi. Return on Investment - the Return on Investment Ratio as on 31 March 2022 was -7.33%% whereas as on 31st March 2023 it was -0.02%, a considerable variance of -99.67% year on year. Explanation: Variance due to the fair value fluctuation of the investment and increase in investment due to new investment in debentures of another body corporate amounting to Rs.9.00 Cr.

vii. Current Ratio The Current ratio as on 31 March 2022 was 1.60%% whereas as on 31st March 2023 it was 2.24%, a considerable variance of 39.75% year on year. Explanation: The sales have increased significantly due to which receivables and bank balances have increased. There is an increase by Rs.628.86 Lakhs and Rs.3288 Lakhs in trade receivables and cash and cash equivalents respectively.

viii. Trade Receivables turnover ratio The Trade Receivables turnover ratio as on 31 March 2022 was 11.92%% whereas as on 31st March 2023 it was 15.04%, a considerable variance of 26.18% year on year. Explanation: Trade Receivables turnover ratio has increased due to increase in sales during FY 22-23 and the collection have been better during the year. ix. Trade payables turnover ratio - The Trade payables turnover ratio as on 31 March 2022 was 39.40%% whereas as on 31st March 2023 it was 57.71%, a considerable variance of 46.45% year on year. Explanation: Payable turnover ratio has increased due to increase in production and cost of production and payment terms being met as compared to previous year.

x. Net Capital turnover ratio - The net capital turnover ratio as on 31 March 2022 was 6.50% whereas as on 31st March 2023 it was 4.59%, a considerable variance of -29.32% year on year. Explanation: Operation levels have increased for the year 2022-23 as compared to the previous year and working capital ratio has increased for the year as compared to previous year.

k. Cautionary Statement:

Certain statements made in the management discussion and analysis report may constitute ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on, whether express or implied. Several factors could make a significant difference to the Companys operations. These include economic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on over which the Company does not have any direct control.

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