Ovobel Foods Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

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 management is making efforts to capitalize on the existing brand name and taking several other steps to register steady growth. In this regard the management has also embarked upon acquiring processing unit of other Company. During the year under review the acquisition of Egg Powder Processing Unit of Bestovo Foods Private Limited was a step in this regard.

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.

We are in an age where world over the faith of people have got re-imposed in healthy living and healthy eating, and the Company sees it as on opportune time to increase its customer base in both Indian and international markets. The Company is constantly looking forward to enter new markets as well.

c. Threats:

While international competition poses a threat to the companys future operations, your Directors are confident in effectively countering it by utilizing their past experience and skills. Market fluctuations due to economic conditions such as inflation, currency fluctuations, and overall economic conditions have a major influence on both production costs and other overheads, thereby affecting prices in the egg powder market. To mitigate these risks to a certain extent, management has decided to pursue backward integration, by owning egg farms, to ensure a stable and reliable supply of raw materials (eggs) for egg powder production. This reduces dependency on external suppliers and minimizes risks associated with supply chain disruptions. By owning or controlling egg production facilities, companies can potentially reduce costs associated with purchasing eggs at market prices, providing a competitive advantage, especially during periods of price volatility in the egg market.

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:

> 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.

> The company is successful in retaining its clients and convincing them to get better realization by catering with highquality products.

> Changes in trade policies, tariffs, or international trade agreements can affect export-import dynamics and market access for egg powder producers operating on a global scale.

> Changes in shipping routes, or disruptions in transportation infrastructure (e.g., port congestion) can impact the cost and efficiency of exporting.

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. To mitigate these threats, management adopts proactive strategies such as diversifying export markets, maintaining strong relationships with logistics providers, staying informed about regulatory changes, optimizing supply chain flexibility, and implementing robust risk management practices

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, 2024.

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 2023 was 0.49 whereas as on 31^st March 2024 it is 0.25 a considerable variance of -48.08% year on year.

Explanation: During the year the company has not availed any new term loans and regular in repayment of the existing loans. Further, the year end there is a reduction in bill discounting balances. Hence there is a reduction in debt equity ratio

ii. Debt Service Coverage Ratio - the Debt Service Coverage Ratio as on 31 March 2023 was 00.18 whereas as on 31^st March 2024 it is 00.11, a considerable variance of - 36.86% year on year.

Explanation: The sales volume and prices have reduced. Company being regular in repayment of principal and interest has been able cover its debt cost appropriately out of current year earnings though there is a lower earning as compared to previous year.

iii. Return on Equity Ratio - the Return on Equity Ratio as on 31 March 2023 was 0.98% whereas as on 31^st March 2024 it is 2.26%, a considerable variance of -73.60% year on year.

Explanation: In current year, the profits have reduced due to lower sales compared to previous year and as a result the return on equity has also reduced. Also, the average shareholders equity has increased due to significant profits in the previous year.

iv. Return on Capital employed - the Return on Capital Employed Ratio as on 31 March 2023 was 61.50% whereas as on 31^st March 2024 it is 26.37%, a considerable variance of -57.11 % year on year.

Explanation: The profit and EBIT has come down significantly during the current year, due to which there is a reduction in return on capital employed.

v. Net Profit % - the net profit percentage as on 31 March 2023 was 17.54 % whereas as on 31^st March 2024 it is 10.24%, a considerable variance of -41.60% year on year.

Explanation: In the current year, the net profit has come down as compared to the previous years due to lower volume. The costs have also increased during the current year contributing towards decreased profits. As a result the net profit percentage has come down.

vi. Return on Investment - the Return on Investment Ratio as on 31 March 2023 was 0.02% whereas as on 31^st March 2024 it is 0.12%, a considerable variance of -594.86% year on year.

Explanation: Increase in return on investment is due to increase in the fair value of the investment in equity as at the year end.

vii. Current Ratio -The Current ratio as on 31 March 2023 was 2.24% whereas as on 31^st March 2024 it is 3.01, a considerable variance of 34.33% year on year.

Explanation: The current ratio is better in the current year for the following reasons. Borrowings has significantly decreased as at year end especially because of lower bills discounted, decrease in trade payables and decrease in advance from customers which has reduced the current liabilities. There is a reduction in current asset due to reduction in bank balances as a result of investment in CAPEX. Trade receivables have also reduced due to better collection period and lower sales volume.

viii. Trade Receivables turnover ratio - The Trade Receivables turnover ratio as on 31 March 2023 was 15.04 whereas as on 31^st March 2024 it is 13.51, a considerable variance of -10.18% year on year.

Explanation: Trade Receivables turnover ratio has decreased due to decrease in sales during FY 23-24 and the collection have been better during the year.

ix. Trade payables turnover ratio - The Trade payables turnover ratio as on 31 March 2023 was 53.45 whereas as on 31^st March 2024 it is 65.51, a considerable variance of 22.55% year on year. (The comparative figures have been regrouped / rearranged to confirm to current year classification)

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 2023 was 4.59 whereas as on 31^st March 2024 it is 3.63, a considerable variance of -20.98% year on year.

Explanation: Net Sales have decreased for the year 2023-24 as compared to the previous year and working capital ratio has decreased 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.