Radha Madhav Corporation Ltd Management Discussions.

Annexure-V

Operation, Risk & Concerns & Management Outlook

Business review -1 Direct Selling Business

Overview

RMCL entered the business of direct selling in the year 2014-15. Company focused upon Tier- II and Tier III cities for its business expansion. During this period a very large number of shops, depots and warehouses have been put in place. All these distribution points have been integrated on central processing system.

The outlook for advance economies as well as developing economies remain challenged. The depleting purchasing power of lower and middle class has put pressure on the company. With the implementation of GST, Traditional FMCG companies have become more and more competitive in comparison to their domestic and local competitors. The penetration of 5 Rupee and 10 Rupee packs in rural markets has put additional pressure on companies like RMCL.

Year 2018-19 has been fifth year of companys direct selling business. In this year, company enhanced its distributor base to 5.2 million. This year, company introduced newer products and consolidated its existing markets. However, this expansion was rampant and has been proved to be a mistake.

Company started a concept called QEagle Distributor, wher ein it promoted Sales Dispensing Points from residences and work place. With a perspective to grow small dispensing points, company organized large-scale meeting and training programs through out the country and the countries of its operations. Many enthusiast distributors opted to become Eagle Distributor. Company distributed Incentives as per its business compensation plan. However this led to a large inventory in the market, whose sale incentive was already distributed. This large unused inventory was later sold at below selling price of the products in the open market. This led to drastic drop in the sales of the company.

There was dramatic drop in demand of fresh products due to liquidation of already sold products in the market. During this liquidation, fresh incentive was not generated as it was already accounted for during the first sale. This drop in incentive led to frustration of many distributors and they left the company.

Company faced a unique situation wherein it had to create demand for the un-used inventory. It also replaced products of many distributors and also made good for running expenses.

Under this situation, company will have very low sales and high incentive distribution in H1 of 2019-20. Hence the outlook for H1, 2019-20 remains challenging for the company. However, Company hopes to revive the business in H2 of 2019-20. Backed with good products, product distribution system and fleet of loyal distributors, company hopes to achieve unprecedented growth in years to come.

Under this situation, company will have very low sales and high incentive distribution in H1 of 2019-20. Hence the outlook for H1, 2019-20 remains challenging for the company. However, Company hopes to revive the business in H2 of 2019-20. Backed with good products, product distribution system and fleet of loyal distributors, company hopes to achieve unprecedented growth in years to come.

Technology

Company has been continuously spending on its technology up gradation. This financial year, a substantial portion of technology spend was made to grow Eagle Distributors, their training and to facilitate their Internet marketing. This technology spent would not yield many benefits in the current year but would pay back in next 2-3 years.

Product distribution system is integrated on the central processing system and has been duly upgraded from time to time. Company has also begun local procurement system, wherein Warehouses and Depots can purchase directly from local market and upload the products on the portal. Technology related to aging of products incorporating FIFO system shall be integrated on the central processing system.

Company has spent substantial resources on W eb enabled study materials in this curr ent year. This included product brochures, small testimonial videos, selling techniques videos, demonstration videos etc. This investment shall yield good results for the company in time to come.

In the current year, company plans to move on a functional and user-friendly App in iOS and andr oid versions. The app will be equipped with all the functions as being offered on Web versions. This app has been designed to offer friendly interface in Internet marketing and distributor creation. The work is underway and is expected to be completed in very short time. Inventory management has been a key area of concern for the company. The present technology is sufficient to handle the concerns but may need regular upgradation from time to time.

Customer Care:

Company is committed to provide excellent customer care service to its distributors and prospects. Year 2018-19 was not a satisfactory year from this perspective. A large boom in customer base and inability to supply the large range of products created immense pressure on the customer care department. In the current year, company plans to consolidate its position and provide adequate service to its existing base and new prospects.

Company Strengths

• Legally Compliant: Company has to deal with various departments like Consumer Affair Ministry, departments related to approval of its products and many company related departments. All its business compensation plans and products are duly adhered to the instructions laid by the departments.

• Committed Management: Company has been in process of resolving disputes of all the working distributors in a very appropriate manner. At various occasions, rents and running expenses of establishments have been compensated. For many distributors, products have been replaced. However, Company has also initiated legal proceedings against various distributors, who intended to harm the goodwill of the company. This phase demonstrated companys ability to handle unfavorable situations in most appropriate manner.

•In house manufacturing of FMCG products and Packaging materials: In this year, company established its in-house manufacturing units for many FMCG products. This would enable the company to manufacture and deliver good quality product at reasonable prices.

• Technology driven: The Direct Selling business of the company technology savvy and company always thrives to remain updated with technology up-gradation

Road Ahead:

Company sees a golden future for itself in coming years. Last 6 years of business has given tremendous experience, expertise and wisdom. Based on in-house manufacturing facilities and extremely cordial distributor network, company believes to become number direct selling company in coming years. Following steps are being taken in the current year to pursue in this goal.

• Clear Deliverance of Mission Statement: Company is not just a product selling company but it aims to bring happiness and prosperity in the lives of its distributors. It aims at creation of a stress-less, cordial and family oriented environment in the lives of its distributors.

• Brotherhood: It will focus not only on business but also upon interpersonal relationships and cordial family tie-ups amongst its distributors. Company will emphasize upon scholarships, picnics, cooking competitions etc. to develop a concept called Brotherhood. Company would enhance brotherhood amongst its distributors, wherein each distributor would help his or her fellow member in all possible manners.

•Release of much awaited Book called Third Temple: Spiritual teachings of our Managing Director would be published in form of a book and released in this year. This will enable mass communication of his ideas and thoughts. Company believes that the availability of book would further enhance the number of members and followers in the direct selling concept.

• Rejig of Product portfolio: Company will focus upon Sulphide free, Silicon free and Parabin free products. It will also focus on high quality organic products in the H2 of 2019-20. It will develop and proliferate products, which do not effect the Pineal Gland of humans. For this purpose, fluoride free toothpaste would be launched in H2 of 2019-2020.

• Comfortable Sitting arrangement for discussion and proliferation of views: Company is planning to start Third Temple Cafe in its select marts and shops. This would enable the shop owner to earn extra income as well as provide comfortable sitting arrangement for our prospects and distributors.

• Pharmaceutical Products: High quality pharmaceutical products are being launched in order to sustain the profitability of our distributors

Business Review - 2 Packaging Business

Overview

The infrastructure of Packaging Business of the company had been designed for the future. We believe that the Future has Arrived. Harping upon the Prime-Minsters announcement on Sustainable Packaging on the eve of Independence Day, Company is highly optimistic about its growth in packaging business.

Companys infrastructure is highly suitable to attain the goals set by honorable prime minister and environment minister. Some of the high lights of our infrastructure are mentioned below.

Our Central Impression Printing Presses can print Recyclable substrates like PE films, Nylon films and EVOH films. Directly printing on these films makes it reusable and recyclable. These do not remain single use plastic.

Our coating machines can coat barrier chemicals on paper making it usable for barrier packaging. We would like to reiterate that RMCL has been pioneer in development of Barrier Paper for mouth fresheners. The same technology can be used for varied products in food and other categories.

The Company entered the packaging business in the early 2000s and is now considered as one of the most specialised packaging companies in India. More than 60% of the Companys product is used for captive consumption (for its consumer products) and the rest is sold in the market.

The Companys packaging business can be divided in to two segments. One segment is standardised packaging while the other is customised packaging. The term standardised packaging refers to the products that are general in specification and not manufactured for any specific customer. Such products generally do not involve any printing. For customised packaging, we have a dedicated manufacturing facility for flexible printed laminates, bags- in-boxes and folded cartons. These products are specifically manufactured for designated customers and contain graphics and designs of the customers.

The Company has started a unique franchise model to sell its standardised products. It is called RMCL Retail and the portal name is rmclretail.co.in.

The Company plans to merge RMCL retail franchises with RMCL Universe franchises. Through this model, the working capital needs for packaging business would substantially reduce. Other than multi-wall barrier paper, we are still holding monopolistic or almost monopolistic position in POF films, EVOH films, MOPVC films and cast PVC films, among others. On the back of these realities, we hope to regain our lost market share with ease.

Strengths

Only player in India present in a number of packaging product categories like multi-barrier paper, among others Completely depreciated assets to strengthen profitability Ability to manufacture customised products as per the requirements of the customers

Outlook

The Company is proposing a multi- wall barrier paper structure for wide arena of food products like chips, snacks and mouth freshener among others. The Rudrapur facilities are well-equipped with the machineries to manufacture such structures. Our state-of-the-art facilities capable of printing, laminating and slitting lends us a boost in this endeavour. The packaging business infrastructure employs a combination of quality German, Korean and Swiss technologies that can go on for the next 20 years. The machineries are maintained under the supervision of an experienced team. We are optimistic of getting the packaging business back on track and break even by the fourth quarter of 2019-20. The Company is also optimistic of the new notifications issued by the various State Governments. Subsequently, all FMCG companies are instructed to move towards recyclable and sustainable packaging over the next two years. This notification will help resurrect RMCLs packaging business The Company would also like to explore products wherein packaging cost is more than 25% of the product cost. Such products include shampoo sachets, cream and ointment sachets, single sachets of health-drink and single sachets of energy drinks, among others.

Internal control systems and their adequacy

The Company has an effective internal control system in place that ensures internal processes comply with established business policies and procedures. The Board has adopted appropriate measures ensuring orderly and efficient conduct of its business. These controls have been designed to provide reasonable assurance with regard to adherence to the Companys policies, safeguarding of its assets, prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosures. requirements of the customers

Human resources

The Company believes that its competitive advantage lies within its people. The Companys people bring to the stage multi-sectoral experience, technological experience and domain knowledge. The Companys HR culture is rooted in its ability to subvert age-old norms in a bid to enhance competitiveness. The Company always takes decisions which are in alignment with the professional and personal goals of employees, thereby achieving an ideal work-life balance and enhancing pride association.

Cautionary Statement

Statements made in this section describe the Companys objectives, projections, expectations and estimations which may be forward-looking statements within the meaning of applicable securities laws and regulations. Forwardlooking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual results could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any developments.