Raj Oil Mills Ltd Management Discussions.

FORWARD-LOOKING STATMENT

CAUTIONARY STATEMENT:

This Management Discussion and Analysis statements of Annual Report has been included in adherence to the spirit enunciated in the code of corporate Governance approved by the Securities and Exchange Board of India, Statement in the Management Discussion and Analysis describing the Companys objectives, projections estimates expectation may be "Forward-Looking Statement" within the meaning of applicable securities laws and regulation. These statements are subject to certain risks and uncertainties. Actual result may differ materially from those either expressed or implied in the statement depending on circumstances. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the Government policies, economic development, political factors and such other factors beyond the control of the Company.

ECONOMIC OVERVIEW

Indias Gross Domestic Product (GDP) grew by 6.8% in 2018-19, as per the data released by the Central Statistics Office (CSO). The growth is at a 5-year low after 2013-14 when the economy grew by 6.4%. However, India still continues to be the worlds fastest growing major economy.

The World Bank projects Indias GDP to grow by an average of 7.5% in 2019-20 and 2020-21, with investment picking up and consumption remaining strong.

INDUSTRY STRUCTURE, DEVELOPMENTS AND INDUSTRIAL OUTLOOK:

Global Scenario

The global edible oil market is segmented into palm, soya bean, sunflower, olive, corn and canola oils, as well as specialty blended oils and others. The global edible oils market is expected to register a CAGR of 5.1% through the forecast period to reach the value of US$ 130.3 billion at the end of 2024. The global edible oils market is segmented on the basis of region, into North America, Europe, Asia Pacific, Latin America and Middle-East and Africa (MEA). Asia Pacific is projected to dominate the global market, accounting for 41.29% share in 2015, and is expected to account for 42.40% at the end of 2024.

India Scenario

Edible oil constitutes an important component of food expenditure in Indian households. The edible oil industry is one of the most important within the agriculture sector in India, the worlds largest importer from Indonesia and Malaysia and the third largest consumer. India is also the fifth largest oil seed-producing country in the world after USA, China and Brazil. In all, nine types of oilseeds are produced in India of the nine, soya bean, ground nut, and mustard are the major oilseeds produced in the country. Consumption of vegetable oils have increased due to a rise in overall household income, surging retail sector, increasing health awareness, growing population and increasing demand. The growth of edible oil consumption and increasing population coupled with limited availability of oil seeds and shifting of acreage to other crops have resulted in continuous demand-supply gaps for edible oil, which is being met by imports.

India is a USD 2.8 trillion economy with a population of over 1.3 Billion people. Edible Oil is an important component of the household food basket. The total production of edible oil in the country is around 10.06 Million MT, while the domestic requirement is around 25 Million MT. Since domestic production of edible oils is unable to meet demand, import of edible oils has been resorted to for more than two decades to make this item of mass consumption easily available to consumers at reasonable prices. It is the worlds largest edible oil importer, with oil and oil seed turnover of USD 25 Billion and import-export turnover of around USD 13 Billion. India is importing around 15.028 Million tonnes of edible oil per annum at the cost of approximately USD 11 Billion per annum.

Indian Edible Oil Industry at a Glance

Edible oils and Fats are essential ingredients for a wholesome and balanced diet and are vital items of mass consumption. There are two sources of oils viz. primary source and secondary source. The primary sources of oil are nine principal oilseeds viz. groundnut, rapeseed/mustard, soyabean, sunflower, sesame, niger, safflower, castor and linseeds. Edible oils obtained through secondary sources include coconut, cottonseed, palm, rice bran and oilseed cakes.

As per the 2nd Advance Estimates of Ministry of Agriculture released on 28.02.2019 for 2018-19, estimated Oilseeds production is about 3.15 Million MT and estimated production of oils from these oilseeds in 2018-19 comes to about 0. 72 Million MT. The total availability of edible oils from primary as well as secondary sources is estimated at 1.63 Million MT.

India is fortunate in having a wide range of oilseeds crops grown in its different agro climatic zones. Groundnut, mustard, rapeseed, sesame, safflower, linseed, nigerseed, castor are the major traditionally cultivated oilseeds. Soyabean and sunflower have also assumed importance in recent years. Coconut is most important amongst the plantation crops. Efforts are being made to grow oil palm in Andhra Pradesh, Karnataka, Tamil Nadu and North- Eastern parts of the country in addition to Kerala and Andaman & Nicobar Islands. Among the non-conventional oils, rice bran oil and cottonseed oil are the most important. In addition, oilseeds of tree and forest origin, which grow mostly in tribal inhabited areas, are also a significant source of oils. Figures pertaining to estimated production of major cultivated oilseeds, availability of edible oils from all domestic sources (from Domestic and Import Sources) during the last ten years are as under:

(Qty in million MT)
Year Production of oil seeds Domestic Availability Imports Total Availability / Consumption
2013-14 32.75 10.19 10.97 21.16
2014-15 27.51 9.20 13.85 23.05
2015-16 25.25 8.63 14.85 23.48
2016-17 31.27 10.09 15.85 25.41
2017-18 31.30 10.38 14.59 24.97
2017-18 31.50 1..06

Source: Ministry of Consumer Affairs, Food & Public Distribution

Per capita consumption of edible oils in the country as compared to world per capita consumption of edible oils since last five years has been as under:-

(KG. Per Year)
Year 2013-14 2014-15 2015-16 2016-17 2017-18
India 16.2 17 19 18.9 19.5
World 27 30 30.5 28 29.3

Source: Ministry of Consumer Affairs, Food & Public Distribution

KEY GROWTH DRIVERS

Population Growth:

During 2018 -19, Indian population has increased by 14 Million people and reach 1.36 Billion. In India, the population is booming in scores of small cities across the country. About 40% of Indias population will be living in urban areas by 2025, and these city dwellers will account for more than 60% of consumption. This growth is directly related with the growth in the FMCG sector. India will have 68 cities with population of morethan 1 million by 2030, up from the current 42 cities. Rural consumption has increased, led by a combination of increasing incomes and higher aspiration levels; there is an increased demand for branded products in rural India. The rural FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion in FY18.

Higher Incomes Aid Growth In Urban And Rural Markets:

Incomes have risen at a brisk pace in India and will continue rising given the countrys strong economic growth prospects. An important consequence of rising incomes is growing appetite for premium products, primarily in the urban segment. As the proportion of ‘working age population in total population increases, per capita income and GDP are expected to surge.

Modern Retail:

The Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20 per cent - 25 per cent per annum, which is likely to boost revenues of FMCG companies. Revenues of FMCG sector reached US$ 52.75 billion in FY18 and are estimated to reach US$ 103.7 billion in 2020. The sector witnessed growth of 16.5 % in value terms between July-September 2018; supported by moderate inflation, increase in private consumption and rural income.

E-Commerce:

The huge potential of online shopping has caught the attention of top fast-moving consumer goods (FMCG) companies. It is estimated that 40 per cent of all FMCG purchases in India will be online by 2020, thereby making it a huge business opportunity.

Sourcing Base:

Indian and multinational FMCG players can leverage India as a strategic sourcing hub for cost competitive product development and manufacturing to cater to international markets.

Brand Consciousness:

The spending patterns of Indians have witnessed a shift towards branded products owing to a rise in disposable incomes. A vast majority of people no longer wish to compromise quality just to save some extra money.

COMPANY OVERVIEW

The Raj Oil Mills Limited is engaged in the business of manufacturing and trading of edible oils since its inception. During the year Honble National Company Law Tribunal, Mumbai Bench, Mumbai (Honble NCLT) vide its Order dated 19th April, 2018 approved the Resolution Plan under section 31 of the Insolvency and Bankruptcy Code, 2016. Pursuant to the Order of Honble NCLT the management of the Company takeover by the new promoters i.e. M/s. Mukhi Industries Limited and M/s. Rubberwala Housing and Infrastructure Limited.

The new promoters of the Company are well established groups having proven track record in its respective fields. Since the new promoter has taken over the management, the Company has focused on the expansion of the business by adopting new techniques and implementation of new ideas.

The turnover of the Company has increased by 19.5% during the financial year and is expected to grow substantially in the subsequent year. Company is working in single segment i.e. manufacturing and trading of edible oil. The Company has a strong portfolio of brands viz. Guinea, Cocoraj, Tilraj, and Mustraj enjoys reputed market presence. The Company believes in offering consistent purity and taste in its products.

Company has launched new product by the name Divya Shakti, Divya Shakti is specially designed and developed for using in Lamps and Dias.

The Company has strived for its commitment and promise to the entire shareholder and have valued their effort for making it a renowned brand, thereby increasing shareholder value. The new management of the company has always been believe in taking all the developmental and social initiatives for its stakeholders including employees, customers, society, investors, promoters, vendors and government bodies. The companys affairs are being managed by highly qualified/experienced professionals and the Company is promoted by well-established group of promoters having a proven track record.

INFORMATION TECHNOLOGY

Information Technology is one of the key drivers for any business for furthering the key strategies of the origination. The Company applies technology to create more efficient relationship with our stakeholders including employees, suppliers & customer. Recently company has developed software based application named msell which provides the real time information of the sales and productivity of the sale person.

INTERNAL CONTROLS

The Company has proper and adequate system of internal controls which ensures that all assets are safeguarded against loss from unauthorized use or disposition and all the transaction are authorized, recorded and reported correctly. Regular internal audits and checks are carried out to provide assurance that the responsibilities at various levels are discharged effectively and that adequate systems are in existence. The management continuously reviews the internal control systems and procedure for efficient conduct of business. The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations.

M/s. Kailsah Chand Jain & Co. Chartered Accountants are the Internal Auditors of the Company. The reports and findings of the internal auditors and the internal control system are periodically reviewed by the Audit Committee. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board.

The Internal Auditors monitor and evaluate the efficacy and adequacy of internal control systems in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board.

HUMAN RESOURCES

The Company recognizes the importance and contribution of its human resources for its growth and development and is committed to the development of its people.

Raj Oil Mills Limited, equal importance is given to the development of the companys human resource. Company has always recruited the best talent available in the industry – people with years of expertise and experience behind them. The Company considers its employees to be the most valuable asset and is committed to provide a conducive work environment to enable each individual to fully realize his or her potential. The human resource programmes focus on strengthening key areas of Enhancing individual and organization readiness for future challenges. Management is investing in enhancing technical and managerial skills of employees for building competencies needed for growth plans. Our business review & performance improvement process continues to put focus on performance and periodic review of each of our businesses and individuals.

The Company has cordial relations with employees and staff. There are no industrial relations problems during the year and the Company does not anticipate any material problems on this count in the current year.

RISK MANAGEMENT AND MITIGATION:

Your Company is exposed to commodity price fluctuations in its business. All major raw materials as well as finished goods being agro-based are subject to market price variations. Prices of these commodities continue to be linked to both domestic and international prices, which in turn are dependent on various Macro/ Micro factors. Also Commodities are increasingly becoming asset classes. Prices of the Raw materials and finished products manufactured by your Company fluctuate widely due to a host of local and international factors.

Key risks for the edible oils sector include risks from change in import-export regulations; change in the minimum support price (MSP) on oilseeds offered by the government; high dependence on monsoons and finally, the risk arising out of exchange rate fluctuations. Procurement of material at the right price and quantity, optimum utilization of processing units, their strategic location, a strong brand name and diversification of product offerings are likely to be the key success determinants for players.

Increase in the number of competing brands in the market place, counter campaigning and aggressive pricing by competitors have the potential to create a disruption.

Your Company continues to place a strong emphasis on the risk management and has successfully introduced and adopted various measures for hedging the price fluctuations in order to minimize its impact on profitability. Also, your Company has initiated setting-up of a framework to upgrade itself to a robust risk management system.