Shreeoswal Seeds & Chemicals Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT

Every day, agriculture produces an average of 23.7 million tons of food, provides livelihoods for 2.5 billion people, and is the largest source of income and jobs for poor, rural households. In developing countries, agriculture accounts for 29% of GDP and 65% of jobs. The sector has been buoyant, which is evident from the fact that it has registered an average annual growth rate of 4.18 per cent at constant prices over the last five years and as per provisional estimates for 2023-24, the growth rate of the agriculture sector stood at 1.4 percent. The agriculture sector in India holds the record for second-largest agricultural land in the world. India is the worlds largest producer of farm products including milk and pulses and second largest producer of rice, wheat, sugarcane and groundnut.

According to a research report "Global Agriculture Industry Outlook 2024 - Feeding the Future Through Innovation" published by Markets Markets, the Top 10 Agriculture Markets Will Grow From USD 81.5 billion In 2023 to USD 94.3 billion by 2024 at A YOY Increase of 15.7%

In 2023, the agriculture industry is experiencing significant developments, marked by the rise of sustainable practices, increased adoption of advanced technologies, and strategic initiatives by key players. Growing population, increasing demand for food, widespread implementation of technology in agriculture, and a surge in demand for organic and sustainable agriculture are primary demand drives. As we look ahead to 2024, several trends are poised to shape the industrys trajectory. The integration of advanced technologies like AI and automation will continue to redefine production processes, while competition among industry leaders will intensify. High-tech and organic approaches are both driving sustainable agriculture. Precision agriculture and biotechnologies optimize yields and resource use, while organic practices prioritize ecological balance.

In 2024, the emphasis on automated farm machinery, agriculture biotechnology, novel farming systems, organic and non-GMO seeds, are accelerating the agriculture industry growth. The agriculture industry is grappling with a perfect storm of challenges including increasingly extreme weather, rising costs for essentials like fertilizer and seeds, unpredictable economic conditions, and a shrinking pool of skilled workers. Agricultural companies are actively seeking solutions to navigate these complex issues and ensure the long-term viability of the sector.In line with this, numerous agricultural institutes and associations emerged from collaborative efforts to work for a common goal of increasing R&D in the seed industry. Over the past few years, the Indian seed industry has evolved as farmers have adopted enhanced seed varieties which offer improved yield. The distribution and production of quality and affordable seeds appropriate for the myriad agro-climatic zones have contributed to the growth of the agriculture sector in India.

India is expected to achieve the ambitious goal of doubling farm income by 2024. The Agriculture sector in India is expected to generate better momentum in the next few years due to increased investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to concerted effort of scientists to get early maturing varieties of pulses and the increase in minimum support price.

OPPORTUNITIES AND OUTLOOK

By 2050, the world will have 10 billion people, with Indian accounting for 1.73 billion (Source: United Nations). To feed Indias growing population, the yield per hectare needs to increase significantly, especially keeping in mind the declining arable land in India. Further, Indias agricultural yield is far lower as compared to global averages. Extreme weather coupled with low penetration of high-yielding hybrid seeds, lack of awareness of modern agricultural technologies and inefficient use of agrochemicals are some of the factors behind the low yield. This presents a significant opportunity for the Companys Crop Protection and Hybrid Seeds business along with opportunities for expanding crop advisory and digital offerings.

Innovations in seeds, crop protection and digital farming solutions can go long way in addressing the productivity problems affecting Indian agriculture. It will also help farmers get good commodity prices, encouraging them to spend on qualitative inputs for achieving higher yields.

Seed is the first and the best hope a farmer has and it is the foundation of “Socio-Economic Empowerment and Development”. Over the last decade, the Indian seed industry has expanded both in size and performance, involving both private and public sector entities. In 2022, the Indian seed market was valued at $6.3 billion, projected to reach $12.7 billion by 2028, with a CAGR of 12.43 per cent.

Further the company completed all parameter set by the regulatory authority to develop own R&D house and we are in the process of apply to authority for the approval.

Further the company shall start business operation of vegetable seeds which shall increase the turnover and profitability of the company.

The seed companies need to prioritize their R&D efforts and allocate the resources to focus on highest-value opportunities. R&D resources should be oriented towards meeting the biggest challenges faced by growers.

The seed companies cannot rely only on in-house, R&D for the most promising innovations, especially in the areas outside their traditional purview. Instead, they need to enrich their innovation pipelines by collaborating with digital startups and other specialized companies in biotech and AgriTech space on the lines of pharmaceutical industry. This will not only help in sharing the costs, and risks of innovation allowing them to leverage the expertise and innovation capabilities that they lack. These collaborative models can be co-development partnerships with equals, deals to help smaller companies fund their research in specific fields, and collaborations with universities, government institutions and NGOs

Digitization is the now the reality for the agriculture industry. If the seed companies need to meet the changing demands of farmers, regulators and consumers, they need to focus on developing cross-functional capabilities in data, analytics, and digital technologies.

THREATS

The continuous competition from the certified seed players and changes in government regulation provide threat to the company. These can either disrupt our operations or adversely affect our business and results of operations. We have operational risks that are inherent to business operations including manufacturing, supply chain and distribution operations, monsoon failures and any other business activity disruptions. Further issues like weather conditions, crop diseases and pest attacks could harm the production and demand of our seed products. This may result in negative results to our business, financial condition, operations and prospects. Increasing seed replacement rate in the country and the adoption of hybrid and biotech crops are the major drivers of the market.

Agriculture is very sensitive to weather and climate. It also relies heavily on land, water, and other natural resources that climate affects. While climate changes (such as in temperature, precipitation, and frost timing) could lengthen the growing season or allow different crops to be grown in some regions, it will also make agricultural practices more difficult in others. Nature of business of the company is agro based commodities and legal cases are filed by farmer due to Non-Germination of Agro Seeds or failure of Seeds Sample and which may be happened by any of the one condition i.e. Climate changes, Soil Issue, excess or less water used while irrigation of crop, Non-Germination and farmer negligence which is not the fault of the company.

The seed companies need to be move away from a product-centric approach to product and services that can be tailored to customers needs. The development of these solutions is more important now as the expectation of customers have been shifting towards growing there food more sustainably, using less of inputs for higher productivity.

PRODUCT WISE PERFORMANCE

The Company has no reportable segment on standalone basis and on consolidated basis the Company has two reportable segments which consist of Seed and Psyllium in accordance with Ind AS-108 Operating Segment. Details of turnover and profitability along with other segment details are disclosed to Note Number 40 in consolidated financial statement of the Company.

INDUSTRY OUTLOOK

With good reservoir levels and retained soil moisture from the previous Rabi season, the sector was blessed with an above-normal monsoon for the second consecutive year. Early cropping during the Kharif season and prolonged monsoon created a very favorable climatic and soil condition for year-round cultivation of food crops, cash crops, fruits and vegetables. The higher output was well supported by the higher procurement by the Government leading to improved price realization by the farmers.

RISKS AND CONCERNS

The Company owns and operate only one processing facility situated at Neemuch, Madhya Pradesh. All our products are processed at the same facility. Our manufacturing facility is susceptible to damage or interruption or operating risks, such as human error, power loss, breakdown or failure of equipment, performance below expected levels of output or efficiency, obsolescence, break-ins, and industrial accidents and similar events. Further, our processing facility is also subject to operating risk arising from compliance with the directives of relevant government authorities. If our Company experiences delays in production or shutdowns due to any reason our Companys operations will be significantly affected, which in turn would have a material adverse effect on its business, financial condition and results of operations.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has appropriate internal control system for business processes with regards to its operations; financial reporting and compliance with applicable laws and regulations. The Audit Committee approves the internal audit plan and internal audits are conducted at regular intervals in line with the approved plan. Audit observations and follow-up actions are discussed by the Internal Audit team with the management of the Company as well as Audit Committee.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Financial and Operational performance forms are part of the Board Report separately.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

The Company follows a strategy of attracting and retaining the best talent and keep employees engaged, motivated and innovative. The Company continues to have cordial relations with its employees and provide personnel development opportunities for all round exposure to them. As on 31^st March, 2024, the Company had 31 employees.

DETAILS OF SIGNIFICANT CHANGES IN FINANCIAL RATIOS:

Reason for changes more than 25% in financial ratio

Debtors Turnover: There has been decrease in revenue of the company during the year due to which profit has also been declined.

Interest Coverage Ratio: There is a decrease in revenue during the year due to which profit has also been reduced.

Debt Equity Ratio: There is a significant change in ratio because there are no long term borrowing is outstanding as on 31^st March 2024.

Operating Profit Margin (%): There is a decrease in revenue during the year due to which profit has also been reduced.

Net Profit Margin: There has been decrease in revenue of company and Increase in trade receivables.

RETURN ON NET WORTH

Return on net worth (RONW) is calculated by dividing the net income by shareholders equity. It explains the efficiency of the shareholders capital to generate profit.

RONW = Net Income / Shareholders Equity

The Return on Net worth (RONW) of the Company for FY 23-24 is 4.74% as compared to 11.20% during FY 22-23.

CAUTIONARY STATEMENT

Statements in this Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. The company assumes no responsibility to publicly amend, modify or revise any such statements on the basis of subsequent developments, information or events.

There are various factors like conditions in global financial markets, regulatory intervention and other acts of violence which may lead to situations unpredictable for any one Important factors that could make a difference to the Companys operations include economic developments in the country and improvement in the state of capital markets, changes in the Government regulations, tax laws and other status and other incidental factors.