som distilleries breweries ltd share price Management discussions

1. Economy and Outlook

The global economy was severely impacted in 2020 due to the impact of the pandemic and related lockdowns to curtail the impact of the covid-19 virus. However, in 2021 the world economy recorded a remarkable recovery and recorded a growth of 6.1%, as per International Monetary Fund (IMF). This strong growth was supported by favorable economic and social policies. In addition, faster pace of vaccinations ensured gradual relaxations to support resumption of economic activities.

However, the pace of the recovery is expected to slow-down going forward in 2022 primarily due to prevailing uncertainties around resolution of geopolitical crisis. The economic cost of the conflict is anticipated to have severe impact on the commodity market and result in food and fuel rise. In addition, the global pandemic continues to resurface with new variants and has been impacting some of the countries. Considering the prevailing challenges, IMF has projected a moderation in the growth outlook to 3.6% in 2022 and 2023.

The Indian economy started the fiscal year with a strong recovery during the first nine months of FY2022. This recovery was driven primarily by less stringent restrictions on back of rapid pace of vaccination. India successfully ran one of the largest vaccination programme globally, which was instrumental in curbing the spread of the virus. Furthermore, supportive fiscal and monetary stance of the Government coupled with various incentive schemes also contributed to the growth. The pace of the economic growth slowed in the fourth quarter due to prevailing geopolitical instability arising from Russia and Ukraine conflict. This has also resulted in various supply chain restrictions resulting in higher inflationary conditions. As per the National Statistical Office (NSO), the latest estimate for India?s GDP growth in FY2022 is 8.7%.

As per Economic Survey 2021-22, Indian economic growth is anticipated to remain in the range of 8.0% – 8.5%. This growth will be supported by long term benefits of supply side reforms coupled with building back of economic momentum.

2. Indian Alcobev Industry

India is the third largest spirits market by volume in the world, just behind China and Russia. The Indian alcobev industry can broadly be classified into five categories, namely Indian Made Foreign Liquor (IMFL), India Made Indian Liquor (IMIL), foreign liquor Bottled in Origin (BIO), Beer and Wine. IMFL primarily comprises of brown spirits such as whisky, rum, and brandy whereas white spirits comprises of gin, vodka and white rum. The alcoholic strength of IMFL generally does not exceeds 42.8%. IMIL is also referred as country liquor. It is produced in licensed distilleries and made of cheaper raw material, primarily recti_ed spirits of grains or molasses. IMIL generally has an alcohol content of around 30%. BIO forms a very small part of alcohol consumption in India. It is usually consumed by the rich and the upper middle class in metropolitan cities. It is also subject to customs duty which makes it much more expensive. Beer can broadly be classified into two subcategories, strong beer with an alcohol content of around 6-8% and mild or lager beer which has an alcohol content of 4-6%. Wine is an alcoholic drink made from fermented grapes. The major variants of wine are red, white and sparkling. The recent trends in the alcoholic beverages segments includes launch of _avoured alcoholic drinks and ready to drink (RTD).

The alcobev sector was among the most impacted industry due to the pandemic. The impact was due to combination of factors such as production and sales restrictions, higher taxations / cess, limiting capacity and restaurants / pubs. The beer industry was further impacted as consumers preferred avoiding cold beverages. However, the pandemic also led to some structural changes in the industry such as home delivery. Many states have not allowed home delivery of liquor which is anticipated to be a big boost to the industry in the medium to long term. It is expected that the other states will also follow the trend and overall, the sector will benefit from increased number of point of sales.

The demand for alcoholic beverages has been steadily increasing drivenbyrapidurbanisation,changingconsumerpreferencesand a sizeable and growing middle-class population with increased purchasing power. In addition, the alcohol consumption share by middle income group is steadily increasing and is currently around 21%, which is anticipated to reach over 40% by 2030. [Source: Indian Council for Research on International Economic Relations (ICRIER)].

Beer Industry

Indian beer industry is primarily dominated by strong beer which accounts for over 80% of the total beer volumes sold in India. The beer consumption in the country is driven by the demand from the southern states which accounts for more than half of the volumes consumed in India. Around 30% of the total consumption is contributed by western region and equally spread between northern and eastern states. Despite India being a tropical country, it has one of the lowest per capita alcohol consumption rates globally, which is an indicator of the prevailing opportunity.

The growth in the beer market is predominantly driven by young consumers and professionals who consider beer as a trendy drink, as compared with traditional spirits. In addition to factors such as favourable demographics, improving disposable income and increasing social acceptance, recent entry by new players have also resulted in wider options to the consumers. The Alcohol content is lower in beer which makes it preferred drink among youngsters, professionals, and females. Craft beer is a relatively new concept in the industry and has made a mark predominantly in the metro and mega metros, where customers are also looking for more variety. But from Indian context strong beer continues to dominate the overall market as the tier-2 and onwards market has its preference inclined towards it.

Indian beer industry is very seasonal as around 40-45% of the sales happen in the summer. The southern states?, which have slightly humid weathers, sales are mostly spread throughout the year but still summer months account for around 30-40% of the annual sales. The consumption of beer dips during rainy and winter seasons as these seasons in India is also marked by some religious events during which people prefer to avoid alcoholic drinks. The pandemic led restrictions in last couple of years has significantly impacted the consumption of alcohol in restaurants and pubs. The situation is gradually improving, and people have now started going out of homes. As the situation gradually moves towards the normalcy, it is anticipated to be one of the major drivers for growth.

IMFL Industry

Although India is the largest whisky market in the world in volume terms, there is still a fair amount of opportunity to expand it further in value terms. A large part of the consumption is still in categories such as country liquor. The Indian IMFL industry is predominantly dominated by brown spirits accounting around 95% of the total volume sales and over 90% of the value sales. The segment is further segregated based on price points. The lower price point categories, typically less than Rs. 400 per bottle (750ml) is classified as regular or popular category and above that is known as premium or prestige categories. In volume terms the popular category dominates the market with around 75% f the volumes but accounts for only 50% of the sales value. The prestige segment has been primary growth driver for the segment over last few years. Also, given the limitations on price hikes, the higher mix of prestige brand aids the margin management.

3. Demand Drivers for the Alcobev Industry

India offers significant long-term potential for the alcobev industry, driven by favourable demographics, rapid urbanisation, increasing social acceptance and the emergence of a sizeable middle class.

• Home Delivery: Post the pandemic there has been a trend towards allowing home delivery / online sales of liquor. Currently, around 8 states have allowed home delivery and it is anticipated that other states will soon follow the trend. This is a very encouraging development and is anticipated to have positive impact on the industry over medium to long term.

• Increase in Point of Sales: States such as Uttar Pradesh and Delhi have increased the number of retail outlets. Madhya Pradesh has allowed sales of IMFL and beer through country liquor stores which has resulted in significant increase in point of sales. All such efforts by the state governments are a welcome move and will benefit the industry.

• Social Acceptance: Over the years, alcohol has gained acceptance as a socially acceptable drink. Earlier it was a taboo but now it is normal to have alcoholic drinks as part of family functions and social gatherings. The acceptability of social drinking by females and youngsters have also increased.

• Improved Standard of Living: The Indian population segmentation by income level has transitioned from pyramid shape to diamond shape, resulting in larger share of middle-class population. The Indian middle class has also been able to enhance their disposable income and resulting in increased consumer demand. In addition, the growing purchasing power and rising influence of the social media have enabled Indian consumers shift their preference towards more premium and lifestyle products. Furthermore, various measures undertaken by the government over last few years such as direct benefit transfer and various agricultural reforms are also anticipated to increase purchasing power of rural India and drive consumption further. The Indian middle class is moving to an upper income group with changing lifestyles, luxury preferences and ability to pay more for premium products.

• Favourable Demographics: The increasing mix of younger generation in India provides a significant opportunity for the alcobev industry in India. Currently, over 55% of the Indian population in the age group of 18-45 years and around 19 million people get added to the legal age for drinking every year.

• Family Structure: Indian families are shifting towards more nuclear structure as compared to traditional joint family. Also, unlike older days both partners are career oriented. It is common to have social gathering and post meeting celebrations.

• Younger Decision Makers: The decision makers in households are generally younger people who are more inclined towards a_uent lifestyle.

• Alcohol Availability: Focus on premiumization coupled with entrance of international players in India has resulted in availability of a wide variety of choices for aspirational Indian population. Also, the trend for craft beer is picking up in India, which considered trendier, particularly in the metros. The availability of wider choice will cater to a broader target audience resulting in increased demand for the industry.

• Low Penetration: The current per capita consumption of beer in India is one of the lowest in the world. Also, alcohol is sold through a meagre 86,000 outlets, which is extremely low when compared to the rest of the world. Given the current low penetration level there is immense scope for enhancing the consumption which is expected to benefit the overall industry.

4. Business Overview

The only listed Beer and IMFL company in India, SOM Distilleries

& Breweries Limited (‘SDBL?, ‘SOM? or ‘the Company?) is based in Bhopal and is one of the leading alcoholic beverages manufacturers in India. SDBL is primarily engaged in the production of the beer and blending and bottling of IMFL. SOM offers a broad portfolio of products at every price point to cater to varied preferences of consumers. The product portfolio consists of various options across beer, rum, brandy, vodka and whisky categories.

The Company?s flagship brands include Hunter, Black Fort, Power Cool and Woodpecker in the Beer segment and Pentagon, Milestone 100 whisky and White Fox vodka in the IMFL segment. Other popular IMFL brands of SOM include Legend, Genius, Sunny, Gypsy and Blue Chip. With around 90% of the topline coming from beer, the Company has three key millionaire brands (with sales more than 1 million cases per annum) – Hunter, Black Fort and Power Cool. Hunter and Woodpecker brands are supplied as draught beer to all major hotels in Madhya Pradesh. The Company has recently launched ‘Woodpecker? Wheat Beer, India?s first _ltered wheat beer. The initial response has been encouraging and the brand sold over 1 lakh cases in its first year of launch, despite the pandemic related challenges.

SOM has a total capacity of 23.2 million cases per annum of beer and 3.9 million cases per annum of IMFL. This capacity is spread across three facilities located in Bhopal (Madhya Pradesh), Hassan (Karnataka) and Bamburi (Odisha).

Capacity (In million cases)	SDBL (Bhopal)	Woodpecker (Karnataka)	SDBOPL (Odisha)	Total Capacity
Beer	15.2	3.8	4.2	22.8
IMFL	0.6	2.7	0.6	3.9

BEER Portfolio

• Hunter Refreshing Strong Premium Beer

• Black Fort Super Strong Beer

• Black Fort Lager Premium Beer

• Woodpecker Lager Beer

• Power Cool Beer

• Power 10000 Beer

IMFL

• Pentagon Gold Edition Whisky

• Milestone Blue Whisky

• Legend Premium Whisky

RUM

• Pentagon XO Premium Rum

• Black Fort XXX Matured Rum

Vodka

• White Fox Triple Distilled Vodka

• White Fox Triple Distilled Vodka Naughty Green Apple

• White Fox Triple Distilled Vodka Naughty Orange

Brandy

• Legend Rare Brandy

• Milestone VSOP Brandy

RTD

• White Fox Refresh Cosmo Cranberry Vodka Mixed Ready to Drink

• White Fox Refresh Tangy Lemon Vodka Mixed Ready to Drink

• White Fox Refresh Naughty Orange Vodka Mixed Ready to Drink

• White Fox Refresh Wild Passion Fruit Vodka Mixed Ready to Drink

5. Threats and Concerns

The alcobev industry in India is highly regulated. The industry also falls under the purview of national laws and regulatory bodies, such as the Food Safety and Standards Authority of India (FSSAI). Compliance with relevant regulations results in higher operating costs and also limits the Company?s ability to quickly capitalise on the opportunities that Indian market offers.

• Economic Activity: The economic activity in India has recovered sharply post Pandemic. However, threat of new variants is impacting many countries globally. In addition, the ongoing geopolitical instability due to ongoing tension between Russia and Ukraine is adding concerns about the economic recovery globally. Any further extension of such events or any new such events can have adverse effect on the economic recovery and performance of the Company as well.

• Additional Tax: Under the current tax regime, state governments have only liquor and fuel under their control. Any additional taxation on liquor to meet target state revenue objectives can be detrimental for the industry as it will have severe impact on the demand.

• Promotional Restrictions: The alcobev industry cannot do direct promotion of its product as it is banned in India. Typically, the companies use surrogate advertisement to inform consumers about the product. Therefore, it becomes challenging to promote new brands which has limited brand recall.

• Minimum Legal Age: All the states in India have legal ages varying between 18-25 years. If these states increase the drinking age or states with lower age bracket decides to increase the age, it could impact sales of alcohol.

• Limited Pricing Power: In many states, where the government is also the biggest distributor, it fixes the prices at which it buys products from the alcoholic beverage companies and the prices at which they will sell to the end consumers. The state governments decide the end consumer price, leaving manufactures with no say in determining their selling price.

• Complex Taxation Structure: The alcohol industry has been kept outside the purview of GST. However, the industry would be liable to pay GST on the input raw materials, which may impact the gross margins. Taxation by volume continues to adversely impact the beer segment. The tax structure for alcoholic drinks does not adjust for the level of alcohol in a particular drink. Considering the ratio of excise duty adjusted to alcohol content, IMFL appears to be more affordable than beer because it has a higher alcohol/price ratio. This makes beer an expensive drink compared with other spirits in terms of price per unit of alcohol. The excise and other taxes put together comprise over 50% of the final retail price.

• A_ordability: The high taxation on alcobev products results in higher MRPs for the end customer. So even a small change in price or taxes has severe impact on the purchasing power of the customer and can impact a_ordability of the product.

• Barriers to Scale: Every state government has its own rules and regulations in addition to the regulations set up by the central government. As a result, tax and duties are imposed on inter-state movement of alcohol which restricts consolidated of operations and synergy benefits are not fully realized.

• Volatility in Raw Material: The beer and IMFL industry can be adversely impacted due to the volatility in key input raw material prices such as barley, ENA and glass bottles. Since the pricing power is limited, companies cannot fully pass on the higher costs to consumers thereby margins gets impacted.

• Competition: Over last few years, many international companies have entered the Indian market due to the immense potential prevailing in the country. These players could impact volumes primarily in the metros as their products are well known among a_uent or lifestyle seeking consumers. Furthermore, increasing trend of the craft beer among urban population also increases the competition as beers can be manufactured with very limited investment in a smaller size brewery as compared to significant investment required in traditional breweries.

6. Performance Review

During FY2022, beer volumes sales stood at 68.3 lakh cases, an increase of 35% compared to same period last year. IMFL volumes stood at 5.7 lakh cases compared to 7.7 lakh cases in FY2021.

Total income for the year stood at Rs. 3,655 million, an increase of 26.0% compared to FY2021. Revenue from beer was Rs. 3,157 million and revenue from IMFL was Rs. 442 million. Of the total revenue 88% (FY2021: 76%) was contributed by beer and remaining 12% (FY2021: 24%) was contributed by IMFL. In FY2022, realization per case for beer and IMFL was Rs. 462 and Rs. 775, respectively.

EBITDA for the year was Rs. 196 million compared to a loss of Rs. 70 million in FY2021. The Company reported a net loss o Rs. 98 million compared to a net loss of Rs. 381 million in FY2021. During the last quarter of the year the Company turned PAT positive. During the year, the Company could not operate during the peak season (March to June), due to pandemic related restriction, which impacted the profitability. Typically, the peak season accounts for around 40-45% of the annual revenues.

Ratios	FY2022	FY2021	Comments
Debtor Turnover (Days)	65	95	Overall operational and financial performance during the year was severely impacted by the pandemic and related restrictions during the year.
Inventory	148	151
Turnover (Days)
Interest	0.2x	nm
Coverage (x)
Current Ratio (x)	0.9x	0.9x	Loss of sales during the peak season was primary reason for losses and
Debt to Equity (x)	0.68x	0.74x	deterioration of return ratios during the year.
Return on	nm	nm	However, given the less severity of the restrictions compared to the prior
Equity (%)			year, there has been some improvement in profitability compared to FY2021, which has resulted in some improvement in the metrics.
EBIT Margin (%)	0.8%	nm
EBITDA Margin (%)	5.4%	nm
Net Profit	nm	nm
Margin (%)

7. Liquidity

As of 31st March 2022, total debt stood at Rs. 1,973 million and cash and cash equivalent was Rs. 95 million, resulting in a net debt of Rs. 1,878 mn. Gross Debt to Equity ratio was 0.68x. During the year, the Company repaid around Rs. 120 million. SOM is focused on improving utilization levels to drive strong cash flow generation and deleveraging balance sheet.

8. Major Corporate Developments a. Market Share Enhancement in Karnataka: The Company?s market share in Karnataka beer segment increased to 6.9% from 3.9% a year ago. b. Hunter?s Market Share: In the month of May 2022, our mainline brand ‘Hunter? had a market share of 55% in the premium beer segment in Madhya Pradesh. This is the first time in the history of the Company that the brand has gained such market share. c. Footprint Expansion: The Company remains committed to its strategic objective of entering into new markets and further strengthen its foothold in existing markets. SOM will continue to evaluate markets based on its potential and profitability. It believes that this will enable the Company to enhance its market share in medium to long term. d. Contract Manufacturing: Considering our quality, expertise in brewing and the capacities we have the following companies are getting their beers manufactured at our plants. i. 7 Ink Brews Private Limited – Brand manufactured Copter 7 Strong and Lager

9. Business Strategy

Portfolio Premiumisation: The Company predominantly caters to the strong beer segment. The Company?s mainline brand ‘Hunter? caters to customers in the premium strong beer segment. In FY2021, the Company has also launched ‘Woodpecker? wheat beer in select markets in Northern India, which is India?s first _ltered wheat beer. In addition, the Company has also launched new variant / limited editions of its existing brands on an ongoing basis to enhance its customer experience. Exports: The Company is focused on expanding its exports portfolio. Recently, SOM signed a Memorandum of Understanding (MOU) with Indian Fashion FZE, based out of the UAE for export of Beer and IMFL for West and Central Africa. Initially, the Company plans to start supply of ‘Blackfort? beer and based on the traction will gradually start supplying other brands over the period.

Pan India Expansion: The Company has a well-defined business strategy to expand its customer base and outreach. SOM?s bottling agreement with two of the leading liquor manufacturers is aimed at enhancing the Company?s supplies to the Canteen Store Departments as well as to some of the key markets in North India. The Company has a vision of becoming one of the top brewing companies in India. SOM regularly revisits its brand portfolio to cater changing consumer taste and this has helped the Company to continuously re-innovate their existing portfolio as well as launch new products to match the customer preferences.

10. Human Resources

The Company has established a robust Human Resources (‘HR?) system that nurtures a high performing, conducive and inclusive work culture. It has well-documented and disseminated employee friendly policies to enhance transparency, create a sense of teamwork, oneness, trust among employees and align employees? interests with the organization?s strategic goals. These policies assist in providing a holistic workplace environment and plays a key role in right talent on-boarding, talent retention and leadership development. The company has developed well-designed and documented policies such as Whistleblower Policy and POSH (‘Prevention of Sexual Harassment?) Policy to prevent discrimination and harassment and to discourage wrong practices. The Company ensures equal access to opportunities in the areas of recruitment, learning & development, career progression and advancement. This is regardless of gender, age, racial/ethnic background, religion or social status. We focus on developing and nurturing distributed leadership so that we are managed by a team of competent, passionate, and inspiring leaders, capable of building a future-ready organisation through continuous learning, innovation and world-class execution.

We have a very strong orientation towards learning and development. All our new joiners are provided a tailored learning as per the role and related requirements. We also provide our employees opportunities to learn, grow and enhance their career through internal job postings. We organise regular employee engagement and career development initiatives to equip them for ever evolving landscape. We are proud to say that our organization continues to listen to its employees and develop actionable insights for effective decision making. As on 31st March 2022, 153 employees are on our payroll and a well-diversified workforce structure at all levels. Owing to the cordial rapport between management and employees, there was no industrial unrest causing loss in production across all manufacturing facilities. Our employees take pride in their workplace.

11. Internal Control Systems & Their Adequacy

SOM has a comprehensive internal control framework to ensure requisite control to its operations. The Company believes an adequate internal control system is a prerequisite for ensuring sustainable operations of the Company. Stringent and comprehensive controls are put in place to ensure the optimal and efficient utilization of resources and to ensure safety and protection of all assets. This ensures that the Company?s assets and interests are carefully protected, and operations are conducted within a framework of appropriate checks and balances. The system helps mitigate and reduce risks that may prevent the Company from achieving its business objectives and to provide reasonable assurance that all material misstatements, frauds or violations of laws and regulations will be prevented. The existing controls have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance with corporate policies.

The Statutory Auditors also conduct the limited review as part of the listing obligations and the reports are placed before the Audit Committee and forwarded to the regulatory authorities. The observations of the Audit Committee with regard to the efficacy of audit report and the effective remedial measures that have been taken by the Company are placed before the Board for their consideration. The Company undertakes periodic review of its internal control practices and its adequacy and presents its findings to Audit committee with recommendations to enhance the control measures.

12. Corporate Social Responsibility

Corporate social responsibility forms an integral part of the Company?s business activities. SOM actively contributes to the social, economic and environmental development of the community in which it operates, ensuring participation from the community and thereby creating value. The Company?s CSR policy outlines its strategy to bring about a positive impact on the society through various initiatives relating to poverty, education, environment protection and healthcare. SOM endeavours to serve the society and achieve excellence. The Company continues to remain focused on improving the quality of life and engaging communities through ensuring environment sustainability, promoting healthcare, promoting education and many more activities. The annual report on Corporate Social Responsibility activities as required under Sections 134 and 135 of the Companies Act, 2013 read with Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 and Rule 9 of the Companies (Accounts) Rules, 2014 is provided in the Annexure forming part of this Report. As per the section 135 of the Companies Act, 2013, a CSR committee is in place. During the year, SOM spent Rs. 2.35 million on CSR activities as per the CSR policy of the Board. Some of the CSR activities carried out during the financial year are as follows: a. Contributions to the Asha Mohan Foundation for construction of a full-_edged diagnostic centre for the lesser privileged patients at substantial lower charges for tests as compared to conventional centres. We expect the entre to be completed in the next 2 year. b. Contributions to the school being run for underprivileged children. This is especially pertinent when the pandemic had impacted schooling of the children and for ensuring continuity for the education of the children. c. Contributions to the hospital: Its role even became more important during the pandemic in view of the spread of Corona in the adjoining villages.

13. Information Technology (IT)

SOM views IT as a necessary business enabler. The Company?s operations are increasingly dependent on IT systems and there is a need to manage the information effectively. A strong IT infrastructure is critical as it binds the Company?s varied operations into a cohesive unit. SOM is embracing digitisation to create engaging customers experiences. IT has been one of the key factors driving robust growth of the Company and facilitating it to effectively manage its network of distribution channels. The IT platform encompasses all core business processes and provides comprehensive data and analytics that enables better decision making. SOM continuously invests in upgrading to the latest technology enhancements to deliver business efficiencies.

During the year under review, digital initiatives were implemented for factory data analytics and dashboards. Transportation Management System (TMS) for efficient logistics execution and migration of legacy systems to more contemporary systems were undertaken during the year. We have been working continually to improve current applications and adopt trending technologies. This is helping the Company drive customer centricity, reduce process cycle time, improve operational efficiencies and enhance user experience across internal and external stakeholders. Key focus areas include Integrated Business Planning solution to improve planning effectiveness and analytics solution to forecast demand and reduce sales returns.

The company has laid down adequate procedures and policies to guide the operations of our business. Unit/functional heads are responsible for ensuring compliance with the policies and procedures laid down by the management. The Company has implemented ERP systems with the aim of maximizing automated control transactions and digitizing all critical control processes.

The Internal Audit function conducts periodic verification of controls for smooth and accurate operations. The Head-Internal Audit reports functionally to the Chairperson of the Audit Committee which approves the internal audit plan at the beginning of each fiscal year. The audit plan is aligned with critical business risks, new business endeavors as well as key process risks.

The spread of the pandemic and the strictest lockdown announced by the Government of India made Work from Home (WFH) as the new normal. We are proud that our systems were robust enough to oversee this transition and we successfully implemented WFH for all our employees. This is a testament that our IT systems are well prepared for any such challenges.

14. Supply Chain Management

An effective supply chain system is a critical ingredient for ensuring smooth business operation and distribution of products. Having a robust supply chain is essential for SOM to adjust more dynamically to the fluctuating economies, improves responsiveness to the customer requirements and leads to a mutually beneficial relationship with our suppliers and dealers and hence is a core focus for us.

We aspire to be a benchmark in the industry by adopting global supply chain management practices aiming at improved service levels, bringing in cost efficiencies and optimizing inventories. We have implemented the best-in-class procurement solutions, transportation management system and trade management system.

Despite the rapid spread of Covid-19 and different lockdown measures announced both by the Central and State Governments to contain the rapid spread of the virus, our Supply Chain have been efficient and dynamic to overcome these challenges. This is evident from the fact that our production and distribution facilities are operating, and we continue to ensure that our product reaches our customers.

15. Cautionary Statement

Statements in the Management Discussion and Analysis describing the Company?s objectives, expectations, predictions and assumptions may be ‘forward looking? within the meaning of applicable Securities Laws and Regulations. Actual results may differ materially from those expressed herein, due to uncertainties related to the business model. Important factors that could influence the Company?s operations include global and domestic economic conditions affecting demand, supply, price conditions, change in Government?s regulations, tax regimes, other statutes and other factors such as litigation and industrial relations. The risk related information provided is not exhaustive and is for information purposes only. Readers are advised to refer to related disclosures in the Company?s regulatory filings and exercise individual judgement in assessing risks associated with the Company.

Stakeholder Engagement Matrix

Stakeholder	Concerns	Channels of Engagement
Investors	Profitability, Governance, business strategy and market share	AGM and other relevant shareholders meeting, conference call, Investor?s presentation and meeting and media release, shareholders compliance and grievance.
Customers	Quality of the product, value for money, business continuity, safety, and sustainability	Distributors? meet, customer?s satisfaction and services, customer?s compliance/grievance management, annual sales meet.
Suppliers	Timely payment, transparency in trade deals	Supplier meetings, online/o_ine information exchange, vendor compliance/grievance
Employees	Career growth, reward and recognition, safe and conducive workplace career growth, reward and recognition.	Performance reviews, new employee induction programme, trainings, seminars.
Community	Creating infrastructure, education, health and maintaining clean and safe environment	Quarterly review with implementing partners and site visit by members of the leadership team. Internal review and interaction with stakeholders.
Government and Regulatory body	Complying with all the provisions of the legal and regulatory authorities.	Periodic information submission engagement through industry bodies, Seminar other regular engagement with industry association.

Material Matrix Impact Strategy

Managing these issues effectively helps us to remain competitive.

	ISSUES	MITIGATION
Managing Market Volatility	COVID -19 lockdown disrupted economic activity and led to unprecedented market volatility.	We tried withstand market volatility through proactive inventory, production and supply management and revised our operational strategies.
	This had an unprecedented impact on the beer industry.
Optimizing Portfolio	Strengthening our portfolio helps transform the earnings profile and diversity risks.	We relied upon our already established brands to consolidate our market share in the key markets.
Improving culture	There is a need to continuously strengthen the culture, with a focus on embedding the right behavior going from the top to the bottom.	We are implementing a cultural transformation towards a diverse, inclusive, resilient, and sustainable organization considering operations in multiple geographies.
Maximizing value from business segments	Slowdown in economic growth, increase in raw material and packaging prices and rising variable costs put pressure on the margins of the business.	We are focusing on maximizing cash flows to manage liquidity and ensure we remain well positioned to service business needs. We do not have any planned large capex in the medium term.

RISK MANAGEMENT

RISKS	ISSUES	MITIGATION
Regulatory risk and Compliance with laws	Excise ban on sale of alcohol may lead to adverse impact on growth and profitability. Non-renewal of excise license.	Our endeavour is to keep track of emerging regulations, including environmental, social and governance risks and plan accordingly.
Climate change risk	Climate change can disrupt operations and/or reduce demand for products.	Geographic spread of business and a wide portfolio helps dampen the impact of climate related issues. We are using rain harvesting at all our factories to recharge the ground water level.
Supply chain management risk	Our supply chain network is exposed to potentially adverse events such as dependency on few vendors for key inputs, physical disruptions.	Our contingency plans are designed to secure alternative of key material supplies at short notice.
		Moreover, we are progressively strengthening our procurement process by diversifying our vendor base.
Environment risks	Our business involves processing of agricultural commodities and treatment thereof.	We have adopted globally accepted best manufacturing practices and installed treatment plants.
Talent Risk	A skilled workforce is essential for continued success of our business. Besides this, the loss of key personnel or inability to attract or retain talent can adversely affect operations and financial performance.	Our management development process includes regular performance reviews, backed by a common set of leadership behaviours, skills and competencies. We have development plans to upskill and reskill employees for future roles and targeted programmes to attract and retain talent.
Pandemic risk	The disruptions due to Covid -19 related lockdowns, loss of seasons, challenges in production, managing supply and distribution networks pose risks. These can disrupt supply chain and manufacturing processes and adversely impact business.	While the human impact of the virus takes precedence for all of us, we continue to monitor these developments closely and keep exploring alternative strategies to minimize its impact on the business.
Business Development and innovation risk	We operate in a highly competitive industry dominated by multinationals which have deep financial resources.	Our endeavour is to strengthen the distributor base and produce innovative as well as value for money products to widen reach and penetration in domestic markets.