SPS International Ltd Management Discussions

Industry structure and development

1. Introduction:-

Hydroponic systems allow growing plants in nutrients and water without using soil as a base. Hydroponic systems are a combination of several technologies and include a specific set of system models. These systems enable growers to obtain higher yields with each harvest and eliminate the need for pesticides and herbicides as compared to traditional cultivation methods. Exotic vegetables, cabbage, peas, and salad vegetables grow well using hydroponics. Moreover, factors such as the easy availability of online education material and tutorials regarding the maintenance of these systems and huge discounts are creating vast demand for these systems among consumers. Crops such as tomatoes, exotic vegetables, cabbage, peas, and salad vegetables require proper care and continuous maintenance.

Hydroponic agriculture is a technique for cultivating plants without traditional soil, replacing it with a mineral solution strategically placed around the plant roots. In this method, plant roots are immersed in a chemical solution regularly monitored to uphold the correct chemical composition for optimal growth. Consequently, the hydroponic approach mitigates the risk of diseases caused by soil organisms. Furthermore, plants cultivated hydroponically yield greater outputs compared to their soil-grown counterparts due to precise control over nutrient levels. The escalating global population is generating a heightened demand for food. As per the Food and Agriculture Organization (FAO) of the United Nations (UN), the worlds population is projected to reach 9.1 billion by 2050, necessitating a corresponding increase in food production ranging from 25% to 70%. This surge is expected to propel the need for alternative farming technologies capable of delivering high yields within shorter timeframes. Particularly in regions like the Asia Pacific and Europe, where arable land and water resources are becoming increasingly scarce, there is a noticeable uptick in the adoption of alternative high-yield farming technologies, contributing to anticipated market growth.

The market is poised for growth due to several key factors, including a consistently increasing global population, limited availability of cultivable land, government incentives, and a rising demand for fresh, high-quality food. Notably, approximately 80% of the worlds population resides in urban areas, as reported by the World Health Organization (WHO) and the Population Council. The scarcity of land in urban settings has spurred the adoption of innovative solutions like hydroponics. This method empowers growers to optimize various spaces for cultivating crops, whether it be indoors using layered systems, in multi-story buildings, on stacked racks, or within warehouses.

2. Market Concentration & Characteristics:-

The market growth stage in the hydroponics market is high, and the pace of the market growth is accelerating. The hydroponics market is marked by a robust culture of innovation, driven by the pursuit of cultivating superior-quality agricultural products in a cost-effective manner. The adoption of vertical farming and closely stacked plant configurations enables the simultaneous growth of diverse crop types, optimizing space and resources with minimal operational intricacies. This innovative approach not only enhances crop yields but also contributes to sustainability goals by maximizing output in a controlled environment. The industrys commitment to continuous improvement and resource efficiency positions hydroponics as a dynamic and forward-thinking segment within the broader agricultural landscape.

Hydroponics is adopted across diverse end use, including commercial agriculture, research and development, and home gardening. In large-scale commercial agriculture, hydroponic systems are deployed to enhance crop yield and quality, providing a concentrated application in this sector. Additionally, research and development institutions leverage hydroponics for controlled experiments and studies on plant growth, creating another concentrated end-use segment. Hydroponic systems are typically operated within controlled environments such as greenhouses or indoor spaces, allowing precise control over factors like temperature, humidity, and available light. Hydroponic farming is particularly suitable for regions with specific characteristics:

1. Areas facing water scarcity, as it uses water more efficiently.

2. Rocky terrains where traditional farming is impractical.

3. Locations with poor soil fertility, as hydroponics circumvents the need for fertile soil.

4. Regions with a demand for organic produce, as hydroponic methods can cater to this market.

3. Market Size of Hydroponic Farming in India

The hydroponic market in India is projected to experience a Compound Annual Growth Rate (CAGR) of 13.53% from 2020 to 2027, which is significantly higher than the global hydroponic industrys estimated growth rate of 6.8%. There is a substantial demand for organic produce in metropolitan and tier 1 cities in India. This demand primarily comes from healthconscious consumers who are willing to pay a premium for fresh, safe, and healthy organically-grown products. The increasing use of hydroponic technology in agriculture is driven by technological improvements and rising food costs.

Government incentives are also encouraging hydroponic farming at both state and national levels. As the setup costs for hydroponic farms decrease, this method is expected to gain even more popularity.

Opportunities and threats

Investing in the hydroponic agriculture sector presents a significant opportunity for the company to capitalize on the growing demand for sustainable food production methods. This innovative approach aligns with global trends towards sustainability and food security, positioning the company as a leader in an emerging market that is projected to grow substantially over the next decade. Furthermore, advancements in technology and increasing consumer awareness about organic produce can enhance market penetration and profitability. The management is actively considering all risk factors and opportunities in identifying a suitable business opportunity to minimize the long-term business risk to protect the interest of stakeholders.

In the hydroponic farming sector, opportunities include the growing demand for fresh produce, increased consumer awareness of sustainable practices, and advancements in technology that enhance crop yields and reduce resource consumption. However, threats such as high initial capital investment, vulnerability to market fluctuations, perishable commodity and potential pest infestations pose significant risks. The market scope is expanding globally, with export volumes increasing as countries seek sustainable food sources; nevertheless, regulatory challenges and competition from traditional agriculture can hinder growth. T o mitigate these threats, the company will adopt strategies such as diversifying their product offerings to reduce dependency on single crops, investing in research and development to improve pest management techniques, and forming partnerships with local governments to navigate regulatory landscapes effectively. Additionally, implementing robust financial planning can help buffer against market volatility.

Outlook and future prospects

Hydroponic farming in India is flourishing, and a significant catalyst behind its expansion is the advancing technology that reduces expenses and facilitates the expansion of its operations. The project has been set up of a farm for high-value vegetables, fruits and agricultural products under a protected cultivation environment (with a nursery). Under the protected cultivation also these vegetables can be grown either in soil, or in soil less medium using soil coco-peat or Hydroponic System. Further, it envisages commercial cultivation of Iceberg Lettuce, Colored Capsicum and Cherry Tomato in the first

phase and will add some other crops in the subsequent phases, depending upon the customer/buyers demand and preference. In this facility, it is envisaged to produce a basket of crops to meet the entire demand of the high-value vegetables which can be produced in a Hydroponic system. This will ensure to establishment a name and brand value of repute, in the vegetable distribution channels for the facility.

The future outlook for hydroponic agriculture is promising, characterized by a convergence of environmental sustainability trends and technological innovation. As urban populations grow and arable land decreases, hydroponics offers a viable solution to food production that minimizes water usage and maximizes yield per square foot. The global shift towards organic and locally sourced food has further propelled the demand for hydroponically grown produce. Companies investing in this sector can leverage advanced technologies such as automation, artificial intelligence, and data analytics to optimize growing conditions and enhance productivity. However, potential investors must remain vigilant about the threats posed by market saturation as more players enter the field, fluctuating consumer preferences, and the need for compliance with agricultural regulations. By strategically addressing these challenges while capitalizing on the burgeoning interest in sustainable farming practices, companies can position themselves favourably within this evolving landscape. New business opportunities are being examined and evaluated based on various risk and opportunity cost.

Financial Growth Perspective

The Hi- Tech Nursery cum greenhouse for commercial cultivation of high value crops is envisioned to encash upon the ever-increasing demand for high value vegetable crops. The project has made operational from 1^st March, 2025. The response of the customers are very encouraging. The operational activities has start with 70-90% efficiency level at first year depending on the start up time of the project and will progressively improve over the second year. Additionally, we will leverage technology to optimize our operations and reduce costs, thereby improving our profit margins. This projection is based on a comprehensive analysis of market trends, historical performance, and anticipated operational efficiencies As we move forward, we remain focused on sustainable growth strategies that align with our long-term vision while ensuring robust financial health. This comprehensive approach positions us favorably for sustainable growth while maximizing shareholder value.

Risks and concerns

In todays complex business environment, almost every business decision requires executives and managers to balance risk and reward. Effective risk management is therefore critical to an organizations success. Globalization, with increasing integration of markets, newer and more complex products & transactions and an increasingly stringent regulatory framework has exposed organizations to newer risks. Despite its potential, the hydroponic farming sector faces several risks:

a) High Initial Investment: Setting up a hydroponic farm requires substantial capital investment in infrastructure, technology, and training.

b) Technical Expertise: Successful hydroponic farming demands specialized knowledge in plant biology and system management, which may not be readily available.

c) Market Fluctuations: Prices for hydroponically grown produce can be volatile due to changing consumer preferences and competition from traditional farming methods.

d) Regulatory Challenges: Compliance with agricultural regulations can pose challenges for new entrants in the market.

e) Perishable Nature of Product- Farming products are perishable nature and if not disposed off / sold out within span of life of the product, the product will be spoiled, perished or not acceptable in the market.

f) Supply Chain Issues: Dependence on specific suppliers for nutrients and equipment can lead to disruptions if there are supply chain issues.

As a result, todays operating environment demands a rigorous and integrated approach to risk management. Timely and effective risk management is of prime importance to our continued success. Increased competition and market volatility have enhanced the importance of risk management. The sustainability of the business is derived from the following:

1. Identification of the diverse risks faced by the company.

2. The evolution of appropriate systems and processes to measure and monitor them.

3. Risk management through appropriate mitigation strategies within the policy framework.

4. Monitoring the progress of the implementation of such strategies and subjecting them to periodical audit and review.

5. Reporting these risk mitigation results to the appropriate managerial levels.

Human resources

The Company has a system for continuous development of its employees, whereby the performance and competencies of the individuals are measured. The requirements of the organization are matched with profile of the individuals. In case of any improvement areas, on the job training/ special programmes are being organized. This process has helped in career planning and growth of the employees.

Internal control systems and their adequacy

The Company has established internal control systems, which provide reasonable assurance with regard to safeguarding of the Companies assets, promoting operational efficiency and ensuring compliance with various statutory provisions. The internal control systems are reviewed at a reasonable period of time by management and statutory auditors. The Report on the internal control systems is also placed before the Audit Committee regularly. The Statutory Auditors also review the findings with the Senior Management and Audit Committee. The Company is accredited with the IS0 9001- 2008 certification by VINCOTTE.

Cautionary statement

This report describing the companys activities, projections about future estimates, assumptions with regard to global economic conditions, government policies, etc. may contain “forward-looking statements” based on the information available with the company. Forward-looking statements are based on certain assumptions and expectations of future events. These statements are subject to certain risks and uncertainties. The company cannot guarantee that these assumptions and expectations are accurate or will be realized. The actual results may be different from those expressed or implied since the companys operations are affected by many external and internal factors, which are beyond the control of the management. Hence, the company assumes no responsibility in respect of forward-looking statements that may be amended or modified in future on the basis of subsequent developments, information or events.