Tata Coffee Ltd Management Discussions.

A) Industry Structure and Developments

Coffee

According to the estimates of the International Coffee Organisation (ICO), for the coffee year 2020-21, global production is estimated to rise by 1.9% to 171.9 million bags vis-a-vis 168.7 million bags for the coffee year 2019-20. In the current coffee year, the share of Arabica production is 101.88 million bags, up 5.2% from that of last year and Robusta production at 70.02 million bags is likely to be lower by 2.6% vis-a-vis last coffee year.

The ICO also projects that global coffee consumption is likely to increase by 1.3% to 166.6 million bags in 2020-21, compared to the preceding coffee year, as economies across the world experience gradual recovery from the pandemics impact and social-distancing norms ease. Therefore, out-of-home consumption is predicted to rebound. In 2019-20 the world coffee consumption was estimated at 164.5 million bags.

The New York (ICE) May terminal, representing Arabica settled at 123.50 c/lb on March 31,2021, and was 119.55 c/lb for the same period on March 31, 2020.

As on March 31, 2021, the London Robusta May futures settled at 1342 USD / MT and was 1186 USD / MT for the same period on March 31, 2020.

Tea

During the year under review, teas sales volume was higher by 9.58% and averages of tea were higher by 31% vis-a-vis that of previous year. The demand for good CTC leaf grades increased during the period. The economy decelerated, due to the lockdown imposed for COVID-19. However, tea sales continued to be buoyant due to an increase in in-home consumption. Of Indias total output, 80% is consumed domestically. The countrys per capita consumption has witnessed a significant increase over the last decade. The demand for packaged variety has also risen steadily across urban, sub-urban and rural areas.

Globally, Mombasa auction levels were recorded to be lower in sales by 1.4% (55.7 million kgs in 2021 vis-a-vis 56.5 million kgs in 2020). The prices, however, remained stagnant at $ 1.92. The production in Sri Lanka increased by 13.89%. Egyptian packers lent string support in the beginning but there was much reduced interest towards the closing of the year. Sudan has a strong enquiry for lower-level teas. Kazakhstan and CIS nations showed strong and selective enquiry in the beginning but slowed down towards the latter part of the year. Pakistan packers also showed good

interest but with less support from Yemen and the Middle East. Afghanistan showed more interest but were selective with Russia active.

Pepper

Pepper, extensively cultivated along the tropical region, is native to south India. Until the 18th century, peppers cultivation and production were confined to India, as it was an important agricultural commodity of commerce and trade with Kerala contributing a major share. Since then pepper cultivation has been taken up on a commercial scale by several nations such as Vietnam, Indonesia, Malaysia, Thailand and Brazil.

At present, Vietnam is the worlds largest pepper producer (43%) followed by Brazil (15%), Indonesia (11%) and India (11%). These countries, except India, resort to monocropping of pepper in their areas, and the vine is grown up to 6 metres height. On the contrary, in India, pepper is intercropped on the shade trees of coffee, tea and minor crops such as Arecanut and coconut without any restriction on vine height. India produces around 62000 MT of pepper with 70% meant for domestic consumption. Indias pepper --- known for its quality, pungency and taste --- has created its own niche in the international market.

As per industry sources, Indias pepper production was 62,000 MT in 2020 and is expected to be about 65,000 MT in 2021. During the year, Indias local pepper prices continued to be below Rs.400 levels per kg.

Instant Coffee

The global instant coffee market is estimated to be growing at 2% annually, driven by increasing popularity of coffee consumption in China, 3-in-1 growth across Southeast Asia and continuing demand in the markets of Africa. The consumption is being driven by demographics, increasing popularity of coffee consumption and product innovations. Tata Coffee continues to leverage its deep knowledge across the value chain to develop new blends and products to capture emerging trends and opportunities.

During FY 2020-21, global trade was disrupted due to Covid- related lockdowns, both in India and in all other export destinations, adversely impacting volume growth. During the last two quarters of the previous year, ocean freight rates have surged unprecedently affecting shipment schedules and impacting profitability adversely. These challenges continue to linger during the current year, and may continue for a few more quarters. Tata Coffee is continuously adapting to the emerging situation with resilience.

B) Opportunities

Plantations - Green Beans and Pepper

We believe that with economies slowly opening up worldwide during this financial year, the demand for premium differentiated coffees should look up by Q4 2021-22. On pepper, we could potentially see a firmer market scenario due to smaller crops in many origins.

We also believe that the post pandemic world will see a greater emphasis on food safety, healthy intake and larger sustainability focus. With these values at the core of our business structure, we would be well positioned to serve the trend.

Monsooned Coffee

Monsooned coffee is the Companys premium product offerings. The Companys facility is located in Mangalore on Indias West Coast, where favourable ambient conditions enable the production of Monsooned Malabar, a Geographical Indication (GI) tagged product.

During FY 2020-21, despite the global pandemic, the Company serviced its customers well and on time across markets by leveraging production expertise and flexible operations. The Monsooning Unit is geared to scale up operations and enhance quality with the implementation of state-of-the-art technologies (including digital capabilities) for the forthcoming seasons.

Instant Coffee

Tata Coffees strategy of market diversification and product portfolio expansion has enabled the Company to seek growth opportunities in major consuming markets and new growth markets. Relentless product innovation, and sharper focus on the customers changing requirements will help the Company navigate the demand uncertainty induced by global factors. During the current year, we expect out-of-home consumption (especially food service) would improve as mobility gets enhanced globally.

The product development teams are developing different formats of coffee mixes such as ginseng chicory coffee, ginger coffee etc., and customised variants of freeze and spray dried coffee to harvest opportunities emerging on the basis of differentiated tastes, health and convenience.

Plantations - Tea

Good quality tea continues to command good price. The Companys estates, supported by state-of-the-art facilities, produce CTC, Orthodox and Specialty Tea. The estates are certified with Rain Forest Alliance, Trustea, SA 8000 and Ethical Tea Partnership. Tata Coffee continues to conduct its business sustainably and responsibly. Your Company is committed to conserve the environment by restoring rainforests in degraded areas and preserving the local flora and the fauna.

C) Risks, Concerns and Threats

Several countries in the European Union (EU) are still struggling with the pandemic and given the large traditional reliance of Indian coffees on these markets, we foresee short-term liquidity concerns for certain coffee types in these markets. Additionally, demand recovery in certain geographies (Russia and Japan) is critical for sustaining instant coffee sales.

Inflationary trends, fuelled by high input costs and ocean freights, also remains a concern for us. The spike in ocean freights is particularly sharp in Vietnam and India, which is a challenge to our global competitiveness.

On the supply side, Brazil continues to be a very competitive coffee source - both for instant and green coffee - driven by their increasing Robusta crop and a weaker currency advantage.

Ecological concerns and responsive measures

The plantation industry is weather dependent with factors such as rainfall, its distribution pattern, temperature, relative humidity and light intensity having its impact on coffee and pepper yield parameters.

As the plantations are susceptible to weather vagaries, the Company has increased its capacity to artificially irrigate its Robusta by adopting rainwater harvesting in its catchment areas. The rainwater harvesting is done by excavating reservoirs, thereby recharging its water table and significantly augmenting the storage capacity. Currently, the estate has sufficient water to irrigate its 100% area of Robusta for blossom and backing irrigation, along with mechanised watering of its pepper population.

Under Arabica operations, the pest management is integrated to combat white stem borer, a constant industry threat. Apart from regular tracing to keep the pest under check below threshold levels, the Company has put in place various initiatives and trials with external agencies, research institutes and in-house R&D team, to contain the infestation within threshold levels.

The Company is focusing on retaining the skilled workforce by providing better working environment, improving the skill levels by carrying out structured training on various critical activities. It has a positive impact on the growth and development of cultivated crops. Various measures have been put in place to minimise man-animal conflict by Tata Coffees wildlife cell which has yielded excellent results. Your Company is conducting regular awareness programmes across locations, highlighting the systems which are in place to track the movement of wild animals and avoid potential danger to the employees.

D) Major Product-wise Performance

Particulars FY 2020-21 FY 2019-20
Green Bean 11928 10729
Pepper 2568 1599
Tea 9036 5890
Instant Coffee 35228 37953
Roast & Ground 2600 2273
Domestic Marketing / Allied Divisions / Others 12304 13500
Total Revenue from Operations 73664 71944

E) Outlook Green Bean

The Companys plantation division has been following science-based sustainable cultural practices with focus on premium differentiated coffees. The micro lot coffee is unique to its ecosystem on account of its exclusivity. A combination of flora and fauna with distinctive soil conditions, elevation and varied agroclimatic conditions, influencing the intrinsic bean quality. A combination of flora and fauna with heterogeneity in soil conditions, elevation and varied agroclimatic condition has resulted in unique and distinct coffee which has an intrinsic bean quality specific to the location.

The Company continues to pursue its strategy to sustain its assets by undertaking the following:

• Efforts to augment water resources to mitigate inadequate blossom and backing showers are addressed by excavating/de-silting irrigation tanks.

• To maintain the high quality of produce with maximum premium grades, by harvesting at the right time both in case of coffee and pepper when the crop is fully matured.

• Skill competency mapping and development, along with sourcing of repeat workers to enhance labour productivity.

• Upgradation of processing equipment with better capacity utilisation with standardisation of man days and materials usage, an important cost optimisation initiative.

• All social and environmental certifications are sustained aligning to our commitment in safeguarding and protecting the ecosystem we operate in.

Instant Coffee

Industry sources assess that the global demand for coffee will increase in 2021 compared to 2020, which was badly impacted by the pandemic. However, demand will still lag behind the pre-pandemic levels of 2019. The outlook on supplies is cautious, driven by a smaller off-season crop in

Brazil to be harvested in the middle of 2021. The freights from Vietnam and India will play a key role in determining liquidity for our instant and green coffees in this financial year.

The effects of the COVID-19 pandemic are expected to linger in the short term. It is however anticipated that growth will eventually return. The instant coffee market will benefit from increase in in-home consumption, emergence of different product platforms, and so on.

Tata Coffee with its full chain presence from bean to instant coffee and a diversified market presence is well poised to navigate the anticipated uncertainty and continue to grow.

Tea

The market is anticipated to reach a volume of 7.89 million tonnes by 2026, growing at 3.3% CAGR between 2021 and 2026.

The major industry drivers comprise: rising disposable incomes, increasing population, stronger demand for healthier beverages, popularity of ready-to-drink (RTD) teas, growing demand in foodservice segments, and rising demand from the developing regions.

Asia Pacific dominate the tea market. This is attributed to high daily tea consumption as an affordable beverage suitable for consumers from all socio-economic groups in countries such as China and India.

The demand for tea from the Middle East and Africa (MEA) is anticipated to expand at 7.3% CAGR during the forecast period. Countries such as Turkey and Iran are some of the worlds leading consumers. Rising per capita income, rising awareness about product benefits, and changing food and beverage trends are expected to further boost growth.

The online distribution channel is anticipated to expand at 5.9% CAGR over the forecast period. The popularity of online apps, coupled with the availability of discounts and easy product delivery has positively impacted the markets supply chain. This factor is anticipated to bode well for the growth of the segment over the forecast period.

Good liquoring CTC teas will continue to command the market. South Indian orthodox is set to remain bullish for well made teas. However, the sale of secondary grades of Orthodox teas continue to remain a challenge.

Pepper

Black pepper produced by the Company is of premium quality, because of sustainable cultivation practices, processing, certifications (including the EIA), upgraded processing centres and implementation of traceability initiatives. With the introduction of modernised pepper nurseries to grow different varieties of pepper specific to estates based on location, rainfall pattern and altitude, Tata Coffee will continue to augment pepper production.

A separate vertical of the Company is exclusively working on the following:

• Pepper cultivation practices with short-term and long-term plans

• Irrigation capacity and efficiency

• Upgradation of the processing and grading unit

• Targeting domestic and global customers

F) Internal Control Systems and their adequacy

The Company has laid down processes and control framework, which enable implementation of appropriate internal financial controls (IFC) across the organisation. The IFC encompass policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of business, including adherence to its policies, safeguarding of its assets, prevention and detection of frauds and errors, the accuracy and completeness of accounting records and the timely preparation of reliable financial information. These include controls in the nature of manual or automated (ERP applications including other IT applications, wherein the transactions are approved and recorded). Appropriate review and control mechanisms are put in place to ensure that such control systems are adequate and are operating effectively, on an ongoing basis.

The Company is responsible for establishing and maintaining adequate and effective internal controls in preparation and presentation of financial statements, including assertions on the internal financial controls.

The Company has laid down procedures and policies to guide the business operations. It has put in place a well-defined delegation of power with authority limits for approving revenue as well as expenditure. Unit or functional heads are responsible for ensuring compliance with policies and procedures laid down by the Management.

Evaluation Framework

The operating management has assessed the effectiveness of the Companys internal control over financial reporting as on March 31, 2021. M/s. Deloitte Haskins & Sells LLP, the Statutory Auditors have audited the financial statements included in this Annual Report and have issued their report on internal control over financial reporting (as defined under Section 143 of the Companies Act, 2013).

The management has appointed a reputed firm of chartered accountants to carry out internal audits/ reviews on a periodic basis. The internal auditors also provide an objective view and reassurance of the internal controls as well as simultaneously auditing transactions and advises the Company on industry-wide best practices. In line with international practice, the conduct of internal audit is oriented towards the review of Internal Controls and risks in its operations such as Plantations (Coffee, Tea and pepper),

Instant Coffee Divisions, Estates Supply Division, Curing Works, Accounting and Finance, Procurement, Human Resource etc. Additionally, there has been a continued focus on IT enablement and computerisation of key process controls through the ERP systems to maximise automated control transactions across key functions.

The internal audit plan is prepared by the management, which is approved by the Audit Committee and the internal auditors directly present their report to the Audit Committee for its consideration. The Audit Committee, consisting of Independent Directors, reviews important issues raised by the Internal and Statutory Auditors and the status of rectification measures, regularly. This is done to ensure that risks are addressed and mitigated, appropriately and timely.

The Audit Committee meets the Companys Statutory Auditors to ascertain, inter alia, their views on the adequacy of internal control systems and keeps the Board of Directors informed of their major observations periodically. Based on its evaluation (as provided under Section 177 of the Companies Act, 2013 and Clause 18 of SEBI Listing Regulations), the Audit Committee concluded that as on March 31, 2021, the internal financial controls were adequate and operating effectively.

G) Business Excellence

The COVID-19 pandemic has impacted the coffee business, with out-of-home consumption adversely impacted.

During these tough times, the Company focused on improving its operational efficiencies. The Company continued its operational excellence initiatives through Lean Six Sigma & Process Improvement Teams at Instant Coffee operations, whereas the excellence initiatives were driven through our project Canvas at our plantations. These projects have resulted in improved performance in terms of capacity utilisation, cost optimisation, and controlling critical natural resources consumption.

The Company also focused on creating its brand purpose and allied themes to strengthen its brand positioning. It also conducted organisational restructuring, undertaking job evaluation and aligning it to the desired impact levels. These initiatives will enable the Company to achieve long-term objectives and sustain the organisational performance in the long run.

Group Technology & Innovation Office, a part of Tata Sons, celebrates the spirit of Innovation across the Tata Group companies through Innovista every year. During Innovista 2021, the Company has showcased five innovative practices. Currently, these submitted innovative practices are being evaluated.

To take the Business Excellence journey forward, the Company has developed 33 Business Excellence practitioners.

H) Mission and Values:

Mission : Create distinctive long-term value for all stakeholders with coffee and allied plantation products, embracing sustainable practices.

Values : Safety; Customer focus; Responsibility;

Innovation & Agility; People-centric; Transparency

I) Financial and Operational Performance

The Total Income for the current year stood at ? 815 crore as compared to ? 775 crore in the previous year. The Profit before Tax for the year under review was ? 119 crore as against ? 85 crore in the previous year. The Profit After Tax during FY 2020-21 stood at ? 101 crore as against ? 73 crore in the previous year.

J) Significant Changes in Financial Ratios

During the year, on a standalone as well as consolidated basis, there was no significant change in the financial ratios compared to that of the previous year.

K) Human Assets and Industrial Relations

As on March 31, 2021, the Company had 6213 permanent employees spread across different locations.

The Company continued to focus its efforts in building capabilities across all aspects of operations. Each year, the management team reviews and identifies critical areas for upskilling the teams in line with the Companys overarching business plan. The identification of appropriate talent pool for management positions and the development needs of management employees are also done.

The process includes: a) detailed analysis of capability requirements vis-a-vis the annual business plan and organisation strategy, b) manager and employees dialogue in identification of individual development needs and documenting individual learning plan, c) plan and execution of structured learning programs including experience, education and exposure for target workforce.

For our associates in plantations and instant coffee operations, our skill development programs are designed

with "on the job practice" for top 5 skill areas. In addition, our associates are nominated to external programs being run by institutions and Government bodies, on a regular basis.

Our Management employees focus on functional and leadership development. Functional development programs are either conducted in house or nomination/attendance in external learning programs. For leadership development programs, we partner with Tata Management Training Centre (TMTC). To support self-paced learning, the Company has launched an online learning platform called Knowledge Brewery, which is equipped with global learning materials and employees are free to pick and choose their own programmes aligned to their needs.

The Company has implemented an online Human Resource Information System (HRIS), which automated several HR processes and leads to better data management. It has created a comprehensive Rewards & Recognition policy with an effort to cover all category of employees to foster a culture of appreciation across all levels.

To improve the awareness on Business Ethics, Prevention of Sexual Harassment at Workplace and Whistle Blower policies, we have launched company-wide awareness campaigns, making employees responsible for training their co-workmen.

During the year, the Company concluded on the Long-term Wage Settlement with Unions in Plantations as well as at Instant Coffee Units.

Overall harmonious industrial relations prevailed at all the Companys units during FY 2020-21.

Forward Looking Statement

Certain statements made in the Management Discussion and Analysis Report relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, whether expressed or implied. Several factors could make significant difference to the Companys Operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, any epidemic or pandemic, natural calamities over which the Company may not have any direct / indirect control.