Bombay Burmah Management Discussions


GENERAL OUTLOOK:

The Corporation has been managing the challenges of establishing normalcy in some of its business operations and is continuously taking measures to counter the impact of the long term implications emerging from the situation.

Division-Wise Business Analysis

Plantation Business:

(A) TEA:

PRODUCTION: WORLD

CROP - mn kgs

CY * 2022 CY 2021

India

1366.36 1343.06

South India

231.82 235.02

North India

1134.54 1108.04

Kenya

533.19 537.83

Sri Lanka

249.69 296.59

Bangladesh

93.83 96.51

*CY - Calendar Year EXPORTS:

YEAR

N.INDIA

S.INDIA

ALL INDIA

Value

cr

Unit Sale Price /kg Value

cr

Unit Sale Price /kg Value

cr

Unit Sale Price /kg

CY 2022

4507 305.93 1852 221.17 6259 275.21

CY 2021

3473 304.72 1839 222.64 5312 270.23

• New MRLs in respect of Pyrrolizidine alkaloids, a group of compounds produced by plants as a defense mechanism against insect herbivores were adopted more stringently by the European Union, thereby causing rejections and delays in analysis and shipment for all market players that are exporting teas to European markets.

PRODUCTION: INDIA & SOUTHERN STATES

CY 2022 Mn. kgs CY 2021 Mn. kgs

Tamilnadu

159.02 168.67

Kerala

67.70 61.11

Karnataka

5.10 5.24

Total S./ndia

231.82 235.02

Total N./ndia

1133.54 1108.04

BBTC PERFORMANCE :

FY23 FY22

Production Own - lakh kgs

33.78 38.06

Production Bought - lakh kgs

3.60 3.66

Total Production - lakh kgs

37.38 41.72

Sales - lakh kgs

39.97 44.16

ASP- / kg

147.79 142.88

Tea Sales - Cr

59.08 63.09

PRODUCTION :

1) Own production lesser by 11% due to missed fertilizer application on account of industry wide shortage and extended monsoons up till November, resulting in missed foliar inputs and high crop deficit in Q3.

SALES REVENUE :

1) The BBTC average sale price at 147.79/kg was higher than FY22 by Rs. 4.93/kg. This was despite lower exports of Organic teas on account of change in MRL norms set by European Union. Exports was higher than FY22 by 3.06 lakh kgs. ASP was affected on lower Organic sales.

2) The average auction price at Mudis Group (79% of sales) is ahead of the average South India prices at all 3 South India auction centers by Rs. 29.26/kg.

OPPORTUNITIES :

1) Well diversified portfolio of various categories of tea, both conventional and organic which would cater to different markets to realize optimum sale average and reduce dependence on one/two channels of sale.

2) Scope to improve the harvesting cycle by mechanization and deployment of additional man-days.

3) Automation in factories to reduce costs and improve product safety and quality.

4) Replacement of ageing year old tea plants to improve yield and increase plant density.

5) Large scale expansion into retail tea sales to improve bottom line and increase average sale price.

THREATS, RISKS AND CONCERNS :

1) Being an agricultural produce, unpredictable and unseasonal weather leads to an erratic production schedule. Studies also suggest that unusual climatic shifts due to global warming also affect the incidence and population of the various pests and diseases affecting plant productivity and costs. Specifically, the Tea Mosquito Bug could cause almost a 25% crop loss in a matter of 1-2 months

2) Ageing work force and lack of manpower puts pressure on timely field operations affecting productivity, production and quality.

3) The three-year compulsory wage settlement in respect of plantation workers increases wages between 20% to 30% with no co-relation to existing profitability or productivity improvement.

4) Stagnant domestic prices at auctions which also affects private sales - barring FY 202021, tea prices have recorded the lowest increase in unit price in past six years compared to food grains or other plantation crops.

5) Orthodox production and export subsidies were stopped by the Tea Board, reducing the potential for optimizing returns on this variety of tea and reducing the incentive to export.

6) Shortage of fertilizers due to the Ukraine war and Government policy to reduce subsidies. This has increased the cost of Potash fertilizer by 100 %.

OUTLOOK:

Mid - long term Strategy:

1) Improving Land Productivity: Integrated nutrient management using conventional and organic inputs to improve soil fertility and plant resistance to pests and diseases

2) Large scale Inclusion of bio fertilizers in our fertilizer program with a 3 - 5 year objective of reducing urea input costs by around 20 %.

3) Greater emphasis on marketing organic teas by direct and frequent interaction with overseas buyers. Visibility of our organic niche product with sustained interaction is required to beat competition.

4) Automation in factories to reduce costs and improve product safety and quality.

5) Large scale expansion into retail tea sales to improve bottom line and increase average sale price.

(B) COFFEE

COFFEE PLANTATIONS

INDUSTRY STRUCTURE AND DEVELOPMENTS.

Indian Market Update:

Indian coffees command a premium in the Export market. Indias coffee exports for financial year ending March 2023 scaled a new high at $1.126 billion on increase in global prices.

Coffee exports have clocked over a billion dollars for the second consecutive year during 2022-23. The export growth is higher at around 18 percent at Rs. 9,033.38 crore as against previous years Rs. 7,655.50 crore.

Coffee shipments during 2022-23

FY 2022-23 FY 2021-22

Shipments

(in USD dollars)

1.126 billion 1.027 billion

(in Rupees)

9033.38 Crores 7,655.50 Crore

Volume of Shipments (in lakh tones)

3.98 4.10

This growth in exports is despite 3.6 percent decline in volumes. The increase in exports is due to higher realizations. The per unit realization for Indian coffees was higher by 22 percent at Rs. 2.26 lakh per ton during 2022-23 as against Rs. 1.84 lakh per tons the previous year.

Performance Highlights:

ELKHILL GROUP

Coffee Production details for FY 2022-23

FY. 2022-23 F.Y. 2021-22

Total Own (MT)

638.62 561.64

Bought coffee (MT)

135.90 57.60

Total Production (MT)

774.52 619.24

Sales volume (MT)

704.22 1369.60

Average selling price (/kg)

280.39 186.41

This year being the on year of the biannual cycle saw the crop higher by 15% against the last year. This is a positive sign as most of the coffee plantations have picked lesser crop than last year and also against the estimate.

Increasing labour wages and lower availability of manpower disrupts timing of field operations and added to this increase in fuel cost and input prices, the cost of cultivation will be higher which will lead the higher cost of production.

Bought coffee operations were not carried out during the last financial year due to the uncertain market conditions and the disproportionate high fruit prices prevailing in the local market.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS:

Coffee and Pepper production, processing, though seasonal is highly labour intensive with considerably less automation and hence with a view to improve efficiencies and keep the work force motivated, the employees are mostly trained in-house with the help of external trainers and consultants.

During the year training was provided by the Coffee & Spices Board scientific department officials on varied topics to enhance the operational capabilities. There were 327 permanent employees on roll of the Corporation as on 31 March 2023. The employees and the workers were settled as part of the workers settlement agreement under the provisions of labour laws in May 2023, pursuant to sale of our coffee estates.

AUTO ELECTRIC COMPONENT BUSINESS (ELECTROMAGS)

Industry Structure and Developments

Indias auto components industrys market share has significantly expanded, led by increasing demand for automobiles by the growing middle class and exports globally. Due to the remarkable growth in demand for Indian auto components, several Indian and international players have entered the industry. Indias auto component industry is broadly classified into organised and unorganised sectors.

The turnover of the automotive component industry grew 34.8% to Rs. 2.65 lakh crore (US$ 33.8 billion) during April-September 2022 compared to the first half of the previous year. As per the Automobile Component Manufacturers Association (ACMA) forecast, auto component exports from India is expected to reach US$ 30 billion by 2026. The auto component industry is projected to record US$ 200 billion in revenue by 2026. Strong international demand and resurgence in the local original equipment and aftermarket segments are predicted to help the auto component industry grow 20-23% in FY23.

Performance Highlights:

Segment

FY2022-23 FY2021-22 FY2020-21

Passenger, LCV and HCV

71% 72% 68%

Two wheeler

23% 22% 26%

ATM and other parts

6% 6% 6%

NOTE: The growth in Auto segment in the above table shows only 3% in last 3 years.

Opportunities and Threats:

Opportunities:

India has become the fastest-growing economy in the world in recent years. This fast growth, coupled with rising incomes, boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. Indias auto component industry is an important sector driving macroeconomic growth and employment. The industry comprises players of all sizes, from large corporations to micro entities, spread across clusters throughout the country. The auto components industry accounted for 2.3% of Indias GDP and provided direct employment to 1.5 million people. By 2026, the automobile component sector will contribute 5-7% of Indias GDP

Government regulations will provide growth impetus

• Automotive Mission Plan 2016-26

• National Electric Mobility Mission Plan 2020

• National Automotive Testing and R&D Infrastructure Project

The PLI scheme and National Auto Policy will make Indian auto manufacturers globally competitive.

• Production Linked Incentive Scheme (PLI): The government announced an outlay of USD 8,149 million10 over the next five years towards the automobile sector.

• National Auto Policy roll out a long-term roadmap for the automotive industry and define emission standards.

Rise in digital distribution channels and market entry of established international players is transforming the industry.

Reducing duration of ownership and increasing premiumisation of vehicles is changing the industry landscape.

Threats:

Lack of adequate skilled labour

Low Information and Communication Technology (ICT) adoption

Disruptions in the form of new regulations

The backup support from semi-conductor industry is yet to meet the increasing demand of high end versions of passenger vehicles, which will affect the projected growth as well as the numbers as visualized by agencies like ACMA & CII.

Outlook:

• The Indian auto market is expected to witness upswing in sales mainly due to increasing focus on digital services offerings and burgeoning EVs market.

• Online platforms are well poised to grow and further consolidate their position in the Indian market as post COVID-19, personal transport will increase amongst consumers due to health and hygiene issues.

• The Division will continue to focus on the current business line and efforts will be made to increase the share of business from existing as well as new customers.

Risks and Concerns:

Customers are putting a premium on quality and are asking suppliers to commit for end of- life warranty for parts. Reliability of parts is a key concern and will entail the use of better practices with greater focus on automation and testing.

With the sharp increase in commodity prices in the last three to four quarters, auto ancillaries have not been able to pass the price increase through entirely, resulting in a decline in gross margins. Also the ongoing Ukraine-Russia geopolitical tension could lead to supply shortages and increase commodity prices, especially Precious metals and neon gas. Further, an increase in crude prices will have a bearing on fuel costs for auto ancillaries. Freight rates have increased by four to five times last year and are likely to remain at elevated levels in the near term. Supply chain uncertainties, inflation and the need for inventory stocking have led to incremental inventory requirements as well. Overall, the operating margins for auto ancillaries are likely to be impacted in the near term. Year on Year discounts are also affecting the Divisions bottom-line, a typical problem faced by small and medium scale companies in the automotive space.

Medium-Term Strategy

- Increase in share of business from existing business for Solenoids, Switches and FLWI (Fluid Level Warning Indicator).

- Explore opportunities for moving up the value-chain such as solenoid assemblies, Brush Holder Assemblies and Reservoir.

- Increase in share of after-market business by identifying opportunities with existing customers and also adding new customers in domestic & overseas market.

Long-Term Strategy

- Opportunities for acquisitions, joint ventures and technical collaboration.

- Migration to new technological products such as Electronic Assemblies, Sensors and Parts for Electric Vehicles, Air conditioning units and Solenoids & Sensors for Hydrogen Fuel based vehicles.

- Investment in new tooling, machinery, testing facility and line set-up for major products of passenger and commercial vehicle.

Human Resources & Industrial Relations

The Division has implemented a structured training program at all levels to retain and improve human capital.

There were 187 employees on the rolls of the Division as on 31 March 2023.

Industrial relations at the Division have been cordial.

(D) HEALTHCARE BUSINESS

Industry Structure and development

Healthcare is one of the top priority sectors for India. Dentistry too has kept pace with these developments. Awareness on oral health has scaled great heights among the Indian population. Proper daily dental care and regular visits to the dentist are now part of the lifestyle practices.

The Indian market for dental consumables is expected to witness significant growth in next few years due to rise in investments for establishment of multispecialty hospitals offering dentistry, increase in focus of the country to establish itself as a manufacturing hub for dental supplies, and rise in dental tourism in India due to low cost and efficient treatment.

Performance Highlight:

The Dental division reported 49% growth at a turnover of Rs. 27.83 cr. in FY23 in compare to Rs. 18.62 cr. in FY22

Opportunities and Threats:

The newly introduced Medical Devices Regulations in Dental Industry will ensure safety and performance of dental products and protect public health. The MDR in dentistry will strengthen the dental industry with regulated imports of quality products and manufacturing. However, the higher compliance cost of such regulations will add up pressure on profit margins to manufacturers and importers.

Outlook:

We anticipate increasing in turnover by 8% at Rs. 30 cr. in FY24 vs Rs. 27.83 cr. in FY23.

The division conducts Hands-on workshops for dentists to engage more customers for DPI promoted products, to restructure and strengthen the distribution network for better market coverage and introduction of new products in trading business.

Internal control system and adequacy:

The corporation has adequate internal control procedures commensurate with its size and nature of business. These business control procedures ensure efficient use and protection of the resources and also compliance with the policies, procedures and statutory requirements. The internal control systems provide for well documented guidelines, authorization and approval procedures. The corporation carries out audit through external agencies throughout the year. The prime objective of such audit is to test the adequacy and effectiveness of all internal controls lay down by the management and to suggest improvements.

Human Resources:

The corporation regards human resources as a valuable asset. The company evaluates the performance of all employees on quarterly basis. Key result areas of all employees have been well defined. The corporation has initiated incentive schemes for all employees to reward exceptional performance. The training needs of all employees are periodically assessed and training programs are conducted using internal resources and also by engaging external trainers/facilitators.

CHANGES IN KEY FINANCIAL RATIOS OF THE CORPORATION

Ratios

FY 2022-23 FY 2021-22 Change(%)

Reason for change

Debtors Turnover (days)

4.98 6.67 -25.29%

Sale of real estate inventory contributing to exceptional increase in revenue from operations in previous year. Debtors turnover excluding such revenue for FY22 - 4.89 days

Inventory Turnover

1.87 1.65 13.16%

Increase is on account of increase in cost of material consumed, particularly increase in base price of raw materials lilke copper, brass, steel and plastic compounds.

Interest Coverage Ratio

0.59 1.21 -51.33%

Sale of real estate inventory contributing to exceptional increase in EBITDA in previous year. Interest coverage ratio excluding incremental EBITDA for FY22 - 0.46

Current Ratio

0.98 0.92 6.34%

Not significant

Debt Equity Ratio

2.81 2.95 -4.56%

Not significant

Operating Profit Before Interest and Tax (%) at Segment level

Tea

-63% -46% 35.82%

Lower sales due to drop in production and decline in organic export sales

Coffee

13% 17% -20.33%

Higher timber sales in FY22

Healthcare

9% 7% 24.42%

Revenue increased in FY 2022-23 .

Electromags

2% 4% -43.16%

Decline in Operating margin due to increased raw material prices

Investments

23% 15% 53.77%

Mainly on account of increased Dividend from Foreign Subsidiaries

Net Profit Margin (%)

3.31% 2.91% 13.83%

Variance is majority on account of exceptional loss on impairment of investments and loans receivables from Go Airlines (India) Limited and exceptional gain on sale of coffee division.

Cautionary Statement:

Statements in the Management Discussion and Analysis describing the Corporations objectives, projections, estimates and expectations may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expected or implied. Important factors that could make a difference to the Corporations operations include economic conditions affecting demand/and overseas markets in which the Corporation operates, changes in the Government regulations, tax laws, vagaries of nature and other incidental factors.