Usher Agro Ltd Management Discussions

1. F ood Processing Sector in India

The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year. In India, the food sector has emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly within the food processing industry.

Accounting for about 32 per cent of the countrys total food market, The Government of India has been instrumental in the growth and development of the food processing industry. The government through the Ministry of Food Processing Industries (MoFPI) is making all efforts to encourage investments in the business. It has approved proposals for joint ventures (JV), foreign collaborations, industrial licenses, and 100 per cent export oriented units.

The Indian food and grocery market is the worlds sixth largest, with retail contributing 70 per cent of the sales. The Indian food processing industry accounts for 32 per cent of the countrys total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. It contributes around 8.80 and 8.39 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture respectively, 13 per cent of Indias exports and six per cent of total industrial investment.

2. Indian Rice Industry

Rice is the staple food of 65% of Indias population and its cultivation is a major source of employment in South Asia. India, Bangladesh and Pakistan supply almost 30% of the worlds paddy rice. India is one of the worlds largest producer of white rice and brown rice, accounting for 20% of all world rice production. The non- basmati sector constitutes more than 99% of the total rice produced in India, where your company is primarily present. Indian states of the south and the east are very strong rice cultivation areas. These include the highly populated states of West Bengal and Tamil Nadu and mid-sized states with distinctive cultural traditions such as Kerala and Orissa. Rice is also grown to an extent across much of the rest of India. Rice fields can even be found up to moderate elevations in Indias Himalayan states. Rice being the key staple for India, the government has covered the crop under National Food Security Act as well as Minimum Support Price (MSP) Scheme. There is a cohesive focus on maintaining the demand supply balance in the country. Food Corporation of India plays a major role in procuring adequate volumes, which in turn reaches people through the Targeted Public Distribution System (TDPS). Favourable policy initiatives towards exports are encouraging the rice industry towards higher exports. The packaged rice market in India was valued at INR 122 billion in 2012, and is growing at a CAGR of over 30% for the past three years.

Demand Drivers

Increasing disposable income is leading to increased overall consumption and also of branded high quality rice. Rice, being the major staple food of Indian population will also see a rise in demand in response to increase in per capita income.

Evolving lifestyle in urban areas is translating into increased demand for high-end variants such as organic, nutrient-rich and healthier brown rice.

Increasing popularity of rice-based snacks and other eatables in increasing institutional demand.

Growing popularity of large format retail is enabling marketers to launch and display more and more specialized varieties, leading to higher than usual offtake off the shelves.

Increasing preference towards eating out is leading to increasing demand from HORECA segment. Rice marketers response with niche variants for restaurant is also adding to the growth.

Cultivation of Rice

There are three seasons of rice growing viz. autumn, winter and summer.

Autumn Rice is Pre-Kharif rice sown during May to August; and harvested in September-October. Autumn rice crop accounts for only 7-8% of total rice grown.

Winter Rice is the Kharif rice in India, sown in June-July and harvested in November-December. This accounts for 84% rice cultivation in India.

Summer rice is also called Rabi rice sown from November to February and harvesting time is March to June. This accounts for 8-9% of total rice cultivated in India.

Thus, rice is predominantly a Kharif crop in India, grown in both irrigated areas as well as rain-fed areas with high rainfall. It requires hot and humid conditions for growing with 24 C mean temperature and 150-300 cm rainfall. The crop is predominantly labor oriented and is not much suitable for heavy farm mechanization. With regard to the soil, rice is grown both in uplands and lowlands. On this basis, there are several methods of rice growing such as Dry or Semi-dry upland cultivation; Broadcasting the seed; Sowing the seed behind the plough or drilling; Wet or lowland cultivation; Transplanting in puddled fields; Broadcasting sprouted seeds in puddled fields etc.

Minimum Support Prices

In India prices of agriculture commodities is controlled by the Government. Government announces Minimum Support Price (MSP) for 24 agriculture commodities including paddy. Government policy aimed at boosting production by way of ensured price realization to the farmers. The Minimum Support Price for Paddy (Common) has increased from Rs. 1250 per quintal in 2012-13 to Rs. 1470 per quintal for the 2016-17 and Paddy (Grade A) has increased from Rs. 1280 per quintal in 2012-13 to Rs. 1510 per quintal in 2016-17 seasons. Rice is an essential commodity, and is included within the purview of the Essential Commodities Act, 1955 and consequently, its production supply and distribution are regulated by the state and central government. The Ministry of Consumer Affairs, Food & Public Distribution imposes levy quota on rice, which specifies that producers/owners of rice mills shall sell the specified quantity of rice to Government specified agencies under levy Scheme at a predetermined price.

The levy quota varies from state to state viz. at Bihar it is 40% and at Uttar Pradesh it is 75%. Food Corporation of India is undertaking assured procurement of food grains on behalf of Government of India throughout the country. to 25% of the total rice production in the country is purchased both under levy from the rice mills and directly in the form of paddy from the farmers.

3. About Usher Agro Limited

Usher Agro Limited, promoted by Dr. Vinod Kumar Chaturvedi was incorporated as a public limited company on June 20, 1996. The company was formed with the main objective of manufacturing and processing agro-based products and to deal in, trade, export or import such products. Currently, Usher Agro Limited is primarily engaged in processing of non- basmati rice (including raw white rice, par-boiled rice and steam rice of different grades), basmati rice and wheat products such as atta, maida, suji, etc. UAL is selling its products to wholesalers, big organised retailers etc. under the brand "Rasoi Raja", which is a registered trademark. UAL operates majorly in locations including Uttar Pradesh, Bihar, Rajashthan, Gujarat, Madhya Pradesh and NCR which are among the main rice and wheat growing regions in India and is the largest rice miller in the states of Uttar Pradesh and Bihar.

UAL is operating in food processing industry, considered to be one of the fast growing industrial segments having huge potential for growth. The company is mainly into Rice Milling (mainly Non-Basmati rice) and Wheat flour Milling. Additionally, the company has a One MW co-generation (Rise Husk Power plant). The following table details the product portfolio of UAL: Product Mix proportion of UAL

RAW RICE	PARBOILED/ STEAMED RICE	BROWN RICE	WHEAT PRODUCTS
Pusa 1121	Pusa 1121	Pusa 1121	Whole Meal Atta (Chakki Wheat flour)
Duplicate Basmati	Duplicate Basmati	Parimal PR-106	R-Atta
Parimal/ PR 11/ Common IR-8	Parimal/PR11/Common IR-8	Basmati	Samolina Premium (Rawa/ Semolina)
Masourie/ Sonam	Masourie/ Sonam	Pusa Basmati	Fine & Superfine Wheat flour (White flour)
Sugandha	Sugandha		Bran (Choker)
Sharbati	Sharbati
Basmati	Basmati
Pusa Basmati	Pusa Basmati

UAL is selling its products to wholesalers, big purchasers etc. under the brand "Rasoi Raja", which is a registered trademark. As of FY 17, rice constituted nearly 86% of the turnover, while wheat and pulses forms the balance 14%.

Manufacturing facilities

The company has three factories at Mathura, Chhata and Buxar. With a view to fuel the future growth, the company has recently completed setting up a Greenfield paddy processing unit of 4.86 lacs MTPA, pulse processing unit of 1.06 lacs MTPA and pulse floor mill of 23100 MTPA at Chhata – opposite to its existing unit. The production capacities (post expansion) are as summarized as follows:

Plant	Location	Installed Capacity in MTPA
	Mathura, U.P.*	10,800
	Buxar, Bihar	96,800
Rice milling
	Chhata, U.P	486,000
	Chhata, U.P	500,000
Subtotal		1,093,600
Wheat
Wheat roller flour mill and Multi Grain	Mathura, U.P.*	75,000
Facility	Chhata, U.P	50,400
Subtotal		125,000
Pulse processing unit	Chhata, U.P	1,28,700
Subtotal		1,28,700
Total		13,47,700

* UAL also has a 1 MW Co-generation plant in the Mathura Factory

UAL plants are strategically located. In Chhata and Mathura the factories are close to Mathura Delhi Highway and close to Agriculture Produce Mandi. Hence, raw material (paddy for rice mill and wheat for flour, white flour and semolina) is very easily available. The Buxar factory is also close to railway station. Buxar is a rich paddy cultivating area popularly known as Dhan Katora "Paddy Bowl" and enjoys two seasons of paddy cultivation.

The power plant at Mathura is using Husk (a by-product of Rice Mill). The power generated is for captive use and helps in reducing power cost.

Apart from this, the company has set up a Silica plant at Chhata which has started commercial operations in July16. The technology for the manufacturing of silica is a patented technology obtained from IISC, Bangalore. The rice husk contains silica which in turn is used for power generation. However, the silica does not get burned and it remains with the ash content. The ash constitutes 90% of silica. This technology helps in extracting silica from the ash. The company has finalised a contract with Good Year for the entire take-off of the silica extracted from the ash.

Risk Analysis

Risk Factors	Risk Mitigants
Availability of Raw Materials:	The raw material required for the milling of rice is paddy which is abundantly available in Mathura and Koshi. The Company has already established procurement networks and no difficulty is envisaged in procuring the raw materials. The Company would be procuring the raw materials directly from the farmers, Anaj Mandi and the local suppliers. The following table details the major sourcing locations for the raw materials,
Products	Major source locations
	Domestic	Import
Pigeon Peas (Tuvar Dal)	M. P. & Maharashtra	Burma & Tanzania
Chick Peas (Chana Dal)	U. P., Rajasthan & M. P.	Australia & Canada
Red Lentils (Masoor Dal)	U. P.	-
Yellow Peas (Watana Dal)	U. P.	Canada
Moong Beans & Urad	M. P., Rajasthan & Maharashtra	Burma & China
Paddy	U.P., Haryana, Bihar, Punjab &
	Rajasthan. Already procure- ment is going on from more than 95 locations across these states
	Mathura Agro Product Mandi is one of largest paddy sourcing mandi in U.P. and UAL already has an efficient procurement system / infrastructure in place as the 5 Lakhs MTPA rice mill plant at Chatta is already oper- ational. Even after expansion of the capacity to 5.43 Lakhs TPA, UAL would account for less than 1% of the total rice production of India. Hence it is not expected to face shortage of raw materials.
Demand Risk	Rice is a staple food for nearly 65% of Indians and hence there is no shortage for demand of rice. The demand for wheat flour is increasing due to lifestyle changes. The company has built an existing brand "Rasoi Raja", which is a registered trademark. UAL has commenced export of long grain rice to Middle East countries.
	Hence, demand risk may be considered low.
Regulation Risk: Government may increase the quota under levy impacting the companys margin, the government may increase the Minimum support price of paddy and wheat.	A majority of the companys rice milling capacity is in U.P which has a levy quota of about60%, which is on higher side compared to other states like Bihar etc., The company produces three varieties of rice, out of which, two varieties are under the levy system and only 15% of the production in volume terms would be sold to the government under levy system and the balance is sold in the open market. Sales under levy system also give a diversification in the total sales portfolio providing a minimum off-take guarantee to the company. UAL also has the option to switch to Basmati rice (non-levy category) as it has its factory close the Haryana border, where the major basmati production in the country takes place. The increase in Minimum Support Price has historically been followed by an increase in sale price of rice to the Government and an increase in market price of rice. Hence, the margins of the company remain unaffected to a large extent. In view of the above mentioned factors, the company is well insulated against the regulation risk.

4. Strategy

Pursuant to the extant directions framed by Reserve Bank of India dated. February 26, 2014 on ‘Revitalizing Distressed Assets in the Economy – Guidelines on Joint lenders Forum (JLF) and Corrective Action Plan (CAP) (the ‘JLF Guidelines) the lenders of the Company identified the stress in the account of the Company and reported the account of the Company to CRILC in the category of SMA-2 and accordingly as mandatorily required under the Clause 2.3 of the JLF Guidelines all the lenders of the Company formed a committee of Joint Lenders Forum (JLF) on 16th March, 2016.

The representatives of the lenders and the Company are privy to these JLF meetings and discussions as well as the positive position taken by the other lenders. The representatives of LENDERS have from time to time appeared in the meetings of the JLF and fully participated in the entire process. Since the time of constitution of JLF, all participants of the JLF have regularly had meetings with the representatives of the Company and monitored the financial progress of the Company closely. These meetings have been held on 16.03.2016, 26.04.2016, 13.05.2016, 21.06.2016, 31.08.2016, 20.09.2016, 27.10.2016, 24.11.2016, 09.12.2016 and 27.03.2017. In the above JLF meetings, for the purpose of working towards revival of the Company, the Company as well as the lenders have amongst other aspects also proactively discussed and worked on aspects of exploring alternate business plans, approaching potential investors and other possibilities. The authorized representatives of the lenders have been present and privy to all these aspects and participated in the deliberations.

Accordingly, in the meeting of the JLF members held on May 13, 2016, all lenders were of the view that under a Strategic Debt Restructuring ("SDR") mechanism introduced by the Reserve Bank of India (RBI) on June 08, 2015 ought to be explored for the restructuring of the problem faced by the Company. This mechanism introduced by the Reserve Bank of India contemplates converting the loan of the lenders into equity shares of the company to enable them to become the majority shareholder and participate in the management of the company. The decision of proceeding towards SDR is required to be taken collectively by the majority of the members of the JLF.

In the JLF meeting held May 13, 2016, the lenders collectively agreed that the SDR Scheme of RBI is a viable option to proceed with restructuring of the account and further agreed that under Strategic Debt restructuring (SDR) scheme was a viable option. In fact, the minutes of the meeting record as follows

"…….considering the underlying value in the company lenders discussed and were of the view that Strategic Debt restructuring (SDR) scheme was a viable option. The option was put to vote amongst the lenders. 50% lenders by number and 75% of lenders by value voted in favour which constitutes majority and in principle agreed for change in management under the SDR scheme. The reference date to be considered as May 13, 2016."

Accordingly, the Company in its Board Meeting held on 08.12.2016 has allotted 39612472 equity shares to the lenders and the JLF in its meeting held on 09.12.2016 has noted the same. The equity shares issued to the JLF members are dematerialised into the respective demat account of the lenders have following due procedures.

5. Key Strengths: Strategic Location

Our manufacturing facilities are present in Uttar Pradesh and Bihar and have proximity to Haryana state. Together, the three states contribute about 19.41% and 53.2% of total rice and wheat production in India respectively

Our presence in Mathura and Chhata brings us closer to the rice deficit states such as Rajasthan, Gujarat and Maharashtra. This gives us a logistic advantage to supply products to the consumers in these states. Plants are located near the Mandis leading to lesser transport cost.

Large Capacities and Economies of Scale

USHER is amongst the largest producer and processor of non-basmati rice in India, which helps us to achieve better economies of scale in procurement, processing, logistics and other areas:

Quality Certification

The Companys processes and setup are accredited with international certifications like ISO 9001:2008 for Quality Management System and Hazard Analysis and Critical Control Point (‘HACCP) Management System certificate from International Industrial Certification Company Limited, South Korea, JAS-ANZ, Food and Drug Administration (FDA) and CDG.

Strong Procurement Network

Strong distribution network of distributors / agents / traders in more than 45 cities across India. A strong procurement network with presence in over 100 mandis. Exclusive agents (pukka arahtiyas) in each of the mandis who procure the raw materials for our plants at competitive rates.

Export distribution (International Network)

Europe: Italy, Reunion union (Holland, Israel, UK, and Canada).

Middle East: UAE, Iran, Saudi Arabia.

Africa: Benin, Ghana, Mozambique, Kenya, Malavi.

6. Internal Control Systems and their Adequacy

The Company has implemented adequate internal control systems and procedures, commensurate with the nature of its business and size of its operations. It has implemented adequate internal control system that facilitates adequate and timely completion of the audit and compliance process. Our Internal auditor M/s. Dinesh Bangar & Company Chartered Accountants conducts the audit and submits periodical reports which are reviewed by the Audit Committee.

The Audit Committee of the Board meets several times during the year and reviews the audit reports, audit plans and recommendations of the management and auditors.

7. Human Resource Development & Industrial Relations

The key to the success of the Company lies in its people whose skills, expertise, and talent help the Company to achieve and sustain its market position. The Company believes that employees are the key to achieve targeted goals and are the primary source of competitive advantage thus we have recruited, nurtured and retained some of the best talents in the industry.

Your Company is giving equal importance to develop the intellectual infrastructure by employing the best HR practices such as performance management, succession planning, open work culture and effective employee communication. HR systems were improved, refined and upgraded to provide better services to business and functions. The Company has stable and experienced middle and senior level management team. The industrial relations with the employees at all levels remained cordial during the period under review.