vadilal industries ltd Management discussions

(1) INDUSTRY STRUCTURE & DEVELOPMENT AND OUTLOOK.

a) Ice Cream Division Overview

India is the largest producer and marketer of milk. It accounts for over 1/5^th of the global milk production. This provides the ice cream industry with a large volume of raw material to manufacture ice creams. The ice cream market in India is forecasted to exhibit a CAGR of 17.03% during 2016-2021. Keeping up with the economys quantum growth in recent years, the ice cream market has also set new records. Today, the total organized Indian ice cream market is estimated at approx. 6000 crores. Though overall organized & unorganized ice market are estimated near about 10,000 crore with National, Regional & Local players presence. Compared to western countries, per capita Ice cream consumption in India is low. So, considering the fact that still In India there is huge scope of ice cream market expansion and penetration with innovative product mix to attract India with all class & mass of Consumers.

The ever-growing urbanization, rise in disposable income, and increase in the "out of home food" consumption coupled with the steep increase in the availability of multi cuisine restaurants, online portals, modern trade, in the residential areas are some of the reasons behind the thriving ice cream industry.

The Ice cream industry has evolved, resulting in many developments, right from consumer perception to products and services being offered. Ice creams have seen a shift in the category, from being considered as an indulgent dessert to a snacking essential. This, in turn has resulted in innovation within the category. Adapting to the changing trends Vadilal has become the brand with the widest range of ice cream variants. Ice cream as a product has seen a huge transformation and this has created ample of investment and growth opportunities for investors. Vadilal Ice Cream division has shown a sustainable annual growth and aims at maintaining it further in the years to come.

Since inception, Vadilal has been a trend setter & is committed towards delivering best quality products at affordable prices to customers from diverse cultures. Improving products in terms of its nutritional value, packaging as well as quality is a constant at Vadilal.

Developments

Growth in Quality and Quantity

In the past few years, India has seen an inflow of huge number of international ice cream brands, which have offered a plethora of products in the category for the consumers. To curb with the competition and challenges in the market, Vadilal reinvented its strategy to consolidate its leadership. Being brave, like it has always been, Vadilal took aggressive marketing approach to give brand the lift it required to combat its international counterparts. With all due efforts and now with the same aggressive marketing approach an exceptional brand identity of Vadilal products is established in the market and trade along with consumers identifying the Vadilal products for their unique visual appearance with top of mind recall. This was welcomed in the market and has worked in the brands favor in setting a fresher and younger brand perception in the consumers mind.

Apart from aesthetical revamping, the brand also paid special attention towards upgrading the production technology. This has made it easier for Vadilal to offer premium and delectable products at competitive pricing.

With International brands crowding the market, consumer awareness and the size of the premium ice cream segment has increased in India. Following these developments, Vadilal introduced many variants in the premium segment like Gourmet Natural ice cream tubs and Kulfis, with no artificial color, flavor and preservatives, premium Bars, Cones, ice cream Sandwiches, Artisan ice cream Cakes and many more unique products launches with different format, taste & innovation.

Taking forward the tradition of introducing novelty in products at regular intervals, in the year 2021 Vadilal has made numerous additions. The brand had three new delicious additions in its offerings, ice creams in the 1 + 1 party pack form in every 6 months. Also, on regular intervals Vadilal is launching new flavors in 1 + 1 party packs & other innovative products based on extensive R&D as well market with consumers feedback. With such initiatives Vadilal have created a unique space in trade & consumer mind.

The brands existing variants like Gourmet, Gourmet Naturals, Badabite, Flingo, Jumbo Cups and Ice trooper continue to show substantial movement in the market. Besides this, Vadilal has also introduced new delicious products like Pineapple titbits & Jamun party pack, Cookie sandwich ice cream, Choco Almond Crunch Badabite, Choco Cackle disc cone, American Nuts Cone in the Flingo category, Gourmet Vanilla Brownie Tub, Gourmet Mocha Brownie tub, Chocolate Overload ice cream cake, to name a few.

While the grown-up consumer strata had a remarkable range of products to their delight, Vadilals Ice Trooper range continues to consolidate the kids market and has become every kids favorite across India.

Growth in Infrastructure and Production

After enjoying a wide spread popularity amongst the mass since decades, the brand is now in constant efforts of upgrading. In the wake of ramping up consumer targeting and brand positioning, it has started exclusive parlors in three formats: Scoop Shop, Hangout & Express. These parlors offer a delicious range of Premium Ice Creams, Scoops and Concoctions in a very enjoyable ambience. These parlors are an exercise to give the brand a youth appeal and also to shift the focus from Mass to Mass Premium, Mass Premium to Premium.

Introduction of new mega brands, installation of state-of-the-art machines and significant expansion in production facilities is what the brand is focusing on to be an even stronger force to reckon with in the domestic ice cream market. Vadilals strategic approach towards the controlled usage of resources and raw materials has boosted its growth in the market by many folds.

Vadilal proudly possesses the label of having, Indias fastest cone-making machine, with the production capacity 12 lakh cones per day. The brand is known to be the first and the only ice cream producer in India to have a machine with such a huge capacity. This has made Vadilal the largest player in Cones, Cups and Candy categories.

Currently the brands ice cream production facilities are located at Pundhra in Gandhinagar district, Gujarat and the other at Bareilly in Uttar Pradesh. To increase the production capacity and to have better automation, an expansion-cum-modernization project of the factories was undertaken, which has been successfully completed.

Apart from ice creams, Vadilal is also vigorously expanding in categories which offer value chain benefits and show a strong potential to grow. Vadilal already has strong backward linkages with the farmer community for its milk procurement for ice creams at its plant near Ahmedabad. Taking the relationship further, Vadilal has forayed in the flavored milk segment under the brand name "Power Sip". Power Sip is available in flavors like "Kesar", "Elaichi", "Coffee" and "Rose" packaged uniquely for the brand to stand out in the crowd. The research and development team are working towards introducing more flavors in the category specifically to match the palate of the youth.

Quality first

Like every other industry, the ice cream industry has a vast unorganized market that works at low costs and margins. These unorganized players pose the biggest challenge and are a competition to the big players. While there are hurdles in the journey of growth, Vadilal has always seen these unorganized, small yet tough competitors as an opportunity to excel.

Being the 2^nd largest ice cream brand in India, Vadilal has always focused on maintaining product quality, and constantly improving the same.

Progress in Niche Market

International brands venturing into Indian ice cream market has provided an impetus for Vadilal to evolve. Vadilal has once again proven its mettle in launching international ice cream experiences in India.

Vadilal s MELT IN parlor offers a range of high-end Artisanal Gelato ice cream that has gained a lot of popularity in the past few years.

In recent times, Vadilals latest launch is the "NOW FOREVER" cafe. This cafe was initiated and ideated to be at par with the new ambience. An intricate menu was crafted to present our ice creams in an extremely innovative, most enticing & classy manner to serve premium and unusual desserts, with a new twist and taste, for all the never-ending dessert cravings. The cafe also offers delectable, mouthwatering and interesting food prepared from the best ingredients, in perfect proportions, for the people who love fusion with taste, to tickle their taste buds

We are also in the process of a makeover of our current brand identity - Hangout parlors to the Now Forever cafes to offer an unforgettable experience and ambience to serve the preferences of all age groups.

As we have had an early summer this year, we have taken the opportunity to showcase our brand on multiple platforms for promotions, social media, other OTT platforms and YouTube.

We have also penetrated heavily into the market Pan India horizontally & vertically with an increase in our distribution width. The brand has a wide media mix targeted for the release of this campaign ranging from outdoor hoardings, point-of-sale branding, television, digital, radio and print. The brand will be investing heavily on digital mediums given the inevitable digital era namely social media, other OOT platforms and YouTube.

Our ongoing Waah! Vadilal campaign is an extension of the past research, highly valuing what our consumers make us and the experience we offer to them. The idea of the campaign is to showcase Vadilal as young at heart, classic, energetic, royal and a vibrant brand.

We believe people are ready to experiment as far as premium ice cream flavours are concerned, and we feel the Waah! Vadilal campaign will make them want to indulge in Vadilals premium offerings, so we had strategized, planned, and executed the Waah Vadilal campaign.

b) Processed Food Division Overview:

The processed and frozen food industry is preliminarily powered by the convenience provided by packaged foods, which entice consumers from all age groups. Consumer inclination towards convenience food and RTE foods has triggered a prompt change in the global market. Frozen Food need less effort as well as less time in comparison with cooking a complete meal from scratch, which is the prime aspect empowering the Frozen Food market growth.

For ice creams, factors such as the rising demand for innovative flavours and the rising demand for impulse ice creams such as cones, dollies, and small tubs in developing countries are expected to drive the market growth. The increasing health consciousness among consumers is also expected to fuel the demand for premium ice creams in the upcoming years.

The COVID-19 outbreak had a significant impact on all the industries worldwide but it has impacted positively on the frozen food market. Since COVID-19 began, the frozen food industry has seen steady growth, for instance according to American Frozen Food institute, frozen food products witnessed 21% increase compared to 2019. The primary reason for this growth is that people have gravitated towards foods with longer shelf lives.

Global market view:

The global Frozen Food market size was USD 231.38 billion in 2020. The market was projected to grow from USD 256.46 billion in 2021 to USD 385.04 billion in 2028 at a CAGR of 5.98% during the 2021-2028 period.

The global Ice Cream market is valued at USD 113.82 billion in 2021 and is growing at a CAGR of 6.47% in the forecast period to reach USD165.04 billion by 2027.

The global IQF vegetable market is expected to reach USD 2 billion by 2026, thus indicating significant demand for IQF food products in future.

Europe dominated the Frozen Food market share owing to the growing adoption of vegan lifestyle in the region, which is forecasted to navigate the sales of frozen veggies. The prime growth aspects in the region involve high consumer purchasing power, financial sturdiness, and change in food likings.

Asia Pacific documented a considerable growth in the global market owing to consumer acceptance of digital retailing platforms. The rising number of cold chain amenities in numerous developing nations is further aiding regional market growth. North America is anticipated to hold the third-largest market share owing to high consumer consciousness concerning the profits of Frozen Food.

The North American ice cream market is projected to witness a CAGR of 4.12% during the forecast period (2022 -2027). The increased demand for take-home ice creams in the North American region is driven by the increasing number of occasions and gatherings at home where ice creams are consumed as a snack or dessert. Moreover, the snacking trend across the region encourages consumers to opt for various snacks, including ice cream, for at-home consumption. The demand for take-home ice cream has surpassed impulse ice cream by around 200% in this region.

Australia is also the most attractive market for ice cream manufactures. Ice cream market in Australia is approximately 10% of the overall countrys food industry. Sweden and the UK are the attractive markets for ice cream from European region, owing to growing regional demand.

Middle East & Africa Ice Cream Market is forecasted to reach USD 3.4 billion by 2024, witnessing a CAGR of 10.7% during the forecast period (2019-2024)

Future Strategy:

Vadilals wide repertoire of products are available in over 45 countries and is now all set to take it even further and serve to the world the same experience and nostalgia of great taste that one enjoys in India.

While Vadilal is Americas largest Indian ice cream brand and has its subsidiary already established in US, Vadilal has now opened a new subsidiary in Australia and a branch in Canada. The set-up for both these facilities has already been done. This will further strengthen Vadilals foothold and also open major doors for Vadilal.

Another key strategy is persistently launching radical products with comprehensive assessment of the market and its target audience and increase Vadilals global footprint.

c) Forex Division

VADILAL FOREX, provides a niche Forex Consultancy Service to Corporates pan India having Foreign Currency Exposure in various Currencies since April, 1996.

Its Forex Consultancy, aids Corporates manage their Forex Risk arising out of various EXIM activities.

VADILAL FOREX in its 26^th year of services - is Numero Uno in Gujarat having more than 450 Corporates associated with it. Our gamut of Services includes A to Z Services in relation to FOREX advisory from Fx Hedging, RBI guidelines, FEMA regulations, FEDAI rules, etc.

Our Consultancy aids Large Corporates, to take Important Decisions to manage Foreign Currency Risk, effectively. Our one- on-one personal and customised briefings to the Clients even in the aspects of Import and Export Finance Schemes like EPC/ PCFC for Exporters and Buyers Credit Route for Importers also go a long way in guiding Many Corporates.

The Division is run by Experienced and Qualified set of Team Members themselves MBA (Finance), CA and CFA professionals, well versed in line with FOREX Risk Management activities.

Currency Research, through Licenced Software - is carried out from Ahmedabad HO Branch.

With HO stationed in Ahmedabad, the Division is in constant quench for growth and to establish its footing firmer, VADILAL FOREX has deployed its Staff Members and opted for Franchise Model within Baroda, Surat and even Rajkot Territory.

Additionally, we also provide our Service Subscribers with LIVE Website and Mobile Application that guides them with Live Interbank Rates at the time of booking transactions with their Registered Bankers. Our In-House IT Set-up, aids in managing the same to all our Esteemed Clientele.

LME Base Metal and Bullion Services are also a part of VADILAL FOREX Services that facilities Corporates having Metal and Bullion Exposures.

(2) OPPORTUNITY AND THREATS

a) Ice-cream Division

Indias ice cream market was dominated by the impulse category of ice creams since the past 6 years, and this category is further expected to continue its dominance during the forecast period as well, owing to growing demand for premium ice creams and changing consumer taste.

Looking at the trends from the recent past, we foresee fast growth in the ice cream and frozen dessert category. However, along with the increasing demand for convenience, the continuing need for value as a trend is growing as well. Earlier, Vadilal was focused on offering only mass segment products.

Gourmet Natural ice cream

With every new generation, newer ideas, formats and flavours have been introduced to build a connection through the years. As we embarked upon another milestone, it was time we took another step, so we launched our new premium category, Gourmet Naturals ice cream, made without any artificial flavors & preservatives. We launched this premium segment for the people with class to offer them the best and never-ending experience to linger till the next craving, with the most unusual flavors such as-Gourmet Natural Gulab Jamun Ice cream, Gourmet Natural Kesar Pista Ice cream, Gourmet Natural Classic Malai Ice cream, Gourmet Natural Alphonso Mango Ice cream, Gourmet Natural Falooda Ice cream. We have also launched Gourmet Natural Kulfi Ice cream in two exciting flavors- Gourmet Natural BPK (Badam, Pista Kesar) Kulfi, and Gourmet Natural Rajwadi kulfi. We have been able to increase our share in the premium segment as well and it has resulted in an overall enhanced growth. We plan to continue with the strategy of consolidating our presence in the high-end premium segment.

We also reach out to our customers through different super markets like the Big Basket, D mart, Reliance Smart, Star Bazaar [in selected areas] and also on online portals like Zomato, Swiggy, Zepto.

Distribution and Logistics

Distribution plays a key role in the success of a business. We plan to increase our reach in the existing market in terms of consolidating our presence in Cash and Carry format as well as the Modern Retail segment. The logistics of ice cream, being a cold chain product, are complex and we are continuously expanding our cold chain distribution network through refrigerated vehicles and deep freezers.

We have worked on increasing the physical touch points with our consumers and executed it by putting in place a robust network of dealers, FOWs (Freezer on Wheels) and Ice Cream parlors. Along with various extensive ATL marketing campaigns, a heavy investment has been done in various BTL marketing activities to enhance consumer experience. We are also committed towards deeper penetration in trade sector. Innovative cross promotional activities and digital media activities such as the influencers activities have been our point of extensive focus to increase consumer engagement and for brand recall.

b) Processed Food Division

One of the latest trends driving the market is online grocery shopping and the introduction of new apps, making it convenient for consumers to pick their preferred products. Consumers are inclined toward online shopping due to features of convenience and variety. According to Eurostat, in 2018, almost 25% of the population bought food and groceries from online retail channels. With the growing penetration of the Internet and smartphone usage, retail grocery shopping is emerging as one of the platforms for companies to showcase and sell their food products.

COVID-19 is not the only factor driving the trend of people preferring food with longer shelf lives. According to AFFI (American Frozen Food Institute), health-conscious consumers began gravitating towards vegetarian dishes and nutritious meals from the frozen food aisle even before the pandemic. This preference of vegetarian food over other is a wonderful opportunity in itself.

While there is a threat of yet another COVID wave, but this time the industry and the company are well prepared to tackle it.

3) HIGHLIGHTS OF FINANCIAL PERFORMANCE AND OPERATIONAL PERFORMANCE.

The Company has earned Revenue from Operations of 54,411.61 lacs during the year ended on 31^st March, 2022 as against 35,654.01 lacs earned during the previous year ended on 31^st March, 2021 giving an increase of 52.61% as compared to previous year.

After adding thereto, the other income of 879.14 lakhs, the Company has earned total income of 55,290.75 lakhs during the year under review. It has incurred total expenses of 53,875.81 lakhs including Finance cost of 1,788.34 lakhs and Depreciation and Amortization expenses of 1,923.87 lakhs, during the year under review.

The Company has Incurred profit before Tax of 1,414.94 lacs during the year under review as compared to loss of 3,170.71 lacs during the previous year ended on 31^st March, 2021. The Company has incurred profit of 1,034.43 lacs during the year ended on 31^st March, 2022 after deducting Current Tax of 5.07 lacs and Deferred Tax of 375.44 lacs as compared to loss of 2409.82 lacs during the previous year ended on 31^st March, 2021.

Turnover History
Financial year	Rs. in lakhs
2012-13	32765.9
2013-14	37170.32
2014-15	41288.57
2015-16	45538.21
2016-17	48438.1
2017-18	52013.98
2018-19	50705.78
2019-20	51662.97
2020-21	35654.01
2021-22	54411.61

4) SEGMENT WISE PERFORMANCE.

The company is primarily engaged in one business segment namely Food segment as determined by the chief operating decision maker in accordance with IND AS 108 - "Operating segment" and hence, Segment-wise Performance of the Company has not been provided.

5) RISKS AND CONCERNS

a) Ice Creams Division

Brand Vadilal has a 16% of organized market share against total organized Indian ice cream market which is estimated at approx. 6000 crores. Vadilal has a robust and extensive pan-India distribution network with more than 1,50,000 dealers and trade partners that cater to every nook and corner of the country.

Vadilal stays ever ready for competition with a strategy in place before hand. Keeping a check on competitor products and constantly innovating is the key to stay at par with the ever-changing market. The unorganized market that pose a threat to the sales are taken care of by maintaining quality in our products. Expertise and decades of experience is what makes Vadilal stand a class apart in the highly competitive market.

However, there are certain concerns like infrastructure and rising input costs, which the company keeps in mind and is working towards.

b) Processed Food Division

To some consumers, frozen food is thought of as a product that is an inferior substitute for fresh food, which is one of the major concerns for this market. There is a notion that food processed a year or more before it is consumed could not be nutritious. However, statements such as "frozen produce can be just as good as the fresh stuff in terms of nutrition" from the US Food and

Drug Administration (FDA) and the International Food Information Council (IFIC) about the nutrient content of frozen food are changing the consumer perception.

6) INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

In view of the management, the Company has adequate internal control systems for the business processes followed by the Company. The External and Internal Auditors carry out periodical reviews of the functioning and suggest changes if required. The Company has also a sound budgetary control system with frequent reviews of actual performance as against those budgeted.

The Audit Committee of the Board meets periodically to review various aspects of the performance of the Company and also reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening them from time to time. The External Auditors also attend these meetings and convey their view on the business processes and also of the policies of financial disclosures. When found necessary, the Committee also gives suggestions on these matters.

7) HUMAN RESOURCE DEVELOPMENT:

Employee being prime force the Company gives equal emphasis on employee development and their engagement. The Company believes in enhancing the competencies of employee to create a high performing and innovative organization. Equal emphasis is given on the on technical & soft skills. There are cordial relations between the management and employee of the Company.

As on 31^st March, 2022, the Company has employed total 668 employees at all locations.

8) SIGNIFICANT CHANGES IN FINANCIAL RATIOS:

Refer Note 52 to Standalone Financial Statement

9) CAUTIONARY STATEMENT:

The statements made and figures given in the various sections of "Management Discussion and Analysis" are keeping in mind the Companys objectives, estimates and expectations. The Actual results may differ from those expected depending upon the economic conditions, changes in Govt. Regulations, tax regimes and other external and internal factors.