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 1/5th 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. Rs 6000 crores. Though overall organized & unorganized ice market are estimated near about Rs10,000 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 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 desert 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& committed towards delivering best quality products at affordable prices to customers from diverse cultures. Improving products in terms of its nutritional value 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/players, which has 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 revamped its look with aggressive marketing approach and the menu to give the brand the lift it required to combat its international counterparts. In a bold step, the company revamped the entire brand identity by introducing a refreshed brand logo, new template and packaging. With all due efforts and now the with same aggressive marketing approach Vadilal products with brand identity with packaging is established in the market and trade with consumers are identifying the Vadilal products with their unique brand color code and visual uniqueness with clutter free brand presence in Trade & Consumer top of mind recall. This was welcomed in the market and worked in the brands _avor 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.

With International brands /players 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 ice cream bars, ice cream sandwiches, Artisan ice cream cakes and ice cream pastries 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 2020 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 _avors in 1+1 party packs & other innovative products based on extensive R&D as well market with consumers feedback. With such initiatives we have created the unique space in trade & consumer mind.

The brands existing variants like Gourmet, Badabite, Flingo Jumbo Ice cream Cups and Ice trooper continue to show substantial movement in the market. Besides this, Vadilal has also introduced new delicious products like Chickoo, Jambu,, , Kesar –e -Khas, Almond Nautanki, Choco sphere cone etc.

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. This year, a new variant called Ice Trooper Football candy has been added to this popular range.

Growth country wide

Vadilal is growing, the brand spread its wings wide in South India, and enjoyed a widespread acceptance. Vadilal ice creams and frozen desserts were introduced for the first time in Tamil Nadu, receiving an overwhelming response from the consumers. This positive response has got the brand already working on the future endeavors down South.

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.

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 12lakh 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 _avored milk segment under the brand name "Power Sip". Power Sip is available in _avors like "Kesar", "Elaichi", "Badam" and "Rose" packaged uniquely for the brand to stand out in the crowd. The research and development team is working towards introducing more _avors 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 2nd 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.

Vadilals 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.

The brand is making a steady progress in launching new products in the premium segment. The latest introduction in seasonal party packs category with premium quality and unique mix of _avors is quickly catching hold over niche market.

Recently conducted market research through Nielsen India, are most inspiring. With Brand Vadilal, it is most trusted and favoured brand amongst India with all classes & masses especially in Youth consumers. Our Waah! Vadilal campaign is an extension of the same 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.

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 more. The brand will be investing heavily on digital mediums given the inevitable digital era namely, social media, IPL via Hotstar, other OTT platforms and Youtube.

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

Within the research Consumers relate the Vadilal brand with Heritage and legacy producing unique products, Health, Hygiene & Happy feeling.

b) Processed Food Division

Frozen food products are food products that are processed and preserved at acute cold temperatures and then stored in freezers for later use. They include fruits, vegetables, ready-to-eat meals, and more. Freezing of foods is a natural form of preservation that retains the nutrients for extended periods. At Vadilal, we use the advanced IQF (Individually Quickly Frozen) technique which prevent cells within the food from becoming damaged, preserve nutrients and results in a much higher quality end product than the normal freezing process.

The frozen food industry has seen steady growth since COVID-19 began, as people gravitated towards foods with longer shelf lives. Decreasing grocery store visits and preparing for potential food shortages motivated consumers to shop frozen during the pandemic. Frozen foods also appeal to consumers looking to avoid cooking and cleaning. Many even believed that "frozen foods are safer than fresh items right now".

Along with COVID-19, one more factor that drove the frozen sales upwards was ‘health-consciousness. Consumer began gravitating towards vegetarian dishes and nutritious meals from the frozen food aisle even before the pandemic. These new consumers include Gen Z buyers, as well as Baby Boomers who left the category during the TV dinner era—returning to find newer, healthier, tastier options. Suppliers are responding to these buying trends, offering an increasing number of healthy frozen food options.

The ice cream market has also witnessed significant growth in the past years. This growth is attributed to the increasing awareness and shifting of consumer preference and interests towards ice cream products that are free from genetically modified organisms, with no artificial _avours, fat-free and organic in nature.

GLOBAL MARKET VIEW:

The global frozen food market is expected to grow from $167.34 billion in 2020 to $174.4 billion in 2021 at a compound annual growth rate (CAGR) of 4.2%. The growth is mainly due to the companies rearranging their operations and recovering from the COVID-19 impact, which had earlier led to restrictive containment measures involving social distancing, remote working, and the closure of commercial activities that resulted in operational challenges. The market is expected to reach $224.2 billion in 2025 at a CAGR of 6%.

Whereas, the global ice cream market stood at a value of $62.3 billion in 2020. The market is further anticipated to grow in the forecast period of 2021-2026 at a CAGR of 7.5% to reach $96.1 billion by 2026.

2020 has seen record sales in the frozen food sector. According to Frozen Food Europe Magazine, Europe had the largest share of the global frozen food market in 2020. Asia Pacific, the Middle East and Africa are projected to be the fastest-growing markets during the 2020-2025 period.

Europe dominated the global frozen food market in 2020, accounting for more than 30% of market shares, followed by North America. Customer attitude towards frozen foods has transformed significantly in Europe, driven by an improvement in living standards and an increasing need for convenience. Germany, France, and the UK account for more than 50% of the frozen food market in Europe.

Europe ice cream market is expected to grow at a CAGR of 4.87% during the forecast period, 2020-2025. Indulgence and the increasing consumer preference for ice cream as a leisure product drive the growth of this market and new innovative _avours, offered by companies, further act as a catalyst for demand generation. All natural and natural _avours ice cream are on the rise driven by consumer preferences for healthy food.

Globally, the growth of organized retail has led to a widespread supply of frozen ready-to-eat food products through a wide distribution network. North America holds the largest consumer base of the frozen ready-to-eat food market, and it is estimated to grow at a healthy rate owing to technological innovations, busy lifestyles of consumers and high disposable incomes. Frozen yoghurt drinks, frozen smoothies and frozen fruit juices are the most popular ready-to-drink products, globally.

The United States was the leading frozen food market in North America in 2020. In the US, after a 94% sales surge in mid-March, total frozen food sales maintained a 30-35% increase in April 2020 compared to April 2019.

Middle East and Africa Frozen Snacks market is projected to grow at a CAGR of 7.45% during the forecast period of 2021-2026. Backed by increasing number of time-poor consumers coupled with development of healthy snacking options in the market, the frozen snacks market is progressively paving its way in overall snack industry of the region. By distribution channel, supermarkets led the sales, owing to growing prevalence of private label brands aiding the sales of these formats. The ice cream market in MEA region is forecasted to reach USD 3.4 billion by 2024, witnessing a CAGR of 10.7% during the forecast period of 2019-2024. The branded and private-labeled ice creams comprise the vital part of the Middle East & African frozen dessert market.

Frozen vegetables account for more than 90% of the world market for frozen fruits and vegetables. Unlike frozen fruits, most frozen vegetables do not require thawing, which saves time. In Germany, the fruit and vegetable segment are projected to be the fastest growing segment, due to the growing popularity of vegetarian foods and vegan diets.

Future Strategy:

Vadilal has presence in over 45 countries including the countries in North and South America, Europe including the UK, the Middle East, South East Asia and Australasia. Hence, strategy for every territory has been planned basis respective countrys market demands and thorough research.

Short term strategy: To be de-risked by focusing on multiple territories for growth since COVID restrictions may surprise a manufacturer at any point in time.

Long term strategy: To enter into multiple food categories as newer business avenues are likely to come up with consumers opening up to experiment with new categories and newer brands for their routine consumption.

c) Forex Division

VADILAL FOREX provides a niche Forex Consultancy Services to Corporates pan India having Foreign Currency Exposure in any Currency since April 1996.

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

VADILAL FOREX in its 25th 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.

The Division is looked after by Experienced and Qualified MBA (Finance), CA and CFA professionals, well versed in line with FOREX Risk Management activities.

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.

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

FFMC – Money Changing Activities, a part of Vadilal Industries Limited arm is a RBI AUTHORISED AD II CATEGORY MONEY CHANGING ACTIVITY involved in Buying/Selling Foreign Exchange from Tourists, Internal Banking and other Money Changers. With AD II Category Licence, VADILAL FOREX further remains in the forefront for doing Remittances Abroad on of behalf Indians within Directives covered in Current Accounts Free Remittances under FEMA. FFMC Division operates only from Ahmedabad.

_C_ OPPORTUNITY AND THREATS a) Ice-cream Division

Indias ice cream market was dominated by the ‘impulse category of ice creams since the past 5 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. However, 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.

However, last year in the months of April & May, when the consumption of icecreams is the highest, there was a nationwide lockdown due to the Covid 19 situation, resulting a severe dent in the icecream sales. Our sales were lowered, even after the lockdown was lifted as there were temporary issues, where people were avoiding eating cold desserts. However, we bounced back with our sales in the second half of the last financial year and we are confident of strong sales this year.

We also started our own Online delivery portal vadilalonline.com for our patrons during the pandemic. We also reached 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.

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 have been our point of focus to increase consumer engagement.

b) Processed Food Division

Online sales of frozen food increased 75% in the United States and over the past year, according to the AFFI (American Frozen Food Institute). During the pandemic the share of US core frozen food consumers, defined as those who consume frozen food daily or every few days, rose to 39% in 2020 from 35% in 2018. Similar scenarios were seen across the world, hence the online market space is a good opportunity that we should build upon.

The AFFI study also found that frozen food consumers are most likely to want "real" ingredients, freshness, and no artificial colors. This being our products core characteristics, we should take this as an opportunity to highlight and communicate it more to consumers.

(d) HIGHLIGHTS OF FINANCIAL PERFORMANCE AND OPERATIONAL PERFORMANCE.

The Company has earned Revenue from Operations of Rs 35,654.01 lacs during the year ended on 31st March, 2021 as against

Rs 51,662.97 lacs earned during the previous year ended on 31st March, 2020 giving an decrease of 30.99% as compared to previous year.

After adding thereto, the other income of Rs 1,202.18 lakhs, the Company has earned total income of Rs 842.08 lakhs during the year under review. It has incurred total expenses of Rs 40,026.90 lakhs including Finance cost of Rs 2,008.52 lakhs and Depreciation and Amortization expenses of Rs 1,828.62 lakhs, during the year under review.

The Company has Incurred loss before Tax of Rs 3,170.71 lacs during the year under review as compared to loss of Rs 3,438.99 lacs during the previous year ended on 31st March, 2020. The Company has incurred loss of Rs 2,409.82 lacs during the year ended on 31st March, 2021 after deducting Current Tax of Rs 17.69 lacs and Deferred Tax of Rs (778.28) lacs as compared to Profit of Rs 3214.77 lacs during the previous year ended on 31st March, 2020.

Turnover History
Financial year Rs in lakhs
2011-12 28580.25
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

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. Rs 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

The pandemic is still far from over with few countries still being under lockdown and an expected third wave might again put consumers under stricter rules which can hinder the forecasted growth. Hence, the supplies will have to be planned and shipped keeping in account the unseen future circumstances that might arise due to the restrictions of COVID-19.

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 31st March, 2021, the Company has employed total 670 employees at all locations.

8_ SIGNIFICANT CHANGES IN FINANCIAL RATIOS:

Ratio 2021 2020
Interest Coverage Ratio -0.70 3.59
Net Profit Ratio -6.54% 6.12%
Return on Net worth Ratio -11.49% 13.75%
Operating Profit Margin Ratio -3.15% 9.35%

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.

By order of the Board of Directors

Rajesh R. Gandhi Devanshu L. Gandhi
Date : 13th August, 2021 Managing Director Managing Director
Place : Ahmedabad DIN: 00009879 DIN: 00010146