Virat Crane Industries Ltd Management Discussions.

CORPORATE OVERVIEW

Virat Crane Industries Limted (the Company) has consolidated its position in Dairy Industry with deeper penetration among all categories of people irrespective of income levels and geographical areas in the Ghee products. Your Company now has over 27 years of legacy in the Indian dairy industry.

The Financial statements are prepared in accordance with accounting principles generally accepted in India, including the Accounting Standards notified under the Companies Act, 2013 ("the Act") read with Section 133 of the Companies Act, 2013. Your Management accepts responsibility for the integrity and objectivity of the financial statements, as well as for the various estimates and judgments used therein. These estimates and judgments relating to financial statements are prudently made to reflect in a true and fair manner the form and substance of transactions. This also enables in reasonably presenting the Companys state of affairs and profits and cash flows for the year ended March 31st, 2019

INDIAN ECONOMY

The International Monetary Fund (IMF) has pared Indias growth forecast for the just-concluded fiscal and the next two years, citing softer recent growth and weaker global outlook, but expects the country to retain its place as the fastest growing major economy.

According to IMF estimates, Indias economy grew 7.1% in financial year 2018-19 and is expected to accelerate to 7.3% growth during 2019-20.

Dairy Sector Review

We believe the organized dairy sector is poised for healthy growth in the coming quarters since ever increasing the health consciousness among people, growth of income of people& their spending capacity and willingness to buy the packaged foods.

(a) INDUSTRY STRUCTURE AND DEVELOPMENTS

During the financial year 2018-19, India is the leading milk pro duc ing country in tin e world, accounting for 21% of the global market share. The milk processing industry in India is expected to expand at a compound annual growth rate (CAGR) of—14.8% between FY 2018 and FY 2023. Apart from milk, the revenue of the Indian dairy and milk processing industry is generated from several value-added products such as butter, curd, paneer, ghee, whey, flavoured milk, ultra-high temperature (UHT) milk, cheese, and yogurt. The market size of butter is expected to grow by 14.5%, curd by 14.4%, paneer by 14.1%, and ghee by 14.1%, among others.

(b) OPPORTUNITIES AND THREATS:

Opportunity: Expanding market will see creation of enormous job and self employment opportunities. Economy is growing at the rate of nearly 6.8% of GDP. Consequently, the investment opportunities are also increasing continually. Demand for dairy products is income elastic. Continued rise in middle class population will see shift in the consumption pattern in favour of value added products besides the growth in demand for dairy products. Opening of the world market offers opportunities for utilization of by products of the dairy industry for manufacturing value added products for import substitution. Interest subvention of 2% for farmers availing loan under Kisaan Credit Card (KCC) for pursuing activities of animal husbandry and fisheries. Additional 3% interest subvention on timely repayment of loans. Positive for the dairy sector as this will encourage farmers to invest in dairy farming as a stable source of income. Dairy is one of key focus areas for doubling farmers income and increase milk production in milk deficient regions like South India and East India

Threat: the company has been facing the copying, duplicating and adulteration of our products by a few mal practitioners. It has been rising continuously. Excessive grazing pressure on marginal and small community lands has resulted in almost complete degradation of land. Indiscriminate crossbreeding for raising milk productivity could lead to disappearance of valuable indigenous breeds. Organized dairy industry handles only 28% of the milk produced. Cost effective technologies, mechanization, and quality control measures are seldom exercised in unorganized sector and remain key issues to be addressed. There is a gross lack of awareness among farmers about the quality parameters, including microbiological and chemical contaminants as well as residual antibiotics.

(c) SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

The primary business segment of your company is ghee,cow ghee ,milk ,butter milk.

Ghee: Durga ghee is the most premium brand among the all brands of ghee and its brand name is ever increasing and management is putting all efforts to strengthen its position.

Kamadhenu cow ghee

It is used mainly for pooja purposes and the demand for this product is steadily rising. The company expects more revenue from this brand as increasing the awareness among the people by strengthening its marketing.

(d) OUTLOOK

According, "Indian Dairy Industry Outlook 2022" report, with an annual output of 179 Million Tonnes, India is the largest producer of milk in the world. It is also one of the largest producers and consumers of dairy products. Indian dairy industry also offers good opportunities to both domestic and foreign investors for entry and expansion. Due to their rich nutritional qualities, dairy products consumption has been growing exponentially in the country; and considering various facts and figures, the study anticipates that milk production in India will further grow at a CAGR of around 3.5% by 2021-22.

(e) RISKS AND CONCERNS

Climate, water scarcity and geography Climate change and scarcity of water is a major threat to the dairy industry. Milk production could go down by 3 million tonne over the next three years as the average temperatures rise, creating problems of water scarcity and reduced availability of green and dry fodder for the cattle. Temperate with milder seasons put less stress on cows than climates with more extreme weather. Geography is closely tied to weather. Heat and humidity are the factors with largest impact. If nighttime temperatures cool, cows get a chance for cover even in hot seasons. However, if they dont have a chance to cool down, they will eat less feed and produce less milk. Survival of the fittest It is expected that the competition will increase steadily as more and more companies targeting dairy sector and a few Multinational Corporations (MNC) too eyeing for increasing market share. Large established players are launching new products. New Product Risk by MNCs who have better brand equity Over the years a few private players have been able to anticipate and respond to changing consumer preferences which helped in building strong consumer demand for their brands. However continuous investment in research and development along with introduction of new products and different variants of existing products by MNCs, based on consumer preferences and demand, can be a risk for smaller players. Rising labor cost Over the last decade labor cost has also increased significantly. Cost of keeping and maintaining bovine is very high.

KEY INDUSTRY GROWTH DRIVERS

Young India and increase in population India is the second most populated country in the world with nearly a fifth of the worlds total population. India is relatively young country with rising expectations. 65% of Indias population is below 40 and working age population (between 15 and 64 years) is expected to touch 1b mark surpassing China by 2030. With 50% of the population under 25 years of age, the large Indian young population is ready to experiment and try out new milk products. The opportunity is there for domestic players to capitalize on their understanding of taste and preferences of Indians. Dual income households leading to higher usage of VAP due to lack of time The number of dual household incomes is gradually increasing, leading to higher disposable incomes and readiness to try out value added products. Both rural and urban households have increased their expenditure on VADP at ~16% CAGR compared to liquid milk CAGR of 10-12%. Traditional milkmen selling curd have disappeared today at least in urban areas with many of branded dairies launching their better quality curds and buttermilk. Dairy sector will be one of the key beneficiaries of Indian consumption story. Value- added products have been gaining importance due to changes in demographic and dietary patterns. While demand for branded milk has grown at 15%, growth in value added products has been even stronger at 23% in last decade. Rising urbanization and disposable income With rising urbanization and disposable income, there is growing brand awareness amongst consumers, which is driving demand for branded products. Also, there is a growing preference for clean, hygienic and ready-to-eat milk & dairy products that will boost organized dairy industry. Rising health awareness Over the last decade, there has been a growing awareness towards health and nutrition. This has led to increasing quality and safety concerns fuelling demand for packaged food. Younger consumers are especially trending towards more health conscious eating habits driving growth of value added dairy products. Rising vegetarian population India has ~28% of population who follow vegetarianism and this number is gradually increasing over last decade. A large vegetarian population is a key driver for dairy industry.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a well-defined and documented internal audit & control system, which is adequately monitored. Checks & balances and control systems have been established to ensure that assets are safe guarded, utilized with proper authorization and recorded in the books of account. The Internal control systems are improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements. Your Company has an Audit Committee consisting of three Directors in whom all are NonExecutive and two are independent Directors. The Audit Committee of the Board of Directors and Statutory Auditors are periodically apprised of the internal audit findings and corrective actions taken. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control system and suggests improvements if any for strengthening them.

COMPANYS FINANCIAL PERFORMANCE

During the Year under review revenue from operations for the financial year 2018-19 is Rs.85.78 Crores. It was decreased by 2.57% over the last financial year (Rs.88.05 Crores in 2017-18). Profit after tax (PAT) for the financial year 2018-19 is Rs.6.80 Crores. It was increased by 09.72% over last year (Rs.6.20 Crores in 2017-18).The revenue was increased though the company was facing rigid competition in the industry. It was due to management commitment and high quality products of the company.

Details of Significant changes (ie change of 25% or more as compared to immediately previous financial year) in the following key financial ratios along with explanations:

Inventory turnover ratio was 9.29 times in the financial year 2018-19 and it was 7.41 times in the financial year 2017- 18.Hence it was increased by 25.37% in the financial year2018-19 compared to the previous financial year 201718.

Explanation:

Previous year stock levels are too high since the variability of prices in the market and during the financial year 201819 at the end of the year the prices had gone up so the inventory levels were reduced.

Current ratio was 1.79 times in the financial year 2018-19 and it was 1.15 times in the financial year 2017-18.Hence it was increased by 55.65% in the financial year2018-19 compared to the previous financial year 2017-18.

Explanation:

In the previous year total advance tax was paid

Creditors were reduced in the current financial compared to previous financial year as the stock levels were reduced due to the high prices of the stock.

Details of non Significant changes (ie change of less than 25% or more as compared to immediately previous financial year) in the following key financial ratios along with explanations:

Debtors turnover ratio was 19.85 times in the financial year 2018-19 and it was 21.64 times in the financial year 2017- 18.Hence it was decreased by 8% in the financial year2018- 19 compared to the previous financial year 2017-18.

Debt equity ratio was 0.629 times in the financial year 2018-19 and it was 0.62 times in the financial year 2017-18.Hence it was increased by 1.45% in the financial year2018-19 compared to the previous financial year 2017-18.

Operating profit ratio was 10.19 times in the financial year 2018-19 and it was 11.20 times in the financial year 2017- 18.Hence it was increased by 9.91% in the financial year2018- 19 compared to the previous financial year 2017-18.

Net profit ratio was 7.05 times in the financial year 2018-19 and it was 7.94 times in the financial year 2017-18.Hence it was increased by 12.62% in the financial year2018-19 compared to the previous financial year 2017-18.

Interest coverage ratio was 26.59 times in the financial year 2018-19 and it was 27.72 times in the financial year 2017- 18.Hence it was decreased by 04.07% in the financial year2018-19 compared to the previous financial year 2017-18.

Details of Changes in return on net worth compared to the immediately previous financial year:

Return on net worth was 18.13 times in the financial year 2018-19 and it was 17 times in the financial year 2017- 18.Hence it was decreased by 6.23% in the financial year2018-19 compared to the previous financial year 2017-18.

(H) HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Your Company has laid high emphasis on driving an effective and transparent performance culture withan open mindset. This is evident in the way performance is closely tracked and its impact on your Companys financial sustainability monitored. Leaders today provide feedback not only on performance but also on demonstration of Core Values and Leadership skills defined for each layer of Organization hierarchy. Top performers and high achievers are recognized for their exemplary performance as part of the rewards and recognition program. In the year gone by, your Company has focused on functional training programs such as Food Safety and Regulations, Energy Management, Lean Sigma, TQM, Industrial Safety, Your Company provides learning opportunities through facilitator led learning, workshops and experiential learning through projects, programs and assignments.

Your Company has continued to maintain amicable Industrial Relation footprints by focusing on increased worker level engagement through formal and informal communication and training forums.

There were no material developments in human resources /Industrial relations during the financial year 2018-19.

As of 31stMarch 2019, your Company had 70 permanent employees on its rolls.

Disclosure of Accounting Treatment:

Where in the preparation of financial statements, during the year there was no different treatment from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements.