Warren Tea Ltd Management Discussions.

Regulation 34 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 stipulates disclosure under specific heads which are given in the following paragraphs and which continue to be followed in the usual course of the Companys business over the years in discussion amongst the Directors and Senior Management Personnel.

(a) Industry Structure and Developments

The Companys main business is plantation, processing and sale of Tea : Tea being a natural product, the plantation activities is subject to the vagaries of nature. The crop yield depends on the climatic conditions to a very large extent. The steps initiated by management for increasing the crop yields by implementation of improved agricultural practices is not only necessary, but also important for the betterment of the Industry.

Tea continues to be savoured globally and remains a beverage of choice in India contributing substantially to the countrys income by way of foreign exchange earnings. Indian tea industry provides employment to more than one million people, half of whom are women. Tea Industry supports a large population comprising of workers, dependents and others residing in the tea estates. Originally, the tea plantation sector consisted of tea estates with their factories to manufacture their teas but over the last decade or so, there has been an emergence of small tea growers and bought leaf factories contributing to almost 50% of the total countrys tea production.

(b) Opportunities and threats

Conscious improved agricultural practices together with appropriate marketing efforts have brought tea to be considered as a health drink as well as a lifestyle choice. Consumption of tea in India is also on the rise. Hatimara tea estate of your Company continue to enjoy Rainforest Alliance Certification, ISO 22000:2005 Certification and Trustea Verification Certification. Your Company also continues with its Integrated Pest Management Policy which is in conformity with the Plant Protection Code of Tea Board of India. Tea being essentially an agricultural produce, is always subject to enviro-climatic inconsistencies which affects both quality and quantity of produce and thereby your Companys performance. The Companys income is from sale of tea. The costs of production tea, comprises of various inputs which are required to be met by the Company as stipulated under various statutes including the Plantation Labour Act. Thus after meeting the costs, the Industry is left with a very small margin to meet its other expenses for sale of product. Further, small tea growers and bought leaf factories operate on a considerably lower cost structure which enable the final produce to be offered at lower prices in the market. It is worthwhile to mention that the Company could not carry out plucking operations for the last weeks of the month of March, 2020 which is the prime time for crop generation due to COVID 19 pandemic.

(c) Segment-wise or Product-wise Performance

The Company does not have any separate primary business segment as it sells only black tea in bulk both in domestic and overseas markets.

(d) Outlook

A cohesive model which catalyses a viable coexistence of both plantations and bought leaf factories is fundamental to the industrys sustainability and growth. Tea being a common mans drink is consumed widely throughout the country. Weather is of prime importance for Tea manufacturing industry for achieving the production target for the Industry. Considering that tea plantations would always be subject to vagaries of climatic conditions, proactive and adaptive agricultural practices as well as use of modern machineries and techniques which contribute to quality and quantity together with favourable market dynamics is likely to yield results.

(e) Risks & Concerns

The Management has to constantly monitor the risks and concerns associated with the Industry which is dependent upon the vagaries of the weather to a very large extent and is also subject to changing market conditions and the trends. Wide climatic variations in ideal tea growing conditions impact plantations and their produce both on a short term and long term basis which necessarily involves time and substantial costs. Further, cost of production continues to rise against flatter price levels leading to a decline in the margins for the producers and fair price discovery continues to be a challenge.

(f) Internal Control Systems & their Adequacy

There are adequate internal control systems at all levels of Management of the Company. These are reviewed from time to time and improved upon, where required. The Company has implemented internal control systems with a view to ensure that assets are safeguarded and protected against losses and transactions are recorded and reported correctly. These include comprehensive internal audit by external firms of Chartered Accountants besides checks carried out by the Cost Auditors, the Secretarial Auditors and the Statutory Auditors during the course of their respective audits. Such systems are commensurate with the Companys size and nature of operations and provide reasonable assurance with regard to reliable data, compliances, securing its assets from unauthorized use or loss and ensuring that operations are carried out in consonance with the Companys policies. The different sets of auditors periodically visit the Companys units, their reports are looked into by the Management and by the Audit Committee for effecting corrective action/improvement as may be called for.

(g) Financial Discussion on Performance with respect to Operational Performances

There have been series of significant changes in the overall market scenario in last few years. Over the last four years we have been faced with many a difficult circumstance like vagaries of weather due to climate change, severe pest infestation, significant rise in labour wages due to statutory changes and also the recent pandemic, all have had significant impact on Companys profitability.

(h) Material Developments in Human Resources/Industrial Relations Front including number of people employed

The Tea Industry is labour intensive and provides employment to a very large segent of the population residing in and around the tea plantation areas . Human resources are the most valuable assets of the Company and thus adequate care is taken by the Company for their development and well being. Tea being an essentially labour intensive industry, the employees are the mainstay of its operations. Hatimara Tea Estate of your Company are certified under the Rainforest Alliance as well as Trustea indicating firm commitment towards sustainability as well as workers health, hygiene and safety. It is your Companys endeavour to provide safe, healthy and sustainable work environment in all the estates for the employees and their families. Your Company deeply appreciates the performance and cooperation of the employees during the year and looks forward to maintain cordial relations in the years to come. Your Company believes in employee empowerment across the entire organization in order to achieve organizational effectiveness.

(i) Details of significant changes in Key Financial Ratios along with detailed explanations therefor.

Details of significant changes (25% or more as compared to the immediately previous Financial Year) in key financial ratios in 2019-20

Particulars Variation (%) Explanations
Increase/ (Decrease) over previous Financial Year
Inventory Turnover Ratio (34.88) Stock of March remained unsold mainly due to outbreak of COVID 19.
Interest Coverage Ratio 12.31 Increased loss during the current year primarily due to steep rise in salary of staff and other input costs during the year coupled with decline in unit price realization.
Current Ratio (24.47) Increase in Current Liabilities emanating primarily out of escalations in salary and other input costs leading to higher working capital utilizations during the year.
Debt Equity Ratio 70.68 Decline in Equity arising out of the loss suffered during the year as well as utilization of higher working capital loans from banks.
Operating Profit Margin (%) 44.04 Decrease in Earnings before Interest and Tax (EBIT) primarily due to steep rise in salary and other input costs during the year
Net Profit Margin (%) 62.82 coupled with decline in unit price realization.

(j) Details of Changes in Return on Net Worth as compared to the immediate previous financial year along with a detailed explanation thereof.

The Return on Net Worth for the year was (32.69)% as compared to (14.58)% in the immediate previous financial year.

During the year under review, vagaries of weather predominantly as a result of global climatic changes as well as infestation of pests continue to buffet the volume of tea produced. Simultaneously, increase in input costs mainly on account of a significant rise in wages, without commensurate increase in realizations have affected the Companys total income for the year and thereby has adversely impacted the Return on Net Worth for the year.