DIRECTORS' REPORT AND MANAGEMENT DISCUSSION & ANALYSIS TO THE MEMBERS The Directors have pleasure in presenting the 22nd Annual Report and Audited Accounts of the Company for the year ended 31st March, 2015 DIVIDEND The Directors are pleased to recommend a dividend of 20% on equity shares. OPERATIONS The Revenue from operations increased to Rs. 25,114 Lac (up 16%) during the year as compared to Rs. 21,638 Lac in the previous year. The Operating Profit (PBIDT) increased to Rs.1,661 Lac (up 56%) from Rs.1,068 Lac in the previous year due to better product mix, benign raw material prices & cost compression activities. Capacity utilization of Drying Plant increased to 46.31% against 38.23% in 2013-14 & Capacity utilization in Liquid Milk Plant (Your Company is operating & managing a facility to process & pack liquid milk in poly pouches under a long term agreement) increased to 89.60% against 86.60% in 2013-14. Company's popular brands of Dairy Creamers - WHITE MAGIK, DAIRY TOP and MILK STAR made better penetration in existing markets, besides entering into some new geographies. Company is shipping, on and average, 8 mn plus sachets of consumer pack Dairy Creamers every month opposite about 7 mn sachets in the previous year. Some institutional buyers like Jet Airways, Indian Railways and Defence Deptt are regular buyers of single serve sachets of White Magik Dairy Creamer. Doodz Flavoured Milk was launched in NCR last to last year. It has captured good retail space in NCR. During the year test supplies have been made to upcountry markets also and the response is encouraging. Company is investing regularly in updating its plant. This exercise has resulted in better product quality as well as cost compression. Due to erratic and poor power supply from UP Electricity Board, Company has started work on putting up its own power generation plant which will be able to take care of 100% need of both the Plants. Work is progressing well and the plant is likely to be commissioned in early part of 2016-17. This will not only assure uninterrupted power supply but will also result into lower power cost. INDUSTRY SCENARIO DAIRY INDUSTRY IN INDIA India continues its leadership position in global milk production. During last decade, milk production in India has grown by 4.2% CAGR against world average of 1.4%. With income levels going up, demand for milk products during last 3-4 years has grown by over 8%. Government of India is adequately concerned over this mis-match in demand and supply and is working seriously on UN supported National Dairy Plan (NDP) for last 2-3 years. NDP aims to increase productivity of milch animals and to give farmers greater access to organized milk processing sector. It is hoped that results of this exercise would be visible on ground from 2016-17 onwards. Animal protein is the most preferred source of protein by Indian populace. Organized dairy sector is growing at about 15% and is expected to continue this growth rate during next 5-7 years. Investor interest in dairy industry is also quite high. Some divestments in recent past and entry of unrelated Business Houses into dairy sector validate the fancy dairy industry carries with the investors. SOME KEY FACTS ABOUT INDIAN DAIRY INDUSTRY ? Milk production (in million tons) - 2014-15 139 ? India's share in global milk production 17% ? Contribution of Dairy Industry to India's Agricultural GDP is highest amongst all agricultural products and is currently 22% ? Of total milk produced percentage of milk retained at village level for self consumption 50% ? Percentage of milk processed by organized sector 15% ? Per capita consumption of milk in India 290gms/day ? Global per capita consumption of milk ? USA 685gms/day ¦/ EU 638gms/day •/ PAKISTAN 466gms/day OPPORTUNITIES AND THREATS Opportunities (i) With increased income levels, demand of milk products has gone up during last 3-4 years from about 4% to about 8%. This pace seems to be sustainable. This would mean higher consumption of conventional milk products as also introduction of new milk based products. (ii) Milk is a preferred source of protein by Indian populace. Milk and milk products are therefore likely to get preference from consumers who look for protein rich food. (iii) Subsidy and grants by US and EU to dairy farmers and dairy factories has significantly come down. This has improved competitive edge of Indian Dairy Industry. (iv) India is the largest producer of buffalo milk which is a preferred variety of milk for making certain type of cheese. It offers a good export opportunity for Indian cheese made of buffalo milk. Threats (i) Due to fragmented dairy farming in India, traceability is an issue with importers from USA and EU. (ii) Present embargo by Govt. of India on import of high milk yielding cows acts as a deterrent to improve productivity of milch cows. (iii) With increase in education level of young farmers, there is a tendency among the young folk to prefer white collar jobs over conventional dairy farming profession. (iv) With pressure on available land from food crops, there is hardly any scope of increasing cultivation of cattle feed. GROWTH OUTLOOK Milk production as well as production of milk products by organized sector is expected to grow at a robust pace. Higher rate of growth is expected in value added dairy products. Western dairy products, which currently occupy a small space, are likely to grow on a faster clip. Packaged milk and products are likely to progressively replace loose milk and products. Although growth rate in Dairy Industry is high, most dairy companies have weak profitability on account of extremely low value addition. Fresh milk and commodized derivatives (Ghee, Skimmed Milk Powder) account for nearly 85% of the revenue. But only 60% of industry profits are drawn from low operating margin units (5% or less). The margin picture changes dramatically as we move up the value chain, expanding 3 - 4x without a commensurate increase in capital cost. Clearly, a superior product-mix holds the key to profitability. A pre-requisite to building an attractive product portfolio is to have a strong supply backbone, based on direct procurement of milk from farmers. EXPANSION PLANS Company holds on to its long term vision of becoming a significant player in Dairy space. Geographical reach of existing products has been expanded. Company hoped to launch two new products in the year 2014-15 but due to some strategic reasons it did not do so. The matter is still on the active radar of the Company. During the year Company examined several acquisition proposals but somehow did not find a right fit. Efforts are on! RISKS & CONCERNS With rise in education level of rural population, young generation of farmers is showing apathy for their ancestral profession. There is a tendency in them to prefer white collar jobs over dairy farming in its present form. The possible answer to this lies is developing mechanized dairy farms with cattle population in hundreds and thousands. This concept is gradually catching up but there is a question-mark on financial viability of quite a many farms which have come into operation so far. Due to fragmented dairy farming in India, traceability is an issue with most European and US importers of milk products. This can be addressed only if large scale farm houses are developed. Government - both Central and State - have increased their focus on ensuring safe food products, including milk products, to the consumer. Rightly so! However, due to high handedness of food inspectors as also lack of adequate testing equipments in Government labs, lot of fear and confusion has been created in the minds of industry as well as consumers. This has to be addressed by Government by taking a pragmatic approach. Government should act in close liaison with Industry rather than enforcing an Inspector Raj. RAW MATERIAL SECURITY Company is sanguine about the fact that to sustain a value added product portfolio, it is highly imperative to have captive milk bank where milk is collected direct from the farmers. As it is, Company is one of the few ones who have more than a decade old village level collection system under which milk is collected from nearly 300 villages comprising of about 12000 farmers. To augment this effort, Company opened, during the year, two more chilling centres in Uttarakhand. Milk from both the Centres is collected and brought to the mother plant. HUMAN RESOURCE MANAGEMENT/ INDUSTRIAL RELATIONS The Company recognizes the contribution and importance of its employees in today's highly competitive environment and has been systematically developing their skills and empowering its employees. People are encouraged to take on new roles and expand their horizons. Training needs at different levels are identified through Performance Appraisal System and need based training programmes are regularly organized for all level of employees. In order to encourage leadership and problem solving qualities among workmen, the Company has helped establish Quality Circles. A number of job rotations are done to enhance employees' skills as well as to enrich their work experience. Industrial Relations remained cordial throughout the year under review. INTERNAL CONTROL SYSTEM The internal corporate audit team consisting of Chartered Accountants and external firm of Chartered Accountants to review the internal control system on a regular basis to improve its effectiveness besides verifying statutory compliances. Findings/audit reports along with the action taken reports are reviewed by the Audit Committee. The Audit Committee also reviews the effectiveness of Company's internal controls and regularly monitors implementation of audit recommendations. The Company has in place adequate internal controls commensurate with the size and nature of its operations. EXTRACT OF ANNUAL RETURN An extract of the Annual Return as on 31st March 2015 in the prescribed form MGT-9 is attached as Annexure-1 to this Report and forms part of it. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS The particulars of loans, guarantees or securities and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the financial statements. RELATED PARTY TRANSACTIONS During the financial year ended 31st March 2015, all the contracts or arrangements or transactions entered into by the Company with the Related Parties were in the ordinary course of business and on arm's length basis and were in compliance with the applicable provisions of the Companies Act, 2013 and the Listing Agreement. Further, the Company has not entered into any contract or arrangement or transaction with the Related Parties which could be considered material in accordance with the Policy of the Company on materiality of Related Party Transactions. In view of the above, disclosure in FORM AOC-2 is not applicable. DIRECTORS AND KEY MANAGERIAL PERSONNEL With enactment of the Companies Act, 2013, all the three Independent Directors of the Company, namely - Shri R. L. Saha, Shri R. C. Jain and Shri R. C. Periwal, were appointed by the members at the Annual General Meeting (AGM) held on 22nd September 2014 under Section 149 of the Act for a term of one year, two consecutive years and five consecutive years respectively commencing from the date of the AGM. All Independent Directors of the Company have given declarations that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013 and also Clause 49 of the Listing Agreement with the Stock Exchange. Shri D. B. Doda retires by rotation and being eligible offers himself for re-appointment at the ensuing AGM. The Board of Director appointed Smt. Sharda Devi Singhania as an Additional Director of the Company with effect from 27th March 2015, who shall hold office up to the date of the ensuing AGM. The Company has received requisite Notice from a member of the Company proposing the name of Smt. Sharda Devi Singhania for appointment as a Director, liable to retire by rotation at the ensuing AGM. The Board of Directors recommends appointment as aforesaid. Further, in terms of Section 203 of the Companies Act, 2013, Shri Milan Wahi, Chief Executive Officer, Shri N. C. Baheti, Chief Executive (works), Shri Gaurav Jain, DGM (F&A) and Shri Gaurav Kumar Kanodia, Company Secretary were appointed as "Key Managerial Personnel" (KMP) of the Company on their existing terms and conditions. Shri Milan Wahi, ceased to be Chief Executive Officer of the Company, on the close of work on 7th August 2015, consequent upon his resignation. CORPORATE SOCIAL RESPONSIBILITY Though it was not mandatory for the Company to undertake Corporate Social Responsibility activities during the year, Company, at its own, continued to do such activities in the neighbourhood of its plant. Objective of such activities is to improve socio-economic conditions of the farmers and to assist them to improve productivity of their animals so that their income levels go up. The Company has framed Corporate Social Responsibility (CSR) Policy in accordance with the provisions of the Companies Act 2013 and rules made thereunder. A detailed report on Company's CSR activities along with the annual report on the CSR activities undertaken by the Company during the financial year under review, in the prescribed format is annexed to this Report as Annexure-2. AUDITORS (a) Statutory Auditors and their Report M/s Lodha & Co., Chartered Accountants, have been appointed as Auditors of the Company to hold the office from the conclusion of the 21st Annual General Meeting held on 22nd September 2014 until the conclusion of the 24th Annual General Meeting to be held in year 2017, subject to ratification of the appointment by the members at the respective AGMs to be held in the years 2015 and 2016. Accordingly, matter relating to the appointment of the Auditors will be placed for ratification by members at the forthcoming Annual General Meeting. The observations of the Auditors in their report on Accounts and the Financial Statements, read with the relevant notes are self explanatory. (b) Secretarial Auditor and Secretarial Audit Report Pursuant to the provisions of Section 204 of the Companies Act, 2013, the Board of Directors appointed Shri Namo Narain Agarwal, Company Secretary in Practice as Secretarial Auditor to carry out Secretarial Audit of the Company for the financial year 2014-15 . The Report given by him for the said financial year in the prescribed format is annexed to this Report as Annexure-3. The Secretarial Audit Report does not contain any qualification, reservation oradverse remark. (c) Cost Auditor and Cost Audit Report Pursuant to order of the Central Government dated 30th June 2014, your Company did not fall within the ambit of Cost Audit for the year 2014-15. However, pursuant to the revised order of the Central Government dated 31st December 2014, Cost Audit of the Cost Records of the Company is mandatory from the financial year starting 1st April 2015 and M/s Sanjay Kumar Garg & Associates, Cost Accountants have been appointed as Cost Auditors of the Company to conduct cost audit of cost records for the financial year 2015-16 subject to ratification of their appointment and remuneration at the forthcoming Annual General Meeting of the Company. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS During the financial year under review, there were no significant and material orders passed by the Regulators or Courts or Tribunals which would impact the going concern status of the Company and its future operations. CONSERVATION OF ENERGY ETC. The details as required under Section 134(3)(m) read with the Companies (Accounts) Rules, 2014 is annexed to this Report as Annexure-4 and forms part of it. PARTICULARS OF REMUNERATION Information in accordance with the provisions of Section 197 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 regarding remuneration and other details is annexed to this Report. However, as per the provisions of Section 136 of the said Act, the Report and Accounts are being sent to all the members of the Company and others entitled thereto, excluding the aforesaid information. Any member interested in obtaining such particulars may write to the Company Secretary at the registered office of the Company. The said information is available for inspection at the Registered Office of the Company during working hours. CORPORATE GOVERNANCE Corporate Governance - including details pertaining to Board Meetings, Nomination and Remuneration Policy, Performance Evaluation, Risk Management, Audit Committee and Vigil Mechanism. Your Company reaffirms its commitment to the highest standards of corporate governance practices. Pursuant to Clause 49 of the Listing Agreement with the Stock Exchange, a Management Discussion and Analysis, Corporate Governance Report and Auditors Certificate regarding compliance of conditions of Corporate Governance are made a part of this Report. The Corporate Governance Report which forms part of this Report, also covers the following: a) Particulars of the Six Board Meetings held during the financial year under review. b) Policy on Nomination and Remuneration of Directors, Key Managerial Personnel and Senior Management including, inter alia, the criteria for performance evaluation of Directors. c) The manner in which formal annual evaluation has been made by the Board of its own performance and that of its Committees and individual Directors. d) The details with respect to composition of Audit Committee and establishment of Vigil Mechanism. e) Details regarding Risk Management. DEPOSITS The Company has not taken any deposits from the public. DIRECTORS' REPONSIBILITY STATEMENT As required under Section 134(3)(c) of the Companies Act, 2013, your Directors state that:- (a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; (b) the accounting policies have been selected and applied consistently and judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period; (c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the said Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (d) the annual accounts have been prepared on a going concern basis; (e) the internal financial controls to be followed by the Company have been laid down and that such internal financial controls are adequate and were operating effectively; and (f) the proper systems to ensure compliance with the provisions of all applicable laws have been devised and that such systems were adequate and operating effectively. CAUTIONARY STATEMENT Management Discussion and Analysis Report contains forward looking statements which may be identified by the use of words in that direction or connoting the same. All statements that address expectations or projections about the future, including, but not limited to statements about the Company's strategy for growth, product development, market position, expenditures and financial results are forward looking statements. These are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company's actual results, performance or achievement could thus differ materially from those projected in any such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise such forward looking statements, on the basis of any subsequent development information or events. ACKNOWLEDGEMENT The Directors wish to thank the Customers, Shareholders, Banks, Government Authorities, Financial Institutions, Dealers and Suppliers for their continued support. The Board also place on record its sincere appreciation of the hard work, put in by the employees at all levels during the period under report. On behalf of the Board of Directors D.B. DODA (Director) R.C. Periwal (Director) Place : New Delhi Date : 10th August 2015 |