parag milk foods ltd Management discussions

Economic Overview

Global economic overview and outlook

In CY22, the global economy experienced positive changes with easing inflationary pressures and lower energy, commodity, and food prices. The International Monetary Fund (IMF) expects global economic growth to be 3.4% in CY22, down from 6.1% in CY21 but still healthy compared to pre-pandemic levels. Private consumption and investment exceeded expectations due to pent-up demand and improved labour markets.

However, the global economic situation worsened as anticipated risks materialised. Global output contracted in the second quarter due to downturns in China and Russia, and US consumer spending fell short of expectations, magnifying the pandemics impact on the world economy.

Inflation became a significant issue globally, particularly in the US and major European economies. This led to tighter financial conditions and added to countries economic challenges. China also experienced a more severe slowdown due to COVID-19 outbreaks and lockdown measures, while the war in Ukraine strained the global economy further.

The IMF reported a global headline inflation rate of 8.8% in CY22, the highest since 1982. This increase was caused by supply disruptions from the Russia-Ukraine War and expansive monetary policies implemented to address the pandemic.

While some economies saw higher domestic inflation, overall inflation is expected to gradually decrease as central banks pursue their targets. Concerns remain about persistent inflationary pressures driven by entrenched expectations and pricing behaviour.

There has been some price relief, with declining fuel and non-fuel commodity prices in the US, Euro area, and Latin America. However, core inflation remains elevated in most economies due to earlier cost shocks and tight labour markets.

The reopening of the Chinese economy provided growth momentum, easing global supply chain pressures and reducing shipping costs. Consumer demand is expected to increase as excess savings are spent.

The labour market remains tight in most countries, supporting household incomes and consumer spending. Although real incomes are squeezed by high inflation, purchasing power is projected to recover gradually as wage increases outpace inflation in the future.

The IMF predicts that the headline inflation rate will be lower in 84% of nations in CY23 compared to CY22. Global inflation is also expected to drop from 8.8% in CY22 to 6.6% in CY23 and 4.3% in CY24.

Global GDP is projected to slow to 2.8% in CY23, before settling at 3.0% in CY24, reflecting higher central bank rates to combat inflation. The decline in growth in CY22 will be driven by a slowdown in advanced economies, while emerging markets and developing economies, led by China, are expected to pick up. The projected improvement in CY24 represents a gradual recovery from the war effects and subsiding inflation in both groups of economies.

(Source: World Bank, International Monetary Fund)

Indian economic overview and outlook

The Indian economy showed resilience despite global challenges and headwinds, including the Ukraine- Russia war and rising prices of food, fuel, and fertilizers faced by advanced countries. Despite these factors leading to inflation and monetary policy tightening in those countries, Indias economy grew by 7.2% in FY23, showcasing its ability to withstand global challenges on the back of increased private consumption and capacity utilization across sectors.

Exports of goods and services experienced significant growth compared to the previous year, although high oil prices led to a widening merchandise trade deficit. However, concerns over the current account deficit and financing eased as the year progressed, with comfortable foreign exchange reserves and low external debt.

Indias overall exports surged by 14% during FY23, reaching a total value of $775.87 Billion, a substantial increase of approximately USD 100 Billion compared to the previous year. However, retail inflation in CY22 stood at 6.07%, surpassing the Reserve Bank of Indias upper tolerability level of 6%. This was mainly due to the spike in food prices caused by rising crude oil prices.

The Reserve Bank of India promptly raised interest rates to mitigate the impact of inflation on economic activity. The Indian rupee remained stable against the US dollar, thanks to conservative external borrowing policies and efficient management of foreign exchange reserves. Indian capital markets performed well, with Indian stocks outperforming both emerging markets and global peers.

As per KPMGs Global Economic Outlook, the Indian Union Budget CY23-24 aims to enhance the disposable income of taxpayers, which is anticipated to stimulate consumption by encouraging discretionary spending. Furthermore, the budgets emphasis on robust capital expenditure, with a significant increase of 37.4% compared to the previous fiscal year, is expected to drive growth, investments, and the creation of job opportunities.

Various international agencies, including the IMF and World Bank, consistently project India as the fastest- growing major economy. These organisations hold optimistic growth forecasts and believe that India is well-positioned to navigate any potential global challenges in CY23.

(Source: World Bank, International Monetary Fund, Union Budget CY23-24)

FMCG industry

Indias Fast-Moving Consumer Goods (FMCG) sector is poised for significant growth in the coming years. With favourable demographics and an increase in income levels, the sector is expected to reach new heights. Currently, the FMCG sector is the fourth-largest sector in the Indian economy.

In FY22, the rural Indian economy provided more than 35% of the total annual FMCG sales, compared to the urban segments 65% contribution. Good crop and government expenditure are anticipated to support a revival in rural demand in FY24. The industry had value growth of roughly 8.4% from January through June 2022 because of price increases brought on by inflationary pressures. Price increases across product categories will offset the impact of rising raw material prices, along with volume growth and a resurgence in demand for discretionary items, which are driving growth.

The FMCG sector in India is growing at an unprecedented pace and is expected to continue its upward trajectory in the coming years. The rise in rural consumption, favourable demographics, and increased income levels will further boost the markets growth. With the advent of modern trade channels, the FMCG sector is set to witness a significant increase in the number of households shopping for FMCG products, further driving the sectors growth.

The FMCG market in India is predicted to grow at a CAGR of 14.9%, reaching USD 220 Billion by CY25 from USD 110 Billion in CY20. By CY25, it is expected to become the fifth-largest FMCG market globally.

Dairy industry overview

Global dairy industry

According to IMARC report, the global group predicts the global dairy industry to reach USD 1,243 Billion by CY28, with a compound annual growth rate (CAGR) of 5.79% from CY22 to CY28. Meanwhile, worldwide milk production is anticipated to increase by 0.7% from the previous season to 12.44 Billion litres for FY23, according to the Agriculture and Horticulture Development Board.

However, the global dairy industry is expected to face challenges, as demand is likely to remain low due to sluggish economic growth. However, there is some potential for improved import demand from China later in the year, which could provide some relief to the industry.

Domestic demand for agricultural products is also expected to be impacted by a squeeze in consumer incomes. This is likely to result in lower sales for all agricultural products. As a result, farmers may face further financial pressure in the short term.

Farmgate prices are expected to decline in the first half of CY22 due to the above factors. However, there is some potential for this to improve in the second half of the year if inflation subsides and demand recovers.

(Source: IMARC)

Indian dairy industry

Milk stands as the largest agricultural product in India, making a 22% contribution to the agricultural GDP. The nation has secured the top position as the largest milk producer globally, contributing a significant 24% of the worlds total milk production in CY21-22.

This remarkable achievement is backed by a staggering 51% increase in milk production during the last eight years, between CY14-15 and CY21-22, taking the total milk production of India to 221.06 Million Tonnes in CY21-22. Additionally, the production has increased by 5.29% compared to the previous year, CY20-21.

According to the data provided by Invest India, Rajasthan, Uttar Pradesh, Madhya Pradesh, Gujarat, and Andhra Pradesh are the top five milk-producing states in India, contributing 15.05%, 14.93%, 8.6%, 7.56%, and 6.97%, respectively. Together, they account for 53.11% of the total milk production in the country.

The data also indicates that the export of dairy products has witnessed a growth of 19.45%, with exports rising to USD 471 Million during the period April-December 2022, as compared to USD 395 Million in the same period of the previous fiscal year.

As per IMARC, Indias milk production has witnessed remarkable growth, surging from 17 Million Metric Tonnes in 1951-52 to 209 Million Metric Tonnes in CY20- 21. This exceptional progress has positioned India as the leading global milk producer. With continued expansion in recent years, India is set to solidify its status as the worlds largest milk producer and consumer.

The government has implemented various initiatives to enhance livestock productivity, significantly boosting milk production. Additionally, factors such as economic revival, increased per capita milk consumption, evolving dietary preferences due to urbanisation, and consistent government support for the dairy industry are expected to further propel milk consumption in India.

The organised dairy industry is expected to see strong revenue growth in FY23. This growth will be driven by rising demand from institutional segments, increasing consumer preference for branded packaged dairy products, higher urban income, and greater per capita consumption of value-added dairy products.

According to the data released by the National Dairy Development Board (NDDB), the average daily per capita consumption of milk and milk products in rural and urban areas of India was 280.5 ml and 402.3 ml, respectively, in CY19. NDDB predicts that by CY30, the per capita daily consumption of milk and milk products in rural areas is expected to reach 404 ml, while in urban areas, it is expected to reach 592 ml.

(Source: NDDB, IMARC)

Growth drivers

Economic growth and urbanisation driving demand for dairy products in India

India is currently experiencing strong and promising economic growth, leading to increased disposable incomes and a greater demand for dairy products. This trend is further fueled by the growing middle class and urban population, which drive demand for organised dairy products. Additionally, the large working population is contributing to this trend with a rise in disposable incomes and a growing preference for ready-to-eat or drink dairy products.

Direct-to-customer deliveries and building customer relationships

Direct-to-customer deliveries have been a game- changer for the dairy industry in India, enabling dairy producers to bypass intermediaries and connect directly with their customers. This reduces costs for dairy producers and helps them build stronger relationships with their customers and gain better insights into their preferences and needs.

Shift in dietary patterns towards milk and milk- based products

As Indias dietary patterns continue to evolve, there has been a noticeable shift towards decreased consumption of cereals and an increase in the consumption of milk and milk-based products. This is especially important given the large vegetarian population in India, who rely heavily on milk as a key source of protein.

The emergence of niche products in the dairy industry

The dairy industry in India has seen the emergence of niche products, which have disrupted the long- standing focus on cow and buffalo milk-based products. This shift has been driven by rising internet penetration and growing consumer awareness, with consumers increasingly seeking healthier and more sustainable alternatives.

Growth of the value-added market in India

The value-added market in India has experienced significant growth in recent years, with roughly half of the milk produced in India consumed as liquid milk, while the rest is used to produce a range of value- added products. As consumers become more health- conscious and their spending capacity increases, they are willing to invest in higher-quality food products, driving the growth of the value-added market in India.

Government initiatives

Infrastructure investment in processing, chilling, logistics, cattle feed and other areas are crucial to support the growth of the dairy market. Moreover, there are promising opportunities in untapped areas such as value-added dairy products, organic/farm- fresh milk and exports. Central and State Governments have introduced various incentives to encourage infrastructure development to support the industry. These include:

1. Animal Husbandry Infrastructure Development Fund (AHIDF)

2. National Livestock Mission (NLM)

3. Livestock Health and Disease Control (LH&DC) Scheme

4. National Animal Disease Control Programme (NADCP)

5. Rashtriya Gokul Mission

6. National Programme for Dairy Development (NPDD)

7. Dairy Entrepreneurship Development Scheme (DEDS):

The Department of Animal Husbandry and Dairying received an allocation of f 4,327.85 Crore in Union Budget CY22-24, an increase from f 3,105.17 Crore in CY22-23 revised estimates, to significantly help the sector boost its growth.

(Source: Invest India)

Exploring Category Market Potential

• Ghee is a popular dairy product in India, commonly used for cooking and making traditional sweets

• Urban consumers, especially those health- conscious, are increasingly favouring ghee, particularly cow ghee, for its perceived health benefits.

• Ghee is preferred over other fats/oils due to its high content of easily absorbable medium-chain fatty acids, promoting energy production in the liver.

• Ghee boasts a longer shelf life due to its antioxidants and low moisture content.

• Rising health awareness and evolving dietary preferences are fueling the demand for ghee in India.

Cheese Marketvaluein;f(Billion)

• Cheese is a rapidly growing segment in the Indian dairy market, previously dominated by unorga- nized players, mainly offering paneer.

• The proliferation of food service outlets like Pizza Hut and Dominos, along with changing eating habits, is driving the demand for cheese.

• Notably, there are approximately 1,195 Dominos outlets in 276 cities and 400-500 Pizza Hut outlets in about 100 Indian cities.

• Growth factors include increasing disposable in- come, government initiatives, and the expanding market for processed and cheddar cheese, which holds a 47.7% market share.

• Mozzarella and other cheese variants also con- tribute significantly to this growth.

Whey protein

Market value in f(Billion)

• Whey is the liquid byproduct of milk processing, left after removing casein and fat from cheese, paneer, and chhana production.

• Previously considered waste, whey is now pro- duced in larger quantities due to the increased production of indigenous milk products.

• Recognizing its nutritional and functional value, companies now convert whey into products like whey powder, lactose, high-protein whey pow- ders and whey protein concentrate.

• These whey-derived products have diverse ap- plications, including infant foods, weaning foods, bakery products, confectionery, and dairy items.

Lactose

• The Indian lactose market size is ~40,000-45,000 MT and is valued at f 5,000 Million (~USD 70 Million)

• PMFL has introduced high-potential lactose prod- ucts that have added value to the Companys cheese and whey business.

• The Company has set up a state-of-the-art facil- ity with a capacity to manufacture 40 MT of lac- tose per day.

Paneer

Market valuein ^(Billion)

• Paneer, a traditional cottage cheese product, is primarily consumed in the northern and western regions of India.

• Historically, the unorganised sector dominated the market for paneer.

• Organised players in the market includea GCMMF, Mother Dairy, and Punjab Milkfed

Curd

Market value in f(Billion)

• • Dahi, also known as curd, holds a significant place in the Indian diet.

• It is consumed in various forms, including plain dahi as a standalone dish or as an accompani- ment to meals.

Liquid milk

Market value in f(Billion)

• The liquid milk segment holds the largest share of the Indian dairy sector.

• A significant portion of liquid milk (57.2%) is sold through the unorganised sector.

• In the organised sector, most milk is sold in the form of polypacks (pouch milk), with a shelf life of approximately 48 hours.

UHT

Market value in f(Billion)

• UHT (ultra-heat treated) milk undergoes a heat- ing process at a minimum temperature of 135?C to eliminate any potentially harmful microorgan- isms present in the milk.

• The sterilised milk is then packaged and sold in the market.

Skimmed Milk Powder (SMP) and Whole Milk

Powder (WMP)

Market value in f(Billion)

• Skimmed milk powder holds a significant share of the Indian dairy market.

• It serves as a substitute for liquid milk, especially during the summer months when milk production declines in India.

• Shortfalls or oversupply of skimmed milk powder have a cascading effect on the retail liquid milk market.

Business overview

Parag Milk Foods Limited (PMFL) distinguishes itself from other dairy players through its exceptional strengths and innovative business model. PMFL operates as an integrated player, encompassing dairy farming, processing, and branding. This presence across the entire value chain empowers the Company to exercise stringent control over processes and maintain exceptional product quality, resulting in strong brand recall and customer loyalty. The robust infrastructure developed by PMFL also acts as a significant entry

barrier for competitors, further solidifying its unique position in the industry.

One of PMFLs primary competitive advantages is its business strategy, which meets an astounding 80% of consumers daily dietary needs. The Companys wide variety of products are part of many meals, including breakfast, lunch and dinner, and form an essential part of everyday consumption.

With 4.6 million retail touchpoints, 4,500+ distributors, 500+ super stockists, and 29 depots spread out over India, PMFL has a substantial distribution network. Additionally, the Company has developed strong partnerships with more than 5 lakh farmers worldwide and receives 100% cow milk from important milk belts. The Company has the largest automated dairy farm, which is home to over 3,000 Holstein Friesian cows, further demonstrating its dedication to quality. The company has successfully carved out a niche for itself.

In order to serve various economic sectors, PMFLs portfolio includes well-known PAN India mass affluent brands. Gowardhan Fresh Milk, Gowardhan Dahi, Gowardhan Buttermilk, and Milko Cheese are some of the companys popular goods that cater to the mass market. PMFL supplies its flagship brand Gowardhan Ghee, the distinctive "Swarna" ghee, and a wide selection of cheeses to the mass-affluent market. With its new-age businesses under the brand - Pride of Cows and Avvatar, PMFL also serves the upper class of the economy.

A key driver of PMFLs success is its strategic focus on value-added dairy products. Approximately 70- 80% of PMFLs portfolio comprises value-added dairy products, including ghee, cheese, and beverages. Over the years, PMFL has witnessed significant growth in the share of value-added dairy products, expanding from 50% a decade ago to around 70% currently. his emphasis on value added products is the key growth driver for the company.

Product performance

In FY23, PMFLs product mix comprises a range of offerings that cater to diverse consumer preferences:

1. Milk: Milk contributed to 9.4% of PMFLs product mix. This includes various types of milk, such as toned, full-cream, and low-fat, providing essential nutrients and nourishment.

2. Value-Added Milk Products: A significant portion of PMFLs product mix, amounted to 69.3%, is dedicated to value-added milk products. These products undergo additional processing or have specific ingredients added to enhance their nutritional value or taste.

3. New Age Products: Accounted for 3.3% of the product mix, PMFL offers a range of new-age products that align with evolving consumer trends and preferences. Our new age business includes Pride of cows - Premium Dairy brand and Avvatar- whey protein business

4. SMP (Skimmed Milk Powder): Skimmed Milk Powder accounted for 18% of PMFLs product mix. SMP is obtained by removing the fat content from milk, resulting in a product with an extended shelf life and multiple uses. It is often used as an ingredient in various food applications, such as bakery products, confectionery, and dairy-based desserts.

Overall, PMFLs product mix in FY23 demonstrates a comprehensive range of dairy offerings, with a focus on value-added milk products and an understanding of emerging market trends.

Brands

Gowardhan

Gowardhan is a brand that caters to Indian households, living in both urban and rural regions. Its range of products includes everyday dairy items that consumers are familiar with, such as Ghee, Milk, Paneer, Dahi, Curd, Butter, Dairy Whitener, and Gulab Jamun Mix.

Go

The Go brand caters to modernised and westernised families who lead busy and active lives. Gos target audience comprises young working couples and urban-centric families with well-travelled backgrounds and active children.

Pride of Cows

Pride of Cows, a brand under the PMFLs umbrella offers an exceptional farm-to-home milk experience that is truly one-of-a-kind. It originates from Indias most advanced dairy farm, and marketed as Single origin Premium dairy brand.

Avvatar

Avvatar is PMFLs sport nutrition brand. PMFL holds the distinction of being the first Company in India to introduce fresh vegetarian whey protein. Since its inception in CY17, Avvatar brand has garnered enthusiastic consumer feedback and widespread acceptance in the Indian market.

Bhagyalaxmi Dairy Farm - 100% subsidary of PMFL

The Company has implemented backward integration through its own Bhagyalaxmi Dairy Farm, which is recognised as Indias most advanced farm spanning over 35+ acres and equipped with top-notch international technology. This farm is home to over 3,000 cows and serves as the foundation for the premium offerings sold under the brand Pride of Cows. These high-quality products are targeted towards SEC A+ consumers and include whole milk, fat-free milk, ghee, paneer, and curd. The Company has been a pioneer in the farm to home concept, experiencing remarkable growth as a result.

The Company has ambitious expansion plans to further strengthen PMFLs presence in the backend operations and meet the increasing demand for fresh and unadulterated premium dairy products. The goal is to enhance milk production capacity to 140,000 litres in the future, accompanied by a cattle capacity of approximately 15,000.

Pride of Cows product portfolio

Our brand Pride of Cows started with premium milk proposition and has over the years expanded its product portfolio to now include- Pride of Cows Milk, Pride of Cows - Fat free milk, Pride of Cows- Ghee, Pride of Cows - Paneer.

Expansion of Bhaygyalaxmi Dairy Farm

• To strengthen PMFLs backend presence and cater to the growing needs for fresh, unadulterated premium dairy products, the company plans to expand its dairy vertical.

• The Green field expansion is spread across 500 acres of land parcel situated 40 kms from Nashik at Bota. It would be building up a world class dairy farm; that will house around 15,000 cows, almost 5x than the current levels, and the facility at its peak is expected to churn out around 1.4 lakh litres of milk everyday. The project has already started and would be completed by 2027. This expansion is aimed at seeding the market with increased milk production.

Bhagyalaxmi Biosceince division

The Bhagyalaxmi Bioscience Division studies various formulations for quality cattle feed to improve milk yields as well as its sustainability. Here, waste matter is converted into useful marketable material, such as manure. The facility also has its own biogas plant with a 600 m3 power generation capacity, used for captive consumption.

Financial highlights

FY23 has witnessed record performance across business verticals and has posted highest ever revenue; led by volume, value, and product mix. The superlative performance was driven by extensive distribution reach and outlet coverage, coupled with impact led marketing and branding campaigns and premium pricing in flagship products.

Highlights of the year

• Consolidated Revenue grew by 39.6% to f 28,926.2 Mn on the back of strong growth in all our brands. Gowardhan, Go Cheese and Avvatar experienced volume growth of 25%, 19% and 69% respectively.

• During the year, the industry encountered headwinds in the form of high inflation which resulted in a surge in milk prices. The high milk inflation was the result of (a) Lumpy Skin Disease resulting in lower output and supply (b) Elevated Energy prices (c) Tight global supply on account of the Russia-Ukraine war and demand met by exports.

• Despite the turmoil in the industry; (PMFL) stood resilient and the companys planned purchase procurement increased by 20% Y-O-Y. On average, the company handled around 18 Lakh litres of milk per day signifying its meaningful relationship and strong network with the farmer fraternity.

• The share of new age business is 3.3% while liquid milk is 9.4% and value-added Products are 69.3% of total revenue, and Skimmed Milk Powder was 18% YoY.

• Gross Profit stood at f 5694.3 million and margin expanded by 610 basis points - aided by content- led impact marketing and branding activities across a multitude of TVC programming.

• EBITDA stood at f 1634.9 million, while the margins stood at 5.6%.

• Profit After Tax stood at f 532.5 million.

Core categories: Core categories of Ghee and Cheese have seen continuous traction throughout the year and have posted a growth of 43.5% Y-o-Y, led by volume growth of 21.5% YoY.

New age business- Brand Avvatar: The protein portfolio continued its momentum and recorded robust 123% growth YoY, led by 69% volume growth YoY. The protein portfolio continued to record market share gains.

Premium Dairy Business: In line with the companys premiumization agenda- the brand Pride of Cows continues to witness healthy traction. The brand is aggressively expanding its product portfolio as well as distribution footprint and now is present across five cities.

Distribution reach: The overall business growth was broad-based with all the distribution channels contributing to the performance. For FY23, the General Trade, Modern Retail and HoRECA verticals posted a growth of 37% YoY, 42% YoY, and 35% YoY respectively. The overall retail presence expanded by 30% YoY to reach 4.6 lac retail touchpoints.

Brand building initiatives:

The company has strengthened its brand equity reach by adopting unique content led impact marketing and branding activities. Some of the recent activities include participation in " Kaun Banega Crorepati (KBC)" - this impact campaign has enabled it to widen its reach in tier 2 and tier 3 towns and cities through strong brand messaging Garv Se Gowardhan. In keeping with the core theme" Make it amazing" the brand Go Cheese has participated in the most popular show " Anupama", which has enabled the company to gain strong consumer connect.

Ecommerce: E-commerce business has grown by ~2.2x on a YOY basis. It is one of the crucial pillars of the distribution strategy as it helps the company to achieve higher visibility to capture market share.

Procurement: Milk inflation continued to persist; the milk and fat prices remained elevated for almost 18 months. The milk procurement cost has increased by 17.5% on a YOY basis.

Opportunities and risks

Risks	Mitigation measures
Sourcing risk: Inadequate supply or lack of availiblity of milk may lead to delay in production and impact brand equity.	A long-lasting relationship with farmers, which enables the Company to ensure adequate inventory at all times. A strong inventory management system enables the Company to mitigate supply risk. During the pandemic, when milk supply was more than demand, the Company, to secure its farmers, continued to convert surplus milk to higher shelf-life products.
Sustainability risk: Corporate citizenship has become significant as both individual and institutional investors begin to seek out companies that have socially responsible orientations such as their environmental, social, and governance (ESG) practices.	The Company has in place programmes to reduce energy consumption by increasing the use of renewable energy, circular economy and water stewardship. The Company has designed and is in process of implementing a roadmap to meet the objectives in a manner that mitigates its ESG risk. Further, dossier on ESG framework is covered in BRSR Report and ESG section included in this Annual Report.
Concentration risk: Dependence of business on only four states reduces the robustness of business as any unforeseen changes in the economy of these states may hamper sustainability.	The Companys plants are strategically located which provides a balance to its overall business operations and also efficiently compliments the sales & distribution network. Additionally, the Company is constantly working to mitigate these risksby expanding business to adjacent areas and similar geographies.
Redundancy risk: With changing times the market trends rapidly evolve which necessitate the Company to keep in pace with changing consumer needs and accordingly innovate flavours and new products/ categories.	The robust R&D team of the Company is responsible for keeping a close eye on emerging trends and formulating new products to avoid the risk of redundancy.
Compliance, Regulatory & Reputation risks: Any unforeseen changes in the legal and regulatory environment may lead to non-compliance with local and global laws and regulations. This may result in erosion of brand equity and may result in claims or enforcement.	Holistic compliance framework developed, and robust SOPs defined for quality checks with defined guardrails and deviation parameters for different geographies/business units. In addition, audits are conducted by third parties and an in-house team from time to time. All our manufacturing facilities undergo regular food safety audits/ quality checks safety audits along with continuous monitoring and upgradation.
Competition risk: The Company faces immense competition from both domestic and international players given the promising growth prospects of the dairy industry.	Long legacy, strong brand equity, unparalleled bond with all stakeholders and undivided focus on innovation gives a strong edge to the Company over the competition
People risk: Its important to attract and retain talent by appropriate succession planning and competency management to support business objectives.	The Company has taken initiatives to build a progressive culture and engaged workforce, spanning employee wellbeing, diversity and inclusion, learning and development and career progression.

Human resources

Human capital is the most critical resource of the Company and it plays an inevitable role in business continuity and success. A competent HR policy framework enables the Company to attract skilled talent, offer adequate training and skill development programs, ensure employees are motivated and create an environment conducive to their personal and professional growth. The Company constantly strives to upgrade its processes and methods and leverage innovation to enhance the capabilities of its workforce. Our HR policies foster the all-round development of employees, and build a culture of mutual trust and appreciation. Increased efficiency and involvement, in turn, enable to align employee values, goals and mission with that of the organisation. Regular skill development programs and training initiatives lead to stronger employee connections and superior performance. Selected employees are further groomed under the guidance of prominent institutes. Several rewards and recognition programs and employee benefit schemes ensure high levels of employee engagement and motivation. Such positive work culture enables the Company to attract and retain key talent. The Company strives hard to maintain a safe, conducive and productive environment to foster a culture of constant learning, self-growth and satisfaction for all employees. As of March 31, 2023, the Company had 1,716 employees.

Internal Control Systems and their Adequacy

Comprehensive internal control mechanism has been deployed by the Company with adequate policies and procedures for the governance of orderly and efficient conduct of its business, including adherence to the Companys policies, safeguarding its assets, prevention, and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures. To encourage a strong culture of integrity, ethics and management efficiency; provide reasonable assurance on the efficient conduct of business and ensure the safeguarding of assets, reliability of accounting practices, prevention of frauds/ errors and compliance with the applicable regulatory requirements, the Company has robust internal financial control (IFC) systems in place to commensurate with the size and industry in which it operates. The IFC systems are effectively managed by the Board of Directors who set the guidelines and verify their adequacy, effectiveness and application. To keep a close eye on the overall governance processes within the Company, including the application of a systematic risk management framework, a regular assessment of the effectiveness of IFC systems is conducted.

The Audit Committee and Risk Management Committee, among other things, evaluate and monitor the internal controls, processes and risk management framework basis the quarterly reports submitted by the Internal Auditors. Based on the Committees recommendations, the internal controls are constantly upgraded. Any deviations from the standard are corrected and measures are taken to strengthen the internal control framework further. Accordingly a quarterly report is presented to the Board for review and remarks if any. To ensure the well-being of its employees, the Company has a well-designed code of conduct. It is reviewed and monitored at regular intervals and in case of violations, prompt action is taken.

Recently, the Company appointed M/s. Deloitte Touche Tohmatsu India LLP as its Independent Internal Auditor to strengthen the internal control system on the footing of risk-based approach with an aim to strengthen the internal control system, improve performance and operating efficiency of the Company.

Key Financial Ratios

Particulars	Numerator	Denominator	FY 2022-23	FY 2021-22	Percentage Variance from previous year
Current Ratio (in times)	Current assets	Current liabilities	1.92	1.59	21%
Debt - Equity Ratio (in times)	Debt	Total shareholders equity	5.17	5.56	(7%)
Debt Service coverage ratio* (in times) 1	Net Profit before non cash operating expense and interest	Current debt	1.31	(2.28)	(157%)
Return on equity (in %) 2	PAT	Total average equity	50%	(595%)	(108%)
Inventory Turnover Ratio (in times) 3	Sales	Average inventory	5.50	3.53	56%
Trade receivables turnover ratio (in times) 4	Revenue from operations	Average trade receivables	19.71	14.58	35%
Trade payables turnover ratio (in times) 5	Adjusted expenses	Average trade payables	12.78	7.04	82%
Net capital turnover ratio (in times)	Revenue from operations	Working capital	5.35	6.20	(14%)
Net profit ratio (in %) 6	Net profit	Revenue	2%	(25%)	(107%)
Return on capital employed (in %) 7	PBIT	Capital employed	13.15%	(96.11%)	(114%)
Return on investment (in %)	Interest income, net gain on sale of investments and fair value gain	Average investments	1.71%	10.00%	(83%)

Explanation for variance exceeding 25% :

1. The debt service coverage ratio positive due to net profit during the year.

2 Return on equity increased due to infuse/increased in Equity capital.

3 Inventory turn around times increased during the year. Group is further looking to increase the turn around times. 4. Trade receivable turnover ratio increased during the year. Its a positive sign towards better receivable management.

5 The Group has reduced the credit days to get better competitive rate and quantity to mitigate the demand.

6 Net Profit Ratio is increased due to increase in Profit.

7. Return on capital employed is increased due to increase in profit during the year.