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Hindustan Foods Ltd.

BSE: 519126 Sector: Agri and agri inputs
NSE: HNDFDS ISIN Code: INE254N01018
BSE 00:00 | 14 Oct 2037.30 -2.70
(-0.13%)
OPEN

2042.75

HIGH

2095.80

LOW

2025.05

NSE 00:00 | 14 Oct 2031.25 -11.80
(-0.58%)
OPEN

2033.95

HIGH

2055.00

LOW

2024.20

OPEN 2042.75
PREVIOUS CLOSE 2040.00
VOLUME 518
52-Week high 2580.00
52-Week low 821.00
P/E 99.72
Mkt Cap.(Rs cr) 4,319
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 2042.75
CLOSE 2040.00
VOLUME 518
52-Week high 2580.00
52-Week low 821.00
P/E 99.72
Mkt Cap.(Rs cr) 4,319
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Hindustan Foods Ltd. (HNDFDS) - Chairman Speech

Company chairman speech

There are moments in life when we sit back reflect on the time that went by and lookwithin to understand ourselves better. Such times of contemplation often lead to criticalself-analysis and discoveries of potential. For us at HFL the year 2020-21 was one ofintrospection where we found opportunities in adversities.

The pandemic has proven (and unfortunately continues) to be a tragedy of epicproportions impacting humanity with lost lives and livelihoods. However amidst all thetragic stories there have been stories of heroism that have arisen from this adversity!Deservedly a lot has been written and said about the entire frontline healthcarefraternity. But I would also like to pay gratitude to some of these unsung heroes.

The pandemic-induced lockdowns announced worldwide underlined the importance offactories' and supply chain management. From PPE kits to testing kits basic staples tomedicines companies were forced to differentiate based on the manufacturing anddistribution might. Companies who were able to handle the disruptions better weresuccessful in getting their product to the Customer and meet the demand sometimes at theexpense of other brands which was lost not due to the lack of demand but due to lack ofsupply!

The unsung heroes in this frontline were the workers who continued to produce the‘essential' products the truck drivers who drove deserted roads with no food andwater (since the ‘dhaabas' were also locked down) the warehouse workers who unloadedthe goods and then distributed the products to the retailers the delivery boys whodelivered the product to our homes while we hunkered down and sanitised even thedeliveries.

Among these heroes we found ‘Kairos' – the thought around which this year'sAnnual Report is built. Let me elaborate on why.

Last year helped us take all our business models – dedicated shared and privatelabel manufacturing – to the next level where each model developed in some form ofgranularity.

The GST implementation and the advent of modern trade and e-commerce have led to thedistribution network becoming more focussed further creating demand for new factories.The pandemic catalysed this process due to the fragile supply chains. For instance uponthe announcement of lockdowns many stores were running out of even basic staples. FMCGcompanies realised the vital need to have a more decentralised supply chain network andhave manufacturing facilities closer to the market.

The supply chain disruption also affected companies importing the products fordistribution or importing raw material for production in India. Besides the increase inshipping costs owing to container shortages paralysed them. The entire FMCG industry wasgrappling with raw material procurement and sourcing issues unavailability of skilled andcompetent human task force and regulatory issues.

With differentiated and decentralised business models providing end-to-end serviceswe provided an impetus to the sector. The relevance of our business models became evenmore pronounced. For instance we could successfully switch between product categories atour shared facilities as and when required. Our fungible capacities enabled us to serveour Principals during the pandemic. It helped when they wanted us to switch andmanufacture the then ‘high-in-demand' basic hygiene-led products like hand washessanitisers and other cleaning products.

Besides given the constraints in transportation caused due to the lockdowns we wereable to manufacture the same product from different locations and serve the relevantmarkets without our Customers having to transport goods across the country.

Our private labelling business model though still in a very nascent stage for usbecame extremely relevant for the hygiene-led products. With the increasing demands forthese products many retailers and digital e-commerce Clients wanted to launch newproducts in this space. We were able to offer products from our library and reduced thetime to market enabling these brands to launch products in the shortest time.

As the Customers relied more on e-commerce to deliver products at their doorsteps thedigitalisation of the FMCG delivery was accelerated. And with that the demand fordecentralised manufacturing to manufacture a diverse set of products at one location orthe same product at multiple locations became more prominent than ever. With this ourmultiple business model strengths with nation-wide presence of our facilities reinforcedour decentralised manufacturing strategy during the pandemic.

This has helped create a stable foundation for our Company's strong future. One wherewith our sector-agnostic business model provides us with the ability to manufacture anyFMCG product going ahead. Our geography-agnostic business model provided us with theability to manufacture anywhere in India. Our Customer-agnostic model which enabled us tohedge the lost sales that some of our Customers faced due to the troubles in their frontend distribution models or their inability to quickly adapt to e-commerce for deliveringtheir products.

Under all of these situations we witnessed Kairos – the Greek God of Opportunity– at work. I firmly believe time is the same for everyone but one's understanding oftime separates the winners from the lesser initiated. Knowing the contrast between the‘time' and the ‘right time' being prepared for the potential opportunity andnot letting it pass defines winners.

Our years-rich experience as a Contract Manufacturer helped us live up to thephilosophy of Kairos. Even amid challenging times identifying the right time empowered usto turn something in the offng into a growth opportunity. Over the years our resilienceand nimble-footed approach have established us as a market leader and the most preferredContract Manufacturer in the FMCG space. The last year made us realise that ContractManufacturing has come of age. From being viewed as a cottage industry enabling taxarbitrage to becoming an ‘essential service' we have come a long way.

Let us move to the year's crucial takeaways from the business standpoint. We recordedthe best-ever financial scorecard in the Company's history in terms of revenue EBITDAand PAT reflecting the right direction we are heading in. However having missed ourfinancial targets during 2019-20 I must express a cautious exuberance regarding thecurrent year's performance. While we haven't been as severely affected as other sectorswe are still prudent regarding what may be in the offng and grooming ourselves to tapopportunities about to knock on our door.

Coming to absolute numbers I'm happy to report the near doubling of gross revenuesfrom Rs. 771.89 cr reported in 2019-20 to Rs. 1386.34 cr in 2020-21.

HFL made quite a few breakthroughs in this past year. We clocked a record-breakingY-o-Y EBITDA growth of 51% to touch Rs. 86.02 cr in 2020-21 a sharp rise from Rs. 57 crin the previous year. While our EBITDA margins fell they were in line to our focus onincreasing the contribution of the dedicated factories.

We also recorded a healthy PAT growth touching Rs. 36.48 cr in 2020-21 as against Rs.22.73 cr in 2019-20. Subsequently the operational leverage benefit from ramping up theCoimbatore Hyderabad and Silvassa facilities helped shore up the PBT and PAT margins. Theyear further witnessed robust operating cash flow growing four-fold to reach Rs. 70+ cr– a result of stabilising of the operations at the newer factories and efficientworking capital management.

Proper capital allocation is required to extract maximum value. We have invested closeto Rs. 200 cr over the past couple of years and will invest more in the coming years.Despite having carried out CAPEX consistently our Debt-to-Equity ratio stood at 0.97 ason March 31 2021. On a strategic front we may continue to use debt to fund ourexpansions especially in this low-interest regime while maintaining a prudent mix ofdebt and equity. We have seen our Credit Rating improving to IND A/Positive by IndiaRatings and Research on account of increased scale and profitability strong executionaltrack record enhanced diversification and guaranteed fixed costs recovery whilemaintaining a solid credit profile.

With such performances our return ratios have also strengthened showcasing effectivecapital utilisation while also strengthening shareholders' value.

These numbers in a year ravaged by the pandemic are a testament to our belief that InTime's Shadow Lies Opportunity.

However there was a fair share of misses during the year as well. There was a delay inthe execution of new projects due to lockdown restrictions in Lucknow Silvassa andHyderabad and the continued under-utilisation of the Vasai factory as well. Our jinx withthe beverage foray continued. The entire summer season during the last quarter of2020-21 was impacted. We could not produce to our total capacity due to the low demandfor beverages and reduced Out of Home consumption due to the pandemic.

With the merger of our Hyderabad facility a couple of years ago we had started mergingall the business of Vanity Case into HFL keeping our minority shareholders' interests inmind. Currently placed with NCLT we are merging the Coimbatore facility and hoping toconsolidate the entire Vanity Case business into Hindustan Foods to alleviate the issuesand conflict of interests if any. But the nCov restrictions slowed down the mergerapplication process which was filed in the second quarter of 2020-21.

While we remain confident about the demand revival and growth in the FMCG sector oneshould be cautious. A Boston Consulting Group (BCG) Report claimed that the pandemic islikely to impact household consumption adversely. The overall consumption growth has beenenvisaged to have been pushed back by a couple of years with the household expenditurepegged to reach Rs. 290-300 trillion by 2030 instead of the earlier projection ofreaching the mark by 2028.

Moving on I will forever remain indebted to our highly skilled crew of Argonauts ouremployees with expertise across the Contract Manufacturing spectrum. They are the braveones who continue sailing through the stormy seas. We have ensured our teammates' goodhealth and safety at every step undertaking healthcare measures while following socialdistancing hygiene and all other protocols across our plants. In a humble way ofrecognising our employees' superhuman efforts we ensured zero pay cuts and layo_s evenfor the facilities where production was sub-optimal.

As responsible corporate our constant endeavour is to create a sustainable business.We are committed to a fairer and more socially inclusive world. And so we have beenundertaking several measures to reduce our operations' environmental impact. Right fromusing solar energy to rainwater harvesting replacing briquette boilers and workingalongside our Clients on environment-friendly product packaging we are doing everythingit takes to help conserve the planet.

Let me take a moment to express grief about the demise of one of our most valuedmanagement team members. Our GM Quality Assurance & R&D Mr. Suryakant Mishrarecently left us for heavenly abode. My heartfelt condolences to his family. He will begenuinely missed.

I want to conclude by saying that this year has been a catalyst for the various shiftsin the FMCG manufacturing space which we have been talking about – decentralisationlarger facilities closer to the market flexible facilities with the ability tomanufacture multiple products shared facilities to cater to the smaller brands andmeeting short term demand spikes. As pioneers in this space we are well placed and likelyto benefit from this evolving landscape. We are optimistic about achieving our goal of Rs.2000 cr of turnover by 2021-22 and are excited about maintaining this pace of growth. Ifeel immense gratitude for the people who tirelessly work to ensure that we continueserving the nation even in difficult times. I would also like to thank you ourshareholders for your unceasing trust support and confidence in HFL You have helped usthrough EVERY TIME.

Regards

Sameer R Kothari

.