Palash Securities Ltd Management Discussions

Economic Overview:

The global economic landscape from 2023 to 2024 has been significantly shaped by various factors, including the ongoing war of Russia - Ukraine and conflicts in the Middle East, inflationary pressures, supply chain disruptions, and shifting consumer behaviors. Both the Fast-Moving Consumer Goods (FMCG) and investment sectors have felt these impacts, necessitating strategic adaptations and forward-thinking approaches.

The world economy to continue growing at 3.2% during 2024 and 2025, at the same pace as in 2023. A slight acceleration for advanced economies-where growth is expected to rise from 1.6% in 2023 to 1.7 % in 2024 and 1.8% in 2025, will be offset by a modest slowdown in emerging market and developing economies from 4.3% in 2023 to 4.2% in both 2024 and 2025. The forecast for global growth five years from now at 3.1 % is at its lowest in decades. Global inflation is forecast to decline steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually. Global economic recovery remains uneven, with advanced economies experiencing slight growth acceleration, while emerging markets face a modest slowdown. This divergence will impact the food industry differently across regions, with developed markets potentially seeing steadier demand growth compared to emerging economies.

The Indian food services sector is poised for robust growth, with a projected Compound Annual Growth Rate (CAGR) of 8.1% between 2024 and 2028. This growth is expected to be driven by many factors, including rapid urbanization, strong GDP growth, a growing young population, and increased consumer exposure. The sector currently contributes 1.9% to Indias GDP. It is expected to grow to US$ 93.16 billion i.e. Rs. 7.76 trillion by 2028, up from US$ 68.31 billion i.e. Rs. 5.69 trillion. Despite the setbacks experienced during the COVID-19 pandemic, the industry has demonstrated remarkable resilience, underlining the need for the government to recognize its socio-economic impact and take immediate steps to unlock its full potential.

The organized segment of the food services industry is expected to grow at a CAGR of 13.2%, achieving a market share of 52.9% by 2028. Within the organized sector, casual dining restaurants are the fastest-growing, with a 48% market share, followed by quick-service restaurants (QSRs) at 27%. By 2028, it is anticipated that QSRs will gain market share by approximately 4-5% points at the expense of casual dining restaurants. The sector is also the second-biggest employer, with 8.5 million employees currently expected to increase by over 20% to 10.3 million by 2028. The industry has also witnessed rapid growth in the online food delivery market, with an estimated 6.6 crore food delivery platform users among the urban population, showcasing the changing consumption patterns driven by convenience.

Industry Structure and Developments

The Company is in the investment business and your company holds majority investments in its group companies. Apart from its operations in investment in securities including through its Wholly Owned Subsidiaries, the Company also continues to be engaged in business of food processing through its subsidiary Company Morton Foods Limited. The company manufactures and markets canned fruits, vegetables and food products like jams, squashes, crushes, vegetable sauces, juices and breakfast cereals under the brand Morton since 1959. To maximize sales, the company is increasing its customer base and focusing more on both retail business and e-commerce. Additionally, it has initiated the process to launch new products that will offer higher margins and eliminate the need for seasonal stocking.

The company has a manufacturing unit at Prayagraj which makes Canned fruits and vegetables, Jams, Crush & Squashes, Tomato Ketchup and Vegetable sauces etc. Breakfast cereals and Pasta, Vermicelli are manufactured by third party manufacturer and Morton Foods Ltd markets it under the brand Name Morton.

Morton Foods Ltd services and operates in the following customer segments:

1) General Trade / Kirana

2) Modern Trade

3) Horeca - Hotel Restaurant and Catering

4) E commerce - Amazon, Flipkart , Big Basket ,

5) Central Police Canteen Stores

6) Institutions - Taj , Hayat , Specialty Restaurants etc.

7) Defense APO - Canned fruits, Vegetables and curries for in-house consumption.

The countrys financial services sector consists of capital markets, insurance sector, banking and non-banking financial companies (NBFCs). According to Goldman Sachs, investors have been pouring money into Indias stock market, which is likely to reach USD 5 trillion, surpassing the UK, and become the fifth largest stock market worldwide.

Non-banking financial companies (NBFCs), banks, and financial institutions form the broad constituents of the credit ecosystem of the Indian financial sector, with NBFCs being a key pillar therein. The Non-Banking Financial Companies (NBFC) sector in India has experienced significant growth and

transformation over the past decade, becoming an integral part of the Indian financial system. In FY 2023-24, the sector continued to play a crucial role in providing credit to various sectors of the economy, particularly underserved segments. Despite facing several challenges, including regulatory changes and market volatility, NBFCs have shown resilience and adaptability. The Reserve Bank of India (RBI) introduced several regulatory changes aimed at strengthening the sectors resilience. Key measures included tighter asset classification norms, enhanced disclosure requirements, and stricter liquidity management guidelines. NBFCs continued to invest in digital technologies to enhance operational efficiency and customer experience. The adoption of digital lending platforms and fintech partnerships played a pivotal role in expanding their reach and reducing operational costs.

Indias food processing sector is one of the largest in the world and its output is expected to reach $535 Billion by FY2025-26. The Food Processing sector in India has a quintessential role in linking Indian farmers to consumers in the domestic and international markets. The Ministry of Food Processing Industries (MoFPI) is making all efforts to encourage investments across the value chain. The food processing industry has a share of 12.38% in the employment generated in all Registered Factory sector engaging approximately 1.93 Million people. Unregistered food processing sector supports employment to 5.1 Million workers as per the NSSO 73rd Round report. Major sectors constituting the food processing industry in India are grains, sugar, edible oils, beverages, and dairy products.

Opportunities and Threats.

Your Company being an Investment Company seeks opportunities in the capital market. The unpredictability in the stock market represents both opportunity as well as challenges for the Company. The Indian capital market witnessed a dynamic year in FY 2023-24, characterized by robust economic growth, significant regulatory reforms, technological advancements, and increased participation from retail and institutional investors. Despite global economic uncertainties, the market demonstrated resilience and continued to attract substantial domestic and foreign investment. The benchmark indices, BSE Sensex and NSE Nifty, reached new highs during the fiscal year, reflecting strong investor confidence and positive economic outlook. Strong GDP growth projections (7-8%) are expected to drive increased investor confidence and capital inflows into the Indian capital market. However, the market must navigate challenges such as global economic uncertainty, inflationary pressures, and the need for improved corporate governance to sustain its growth trajectory.

The food processing industry is a high growth industry and the same applies for it in Indian market. The government of India has acknowledged the food processing sector as a high priority industry and is currently promoting it with various fiscal reliefs and incentives. India has one of the largest working populations in the world. With increasing disposable incomes, this segment can be regarded as the biggest consumer of processed foods in the country. There are various threats to the Company like market Competition that forces the Company to sell its product at low cost. This also led to loss to the Company. On the other hand, raw material is based on agricultural produce which is affected by natural calamities, which deteriorate the quality of the product, which is the major threat to the Company. Also external situation like Cross-border emergencies and wars also affect the business.

Risks and Concerns:

The Company is exposed to specific risks that are particular to their respective businesses in which they operate, including market risk, credit risk, liquidity risk, interest rate risk, equity risk, operational risk, currency risk, regulatory and macro-economic risks. The Company has a robust risk management framework that strives to identify, monitor and minimize risks as also identify business opportunities.

Outlook

Indias economic growth is expected to remain robust in 2024 and 2025, with multiple sources highlighting a positive outlook. For 2024, Indias real GDP growth rate is projected to be 8.2%, up from 7.0% in 2023. This growth is driven by strong domestic demand, increased investment activities, and improvements in key economic indicators such as industrial production, agricultural output, and inflation management. The financial year 2024-25 also sees a significant boost in capital expenditure, indicating strong government support for infrastructure and development projects. Additionally, the Economist Intelligence Unit (EIU) forecasts that India will be the fastest-growing major economy from 2024 to 2028, outpacing Chinas growth. This projection underscores Indias rising economic influence and its significant role within the BRICS nations, potentially leading to their collective nominal GDP surpassing that of the G7 by the mid-2040s. However despite these positive projections, there are certain risks that could impact growth, such as geopolitical tensions and potential disruptions in global supply chains. Additionally, Chinas economic challenges, particularly in its property sector, remain a concern for the overall regional growth outlook.

The outlook for the NBFC sector in FY 2024-25 is cautiously optimistic. Key factors influencing the sectors performance include economic growth, digital initiatives, regulatory support, funding diversification and focus on niche segments.

Performance

The Company operates in single segment which is to invest, deal etc. in securities. The businesses of the Company are carried out by its five Wholly-owned Subsidiaries/ Subsidiaries. The first three are wholly owned subsidiaries of the Company viz: OSM Investment & Trading Company Limited; Champaran Marketing Company Limited; Hargaon Investment & Trading Company Limited and these are registered NBFCs and primarily engaged in investment

activities and whereas Hargaon Properties Limited is a step down subsidiary engaged in investment of properties. Another Subsidiary Morton Foods Limited is engaged in the Food Processing Business.

During the Financial Year 2023-24, the Company incurred a profit after tax of Rs. 16.36 lakhs on standalone basis. On consolidated basis the loss after tax stood at Rs. 1576.02 lakhs. During the Financial Year 2023-2024, the Companys production decreased from 3,707 MT to approximately 2,225 MT, a reduction of about 40%, due to lower sales in the HoReCa and Retail trade sectors. Correspondingly, sales decreased from Rs. 4,538 lakhs to Rs. 3,501 lakhs, approximately 22%. However, the Companys loss reduced from Rs. 2,199 lakhs to Rs. 2,003 lakhs, an improvement of about 9%. The loss for the current year was impacted by the write-off of old stock worth Rs. 96 lakhs, a provision for old and expired stock worth Rs. 202 lakhs, and a provision for damages in the market worth Rs 113 lakhs. If these provisions, totaling Rs. 411 lakhs, are excluded, the loss would decrease by more than 20% in percentage terms. The Company aims to create sustainable vision to grow the business and make long-term strategic investments in various new ventures promoted by the Company and its subsidiaries.

Disclosure

The Disclosure w.r.t. details of significant changes in key financial ratios as stipulated under Regulation 34(3) read with Schedule V Clause B of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are as follows:

Sr. No Particulars	31.03.2024	31.03.2023	Change(%)	Explanation
(i) Debtors Turnover Ratio	0	0	0	--
(ii) Inventory Turnover Ratio	0	0	0	--
(iii) Interest Coverage Ratio	7.26%	44.82%	(83.79)%	Due to decrease in Profits
(iv) Current Ratio	53.77%	80.90%	33.53%	Due to redemption of Preference shares
(v) Debt Equity Ratio	0.00%	8.55%	(100)%	Due to redemption of Preference shares
(vi) Operating Profit Margin (%)	88.50%	96.55%	(8.34)%	--
(vii) Net Profit Margin (%)	27.82%	81.64%	(65.92)%	Due to decrease in Profits
(viii) Return on Net Worth	0.53%	14.07%	(96.27)%	Due to decrease in Profits

Internal Control Systems and Their Adequacy

The Company has an adequate system of internal control implemented by the management towards achieving efficiency in operations, optimum utilization of resources and effective monitoring thereof and compliance with applicable laws. The Internal Auditors were suggested with audit plan based on the risk profile of business activities of the organization, which were approved by the Audit Committee. The adequacy of the internal control system is reviewed by the Audit Committee of the Board of Directors. The efficacy of the internal checks and control systems are verified by the Internal Auditors as well as the Statutory Auditors. The Audit Committee reviews the internal audit plan, adequacy and effectiveness of the internal control system, significant audit observations and monitors the sustainability of remedial measures. The performance of the Company is regularly viewed by the Board of Directors to ensure that it is in keeping with the overall corporate policy and in line with pre-set objectives. The Company updates its internal control systems from time to time, enabling it to monitor adherence to internal procedures and external regulatory guidelines.

Human Resources

Steps have been taken to inculcate a performance-oriented culture by focusing and laying more emphasis on the performance management system. It has been Companys endeavour to attract talent from the most reputed institutions to meet the requirements of various functions. The Company will intensify efforts to create an environment where everyone feels valued, respected, and empowered to contribute their unique perceptions.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys outlook, objectives, projections, estimates and expectations may be forward looking statement within the meaning of applicable laws or regulations. Actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include government regulations and tax-regime, economic developments within India and abroad, financial markets and other related and incidental factors. The Company assumes no responsibility in respect of forward-looking statements that may be revised or modified in future on the basis of subsequent developments, information or events. The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the Accounting Standards notified under Section 133 of the Act read with the Indian Accounting Standards Rules, 2015. The management has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs and profit/loss for the year. The narrative on our financial condition and result of operations should be read together with our audited consolidated financial statements and the notes to these statements included in the annual report.