Hindustan Foods Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis delves into the Hindustan Foods Limited (HFL) annual report for the fiscal year 2023-24, examining its financial performance, business segments, identified risks, and Environmental, Social, and Governance (ESG) initiatives.

I. Financial Performance:

HFL reported strong financial performance in FY2023-24, demonstrating resilience despite a challenging economic climate marked by a slowdown in FMCG demand and deflationary pressures on commodity prices. Key financial highlights (consolidated figures unless otherwise specified):

• Total Revenue: ₹2,762 crore (6% YoY growth). While revenue grew, the report notes this was primarily due to deflationary pressures on commodity prices, masking the underlying volume growth.
• EBITDA: ₹229 crore (29% YoY growth). A significant increase in profitability, likely driven by operational efficiencies and cost management.
• Profit After Tax (PAT): ₹93 crore (31% YoY growth). A substantial improvement in net profit, reflecting the strong EBITDA growth and effective tax management.
• Basic Earnings Per Share (EPS): ₹8.23 (30% YoY growth). This increase reflects both increased profitability and the previous year’s share subdivision.
• Net Worth: ₹646 crore. Indicates a healthy financial position.
• Gross Block: ₹1,129 crore. Shows continued investment in infrastructure and capacity expansion.

Key Ratio Analysis:

II. Business Segments:

HFL operates a diversified contract manufacturing business across several FMCG sectors. The report highlights its key product categories:

• Personal Care: Shampoo, hair oil, toiletries, fragrances, baby care, and skincare.
• Food & Beverages: Cereals, snacks, ready-to-eat meals, soups, hot & cold beverages, energy drinks.
• Beauty & Make-up: Lipstick, lip colours, powders, eye makeup.
• Healthcare & Wellness: Foot care, vitamins, nutraceuticals, medicated products.
• Household Insecticides: Aerosols, vaporisers, coils.
• Home Care: Toilet cleaners, surface cleaners, dish wash.
• Leather & Sports Shoes: Leather shoes, sports shoes, knitted shoes.
• Pet Care: Hygiene and food.

III. Mergers & Acquisitions:

Significant acquisitions and investments were made during FY2023-24, expanding HFL’s presence and product portfolio:

• KNS Shoetech Private Limited: Acquisition of multiple sports shoe manufacturing units, expanding into the footwear sector.
• Reckitt’s Baddi Unit: Acquisition of an OTC pharmaceutical manufacturing facility, diversifying into the healthcare sector.
• Investments in existing facilities: Significant capital expenditures were made to expand capacities in ice cream, detergent, and colour cosmetics manufacturing.
• Exploration of de-merger: The board authorized exploring the de-merger and integration of a promoter-owned facility producing soup and meal makers.

These acquisitions showcase HFL’s strategic intent to grow both organically and inorganically, leveraging existing infrastructure and expanding into new, high-growth segments.

IV. Risks:

The report identifies several key risks:

• Economic Risk: Vulnerability to macroeconomic factors such as inflation, government regulations, exchange rates, and consumer demand fluctuations. HFL mitigates this through diversification across essential FMCG product categories and a flexible contract manufacturing model.
• Raw Material Price Risk: Fluctuations in commodity prices impacting operating costs. Mitigated by passing on cost increases to clients and maintaining a strong supplier network.
• Contract Risk: Failure to meet client requirements leading to potential contract losses. Mitigated by delivering high-quality products and building strong client relationships.
• Quality & Safety Risk: Non-compliance with safety and quality standards. Mitigated by robust quality management systems and compliance procedures.
• Liquidity Risk: Difficulty in raising necessary funds to meet payment obligations. Mitigated by proactive cash flow management.
• Personnel Risk: Difficulty in attracting and retaining skilled personnel. Mitigated by strategic recruitment and employee retention policies.
• Supply Chain Visibility: Lack of full transparency across its complex supply chains. The report does not detail mitigation strategies for this.
• Competition from the Unorganized Sector: Stiff competition from smaller, nimbler brands in the rapidly changing FMCG landscape. This risk is not explicitly addressed in the report.

V. ESG Initiatives:

HFL demonstrates a commitment to ESG through various initiatives:

• Environmental: Solar power integration, rainwater harvesting, briquette boilers (replacing coal), energy-efficient lighting and AC systems, eco-friendly packaging (in collaboration with principals), and local sourcing.
• Social: Focus on local employment, initiatives for employee well-being (including health insurance, safety training), Corporate Social Responsibility (CSR) initiatives, and gender equality promotion, particularly in the footwear and cosmetics sectors. Notably, a ₹25 lakh contribution was made to Ashoka University’s Sustainable Financial Aid Programme.
• Governance: Emphasis on transparent management practices, risk management framework, a diverse board of directors, and regular board evaluations.

VI. Overall Assessment:

Hindustan Foods Limited presents a strong financial performance in its annual report, highlighting significant growth in profitability despite macroeconomic challenges. The strategic acquisitions and investments demonstrate a clear intent to expand its market share and diversify into higher-growth sectors. While the report adequately addresses some key risks, a more detailed discussion of supply chain visibility and competition from the unorganized sector would strengthen the overall risk assessment. The company’s commitment to ESG is apparent through various initiatives, though quantifiable metrics and progress towards specific targets could be further elaborated for greater transparency and impact assessment. The report’s use of metaphorical language (Aeneas’ journey) while engaging, sometimes obscures clear, concise reporting of key operational and financial details.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The values for the requested line items from Hindustan Foods Limited’s Standalone Financial Statements as of March 31, 2024, are:

• Total Assets: ₹1,53,728.92 lakhs (₹15,372.89 crore)
• Current Assets: ₹72,705.40 lakhs (₹7,270.54 crore)
• Cash and Cash Equivalents: ₹388.78 lakhs (₹3.89 crore)
• Accounts Receivable (Trade Receivables): ₹10,076.58 lakhs (₹100.77 crore)
• Inventory: ₹40,112.37 lakhs (₹401.12 crore)

It’s important to note that these figures are reported in lakhs of Indian Rupees (₹). One lakh (1,00,000) equals 100,000. Therefore, to convert to crores, you divide by 100.

Liability Analysis #

Based on Hindustan Foods Limited’s Standalone Financial Statements as of March 31, 2024:

• Total Liabilities: ₹90,893.16 lakhs (₹908.93 crore)
• Current Liabilities: ₹51,313.61 lakhs (₹513.14 crore)
• Long-Term Debt (Borrowings): ₹34,899.26 lakhs (₹348.99 crore) Note this excludes lease liabilities.
• Accounts Payable (Trade Payables): ₹30,925.77 lakhs (₹309.26 crore)

Remember that these figures are in lakhs of Indian Rupees. To convert to crores, divide by 100.

Equity Analysis #

Here are the values for shareholders’ equity, retained earnings, and share capital from Hindustan Foods Limited’s Standalone Financial Statements as of March 31, 2024:

• Shareholders’ Equity: ₹62,835.76 lakhs (₹628.36 crore)
• Retained Earnings: ₹29,259.78 lakhs (₹292.60 crore)
• Share Capital: ₹2,291.47 lakhs (₹22.91 crore)

Again, remember these figures are in lakhs of Indian Rupees. To get the values in crores, divide by 100.

Income Statement #

Operating Performance #

Using Hindustan Foods Limited’s Standalone Statement of Profit and Loss for the year ended March 31, 2024:

• Revenue: ₹2,39,139.66 lakhs (₹2,391.40 crore) Note that this includes other income of ₹1,002.32 lakhs.
• Cost of Revenue: ₹2,29,513.49 lakhs (₹2,295.13 crore) This includes cost of material consumed, changes in inventories, and purchase of stock-in-trade.
• Gross Profit: ₹9,626.17 lakhs (₹96.26 crore) (Revenue - Cost of Revenue)
• Operating Expenses: ₹13,480.26 lakhs (₹134.80 crore) This represents manufacturing and operating costs and other expenses.
• Operating Income: (This figure is not explicitly stated in the provided standalone financial statement, but can be calculated). It would be calculated as Gross Profit less Operating Expenses: ₹9,626.17 lakhs - ₹13,480.26 lakhs = -₹3,854.09 lakhs (-₹38.54 crore). This indicates an operating loss.

It is crucial to note that the figures given for revenue include “other income,” and that there is a significant difference between gross profit and operating income, resulting in an operating loss. The reason for this loss is not readily apparent in the given excerpt and would require a deeper review of the financial statements and accompanying notes.

Bottom Line Metrics #

Based on Hindustan Foods Limited’s Standalone Statement of Profit and Loss for the year ended March 31, 2024:

• Net Income (Profit for the year): ₹7,827.81 lakhs (₹78.28 crore)
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This figure is not directly provided in the standalone statement but can be calculated. It would require the addition of depreciation and amortization (₹3,854.09 lakhs) and finance costs (₹3,773.52 lakhs) to the profit before tax (₹9,626.17 lakhs). Therefore, EBITDA would be approximately ₹17,253.78 lakhs (₹172.54 crore).
• Basic EPS (Earnings Per Share): ₹6.92
• Diluted EPS: ₹6.92

Remember that these values are presented in lakhs of Indian Rupees. To convert to crores, divide by 100. There may be minor discrepancies due to rounding in the provided data.

Cash Flow #

Cash Flow Components #

Using Hindustan Foods Limited’s Standalone Statement of Cash Flows for the year ended March 31, 2024:

• Cash Flows from Operating Activities: ₹4,769.60 lakhs (₹47.70 crore)
• Cash Flows from Investing Activities: -₹34,725.26 lakhs (-₹347.25 crore) The negative sign indicates a net cash outflow.
• Cash Flows from Financing Activities: ₹29,380.05 lakhs (₹293.80 crore)

These figures are in lakhs of Indian Rupees. To convert to crores, divide by 100. Note that parentheses indicate a negative number, representing cash outflow.

Cash Flow Metrics #

The provided financial statements don’t directly state free cash flow or dividends paid. We can estimate some of these figures, but with limitations due to missing data.

• Dividends Paid: The Directors’ Report explicitly states that no dividend was recommended or paid for the fiscal year 2023-24. Therefore, dividends paid are ₹0.

• Capital Expenditure (CAPEX): The statement of cash flows shows a net cash outflow from investing activities of ₹34,725.26 lakhs. A significant portion of this is likely capital expenditure. However, the exact CAPEX figure cannot be definitively determined without a further breakdown of investing cash flows within the report’s notes. The notes do provide some detail on CAPEX related to acquisitions and investments in various facilities, which would need to be aggregated to get a more precise number.

• Free Cash Flow (FCF): FCF is typically calculated as operating cash flow less capital expenditures. Using the figures from the cash flow statement:

  FCF ≈ ₹4,769.60 lakhs - (X) where X is the unknown capital expenditure. Without the precise CAPEX figure extracted from the report notes, a precise FCF cannot be determined. The negative cash flow from investing activities suggests the FCF would be negative.

In summary, only the dividend paid figure is clearly stated in the provided information. More detailed information within the complete annual report would be necessary for a precise calculation of CAPEX and FCF.

Financial Ratios #

Profitability Ratios #

To calculate the profitability ratios, we need to use figures from both the Statement of Profit and Loss and the Balance Sheet. Since the Balance Sheet doesn’t show the previous year’s figures for equity and assets, we can only calculate ratios for the current year (FY2023-24). Also, note that we are using the standalone statements, as the consolidated statements don’t provide all the necessary information in the excerpt.

Calculations based on Standalone Financial Statements:

• Revenue: ₹2,391,39.66 lakhs (This includes other income)
• Cost of Revenue: ₹2,29,513.49 lakhs
• Gross Profit: ₹9,626.17 lakhs
• Profit Before Tax: ₹9,626.17 lakhs
• Net Income: ₹7,827.81 lakhs
• Operating Expenses: ₹13,480.26 lakhs (This includes manufacturing and operating costs and other expenses)
• Shareholder’s Equity (Average): We need the prior year’s equity value to calculate the average. This is not provided. We will calculate ROE using the year-end value instead. ₹62,835.76 lakhs.
• Total Assets (Average): We need the prior year’s assets value to calculate the average. This is not provided. We will calculate ROA using the year-end value instead. ₹1,53,728.92 lakhs

Profitability Ratios (FY2023-24, Standalone):

• Gross Profit Margin: (Gross Profit / Revenue) * 100 = (9,626.17 / 2,39,139.66) * 100 = 4.02%

• Operating Margin: (Operating Income / Revenue) * 100 = (-3,854.09 / 2,39,139.66) * 100 = -1.61% (Note: This shows an operating loss)

• Net Profit Margin: (Net Income / Revenue) * 100 = (7,827.81 / 2,39,139.66) * 100 = 3.27%

• Return on Equity (ROE): (Net Income / Shareholder’s Equity) * 100 = (7,827.81 / 62,835.76) * 100 = 12.47% (Using year-end equity, not average)

• Return on Assets (ROA): (Net Income / Total Assets) * 100 = (7,827.81 / 1,53,728.92) * 100 = 5.08% (Using year-end assets, not average)

Important Considerations:

• Missing Data: The calculations for ROE and ROA are less precise because the average equity and asset values are not available. Using year-end values provides an estimate but is not as accurate.
• Other Income: The revenue figure includes other income, which is not typical for a gross profit calculation. A more accurate gross margin could be calculated if “Other Income” were excluded from the revenue figure. A recalculation excluding other income would yield a lower gross profit and gross margin.
• Operating Loss: The negative operating margin clearly indicates an operating loss. This needs further investigation to understand the underlying reasons.

For more precise ratio analysis, you would need the complete set of financial statements, including comparative figures from the prior year.

Liquidity Ratios #

To calculate these liquidity ratios, we’ll use the figures from Hindustan Foods Limited’s Standalone Balance Sheet as of March 31, 2024. Remember, these are estimates as precise calculations would require a more detailed breakdown of current assets and liabilities. We need to identify the components for a precise quick ratio calculation.

Values from the Standalone Balance Sheet:

• Current Assets: ₹72,705.40 lakhs
• Current Liabilities: ₹51,313.61 lakhs
• Cash and Cash Equivalents: ₹388.78 lakhs
• Accounts Receivable: ₹10,076.58 lakhs
• Inventory: ₹40,112.37 lakhs

Liquidity Ratio Calculations (Standalone, estimates):

• Current Ratio: (Current Assets / Current Liabilities) = 72,705.40 / 51,313.61 = 1.42

• Quick Ratio: (Current Assets - Inventory) / Current Liabilities. The precise calculation is difficult given the lack of detail on other current assets. However, using the available information, it would be (72,705.40 - 40,112.37) / 51,313.61 ≈ 0.64. This is a rough estimate and the actual quick ratio might be higher depending on the exact composition of other current assets.

• Cash Ratio: (Cash and Cash Equivalents / Current Liabilities) = 388.78 / 51,313.61 = 0.0076 or 0.76%

Important Considerations:

• These calculations are based on the data provided in the excerpt of the annual report. The complete report may provide more detailed information that would allow for more accurate calculations.
• The quick ratio calculation is an estimate due to limited information on the composition of other current assets. More detailed data would be necessary for a fully precise calculation. For example, prepaid expenses or other receivables could be included or excluded from this calculation.

The current ratio suggests a relatively healthy liquidity position, while the low quick and cash ratios indicate a greater reliance on inventory conversion to meet short-term obligations. A full analysis would benefit from more granular data on the current assets and liabilities.

Efficiency Ratios #

Calculating the efficiency ratios requires data from both the Standalone Income Statement and the Standalone Balance Sheet. The provided excerpts don’t include all the necessary information for precise calculations. We will use available data to make reasonable estimates, but these may not be perfectly accurate.

Data from the Standalone Financial Statements:

• Revenue: ₹2,39,139.66 lakhs (Includes other income. A more precise calculation would need this figure adjusted.)
• Cost of Goods Sold (COGS): This is not explicitly stated, but is included within the cost of revenue figure which is ₹2,29,513.49 lakhs. However, we have to assume Cost of Goods Sold is approximately this figure. A more precise calculation would require a further breakdown.
• Average Inventory: To calculate this precisely, we would need the beginning inventory value. The given excerpt only provides the ending inventory value of ₹40,112.37 lakhs. We’ll use this as a rough estimate for the average.
• Average Accounts Receivable: Similarly, we require the beginning accounts receivable value to accurately compute the average. We’ll use the year-end value of ₹10,076.58 lakhs as a rough estimate.

Estimated Efficiency Ratios (Standalone, based on available data):

• Asset Turnover: (Revenue / Average Total Assets). We lack the average total assets figure, so we cannot calculate this ratio.

• Inventory Turnover: (Cost of Goods Sold / Average Inventory) ≈ 2,29,513.49 / 40,112.37 ≈ 5.72 times. (This is a rough estimate due to using only the ending inventory value.)

• Receivables Turnover: (Revenue / Average Accounts Receivable) ≈ 2,39,139.66 / 10,076.58 ≈ 23.7 times. (This is a rough estimate due to using only the ending accounts receivable value.)

Important Considerations:

• Incomplete Data: Accurate calculations of these ratios require the beginning-of-year balances for both inventory and accounts receivable, which are not available in the provided excerpts. The figures calculated above are therefore estimations.
• Cost of Goods Sold (COGS): The value used is an approximation since a precise COGS figure requires a more detailed breakdown of the cost of revenue figure.

To obtain more precise efficiency ratios, you will need access to the complete set of standalone financial statements, including the beginning-of-year balances for inventory and receivables.

Leverage Ratios #

Calculating leverage ratios requires data from both the Standalone Balance Sheet and the Standalone Statement of Profit and Loss. The provided excerpts don’t offer all necessary information for completely precise calculations. We’ll use the available data to produce estimates, keeping in mind potential inaccuracies.

Values from the Standalone Financial Statements:

• Total Liabilities: ₹90,893.16 lakhs
• Shareholders’ Equity: ₹62,835.76 lakhs
• Total Assets: ₹1,53,728.92 lakhs
• Interest Expense: ₹3,773.52 lakhs
• EBIT (Earnings Before Interest and Taxes): This isn’t directly given but can be estimated. We’ll need to add back the interest expense to the profit before tax figure: ₹9,626.17 lakhs + ₹3,773.52 lakhs = ₹13,399.69 lakhs

Estimated Leverage Ratios (Standalone, based on available data):

• Debt-to-Equity Ratio: (Total Liabilities / Shareholders’ Equity) = 90,893.16 / 62,835.76 = 1.45

• Debt-to-Assets Ratio: (Total Liabilities / Total Assets) = 90,893.16 / 1,53,728.92 = 0.59

• Interest Coverage Ratio: (EBIT / Interest Expense) = 13,399.69 / 3,773.52 = 3.55 times

Important Considerations:

• Precision: These calculations are estimates because they use year-end values instead of average values for equity and assets, which would be more precise. The complete annual report would allow for more accurate calculations.
• Lease Obligations: Lease liabilities are not explicitly included in the long-term debt figure. Including these would increase the debt figures and, therefore, the debt-to-equity and debt-to-assets ratios.
• EBIT Calculation: The EBIT calculation depends on accurate figures for profit before tax and interest expense.

To get a completely accurate calculation of these leverage ratios, you would need complete standalone financial statements for both the current and prior fiscal years. The provided excerpts only permit estimations.

Market Analysis #

Market Metrics #

Several of these metrics require information not fully provided in the report excerpt. We can calculate some, but others will require estimations or will be unavailable.

Available Data:

• Market Capitalization: ₹5,41,359 lakhs (₹5413.59 crore) as of March 31, 2024.

• Net Income (Standalone): ₹7,827.81 lakhs

• Basic EPS (Standalone): ₹6.92

• Share Price: The report does not include the share price data as of March 31, 2024; this is needed for PE ratio calculation. Only average monthly share prices for the year are given.

• Book Value Per Share (BVPS): To calculate this we’d need total equity and the number of outstanding shares. While the year-end value of total equity is given (₹62,835.76 lakhs), a precise BVPS calculation requires an average figure across the year, which is not provided.

• Dividends Paid: ₹0 (as stated in the report)

Calculated and Estimated Metrics:

• Market Cap: ₹5,41,359 lakhs (₹5,413.59 crore) – This is given in the report.

• P/E Ratio (Price-to-Earnings Ratio): (Market Price per Share / Earnings Per Share). We need the market price per share as of March 31, 2024, which is not available. Therefore, the P/E ratio cannot be calculated.

• P/B Ratio (Price-to-Book Ratio): (Market Price per Share / Book Value Per Share). We need both the market price per share and the book value per share (BVPS) as of March 31, 2024. Both are unavailable; therefore, the P/B ratio cannot be calculated.

• Dividend Yield: (Annual Dividend per Share / Market Price per Share) * 100. Since the annual dividend is ₹0, the dividend yield is 0%.

• Dividend Payout Ratio: (Dividends Paid / Net Income) * 100. Since dividends paid are ₹0, the dividend payout ratio is 0%.

In summary: Only the market capitalization, dividend yield, and dividend payout ratio can be definitively stated. The P/E and P/B ratios require additional information (share price and average book value per share) that is not provided in the report excerpt.

Business Analysis #

Segment Analysis #

The Hindustan Foods Limited (HFL) annual report excerpt doesn’t provide a detailed segment breakdown with precise revenue figures, growth rates, operating margins, and market shares for each segment. The report uses broad categorization and metaphorical language, which makes a precise, quantitative analysis difficult. This information is likely available in the full report, but this excerpt does not fully provide all necessary detail.

Here’s what we can extract regarding business segments:

Business Segments (based on the excerpt):

The report broadly categorizes HFL’s business into several sectors. It’s important to note that these are not necessarily distinct, fully independent segments, as some products might span multiple categories. For example, a single manufacturing facility might produce items belonging to multiple categories.

1. Personal Care: This includes a wide range of products like shampoos, hair oils, toiletries, fragrances, baby care products, and skincare items.
2. Food & Beverages: Encompasses various product lines, including baby food, cereals, snacks, ready-to-eat meals, soups, and beverages (teas, coffees, juices, carbonated drinks).
3. Beauty & Make-up: Includes lipsticks, eye makeup, and powders.
4. Healthcare & Wellness: This segment includes foot care products, vitamins, nutraceuticals, and medicated products. The acquisition of Reckitt’s Baddi unit significantly expanded HFL’s presence in this sector.
5. Household Insecticides: This includes various products like aerosols, vaporizers, coils, and mats.
6. Home Care: Products such as toilet cleaners, surface cleaners, and dishwashing liquids.
7. Leather & Sports Shoes: This sector is a result of recent acquisitions and includes leather, sports, and knitted shoes, encompassing a wide range of footwear.
8. Pet Care: This includes pet hygiene products and food.

Missing Data:

The excerpt lacks crucial information to provide a thorough segment analysis:

• Segment Revenues: Precise revenue figures for each segment are not provided.
• Growth Rates: YoY growth rates for each segment are unavailable. The overall revenue growth of 6% masks the performance of individual sectors.
• Operating Margins: Operating margins for each segment are not specified.
• Market Shares: No market share data is given for any segment.
• Key Products within each segment: While the report lists several product categories, it does not provide the leading or key products within those categories which generates the most significant revenue.
• Geographic Presence: The report mentions manufacturing facilities across 26 locations in India, but it does not delineate which facilities serve which segments or the geographic distribution of revenue.

Conclusion:

To perform a complete segment analysis, access to the full annual report is necessary. The provided excerpt only gives a high-level overview of HFL’s business activities. A full report would include a more detailed segment breakdown, allowing for a quantitative assessment of each segment’s performance and contribution to the overall financial results.

Risk Management #

Risk Assessment #

The Hindustan Foods Limited (HFL) annual report excerpt mentions several key risk factors but lacks detailed descriptions of likelihood, impact severity, and specific mitigation strategies for all of them. We can categorize and summarize the risks based on the provided information. Note that the assessment of likelihood and impact is an interpretation based on the information available and general industry knowledge.

Key Risk Factors (categorized and summarized):

I. Financial Risks:

• Category: Macroeconomic and Market Risks

  • Description: Slowdown in FMCG demand, deflationary pressures on commodity prices, inflation, government regulations, exchange rate fluctuations, interest rate hikes, and political instability all impact the company’s financial performance.
  • Impact Severity: High (potential for significant impact on revenue and profitability)
  • Likelihood: Medium to High (dependent on overall economic conditions)
  • Mitigation: Diversification of products and clients, flexible business model, proactive cost management.
  • Trends: Increased volatility in global markets, persistent inflationary pressures in several economies.

• Category: Raw Material Price Risk

  • Description: Fluctuations in the cost of raw materials impacting profitability.
  • Impact Severity: Medium to High (depending on the magnitude of price swings and ability to pass on cost increases)
  • Likelihood: Medium (commodity price volatility is common)
  • Mitigation: Passing on cost increases to principals, strong supplier network, potentially exploring alternative raw materials, hedging.
  • Trends: Continued supply chain disruptions, increasing energy costs, potential geopolitical factors.

• Category: Liquidity Risk

  • Description: Inability to meet short-term financial obligations.
  • Impact Severity: High (could lead to operational disruptions and financial distress)
  • Likelihood: Low to Medium (depending on financial management and access to credit)
  • Mitigation: Proactive cash flow management and strategies for obtaining capital.
  • Trends: Increasing interest rates, tightening credit conditions.

• Category: Contract Risk

  • Description: Failure to meet client requirements, leading to potential contract losses or non-renewal.
  • Impact Severity: Medium to High (depending on the size and importance of the lost contract)
  • Likelihood: Low (with effective management and strong client relationships)
  • Mitigation: Consistent delivery of high-quality products and focus on building strong, long-term relationships with clients.
  • Trends: Increasing competition in the contract manufacturing industry leading to pressure on pricing and performance.

II. Operational Risks:

• Category: Quality and Safety Risk

  • Description: Non-compliance with safety and quality standards resulting in reputational damage, financial penalties, and legal issues.
  • Impact Severity: High (potential for significant financial and reputational harm)
  • Likelihood: Low (with robust quality and safety systems)
  • Mitigation: Comprehensive quality management systems, regular audits, and ongoing training.
  • Trends: Growing consumer awareness and regulatory scrutiny of safety and sustainability.

• Category: Personnel Risk

  • Description: Difficulty in attracting, retaining, and training skilled employees.
  • Impact Severity: Medium (could impact production e/fficiency and quality)
  • Likelihood: Medium (high competition for skilled labor in many areas)
  • Mitigation: Effective recruitment and retention strategies, employee training and development programs.
  • Trends: Talent shortages in several sectors, particularly those requiring specialized technical expertise.

• Category: Supply Chain Risk

  • Description: Disruptions in the supply chain impacting production.
  • Impact Severity: Medium to High (depending on the duration and severity of the disruption)
  • Likelihood: Medium (common in the FMCG industry)
  • Mitigation Strategies: Diversification of sourcing, building strong supplier relationships, contingency planning, potentially inventory buffering.
  • Trends: Increasing globalization and interconnectedness of supply chains, geopolitical instability, potential climate change related impacts on supply.

III. Other Risks:

• Category: Regulatory Compliance

  • Description: Difficulty complying with the evolving regulatory environment.
  • Impact Severity: Medium to High (depending on the nature of non-compliance and related penalties)
  • Likelihood: Medium (frequent changes in regulations)
  • Mitigation: Proactive monitoring of changes in regulations, robust compliance program, seeking expert advice.
  • Trends: Increasing regulatory oversight and stricter enforcement in various sectors.

• Category: Supply Chain Visibility

  • Description: Lack of complete transparency across complex supply networks hindering the ability to manage risk e/ffectively.
  • Impact Severity: Medium (lack of visibility creates risk across quality, safety, and ethics)
  • Likelihood: Medium to High (inherent to complex supply chains)
  • Mitigation: Implementation of technology to enhance tracking and monitoring.
  • Trends: Growing demand for greater supply chain transparency and traceability.

The report excerpt does not explicitly state the likelihood or impact severity for each risk. These are assessments based on common industry practices and potential implications for HFL’s operations. The complete annual report would contain a more comprehensive risk management analysis.

Strategic Overview #

Management Assessment #

Hindustan Foods Limited’s (HFL) management highlights several key strategies, competitive advantages, market conditions, challenges, and opportunities in the annual report excerpt. However, a full and detailed analysis would require the complete report.

Key Strategies:

• Diversification: Expanding into new product categories (footwear, OTC pharmaceuticals) and geographic regions through acquisitions and organic growth. This reduces reliance on any single sector and mitigates risk.
• Contract Manufacturing Focus: Positioning HFL as a leading contract manufacturer offering comprehensive, end-to-end solutions to FMCG clients, enabling them to focus on their core competencies (marketing, branding, distribution). This is presented as a core competency.
• Strategic Alliances: Building strong, long-term relationships with major FMCG brands through partnerships, ensuring a stable and predictable revenue stream.
• Capacity Expansion: Investing significantly in expanding its existing manufacturing facilities and building new ones to meet increasing demand.
• Operational Excellence: Continuous focus on improving manufacturing e/fficiency, reducing costs, and enhancing product quality. This is stated as a core value.
• Technological Advancements: Adopting digital technologies to enhance operations, reduce costs, and improve supply chain management.

Competitive Advantages:

• Scale and Diversification: HFL is positioned as one of India’s largest FMCG contract manufacturers with a broad product portfolio, offering greater flexibility and scalability to clients.
• Manufacturing Expertise: Decades of experience and a wide range of manufacturing capabilities allow for the creation of formulations and production of diverse product categories.
• Integrated Facilities: Fully integrated plants with advanced processing, packaging, warehousing, and logistics capabilities provide comprehensive turnkey solutions.
• Strong Client Relationships: Long-term partnerships with major FMCG brands provide revenue stability.
• Cost-Effective Solutions: Leveraging India’s skilled labor force and e/fficient manufacturing processes to o/ffer competitive pricing.

Market Conditions:

• Slowdown in FMCG Demand: The report notes a general slowdown in consumer spending in the FMCG sector due to economic factors.
• Deflationary Pressures: Commodity prices experienced deflationary pressures impacting revenue.
• Growing Rural Market: A significant opportunity is identified in the increasing consumption and demand for branded products in rural India.
• Premiumization Trend: Growing demand for higher-quality, premium products in urban markets.
• E-commerce Growth: The increasing adoption of e-commerce channels is viewed as a significant growth driver for contract manufacturers.

Challenges:

• Economic Slowdown: The decline in consumer spending and deflationary pressures present headwinds for the FMCG sector and HFL’s business.
• Commodity Price Volatility: Fluctuations in raw material prices impact profitability.
• Intense Competition: Competition in the contract manufacturing industry is described as “intense.”
• Regulatory Changes: Adapting to a rapidly evolving regulatory landscape poses a challenge.

Opportunities:

• Growth in Rural Markets: The expansion of the rural FMCG market offers substantial growth potential.
• Premiumization: Catering to the rising demand for higher-value products in urban areas.
• E-commerce Expansion: Capitalizing on the increasing market penetration of e-commerce.
• Contract Manufacturing Growth: Increased outsourcing of manufacturing by FMCG companies presents a significant opportunity.
• New Product Categories: Entering new sectors like footwear and OTC pharmaceuticals through acquisitions.

Conclusion:

HFL’s management emphasizes a multi-pronged strategy combining organic growth, strategic acquisitions, operational e/fficiency, and strong client partnerships to navigate the challenges and capitalize on the opportunities within the dynamic Indian FMCG market. The full annual report would provide more detailed information and quantifiable data to support these strategic directions and competitive advantages.

ESG Ratings #

The provided annual report excerpt does not include any ESG ratings from external rating agencies. The report describes HFL’s ESG initiatives but doesn’t mention any scores or rankings from organizations such as MSCI, Sustainalytics, Refinitiv, or others that provide ESG ratings. To find ESG ratings, you would need to consult independent ESG rating providers’ databases using HFL’s name and/or stock ticker symbol.

ESG Initiatives #

Hindustan Foods Limited’s (HFL) annual report excerpt details various ESG initiatives but lacks specific quantifiable data on some key metrics like the precise carbon footprint and clearly defined sustainability goals with target timelines.

Environmental Initiatives:

• Renewable Energy: Integration of solar power plants and rainwater harvesting systems at new factories, reducing reliance on conventional energy sources.
• Energy Efficiency: Implementation of smart lighting and air-conditioning systems to minimize energy consumption. Replacement of vapor lamps with LEDs.
• Cleaner Fuels: Adoption of briquette boilers in place of traditional coal-fired ones to reduce carbon emissions.
• Waste Reduction: Collaboration with principals on eco-friendly packaging and initiatives for segregation and disposal of plastic waste.
• Green spaces: Preservation of trees and plants around factory facilities.

Carbon Footprint:

The report does not explicitly state HFL’s total carbon footprint. While it mentions initiatives aimed at reducing emissions (briquette boilers, renewable energy), it lacks specific data on greenhouse gas (GHG) emissions (Scope 1, 2, and 3). Quantifiable data on reductions in carbon footprint would require information from the full annual report or a dedicated sustainability report.

Social Initiatives:

• Community Engagement: Focus on local employment generation, providing better salaries for unskilled and semi-skilled workers, contributing to local economic development, and undertaking various CSR initiatives supporting education, healthcare, and community welfare. A significant contribution (₹25 lakhs) is highlighted for Ashoka University’s Sustainable Financial Aid Programme.
• Employee Well-being: Sustainability training programs, employee-led activities, and efforts toward work-life integration. Health and safety training is emphasized.
• Gender Equality: Emphasis on equal opportunities and a higher representation of women in some plants (footwear and cosmetics) indicating a push toward gender balance within the workforce.
• Girl Child Empowerment: Focus on promoting health, hygiene, and education for girls, particularly in collaboration with government schools.

Governance Practices:

• Board Diversity: The board includes Independent Directors, Non-Executive Directors, and Executive Directors, aiming for a balanced composition and representation. There’s a dedicated Independent Woman Director.
• Board Committees: The presence of a well-defined Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, Risk Management Committee, and CSR Committee, suggests a structured approach to corporate governance. These committees have defined terms of reference and meet regularly.
• Risk Management: The implementation of a comprehensive risk management framework with a dedicated Risk Management Committee suggests proactive risk assessment and mitigation strategies.
• Transparency and Disclosure: A focus on transparency in reporting, including the adoption of the Business Responsibility and Sustainability Report (BRSR).

Sustainability Goals:

The report mentions a goal of achieving ₹4,000 crore in turnover by FY 2024-25. However, the excerpt doesn’t specify any other explicit long-term sustainability goals with specific targets and measurable indicators (e.g., reduction in GHG emissions by a certain percentage by a specific year). This information would likely be included in a dedicated sustainability report or a more detailed section of the full annual report.

Conclusion:

While HFL demonstrates a commitment to ESG through various initiatives, the excerpt lacks specific, quantifiable data. The complete annual report, including a dedicated sustainability report, would provide a clearer picture of HFL’s progress towards its sustainability targets, its environmental footprint, and the impact of its social and governance initiatives.

Additional Information #

Operational Metrics #

Based on the provided excerpt from Hindustan Foods Limited’s annual report:

• R&D Expenditure: Approximately ₹5 lakhs per annum. This figure is mentioned in Annexure IV, which deals with energy conservation, technology absorption, foreign exchange earnings, and outgo.

• Employee Count: As of March 31, 2024, there were a total of 1,304 employees on the payroll. This figure is mentioned in the Management Discussion and Analysis section.

It’s important to note that the R&D expenditure is a very small number relative to the size of the company and its revenues, suggesting a relatively low level of investment in research and development.

Key Events #

Several significant events are mentioned in the Hindustan Foods Limited (HFL) annual report excerpt for FY2023-24:

• Record Operational Performance: HFL achieved record operational performance, with increases in revenue, EBITDA, and PAT. This is highlighted as exceeding expectations.

• New Subsidiary Incorporation: The incorporation of HFL Multiproducts Private Limited (HMPL) to manage a new beverages project in Guwahati, Assam.

• Acquisitions:

  • Acquisition of 100% equity of KNS Shoetech Private Limited, marking entry into sports shoe manufacturing.
  • Acquisition of Reckitt Benckiser Healthcare India Private Limited’s Baddi unit, expanding into OTC pharmaceuticals.
  • Acquisition by KNS Shoetech of a manufacturing unit in Kundli, Haryana.
  • Acquisition by KNS Shoetech of three additional manufacturing units from SSIPL Retail Limited.

• Capacity Expansion: Significant investments were made to expand existing facilities in ice cream, Hyderabad plant, and colour cosmetics production.

• Preferential Allotment of Warrants: The issuance of convertible warrants, raising significant capital. A portion of these warrants were later converted into equity shares.

• Exploration of De-merger: The Board initiated the exploration of a potential de-merger to integrate a promoter-owned facility into HFL.

• Name Change of Subsidiary: Reckitt Benckiser Scholl India Private Limited was renamed HFL Healthcare and Wellness Private Limited.

• New facility commercialization: The juice production facility in Guwahati, Assam, commenced commercial production.

These events represent a period of significant growth and transformation for HFL, characterized by strategic acquisitions, capacity expansion, and diversification into new business segments.

Audit Information #

Auditor’s Opinion:

The independent auditor, M S K A & Associates, Chartered Accountants, expressed an unqualified opinion on both the standalone and consolidated financial statements of Hindustan Foods Limited for the year ended March 31, 2024. This means that, in their professional judgment, the financial statements present a true and fair view of the company’s and group’s financial position, performance, and cash flows in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. The audit reports did, however, identify key audit matters related to business combinations resulting from acquisitions (discussed in the audit reports).

Key Accounting Policies:

The annual report excerpt details several key accounting policies employed by Hindustan Foods Limited, including:

• Basis of Preparation: The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS), on a historical cost convention, and using the accrual basis of accounting. Current/non-current classification of assets and liabilities is based on a 12-month operating cycle.

• Property, Plant, and Equipment: Freehold land is not depreciated. Other PPE is valued at cost less accumulated depreciation and impairment. Depreciation is calculated using the straight-line method over estimated useful lives.

• Other Intangible Assets: Valued at cost less accumulated amortization and impairment. Amortization is done using the straight-line method over estimated useful lives.

• Impairment of Non-Financial Assets: Assets are tested for impairment whenever there’s an indication of potential recoverability issues. The recoverable amount (higher of fair value less costs to sell and value-in-use) is determined.

• Foreign Currency Transactions: Transactions are initially recorded using the exchange rate at the transaction date. Monetary assets and liabilities are re-measured at the year-end exchange rate, with any exchange di/fferences recognized in profit or loss.

• Revenue Recognition: Revenue is recognized when performance obligations are satisfied (transfer of control of goods or services to the customer).

• Taxes: Tax expense includes current tax and deferred tax, calculated using the balance sheet method.

• Leases: The company uses Ind AS 116 and recognizes ROU assets and lease liabilities for most leases, except for short-term and low-value leases.

• Inventories: Valued at the lower of cost and net realizable value. Cost is determined using the weighted average method.

• Employee Benefits: Includes short-term obligations (wages, salaries) and long-term obligations (provident fund, gratuity, leave encashment), with defined contribution and defined benefit plans. Actuarial valuations are used for long-term benefits.

• Financial Instruments: Classified and measured based on the business model for managing them and the contractual terms of cash flows (amortized cost, FVOCI, FVTPL). The expected credit loss (ECL) model is used for impairment.

• Business Combinations: Accounted for using the acquisition method, with assets and liabilities recognized at fair value. Goodwill is recognized as the excess of consideration transferred over the net identifiable assets acquired.

These are only the key policies highlighted in the excerpt. The full annual report would contain a more exhaustive list of accounting policies and detailed explanations of their application.