Shri. TOM JOSE, IAS (Retd.)
Chairman
Dear Shareholders:
Greetings!
It is my privilege to present the Annual Report of KSE for Fiscal Year
(FY) 2022-23.
Before reviewing KSE's performance, it's important to set the context.
The repercussions of the turbulent economic times that surround us have made managing
organizations challenging and we are not immune to them.
As the global economy was rebounding from the pandemic induced
distress, the outbreak of the Russia-Ukraine conflict in February 2022 added additional
pressures on the system leading to continued supply chain challenges as well as
inflationary pressures. The commodity prices soared to record levels due to the impending
logistics and supply chain disruptions amid growing demand from the large consumption
driven economies. The industry witnessed unprecedented inflation in input commodities such
as soybean meal, maize, coconut cake, and de-oiled rice bran cakes. Rising energy costs
added additional punch to the inflationary situation.
However, KSE continues to operate on its original promise of providing
excellent value and service to our customers and shareholders. The recent economic,
environmental, and internal operational challenges have tested the company as never
before. To regain profitability, the company must carefully navigate the priorities of
growth, price competitiveness, and our stakeholder commitments. While there were no easy
solutions to the challenges faced during the financial year, we did not waver in our
resolve to deliver on short-term expectations, make progress on our long-term ambitions,
and remain true to our core values.
KSE's performance for FY 2022-23 has been mixed. Total Turnover for FY
2022-23 is '160988.36 lakhs as against '167005.82 for FY 2021-22. The net loss before tax
for FY 2022-23 is '298.63 lakhs as against net profit before tax of '927.88 lakhs for FY
2021-22.
The sales volume of the Livestock Feed decreased whereas the Coconut
Oil division and the Milk Procurement and Processing divisions increased. However,
increase in the sales volume did not translate into increased profit as the additional
cost of production was not passed on to the customers in the form of enhanced prices. As a
result, the company overall suffered a loss for the year. The details of the performance
of the three divisions are as follows.
Livestock Feed Division: The sales volume of cattle feed for FY 2022-23
is at 545611 tons as against 620377 tons during FY 2021-22 resulting in a reduction of
12.05%.
Coconut Oil Division: The processing of copra cake reduced by 9.72% in
the year 2022-23. Further, due to the steep fall in the price of refined coconut oil
during the year, the turnover of cake processing line reduced by 11.94%.
Dairy (Milk Procurement and Processing) Division: The volume of sale of
milk increased by 23.76% compared to previous year. As a consequence of state government's
price policy, there was constraint on the company to decide on the selling price to match
the price of procurement. Ice cream, one of the major products of the division, showed a
strong growth in sales volume, however, this did not result in profitability mainly due to
the increased cost of raw material procurement. As the main ingredient for ice cream is
milk and cream, the cost of production of ice cream increased with the increase in the
cost of milk. Another factor that weighed negatively on the bottom line is '2.70 crores
spent for advertisements on marketing of ice cream under the brand name Vesta. By
consistent efforts, the sales volume of ice cream registered a growth of nearly 40% in the
current year under report; however, the net result was a loss. As part of market entry
strategy, the prices of all varieties of ice cream were slightly lower than that of other
competing brands, and at the same time, the highest quality was ensured. Thus, Dairy
division as a whole reported a loss of '6.42 crores in year 2022-23.
As you all are aware, KSE has maintained a steady dividend payout
during the previous years. During last five years we have paid dividends of 600%, 150%,
200%, 1000%, and 200% respectively. In order to maintain continuity in payment of
dividend, despite losses, your Board has recommended a dividend of 200% this year as well.
The share prices of a company are considered as an indicator of its
health and market acceptability. For the last several months, KSE's share prices have been
fluctuating rather wildly. From '2166.55 on April 1, 2022, it has gone down to '1714.60 as
this message goes to print on 25th May 2023. Your Board has noticed this tendency and is
formulating a strategy for market stabilisation which will be explained elsewhere in this
message.
In spite of the overall loss for FY 22-23, the future of the company
looks bright. Strong consumer demand, a commitment to strategic growth, and a value
proposition based on customer service, quality, and cost competitiveness promise to take
KSE to new heights.
Customer demand for KSE's products remain strong. India currently
represents one of the largest feed producers in the world. The rising demand for meat and
animal-based products, along with the increasing commercial livestock production, is
primarily driving the Indian animal feed market. According to experts, the Indian animal
feed market size is further expected to grow at a CAGR of 8.7% between 2023 and 2028.
Further, India is among the world's largest manufacturers of dairy products, which is a
major driver for the India ice cream market. Ice cream is currently considered to be one
of India's most popular desserts. Due to the prevailing hot and humid climate in the
region, as well as the shift in customer food tastes, dessert sales are constantly
increasing throughout the region. KSE is confident of tapping the Kerala and Tamil Nadu
markets with its wide variety of premium products and thereby reaching the target turnover
and profitability. Sales volume of refined coconut oil is at 9143 tons for FY 2022-23 as
against 8751 tons for FY 2021-22 resulting in 4.48% growth. The average realisation for
coconut oil is '1.19 lakhs per ton during the year 2022-23, whereas the same was '1.47
lakhs and '1.54 lakhs per ton respectively for years 2021-22 and 2020-21. In March, 2021
the coconut oil price was around '1.90 lakhs per ton which came down to the level of '1.15
lakhs per ton in March, 2023. Due to the steep fall in the price of refined coconut oil
during the year 2022-23, the turnover of cake processing division reduced by 11.94%.
KSE is committed to strategic growth. Your company is taking
significant steps towards becoming growth oriented and building strong organizational
capabilities. The company has decided to formulate a growth strategy for upcoming years.
Grant Thornton, an internationally acclaimed accounting and consulting agency, has been
engaged to conduct a detailed strategic study of the opportunities and threats of the
external marketplace conditions as well as the strengths and weaknesses of the internal
operations of the company. This study will add in the formulation and implementation of
additional strategies necessary to achieve the major strategic goals of the company -
strong profitability, operational excellence, and accountability to shareholders.
Diversifying its businesses into different profitable sectors and exploring new geographic
markets are deemed important to meet the challenges of the future. Operational
efficiencies will be aggressively sought to improve margins and regain profitability.
Investing in the company's future through increased research and development efforts as
well as employee learning and training is an important part of our strategic plan. The
first ever letter to shareholders in KSE's history is a step to provide more transparency
to the reporting of financial results as well as an indication to the directions the
company is planning to take. In future, we will also report on important non-financial
metrics, such as company's efforts on improving social and environmental sustainability
and its contribution in nation building.
We will build on KSE's rich heritage and long-standing brand commitment
to quality, customer service and value. We are confident in overcoming this difficult
phase and returning the company to its record of solid profitability soon. Your company is
committed to strengthening its core businesses, accelerating innovation and unlocking
efficiencies while exploring new opportunities, both organic and inorganic, in building
for the future.
I am grateful to all stakeholders and business partners for their
contributions. The loyalty and confidence of our customers, the dedication of our
employees, and the unwavering support of our suppliers, dealers, and retail partners have
been instrumental in the steady progress the company has made thus far. Though we are one
of the largest manufacturers of compound cattle feed in India, we still remain a small
company at heart - committed to our farmers, consumers of dairy products, employees and
local communities.
Dear fellow shareholders, I value your partnership immensely and
solicit your assistance and cooperation on this journey of taking our company to new
heights together.
Thank you.