Industry Structure & Development:

The issue of agricultural development is globally important and especially crucial for ever-growing population in a developing country like India. Agriculture has been the mainstay of Indian civilisation for over many years. Even today, it is the pivotal of the Indian economy, accounting for about 30 per cent of the GDP and involving about 68 per cent i.e. over 1000 million populations.

In India, an increasing population with an improved standard of living and continuously declining arable land continue to increase the pressure on natural resources.

There is an urgent need for the agriculture sector to grow at 5 per cent per annum to achieve sustained economic growth of 8-9 per cent in India. In order to increase agricultural productivity, widespread use of high quality hybrids seeds and planting material is essential. Seeds are a major input and the initial lever for bolstering agricultural production. Therefore, the seed industry is perceived as a cost-effective instrument of positive change in Indian agriculture.

Seeds form the fundamental and crucial input for sustained growth in farm production, often stimulating the use of new methods, machinery and yieldenhancing agro-inputs. The role of the seed sector is not only to ensure adequacy in seed quality but also to ensure varietal diversity. Today, the Indian seed programme boasts one of the biggest seed markets in the world, with annual sales at around Rs.4200 Crores. Of this, domestic offtake accounts for Rs.4000 Crores and sales in the global market account for the remaining Rs.200 Crores.

The accelerated growth of the private sector began only after the introduction of the new seed policy in 1988 which ushered in a liberal business climate. Currently, there are over 200 private seed companies, together with a few multinational companies, and these tend to focus on low volume, high value crops with the principal effort being placed on creating hybrids for oilseeds, maize, cotton and vegetable crops.

The private sector accounts for 70% of the market in terms of market turnover whereas the public sector has the greater share in terms of volume sales.

While timely and appropriate monsoons continue to be the most critical factor by far in determining the success of an agriculture harvest season, there are other important controllable factors such as pest attacks on crops, timely availability of high quality seeds, fertilisers and pesticides, government policies and environment rules and regulations etc, that contribute in no mean measure to ensuring a successful farming experience for the Indian farmer. Critical inputs like high quality seeds, fertilizers and pesticides play a vital role in sustaining and improving the agriculture production and yield. Thus far, the Seeds and the Indian Crop Protection industry (that comprises of several Multinationals & Indian companies) have, through their continued dedicated research and breeding efforts, been able to provide solutions and products that have benefited the Indian farmer substantially.

The Insecticides Act, 1968 and the Seeds Act, 1966 and the rules framed thereunder regulate the production, distribution and sale of crop protection products. Each product undergoes several exhaustive studies and tests before permission is granted for commercialization. The agrochemicals and seeds are marketed through the network of distributors and retailers, which are spread across the length and breadth of the Country.

Opportunities & Threats:

India today has a critical mass and level of growth that it could use not only to cater to the growing domestic requirement but also to make a concerted effort for global trade under provisions of GATT and WTO. Furthermore, India is endowed with second largest area of farmland, and the largest area of irrigated land, in the world and, with its huge germplasm diversity, its seed industry is well placed to serve both domestic and international markets.

The Indian farmer is adopting newer and better technologies that provide better returns and minimising the external risks. The increase in education level, availability of cyber network in the villages which has broaden the market network of the farmers community, institutional support on technology and finance front, the farmer is today willing to invest in high technology products, high quality hybrid seeds and value base chemicals to secure assured high yields and lesser problem.

Counterfeiting of quality agri products is major problem which is not only a menace for the corporate but for the farmers also as they are getting low yield, affecting soil quality etc. The Agri chemicals sector continues to face severe competition from large number of generic players entering the market on liberal “me too” registrations granted by the Government. This poses a major problem of fast eroding product margins for the existing companies with proprietary technologies.

Product Performance:

During the year, the Company introduced newer Corn hybrid offerings to farmers. All of these and the existing seed and herbicide products were well received by the farmers, despite growing competition. The Company’s Corn seeds are sold under the brand names of Asgrow & Dekalb and are now well established within the farming community.

Financial Performance:

The margins in the herbicides business continued to decline for yet another year, under price pressure from competing generic molecules (specially in the key wheat segment). However, superior product offerings and better mix continued to improve the margins in the seeds business. Your Company continues to make appropriate capital investments that support its growing business needs. During the year, an investment of approximately Rs.48 Crores was approved by the Board to be made in enhancing its seed drying capacity with improved technology.

The Company’s operations continued to generate surplus funds to meet all its requirements without having to resort to external borrowings. The Company has also earned tax free income by investing surplus cash in mutual funds.

Outlook:

Through continuous research efforts at providing newer product offerings, aggressive sales and marketing strategies, a strong brand and distribution infrastructure and investment in people development, your Company is hopeful of maintaining its performance going forward. Efforts at offering better technologies (that provide better value to the farmer while mitigating external risks) have been generally well received both by the Government and the farmer. Continued success in these efforts is critical to maintain these growth prospects.

Risks & Concerns:

In the absence of adequate irrigation facilities in most parts of the country, the agriculture activities are still greatly dependant upon the vagaries of the monsoon and then upon soil conditions, skilled labour, high quality inputs, credit terms etc.

In addition, as the Company imports most of its technical materials and hence the business is susceptible to the volatility of the exchange rates and import duties.

Competition from generic players in the herbicides business continues to exert pressure on product margins.

Internal Control System:

The internal control system in the Company is reviewed by the Board of Directors which would provide assurance regarding the effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. The transaction are authorized, recorded and reported in conformity with generally accepted accounting practices. The internal audit department conducts continuous audit and follow up to assess financial and operating controls and its observations are reviewed by the Audit Committee regularly.

Human Resources:

In terms of capitalizing people’s capabilities, the Company continues to focus on leader development and enhancing the competencies of the staff. Since last several years the Company has, successfully put in place a “Development, Performance and Reward” program that continues to ensure that all employees development needs are properly addressed, performances assessed and rewarded equitably. Performance of the staff is recognized by various methods i.e. Rapid Recognition Award, Master Sales man Award, Pledge Award, Five star award etc., from time to time.

Cautionary Statement:

The statement made in this section describes the Company’s objectives, projections, expectations and estimations which may be ‘forward looking statements’ within the meaning of applicable securities laws and regulations. The annual results can differ materially from those expressed or implied, depending on the economic and climatic conditions, Government policies and other incidental factors which are beyond the control of the Company.

For and on behalf of the Board of Directors

R. C. KHANNA
Director

FELIPE OSORIO
Managing Director

Mumbai: 25th May, 2006

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