INDUSTRY STRUCTURE AND DEVELOPMENT

The Company operates in the business segment of Foods comprising of Bakery and Dairy
Products.

I. Bakery

Bakery industry presently comprises primarily of four traditional products viz. Biscuit, Cake,
Rusk and Bread. Biscuit is the largest category accounting around two-third of the overall
bakery industry growing at 10-14% per annum in the last five years. Cake, Rusk and Bread
constitute the rest. While Cake and Rusk categories have seen growth in mid-teens, Bread
category has experienced growth of mid to high single digit over the last five years.

a) Biscuit
Although biscuit category is large in size, consumption per capita is modest in comparison to
other developing countries. Countries such as Indonesia and Philippines have a significantly
higher per capita spend at 1.7x and 2.2x respectively. This gap is caused by lower volume
consumed per capita as well as the extent of value addition that as compared to other
developing countries. As India continues on the path of income enhancement, biscuit
consumption is expected to increase thus sustaining the growth rates of the past.
Competition in biscuit market is vigorous and participation is from large Indian Companies
with national foot print such as this, medium sized companies with regional foot print and
multinationals. In response to the trend of format up gradation, most significant players
including regional players have been making investments in technology.

b) Cake

Relatively speaking, Cake is a nascent category in India with basic and less differentiated
products dominating the market. There is immense scope for organoleptic value addition and
building consumption. The Company has introduced value added products in the last couple
of years which has been greeted by a warm reception by trade and consumers. This reaffirms
our belief that value added products at the right price can change the growth trajectory of the
category. Cake market in India has one national player viz. the Company and some notable
regional players strong within their region.

c) Rusk

Rusk is similar to cake in its market and competitive structure. Per capita expenditure on rusk
is modest as it is in other bakery categories. Growth in this category is expected to come
from format upgrades as well as consumption increase through specific product and
marketing solutions.
 d) Bread

Bread on account of its relatively low shelf life is a category with localized production
reaching the proximate market. The Company while being the largest national player
encounters local competition.

II. Dairy

India remains the largest producer and consumer of dairy. However, as in the case of other
food products, Indians trail much of the world in per capita dairy consumption. This gap is
getting bridged rapidly with demand growing at a faster pace than supply. Many industry
experts opine that this is likely to cause a supply deficit in the near future.
Largeness of the Dairy opportunity is visible to all; as a result the industry this year saw
heightened activity with several private companies announcing entry, cooperatives
expanding footprint and multinationals formally entering. While the growth in the last few
years has been on account of increasing milk consumption; value added segments of dairy
such as Cheese and Set Dahi in which the Company participates have grown at a faster pace.

A range of factors will drive the growth of dairy industry going forward:

i) With time available to manage households declining; consumers will seek day-to-
day needs in ready to consume and convenient forms. With this, dairy industry
which is overwhelmingly unorganized today, will shift steadily towards the
organized sector;

ii) With increasing affluence there will be demand for value added products; as a
result dairy market will shift from basic to processed;

iii) Consumption of all dairy products will go up as consumers gravitate towards a

more balanced diet as income levels increase. The levers of success going forward
are likely to be:

a) Access to quality milk as basic raw material;

b) The right product value addition capability;
c) Access to a cold chain.

(B) BUSINESS STRATEGY

As India’s economic landscape changes for the better, the proportion of packaged goods in
the overall consumption basket will increase. Consumer and market studies conducted by the
Company indicate that this increase will be driven by delivery on three axes viz. pleasure,
health and convenience.
In other words Indian consumers will seek higher pleasure, better health and greater
convenience.
Categories that inherently deliver on the above axes or are capable of redesigning themselves
to deliver the above will grow faster than overall market. This will cause packaged food
industry of future to be significantly larger in size and substantially different in form.
Categories such as chocolates, foods, salted snacks that help in health management and ready
to eat solutions are seeing wider and deeper consumer traction than ever before.
To remain relevant and improve relative significance in future Indian market, companies
such as these will have to venture outside of their traditional bastions and build presence in
adjacent categories.
We believe that the Company is well positioned to undertake this transition even while
strengthening its hold on the bastion categories. In this context, the Company’s strategy to
increase consumer relevance in a changing food landscape and grow ahead of direct and
indirect competition is:

1. Strengthen position in bastion categories (Biscuit, Cake and Rusk) by:

a. Increasing demand for current assortment through a combination of superior brand

promotion and aggressive distribution expansion;

b. Creating fresh demand through innovation on pleasure, health and convenience axes;

c. Running the supply chain for better cost efficiency and superior delivered quality.

2. Successfully enter attractive adjacencies for an accelerated future growth.

3. Evaluating transition of the dairy model to a fully Integrated One.

Strengthen position in bakery

Strengthening and expansion of sales and distribution network accelerated this year with
direct reach increasing by nearly 25%, a noteworthy feat in the Indian retail-scape.
Additionally, the Company embarked on an ambitious rural expansion through the Rural
Preferred Dealers Program. With these initiatives the Company is establishing a wide and
reliable pipeline which will be of great value as more Indians switch from home-made/local
to packaged foods.
The Company continued the high-visibility promotion of its pillar brands this year too
through association with widely loved entertainment genres of film and sports. Additionally,
a lot more emphasis was placed on activation which helps convert a consumer connect into
an emotional bond. Activation programs executed to support the re-launch of Good Day were
loved by consumers and went on to win several awards from professional bodies.

The Company continues to work on breakthrough innovation and some of the qualifying
innovations have gone through the test market phase during the year. Upon fine-tuning of
product (basis consumer and market feedback), a market introduction will be considered.
Breads continue to strengthen its more profitable Health portfolio through healthier recipes,
new packaging and availability in more number of stores. This business maintains a sharp
focus on distribution expansion across metro and urban markets in addition to the new age
channels like Modern trade, Institutions and E-commerce.

Dairy

The Company continues to drive development of a differentiated portfolio and in line with
the overarching corporate strategy has been working on further strengthening the
organoleptic performance of its products. While there are multiple players entering this
Industry, the Company is also evaluating various options to strengthen its position in this
Industry.
The Company is continuously extracting benefits from an integrated sales and distribution
system and is also evaluating the viability of fully integrated business model.
In the coming year, the Company will implement various initiatives in all areas of operations
to create an efficient and robust supply chain and build cold chain capabilities to enhance
sales and service to the trade and final consumers. The business will identify more
opportunities to reduce recipe cost and optimize cost structurally across the value chain