Key highlights

• The company's strategy continues to be focusing more on the value added products. The lists includes Popcorn brand Act II, Sundrop Plus and Chocolate puddings. These products add significantly to the value and thus increase the pricing power of the company.

• During the Sep'10 quarter, raw material costs continued to remain high and was higher than June'10 quarter. The management in response decreased advertisement spend. The other expenditure was higher due to the increase in freight costs by 10%. Despite that, the pricing power particularly the Act II enabled the company to improve margins both on y.o.y basis and on q.o.q basis.

• Going forward, also the strategy is to continue to spend aggressively on the promotions of Act II brand. However the promotions on chocolate puddings and on sundrop peanut butter was lowered as the products are yet to reach the threshold level of gross margins, before which the company is comfortable on higher advertisement and promotions spend.

• The company has laid down its trajectory of gross margins for various existing and newer products. Few years' back the gross margins of various products were around 10%. The mission was to go from 10% to 20%, 20% to 30% and then to settle down in the north of 30% to around 40%. As on date, the gross margins of various products stand around 22-23%. The next trajectory is about 30%. As far as new product introduction is concerned, the management has mentioned that it will not introduce any further product whose gross margins are less than 30%.

• The company is now consolidating its chocolate puddings and peanut butter products. It has plans to introduce new product within coco mix category, but the product has not yet reached the threshold level of the management. Few more products are planned but the introduction period will take time.

• Localization of product is very important for better gross margins. The company thus is establishing its manufacturing facility in Gujarat for manufacturing the peanut butter and will take about 12 months to establish the facility.

• The depreciation for the quarter was up by 70%, as the company had incurred expenditure on increasing the manufacturing capacities of popcorn, has upgraded the office premises and further WIP is for IT infrastructure spending as it is augmenting and automizing the entire sales and distribution system across the entire chain of dealers and distributors.
• The company is gradually heading towards full tax rate as the benefits of tax exemptions are slowly going away and there is no MAT credit left, which stood at 3.18 crore in FY'10.

• Overall the focus continues on increasing the gross margins, brand building and taping the retail food segment of India, which is growing at very fast rate. The management has indicated that the ACT II brand is the highest moving product in any food retail segment in India.