Study

of
Kaushikee Mahila Milk Producer Company Limited

April 2021

M-CRIL Limited
542 JMD Megapolis, Sohna Road, Sector 48
Gurgaon 122018 INDIA
Tel: +91 124 491 1939, 491 1942
www.m-cril.com
 Study of Kaushikee Mahila Milk Producer Company Limited

Disclaimer
1. Our services were performed, and this report was prepared in accordance with the
Engagement Letter dated 28 January 2021, subject to the terms and conditions included
therein.
2. The information captured in this Report is based on the documentation and information
received from time to time from Kaushikee Mahila Milk Producer Company Limited. The
findings contained herein are limited to the extent of the procedures conducted by M-CRIL till
26 March 2021, which are described in this document. Accordingly, changes in circumstances
or information newly available after this date could affect the findings outlined in this Report.
3. We have relied upon representations of employees of Kaushikee Mahila Milk Producer
Company Limited that all data and information provided by them are correct to the best of
their knowledge. We accept no responsibility for any fact or information that has been
intentionally withheld or otherwise omitted which could have had a material bearing on our
findings.
4. M-CRIL has relied upon the information supplied in connection with this engagement
including management information. M-CRIL did not audit or otherwise verify the information
supplied in connection with this engagement, from whatever source obtained, except as may
be specified in this Report.
5. In no circumstances shall we be liable, for any loss or damage, of whatsoever nature, arising
from information material to our work being withheld or concealed from us or misrepresented
to us by any person to whom we make information requests.
6. The findings contained in this Report are limited to the extent of the procedures performed
by M-CRIL, which are described in this Report. The findings, which are hearsay in nature,
should not be construed as an opinion, legal or otherwise, on the rights and liabilities of the
Company or any other third party that may be, directly or indirectly, concerned with findings
in this Report.
7. All the information presented in this Report from our market sources / third parties are the
personal perceptions of the sources. Wherever possible, we have corroborated the
information provided to us with the information that may be available in the public domain
or that which has been provided to the client, however, we have not done so independently.
8. The Report will be furnished by us is solely for the information of the World Bank, which had
requested M-CRIL to undertake the engagement. Hence, the World Bank can share the
information from the report with the relevant parties.
9. World Bank shall be fully and solely responsible for applying independent judgment, with
respect to the findings included in this Report, to make appropriate decisions in relation to
future course of action, if any. We shall not take responsibility for the consequences resulting
from decisions based on information included in the Report.

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 Study of Kaushikee Mahila Milk Producer Company Limited

Table of Contents
Disclaimer................................................................................................................................................ 2
Table of Contents .................................................................................................................................... 3
Background & Objective ......................................................................................................................... 4
Glossary ................................................................................................................................................... 5
1 Company Profile .............................................................................................................................. 6
2 Key Strengths and Risks .................................................................................................................. 6
3 Business Model ............................................................................................................................... 7
4 Governance ................................................................................................................................... 12
5 Management ................................................................................................................................. 13
5.1 Organizational structure of KMMPCL ................................................................................... 13
5.2 Key Management Personnel ................................................................................................. 13
5.3 MIS/ Reporting ...................................................................................................................... 14
5.4 Quality of Accounts ................................................................................................................... 14
6 Financial Profile ............................................................................................................................. 14
6.1 Overview ............................................................................................................................... 14
6.2 Current Sources of Working Capital...................................................................................... 15
6.3 Plans for raising additional funds .......................................................................................... 15
6.4 Key Financial Ratios............................................................................................................... 15
6.5 Plans & The Projections ........................................................................................................ 18
Way forward ......................................................................................................................... 18
6.7 Summary of key recommendations .......................................................................................... 19
7 Site Visit......................................................................................................................................... 19
8 Methodology................................................................................................................................. 20
9 Annexes ......................................................................................................................................... 21
Balance Sheet.................................................................................................................................... 21
Income Statement ............................................................................................................................ 22
Formula of various financial ratios included in the report ............................................................... 23
FPO rating grades .............................................................................................................................. 24

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 Study of Kaushikee Mahila Milk Producer Company Limited

Background & Objective

Background

Deendayal Antyodaya Yojana-National Rural Livelihood Mission (DAY-NRLM) in Bihar is implemented

by an independent registered society Bihar Rural Livelihood Promotion Society (BRLPS). In the state
the Yojana is called State Rural Livelihood Mission or Jeevika Mission. The mission has undertaken
various activities under both farm and non-farm livelihoods. However major investment has been in
farm livelihoods in the areas of Agriculture, Animal Husbandry & Dairying, Horticulture, Sericulture
etc. Under NRLM, producers of various commodities have been organized through community based
business initiatives to reap potential of agribusiness. Some of these initiatives got established
themselves as “Producer Companies” under relevant legal framework. Most of them are into
agriculture produce. The initiative envisages on enhancing rural incomes through increased
productivity, improved market linkages and value addition.

The purpose of this study is to undertake a stocktaking of the status and progress of Kaushikee Mahila
Milk Producer Company Limited (KMMPCL) and enable the FPC to understand its strength areas and
the areas for improvement through an independent assessment. The study provides suggestions to
help strengthen these institutions in achieving more efficient and cost-effective business goals of the
company.

Objective

The World Bank vide contract dated 28 January 2021 has requested M-CRIL to study KMMPCL on
different aspects of governance, management, financial performance and overall operations.

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 Study of Kaushikee Mahila Milk Producer Company Limited

Glossary

Term Description
Active members Members who have traded with the company, either as a buyer of
inputs or seller of produce to FPC
BoD Board of Director
BMC Bulk Milk Coolers
BRLPS Bihar Rural Livelihoods Promotion Society
COGS Cost of Goods Sold
EBIT Earnings Before Interest and Tax
FPO Farmer Producer Organization
FPC Farmer Producer Company
HO Head Office
ICR Interest Coverage Ratio
MoU Memorandum of Understanding
MPP Milk Pooling Point
NRLM National Rural Livelihood Mission
NRLP National Rural Livelihoods Project
PAT Profit After Tax
PIB Producers Institution Building
PES Productivity Enhancement Services
PBT Profit Before Tax
Shareholders Those who have been allotted share against the share capital
contribution and would-be shareholders (those awaiting share
allotment)
SHG Self Help Group
SRLM State Rural Livelihood Mission
YTD Year-to-date

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 Study of Kaushikee Mahila Milk Producer Company Limited

• Transparent procurement mechanism with

1 Company Profile
timely payment to members
Kaushikee Mahila Milk Producer Company Limited, • The participation of the directors in the
hereafter referred as “KMMPCL” or “company” was meeting, the frequency and the minutes of
incorporated with technical support from NDDB
meeting are streamlined and reasonable
Dairy Services and financial support from NRLM,
provided through Bihar SRLM – Jeevika. The • Robust data management and technological
company aims at providing sustainable livelihood interventions
alternative through dairying to women milk
producers in the districts of Saharsa, Supaul, Risk factors
Madhepura and Khagaria, in Bihar. Milk producers • The company is currently incurring high losses
in these districts have primarily been dependent on on the sale of raw milk. This challenges the
unorganized sector for selling raw milk and have viability of the company in the long run.
been facing the challenges of selling surplus milk • Low number of active members leading to
round the year at a reasonable price based on the lower milk collection
quality parameters of milk. Further, untimely
payment for milk was another major constraint for • Underutilization of the available resources,
milk producers. A need was felt for a producer such as Bulk Milk Coolers (BMCs) leading to
owned enterprise that would address these higher expenses as compared to the revenue
challenges and provide a long term sustainable • Inadequate skills of BoDs in understanding
livelihood alternative to the milk producers, leading business operations, revenue streams, and
to the incorporation of KMMPCL on 22 September basic finance
2017. Besides ensuring market linkages and a
• High dependence on limited number of
transparent mechanism of milk procurement, the
company has been focusing on improving the milk institutional buyers for selling of raw milk.
productivity through the provision of technical
input services in the areas of breeding, nutrition
care and management of milch animals. Rating Overview
The company has so far mobilized 24,492 women
producers of which 65% members are part of
various SHGs and 69% are small holders. The Average
company is mainly into procurement of raw milk Parameters Weights
score
from its members. Additionally, it provides inputs Overall business 20 62.5
such as cattle feed, and mineral mixtures, artificial model and extent of
insemination (AI) services and conducts ration value addition
balancing programmes and infertility camps to Governance 25 70.7
enhance productivity and health of milch animals. Management 25 81.2
2 Key Strengths and Risks Financial 30 54.4
performance
Strengths Weighted average 100 66.8
• The CEO, along with the management team score
have adequate experience and skills. Overall Rating Grade1
• Strong financial support from NRLM/SRLM and ß+
technical support from NDDB Dairy Services
• Robust data management and MIS system Moderate performance, reasonable prospects;
• Streamlined processes and policies for milk Recommended, needs monitoring
procurement, institution building, IT and HR

1
As a practice, a rating grade is assigned to a relatively
established FPO having completed at least 3-4 years of
business operations and have audited financial
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statements for such duration. The assigned grade as
such should be treated tentative and can serve a
reference/benchmark for future such assessments.
 Study of Kaushikee Mahila Milk Producer Company Limited

3 Business Model
Inputs & commodities Table 1.1 Company overview
Commodities: Raw milk Year of incorporation September 2017
Inputs: Cattle feed, mineral mixtures, AI Started Operations October 2018
services Operational States (No.) 1
Operational districts 4
Business model and strategy
Headquarter district Saharsa, Bihar
Kaushikee is mainly engaged in Promoting organization NDDB Dairy Services
procurement and sale of raw milk, whereas
No. of members
sale of cattle feed, mineral mixtures and
(all women) – 24,492
provision for Artificial Services (AI) are
as on 31 Dec 2020
done on a thin margin or on a no profit no
Active no. of members2 17%
loss basis. Kaushikee also provides
technical input services in the areas of % of SHG members 65%
breeding, nutrition care and management % of SC/ST members 0.5%*
of milch animals. In 2019-20, raw milk Paid up Share Capital ₹53 Lakh
contributed 98% to the company’s total (as on 31 March 2020)
operational revenue while the remaining Turnover (2019-20) ₹1,660 Lakh
2% was through sale of cattle feed, mineral
Net Profit (2019-20) ₹110 Lakh
mixtures and AI services.

The company procures milk through 543 Milk Pooling Points (MPPs) currently spread across Saharsa,
Madhepura and Supaul and further plans to set up 200 MPPs in Khagaria. It reaches out to its members
through a pool of facilitators, Executives – Area Operations (Producers Institution Building
(PIB)/Procurement/ Productivity Enhancement Services (PES)), Executives – PES and Cluster Managers.
Milk procurement at the village level is done through Data Processor Milk Collection Unit (DPMCU),
post-analysing the fat and SNF content through the milk analyzer and weighing of milk on an electronic
weighing machine. The members receive a purchase receipt as well as a SMS summarizing the quality,
quantity, rate and the total amount, post-pouring of milk at the MPP. Further, real-time data flow has
been enabled through GPRS service. Through a remote access, member wise procurement details get
updated in the server after closing of each shift. This ensures a transparent procurement mechanism
at the village level. The milk collected at the MPPs are then transported to the nearest Bulk Milk Coolers
(BMCs) where they are stored till further transportation to the buyer. At each BMC site, the company
has employed 2 chemists who conduct various quality testing to ensure that the milk is unadulterated
and is suitable for consumption. Further, the overall fat, SNF and quantity of milk received from a
particular MPP is recorded and checked for variations from the information recorded at the MPP
before the dispatch. The BMCs are, in general, associated with 40-50 MPPs and have a storage capacity
of 10,000 litres (2 milk coolers having a capacity of 5,000 litres each). The inward transportation of
milk, that is, from the MPPs to the BMC site, is done through the vehicle hired by the company for the
purpose and the cost of transportation is borne by Kaushikee. The milk collected at various BMCs is
then transported through tankers to the Mother Dairy plant near Motihari, and the cost for same is
borne by the company. The company has well documented standard operating procedures for the
procurement and handling of raw milk at the MPPs and the BMCs.

2
The estimation of active members is based on the proportion of milk pourers in January 2021 (that is, average
milk procured per day/ average milk per pourer per pouring day) to the total number of members associated
with the company.

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 Study of Kaushikee Mahila Milk Producer Company Limited

The rate chart of raw milk is prepared based on the fat and SNF content and is benchmarked with
Barauni Dairy, the largest milk union in the eastern part of India.

Table 1.1 below shows the quantity and value of milk sold by the company since its operationalization
in 2018.

Table 1.1 Year wise quantity and value of milk sold by the company

Year 2018-19 2019-20 YTD Jan 2021

Quantity (Lakh Kg) 3.1 41.9 43.2
Value in ₹ lakh 114 1,626 1,680

As shown in Figure 1.1 a & b, though there has been a gradual increase in the member base of the
company, average milk procurement has been inconsistent since September 2019. The milk
procurement increased during December 2019 to March 2020 after a change in the top leadership.
However, it again decreased during March to November 2020, the milk procurement during this period
may have decreased significantly owing to the lean season coupled with an increased consumption of
milk during the nationwide lockdown and return of the migrants. As informed by the management, the
flush season in the region starts early, in September and the peak procurement is achieved during
September-October. The cyclic nature of the sector, that is low milk production during the lean season
and high during the flush season could be a possibility for the variations in procurement, however, the
decreasing number of active members (Figure 1.1 c) seems to be a serious concern for the company.

Figure 1.1 a Month wise growth in membership of the company

Growth - membership
30000
26167
25000 22545 24492
20108 21394 23670
20000 18013
16725 17223 19579
14143 17223 17412
15000
12353 15260
13443
9226
10000 7634
10834
5795 8309
5000 2908 4209 6716
2491 4891
3724
2707
0
Jul-19

Jul-20
Nov-18

Apr-19
May-19
Jun-19

Nov-19

Apr-20
May-20
Jun-20

Nov-20
Dec-18
Jan-19
Feb-19
Mar-19

Aug-19
Sep-19

Dec-19
Jan-20
Feb-20
Mar-20

Aug-20
Sep-20

Dec-20
Jan-21
Oct-18

Oct-19

Oct-20

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 Study of Kaushikee Mahila Milk Producer Company Limited

Figure 1.1 b Month wise average milk procurement by the company

Average milk procurement (Kg per day)

25000
21724
20265
20000 19749
17046 18532 18007
14743 14258 18947 14644
15000 15541 14762
13697
14065 11903
12413
10000 11086
6657
8135
5000 3383
2137 2828 4443
549 930 1270
2767 3134
0

Jul-20
Jul-19
Jun-19
Nov-18

Jan-19

Apr-19
May-19

Nov-19

Apr-20
May-20
Jun-20

Nov-20
Dec-18

Feb-19
Mar-19

Jan-20

Jan-21
Aug-19
Sep-19

Dec-19
Oct-19

Feb-20
Mar-20

Aug-20
Sep-20

Dec-20
Oct-18

Oct-20
Figure 1.1 c Month wise proportion of active members in the company

Average proportion of active members

30%
25% 24% 24% 26%
23%
23% 24% 24% 21%
20% 19% 18% 19%
19% 18% 17%
16% 16% 17%
15% 15% 16% 16%
14% 14%
12% 13% 13% 13%
10% 11%
8%
5%
0%
Jul-19

Jul-20
Apr-19
Nov-18

May-19
Jun-19

Apr-20
Nov-19

May-20
Jun-20

Nov-20
Dec-18

Feb-19
Mar-19

Aug-19
Sep-19

Dec-19

Feb-20
Mar-20

Aug-20
Sep-20

Dec-20
Jan-19

Jan-20

Jan-21
Oct-18

Oct-19

Oct-20

Figure 1.1 d Month wise average milk poured by a member per pouring day (Kg)

Average milk per pourer per pouring day (Kg)

7 6.54
5.88
6 5.73
5.24
5
5.29 5.15 6.00 4.73
5.07
4.03 4.81 4.39 4.44 4.3
3.66 3.88 4.02
4 4.40
3.00 3.91 3.96
3.03 3.71 3.63 3.53
3 3.44
3.03
2 2.67

0
Jul-19

Jul-20

Nov-20
Apr-19

Apr-20
Nov-18

May-19
Jun-19

Nov-19

May-20
Jun-20

Aug-20
Dec-18
Jan-19
Feb-19
Mar-19

Aug-19
Sep-19

Dec-19
Jan-20
Feb-20
Mar-20

Sep-20

Dec-20
Jan-21
Oct-18

Oct-19

Oct-20

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 Study of Kaushikee Mahila Milk Producer Company Limited

Figure 1.1 e Month wise average milk procurement per MPP

Average milk procurement per MPP (Kg)

80
70 69
60 57
50 52 49
47 46 47 48
40 40 39 38
28 25
31 26 35 37 31
37 35
33
30 27 29
20 24 26
20 25
10 19
0

Jul-19

Jul-20
May-19
Jun-19
Nov-18

Apr-19

Nov-19

Apr-20
May-20
Jun-20

Nov-20
Dec-18
Jan-19
Feb-19
Mar-19

Mar-20

Sep-20

Jan-21
Aug-19
Sep-19

Dec-19
Jan-20
Feb-20

Aug-20

Dec-20
Oct-18

Oct-19

Oct-20
As shown in Figure 1.1 e, average milk procurements at the MPPs have been significantly low since
inception. Considering that a single milk cane at a MPP has a capacity of 40 Kg and the procurement is
happening, both in the morning and the evening, the total milk collected at a MPP should be 80 Kg (at
least).The company may need to increase awareness among the Sahayaks who collect milk at the MPP
level, about their incentive structure and the benefits of higher milk collection at their MPP. The
Sahayaks get a commission based on the quality and volume of the milk procured. A standard rate of
₹1.1 per litre is payable at 6.5% fat and 9.5% SNF. Commission rate is subject to the deduction based
on variations in fat and SNF value. The FPC has been paying an average 0.80 paise per litre commission
to its sahayaks after necessary deductions. Additionally, the company can further provide them with
an attractive incentive structure or achievement based additional income to improve milk collection
during the initial years of operations. M-CRIL suggests that the company should be more prudent in
the selection of location of the MPP and Sahayaks to ensure a greater number of active pourers and
higher quantity of milk procurement.

Table 1.2 Growth in membership, MPPs and milk procurement over the years

Growth Mar-19 Mar-20 Jan-21

Membership 4,891 17,223 26,167
in% 252% 52%
MPP 112 434 543
in% 288% 25%
Milk procurement 2,828 20,265 18,007
in% 617% -11%

The company has linkages only with Mother Dairy for the sale of raw milk. It sells raw milk at the
producer price and an additional margin of ₹4.. The supporting organization, that is NDDB Dairy
Services, plays significant role in negotiating with the Mother Dairy to finalize the selling price of the
raw milk. As informed by the management, this additional margin of ₹4 is utilized towards covering the
overheads, such as, sahayak incentive, logistics and BMC operations, and is insufficient for generating
profits for the company with the present volume of milk sold. Additionally, the company earns a 3%
margin on weight-volume gains in milk, that is, it procures in litres from producers and sells the milk in
Kilogram to Mother Dairy. Thus, considering the average price of milk at ₹38.85 per Kg, the company
earns a total gross margin of about 13%.

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As shown in Table 1.3, the company has a negative contribution margin of ₹6.98 per Kg and ₹5.41 per
Kg in 2019-20 and Jan-Dec 2020, respectively. This indicates that the variable costs of the company
exceed its sales and further increase in sales in the same proportion would lead to larger losses.

Table 1.3 Margin analysis of raw milk sales

Particulars 2019-20 Apr-Dec 2020 2019-20 Apr-Dec 2020

(per unit) (per unit)
(Amount in ₹lakh) (Amount in ₹lakh) (Amount in ₹) (Amount in ₹)
Total procurement (Kg) 4,185,465.90 4,324,773.83
Sales realization 1,626.64 1,680.71 38.85 38.85
Producer price - total 1,468.66 1,442.23 35.08 33.33
Gross Margin 204.00 223.26 3.77 5.51
Variable cost
Milk procurement exp 243.82 237.34 5.82 5.49
Sahayak margin 14.30 25.25 0.34 0.58
Milkvan Transport 114.44 133.04 2.73 3.07
Outward freight 77.55 77.02 1.85 1.78
Variable cost – total 450.11 472.65 10.75 10.92
Contribution (246.11) (249.39) -6.98 -5.41
Less: fixed cost 250.34 121.66
Administrative exp 133.56 56.57
Manpower 116.78 65.09
Profit/loss from operations (496.45) (371.05)

To eliminate the negative contribution margin, the company can either raise its selling price or reduce
the variable costs or undertake a combination of both. However, considering that the company’s
procurement price, at present, is similar to those of other organized milk players, a decrease in price
may lead to reduced milk procurement and lower market share. As such, the company will have to
further reduce the variables costs. Higher variable costs may also be a result of underutilization of
existing resources, such as the BMC, vehicles for inward transportation, milk tankers. As informed by
the management, the company will be able to better utilize its resources and achieve a break even at
an average milk procurement of 50,000 Kg per day. As per the revised detailed project report of the
company, it plans to achieve this procurement level in year 2021-22, before the end of the grant period.

The company also sells cattle feed and mineral mixtures, however, profit from these is comparatively
less at ₹3 lakhs in 2019-20 and ₹2.45 lakhs during Apr-Dec 2020.

Key Business Challenges

• Significantly low number of active members, leading to lower milk procurement

• Weak animal husbandry practices lead to comparatively lower quality of milk resulting into
lower price of milk for such producers, compared to the prevailing prices paid by the
unorganized players. Further, higher number of cases of cow milk getting rejected due to
lower fat content (less than 3% of fat)
• Low per household milk production and higher consumption – leading to lower quantity for
sale
• Strong presence of ‘dudhiyas’ and other unorganized players who pay a competitive price to
the producers, irrespective of the quality of milk
• Lower awareness among members on the concept of FPC and reduced sense of ownership
further leads to low milk collection by the company

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• High cost of procurement due to the DG sets at the BMCs leading to high cost of diesel paid by
the company. According to the management, BMC owners are less willing for a 3-phase
electricity connection due to the high set up cost
• Geographically, the area is flood prone, impacting the milk collection during such periods
• High dependence on a single institutional buyer for selling raw milk.

Impact of COVID-19

As informed by the management, during the nationwide lockdown, the company faced challenges in
managing effectively its day-to-day operations mainly due to frequent changes in the guidelines related
to operating of offices and transportation. Further a comparatively higher milk consumption at the
household level and the worries around COVID-19 among a few milk pourers, lead to reduced milk
collection by the company. The conduct of awareness programmes and village meetings was impacted
due to COVID-19, however, the field movement of staff was not much impacted, except during the initial
period.

for better understanding of the directors of

4 Governance
• The 3 women directors interviewed were
newly inducted and need more awareness
and training on the concept of FPC, business
operations and in understanding financial
aspects of the business including basic
interpretation of financial statements.
the company.
• The board meetings are conducted regularly
and the average attendance in these
meetings was about 80%. The meeting
minutes are maintained at the registered
office in Saharsa.

• The company provides training on

• The overall governance of the company
needs more improvement enabling the
board of directors to understand various
revenue streams of the company, cost
components, basic knowledge of the audit
reports and the impact of key decisions
taken by the management on the business of
the company. All the directors are
matriculate or above.
• Kaushikee has a separate Legal & CS
department that looks after the compliance
related matters of the company, including
preparation of legal agreements, board
meeting minutes, share allotments and
share transfers. The Company Secretary has
good knowledge of the domain and has
experience of working with corporate
organizations in the past in a similar role.
leadership and business operations at
regular intervals to build capacity of the
directors in supervision of business activities
on their own.
• The shareholding and procurement details
are maintained electronically, on the
company’s ERP platform – Sarthak, at the
head office in Saharsa.
• Based on the interaction with the Directors,
there are no board level committees in the
company. However, there are 2 management
level committees for Purchase and
Investment.

• The board meeting minutes, and AGM

minutes were of reasonable quality,
capturing details of discussions. These are
prepared both in English as well as in Hindi

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Figure 5.1 Organizational structure of KMMPCL

Table 4.1 Board overview

as planned (136) in the business plan to reduce
Number of BoDs 7 the overall operational cost of the company.
Female 7
Male -
5.2 Key Management Personnel
No. of Expert 1 (Male)
Director
Exposure visits/ Trainings on business Mr. Sandeep Kumar Yadav, CEO, manages the
Training operations, leadership and overall operations of the company. He holds a
programme for institution building, FPO post graduate diploma in rural management
BoDs so far concept. from IRMA and has rich experience of about 16
Frequency of Quarterly years in the dairy sector. He is supported by
Board meetings various functional heads in managing the day-to-
Sub Committees None day operations of the company.

On an average, the senior management of the

5 Management
5.1 Organizational structure of KMMPCL
Kaushikee has well defined organizational
structure with the delegation of tasks across
various functional heads, including, heads of
field operations (Procurement/PES), legal & CS,
quality & plant management, HR, IT & MIS,
Productivity Enhancement Services (PES),
purchase, finance & accounts, marketing and
distribution and Producers Institution Building
(PIB). Figure 5.1 shows the Organizational
structure of KMMPCL.
The company currently has 100 staff of whom 64
are on the payroll of the company while 36 (field
staff) are on the payroll of Team Lease (third
party payroll). As informed by the management,
the staff strength has been kept lower (100) than
company has more than 10 years of experience
and have reasonable knowledge of the
development sector. Further, those staff who
have previously not worked in the sector, such as
those from HR, IT & MIS, are given field exposure
to have better understanding of the operations
of the company.
Additionally, the company gets support from
NDS, the implementing agency, in training and
recruitment of staff, strategic decisions related
to setting up of MPPs and in the expansion of the
operational area, preparation of standard
operating procedures for milk procurement and
quality testing, carrying out institution building
activities and in the conduct of periodical Board
meetings.

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The overall management of the company was poured by the member, such as quantity, fat,
found good having relevant experiences in their SNF, rate and amount. It also provides
respective functional areas. information related to various services offered
by the company and plans to incorporate
features to place orders for cattle feed, mineral
5.3 MIS/ Reporting
mixture and AI services.
At Head Office
5.4 Quality of Accounts
Reporting System/MIS Yes
Type of reporting system Electronic The accounts of KMMPCL are maintained in Tally
Frequency of reporting Daily by the accountant. It includes the record of sales
and procurement. The accounting is done on an
At Field Level accrual basis. As informed by the CEO, the
financial statements, that is, profit & loss and the
balance sheet, are prepared annually, however,
Reporting System/MIS Yes
M-CRIL suggests that the company should
Type of reporting Electronic; prepare provisional financial statements on a
system procurement details quarterly or half yearly basis and present the
are recorded same to the Board of Directors in the quarterly
electronically meetings. This will also help the company in
through the managing the financial risks and in making
DPMCUs and is relevant changes to its business strategies.
synchronised with
central database. Various documents including shareholders’
Data maintenance details, procurement records are of a reasonable
within the quality in terms of frequency of updates and the
organization was quality of record-keeping and depth of data
found satisfactory captured.
Frequency of reporting Real-time/Daily
All the statutory compliances including return
filling and other aspects are carried out by the
company on time, in general. No legal cases
Level of digitization were reported to have taken place and no such
issues emerged during the discussions with BoDs
The company has implemented an ERP system and management team
‘Sarthak’, developed by Everest, - developed
with grants from SRLM - for managing the 6 Financial Profile
business transactions and flow of information
within the organization. The ERP has been 6.1 Overview
implemented through the grant of Rs 158 Table 6.1 Details of net worth
lakhs for creating ICT infrastructure under the
₹ lakh
National Rural Livelihoods Project. At present, it
Particular March 2019 March 2020
has various modules, including, for Producers
(audited) (audited)
Institution Building (PIB), accounts, procurement
Share capital 6.6 53.3
and IT. Members data and procurement details
Reserves and (55.7) 54.6
are maintained electronically and are used by
surplus
MIS department to generate various reports and
Net worth (49.1) 107.9
the payment summary of individual producers.
The paid-up share capital of the company in
The company has developed a mobile app
March 2020 was ₹53.3 lakhs. As informed by the
‘Kaushikee vyapar’ for the producer members.
Directors of the company, the share capital
The app provides information related to milk

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increased to ₹113.47 lakhs by the end of January
2021. The net worth of the company has
increased significantly, from -₹49.1 lakhs in
March 2019 to ₹107.9 lakhs at the end of March
2020. This increase in net worth is mainly
because of the profit of ₹110 lakh made by the
company in 2019-20 and also due to an increase
in the member base of the company. NRLM,
through the Bihar SRLM – Jeevika has approved
a total grant of ₹3,806 lakhs of which ₹2,352
lakhs have been utilized till December 2020. Of
the total grant outlay, ₹1,892 lakhs are for
meeting capital expenditures, such as purchase
of DPMCU, BMCs, AI centre set up, IT
infrastructure, Head office and cluster office set
up. The remaining grant of ₹1,914 lakhs is for
covering program cost, including, administrative
expenses, logistic expenses, institution building
and milk procurement expenses and for AI and
nutritional service delivery.
The company made a profit of ₹107 lakh in 2019-
20 whereas it incurred a loss of ₹49 lakh in 2018-
6.4 Key Financial Ratios
Return on Capital Employed
(Including grant)
10% 9%
5%
0%
2018-19 2019-20
-5%
-10%
-10%
-15%
3
Grants which relate to revenue are credited to the
profit and loss account, either as other income or are
deducted from the related expenses in the profit and
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19. However, in the absence of the revenue
grant3 the company would have incurred
significant losses of ₹526 lakh and ₹250 lakh at
the end of FY 2020 and FY 2019, respectively.
This reflects the high dependence of the
company in the initial years on the grant for
managing its operating costs.
6.2 Current Sources of Working Capital
The grant for 'Working Capital’ was discontinued
from April 2020 onwards as the same was not
required due to short operating cycle. The
company, as and when required, utilizes a
proportion of revenue grant for managing its
working capital requirement.
6.3 Plans for raising additional funds
The company currently has no plans in near
future to raise debt from any banks or financial
institutions.
Return on Capital Employed
(Excluding grant)
0%
2018-19 2019-20
-10%
-20%
-30%
-40%
-42%
-50%
-52%
-60%
loss account. For example: - Grants for meeting
manpower cost
 Study of Kaushikee Mahila Milk Producer Company Limited

Profitability Profitability
(Including grant) (Excluding grant)
20% 14% 13% 50% 14% 13%
6.4%
0%
0% 2018-19 2019-20
2018-19 2019-20 -50%
-31.7%
-20% -100%
-150%
-40%
-200%
-42.3%
-60% -250% -211.6%

Gross Profit Margin Net Profit Margin Gross Profit Margin Net Profit Margin

Current Ratio
1.5

0.9

2018-19 2019-20

Turnover & cost analysis

2000 1654
1500
1438
1000
500
116
0 102
2018-19 2019-20

Operating Income (Rs. Lakh) COGS (Rs. Lakh)

Table 6.2: Key operating ratios

2018-19 2019-20
Ratio (actual) (actual)
Operating expense to sales 1.39 0.93
Asset turnover 0.30 1.37
Days payable 173 47
Days receivable 69 22
Inventory period 10 13

Note:
As the company pays to its milk pourer members, electronically, through the bank transfer, on 3rd of
each month and maintains a 10 days payment cycle, some of the ratios related to days payable and
receivable may not present the actual financial position of the company as observed during other
days, mainly because the balance sheet has been prepared on 31 March.

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Key findings/Interpretation:
• Return on Capital Employed (ROCE) measures a company’s profitability by revealing how
much profit a company generates with the money or assets invested in its business. The ROCE
of the company in 2018-19 was negative, at -10% whereas during 2019-20, it increased to 9%.
Thus, the company has been able to generate a reasonable return on its capital. However, in
absence of the grant provided to the company for meeting its operating expenses, the ROCE
would have been highly negative at -52% and -42% for 2018-19 and 2019-20, respectively.

• At the end of March 2020, the company had a tangible fixed assets base of ₹77 lakh whereas
that of intangible assets was ₹14 lakh. The major tangible assets of the company include BMCs,
DPCMCUs and other equipment and machineries required for procurement, quality testing
and storage of milk. The company, during 2019-20, had received a grant of ₹643 lakhs, under
the NRLP for purchase of capital assets

• The RONW at the end of March 2020 was significantly high, at 98.7%, mainly due to lower
share capital base as compared to the turnover and high grant support in meeting the
operational expenses of the company. In the absence of grant the company would have
generated a negative return on its net worth.

• Gross profit margin decreased slightly from 14% in 2018-19 to 13% in 2019-20. During the
same period net profit margin has increased significantly from -42.3% to 6.4%. The improved
profitability was mainly because of the reduced administrative and general expenses
compared to the total revenue of the company. However, in the absence of grant, the net
profit margin would have been -31.7% and -211% in FY 2020 and FY 2019, respectively. This
indicates an improvement in the operational efficiency of the company.
In the absence of grant, the net profit margin of the company would have been -22.1% and
10.8% in 2019-20 and YTD October 2020.

• Company has a scope to further increase its business operations as it had high value of current
assets (₹565 lakh at the end of FY 2020) compared to current liabilities (₹374 lakh at the end
of FY 2019). The current ratio of the company increased from 0.9 to 1.5 reflecting improved
utilization of the current assets by the company to generate revenue.

• In 2019-20, cost incurred on sale of goods was 87% of the total revenue compared to 88% in
2018-19. This suggests that the company has slightly improved its procurement cost and
operations. Going forward, KMMPCL needs to either improve its margin or further increase
the volume of milk sales to improve profitability.

• As shown in Table 6.2, the operating expense to sales ratio has significantly decreased from
1.39 in 2018-19 to 0.93 in 2019-20. This signifies an improvement in the operational efficiency
of the company. Going forward, the company needs to further reduce its operating expenses.

• For, 2019-20. the company though received money from its debtors in about 22 days, it paid
to its creditors in about 47 days which is reasonably good. The lower days receivable
compared to the days payable would help Kaushikee in minimizing its working capital
requirement.

• The inventory period indicates the liquidity of an inventory and can vary depending on the
commodities and inputs the company deals in. Kaushikee’s average inventory period was 10
days and 13 days in 2018-19 and 2019-20, respectively. Considering that the company deals

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in raw milk as well as cattle feed and mineral mixtures, the company has been able to manage
its inventory efficiently.

• The operating cycle period of Kaushikee has improved significantly from 79 days in 2018-19
to 35 days in 2019-20. Going forward, the company should aim at maintaining the current
operating cycle period.

6.5 Plans & The Projections

Since the company is in its nascent phase, it is currently planning to scale-up the procurement and
sale of commodities. KMMPCL plans to expand its coverage to additional 200 villages and has received
the approval for expansion from the SRLM with an extension to the project implementation till 31
March 2022. The company plans to set up 4 BMCs in Khagaria district to cover these additional villages.
As per the revised project plan, the company will increase its member base to 40,000 by the end of
March 2022 and will increase the average milk procurement to 61,823 litres per day from about 18,000
litres per day at the end of January 2020. However, given the current procurement challenges, such
as low production, lack of marketable surplus and low awareness among members regarding the
benefits of selling milk to a producer company, the target for average milk procurement per day seems
challenging. By the end of the project period, the company also plans to increase the number of AI
technicians to 60, from 35 at the end of January 2021. The number of AIs targeted is 25,000 and 6,000
producers are to be covered under Ration Balancing Program by the end of March 2022.

Further, increase in the member base will help the company in raising additional share capital which
can be used for further increasing the scale of business. Also, this might contribute to improving the
profitability of the company since the company has been focusing on achieving higher sales volume.

As informed by the Chief Executive, the company may also plan to enter into the procurement and
sale of agricultural commodities, especially maize, using its already established dairy infrastructure
and resources. However, the discussion is at the preliminary stage and the plan for its execution is yet
to be developed.

As informed by the management of Kaushikee, the company has a detailed business plan, however it
has not been shared with M-CRIL. In the absence of a detailed business plan with revenue and
profitability targets for the future years, M-CRIL is unable to comment on its quality and on the
sustainability of the project after the end of grant support from NRLM/SRLM.

Way forward
There is significant dependence of the company on the grant amount in setting up of procurement
infrastructure and in meeting the operational expenses of the company. At present, the employee
expenses of the company, except for the Chief Executive and the Company Secretary, is covered under
the grant. While such a support is desirable at the initial stage, it is advised that the company needs
to gradually move towards increasing its market share and subsequently, its profitability to be self-
sustainable. Going forward, such expenses need to be covered by the company.

KMMPCL’s business model for future expansion holds a promising business opportunity and returns to
the shareholders. However, the company would need to enhance the sense of ownership among its
members through increased coverage of producer awareness programmes and other member centric
activities.

Based on M-CRIL’s interaction with the staff of the company and a few producer members, the milk
producers prefer selling their produce to dudhiyas as they perceive the price paid by them at par with
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the producer company. Other reasons may include social bonding with such players and the advance
payment made by some dudhiyas to the milk producers. However, M-CRIL suggests that the company
should conduct an extensive survey among its members and non-members to assess the level of
awareness regarding the benefits of selling milk to a producer company. Such studies should also focus
on the reasons of producers’ preferences for a particular channel for the sale of raw milk, especially
for selling it to the unorganized players.

The company plans to improve procurement by increasing production/productivity of milk and has
taken initiatives to improve the milk productivity and quality through better breeding, feeding and
cattle management practices, however, it needs to be scaled up, as planned.

The company has been able to reduce the market risks through agreement with Mother Dairy for the
sale of raw milk. However, going forward, it is advised to reduce dependence on a single institutional
buyer and increase market linkages with other buyers.

Considering the current level of share capital of ₹113.5 lakh (as informed by the management, at the
end of January 2021), overall net worth in 2019-20, the scale of business of the company so far, the
short operating cycle and the grant received under the NRLP, M-CRIL does not suggest any short-term
loan to Kaushikee MMPCL. However, an appropriate adjustment needs to be made based on any
expansion/additional activity that the company may plan in future.

6.7 Summary of key recommendations

• The company may consider relooking at its business model and the cost structures. To achieve
viability the company will have to further reduce the variables costs.
• M-CRIL suggests that the company should conduct an extensive survey among its members
and non-members to assess the level of awareness regarding the benefits of selling milk to a
producer company. Such studies should also focus on the reasons of producers’ preferences
for a particular channel for the sale of raw milk, especially for selling it to the unorganized
players.
• The company should try to develop linkages with other institutional buyers to reduce
dependence on a single buyer and hence the market risk.
• Annual refresher training of the Board of Directors on the concept and operations of the FPC,
statutory compliances and their roles and responsibilities in the company shall be organized
• Awareness programmes should be designed and delivered in the field to raise awareness
about the concept and benefits of the FPC among the producers. This may further help in
increasing the proportion of active members.
• M-CRIL suggests that the company should prepare provisional financial statements on a
quarterly or half yearly basis to analyze the financial position and the performance of the
company.

7 Site Visit
Office
Address of the site visited Saharsa, Bihar
Type Leased
Date of visit 16-17 February 2020
Site used as Head Office
Name of the executive contacted Mr. Sandeep Kumar Yadav, CEO
Were directors present at the time of interview Yes

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--------------------------------------------------------------------------------------------------------------------------
8 Methodology
The M-CRIL assessment team held detailed discussions with Mr. Sandeep Kumar Yadav, CEO, and the
heads of procurement, IT & MIS, finance & accounts, quality, PES, HR, legal &CS of Kaushikee MMPCL.
In addition, the team interacted with 3 board of directors and carried out focused group discussions
with about 24 women members at Rampur MPP. The M-CRIL team had a discussion with Mr Raghu
Mallegowda, Senior Associate, Planning, Coordination and Monitoring, virtually from NDS who shared
his views and insights briefly about the company. The accounts of the company were examined, and
the financial statements provided by the management team were reviewed and restructured.

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9 Annexes
Annex 1
Balance Sheet
(in ₹)
#
Particulars 2017-18* 2018-19 2019-20
(audited) (audited) (audited)
EQUITY & LIABILITIES
Shareholder funds (652,739) (4,694,305) 12,762,316
Share Capital 11,000 662,900 5,332,800
Reserves and Surplus (663,739) (5,571,905) 5,461,316
Share Application Money Pending Allotment - 214,700 1,968,200
Deferred Grant - 51,392,514 106,129,480
Non-Current Liabilities 172,761 1,609,855 7,229,073
Long term provisions - 410,003 1,742,292
Other long term liabilities 172,761 1,199,852 5,486,781
Current Liabilities 9,797,145 30,203,471 37,405,855
Trade Payables 1,438,233 4,983,796 19,088,442
Other current liabilities 8,356,651 25,191,665 15,918,386
Short term provision 2,261 28,010 2,399,027
Total Equity & Liabilities 9,317,167 78,511,535 163,526,724
ASSETS
Non-current assets - 51,558,289 136,083,083
Fixed Assets - 51,392,514 106,996,499
Tangible Assets - 50,109,343 76,517,616
Intangible Assets - 1,283,171 1,392,299
Capital WIP - - 28,219,565
Long term loans & advances - 165,775 218,923
Deferred tax assets - - 648,096
Current Assets 9,317,167 26,953,246 56,530,225
Inventories - 274,300 4,990,358
Trade receivables - 2,179,544 10,010,601
Cash and cash equivalent 9,317,167 1,969,938 11,125,247
Short term loans & advances - 22,529,464 30,404,019
Total Assets 9,317,167 78,511,535 163,526,724

*The audited balance sheet as at the end of March 2018 had only a single entry on the assets side,
that is cash and cash equivalents.

#
As informed by the Chief Executive, the company prepares the financial statements on an annual
basis and as such, the provisional financial statements, either quarterly or half yearly could not be
shared with the M-CRIL team.

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Annex 2
Income Statement
(in ₹)
Particulars 2017-18 2018-19 2019-20
(audited) (audited) (audited)
Income - 11,820,880 165,988,506
Revenue from operations - 11,604,345 165,445,608
Other income - 216,535 542,898
Opening Stock - - -
Purchase - 10,511,103 148,479,109
Closing stock - 274,300 4,716,059
Cost of goods sold - 10,236,803 143,763,050
Direct Expenses - - 191,552
Gross profit - 1,584,077 22,033,904
Administrative expenses 656,601 5,857,176 9,685,024
Finance cost 7,138 75,862 136,455
Other expenses
Profit before depreciation (663,739) (4,348,961) 12,212,425
Depreciation and amortization - - -
Profit before tax (663,739) (4,348,961) 12,212,425
Current year tax 2,210,405
Short provision for tax 559,204 (648,096)
Net profit/loss (663,739) (4,908,165) 10,650,116
Revenue grant 1,809,718 20,106,929 63,200,335
Net profit/loss (2,473,457) (25,015,094) (52,550,219)
(Adjusted considering the
subsidization of operating expenses
through the grant)

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Annex 3
Formula of various financial ratios included in the report

1. Return on Capital Employed (ROCE) = Earnings Before Interest and Tax (EBIT) / Capital
employed

2. Current ratio = Current assets/current liabilities

3. Gross profit margin = Gross profit/Revenue from operations

4. Net profit margin = Net profit/ Revenue from operations

5. Turnover and cost analysis: The graph shows the revenue from operations against the cost
of goods sold (COGS)

6. Operating expense to sales ratio = Sum of direct and indirect operating expenses/ Revenue
from operations

7. Asset turnover = Revenue from operations/Average assets

8. Days payable = 365/(Purchases/Trade payables)

9. Days receivables = 365/ (Revenue from operations/trade receivables)

10. Inventory period = 365/(COGS/Avg. inventories)

11. Working Capital (WC) estimation using operating cycle method

WC = Estimated Cost of Goods Sold (COGS) * (Operating cycle/365) + Desired cash and bank
balance

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Annex 4
FPO rating grades

Overall score Grade Remarks

90% and above + Excellent performance, good prospects;

Very highly recommended
80-90%  Good performance, good prospects;
Highly recommended
70-80% − Reasonable performance, good prospects;
Recommended
60-70% + Moderate performance, reasonable prospects;
Recommended, needs monitoring
55-60%  Moderate performance, moderate prospects;
Acceptable needs improvement to handle significant
support
Below investment grade
50-55% − Less than moderate performance, fair prospects;
Needs significant improvement to handle support
45-50% + Low performance, limited prospects;
Needs substantial improvement before considering
support
<45%  No support recommended at this stage

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