MANAGEMENT DISCUSSION AND ANALYSIS ECONOMIC OVERVIEW Global economy The global economy is expected to report an unchanged growth rate of just over 3% in 2014. The flat performance is a combination of a number of factors - sluggish trade across the world, weak commodity markets (especially energy and metals), deflationary conditions as well as reforms-induced slowdown across some countries. While economic activity in the United States and United Kingdom gathered momentum, monetary policy remained accommodative and recovery sputtered in the Eurozone and Japan. Global growth in 2015-16 is projected higher at 3.5-3.7% on account of lower oil prices, the full benefit of which is likely to be offset by the fact that many advanced and emerging market economies continue to be investment-shy on account of slower medium-term growth Indian economy In 2014-15, the Indian economy retained its position as one of the largest in the world with a promising outlook. This optimism was inspired by moderated inflation, domestic demand growth, increased investments and declining oil prices, among other factors On the demand side, growth in private final consumption increased from 6.5% in 2013-14 to 7.6% in 201415. The RBI tightened its monetary policy, which helped contain demand brssure, creating a buffer against external shocks and keeping currency volatility under check. The average WPI (Wholesale Price Index) inflation for 2014-15 declined to 3.4% (April-December), compared to 8.9% in 2013-14, largely influenced by a decline in fuel prices. Food price inflation moderated to 4.8% during April-December, 2014 compared to 9.4% in 2013-14. Following a decline in inflation, the RBI cut policy repo rates by 25 bps (to 7.75%) in January, 2015 and another 25 bps (to 7.50%) in March, 2015. RBI also reduced the SLR (Statutory Liquidity Ratio) in January, 2015 by 50 bps to 21.50% of net demand and time liabilities. For 2015-16, the Economic Survey pegged real gross domestic product growth (at market prices) 7.6% which was 0.6-1.1 percentage points higher than estimates for the current financial year. In the short run, growth is likely to be boosted by a combination of lower oil prices and monetary policy easing. INDIAN TEXTILE INDUSTRY India is a prominent player in the global textiles and garments space. It is one of the few nations with a strong brsence across the textile value chain - from natural and synthetic fibres to yarn, fabrics and finished products. The abundant availability of raw materials (cotton, wool, silk and jute) and skilled workforce have graduated India into a global textiles sourcing hub. Besides, the sector is a major economic contributor through direct and indirect employment and net foreign exchange earnings. The most significant change in the Indian textiles industry has been the gradual increase in the role of man-made fibres. India has established a brsence for its innovative MMF textiles range in almost all countries. Favourable government policies The 2014 Budget allocated C 5 billion for the development of a textile mega-cluster in Varanasi and another six in Bareilly, Lucknow, Surat, Kutch, Bhagalpur and Mysore. In May 2014, the RBI conferred the 'Authorised Dealer Category-I' status on banks to extend long-term export advances for a maximum of ten years. The export credit will be backed by an export performance bank guarantee from Indian banks, which will enable India's exporting companies to align their interest costs with lower international rates. The Ministry of Textiles approved a scheme for 'promoting usage of geotechnical textiles in the North-East Region'. The scheme was approved with a financial outlay of C427 crore (US$ 69.12 million) for five years from 2014-15. According to the Working Group for Textiles and Jute, the subsidy outflow to the standalone spinning sector was maintained at 26% of the Plan allocation (C 1 1,952.80 crore) including committed liabilities of spinning sector of erstwhile/modified TUFS, RTUFS and fresh sanctions during the 12th Five Year Plan period. Outlook India's US$108 billion textile industry retains the potential to cross the US$500-billion mark by 2025 following adequate government support. This could create another 35 million jobs and draw US$200 billion in investments (Source: Wazir Advisors and PCI Xylenes & Polyesters). Cotton overview Cotton is the leading crop in India's textile sector, accounting for more than half the country's fibre consumption. Its production, however, is largely dependent on climatic conditions, nearly 65% of the cultivation area being rain-fed. In 2014-15, the Cotton Advisory Board pegged cotton production at 40 million bales. Due to China's decision to liquidate its substantial cotton stock, cotton prices are declining globally. Cotton pricing and China's policy: In April 2014, China terminated its three-year-old cotton procurement policy and shifted to a direct subsidy-based policy. Under the new policy, farmers will sell cotton at market prices; in case the market price is lower than the government-set target price, the difference (subsidy) would be paid directly to farmers. China set the target price at RMB 19,800 per tonne for CY 2014-15, which is lower than the support price of RMB 20, 400 per tonne for CY 2013-14. This is expected to reduce the import of cotton fibre by China. Challenges The Indian denim fabric industry is marked by oversupply. The country's installed denim capacity is 12,100 million metres per annum; average utilisation is estimated at 80-85%. The Indian denim fabric industry is cyclical, characterised by periods of excess and inadequate capacity. Jeans market in India: The Indian jeans market (core denim product) is under-penetrated; per capita jeans consumption of 0.3 pairs is lower than 2-3 pairs in the US and the EU nations. India's jeans demand is expected to be driven by an increasing brference for casual and semi-formal clothing, BPO and KPO firms accepting casual wear as official uniform and the evolving consumer profile on account of higher disposable incomes. India's denim fabric industry is expected to grow at a CAGR of 6% in 2013-18, driven largely by volume growth arising out of a healthy demand for denim jeans and readymade clothing. Readymade apparels: The domestic demand for readymade apparels is expected to report a CAGR of 5.5% to C1,705 billion during 2013-18, driven primarily by a volume growth of 4-5% and realisations growth of 1%. Rural demand is expected to outperform urban demand on account of their extensive under-penetration that is now likely to get corrected. India's exports of readymade apparel are expected to grow faster than the domestic market, registering a CAGR of 6-7% during 2013-18. A growing demand for readymade apparel in domestic and export markets is expected to strengthen the domestic denim fabric industry. Within the readymade garments market, the jeans segment is expected to report steady offtake growth. Denim jeans: The domestic denim fabric market is expected to grow in line with the denim jeans market. CRISIL expects the market for denim jeans to reach C114 billion in 2018 from C89 billion in 2013, implying a 5% CAGR through the period. Although volumes are expected to grow 4%, realisation growth is expected to remain muted at 1%.With 4,68,152 spindles in operations across four manufacturing facilities in Rajasthan and one in Tamil Nadu, RSWM generates 322 tonnes per day of polyester viscose-blended yarn, making it one of the leading Indian players in this space. The Company possesses one of the widest yarn ranges of fibre blends, counts and shades with a special focus on value-added variants. The Company's specialty range comprises yarns made from a range of unorthodox fibres (soya protein, milk protein, bamboo, bamboo-charcoal and branded fibres such as Tencel®, Greenplus®, Protex®, X-static®, Beltron®, Huvis FR Polyester®, Trevira CS®, Coolmax®, Coolplus®, Birla Modal®, Excel®, Viloft®, Cupro®, Lycra®, Climav, Seacell®, Sorona®, Teijin Conex®, Tworon® and Ingeo (PLA)®. A prudent investment in cutting-edge technology has enabled the Company to achieve quality consistency. The Company's key domestic customers comprised Raymond Ltd., Siyaram Silk Mills Ltd., Welspun India Ltd., Alok Industries Ltd. and Arviva Industries Limited. The Company's yarns also find acceptance across 78 countries, exports contributing 40.19% of the yarn business. The year that was Domestic export demand remained robust and business volumes increased by 11.10% over the brvious year. The Company's Ultima brand was accepted enthusiastically with sales volumes more than doubling over the brvious fiscal. Declining crude prices impacted the global yarn business, subduing demand from important global yarn markets. Despite this, the overall business volumes increased by 1.58% over the brvious year largely due to increased domestic volumes. Average yarn realisations in 2014-15 were marginally lower than in 201314, primarily due to declining crude prices. The impact of the decline was mitigated through a focus on value-addition; the proportion of value-added yarns in the sales mix doubled from the brvious year. The merger of Cheslind Textiles Ltd., with RSWM is expected to strengthen the Company's growth and profitability. Business-strengthening initiatives Shopfloor Invested Rs. 1.38 crore in modernising infrastructure Optimised operating costs and invested in top-of-the-line automation across units Increased power trading across units, optimising power costs Commissioned a 50 TPD green polyester fibre unit, expected to optimise expenses in 2015-16 Marketplace Increased volumes in key North and South Indian textile markets Entered the home textiles segment, opening a value-added revenue accretion window Introduced four new yarns for niche use, which were well-received by customers The blueprint for growth The Company partnered, BGJC & Associates, to draw a business-strengthening blueprint. This encompasses financial and non-financial strategies: from employee motivation to equipment modernisation and from succession planning to workplace innovation. Cross-functional teams were identified with KRAs and timelines to achieve desired goals. The Company will modernise Cheslind's operating unit -streamlining business operations and integrating processes with existing operations to enhance profitability. hese value-added yarns, spun at the Mandpam plant, complement RSWM's wide yarn basket. These products generate a 50% brmium over grey yarns even as they are quantitatively smaller than the other segments. What is melange yarnRs. Melange yarn is produced by a combination of two or more than two fibres. Conventionally, the term melange is used for yarns produced by the combination of two fibres (whether of the same type but different in colour or when the fibre type is different). Melange yarns are widely used in warp and weft knitting machines, various V-bed knitting machines and winding machines, among others. Melange yarn is used in underwear, casual wear, sportswear, shirts, business suits, socks as well as bed linen, towels, decorative fabrics and other home fabric products. Melange yarn can be classified into two types: Blended melange yarn: This yarn comprises different fibres mixed/ blended in a certain fixed ratio. Non-blended melange yarn: In this yarn, no different fibres are blended, but different coloured fibres of the same type are used (100% cotton-dyed yarn, 100% bamboo yarn, among others). The year that was The demand for melange yarns was influenced by a lacklustre performance of the global fashion economy. Business-strengthening initiatives Shopfloor Introduced auto-doffing on the ring frames, reducing manpower Commissioning 25,344 spindles in early 2015-16, enhancing mélange yarn production to 16,835 MT Received the ISO: 50001 certification (energy conservation), the only RSWM operating unit with this certification Added 40 value-added yarn variants Marketplace Alliance with Decathlon, a reputed European chain store with a brsence in North India, enhanced offtake Forged an alliance with REMEI AG for supplying melange yarns Received product certifications from reputed international brands like H&M and C&A, which could generate attractive volumes Established brsence in Eastern India's undergarment market; created a depot for seamlessly supplying products Increased exports to key international markets The growth blueprint The Company intends to commission a new facility and focus on reaching optimal capacity utilisation, which will allow it to cater effectively to its growing client base he Company's fabrics are manufactured at its ISO 9001: 2000-certified integrated plant in Mordi (Rajasthan). The unit comprises 154 state-of-the-art looms sourced from global textile machinery brands. The unit also houses the entire range of fabric processing and finishing equipment, making it possible to process fabrics and provide world-class finishes - all under one roof. The Company's product range (marketed under the 'Mayur' brand) comprises fabrics for formal and semi-formal wear, covering unique blends of polyester and viscose in different yarn counts, shades and finishes. The Company's innovation focus is showcased in the brsence of 10 design experts and dedicated equipment for bulk sample yardage and design blankets. The Company's pan-India brsence is facilitated through a distribution network comprising more than 2,000 retailers. Domestic sales accounted for more than 70% of sales volumes in 2014-15; the rest was exported to quality-conscious customers across 25 countries. The year that was The performance of the fabric division remained subdued, revenues staying at the same level as in the brvious fiscal. This was largely due to weak domestic demand despite exports increasing about 10% over the brvious year. In the domestic market, growth in the institutional business (corporates and schools) cushioned a decline in retail volumes. Business-strengthening initiatives Shopfloor Undertook an energy audit at the plant to optimise steam consumption. Commissioned 50 high-speed looms in October 2014 sourced from leading global brands, which reduced operational costs while improving productivity and flexibility. Manufactured denim fabrics from the new machines. Marketplace Launched the black and blue office wear range of fabrics. Launched new varieties of black and blue fabric to match denim colours, a substitute for denim in polyester viscose fabrics. Launched a special fabric (for making sarongs) in Islamic countries. Launched a cotton fabric (for suiting and shirting), the natural stretch range and yarn-dyed fabric range. Added 10 dealers to the distribution network; undertook measures to strengthen the Mayur brand. Added 12 international customers. Blueprint for growth The commissioning of new looms increased fabric capacity to 8.8 million metres per annum. The Company will focus on maximising equipment productivity, investing in a new Stenter machine for enhancing fabric finish, optimising costs, improving quality and enhancing flexibility. the denim business customizes fabrics around diverse applications. The Company's integrated state-of-the art denim manufacturing plant in Mordi comprises a yarn spinning facility (ensuring superior product quality, higher reliability and better client service) and sophisticated equipment from leading global brands. The unit has 86 high-speed loom generating 18 million metres complemented by a 16.2 million metre fabric processing capacity per annum. These facilities enjoy brand-enhancing global certifications like Global Organic Textile Standards (GOTS), Global Recycle Standards, SA 8000, Organic Exchange (OE blended and/or OE 100), OEKO-TEX 100 and REACH. The Company's denim fabric finds acceptance among leading international brands (Levi's, H&M, Zara, Warner, Carrefour, New Yorker, Lules, Marlboro, Diesel, Jack n Jones, Polo, Flori din, Mavi, Gap, TCP, Lee, Wrangler, Tesco, Grolls, Swiss Rail, Ann Taylor and domestic brands (Pepe, Spykar, Killer, Mufti, Pantaloons, Gini & Jony). Domestic brands comprise 60% of the fabric offtake; the rest is exported (including deemed exports). Over the years, the Company created a product basket of 3,000+ fabric variants. The product range comprises denim-out-of-denim (recycled denim), work wear like anti-bacterial hydrophobic, hydrophilic, anti-odour and fire-retardant, organic cotton fabric, power stretch, plasma denim, rich blended denims of cotton with linen, cotton with Kashmir wool, cotton with hemp, cotton with viscose and 100% tencel, among others. The Company's garmenting department develops denim apparel samples for customers. The year that was The performance of the denim business improved considerably; the unit recorded a positive bottomline in the fourth quarter. Increased volumes from existing customers and customer addition enhanced demand that was met by additional fabric volumes (from new looms in the fabric unit). An increased demand for value-added fabrics strengthened profitability. Business-strengthening initiatives Shopfloor Implemented initiatives for optimising energy and steam consumption. Created a line that converted hard waste (from the spinning unit) into yarn and fabric, green fabric into fresh fabric. The line was approved by a respected international brand. Marketplace Added international customers (New Yorker, Mayoral, Pull & Bear) and domestic brands (Louis Philippe, Van Heusen, Allen Solly, US Polo, Izod and Being Human). Developed new products namely 3D (provides the fabric with an older look), dobby structures (structure of suiting in denim), knit look (impacts a knitted character to the denim fabric), cordura-denim (provides denim fabric with corduroy characteristic of colour fading), neppy, melange stretches (new range), dual colour, 16-dip indigo, super stretch indigo, all-season fabric (Thermolite and Coolmax) and yarn-dyed shirting, among others. Developed value-added indigo-dyed yarn that was accepted by quality-conscious clients. The growth blueprint The division expects to make a meaningful contribution to the Company's profits through debottlenecking measures, enhanced people productivity and new product development. roduct quality is the ultimate determinant of success in the textile industry. Hence, RSWM is continuously focused on sustaining impeccable product quality across batches. Towards this end, RSWM has invested in cutting-edge automation from globally-reputed textile machinery makers. In addition, the Company provides extensive training to its team on the finer technical nuances of quality products namely fabric geometry and the inter-relationship of yarn count, loop length, pick count, relaxation and fabric properties. As a result, we have been able to deliver products at par with the best in the industry. This has resulted in receiving global recognition for the Company's facilities, systems and processes: ISO 9001:2000, ISO 14001, Oeko-Tex, Control Union Certification and SA-8000:2001certification from BSI Management Systems and Fair Trade certification by FLO-CERT. A t RSWM, information technology is not simply a business function but a critical business driver for ensuring greater productivity and better decision-making. The Company has put in place a specialised Enterprise Resource Planning (ERP) solution for textile companies which connects all manufacturing locations and customised modules to cater to the needs emanating from functional areas like finance and human resources. In its constant endeavour to implement emerging IT tools that facilitate seamless data integration, superior business management and real-time decision making, the Company will spend C20 crore to implement a new ERP solution across all functions of the organisation which will also upgrade the IT hardware across functions. This initiative is expected to go live in 201617 and will facilitate superior business control and management. RSWM is well-protected thanks to its efficient data recovery platform for ERP and of its e-mail system as well along with the seamless connection existing between all of its plants/locations. alent has always been important, but it has become progressively critical because of the increasing complexities, widening ambit of activities and the snowballing importance of domain-specific knowhow. This has created a situation where the performance of talent has a major impact on the bottomline. Cognizant of this reality, RSWM has fostered an environment of continuous learning with a focus on talent as a source of competitive advantage. During the fiscal gone by, RSWM employees underwent functional and behavioural training, leading to enhanced efficiency. The recruitment process was streamlined and an in-built feedback generating system was implemented to ensure that the performance appraisal system was in line with globally-best standards. As of 31st March 2015, the Company's workforce comprised 15,217 skilled and dedicated personnel. Enlisting unbiasedly: RSWM has always led from the front when it comes to promoting a gender-neutral workplace. Honing skills: A learning organisation is one which is skilled at creating, acquiring, and transferring knowledge, and at modifying its behaviour to reflect new knowledge and insights. The Company, as such, has prudently devoted resources towards honing the skills of its workforce to usher in continuous improvement. Numerous across-the-table initiatives were undertaken to ensure systematic problem solving, experimentation with new approaches, learning from experience and past history, learning from experiences and industry-best practices, and transferring that knowledge quickly and efficiently throughout the organisation. Consequently, the Company undertook a programme to raise awareness about the core purposes and values of the Company; ISO 9001:2008 and EMS 14001:2004 compliances; kaizen or continuous improvement; skill development programmes for jobbers, awareness programmes on market complaints, brsentations on the 5S culture, total safety and support system, quality life programmes and online training on topics like IT, helpdesk complaint system and intranet. Managing performance: The Company cemented its credentials as a forward-thinking corporate by implementing innovative solutions that shrunk process delivery cycles, by laying down stringent parameters to effectively appraise workplace efficiency and by identifying procedural bottlenecks and removing them. The Company adopted the 'Balanced Scorecard' framework which measures performance on the basis of multiple metrics - financial, customer, internal processes and learning growth. This system has become RSWM's lifeline. The identification of high performers coupled with employee empowerment initiatives is helping create the next generation of leaders. Improving morale: RSWM's success can be attributed to a cohesive team of employees with a penchant for collaboration and an awareness of interdependency. Collaborative activities have helped establish a stronger bond between co-workers and more effective communication. The Company organised a number of indoor and outdoor sporting meets, attracting participation from officers, staff members, workers and family members. The HR teams also organised excursions for the staff and their families in addition to the following initiatives: • Celebrated national and religious festivals. • Organised picnics for all staff members and families, tours for the staff and families. • Organised a sports day and a games extravaganza for workers. • Observed Women's Day. • Organised inter-unit tournaments in various disciplines. Raising awareness: A tangible interdependency between ergonomics and occupational workplace health and safety has been established over the past few years. Moreover, their beneficial impact on a business's productivity and profits are emerging, both directly (such as reduced sick pay and compensation claims) and indirectly (for example, reduced absenteeism, improved corporate reputation and reduced staff churns). The Company created a safety department and laid down policies, procedures and processes to be implemented. The team organised a number of seminars for increasing safety awareness where training was imparted by an outstation team. Safety exhibitions and mock drills were organised at regular intervals as well. The Company also translated the "Muratech" manual for the (equipment in Kharigram) from English to Hindi to enhance procedural understanding and hasten troubleshooting. It also organised eye check-up camps for staff and workers, registered with NSDC for vocational training, organised worker awareness exhibitions on "dos" and "don'ts" for the spinning team through posters displayed at different shopfloor locations |