MANAGEMENT DISCUSSION AND ANALYSIS

Annexure-A

The Management of Reliance Chemotex Industries Limited is pleased to brsent its report on Management Discussions and Analysis. The Company's core business is the manufacture of ring spun synthetic, blended yarn. This report encapsulates the management's expectations on the Company's business, based on brvailing and anticipated market conditions.

a) Industry structure and Developments:

The textile industry holds significant brsence in the Indian Economy and plays a vital role in the growth of the Country. The Textile Industry contributes around 14% in Industrial Production and 4% of Country's GDP. The Industry generates around 21% of the total employment in the Indian Economy. Over the years, India has become the second largest Textile Manufacturer in the World after China. In terms of Raw Materials, Labour, Machine Productivity and Cost of Production, the Textile industry has shown substantial improvement over the last few years.

b) Opportunities and Threats:

The outlook of the textile industry remains positive despite brvailing inflationary conditions in the country. This is largely due to the support that the industry continues to receive from both the Union and State governments.

The Union government has extended the TUF scheme until 2017 and has also provided a 2% interest subsidy for stand-alone spinning projects.

The Rajasthan State government has announced a new textile policy called the "Special Customized Package 2013" for the development of the textile industry in Rajasthan. This scheme will remain in force until March 2020 and hopes to attract an investment of Rs. 10,000 crore there by providing, direct and indirect employment to 100,000 people.

The following factors may effect the future of the textile industry.

? Shortage of skilled / unskilled labour.

? Foreign Exchange fluctuation.

? Rise in the Interest cost for Working Capital and Term Loans.

? Rise in Interest Rates on Export Packing Credit Limits in Rupees.

? Cheaper imports

? Erratic Monsoon

c) Modernization / Expansion Plans

In keeping with its philosophy of continuous modernization, strict quality control and innovation the Company has embarked on the expansion and modernization of its existing plant situated in Village: Kanpur, Udaipur (Raj.) during the current financial year. The Company has added 4800 spindles and also additional machinery to balance its production capacity in order to improve productivity and flexibility. The total cost of this project was Rs 34.70 crores and the project was almost completed in the current year.

Furthermore, in its efforts to remain ahead of the curve, the Company has actively taken steps to enhance economies of scale, increase productivity, reduce costs, shrink delivery schedules, invest in the research and development of new products and aggressively pursue opportunities in new markets. The Company is driven by the belief that a large product range, with ever-increasing variety and product flexibility is essential to serve its customers and survive in an increasingly transparent and competitive global market.

d) Performance Review and Analysis:

The Company's only business is the manufacture of ring spun, synthetic, blended yarn. The Company has no activity outside India, apart from the export of the synthetic yarn that it manufactures in India. The Company has performed well in the year under review, despite many economic challenges on both the global and domestic front. The Company has increased its yarn production, which has resulted in an increased Net Profit.

The highlights of the Company's performance are shown below:

? Yarn Production has increased by 6.58% to 13349 metric tonnes.

? Revenue from operations has decreased by 6.17% to Rs. 23975.78 Lacs due to a decrease in yarn prices as a result of a sharp decrease in polyester fiber prices due to the fall in crude prices worldwide.

? Net Profit has increased by 15% to Rs. 650.99 Lacs.

e) Risks and Concerns:

No business can be conducted without accepting a certain level of risk, and any expected gain from a business activity is to be assessed against the risk that activity involves.

The Company's policy is to identify risks particularly those risks which can threaten the existence of the Company. At the same time, the Company will determine the risks which are within the limit of risk acceptance and follow the actions that need to be taken to avoid, mitigate, and transfer or to purely monitor the risk.

The risks as assessed/faced by the Company at brsent are as follows:

(i) Operational Risk:

? The Company is exposed to normal industry risk factors of competition, economic cycle and uncertainties in the international and domestic markets.

? Shortage of Skilled / Unskilled labour

? Cheaper Import of Yarns which results in a reduced demand for Synthetic Yarn in the domestic market.

? Government policies with regard to taxation on imports and domestic production which is affecting demand and puffing brssure on prices.

Mitigation : To mitigate the risk the Company has always been on the fast track of modernization. Due to modernization the reliance on skilled/unskilled labour is reduced. The Company has been able to sell its product in the domestic as well as international markets due to its superior quality.

(ii) Compliance Related Risks:

In view of the rapidly changing legislative framework in India which has recently been directed towards a stringent compliance to corporate laws (as is evident from the new Companies Act, 2013), the various regulations framed by SEBI and the stringent provisions for penalty and prosecution, compliance related risks have assumed high importance. Mitigation: To mitigate the Risk the Company's Legal & Secretarial department constantly reviews the legislative changes to ensure that the Company complies with the changing regulations. In addition, the Company has also appointed a Company secretary in practice on a retainer ship basis to regularly monitor the legal compliance and submit a suggestion report to the Company on a half-yearly basis.

Further more, Departmental Heads furnish compliance certificates regarding compliances to various Laws applicable to their departments on a quarterly basis. These are in turn placed before the Board of Directors.

The timely publication of financial results, annual accounts, and getting approvals from members etc. are also important aspects of Compliance Related risk, all of which are being regularly monitored.

(iii) Financial Risks:

? Exchange fluctuation

? Slowdown of the European economy - a very important export market for the Company

Mitigation: To mitigate the risk the Company always hedges its export transactions through forward contract or other derivatives and the Company is developing customer based in other regions also.

(iv) Hazard Risks:

There is risk towards the damage of the Company's Assets such as Building, Plant & Machinery, Furniture, Office Equipment, Stock etc due to fire. The Company's basic raw material i.e. fiber and other chemicals are prone to the risk of fire . There is also some risk to the health of its employees.

Mitigation: To mitigate the risk the Company has taken an appropriate insurance policy for its Moveable and Immoveable

Assets. As far as employee health is concerned, the Company has covered some of its employees and their dependents under ESIC and others are covered under Mediclaim Policies issued by IRDA-approved Insurance Companies.

(v) Other Employee Related Risk:

There is risk related to fraud, theft, misuse of Company property and transmitting data accounts to outsiders.

Mitigation: To mitigate the risk the Company has framed the Code of business ethics, which serves as a guideline for all employees. The Company is committed to high ethical standards and integrity in its businesses and strives to brvent corruption and violations of the principles set forth in the code of business ethics of the Company. The Company's top management has zero tolerance for corruption and fraud.

f) Company's Financial Performance and Analysis:

The operating performance of the Company has been detailed in the first two paragraphs of the Director's Report under the Result of Operations and State of the Company's affairs sections.

g) Developments in Human Resources and Industrial Relations: Human resources are the driving force behind any organization and there is no doubt that the Company has consistently achieved its business targets due to the hard work, dedication and diligence of its employees. This year is no exception. The employer-employee relations have continued to remain cordial throughout this year. The Management of the Company is convinced that the Company's vision can only be achieved by maintaining a high level of organizational vitality. The Company is committed to leveraging its human resource capital to further enhance its competitiveness in the globally challenging business environment.

The employee strength at the end of the last financial year was 1695. This includes both skilled and unskilled manpower.

h) Cautionary Statement:

Certain statements in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be "forward-looking statements," within the meaning of applicable laws and regulations. Forward-looking statements are identified in this report by using words like "anticipates", "believes", "expects", "intends" and other similar exbrssions in such statements. Although we believe our expectations are based on reasonable assumptions, these forward-looking statements may be influenced by numerous risks and uncertainties that could cause actual outcomes and results to be materially different from those exbrssed or implied. Some of these risks and uncertainties have been discussed in the section on "Risk Management". The Company takes no responsibility for any consequence of decisions made, based on such statements, and holds no obligation to update these in the future.