MANAGEMENT DISCUSSIONS AND ANALYSIS REPORT

The management of Shree Rajasthan Syntex Ltd. is pleased to brsent the management Discussion and Analysis Report covering the operations and financial performance of the Company for the year 2014-15. The core business of the Company is manufacturing and marketing of synthetic blended yarn, cotton yarn and polypropylene multifilament yarn.

BUSINESS OVERVIEW

The Company is one of the important players in man made fibre spinning with following capacity.

INDUSTRY OVERVIEW:

The textiles industry broadly refers to the production (design and manufacture), distribution and consumption of textiles. It includes fibre and yarns, threads, broad woven, narrow, non-woven and knit fabrics, textiles machinery, linen and uniform supplies, carpet and rugs, canvas mills, textiles finishing etc. Some of the main sources from which textile can be manufactured include, polyester, viscose, wool, silk, cotton, jute and polymers.

The textile industry can be segmented into Natural fibres and man made fibres (MMFs) based on the use of basic raw material, cotton or crude derivate respectively. Among the various MMF product in the synthetic and cellulosic segments, polyester and viscose forms about 80% of total domestic consumption. Globally man-made fibre is the most dominantly consumed textile fibre.

The textiles industry is labour intensive and employees 19 per cent of the total factory sector industrial work force. In fact, it is the 2nd largest employment provider, next only to agriculture. As perplanning commission currently it has employed around 102 million people directly and indirectly.

INDUSTRY OPPORTUNITIES:

1. India's Textile & Clothing sector is considered as the backbone of the country due to its significant contribution to Indian economy, fulfilling the second most important need of the masses i.e. Clothes. Currently it contributes around 5% share in GDP, 13% share in India's commodity exports and 14% share in India's industrial production. It is the 3rd largest foreign exchange earning commodity after petroleum products and gems and jewelry amongst 21 major principle commodity group exported by India to world. And, unlike gem and jewelry, the import content in textiles export is negligible.

2. The world's largest producer and second largest consumer of cotton India had tremendous strength in the MMF based textile based segment which Indian Industry would need to exploit completely. However, man made fibre had a share of close to 68% in fibre consumption globally and the demand for MMF based goods was growing much faster than that for cotton goods.

3. India had abundance of all raw materials, cotton VSF, PSF and other fibres.In fact we have so much of raw materials that almost 30% of the US $ 40 billion worth of exports of textiles from India, that is around $ 12 billion US $ worth are in the form of fibres and yarns.

4. Textile industry has been one of the oldest industries not only in the world but also in India, as it has sbrad through the length and breadth of the country. It has developed on the basis of the skills of artisans, their designs and quality which could create generic brands for the country.

5. The setting up of a integrated textile parks is one of the flagship schemes of the Ministry of Textiles. It aims to assist small and medium entrebrneurs in the textile industry to clusterize investments in textile parks by providing financial support for world class infrastructure in the parks.

6. As per the latest CSO estimates of Index of Industrial Production (IIP), the textile and clothing sector has have a positive growth in fiscal year 2014-15, though at slower pace compared to fiscal year 2013-14. On a Year on Year basis, the T&C sector had shown a positive growth of 3.6 percent during April-March, period of 2014-15 compared with the 9.1% of last fiscal year. There have been sharp turnarounds in productions of apparel as well textile products like yarn, fabrics and made-ups during 2014-15 and positive growth trends continued in 2015-16 also. Production growth for T&C sector as an aggregate was registered at 6.45 per cent in April 2015 as against -6.3 per cent in April 2014.

7. With a vision to create an export friendly economy the Government introduced the following initiatives:

* Duty free entitlement to garment exporters for import of trimmings, embellishments and other specified items increased from three per cent to five percent. This initiative is expected to generate an additional RMG exports of Rs. 10,000 crores.

* The Government has proposed to extend 24/7 customs clearance facility at 13 airports and 14 sea ports, resulting in faster clearance of import and export cargo.

INDUSTRIAL CHALLENGES:

1. Cyclical ups and downs & Demand adversities.

There has never been a continuous positive growth rate in textiles products for a longer time periods. Sometimes it was treated as a cyclical ups and downs, sometimes the demand adversities have really dented the growth. Fortunately, for a consecutive brvious three fiscal years textile sector have shown robust production growth rates in Index of Industrial Production (IIP) data as against the overall manufacturing sector and when most of industrial sectors have shown stagnation or deceleration. The textile sector has got some respite from rise in domestic demand for textiles products and augmented supply of yarns, apparel and other value added products to countries like China and Bangladesh, USA and

EU those have persistently high global market share in yarn and clothing imports.

2. Foreign Trade Policy (FTP) disappointing for Textile.

The new Foreign Trade Policy has not provided any additional benefits to the textiles sector, though measures announced for improving ease of doing business and simplified procedures would be beneficial to the textile sector, among others. The policy will have continuity during the 5 years period and only a midterm review will be made and some benefits for the textile sector have been removed or scaled down.

While amalgamating Focus Schemes and the other Chapter 3 schemes into Merchandise Exports from India Scheme (MEIS),cotton yarn has been completely ignored. Chapter 3 benefits on cotton yarn had earlier been withdrawn when cotton yarn was brought under restricted list. After withdrawing the requirement of registration of export contracts, this product had been brought under Free List, but Chapter 3 benefits were not restored under the earlier FTP. This anomaly has not been corrected under the new policy either.

3. Lack of global competitiveness

It is well known that India has an extremely low ranking in the area of ease of doing business. This has been brventing potential investors of these countries from investing in India's Textile Industry. The most important reform required for attracting FDI in the textiles industry is in the area of labour laws where State and Central Governments will have to develop a coordinated approach.

4. High debt servicing cost:

The industry requires to give high debt servicing cost and with the lending rates in India in the range of 12 to 14%, they are significantly higher in comparison to the competing countries like China. The complete textile chain is not covered in the TUF Scheme and thus a large capital investment needs to be made at a very high rate of interest.

5. High transaction cost

The Indian industries including textile industry are faced with huge transaction cost burden in comparison with exporters in competing countries. The un-neutralized taxes such as CST, VAT, Octroi etc. contribute to higher transaction cost. A long term solution is required with respect to strengthening of physical infrastructure and introduction of tax reforms.

6. Others

A. Fragmented Industry restricts the scope of enlarging base and emergence as global leaders.

B. Lack of desirable levels of Technological Development affects the productivity and other activities in whole value chain.

C. Continuous Quality improvement is need of the hour as there are different demand patterns all over the world.

RISK AND CONCERNS

1. Stressed Global Economy

The global economy is still under stress for gaining momentum as many high-income countries continue to grapple with the past impacts of the global financial crisis. Emerging economies continue to remain as less vibrant than in the past. After rising slightly in 2014, to 2.6 percent, world GDP will grow by an estimated 3.0 percent in 2015 and 3.3 percent in 2016, supported by gradual recovery in high-income countries, low oil prices, and receding domestic headwinds in developing countries. Developing economies are projected to see a raise in growth from 4.4 percentin 2014 to 4.8 percent and 5.3 percent in 2015 and 2016respectively.

2. Fragile Indian Exports

Due to fragile global economic situations the India exports were also impacted. India's exports dipped deeper in the negative zone recording a decline of 21% in March 2015, the biggest fall in the last six years, pulling down the total shipment for 2014-15 to US $310.5 billion, missing the annual target.

3. Falling International Demand

Falling international demand and prices of cotton will have an impact on domestic yarn prices too. In the short to medium term, on the back of the expected record production of cotton and subdued export demand the cotton prices are expected to remain soft. China is the biggest consumer of the Indian cotton and with China cuffing its cotton import, India may have to look for other markets for its production. Countries like Bangladesh, Vietnam and Pakistan can be potential importers for the Indian cotton. The role of the Indian government also becomes significant in this scenario with its intervention in terms of buying cotton at MSP( Minimum Support Price) for sustaining the prices. The record crop has already forced the Indian Government to start buying cotton at MSP from the market and it may have to procure about 8 million to 10 million bales of cotton at MSP during the current season to support the prices as compared to 40,000 bales which it purchased last season.

4. Raw material availability

Though India is having sufficient availability of raw materials, namely, cotton, man made fibres and silk but factors such as low rain fall in the cotton growing areas, increase in crude oil prices in the international markets for basic raw materials of man made fibres and increase in logistic cost may effect the availability of raw material and competitiveness of the industry.

5. Power availability

Most of the textile mills in India, particularly in north and western parts are dependent on power supply by self generation using coal as fuel. Because of increase in cost of coal the cost of generation of power is increasing which may effect the competitiveness of the industry.

6. Currency risk

Since the textile industry has a major portion of its revenue from exports, Indian rupee relationship with foreign currencies such as US Dollar is important. The industry hedges currency risks by forward currency cover against sale contracts. Hence movement is foreign currency vis-a-vis rupee has direct impact on exports realization and import cost. The volatile movement of Rupee against the US Dollar is a serious concern for the industry.

7. Government Policies

The Textile Industry is highly dependent on the Government Policies on various matters. Frequent changes in the taxation policies bring instability in the industry. The high tax rate of Central Excise duty and Customs Duty is another hindrance.

PRODUCT WISE PERFORMANCE OF THE COMPANY

The current yarn portfolio of SRSL can be classified into 4 main categories -Grey yarn, Dyed yarn, cotton yarn and PPMF yarn.

•   Grey Yarn: Grey yarn is produced using blends of different synthetic fibre such as polyester/viscose, 100% viscose yarn, 100% polyester fibre yarn and pure cotton. These qualities areproduced in Shree Rajasthan Texchem division and Shree Rajasthan Polycot division of the Company. The Company has niche markets for 100% viscose fibre yarn. Specialty fibre yarns were developed for industrial and home textile applications.

• Dyed yarns: Dyed yarn is produced at Syntex division of the Company. These yarns are relatively higher value added products and made according to customers specifications of blend, counts and shades. The Company has specialty in producing home textile dyed yarns for end use such as carpets, tapestry and upholstery. Further efforts are being made to develop melange yarn for weaving and knitting applications.

• Cotton Yarn: It is produced at Polycot division. These yarns are mainly consumed for woven fabrics terry towel application. The Company produces high quality cotton yarn and has recently started exports of the same.

• PPMF Yarn: Polypropylene multifilament yarn is produced at Shree Rajasthan Texchem division of the company at Dungarpur, POY and texturised yarn is produced for knitting, socks and furnishing applications. BCF yarn is produced for carpet applications.

OPERATIONS

During the year under review the Company was able to handle the various market conditions in both the domestic and export market.

The sales turnover of the company was Rs 30198.87 lacs as compared to Rs. 29010.67 lacs of brvious year. The Profit (before interest, debrciation & tax) amounted to Rs. 2137.89 lacs and the Profit/(loss )after tax (PAT) amounted to Rs. (141.77) lacs as compared to profit of Rs. 61.31 lacs in brvious year.

DIVERSIFICATION AND MODERNISATION

The Company lays emphasis on modernizing its plant & machinery on continuous basis to ensure that it produces the best quality yarn to face the competition in the international market. The Company has made substantial efforts towards modernising its engineering equipments and power generation.

The Company has implemented the expansion cum modernization project wherein the State of art machinery including auto doffing system on ring frames has been added to ensure its global competitiveness.

The Company has also incurred regular capital expenditure for maintenance of its plant & machinery which has led to saving in both labour and power costs besides further improvement in the quality of yarn.

OUTLOOK

Out look for the textile industry is positive and the Directors of the Company are hopeful that with the dismantling of quotas, penetration in the new global scenario, change in product mix, cost effectiveness and development of new qualities, it would be possible to meet the challenges being faced by the Indian Textile Industry. It is also expected that the Company would be able to increase its price in the export market to offset the change in foreign currency rates. It is also expected that Ministry of Commerce, Government of India would give additional export incentives to the industry to offset the change in foreign currency rates. There is a significant scope for converting the raw cotton in to yarn, both for overseas and domestic markets. The investments in the downstream segments of weaving and processing will ensure that the maximum quantity of yarn produced in the country are converted into the finished products domestically in order to meet the increasing requirements of the garment industry. The sufficient supply of yarn and fabrics internally would reduce the dependence of garment industry on imported yarn and fabrics and promote significant value addition.

DEVELOPMENTS IN HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company recognizes the importance of Human Resource as a key asset instrumental in its growth. The Company believes in acquisition, retention and betterment of talented team players.

With the philosophy of inclusive growth, the Company has redefined its performance management system. The new system focuses on progression of individual employees together with organizational goals. Under the new system increased thrust will be on job rotation and multi-skilling. HRD activities are taken in the Company involving positive approach to develop employees to take care of productivity, quality and customer needs. The Company has to make constant efforts to manage labour shortages. To develop skilled labour, training facilities are provided to the employees in house or by deputing them to the machinery suppliers and to training institutes for specific training.

The company employed 2175 persons as on 31.03.2015. The Company has well developed management information system giving daily, monthly and periodical information to the different levels of management. Such reports are being analyzed and effective steps are taken to control the efficiency, utilization, productivity and quality in the Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adequate internal control system commensurate with its size and nature of business. The internal control systems are complemented by various Management Information System (MIS) reports covering all areas. The management reviews and strengthens the controls periodically.

Apart from self monitoring of the internal controls, there is a Chartered Accountant firm appointed to conduct internal audit of the Company's operations as approved by the Audit Committee. This firm brsent their important observations to the Audit Committee which is chaired by an Independent Director. The internal auditors provide a reassurance to the affirmation given by the Management that the control systems are effective, operational and adequate.

The Audit Committee takes due cognizance of the observations made by the auditors and gives their suggestions for improvement. The suggestions of the Audit Committee further ensures the quality and adequacy of the control systems.

The Company has appointed internal auditors for all the 4 units.

The internal control ensured that all assets were safeguarded and protected against loss through unauthorized use or disposition and transactions were authorized, recorded noticed and reported correctly. While operating managers ensured compliance with their areas, internal auditors carried out audit test on randomly selected samples and reported on non-compliance or weakness if any through internal audit reports of the respective unit/areas.These reports were reviewed by the management and then by Audit Committee of the Board for follow up action.

CAUTIONARY STATEMENT

Statements in the Management Discussions and Analysis report describing the Company's objectives, projections, estimates, expectations or brdictions may be 'forward looking statements' within the meaning of applicable security laws and regulation. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the company's operations include economic conditions affecting demand and supply and price conditions in domestic and overseas market in which the company operates. Changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factor.