MANAGEMENT DISCUSSION AND ANALYSIS REPORT

A) Industry Structure and Developments:

Carding is a mechanical process that disentangles, cleans and makes parallel fibres to produce a continuous web or silver suitable for subsequent processing. Card Clothing is, therefore, a critical input required by the spinning mills for producing quality yarn which is then used by the textile industry for woven or knit fabrics.

The demand for card clothing in the re-clothing market is entirely dependent on the current installed capacity of carding machines, the production rate of the carding machines which are installed by spinning mills and the consumption of fibre. Card clothing is initially supplied together with the new carding machines and subsequently in the secondary/replacement market once the carding machine is due for re-clothing.

The installed base of carding machines in India is 26,679 cards of which 903 are very slow speed cards, 6,928 are slow speed cards, 13,179 are high production cards and 5,669 are super production cards. This generates an annual demand of 8,319 sets of card clothing (Source: compiled by the Company). The bulk of the carding machines in India fall within the high production category, as it has become no longer economical to be able to operate slow production cards due to increasing cost of manpower and power. The annual increase in the demand for card clothing is approximately 2% which is mainly in the category of super production cards.

The major Indian manufacturers of carding machines are Lakshmi Machine Works (LMW) and Trutzschler India. Between the two major Indian carding machine manufacturers, LMW is well established and has the advantage of being able to provide a "bale to yarn" solution for new spinning mills. Both LMW and Trutzschler manufacture 40' width card. lMw carding machines are clothed with Lakshmi Card Clothing (LCC). Recently, the Bekaert Card Clothing has been acquired by Germany based needle manufacturer, Groz Beckert AG. Trutzschler India equips its carding machines with card clothing manufactured by Trutzschler in India or Germany.

In the European market, Rieter and Trutzschler are the major manufacturers of carding machines. Rieter carding machines are 60" wide. Rieter, which owns Graf, supplies all its carding machines with Graf card clothing. Trutzschler GmbH manufactures new cards with 50.4" width. Trutzschler cards are equipped with Trutzschler card clothing and are favoured by spinning mills processing coarse and medium counts of cotton.

There are other myriad manufacturers of carding machines in China, although the international demand for those carding machines is limited by virtue of their inability to match the technology of European and Indian manufacturers.

As far as the re-clothing market is concerned, Graf and Trutzschler are generally brferred for the first re-clothing cycle by the spinning mills on Rieter and Trutzschler cards respectively. Cards in the super production segment are imported by the spinning mills directly from Rieter or Trutzschler Germany.

LCC, BCS and ICC share the market for re-clothing of high production card segment manufactured by LMW and Trutzschler India and for some imported super production cards. These three Card Clothing manufacturers have been able to hold their share in this area by virtue of providing prompt service, quicker delivery and acceptable quality at reasonable prices.

The year 2015-16 evidenced a decline in the demand for card clothing mainly due to reduction in imports of cotton yarn from India by Chinese mills and a general slowdown in demand from Europe. As a result, the spinning mills were left with no option than to curtail the yarn production in turn affecting the demand of card clothing.

B) SWOT Analysis:

Strengths:

• ICC is perceived as a "value for money" brand in the market.

• Strong brand recall due to its brsence in the market for nearly 60 years.

• ICC's brmium re-clothing combination of Maxus Plus cylinder wire, Nextra 55 Tops and Aero doffer has demonstrated good results in the market and customers are brferring this combination for its consistent results and cost competitiveness.

• ICC through its institutional knowledge and vast experience has acquired a reputation of being able to provide

• Strong sales and service support in all major spinning centers in India as well as a wide distribution network. ICC has also established own sales and service set-up in Turkey.

• ICC through its institutional knowledge and vast experience has acquired a reputation of being able to provide solutions for many problems related to carding faced by spinning mills.

Weaknesses

• ICC does not have a close association with a leading carding machine manufacturers in and outside India. Opportunities

• As spinning mills discard slow production cards to replace it with high production cards or super production cards, the demand for re-clothing of high production and super production cards will increase. This would create additional demand for the company's products.

• Recent launch of Tops Height Measuring Device (THM), a new innovation by the Company, is very well received by the spinning mills in and outside India. The Company expects THM would bring good business opportunities in the future.

Threats

• Competition from Chinese card clothing manufacturers in the slow production and high production card segment poses a threat to ICC's share in these segments, although the size of the former segment is dwindling every year and many customers in the high production card segment are wary of the inconsistent quality of Chinese card clothing.

C) Operations:

i) Product-wise Operational performance:

The Product-wise performance of the Company is as given below:

• Cotton:

Sales to the Cotton sector in the financial year 2015-16 were Rs. 4,155.44 Lacs as against Rs. 4,351.87 Lacs in the brvious financial year.

• Wollen:

Sales to the Wollen sector in the financial year 2015-16 were Rs. 613.21 Lacs as against Rs. 922.41 Lacs in the brvious financial year.

• Accura:

Sales to the Accura sector in the financial year 2015-16 were Rs. 744.55 Lacs as against Rs. 746.71 Lacs in the brvious financial year.

Ii) Measures taken for improving the operational efficiency:

• Consistent efforts to reduce cost of operations has resulted in substantial savings to the Company.

• During the year under review, existing policies and processes were reviewed and modified to strengthen the operational efficiency.

• The entire range of metallic card clothing was manufactured only at the Nalagarh Plant and the plant has started operating efficiently. The Nalagarh plant continued to dispatch, Accrual carriers, metallic card clothing for long staple fibre and short staple ibre.

• The Company has assiduously pursued enquiries in the key target overseas markets.

• Concerted effort were made for targeting those customers from market segments in the domestic market who are amenable to use the Company's products.

D) Outlook:

Demand for your Company's products will improve in the short term as domestic spinning mills' consumption of fibre will increase to export yarn to neighbouring countries where demand for yarn is on the rise. In the longer term, as these neighbouring countries establish spinning capacity, the Company has the potential to increase exports of its products.

An above average monsoon in India during the financial year 2016-17 is expected to result in increase in fibre consumption in rural areas. The industry may, therefore, evidence a rebound in the consumption of fibre positively impacting the domestic spinning mills and in turn demand for card clothing in India.

During the financial year 2016-17, the Company will further continue to focus on its efforts related to improvements in plant efficiency and productivity, develop new products for latest generation of carding machines and leverage the opportunities arising out of the expected increase in the consumption of fibre by the domestic mills. (Source: www.dnaindia.com > )

E) Risks and Concerns:

While tapping the growth opportunities, the major risks and areas of concern for the card clothing industry are increasing input costs, high price of power and inadequate supply of power and lack of infrastructure among companies in Small & Very Small scale sector.

Card Clothing industry in India, which is a major supplier to the spinning mills virtually depend upon a single source supplier for commodities like steel, cotton and rubber due to the criticality of raw material required for manufacturing card clothing. The card clothing manufacturers have very little control over such suppliers.

Apart from the risk associated with the volatility in raw material prices the Company is also exposed to other general risks related to volatility in Foreign Exchange rates, change in taxation structures, changes in interest rates, natural/manmade disasters, and political risks.

F) Internal Control Systems and Adequacy:

The Company has a proper and well-established accounting and auditing system covering all areas of operations. The Company has upgraded its ERP system from Oracle i11 to R 12. The Company has had a fully operating ERP system since April 2007.

The Company has a costing system to help control costs and to take decisions on pricing.

A firm of auditors manned by technically and commercially qualified personnel carries out internal audit, of both Pimpri and Nalagarh plants, which is followed up by discussion with each department, the Managing Director and in the Audit Committee. Wherever risks have been identified in processes or systems, these have been addressed by implementing a more robust process.

Pursuant to the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the constitution of Risk Management Committee is mandatory for only the top 100 listed Companies. The Company had, however, voluntarily formed Risk Management Committee to ensure that adequate systems and processes for Risk Management are implemented in the Company. The Company has a 2 tier structure consisting of Risk Steering Committee and Risk Council to monitor and mitigate the risks of the Company. After satisfying itself about the adequacy of systems and processes implemented in the Company for Risk Management, the Board of Directors of the Company dissolved the Risk Management Committee.

Both manufacturing plants of the Company have ISO 9001 certification, which is renewed from time to time.

The Company has laid down internal inancial controls, which are adequate and were operating effectively and the Board of Directors has adopted necessary internal control policies and procedure for ensuring the orderly and eficient conduct of its business, including adherence to Company's policies, safeguarding its assets, brvention and detection of frauds and errors, the accuracy and completeness of the accounting records and timely brparation of reliable financial information.

G) Financial performance and Operational Performance:

• Standalone Financial Performance:

During the year under review, the Company earned a total income of Rs. 8,610.92 Lacs for the year ended March 31, 2016 as against Rs. 7,105.06 Lacs for the brvious year ended March 31, 2015. The net profit earned by the Company during the financial year 2015-16 is Rs. 1,374.49 Lacs as against Net Loss of Rs. 382.80 Lacs during the brvious financial year.

• Consolidated Financial Performance:

During the year under review, the Company along with its and subsidiaries achieved a total consolidated turnover of Rs. 10,953.78 Lacs for the year ended March 31, 2016 as against Rs. 8,796.70 Lacs for the brvious year ended March 31, 2015. The consolidated profit for the year under review has been Rs. 1,806.27 Lacs as against consolidated loss of Rs. 285.96 Lacs for the brvious year.

H) Manpower Development in HR and Industrial relations :

Your Company recognises the need for a strong, dynamic and motivated Human Resources. Over the years Company has maintained consistency in its efforts in training and developing its human resource to sustain in the increasing competition.

Industrial relations of the Company were cordial throughout the year. The Wage Settlement Agreement which was valid for a period of 3 (three) years, expired on March 31, 2016. The negotiations with the Trade Union are currently under way for finalising new Wage Settlement Agreement commencing from April 1, 2016.

The number of permanent employees on the rolls of the Company as on March 31, 2015 is 317 of which only 109 employees are covered under the provisions of Section 2 (s) of Industrial Disputes Act, 1947.

I) Cautionary Statement:

Statements in the Management Discussions and Analysis section describing company's projections, estimations, expectation and brdictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from the exbrssed or implied. Important factors that would make a difference to the company's operations include demand supply conditions, raw material prices, changes in government regulations, tax regimes, competition and economic developments within and outside the country.