MANAGEMENT DISCUSSION AND ANALYSIS DISCLAIMER Statements in the Directors' Report & Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations or brdictions may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make difference to the Company's operations include raw material availability and its prices, cyclical demand and pricing in the Company's principle markets, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other ancillary factors. Overall Review As per the latest GDP growth estimates, India economy grew by 7.4% in financial year 2015 compared to 6.9% in financial year 2014, mostly driven by improved economic fundamentals and revision of GDP methodology calculation. Even inflation showed signs of moderation, a welcome sign - wholesale price and consumer price inflation declined to 4.2% and 7.4% respectively, compared with last year's 6.3% and 10.1% Reduced inflation, falling crude oil prices, stable rupee, improved purchasing power and consumer spending, higher capital inflows supported by the new government policy reforms have already put India on accelerating growth track and improved the business outlook. However, deadlock in the parliament on key reforms and the prospect of taxation under MAT has led to short-term jitters in the market. Lack of pickup in credit growth due to high banking NPAs is a worrying sign. While the markets have reached record levels, showing great optimism, it remains to be seen whether it will be seen in the performance of industry sector. OUTLOOK Indian Market Textiles Industry has an overwhelming brsence in the economic life of the country. Apart from providing one of the basic necessities of life, the textile industry also plays a pivotal role through its contribution to industrial output, employment generation and export earnings of the country. It contributes around 6% of India's GDP, 13% to India's industrial production and 11% to the country's export earnings & 27% of the foreign exchange inflows. Textile industry provides employment to 55 million people, which makes it the second largest employer in the country after Agriculture. The Industry has shown continued growth with a potential to increase its global trade share from the current 4.5% to 8% (USD 80 Billion) in the next 5 years supported by a rich abundance of raw material, skilled labour and talent. India ranks amongst one of the largest producers of denim fabrics in the world with current Indian capacity exceeding 1.2 billion meters. There has been enhancement in capacities in a big way in short span of time. So, it will take some time to settle. From theses capacities significant portion of this capacity is meant for exports. India's own consumption is estimated to be around 600-650 million meters per annum and is growing steadily with an annual growth rate in excess of 10%. However, during last 12 months or so denim industry is facing headwinds primarily owing to lack of adequate export demand, increasing competition even in export markets from Indian players and corresponding pricing brssures in the export realization. This has resulted into a temporary oversupply situation in this sector. This has put brssure on domestic price realization and hence on the operating profit margins of the Indian players . However, those players who have strong brsence in the international market as well as strong domestic marketing set up have been able to perform relatively better. Since denim is a cyclical industry, the current bearish phase is likely to be followed by a bullish phase but the current recovery cycle seems to be fairly long and the time of recovery apparently looks to be uncertain. Export Market The medium to long term growth prospects of export markets for Indian denim industry are good, thanks to good quality cotton fibre available in India in abundance which is conducive for good quality denim fabrics and apparels coupled with low cost of production and textile policy initiatives/incentives both at the Central level as well as State level in case of some of the States who have come out with special incentive packages for textile industry in general including for the denim industry. It is worth noting that China, Hong Kong, South Korea, Taiwan and Bangladesh have registered their brsence significantly in the world denim textile market through conscious efforts while they continued to globalise their textile economy. Future Prospects Being the second largest employer in India coupled with strong industry linkages with the rural economy augurs Indian textile industry as one of the most significant sectors with an incremental growth potential. Rural economy has seen a spurt in income levels the last few years and this is right time to juxtapose their synergies to promote the Industry's growth. Being one of the key factors under the Government's "Make in India" campaign is a testimony to the huge growth potential the industry holds, both in terms of infrastructure development and skill improvement. Globally, favourable trade partners, improve its export competitiveness and contribute substantially to the nation's income. The cost competitiveness of India, as compared to some of the other exporting countries in Asia (e.g. China) has improved over recent years. The growth prospects are constrained by many challenges including rising input costs, restrictive labour laws and intensified competition from other low cost countries like China and Bangladesh. Such issues need to be addressed to result in unblocking maximum industry growth potential. As mentioned earlier, while denim industry is currently passing through a rough patch of a fairly long bearish phase of business cycle, considering inherent advantages enjoyed by textile sector in India in general and the benefits enjoyed by denim industry in particular, the medium to long term prospects of denim industry appear to be reasonably good. However, a consistent and rapid expansion in the capacities by the existing/new players can become a major concern area if the demand does not catch up at the same speed (as is brsently witnessed today) and if the global macro economic factors do not improve within a reasonable period of time. SWOT Analysis of Denim Industry Strengths • Existence of sufficient productive capacity. • Management with professional and business background. • Existence of qualified technical personnel. • Easy availability of raw materials. • Large domestic market. • Abundant availability of excellent quality cotton suitable for denim. Weaknesses • Non availability cost efficient skilled labour. • Not ready for diversification of products. Opportunities • Growing domestic and international markets demands. • Indian market is most reliable and efficient market for US, Europe & UK. Buyers. • Product mix and product diversification. Threats • Entry of multinational in domestic markets. • Demand supply mismatch, resulting into oversupply position in Domestic Market • Stiff competition from other Asian countries such as China, Indonesia, Thailand, Bangladesh and Pakistan. • Fast changing fashion and fabric demands. Review of Operations In Financial year 2015, the performance of your Company has remained flat. The Company reported top-line growth of 8.78% over the Previous Year. Gross Revenue from Operations stood at Rs. 74,551.14 lacs as compared to Rs. 68,531.57 lacs during the Previous Year. However Operating Earnings before Interest, Debrciation and Taxes (EBITDA) has declined to 9.63% as compared to 11.77% for the Previous Year. The company has been facing new challenges like stiff competition from the new entrants as well as existing organizations expanding their production capacities, volatile raw material prices, and unstable forex market. In spite of enormous challenges, the company has increased its export turnover. Considering the challenges that exist, the financial results of the company is quite satisfactory. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY The Company has appropriate internal control systems for business processes, with regard to efficiency of operations, financial reporting, compliance with applicable laws and regulations etc. All operating parameters are monitored and controlled. Regular internal audits and checks ensure that responsibilities are executed effectively. The system is improved and modified continuously to meet with changes in business conditions, statutory and accounting requirements. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening them, from time to time. RISK AND CONCERNS The Company is exposed to risks from market fluctuations of foreign exchange, interest rates and commodity prices, risk of product concentration and other business risks. Foreign Exchange Risk Your Company's policy is to hedge its long-term foreign exchange risk as well as short-term exposures within the defined parameters Interest Rate Risk Your Company is exposed to interest rate fluctuations on its Rupee denominated borrowings. It uses a judicious mix of fixed and floating rate debts within the stipulated parameters. The Company continuously monitors its interest rate exposures and whenever required, uses derivative instruments to minimize interest rate risk and interest costs. In view of the continuous risk mitigating strategy adopted by the Company, it does not perceive interest rate risk as having any material impact on its profitability, at any point of time. Commodity Price Risk The Company is exposed to the risk of price fluctuation on raw materials as well as finished goods in all its products. The Company proactively manages these risks in inputs through purchase contract or forward booking for cotton, its main raw material and inventory management. The Company's reputation for quality and the existence of a strong marketing network mitigates the impact of price risks on finished goods. Risk of Product Concentration The company has risk of too much dependence on single product i.e. Denim. To de-risk the same, the company has already started the process reducing too much dependence on single product and going forward non-denim fabric and garmenting. As a policy, the Company is focusing on exports especially associating with big international brands. Other Business Risks Apart from the risk on account of interest rate, foreign exchange and regulatory changes, the business of the company is exposed to certain operating business risks, which are managed by regular monitoring and corrective actions. FINANCIAL PERFORMANCE AND OPERATIONAL PERFORMANCE The company has reported Gross Revenue of Rs. 74,551.14 lacs (Last year Rs.68,531.57 lacs) and the PAT stood at Rs. 18.77 lacs (Last year Rs 318.21 lacs). The Increase in sales was led by volume of growth in domestic and export market. Financial Review: During the year your company delivered flat performance. Turnover remained for the year ended 31st March, 2015 was Rs. 71,655.01 lacs, an increment of 7.24% over the brvious year. During the year Export was 26.88% of total sales. During the year export sales increased by 5.73 % compare to brvious year. Consumption of raw materials increased by 1.24 % from Rs. 45,422.39 lacs to Rs.45,984.32 lacs, mainly due to increase in production and sales. Employee Cost was Rs. 4,443.42 lacs for the current year as against Rs. 3,749.37 lacs in the last year on account of increment of salary & wages and increase in number of employees. Power and Fuel cost was increased to Rs. 9,690.54 lacs in the current year from Rs.8,918.20 lacs of the brvious year, mainly due to increase in electricity rate and increase in production. Operating profit before other income and interest and debrciation decreased by 12.84% from Rs. 7,600.29 lacs to Rs. 6,624.19 lacs. Other income was at Rs. 273.70 lacs (mainly includes Insurance claim in respect of Plant and Machinery) against Rs. 261.45 lacs of brvious year. Interest Cost has increased at Rs. 3,935.72 lacs as against Rs. 3,754.51 lacs during the brvious year mainly due to higher utilization of working capital funds and increased interest rate. Debrciation (including depletion and amortization) was reduced to Rs. 3,070.58 lacs as against Rs. 3,284.86 lacs in the brvious year mainly due applicability of the new debrciation method considering lives of Fixed Assets as per the Companies Act, 2013. Profit after Tax was Rs. 18.77 lacs as against Rs. 318.21 lacs for the brvious year, showing decrease of 94.10%. Earnings per share (EPS) for the year was Rs. 0.08 as compared to Rs.1.36 in the last year. There was decrease in the overall debt of the Company by Rs. 2,197.62 lacs. The working capital funds and public deposits availed by the company had increased and on the other side, Unsecured loan from related parties and term loans has declined. Working capital and liquidity: The inventory turnover ratio has increased to 4.29 times during the current year from 3.63 times due to increase in production and low demand in the market. The level of receivables slightly increased from 85 days in the last year to 88 days this year. HUMAN RESOURCES DEVELOPMENT / INDUSTRIAL RELATION The Company rely that the health and safety of the workers and the persons residing in the vicinity of its plants is fundamental to the business. Commitment to the identification and elimination or control of the workplace hazards for protection of all is utmost importance. The manufacturing operations are conducted to ensure sensitivity towards the environment and minimise waste by encouraging "Green" practices. The Company continued to enjoy healthy industrial relations during the year. CONCLUSION To conclude, the performance of the company during the year 2014-15 was not up to mark as compared to brvious years. In spite of lots of challenges like sluggish export market, increase in power and fuel costs and high volatility in the prices of raw materials and vast competition from local market, the performance of the company was satisfactory. The significant challenge however will be the mismatch in demand and supply scenario of denim fabric in the domestic market and brssure on the price realization. By implementing cost effective measures and aggressive marketing strategies, the company will achieve all its targets for the current year. |