MANAGEMENT'S DISCUSSION AND ANALYSIS FORWARD LOOKING STATEMENT This report on Management Discussion and Analysis contains certain forward looking statements and has been issued in terms of the applicable laws and regulations. These statements address expectations or projections about the future. Since these are based on certain assumptions and expectations of future events actual results, performance or achievements could however differ from those exbrssed in the statements or implied due to the influence of external and internal factors which are beyond the control of the company. The company assumes no responsibility in respect of the forward-looking statements, which may be amended or modified in future on the basis of subsequent developments, information or events. GLOBAL ECONOMY During the financial year 2014-15, the global economy witnessed divergent trends among major economies. Sharp decline in energy prices added mixed reactions, stressing the oil producing countries and simultaneously brightening the growth prospects in oil importing developing economies. Strong growth in crude oil output from non-OPEC producers, coupled with weak / declining demand in some key economies lead to a situation of over-supply which caused decline in oil prices and the same was further accelerated by the OPECs decision not to cut back production in the respective countries. Despite volatile energy prices, the global economic recovery is gaining momentum. Economic recovery in US, the biggest economy, is poised to grow strongly beating expectations on account of domestic demand aided by the upward trend in the US economy in 2014. UK is also well on its way to recovery. Lower oil prices in 2014-15 lead to substantial savings to oil importing nations and gave an opportunity to reform energy subsidies and taxes. INDIAN ECONOMY In 2014-15, the Indian economy grew at 7.3% and has been one of the better performing economies in the last decade. Continuing its momentum, it is expected to maintain a high growth rate over the next 10-12 years. Economists have projected 7%-9% GDP growth for India in the coming decade. Such a high economic growth will be a major driver of an increase in demand and consumer spending in India, which will include spending on textile and clothing. TEXTILE INDUSTRY OUTLOOK Global Textile Industry The global textile and clothing industry has registered a growth of 4-5% in 2014-15. The growth could have been stronger, but subdued Q4 lead to lower growth. The industry is expected to achieve the same growth i.e. 4-5% in 2015-16 also. Polyester market faced challenges during the year as feedstock volatility was accentuated by capacity additions, which were significantly ahead of demand growth. As with other hydrocarbon chains, prices for feedstock and final products witnessed a steep decline during the year, with price declines ranging from 15-35%. Polyester fibre and yarn markets started the year amid fluctuating feedstock price trends, leading to a conservative (need-based buying) approach by downstream units. The year 2014 witnessed filament capacity growth of 2.2 million MT compared to a demand growth of under 2.0 million MT. In addition to the overcapacity in the filament yarn segment, higher raw material cost and consequent declining margins during the first half forced producers to rationalise operations. During the third quarter, raw material costs suffered a decline with the steep drop in energy prices. While polyester fibre and yarn prices were also lower by 25% from their peak in June 2014, the lag in price drops supported polyester deltas. FY 2014-15 margins of Partially Oriented Yarn (POY) and Polyester Staple Fibre (PSF) were marginally higher on y-o-y basis. Cotton production of around 26 million MT in 2014-15 remained higher than consumption for the fifth consecutive season. Along with this, the Chinese policy of limiting cotton purchases for the year weighed on prices which ended 23% lower than last year. However, with the steep drop in polyester prices towards the later part of the year, polyester v/s cotton price difference stayed above long-term levels, at $ 500/MT, mitigating the threat of substitution in blends. The outlook for the coming year is favourable for polyester as the declining cotton prices globally has discouraged cotton farming in major cotton growing countries, leading to a lower cotton acreage for the next season. This could lead to production falling below consumption for the first time in five years and support cotton prices. Indian polyester demand is expected to reach a level of around 6 million MT, at a CAGR of around 8% by end of 2020. Indian Textile Industry Indian Textile industry may touch USD 500 billion by 2025. Domestic market is projected to go up from USD 68 billion in 2013 to USD 315 billion in 2025, and the export market is projected to grow from USD 40 billion to USD185 billion in 2015. The segments contributing in the growth is likely to be from technical textiles and apparels. India has a potential to double its market share in global trade from 5% to 10% by 2025. Man Made Fibre Industry Man made fibre accounts for 71% of the total global fibre production. India's fibre production for the year 2014-15 was estimated at 11.0 mn tones. While production of cotton fibre was down by 2%, production of polyester fibre was up by 7%. Polyester fibre continues to lead the growth in domestic market. India's Yarn Scenario India's yarn production registered a positive growth of 3.3%. All segments, cotton, blended and 100% non-cotton yarn was expected to register a positive growth in 2015-16. Polyester Industry in India • Domestic growth of polyester fiber is up by 12.5% on Y-o-Y basis. Total domestic demand is estimated at 3.6 million MT in 2014-15, as compared to 3.2 million MT in 2013-14. The robust demand was led by FDY, followed by POY & PSF. • Polyester fibre demand is estimated to grow @ 8-10% during the period 2016-18 owing to price stability, competitiveness of polyester fibre price over cotton fibre and new applications in technical textiles. • The domestic capacity increased by around 12% whereas the demand moved up from 2.42 million MT to 2.79 million MT. The overall capacity utilization of the industry was at 65%. FILATEX INDIA LIMTIED - the Company. Filatex India Limited is one of the major filament yarn manufacturer with an integrated manufacturing facility at Dahej (Gujarat), Dadra (Union Territory of D&nH) and Noida (UP). The products basket includes Polyester Filament Yarn, Polypropylene Filament Yarn, DrawTexturised Yarn, Fully Drawn Yarn, Textile Grade Chips, Narrow Customized Fabrics & Monofilament Yarns. Core Strength • Over two decades of industry experience • Amongst India's most cost efficient polyester yarn manufacturers • Well defined quality and process management system • Excellent relationship with customers Growth plans: The company is brsently implementing an expansion scheme for manufacture of high value added products viz. 100 MT/day of Fully Drawn Yarn (FDY), 30 MT/day of Partially Oriented Yarn (POY) from direct melt capacity along with 200 MT/day of POY texturing at its exiting unit at Dahej at a capital cost of Rs.241 crores. FIL will have to mainly put up only plant & machinery for implementing the above scheme as other infrastructure facilities like land, roads, part of utilities, heating systems etc. are already available at the said plant. This will not only lead to lower per ton capital cost but also much lower operating cost as the increase in staff cost and plant overheads are minimal. Opportunities & Challenges. Opportunities: i) Urbanization and increased disposable income are driving the demand in downstream industry ii) Emerging non-apparel applications of polyester yarn iii) Price competitiveness of polyester yarn vis-a-vis cotton and other yarns iv) Increasing impact of rural consumers in the domestic consumption which spins off a major opportunity growth in the polyester industry. Challenges: i) High interest rates ii) Volatility in the prices of raw material iii) Under utilization of production capacity Business risks & mitigation strategy. Risk is an integral part of business strategy. It is the uncertainty regarding business decision events and their possible outcomes. That could impact an enterprise's performance and prospects. In overall perspective, the business can have economic risk, demand risk, input costs risk, competition risk, market risk, human capital risk, technology risk etc. Filatex management team and key executives work cohesively in a productive manner to identify changes in the scenario. Effective steps are taken to avoid or minimize the risk. Filatex has state of art technology which is reviewed and updated on a regular basis. Filatex has committed resources to augment necessary human resource development. Systematic training opportunities are organized to equip employees with skill, on the job training and technical training. Human Resources & Industrial Relations Human Resources are vital the success of any organization. The company recognizes that the quality of its employees is the key to success. The company commits resources to augment necessary human resource development. As mentioned earlier, Systematic training opportunities are organized to equip employees with skill, on the job training and technical training. Consistent and fair policies ensure that industrial relations continue to be peaceful and cordial and results in improvement in productivity and effectiveness. The Company aims at creating development oriented approach for its employees by building systems, processes and focusing on recruitment of top quality manpower. Focus on transparent performance appraisal and incentive schemes has resulted in highly motivated workforce and increased productivity. The company provides a fair opportunity to all the employees to utilize their full potential and grow in the organization and believes in empowering its people and providing a stimulating professional environment. The work force of the company stood at 1321 as compared to 1335 in the brvious year. Internal control Systems & their adequacy. The company has combrhensive system of internal controls to safeguard the company's assets against any loss from unauthorised usage and ensure proper authorisation of financial transactions. The systems provide a high degree of assurance regarding the effectiveness and efficiency of operations, reliability of financial controls and compliance with applicable laws and statutory regulations. The Company has a 'Budgetary Control' system and actual performance is regularly monitored by the Management. It has well defined organization structure, authority levels and internal guidelines and rules. The internal control system ensures that the financial and other records are reliable for brparing financial statements and maintaining proper records of assets. The company continue to have an independent agency as the Internal Auditor to conduct operations & systems audit in accordance with the audit programmes adopted by the audit committee. The internal auditors, as part of their assignment, evaluate and assess the adequacy and effectiveness of internal control measures and compliance with policies, plans & statutory requirements. The internal audit reports are discussed / reviewed by senior management and audit committee of the Board and on its recommendations appropriate actions are initiated to ensure compliance. Statutory compliance The Vice Chairman & Managing Director and CFO make a declaration at each Board Meeting regarding the compliance with the provisions of various statutes, after obtaining confirmation from all the units of the company. The Company Secretary ensures compliances in accordance with Companies Act, SEBI regulations and provisions of the Listing Agreement |