MANAGEMENT DISCUSSION & ANALYSIS:

This section of the Directors' Report has been included in adherence to the spirit enunciated in the Code of Corporate Governance approved by the Securities and Exchange Board of India. Statements in this Management and Discussion Analysis describing the Company's objectives, projections, estimates and expectations, may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Although the expectations are based on reasona bl e assumptions, the actual results might differ.

A. Business Overview

Economy: As per the latest GDP growth estimates, Indian Economy grew by 7.4% in FY15 compared to 6.9% in FY14, 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 government policy reforms have already put India on an accelerating growth track and improved the business outlook.

The Government envisaged GDP Growth to accelerate to 8% in FY16 driven by strengthening macroeconomic fundamentals and implementation of policy reforms recently announced reforms like eauctions of coal mines and telecom, FDI hike in insurance, speedier regulatory approvals etc. will be critical growth enables to debottleneck stalled projects, improve the investment outlook and the ease of doing business in the country. Reforms currently underway such as GST implementation, Amendment on Land Acquisition Bill, Labour Reforms, etc. are expected to provide the requisite thrust for growth in the medium term.

Business Overview: Sarla Performance Fibers Limited, is a leading exporter of Regular as well as High Tenacity Polyester and Nylon Yarns. It started operations 21 years ago as a commodity manufacturer of Man Made Fiber but transformed into a high value added yarn maker in the past decade. It has an installed capacity of 11,900 tons per annum for manufacturing yarns in Silvassa and 3200 tons per annum for a Dyeing unit at Vapi. Its state of the art 30 tons per day POY plant in Walterboro, South Carolina in the US is now fully stabilized and operating at 30% plus capacity. The company's emphasis this year will be to focus on increased capacity utilization at its US plant, enhance the proportion of niche end user applications in India, higher value added yarns to leading global apparel brands and companies. The company exports to 45 countries. SPFL also owns 7.25 MW of wind turbines in Gujarat and Maharashtra. Our plant load factor for the fiscal year 2015 was about 22%.

Customer Segments and Growth: The Company's customer segments can be divided into four parts:

1) Innerwear, Narrow Fabrics, Hosiery and Sportswear.

2) Threads.

3) Industrial Yarns.

4) Regular Yarns

B. Opportunities and Threats:.

The textile sector exports (including readymade garments) amounted to USD 41.4 billion vs USD 40.80 billion last year. Textile exports now form 13.33% of India's total exports. One of the positive factors in recent time is the increasing gap between cotton and polyester prices. Though, there was a glut in cotton and prices had fallen due to oversupply and less off take from China, the synthetic fiber prices also fell following the slump in crude  oil and its derivatives. We believe, the demand for synthetic fiber will continue to outpace that of cotton due to the inherent price advantage and quality improvements. One of our big market is the NAFTA and CAFTA market comprising of North American customers. Due to the growing brference for locally sourced products, the demand for synthetic yarn in this geography is increasing by 5-6% p.a. We are beneficiaries of this due to our direct brsence in South Carolina, US through our manufacturing facility. Moreover, there are substantial cost advantage of manufacturing in the US making us reasonably cost competitive vis a vis suppliers from China, ASEAN and India. We also have a strong opportunity for growth in the nylon yarn segment with nylon 66 production to ramp up this year.

C. Outlook: The prospects for outsourcing of polyester/nylon yarns remain healthy. This is because of

1) Increased capacity in India and US locations and

2) Stable INR vs USD.

While we remain optimistic about future growth, the revenue increase of 8.48% and earnings increase of 33.30% in FY15 were exceptional. We expect margin to remain flat at consolidated level in FY16, due to increase in operating expenditure, interest cost and debrciation on account of the new facility at US. The full reflection of the US plant will be felt in FY16.

Raw Material Cost: The cost of Raw Material decreased due to decrease in purchase price of raw materials. Our total raw material cost decreased by 5.46% last year. As a percentage of total cost it decreased to 51% from 55% in FY14.

Other expenditure: The other expenditure consists of Rs. 6,966.03 Lacs and it increased by 17.01% due to increase in operations.

Interest Cost: The interest cost decreased by 19.26% due to better working capital management and better negotiation with bankers.

Fixed Assets: The increase in Gross Block of Fixed Asset is due to normal up gradation.

Short and long term borrowings: The short term borrowings increased mainly to fund increased working capital requirement.

Cash and Bank Balances: The increase in cash and bank balances is due to increase in term deposits with banks.

E. Risk and Concerns

Raw material sourcing: We source 42% of our RM requirements (nylon and polyester chips/fiber) from India and 58 % from imports. For our RM sources we have multiple suppliers. Last year, the price of our major RM POY ranged between Rs 75 and 85 per kg and that of Nylon yarn ranged between Rs 175 and 220 per kg.

Interest Rates: The Company's average gross interest cost in the last year decreased by 19.26 % as compared to 4.31 % in the brvious year. The company's brsent Debt equity Ratio is 0.64. The long term Debt equity Ratio is 0.58. Interest costs are 1.84% of total revenue

Exchange Rate: 51% per cent of company revenue is in foreign currency (Dollar, Euro & GBP) and balance is in INR. Also, we import 33.68% per cent of turnover (83% of which consists of raw material purchases) creating a natural hedge to that extent. Apart from this, from time to time forward cover is taken to hedge exposure in foreign currency. For FY15, our average forward cover was for 3 months of our revenue.

Inflation: The Company does not cater to retail customers. Its sales are to the business segment and hence it has been able to pass on inflationary brssures. It does not expect any major impact due to current high level of inflation.

F. Internal Control System and Their Adequacy: The company has in place reasonable internal control system both from the business process and regulatory compliance point of view. The system is reviewed and updated on regular basis. The company is continuously upgrading its internal control systems by measures such as strengthening of Information Technology infrastructure and use of external management consultant services

G. Human Resources/Industrial Relations: The Company has always valued and nurtured its human resources, nonetheless, globalization, high growth of the Indian economy in recent times and its ambitious growth targets have made talent attraction and retention amongst the biggest challenges the company faces today. The company has in place a good appraisal system to motivate all the employees. The company believes in continuous development for all its employees and for that company is planning to frame a program wherein all the employees will be provided training into related areas of skill development