MANAGEMENT DISCUSSION AND ANALYSIS

COMPANY'S BUSINESS

The Company's business is manufacture of Cotton Yarn, woven and knitted fabrics, processing of fabrics, garments, and wind power generation for captive consumption. Substantial portion of cotton yarn and the entire garment production are exported to various countries. Entire green power generated by windmills is being captively consumed.

The Company has two modern spinning units near Dindigul, Tamilnadu with installed capacity of 1,44,240 Spindles, Weaving unit located at Karnempettai near Palladam, Tamilnadu with installed capacity of 147 Looms, Processing unit located at SIPCOT Industrial Growth Center, Perundurai, Tamilnadu with installed capacity to process 3600 tonnes of fabrics per annum, Knitting unit near Karnempettai, Palladam Tamilnadu with installed capacity to produce 7200 tonnes of Knitted Fabrics per annum, Garments unit located at Palladam Hi-tech Weaving Park, Palladam, Tamilnadu with a capacity to produce 12 Lakh pieces of Garments per annum and 32 Windmills with installed capacity of 29.95 MW power.

INDUSTRY STRUCTURE AND DEVELOPMENT:

India's textile sector is one of the mainstays of the national economy. It is also one of the largest contributing sectors of India's exports contributing around 13 per cent to the country's total exports basket and the textile industry contributes 4 percent to the GDP. The textiles industry is labour intensive and is one of the largest employment providers.

India is one of the world's largest producers of textiles and garments. Abundant availability of raw materials as well as skilled workforce had made the country a sourcing hub. It is the world's second largest producer of textiles and garments. The Indian textiles industry accounts for about 24% of the world's spindle capacity. The potential size of the Indian textiles and apparel industry is expected to reach US$ 223 billion by 2021.

The close linkage of the Industry to agriculture and the ancient culture, the traditions of the country make the Indian textiles sector unique in comparison to the textiles industry of other countries. This also provides the industry with the capacity to produce a variety of products suitable to the different market segments, both within and outside the country.

OPPORTUNITIES

Increase in manufacturing costs in developed countries, which were the main markets, caused growth of Textile & Apparel sector in Asian countries which had raw material advantage as well. The manufacturing base sbrad to smaller nations, particularly those which got brferential access to major markets of USA, Europe and Japan.

Rising per capita income, favourable demographics and brference for branded products is expected to boost demand for textile products. Favourable trade policies and superior quality is

expected to drive textile exports. Changing lifestyles and increasing demand for quality products are set to fuel the need for apparel.

Due to the above, the country has the potential to double itself in size in textile market, over the next 6-7 years. Among the major competing nations, China is losing its competitive advantage in textile mainly on account of increasing labor costs, apbrciating Yuan, rising power costs, focus on domestic market and also due to conscious strategy to move towards higher value additions industries.

Other major exporting countries like Pakistan and Bangladesh are facing geo-political issues. In this scenario all major export markets vis-a-vis US, Europe, Japan, Australia, etc are increasingly looking to shift a large portion of their sourcing pie to India. The country is also well placed to fill this gap since its entire major costs, be it cotton; yarn, power, wages, dyes and chemicals etc. are globally competitive now.

'Make in India' campaign covering 25 sectors, including the textile and garment industry, unveiled by the Prime Minister in the brsence of the corporate world of India and abroad, puts in place the logistics and systems to address in a timely manner the queries of potential investors.

SEGMENT WISE OR PRODUCTWISE PERFORMANCE

The entire operations of the Company relate to only one segment viz. Textiles therefore, segment-wise / product-wise performance are not applicable. The individual units' performance has been explained in the Directors Report.

OUTLOOK

The Indian cotton textile sector that has not been faring quite well for the past few years could see some stability in the current financial year. The sector would maintain an overall stable outlook led by stable spinning margins in the cotton yarn segment, range-bound cotton prices and favourable domestic market conditions and it is expected to pick up this year on account of improving economic sentiments. However, the outlook for cotton yarn exporters is negative due to a slowdown in demand for yarn particularly from China, leading to softer yarn realizations and lower capacity utilization.

Government's initiatives to revive manufacturing industry with textile as key segment in its 'Make in India' program also adds to the positive outlook for the sector. Notably, Capital investments in the textile sector is witnessing a revival with projects worth hundreds of crore of rupees being announced in the past six months. Several of these projects are scheduled to come online over the next couple of years, adding capacity in the sector when consumer demand is expected to fully revive from the current slump.

RISKS AND CONCERNS

Availability of Cotton, the main raw material for manufacture of Cotton Yarn, is uncertain and it fluctuates depending upon weather conditions. The prices of raw material also fluctuate wildly based on supply/demand in the World market and Government policy on export of Cotton.

The brdominantly cotton based textile industry is facing several challenges in the recent period owing to higher tariff rates imposed on Indian textile products in all the major international markets when compared to the competing Nations.

Delay in disbursing the Technology Upgradation Fund Scheme Subsidies, and the steep decline in exports of cotton yarn to China has created over supply. In Tamilnadu, the issue of non evacuation of power from windmills due to inadequate infrastructure is yet to be addressed.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has adequate internal control procedures and systems commensurate with its size and nature of its business. The checks and controls are monitored by the Audit Committee for improvement on a periodical basis. The internal control systems are improved and modified continuously to meet with changes in business conditions, statutory and accounting requirements. To maintain its objectivity and independence, the Internal Auditors report in the Audit Committee.

Based on the report of internal audit function, corrective measures are taken in the respective areas and thereby strengthening the internal control system.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the Company has been discussed at length in Director's Report to the Members.

HUMAN RESOURCES/INDUSTRIAL RELATIONS

The Company employs 2756 permanent employees and the company maintains cordial relationship with all its employees. The Company has maintained excellent relationship with stakeholders and bankers.