MANAGEMENT DISCUSSION AND ANALYSIS

ECONOMIC REVIEW

Global Economy

During the year under review, economic growth continued to remain under brssure in most parts of the world and overall sentiment remained weak. While advanced economies reported modest recovery, developing countries experienced a slowdown in growth due to strong headwinds of diminishing economic activities, currency debrciations, drop in the volume of global trade, and fall in inflows of foreign capital flows. China, in particular, witnessed slow growth, leading to a detrimental effect on commodity prices worldwide. Among advanced economies, the US economy showed some resilience despite tightening of its monetary policy. As estimated by International Monetary Fund (IMF), the global economy grew at 3.1% in Calendar Year (CY) 2015.

Global economic recovery is expected to remain slow and fragile in the near future. As per the estimates of the IMF's World Economic Outlook (April 2016), global growth is forecasted to grow at 3.2 percent in CY 2016 and only marginally higher at 3.5 percent in CY 2017.

Indian Economy

Amid the bleak global economic scenario, India remained a shining beacon on the fiscal landscape. India's Gross Domestic Product (GDP) grew 7.6% in FY 2016 compared to 7.2% in FY 2015 as per the Central Statistical Office (CSO), enabling India to retain the tag of the world's fastest growing major economy. The overall investment climate, though still short of expectations, is seen improving. Fast tracking of stalled infrastructure projects, thrust on reforms and adherence to fiscal deficit target were among the other encouraging economic developments for the year.

The collapse in oil prices, relatively low exposure of India to the current global financial turbulence,and India's strong domestic consumption led growth story are expected to favour the Indian markets. The IMF forecasts India to be the fastest growing economy even in 2016.

INDUSTRIAL REVIEW

Technical Textile Industry

Technical Textiles are textile materials and products used for their technical performance and functional properties rather than their aesthetic or decorative characteristics. Being cost effective, durable,strong yet lightweight, user and eco friendly, the use of technical textiles is gaining increasing popularity.

Market and Production Centres

With applications across various industries including automobiles, civil engineering and construction, agriculture, healthcare, industrial safety, personal protection, etc., the market for Technical Textiles is expanding at a brisk pace. Global market growth is led by increased demand from emerging markets like Asia, because of increased levels of consumption and production, availability of skilled labour, and developing infrastructure facilities. Currently, the industry is dominated by products from China and European Union. The inherent factor cost advantage enjoyed by developing Asian economies makes technical textile production an attractive value-proposition for them.

Indian Technical Textile Industry

Availability of cheap labour and abundance of natural fibres as well as man made fibres provide significant advantage for production of technical textile products in India. Strengthening of the 'Skill India' program, inclusion of textile machinery and accessories as core sectors under Make In India campaign work in favour of the textile industry, of which technical textiles is an important category. Also, factors such as high economic growth, acceleration in infrastructure creation and rise in disposable income are expected to boost substantially the demand for technical textile products in India. Driven by favourable demand and supply side dynamics, India has a high potential to become a significant player on the global landscape. As per industry sources, India's technical textile industry is expected to grow at a rate of 20 per cent annually to touch USD 30 billion over the next five years.

Government Support

Reduction in custom duty: In FY2016-17 Budget, the basic custom Duty for textile raw materials used in technical textiles was reduced to 2.5%. This measure will help bring down the input cost for technical textiles manufacturers.

Budget allocation increased: The FY2016-17 budgetary allocation to support various schemes under the textile industry was increased to Rs. 4594.82 crores from Rs. 4326.44 crores in the brvious year.

Amended Technology Upgradation Fund Scheme: The approval of the Amended Technology Upgradation Fund Scheme in December 2016 will help the textile industry upgrade operational technology. Moreover, the scheme lays emphasis on the promotion of Technical Textiles, a sunrise sector, for exports.

Implementation of New Schemes: To promote the growth of technical textiles in the country the government is implementing four schemes namely technology mission, scheme for strengthening of database and standards for technical textiles, scheme for usage of agri-textiles in north-eastern region, and restructured technology upgradation fund scheme.

Centres of Excellence (CoE): The Ministry of Textiles has set up eight Centres of Excellence (CoE) and has also approved setting up of integrated textile parks to boost the Indian Technical Textile industry.

COMPANY OVERVIEW

Flexituff International Ltd. (FIL) believes to be the largest manufacturer of Flexible Intermediate Bulk Containers (FIBC) in India and 2nd largest in the world with a total capacity of 36,800 MT, and the largest Geo-textile manufacturer in India. The Company is also engaged in the business of manufacturing Reverse Printed BOPP (Biaxially Oriented Polypropylene) Woven Bags, Geo-textile Fabrics and Ground Covers, Polymer Compounds, and Drippers. The current installed capacity for all products is 74,000 MT and these products serve the domain needs of Retail, Industrial, Agro and Infrastructure Sectors. The Company has a strong global footprint with products being exported to 55 countries across six continents. The Company has four integrated manufacturing facilities, located at Pithampur (Madhya Pradesh) and Kashipur (Uttarakhand), and two wholly-owned subsidiaries in U.K. and USA.

SEGMENTAL GROWTH DRIVERS

FIBC

Internationally, strong growth in the food and pharmaceutical sectors has escalated the demand for FIBCs, also known as bulk bags or industrial containers. FIBCs are vastly brferred for their ability to reduce the overall weight of the bulk packaging and ease the handling and transportation of materials. As per research reports published by ReportsnReports, global FIBC market is forecasted to grow at a CAGR of 7.3% over the period 2014-2019.

The Indian FIBC industry is expected to maintain the positive growth momentum driven by demand in global markets as well as domestic markets. Demand in domestic markets is being led by agriculture, mineral, petrochemical industries, etc. Also, the global slowdown is working in favour of Indian FIBC manufacturers as scale down in production by companies in Europe and USA has resulted in sourcing being shifted to India.

GEO-TEXTILES

As per reports published by Grand View Research, the global geo-textile market size was 4,505.0 million square meters in 2015. Road construction was the largest application segment accounting for over 40% of the market. Erosion control accounted for over 19% of the global product market. Going ahead, the global market is projected to grow over the next eight years owing to its increasing application in road construction, erosion control, and drainage applications.

For their superior functional properties of absorbency, liquid repellency, and mechanical strength, non-woven geo-textiles commanded the market of geo-textiles with over 65.0% of total market volume in 2015. This was followed by woven geo-textiles (20% global share) and other product types.

Asia Pacific contributed to over 40% of the global industry in 2015, making it the largest market. This trend is expected to continue till 2024 owing to strong infrastructure development primarily in developing countries including China and India. Growing urbanisation and rising population in these countries are the other factors expected to fuel industry growth.

REVERSE PRINTED BOPP WOVEN BAGS

Reverse-printed BOPP woven bags provide superior shelf appeal and good advertising effect for their outstanding print image quality. For this reason, coupled with their high tensile strength, they are used extensively in the packaging of products marketed in retail chains, supermarkets and commercial establishments.

Steady economic growth, favourable demographics of a young and large working age population, increasing disposable incomes and changing lifestyles are some of the key factors that are driving growth in the organised retail market in India. As per report titled 'Retail 2020: Retrospect, Reinvent, Rewrite', India's retail market is expected to double to $1 trillion by 2020 from $600 billion in 2015.While the overall retail market will grow at 12% per annum, modern trade will grow twice as fast at 20% per annum, and traditional trade at 10%. Modern trade includes supermarkets, hypermarkets and other organised retail outlets, while much smaller grocery stores are classified under traditional channels. These developments augur well for the demand of BOPP-woven bags in India.

POLYMER COMPOUNDS

As per joint report by FICCI and Tata Strategic Management Group (TSMG) on plastic industry, India is a growing market for plastics and consumes about 12.8 million tonnes of plastics annually against the global consumption of 285 million tonnes per year. Current low per capita consumption level of plastic products in India (9.7 kg/person) as compared to developed countries per capita consumption (USA - 109 kg/person, Europe - 65kg/person, China - 45kg/person) indicates that India offers a significant opportunity matrix. With rising usage of plastics across several industries such as automobiles, consumer packaging, e-commerce etc., the country's plastics and polymer consumption is growing at an average rate of 10 per cent. India's plastic packaging industry in India is growing at 18 per cent per annum and is expected to reach USD 73 billion in the next four years.

DRIP IRRIGATION

For its reduced water usage, drip irrigation is brferred over conventional flood irrigation where a large amount of brcious water evaporates before even reaching the plants. Drip irrigation also reduces fertilizer/nutrient loss due to localised application as compared to the traditional method of flood irrigation. The high initial cost of purchase of drip irrigation systems are more than offset by the reduction in costs of power (for pumping water) and fertiliser use. The government has been trying to popularise the mantra: "more crop per drop" to promote micro irrigation, which includes drip and sprinkler systems. Micro irrigation system sales (major contributor being drip irrigation systems followed by sprinkler irrigation) is driven by strong demand in states such as Gujarat, Rajasthan, Madhya Pradesh Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu, Rajasthan and Haryana.

OPERATIONAL REVIEW

Major Development in 2015-16 is in Manufacturing of Proprietary Products viz:

• Sand fill Tubular Mattresses

• Barrier Force

• Pipe Sack &

• Geo Tube

OUTLOOK

Leveraging its leadership position in the FIBC segment, the Company will continue to tap new global prospects. The fast-tracking of infrastructural projects and increase in government investments in infrastructure has heightened the demand for geo-synthetic products and solutions. With strong domain expertise in the manufacture of niche geo-synthetics products and solutions, Flexituff is well-positioned to capitalise on the unfolding opportunities. Additionally, the Company has received and executed several world-bank (ADB) tenders for design, supply and execution of Geo-synthetics products for infra-projects. This strengthens its pursuit to be a one-stop shop, offering end-to-end solutions, undertaking supply and commissioning geo-infra projects in India and neighbouring countries. Further, the Company is optimistic of increasing its revenue by focusing on plastic processing solutions and developing import substitute products through its in-house R&D and Product Development Centre.

RISK REVIEW

Government Policy: Earnings from exports form a substantial part of the revenue generated by the Company. Changes in export taxes, industry regulations, policies and other governmental actions could affect the Company's operation periodically.

Currency Exchange Risk: As with all global businesses, the Company is exposed to risk of foreign exchange fluctuations that may lead to erosion of margins.

Quality: Deterioration in product quality can cause serious long-term damage to the Company's credibility with financial consequences such as the loss of a customer.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

FIL has a proper and adequate system of internal controls commensurate with the nature of its business and the size and complexity of its operations. The internal controls are designed to ensure that all assets are verified to ensure their veracity, safeguarding and protection against unauthorised use and disposition. A system of checks and balances is also in place encompassing all levels and functions to minimise business risks and ensure that every single transaction is duly authorised, recorded and reported. The Company strictly adheres to all rules, policy, statutes and laws ensuring that all statutory compliances are thoroughly followed and transparency is maintained.

FINANCIAL REVIEW

The standalone financials witnessed the following results during the year:

• Revenue from operations increased by 10.40% to Rs. 11748.89 in 2015-16 from Rs. 20641.25 million in 2014-15.

• Earnings before interest, tax, and debrciation increased by 26.68% to Rs. 1583.01 million in 2015-16 from Rs. 1249.58 million in 2014-15.

• Net worth increased by 1.07% to Rs. 3780.97 million in 2015­16 from Rs. 3740.84 million in 2014-15.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company believes that its professional and talented personnel are its greatest asset responsible for its brsent and future growth. The total number of employees as on 31st March, 2016 stood at approx. 7500. Industrial relations remained cordial during the year under review.