MANAGEMENT DISCUSSION AND ANALYSIS REPORTOverview – Reference under SICA:
The year under review was a landmark one for the Company as its Net Worth turnedpositive at the end of the year.
During the process of restructuring under the aegis of BIFR, several radical measureshad to be undertaken by the Company in order to deal with its accumulated losses (peakvalue Rs. 678 Cr.) and to restore the equilibrium between its assets and liabilities. Someof the major initiatives taken in terms of the BIFR approved Revival Scheme and theresultant gains are summarized below:
1. MIL, as it existed before it was referred to BIFR, was restructured through multiplede-mergers:
a) The chemical business was de-merged and taken over by NFIL. Besides contributingRs.90 Crores for the revival of the Company, NFIL, upon its demerger, also allotted to theshareholders of MIL its shares on 1:1 basis, free of cost.
b) Identified surplus and non-productive assets were demerged along with theliabilities of the secured term lenders into a financial SPV to facilitate One TimeSettlement.
c) The residual business including Textiles remained with MIL.
2. In order to achieve revenue consolidation in textiles business, the manufacturingactivities were consolidated at Nadiad and Navsari Units and the unviable units at Mumbaiand Ahmedabad were closed down as envisaged in the Sanctioned Scheme. The Company alsocompleted the entire capital refurbishment, installation of balance equipment etc as perthe Scheme.
3. Negotiated settlements were reached and completed with the Banks, FinancialInstitutions and other agencies in respect of their outstanding dues:
a) The restructured debts amounting to Rs.257 Crores of Financial Institutions etc.were settled through Debt-Asset Swap mechanism/ repayments within the domain of thefinancial SPV.
b) Debts aggregating to over Rs. 500 Crores due to Working Capital Banks were settledthrough the route of "Assignment of Debt", resulting in a gain of Rs.377 Crores.All Assignees of such debts, except NFIL- a Group Company, have since been fully settled.
c) Similarly most of the outstanding liabilities relating to leased plant and machineryhave also been settled as provided in the Scheme.
d) As on date, the Company has settled all outstanding dues of Banks and FinancialInstitutions and consequently it has now become a "debt free" company in so faras the Banks and Financial Institutions are concerned.
4. The labour costs of the Units were rationalized in line with the level of operationsthrough Voluntary Retirement Schemes, both for Mumbai and Gujarat Units at an outlay inexcess of Rs. 100 Crores, resulting in reduction of workforce by 5265 workers.
The entire process of restructuring was financed internally by the Company through saleof surplus assets/investments and Promoter’s contribution.
However, due to inadequacy of capital, the Company was unable to address theimperatives of high manufacturing costs, working capital etc. in order to be competitivein market. The likely deregistration of the Company from BIFR, due to the networth turningpositive will open-up several opportunities and it will be possible for the Company tooperate like any other healthy enterprise on commercially improved terms and conditionsand it should also be in a position to access requisite capital from the banking system.
Way Forward
Capital expenditure to the tune of Rs.50 – 55 Cr is being planned in order toupgrade and replace old machinery and equipment in spinning, weaving and processingsections. Bulk of the expenditure is planned in processing. This will be helpful indeveloping new products, increasing productivity and improving quality. Another Rs. 20 crCapex is being planned in order to set up captive power plant through the co-generationroute where the power cost will be at least 25% cheaper than that provided by thegovernment company. All these will result in decreasing costs and improving ourcompetitiveness.
Necessary financial support will be provided out of the proceeds of sale of assets,primarily arising out of sale of surplus land at Mazagaon, Mumbai which should now bepossible as the Public Interest Litigation (filed by an NGO) in the Bombay High Courtchallenging the decision of the Maharashtra Government to de-reserve 50% of Mazagaon unitland has since been dismissed and the process of seeking requisite approval for effectingthe sale has already been initiated. The Company expects to conclude the sale shortly.
Health & Safety / Quality Certification
The Company has implemented safeguards to adhere to health, safety and environmentnorms. A centralized Quality Assurance Dept. facilitates the interaction between varioussites to share and communicate knowledge.
The Company’s facilities are ISO 9001-2000 and OekoTex certified, boast of qualityapprovals from Marks & Spencer and NEXT, and also have British Safety Councilcertification.
Strength & Weaknesses
The Company’s major strength is the trust which it enjoys with its wide customerbase which it has developed through fair business practices. The other major strength isexcellent product range backed by good quality and service. However, the major weakness isthe old range of equipments at the plant which reduces Company’s competitiveness.
Opportunities & Threats
The demand for good quality fabric is ever growing from Domestic/International marketsand Garment Exporters which creates endless opportunities for Textile Industry.
However, the threat comes from fluctuation in raw material costs and in exchange ratein addition to the competition from low cost producers in India and abroad.
Industry Structure
The Indian Textile Industry is one of the leading textile Industries in the world.Though it was a predominantly unorganized industry, the scenario started changing afterthe economic liberalization of Indian economy in 1991. The opening up of economy gave themuch-needed thrust to the Indian textile industry, which has now successfully become oneof the largest in the world.
The textile and clothing industry contribute to over 12% of India’s export, 14% ofindustrial output and accounts for more than 5% of GDP. It provides direct employment toover 35 million people. For the Indian economy it is the second most important sectorafter agriculture.
The fundamental strength of this industry flows from its strong production base silkand wool to of wide range of fibres/yarns from natural fibres synthetic/man-made fibreslike polyester, viscose, nylon and acrylic. We can the strong multi-fibre base byhighlighting the following important positions across the globe :
1. Cotton - Second largest cotton and cellulosic fibres world.
2. Silk - India is the second largest producer of silk and contributes about 18% to thetotal world raw silk production.
3. Wool - India has 3rd largest sheep population in the world, having 6.15 Croressheep, producing 45 million Kg of raw wool and accounting for 3.1% of total world woolproduction. India ranks 6th amongst clean wool producing countries and 9th amongst greasywool producers.
4. Man-Made Fibres - the fourth largest in synthetic fibres/ yarns globally.
5. Jute - India is the largest producer and second largest exporter of jute products.
Prospects
The textile industry has already grown from USD 37 billion in 2004-05 to USD 56 billionin 2009-10. The estimated exports for 2010-11 stand at about USD 25 billion.
Business Segment Analysis
The Company has achieved a turnover of Rs.132.38 Crores, out of which export sales wasRs.30.31 Crores. The Company’s order book position is fair in-spite of the economicslowdown.
In light of the overall prospects of the Textile Industry and the SWOT Analysis of theCompany, we feel that it can achieve better results, improve and re-establish track itsposition as a leading textile manufacturer in the times to come.
Human Resources
The relations between the employees and the Management have remained producing countryin the cordial. Total No. of employees was 3744 as on 31st May, 2010.
Internal Control
The Company has proper and adequate systems of internal control. Regular internalaudits and checks are carried out and also management reviews of the internal controlsystems and procedures to ensure orderly and efficient conduct of the business. TheInternal Auditors periodically interact with the Audit Committee of the Board of Directorsof the Company to discuss various internal controls / internal audit issues.
Cautionary Statement
Statements in this report of Management Discussion and Analysis describing theCompany’s objectives, projections, estimates, expectations, or predictions may beforward looking statements within the meaning of applicable securities laws and/orregulations. These statements are based on certain assumptions and expectations of futureevents. Actual results could, however, differ materially from those expressed or implied.
The Company assumes no responsibilities in respect of forward looking statements hereinwhich may undergo changes in future on the basis of subsequent developments, informationor events.