deepak spinners ltd Management discussions

INDUSTRY STRUCTURE & DEVELOPMENT

The Textile Industry is a vital sector of the Indian economy with a rich history dating back centuries. It is one of the major contributors to Indias Gross Domestic Product (GDP) and also one of the largest employers in India. The Indian textile industry is diverse, encompassing a wide range of textiles, including man-made fibres (MMF).

Currently, MMF textile industry in India is substantially self-reliant across value chains from raw materials to garmenting. MMF represents 70% of the worlds total fibre production. However, in India, MMF occupies only 42% of the production share.

Since past few months, exports in MMF textile products are declining, as there is reduction in demand for textile products in the western countries as an outcome of Russia-Ukraine war. Similarly, prices of raw materials such as dyes and chemicals, imported from European countries have increased. As a result, the entire value chain has got affected

In a bid to give a boost to the Textile Industry, the Central Government has increased the budget outlay from Rs. 3579 crore in 2022-23 to Rs. 4389.34 crore for 2023-24. Also the government has increased the budget outlay of Amended Technology Upgradation Fund (ATUF) from Rs. 650 crores in 2022-23 to Rs. 900 crores in 2023-24.

OPPORTUNITY AND THREATS

Indias man-made fiber (MMF) products are known for their workmanship, colors and durability. Globally, the textile trade is dominated by MMF. For India to increase its share in the global textile trade, the country will have to increase its competitiveness in MMF value chain, in terms of price as well as diversification in products. There is increasing trend in USA and Europe towards shifting textile business from China to other Asian countries and India is a clear choice.

Indias self-sufficiency in raw materials across entire value chain and manufacturing capacity are factors favouring India over other countries. India has large indigenous raw material base - it is the second largest producer of Polyester Staple Fibre and Filament Yarn and third largest producer of Viscose Staple Fibre in the world. Due to large working population, human resource availability is an advantage for MMF industry. After Covid, garment trends is shifting to sustainable MMF in place of cotton due to climate constraints and cost reduction final garment. India is the world leader in spinning & processing recycled polyester which will work to our advantage.

The rapid deterioration of the global economic outlook following the Russia -Ukraine war and mass lay-offs of employees by global corporations, has severely impacted demand and margins. Lack of modern technical know-how, non-availability of skilled manpower near factories, volatile raw material prices, infrastructure bottlenecks, are other factors that may pose a threat to progress of MMF industry.

However, through investing in people, digitalisation, research & development, reaching out to untapped global markets, green energy and supply chain diversification, margins can be improved.

SEGMENTAL REVIEW AND ANALYSIS

Your Companys policy of undertaking modernization and upgradation on a regular basis continues as before. During the year under review, investment on this account has been in the region or Rs. 48.37 crores. The 3MW solar power plant at Guna unit has been successfully commissioned and savings therefrom is expected to accrue during the current year.

Savings from modernization are expected to be achieved during current year. War between Russia and Ukraine is resulting in supply chain disruptions and slowdown in the manufacturing sector all over the world particularly in Europe and America. These resulted in substantial decrease in export due to lack of demand overseas, over supply in domestic market has affected the yarn prices adversely.

Your Company, is optimistic and is evaluating all possible avenues to maintain profitability. The efforts to keep costs under control continue with emphasis on improved productivity and profitability.

OUTLOOK

The demand for MMF products is increasing consistently due to its versatility and scope for further development. The demand is particularly growing for the millennial generation who prefers light weight fabrics with low cost and low maintenance. More and more demand for fitness apparel (active wear), requirement of low cost and high-performance material for automotive and industrial use have increased the demand for synthetic and MMF products.

Limited cotton production, relatively high cotton prices and versatile applications of MMF are other contributors to increase in demand for MMF textiles. RISKS AND CONCERNS

The Industry is facing the issues of lack of skilled labour, inflexible labour laws, lack of modernization and infrastructure bottlenecks. Due to fragmented nature of the industry, there are higher logistic costs, higher lead time and lack of economies of scale.

Also, global volatility can put any business to the risk of unforeseen inflationary pressures and affect demand for its products. Disturbances in geopolitics can impact the operation of supply chains and cost of other factors of production. Your company has a systematic process of material procurement and has a robust framework for continuous monitoring, identification and redressal to meet unforeseen challenges.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Companys internal control systems and procedures commensurate with the size and nature of its operations. The Company has adequate system of Internal Controls to ensure that the resources of the Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use and the transactions are authorized, recorded and reported correctly. Financial and other data are reliable for preparing financial information and other data and for maintaining accountability of assets. The management periodically reviews the internal control systems and procedures for efficient conduct of the Companys business. Internal Audit is conducted by independent Chartered Accountants, on quarterly basis. To maintain its objectivity and independence, the Internal Auditors report directly to the Audit Committee of the Board. The Audit Committee reviews the Internal Audit Reports and effectiveness of the Internal Control Systems. If required, the corrective actions are taken and the controls strengthened.

FINANCIAL PERFORMANCE

a) The report of the Board of Directors may be referred to for financial performance.

b) Details of significant changes (i.e. changes as compared to the immediately previous financial year) in key financial ratios -

c)
Ratios	F.Y. 2021-22	F.Y. 2022-23	Change(%)
Debtors Turnover Ratio	15.74	17.87	13.53 %
Inventory Turnover Ratio	7.54	6.25	-17.11%
Interest Coverage Ratio	16.59	25.32	52.62%
Current Ratio	1.58	1.61	1.90%
Debt Equity Ratio	0.24	0.21	-12.50%
Operating Profit Margin (%)	10.78	10.14	-5.94%
Net Profit Margin (%)	9.95	9.62	-3.32%
Return on Net Worth (%)	19.98	17.05	-14.66%

Note - The increase in Interest Coverage Ratio is due to reduction in principal loan amount and as a result reduction in interest paid on it.

HUMAN RESOURCES

The employees on roll in the Company as on 31^st March 2023 were 3093 (2964 as on 31^st March 2022). Relations with the employees were cordial throughout the year. The Company provides to its employees favourable work environment conducive to good performance with customer focus while adhering to quality and integrity.

CAUTIONARY STATEMENT

Statements in this Management Discussions and Analysis Report describing the Company objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable security laws or regulations. These statements are based on reasonable assumptions and expectations of future events. Actual results could however, differ materially from those expressed or implied. Factors that could make a difference to the Companys operations include market price both domestic and overseas availability and cost of raw materials, change in Government regulations and tax structure, economic conditions affecting demand / supplies and other factors over which the Company does not have any control. The Company takes no responsibility for any consequence of decisions made based on such statements and holds no obligation to update these in future.