Economic Overview
India focused on saving lives and livelihoods by its willingness to
take short-term pain for long-term gain, at the onset of the COVID-19 pandemic. An early,
intense lockdown provided a strategy to save lives and preserve livelihoods via economic
recovery in the medium to long-term. A public investment programme centered around the
National Infrastructure Pipeline to accelerate the demand push and further the recovery
was rolled out.
As per the Reserve Bank of Indias (RBI) estimates, Indias
real GDP growth is projected at 9.5% in FY22, which includes growth of 18.5% in the first
quarter of FY22; 7.9% growth in the second quarter of FY22; 7.2% growth in the third
quarter of FY22 and 6.6% growth in the fourth quarter of FY22. A V-shaped recovery is
expected, and there has been a resurgence in high frequency indicators such as power
demand, e-way bills, GST collection, steel consumption, etc.
As anticipated, while the lockdown resulted in a 23.9 per cent
contraction in GDP in Q1, the recovery has been a V-shaped one as seen in the 7.5 per cent
decline in Q2 and the recovery across all key economic indicators. Starting July, a
resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP growth in
Q2 after the sharp decline in Q1, a sustained resurgence in high frequency indicators such
as power demand, E-way bills, GST collection, steel consumption, etc. The reignited inter
and intra state movement and record-high monthly GST collections have marked the unlocking
of industrial and commercial activity. A sharp rise in commercial paper issuances, easing
yields, and sturdy credit growth to MSMEs portend revamped credit flows for enterprises to
survive and grow. Imports contracted more sharply than exports, with Forex reserves rising
to cover 18 months of imports. Inflation, mainly driven by food prices, remained above 6
per cent for much of the year; the softening in December suggests easing of supply-side
constraints.
Indias GDP is estimated to contract by 7.7 per cent in FY2020-21,
composed of a sharp 15.7 per cent decline in first half and a modest 0.1 per cent fall in
the second half. Sector-wise, agriculture has remained the silver lining while
contact-based services, manufacturing, construction were hit hardest, and have been
recovering steadily. Government consumption and net exports have cushioned the growth from
diving further down.
The V-shaped economic recovery is supported by the initiation of a mega
vaccination drive with hopes of a robust recovery in the services sector. Together,
prospects for robust growth in consumption and investment have been rekindled with the
estimated real GDP growth for FY 2021-22 at 11 per cent, though second wave of Covid-19
during the first quarter of the financial year could prove a dampener to the estimated
real GDP growth rate.
Operational Overview
Future Enterprises Limited (FEL) is a leading integrated fashion
business, home to distinguished fashion labels and well-established retail destinations.
It is fashion manufacturing company of Future Group and it will continue to operate in
fashion consolidation having vast experience in predicting trends.
FY 2021 was challenging year for the business. Revenues declined
sharply due to the pandemic, coupled with the lockdown impacted the operations of shopping
malls and retail stores across all states. Restrictions on movements of employees,
customers and goods - during the early stage of the lockdown-impacted the retail trade
severely. Hence, the off-take of fashion merchandise by the retail companies was severely
impacted. Company focused on rationalising its cost base aggressively.
There is going to be significant challenges in the short to medium term
as the country is slowly recovering from the second wave of COVID-19 and the government
taking measures to bring back life to normalcy in a phased manner.
Awards & Recognition
The Group as well as the Company had been recognised and awarded for
its various initiatives in the retail sector from time to time. The Company now being part
of the B2B business initiative, there is no specific categories in which it would be
recognised and awarded as in past. However, the various initiatives of the Company, are
helping the other retail formats of the Group to compete for various award categories and
get recognitions as in past.
Competition
Considering the industry in which the Company operates and the
challenges of understanding these markets, the responsibility to understand and cater to
the needs of the customer is a substantial risk. With the increasing competition, current
state of the textile and apparel industry, and the frequent change in customer
expectations as a result of the pandemic, the risk of company losing its market share is
also something the company evaluates on an ongoing basis. The Companys B2B customers
has a strong digital presence and is leveraging the same to thrive during these times
which has witnessed an increase in overall customer base shifting to online buying.
Frequent interactions with the customers and various other initiatives are undertaken by
the Company to sustain during such unprecedented times.
Human Resource Initiatives
At FEL we believe that our employees are the cornerstone of our growth
and progress and they are the Companys most valuable asset. The Company has
employee-friendly policies and promotes a healthy work culture which is essential for
overall development of the employees. We understand the importance of work life balance
and we make constant efforts to encourage a culture with emphasis on the same. The
industrial relations remained generally cordial throughout the year under review. The
Company continues to focus on overall individual development and the aspirational needs of
employees are kept in mind while formulating various policies.
The outbreak of COVID-19 pandemic and the subsequent lockdowns created
a lot of disruption, panic and uncertainty. The pandemic has disrupted organizations and
led everyone to think differently about their role in a new work environment while
ensuring health, safety and well-being of the employees and their families. We have taken
certain initiatives to help our employees and their families including organising COVID-19
vaccination for employees and providing them access to medical care facilities.
Business Outlook
The Government of India is working on major initiatives and reforms in
the Textile and Apparel sector, including launch of a ‘Mega Integrated Textile Region
and Apparel (MITRA) Park scheme to establish seven textile parks with
state-of-the-art infrastructure, common utilities and R&D lab over a three-year
period; starting a focused product scheme; positioning the country as a global hub in the
man-made fibre (MMF) and technical textiles segments. Competitive advantage, robust
demand, favourable government policies, increasing investments and urbanisation are
expected to be the key drivers for revival of the industry.
The fashion and apparel industry witnessed signs of recovery since Q3,
FY 21 during the festive period.
The sector continued to improve since festive period until it got hit
by second covid wave in March. The sector is expected to rebound from second half of the
year, as Indias consumption patterns are expected to revive. The priorities of
industry players will be that stores remain operational, manage cash flows tightly,
leverage digital platforms and ensure customer and employee safety by following all
protocols and ensure faster vaccination for all their employees.
India ranks 2nd as the largest producer of textiles and garments and is
the 5th largest exporter of textiles spanning apparel, home and technical products. The
Indian textile and apparel industry is set for growth, buoyed by both strong domestic
consumption as well as export demand. Favourable demographic, rising per capital income
and a shift in customer preference to branded products is expected to revive the textile
and apparel industry which has been severely impacted by the COVID-19 pandemic.
Risks andThreats
The pandemic has been a unique economic shock that has triggered both
supply and demand side shocks simultaneously across economies around the world. Increased
uncertainty, lower confidence, loss of incomes, weaker growth prospects, fear of
contagion, curtailment of spending options due to closure of all contact-sensitive
activities, the triggering of precautionary savings, risk aversion among businesses and
resultant fall in consumption and investment – leading to the first order demand
shock. The supply chain disruptions caused by closure of economic activity and restricted
movement of labour lead to the first order supply shocks.
The first order supply side disruptions potentially created second
round effects on both demand and supply.
Theinitialsupplyshock,resultinginwageandincomeloss, could impact aggregate demand and
impair productive capacity leading to supply shocks. These effects were further amplified
through international trade and financial linkages, dampening global activity and pushing
commodity prices down. The feedback loops of demand and supply generated potential
hysteresis effects - when households demand less, firms get reduced revenues, which feeds
into reduced activity by firms, and thus reduced household income.
The policies to ‘flatten the epidemiological curve,
therefore, needed to be accompanied by economic policies designed and targeted to mitigate
the resulting shock to the economic system and ‘flatten the recession curve.
There was, however, unprecedented uncertainty about the potential spread of the pandemic.
The pandemic, therefore, posed unprecedented dilemmas before policymakers – lives vs
livelihoods and flattening the twin curves of pandemic and the resultant economic
recession.
Internal controls and their adequacy
Companys internal controls and risk management practices are
validated periodically with suitable review mechanisms in place. The internal control over
Financial Reporting is the bedrock for the risk and control framework for Company. The
companies Act 2013 requires the Board of Directors and statutory auditors of the Company
to comment on sufficiency of internal controls.
FEL has instituted the three lines of defence model, viz. (i)
management and internal control measures, (ii) financials controls, risk management
practices, security measures and compliance oversight, and (iii) a robust internal audit
function providing the third level of defence.
The Company has identified key external and internal risks associated
with the operations as well as control process to mitigate such risks. Further, regular
review of identification of risks and control process to mitigate such identified risks
ensures new evolved risks are identified well within time and appropriate control process
to counter such risks is established. All such internal controls and their adequacy,
financial and risk management policies, significant audit findings, compliance with
accounting and or other standards are regularly reviewed by the Audit Committee.
Review of Financial Performance of the Company for the year under
review. sales: The Companys Sales and Other Operating Income has decreased from
Rs. 4,043.15 Crore in previous twelve months to Rs. 886.93 Crore with YOY de-growth of
78.06 % for the financial year ended March 31, 2021. The Covid-19 pandemic has had a
significant impact on business. Operational challenges mounted due to restricted movement
and disrupted supply lines.
Loss Before tax: Loss Before Tax (including exceptional items) of
the Company for financial year ended March 31, 2021 stood at Rs. 1,067.79 Crore as
compared to Loss Before Tax of Rs. 325.36 Crore during the previous twelve months. nterest:
i Interest & Financial charges outflow has Increased from Rs. 635.75 Crore
incurred in previous twelve months to Rs. 717.00 Crore for financial year ended March 31,
2021 due to increase in debt.
Net Profit/Loss: Net Loss (including exceptional items) of the
Company for financial year ended March 31, 2021 stood at Rs. 1,049.90 Crore as compared to
Net loss of Rs. 288.50 Crore in the previous twelve months with increase of Rs. 761.40
Crore over the previous twelve months due to Covid-19 pandemic which had significant
impact on business of the Company.
dividend: While considering the Companys dividend
distribution policy, the uncertainties created by COVID-19 and in view of Loss during the
year under review, the Board has not recommended any dividend for the financial year ended
March 31, 2021.
capital employed: The capital employed (net of cash) in the
business is Rs. 9,013.71 Crore as at March 31, 2021. Return on capital employed (EBIDTA
including exceptional item/average capital employed) during FY 2020-21 is 2.75% as
compared to 11.58% during FY 2019-20.
surplus management: The Company have cash loss of
Rs. 439.12 Crore (without impact of IND AS) for financial year ended
March 31, 2021 as compared to cash profit of
Rs. 517.46 Crore in the previous twelve months.
equity share capital: The equity share capital of the Company Rs.
98.86 Crore during the financial year under review.
debt-equity: Debt-Equity ratio of the Company was 2.52 times as at
March 31, 2021.
earnings Per share (ePs): The Companys Basic EPS has gone
down from Rs. (5.84) per share in previous financial year to Rs. (21.24) per share for the
current financial year ended March 31, 2021.
cash earnings Per share (cePs): The Companys Cash Earnings
per Share (CEPS) has decreased to Rs. (8.23) in current financial year in comparison to
Rs. 9.70 in the preceding financial year.
investment: The Companys investment portfolio has decreased
from Rs. 1,233.44 Crore to Rs. 1,180.52 Crore during the current financial year ended
March 31, 2021. The decreased in investment during the financial year is mainly due to
divestment in equity of Livquick
Technology (india) Private Limited, debentures of Galaxy Cloud Kitchens
Limited, 9% Corporate bonds of Mahindra
& Mahindra Financial Services Limited and 8.45% Corporate bonds of
Bajaj Finance Limited.
Net worth: The Net worth of the Company has decreased from Rs.
3,630.36 crore to Rs. 2,573.41 mainly due to Loss for the current year.
Details of significant changes (i.e. changes of 25% or more as compared
to immediately previous financial year) in key financial ratios along with detailed
explanations therefor, including:
| Debtors Turnover |
0.43 |
| Inventory Turnover |
0.82 |
| Interest Coverage Ratio |
0.36 |
| Current Ratio |
1.03 |
| Debt Equity Ratio |
2.52 |
| Gross Margin |
26.50% |
| Net Margin |
(118.37%) |
| Return on Net Worth |
(33.85%) |
Details of significant changes in the key financial ratios:
1. Debtors Turnover and Inventory Turnover: It has been adversely
affected due to decline in revenue on account of COVID-19.
2. Current Ratio: It has been adversely affected due to decline in
revenue and profitability on account of COVID-19.
3. Interest coverage ratio: It has been adversely affected due to
decline in profitability on account of COVID-19.
4. Debt*-Equity ratio and Return on Net Worth: Ratios have been
adversely impacted due to decline in profitability on account of COVID-19 and increase in
borrowings.
5. Net Profit Margin: It has been adversely affected due to decline in
profitability on account of COVID-19.
*Debt = Borrowings (excluding Lease Liabilities accounted as per Ind AS
116)
CAUTIONARY STATEMENT
The statement forming part of this Report may contain certain
forward-looking remarks with meaning of applicable Laws and Regulations. Many factors
could cause the actual results, performances, or achievements of the Company to be
materially different from any future results, performances, achievements. Significant
factors that could make difference to the Companys operations include domestic and
international economic conditions, changes in government regulations, tax regime and other
statutes.
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