imp powers ltd Management discussions

GLOBAL APPAREL INDUSTRY

Exhibiting a rebound after the pandemic, the apparel industry grew from early 2021 through to mid-2022. However, H2 FY 2022 saw a plunge in sales across USA and Europe, hinting at a slowdown in the upstream value chain, primarily due to rising global inflation levels and falling consumer sentiments. The global apparel consumption in 2021 was around USD 1.5 trillion and is estimated to reach USD 2 trillion by 2025 growing at a CAGR of 4% from 2019. The largest market globally for apparels is USA followed by Europe and China and other nations like Japan, Brazil and Canada. Since these nations amongst all others were plagued by inflation concerns, apparel manufacturers in Asia had an unfavourable effect due to diminished global demand. The apparel manufacturers in the Asian region have been facing operating at 70% capacity and accepting near nil margin orders. dual problems of lesser prices from buyers due to the economic slowdown and increased cost from suppliers put pressure on the apparel manufacturing companies, cumulatively, leading to shrinking profit margins.

Year	Global apparel market value at retail prices (USD billions)
2021	1,500.1
2022	1,671.4
2023	1,736.5
2024	1,895.6
2025	2,000.1

Growing economies such as China and India are growing at much higher rates than developed regions owing to the growing domestic market and increasing disposable income. Together these markets account for 59% of the total apparel market while rest of the world accounts for the remaining 41% share.

The global textile and apparel trade was valued at USD 869 billion in 2021. The trade is projected to grow at CAGR 3% and reach USD 1,000 billion by 2025 with apparel being the largest traded category. India is the 4^th largest supplier of textiles and apparel in the world with 5% share and exports worth USD 42 billion and exhibiting growth at 4% CAGR.

Source: FICCI

Factors shaping the global apparel industry China +1

Countries have become more conscious about their sourcing and have begun focusing on reducing dependency on China for their sourcing requirements and sourcing from other nations like Bangladesh, Vietnam and India. The ban on Xinjiang cotton by USA opened up the market for Indian cotton-based products on global level, thereby increasing their share in the global textile and apparel market and boost exports.

Taking advantage of the production-capacity shift in the labour-intensive industry away from China, countries in South Asia have been steadily increasing their market shares in terms of textile exports to USA.

Sustainability

The textile industry is amongst the most polluting industries and the environmental concerns facing the textile sector are considerable. With the ultimate aim of becoming a green and sustainable industry, the industries across the world are implementing measures like controlled use of natural resources like water and energy in the production processes, using raw materials which are sustainable in the long run, proper handling of hazardous chemicals used in dyeing and coating, proper waste disposal, treatment of water before discharge, using recycled products and adherence to certain guidelines to eliminate health risks of workers, consumers as well as the environment.

Supply Chain

Supply chain in this industry has been influenced by the digitalization of businesses post the pandemic situation, making it more transparent for both buyers and sellers and compliance issues easier. It has enabled buyers to find appropriate suppliers from across the globe and suppliers with efficient, transparent delivery systems have become the first choice of buyers. Supply chain visibility, sourcing approach, collaborations and information analysis have become more simplified in the recent years.

Comfort Factor

Following the pandemic, a need to be in comfortable clothing arose and gave boost to comfort wear clothing. Comfortable clothing, which is mainly made using stretchable fabrics, further increased demand of cotton-spandex, polyester and nylon spandex raw materials, thus boosting the athleisure category.

The apparel industry across the globe is facing strong headwinds, which is, in reality, enabling the manufacturers to make strategic changes through all the operations, functions and processes, to redesign approaches and prepare themselves for the revival which might arrive in the coming financial year when markets stabilize.

Imports of apparel into USA

Country	2022	2021
World	99.87	81.46
ASEAN	30.60	23.78
China	21.75	19.60
Vietnam	18.20	14.34
Bangladesh	9.72	7.13
India	5.68	4.19

(USD Billion)

Source: https://otexa.trade.gov

INDIAN APPAREL INDUSTRY

Indias textile and apparel market stood at USD 110 billion in 2021, of which USD 80 billion is contributed by apparel. 70% of the total market comprises of domestic consumption while the balance 30% goes towards exports.

Source: FICCI

In terms of global ranking, India is ranked 4th in apparel exports with 3% share. The textiles and apparel exports are estimated to grow at 9% CAGR from 2021 and reach USD 60 billion by 2025-26. Apparel is the largest exported category in Indias exports with a dominant share of 36%.

USA with 30%, UAE with 14% and UK with 9% are the top 3 top markets for Indias apparel exports while Germany and France contribute 6% and 4% respectively.

India as one of the largest producers and consumer of textile and apparels. With the market value expected to touch USD 250 billion by 2025-26, it is required that the full potential of this sector be exploited in order to achieve optimum contribution to GDP and exports.

Source: Indiaretailing

Export of apparel from India

(USD billions)

Articles of Apparel and Clothing Accessories	2022-23	2021-22	2020-21	2019-20	2018-19	2017-18
- Knitted or Crocheted	7.7	8.2	6.3	7.5	7.8	8.0
- Not Knitted or Crocheted	8.5	7.8	5.9	8.0	8.3	8.7
Export of apparel	16.2	16.0	12.2	15.5	16.1	16.7
Growth	1.25%	31.1%	-21.3%	-3.7%	-3.6%	-4.0%
Source: tradestat.commerce.gov.in

Top 15 Textile Export Market of India (Values in USD Million)

Importers	Exported value in 2017	Exported value in 2018	Exported value in 2019	Exported value in 2020	Exported value in 2021
1 United States of America	7787.871	8118.862	8450.894	7510.099	10816.665
2 Bangladesh	2260.401	2499.759	2059.204	2079.231	4268.378
3 United Arab Emirates	4109.43	2471.327	2441.259	2070.632	2673.935
4 China	1520.189	1842.894	1400.159	1316.79	2050.709
5 United Kingdom	2242.376	2193.809	2152.551	1596.582	1956.979
6 Germany	1785.767	1705.131	1515.276	1249.513	1464.592
7 France	956.481	972.519	919.371	708.886	903.578
8 Spain	1072.571	1055.924	1011.219	702.876	868.877
9 Netherlands	668.798	700.915	689.03	610.351	806.532
10 T?rkey	740.737	654.414	585.937	465.42	779.233
11 Sri Lanka	604.955	601.471	644.202	534.804	777.579
12 Italy	853.32	889.462	745.542	563.742	774.412
13 Vietnam	511.463	634.996	341.023	402.098	648.97
14 Australia	429.913	438.296	466.858	457.226	604.532
15 Canada	438.8	454.528	443.151	399.934	544.377

Source: https://commerce.gov.in/about-us/divisions/export-products-division/ep-textile/

REVIEW OF OPERATIONAL PERFORMANCE

On stand alone basis the Company reported a turnover of Rs 600 Crores a decrease of 27% over previous Financial year. Also the PBT dipped from 21% to 14%. This is mainly due to Global recession which gripped both the developed and developing nations alike. Same forced all Global giants into loss of turnover and heavy loss in profits. The Global retailers like Walmart and Target had to resort to distress selling with deep discounts. The major reason is huge stocking in the 1st quarter in expectation of revival in demand from the customers buying with a revenge mode. However it cannot be sustained and Global retailers were left with no option other than putting a stop to stocking and also to liquidate the same with heavy discounts. The same created a down side repercussion across which impacted us also on Sales and Profit front.

The company expects this to be temporary phenomena to extend up to Q4 2022-23. The companys orders in queue for 2023-24 indicate achieving a better performance in Q1 and Q2 and normal performance by Q3 2023-24.

Expansion plans in Telangana

The expansion plans are progressing as per schedule. We have already tied up the Project loans amounting to Rs 2023 crores through a consortium of Banks . The first Project at KMTP Waranga is well advanced with the Land fully procured, Buildings getting near completion and types of machinery have started arriving with major LCs opened for procurement of machines. The Company has already contributed a major portion of Promoters Equity. Commercial production is expected to commence in March 2024. For the 2nd Project at Sitarampur near Hyderabad the Land of 250 acres is procured and plans for construction and procurement of machinery is under process. The Commercial production is planned to commence on March 2025.

REVIEW OF FINANCIAL PERFORMANCE

As mentioned above the PBT reduced to 14% and resultant impact on EBIDTA coming down to 18% against 25% of last year. Based on the orders and general revival of demand the Company expects the Profitability performance to be back to normal by 3rd Quarter of next year.

Summary of financial performance (Consolidated)

During FY23, the company achieved operating revenue of 55,699.55 lakhs, which is 29.34% lower than earlier years

78,832.83 lakhs. The decrease is on account of major recessionary impact Globally.

EBIDTA for FY23 was 10710.33 lakhs versus 20083.82 lakhs for FY22, a decrease of 46.67%. Lower EBIDTA is primarily on account of the Global recession.

Earnings per share 8.94 for FY23 to 19.29 for FY22.

Subject to the approval of the members in the forthcoming annual general meeting, the Board of Directors recommended payment of dividend at 1.50 per each share of Re.1 face value (Dividend for FY22 was 1.50 per share).

Revenue

(INR in lakhs)	FY23	FY22	Change
Operating revenue	55,699.55	78,832.83	-29.34%
Other income	4,307.67	2,996.40	43.76%

 

Cost of materials
(INR in lakhs)	FY23	FY22	Change
Cost of raw materials consumed (including Purchase of stock in trade andChanges in	26,453.31	36,741.87	-28.00%
inventories of FG, traded goods and WIP)
Operating revenue	55,699.55	78,832.83	-29.34%
Cost of materials / Operating revenue	47.49%	46.6%

The cost of raw materials has gone down up by 28% whereas Operating Revenue decreased by 29.34%.

Employee benefits

(INR in lakhs)	FY23	FY22	Change
Employee benefits	10906.72	11426.42	-4.54%
% of Revenue	19.58%	14.5%

Employee benefits expense, though decreased by 4.54% in absolute amount, has been higher in terms of its proportion to the revenue. Employee cost has been to some extent fixed, and will not go down proportionaly to revenue.

Finance costs

(INR in lakhs)	FY23	FY22	Change
Finance costs	447.17	361.87	23.57%
% of Revenue	0.8%	0.4%

Finance costs increased due to the utilisation of higher working capital. Depreciation and Amortisation

(INR in lakhs)	FY23	FY22	Change
Depreciation and Amortisation	2,120.97	2,143.77	-1.06%
% of Revenue	3.8%	2.7%

The decrease in Depreciation and Amortisation is due to hike in revenue.

Other expenses

(INR in lakhs)	FY23	FY22	Change
Other expenses	11,936.86	13,577.12	-12.08%
% of Revenue	21.43%	17.2%

The decrease in other expenses by 12.08% is mainly on account of Processing charges, Power and fuel and Forwarding and transport charges on sales, which were linked to the decrease in production and sales.

Income tax
(INR in lakhs)	FY23	FY22	Change
Income tax	2,200.37	4,749.88	-53.68%
Profit before tax	8,142.19	17,578.18	-53.68%
Tax as % of Profit before tax	27.02%	27.02%

Credit rating

During the year, ICRA has revised the credit rating of the company as follows:

Loan facility	Short-term / Long-term	Rating on June 22 2023	Rating on March 3, 2022
Fund-based Working capital facilities	Short term	[ICRA] A1	[ICRA] A1
Non-fund-based Working capital facilities	Short term	[ICRA] A1	[ICRA] A1
Unallocated	Long-term	[ICRA] A+ (Negative)	[ICRA A+ (Stable)
	Short term	[ICRA] A1	[ICRA] A1

Dividend

The Board has at its meeting held on 30^th May 2023 recommended a final dividend of 1.50 per equity share of Re. 1 each (150%) for the year 2022-23, subject to the shareholders approval at its ensuing Annual General Meeting.

Segment-wise or product-wise performance

The Company is engaged in the business of manufacturing garments and there is no separate reportable segment

Risks and their mitigation

Your Company continues to strengthen its robust Risk Management Framework and the same was reviewed by the Audit Committee periodically. The Committee focuses on ensuring that risks promptly identified initially and a mitigation plan is developed and monitored periodically to ensure that risks are being addressed accordingly. The Committee operates with following objectives especially related to risks:

Identify and highlight risks affecting the company.

Facilitate discussion around risk prioritization and mitigation. The companys approach in addressing business risks includes periodical review of such risks and thereby mitigating it effectively.

Provide a framework to assess risk capacity and appetite; develop systems to warn when the appetite is getting breach. Your company believes that managing risk helps in maximizing return. Some of the risks that the company is exposed to are:

FINANCIAL RISKS: The Companys policy is to actively manage its foreign exchange risks within the framework laid down by the Companys forex policy approved by the Board. Given the interest rate fluctuations, your Company has adopted a prudent and conservative risk mitigation strategy to minimize financial and interest cost risks.

COMMODITY PRICE RISKS: The Company is exposed to the risk of price fluctuations of raw materials as well as finished goods. The company proactively manages these risks through forward booking, inventory management and proactive vendor development practices. Your companys reputation for quality, product differentiation coupled with the existence of a powerful brand image with a robust design and marketing network in US mitigates the impact of price risk on finished goods.

REGULATORY RISKS: The Company recognized its risks attached to various statutes, laws and regulations. The company is mitigating these risks through regular review of legal compliances carried out through our internal as well as external compliance audits by our customers.

HUMAN RESOURCE RISKS: Retaining the existing talent pool and attracting new talent are the major risks affecting the company. We have initiated various measures including rolling out of strategic talent management systems, training and integration of learning and development activities. Our company has collaborated with various agencies like Integrated Skill Development Scheme (ISDS), which helps to identify, nurture and groom labour talents within all states of India to prepare them for future business leadership.

STRATEGIC RISKS: Emerging businesses, capital expenditure for capacity expansion etc are normal strategic risks faced by your company. However, your Company has well-defined processes and procedures for obtaining approval for investments in new businesses and capacity expansions.

Internal control systems and their adequacy

The Company has a proper and adequate internal control system to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and those transactions are authorised, recorded and reported correctly. Internal control is exercised through documented policies, guidelines and procedures. It is supplemented by an extensive program of internal audits conducted by in-house trained personnel. The audit observations and corrective actions are periodically reviewed by the audit committee to ensure the effectiveness of the internal control system. The internal control is designed to ensure that the financial and other records are reliable for preparing financial statements and other data, and for maintaining accountability of persons. Apart from the above, the company has engaged Messrs. K Venkitachalam Aiyer & Co, Chartered Accountants to conduct the Internal Audit during the year 2022-23.

Human resources/ industrial relations

Human Resources (HR) management of the Company plays vital role in managing, guiding and motivating the companys workforce and its evident from the fact that employees are one of our key stakeholders. The Company had 4486 employees on rolls of which 2587 were women as on March 31, 2023. The total number of man power came down from 5524 since the Company exercised control on recruitment due to lower turnover. It is pertinent to note that the Company has been successful in maintaining a pay equity for both genders across levels ensuring that it builds an equitable workplace. The Companys HR philosophy is to establish and build a high performing organization, where each individual is motivated to perform to the fullest capacity to contribute to developing and achieving individual excellence and departmental objectives and continuously improve performance to realize the full potential of our personnel. The Company has designed and implemented performance management system of employees that helps in achieving its goals. Industrial relations are cordial and satisfactory.

Outlook

Since company is in Infantswear business, we expect that business will grow in good pace and there is also a possibility of getting new good order from existing / new buyers from across globe considering trade war between US and China. We are continuously monitoring the current situation to grab the opportunities and also ready to face any challenges.

CAUTIONARY STATEMENT

Statements made herein describing the Companys expectations or predictions are "forward-looking statements". The actual results may differ from those expected or predicted. Prime factors that may make a difference to the Companys performance include market conditions, input costs, govt. regulations, economic development within/outside country etc.