kallam spinning mills ltd Management discussions

A) GLOBAL ECONOMIC OVERVIEW

India?s Economic Survey 2022-23 indicates that private investment gathered momentum during the current fiscal in all major sectors, including the textile sector. However, manufacturing industries like textiles, apparel and leather have been showing tepid growth as the export demand for these products remained soft due to slow global demand.

A quick study of the survey report by the Confederation of Indian Textile Industry (CITI) showed that the textile sector recorded private investment of about 10,000 crore in first half of 2022-23 (i.e., April 2022 to September 2022). But the investment slowed down to around 7,000 crore in second half of the current fiscal. Textile sector was underperformer compared to other economic sectors like steel, electricity, chemical, auto and pharma.

The growth in textile sector was disappointing because of tepid demand from global market. In the first eight months of the current fiscal, the sector could maintain positive growth (of 5.9 per cent year-on-year) only in May. The textiles sector growth remained negative in the remaining seven months from April to November 2022. The sector witnessed negative growth of 0.4 per cent in April 2022, 3.1 per cent in June, 9 per cent in July, 12.5 per cent in August, 13.9 per cent in September, 18.7 per cent in October and 9 per cent in November 2022.

As per the report, wearing apparel industry recorded growth in April (55.2 per cent), May (69.9 per cent), June (42.6 per cent) and July 2022 (15.1 per cent). But it went into red in August (-18.3 per cent), September (-21.6 per cent), October (-36.6 per cent) and November 2022 (-11.7 per cent). Leather and related products noted growth of 5 per cent in April, 47.5 per cent in May and 1.9 per cent in June 2022. But they too turned negative in subsequent months and registered degrowth of 13.5 per cent in July, 16 per cent in August, 17.5 per cent in September, 25.5 per cent in October and 2 per cent in November 2022.

The survey indicated that most of the segments within the manufacturing sector, except the textile industry, witnessed growth in credit offtake in November 2022. Foreign Direct Investment (FDI) could not recover in the textile sector after COVID disruption in fiscal 2020-21.

Minister Goyal has encouraged the textile industry to utilise current ministry schemes, including the National Technical Textiles Mission and Scheme For Capacity Building In Textile Sector (Samarth). The dialogue focused on sustainability, R&D centre establishment, ESG compliance, and value-added product creation in the upcoming PM MITRA parks. A phased development of these parks for resource efficiency and better textile value chain integration was emphasised. Two action teams were proposed to study ESG norms and global best practice park design for future PM MITRA units.

Following Prime Minister Narendra Modi?s 5F vision (Farm to fibre; fibre to factory; factory to fashion; fashion to foreign) to create a self-reliant India and strengthen its position in global textiles, a scheme was announced in the 2021-22 Union Budget to set up seven PM MITRA Parks. The PM MITRA scheme aims to establish an integrated textile value chain, reducing industry logistics costs. Expected to create about 100,000 direct and 200,000 indirect jobs per park spread over 1,000 acres, with proposed investment of around 70,000 crore, these parks will be developed through Public- Private Partnership.

B) INDIAN ECONOMIC PROSECTIVE

The financial year 2022-23 opened with a firm belief that the pandemic was rapidly on the wane and that India was poised to grow at a fast pace and quickly ascend to the pre-pandemic growth path. The economy was expected to grow at 6.5 to 7% for FY23 despite pandemic recovery and the Russia-Ukraine war. India?s economic growth in FY23 has been principally led by private consumption and capital formation.

Global growth has been projected to decline in 2023 and is expected to remain generally subdued in the following years aswell. Outlook: 2023-24.

The consumers in US, Europe and other major markets have cut spending on clothing following a surge in inflation after the Ukraine war.

However, the overall Indian economy is relatively strong and is outperforming major economies; the textile sector is a notableexception. Exports which constituted 22% of industry have fallen significantly. Domestic market is flooded with cheap imported garments that have disrupted the local manufacturers.

India?s recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26. India has a 4% share of the global trade in textiles and apparels.

In 2022, the overall size of the home textiles & furnishing industry, including the unorganized sector, was about $18-19 billion,of which $8.2 billion was exported and remaining $10 billion was domestic consumption. About 40% of domestic consumption in home textiles was for the bed & bath category alone. Still, over 95% of domestic demand is met by the unorganized andMSME sectors. Wider definition of furnishing will also include furniture and home decor accessories and these numbers would get better.

Even though India?s? outlook is positive for the upcoming financial year, the global outlook, especially the advanced economyare weighed down on account of a combination of a unique set of challenges expected to impart a few downside risks. This would have an impact on the export market for textile industry which has been tepid for most part of H2 of FY23. However, theinclusive and higher expected domestic consumption would compensate for the reduced exports

OUTLOOK:

After the historical rise in cotton prices in the last cotton season, the new season cotton prices have reduced and remainedat around INR 60-62K/candy. At the same time the yarn prices reduced disproportionately in comparison to yarn prices. Onaccount of higher cotton prices, export of yarn, fabric and garment sector was hit badly. This has reduced in overall demandin textiles and has also affected the textile value chain.Many of the manufacturers in textile industry have operated their facility at partial loads for the last year. The Company alsohad to operate the facility at partial loads incurring huge costs. Further, the quantum of job-work basis being undertaken at our facility was reduced on account of financial in viability as a result of lower yarn prices.

OPPORTUNITIES & THREATS [SWOT ANALYSIS]

(i) Opportunities

Subdued domestic demand and declining export demand due to lockdowns in global markets on account of COVID-19 come as a double blow for textile companies While domestic demand expected to revive in third quarter of FY22 with the onset of festive season and reopening of retail spaces, export demand would fairly depend on recoup of major economies such as the US and the UK & China

As food and clothing will continue to remain key purchases, there is always hope for this industry.

Threats

• safety and health of the workers and staff;

• disrupted supply chains

• lack of demand or the fear significant drop in demand

• Lack of liquidity.

• Cotton contamination and quality problem.

• Increased pressure on prices.

• Competition from international brands.

OUR COMPETITIVE STRENGTHS:

Manufacturing facility with locational advantage and state-of-the-art machinery to deliver quality products

We have two manufacturing facilities in the state of Andhra Pradesh and our hydro power plant is located in the state of Telangana. Our manufacturing facility located in Guntur, AP enjoys locational advantage since Guntur is a major and one of the best quality cotton growing areas in India that produces MCU5, which is long staple cotton and is suited for fine counts. It is also a major centre for cotton breeding in southern zone. Our Guntur unit is located NH16, Golden Quadrilateral connecting Chennai and Calcutta and in proximity to Krishnapatanam port and Vishakhapatnam port which helps in saving logistics cost for export operations. Further, our weaving and dyeing units are located near to tri junction with highway access to Chennai, Hyderabad and Calcutta. .All the manufacturing facilities are well equipped to deliver quality products.

Quality control measures

Our Company has implemented stringent quality control measures to produce superior quality yarn and fabric for our domestic and international customers. As the quality of our products depends on the raw material quality, so we source the superior quality raw material from farmers/suppliers. We carry raw material inspection on Uster HVI Spectrum and Uster Afis Pro -2 for 2.5% SL, uniformity, MIC, Strength, Short fiber content % and neps /grm. Bale management system is followed for consistent superior yarn quality, and for this, cotton stock is maintained for 5-6 months. Carding and combing process is optimized for NRE of 75% to 85% and 65% to 70% respectively. RIETER D35 /D40 / D45 draw frames are maintained for less than 0.50%.In ring frame breakages are maintained below 5 to 6 breaks per 100-spindle hour. In auto coner utmost care is taken for achieving 85% splice strength with defect-free packages.

Further, apart from in process inspection system, our mill has adopted stringent final inspection procedure before dispatching yarn to its customers.

Wide range of products across cotton yarn and woven fabrics businesses

We have continuously expanded our range of products to cater to the customized requirements of our customers. Our product range includes Ring Spun combed yarn (from Ne.30s to Ne.80s combed warp / compact), TFO ring spun yarn, Open End yarn (from Ne10s to Ne20s), TFO open end yarn,, BCI certified yarn and woven fabric such as yarn dyed shirting and bottom weight fabric. Our yarn dyed shirting includes cotton range and blended products.

Experienced management team with strong industry expertise

Our Managing Director, Mr. Poluri Venkateshwara Reddy, has been instrumental in developing Ginning Business of our Company. He has in depth knowledge in selection of Kapas and Cotton. Mr. Gurram Venkata Krishna Reddy, Joint Managing Director and CEO, has vast experience in Manufacturing of Cotton Yarn. He also looks after the day-to-day affairs of the Company.

OUR STRATEGY

Improvement in range of our Products:

We are focusing on development of more specialized and customized grades for specific applications in conjunction with our Customers. For this purpose, we are also focusing on improving our technical expertise to support customers and market development.

Customer relationship, sales, and distribution strategy

In India, we have been selling our products mainly to customers in South and Western India. Furthermore, our growth also depends on our ability to attract additional fabric and garment manufacturers, and distributors. Accordingly, we intend to continue to focus on developing and strengthening our sales and distribution network, and introducing integrated solutions for the benefit of our customers. As a part of our sales and distribution strategy, we propose to penetrate the domestic market further and at the same time we propose to continue our endeavor to establish a global presence for our products through the export market in the near future by further developing strategic relationships with key clients.

Captive power: Clean/Green Energy

We are working on reducing electricity cost. SITRA report on Energy monitoring is submitted. Operational Cost Optimization-Captive Power Electricity is one of our biggest costs by adding captive power generation will reduce our operational costs. Increasing our captive solar power generation will help us strengthen our PAT in the future. We have total requirement of 4.0 MW solar power to feed all the units so far we are executing net metering project under HT metering GNT 509, GNT3035 & ONG 828 totaling 3MW capacity.

Our fabric made of organic or BCI cotton in combination with clean energy will make our fabric more sustainable and attract clothing brands in the future.

RISK & AREAS OF CONCERNS:

The Key factor in determining a company?s performance is the company?s ability to manage the risks in it business/ environment effectively. Many risks exist in a company?s operating environment and they emerge on a regular basis,Viz Currency Risk, Commodity price Risk and Human Resource Risk. Risk management is embedded in operating framework

of your Company. The risk management framework defines the risk management approach of the Company and also includes the periodical review of such risks. Your Company believes that managing risks helps in maximizing returns. The Board and the Audit Committee review the risk management framework periodically.

Other risk, factors include:

THE DETAILS IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS AND RISK MANAGEMENT PRACTICES.

The Details regarding adequacy of internal control system is available in the Directors? Report, which should be treated as forming part of this Management Discussion and Analysis Report.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

i. Safety, Health And Environment:

Safety, Health and Environment is one of the primary focus areas for your Company. We are conducting our business with respect and care for people and the environment. We have the responsibility towards the utilization of natural resources.

Your Company will always set the objectives and targets that result in continuous improvement of our Safety, health and environmental performance. Your company has Complying with agreed corporate requirements that embrace the duty of care, including compliance with applicable laws.

ii. Human Resources And Industrial Relations:

The Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. Your Directors wish to convey their gratitude and place on record their appreciation for all the employees at all levels for their hard work, solidarity, cooperation and dedication during the year. Industrial relations were cordial throughout the year.

During the Year under review 580 employees were employed in various activities of the company DISCLOSURE OF ACCOUNTING TREATMENT:

Disclosure of Accounting Treatment in the preparation of the financial statements, the Company has followed the Accounting Standards referred to in Section 133 of the Companies Act, 2013. The significant accounting policies, which are consistently applied, are set out in the Notes to the Financial Statements.

MARKETING APPROACH AND MARKETING SET UP

Our team including Directors through their relevant experience and good rapport with our customers due to the timely delivery of quality products has played an instrumental role in creating and expanding a work platform for our Company. We have dedicated teams of Marketing Personnel in our Ring Spinning and Open End Division as well as Weaving and Dyeing Division. The Marketing division has well trained team with six officials for spinning division and seven in weaving division. The marketing division is headed by an official of the rank of Vice President and is directly under control of our executive Directors. The sales and marketing of Yarn and fabric is based on factors such as quality, easy availability and competitive pricing of the products. Our client base includes reputed corporate houses in the India textile industry and in the global markets we export our products to a number of countries as well. Some of our major domestic corporate clients include Universal Cottex, Gimatex Industries Limited to whom we sell our Yarn and Jhakaria Fabrics to whom we sell fabric. We also export our products to Paramount Textiles Limited in Bangladesh, Zhejiang Zhongda Group International Trading Co. and Xiamin ITG Group Co. Ltd. in China. Our Company has loyal and committed customer base who keep buying company products from time to time

MANUFACTURING FACILITIES:

The details of our manufacturing facilities are as given below:

Ginning, Spinning & Open End Plants - Our Ginning, Spinning and Open End plants are located at NH 16, Chowdavaram, Guntur -522 019, Andhra Pradesh, spread in an area of 23.14 acres. We operate 59,280 spindles of Ring Spinning out of which 34,416 are compact & 24,864 are Non-Compact and 2,912 rotors for manufacturing open end yarn. Ginning Division has a capacity to press 6,000 bales per month. Ring Spinning Division has a production capacity of 420 tons per month whereas our Open end Division has a capacity of 500 tons per month.

Weaving & Dyeing Plants - Our weaving and dyeing divisions are located at Kunkupadu village - 523265, Addanki mandel, District - Bapatla, Andhra Pradesh spread in an area of 134.01 acres. Our Weaving division has production capacity of 248 looms whereas our dyeing division has a capacity of 3,000 kgs per day.

Hydel Plants - Your Company has three hydroelectric plants with a total capacity of 4.0 MW, two with the capacity of 1.6 MW each and one with 0.8 MW. The plants are located at Nelakondapalli - 507160, District - Khammam, Telangana spread in an area of 39.06 acres. These plants are on 16th & 17th branch canal of Nagarjuna Sagar project left to main canal.

Solar Plants - Your Company had established 2.0 MW AC at spinning unit, chowdavaram and 1.0MW AC at weaving unit, kunkupadu , addanki. The generation had been very encouraging. We plan to increase solar capacity in the next financial year. your company is expanding solar plant at Guntur by 1.0 MWAC and at Weaving palny by 0.6 MWAC

The details of sale of our products for FY 2022 - 2023 is as under:

Particulars	Year ende Quantity (in Kgs)	d 31st March, 2023 Revenue (in Rs.)	Year ende Quantity (in Kgs)	d 31st March, 2022 Revenue (in Rs.)
i) Cotton Yarn	48,02,069	14,390.81	61,72,264	18,542.59
ii) OE Yarn	44,19,415	8,622.84	56,64,374	9,488.91
iii) Cotton PC Yarn	6,09,339	1,218.39	-	-
iv) Cotton PV Yarn	2,36,992	455.00	-	-
v) Cotton Waste	11,32,653	1,020.38	24,14,611	1,347.28
vi) OE Waste	10,39,817	245.42	18,18,440	262.09
vii) Cotton Seed	22,35,304	758.24	14,77,030	485.06
viii) Cotton Lint	11,80,965	2,212.41	7,35,785	1,285.88
ix) Sale of Gray Fabric (Mtrs)	1,75,09,761	13,301.87	2,21,74,346	17,217.91
x) Sale of Fabric Waste	98,937	43.15	1,17,212	51.38
xi) Sale of Dyed Fabric (Mtrs)	28,61,878	3,651.63	23,15,968	2,649.93
xii) Sale of Dyed Yarn (Kgs)	5,25,201	2,528.29	6,76,411	3,005.26
xiii) Gray Yarn	-	-	-	-
xiv) Sale of Solar Power (KWH)	83,15,253	374.19	57,61,737	301.08
xv) Sale of Power (KWH)	54,25,842	297.93	58,65,587	194.00
		49,120.56		54,831.38
Less: Inter divisional transfers
Cotton Yarn	4,52,325	1,769.77	10,75,813	3,970.33
OE yarn	53,820	132.09	3,12,075	542.36
Dyed yarn	5,25,201	2,528.29	6,76,411	3,005.26
Gray Yarn	-	-	-	-
Cotton Waste	9,43,514	892.04	17,58,598	1,201.37
Cotton Lint	11,80,965	2,212.41	7,15,441	1,238.21
Solar Power	83,15,253	374.19	57,61,737	301.08
		10,258.60		10,258.60
TOTAL		44,572.77		44,572.78

CAPACITY AND CAPACITY UTILISATION:

Manufacturing	Fiscal 2022-23	Fiscal 2021-22	Fiscal 2020-21
Facility	Installed capacity	Capacity Utilization	Installed capacity	Capacity Utilization	Installed capacity	Capacity Utilization
Ginning Division	28 Gins	44.1	28 Gins	27.35	28 Gins	10
Spinning Division	59,280 Spindles	76.49	59,280 Spindles	90.31	59,280 Spindles	88.69
Open End Division	2,912 Rotors	90.33	2,912 Rotors	96.32	2,912 Rotors	79.20
Weaving Division	248 Looms	72.03	248 Looms	81.62	248 Looms	60.02
Dyeing Division	3,000 KG/P.A	47.18	3,000 KG/P.A	49.06	3,000 KG/P.A	29.55
Hydel Plant	4MW	20.63	4MW	13.77	4MW	12.24

Sl. No.	Particulars	Formula	Year Ended March 31, 2023 (Audited)	Year Ended March 31, 2022 (Audited)	Variance	Reason for variance
1	Current ratio - [no. of times]	Current assets / current liabilities	0.81	1.07	-24%	Increase in utilisation of working capital during the year
2	Debt-equity ratio - [no. of times]	(Non-current borrowings (+) current borrowings ) / Equity	3.54	3.15	-12%
3	Debt service coverage ratio (DSCR) - [no. of times]	(Profit after tax before depreciation, amortisation, finance costs) / Interest expenses (+) principal repayments of long-term debt)	0.30	1.04	-71%	Decrease in profitability compared to last year
4	Return on equity (%)	(Profit after tax) / Average Shareholders equity	-23.07%	12.81%	-280%	Decrease in profitability compared to last year
5	Inventory turnover - [no. of days]	Average inventory / (revenue from operations / no of days for the period)	15.70	12.42	26%	Increase in closing inventory during the year
6	Trade Receivables turnover - [no. of days]	Average trade receivables / (revenue from operations / no of days for the period)	19.95	17.22	16%
7	Trade payables turnover ratio - [no. of days]	Average trade Payables / (Raw material Purchases / no of days for the period)	13.67	4.71	-190%	Increase in trade payables during the year
8	Net capital turnover	Turnover / (Current assets - current liabilities)	(9.29)	39.76	-123%	Decrease in working capital during the year
9	Net profit Ratio	Profit after Tax / Turnover	-5.16%	2.62%	-297%	Decrease in profitability compared to last year
10	Return on Capital employed (%)	EBIT / (Net worth + Total debt)	-0.27%	13.57%	-102%	Decrease in profitability compared to last year
11	Return on investment (%)		Nil	Nil	Nil

CAUTIONARY STATEMENT:

Statements in the Directors? Report and Management Discussion and Analysis describing the Companies objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable security laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the company?s operations include, among others, economic conditions effecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

For and on behalf of Board of Directors

		For and on behalf of Board of Directors
Date : 31-07-2023	Sd/-	Sd/-
	G.V. Krishna Reddy	P. Venkateswara Reddy
Place : Chowdavaram, Guntur	Joint Managing Director	Managing Director
	DIN: 00018713	DIN :00018677