GLOBAL SCENARIO
Pursuant to approval of Resolution Plan (RP) of the Company formulated under the
provisions of the Reserve Bank of India (Prudential Framework for Resolution of Stressed
Assets) Directions, 2019 issued by the Reserve Bank of India vide its Circular No.
RBI/2018- 19/203/DBR.No.BP.BC.45/ 21.04.048/2018-19 dated 7th June 2019, the company has
sold its Ponneri, Tamil Nadu undertaking on slump sale basis on 28.10.2022, post that
operations are carried out from the remaining Kanjikode Plant, Palakkad, Kerala (having a
capacity of 51,456 spindles, consisting of 38,448 Compact Spinning and 13,008 Ring
Spinning, and also the capacity for value-added products i.e., Gassing and Soft winding).
As per terms of RP, Kanjikode, Kerala plant was to carryout own manufacturing operation
from 01.06.2022. However, on account of delay in implementation of RP and changed market
scenario post implementation of RP on account of: prolonged Ukraine war which impacted
major Textiles markets ( EU and USA), higher inflation, slow-down of global economy and
de-stocking by all the retailers higher raw material prices, however Finished Goods price
increase was not in tandem with increase in Raw materials prices
Rising interest rates have caused unprecedented demand challenges and significant
drop / erosion in margins, of Indian Textiles sector, especially spinning segment. As a
result, company had to continue Contract manufacturing / job work arrangement even post
implementation of RP.
INDIAN TEXTILE INDUSTRY
The Indian Textile Industry has been a key contributor to the countrys economy with:
7% of the manufacturing production
2.3% of the GDP attributed to the sector
4% world share of U.S.$840 billion global textile and apparel market, and is in fifth
position.
13% to the export earnings of India and
Employs more than 21% (45 Mn) of total employment (both skilled and unskilled)
As a result of the Covid-19 pandemic, the industry saw a considerable decline. As the
epidemic winds down, it is anticipated that the Indian textile market would recover and
develop at a Compound Annual Growth Rate (CAGR) of 10 percent between
2019 and 2026 to reach US$ 190 billion. Furthermore, 2021 witnessed a surge in the
exports of cotton, handloom, and yarn by more than fifty percent, signifying an upward
trajectory for the domain. However, Indias textile and apparel industry is facing a
severe blow due to the global economic slowdown and declining global trade. The industry
heavily relies on developed economies such as the US and European Union (EU) markets, and
the decline in exports to these regions has been consistent since July 2022 on account of
geo-political situation including long drawn Ukraine war.
The production of textiles as measured by the Index of Industrial Production (IIP) for
textile has seen a consistent decline since March 2022. The index value, which was 118.5
in March 2022, has fallen to 102.3 in October 2022. The textile business in India faces
significant obstacles. The textile sector is under intense pressure as a result of the
governments frequent policy changes at the national and state levels. The industry that
normally works at 3% to 6% profit margin is currently incurring losses. The industry
urgently needs interim financial relief and removal of 11% import duty levied on cotton.
The Indian textile sector also confronts obstacles such as competition from neighbouring
nations in the area of low-cost clothing especially due to them having access to FTAs
unlike India.
While India contributes more than 25% of the total cotton production area in the world,
the yield is amongst the lowest in the world and has been coming down over the past many
years. Consequently, there are many varieties of cotton which are not grown in India and
these need to be necessarily imported from countries like USA, Egypt and Australia.
However, the Import duty at 11% levied by Government is denting the competitiveness of the
Industry.
FUTURE OF INDIAN TEXTILES INDUSTRY
To overcome the aforementioned obstacles and accomplish the anticipated worldwide
market objective, Indias textile sector is initiating several modifications measures and
apply some new practices to increase its competitiveness. There is a focused approach by
the Govt. of India to increase the yields of raw cotton and also to sign additional FTAs
with UK, EU and Canada. With a rise in disposable income, the need for goods in the Indian
textile sector has expanded, resulting in enormous demand in both the local and foreign
markets. Consequently, Indias textile industry has a bright future due to the rapid
expansion of the retail sector, government assistance, and investments.
The Union Budget announced by the Textile Ministry and Finance Minister has provided a
major boost to the industry. The Governments plans to set up seven mega textile parks
across India is a move that will not only create more employment opportunities but also
strengthen the MSME sector. These parks are equipped with advanced infrastructure and
provide tax and other benefits to textile companies. An even bigger proposal that was
announced is the Production-Linked Incentives
(PLI) worth $1.4bn, which will help the textile and apparel manufacturing units realise
their capacity potential. These initiatives by the Government are positive steps in
facilitating the growth of the industry.
Anticipating the crucial role of the industry in creating employment opportunities, the
government has taken several steps to introduce labour-friendly policies. For example, the
EPF scheme, introduced by the Govt. of India, will bear 12% of the garment industry
employers contribution to the EPF for new employees earning less than INR 15,000/month
for the first three years.
This reform not only provides workers with greater in-hand wages but also encourages
them to join the formal sector, thus helping to create more job opportunities. Other
policies and initiatives to promote the industry include Remission of Duties or Taxes on
Export Products Scheme (RoDTEP), Duty Drawback Scheme, Technology Upgradation Fund Scheme,
Export Promotion Capital Goods Scheme, and Invest India Scheme. These initiatives have
helped the industry to increase its exports and become more competitive. The Indian
textile industry is highly export-oriented and exports a large variety of products to many
countries in the world.
PRESENT SCENARIO:
After a lackluster year, the cotton industry is keenly anticipating a revival with a
sales volume expected to grow by 5-7% over last FY23. Industry observers maintain that
the optimism is pegged on factors such as alignment of Indian cotton prices with
international prices, a shift in demand from competing nations, and gradual recovery in
demand from China.
Expectations of a good festival season for retailers in the domestic market and a
rebound in global demand from downstream industries is also expected to give a leg up to
the Indian cotton industry which is trying to recover from the poor performance in FY23.
The industry is slowly making its way out of the trouble and the coming months are
going to be brighter for the cotton industry. People have spent much on travelling and
personal care and this festival season is expected to witness a healthy demand for the
textile sector, especially the retail business may see a very strong demand.
The global demand for Indian products may not see much change in the short term because
of long drawn Ukraine-Russia conflict which is impacting the demands in European and
American markets which are major export destinations. But South Asian countries are doing
well and may change the demand patterns in the second half of the year.
According to a CareEdge report, the Indian cotton yarn industry is likely to register a
sales volume growth of 5-7%, while the operating margin is expected to expand by 100-150
bps in FY24 compared to FY23. Last year, the cotton production in India declined from
35.2 million bales in Cotton Season (CS) 2020-21 to 31.1 million bales in CS 2021-22. The
lower cotton production caused a steep surge in the cotton prices. The average domestic
cotton price registered a peak of around Rs.1 lakh per candy (280/kg) in FY23. The
mismatch between the domestic and international prices impacted the cotton exports
significantly and India witnessed its lowest cotton yarn exports in a decade. In FY23,
Indias cotton yarn export stood at 664,000 tons against the decades highest exports of
1,389,000 tons in FY22.
Despite troubles last year, the cotton farmers are enthusiastic about the fiber crop.
As per the recent data by the Government of Gujarat, as of July 17 last, the farmers have
already completed the sowing of cotton for 2.53 million hectare of land in Gujarat. This
area is slightly lower than the last years area of 2.55 million hectare, but the sowing
season will go on for at least two more weeks and it is expected that the total area under
the crop will exceed the area last year. After hitting a high of around Rs. 1,08,000 per
candy, currently, the domestic cotton price is between Rs.57,000 – Rs.58,000 per
candy. This price of cotton is in parity with the international prices and will increase
the competitiveness of Indian cotton in the global market. Above said positivity would
help your company to improve its performance in the current and ensuing years.
RISK AND CONCERNS a. Raw Cotton, an agricultural product, is the key raw material
used for the manufacture of cotton yarn. Almost 65 percent of area under cotton
cultivation is rain-fed and hence is dependent on vagaries of monsoon, which this year has
shown uncertain signs so far. Adequate availability of raw cotton at right prices is
crucial for the Company. Any disruption in the supply and/or violent changes in the cost
structure would affect the profitability of the Company. b. Your Company follows an
efficient inventory management system and a well-crafted strategy of procuring raw
materials through a mix of spot and long-term contracts. The companys conscious efforts
on maintaining a judicious mix of markets for its sales and thrust on specialty products
like Better Cotton Initiative (BCI), Supima yarns and Giza yarns have also proved to be
beneficial. c. Volatility in foreign currency exchange rates vis-a-vis Indian Rupee is
another area of concern since a sizable production of cotton yarn is exported by your
company. The Company has in place various Management Information Systems, which enable the
management to take decisions on exposures relating to exports and imports. The Company
continues to strengthen these systems to minimize the risk involved due to adverse
movement of exchange rates. d. Your Company has a system of assessing the risks on an
ongoing basis. This includes an effective internal control and management reporting
system. Further, the framework also captures the existing practices to manage commodity
price risk, interest risk, and foreign exchange risk etc. An important aspect of this
framework is to promote a balanced approach that considers risk and return.
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 unauthorised use or disposition and that
all transactions are authorized, recorded and reported correctly. The internal control is
supplemented by an extensive programme of internal audits, review by management and
documented policies, guidelines and procedures. The internal control is designed to ensure
that financial and other records are reliable for preparing financial statements and other
data and for maintaining accountability of assets.
DISCUSSIONS ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
Please refer to Directors Report on performance review.
DETAILS OF SIGNIFICANT CHANGES
As required the details of changes of 25% or more as compared to the immediately
previous financial year in key financial ratios along with details of reasons therefore
are as under:
SN. Particulars |
Current Year 31.3.2023 |
Previous year 31.3.2022 |
% variance |
| 1. Debtors Turnover ratio |
14.94 |
15.23 |
-1.88 |
| 2 Inventory Turnover Ratio |
6.22 |
6.58 |
-5.47 |
| 3 Interest Coverage Ratio |
-0.08 |
0.76 |
-110.53 |
| 4 Current Ratio |
0.19 |
0.10 |
84.49 |
| 5 Debt Equity Ratio |
-4.44 |
-9.03 |
-50.86 |
| 6 Operating Profit Margin (%) |
-10.32 |
13.65 |
-175.60 |
| 7 Net Profit Margin (%) |
-24.14 |
-9.32 |
-159.03 |
| 8 Return on Net Worth (%) |
-18.58 |
-4.59 |
-504.77 |
Reasons of variance
The company is operating now with remaining plant in Kanjikode Palakkad, Kerala and due
to aforesaid reasons company continue contract manufacturing / job work in the FY 2022-23.
Hence it has impacted its performance and the key operating ratios.
Continued liquidity stress, delayed implementation of Restructuring / Resolution Plan
(RP) by the Lenders and challenging marketing conditions worldwide on account of geo
political situation have impacted companys performance in FY 2022-23. The Lenders of the
company have approved a Restructuring / Resolution Plan and accordingly (i) sold Tamil
Nadu Unit on 28.10.2022 and repaid entire Term Loans fully and (ii) converted working
capital outstanding amount in to WCTL repayable in 6 years after an initial moratorium of
one year.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER
OF PEOPLE EMPLOYED
The Company recognizes the importance and contribution of its human resources for its
growth and development and is committed to the development of its people. The Company has
been adopting methods and practices for Human Resources Development. With utmost respect
to human values, the Company continues to develop its human resources, through a variety
of services by providing appropriate training, motivation techniques and employee welfare
activities. Industrial relations were cordial and satisfactory.
As on 31st March, 2023, the Company has about 512 employees in its offices
and factory.
CAUTIONARY STATEMENT
Statements made in this report describing the Companys projections,
estimates,expectations or predictions may be forward looking predictions within the
meaning of applicable securities laws and regulations. Actual result may differ from such
esti -mates, projections, etc. whether expressed or implied. Factors which would make a
significant difference to the Companys operations include availability of quality raw
cotton, market prices in the domestic and overseas markets, changes in Govern -ment
regulations and tax laws, economic conditions affecting demand / supplies and other
environmental factors over which the Company does not have any control..
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