MANAGEMENT DISCUSSION AND ANALYSIS REPORT

DISCLAIMER

Readers are cautioned that this discussion and analysis contains forward lookingstatements that involve risks and uncertainties. When used in this discussion, the words"anticipate," "believe," "estimate," "intend,""will," and "expected" and other similar expressions as they relate tothe Company or its business is intended to identify such forward-looking statements. TheCompany undertakes no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events, or otherwise. Actualresults, performances or achievements, risks and opportunities could differ materiallyfrom those expressed or implied in these forward-looking statements. Readers are cautionednot to place undue reliance on these forward-looking statements as these are relevant at aparticular point of time & adequate Restrain should be applied in their use for anydecision making or formation of an opinion.

The following discussion and analysis should be read in conjunction with theCompany’s financial statements included herein and the notes thereto.

OVERVIEW OF THE ECONOMY

In 2013, world economy continued its downward trend on growth; as world economy furtherdecelerated growth rate to 3.0% in 2013 compared to 3.2% in 2012. India’s economyshowed some signs of recovery, albeit slow, in FY 2013-14. India’s GDP growth ratemoderately increased to 4.9%, as compared to 4.5% in FY 2012-13. This was accompanied bysome easing in the inflation rate. However, high interest rates, a depreciated currencyand uncertainty due to general elections have led to deceleration in the economicrecovery. Particularly, performance of industry sector was lackluster last year, owing tohigh interest cost and low investment. In August last year, currency depreciated toall-time low against US$ (` 68.80 per US$). Depreciated currency, coupled with improvementin global demand particularly in the EU and the U.S., led to increase in exports growth.Total exports from India, in Rupee terms, grew by 15.8% in FY13-14 compared to last FY.This helped reduce trade deficit by 27% in this year compared to last year. Looking ahead,the outlook for FY 2014-15 appears optimistic. Though last year started on a dismal note,the improvement in economic performance in the later half is likely to continue themomentum. While a lot will depend on the measures announced after formation of newgovernment; resurgence in exports, reduction in inflation & deficits (trade, currentand fiscal), along with global economic revival are likely to add impetus to the economy.

In FY 2014-15, India is likely to accelerate GDP growth rate to 5.5%-6.0%. The increasein growth rate is expected to be contributed majorly by the industrial sector, estimatedto grow at 4% next year (up from ~1% in last FY). Unclogging of domestic policy logjam aswell as improvement in private consumption demand is likely to drive the growth.Particularly, merchandise exports are expected to grow by 8%-10% in the next fiscal year,driven by global growth prospects. Though addressing supply-side constraints (e.g. inmining, power, and steel sectors) will be the key to continue this momentum and achievethe increase in growth rate. Despite the modest expectations in the short term, theprospects of long term growth in India remain immensely strong. India’s growth modelis domestic consumption-led. With level of consumption much higher than other Asian tigers(e.g. China) and quite close to developed economies (e.g. Japan), consumption is animportant engine of India’s growth. Increasing consumption by burgeoning middle-classof India, along with the rising share of discretionary spend, will create a huge marketopportunity for companies who have strong position in India.

Indian Textile Industry

India is the world’s second largest producer of textiles and garments, with amassive and diverse raw material base. Due to this, Indian Textile Industry is not only ofparamount importance to the national economy, it also has an influential presence i globalmarket. In India, textile & lothing industry contributes nearly 4% of India’sGDP, 12% of total industrial production and 11% of total exports of goods. TextileIndustry provides direct employment to 35 million and indirect mployment to45 million, which akes it the 2nd largest employment provider in the countryafter Agriculture. Globally, India has the 2nd largest textile manufacturingcapacity, in terms of spindles and looms. India is the 4th largest exporter of textiles& clothing products to the world, with a share of 4.4% in the globaltrade. Over last 10 years, exports of textiles & clothing products from India havegrown at more than 11% p.a., which increased the share in global trade from 3% to 4.4%between 2003 and 2012. Indian textiles industry has a strong presence acrossthe value chain. The fundamental strength of this industry flows fr m itsstrong production base of wide range f fibers/yarns from natural fibers like cotton,jute, ilk and wool to synthetic/man-made fibers like polyester, viscose, nylon andacrylic. Globally, India is the largest producer of Jute fiber, and 2ndlargest producer of cotton, silk, cellulosic and synthetic fibers. The Indiantextile industry is set for strong growth, buoyed by both strong domestic consumption aswell as export demand. The total Indian textile industry size, includingreadymade garments, was estimated to be Rs.4.7 lakh Crores (nearly USD 87Bn) in 2012, of which apparel had a share of 69% of the overall market and textilescontributed the remaining 31%. The sector is projected to grow over the next 10 years at aCAGR of 9-10%, to reach Rs.10 lakh Crores (nearly USD 200 billion) by2020.

Source: Technopak Resea ch

The exports of te tile and clothing products, accounts for about 35% of the totaltextiles sector in India. Exports will continue to play a pivotalrole in driving future growth of this sector.

Global trade in textiles and clothing is expected to see a strong growth, from currentUS$ 750 Bn in 2012 to reach nearly US$ 1,150 by 2020. This will create an incrementalglobal demand of US$ 400 Bn primarily driven by the increasing global consumption;continued shift of production base from developed to developing economies and also valuegrowth from inflation.

India is poised to be a strong contender to grab a share in the growing pie of globaltrade. The cost competitiveness of India, as compared to some of the other exportingcountries in Asia (e.g. China) has improved over recent years.

Availability of key inputs, industrial workforce and young demographic are favoringIndia. These advantages combined with entrepreneurial ability and capability to buildinfrastructure will be key success factors for India’s rise in global trade.

Source: USDA estimates

For the current cotton season (Oct ’13 to Sep ’14), the Cotton Advisory Boardhas projected cotton production at 375 lakh bales (of 170 kgs each) from 116 lakh hectarearea. It is estimated that the yields will improve by ~7% this year, compared to the lastyear when 365 lakh bales production came from 120 lakh hectare area. The exports of cottonare strong this year, and have already crossed 94 lakh bales in first 6 months of Oct-Sepseason. Global production of cotton, as per estimates from International Cotton AdvisoryCommittee, is projected to decline to 25.73 million tons compared to estimated productionof 26.83 million tons last year.

India is the second largest producer of cotton, with a small gap from the leader China.India exports about ~90-100 lakh bales (approx. 1/4th of production), mainly toneighboring countries China, Bangladesh and Pakistan. During 2012-13, the exports toBangladesh increased significantly by approx. +60% compared to the year 2011-12, driven bygrowth in Bangladesh’s readymade garment exports.

Weak Indian Rupee Making Exports More Competitive

The continued weakness of the Indian rupee against the US dollar has improvedIndia’s competitive positioning in the export market. Therefore, should the advantagebe maintained, the effect will be positive on the rupee revenue of exporters. However, thebenefit would be offset for companies with high important content (including cotton whichmaintains international price parity), or companies with forex debt. While rupeedepreciation is considered good for net foreign exchange earners, if there is sharpvolatility in currency, it could become very difficult for exporters to, on one hand,hedge the future foreign currency earnings and on the other hand manage foreign currencydebt.

Textile Outlook

In the mid-long term, the Indian textile industry is expected to grow very stronglywith growth being balanced from both domestic consumption as well as exports demand. Inthe near-term, domestic demand would depend on the revival of the macro-economic factors.On exports front, there are both positive and negative factors. Positive factors includethe weak currency and decreasing cost competitiveness of China that are likely to givepositive impetus to the Indian exports. At the same time, factors like slowdown anduncertainty in the global markets, volatile foreign exchange rates and increase in cottonand yarn prices are likely to negatively affect growth and profitability for the textileexports. Your company is looking grow selectively in high value added segments Withintextiles, for maximum capital efficiency as well as de-risked business model. It is movingsteadily towards expansion of capacity and a verticalized setup of fabrics, which ensuresmuch better returns.

SWOT Analysis of Denim & textile industry:

Strengths:

> Autonomous and self-reliant industry ; ?

> Ample raw material availability;

>Easy availability of large varieties of cotton Yarn;

> Enormous rising domestic market; ?

> Great potential of exports; ?

> Buyers trusted market.

Weakness:

> Highly fragmented industry with a huge informal sector;

> Very much volatile market and major dependency over raw material prices;

> Old and rigid labor laws ?

> High rate of power tariffs, taxes and interest rates

Opportunities:

> Healthy retail boom in domestic market

> Favorable consumer demographics and increasing consumption attached with growingdisposable incomes

> Significant growth rate of the domestic textile industry

> Elimination of quota restriction

> Large, potential international market

> Availability of Foreign Direct Investment (FDI)

> India’s share of the global textile industry is expected to grow 8% by 2020

• Threat

> Demand supply mismatch.

Review of Operations:

The year 2012-13 was mixed year, begun with lots of hope, opportunities and expectationof growing demand of denims but concluded with sluggish demand and lower margin. In spiteof global economic slowdown, your company has achieved increase in turnover coupled withincrease in profitability as compared to last year. The company has been facing newchallenges like stiff competition from the new entrants as well as existing organizationsexpanding their production capacities, volatile raw material prices, high borrowing costand unstable forex market.

Since we don’t know how long the current situation is going to persist, it is bestto make one’s own way out. The management has taken various cost effective controlmethods and economies of production and purchases to remain profitable.

Company views and growth plans:

The Company has recently expanded the capacity by 100% in phases two after October,2013. The Company is in consolidation phase and there is no major expansion plan duringthe year 2014-15.

Internal Control System and their adequacy:

The Company has appropriate internal control systems for business processes, withregard to efficiency of operations, financial reporting, compliance with applicable lawsand regulations etc. All operating parameters are monitored and controlled. Regularinternal audits and checks ensure that responsibilities are executed effectively. Thesystem is improved and modified continuously to meet with changes in business conditions,statutory and accounting requirements. The Audit Committee of the Board of Directorsactively reviews the adequacy and effectiveness of internal control systems and suggestsimprovement for strengthening them, from time to time.

RISK MANAGEMENT:

The Company is exposed to risks from market fluctuations of foreign exchange, interestrates and commodity prices, and other business risks.

Foreign Exchange Risk:

Your Company’s policy is to hedge its long-term foreign exchange risk as well asshort-term exposures within the defined parameters

Interest Rate Risk:

Your Company is exposed to interest rate fluctuations on its Rupee denominatedborrowings. It uses a judicious mix of fixed and floating rate debts within the stipulatedparameters. The Company continuously monitors its interest rate exposures and wheneverrequired, uses derivative instruments to minimize interest rate risk and interest costs.

In view of the continuous risk mitigating strategy adopted by the Company, it does notperceive interest rate risk as having any material impact on its profitability, at anypoint of time.

Commodity Price Risk:

The Company is exposed to the risk of price fluctuation on raw materials as well asfinished goods in all its products. The Company proactively manages these risks in inputsthrough purchase contract or forward booking for cotton Yarn – its main raw materialand inventory management. The Company’s reputation for quality and the existence of astrong marketing network mitigates the impact of price risks on finished goods.

Other Business Risks:

Apart from the risk on account of interest rate, foreign exchange and regulatorychanges, the business of the company is exposed to certain operating business risks, whichare managed by regular monitoring and corrective actions.

FINANCIAL PERFORMANCE AND REVIEW:

The company has reported a strong performance in the year ended 31st March 2014. Sales& Operating Income for the year stood at Rs. 107 Crores and the PAT stood at Rs. 17.35Lacs representing 85% and 20.66% growth respectively over the previous year. Highlights ofthe annual result are as under.

(Rs. In lacs)
Year SALES EBIDTA PBT PAT
2013-14 5801.83 708.49 17.77 14.38
2012-13 10728.04 930.46 37.26 17.35
Increase / Decrease (%) 84.91 31.33 109.68 20.66

This shows the overall improvement in performance of the Company during the year2013-14 as compared to previous year.

Financial Review:

During this year your company delivered good performance with improvements across keyparameters. Turnover achieved for the year ended 31st March, 2014 was Rs. 10728.04 lacs, agrowth of 85% over the previous year.

Consumption of raw materials increased from Rs. 4659.60 lacs to Rs. 9286.69 lacs,mainly due to increase in production and sales.

Employee Cost was Rs. 468.82 lacs for the current year as against Rs. 229.02 lacsin the last year on account of increment of salary & wages and increase in production.

Power and Fuel cost was increased to Rs. 628.99 lacs in the current year from Rs.368.62 lacs of the previous year. This was mainly on account of increase in productionvolume and increase in cost of fuel and power.

Operating profit before other income and interest and depreciation increased by18.65% from Rs. 638.33 lacs to Rs. 757.4 lacs. Other income was at Rs. 173.07 lacs against70.16 lacs of previous year.

Interest Cost was higher at Rs. 369.37 lacs as against Rs. 303.46 lacs because ofavailing new term loan for expansion.

Depreciation (including depletion and amortization) was higher at Rs. 505.71 lacsagainst Rs. 382.80 lacs in the previous year mainly due to second phase expansion.

Profit after Tax was Rs. 17.35 lacs as against Rs. 14.38 lacs for the previousyear, showing increase of 20.66%.

Earnings per share (EPS) for the year was Rs. 0.20 as compared to Rs. 0.33 in thelast year.

Conclusion:

To conclude, the performance of the company during the year 2013-14 was very good ascompared to the last year. In spite of lots of challenges like increase in power and fuelcosts and high volatility in the prices of raw materials and vast competition from localmarket, the performance of the company was satisfactory.

The significant challenge however will be due to mismatch in the demand and supplyscenario of Denim Fabric in the domestic market and pressure on the price realization. Byimplementing cost effective measures and aggressive marketing strategies the company willachieve its targets and serve the stakeholder’s in the way ahead.