sambandam spinning mills ltd Management discussions

Core business of the company is manufacture and sale of cotton yarn and blended yarn. The management discussion and analysis given below discusses the key issues of the Industry with specific reference to the cotton yarn spinning sector.

Details of changes on following ratios (with reasons for changes if 25 % or more as compared to immediately previous financial year).

Key Financial Ratios:

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S.No. Particulars	2022-23	2021-22	Change(%)	Reasons
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(a) Current Ratio (in times)	1.23	1.39	(11.51)%
(b) Debt-Equity Ratio (in times)	1.31	1.12	16.96%
(.c.) Interest Coverage Ratio (in times)	1.05	4.12	(74.51)%	Due to reduction on earnings
(d) Return on Net worth (in %)	(10.95)%	13.42%	(181.59)%	Due to loss incurred by the Company
(e) Inventory Turnover Ratio (in times)	3.06	3.55	(13.80)%
(f) Debtor Turnover Ratio (in times)	7.73	9.30	(16.88)%
(g) Net Profit Ratio (in %)	(4.47)%	4.09%	(209.29)%	Due to loss incurred by the Company and decrease in turnover
(h) Operating Profit Margin (in %)	4.79%	13.21%	(63.71)%	Due to reduction on earnings

a. INDUSTRY SENARIO

Industry scenario is very much influenced by the Impact of macroeconomics headwinds on textile industry in FY24 which is very crucial in determining the Industry behavior /growth and also depends on the following factors such as Impact of anticipated domestic cotton shortage, Impact of support initiatives under the Foreign Trade Policy 2023 for Textile Sector and lastly by the Timeliness and Impact of high capex announced by most large industry players

Indian polyester, viscose yarn notice mixed trend, PC remains down In the Indian market, trends for polyester, viscose, and cotton yarn have been mixed, with polyester-cotton (PC) yarn showing a declining trend. The price of polyester-cotton yarn has decreased, while polyester spun yarn has seen an up tick in trading prices. The market has shown a steady trend in polyester spun yarn prices, while viscose yarn prices have remained stable. Despite the majority of the market experiencing a usual low demand, theres an expectation among traders that the recent drop in yarn prices might draw in buyers. Buyers remain cautious due to uncertain market conditions. Industry experts predict a prolonged slowdown in the textile value chain, given that retail garment demand is unlikely to see an increase this year. In North India, PC yarn prices fell due to lacklustre demand, whereas polyester spun yarn was traded higher. Some mills have raised prices as they were selling at the lowest level, supporting the market for polyester spun yarn. However attractive yarn prices could potentially attract buyers to take advantage of the situation."

The FY 22-23 was challenging year when compared to FY 21-22 .Many of the mills in Tamilnadu State and also in other States, have either stopped their production totally or have reduced their production capacity, for want of sufficient orders for yarn and also due to labour shortage. This has to be also studied further thoroughly, for assessing the situation, as how the price of cotton would behave in the coming days, even though there is no much fluctuation seen in the raw cotton prices nowadays. According to Industry association TASMA, unless the Russian-Ukraine War sees a cease-fire, the matter may not settle down so easily. It looks that the War is getting intensified and therefore, the War has to come to a halt very soon. Unless the demand for yarn is seen again to the original levels, the recession both in the Spinning Industry, as well as in other Value-Added Chains in cotton segment would continue as such. Even the Man Made Fibre segment is also found affected considerably like cotton segment and it is also in the grip of recession.

b. COMPANYS PERFORMANCE

FY 22-23 was challenging year when compared to FY 21-22 since Yarn market was very turbulent during the year and your company is not an exception to that . Thus there is reduced turn over during the year 22-23 when compared to last year .The gross production volume stood at 62.29 Lakhs Kgs (including purchased one for trading of 4.05 lakhs kgs )during the financial year 2022-23 as against 107.30 Lakhs Kgs of last year.

The sale volume for the FY 2022-23 stood at 65.76Lakh Kgs (including trading sales of 4.39 lakhs kgs) as compared to 100.43 Lakh Kgs of last year. The overall revenue from operation has come down by 26% during the FY 2022-23 of Rs 263.25 Crores from Rs 355.36 Crores of last year. Cost of manufacture was higher and sale could be made at a lower price to sustain the competitive market conditions. However Companys quality of yarn in value added segment has been well appreciated by the customers and the Company is receiving moderate volume of orders for value added counts.

During the year 22-23 ,capacity utilisation was in the range of 60 to 70% only and occasionally went down as low as 30 to 40 % due to uncertainties in off take that prevailed for quite some time. Further, even though solar power plant was available fully, the power generated could be used only to the extent of yarn production capacity usage as mentioned above. The wind mills have generated 139.53 lakh units and recorded generation of electric power of the value of Rs 122.70 lakhs during the year However the company could manage to exceed market expectation on supplies due to pent updemand (pipe line was dry during the slow down period) and hence the yarn market is translated from buyers market to sellers market. The product mix were suitably adjusted to suit to consumer need, to maximize the productivity. Export market was good during 22-23 when compared to 21-22.

Members may note that company had purchased plant and machineries (consisting of 27000 spindles and relevant accessories) from Kandagiri spinning Mills Ltd towards the end of the FY 19-20 This purchase was done with the business proposal to expand the operations of the company and thereby sales as well. But it could not materialise due to the onslaught of the pandemic Covid immediately after such purchase after April 2020. Further, the covid situation continued to be there for two more years and because of the age of the machinery it could not be run at expected capacity hence operation of that plant and machineries were severely affected and the production and sales from machines situated at Udayapatti salem (coined as Unit IV) is not regular and could not be run regularly. However that units other resources such as labour is shifted to other units of the company.

Further during FY 2021-22 and 2022-23 machines situated at Udayapatti salem (coined as Unit IV) were run at 50 to 60% capacity only. Due to poor market demand for yarn and higher Cotton prices, we have to stop the production and the spinning machines were not running from June 2022 onwards. During this period, majority of the skilled / semiskilled workers left the company and remaining workers are taken by the company and accommodated at Unit 1, 2 and 3 of Sambandam Spinning Mills Limited

Because of above reasons operations had to be stopped effective from June 2022. Considering the above status, company concluded that it is not economical to run the plant and machinery of Unit IV and decided to explore the possibility to dispose off such machineries (after retaining a portion of it) from plant and machineries situated at Udayapatti salem).

c. Outlook for spinning Industry:

Cotton prices have declined nearly 7.5 per cent over the past month due to a lack of movement and slack demand for yarn. However, industry experts say once the natural fibres prices stabilise, the industry might turn confident and return to buy.

Currently, the situation is not encouraging, There is no movement in cotton bales and yarn due to low demand. Mills are curtailing production due to low yarn prices and lower demand,"

Ginning mills (which process raw cotton into lint or cotton bale) have orders for a month. After that, they are yet to get orders. The demand is slack, and yarn exports have slowed," as per traders in cotton, yarn, and cotton waste.

"Global demand is down and it has affected exports. The domestic market is unable to absorb the material diverted from the export market to the domestic market,"

"Reports are indicating lower cotton yarn inventories in all major markets including China on a year –on-year and historical average basis,"

Cotton prices are currently ruling at Rs55,500-56,000 a candy (356 kg), down from Rs60,000 a month ago. The modal price (the rate at which most trades take place) of kapas (raw cotton) is ruling at Rs7,100 a quintal at agricultural produce marketing committee yard-down Rs200 since the beginning of this month. On the multi commodity exchange , August cotton contracts were quoted at Rs55,720 a candy. On the Inter Continental Exchange, New York, July contracts were quoting at 79.63 US cents (about Rs53,000 a candy) According to Industry association, Textile exports declined 14 percent in the 2022-23 fiscal with shipments of textiles dropping 23 per cent.In May, the downtrend continued with textile exports sliding 12 per cent overall, "There is no yarn movement despite spinning mills providing Rs30/kg discount to particularly hosiery manufacturers. Mills have to incur Rs15-20 a kg loss as per market reports,. The Ukraine war and the economic situation in the US and Europe have compounded the situation.

However "The current bottoming out of yarn prices will lead to some steady buying from international buyers. We hope that, with stability in cotton prices, our monthly export numbers will improve further from July,"."Cotton arrivals continue to be 65,000-70,000 bales daily and prices are slipping to new MSP rate (Rs6,620 a quintal)," Currently, prices in some places are ruling at Rs 54,500-55,300 a candy but only a few are willing to sell, However in spite of all odds as above Indias cotton yarn spinners are expected to see a 100-basis point improvement in operating profitability to 11-12 per cent in fiscal 2024 (FY24), despite a projected 10-12 per cent on-year fall in revenue due to lower realisations and muted exports, according to CRISIL Ratings.

Although the operating profitability will remain below the pre-pandemic five-year average of 12-13 per cent, the rise in profitability in fiscal 2024 will follow a sharp fall of approximately 600-700 basis points estimated for fiscal 2023. The credit profiles of cotton yarn spinners are expected to remain stable as they have deleveraged balance sheets due to low capital expenditures in the past few fiscal years, generating cash flows in fiscal 2022, and likely improvement in operating profitability in fiscal 2024, as per a CRISIL Ratings analysis of 101 cotton yarn spinners accounting for approximately 35 per cent of the industrys revenues. Expected improvement in capacity utilisation, supported by improving domestic and export volumes in fiscal 2023, will bolster operating profitability of yarn spinners in fiscal 2024. Although cotton prices had begun rising in February-March 2022 and soared to all-time highs by May-June 2022, cotton demand remains steady with 4-5 per cent volume growth expected in fiscal 2024, supported by stable domestic readymade garments demand.

d) ENVIRONMENT PROTECTION, HEALTH AND SAFETY (EHS)

EHS is given utmost importance in all operational and functional areas at all four locations of the Company. Regular safety audits, periodic safety inspections are carried out by expert agencies in a systematic way and suitable control measures are followed and safe operations are ensured at factory sites. All processes as required for Pollution Control and Environmental Protection are strictly followed.

e) INTERNAL CONTROL AND SYSTEMS

The company has necessary Internal Control Systems in that commensurate with the size, scale, and complexity of its operations. The Company is continuously making improvements in internal control systems and Auditors are carrying out internal audits and advising the management on strengthening of internal control systems then and there. The reports are discussed periodically. Significant audit observations and corrective actions thereon are presented to the Audit committee periodically.

Further the Company is certified with ISO 9001, ISO 14001 and ISO 45001 on the manufacturing systems. Further, the Companys Better Cotton Initiatives and organic cotton yarn is certified by GCL. Further Sambandam Spinning Mills Limited is the approved and preferred customer for following buying houses namely Inditex, C&A and Marco Polo.

f) HUMAN RESOURCES MANAGEMENT

The company has a congenial work atmosphere at all places and has implemented various welfare measures for the employees. As a policy the Company gives utmost importance to its employees in all work related activities including upskilling of capacity etc. The company engages only local workers.

The fact that relationship with the employees continues to be cordial is testimony to the Companys ability to retain high quality workforce. In view of the aforesaid relationship no man days were lost during the year

g) DISCLOSURE ON ANTI SEXUAL HARASSMENT POLICY OF WOMEN AT WORK PLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT 2013

The Company has zero tolerance for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules framed thereunder. The Company has a Committee for addressing issues related to women and during the financial year 2022-23, there were no complaints received on sexual harassment.

The Company has in place an Anti-Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the same is available on the Companys website www.sambandam.com

h) COST AUDIT

Board of directors have approved the appointment of Sri B.Venkateswar, Practising Cost Accountant (Membership Number : 27622) Cost Accountants for audit of cost accounts of the Company. In accordance with the provisions of the Companies Act 2013 and the Rules framed there under, Cost Audit for the Company is applicable for the financial year 2023 - 24 and the resolution for ratification of the remuneration payable to the Cost Auditor for the year 2023-24 is placed before the members for ratification at the 49 th Annual General Meeting of the Company scheduled on 12-08-2023.

In view of the Company maintaining the cost records and the statutory requirement for the cost audit of such records, Cost Audit for the year 2023-24 shall be conducted and its report thereon will be produced.

.i.) BOARD MEETINGS :

During the year under review Five board meetings were held and the intervening gap between any two board meetings did not exceed 120 days or extended permitted days by Government. Dates of the board meetings and details of directors attendance at the meetings are furnished in the Corporate Governance report at Annexure – VII.

j) DIRECTORS

There is no change in Board of Directors during the year.

During the year FY 2022-23 the Board of Directors have recommended in its board meeting held on 27.05.2023 for re-appointment of retiring directors as mentioned in respective portion of the notice to the shareholder.

Companys policy on Directors appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under section 178(3) of the Act are covered under Nomination and Remuneration Policy and it is available in the web-link of the Company http://www.sambandam.com. Further, information about elements of remuneration package of individual directors is provided in the Annual Return as provided under Section 92(3) of the Act, Under Serial No. 9 of this Report.

Declaration by Independent Directors

Independent directors of the Company have submitted a declaration that each of them meets the criteria of independence as provided in Sub-Section (6) of Section 149 of the Act. Further, there has been no change in the circumstances which may affect their status as Independent director during the year.

Declaration on adherence to the Code of Conduct.

As provided under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all the Board members and senior management personnel of the Company have confirmed adherence to the Code of Conduct of Sambandam Spinning Mills Ltd., Limited for the financial year ended March 31, 2023.

k) DIRECTORS RESPONSIBILITY STATEMENT AS PER SECTION 134(5) OF THE COMPANIES ACT, 2013

Pursuant to the requirement of Section 134(5) of the Act, and based on the representations received from the management, the directors hereby confirm that:

a) in the preparation of the annual accounts for the financial year 2022-23, the applicable accounting standards Ind AS have been followed and there are no material departures;

b) they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for the financial year;

c) they have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in accordance with the provisions of the Act. They confirm that there are adequate systems and controls for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) they have prepared the annual accounts on a going concern basis;

e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating properly; and

f) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

l) SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

During the year under review no orders were passed by the Regulators or Courts or Tribunals impacting the going concern status and the operations of the Company.

m) PARTICULARS OF EMPLOYEES - information pursuant to Rule 5 (2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

None of the employees (other than the Directors and KMPs whose remuneration is displayed in "u" below) of the Company has drawn remuneration exceeding Rs 8.5 lakhs per month or Rs 102 lakhs per annum during the year.

Managerial Remuneration

Statistical Disclosures pursuant to Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 with subsequent amendments thereto is annexed with this report and forms part of this report

n) Related Party Transactions :

Transactions entered with related parties have been explained in Form AOC -2 annexed with this report and forms part of this report. Further, Policy on dealing with Related Party Transactions has been uploaded on the Companys website, under the web link: http://www.sambandam.com also refer page no. 98

o) BOARD EVALUATION

During the year under review, the Board adopted a formal mechanism for evaluating its performance and as well as that of its Committees and individual Directors, including the Chairman of the Board. The exercise was carried out through a structured evaluation process covering various aspects of the Board functioning such as composition of the Board and Committees, experience and competencies, performance of specific duties and obligations, governance issues, etc. Separate exercise was carried out to evaluate the performance of individual Directors including the Board Chairman who were evaluated on parameters such as attendance at Board Meetings and General Meetings; participation in Board proceedings; independence and candidness shown at meetings; clarity and objectiveness in expressing views at meetings; awareness of governance code, compliance requirements, risk framework, etc. interactions with other Directors / Senior Management during and outside meetings; keenness to continuously familiarize with the industry and the Company etc.

Your Company has in place a Policy relating to selection, remuneration and evaluation of Directors and Senior Management The said Policy is available on the website of the Company www.sambandam.com

p) FAMILIARIZATION PROGRAMME OF THE INDEPENDENT DIRECTORS

Presentations during every quarter are made by Senior Management and Internal Auditors at the Board meetings and Committee meetings on the business and performance updates of the Company, local and global business environment, business risks and its mitigation strategy, impact of regulatory changes on strategy etc. Updates on relevant statutory changes encompassing important laws are regularly intimated then and there to all the Directors including the Independent Directors. During the year plant visits, (including offsite location), awarness sessions conducted by professional trade bodies, are attended by the independent directors.

q) DEPOSITS

The following are the details of deposits (accepted from the shareholders) covered under Chapter V of the Companies Act 2013.

.i. Deposits at the beginning of the year on 1 April, 2022 : Rs 755.47 lakhs

ii. Deposits Accepted from shareholders during the year (2022-23) : Rs 104.55 lakhs

iii. Deposits repaid to shareholders during the year (2022-23) : Rs 30.10 lakhs

iv. Deposits of shareholders outstanding at the end of the financial year on 31 st March, 2023 : Rs 829.92 lakhs

v. Remained unpaid or unclaimed as at the end of the year : NIL

vi. Any default in repayment of deposits or payment of interest thereon during the year : NIL

Company has duly complied with the provisions of section 73 of the Companies Act, 2013 read with relevant rules with respect to fixed deposits.

The following are the details of deposits accepted from the Directors which is not covered under definition of deposits Rules.

.i. Deposits at the beginning of the year on 1 April, 2022 : Rs 6.5 lakhs

ii. Deposits accepted from Directors during the year (2022-23) : Rs 51 lakhs

iii. Deposits repaid to Directors during the year (2022-23) : 5.00

iv. Deposits of Directors outstanding at the end of the financial year on 31 st March, 2023 : Rs 52.50 lakhs

v. Remained unpaid or unclaimed as at the end of the year : NIL

vi. Any default in repayment of deposits or payment of interest thereon during the year : NIL

r) INDUSTRY ASSOCIATIONS

Sri S. Dinakaran, Joint Managing Director of the Company is a special invitee in the Committee of Administration and Yarn Committee of the Cotton Textiles Export Promotion Council (TEXPROCIL), Mumbai. He is also a director in Confederation of Indian Textile Industry (CITI), Delhi. By virtue of the offices he holds, Sri S. Dinakaran has been representing to SIMA at the appropriate time to get relief to the ailing Textile Industry.

s) REPORT ON PERFORMANCE AND FINANCIAL POSITION OF THE ASSOCIATE COMPANIES

There are two associate Companies –

SPMM Health Care Services Pvt. Ltd. - 49.75% investment in the share capital of that Company.

This Company has recorded total revenue of Rs 319.32 Lakhs and profit after tax (PAT) of Rs 10 Lakhs during the year ended 31.3.2023 as against Rs 659.86 Lakhs Revenue and Rs 126.71 Lakhs PAT recorded in the previous year 2021-22.

Salem IVF Centre Pvt. Ltd. – 26.88% investment in the share capital of that Company.

This Company has recorded total revenue of Rs 290.55 lakhs and profit (PAT)of Rs 9.89 lakhs during the year 22-23 as against the revenue of Rs 300.67 lakhs and profit recorded Rs 2.64 lakhs the Previous Year 2021 - 2022.

HIGHLIGHTS OF PERFORMANCE OF SUBSIDIARIES OR ASSOCIATE COMPANIES

SPMM Health Care Services Pvt Ltd., revenue decreased by 51.60 % from operations during 22-23 when compared to 21-22. Also Profit after tax has significantly decreased due to drastic reduction in revenue in 22-23 when compared to 21-22, the primary reason being the Covid pandemic has reduced substantially.

Salem IVF Centre Pvt Ltd., Revenue from operations has decreased by 3.37% from operations during 22-23 when compared to 21-22. However profit has increased drastically due to operational material cost reduction and other costs also decreased

t) CHANGES OR COMMITMENTS AFTER THE YEAR ENDED ON 31.3.2023

No material change or commitments affecting the financial position of the company has occurred between the close of the financial year on 31.3.2023 and the date of this report

u) Information pursuant to section 197 (12) of the Act read with Rule 5(1) & 5(2) of the Companies (Appointment and Remuneration of Managerial personnel) Rules 2014 :

( .i.) Ratio of the remuneration of each Director, Company Secretary, Chief Marketing Officer, Chief Financial Officer and Chief Technical Officer to the median remuneration of the employees of the Company;

(ii) Percentage increase in their remuneration in 2022-23 as compared to the previous year (2021-22): (Median Remuneration : Rs 1,32,000 in 2022-23)

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Name of whole-time	Remuneration in 2022-23	Remuneration in 2021-22*	% increase in 2022-23	Ratio to Median
Directors and KMP	Rs. lakhs	Rs. lakhs		Remn.	Revenue	Ratio of 2021-22 Remuneration to Net Profit
Sri S.Devarajan, Chairman and Managing Director	120.00	102.00	17.65%	90.91	0.46%	(7.95)%
Sri S.Jegarajan, Joint Managing Director	116.40	98.70	17.93%	88.18	0.44%	(7.71)%
Sri S.Dinakaran, Joint Managing Director	74.40	64.20	15.89%	56.36	0.28%	(4.93)%
Sri D.Niranjan Kumar, Director - Marketing	48.00	37.50	28.00%	36.36	0.18%	(3.18)%
Sri J.Sakthivel, Director - Technical	48.00	37.50	28.00%	36.36	0.18%	(3.18)%
Sri P.Boopalan, Chief Financial Officer	30.00	28.00	7.14%	22.73	0.11%	(1.99)%
Sri S.Natarajan, Company Secretary	16.20	15.20	6.58%	12.27	0.06%	(1.07)%

Note : 1. All appointments are contractual

2. Remuneration includes salary, perquisites

* The remuneration in FY 21-22 is with old structure upto September 2021 and with new structure from October 2021

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Name of Non-executive Directors	# Sitting fees in 2022-23	# Sitting fees in 2021-22
	Rs. lakhs	Rs. lakhs
Mr. D.Sudharsan -	2.00	2.25
Name of Independent Directors	# Sitting fees in 2022-23	# Sitting fees in 2021-22
	Rs. lakhs	Rs. lakhs
Dr. V.Sekar	5.75	6.15
Mr. D.Balasundaram	5.75	5.90
Mr. S.Gnanashekaran	5.75	6.15
Mr. Kameshwar M Bhat	5.75	6.15
Smt. Annapoorani Venugopalan	2.25	2.00
Mr.S.Bhaskaran	2.75	1.75

# Only sitting fees is payable to Non-executive and Independent Directors for the meetings of the Committee or of the Board attended by them.

(a) Variation in the sitting fees paid to Directors depends on their attendance at the Board / Committee Meetings.

(iii) Number of permanent employees on the rolls of the Company : 1724 (iv) No variable component of the remuneration to any director.