shree rajasthan syntex ltd Management discussions

The management of Shree Rajasthan Syntex Ltd. is presenting the Management Discussion and Analysis Report covering the operations and financial performance of the Company for the financial year 2022-23. The core business of the Company is manufacturing and marketing of synthetic blended yarn, cotton yarn and polypropylene multifilament yarn.

BUSINESS OVERVIEW

The Company is one of the important players in man made fibre spinning with following capacity:

Units	Location	Products	Capacity
Syntex - Division	Simalwara Road Dungarpur Synthetic Yarn		27,744 SPINDLES
Texchem - Division	Simalwara Road Dungarpur (i) Synthetic Yarn		31,488 SPINDLES
	(ii) Polypropylene Multi filament Yarn		2,000 TPA
Polycot - Division	Simalwara Road Dungarpur Cotton yarn		18,048 SPINDLES

INDUSTRY STRUCTURE AND DEVELOPMENTS

1. The textile industry is one of the most significant industries for the Indian economy. The industry is one of the largest employers in India, employing more than 45 million people directly and 60 million people indirectly.

2. Due to its fragmented nature, the textile industry employs more in the unorganized sector especially in the rural areas and hence, it is of vital importance.

3. The textile industry can be segmented into Natural Fibres and Man Made Fibres (MMFs) based on the use of basic raw material, cotton or crude derivative respectively. Among the various MMF product in the synthetic and cellulosic segments, polyester and viscose forms about 80% of total domestic consumption. Globally man-made fibres is the most dominantly consumed textile fibre.

4. While the industry would face stiff competition from established players in the sector - China, Taiwan, South Korea, etc., increasing labour and manufacturing costs in these countries would give ample opportunities for Indian players. The Indian industry could attract global investments to produce high value-added MMF .

5. The yarn sector is witnessing a change in demand trend. Increasing popularity of synthetic textiles in India – in line with global trend – is expected to create structural changes in Indian yarn industry, which is dominated by cotton textiles.

6. Realizing the importance of the textile industry to the Indian economy, the government undertakes various measures through multiple governing bodies viz. Ministry of Textile, Ministry of Finance, Ministry of Rural Development, and Ministry of Human Resource Development. The government has allowed 100% FDI under the automatic route in the textile and clothing sector.

7. The National Technical Textiles Mission was proposed in the Union Budget for 2020 -21. It will be active till

2023 – 24 with an estimated expense of Rs 1480 crore for the betterment of the textile industry.

8. The Sustainable Textiles for Sustainable Development (SusTex) project by the United Nations Climate Change entity enhances the employment and working circumstances of textile artisans while promoting the sustainable production and use of environment friendly textiles.

9. Top players in the sector are achieving sustainability in their products by manufacturing textiles that use natural recyclable materials. 10. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. The growth in textiles will be driven by growing household income, increasing population and increasing demand by sectors like housing, hospitality, healthcare, etc.

INDUSTRY OPPORTUNITIES

1. The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand.

2. Currently Indian yarn industry is dominated by cotton yarn. However, world over the usage of synthetic textile is gaining popularity due to the advantages it offers. Additionally, increasing cost of cotton, which results in increasing cost of cotton textiles, is also helping in the growth of synthetic yarn. Although cotton yarn would continue to hold the largest share in Indian yarn industry, its domination is expected to diminish in the coming years.

3. India intends to advance the manufacturing capabilities of its man made fiber (MMF) apparel and fabrics and technical textile products under the Production Linked Incentive (PLI) Scheme. Achieving this objective will enable the country s textile industry to gain a larger market presence, enhance its global competitiveness, and generate employment opportunities. India hopes to achieve the target of US$250 billion-worth textiles production and US$100 billion in exports by 2030.

The Production Linked Incentive (PLI) Scheme for Textiles for Promoting MMF and Technical Textiles is designed to facilitate the establishment of sustainable enterprises and foster a competitive textile industry in India.

4. The Skill India and Make-in India programs of Central government headed by Prime Minister S hri Narendra Modi is helping the industry in getting required skilled manpower and good market for textile products. It is an opportunity for the textile industry to upgrade their technology and implement ERP to streamline supply chain and enhance customer relations management activities.

5. The structural reform of The Goods and Services Tax (GST) is expected to provide a boost to the economic growth and investments in the long run.

6. India s textiles industry has around 4.5 crore employed workers including 35.22 lakh handloom workers across the country.

INDUSTRIAL CHALLENGES

Even though India s textile industry is a huge contributor in terms of exports, industrial output and employment, like Chinas, India s domestic industry is not without its challenges.

1. Higher input costs compared to competing nations

India has one of the highest costs of capital compared to most competing countries which affects the cost of production and thus its competitiveness. Also, the power cost in India is much higher compared to competing nations.

2. Low technology level

The Textile Industry suffers from the use of low and outdated technologies. In general, spending on R&D, product development etc. by textile companies in India is quite low.

3. Cyclical ups and downs & Demand adversities

There has never been a continuous positive growth rate in textiles products for a longer time periods. Some times it was treated as a cyclical ups and downs, some times the demand adversities have really dented the growth.

4. High debt servicing cost:

The industry requires to give high debt servicing cost and with the lending rates in India in the range of 12 to 14%, they are significantly higher in comparison to the competing countries like China. The complete textile chain is not covered in the TUF Scheme and thus a large capital investment needs to be made at a very high rate of interest.

RISK AND CONCERNS

a. Raw material availability

Though India is having sufficient availability of raw materials, namely, cotton, man made fibres and silk but factors such as low rain fall in the cotton growing areas, increase in crude oil prices in the international markets for basic raw materials of man made fibres and increase in logistic cost may effect the availability of raw material and competitiveness of the industry.

b. Power availability

Most of the textile mills in India, particularly in north and western parts are dependent on power supply by self-generation using coal as fuel due to lower availability of power from the government. Because of increase in cost of coal the cost of generation of power is increasing which may affect the competitiveness of the Industry.

c. Currency risk

Since the textile industry has a major portion of its revenue from exports, Indian rupee relationship with foreign currencies such as US Dollar is important. The industry hedges currency risks by forward currency cover against sale contracts. Hence movement in foreign currency vis-? -vis rupee has direct impact on exports realization and import cost. The volatile movement of Rupee against the US Dollar is a serious concern for the industry.

d. Government Policies

The Textile Industry is highly dependent on the Government Policies on various matters. Frequent changes in the taxation policies bring instability in the industry.

PRODUCT WISE PERFORMANCE OF THE COMPANY

Chart given below gives the break up of sales between the domestics and export markets for the last 3 years:

(Rs. In Lakhs)

Revenue from operations	2022-23	2021-22	2020-21
Sale of Product
- Domestic	2054.63	2127.44	1855.81
- Export	NIL	NIL	NIL
Sale of Service
- Income from Job Work	3108.90	2950.01	1807.28

The current yarn portfolio of SRSL can be classified into 3 main categories-Grey yarn, dyed yarn and PPMF yarn.

Grey Yarn: Grey yarn is produced using blends of different synthetic fibre such as polyester/viscose, 100% viscose yarn, 100% polyester fibre yarn and pure cotton. These qualities are produced in Shree Rajasthan Texchem division and Shree Rajasthan Polycot division of the Company. The Company has niche markets for 100% viscose fibre yarn. Specialty fibre yarns were developed for industrial and home textile applications.

Dyed yarns: Dyed yarn is produced at Syntex division of the Company. These yarns are relatively higher value added products and made according to customers specifications of blend, counts and shades. The Company has speciality in producing home textile dyed yarns for end use such as carpets, tapestry and upholstery. However, the dyed yard remained non-operational throughout the year.

PPMF Yarn: Polypropylene multi filament yarn is produced at Shree Rajasthan Texchem division of the company at Dungarpur; POY and texturised yarn is produced for knitting, socks and furnishing applications. BCF yarn is produced for carpet applications.

OPERATIONS

During the year under review, the Company s operations continued to be affected due to non availability of working capital for operations resulting in lower capacity utilisation and constrained margins due to high cost of Raw Material at uneconomical buying. Furthermore, the Company has not been able to undertake necessary regular capital expenditure as per industry norms for proper maintenance and upkeep of plant and equipment due to paucity of funds.

The Company produced 5011.92 M.T. of yarn valuing Rs. 5103.54 Lakhs during the period under review as against 5824.76 M.T. of yarn valuing Rs. 5044.56 Lakhs produced during the last year. During the year, there were no exports.

The Company s financial highlights is summarized below:

(Rs. in Lakhs)

Particulars	Financial Year
	March 31, 2023	March 31, 2022
Revenue from operations	5,164	5,078
Other Income	114	17
Total Revenue (A)	5,278	5,095
Expenses:-
Cost of materials consumed	822	1,102
Purchase of Stock-in-trade	1,003	715
Changes in inventories of finished goods, Work in progress and	60	33
stock-in - trade
Employees benefit expenses	1,070	1,152
Finance Costs	2,129	2,771
Depreciation and Amortization expenses	2,037	437
Other Expenses	2,466	2,527
Total Expenses (B)	9,587	8,737
Profit/(loss) before exceptional items and tax (A) - (B)	(4,309)	(3,642)
Exceptional items (gain)	(13)	-
Profit / (Loss) before tax	(4,322)	(3,642)
Less : Tax expense	7	-
Profit / (Loss) for the period	(4,329)	(3,642)
Other comprehensive Income (Net of Tax)	(13)	6
Total Comprehensive Income for the period (Comprising profit after	(4,342)	(3,636)
tax and other comprehensive income after tax for the period)

OUTLOOK

Yarn is an intermediary product, and its demand is dependent on the demand sentiment prevailing in the downstream industries, namely apparels and home textiles. In the case of Indian yarn industry, apart from demand from downstream industries, export sentiment too has a bearing. This is because India is a major exporter of yarn, supplying cotton yarn to countries like China and Bangladesh. This export forms an integral part of the domestic yarn industry, contributing to its steady growth.

DEVELOPMENTS IN HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company recognizes the importance of Human Resource as a key asset instrumental in its growth. The Company believes in acquisition, retention and betterment of talented team players. HRD activities are taken in the Company involving positive approach to develop employees to take care of productivity, quality and customer needs. The Company has to make constant efforts to manage labour shortages. To develop skilled labour, training facilities are provided to the employees in house or by deputing them to the machinery suppliers and to training institutes for specific training. The Company has well developed management information system giving daily, monthly and periodical information to the different levels of management. Such reports are being analyzed and effective steps are taken to control the efficiency, utilization, productivity and quality in the Company. As on 31^st March, 2023, the employee strength of the Company stood at 244 while on 1^st April, 2022 it was 257.

KEY FINANCIAL RATIOS AND DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

Particulars	Financial Year		Change	Reason (If more than 25% Change)
	2022-23	2021-22	in %
Debtor Turnover Ratio	45.69	43.03	6.18	NA
				Company has made losses and is under
Interest Coverage Ratio	1.03 -	0.31 -	232
				financial stress
				Company made higher losses due to
Operating Profit Margin	-42.48	-17.18	-25.3
				higher provisions
				Due to lower level of inventory, the
Current Ratio	0.03	0.04	( 32.75 )
				current ratio is low.
				Ratio is not calculated as the equity
Debt Equity Ratio	-	-	-
				value is negative
				Company is not generating earnings to
Debt Service Coverage Ratio	-	-	-
				service debts
				Shareholders equity is negative due to
Return on Equity	-	-	-
				recurring losses in the company
Inventory Turnover Ratio	14.45	8.80	64.19	Lower inventory of own production
Trade Receivable Turnover	50.40	22..41	124.84	Advance received from customers
Ratio				resulted in higher turnover of trade
				receivables
Trade payable Turnover Ratio	1.63	1.76	(7.66)	NA
Net Capital Turnover ratio	(0.29)	(0.32)	(8.11)	NA
Net Profit Ratio	(83.86)	(71.75)	16.88	NA
				Ratio is not calculated as the equity
Return on Capital employed	-	-	-
				value is negative
Return on Investment	-	-		- No Investment by the Company

RETURN ON NET WORTH

The Company has negative Return on Net worth in both current and previous year due to negative Total Comprehensive Income.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adequate internal control system commensurate with its size and nature of business. The internal control systems are complemented by various Management Information System (MIS) reports covering all areas. The management reviews and strengthens the controls periodically. Apart from self-monitoring of the internal controls, there is a Chartered Accountant firm appointed to conduct internal audit of the Companys operations as approved by the Audit Committee. This firm presents their important observations to the Audit Committee that is chaired by an Independent Director. The internal auditors provide a reassurance to the affirmation given by the Management that the control systems are effective, operational and adequate. The Audit Committee takes due cognizance of the observations made by the auditors and gives their suggestions for improvement. The suggestions of the Audit Committee further ensure the quality and adequacy of the control systems. The internal control ensures that all assets were safeguarded and protected against loss through unauthorized use or disposition and transactions were authorized, recorded noticed and reported correctly. While operating managers ensure compliance with their areas, internal auditors carry out audit test on randomly selected samples and report on non-compliance or weakness if any through internal audit reports of the respective unit/areas. These reports are reviewed by the management and then by Audit Committee of the Board for follow up action. A report of Auditors pursuant to Sec 143(3)(i) of Companies Act, 2013 certifying the adequacy of Internal Financial Control is annexed with the Auditor s Report.

CAUTIONARY STATEMENT

Statements in the Management Discussions and Analysis report describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable security laws and regulation. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the companys operations include economic conditions affecting demand and supply and price conditions in domestic and overseas market in which the company operates, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factor.

		For and on behalf of the Board of Directors
		For Shree Rajasthan Syntex Ltd.
Date	: August 10, 2023	Sd/-	Sd/-
Place	: Udaipur	Vikas Ladia	Anubhav Ladia
Registered Office	: 27-A, First Floor, Meera Nagar,	(Managing Director and	(Whole Time Director)
	Housing Board Colony,	Chief Executive Officer)	DIN: 00168312
	Udaipur - 313001	DIN: 00256289
	Rajasthan