volant textile mills ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS

1) Global and Domestic Business Environment

As indicated by the International Monetary Fund (IMF), the world economy is expected to grow by 3.1% in 2013 (same as last year ie. 2012) wherein the advanced economies are expected to grow by 1.2% and emerging economies are expected to grow by 5%.

The emerging market economies are experiencing a longer growth slowdown and these economies are expected to strugle to acheive their growth prospects in 2013. 2013 is expected to be a difficult year even though the down side risks to global growth have reduced.

Some of the major economies are showing signs of better growth, however the same is still lower than the growth achieved in the pre-crisis period. China has the biggest economy in the world and is expected to grow by about 7.8% in 2013 however it would be difficult for them to sustain this growth rate if their domestic consumption does not expand.

Indias current account deficit was higher at 4.8% last year due to rising imports of oil and gold. This has contributed to the depreciation of the Indian Rupee. Indias economy is expected to grow at 5.6% in FY 2013-14 on expectations of good monsoons, fiscal reforms, supportive monetary policy, increase in demand from the rural areas in a pre-election year and improvement in external economic environment. Major factors behind the downturn in the India economy has been a decline in corporate investments. This is due to high cost of capital, weak demand expectations, problems in securing essential raw materials and fuel linkages due to the scams, difficult in getting clearances from government bodies and officials, high inflation, liquidity tightness and high interest rates.

2) Industry Structure and Development

The textile industry in India plays a vital role in the overall economy. The Indian textile industry is one of the largest in the world with a massive raw material and manufacturing base. It contributes 11% of the industrial production, 14% to the manufacturing sector, and 4% to the GDP of the country. The textile industry accounts for as large as 21% of the total employment generated in the economy. Approximately 35 million people are directly employed in textile manufacturing activities and the Government has set a target of creating 10 million more jobs in the textile sector during the 12th Five Year Plan (2012-17), also 54.85 million people are employed in allied activities. Exports account for about 12% of Indias total foreign exchange earnings and it continues to reel under the pressure of the current slowdown.

Indias competitiveness has improved significantly against Bangladesh, China, Egypt, Pakistan and Turkey resulting in higher market share. Particularly, power and wages have become relatively competitive against these countries. Since 2000, the Rupee depreciated 26% while in the same period the Chinese Yuan appreciated by 26%. Global exports of textiles and clothing has increased from 3% in 2002 to 4% in 2011 and is a distant second to China which has 35% share in exports. However, the growth potential for India is huge and is expected to grow to 8% by 2020. The Ministry of Textiles has set an ambitious export target of USD 50 billion for the year 2013-14 which was USD 34 billion for the year 2012-13.

The Union Minister of Textiles explained his vision for the 12th plan by undertaking appropriate National Fibres Policy and New Textile Policy, achieving a dominant global standing for India in the manufacture and export of textiles and clothing, create employment opportunities in the entire textile and clothing value chain, continuation of TUF and encouraging building up of modern manufacturing capacity.

3) Opportunities, Threats, Risks & Concerns

The weakest links in the Indian textile industry are the weaving & the processing sector. Investment in these sectors will enhance the export prospects in the made-up & garment sectors. The country s home textile exports are forecasted to rise to $ 8-10 billion from $ 1.5 billion now. China at 38%, Pakistan at 22% and India at 16% dominate the U.S. export market despite cost pressures & cutthroat competition.

The concerns are the increase in interest costs, high power costs, delays in policies relating to labour laws, liquidity constraints, increase in level of indirect taxes, lack of infrastructure and high bank transaction costs. The Textile industry, especially spinning has seen unprecedented volatility in cotton and yarn prices not seen in the last two decades. This has adversely affected the entire spectrum of people associated with the industry like ginners, traders and manufacturers. Being the second largest provider of employment, the Government needs to urgently initiate steps to revive the industry. The state Government has also raised the minimum wages a few times during the year, increased the cost of power and are considering levy of LBT.

India has been a leader in cotton yarn exports for many years, and it was expected that we would move the textile chain upwards, however we have slid down to export of cotton. One kg of cotton might yield Rs. 70, as against a potential of Rs. 500 for a finished cotton textile product. A policy decision needs to be taken whether it is advantageous to have maximum value addition and increased employment while forming the policy for raw material exports. The Government, to encourage exports, should have higher duty drawbacks for every value added stage. This will help in increasing further employment in the sector and result in increase in higher foreign exchange inflows. The Government policies and direction are most essential for a massive growth in this sector in the coming years.

In the export market, demand is expected to pick up in USA, slowdown continues in Europe which could have an adverse impact on our business. Your Company is focusing on a long term sustainable profit model, and expects positive growth in the years to come. At the same competition from China, Pakistan and other Indian manufacturers continue to be a threat for the Company.

The demand could get hampered due to the severe inflationary pressures, high interest rates and liquidity constraints. The conversion costs could sharply escalate due to increase in energy prices, labour costs due to hike in minimum wages and levy of additional taxes. Cotton prices which have been highly volatile are of major concern for textile manufacturers.

4) Outlook

Please refer to Directors Report.

5) Financial and Operational Performance

Please refer to Directors Report.

6) Material Developments in Human Resources / Industrial Relation Front

The Company s relations with the labour are cordial. The Company and its workmen have mutually entered into a 3 year agreement with effect from 1st September, 2012 up to 31st August, 2015.

	On behalf of the Board of Directors
Place: Mumbai	Rajesh Somani
Date: 14th August, 2013.	(Chairman)