akshar spintex ltd Management discussions

WORLD ECONOMIC OUTLOOK:

Tentative signs in early 2023 that the world economy could achieve a soft landing—with inflation coming down and growth steady—have receded amid stubbornly high inflation and recent financial sector turmoil. Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying price pressures are proving sticky, with labor markets tight in a number of economies. Side effects from the fast rise in policy rates are becoming apparent, as banking sector vulnerabilities have come into focus and fears of contagion have risen across the broader financial sector, including nonbank financial institutions. Policymakers have taken forceful actions to stabilize the banking system. As discussed in depth in the Global Financial Stability Report, financial conditions are fluctuating with the shifts in sentiment.

In parallel, the other major forces that shaped the world economy in 2022 seem set to continue into this year, but with changed intensities. Debt levels remain high, limiting the ability of fiscal policymakers to respond to new challenges. Commodity prices that rose sharply following Russias invasion of Ukraine have moderated, but the war continues, and geopolitical tensions are high. Infectious COVID-19 strains caused widespread outbreaks last year, but economies that were hit hard—most notably China—appear to be recovering, easing supply-chain disruptions. Despite the fillips from lower food and energy prices and improved supply-chain functioning, risks are firmly to the downside with the increased uncertainty from the recent financial sector turmoil.

The anemic outlook reflects the tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geo-economics fragmentation. Global headline inflation is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices, but underlying (core) inflation is likely to decline more slowly. Inflations return to target is unlikely before 2025 in most cases. Once inflation rates are back to targets, deeper structural drivers will likely reduce interest rates toward their pre- pandemic levels.

Table A. Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP, Exports of Goods and Services, and Population

	Exports of Goods and Services
	Number of Economies	GDP Advanced EconomiesC	World	Advanced Economies	World	Population Advanced Economies	World
Advanced Economies	41	100.0	41.7	100.0	60.5	100.0	13.9
United States		37.3	15.6	16.0	9.7	30.7	4.3
Euro Area	20	28.8	12.0	41.4	25.0	31.8	4.4
Germany		7.8	3.3	11.0	6.6	7.7	1.1
France		5.4	2.3	5.4	3.3	6.1	0.8
Italy		4.5	1.9	3.9	2.4	5.4	0.8
Spain		3.3	1.4	3.1	1.9	4.4	0.6
Japan		9.0	3.8	4.9	3.0	11.5	1.6
United Kingdom		5.4	2.3	5.3	3.2	6.2	0.9
Canada		3.3	1.4	3.8	2.3	3.6	0.5
Other Advanced Economies	17	16.1	6.7	28.5	17.3	16.0	2.2
Memorandum
Major Advanced Economies	7	72.8	30.4	50.4	30.5	71.3	9.9

 

		Emerging Market and Developing Economies	World	Emerging Market and Developing Economies	World	Emerging Market and Developing Economies	World
Emerging Market and Developing Economies	155	100.0	58.3	100.0	39.5	100.0	86.1
Regional Groups
Emerging and Developing Asia	30	56.3	32.8	49.6	19.6	55.9	48.1
China		31.7	18.5	30.4	12.0	21.1	18.1
India		12.4	7.3	6.2	2.5	21.2	18.3
Emerging and Developing Europe	15	12.8	7.4	15.9	6.3	5.5	4.7
Russia		5.0	2.9	5.1	2.0	2.1	1.8
Latin America and the Caribbean	33	12.6	7.3	13.4	5.3	9.6	8.3
Brazil		4.0	2.3	3.1	1.2	3.2	2.7
Mexico		3.1	1.8	5.1	2.0	1.9	1.7
Middle East and Central Asia	32	13.0	7.6	16.9	6.7	12.5	10.7
Saudi Arabia		2.3	1.3	3.6	1.4	0.5	0.4
Sub-Saharan Africa	45	5.4	3.1	4.2	1.7	16.6	14.3
Nigeria		1.3	0.8	0.5	0.2	3.2	2.8
South Africa		1.0	0.6	1.1	0.4	0.9	0.8
Analytical Groups2
By Source of Export Earnings
Fuel	24	9.7	5.6	15.2	6.0	9.0	7.8
Nonfuel	129	90.3	52.6	84.8	33.5	90.9	78.2
Of which, Primary Products	36	5.2	3.1	5.2	2.0	9.0	7.7
By External Financing Source
Net Debtor Economies	120	50.3	29.3	43.4	17.2	68.7	59.2
Of which, Economies with Arrears and/or
Rescheduling during 2017–21	38	5.3	3.1	3.8	1.5	12.1	10.4
Other Groups2
Emerging Market and Middle-Income Economies	95	91.6	53.4	92.9	36.7	76.5	65.9
Low-Income Developing Countries	59	8.4	4.9	7.1	2.8	23.5	20.2
Heavily Indebted Poor Countries	39	2.8	1.6	2.0	0.8	12.1	10.4

INDIAN ECONOMY:

India to witness GDP growth of 6.0 per cent to 6.8 per cent in 2023-24, depending on the trajectory of economic and political developments globally. Economic survey 2022-23 projects a baseline GDP growth of 6.5 per cent in real terms in fy24. Economy is expected to grow at 7 per cent (in real terms) for the year ending March 2023, this follows an 8.7 per cent growth in the previous financial year. Credit growth to the micro, small, and medium enterprises (MSME) sector has been remarkably high, over 30.5 per cent, on average during Jan-Nov 2022 capital expenditure (capex) of the central government, which increased by 63.4 per cent in the first eight months of fy23, was another growth driver of the Indian economy in the current year RBI projects headline inflation at 6.8 per cent in fy23, which is outside its target range.

Return of migrant workers to construction activities helped housing market witnessing a significant decline in inventory overhang to 33 months in Q3 of FY23 from 42 months last year. Surge in growth of exports in FY22 and the first half of FY23 induced a shift in the gears of the production processes from mild acceleration to cruise mode. Private consumption as a percentage of GDP stood at 58.4 per cent in Q2 of FY23, the highest among the second quarters of all the years since 2013-14, supported by a rebound in contact-intensive services such as trade, hotel and transport. Survey points to the lower forecast for growth in global trade by the world trade organization, from 3.5 per cent in 2022 to 1.0 per cent in 2023.

INDUSTRY STRUCTURE AND PERFORMANCE:

The cotton production in India for the cotton season 2021-22 (October to September) dropped to 307 Lakh bales (170 Kgs) as against 360 Lakh bales produced in the previous cotton season, resulted in a 14% lower production. This is the lowest cotton production in India in the last 14 years. The major reason for lower crop size was due to low yield of cotton in main cotton growing centers due to unseasonal rainfall and an extended monsoon. As a result, the cotton prices were pushed to an 11 year high and prevailed at an elevated level throughout the cotton season that ended on 30-09-2022.

Spinning Mills were expecting the cotton prices to come down during the new cotton season 2022-23 as the Cotton Association of India (CAI), the apex cotton body in India, has estimated a higher sowing area for cotton at 128.35 Lakh hectares, an increase of about 10 Lakh hectares as compared to the last season. At the beginning of the cotton season, the CAI estimated that the cotton crop for the new season will be higher at 344 Lakh bales (PY: 307 Lakh bales). However, cotton arrivals in the market were very slow during the first 6 months of the new cotton season as the cotton growers held back the kappas, expecting better prices. The arrivals of cotton from October, 2022 to March, 2023 were lower by 30% as compared to the last season due to the holding of stocks by the farmers. The CAI also revised the cotton crop size for the season 2022-23 from its earlier estimate of 344 Lakh bales to 313 Lakh bales. All these factors triggered speculation over cotton prices and it did not come down to the expected level. Though there was some price correction in the cotton, the fall in yarn prices was much sharper than that of cotton, leading to wider disparity that affected the margins of yarn spinners across India.

The Company strategically shifted its focus on more value added counts and more volume high quality cotton was imported when the prices were at a reasonable level. The volume of imported cotton consumption for the financial year 2022-23 has increased by 10% (60% in value terms) as compared to the last financial year. This strategy has helped the Company to procure diversified varieties of cotton across the globe and to quote competitive prices for our yarn, which helped the Company to protect the operating margin in the financial year 2022-23.

MARKET SIZE

The recovery of demand for textile products during the last year could not be sustained for long due to various factors like an increase in the cotton prices, geopolitical conditions and high inflation across the globe. However, the Companys focus on producing a flexible and wide range products helped it to protect its sales volume during this sluggish period. The Company has established its position in fine / super fine counts in both domestic and export markets and it consumed more imported cotton to achieve consistent quality. Indias yarn export recorded robust growth during the previous FY 2021-22 of USD 5.2 billion, a 92% increase. However, the exports volume of yarn started to moderate during the current fiscal year, with yarn exports from India only reaching USD 2.6 billion, a 51% decrease. The main reason for lower exports in the current year was Indias loss of competitive advantage due to higher domestic cotton prices compared to

International prices, coupled with global slowdown in the major advanced economies. This situation forced many spinning mills across India to operate at lower capacity, with many spinning mills cutting down their production due to huge losses in yarn production.

India is the worlds second-largest producer of textiles and garments. It is also the sixth-largest exporter of textiles spanning apparel, home and technical products. India has a 4% share of the global trade in textiles and apparel. The textiles and apparel industry contribute 2.3% to the countrys GDP, 13% to industrial production and 12% to exports.

In July 2022, the Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution, and Textiles, Mr. Piyush Goyal, stated that the mantra of 5 Fs - Farms to Fiber to Fabric to Fashion to Foreign export – will help make India a strong textile brand globally.

100% FDI (automatic route) is allowed in the Indian textile sector. Under Union Budget 2023-24, the total allocation for the textile sector was Rs. 4,389.24 crore (US$ 536.4 million). Out of this, Rs. 900 crore (US$ 109.99 million) is for Amended Technology Upgradation Fund Scheme (ATUFS), Rs. 450 crore (US$ 54.99 million) for National Technical Textiles Mission, and Rs. 60 crore (US$ 7.33 million) for Integrated Processing Development Scheme.

In FY22-23, exports of readymade garments cotton including accessories stood at US$ 7.68 billion till January 2023. It is expected to surpass US$ 30 billion by 2027, with an estimated 4.6-4.9% share globally. Cotton production in India is projected to reach 7.2 million tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing demand from consumers.

Indias textile and apparel exports (including handicrafts) stood at US$ 44.4 billion in FY22, a 41% increase YoY. Total textile exports are expected to reach US$ 65 billion by FY26. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26. The Indian apparel market stood at US$ 40 billion in 2020 and is expected to reach US$ 135 billion by 2025.

GOVERNMENT INITIATIVES

The government approved a Rs. 10,683 crore (US$ 1.44 billion) production-linked incentive (PLI) scheme for the textiles sector. This will benefit the textile manufacturers registered in India. Incentives under the scheme will be available for five years from 2025-26 to 2029-30 on incremental turnover achieved from 2024- 25 to 2028-29. The scheme proposes to incentivize MMF (manmade fibre) apparel, MMF fabrics and 10 segments of technical textiles products.

Under the Union Budget 2023-24, the government has allocated:

Rs. 4,389.24 crore (US$ 536.4 million) to the Ministry of Textiles.

Rs. 900 crore (US$ 109.99 million) is for Amended Technology Upgradation Fund Scheme (ATUFS).

Rs. 60 crore (US$ 7.33 million) for Integrated Processing Development Scheme.

Rs. 450 crore (US$ 54.99 million) for National Technical Textiles Mission.

For more information or details please visit the website https://www.ibef.org/industry/indian-textiles-and-apparel-industry-analysis-presentation.

COMPANY PERFORMANCE AND BUSINESS OUTLOOK

The Companys focus on strengthening its infrastructure to produce diverse products, including various high-quality value-added yarn and collaborating with customers to manufacturer innovative products helped it maintain an optimum level of capacity utilization and grow sales volume in export market. Although India imposed a duty on imported cotton during the last fiscal year, the Company was able to mitigate this by using the Advanced License Scheme available to it under Foreign Trade Policy of the Government of India. Sales volume of value-added yarn such as Elitwist, Gassing, High twist, Melange, Core yarn and Mercerized yarn increased to 2,650 Tonnes during the FY 2022-23, a 12% growth from 2,362 Tonnes during the previous year. This growth rate is achieved on the top of strong growth rate posted during the previous year of 91%.

During Financial Year 2022-2023, Companys Revenue from operation was Rs. 13,553.25/- Lakhs, a decrease from the 17,210.84/- Lakhs in the previous year. The volatility in cotton prices are continuing and the prices of cotton and yarn are widely fluctuating. Although there was an improved arrival of cotton in the market during later part of the current cotton season, prices continue to rule higher due to improved domestic demand for cotton.

The higher than expected inflation rate across the globe has resulted in the tightening of monetary policy rates by Central Banks, leading to reduced consumer spending. Demand for textile products remains stagnant due to global macroeconomic factors such as rising interest rates, fallout of major banks and fears of recession. Large volume orders are not being placed by buyers due to uncertainty and high inflation all over the world. Additionally, the rise in the raw material prices has resulted in high priced textile items, which are not absorbed in the retail value chain.

To combat these challenges, the Company is continuously monitoring various process parameters and implementing various system controls to deliver consistent quality of yarn and fabric to the end customers and leading brands. The Company has also strengthened its the product lines with more automation like fully automatic contamination removal system at blow room stage, 100% ring spindle monitoring system, installation of link coners, which has resulted in overall improvement in the operating efficiency of the Company. Strengthening of its product lines with more value-added customized yarn counts such as Mercerized Yarn, Melange Yarn, Core Yarn etc., will help the Company to isolate against the headwinds of falling demand for commodity count.

FY 2022-2023 was a significant year for the Company as we took decisive steps in executing on our Business Growth & Diversification Strategy and for the expansion of business. The Company has migrated from BSE SME platform to BSE main Board and Listing & Trading from NSE Main Board w.e.f 23rd May, 2022.

OUR PRODUCT RANGE:

100% Carded Cotton Yarn (16s to 44s Ne)

100% Semi Combed Cotton Yarn (16s to 44s Ne)

100% Combed Cotton Yarn (16s to 44s Ne)

Slub Yarn

Core Spun Yarn

TFO Yarn

Eli Twist Yarn

Fancy Yarn

Melange Yarn

Blended Yarn

BCI Certified Yarn

Organic Yarn

STRENGTHS, WEAKNESS, OPPORTUNITIES AND THREATS:

The textile industry is undergoing fast change as the industry continues to grow. Todays enterprises have multiple benefits due to technological progress, resulting in everyday economic shifts. In order to effectively strategize, it is crucial for a textile organization to appreciate the patterns of market movement. An effective strategy provides organizations with a head start in planning and a competitive advantage. SWOT Analysis can be a reliable method for getting market research that can give your organization a competitive advantage.

For many years, the textile industry has significantly contributed to our economy. It is a sector that accounts for 14% of the total production made in the industrial sector. The textile industry fulfills one of the most fundamental and consistent requirements that people have. It is able to sustain its expansion by enhancing the quality of life for the human population. This industry is self-sufficient, especially when compared to others. Over the course of many years, it has been demonstrated to be one of the most significant contributors to a countrys economy. In recent years, the textile industry has experienced phenomenal expansion. This has attracted a considerable amount of attention from other countries around the world.

STRENGTHS	WEAKNESS
Indian Textile Industry is an Independent & Self-Reliant industry.	Indian Textile Industry is highly Fragmented Industry.
Abundant Raw Material availability that helps industry to control costs and reduces the lead- time across the operation.	Industry is highly dependent on Cotton. Lower Productivity in various segments. There is Declining in Mill Segment.
Availability of Low Cost and Skilled Manpower provides competitive advantage to industry.	Lack of Technological Development that affect the productivity and other activities in whole value chain.
Availability of large varieties of cotton fibre and has a fast growing synthetic fibre industry.	Infrastructural Bottlenecks and Efficiency
India has great advantage in Spinning Sector and has a presence in all process of operation and value chain.	such as, Transaction Time at Ports and transportation Time. Unfavourable labour Laws.
India is one of the largest exporters of Yarn in international market and contributes around 25% share of the global trade in Cotton Yarn.	Lack of Trade Membership, which restrict to tap other potential market. Lacking to generate Economies of Scale.
The Apparel Industry is one of largest foreign revenue contributor and holds 12% of the countrys total export.	Higher Indirect Taxes, Power and Interest Rates.
Industry has large and diversified segments that provide wide variety of products.	Competition from other developing countries, especially China.
Growing Economy and Potential Domestic and International Market.	Continuous Quality Improvement is need of the hour as there are different demand patterns all over the world.
Industry has Manufacturing Flexibility that helps to increase the productivity.	Elimination of Quota system will lead to fluctuations in Export Demand.
OPPORTUNITIES THREATS	Threat for Traditional Market for Power loom and Handloom Products and forcing them for product diversification.
Growth rate of Domestic Textile Industry is 6- 8% per annum. Large, Potential Domestic and International Market.	Geographical Disadvantages.
Product development and Diversification to cater global needs. Elimination of Quota Restriction leads to greater Market Development.	International labour and Environmental Laws.
Market is gradually shifting towards Branded Readymade Garment. Increased Disposable Income and Purchasing	To balance the demand and supply.
Power of Indian Customer opens Newmarket Development.	To make balance between price and quality
Emerging Retail Industry and Malls provide huge opportunities for the Apparel,
Handicraft and other segments of the industry.
Greater Investment and FDI opportunities are available

RISKS AND CONCERNS:

Risk	Description	Mitigation
Cybersecurity	Cyber-attacks on the Company	Educating and Training people on vulnerability to
	could result in possible losses	cyberattacks
	for the Company through the	Get the essentials in place e.g. anti-virus, firewalls,
	use of out-of-date systems and	password use, whitelisting, access control, SSL,
	new work-from-home / remote	SSO Network and data encryption
	working environments	Conduct component-driven and system-driven
		driven risk
		Assessments
		Restricted access control to the physical
		equipment
		Symantec Endpoint Protection against Viruses,
		Malware,
		Adware, Spyware
		Invest in Research and Development team
Technology Risk	It is possible that the business	Short Term SAP drill conducted once
	continuity and disaster recovery	every 6 months
	plans wont work when needed	BCP to be formalized
	There is no Data Leakage	USBs blocked across the organization
	Prevention (DLP) mechanism in	MS Intune installed
	place to track any organizational	Firewall for social media blocking
	data leakage
Operational Risk	The completion of projects may be	Pre-construction trackers in place
	delayed by the need for approvals	Review conducted every 15 days of local
	and procedural challenges brought	regulation
	on by excessive delays from	Best in class liaison consultants
	government departments
Capacity	Inadequate capacity may lead to	Short Term
	loss of opportunity	Capacity expansion
		Upgradation and expansion
		Long Term
		Continuously looking for opportunities
Raw Material	Inadequacy or absence of raw	Increasing green coverage and
Securitization	material has the potential to	planting trees
	impact operations
Cost of Production Higher Prices and Shortage of Basic Raw Material	High cost of production can reduce profit margins Shortage of Cotton/ Higher Cotton Prices	Reduce cost of Raw Materials and Packaging
		To mitigate the price risk, the following actions are
		initiated:
		Develop a dedicated strategy for components
		that are subject to volatility
		Use financial and operational hedging
		Monitor pricing trends Manage inventory to soften impact of price changes e.g. Stockpiling Continuous engagement with cotton materials suppliers
Competition Risk	In Market there are Cutthroats	Regular customer satisfaction survey and
	Competition exists and Increased	engagement mechanism to sustain strong
	Competition	relationship with customers
		Continue to undertake operational savings
		initiatives to remain cost efficient
		Gather intelligence and assess risk
		Use industry research and advisory firms to scan
		for competitive risk
		Periodic monitoring of all actions of competitors
		Improve competitive analysis

INTERNAL CONTROL & ADEQUACY:

Your Company has been regularly reviewing and updating its internal controls by benchmarking against the industry standards. Dynamics of changing business requirements, statutory compliances and corporate governance are adopted in existing systems after careful review to remain in line with compliance requirements, expectations of business partners like customers and institutions. Senior management monitors the recommendations of internal audits for continuous system updating. IT System infrastructure is updated regularly to support business decision making as well as better controls.

HUMAN RESOURCES:

Human resource is considered as the most valuable of all resources available to the Company. The Company continues to lay emphasis on building and sustaining an excellent organization climate based on human performance. The Management has been continuously endeavoring in fostering high performance culture the organization. During the year the Company has employed around 146 employees on rolls. Further, industrial relations remained peaceful and harmonious during the year.

SEGMENT–WISE PERFORMANCE:

The Company has identified its business segment as Primary Reportable Segment. There are no other Primary Reportable Segment and the Companys Operations fall under a single segment "Spinning of Cotton Yarn". Hence, Segment reporting is not applicable as per Accounting Standard (AS) - 17 - Segment Reporting.

FORWARD-LOOKING STATEMENT:

This analysis contains forward-looking statements, which may be identified by their use of words like ‘plans, ‘expects, ‘will, ‘anticipates, ‘believes, ‘intends, ‘projects, ‘estimates or other words of similar meaning. All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market position, expenditures, and financial results, are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent developments, information or events.

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations, or predictions may be forward looking, considering the applicable laws and regulations. These statements are based on certain assumptions and expectation of future events. Actual results could, however, differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include finished goods prices, raw materials costs and availability, global and domestic demand supply conditions, fluctuations in exchange rates, changes in Government regulations and tax structure, economic developments within India and the countries with which the Company has business contacts. The Company assumes no responsibility in respect of the forward-looking statements herein, which may undergo changes in future based on subsequent developments, information, or events.

KEY FINANCIAL RATIO:

h________		2021-2022
Sr No. Ratio Name	Ratio	Sr No. Ratio Name	Ratio
1 Current Ratio	1.31	1 Current Ratio	01.42
2 Debt Equity Ratio	0.43	2 Debt Equity Ratio	00.59
3 Debt Service Coverage	0.22	3 Debt Service Coverage	01.93
Ratio		Ratio
4 Return On Equity	-6.59%	4 Return On Equity	17.55%
5 Inventory Turnover Ratio	4.76	5 Inventory Turnover Ratio	05.63
6 Trade Receivable Turnover	20.59	6 Trade Receivable Turnover	82.38
Ratio		Ratio
7 Trade Payable Turnover	7.37	7 Trade Payable Turnover	14.68
Ratio		Ratio
8 Net Capital Turnover Ratio	13.10	8 Net Capital Turnover Ratio	17.20
9 Net Profit Ratio	-2.04	9 Net Profit Ratio	04.05%
10 Return on Capital Employed	-4.70	10 Return on Capital Employed	21.74%