Amarjothi Spinning Mills Ltd Management Discussions

The Directors present the Report on Management Discussion and Analysis Report for the financial year ended 31st March 2024, in terms of Regulation 34(2) read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015[SEBI LODR].

1. ECONOMIC SCENARIO

The global economic outlook for 2023 is among the weakest in decades, with global real GDP growth forecast to increase by 2.3% in 2023, further down from 3.3% recorded in 2022. Though global inflation is expected to moderate from 9.1% in 2022 to 6.8% in 2023, it is still at historic highs. The high costs of living, rising interest rates and ongoing geopolitical uncertainties will continue to dent private consumption and investment in many parts of the world, undermining the global growth outlook.

Slowing demand and rising interest rates in most economies globally will continue to weaken inflationary pressures over the course of 2024. However, multiple risks could prompt inflation resurgence in the short term. In the medium term, worsening geopolitical tensions, the rewiring of global supply chains and increasingly frequent extreme weather events pose considerable inflation risks.

The global textile market was valued at USD 1,837.27 billion in 2023 and is anticipated to grow at a compound annual growth rate (CAGR) of 7.4% in revenue from 2024 to 2030.There has been an increasing trend in the use of smart textiles in the market and is expected to propel the growth of the technical application segment in the textiles market.

Moreover, increasing population, urbanization in emerging economies and an increase in demand for formal & casualwear and other fashionable clothing among all age groups in the global population is a major driver for the textiles market growth.

2. INDUSTRY SCEANARIO AND DEVELOPMENT:

The Indian Textile Industry is one of the largest in the World, enjoying its presence in the entire value chain i.e. cotton, yarn, fiber and apparel. This Company being a major supplier of melange yarn to the Tirupur market with its local presence, there is good scope for improved turnover and profitability. The Company has been improving its share of value added yarn in the market in the form of Dyed fibre yarn, Dyed cotton yarn, PC yarn, etc. The Company offers competitive price due to low power cost through windmills, low interest cost, low processing cost, etc. The Company has obtained ISO 9001:2000 Certification, MGMT.SYS RVA C 216 Certification for quality management and systems and OEKO TEX STANDARD- 100 Certification for not using harmful substances in the product.

The Indian textile industry is likely to witness moderate growth inFY24 due to a decline in exports, accounting for about 1 /4th of the total revenue. However, the domestic textile market continued to grow at a steady pace in FY24 as a result of robust domestic demand (supported by sustained economic growth and cotton price normalisation).The domestic industry also benifitted from growing exports due to improved demand for Indian fabrics and apparel from the US and European markets -key export destinations for India.

The Indian Textile industry is expected to reach an estimated value of US$ 1.9 billion by 2026 with a CAGR of 16.3% from 2021 to 2026 with an increase in Indian consumption of composite materials. The Indian Government has responded to this reality through PLI

Scheme, Establishment of Mega Textile Parks and continuity of rolled out incentives, besides attracting Foreign Investments into the sector. In Global, Various countries implemented favourable trade policies and agreements, promoting cross-border trade and investment in the textile sector. It was marked by extensive challenges for the synthetic textile sector, with a slowdown in Global demand, continuous decline in price realizations and an increase in costs.

The Indian textile industry is looking forward with some optimism in the latter half of the current fiscal year 2023-24 and beyond. The focus on investments, skill development and labour law reforms by the Government have provided the much-needed boost to the confidence of the business community to further invest, expand and grow the textiles industry. The encouraging signs provide reassurance of the commencement of an excellent period for the revival and growth of the textile and apparel sector in India.

Overall, the textiles and apparel industry has an ambitious target of achieving the target of $ 250 billion domestic textiles production and $ 100 billion exports by 2030. This includes exports of cotton textiles from India, under the purview of TEXPROCIL, being projected to reach $ 24 billion at a CAGR of 13 per cent by the year 2029-30.

The industry is confident about revival of demand, based on the expected boost in exports on account of the recently concluded FTAs with Australia & UAE. The signing of FTAs with Canada, UK & EU is also expected to provide further impetus to demand for Indian textile and apparel products. The pathway to success in the textiles sector is mainly on diversification of exports through new products and markets along with increasing value addition and promoting innovation and R&D activities.

The Indian textile and apparel industry has been highly appreciated across the world on account of its exquisite craftsmanship, design skills and flexible production processes capable of handling deliveries in small lots to bulk lots at the same time. The coming together of the Government and the industry by virtue of supportive policies and the entrepreneurial zeal can contribute positively to the national aspiration of becoming the most preferred sourcing and manufacturing destination in the world.

Overall the Textile industry has been going through turmoil for the past two years. High raw material prices, high imports of cheap yarns and fabrics, economic downturn and recessions scenarios across major buying markets of Europe of North America and Europe has disrupted the industry. Despite many companies closing operations temporarily, there has been very slow demand for yarns this financial year.

High Raw material prices - Cotton reached its peak prices of Rs.115,000 Per candy which destabilized the entire Textiles supply chain. This affected us drastically as our consumers were not able to absorb the increase in prices. Low selling prices due to high imports from China. There has been very high imports of material at very low costs which has pushed the selling prices of Synthetic blended yarns drastically low. The government has implemented Quality Control Orders (QCO) against anti dumping of yarns and fabrics from China and other countries.

We are positive this move will help over the current year in potentially better selling prices of our yarns. Decline in Sales/ Demand- Our key selling markets has been very dull as they majority of Apparel manufacturers have sluggishness in export markets. Owing to war situations in Europe and North America, the quantities and demand for Finished products has been slower.

Due to lack of export orders, most mills have been selling yarns in the domestic market with excess supply. This in turn has affected the supply chain of yarn and fabrics.

We are hopeful FY 2024-2025 will have a positive outlook as the government has made some policy changes regarding Imports and Anti Dumping duties in certain Textile products. With some stability in raw material pricing and improved export demand, we can expect a much better performance.

3. OPPORTUNITIES AND THREATS:

The Indian textile industry is expected to witness an uptick in demand in FY25. Some of the opportunities that the industry can capitalise on include:

Resurgence of Domestic Market: E-commerce surge, growing organised retail, rising disposable incomes, and working youth have increased apparel demand across the Indian landmass: Moreover, understanding the needs and preferences of consumers allow the manufacturers to innovate and cater to Wider market segments. This can lead to a large variety of high-quality textiles suited for the local tastes.

Gradual export recovery: the US market is showing signs of revival, which can potentially lead to increased demand for Indian exports. Moreover, weakening of the Eurozone economies might create an opportunity to diversify exports to Southeast Asia and other regions. India is a significant exporter of textiles and apparel worldwide. Further, Free Trade Agreements (FTAs) with different countries present vast opportunities for domestic manufacturers

Lower cotton prices: lower cost of raw materials can translate to higher savings for manufacturers. This improves profit margins, allowing them to invest in innovation, technology or even reduce the price of the final product for consumers. This, in turn will help the Indian textile industry become more competitive in the global market.

Focus on sustainable and technical textiles: growing global demand for eco-friendly and functional textiles like organic cotton, recycled fibres and technical textiles for industrial applications present a significant opportunity. Segments like agro textiles, medical textiles, and geotextiles are experiencing significant growth. Powered by strong government support, India looks forward to an unparalleled expansion in the technical textiles industry. The segment is expected to more than double in size from the current US$22 billion to an estimated US$50 billion in the next five years.

Our Company holding on hand opportunities to strengthen its position with -Availability of advanced technology equipment, Experienced management team, Emphasis on Quality Products , Timely deliveries to Customers, Long standing Customer Relations and Simple and Strategic market potentiality .Moreover, textile hubs with concentrated production facilities leverage infrastructure for power, water and communication. This shared resource pool reduces individual costs and allows for economies of scale.

The government is willing to boost the sector through initiatives like tax breaks for sustainable practices and infrastructure improvement. The Governments at the Central and State levels, respectively, have put in place favourable policies that aid the overall development of the textile industry in India.

The Indian Government, recognizing the crucial role textiles play in the nations economy and employment, has implemented various initiatives to support the industrys growth and transformation - some key measures include:

The PLI scheme for the textile sector was broadened in 2023 to encompass categories such as technical textiles and garments made of man-made fibres (MMF)

The Governments Pradhan Mantri Mega Integrated Textile Regions and Apparel (PM-MITRA) initiative seeks to develop world-class infrastructure. It has identified the sites and earmarked financial assistance for creating textile manufacturing units

The future of the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. India is working on various major initiatives to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on the rise. The government is supporting the sector through funding and machinery sponsoring.

Top players in the sector are achieving sustainability in their products by manufacturing textiles that use natural recyclable materials.

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.

The technical textiles market for automotive textiles is projected to increase to US$ 3.7 billion by 2027, from US$ 2.4 billion in 2020.Similarly, the industrial textiles market is likely to increase at an 8% CAGR from US$ 2 billion in 2020 to US$ 3.3 billion in 2027. The overall Indian textiles market is expected to be worth more than US$ 209 billion by 2029.

4. SEGMENT-WISE PERFORMANCE:

The Company operates only in one segment and the operational results are mentioned elsewhere in this report.

TRADE CONDITIONS

COTTON

As a primary raw material, cotton accounts for a substantial portion of Indias textile production, influencing the sectors overall output and economic viability. The countrys abundant cotton cultivation and favourable climatic conditions ensure a steady domestic supply, fostering self-sufficiency and reducing import dependency. Additionally, cottons versatility allows for diverse applications across the textile value chain, from yarn spinning to fabric weaving. This ensures its crucial role in driving innovation and meeting domestic and global demand for high-quality textiles.

India is the worlds largest cotton producer, accounting for almost~25% of the total cotton production. However, due to erratic rainfall because of the El-Nino effect, Indias cotton production for the2023-24 cotton season (October-September) will be 29.50 million bales, which is the lowest in 15years. Lower cotton output led to considerable volatility in cotton prices and impacted the prospects of the domestic textile industry.

The consumption of imported cotton or the financial year was 75406 in Kgs. The volume of imported cotton consumption for the financial year 2023-24 has decreased by 95.49% as compared to the last financial year.

YARN PRODUCTION

The production volume of yarn has increased to 62.96 Lakhs Kgs during the financial year 2023-24 as against 58.99 Lakhs Kgs of last year.

SALE OF YARN

The Companys focus on new product development, innovation and cost-effective production has started yielding results. The sale volume for the FY 2023-24 of Yarn has increased to 60.09 Lakh Kgs as compared to 52.83 Lakh Kgs of last year, registering a increase of 13.74%. The Company is taking various steps to expand its market presence both in domestic and international markets and hope to achieve higher volume of sales in value added yarns in the forthcoming years.

EXPORTS

The Company has made export of Cotton Yarn (including merchant exports) for a value of Rs.1.40 lakh kgs as against Rs.1.22 lakh kgs of the previous year, registering a increase of 14.75%.

POWERCOST

During the financial year 2023-24, the Company was able to consume power from its own wind farms to the extent of 90% of total power requirement. The power cost has increased during the financial year 2023-24 to Rs.9.28 Crores as compared to Rs.8.80 Crores incurred during previous year due to revision in tariff rates.

FINANCE COST

The Finance cost has increased to Rs.6.81 Crores during the financial year 2023-24 from Rs.5.86 Crores of previous financial year.

5. OUTLOOK:

The coming year will be challenging with respect to pricing. We have to focus more on offering new products and meeting customer retail price points. Overall, the textile market is sombre and expected to take around one quarter to stabilize. Further, we must navigate the challenging period by differentiating ourselves through innovation and quality. The manufacturers, who will be able to address these challenges, while also differentiating themselves through innovation and quality, are likely to be successful in times to come.

We expect that in this challenging period, Government will support the Spinning industry in the form of favorable Textile policies, incentives and other benefits which are of paramount importance for the future growth of the Industry. The Company will continue to perform well in the domestic market. The Company is in the process of implementing several cost saving measures, which will make the product more competitive.

6. RISKS AND CONCERNS:

Risks are integral part of the growth of a business. However, the Company frames the effective risk management which helps to mitigate the risks effectively and ensures business sustainability. The Effective risk management comprises the Standard policy to pass the cost increases with its premium quality, Consciously up-keep of equipment and implementing the cost control methods, Strengthen and widen the customer base with timely supplies.

7. SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

The SEBI LODR (Listing Obligation and disclosure requirements) (Amendment) Regulations, 2018 has mandated that Company should provide detail of Significant Changes in Key Sector Financial ratios. We would like to inform you that in the following key financial ratios, there has been Significant Change as compared to the last year:

8. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has adequate internal control systems and procedures commensurate with its size and nature of its business for the purchase of raw materials, plant and machinery, components and other items and for sale of goods. The adequacy of the internal control system is also periodically reviewed by the Audit Committee.

9. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

The financial performance of the Company has been discussed at length in the directors report to the members.

10. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT :

The Company has good HR Policies for employees in place. The Company provides skill building trainings to employees internally. The hiring of experienced employees from outside is the last priority and first opportunity is provided to employees in line function or cross function as well.

The Management has developed very good cordial Industrial relations and has been able to carry out operations success fully despite continued challenges of market down turn, fierce competition having high input cost by achieving flexibility in operations suitable to the requirements of business.

11. HEALTH AND SAFETY MEASURES :

As a responsible corporate citizen, the Company is fully dedicated to human health and safety. Our factories follow Occupational Health and Safety management standards that integrate occupational health, hygiene and safety responsibilities into everyday business. We give highest priority to our employees health and safety and conduct comprehensive safety inspections and audits at every plant and project sites. At each location, we promote health and safety among all employees and organize different awareness and training programs.

Further, the Company had taken all precautionary and safety measures for its employees during pandemic and continue to ensure all preventive and protective safeguards for all employees against such threats.

12. CAUTIONARY STATEMENT :

Statements made in this report regarding the Companys objectives, projections, expectations and predictions may be forward looking statements under the applicable securities law and regulations. Actual results could differ materially from those expressed or implied. Some of the important factors that could make a difference to the Companys operations include global and domestic demand- supply conditions, finished goods prices, raw material costs and availability, interest rates, fuel prices, fluctuations in exchange rates, changes in government regulations and tax structure, economic developments in the domestic and overseas market and other incidental factors.