Amit Spinning Industries Ltd Management Discussions.

The management of Girnar Spentex Industries Limited (formerly known as Amit Spinning Industries Limited) presents the analysis of business performance of the company for the year 2019-20 and its outlook for the future. This outlook is based on assessment of the current business environment. It may vary due to future economic and other developments.

1. TEXTILE INDUSTRY STRUCTURE

The textile industry in India is one of the worlds largest, with estimated market size of US$ 11.92 billion in FY20 (up to July 2019). Textile industry plays a significant role in the economy contributing to over 13% of the industrial output and 15% to the export earnings in FY19. The industry is closely linked and dependent on the agriculture sector in order to source raw materials such as cotton. Since both agriculture and textile are correlated and coexist the textile is one of the parameters for determining growth in the Indian economy.

The Covid-19 pandemic has majorly impacted domestic market with declining sales volume. Additionally, domestic consumption has weakened due to nation-wide closure. The impact of lower exports would result in domestic inventory accumulation which will result in lowering the prices and margins in Indian market. Various Textile Associations have approached the Government for a relief packages for the textile sector to mitigate the scenario.

2. OPPORTUNITIES AND THREATS Opportunities

Indias textile sector is aided by several key advantages in terms of availability of various raw materials, entrepreneurial skills, large domestic market presence of supporting industries and supporting policy initiatives of the Government.

Threats

Domestic cotton spinning industry is highly dependent on exports. Nearly 30% of the exports is to China. COVID Pandemic has impacted the exports to China. Further lockdowns have resulted in shutdown of production units in the country.

Domestic cotton prices have decreased as compared to cotton prices in FY 2018-19. This was mainly due to fall in international cotton prices. The cotton prices were volatile and ruled higher as compared to yarn price. Cotton yarn prices did not correspond positively, resulting in pressure on spinners margins.

Further the major challenge is to get available consistent and low rate power supply. Since the textile industry is mainly dependent on Power, the price of energy in Maharashtra is one of the major issues faced by the Industry. Another challenge is to manage labour turnover and labour immigration.

3. SEGMENTS WISE PERFORMANCE

The company operates in only one segment i.e. Spinning Mill Segment.

4. PRESENT SCENARIO AND OUTLOOK

Trial production commenced in the month of May 2019. Company commenced commercial production in the month of October 2019. Company could achieve turnover of Rs. 39.46 Crores during the six months ended 31-03-2020. Sales are expected to be achieved with the same pace. However it is expected to be a tough year for the textile industry and major focus shall be on cost cutting measures, improving productivity, reduction in wastage and efforts on taking quality to next level and deriving efficiency to make products further cost competitive. Further, it is proposed to make the production processes and supply chains it lean and agile and focus will be on giving improved services to customers to retain market share.

5. RISK MANAGEMENT

The Company recognises that risk is inherent in every business activity. However, managing it with efficacy is vital in order to achieve strategic objectives and long-term sustainable growth. The major risk areas are periodically and systematically reviewed by the management and risk management committee. Some of the major risks have been entailed below:

STRATEGIC RISK PROBABLE IMPACT MITIGATION STRATEGY
Economic Risk Global lockdowns and Slowdown could impact demand and revenue Cost cutting measures being implemented rigourously
Cost Risk Volatility in raw material costs could impact overall cost of production Holding sufficient inventory to protect itself from short term spikes
Competition Risk Losing market share > Continuous focus on quality
> Providing end to end services to customers.
Credit Risk Failure to make timely payments, or the credit rating or risk profile otherwise deteriorates > Strengthening credit control
> Effective collection strategy
Labour Immigration Risk Stoppage in production Impacts quality of production > Retaining labour with facilities for stay
> Strategies for maintaining cordial relations

6. HUMAN RESOURCE MANAGEMENT

The management has cordial and harmonious relations with its employees. It considers manpower as its assets and that the people had been the driving force for the growth of the company. The Companys HR policy aim to develop and train each individual to perform to his fullest capacity, achieving individual excellence and at the same time achieving the Companys Goals. The shortage of man power due to immigration in the COVID Pandemic has become a severe problem and efforts have been taken to mitigate the same.

7. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Companys well-articulated internal control systems ensure the achievement of its operational, compliance and reporting objectives. It has adequate policies and procedures in place, for its current size as well as the future growing needs. These policies and procedures play a pivotal role in the deployment of internal controls. They are regularly reviewed to ensure both, relevance and comprehensiveness, and compliance is ingrained into the management review process. The audit committee regularly reviews the adequacy of controls of the key processes. It makes note of the audit observations and takes corrective actions, if necessary. It maintains a constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively.

8. KEY FINANCIAL PARAMETERS (Rs. Crores)

Ratio Formula 2019-20 (Working) 2018-19 (Working) 2019-20 Ratio 2018-19 Ratio
Debtors Turnover Ratio* Net Credit sales 3946.45 - 28.30
Average Accounts Receivable 139.42
Inventory Turnover Ratio Cost of goods sold 2700.57 - 5.70
Average Inventory 473.57 -
Interest Coverage Ratio** Earning Before Interest & Taxes (EBIT) 141.45 34.25
Interest expenses 4.13 -
Current Ratio Current assets 968.84 237.85 0.51 0.07
Current Liabilities 1898.49 3640.41
Debt Equity ratio Total liabilities 8617.29 95869.96 4.19 NA
Total shareholders Equity 2058.48 (83126.95)
Operating Profit margin (%)*** Operating Income 141.45 - 0.04
Sales Revenue 3946.45 -
Net Profit Margin (%)**** Net profit (983.27) - (0.25) -
Revenue 3946.45 -
Return on Net Worth Net Income (2198.27) - NA NA
Shareholders Equity (85304.12) -

*** Since Commercial Production started in year 19-20, there is huge variation in the ratios.

9. CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis relating to the Companys objectives, projections, estimates, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of future events. Actual results might differ materially from those expressed or implied depending upon factors such as climatic conditions, global and domestic demand-supply conditions, raw materials cost, availability and prices of finished goods, foreign exchange market movements, changes in government regulations, tax structure, economic and political developments within India and the countries where the Company conducts its business and other factors such as litigation and industrial relations. The Company assumes no responsibility in respect of forward-looking statements herein which may undergo changes in future based on subsequent developments, information or events.

In view of the losses return on net worth is negative hence no reason for change in return on net worth is given.