Ashapura Intimates Fashion Ltd Management Discussions.

ECONOMIC OVERVIEW

In 2017, improved cyclical conditions continued to strengthen are now being reflected in commodity markets and labour markets and the global economy witnessed a pickup in growth.

Global GDP growth is estimated to have been 3.7% in 2017, the strongest outcome since 2011, and similarly, key emerging markets and developing economies including the Euro area, China, Turkey, Brazil, posted strong upward momentum.

Industrial production, investment and trade growth have bounced back with global trade growth reaching an estimated 5.25% in 2017. Given stronger than expected economic activity in 2017, the International Monetary Fund has revised its growth forecast for the United States from 2.3% to 2.7% in 2018 and from 1.9% to 2.5% in 2019. In Europe too, economic activity in 2018 and 2019 is projected to remain stronger than anticipated. Moreover, the advanced economies in Asia are expected to deliver stronger growth, while the emerging and developing ones are expected to grow at around 6.5% over 2018-19, broadly the same pace as in 2017-18.

On the domestic front, the year 2017 was marked by a number of key structural initiatives to build strength across macro-economic parameters for sustainable growth in the future. The gross domestic product growth was 6.5% in 2017-18, which was better than FY 2016-17. The structural reform of the Goods and Services Tax (GST) within a year of demonetization is expected to provide a boost to the economic growth and investments in the long run.

With an improving business ecosystem, stable macroeconomic indicators and a liberal FDI regime, foreign capital inflow has provided impetus to the domestic economy. According to the World Banks Global Economic Prospects report, Indias GDP is expected to rise to 7.4% in FY 2018-19 and 7.8% in FY 2019-20.

GLOBAL TEXTILE AND APPAREL INDUSTRY

The global textile and clothing business is estimated at approximately US$ 800 billion. The Asia Pacific accounted for 60.7% of the global textile business. While the apparel industry is largely dominated by the European Union and the US, countries like China, India and Italy are emerging as key exporters of apparel and as future destinations for consumption.

GROWTH DRIVERS

In 2017, the global apparel market was estimated at US$ 1.7 trillion - 2% of the global GDP of US$ 73.5 trillion. Growing disposable income in developing countries is expected to increase apparel consumption. Global apparel consumption could increase from US$ 1.7 trillion in 2016 to US$ 2.6 trillion by 2025.

China and India leveraged their human capital base and raw material availability to emerge as promising textile markets. China has dominated global textile trade for the last two decades with a >40% share. The high domestic demand and increasing wages could slow textiles exports from China, creating a market opportunity and benefiting countries with a cost advantage.

The global trade in the apparel segment is expected to grow at a CAGR of 5% and the global textiles trade is projected to grow at a CAGR of 3% over 2016-26. Fabric is expected to lead the category, followed by yarns and fibre.

However, some weaknesses seen at the Global front are as follows:

• Severe downstream competition due to e-commerce;

• Rapidly changing customer behavior;

• Volatile raw material prices;

• Increasing wages.

INDIAN TEXTILE AND APPAREL INDUSTRY

The Indian Textile industry is among the oldest in the country and the year 2017 has turned out to be a mixed blessing for the Indian Textile industry. The Indian textiles industry, currently estimated at approximately US$ 120 billion, is expected to reach approximately US$ 230 billion by 2020 according to IBEF. Currently, the domestic textiles industry contributes 10% to the manufacturing output of the country, generates about 4% to its GDP and employs more than 45 million people. Moreover the sector contributes 15% to the export earnings of India.

Exports have been a core feature of Indias textile sector. The Indian textiles export market, estimated at 18$ billion is expected to grow at a CAGR of 4% compared to the global CAGR of 3% over 2016-26.

The Indian apparel segment is worth and estimated US$ 50 billion in 2017 and forecasted to reach US$ 104 billion by

2027 With an estimated CAGR of 7.7% in this period for the segment, India is one of the most attractive destinations for brands and retailers.

The Indian apparel market can be broadly classified into menswear, womens wear and kids wear. Currently, menswear holds major share in the apparel business, accounting for 42% of the total market. Womens wear contributes almost 38%, while kids wear constitutes 20% of the apparel market.

The Indian apparel industry, which is the second largest contributor in retail after food and grocery, is also witnessing major shifts.

During the year, the Company has focused on rapid expansion across all channels specially Multi Brand Outlets (MBOs), Large Format Stores (LFS) and Exclusive Brand Outlets (EBO). With the phenomenal success that the Company has received in its flagship "Valentine" brand, which has primarily focused on the women category, the Company has taken a bold step to enter into the US$ 25 billion Menswear market in India with its brand "TRICCI", ideated to bring a dedicated brand for menswear and boys wear in India. The brand "TRICCI" will ensure superior quality and fashionable styles to meet the evolving tastes of todays men and boys. The same distribution network would be used to offer a new segment of apparels.

The Company has been focusing on product innovations to stay relevant to the changing consumer preferences. In the last couple of years, it has launched many innovative products such as Lounge Wear, Night Wear, Inner Wear, Sports Wear and Airport Wear.

Ecommerce is an emerging and fast growing channel in the country and your Company is well placed to lead category growth in this channel. The Company ventured into the E-commerce channel through www.valentienclothes.com for distributing directly to the consumers.

By 2020, India is expected to generate $100 billion online retail revenue out of which $35 billion will be through fashion e-commerce. Online apparel sales are set to grow three times in coming years.

Your Company has developed a comprehensive e-commerce strategy and execution roadmap, and has a team in place to drive disproportionate growth in this channel in the coming years. It has further tied up with various leading online retailers to increase the reach of the product to entire country.

RISK AND CONCERN

The Company has robust risk management procedures to identify and evaluate risks on an ongoing basis. The identified risks are integrated into the business plan and a detailed action plan to mitigate the identified business risk and concerns is put in place.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Details of internal control systems are given in the Directors Report.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company believes that the quality of the employees is the key to its success and believes in its contribution to the all round growth of the Company. Your Company takes steps, from time to time, to upgrade and enhance the quality of this asset and strives to maintain it in agile and responsive form. Your Company is confident that its Human Capital will effectively contribute to the long term value enhancement of the organization.

Your Directors further state that during the year under review, there were no cases filed pursuant to the Sexual harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

FORWARD LOOKING STATEMENTS

Statement in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factors.

CONCLUSION

The Indian fashion retail industry encompasses a plethora of opportunities. However, successfully identifying and tapping these opportunities requires a holistic understanding of the industry, starting from fibre-to-fashion retail. It requires effective management of various functions such as sales, marketing, merchandising, and category management. This requires a dynamic management and team who can continuously adapt to cater to the evolving needs of this market.

With the latest technology and ERP software, we have achieved complete integration in our operations focusing on better inventory management. Your Company will continue to focus on adopting industry best practices while increasing market share and satisfying our customers.