Ashima Ltd Management Discussions.


The year 2018 started with encouraging data on global economic growth. But as the year progressed, momentum started fading. Introduction of tighter credit policies in China, the escalation of US-China trade tensions, disruptions in auto sector in Germany and normalization of monetary policy in larger advanced economies are few of the reasons for loss in momentum. According to World Economic Situation and Prospectus 2019, the economic activities are severely disrupted as the global economy is facing convergence risks, which could have major impact on long term development. These risks include escalated trade disputes, tightened global financial conditions, and intensified climate risks. In 2019, the International Monetary Fund (IMF) predicts global growth 3.3% as compared to 3.6% in previous year. Improvements are expected later and global economic growth in 2020 is expected to return to 3.6 percent. The World Trade Organization (WTO) as well as the World Bank and the Organisation for Economic Cooperation and Development have downgraded their projections across trade, equities, currencies and interest rates.


According to IMF, India has transpired as the fastest growing major economy in the world. The country has an impressive growth rate of around 7% and is expected to be one of the top economic powers of the world in next few years with its strong democracy and partnerships. Forecast by the World Bank envisages India’s GDP to grow at 7.3% in 2019 and likely to maintain growth rate for the next two years. It may so be assessed that this growth of India may even reach higher over the years with country’s favorable demographics and continued streamlining of its reform policies.

The domestic demand is likely to be the key driver which gives the economy some protection from global headwinds. With an improving business ecosystem and stable macroeconomic indicators coupled with continued implementation of various reforms is likely to provide impetus to the domestic economy.

Despite these positive aspects, there seems to be various risks to the Indian Economy including ongoing global trade tensions, international crude oil price developments, financial market volatility and populist fiscal measures, etc. They may cause a growth slowdown and trigger inflationary implications. Continued implementation of structural and financial reforms remains essential for the health of economy’s growth prospects.


The Textiles Industry is one of the oldest industry in Indian economy, having a significant role in terms of labour absorption and as a source of foreign exchange. Its contribution towards industrial output is around 7% and towards GDP is around 2%. The industry encompasses entire spectrum of textile products across different fibre- types and varied product segments. The exports from the sector are valued at around $37 billion, amounting to 13% of India’s total exports.

The Indian textile companies however face much higher trade barriers compared to other competing countries like Bangladesh, Vietnam and Pakistan in key markets such as the USA and EU. India’s share in the global textiles exports is just 5%, which is miniscule as compared to China’s share of 38%. Much smaller players like Bangladesh and Vietnam have a share of 3% in global exports and are increasingly threatening India’s exports. The unorganized and small players have major influence within the textile sector in India. The other significant barriers include inflexible labour laws, infrastructure bottlenecks and the fragmented nature of the industry. The sector appears to be gradually recovering due to rupee depreciation, rise in domestic demand and changing policies according to Confederation of Indian Textile Industry.


The Company has reported improved financial performance during the year under review. On the operational front, all the divisions witnessed considerable growth in the business volumes. Various initiatives undertaken by the company over last couple of years on strengthening its manufacturing facilities and marketing setup have

resulted into the volume growth, however the shift towards higher value-added products and its consequent positive impact on margins is likely to happen over a longer period. The margins have remained under pressure during the year, reflecting stiff competition in the sector. At the same time, better controls have been exercised over the operational costs which have reduced in spite of increase in power tariff and inflationary impact on various other cost components. Overall, higher volumes coupled with better control over costs has translated into reduced losses. The finance costs have also reduced consequent to deployment of the resources mobilized through disposing off the surplus assets towards repayment of its borrowings and better working capital management.

The improvement in performance is visible across all product segments. Going forward, the business situation still remains very challenging as liquidity crunch and pricing pressure have become more acute. The domestic markets are vying for higher trade credits which the company is quite averse to. On the exports front, a tough competition from neighbouring countries has posed increasing pressure on fabric prices. There is severe competition from countries in the sub-continent like Bangladesh, Sri Lanka and Pakistan. All three countries enjoy duty free access to European markets under GSP Plus trade mechanism, unlike India.


The company is predominantly a textiles manufacturing company and operates only in the textiles segment. Based on its product profile, there are various divisions within the company and their operating performance during the year is discussed hereinbelow:

Denim Division: The division has been able to increase the volumes further during the year. Majority of the higher volumes were on the backdrop of higher penetration into the domestic brand segment. The export market remained lackluster on account of stiff pricing pressure and impact of fiscal policy on volumes being exported to neighbouring countries. Greater flexibility in offering the product range upon upgradation of manufacturing facilities carried out over last couple of years has enabled the division to enhance its product profile and better spread in terms of market reach. However, tough competition prevailing in the sector and inherent cost-inefficiency related to its manufacturing set-up makes it difficult to improve the margin which remained under pressure for various reasons including firmed up yarn prices and impact of increase in power tariff and fuel costs. The yarn prices for the coarser counts firmed up during the year and prices of indigo dyes jumped sharply. On the cost front, the increase in power tariff and fuel prices had an adverse impact on the variable costs. However, the division exercised better controls on other operational costs including product and process optimization and kept overall costs under control. Manpower costs and insurance costs were also kept under check thorough effective measures. Division has been able to improve its bottom-line, though not significantly, on account of combined effect of all such measures.

Spinfab Division: Volume growth for the Spinfab division has been quite impressive over last 2 years, business with brand segment and large format stores contributing to the volume push. The division is better equipped to handle diverse and smaller production lots quite efficiently consequent to improvement in its manufacturing capabilities over last 2 years. However, impact of cost increases could not be passed on in the market due to demand-supply variables resulting into increased pressure on the margins. Yarn prices as well as prices of dyes and chemicals remained higher during the year. Utility costs including power and fuel also went up. The negative impact of the same has been aptly offset by measures undertaken on attaining cost efficiencies and effective control on the overheads.

Brand business and others: Overall profitability of brand and other business has also moved up, riding high mainly on account of increased volumes both in the piece-dyed as well as the retail segment. Improved value addition and contributions levels have an overall positive impact on the performance of the division.


Financial performance:

The company has reported a profit of 1776 lacs for the year at PBT level compared to 12587 lacs in the preceding year. The performance for the year includes 3236 lacs (last year 14540 lacs) being an exceptional and extraordinary item which mainly includes gain on account of sale of surplus land by the company. The operational performance, excluding impact of such exceptional item, has improved during the year and the loss at PBT level has reduced to 1100 lacs (arrived at after adjusting reported PBT for non-recurring expenses (net) of 359 lacs) compared to loss of 1910 lacs in the preceding year (adjusted for non-recurring expenses

(net) of 43 lacs). Upon prudent utilization of proceeds from sale of surplus assets, the interest cost for the year reduced further by 261 lacs and contributed positively to the profitability.

Raw material:

Raw Material prices have been tightening over last couple of years and have remained higher this year also on account of lower cotton crop estimates and increased global demand. Unlike last year, when the impact was more on coarser counts, prices of coarser as well as finer counts have also moved up considerably during the year. At the same time, the market situation makes it difficult for the company to pass on such increase entirely by way of higher product prices and hence there is an adverse impact on the value addition levels.

Dyes and Chemicals:

Prices of a few basic chemicals as well as dyes increased sharply during the year on account of closure of factories in China on environmental issues. This posed a major challenge in terms of its impact on the costs. The company follows a continuous approach to develop sustainable alternatives and consumption efficiency, however a sharp rise in the costs have an adverse impact in the short-run.


Electricity costs, which is one of the major component of energy costs, increased significantly during the year whereas increase in the cost of fuel was moderate. Earlier, the company was able to source power through open access platform, however the same has become unviable since last year due to increased levies thereon. The company takes various energy conservation measures on a regular basis to achieve better energy efficiency. For the fuel, the company has already switched over to higher GCV coal so as to optimize steam generation cost. Other expenses:

Due to overall volumes going up, other manufacturing expenses have also increased which mainly consist of fabric processing charges. Expenditure on stores/spares consumption and repairs has remained under control in spite of ageing plant and machinery. Expenditure towards insurance premium reduced considerably during the year as company could negotiate better discounts, however the premiums are likely to go up multifold in coming year consequent to policy stance taken by the insurance companies to discontinue discounts across a number of manufacturing sectors including Textiles. The Company has also exercised good control on various fixed costs by effectively using a range of cost-management initiatives.


The Company has used the resources mobilized through disposing off the surplus assets towards repayment of its borrowings and towards better working capital management. As a result, the interest costs have reduced for the year under review.

Significant Changes in Financial Ratios:

Sr. No. Financial Ratio FY 2018-19 FY 2017-18 Change in % Reason for change
1 Debtors Turnover 14.19 19.47 -27.15% Change in ratio is due to higher level of debtors, which is a commercial aspect driven by market forces prevailing in the industry.
2 Current Ratio 2.71 1.38 96.21% The ratio has improved due to strengthened working capital cycle upon deployment of surplus liquidity available.
3 Debt Equity Ratio 0.12 0.17 27.98% The Company has negligible debt and the ratio has improved due to strong net worth and lower debt upon repayment of loans.
4 Operating Profit Margin -3.75% -5.65% 33.56% Improved as a result of focussed efforts to improve performance by strengthening working capital cycle.
5 Net Profit Margin -5.14% -8.49% 39.50% Improved as a result of focussed efforts to improve performance by strengthening working capital cycle and lower interest due to repayment of loans.
6 Return on Net Worth -8.20% -12.19% 32.72% Improved due to factors explained in point 5 above.


After a broad-based upswing in cyclical growth that lasted nearly two years, the global economic expansion decelerated. Global growth is moderating as industrial activity and trade decelerate, negatively impacting investor sentiment. Going forward, a pickup is expected and this pickup is supported by significant policy accommodation by major economies, made possible by the absence of inflationary pressures. According to United Nations World Economic Situation and Prospects (WESP) 2019 report, the Global economy will pick up its pace around 3% in the coming year. Inflation has been contained remarkably, fiscal consolidation is on the right path and foreign investment flows are growing. The macro-economic environment has also improved significantly during the last few years. The RBI appears confident that the domestic economic recovery is well entrenched with various indicators suggesting that economic activity has continued to be strong.

It is not likely that the world will go into a recession despite a weaker global growth outlook. However, markets will struggle for a stable footing until better economic data emerges from the major economies.

The company is poised well to take advantage of improving business scenario. Efforts put in by the company in terms of its improved capabilities have shown results and company has been able to penetrate into various market segments and achieve volume growth. A gradual shift from unorganized to organized sector in the textile industry is expected to benefit organized players like our Company in the long run. At the same time, there is continued overcapacity in Denim Fabric Manufacturing Sector in the country, resulting in severe price war in the market. Moreover, as a management philosophy, Ashima is averse to extending longer credit period to the customers without proper due diligence. However, the new entrants in the market who have recently set up brand new manufacturing units are extending long credits on easy payment terms to the customers/brands or their garment convertors and succumb to unreasonable price pressure in order to grab the market share and thereby spoiling the trade segment. In fact, the company is experiencing an ever- increasing demand for extended credit period even from the reputed brands / retail stores or their nominated garment convertors. The changed trade dynamics like stretched credit requirement are however likely to continue posing a serious challenge. Addressing the working capital stress and balancing the same with market trends and the risk appetite of the company would be a delicate task to be achieved in the times to come.


The company has been prudently deputing its resources towards improving health of its textile operations by a mix of measures in terms of debt reduction, capital investments and working capital investments over last few years. The exercise is likely to continue going forward and will enable it achieve better financial health.


During last couple of years, the company has focused on improving its manufacturing and technological capabilities. With the financial reforms likely to add impetus to industry growth and likelihood of stable political environment, the domestic market should pose better opportunities in terms of volume growth. Recent policy changes in terms of improved export incentives and a favourable foreign exchange rates are likely to help the company in achieving higher export volumes.


Improved financial liquidity in the economy as a whole and in the textiles sector in particular would be a key concern for the company to achieve higher volumes coupled with improved margins. For the exports segment, stable foreign exchange regime would provide the much-required stimulus to accelerate the export market.


The internal control systems of the company have been commensurate with the size and nature of its business activities. The company keeps on strengthening the system based on its requirement in terms of changes in its financial and marketing policies. The Audit Committee, supervises the functioning on a regular basis and reviews the adequacy and effectiveness on an ongoing basis.


Continued improvement in the products and processes adopted by the company is one of the basic area of emphasis in terms of company’s management policy. This helps achieve operational efficiencies over the period and equips the company in terms of product and process innovations as well as better cost management.


Human resources are the backbone and centre-stage in terms of company’s philosophy. The company considers the manpower as a key variable in achieving its deliverables and ensures that safe and comfortable working conditions as well as motivating and conducive environment is always maintained to provide the essential platform for them to perform. Regarding environmental impact of its operations, the company is always vigilant and more than complies with all stipulated norms.


Statements in the Board’s Report and the management discussion and analysis containing the objectives, expectations or predictions of the company may be forward-looking within the meaning of securities laws and regulations. Actual results may differ materially from those expressed in the statement. The operations of the Company could be influenced by various factors such as domestic and global demand and supply conditions affecting sales volumes and selling prices of finished goods, input availability and cost, government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

For and on behalf of the Board
Chintan N. Parikh
Place : Ahmedabad Chairman and Managing Director
Date : May 25, 2019 (DIN:00155225)