Ashima Ltd Management Discussions.


The Global economy suffered a major slowdown in the year 2019 and the growth remained subdued. It has been a challenging year and there were number of inter-related and inter-connected factors which influenced the state of economy. Global trade disputes and geopolitical tensions were the major factors to dampen the economic growth. Commodity market including crude oil remained volatile during the year having impact on inflation and purchasing power which adversely affect the household income and consumer spending. According to the IMF, if the trade war between US and China escalates then it has the potential to wipe-off approximately 0.5% of the global economy with its adverse effect on business confidence, asset prices, investments and global supply chain. The manufacturing sector will continue to be adversely affected by international trade tensions, the economic slowdown in China, and elevated policy uncertainty, including overtheexit of the United Kingdom of Great Britain and Northern Ireland from the European Union. But as Central Banks responded by easing monetary policy, global liquidity conditions remained highly accommodative. Across the developed economies, the growth momentum has slowed considerably since mid-2018. In 2019, global GDP growth slowed down to 2.4%, from 3.0% a year earlier.

Any expectation of better growth in 2020 was squashed due to outbreak of the novel corona virus (COVID-19). The COVID-19 pandemic has caused havoc not only nationally but internationally as well. It has triggered unprecedented restrictions not only on the movement of people but also on a range of economic activities. The adverse effects of prolonged restrictions on economic activities in developed economies will soon spill over to developing countries via trade and investment channels. With this the world economy has come to a grinding halt and the economic fallout would be enormous in terms of loss in production, income, and employment. This pandemic has triggered the deepest global recession in decades. Before the outbreak of COVID-19, world output was expected to expand at a modest pace of 2.5 % in 2020, as per report of World Economic Situation and Prospects 2020. Now, as a result of the pandemic, the baseline forecast envisions a sharp 5.2% contraction in global GDP in 2020. At the same time, the IMF projects that, if COVID-19 is brought under control by the second half of 2020, global economic growth could jump to 5.8% in 2021, as movement restrictions ease and economic normalization starts to take place with the help of strong policy support.


India has also witnessed economic slowdown in 2019, with the countrys manufacturing sectors and overall consumption demand facing a serious and constant decline. The main reasons attributed to the fall in the GDP growth rate were - contracted manufacturing activity, weakened investments, and lessened consumption demand. Key factors like credit crunch in the financial markets, subdued exports due to unhealthy world trading pattern, declined consumer consumption and unemployment also contributed to the slowdown to the economy. Private consumption expenditure and gross fixed capital formation have been impacted to a great extent in the continuing economic slowdown. The Government of India has started taking several initiatives across sectors to improve the overall economic condition in the country.

The economic impact of the 2020 corona virus pandemic in India has also been largely disruptive. Indias growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics. The likely duration, intensity and spread of the coronavirus has brought in increased uncertainty to the global and domestic economic outlook. Indias economic activity came to a standstill driven by the lockdown enforced to save nations vast population from inevitable health risk. Complete lockdown of the country was unparalleled to any disruption experienced in the past several decades. It is feared that COVID-19 would leave a deep cut in economy and corporate financials. Like its counterparts across the globe, the Indian government has announced a slew of measures to prevent total collapse. Indias economic growth has the potential to bounce back once the COVID-19 pandemic settles. In the short term, significant monetary and liquidity measures taken by the RBI and fiscal measures taken by the Government are expected to mitigate the adverse impact of COVID-19 on domestic demand and help spur economic activity once normalcy is restored. IMF projects sharp contraction of 4.5% in Indian economy in 2020 which is a historic low.


The textiles industry is one of the largest contributors to the Indian Economy in terms of income generation and employment provider. It also contributes almost 11% of the total exports of the country.

However, on account of Covid-19 impact, the industry is adversely affected by way of disruption in labour supply, raw material unavailability, working capital constraints and restricted demand due to limited movement of people and their purchasing ability. With the total disruption in workflow and production schedule, the industry is facing its worst-ever crisis. There is a real possibility that the crisis will result in bankruptcy for some manufacturers, as declining demand, production and revenues, along with debt obligations, take their cumulative toll.


The Company has reported improvement in its operational financial performance during the year under review. Economic slowdown has hit the company hard in terms of its business volumes and as a result its divisions have witnessed considerable reduction in production and sales volumes. At the same time, the company has continued its efforts on enhancing its product profile and customer segments which have helped it improve upon the margins. Over last few years, the company has invested into its operational capabilities targeted towards value-added products and has taken various initiatives to strengthen its manufacturing facilities and marketing setup. These steps have helped the company off-set the adverse impact of lower volumes to some extent. Moreover, the companys focus continues to remain on better controls over the operational costs as a continuing mission and its results are visible in terms of reduced costs across most expense heads.

The company has also tightened its controls over the working capital cycle and reduced the level of current assets considerably, thereby having a positive impact on the finance costs. The finance costs have also reduced on account of interest subsidy income for investments made under the government textile policy.

The results for the year also include financials of Ashima Dyecot Pvt Limited (ADPL), a group company that got merged with the Company. ADPL is engaged in the business of processing textile fabrics and manufacture of readymade garments and it also has a presence in the retail market through its chain of stores under the brand name Frank Jefferson. The appointed date of the merger is April 1,2019 and the effective date of the merger is July 29, 2020. The previous years figures have also been recast to make them comparable.


Textiles is the sole segment in which the company operates. Within Textiles, the company has various divisions based on its product profile. Such division-wise performance during the year is discussed hereinbelow:

Denim Division: Reeling under the slowdown in the industry as well as owing to impact of lockdown during the fag end of the year, the volumes for the division have reduced during the year. The reduction is however limited to domestic brand and distributor segment. On the other hand, business with garment exporters as well as physical exports have gained volumes with innovative product developments with the help of new rope dyeing facility. Denim fabrics continue to remain in fashion world over however manufacturing capacities have surpassed the demands and therefore the markets have become highly price sensitive. Though pricing pressure continues across product varieties and markets, companys flexibility in offering product range upon upgraded manufacturing facilities have strengthened its pricing capabilities and the company has been able to provide cost effective product developments and improve upon the margins across almost all market segments. The economic slowdown also had an impact of softening the prices of inputs which also helped the company navigating the tough market conditions. The division also continues to keep a close vigil on all of its operational costs including fixed costs by way of optimizing products and processes. This has helped reduce the fixed costs across all the heads. Overall, the operational profitability for the division has improved during the year, though not significantly.

Spinfab Division: Cotton yam dyed fabrics have been facing tough market situation with the shelf space being partly taken up by prints, linen and other fancy shirting products. Over the last few years, the company has been able to strengthen its position with brands and large format stores. As a result, though most of the brands suffered severe slowdown in their seasonal sales volumes across the country, the company could shield itself from its adverse impact to a great extent. However, the business with distributor and garment exporter segments took a hit and have reduced considerably during the year. Most of the exporters have been citing cuts in order quantities across majority of international brands resulting from lower demand and adopting a cautious approach. A lot of orders were lost to China fabric- Bangladesh garmenting route owing to cheaper prices as well as import duty advantages. Several Domestic brands as well as large format stores have also started diverting volumes of standard products to Bangladesh owing to duty free imports. This has pushed down the overall volumes for the division. The distribution segment which helps to make up the quantities in quarters of lower volumes has become unviable due to very low prices, long credit terms and lower minimums per design. Therefore, the division put more efforts in the large format stores segment which was the fastest growing segment in the domestic market and could achieve higher volumes in that segment. At the same time, ongoing pressure on prices limited its ability to improve upon the margins. Further, in spite of lower volumes, the division has been able to keep its operational costs under the check and has also maintained strict controls over its fixed costs which have reduced across major heads. The tighter controls over the costs have helped the division offset the impact of reduced volumes and keep the bottom-line almost unaffected.

Dyecot Division: The fabric processing division has reported improved profitability though the volumes and capacity utilisation suffered on account of turbulent market conditions. Overall business sentiment was not positive particularly from Indian Domestic market, especially during the second half of the year, leading to sharp reduction in orders. There was also a conscious decision to reduce stake with a few customers in line with corporate policy of observing prudent financial discipline. Though swift efforts were taken for introducing new customers and many new customers were added, a typical business cycle requires a longer lead time and initial volumes are smaller. The division keeps on working on new and value-added products on a continuous basis and could make deeper inroads with few of the existing customers by offering such products. This exercise also helped it improve margins with the existing set of customers. The variable and fixed costs remained well within the control and helped improve the bottom-line.

Garment Division: The division has reported subdued performance during the year. Sale volumes have been maintained however value addition per unit has significantly dropped, both in case of export business as well as for domestic business. Owing to the price as well as duty advantages some of the long-standing high value-addition customers shifted their large programs to places like Madagascar and Bangladesh. A few of other export customers lost their market position. As a result we lost significant business with some of the niche customers. We could however restore the volumes by focusing more on UK, Europe and Middle-East markets and grew our presence there. In domestic markets, owing to the prevailing conditions of lower liquidity and drop in sales, the brands lowered their retail prices and were looking for cheaper alternatives. Many of the brands shifted to Bangladesh market. Since it was not viable to offer such lower prices, we lost the volumes from a few of our reputed customers. At the same time, we have been able to develop alternative customers and that helped to maintain the volumes to some extent. Variable as well as fixed costs remained under control and helped arrest the loss in profitability.

Brand business and others: Overall profitability of brand and other businesses has moved up. Though there were some improvement in branded volumes, profitability has improved primarily on account of other income resulting from government subsidy and interest income on loans.


Financial performance:

The company has reported a loss of Rs 339 lacs for the year at PBT level compared to profit of Rs 3,278 lacs in the preceding year. However, the performance for the previous year includes Rs 3,236 lacs being an exceptional and extraordinary item mainly related to gain on account of sale of surplus land, excluding which, the profit for previous year at PBT level works out to Rs 42 lacs. Last years financials also include a very high level of interest income in ADPL. Moreover, during the current year, the company has also made provisions towards impairment of current assets taking a conservative view of adverse impact that Covid-19 situation may have going forward. The operational performance for the year, excluding such non-recurring items, has improved considerably.

Raw material:

The raw material prices, especially for cotton and yarn, have tendency to move in synchronization with the global factors and hence they have softened during the year on account of economic slowdown. During the previous year, the prices for both coarser as well as finer counts had moved up considerably. Though the prices of finished products are directly linked to the prevailing raw material prices and hence changes therein are passed on to the customers, the reducing trend in the raw material prices during the current year helped the company improve upon its margins to some extent.

Dyes and Chemicals:

Prices of a few basic chemicals, which increased sharply during the previous year on account of closure of factories in China on environmental issues, have come down during the year. The prices of Indigo dyes, one of the major components for denim division, have also softened during the year. The company continues its efforts to keep on improving the processes and recipes as well as to develop alternatives in order to optimize the chemical costs.


Energy costs are very significant for the company and the company has very little control over their prices. The electricity rates have increased during the year, though moderately. In terms of the fuel costs, the company undertook a targeted approach to introduce more vendors and getting into some financial structuring, which has helped it reduce the cost of fuel. During the year, the company replaced 2 old boilers with a higher-capacity state-of-the-art new steam boiler which has also helped reduce the cost of overall steam generation. After a break of a few years, the pricing on power exchanges have turned little positive and hence the company has again started to source power through open access platform during the later part of the year. The savings are however very minimal and only for a part of the year.

Other expenses:

Other manufacturing expenses have reduced for all type of expense items, barring a few, on account of reduced volumes as well as effective controls. In spite of ageing plant and machinery, the stores/spares consumption as well as repairs expenses have also gone down. During the year, insurance premiums for all textile companies increased many-fold consequent to policy stance taken by the insurance companies to discontinue discounts across a number of manufacturing sectors including Textiles. The company was however able to mitigate its adverse impact to a great extent by reviewing and rationalizing insurance coverage across all asset class. Most of the fixed costs have also remained lower than last year on account of various policy measures and initiatives adopted by the company.


Interest costs have reduced considerably during the year mainly on account of interest subsidy received by the company with regard to the investments made under Gujarat Textile Policy. Reduced volumes coupled with appropriate working capital management has also helped company to keep finance costs low.

Significant Changes in Financial Ratios:

. Financial ratio



FY 2019-20 FY 2018-19 FY 2019-20 FY 2018-19
1 Operating Profit Margin % -0.80% 2.39% -0.80% 2.34%
2 Net Profit Margin % -1.51% 0.02% -1.51% -0.02%
3 Return on Net Worth -1.94% 0.03% -1.91% -0.03%

Operating profit margin, net profit margin and return on net worth have marginally declined due to higher interest income in the previous year, as the entity had deployed surplus funds, which were subsequently deployed in working capital during the current year. In fact, business performance has improved over the previous year despite provisioning for inventory and trade receivable due to probable impact of Covid-19.


Outbreak of the Covid-19 pandemic during the later part of the year is likely to alter the business scenario significantly going forward. The year under review already witnessed impact of global slowdown consequent upon international trade disputes and geopolitical tensions. The pandemic is surely going to change the things for worse and its signs have already started becoming visible. The nationwide lockdown of about 10 weeks between March 2020 to May 2020 and substantial restrictions on movements have already disrupted manufacturing operations and adversely affected operational performance of the company, which would be more profoundly reflected in financials of next year.

The company is putting emphasis on niche products, innovative finishes and improving service levels to counter the impact of large number of organized and decentralized capacities that have come up over last few years. Moreover, the pandemic effect is likely to lower raw material prices which should help the company in pricing. With the merger of Ashima Dyecot Pvt Limited with the Company, we are also looking forward to developing markets for both denim and shirting divisions through the full package route of offering garments with quicker turnaround times and niche products at garment stage. This will help increase the volumes and would also give longer visibility of demands to the fabric divisions.

Management has already taken measures to contain the adverse impact by way of optimizing plant operations, cashflow and liquidity management and effective cost management. The business situation is likely to remain very challenging in times to come. The focus will also shift to ensure adequate risk management in light of volatile and uncertain economic scenario.


Resource optimization is a focused area for the company and efforts are made to deploy the resources prudently. Company has already taken initiatives in terms of debt reduction, capital investments and working capital enhancements over last few years. Current scenario will require further attention in all these areas so as to ensure better financial health.


Company is equipped with improved manufacturing and technological capabilities. The global trade disputes and the post-pandemic scenario is likely to bring about new business opportunities in domestic as well as international markets. Stable currency rates and favourable economic policies can help company get higher business volumes from newer segments.


Financial health of the textile sector will play a major role going forward. The current uncertain business environment can pose an enhanced risk in terms of timely liquidity and financial soundness of the business partners. Company will need to increase its level of transaction validations processes to ensure that risks are minimized.


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. Company has in place proper control systems. Scope of the Audit committee is also reviewed periodically to ensure that adequate and effective systems remain in place.


The company keeps on focusing its efforts towards improvement in the products and processes on an on-going basis. This has a positive impact on operational efficiencies, product profile as well as on efficient cost management.


The company considers its human resources as one of the most important assets and as a key variable in achieving its deliverables. Providing them with a safe and comfortable working environment remains a top priority for the Company. Company ensures that a motivating and conducive working condition is maintained to provide the essential platform for them to perform. The company regularly complies with all stipulated environmental and safety norms.


Statements in the Boards 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 : July 30, 2020 (DIN:00155225)