Ashnoor Textile Mills Ltd Management Discussions.

A. Business overview of Ashnoor Textile Mills Limited

Ashnoor Textile Mills Limited (ATML) is engaged in manufacture and export of terry towels. It has only one plant located at Gurgaon. The company is making its entire export to U.S.A. which constitutes nearly 90% of the total sales. So the business prospects of the company are dependent on global and In-dian economy; particularly the economic conditions in U.S.A. As far as the cost structure is concerned, the two important factors are fuel and cotton yarn. The operations of the company are also affected by exchange rates and export incentives by the government of India.

B. Industry Structure and Developments

Indias textile sector has the second-largest employment, employing more than 30 million workers. It has the potential to double this employment in the next seven years as per the vision document (for 2024-25). It is a sector, which provides livelihoods to millions of households. It is also a storehouse of traditional skills, heritage, and a carrier of heritage and culture. The various policy documents of the Government have also highlighted the importance of textile sector with regard to generating formal and productive jobs, having potential for broader social transformation and generating exports and growth. This is also a sector, which is undergoing a huge churn due to automation, digital printing and the relentless rise of e-commerce. All these developments may completely change the face of this industry.

Terry towels form on integral part of the home-textile segment. The demand for terry towels varies across the countries depending upon various factors like population, demographics, living style, economic status and its climatic conditions. In India, terry fabrics are manufactured mainly in decentralized handloom and power looms sectors. Most of terry fabric centers are situated around Chennai, Panipat, and Sholapur. However, terry fabrics are also manufactured in organized sector. But, the volume of production of terry fabrics in organized sector is much lesser than that of the production in decentralized sector. Until last decade, only 10-15% of terry fabric production was produced in organized sector. We are one of the prominent terry towel manufacturers in organized sector. Most of the organized sector units are engaged in catering to market of export and high-quality segment of domestic market, which covers mainly of hospitals and leisure industry.

C. Opportunities and reats and Future outlook Global Economic Conditions

According to IMF report on world GDP Growth 2019 , the GDP Growth of the world is expected to grow at 3.6% . The GDP growth of India is expected to grow at 7.7% and that of US at 1.7%. During the last six months, the world has witnessed a new phenomenon of US China trade war which has seriously threatened the world GDP growth rate. The fate of its positive settlement is hanging on fire till now although efforts by leaders of both the countries are still continuing to find an amicable solution. Another big development has been the imposition of sanctions on Iran by US in this year but thanks to the adequate supplies of crude oil by US and determination of US president not to let the oil prices overshoot beyond reasonable levels, the oil prices have been restricted in the range of 55 to 70 USD. This has put a cap on the escalation of crude related costs on the industrial products.

U.S.A Economic Conditions

US consumer confidence index, employment population ratio, personal consumption expenditure and new home sales have been showing an improving trend. US retail sales have been at all time high of USD 5.16 trillion in 2018 which is expected to increase to 5.32 trillion USD in 2019 and 5.48 trillion in 2020 and is further expected to show a gradual growth over the next few years. Although US is directly involved in trade war, but ball is primarily in US court in the matter and the pledge of US president to uplift the US economy needs to be given the due significance. Since the company is predominantly exporting its products to U.S.A, its fortunes are linked with the growth scenario in that country. It is felt that US is best placed in the world in the present competitive age.

Indian Economic scenario

The Indian economy has been witnessing growth of 7% plus and has emerged as the fastest growing major economy in the world. India is emerging as one of the best performing economies of the world. But country is facing temporary slowdown in the first half of 2019 caused by challenging world scenario, NBFC Crisis and auto slowdown. In the RBI Credit policy of August 2019, the GDP growth for FY 2019-20 has been slashed to 6.9% . Looking forward, the silver lining lies in the fact that the growth rate has been slashed for the first half of the year but GDP in the second half has been projected at 7.3 to 7.5% . The rate of interest is on a downward slope and inflation is under control. The Government has adopted favorable policies for textile industry in the country which is providing huge employment apart from generating huge foreign exchange earnings. The pledge of our Prime Minister to make India a 5 trillion economy in next five years coupled with the possible stimulus and the low rates of interest argue well for the positive future of the country.

Cotton Yarn

Cotton yarn is the main raw material for the products manufactured by the company. India is the largest producer of cotton as well as net exporter of cotton and cotton yarn. This gives a competitive edge to the Indian exporters of cotton products. The year started with high cotton prices of around Rs. 40,000-48,000 per candy and the domestic as well as international cotton prices continue to be at higher levels with occasional variations. But the prices have started to cool down and likely to stabilize in the range of 40000 to 45000. The prices and its variation is normal and absorbable by the company.

Position of Indias towel industry in the global market

Traditionally India has enjoyed a competitive edge in the terry towel industry due to cheap and abundant availability of cotton yarn and other competitive costs. According to Office of Textiles and Apparels , U.S.A., the share of terry towels imported by US from India constituted 39% in 2018 and the share has increased from 30% in 2009. Against this, the share of China has decreased from 23% to 20%. The share of Pakistan decreased from 22% to 20%. The European Market is less preferred by Indian exporters due to concessional import duty access given by them to Pakistan, Bangladesh and Turkey. The towel industry is partially in the nature of FMCG goods and comparatively insulated from slowdown. On assessment of all the favorable and unfavorable factors, the overall terry towel industry is expected to continue to grow at the existing pace.

Foreign Exchange

Indias currency has faced considerable volatility in the last two years vis-a-vis the US dollar. The net result is rupee depreciation over this period and looks to stabilize in the range of 70 to 72 in 2019. This is a positive for exporting companies like us depreciating rupee adds to the bottom lines. The company adopts the policy of partial hedging the currencies to achieve a balance between protection of forex earnings and taking the advantage of depreciating rupee.

GST and Export Incentives

In 2017, GST was introduced in the country which was a major change. Although in the initial months there were bottlenecks and disruptions but now the situation has normalized. The government has been very helpful in introducing liberal incentives in form of MEIS, ROSCLT, duty drawbacks and GST refund. On the net basis, the management feels that the company is in an advantageous position post introduction of GST as far export incentives are concerned.

D. Segment Reporting

The company has only one segment of activity namely-Terry Towels, in accordance with the definition of "Segment" as per the Accounting Standard 17 issued by the Institute of Chartered Accountants of India. The performance for the same has been discussed details in this report.

E. Risks and Concern

The current global scenario marked by slowdown threat is major concern for the industry. So, continuance of favorable textile policies by the Government of India to counter the global competition is utmost desirable. volatility of exchange rate coupled with competitive currency war is another concern although the Indian rupee has traditionally been depreciating over the years which is a rather positive for terry towel export industry.

Very recently we have witnessed an era of trade wars initiated by US administration. Although, it is primarily targeted towards China, there is always a risk of India also being one of the targets.

Lastly, the vulnerability of the Indian economy to the risk of potential outflows and rise of crude remain a big macro risk.

F. Internal Control Systems and their Adequacy

The Company maintains adequate systems of internal controls to ensure that all assets are safeguarded against loss from unauthorized use or disposition. The Companys policies, procedures and guidelines are in place to ensure that all the transactions are authorized, recorded and reported correctly. The Company has an internal audit system commensurate to its size and the nature of its business. The Company also has adequate procedures for internal financial controls to detect and prevent frauds and to protect the Companys resources. The financial statements are prepared in accordance with the accounting standards issued by Institute of Chartered Accountants of India.

G. Financial and Operational Performance

During the year under review, Total Income increased from Rs.88.86 crore to Rs 128.69 crore. Similarly, the net profit after tax increased from Rs 2.18 crore to Rs.4.30 crore.

The company has excelled on all the fronts in this year. In fact, this year has been a transformational one wherein we have achieved 45% increase in revenue. This was possible due to diversification of exports to new buyers and the increased levels are sustainable. The company has adopted cost control measures and enjoyed the increased economies of scale.

Similarly, the balance sheet of the company has strengthened as the company has ploughed back all the cash accruals. Accordingly, it has witnessed an all around improvement in the financial indicators namely net worth, debt equity ratio, net working capital and current ratio.

In the current year, the things look to be more promising. Overall, the company foresees a better future on operational and financial fronts.

H. Human Resources/Industrial Relations and Number of people employed during the year

The Company has always valued its human resources. It believes in unlimited potential of each of its staff. Its dedicated and efficient employees are great assets of the Company and most important ingredient for achieving excellence in performance. During the financial year, the overall industrial relations remained cordial in the Company.

I. Accounting Treatment

The financial statements have been prepared to comply with the Ind-AS including accounting standard notified under the provisions of the Companies Act, 2013.

Disclaimer

Readers are cautioned that this discussion and analysis contains certain forward looking statements. All these statements always have certain risks and uncertainties. Actual results could differ materially from those expressed or implied and the Company is not bound to publicly update or revise forwarding looking statements. Therefore, readers are cautioned not to place undue reliance on these forwarding looking statements.

Sd/- Sd/-
Suneel Gupta Sangeeta Gupta
Managing Director Director Place: Gurugram
DIN-00052084 DIN-00052121 Date: May 27, 2019