Bannari Amman Spinning Mills Ltd Management Discussions

COMPANYS BUSINESS

The Companys principal line of business is manufacturing and marketing of Cotton Yarn, Woven and Knitted fabrics, Home Textiles, Knitted Garments and Processing of fabrics. The Company has two spinning units near Dindigul, Tamilnadu with an installed capacity of 145440 spindles, Weaving and Home Textiles units at Karanampettai near Palladam with an installed capacity of 153 looms, Processing unit at SIPCOT, Perundurai with an installed capacity to process 5400 tonnes of fabric per annum, Knitting unit at Karanampettai near Palladam with installed capacity to produce 7200 tonnes of knitted fabric per annum, Garment units at Palladam Hi-tech weaving park and 27 Windmills with an installed capacity of 23.40 MW green power which is entirely used for captive consumption.

INDUSTRY STRUCTURE AND DEVELOPMENTS

The textile industry encompasses the entire process of producing fibres, yarns, fabrics, and finished textile products used in various applications, including clothing, home furnishings, industrial materials, and more. Its a multifaceted sector that involves numerous stages, from raw material cultivation or extraction to the manufacturing of final products. Textile production can involve natural fibres like cotton, wool, and silk, as well as synthetic fibres such as polyester, nylon, and acrylic. The industry includes processes like spinning, weaving, knitting, dyeing, printing, and finishing, each contributing to the creation of diverse textile goods. The textile industry is integral to global trade, economic development, and cultural expression, shaping trends in fashion and design worldwide. The textile industry holds significant importance on both economic and social fronts globally. Economically, it is a major contributor to GDP, employment, and trade in many countries. It provides livelihoods for millions of people involved in cultivation, manufacturing, distribution, and retail sectors.

Additionally, the textile industry fosters innovation in materials, technologies, and processes, driving growth and competitiveness in related sectors. Socially, textiles play a crucial role in cultural expression, fashion, and identity, reflecting historical, regional, and societal influences. Moreover, the industry supports sustainable practices, including eco-friendly materials, recycling initiatives, and fair labour standards, contributing to environmental and social responsibility agendas.

After a strong performance in FY 22, the industry faced several challenges in FY23 and FY 24. These included the disparity between domestic and international cotton prices, a decline in global demand due to high inflation and recessionary pressures in developed economies, and increased energy and supply chain costs. Consequently, India experienced its lowest cotton yarn exports in a decade, leading to decline in sales volume and contraction in the operating profitability margin for cotton yarn spinners in the last 2 financial years which remained below the historical average.

OPPORTUNITIES

Notwithstanding the head winds being faced by the Industry presently, the Indian textile industry has tremendous opportunity to improve its market share significantly in both domestic and export markets, tap the increasing demand for organic and sustainable textiles and potential for higher value added textiles.

OUTLOOK

The textile and apparel sector is facing uncertainty and challenges in demand and operational profitability. However demand is expected to improve gradually with retailers beginning to restock inventories, the parity of domestic cotton prices with international prices, and the gradual relaxation of Chinas zero COVID-19 policy. On a long-term basis, Indian cotton spinners are expected to maintain stable demand growth and profitability, supported by increasing urbanisation, rising disposable incomes, the China + 1 strategy adopted by major global retail players, with incentives from the government such as the Remission of Duties and Taxes on Export Products (RoDTEP), the Rebate of State & Central Taxes and Levies (RoSCTL), and the production linked incentive (PLI).

RISKS AND CONCERNS

Availability of Cotton, the main raw material for manufacture of Cotton Yarn, is subject to the vagaries of nature and the prices also fluctuate wildly based on supply/demand in the World market and Government policy on export of Cotton. Competition from Countries such as Bangladesh, Vietnam etc, Supply chain disruption coupled with increased logistic costs and Regulatory challenges are among other concerns which will have a bearing on the fortunes of the Industry.

INTERNAL CONTROL SYSTEM AND THEIR ADEUACY

The Company has adequate internal control procedures and systems commensurate with its size and nature of its business for purchase of raw materials, plant and machinery, components and other items and sale of goods. The checks and controls are reviewed by the Audit Committee for improvement in each of these areas on a periodical basis. The internal control systems are improved and modified continuously to meet with changes in business conditions, statutory and accounting requirements.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the Company has been discussed at length in Directors Report to the Members.

SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS FOR THE FINANCIAL YEAR 2022-23 AND 2023-24

DETAILS OF ANY CHANGE IN RETURN ON NETWORTH AS COMPARED TO IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF

Return on Networth 31.3.2024 - (6.90%)

Return on Networth 31.3.2023 - (8.42%)

MEDIUM TERM AND LONG TERM STRATEGIES

The Company currently manufactures Cotton yarn, Knitted fabric, Grey and bleached woven fabric, made ups, Processed knit fabric and Apparel products for men, women and kids. The medium and long term strategies that will be initiated by the Company are discussed below.

Cotton Yarn :

The Spinning units have the capacity to produce 105 tonnes of yarn per day but depending on market conditions the production may vary. During the FY 23-24, the units started manufacturing finer counts viz.80s, 100s used in value added applications. Moreover the Company plans to introduce new product mixes including those produced out of imported cotton for quality sensitive consumers.

Knitted fabric :

The Knitting unit presently produces about 20 to 25 tonnes of fabric per day. Production is against orders and emphasis will be on producing value added fabric (Lycra).

Woven fabric :

Production of fabric is generally against orders. A portion of fabric produced is transferred to Home Textile division for manufacture of value added products. Efforts are underway to identify new markets.

Home Textiles :

The main products are bleached fabric and madeups like bed linen products meant mainly for exports. Home textiles is one of the focus areas for the Company and efforts are underway to increase the share of Home Textiles products.

(Disclosure with limits set by competitive position, medium term and long term strategies as approved by Board of Directors)