Cantabil Retail India Ltd Management Discussions

FORWARD LOOKING STATEMENT

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act, 1956 (the Act) and comply with the IND AS Accounting Guidelines. The management of Cantabil Retail India Ltd. has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.

The following discussion on our financial condition and results of operations should be read together with our audited consolidated financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to “we”, “us”, “our”, “the Company”, “Cantabil” are to Cantabil Retail India Ltd.

ECONOMIC OVERVIEW Indian Economic Overview

Indias economy displayed robust growth in FY 2023-24, with real GDP expanding by 8.2%, 8.1%, and 8.4% in the first three quarters, and 7.8% in Q4, resulting in an overall growth rate of 8.2%.This economic growth can be primarily attributed to robust domestic consumption and less reliance on foreign imports. While government initiatives facilitated domestic demand, increased investments to bolster manufacturing sector and improve digital and physical infrastructure mitigated supply chain issues effectively. Key indicators of this growth include strong PMI in manufacturing and services,

positive monsoon forecasts, increased bank credit driven by rising personal loan demand, higher household savings in physical assets, and accelerating auto sales across categories. Inflation has softened, with headline Consumer Price Inflation (CPI) estimated at 5.5% for FY 2023-24, down from 6.7% in FY 2022-23, and is projected to further decline to 4.5% in FY 2024-25.

The Indian economys sound economic fundamentals have kept it buoyed amid global headwinds. The domestic economy sustained its position as the one of the fastest-growing major economies in the world and is expected to be one of the top three economic powers in the world over the next 10 to 15 years, backed by its robust democracy and strong demographics.

With the improvement of business accessibility, the general investment climate is growing more favourable. Furthermore, with rising consumer confidence, progression of labour markets and increasing private consumption, the Government aims to improve capital investment and lower budget deficit.

Indian Apparel Industry

India has solidified its position as one of the worlds leading garment-manufacturing countries, boasting a rich history of fine craftsmanship throughout the textile and apparel value chain. From fibers, yarns, and fabrics to finished apparel, Indian textiles are revered for their global appeal. Notably, Indias cotton, silk, and denim products have garnered immense popularity in international fashion hubs.

India is the worlds largest producer of cotton. In the first advances, the agriculture ministry projected cotton output for 2023-24 at 31.6 million bales. According to the Cotton Association of India (CAI), the total availability of cotton in the 2023-24 season has been pegged at 34.6 million bales, against 31.1 million bales of domestic demand, including 28 million bales for mills, 1.5 million for small-scale industries, and 1.6 million bales for non-mills. Cotton production in India is projected to reach 7.2 million tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing demand from consumers. It is expected to surpass US$ 30 billion by 2027, with an estimated 4.6-4.9% share globally.

As one of the largest textile industries in the world, the Indian textile industry contributes approximately 2.3% to the countrys GDP, 13% to industrial production and 12% to total exports earnings. India is one of the largest producers of cotton and jute in the world. It is also the 2nd largest producer of silk, with 95% of the worlds hand-woven fabric comes from India. Indias total textile exports are expected to reach USD 65 Billion by FY2026 and is expected to grow at 10% CAGR 2019-

2020 to reach USD 190 Billion by 2025-2026. The textiles and apparel industry in India has strengths across the entire value chain from fibre, yarn, fabric to apparel. The Indian textile and apparel industry is highly diversified with a wide range of segments ranging from products of traditional handloom, handicrafts, wool and silk products. India has been observing a robust trade in technical textile products and the country has been a net exporter. The government has also launched the Production Linked Incentive Scheme with an approved outlay of Rs.10,683 crore to promote production of Man-Made Fibre Apparel, Man-Made Fibre Fabric and products of Technical Textiles in the country.

The Indian textile and apparel industry showcased remarkable diversity, encompassing traditional handloom, handicrafts, wool, silk, and a thriving organized textile sector. The market for Indian textiles and apparel is projected to grow at a 10% CAGRto reach US$350 billion by 2030. Moreover, India is the worlds 3^rdlargest exporter of Textiles and Apparel. India ranks among the top five global exporters in several textile categories, with exports expected to reach US$100 billion.

The textiles and apparel industry contributes 2.3% to the countrys GDP, 13% to industrial production and 12% to exports. The textile industry in India is predicted to double its contribution to the GDP, rising from 2.3% to approximately 5% by the end of this decade.

Employment generation is another commendable aspect of this industry, as it stands as the second-largest employer after agriculture. Directly providing jobs to 45 million individuals and supporting an additional 100 million in the allied sector, the textile and apparel industry significantly bolsters the nations workforce.

Leading the charge in textile and clothing manufacturing are states such as Andhra Pradesh, Telangana, Haryana, Jharkhand, and Gujarat, which continue to drive the industrys growth and prominence.

The Indian textile and apparel industrys thriving trajectory underscores its resilience, adaptability, and potential for further development. The Indian apparel industry has witnessed a shift in consumer preferences, with a growing emphasis on sustainable and ethically sourced fashion. Customers are increasingly seeking eco-friendly and socially responsible products, leading to a surge in demand for organic fabrics, recycled materials, and cruelty-free apparel. As sustainability gains prominence, companies are making efforts to adopt eco-friendly practices across their supply chains.

The Indian apparel industrys long-term outlook remains positive, driven by a growing domestic market, export potential, evolving consumer preferences, and supportive government policies. To capitalize on these opportunities and address challenges, companies need to foster innovation,

embrace sustainability, invest in technology, and prioritize customer-centric strategies.

Market Size and Growth:

The Indian apparel industry has experienced substantial growth over the years, driven by a combination of factors such as rising disposable incomes, urbanization, increasing fashion consciousness, and a growing young population. The industry caters to a diverse consumer base, ranging from mass-market segments to premium and luxury segments. With a favourable demographic dividend and expanding middle-class population, the industry is poised for continued growth in the foreseeable future.

The Indian fashion industry is estimated to be the fourth largest market in the world. In recent years, private brands have increasingly emerged as the rising stars of retail and e- commerce. Retailer owned brands, typically offer shoppers value for money while earning higher margins for retailers with potential to develop into self sustaining propositions. There is also a growing emphasis on enriching customer experience. Window displays, in store ambience, coordinated product displays, lighting, music and communication to help build brand presence and awareness.

Export Potential:

India is among the leading apparel exporters globally, renowned for its diverse product range, skilled workforce, and competitive pricing. The countrys textile and apparel exports have consistently contributed significantly to foreign exchange earnings. The industrys export orientation is bolstered by various trade agreements, preferential access to key markets, and the governments supportive policies and initiatives.

Source-https://www.ibef.org/exports/apparel-industry-india About Cantabil Retail India

Established in 1989, Cantabil Retail India Limited is in the business of designing, manufacturing, branding and retailing of apparels and accessories. The Company started its garment manufacturing and retailing business in the year 2000 and opened the first Cantabil store in September 2000 in New Delhi.

Over the years, Company has established 2,00,000 sq.ft, state of art manufacturing facility in Bahadurgarh, Haryana with a capacity to produce 15.00 Lakh garment pcs. /p.athat makes Casual trousers, Formal trousers, Suits & jackets and Shirts. Along with this, the Company also has two dedicated production units and two warehouses to ensure seamless & timely Logistics of quality products. The production facilities are equipped with high quality machines.

The Company sells its products under the brand Cantabil through 534 Exclusive Brand Outlets (EBOs) as on 31^st March 2024 in 20 states which are either Company owned / lease and Company managed, or Franchisee owned and Franchisee managed. The company believes in building strong client relationships by effectively delivering good quality products and acknowledging the changing customer demands.

Financial Overview

The performance of the Company for the financial year ended March 31^st, 2024, is as follows:

Revenue from operations stood at Rs. 616.5 crore in FY24 as against Rs.552.8 crores registering YoY increase of 12% on account of steady increase in revenues on account of new store addition and also volume growth of 10%.

EBITDA (excluding other income) stood at Rs. 162.7 crore

EBITDA Margin was 26.4%

Profit After Tax was at Rs. 62.2 crore

PAT Margin was 10.1%

Basic EPS stood at Rs. 7.60

Resource and Liquidity

As on 31^st March 2024, the net worth of the company stood at Rs.326.45 crore. There are no long term debt in the balance sheet

The cash and Cash equivalent at the end of March 2024 were at Rs.35.13 crore

As a part of planned strategy, over the year the company has seen steady growth in the number of stores and consequently our retail business area.

Financial Year	No. of Stores
FY 2023-24	533
FY2022-23	447
FY2021-22	378
FY2020-21	320
FY2019-20	302
FY2018-19	241

Segment wise business performance

The company is operating in three broad category i.e. Mens wear, Womens wear and Kids Wear. The company is into manufacturing of shirts, denims, trousers, business and party wear suits, t-shirts, woollen jackets, pullovers, shorts, jeggings, kurtis, and accessories for men and women.

Revenue share from these categories are as follows

Categories	% of Revenue
Mens Wear	83%
Womens Wear	10%
Kids Wear	3%
Accessories	4%

Risks and concerns

Like any business, The Company encounters a range of risks both internally and externally while conducting day-to-day operations and striving to achieve long-term objectives. To address these risks, comprehensive policies and dedicated risk workshops are implemented for each business vertical and key support functions. During these workshops, risks are identified, assessed, analysed, and either accepted or mitigated to an acceptable level, aligning with the organizations risk appetite. Regular reviews of risk registers are conducted to ensure ongoing vigilance.

The following are the primary Risks and Concerns faced by the Company:

Credit Risk:

The Company is not exposed to significant concentrations of credit risk as policies are in place to cover retail sales where collections are primarily made in cash or through credit card payments. The Company adopts prudent criteria in its investment policy, the main objectives of which are to reduce the credit risk associated with investment products and the counter party risk associated with financial institutions. The Company considers the solvency, liquidity, asset quality and management prudence of the counter parties, as well as the performance potential of the counter parties in stressed conditions.

Interest Rate Risk:

To mitigate interest rate risk, the Company carefully manages its debt-equity ratio, utilizing a combination of loans and internal cash accruals. Working capital is prudently managed to minimize overall interest costs. The Company intend to reduce overall debt exposure to minimise the risk.

Competition Risk:

Competition risk arises from multiple players vying for market share. The Company has strategically positioned itself with strong differentiators in product, quality, and design, making it resilient to competition. Continuous investments in technology and human resources help maintain a competitive edge. A stable client base further safeguards against this risk. The Company employs disciplined managers, customer-centric solutions, competitive pricing, aggressive marketing strategies, and prudent financial management to mitigate the impact of competition.

Input Cost Risk:

Changes in raw material prices, power costs, and other input expenses may impact profitability and cost-effectiveness. The Company closely monitors significant risks related to raw material prices and power availability.

Liability Risk:

To address liability risk arising from equipment damage, injuries, or third-party claims, the Company relies on contractual obligations and insurance coverage.

Real Estate Risk:

Effective management of store expansion and operations in new locations presents real estate risk. The Company faces challenges related to securing commercially viable properties in suitable locations, executing sale deeds and license registrations in a timely manner, and obtaining necessary regulatory approvals.

In summary, the Company is proactive in identifying and managing risks through well-defined policies, strategic positioning, prudent financial management, and continuous investments in key areas. By adopting a systematic approach, the Company aims to minimize the impact of potential risks and ensure sustained growth and success.

Opportunities

India boasts a massive domestic market with a population of 1.5 billion, offering lucrative growth prospects in domestic textiles and apparel consumption. The demand for non-woven textiles is on the rise, attracting imports of machinery and technology through preferential tariffs and foreign direct investment (FDI) with foreign companies.

Recently, there has been a significant increase in demand for branded and high-quality clothing due to the growing consciousness among the Indian population.

Opportunities for introducing quality branded products into this expanding market are abundant. Despite being a major global supplier of denim fabric, per capita denim consumption in India remains relatively low at 0.1 meters, presenting a significant potential for growth with the countrys economic development and increased consumer spending on clothing.

Several market drivers contribute to the textile sectors growth. The governments initiatives such as the Scheme for Integrated Textile Parks (SITP) and the Technology Upgradation Fund Scheme (TUFS) encourage private equity investments and workforce skill development with substantial funding. The allowance of 100 percent FDI in the textile sector and free trade agreements with ASEAN countries and the proposed agreement with the European Union also boost textile exports.

India enjoys a competitive edge with abundant availability of raw materials like cotton, wool, silk, and jute, along with a skilled workforce and cost-effective production compared to other majortextile producers.

Increasing prosperity among consumers, with rising per capita income and changing buying behaviour, has resulted in higher spending on clothing. Additionally, the penetration of organized retail in India has attracted international fashion brands, leading to a surge in fashion apparel consumption.

Indias status as the largest producer and net exporter of cotton grants domestic textile players access to a continuous supply of raw materials at competitive prices. This advantage, coupled with low labour, power, and water costs, makes India an attractive manufacturing destination.

Changing lifestyles, with more women joining the workforce, have driven a shift from home-oriented to career-oriented perspectives. This trend is expected to boost demand in the womens work wear segment.

Overall, the Indian textile sector is poised for substantial growth, driven by favourable government policies, abundant resources, rising consumer prosperity, and evolving market dynamics.

Challenges/ Threats Global Competition:

The textiles industry faces intense competition on a global scale, particularly from low-cost manufacturing countries like China and Bangladesh. This competitive pressure puts a strain on the Indian market. To address these challenges, new strategies for low-cost manufacturing need to be devised.

Inadequate Infrastructure:

One of the major hurdles for the Indian textiles industry is the inadequate infrastructure. Issues with logistics, power supply, and transportation networks significantly impact the industrys efficiency.

Shortage of Skilled Labour:

The textiles industry often experiences a shortage of skilled labour, leading to sudden challenges. The scarcity of skilled workers may result from mass labour migration or other factors. To overcome this, there is a need for skill development initiatives and successful models to tackle the labour shortage.

Compliance with Environmental Regulations:

As environmental sustainability gains importance, adhering to environmental regulations becomes crucial for the industrys growth. The textiles sector faces challenges in meeting these standards and must explore strategies to adopt eco-friendly practices and technologies for its betterment.

Internal control systems and adequacy

The Company implemented proper and adequate systems of internal control to ensure that all assets are safeguarded and protected against loss from any unauthorized use or

disposition and all transactions are authorized, recorded and reported correctly. The Company also implemented effective systems tor achieving highest level of efficiency in operations, to achieve optimum and effective utilization of resources, monitoring thereof and the compliance with provisions all laws including the Companies Act, 2013, Listing Agreement, directions issued by the Securities and Exchange Board of India, labour laws, tax laws etc. It also aimed at improvement in financial management, and investment policy. The System ensures appropriate information flow to facilitate effective monitoring. The internal audit system also ensures formation and implementation of corporate policies for financial reporting, accounting, information security, project appraisal, and corporate governance. A qualified and independent Audit Committee of the Board of Directors also reviews the internal control system and its impacts on improvement of overall performance of the Company.

The Company has put in place internal control systems and a structured internal audit process vested with the task of safeguarding the assets of the organization and ensuring reliability and accuracy of the accounting and other operational data. The internal audit department reports to the Audit Committee of the Board of Directors.

Similarly, the Company maintains a system of monthly review of the business as a key operational control, wherein the performance of units is reviewed and corrective action is initiated. The Company also have in place a capital expenditure control system for authorising spend on new assets and projects. Accountability is established for implementing the projects on time and within the approved budget.

The Audit Committee and the Senior Management Team are regularly apprised of the internal audit findings and regular updates are provided of the action taken on the internal audit reports. The Audit Committee reviews the quarterly, half yearly and the annual financial statements of the Company. Adetailed note on the functioning of the Audit Committee and of the other committees of the Board forms part of the section on corporate governance in the Annual Report.

During the year, the Company carried out a detailed review of internal financial controls. The findings were satisfactory and suggestions for improvement have been taken up for implementation. Policy guidelines and Standard Operating Procedures (SOPs) continue to be updated where required, to keep pace with business requirements.

Human Resources

The Companys HR philosophy revolves around fostering a high-performing organization where each individual is driven to unleash their full potential. We aim to cultivate a culture that encourages personal and professional excellence, empowering our employees to contribute effectively towards achieving both individual and departmental objectives. At present, we have a dedicated workforce of 4000 + employees, and our industrial relations remain harmonious and satisfactory.

Recognizing the indispensable role of employees in our success, we conduct internal assessments periodically to identify competency gaps. To bridge these gaps, we provide developmental inputs, including skill upgradation training. Our focus on attracting and retaining motivated employees remains steadfast, as we believe that a motivated workforce is the cornerstone of our growth.

Investing in our employees growth is a priority for us, and we plan to continue offering comprehensive training programs and allocating resources to enhance their skills and productivity. Equipping our employees with a profound understanding of our customer-oriented corporate culture and service quality standards is crucial, allowing them to adapt seamlessly to changing customer preferences and needs.

By nurturing and empowering our workforce, we are confident that we will create a resilient and adaptable organization capable of meeting the challenges of a dynamic business landscape while delivering exceptional value to our customers.

Information Technology

In the pursuit of performance-driven growth, our company has harnessed a deep understanding of local needs while remaining agile in adapting to evolving consumer preferences. This approach has proven instrumental in achieving remarkable progress. We attribute a significant part of our success to the establishment of a robust Enterprise Resource Planning (ERP) system and a suite of powerful IT systems. These technologies have effectively simplified complex processes across our operations, allowing us to respond swiftly to changing market demands.

Our IT infrastructure is tailored to our specific business needs, with a wide range of data management tools that play a crucial role in supporting key aspects of our operations. Notably, these systems have been instrumental in bolstering our cash management, in-store operations, logistics, human resources, project management, maintenance, and other administrative functions. The implementation of these IT solutions has resulted in substantial benefits, including minimizing product shortages, mitigating pilferage, and reducing instances of out- of-stock situations. Moreover, they have significantly enhanced overall operational efficiency.

Through the synergistic interplay of our deep understanding of local markets and our tech-enabled adaptability, we have been able to cultivate a competitive edge and deliver enhanced value to our stakeholders. As a testament to our commitment

to continuous improvement, we remain dedicated to further refining our IT systems and exploring innovative ways to optimize our processes for sustained growth and excellence.

Outlook:

As we enter the new fiscal year, Cantabil Retail India Ltd. stands poised to leverage several favourable factors in the Indian market to further solidify its position as one of the leading integrated player in the designing, manufacturing, branding, and retailing of apparels and accessories across the nation. The following key factors that are expected to positively impactthecompanysperformance:

1. Rising Income and Improving Standard of Living:

Indias economy has been witnessing steady growth, resulting in rising income levels and an improving standard of living for the countrys population. With more disposable income in the hands of consumers, the demand for branded apparel and lifestyle products is expected to grow. Cantabil Retail India Ltd. is well- positioned to capitalize on this trend and capture a larger share of the growing market.

2. Brand Awareness and Recognition:

Cantabil has successfully built a strong brand presence in the Indian retail market. The companys commitment to delivering high-quality products, trendy designs, and affordable pricing has resonated well with customers across different demographics. As brand awareness continues to increase, Cantabil is likely to experience higher footfall in its retail stores, leading to increased sales and market share.

3. Expanding Retail Footprint:

The companys strategy of expanding its retail footprint in strategic locations across India has been yielding positive

results. In the coming year, Cantabil plans to open new retail outlets in high-potential markets, thereby increasing its geographical reach. The expansion will enable the company to tap into new customer segments and enhance its overall sales performance.

4. E-commerce Growth:

The rapid growth of e-commerce in India presents a significant opportunity for Cantabil. The companys robust online platform and omni-channel approach allow it to cater to the increasing number of tech-savvy consumers who prefer shopping online. The company will continue to invest in its e-commerce infrastructure and digital marketing efforts to drive online sales and strengthen its online presence.

5. Focus on Innovation and Design:

Cantabils emphasis on innovation and design has been a key driver of its success. The companys ability to adapt to changing fashion trends and consumer preferences sets it apart from its competitors.

6. Customer Loyalty and Retention:

Building and maintaining customer loyalty will be a top priority as the company will be investing in customer engagement programs, personalized offerings, and loyalty rewards to ensure repeat business and foster longterm relationships with its customers.

Cantabil Retail India Ltd. remains optimistic about the future as it prepares to capitalize on the opportunities presented by Indias economic growth, rising income levels, and increasing brand awareness. The companys strategic initiatives, expanding retail presence, focus on e- commerce, design innovation, and cost management are expected to drive sustained growth and shareholder value.