Celebrity Fashions Ltd Management Discussions

Business and Operating Context

FY 2025-26 was another important year in the ongoing transition of Celebrity Fashions Limited ("the Company").

Following the exit of VF Corporation from the Companys supply base at the end of calendar year 2023, the immediate priority had been to rebuild the significant volume and capacity utilisation that was lost. During FY 2024-25, the Company pursued an extensive customer-development programme and succeeded in onboarding a substantially broader customer base.

This process, however, also reinforced an important operating reality: replacing volume alone would not be sufficient. A larger and more fragmented portfolio, particularly where programmes were highly price-sensitive, increased operating complexity without necessarily generating the contribution required to support the Companys existing manufacturing and fixed-cost structure. Accordingly, as the Company entered FY 2025-26, management had begun a more deliberate process of aligning capacity, customers and costs around commercially sustainable business.

This rationalisation formed the backdrop to FY 2025-26. While progress was being made on these initiatives, the Company was confronted with a further significant external disruption arising from changes in US tariff policy.

Revenue from operations for FY2025-26 stood at C 172.06 crore, compared with C 165.26 crore in FY2024-25. Total revenue increased from C 165.67 crore to C 172.48 crore.

The Company reported an EBITDA loss of C 5.50 crore during FY2025- 26, compared with an EBITDA loss of C 6.63 crore in the previous year. Loss before tax reduced to C 15.72 crore, from C 18.26 crore in FY2024-25. Total comprehensive loss for the year was C 15.95 crore.

While the improvement in revenue and operating performance represented progress over the previous year, profitability continued to be affected by the costs associated with the ongoing rationalisation of the manufacturing platform and, most significantly, the impact of the additional US tariffs during the year.

A significant portion of the customer base rebuilt by the Company following the exit of VF Corporation was exposed to the US market. The additional tariffs imposed on supplies originating from India therefore had a direct impact on the commercial economics of several programmes.

Customers sought substantial price reductions in order to offset the additional duties payable on imports into the United States. In certain instances, changes in commercial and shipment arrangements also increased the cost and working-capital burden borne by the Company.

Given the importance of protecting the customer relationships that had been developed during the rebuilding of the business, the Company chose to absorb a part of the tariff impact through additional discounts and price reductions.

During FY 2025-26, such tariff-related discounts and price reductions aggregated to approximately C 18.70 crore.

This represented a significant burden on operating performance during a period when the Company was simultaneously working to realign its capacity and cost structure.

Management nevertheless considered the preservation of strategically important customer relationships necessary to protect the longer-term business that had been rebuilt over the preceding two years.

The Company continued its programme of capacity rationalisation during FY 2025-26.

The additional manufacturing facility at Avadi had originally been established to support the requirements of the erstwhile VF business. Following VFs exit and the subsequent change in the scale and composition of the Companys customer portfolio, management concluded that maintaining this additional capacity was no longer commercially sustainable.

The closure process, initiated in February 2025, was completed in August 2025. The closure and associated right-sizing exercise involved one-time costs of approximately C 6.25 crore.

While such actions involved costs in the short term, they were necessary to align the Companys manufacturing platform more closely with the level and nature of business available.

The underlying objective of the rationalisation programme has been to move away from carrying capacity in anticipation of volume and towards an operating structure supported by economically sustainable business.

The experience of the post-VF rebuilding period has resulted in a more selective approach towards customer and product development.

The Companys focus is increasingly on the quality and sustainability of business rather than capacity utilisation alone. Management continues to review individual customer programmes with particular attention to contribution, operating complexity, working-capital requirements and the potential for developing longer-term relationships.

Alongside the acquisition of new customers, the Company is seeking to deepen its engagement with existing customers by broadening the range of products and categories offered to them.

The Company also continues to evaluate product and market opportunities that may arise from the expanding network of free trade agreements entered into by the Government of India with international trading partners.

This approach is intended to progressively create a more balanced portfolio of customers, products and markets while maintaining the Companys established capabilities in woven apparel manufacturing.

The operating environment for apparel exporters continues to present both opportunities and risks.

Changes in global trade arrangements and the continued development of free trade agreements may improve Indias competitiveness in certain markets and product categories. These developments provide an opportunity for the Company to pursue new markets while also broadening the product portfolio offered to its established customers.

At the same time, FY2025-26 demonstrated the speed with which changes in trade policy can affect pricing, margins and customer sourcing decisions. Tariff volatility therefore remains an important risk for an export-oriented business.

Other continuing risks include intense pricing competition, customer concentration, fluctuations in raw-material and logistics costs, geopolitical disruptions, working-capital requirements and the ability to maintain the appropriate balance between manufacturing capacity and available profitable business.

Management continues to evaluate these risks while seeking to build a more diversified and commercially sustainable operating base.

The operational restructuring initiated over the previous year has continued during FY2026-27.

As part of the Companys continuing capacity optimisation programme, management has undertaken a further consolidation of operations by relocating activities from leased premises into Company-owned facilities. This forms part of the broader effort to reduce the fixed- cost base and align the Companys manufacturing capabilities and infrastructure with its current business requirements.

The Company has also continued to align manpower, administrative overheads and other operating costs with the consolidated manufacturing structure.

In parallel, management remains focused on the commercial side of the business. This includes developing new customer opportunities, strengthening existing customer relationships, broadening the range of products offered to established customers and selectively pursuing programmes that are better aligned with the Companys manufacturing capabilities and profitability objectives.

The objective of these measures is not simply to reduce the size of the business. Rather, managements focus is to establish a more efficient operating platform from which the Company can progressively rebuild sustainable and profitable growth.

The Company will continue to evaluate opportunities for expansion as the business environment improves while maintaining discipline over capacity, costs and working-capital deployment.

During March 2026, the Company repaid the final instalment of the Cumulative Redeemable Preference Shares issued pursuant to its earlier restructuring programme. With this repayment, the CRPS stands fully redeemed.

The movement in key financial ratios during the year reflects the continuing transition in the Companys operating and financial position.

The current ratio remained at 1.00 during FY2025-26. Debtors turnover improved to 4.45 from 3.04 in the previous year, while inventory turnover improved to 2.24 from 1.78. Operating and profitability ratios continued to remain affected by the losses incurred during the year, including the impact of tariff-related discounts and price reductions.

The detailed ratio disclosures and explanations should be read together with the financial statements and notes forming part of this Annual Report.

The Company has developed adequate internal control system commensurate to its size and business to ensure that all assets are safeguarded and protected against any loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly. The internal audit reports are periodically reviewed by the Management together with the Audit Committee of the Board. The Company has a strong Management Information System as a part of Control Mechanism.

The apparel industry faces risks arising from changing trade policies and tariffs, fluctuations in global demand, intense competition, raw- material and labour costs, foreign exchange movements, and increasing quality, sustainability and compliance requirements. CFLs exposure to the US market also makes the Company sensitive to changes in tariffs, customer procurement patterns and market conditions. The Company continues to focus on operational efficiency, cost management, quality, timely delivery and strong customer relationships to mitigate these risks.

The Companys policy is to systematically hedge its long term foreign exchange risks as well as short term exposures in line with its hedging policy. In addition to this, the company also has a natural hedge on the imports of the company which is almost 40%-50% of its Exports.

The continuing rationalisation of the manufacturing platform has necessarily involved an alignment of manpower with the revised scale of operations.

During the current financial year, management has continued this process as part of the wider consolidation of the Companys operating base.

Industrial relations have continued to be harmonious at all units throughout the year. No man-days were lost due to strike, lock out etc.

Measures for employees safety, their welfare and development received top priorities. Your Company has a vision of being an ‘Injury Free and ‘Zero Environment Incident organization. Over the past many years, your Company has been progressing well on the safety record in factories and facilities. The Company had around 1713 employees as on 31^st March 2026.

The last two years have required the Company to fundamentally reassess the scale and structure of its manufacturing operations.

The immediate response following the exit of its largest customer was necessarily focused on rebuilding business and protecting the manufacturing platform. The subsequent experience has led management to place greater emphasis on the economics and sustainability of that business, rather than on volume alone.

FY 2025-26 remained challenging, particularly because of the significant tariff-related commercial concessions required during the year. At the same time, the Company continued to execute difficult but necessary actions to rationalise capacity and restructure its operating base.

These actions have continued into FY 2026-27 through further consolidation of infrastructure, alignment of costs and manpower, and a more disciplined approach towards customers and product programmes.

Managements priority remains the restoration of sustainable profitability, while retaining the capabilities and customer relationships required to participate in future growth opportunities.