Century Textiles & Industries Ltd Management Discussions.

This report covers the operations and financial performance of the Company for the year ended 31st March, 2022 and forms part of the Annual Report.

1. OVERALL REVIEW:

During the year under review, earnings before interest, tax and depreciation (EBIDTA) of the Company has improved considerably as compared to the previous year in respect of its Pulp & Paper and Textiles business segments, despite disruptions caused due to 2nd and 3rd waves of Covid-19 pandemic. The performance of the Real Estate Division was buoyant. Working and operational parameters at all the plants of the Company were satisfactory.

It is heartening to mention that during the year, the Company has launched two new real estate projects one each in Mumbai and Bengaluru. The flagship project ‘Birla Niyaara at Worli, Mumbai was launched in the month of February, 2022 and it has received an overwhelming response from the customers despite disruptions caused due to Covid-19 pandemic early in the quarter. The Company has also launched ‘Birla Tisya at Rajajinagar, Bengaluru in the month of December, 2021 and that too has received a stellar response from the customers. Besides this, the second phase of ‘Birla Vanya, Kalyan was launched in the month of September, 2021, again with a strong response received from the customers.

On-going projects ‘Birla Vanya at Kalyan near Mumbai, ‘Birla Alokya at Bengaluru and ‘Birla Navya at Gurugram are progressing as per schedule.

2. BUSINESS SEGMENT – TEXTILES a. Industry Structure and Development:

The global textile industry has been facing exceptionally challenging conditions since the past two years due to the restrictions imposed because of the Covid-19 pandemic. Further, the global supply chain had seen unprecedented levels of pressure and disruption due to logistical impasse. This led to delayed delivery resulting into reduced product shelf life and increased inventory at importer / retailer level which resulted in reduction in export orders / delayed picking of confirmed orders, apart from sharp increase in vessel shipping cost. Further, prodigious liquidity globally led to a proliferation in commodity prices including Cotton, Dyes, Chemicals, Coal, etc.

On a positive note, from the beginning of Q2 of FY 2021-22 post relaxation in Covid-19 induced restrictions, domestic market is showing an uptake in demand.

b. Opportunities and Threats:

Accelerated reopening of activities have re-opened opportunities for the textile market which were quiet for a long time. Further, China plus one policy by USA and Europe will lead to increase in demand for the Indian Market. With an added advantage of high quality standards and globally renowned accreditations, our Company will be forging ahead with its sustainability vision to build potential so as to grab opportunities coming its way.

Currently the biggest threat is the enormous increase in cotton prices leading to high finished good prices. Consumers are therefore shifting their focus from cotton to man-made fibres. Further, increase in prices of other commodities such as coal, dyes and chemicals is also making the industry non-competitive.

c. Segmental Review and Analysis: Apparel Fabrics:

FY 2021-22 was a year with lot of ups and downs. Q1 of FY 2021-22 started with the extremely severe second wave of Covid-19 pandemic and consequent lockdown which was then followed with high demand across the world in Q2. In second half of the year, raw material prices started increasing. In Q4, on one side retail demand in apparel fabric was holding up a reasonable level and on the other side the quarter got completely disturbed due to the steep rise in Cotton prices i.e. doubling-up from pre-covid level coupled with increase in power and chemical prices.

Overall, there was firefighting throughout the year with lot of uncertainties and fluctuations and the year finally closed above planned turnover but with squeezed margins.

Print business initiated as a outsource activity has given Rs 22 Crores additional turnover which includes 10% exports.

Bed Linen

Due to increase in cotton prices and increased inventory levels in the US, orders slowed down during Q3 and Q4 of FY 2021-22. This accumulation of inventory culminated into importers in USA offering goods in US at very low prices to liquidate Inventory. Prices are expected to be a significant point of concern till the cotton market settles down and, in the meantime, there is a possibility of retailers shifting to man-made fibres.

Yarn

The yarn business too was impacted due to the historically high prices of cotton, as absorption of the same in the prices of finished yarn was not easy.

d. Risks and Concerns:

There is a proliferation in cotton prices which cannot be absorbed in finished goods prices. Preference is shifting from Cotton fibre to man-made fibres i.e. synthetic, polyester etc., which are available at lower prices. This is putting pressure on margin.

e. Outlook:

Coming year will be challenging with respect to pricing. We must focus more on offering new products meeting customer retail price points. Also focus will be on blending with man-made fibers which can fit into the price bracket, acceptable to buyers.

Further geographic presence will be increased, and new markets will be explored such as Australia, Saudi and Russia. With the Launch of a new domestic brand, named "Hill & Glade", under the home textile segment, a major portion of domestic print business is expected to be covered by that in the coming year.

3.

BUSINESS SEGMENT – PULP AND PAPER(PULP, WRITING & PRINTING PAPER, TISSUE PAPER AND MULTILAYER PACKAGING BOARD) a) Industry Structure & Development:

During the last two years, the world has been grappling with the challenges posed by the Covid-19 pandemic. The prolonged Covid-19 crisis has dampened the demand as most of the paper consumption centres i.e. schools, colleges, educational institutions, court, judiciary and transportation modes (airports, bus stands, railway stations) etc. were not fully operational. This impacted the consumption and demand pattern of paper & paper products.

b) Opportunities and Threats:

As the impact of Covid-19 has gradually started waning globally during the 4th quarter of this year schools and educational institutions re-opened almost after a hiatus of 1 1/2 years. Resumption of activity in consumption centres is expected to lift the consumption and demand in Writing & Printing paper segment.

In the Domestic market, Central Governments initiatives to implement new education policy will also help in creating additional demand in Writing & Printing paper segment.

During this pandemic, in general, every person has become more & more conscious about health, hygiene and cleanliness aspects of life. This awareness helps in creating new demand for Tissue and Packaging Board segments of paper industry. Last year, in addition to common challenges i.e. Non availability of containers, increased oceanic freight, disruption in logistic services, Suez Canal blockage etc., global Paper industry had specific operational difficulties too, like Imported Pulp productions fell to their lowest levels, frequent shutdowns of paper consumption centres, disrupted supplies of key input materials coal, wood and wastepaper etc. As a result prices of these input materials had seen sharp increase and some are at their life-time high. The Russia & Ukraine war has further disrupted global supply of newsprint paper as Russia is global leader in supplying this grade of paper.

c) Segmental Review and Analysis:

Globally, last financial year was one of the toughest periods for Paper industry. Paper consumption points were not operational for major part of the year. Timely availability of key raw materials remained a challenge. Due to disrupted supplies, cost of couple of these raw materials touched their life-time high levels. In turn, paper manufacturing players passed these increased costs to their end-customers.

As a result, despite increased revenue over past years, margins remained thin. Therefore, financial performance during the period under review, will not offer a right comparison with the past performance of Paper industry.

d) Risks and Concerns:

Frequent price escalations and interrupted availability of key raw materials, remain major concern for Indian Paper industry. Russia - Ukraine war has escalated Power crises in Europe which may result into further price increase in the landed cost of Imported Pulp and Chemicals.

e) Outlook:

Domestic market is witnessing very good demand across all paper segments post re-start of schools, colleges, offices, judiciary, hotel, restaurants and other major consumption centres. Ongoing health issue has increased hygiene awareness and its impact on ‘At Home sales has started showing up in the domestic market.

AFH (Away from Home) demand is expected to regain with the partial relaxation in restrictions imposed on cinemas, theatres, multiplexes, restaurants and entertainment parks. Restrictions on social gatherings has been completely lifted, which will help increase the consumption in the Tissue segment.

Traders have also started building channel inventories, thereby signifying uptick in demand. Going forward, medium to long-term outlook of the Indian paper industry is positive and is expected to grow parallel with the countrys GDP and the economy.

4. BUSINESS SEGMENT – REAL ESTATE a) Industry Structure and Development:

The Real estate sector is one of the most critical sectors of the Indian economy. The sector is the second highest employment generator after agriculture. Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 200 billion in 20211. The growth of the sector is led by the increase in the demand for urban and semi-urban accommodations as well as corporate environment and the requirement for office space. The Real estate sector and the Indian economy were beset by multiple challenges in FY 22. The first and the fourth quarter saw lockdowns and disruptions in business operations due to the ‘Delta and ‘Omicron Covid-19 waves respectively. The Real estate sector, specifically the residential segment has shown higher resilience and faster recovery. The volatility in the international markets due to geopolitical developments in Q4 FY 22 has also impacted the sector in a negative manner with escalating prices of raw materials and disruptions in supply. The continuation of this price increase over extended periods may weigh on the sectors performance.

The pandemic created a strong sentiment supporting housing demand. The robust performance of the residential sector clearly denotes that the sector seems to have embarked on a long-term upcycle. The demand in the segment has been led by historic low interest rates, relatively stable house prices, increasing salaries and government stimulus. Residential sales pan India have grown by 31% Y-o-Y in 9M FY222. Developers with good corporate governance practices, financial accountability, trust, and brand witnessed higher sales in FY 21 and FY 22.

The increase in vaccination coverage and the relaxation in restrictions has led to the gradual opening of the offices and improvement in the Commercial segment. Net absorption grew by 3.33% in 2021 Y-o-Y3 led by strong growth in the IT-BPM sector. Leasing by Co-working spaces also surged since the workforce of many companies remains scattered. Indias reputation as a tech offshoring destination for global multinationals is likely to continue over the coming years.

Over the last two years, Real estate markets trajectory was largely determined by the trajectory of the Covid-19 virus. However, this correlation is weakening as subsequent waves are having limited adverse impact on the market owing to healthy vaccination rates and evolved business plans. The year has been an inflection point for the Real estate sector, with all trends and patterns favouring growth and stabilization over the coming years.

b) Opportunities and Threats:

The preference for home ownership has risen since the advent of the pandemic. The pandemic has reiterated the emotional security associated with home ownership as homes remain the centre of our lives where we spend quality time. There is a clear preference for integrated developments where everything required for a healthy and active lifestyle is available within the project. Additionally, there is a focus on localities which provide a social fabric and all necessities to thrive. Your Company with its commitment towards delivering high quality homes with open spaces, connected infrastructure and thoughtful amenities is ideally positioned. Along with home ownership, the shift in customer preference towards branded players continues to strengthen. This has led to such players outperforming the market, increasing their market share and commanding a premium to local developers. Your Company is uniquely poised to capitalize on the opportunity with the brand having a huge legacy and symbolising trust, transparency, quality, and excellence.

There is a distinct differentiation emerging between land creators & aggregators and real estate developers. Landowners and creators seek to partner with reputable developers through the joint development model to maintain future business viability. This creates an opportunity which your Company with best-in-class governance standards and access to institutional funding is in a prime position to benefit from.

Customer centricity and thoughtful design are the key pillars of your Company. Timely delivery, transparency in operations will become the basic expectations from developers and product innovation and thoughtfulness, customer focus, etc. will become key differentiating factors. Continuous focus on these pillars provides an opportunity to strengthen our presence and positioning in the market.

Organisations remain flexible about their need for physical interactions and ‘work from anywhere concept though there is a move towards restarting offices in higher capacities. In the future, companies may prefer a more distributed workforce linked through technology. The growth in the commercial segment is however, expected to continue in the coming years.

c) Segment Review Analysis:

Your Company has sold 1.1 million sq. ft area in FY 22 which is more than 1.75 times the sales of the previous year. We clocked sales of INR 1913 Crores in the year which is more than 3 times the last year and more than 1.5 times the cumulative sales in the history of the organisation.

During the year, your Company launched two new projects: one each in Mumbai and Bengaluru. We launched our flagship project ‘Birla Niyaara at Worli, Mumbai in the month of February and we have received an overwhelming response from the customers despite Covid disruptions early in the quarter. We clocked sales of more than INR 1,200 Crores at launch making it one of the most successful launches in Mumbai Metropolitan Region in recent years. ‘Birla Niyaara is one-of-a-kind project in the uber luxury segment, being Indias only USGBC LEED pre-certified platinum residential project making it one of Worlis landmark integrated developments. We also launched ‘Birla Tisya at Rajajinagar, Bengaluru in the month of December and received a stellar response from the customers, clocking sales of more than INR 250 Crores within 4 days. ‘Birla Tisya was one of the most successful launches in Bengaluru in recent years.

We launched the second phase at ‘Birla Vanya, Kalyan in the month of September and we have received a strong response from the customers. We have completely sold out the launched first phase of ‘Birla Navya at Gurugram.

Birla Estates was awarded the ‘Iconic Real Estate Brand of the Year at TIMES Real Estate Conclave Awards 2021 and ‘Best Brands 2021 at The Economic Times Best Brands Awards 2021. ‘Birla Niyaara was awarded the ‘Iconic Residential Project of the Year and ‘Iconic Residential Project Launch Campaign. ‘Birla Vanya won four awards and ‘Birla Alokya one award for its commitment towards site safety.

We signed an agreement to jointly develop a prime 52-acre land parcel in North Bengaluru with M S Ramaiah Realty LLP. The project has an estimated revenue potential of almost INR 3,000 Crores and development potential of around 4 million sq. ft. and will comprise both high and low-rise residential developments, along with retail and commercial elements.

The occupancy rate at our two commercial assets, Birla Aurora and Birla Centurion remains at a high level ensuring stable lease rentals.

We continued our focus on Customer Centricity and as part of the ‘Customer Connect initiatives, COVID Warriors amongst the customers were acknowledged and presented with thoughtful mementos. We rolled out customer feedback surveys at key stages of the customer journey to measure and improve customer engagement at various touch points.

We improved our digital security stance by implementing Zscaler Internet Access - a secure internet and web gateway delivered as a service from the cloud. Our users and endpoints are now protected from threats related to unsecure internet connections, even outside office premises creating a more robust digital work environment.

d) Risks and Concerns:

The sector continues to combat shortage of labour and spiralling input costs such as for commodities andmetals.Sustainedhighpricesandprolongedrise in the costs from the current levels will be difficult to absorb and are likely to impact the profitability of the projects. It will become necessary to pass on the increased costs to the customers by way of additional price increases.

e) Outlook:

The demand fundamentals of the residential real estate are as strong as ever. There is an increased desire for home ownership, integrated layouts, larger units with focus on amenities promoting health and well-being. The governments supportive stance of maintaining the interest rates despite inflationary pressures and some benefits towards stamp duty has aided in strengthening this demand further.

We are now at the cusp for a multi-year upcycle for the residential real estate market. This is evident from the Y-o-Y growth in the 9M FY22 sales numbers at a pan India level. Some select micro markets are already seeing an increase in prices. Digitization continues to penetrate in all business processes associated with real estate making them more robust and ensuring developers, customers and service providers leverage it efficiently to communicate, deliver services and transact. The digital outreach channels will continue to remain important channels to reach customers and provide virtual tours of the project despite the ebbing of the COVID protocols.

Despite the short-term disruptions, Indias commercial real estate sector continues to attract interest from occupiers and investors looking at the long-term horizon. The employers and employees are seeking the right balance of in-office and remote working options which will be firmed up over the coming times.

With a slew of very dynamic situations at play we expect the sector to move towards a sustained phase of growth in sales and prices in FY23 albeit with some pressure on the cost side in the short term. The customer preference for branded players who can deliver in time and the trust in the Birla Brand and product will help us as we focus on our growth and cement ourselves as a leading player in the Indian Real Estate.

5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company maintains adequate and effective Internal Control Systems commensurate with its size and complexity. It believes that these systems provide, among other things, a reasonable assurance that transactions are executed with management authorization. It also ensures that they are recorded in all material respect to permit preparation of financial statements in conformity with established accounting principles along with the assets of the Company being adequately safeguarded against significant loss or misuse. An independent Internal Audit function is an important element of Companys Internal Control System. This is supplemented through an extensive internal audit program and periodic review by the management and the Audit Committee of Board.

6. HIGHLIGHTS OF THE COMPANYS FINANCIAL PERFORMANCE

(Rs in Crores)
Standalone Consolidated
Particulars 2021-22 2020-21 2021-22 2020-21
1. Total Income 4196.98 2690.19 4174.01 2678.19
2. Earnings before finance cost, tax, depreciation and Amortization (EBITDA) 604.73 366.17 487.57 285.32
3. Less: Finance Cost 75.03 88.55 52.18 70.70
4. Profit before depreciation, amortization and taxation. 529.70 277.62 435.39 214.62
5. Less: Depreciation and Amortization 228.05 229.02 230.66 231.13
6. Profit / (Loss) before taxation 301.65 48.60 204.73 (16.51)
7. Share of Profit/(Loss) of Joint Venture - - (0.13) -
8. Less/(Add):
Current Tax 54.99 - 55.01 -
Adjustment of tax relating to earlier periods - (19.25) - (19.25)
Deferred tax relating to earlier period 0.48 - (33.59) -
Mat credit recognized (54.99) - (54.99) -
Deferred Tax 101.38 17.81 84.01 17.81
9. Profit / (Loss) after tax from continuing operations 199.79 50.04 154.16 (15.07)
10. Add/(Less):
Loss before tax from discontinued operations (7.04) (28.50) (7.04) (28.50)
Gain on sale of Century Yarn and Denim Division 17.63 - 17.63 -
Tax (Expense)/ Income of discontinued operations (3.05) 9.96 (3.05) 9.96
11. Net Profit / (Loss) for the year 207.33 31.50 161.70 (33.61)

The Consolidated EBITDA from continuing operations for the year 2021-22 is Rs 487.44 Crores (including share of Joint Venture) as against Rs 285.32 Crores.

The Standalone EBIDTA from continuing operations for the year 2021-22 is Rs 604.73 Crores as against Rs 366.17 Crores.

In consolidated accounts interest cost has gone down from Rs 70.70 Crores to Rs 52.18 Crores. For the Company as a whole, the technical performance of all the plants has been satisfactory.

7. DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE AS COMPARED TO IMMEDIATE PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS

Ratios F.Y. 2021-22 F.Y. 2020-21 Change (%) Explanation for change
1. Debtors Turnover Ratio 21.72 15.14 43.46 Refer note (b)
2. Inventory Turnover Ratio 4.35 2.57 69.00 Refer note (b)
3. Interest Coverage Ratio 5.13 0.36 1325.00 Refer note (b)
4. Current Ratio 1.07 1.38 -22.46 Refer note (a)
5. Debt Equity Ratio 0.34 0.29 17.24 .-
6. Operating Profit Margin (%) 5.43 (1.37) 496.35 Refer note (b)
7. Net Profit Margin (%) 3.91 (1.28) 405.47 Refer note (b)
8. Return on Net Worth (%) 4.17 (0.92) 553.26 Refer note (b)

The above key financial ratios are in accordance with Note 46A of Consolidated Financial Statements prepared in accordance with Ind AS requirements and Schedule III of the Companies Act, 2013.

Notes :

(a) Mainly on account of classification of long term NCDs as current borrowings.

(b) During the previous year, on account of Covid outbreak and various Governments restrictions, operations of the Company were impacted significantly. During the year, the situation has improved and accordingly, cash flows and profitability of the Company have improved as compared to the previous year and almost reached to pre-covid level. Accordingly, all ratios related to cash flows, revenue and profitability of the Company have improved as compared to the previous year.

The Company has maintained satisfactory performance ratios despite unfavourable market situation prevailing for a major part of the year in all the business segments of the Company.

8. HUMAN RESOURCE DEVELOPMENT / INDUSTRIAL RELATIONS

The total number of employees as on 31st March, 2022 were 4205 (4268 as on 31st March, 2021). The number of employees has decreased during the year by 63. The industrial relations in all units of the Company continue to be cordial. The skills, experience and passion of our people facilitate deeper customer understanding and engaging relationships and strengthen our brand value as a preferred employer. We continue to step up efforts to accelerate our value-based growth strategy and the overall development of human capital. We nurture our people by investing in their empowerment through learning and development, wellness, and safety besides providing contemporary workplace facilities.

9. HEALTH, SAFETY AND SECURITY MEASURES

The Company continues to accord the highest priority to health and safety of its employees and communities it operates in. The Company has been fully committed to comply with all applicable laws and regulations and maintains the highest standard of Occupational Health and Safety and ensures safer plants by conducting safety audits, risk assessments and periodic safety awareness campaigns and training to employees. We believe in good health of our employees. Modern occupational health and medical services are accessible to all employees through well-equipped occupational health centres at all manufacturing units.

Further, to prevent the spread of pandemic Covid 19, the Company had taken all precautionary measures required, such as use of masks and sanitizers, social distancing etc., at all its plants and construction sites as well as at office locations. Your Company is in full compliance of all Government directives issued in this behalf. The Company has always considered safety as one of its key focus areas and strives to make continuous improvement on this front.

10. CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations, or predictions may be forward looking, considering the applicable laws and regulations. These statements are based on certain assumptions and expectation of future events. Actual results could, however, differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include finished goods prices, raw materials costs and availability, global and domestic demand supply conditions, fluctuations in exchange rates, changes in Government regulations and tax structure, economic developments within India and the countries with which the Company has business contacts. The Company assumes no responsibility in respect of the forward-looking statements herein, which may undergo changes in future based on subsequent developments, information, or events.