Chandni Textiles Engineering Industries Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS

India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. Indias GDP is estimated to have increased 7.2 per cent in 2017-2018 and 7 per cent in 2018-2019. India has retained its position as the third largest startup base in the world with over 4,750 technology start-ups. Indias gross domestic product (GDP) is expected to reach US$ 6 trillion by Financial Year 2027 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms.

Tariff increase in the US, the introduction of more stringent fuel emission standards in Germany, financial and sovereign risks affecting domestic demand in Italy, the lack of confidence in financial markets stability in Turkey, and trade tensions in China weighed heavily.

The New Integrated Textile Policy 2019 has been hailed by every section of the textile industry as a unique one and that would ensure the sustenance of the industry in the long term. The government has extended 2 per cent interest subsidy for modernizing spinning machines. Out of the 24 million spindles in the State around 11 million are over 15 years old. This will, therefore, benefit the spinning sector by enabling them to modernize. The benefits extended for the weaving and garmenting sector, including the 10 per cent capital subsidy for all new machines. The downstream sectors of the textile value chain would definitely get strengthened, with lots of new investments flowing into the weaving and processing sectors. It is expected to give a boost to Technical textiles, particularly in defence. The policy announcements will give a big boost to all sectors from yarn to finished fabric.

Year 2018 has been challenging as the industry on many fronts. India is one of the major forces in the global software market with its young and skilled manpower. As an outsourcing destination, India accounted for approximately 55% of the $185-190 Billion global services sourcing business in FY18. The industry is expected to add 1,00,000 jobs in FY19 and is currently undergoing transformation with the emergence of Internet of Things (IoT), virtual and augmented reality, automation, AI and big data.

MARKET OPPORTUNITIES

India is the worlds second-largest exporter of textiles and apparels, with a massive raw material and manufacturing base. The textile industry is a significant contributor to the economy, both in terms of its domestic share and exports. It contributes about seven per cent to industry output, two per cent to the GDP and 15 per cent to the countrys total exports earnings. The sector is one of the largest sources of job creation in the country, employing about 45 mn people directly.

The Indian textile and apparel market was worth $ 90 billion in 2017. The market is further projected to reach $198 billion by 2023, at a Compound Annual Growth Rate (CAGR) of around 14 per cent during 2018-2023. India is the second largest textile exporter in the world. Indias share in global trade of textiles and apparels is approximately 6 per cent. Today, the textile and apparel market has become a vital contributor to the Indian economy. The apparel export has seen a positive trend from November 2018 onwards.

OPPORTUNITIES AND THREATS

STRENGTHS OPPORTUNITIES
• Robust Demand > Growth Rate of Domestic Textile Industry
• Competitive Advantage > Product development and Diversification to cater global needs
• Policy Support
• Increasing Investments > Elimination of quota restriction leads to greater
• Rich heritage Market Development
• Flexibility > Greater Investment and Foreign Direct Investment opportunities available
WEAKNESSES THREATS
^Low investment on Research and • Decreasing Fashion Style
Developments • F ormation of trading blocks
^Poor quality standards • Difficult to maintain balance between price and quality
^Low labour productivity
^Limited exploitation of economies of scale • Competition from other developing countries
x Fragmented Industry • Geographical Disadvantage

SEGMENT WISE PERFORMANCE

(Rs. in lacs)
Sr. No. Particulars Year ended 2018-2019 Year ended 2017-2018
1. Segment Revenue
a. Textile Division 860.33 4671.23
b. Plastic Division 226.14 233.12
TOTAL 1086.47 4904.35
2. Segment Results
a. Textile Division 21.40 278.00
b. Plastic Division 70.09 (33.98)
Less: Interest 14.93 3.68
Less: Un allocable Expenditure 56.75 42.25
TOTAL 19.81 198.08
3. Capital Employed (Segment Assets -Segment Liabilities)
a. Textile Division 862.61 964.71
b. Plastic Division 703.04 169.39
c. Un allocable 393.5 807.83
TOTAL 1959.15 1941.93

NOTE:

• As certain expenses are often incurred and interchangeably across segments, it is impractical to allocate such expenses. Hence, the details of the same have been considered under other un-allocable expenditure.

OUTLOOK

India currently has one of the worlds largest young population, currently around half of the total population is below 25 years of age. This age group represents one of the biggest consumer group of textiles and apparel and is expected to drive the spending over the next five years. Catalyzed by increasing penetration of the internet, online retailing has witnessed strong growth in the country. Consumers are now looking for ease of shopping, multiple options, better offers and easy return policies. The growth in online sales has enabled the textile industry to reach consumers residing across every corner of the nation.

Having established their capabilities in delivering on-shore and off-shore services to global clients, top Indian IT firms have geared up to capitalize on significant opportunities emanating from emerging technologies. Strong demand from different geographies should revive IT exports in the near future. However, unfavorable INR movements could impact profitability.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has proper and adequate system of internal control to ensure that all assets are safeguarded and protected against loss from unauthorized use on disposition and transactions are authorized, recorded and reported correctly.

Internal control systems are supplemented by Internal Audit Reviews, coupled with guidelines.

FINANCIAL PERFORMANCE

1. Share Capital: As on March 31, 2019, the paid-up Share Capital of the Company stood at INR 16,13,72,630 comprising of 1,61,37,263 Equity Shares of Rs. 10/- each.

2. Reserves & Surplus: During the year 2018-2019 the total Reserves & Surplus of our Company increased to INR 3,45,42,709/- as against INR 3,28,19,824/- in the year 2017-2018.

3. Result: During the year 2018-2019 the total revenue of our company decreased to INR 11,47,08,037/- as against INR 50,12,16,219/- in the year 2017-2018.

HUMAN RESOURCE DEVELOPMENT

Human resource management is an important function in the Company. The Companys aim is to create a working environment that attracts, motivate and retains the best people. Companies Value aims to deliver value to its clients and opportunities to its employees in terms of career development and recognition.

The firm has always emphasized on quality of life, work life balance and continuous learning and excellence, Company successfully completed following initiatives;

- Establish a performance based culture with well defined structures, roles and responsibilities; -Capability maturity benchmarking exercise across all functions, processes, people and technology;

- Rationalized Grades and uniform structures across organisation.

- Identify key talent based on functional as well as behavioral competencies.

FINANCIAL STATEMENT ANALYSIS

In accordance with SEBI (Listing Obligation and Disclosure Requirements) (Amendment) Regulations,2018, the Company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key sector specific financial ratio.

The Company has identified the following ratios as key financial ratios:

Particulars Note No. Year ended as on March 31, 2019 Year ended as on March 31, 2018
Debtors Turnover (in days) 1 280 251
Inventory Turnover (in days) 2 36 11
Interest Coverage Ratio 3 2.32 54.77
Current Ratio 4 3.13 1.28
Debt Equity Ratio 5 0.007 0.013
Operating Profit Margin (%) 6 1.82% 4.04%
Net Profit Margin (%) 7 1.61% 2.89%

Ratios where there has been a significant change from year ended March 31, 2018 to year ended March 31, 2019:

1. Debtors Turnover (in days): Debtors turnover is computed as net credit sales divided by average account receivable. The movement in this ratio is on account of increase in credit sales and average debtors during the current year as compared to the previous year.

2. Inventory Turnover (in days): Inventory turnover is computed as cost of goods sold divided by average inventory. The inventory turnover ratio measures how often a company moves its inventory out of its warehouse and stores to its customers. A high turnover ratio indicates managerial efficiency.

3. Interest Coverage Ratio: Interest coverage ratio is computed as Earnings before Interest and Tax (EBIT) divided by Interest expense. The movement in this ratio is on account of increase in the Companys interest cost, as additional loan is withdrawn during the current year.

4. Current Ratio: Current ratio is computed as current assets divided by current liabilities. The movement in this ratio is on account of companys ability to pay its current liabilities from its current assets.

5. Debt Equity Ratio: Debt equity ratio is computed as Long term Debts divided by shareholders fund. The movement in this ratio is on account of loan withdrawn during the current year as compared to the previous year.

6. Operating Profit Margin (%): Operating profit margin is computed as operating income divided by revenue. The movement in this ratio is on account of decrease in revenue and operating income during the current year as compared to the previous year. Also, due to demerging engineering division hereby forming a separate legal entity.

7. Net Profit Margin (%) : Net profit margin is computed as net profit divided by revenue. The movement in this ratio is on account of decrease in revenue during the current year as compared to previous year.

THE DETAILS OF RETURN ON NET WORTH ARE GIVEN BELOW:

Particulars Year ended March 31, 2019 Year ended March 31, 2018
Return on net Worth (%) 0.88% 7.30%

Return on net worth is computed as net profit by average net worth. Net profit has declined i.e. from INR 14181706/- to INR 1722885/-. Additionally, there is no movement in each item of net worth except retained earnings.