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DCM Nouvelle Ltd Management Discussions

256.89
(-2.62%)
Jul 12, 2024|03:32:26 PM

DCM Nouvelle Ltd Share Price Management Discussions

GLOBAL TEXTILE INDUSTRY

The global textile & clothing trade was at USD 777 billion in 2020. With companies rearranging their operations and recovering from the COVID-19 impact, the market is expected to reach USD 1000 billion in 2025.

INDIAN TEXTILE INDUSTRY

India?s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector on the other end. The decentralised power looms/ hosiery and knitting sector forms the largest component in the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. India?s textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

Exports of textiles & clothing (RMG of all textiles, cotton yarns/fabs/made-ups/handloom products, man-made yarns/fabs/made-ups, handicrafts excluding handmade carpets, carpets and jute mfg. including floor coverings) stood at US$ 28 billion for 2020. In the year 2020-21, 980 million kgs of cotton yarn was exported from India. India is the second largest producer of fibre in the world and the major fibre produced is cotton. 60% of Indian textile industry is cotton based. Other fibres produced in India include man-made fibres, silk, jute and wool.

The labor-intensive nature of the textile industry makes it the second largest employer, after agriculture, contributing 10 per cent to the country?s manufacturing. The industry contributes 7 per cent to the nation?s total industry output and 2.3 per cent of the GDP. It also makes up 5 per cent of the global trade in textiles and apparel.

Many foreign textile companies have invested or working in India some of which are Rieter, Trutzschler, Saurer, Soktas, Zambiati, Bilsar, Monti, CMT, E-land, Nisshinbo, Marks & Spencer, Zara, Promod, Benetton and Levi?s.

Despite the slowdown due to the pandemic, sales in the online textile and apparel industry witnessed a jump in various cities and states of India. The post-COVID-19 era provided a big opportunity for the industry to move online. In fact, e-retail may be the big game-changer with e-retailers expected to play a pivotal role in the recovery of the Indian economy in 2022.

Spinning is concentrated in few states of India like Tamil Nadu, Maharashtra, Gujarat, Punjab, Rajasthan Telangana, Andhra Pradesh, Haryana and Madhya Pradesh. Few states are trying to expand textile manufacturing with in their states prominent of which are Uttar Pradesh and Orissa.

The textiles sector has witnessed a spurt in investment during the last five years. The industry (including dyed and printed) attracted Foreign Direct Investment (FDI) worth US$ 3.93 billion from April 2000-December 2021.

Indian government has come up with several export promotion policies for the textiles sector. It has also allowed 100% FDI in the sector under the automatic route. The Rs. 10,683 crore (US$ 1.44 billion) PLI scheme is expected to be a major booster for the textile manufacturers. The scheme proposes to incentivise MMF (man-made fibre) apparel, MMF fabrics and 10 segments of technical textiles products.

Spinning Industry Overview

In 2021 with an installed capacity of about 53 million plus spindles, India is one of the largest producers and exporter of cotton yarn in the world with a production of 5659 million kgs (FY19-20) of all types of spun yarn.

For FY 20-21, China is the largest importer of cotton yarn (28% share) from India, followed by Bangladesh with 23% share. The top five importers form 66% of India?s total cotton yarn exports.

The high cotton yarn exports out of India can be attributed to the local availability of abundant raw material and modern technology in the spinning section of the value chain. Indian spinners over the last few decades have invested extensively in enlarging and modernizing the industry with latest machines and equipments procured locally as well as from outside the country. Central and State Governments has been pitching in with various incentives to help the industry in this endeavor so that it is able to export value added high quality products from India and simultaneously providing employment to the lowest earning population of the country.

COMPANY OVERVIEW

DCM Nouvelle Limited is a leading manufacturer & exporter of 100% cotton carded and combed yarns in single and two-ply forms of count range Ne 12s to 40s. The Company has spindle capacity of 1,15,048 located at Hisar with approx

2500 MT of monthly production at present & is under expansion with spindle capacity of 43776 for producing 100% Compact Cotton Yarn. After the expansion, production capacity will go up to about 3400 MT/month. State-of-art spinning machineries and Quality Assurance instruments from leading manufacturers have been installed for production of fault free 100 % cotton yarn. With the introduction of value added products, premium brands & sustainability certifications, the company has moved ahead in positioning itself as supplier of quality yarn for the finest clothing. The company had successfully engraved its name in domestic markets and have exported to more than 30 countries. The company has also installed 14.255 MWp capacity of Roof top and ground mounted Solar Power Plants which is helping company to generate and self-consume solar power and also reducing carbon footprints on earth. Moving on the path of Total Quality Management (TQM), its improved processes & products aim to achieve the ultimate goal of "CUSTOMER DELIGHT".

OPPORTUNITIES AND OUTLOOK

The outlook for the textile industry in India is quite optimistic. It is expected that the textile industry will continue to grow at an impressive rate.

The Indian textiles industry, currently estimated at around US$ 108 billion, is expected to reach US$ 220 (220+70) billion by 2025. The industry is the second largest employer after agriculture providing employment to over 45 million people directly and 65 million people indirectly. The Indian textiles industry contributes approximately 2.3% to India?s GDP and 14% to overall Index of Industrial Production (IIP). The textile sector is among the largest contributors to India?s exports, and has the potential to reach US$ 500 billion in size according to a study of many research firms.

The inherent strengths of the textile industry have seen it through rough days and hard times. There have been many periods of adversity, when growth charts dipped and the future appeared bleak. But like the phoenix, the textile industry has risen each time from the ashes.

With a tremendous growth in the economy along with Government support, the Indian economy is expected to overtake Japan to be the 3rdlargest economy by 2028.

RISKS & CONCERNS

Textile spinning sector globally seems to be quite unpredictable and uncertain for various reasons including stagnant demand as against growing supply, cotton futures, currency fluctuation, disruption in export logistic and above all increasing competition from some countries like Vietnam, Bangladesh, and Cambodia etc. Initiatives launched by Govt envisages inviting FDI which may give impetus to growth in textiles, particularly the fabric and processing which will lead to balancing out the demand supply position for the spinning sector.

Competition from other developing countries, high volatility of cotton, yarn price and the Rupee to US$ exchange rate are the major area of concern. The Company is trying to reduce the impact of volatility by reducing open position in respect of the above. Labour shortage is another area which is affecting operations. This is being mitigated by increasing worker training programs and strengthening operational efficiency.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The internal control systems have been designed to effectively and efficiently handle the dynamic and complex nature of the business operations of the Company. The internal control systems and environment are commensurate to the scale and volumes of the business with adequate segregation of roles, responsibilities and redundancies. The executives of the Company keep themselves abreast with the detailed documentation of its policies and SOPs, which are regularly reviewed and updated by the management. The statutory auditors of the Company critically review the internal control environment within the ambit of the Internal Control over Financial Reporting (ICFR) requirements to arrive at their opinion about the financial performance of the Company. The Company also has a strong internal audit framework as approved by the Audit Committee which ensures detailed coverage of the processes and systems needed to safeguard its assets, prevention and detection of errors and frauds, ensure accuracy and completeness of accounting transactions thus enabling timely preparation of reliable financial information. The various committees of the board, including the Audit Committee, periodically review the observations and recommendations of the internal auditors to further improve the systems and processes.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS

Employees have always played an extremely pivotal role in all strategic decisions taken by the Company. In a world where everything else is equal, human effort makes all the difference. We place immense value on our workforce and consider it our biggest, most valuable asset. At DCM Nouvelle, we have a culture of empowerment that values and respects individual potential and helps each one achieve it to the fullest. Our people own their jobs and not just perform them. We continuously strive to improve quality of work-life balance for total job satisfaction and social harmony for the employees. The total number of people on the rolls of the company is 1807. The industrial relation continued to remain cordial during the year.

FINANCIAL AND OPERATIONAL PERFORMANCE:

The Company is operating in single segment only i.e. Textile. On a standalone basis, the revenue for FY 2022 was Rs. 880.10 crore, higher by 58 percent over the previous year?s revenue of Rs. 557.06 crore. The profit after tax ("PAT") attributable to shareholders for FY 2022 was Rs. 122.79 crore registering a growth of Rs. 302.50 percent over the PAT of Rs. 30.51 crore in FY 2021.

On a consolidated basis, the revenue for FY 2022 was Rs. 880.10 crore. The profit after tax ("PAT") attributable to shareholders and non-controlling interests for FY 2022 was

Rs. 122.60.

The operating profit of the Company improved significantly due to good market demand and higher realisation

Summarised Profit and Loss Account

Particulars Financial Year ended March 31, 2022 Financial Year ended March 31, 2021
Profit before Interest, 18,286.41 6,544.99
Depreciation and Tax
Less: a) Finance Cost (617.36) (841.31)
b) Depreciation (1,236.32) (1,602.86)
Profit before Tax 16,432.73 4,100.82
Less: a) Provision for tax (4,153.27) (1,050.02)
Profit after tax 12,279.46 3,050.80
Other Comprehensive income (29.31) 2.49
Total Comprehensive income 12,250.15 3,053.29
for the year
Add - Profit brought forward 11,029.15 7,975.86
Profit available for appropriation 23,279.30 11,029.15
Balance Profit carried forward 23,279.30 11,029.15
S. No. Particulars Financial Year ended March 31, 2022 Financial Year ended March 31, 2021
1. Sales in Quantity (MT) 29100 26,662
2. Production (MT) 29886 26,025
3. Sales & other Income 91,764 56,908
4. Total Expenditure (73,478) (50,363)
5. Profit before finance cost, Depreciation, Amortization & Tax 18,286 6,545
6. Finance Cost (617) (841)
7. Depreciation (1236) (1,603)
8. Profit before Tax 16,433 4,101

Key Financial Ratios

The SEBI LODR (Listing Obligation and disclosure requirements) (Amendment) Regulations, 2018 has mandated that Company should provide detail of Significant Changes in Key Sector Financial ratios. We would like to inform you that in the following key financial ratios there have been Significant Change as compared to the last year:

Particulars F Y 2021-22 F Y 2020-21 Change (%) Explanation
Current Ratio (Times) 2.08 1.58 32 Better operating profits in current year.
Debt Equity Ratio (Times) profit in current year. 0.51 0.90 -43 Repayment of term loans and better
Debt service coverage ratio (Times) 7.39 1.67 342 Better operating profits in current year.
Return on equity ratio (Percentage) 50.04 18.06 177 Better operating profits in current year.
Inventory turnover ratio(Times) year. 3.15 2.40 32 Increase of cost of goods sold in current
Trade receivable turnover ratio (Times) compared to previous year 10.37 7.52 38 Better realisation in current year as
Trade payable turnover ratio (Times) year. 62.34 34.27 82 Increase of cost of goods sold in current
Net capital turnover ratio (Times) 6.65 6.32 5 -
Net profit ratio (Percentage) 13.50 5.42 149 Better operating profits in current year.
Return on capital employed (Percentage) 55.60 26.84 107 Better operating profits in current year.
Return on investments (Percentage) 32.56 10.53 209 Better operating profits in current year.

*The calculation for above ratios (including restatement of prior year ratios, wherever necessary) is in accordance with formula prescribed by Guidance note on Schedule III issued by the Institute of Chartered Accountants of India.

CAUTIONARY NOTE

Certain statements in this report describing the Company?s objectives, projections, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable securities, laws and regulations. Although the expectations are based on reasonable assumptions, actual results in the future could materially differ from those expressed or implied

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