Digjam Ltd Merged Management Discussions

We submit herewith our Managements’ Discussion & Analysis Report for the year ended March 31, 2014. We have included discussions on all specified matters to the extent relevant or within limits that in our opinion are imposed by the Company’s competitive position.

COMPANY & INDUSTRY STRUCTURE

The Company operates in the worsted textiles segment and runs a fully equipped composite mill (ISO 9001 certified) manufacturing high quality worsted fabrics at Jamnagar, Gujarat, with normal production capacity of 5 million meters of fabric per annum. The worsted industry in the country comprises of a few mills in the organized sector and a number of units in the unorganized sector. The Company has been a notable player in this industry in India for more than 60 years. Its commitment to quality and customer orientation reflects in its strong nationally recognized and valuable brand DIGJAM, supported by a well-established national distribution network. The Company has a proven track record of design and manufacture of high quality fabrics. The Company consistently takes steps to push forward its marketing efforts by enhancing its brand visibility, strengthening marketing organization and closer interaction with and expansion of its channel partners.

The Company has always laid stress on export markets and exploring new areas. It has an independent marketing team supported by an appropriate network abroad for export business. It exports a significant portion of its production to markets in Europe, USA, Canada, Middle East, Far East etc. The Company has received Oekotex Certification, which certifies that fabric is free from hazardous chemicals.

OPERATIONS

A summary of key operating indicators is given below; detailed performance may be viewed from financial statements and notes thereto in the Annual Report.

Product : Fabrics	2013-14	2012-13
Production (Lac Mtrs)	29.7	30.0
Sales (Lac Mtrs)
- Domestic	28.9	24.0
- Exports	14.3	16.1
	43.2	40.1
Sales (Lac Rs.)	146.43	131.88

The year under review has been extremely challenging with continuing macro-economic challenges. Substantially slowed GDP growth, high inflation – particularly in food, volatile currency, a high current account deficit, rising fuel & energy costs and poor consumer sentiments characterized the domestic situation. Global geo-political developments such as tapering of quantitative easing by the US treasury and adverse developments in parts of Asia and the Middle-East added to the concerns. Overall consumer confidence remained low in the backdrop of the uncertain political situation leading up to the general elections. The Global economy is on a recovery track and growth is expected to accelerate to 3.2 percent in 2014 from 2.4 percent last year, with initial acceleration reflecting a pick-up in advanced economies - particularly the United States, a major export destination for the Company.

Global and domestic woollen textiles industry also saw a difficult year rendered more challenging with uncertain weather conditions prevailing in many parts of the world and increasing competition from non-woollen fabrics. Despite this scenario, the Company achieved higher overall sales, both in volume and value, with sales at 43.2 lac meters (Rs.146.43 lacs) against 40.1 lac meters (Rs.130.88 lacs) in the previous year. Production levels were marginally lower. Sales realization was better in domestic and export markets. Domestic markets contributed to volume growth. However, export demand was sluggish due to persistent economic slowdown in key destinations, increasing competitiveness of China, and corporate restructuring/mergers at some major U.S. customers. Operations resulted in an earnings before interest and depreciation of Rs.1468.89 lacs against Rs. 511.95 lacs in the previous year. Finance costs were lower at Rs.1279.78 lacs (Rs.1457.97 lacs), Depreciation was also lower at Rs. 388.35 lacs (Rs.462.84 lacs) and accordingly yielded a profit before tax of Rs. 28.79 lacs.

These results were achieved in the face of prevailing recessionary conditions, volatile wool prices, increased energy costs and a competitive environment, balanced by efforts towards cost control and productivity enhancements. We believe that our businesses are backed by necessary skills and expertise and remain cautiously optimistic that performance and profitability will improve with continuing momentum of operational improvements and the expected upturn in the global and Indian economy and markets.

ENVIRONMENT & SAFETY

We are fully conscious of the need for both environmentally clean and safe operations. Our policy requires all operations to be conducted in a way so as to ensure safety of all concerned, compliance of statutory and industrial requirements for environment protection and conservation of natural resources.

HUMAN RESOURCES

Management recognizes that employees represent our greatest assets and it is only through motivated, creative and committed employees that we can achieve our aims. Hence, the Company attempts to take care of welfare and betterment of employees.

OTHER MATTERS

There are no further or typical areas of risks or concerns outside the usual course of business foreseeable at this time. Internal control systems are regarded as being adequate and are continuously reviewed for further improvement. Our team is committed to the Board’s dictates on standards of conduct as well as good governance and exercise of due diligence including compliance with all relevant regulations and laws. We record our appreciation of all our sincere employees, gratefulness to our Shareholders, lenders and banks and other stakeholders, concerned Government and other authorities and our channel partners for their continued support and to customers for their reposing faith and confidence in us.

CAUTIONARY STATEMENT

Statements in this "Managements’ Discussion & Analysis" which seek to describe the Company’s objectives, projections, estimates, expectations or predictions may be considered to be "forward looking statements" within the meaning of applicable securities laws or regulations. However, actual results could or may differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations also include global and Indian demand-supply conditions, finished goods prices, feedstock availability and prices, cyclical demand and pricing in the Company’s markets, changes in Government regulations, tax regimes, economic developments within India and countries with which the Company conducts business besides other factors, such as litigation and labour negotiations.

	For and on behalf of the Management Team
New Delhi	C. Bhaskar
May 8, 2014	Managing Director & Chief Executive Officer

ANNEXURE TO THE DIRECTORS’ REPORT

Information as per Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 and forming part of the Directors’ Report for the year ended March 31, 2014.

A. Conservation of Energy

a. Energy conservation measures taken:

A phased programme for replacement of DC motors with AC motors as well as hydraulic systems with AC drives has been taken up. In the humidification plant, supply air fans are being replaced with FRP fans. The working of the air conditioning plant is being regularly monitored to control energy consumption. Steps have been taken to reduce transmission losses and maintain high power factor by installing power capacitors. Transformer losses have been checked by rearranging the load between the existing transformers and reducing the number of transformers. The existing lighting is being replaced in phases with energy efficient 4’ tube lights and where feasible, with compact fluorescent lamps.

b. Additional Investments and proposals being implemented for reduction of consumption of energy:

The programme for replacement of DC motors with AC motors and hydraulic systems with AC drives is proposed to be continued along with that for replacement of supply air fans in the humidification plant. Operation of viable processes is being maximized during off-peak hours. It is planned to continue the replacement of the existing lighting with 4’ energy efficient tube lights and compact fluorescent lamps. A number of other proposals for energy conservation are under study. c. Impact of measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods : These measures are expected to lead to reduction in energy consumption per unit of production and bring about savings in cost of production.

d. Total energy consumption and energy consumption per unit of production :

As per Form - A annexed.

B. Technology Absorption

e. Efforts made in technology absorption : As per Form - B annexed.

C. Foreign Exchange Earnings and Outgo

f. Activities relating to exports; initiatives taken to increase exports; development of new export markets for products and services; and export plan:

The Company exports fabrics to markets in USA/Europe and also to Far East and the Middle East. Digjam fabrics are certified under Oeko-Tex Standard 100 i.e. meeting ecological standards for textiles and their chemical ingredients on health and well-being of humans. Premium fabrics with special finishes including nano for oil, soil and water repellency with soft handle, teflon, bio-polishing, 100% wool washable fabrics, cool touch, anti-felting, etc. have been developed. Exports continue to be affected by the slow recovery in USA and Europe as well as the volatility of the Indian Rupee during the year. Intensive export efforts continue.

g. Total Foreign Exchange used and earned:

	2013-14	2012-13
- Used (As per notes to accounts)	3148	2816
- Earned (As per notes to accounts)	5343	5756

ANNEXURE

FORM - A

DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY:

		2013-14	2012-13
A.	POWER & FUEL CONSUMPTION
1.	Electricity
a.	Purchased Units (in thousand)	14,364	14,360
	Total amount (Rs. in thousand)	96,372	1,02,637
	Avg. rate/Unit (Rs.)	6.71	7.15
b.	Own Generation
	Through Diesel Generator	24	33
	Units (in thousand)
	Units per Ltr. of Diesel Oil	2.42	2.51
	Avg. Cost/Unit (Rs.)	20.63	19.52
2.	Coal (Steam Coal and Lignite used in Boiler for steam)
	Qty. (M. Tonnes)	10,478	10,525
	Total cost (Rs. in thousand)	44,790	39,602
	Avg. rate/M. Tonne (Rs.)	4,275	3,763
B.	CONSUMPTION PER UNIT OF PRODUCTION
	Products Fabric/Shawls (per Mtr.)
	- Electricity (KWH)	4.83	4.78
	- Coal (Steam & Lignite Kg/Mtr.)*	3.52	3.50

* For generation of steam.

ANNEXURE

FORM - B

DISCLOSURE OF PARTICULARS WITH RESPECT TO TECHNOLOGY ABSORPTION:

RESEARCH AND DEVELOPMENT (R&D):

1. Specific areas in which R&D carried out by the Company :

a. Product development by using new fibres and new processes.

b. New finishes.

c. Improvement in quality.

d. Process and System improvement particularly by implementing the Quality Management System IS/ISO 9001:2008.

e. Energy and Water conservation.

f. Increased productivity.

2. Benefits derived as a result of the above R&D :

a. Fabrics certified in accordance with Oeko-Tex Standard 100 as meeting the human ecological standards for products with direct contact to skin.

b. Increased variety of fabric finishes like bio-polishing, 100% wool washable fabrics and nano finished fabrics.

c. Improvement in quality and marketability of existing products.

d. Energy and water conservation.

e. Control of Inventory

3. Future Plan of action :

Emphasis on product development, product quality, cost reduction, energy and water conservation, improvement in process, productivity, safety and ecology.

4. Expenditure on R&D:

		(Lac Rs.)
	2013-14	2012-13
a. Capital
b. Recurring	14.47	14.61
c. Total	14.47	14.61
d. Total R&D expenditure as a percentage of total turnover	0.10%	0.11%

TECHNOLOGY ABSORPTION, ADAPTATION & INNOVATION:

1. Efforts, in brief, made towards technology absorption, adaptation and innovation :

Regularly in contact with Research Organizations in India and abroad, such as The Woolmark Company, Hohenstein Textile Testing Institute, Germany.

2. Benefits derived as a result of the above efforts e.g. product improvement, cost reduction, product development, import substitution etc. :

a. Better and easier availability of materials.

b. Improved productivity and improved machine performance resulting in saving in process cost.

c. Less dependence on imported items and saving of foreign exchange outgo.

d. Technology upgradation to meet the specifications of exportable products.

e. Increase in product range.

f. Imparting a variety of finishes to fabrics such as nano and cool touch finishes to all types of fabrics and washable to 100% wool fabrics.

3. In case of imported technology (imported during the last 5 years reckoned from the beginning of the financial period) following information is being furnished :

a. Technology imported
b. Year of Import
c. Has Technology been fully absorbed?	NONE
d. If not fully absorbed, areas where this has not taken place, reasons therefor and future plans of action

 

	For and on behalf of the Board
New Delhi	Sidharth Birla
May 8, 2014	Chairman