Digjam Ltd Management Discussions

We submit herewith our Managements? Discussion & Analysis Report for the year ended March 31, 2024. 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.

ECONOMIC OVERVIEW

GLOBAL ECONOMIC OVERVIEW

The global economy faced significant challenges in 2023. Commodity price fluctuations caused inflation in both developed and developing countries, while ongoing geopolitical issues led to disruptions in supply chains. Additionally, the global economy saw the steepest rise in interest rates in four decades. Consequently, global growth slowed from 3.5% in 2022 to 3.2% in 2023 .

Despite these challenges, several economies showed resilience. Emerging markets and developing nations like India, Mexico, and Vietnam experienced strong growth and attracted foreign capital. Moreover, with supply chains becoming less constrained and monetary policies becoming less restrictive, the global inflation rate decreased from its peak in 2022 to 6.8% in 2023. Some low-income and frontier economies also regained their footing in the market.

INDIAN ECONOMIC OVERVIEW

Despite a slow global economy, India remained one of the fastest- growing economies in the world. This growth is largely due to strong domestic consumption and reduced reliance on foreign imports. Government efforts have stimulated domestic demand, while increased investments in the manufacturing sector and enhancements in digital and physical infrastructure have addressed supply chain challenges effectively. The government?s focus on infrastructure, evident in initiatives like the PM Gati Shakti National Master Plan, logistics upgrades, and industrial corridors, is expected to boost industrial competitiveness and fuel future growth. In FY2024, Indias GDP reached 7.6%, with the Current Account Deficit (CAD) at 1.9% of GDP. Improved business accessibility is creating a more favorable investment climate. Moreover, rising consumer confidence, improvements in labor markets, and growing private consumption are helping the government aim for higher capital investment and a reduced budget deficit.

TEXTILES

Global Textile Industry

The global textile industry involves the manufacturing, refining, and retail of clothing. This multi-billion-dollar sector includes the production and sale of synthetic and natural fibers. In 2024, the market size is estimated at USD 748 billion and is expected to grow to USD 889 billion by 2029, with a CAGR of 3.5%. Major players include China, the European Union, the US, and India. China is the largest producer and exporter, while the EU,

with countries like Germany, Spain, France, Italy, and Portugal, accounts for over one-fifth of the market. India is the third- largest producer, contributing more than 6% globally.

1. https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world- economic-outlook-april-2024

2. https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world- economic-outlook-april-2024

Technological advancements and rapid industrialization have led the industry to adopt modern installations, boosting production. Theres a growing preference for natural fibers such as cotton, silk, linen, wool, hemp, jute, and cashmere due to their low density and high strength. This trend, along with increased postpandemic hygiene awareness, has fueled the demand for natural fiber fabrics.

Indian Textile Industry

The Indian textile industry, one of the largest globally, significantly impacts the economy by contributing 2.3% to the GDP, 13% to industrial production, and 12% to export earnings. As a top producer of cotton, jute, and the second-largest producer of silk, India is known for generating 95% of the world?s hand-woven fabric. With textile exports projected to reach USD 65 billion by FY2026 and grow at a 10% CAGR from 2019-2020, the sector aims for USD 190 billion by 2025-2026. The industry is diverse, spanning from traditional handloom products to technical textiles, bolstered by government incentives like the Production Linked Incentive Scheme.

COMPANY & INDUSTRY STRUCTURE

The Company operates in woollen worsted textiles segment and operates a fully equipped composite mill (ISO 9001 certified) in Jamnagar, Gujarat, which has been manufacturing high quality worsted fabrics for over last seven decades. The woollen worsted industry in the country comprises of a few mills in the organized sector and a number of units in the unorganized sector. Company?s commitment to quality and customer orientation reflects in its strong widely recognized and valuable brand - DIGJAM. The mill had a proven track record of design and manufacture of high-quality fabrics. The Company is proactive in its marketing efforts by enhancing its brand visibility, strengthening marketing organization and closer interaction with and expansion of its channel partners.

OPERATIONS

The company recorded a revenue of Rs 2412.72 lakh as compared to the last year?s revenue of Rs 3,410.59 lakh. The net loss after tax (after exceptional item and other comprehensive income) of the Company for the year under review is (1,222.54) lakh as compared to the last year?s net loss of (1,188.27) lakh for the previous year. The net loss for the current year includes an exceptional item of (632.32) lakh on account of discarding of Property, Plant and Equipment in nature of Building, more particularly described in Note No. 3. of the Financial Statements.

The textile industry remains one of the mainstays of the national economy, and a significant contributor to Indian exports. The woollen/worsted fabric industry, however, increasingly faces challenges in the market from changing consumption patterns driven by cheaper alternative fabrics and shift away from daily formal wear. The demand during the year was particularly affected due to general liquidity constraints in the market. The prices of wool have surged further during the year setting new highs, mainly due to shortage of raw materials and several supply chain disruptions have worsened the situation globally, resulting in higher raw material cost.

Pursuant to Honble NCLT, Ahmedabad Bench order dated May 27, 2020 ("NCLT Order"), the Adjudicating Authority approved the resolution plan ("Approved Resolution Plan") submitted by Finquest Financial Solutions Private Limited ("FFSPL") ("Resolution Applicants") for the Company under Section 31 of the Code. The Reconstituted Board of the Company took over control over the operation w.e.f. November 22, 2020 and new management was put in place. The new management of the Company is gaining the confidence of the various stakeholders viz. vendors, suppliers, lenders and customers etc.

We believe that our business is backed by necessary skills and expertise and remain cautiously optimistic that performance will improve as the Resolution Plan has been approved now, with continuing momentum of operational improvements and expected upturn in the economic conditions helping domestic as well as export demand.

The Company has sold / disposed of surplus land ad measuring 65,584.50 Sq. Mtrs. as identified by the Board of Directors at their meeting held on August 29, 2022 for consideration not less than Rs. 60.21 Crore. Subsequently, the Board has also obtained Shareholder consent to sale / dispose of above said land by passing Special Resolution at 7th Annual General meeting held on September 24, 2022. Further, the management has entered into sale deed with buyer to sale the aforesaid surplus land and against this sale of land the Company has received full sale consideration of Rs. 60.21 Crore.

The operation at Jamnagar seems to be uneconomical and the management team is evaluating to discontinue the operations at Jamnagar on account of various factors affecting the Company operational and financial viability.

Further, the management team is considering an important strategic decision that to transition from our current in-house manufacturing model to an outsourced approach.

This shift aligns with our commitment to optimize operational efficiency, reduce costs, and focus on our core competencies. Outsourcing manufacturing will allow us to leverage specialized expertise, scale production more flexibly, and respond more swiftly to market changes, all while maintaining the high standards of quality and innovation that our company brand "DIGJAM? is known for. And the warehousing and dispatch operations are shifted to the Company?s warehouse in Bhiwandi, Thane.

We believe that this change will not only streamline our operations but also enable us to reinvest resources into key areas such as research and development, marketing, and customer service. Our goal is to enhance our competitive edge and drive sustainable growth for the benefit of all our shareholders.

Further, the Board of directors at their meeting held on February 10, 2024 has approved a Voluntary Retirement Scheme for the workers at Jamnagar, Gujarat.

In additional to above, the Management is also looking forward to further monetise existing non-core assets so as to invest into the working capital requirements and reduce existing debt of the Company.

KEY RATIOS

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.

RISKS AND CONCERNS

The broader trends in the economy are expected to have a direct impact on your Company?s growth prospects as well. Inflation is expected to remain elevated for the foreseeable future, driven by war-induced commodity price increases and broadening price pressures. In addition, the anticipated increase in interest rates by Central Banks in the coming year are also expected to lower growth and exert pressure on economies particularly those in emerging markets.

In these circumstances, the ability to successfully navigate cost pressures would have a significant bearing on the overall performance of your Company. Diminishing purchasing power and demand due to the economic circumstances could result in fundamental shifts in consumer behaviours and adversely impact the market for textiles and apparel. Migration to value-for-money options could also lead to reduced growth and profitability for your Company.

OTHER MATTERS

Pursuant to its order dated May 27, 2020 NCLT Order, the Adjudicating Authority approved the resolution plan submitted by Finquest Financial Solutions Private Limited ("Promoter Company"). The Promoter Company has implemented the Plan by payment of last tranche to Financial Creditors as per their claim filed during Corporate Insolvency Resolution Process to utilize the Company?s intrinsic strengths. 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 success of implementation of the approved Resolution Plan, 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.