Evinix Industries Ltd Management Discussions

EVINIX INDUSTRIES LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS Industry structure and developments Its heartening to note that the Indian textile industry contributes around 14 percent to industrial production, 4 per cent of the countrys Gross Domestic Product (GDP) and 17 per cent to the countrys export earnings. This apart, it also provides direct employment to over 35 million people thereby emerging as the second largest provider of employment after agriculture, according to a Ministry of Textiles report. The cumulative production of cloth during April09-March10 has increased by 8.3 per cent as against the corresponding period of the previous year. It is during this year though many companies have shifted their focus from Clothing to other sectors, but new entrants backed by funding from FIIs & Private equity shows the strength which Indian Textile sector has. It is our domestic population needs which are growing @16% annually, which enables us to grow. Opportunities and Threats Indias textile industry has been on a growth trajectory since the quotas were phased out. Though not very friendly policy initiatives , capacity expansion and Indias rising market share, change in products & designs or more so need to have value added hand work products, we are likely to see a rapid export growth in this sector. Changing lifestyles and accelerating preferences of the urban population for branded apparels are also some of the growth drivers. In opening of Retail sector specially Malls coming up across the country welcome new domestic & International brands. Identification of the textile sector as a priority one for job creation by the government certainly augurs well for the long-term needs of trained man power. This is particularly a positive indication for players in the garmenting side, being very labor intensive. India ranks fifth in the global textile and clothing trade (exports being nearly 3% of global textile trade). The European & US brands are now setting up contract manufacturing units in India with special reference to supplies for their Indian Chain Stores. which single handedly opens up a wide array of possibilities for all the stakeholders within the textile industry. Experts believe that the golden era of Chinese textile and apparel exports is over and the production base of global textiles is gradually shifting from China to India, Pakistan and other low cost destinations. Threats are for loosing quantities supply orders to low cost neighboring countries like Bangladesh & Sri Lanka , which needs to be mitigated by shift in product lines as well up gradation of technology. Financial performance of Evinix Industries Limited (in Million) 2010-11 2009-10 Revenue 2,067.95 1,603.23 Other Income 10.59 4.39 Total Income 2,078.54 1,607.62 Expenditure -2,088.36 -1,435.37 Interest -96.68 -77.11 PBDT 59.70 95.14 Depreciation -23.11 -23.57 PBT 36.60 71.57 Tax 3.70 1.09 Net Profit 25.91 72.67 The Company has achieved a Sales Turnover of Rs. 2067.95 million in Financial Year 2010-11 as against sales revenue of Rs 1603.23 million during the previous year. The Company has recorded Profit before Depreciation, and Tax of Rs 59.70 million as against Rs 95.14 million during the year before. A higher net profit of Rs 72.67 million was registered in FY10 as against a profit of Rs 25.91 million during the previous year. Measures undertaken Evinix has started export of Polyester Cotton wraps & scarfs, bedsheet sets to African countries through India based agents and plan to undertake direct export marketing during 3rd quarter of financial year 2010 and the same has been carried on. Your companys expansion plan met with global recession and there was a downturn in retail segment. Consequently, this Strategic Business Unit (SBU) failed to match its projected sales figure and sales were managed on high discounts only. Company has already identified a loss of Rs 14.73 Crores on these retail stores. Despite generating consistent growth in its top line, companys EBIDTA level deteriorated where one of the reasons was fixed expenses incurred for running these stores; same can be depicted from following table Rs. in Crore Particulars 2007-08 2008-09 2009-10 2010-11 Net Sales 119.04 121.78 160.32 206.71 EBIDTA 22.87 15.47 17.26 15.63 EBIDTA (%) 19.21% 12.70% 10.77% 7.56% To shield its main manufacturing activity from the negative impact of its retail segmentand in absence of any hope of its revival in near future, companys management has decided to close all its present stores. As a step, leases of all company operated stores are now cleared of its lock in period of 3 years. Efforts have been undertaken to open more manufacturing locations to meet growing order book position & avoid outsourcing which shall help in improving our bottom line. Internal control systems and their adequacy. The Company maintains and proper internal controls system of internal controls. All the Companys assets are secured and protected against loss from illicit use or dispossession. All the transactions are authorized. It is ensured that Companys internal audit is being strengthened from time to time and all the financial statements and accounting records of the company are reviewed and reliable. Material developments in Human Resources/Industrial Relations front Sustained and meticulous efforts continue to be exercised by the Company at all its plants, towards greener production and environment conservation. The Company perseveres in its efforts to indoctrinate safe and environmentally accountable behavior in every employee, as well as vendors, by rigid compulsory annual training and refresher courses, as well as frequent awareness programs. Mock drills of emergency preparedness are regularly conducted at all the plants showing Companys commitment towards safety, not only of its own men and plants, but also of the society at large. The health of employees and the environment in and around the Plant area have been given due care and attention. The Company continued to comply with the prescribed industrial safety environment protection and pollution control regulation at its production plant, through periodic checks of the system involved and constant monitoring to meet the standards set by the pollution control authorities, etc. All the plants of the Company are eco-friendly and do not generate any harmful effluents. They have facilities for captive power generation as a stand-by arrangement, to meet any contingency. Safety devices have been installed wherever necessary, your companies all manufacturing locations are fully compliant to buyer norms & certified. These are inspected audited by independent third party as well buyers auditors. Road Ahead The growth in the global textile industry is closely linked to the GDP growth of the US and the European nations. While these economies have been in turmoil in recent times, what is enthusing is the fact that with growing disposable incomes, the domestic market offers significant potential to the branded apparel players. While the shrinking capacities in the US are a positive for Indian companies, competition from low cost producers like China and India cannot be ignored. Even though experts claim that China is past its glorious days, still one needs to take China seriously because of the capability of Chinese exporters to supply quality products at cheap prices. Indian textile exporters cannot afford complacency and need to be on their toes for any changes within the international trade community. According to Ministry of Textiles, the current domestic market of textile in India is expected to increase up to US$ 60 billion by 2012 from the current US$ 34.6 billion. The share of exports is also expected to increase from 4% to 7% within 2012. Textile Accessories are also an important part of this segment. Coming year shall see addition of Home fashion & Furnishing as another segment contributing min. 25% of revenues & margins. Your companys plans to diversify in non textile areas are on cards, sectors such as Food, Agri Commodities & Infrastructure. In these new areas while opportunities are large so are downsides, we are cautiously evaluating small proposals matching to our capabilities & risk return expectations of all stakeholders.