Faze Three Ltd Management Discussions.

Management Discussion and Analysis Report for the financial year under review as stipulated in Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Global and Domestic Economy and Industry

The Global economy in the fiscal gone by has been stable with modest growth of 3-4% mainly led by USA and China alongside other emerging economies whereas EU countries and Japan continue to remain flat on growth along with negative interest rates. UK in specific grappled with Brexit and uncertainties around that. The fiscal saw flight of funds to the US Equity and Debt from Rest of the World in search better yield coupled with DXY gains. The US economy saw the positive effects of tax cuts by the Trump administration and showed robust numbers on all macro indicators. In fact, the Fed raised rates 4 times over CY 2018. While the US economy did well, the trade war between USA and China gained momentum and both sides imposed tariffs on certain goods. The quick resolution of this trade war in a win-win proposition with outcome tilting towards US economy would decide the global growth and stability of global economy over the next 12-24 months which also have significant event of USA presidential elections in Nov 2020. The global trend of negative interest rates is another area of key concern as it is an uncharted territory in the economic history of the world. Manufacturers in particular in economies with negative interest rates are at far larger advantage in the global exports as against the Manufacturers in countries with high rates like India, China, Turkey, etc. Global textile business in Apparel, Bed, Bath and overall Home Textiles seems to be growing in line with global growth while the sector has seen consolidation due to advent of e-commerce.

The Indian economy started the fiscal year 2018-19 with a healthy 8.2 percent growth in the first quarter on the back of domestic resilience. Growth eased to 7.3 percent in the subsequent quarter due to rising global volatility, largely from financial volatility, normalized monetary policy in advanced economies, externalities from trade disputes, and investment rerouting. Further, the Indian rupee suffered because of the crude price shock in the first half of the fiscal and appreciated in the second half of the fiscal. The overall volatility range during the fiscal was over 18% (65 to 74) on the USD / INR and 45% (range in the Crude price for the year). Despite softer growth, the Indian economy remains one of the fastest growing and one of the lesser affected by global turmoil. In fact, the effects of the aforementioned external shocks were contained in part by Indias strong macroeconomic fundamentals and policy changes on various fronts. Over last 5 years, India is preferred destination for business and trade due to stable political leadership and fiscal discipline alongside better effort to effect (yields) of public money utilization in the economy.

Indias textiles sector is one of the oldest industries in Indian economy dating back several centuries. Indias overall textile exports during FY 2017-18 stood at US$ 39.2 billion in FY18 and it achieved export of US$ 31.65 billion in till January 2019 and is expected to increase to US$ 82.00 billion by 2021.

Increased penetration of organized retail, favorable demographics, and rising income levels are likely to drive demand for textiles. India is the worlds second largest exporter of textiles and clothing. Rising government focus and favorable policies is leading to growth in the textiles and clothing industry. The Ministry of Textiles is encouraging investments through increasing focus on schemes such as Technology Up-gradation Fund Scheme (TUFS). Under the Union Budget 2018-19, Rs 2,300 (US$ 355.27 million) crore have been allocated for TUFS. Under Union Budget 2019-20, Government of India allocated around Rs 5,831.48 crore (US$ 808.24 million) for the Ministry of Textiles.

The Directorate General of Foreign Trade (DGFT) has been actively incentivizing through Merchandise Exports from India Scheme (MEIS) for the Textile Industry - Readymade garments and Made ups. Also , the Government of India has proposed increase of the basic custom duty to 20 per cent from 10 per cent on 501 textile products, to boost Make in India and indigenous production.

FTLs overview and performance

Faze Three Limited (FTL/ the Company) undertakes design, development, manufacture & exports of Home Textile products viz. Bathmats, Rugs, Blankets, Cushions, Curtains, Throws, etc. It has 6 manufacturing facilities located at Silvassa, Panipat & Vapi.

FTL caters to high end home textiles segment and the products are custom made as per the client specifications. Significant majority of FTLs revenue is derived from the Exports. The key export markets include the United States of America (USA), United Kingdom (UK), Germany, Other EU Countries, Australia, Hong Kong, Canada, South Africa, Brazil and others.

During FY 19, the company continued realignment its product mix according to the capacities and customer mix to optimize overall profitability and capacity utilization. There has been significant change in customer mix and product mix leading to improvement in margins despite very high volatility in raw material prices and currency. In FY19, the company total operating income grew to Rs. 268.86 crore from Rs. 239.87 crore in FY18. The Companys PBIDT margins improved to 11.59% compared from FY18 margins of 9.64%.

The Company has a diversified product basket which includes cotton and rubber backed bathmats, durries, tufted bed spreads and throws, hand tufted carpets and rugs made of cotton and wool, cushion covers, curtains as well as poly cotton and cotton damask table covers, napkins amongst many others. The Company plans to manufacture outdoor (for garden, beaches) home furnishing products apart from adding capacity for existing products. During the fiscal, the company has undertaken capex towards automation and streamlining existing facilities to improve efficiency and de-bottleneck operations.

The company continues to invest in design and development of innovative product offerings within its product line for Home Textiles & is recognized by the customer for its innovation & quality service. Given the nature of its business, the product developments undertaken & being in advanced stage of process cycle of 12 months, should get desired growth over the competitive market in the segment. The company has begun business in couple of new product categories during Q4 of FY 2019 and expects the same to growth in FY 2020 thereby adding to the total revenue. The resources and efforts invested over since turnaround in April 2017 have brought the desired outcomes.

The company has achieved a modest growth of ~11.5% in total operating income along with improvement in PBIDT of ~20% over previous year. The Management expects the growth in FY 2020 to be better than FY 2019 along with further improvement in PBIDT margins. The company continues to have NIL long term debt and has significantly improved its TNW / TOL (Total Networth / Total Outside Liabilities) and Debt / Equity ratio. The companys focus is to maintain or reduce the operating cycle while adding to growth to improve cash flows from business. Also entire Capex over the last 2 years and future would continue to be funded through internal accruals of the company.


The Company operates in a competitive environment and faces competition peer suppliers in India and globally. However, being in the textile industry for more than three decades, the Company has established strong relations with all its customers and is able to secure business from them each year.

The structural changes in the Chinese economy along with Trade war effects has led to slow-down has rendered the cost of textile production in China high. This has offered an opportunity for Indian textiles sector to grab the market share in the developed world, especially the European Union and the United States, which cumulatively comprise around 60 percent of the global export market. The company is continuously investing in new technologies for improving the quality of its product and take lead in home furnishing markets.

The Key risks arise from high fluctuations in raw material prices and currency, change in government incentives / policies, high interest rates and rising labor costs, etc.,


FTLs internal controls are commensurate with its size and the nature of its operations. FTL has a well-defined delegation of power with authority limits for approving contracts as well as expenditure. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance of corporate policies.

Our management assessed the effectiveness of the Companys internal control over financial reporting (as defined in Clause 17 of SEBI Regulations 2015) as of March 31, 2019.

The assessment of efficiency of internal control is carried out at the regular intervals and finding of same is submitted to audit committee for review. Based on its evaluation (as defined in section 177 of Companies Act 2013 and Clause 18 of SEBI Regulations 2015), our audit committee has concluded that, as of March 31, 2019, our internal financial controls were adequate and operating effectively.


FTL continues its focus on employee retention. The Companys performance-driven culture with a strong focus on employees career aspirations, rewards & recognition and total-welfare helped maintain a low attrition rate.

The Company has built a strong pool of talent by committed efforts to attract, transform and retain the best talent available. The Company continues to focus on people development by developing a continuously learning human resource base to unleash their potential.


The Company endeavours to impact the environment positively with sustainable production methods, use of energy efficient and environment friendly technologies, use of recycled and eco-friendly raw materials, etc., FTL believes that profitability not only depends on the actual profit but also the benefit derived by the community through the activities of the Company.

The operations of the Company are conducted in such a manner that it ensures safety and a pleasant working environment to all concerned. FTL has installed water treatment / purification plant at its dyeing facility at vapi for reuse of processed water and reduce wastage of water.

Faze Three Limited is conscious of the vulnerability and the essence of a healthy and clear environmental surrounding. The Company has framed policy for securing the quality of environment and requires its stakeholders to adhere to such policy.


The Management Discussion and Analysis (MDA) report should be read in conjunction with the Audited Consolidated Financial Statements of the Company. This MDA covers Companys financial position and operational performance for the year ended 31st March, 2019.

This report contains forward-looking statements, which may be identified by their use of words like plans, expects, will, anticipates, believes, intends, projects, estimates or other synonyms. All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market position, expenditures, and financial results, are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent developments, information or events.

For and on behalf of the Board
Faze Three Limited
Place: Mumbai
Date: 29th May 2019
Ajay Anand
Chairman & Managing Director