Filatex India Ltd Management Discussions.

Uncertain timelines of activities resuming and the pandemic fading point to a state of constant uncertainty throughout this year.

Migration has caused labour shortage across all industries at a time when the economy is starting to open again

Global Economy

Economic growth in FY 2019-20 across all the continents and respective countries continued to slide down. The collateral damage of corona virus has intensified and magnified the slowdown. Almost all countries responded to the Covid-19 pandemic by way of complete lockdown preventing movement of people, goods and services except bare essentials. The outbreak and consequent lockdown have caused significant disturbance of economic activity globally. Measures taken to contain the spread of the virus, including travel bans, social distancing and closure of non-essential services have triggered significant disruptions to business worldwide, resulting in an economic slowdown. Businesses are being forced to shut down or limit their operations for a long or indefinite period.

Due to lack of any specific the virus and the necessary protective measures, lockdown & containment measures still in place, the global economy is now projected to contract sharply by 3 percent in 2020 as opposed to previous projections of 3.6 percent growth. In a baseline scenario--which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support. The risks for even more severe outcomes, however, are substantial as the pandemic spread has not abated.


-(IMF Report April 2020)

Uncertain timelines of activities resuming and the pandemic fading point to a state of constant uncertainty throughout this year. The World Bank in its "Global Economic Prospects" report has termed the current situation – the deepest global recession in decades.

In these difficult times, effective economic policies by governments are the need of the hour. Every government is introducing policies catered to the specific needs of their citizens. Policies that reduce the impact of the pandemic on individuals and organizations.

Policies to withstand the unavoidable sudden shutdown and severe slowdown. Policies that ensure that economic recovery can begin quickly once the pandemic begins to fade.

Indian Economy

Indias GDP growth had shown clear signs of slowing down due to a global slowdown prior to the lockdown of the country and the drastic measures to contain the effects of the COVID-19 pandemic have only worsened the situation. The growth of the Indian economy slowed to 4.2% in FY 2019-20. In FY 2020-21, the output is projected to contract by 3.2% when the impact of the pandemic will largely come in play.

The national lockdown by the

Government of India started on 25th March and extended till 3rd May 2020.

Even post this lockdown, there was a partial lockdown in most states of the country. The extended lockdown has affected the unorganized sector significantly. Another side-effect of the lockdown was the confinement of labour which was stuck in cities without jobs and money and were unable to meet their expenses or migrate back to their states. The government provided special trains for migrants to travel home only after 2 months of abandonment which led to mass migration of labour and a fear to return back to work. This migration has caused labour shortage across all industries at a time when the economy is starting to open again. The lockdown has also contributed to mass job loss and unemployment leading to a decrease in average household demand and spending.

In these uncertain and turbulent times, the lack of retail demand, a partial lockdown in shortage will continue to adversely affect the demand and supply chains in 2020. This has been evident in Indias PMI numbers which registered a sharp deceleration. A decline in private consumption due to large scale lockdown and fear along with spillover from contracting global growth will also affect the domestic and export sales.

The Reserve Bank of India in an to provide additional liquidity lowered the interest rates and instructed banks to extend a moratorium on existing term loans and personal loans. However, additional government policies are required to reduce the negative impact of COVID-19 and ensure that no further waves of outbreaks occur. Greater support is also required for various for manufacturing, tourism and service sectors that have been hit severely by the pandemic. Also, policies alone will not suffice. There is an urgent need for swift and efficient implementation of the policies across the nation in order to reverse the slowdown.

Global Textile Economy

Since the coronavirus outbreak began in China at the end of 2019, its impact has been felt across the global apparel and textile sector. The industry was suddenly overwhelmed with a barrage of cancelled orders. Further, the industry must face the tough task of protecting the wages of its workers in their supply chains around the world in the wake of factories closing and future orders drying up due to decline in global demand and consumption. The demand for textile

Finally, the global shift in fashion toward MMF was noticed by the government and the additional anti-dumping duty on PTA was abolished by Ministry of Finance in the budget announced on February 2020. The whole polyester industry has becomestatesandlabor hopeful at the removal of this major burden that had been hampering the growth of the Indian polyester industry. effort first half-year of the FY20-21, though products is expected to be lower in the the same is likely to have a continuing impact on the industry in the coming 3-4 quarters.

China is the dominant player in global textile trade with India a distant second. This, however, is likely to change owing to increasing labour and production costs in China, offering a wide opportunity to countries like India, Vietnam, and Bangladesh. In addition, the recent wave of negative sentiments across the globe for China and its exports, presents an opportunity to India to develop new customer bases and increase its share in the global textile trade.

Indian Textile Economy

Among the massive impact that coronavirus has had on various Indian industries, textile is one of the hardest-hit industries. The textile and clothing sector is labour and capital intensive.

A majority of workers are migrant labourers; who have mostly returned to their native places. With the total disruption in workflow and production schedule, the industry is facing one of its worst-ever crisis. Prolonged closure of malls and retail showrooms has made the situation worse. Some of the new challenges faced by the industry are not just liquidity crunch but also lack of demand and requirements to meet new safety standards across all processes.

Post the immediate crisis, the apparel industry faces a recessionary market.

One of the reasons for this is the prospect of changing consumer behaviour due to social distancing and the preference for sanitized products. Consumers are expected to be uncomfortable to touch and feel garments in retail stores.

However, on the brighter side, several countries around the world, such as the USA & Japan, have decided to learn lessons from this calamity and look for alternate production sources other than

China. Indian textiles should capitalize on this situation and present itself as a credible alternative to increase its textile and apparel exports share. Further, manufacturers need to maximize their internal capabilities and focus on building their efficiencies if want to emerge as a better option than competitors like Bangladesh, Vietnam and Cambodia.

Polyester Industry Outlook

Traditionally, the Textile Ministry has been skewed in its favoured cotton as it supports the livelihood of almost 5.8 million farmers.

However, Polyester has become the most preferred fibre in the global textiles industry due to its better physical properties, lower price, versatility, and recyclability, which offer a completely unique set of any other natural or synthetic fibres. Polyester filaments has been segmented into apparel, home furnishing, automotive, construction, filtration, and personal care and hygiene applications.

The Indian polyester industry, for last six years, had been at a distinct cost disadvantage in global competitiveness on account of Anti-Dumping Duty on key raw material i.e. PTA. Man Made Fibre industry associations and users of PTA had been vigorously representing and following up the Government authorities to remove this punitive duty and address the structural anomalies like "Inverted Duty" structure which are hampering the growth. Polyester industry continues to suffer on account of inverted GST structure higher rate of 18% on raw material & 12% on finished products like unmatchedby yarn & fiber and going forward 5% on fabrics and garments.

Finally, the global shift in fashion toward

MMF was noticed by the government and the additional anti-dumping duty on PTA was abolished by Ministry of Finance in the budget announced on

February 2020. The whole polyester industry has become hopeful at the removal of this major burden that had been hampering the growth of the Indian polyester industry. This abolishment has levelled the playing field for the Indian manufacturers and is likely to have a positive impact in domestic business environment as well as global competitiveness.

Filatex India Limited

Filatex India Limited is rated among the top five manufacturers of Polyester Filament yarns in India. It manufactures a wide variety of yarns; POY, FDY and DTY in full range of coarse and fine deniers, in all kinds of shades and and Dope dyed colours. It has two manufacturing facilities in Dahej (Gujarat) and Dadra (Union Territory of Dadar & Nagar Havelli). The plant at Dahej is an integrated spinning facility with continuous polymerisation.

Initially, Filatex started with a small capacity of 5,000 TPA in 1996 which today has increased to 3,83,000 TPA. The plant in Dadra manufactures Dope Dyed Polyester and Polypropylene Yarns. While the plant at Dahej helped the company step forward, moving from "Chips to Yarns" to "Melt to Yarns" technology.

Production Performance

Filatex India Limited touched a volume of 3,32,185 tons as compared to last year at 2,79,595 tons, an increase of 18.8%. The filament lines achieved a capacity utilization factor of 95% while DTY machines achieved 90% capacity utilization.

Financial Performance, FY2019-20

Overall, the company has performed well in FY 19-20 inspite the general economic slowdown of the Indian economy and loss of 8 production days due to the COVID-19 lockdown.

The net revenue from business operation was Rs 2,782 crores. The operating profit improved to Rs 222.13 crores, an increase of er Tax also improved by 43.2% as compared to last year, to an amount of Rs 121.47 crores. aft 2.6%YoYbasis.Profit

(Rs. In Crores)
Particulars 2019-20 2018-19
Revenue from Operations (Net Sales) 2,782.07 2,874.10
EBIDTA 222.13 216.51
PBT (Before exceptional item) 121.98 128.63
PAT 121.47 84.85
Earnings per share (Basic) 5.53 3.90

Quarterly Performance, FY2019-20

Particulars Q1 Q2 Q3 Q4
Production (MTs) 70,365 84,286 90,102 87,432
Sales (MTs) 72,526 76,072 92,026 82,921
(Rs. In Crores)
Revenue from Operations (Net Sales) 696.81 680.23 737.73 667.30
EBIDTA 51.41 52.29 55.87 62.56
PBT (Before exceptional item) 30.87 33.08 26.23 31.80
PAT 20.03 61.84 18.57 21.03

Key Financial Ratios

Disclosures of key changes in financial indicators [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(b)]

Ratio 2019-20 2018-19
Debtor Turnover Ratio in days 14.90 17.89
Inventory Turnover Ratio in days 22.59 23.27
Interest Coverage Ratio* 3.36 3.93
Current Ratio 1.21 1.12
Debt Equity Ratio 1.21 1.28
gin Mar OperatingProfit 7.98% 7.53%
gin Mar NetProfit 4.37% 2.95%
Return on Net Worth 22.77% 19.79%


* In Interest Coverage Ratio, ineterst represents interest on term loan and working capital, and exchange cost.

Net Profit Margin

Net Profit margin was 2.95% in FY19 and has improved to 4.37% in FY20 mainly due to an improved product mix and reversal of deferred tax liabilities amounting to Rs. 34.70 crores by virtue of introduction of Taxation

Laws (Amendment) Ordinance, 2019.

The Company expects to utilise the deferred tax balance over subsequent periods which have accordingly been re-measured using the tax rate expected to be prevalent in the period in which the deferred tax balances are expected to reverse.

Return on Net Worth

The company substantially improved its retained profits by way of adding more value-added products as well as reversal of deferred tax liabilities. The Return on Net worth has therefore improved from

17.97% to 20.42%.

Overall Performance

Despite various disruptions, the overall performance of the company has improved. The operating profit increased by Rs 5.61 crores, gain of 2.6% YoY basis. This was achieved primarily by improving the product mix. Increase in DTY volume, a value-added product with global demand, has opened up access to a larger market, spread all over the country & abroad. The companys exports surged to 48,451 MT of polyester products, a growth of 13.1% compared to last year. Now, with view of increased product range, our products are established in international markets and we have presence in 45 countries across the globe. Our export on account of polyester yarns and chips was Rs 39,774 lakhs (including deemed export) in F.Y.


Growth Plan

With new texturizing machines installed and ready for production, exports of the company have possibilities to increase on account of texturized yarn having significant demand in both domestic and global markets. This may be further amplified by the current anti-China sentiments across the global market.

The Company is also in the process of setting up a 30 MW Captive coal-based Thermal Power plant at Dahej and 1.4

MW rooftop Solar Power plant at Dahej

& Dadra. This will help reduce the power cost of the plant in Dahej and reduce the Companys operating costs by 40-45 crores.

Our product basket at present, offers Partially Oriented Yarn (POY), Fully Drawn Yarn (FDY), Drawn Textured Yarn (DTY) in full range of coarse and fine deniers in all kinds of shades and varieties like Bright, Semi Dull, Black and dope-dyed colours as well as Polyester Chips and

Narrow Woven Fabric. Moving forward, the company is focused on researching and adding new filaments with niche characteristics to its product portfolio.

The demand for recycle polyester is increasing rapidly in line with consumer awareness and preference as leading brands in fast fashion segments are promoting sustainability in textile industry. This has seen an increase in the the global demand for recycled polyester fibre. The company is researching new and improved ways of recycling polyester to reduce polyester waste and its effects of the planet.

SWOT Analysis


• Management team has rich experience in marketing & manufacturing of

Polyester Filament Yarn

• Amongst Indias top 5 key player in

Polyester Filament Manufacturers

• Favourable location of plants, in proximity to major consumption centres, ports & suppliers of raw material

• Established systems for process and plant management, accredited for ISO,

OEKO-TEX and 3 Star Export House Status

• Complete product basket with offerings from bright to semi-dull to dope-dyed colours, course to fine, in all types of filaments - POY, DTY and FDY

• Positive long-term relationships with dealers & customers


• High cost of power at Dahej, Gujarat

• Commodity nature of product portfolio

• Low bargaining power against large suppliers of key raw materials


• Forward Integration into fabrics, moving from B2B to B2C

• Captive Power Plant to reduce energy cost

• Rich product basket enhancing focus on exports

• Increase in demand for recycled polyester yarn

• Anti-China sentiment in the global markets

• Global competitiveness due to abolishment of anti-dumping duty on PTA


• Global Uncertainty affecting Trade and

Demand due to Pandemic

• Decrease in consumption while the pandemic persists and grows

• Cheaper Imports from neighbouring countries enjoying free trade

Human Relations and Industrial Relations

The company recognizes its people as the most valuable resource. The company has formulated policies of nurturing talent of employees and ensuring that there is growth and their capabilities grow in relation to their responsibilities. The HR management takes into account the capability, commitment and sincerity while evaluating talent within the company.

To retain talent company has offered

ESOS to its senior employees. Second tranche of ESOS has been granted which also covers all good performers as well irrespective of their levels. As a welfare measure "Group Accident Insurance Scheme" has been introduced for all the employees.

Consistent and fair HR policies ensure that industrial relations continue to be peaceful and cordial and results in increasing in productivity and effectiveness. The Company aims at creating development oriented approach for its employees by building systems, processes and focusing on recruitment of good quality manpower.

Focus on transparent performance appraisal and productivity linked incentive schemes have resulted in motivated workforce and increased productivity. Another significant step for promotion or recruitment at senior level is carrying out temperament test and management aptitude test which helps in judging the soft skills which are necessary to steer the companys operation.

The company regularly conducts training programs to improve the skill sets & work capability of employees at various levels necessary for their growth. A great deal of emphasis is on creating succession plan for all key positions. This emphasis is extended to well qualified, young family members who are going through arduous training program in different facets of operations.

Internal Control Systems and their Adequacy

Filatex has strong internal monitoring

& control system to ensure efficiency of operations, processes and to safeguard the companys assets against any loss from unauthorized usage. The

Companys internal control system is commensurate with its size, scale and complexities of its operations. The

Company has a ‘Budgetary Control system and actual performance is regularly monitored by the Management.

It has well defined organization structure, authority matrix and internal guidelines and rules. The internal control system ensures that the financial and other records are reliable for preparing financial statements and maintaining proper records of transactions and assets.

The company continues to have an independent agency as the Internal Auditor to review "Operations &

Systems" audit in accordance with the audit guidelines stipulated by the audit committee. The internal auditors, as part of their assignment, evaluate and assess the adequacy and effectiveness of internal control measures and compliance with general accounting principles &statutory requirements. The internal audit reports are discussed / reviewed by senior management and audit committee of the Board and on its recommendations appropriate actions are initiated to ensure full compliance.

Statutory Compliance

The Chairman & Managing Director and

CFO make a declaration at each Board

Meeting regarding the compliance to the provisions of various statutes, after obtaining confirmation from all the units of the company. The company secretary ensures compliances in accordance with

Companies Act, SEBI regulations and provisions of the Listing Agreement.

Forward Looking Statement

The Management of Filatex has prepared and is responsible for the financial statements that appear in this report. These statements are in conformity with the latest accounting principles generally accepted in India.

The statements describing the

Companys objectives, projections, estimates and expectations may be

‘forward looking statements within the meaning of applicable laws and regulations. The Management has made these statements based on its assessment, expectations, and projections about the future events.

Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include key raw materials availability and prices, cyclical demand of the products in the markets, changes in Government regulations, exchange rate fluctuations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factors. The

Management undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.