GHCL Textiles Ltd Management Discussions

DISCLAIMER

Readers are cautioned that this Management Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate", "believe", "estimate", "intend", "will", and "expected" and other similar expressions as they relate to the Company or its business are intended to identify such forward looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements and risks and opportunities could differ materially from those expressed or implied in such forward-looking statements. The important factors that would make a difference to the Company?s operations include economic conditions affecting demand supply and price conditions in the domestic and overseas markets, raw material prices, changes in the Governmental regulations, labour negotiations, tax laws and other statutes, economic development within India and the countries within which the Company conducts business and incidental factors. The Company undertakes no obligation to publicly amend, modify or revise any forward-looking statements on the basis, of any subsequent developments, information or events. This report is prepared on the basis of public information available on website / report / articles etc. of various institutions. The following discussion and analysis should be read in conjunction with the Company?s financial statements included herein and the notes thereto.

The management of GHCL Textiles Limited has reviewed the Company?s performance and key business developments for the financial year ended March 31, 2025, and shared its perspective on the road ahead. The outlook reflects the current economic environment and business landscape, though future developments—both domestic and global—across economic, social, and political fronts may influence actual outcomes.

Global Economic Overview

The global economy showed steady progress, despite facing a challenging and uncertain environment. According to the IMF World Economic Outlook, April 2025, the world economy grew by 3.3 percent in 2024, and is projected to grow by 2.8 percent and 3.0 percent in 2025 and 2026 respectively. While these figures reflect a stable trend, they also signal that the pace of growth is more moderate compared to the past. Sector-wise, the global services sector continued to expand, while manufacturing showed signs of weakness, particularly in Europe. Trade policy uncertainty remains high, with more protectionist measures being adopted by major economies. This could impact investment flows and global trade if such trends continue.

Looking ahead, risks from geopolitical tensions and climate-related events persists. As the global economy adjusts to new realities, businesses are focusing more on resilience, diversification, and long-term value creation.

Indian Economy Overview:

India?s economy remained on a steady growth path in FY 2024-25, demonstrating resilience amid global headwinds and geopolitical uncertainties. As per the first advance estimates released by the Ministry of Statistics & Programme Implementation (MoSPI), real GDP is projected to grow by 6.4 percent for the year, rea_irming India?s status as one of the fastest-growing major economies globally.

The industrial sector recorded a growth of 6.2 percent, led by infrastructure and construction activities. India?s Manufacturing PMI remained in expansion, and outlook surveys by the RBI indicate improving order books and business sentiment in upcoming quarters. Exports grew by 5.6 percent in H1 FY25, while imports remained largely flat.

Importantly, India?s growth has been supported by macroeconomic stability, with controlled inflation, a manageable fiscal position, and a stable balance of payments. These factors have contributed to building resilience in the domestic economy and bolstering investor confidence.

At GHCL Textiles, we continue to monitor these developments closely. While several economic uncertainty remains, opportunities are emerging and we well positioned to capture these.

TEXTILE INDUSTRY

The global textile industry had grown consistently since CY2018, barring CY2020, which saw a decline due to Covid-19. The growth has continued and the global textile market size attained a value of around USD 988 Billion in 2024. Going ahead, the industry is expected to grow by around 3-4 percent driven by increasing demand from the apparel industry, newer trends in fast fashion segment coupled with the growth of e-commerce platforms. However, the industry may face challenges due to ongoing tari_ situation.

India is the second largest producer of cotton globally, which provides a significant competitive advantage.

For the Indian economy, the textile sector is one of the critical sectors being the second largest provider of employment, after agriculture. It provides employment to approx. 45 million people directly and to another 60 million indirectly through allied activities. The textile industry in India is diversified with handwoven and handspun textile at one end and sophisticated textile mills on the other end of the spectrum. Presence of players across the value chain starting from production of raw material to production of yarn, fabric and garments in the country makes the Indian textile industry well placed at a global level. Between fiscals 2019 to fiscal 2024, the total Indian textile and apparel industry had grown at a CAGR of 4.5 percent. Within the total industry, the domestic Indian textile and apparel industry had grown at a higher pace of 5.8 percent, while exports have grown at a CAGR of 2.1 percent.

Yarn manufacturing consists of sequence of various processes where raw fibers are converted to yarn which can be further used in the manufacturing of various products such as fabrics and garments. The fibers are converted into yarn through a process called spinning, followed by weaving and knitting. A yarn can either be made from natural fibers such as cotton and wool or from man-made fibers (MMF) such as polyester, viscose, nylon, acrylic, polypropylene among others.

The cotton yarn accounts for more than 50 percent share of the Indian textile yarn market. Cotton yarn market registered a CAGR of 1.5 percent between fiscals 2019 and 2024 to reach Rs 960 billion. The market for MMF accounts for around 40 percent of the Indian textile yarn market in fiscal 2024.

The future growth in Indian textile and apparel market will be led by various economic factors such as increase in discretionary income and rising urban population. Further, the demand is poised by increase in online retailing, shi_ from cotton to man-made fibre, fast fashion, and robust growth of technical textiles segment. Additionally, global industry expanding outside of China would aid the Indian export markets in the growth trajectory. Bangladesh is the second largest exporter of readymade garments. However, the socio-political disturbances erupting in Bangladesh during 2024 have shi_ed some RMG orders to India and this trend may continue on the future thus benefitting the Indian textile industry. The cotton yarn market is expected to grow at a 4.5-5.5% CAGR between fiscals 2024 and 2028 driven by recovery in global trade.

The ongoing tariffs imposed by the USA will have consequences on the Indian textile industry as it creates uncertainty and volatility for the business and may adverse impact the India?s GDP growth, decline in export volumes and export revenue and supply chain disruptions. However, India has a competitive advantage due to higher tariffs imposed on other competing countries in the textile sector.

BUSINESS OPERATIONS OF THE COMPANY

GHCL Textiles Limited was formed through demerger of the spinning business from GHCL Limited effective from April 1, 2023 and is listed on both NSE and BSE since June 12, 2023. This demerger was done with objectives to simplify the corporate structure, facilitate independent growth path and maximize shareholders? value.

GHCL Textile is a prominent and one of India?s leading yarn manufacturer and exporter. Company operations are located at Paravai, Madurai and at Manaparai, Tiruchirappalli in the state of Tamil Nadu. Company?s spinning business comprises of modern manufacturing facilities with 2 lakh ring spindles, 3320 rotors, 5760 TFO spindles, and 5 Airjet Spinning. Additionally, there are significant renewable assets comprising of 62 MW of wind and solar power in the state of Tamil Nadu.

Operational excellence is the foundation of GHCL Textiles success. The Company?s well-managed production process helps to maximize productivity, minimize waste while maintaining a reliable supply chain for raw materials. The Company?s dedication to worker safety and a clean work environment fosters a positive and productive workplace culture. Committed to sustainability with substantial green energy assets providing cost benefits as well. Our organization has a strong commitment to green energy, and we have made significant progress in this towards goal of 75% of total energy requirement from renewal means.

The Company produces value-added yarn such as GIZA, SUPIMA, Australian, CmiA, Tencel, Viscose and rPET Yarn, Woven and Knitted Fabric for the domestic and international markets. The product basket has increased manifold by manufacturing specialized products for tailor-made yarn, introduction of forward products such as knitted and greige fabric and penetrating new markets for different applications.

GHCL Textiles is known for quality and customer-oriented focus. Quality control is paramount, and the Company strives to deliver the best products to its customers, thereby enhancing the brand name among customers. The Company places great emphasis on establishing strategic business partnerships with selective customers in both the domestic and international markets, which had enabled the business to maintain a competitive edge among industry peers.

Due to focus on diversification, exports have increased to 16 percent in FY2025 from 5.5 percent in FY2019 and share of fabric in total revenue has increased to 8 percent in FY2025 from nil in FY 2019.

The Company is committed to pursue sustainable growth and the various expansion plans remain on track. The Company is committed to invest over Rs. 1,000 crores, of which Rs. 350 crores have already been deployed. The addition of 25,000 new spindles is progressing as per schedule, with operations expected to commence in H1 2025. Additionally, a new project to set up 40 knitting machines is undertaken at the existing location with a capex outlay of Rs. 38 Crores. This shall forward integrate into value added products using our own yarn.

OPPORTUNITY & CONCERN

The Company is pursuing sustainable growth strategy and the ongoing business expansion of 25 thousand spindles and entry into value added segments through capex on in-house knitting machines has positioned us well for medium-term benefits. We intend to expand our product basket, grow our value- added segment, realign our customer base, penetrate further into Woven and Knitted Fabric Market and continue to achieve operational excellence. Additionally, we will continue to prioritize sustainability by deploying additional renewable energy sources to meet a minimum of 75-80% of our energy requirements from renewable assets.

Despite the aforementioned growth initiatives, we acknowledge the existence of certain market challenges, including the global uncertainty, ongoing tari_ situations, changing weather pattern adversely impacting the cotton crop, volatility in the cotton prices and the availability of high-quality cotton crops. These factors create uncertainty and volatility for the business.

To maintain a sustainable and resilient business, we have adopted several key principles. These principles include cash conversion, in-depth knowledge of the cotton market, supply chain resilience, Value added processes, innovation, and a strong focus on customer satisfaction. These principles serve as critical enablers that set us apart from our competitors and contribute to our ability to sustainably grow and prosper in the future.

COMPANY PERFORMANCE

R evenue for the financial year ended March 31, 2025 is Rs. 1,161.16 crores.

Pr ofit before financial expenses and depreciation for the financial year March 31, 2025 is Rs. 116.68 crores.

PB T (Profit before tax) for the financial year ended March 31,2025 is Rs. 63.29 crores.

DETAIL OF SIGNIFICANT CHANGE IN THE KEY FINANCIAL RATIOS AND RETURNS ON NET WORTH

As per the Schedule V to the Listing Regulations read with Regulation 34(3) of the Listing Regulations, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in Return on Net Worth of the Company including explanations therefor have been provided in note no. 42(9) (refer page no. 159 of Annual Report).

INTERNAL CONTROL & RISK MANAGEMENT

GHCL Textiles Limited continues to operate with a strong and well-structured internal control system that supports all areas of its business. This framework remains consistent with the previous year, ensuring operational e_iciency, safeguarding of assets, accurate and transparent financial reporting, and compliance with applicable laws and regulations.

The Company conducts its business with integrity, high standards of ethical behavior and in compliance with all applicable laws and regulations that govern its business. To maintain the integrity of our processes, the Company has established detailed management information systems, robust corporate policies, and clearly defined roles and responsibilities across departments. Qualified and experienced personnel oversee our internal processes, helping to prevent any unauthorized use of assets or misstatement of transactions.

To further strengthen oversight, Company engages reputed independent internal audit firms to conduct regular audits across business locations. The Audit Committee of the Board closely monitors these reports, reviews statutory compliances, and ensures timely corrective actions are taken wherever required. The Committee meets periodically to review findings from internal auditors and discuss action taken reports with the management.

Risk management is embedded into Company?s culture and day-to-day operations. The Risk Committee, constituted as per Regulation 21 of the SEBI Listing Regulations, oversees our enterprise risk framework. Internal Audit and Risk Management functions work in tandem to identify, assess, and manage key risks—both financial and non-financial. Risks are monitored regularly and control measures are tailored based on their severity and likelihood.

Further details on key business risks and mitigation strategies are provided in the Risk Management Committee section on page 67-69 of this report.

HUMAN CAPITAL MANAGEMENT

In GHCL Textiles we are really proud of our "HUMAN RESOURCES". We believe that our employees make a key difference to our business success. Employees are one of our five key stakeholders and needless to mention that managing our human capital has been our key strength and pride. It is our firm belief that nurturing and strengthening the human resource capital is of utmost importance to run the organization effectively and smoothly. Therefore, the HR function takes pride in managing the human capital both with warmth and care as a hallmark of a caring organization. The Human Capital is managed in a structured manner with key focus areas being Talent Management, Organizational capability Development, Employee Engagement and harmonious Industrial Relations. This contributes to our unique corporate identity in our journey towards high performance Coaching & Mentoring culture. Good human resource management is vital for the success of any business, therefore GHCL Textiles regularly reviews & revisits its various HR policies and practices to ensure that we comply with the values of the Company and can be benchmarked against the leaders in the industry. Our HR Mission emphasizes on creating a value driven, high performance learning organization in an engaged and digitized environment so that we are one among the employer of choice. As on March 31, 2025, number of people employed by GHCL Textiles Limited are 3050 including all categories and women employees consists of around 77% of total employees.