GHCL Textiles Ltd Management Discussions

The management of GHCL Textiles Limited has provided an analysis of the companys performance and key business updates for the financial year ended on March 31,2024,aswellasanoutlookforthefuture.Theoutlookis based on an analysis of the current economic landscape, although it may be impacted by socio-economic and political change due to future economic and related developments, both in India and internationally.

DEMERGER OF TEXTILES BUSINESS OF GHCL LIMITED TO GHCL TEXTILES LIMITED.

The Company was incorporated on June 17, 2020 and pursuant to the scheme of demerger the company GHCL Textiles Limited continued to carryout manufacturing, trading, or service activities of Spinning division of demerged company during the financial year ended on 31^st March 2024.

Please note that upon the Scheme becoming effective, the Spinning division of GHCL Limited (Demerged Company) along with all assets and liabilities thereof as at the appointed date (i.e. April 1, 2023), have been transferred to GHCL Textiles Limited (the Company) on a going concern basis. As a consideration for the Demerger, the Company had issued its equity shares on April 12, 2023, to the shareholders of Demerged company in a 1:1 swap ratio (i.e. One share of Rs. 2 each issued by the Company for every one share of Rs. 10 each held in Demerged company). Further, the Company has been listed on the BSE and NSE and BSE is our designated Stock Exchange. Trading of Companys shares have been started w.e.f. June 12, 2023.

REVIEW OF ECONOMY

Overview of Global Economy

Amidst the prevailing global economic landscape, challenges such as a subdued manufacturing environment, faltering trade flows and persistent inflation concerns paint a complex picture for the future ahead. However, amidst these challenges, certain sectors, notably services, demonstrate resilience.

The recent update from the International Monetary Fund (IMF) offers a glimmer of hope, with a modest upgrade in growth projections for 2024 and 2025. Global growth is projected at 3.1 percent in 2024 and 3.2 percent in 2025, marking an increase from previous forecasts. This uptick is attributed to the stronger-than-expected resilience observed in the United States and several major emerging market economies, coupled with fiscal support measures in China. However, these growth projections still fall below the historical average of 3.8 percent, largely due to factors such as elevated central bank policy rates to combat inflation, reduced fiscal stimulus amidst high debt levels, and sluggish underlying productivity growth.

Furthermore, there is a notable decline in global inflation rates, driven by the resolution of supply-side constraints and the implementation of tighter monetary policies. Global headline inflation is anticipated to decrease to 5.8 percent in 2024 and further to 4.4 percent in 2025, with the latter figure being revised downward.

Additionally, the year 2024 also marks changing geopolitical situation for several nations which may introduce a degree of uncertainty. These changing landscapes hold implications beyond borders, influencing economic and public policy in an increasingly fractious global landscape. Despite potential challenges, these developments underscore the ongoing efforts to navigate economic challenges while striving for stability and sustainable growth in the global economy.

OVERVIEW OF THE INDIAN ECONOMY

Despite global economic uncertainties, Indias economic resilience shines through, as Moodys (a leading provider of credit ratings, research, and risk analysis) predicts it to maintain its position as the fastest-growing economy among G-20 nations. For FY 2023- 24, Standard & Poors credit rating for India stood at BBB (-) with a stable outlook, Moodys credit rating stood at Baa3 with a stable outlook, Fitchs credit rating was reported at BBB (-) with a stable outlook.

Indias economy has experienced a significant surge over the past decade, elevating it from the 10th to the 4th position in the global rankings, thereby establishing its position as a major economic powerhouse on the world stage.

The revised growth of India for FY 2023-24 estimated to 6.8% from 6.1% reflects stronger-than-expected data in 2023, with GDP growth estimated at 6.4% for 2025, with nominal gross domestic product (GDP) for FY 2023-24 at current prices being estimated at INR 293.90 trillion (US$ 3.53 trillion). Robust indicators such as goods and digit credit growth point to resilient urban consumption demand, complemented by expanding manufacturing and services PMIs on the supply side.

In parallel, the Interim Budget 2024 presented by Union Finance Minister Nirmala Sitharaman outlined pivotal initiatives to propel India towards becoming a developed nation by 2047. The budget reiterated the governments commitment to the "Make in India" initiative, particularly focusing on positioning India as a hub for semiconductor and electronics manufacturing.

This positive economic outlook is reinforced by the governments proactive measures, as evidenced by the interim budget for fiscal year 2024-25, which targets a capital expenditure allocation of Rs 11.1 lakh crore, signifying a 16.9% increase over the previous years estimates. While private industrial capital spending has been sluggish, ongoing benefits from supply chain diversification and the governments Production Linked Incentive scheme are expected to spur investment in key manufacturing sectors.

The FDI inflow during 2014-2023 was USD 596 billion marking a golden era. That is twice the inflow during 2005-2014. For encouraging sustained foreign investment, the Government is negotiating bilateral investment treaties with our foreign partners, in the spirit of ‘first develop India

Additionally, in 2024, Indias power sector is set to witness substantial expansion in renewables alongside the addition of new coal-based capacities, driven by rising demand. Despite the sectors robust growth, India remains committed to its climate goals, aiming to reduce emissions intensity by 45% by 2030 and achieve net-zero emissions by 2070. To realize these objectives, India plans to scale up its renewable capacity to 500 GW by 2030, supported by incentives for domestic solar manufacturing. Furthermore, industrial sectors are increasingly adopting renewable energy sources in preparation for the implementation of a compliance carbon market.

TEXTILES INDUSTRY

The textile sector is one of the critical sectors of the Indian economy, accounting for more than 2 percent of the total

GDP and more than 12 percent of the manufacturing sector gross domestic product (GDP). The sector is also the second largest provider of employment in India, after agriculture. It provides employment to approx. 45 million people directly and to another 60 million indirectly through allied activities. Not only is the textile sector highly labour intensive, it also employs unskilled and semi-skilled labour force and is also an important source of employment for women.

The Indian Textile industry is growing at CAGR of 14.9%. The domestic apparel and textile industry in India contributing to 2% of countrys GDP, 7% of the industry output in value terms. The share of the textiles and apparels in overall textile basket is consistently increasing. Indias exports of Technical Textiles products registering a growth rate of 28.4% YoY.

As per the United Nations estimates, worlds population could reach around 8.5 billion by 2030, 9.7 billion by 2050 and 11.2 billion by 2100 and following this the global apparel market is projected to grow to USD 1.65 trillion by 2025 and USD 2.7 trillion by 2030.

The Government of India has increased the budget allocation for the Ministry of Textiles by 27.60%, reaching to _4,392.85 crore for the financial year 2024-25. This enhanced funding demonstrates the governments commitment to supporting the textile sector through its various schemes and programs such as PM Mitra Park, NITTM, A-TUF, ISDS, RoDTEP, RoSCTL etc.

The Government of India through various incentive schemes such as Production Linked Incentive (PLI), Maga Investment Textiles Parks (MITRA,) support the growth of Textiles Industry. In recent past, the Government removed the import duty on cotton on Extra Long Staple (ELS) cotton, addressing demands from its textile industry. Indian Textiles industry imports ELS cotton from countries like USA, Egypt, etc. and using for producing high valued textile & apparel products mainly for exports purpose. During Apr-Dec 2023, India imported around 56,205 MT of Extra-Large Cotton, mostly from USA (44.6%) and Egypt (40.1%)._

According to data released by the Ministry of Commerce

& Industry, Indias cotton yarn, fabrics/made-ups, and handloom exports witnessed a significant growth of 6.71% year-on-year, reaching a total value of $11.7 billion in the fiscal year 2023-24. This remarkable increase occurred despite an overall 3% decline in total exports during the same period. In the last fiscal year, the top export markets included the United States (25%), Bangladesh, China, Sri Lanka, and the United Arab Emirates (UAE). Additionally, exports expanded into new markets such as Anguilla, Serbia, Georgia, and others, showcasing Indias dynamic trade reach

In the fiscal year ending March 2024, Indian exports in the cotton yarn, fabrics, made-ups, and handloom products segment demonstrated robust growth, with a year-on-year increase of 6.78% in March 2024 over March 2023. This segment maintained a strong performance throughout the year, achieving an overall growth rate of 6.71% for the April-March 2024 period compared to the previous year.

The broader category of Indian textiles exports also showed significant progress in March 2024, registering an impressive 11.18% growth over the same month in the previous year. However, the apparel exports sector experienced more modest growth, increasing by only 1.70% in March 2024.

Cumulatively, the exports of textiles and apparel for March 2024 rose by 6.91% compared to March 2023. Despite this positive monthly performance, the annual figures reveal a more complex picture. Over the entire fiscal year April 2023 to March 2024, textiles exports grew by 2.62%, while apparel exports faced a considerable decline, contracting by 10.25%. This resulted in an overall degrowth of 3.24% in the combined textiles and apparel exports for the year.

BUSINESS OPERATIONS OF THE COMPANY

The company pursuant to the scheme of Demerger with effect from 01^st Apr 2023 carried out the Manufacturing, trading or service activities of Spinning division of GHCL Limited (Demerged Company) during the financial year ended on 31^st March 2024. As of 1^st April 2023, Textiles business of GHCL Limited (Demerged Company) has been demerged into GHCL Textiles Limited (Resulting Company).

Companys spinning business modern manufacturing facilities comprise of 2.25 Lakh ring spindles, 3320 rotors, 5760 TFO spindles, and 5 Airjet Spinning (480 positions) located in Paravai in Madurai District and at Manaparai in Tiruchirapalli District in the state of Tamil Nadu. Additionally, this business had developed significant renewable assets comprising of 62 MW of wind and solar power in the state of Tamil Nadu.

The Company produces value-added yarn such as GIZA, SUPIMA, Australian, and CmiA Yarn, Woven and Knitted Fabric for the domestic and international markets. The Company manufactures specialized products against tailor-made applications through specialized yarn, thereby enhancing the brand name through customer communication. The product basket has increased manifold, penetrating new markets for different applications to maintain sustainability. GHCL Textiles prioritizes traceability as per the needs of certain customers for authenticity and origin of premium cotton types such as Egyptian and Supima cotton, which will be continued in future.

GHCL Textiles placed great emphasis on establishing strategic business partnerships in both domestic and international markets, which had enabled our business unit to maintain a competitive edge among peers.

Operational excellence is a cornerstone of GHCL Textiles success, which will be further strengthened in years to come. The companys well-managed production process helps us to minimize waste and maximize productivity while maintaining a reliable supply chain for raw materials. Quality control is paramount, and the Company shall strive to deliver the best products to its customers. The companys dedication to worker safety and a clean work environment fosters a positive and productive workplace culture. 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.

OPPORTUNITY AND CONCERNS

Business expansion of 25 thousand spindles has positioned us well for medium-term benefits. As part of our commitment to increasing spindles capacity, we

intend to expand our product basket, grow our value-added segment, realign our customer base, penetrate into Woven and Knitted Fabric Market and achieve operational excellence. Additionally, we will continue to prioritize sustainability by deploying additional renewable energy sources to meet a minimum of 80% of our energy requirements from renewable assets.

Despite the aforementioned growth initiatives, we acknowledge the existence of certain market challenges, including volatility in cotton prices and the availability of high-quality cotton crops. We also anticipate headwinds in downstream segments, such as home textiles, while demand from the apparels and innerwear segment continues to recover. The domestic and Exports Textile markets may remain moderate for some more time. Furthermore, we anticipate that changes in trade policies and fluctuations in foreign exchange rates may impact the prices of imported cotton, potentially affecting our competitive position in the global market.

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 – PERFORMANCE HIGHLIGHTS

• Revenue for the financial year ended March 31, 2024 is Rs. 1053.87 crores.

• Profit before financial expenses and depreciation for the financial year March 31, 2024 is Rs. 89.26 crores.

• PBT (Profit before tax) for the financial year ended March 31,2024 is Rs. 34.55 crores.

DETAILS OF SIGNIFICANT CHANGES IN THE KEY FINANCIAL RATIOS & RETURN 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) at page no. 150 of the Annual report.

INTERNAL CONTROLS AND RISK MANAGEMENT

GHCL Textiles Limited has received a legacy of well-established framework of internal controls of the businesses and operations. The Company has adequate monitoring procedures and has appointed competent personnel to safeguard its assets, protect loss from unauthorized use or disposition ensuring reliably authorized, accurately recorded and transparently reported transactions. Establishment of highly e_icient management information and reporting systems combined with robust corporate policies form the overall control mechanisms.

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 supplement the internal control mechanism, the Company appointed external independent internal audit agencies to carry out concurrent internal audit at all its locations for its business. Audit Committee of the Board of Directors has started to review the internal control systems on a regular basis to improve their effectiveness besides verifying statutory compliances. The Audit Committee shall meet periodically to discuss findings of the internal auditors along with the remedial actions (i.e. Action Taken Report). The statutory audits are conducted by globally recognized ‘Big 4 audit agencies to ensure that the companys practices are in line with global best practices. A compliance management tool had also been adopted to ensure timely compliance with legal, financial, environmental, labour, governance, safety and other relevant regulations.

Apart from the above, the Company believes that Risk Management and Internal Audit functions complement each other to form an elaborate risk management system that evaluates the e_icacy of the framework relating to risk identification and mitigation. The Company strives to adopt a de-risking strategy in its operations while making growth investments. This involves setting up and monitoring risks on a regular basis. GHCL Textiles Limited has voluntarily formed Risk & Sustainability Committee in line with the requirement of Regulation 21 of the Listing Regulations. The Company shall continue to adopt Risk Management in a well-defined, integrated framework, which promotes awareness of risks and an understanding of the Companys risk tolerances. The management monitors the internal control system, designed to identify, assess, monitor and manage risks, associated with the Company. Each risk is provided with different number of control measures depending upon its potential impact and probability of occurrence. The risk management framework incorporates both financial and non-financial risks.

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, 2024, number of people employed by GHCL Textiles Limited are 2939 including all categories.