Grabal Alok Impex Ltd merged Management Discussions

GRABAL ALOK IMPEX LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS Economic overview the world economy: International Monetary Fund (IMF), in its June 2011 update of World Economic Outlook (WEO), had revised downwards its estimate for Global growth in 2011 to 4.3% from its April 2011 estimate of 4.4%. Moreover, according to IMF, downside risks to global growth have increased on account of continuing sluggishness in major advanced economies due to the weak labour and housing markets, and lingering sovereign debt concerns. Considering the prevailing scenario, Global economies are likely to continue to grow at a slower pace in view of the problems being faced by the western economies, majorly US and Europe. For the time being, though, the concern is on the US it is more on the Euro zone. Most of the western economies are resorting to austerity measures, however, the need of the hour is to have some more near term stimulus in order to boost growth while keeping an eye on reducing the fiscal deficit. The silver lining is that the Asian economies, though, showing moderation will still have a positive global impact. Last year, two-thirds of the increase in world growth in 2010 came from emerging economies. The same trend is likely to continue for some time. Though, the Asian economies are no longer de-coupled from west and do get impacted by a slow-down in west, they are driven by the solid domestic demand growth and spending on infrastructure. However, these economies are also facing the heat of rising inflation and as a consequence tightening of monetary policies. India: RBI in July 2011, in its first quarter review of Monetary Policy for 2011- 12, retained its base line projections of its real GDP growth at 8%. However, considering the impact of tight monetary policies, the growth is likely to moderate and the GDP growth is estimated to be around 7.50%. Inflation continues to be the major macroeconomic concern. RBI has made it very clear that controlling inflation is imperative both for sustaining growth over medium term and for increasing potential growth rate. The general consensus is that we are now nearing the peak of tightening monetary policies and it would soften towards the year end. However, the overall domestic scenario is quite encouraging from demand perspective. Industry Outlook: Textile and clothing global textile industry: The global textile and clothing trade increased from USD 212 bn in 1990 to an estimated USD 570 bn in 2010. After phasing out of quota, this trade has witnessed a healthy growth of 8.6% year on year between 2005 and 2008. But then it was hit by the global economic slowdown. From now onwards, it is expected to grow at 6% every year to reach at USD 1 trn by 2020. Textile production has gradually shifted from developed western countries to developing Asian countries in the last 25 years. Beside China and India, new countries like Bangladesh have emerged as major suppliers. Since 1990, contribution of US and other major EU countries towards global textile trade has reduced by 13% while share of China, India and Bangladesh has increased by 27%. The main reasons of this shift in production are the low manufacturing cost, assured supply of raw material, abundant availability of labour in the Asian countries and constantly improving infrastructure for textile manufacturing. If we look at the list of top exporters in last 25 years, the most striking will be the emergence of China as the leader in the global textile trade. Chinas share in global exports has increased from 6% in 1985 to 30% in 2009. Along with Hong Kong, its share is about 36%. The next big exporter is EU Zone which contributes about 29%. (Source: Lecmiopak analysis). The major importers of textile and apparel are EU and US comprising almost 60% of global imports. The share of US and EU has decreased by about 5% since 1985, although they still remain the major importers. INDIAN TEXTILE INDUSTRY: The Indian textile and apparel industry is one of the oldest and most significant industries in the country and one of the largest in the world. Apart from China, no other country can match the size, spread, depth, and competitiveness of the Indian textile and apparel industry. Along with the growth of global trade, India has emerged as one of the strongest textile and apparel production hubs in the past years. Indias exports have grown at a CAGR of 11% in last 25 years to reach US$ 25 bn in 2010. Further, Indias exports are expected to grow @ 12% to reach US$ 80 bn by 2020. The Indian domestic textiles and apparel market is one of the fastest growing market in the world. It is expected to become one of the major consumption bases in near future. Out of the total market size of US$52 Bn, apparels contributes US$36 Bn, home textiles US$4 Bn and technical & other textiles about US$ 12 Bn. Domestic market is expected to grow at a CAGR of 11% to reach US$ 140 Bn. by 2020. INDIAN EMBROIDERY INDUSTRY: Embroidery is an art of producing ornamental needle work consisting of designs worked on fabric with high lustre threads either by hand or by machine. Embroidery is an important part of Indian textile trade and for centuries this art has been developed in different parts of the country. This Industry, in India, is largely dominated by unorganized sector. Started as hand embroidery, it slowly paved the way for machine embroidery as an offshoot of industrial revolution. In this tech-savvy era, from sellers market we have arrived at the buyers market where customer demands value for money. To meet the increasing demand from domestic and global market, automatic computerized embroidery machines are exact, effective, efficient and economical and create a panorama of designs on apparels, fabrics and home furnishing. The automation of machines and computerization of designs have increased the production considerably and reduced the cost. This has helped in getting embroidery mass applicability. Machine embroidery contributes to about 80% of the total Indian embroidery market. Mainly two types of embroidery machines have been used in the industry, Schiffli and Multi head. Both the machines can be used for same application. However, each of them has certain advantages associated. Schiffli machines are widely used for mass production such as making laces, all over fabric, whereas multi head machines are widely used for embroidery on garments, sarees or applications where embroidery is scattered. The state of art Schiffli embroidery machines today are working at 500 RPM, whereas Multi head embroidery run up to a speed of 900 RPM. There is no authentic data available which indicates the exact size of the Indian embroidery industry, however, it is estimated that in India there are about 1600 Schiffli machines and 34000 Multi head machines installed. In value terms, the total Indian embroidery market is estimated to be around USD 1 billion, out of which about 70% i.e. USD 700 million is domestic and 30% i.e. USD 300 million is exports. The major export market for India are US, Europe, Middle East and Africa. The domestic sector offers huge opportunities since the same is getting both fashion driven as well as value conscious. The new applications of embroidery are being introduced which are not just on fabrics but also on home, gifts and other life style products. The industry, both domestic and exports is estimated to grow at a CAGR of 10%. COMPANY PERFORMANCE: HIGHLIGHTS: In 2010-11, Grabal Alok Impex Ltd. (Grabal Alok or the Company) grew its topline, expanded export sales and improved both pre-tax and post-tax earnings. The stand-alone financial performance of Grabal Alok Impex Ltd. for the year ended 31 March 2011 is highlighted below. FINANCIAL HIGHLIGHTS FOR GRABAL ALOK IMPEX LTD. FOR THE YEAR ENDED 31 MARCH 2011: * Net sales for 2010-11 was at Rs. 23,641.50 lakhs which represents a marginal fall of 2.92% (Rs. 2009-10 sales: Rs. 24,352.04 lakhs). * Export Sales increased by 9.93% over 2009-10 levels to reach Rs.12,474.45 lakhs. * Earnings before Interest, Depreciation, Taxes and Amortisation (EBIDTA) for the year stood at Rs. 5,027.07 lakhs - a decrease of 20.73% over the previous year 6,341.50 lakhs). * Earnings before Interest and Taxes (EBIT) for the year - at Rs. 3,364.38- represented 29.19% fall over 200910 (Rs. 4751.16 lakhs). * Profit before Tax (PBT) grew by 7.72% over 2010-11 to reach Rs. 2,743.27 lakhs (PBT for 2009-10: Rs. 2,546.55lakhs). * Profit after Taxes (PAT) was at Rs. 1,765.17 lakhs, representing a growth of 8.94% over 2009-10 1,620.26 lakhs). * Earning per share (EPS) was Rs. 7.85 during 2010-11 (the previous years EPS was Rs. 7.40) - a growth of 6.09% and a 3-year CAGR of 20.35%. * Return on Net Worth (RONW) for the year was 9.34% vis-a-vis 10.27% of the previous year. * Book Value per Share was Rs. 67.39 - a 7.43% year-on-year growth over 2009-10 62.73 as on 31 March 2010). Note: Previous years figures have been regrouped wherever necessary to bring them in line with the current years figures. Table 1 gives the tabular representation of the key financial performance for the past three years. PARTICULARS 2010-11 2009-10 2011-2010 Net Sales 23,641.50 24,352.04 (2.92%) Export Sales 12,474.45 11,347.31 9.93% EBIDTA 5,027.07 6,341.50 (20.73%) EBIT 3,364.38 4,751.16 (29.19%) PBT 2,743.27 2,546.55 7.72% PAT 1,765.17 1,620.26 8.94% Gross Fixed Assets 26,986.32 21,965.28 22.85% Net Worth 18,903.87 15,770.48 19.87% Return on Net Worth 9.34% 10.27% (9.06%) Earnings Per Share (Rs.) 7.85 7.40 6.09% Book Value Per Share (Rs.) 67.39 62.73 7.43% Financial performance: stand-alone: Table 2 gives the financial performance of Grabal Alok Impex Ltd. as a stand-alone entity for the year ended 31 March, 2011. Table 2: Grabal Alok Impex Ltd.: Stand-alone financial performance for the year ended 31 March, 2011: Rs. Lakhs PARTICULARS 2010-11 % TO 2009-10 % TO GROWTH SALES SALES Net Sales/Income From Operations 23,641.50 24,352.04 (2.92%) Other Income 119.62 150.93 (20.74%) Total Income 23,761.12 24,502.97 -3.03% Net Material Costs (After Adjusting Stock-In-Trade) 13,417.29 56.75% 12,629.48 51.86% 6.24% People Costs 1,236.72 5.23% 994.67 4.08% 24.33% Other Expenditure 4,080.04 17.26% 4,537.32 18.63% (10.08%) Earnings Before 5,027.07 21.26% 6,341.50 26.04% (20.73%) Interest, Depreciation & Taxes (EBIDTA) Depreciation 1,662.69 7.03% 1,590.34 6.53% 4.55% Earnings Before Interest & Taxes (EBITA) 3,364.38 14.23% 4,751.16 19.51% (29.19%) Interest & Finance Costs 621.11 2.63% 2,204.61 9.05% (71.83%) Profit Before Tax (PBT) 2743.27 11.60% 2,546.55 10.46% 7.72% Less: Provision For Taxes 978.10 3.92% 926.29 3.80% 5.59% Current Tax (851.77) (433.57) Deferred Tax (22.32) (394.01) Fringe Benefit Tax - - MAT Credit Entitlement - (98.71) Previous Period Adjustment (104.01) - Profit After Tax (PAT) 1,765.17 7.47% 1,620.26 6.65% 8.94% ANALYSIS OF PROFIT & LOSS ACCOUNT: SALES: In 2010-2011, the company achieved net total sales of Rs. 23,641.50 lakhs as compared to Rs. 24,352.04 lakhs in the previous year, representing a marginal decrease of 2.92%. Of the total sales, domestic sales in 2010-2011 accounted for Rs. 11,167.05 lakhs or 47.23% of total sales, compared to Rs.13,004.73 lakhs (53.40%) in 2009-10. Export sales: Export sales for 2010-11 grew by 9.93% to reach Rs. 12,474.45 lakhs as compared to Rs. 11,347.31 lakhs in 2009-10. Exports as a percentage of total sales increased from 46.60% in 2009-10 to 52.77% in 2010-11 (Chart E). Major export market for the company are Saudi Arabia, UAE, Sudan, Tchad, Djibouti, Somaliand, Ethiopia, Benin, Togo, Gambia, Senegal, Mali, Guinea, Ivory Coast, Tanjania and Brazil. Other income: Other income for the year was at Rs. 119.62 lakhs compared to Rs.150.93 lakhs in the previous year. The major portion of other income is on account of dividend income which was Rs. 43.90 lakhs for the year 42.83 lakhs in the previous year). Raw material consumption: Raw material consumption, net of increase/decrease in finished goods, for the year ended 31 March 2011 was Rs. 13,417.29 lakhs, an increase of 6.24% over 2009-10 12,629.48 lakhs). Raw material costs as a percentage to sales have also increased: from 51.86% in 2009-10 to 56.75% in 2010-11. This was mainly on account of sharp increase in the raw material prices during the year. People costs: Grabal Aloks headcount as on 31 March 2011 was 2017 compared to 1911 a year earlier due to addition of machines in the later part of the year. The people costs for the year increased from Rs. 994.67 lakhs in 2009-10 to Rs.1,236.72 lakhs in 2010-11, representing an increase of 24.33%. As a percentage to sales also it increased to 5.23% in 2010-11 as compared to 4.08% in 2009-10. Operational and other expenses: In 2010-11, The Companys operational and other expenses were at Rs.4,080.04 lakhs, compared to Rs. 4,537.32 lakhs in 2009-10, reflecting a decrease of 10.08% over the previous year. The main reason for reduction was on account of exchange rate fluctuation which was nil gain for this year as compared to Rs. 1,085.45 lakhs in 2009-10. Eidta: Earnings before interest, depreciation and taxes (EBIDTA) for 2010-11 was Rs.5,027.07 lakhs as compared to Rs. 6,341.50 lakhs for 2009-10. As a percentage to sales also EBITDA decreased to 21.26% compared to 26.04% in 2009-10. The main reason for decrease in EBITDA was on account of increase in raw material cost. Depreciation: The Companys gross fixed assets (GFA), including capital work-in-progress, increased to Rs. 26,986.32 lakhs as compared to Rs. 21,965.28 lakhs as on 31 March 2010. A large part of the increase in GFA took place during the latter half of the year. The depreciation charged for the year was Rs.1,662.69 lakhs compared to Rs. 1,590.34 lakhs. Interest: The interest cost for the year was Rs. 621.11 lakhs compared to Rs.2,204.61 lakhs in 2009-10. The sharp decrease in interest cost was due to interest income of Rs. 1,396.68 lakhs (previous year: Rs. 493.67 lakhs) received on fixed deposit with banks. There is also a reduction in debt from Rs.31,614.57 lakhs in the previous to Rs. 25,892.56 lakhs in the current year. CASH PROFIT AND NET CASH ACCRUALS: Companys cash profit for the year 2010-11 was Rs. 3617.87 lakhs (previous year Rs. 3,652.02 lakhs) and net cash accruals after providing for dividend was Rs. 3,486.77 lakhs (previous year Rs. 3,442.26 lakhs). PBT: Profit before tax (PBT) in 2010-11 was Rs. 2,743.27 lakhs which grew by 7.72% over the previous year PBT of Rs. 2,546.55 lakhs. PBT as a percentage to sales also improved to 11.60% as compared to 10.46% in the previous year. The improvement in PBT is mainly due to reduction in interest cost. TAX: The provision for tax for the year was Rs. 874.09 lakhs comprising of current tax of Rs. 851.77 lakhs and deferred tax of Rs. 22.32 lakhs. In addition to this, there was a provision made for Rs. 104.01 lakhs for short provision in respect of earlier years. The provision for taxation for the previous year was Rs. 926.29 lakhs 1,401 comprising of current tax of Rs.433.57 lakhs, MAT credit of Rs. 1,201 98.71 lakhs and deferred tax of Rs. 394.01 lakhs. PAT: Profit after taxes (PAT) for the year grew 8.94% over 2009-10 and was at Rs. 1,765.17 lakhs for 2010-11 (Rs. 1,620.26 lakhs in, 2009-10). PAT as a percentage to sales also improved to 7.47% compared to 6.65% in the previous year. ANALYSIS OF BALANCE SHEET: CAPITAL STRUCTURE: The equity capital of the company remained at the previous level of Rs.2,248.50 lakhs. However, during the year, company allotted 16,000,000 nos of share warrants to Arum Investment Private Limited at a face value of Rs. 51 per warrant aggregating to Rs. 8,160 lakhs. Each warrant would get converted into one share of Rs. 10 each at a premium of Rs. 41 per share. The company has received Rs. 2,040 lakhs being 25% of the subscription. NET WORTH: The net worth of the company as on 31 March 2011 was Rs.18,903.87 lakhs (including deferred tax of Rs. 1,677.68 lakhs) as compared to Rs. 15,770.48 lakhs (including deferred tax of Rs. 1655.36 lakhs). TOTAL DEBT: As on 31 March 2011, Grabal Aloks total debt was Rs.25,892.56 lakhs, compared to Rs. 31,614.57 lakhs as on 31 March 2010. Long-term borrowings reduced from Rs. 23,986.70 lakhs as on 31 March 2010 to Rs. 20,212.90 lakhs as on 31 March 2011; the corresponding figures for short-term borrowings were Rs. 7,627.87 lakhs (as on 31 March 2010) vis-a-vis Rs. 5,679.66 lakhs as on 31 March 2011. Net borrowings (net of cash and bank balances) were Rs. 11,192.18 lakhs as on 31 March 2011 (Rs. 8,058.89 as on 31 March 2010). FIXED ASSETS: The Companys gross fixed assets (including capital WIP) as on 31 March 2011 stood at Rs. 26,986.32 lakhs (Rs. 21,965.28 lakhs as on 31 March 2010). The capital work in progress was Rs. 1893.89 lakhs as on 31 March 2011 as compared to Rs. 5.42 Lakhs as on 31 March 2010. The capital workin progress was mainly on account of addition of new 6 schiffli embroidery machines which were under erection and additional building. INVESTMENTS: As on 31 March 2011, Grabal Alok had investments totalling Rs.6,258.73 lakhs, compared to Rs. 5,395.53 lakhs as on 31 March 2010. The details of investments are given in Table 3. Table 3: Statement of Investments by grabal Alok Impex Ltd. as on 31 March 2011: PARTICULARS EQUITY PREFERENCE SHARE TOTAL AS ON APPLICATION 31 MARCH MONEY 2011 2010 In Subsidiaries Grabal Alok International Ltd. 22.05 2,238.26 863.20 3,123.51 2,260.31 In Alok 3,134.21 - - 3,134.21 3,134.21 Industries Ltd. Other Investments At Cost In Equity Shares 1.01 1.01 Total 6,258.73 5,395.53 PARTICULARS % HOLDING In Subsidiaries Grabal Alok International Ltd. 100.00% In Alok 3.05% Industries Ltd. Other Investments At Cost In Equity Shares Total PERFORMANCE RATIOS: Table 4 details the various performance ratios of the Company. Table 4: Key Profitability Ratios as on 31 March 2011: PARTICULARS AS ON 31 MAR 2011 2010 EBIDTA/Net Sales (%) 21.26% 26.04% Profit Before Tax/Net Sales (%) 11.60% 10.47% Profit After Tax Margin (%) 7.47% 6.65% Return On Net Worth [RONW* 9.34% 10.27% Net Long Term Debt2/Equity 0.29 0.03 Net Total Debt/Equity 0.59 0.51 Current Ratio 2.20 2.12 Quick Ratio 1.79 1.89 EBDITA/Interest 8.09 2.88 Net Fixed Assets/Secured Loans 1.72 1.07 Debtors To Turnover-Days 58 68 Total Inventory To Turnover-Days 71 57 Notes: Net Worth and Equity calculated including Deferred Tax Liability Debt calculated net of cash and bank balances EBIDTA AS A PERCENTAGE TO NET SALES for the year 2010-11 was 21.26%, compared to Rs. 26.04% a year earlier. PBT AS A PERCENTAGE TO NET SALES was 11.60% for 2010-11 vis-a-vis 10.47% in 2009-10 PAT Margin FOR 2010-11 was at 7.47%, compared to 6.65% a year earlier. RETURN ON NET WORTH (RONW) RONW as on 31 March 2011 was 9.34%, compared to 10.27% as on 31 March 2010. Debt EQuITY (D/E) RATIO The ratio of total debt (net of cash) stood at 0.59 as against 0.51 in the previous year. CURRENT RATIO as on 31 March 2011 is 2.20 compared to 2.12 as on 31 March 2010. QUICK RATIO increased - from 1.89 as on 31 March 2010 to 1.79 as on 31 March 2011. The Interest Coverage Ratio as at 31 March 2011 was at 8.09 compared to 2.88 as on 31 March 2010, indicating strong interest servicing capability. NET FIXED ASSETS TO SECURED LOANS has improved to 1.72 from 1.07 in 2009-10 and represents adequate cover. DEBTORS-TURNOVER RATIO has decreased-from 68 days as on 31 March 2010 to 58 days as on 31 March 2011. INVENTORY-TURNOVER RATIO has increased from 57 days as on 31 March 2010 to 71 days as on 31 March, 2011. FINANCIAL CONDITION AND LIQUIDITY: Table 5: Summarised Cash Flow as on 31 March 2011: Rs. Lakhs PARTICULARS 2010-11 2009-10 Net Cash Provided/(Used) By: Operating Activities 1,140.48 10,324.54 Investing Activities 17,893.75 (13,276.07) Financial Activities (5,877.04) (9,071.17) Net Cash Surplus/(Deficit) 13,157.20 (12,022.70) Cash & Cash Equivalents At The: Beginning of The Year 989.40 13,012.10 End of The Year 14,146.60 989.40 During 2010-11, the Company has generated cash from operating activities to the tune of Rs. 1,140.48 lakhs. It also received inflow of Rs. 17,893.75 lakhs during the year from investing activities and had a out go from financing activity of Rs. 5,877.04 lakhs. The out go was mainly on account of repayment of long term debt and interest. As a result, the overall cash generated for the year was Rs.13,157.20 lakhs and the closing balance was Rs. 14,146.60 lakhs. Table 5 gives the summarised cash flow for the Company as on 31 March 2011. FINANCIAL PERFORMANCE: CONSOLIDATED: Grabal Aloks consolidated performance figures are given in Table 6 below: Table 6: Grabal Alok Impex Ltd.: Consolidated Financial Performance for the year ended 31 March 2011: Rs. Lakhs PARTICULARS 2010-11 % TO 2009-10 % TO SALES SALES Net Sales/Income From Operations 23,641.50 24,352.04 Other Income 102.31 151.76 Total Income 23,743.81 24,503.80 Material Costs 13,403.53 56.69% 12,643.24 51.60% People Costs 1,236.72 5.23% 994.67 4.06% Other Expenditure 4,117.81 17.42% 4,903.96 20.01% Earnings Before 4,985.75 21.09% 5,961.93 24.33% Interest, Depreciation & Taxes Depreciation 1,662.69 7.03% 1,590.34 6.49% Earnings Before 3,323.06 14.06% 4,371.59 17.84% Interest & Taxes Interest & Finance Costs 1,572.95 6.65% 2,752.29 11.23% Profit Before Tax 1,750.111 7.40% 1,619.30 6.61% Less: Provision For Taxes Current Tax 851.77 433.57 Deferred Tax 22.32 394.01 4.14% 3.80% Fringe Benefit Tax MAT Credit Entitlement 98.71 Previous Period Adjustment 104.01 Profit After Tax 772.01 3.27% 693.01 2.85% Add/(Less): Share of Loss from Associate company (1,132.45) (2,363.77) Profit/(Loss) for the year (360.44) (1,670.76) Add: Balance brought forward from previous year (7,256.20) (5,418.13) Amount available for appropriation (7,616.64) (7,088.89) Grabal ALOK (UK) ltd: Grabal Alok Impex Ltd., through its subsidiaries, holds 48.71% of the equity of Grabal Alok (UK) Ltd (GAUKL) the company that manages the Groups retail operations in the UK. GAUKL operates 215 stores across England, Scotland and Wales, which offer a full range of quality apparel and accessories for men, women and children, as well as home furnishings at affordable price points. The stores were originally branded as qs: over the past three years, the company has been rolling out a new brand Store Twenty One; simultaneously, the stores are being repositioned from a value conscious stores to smart buying stores. Through a series of strategic actions, such as, changing the branding of the stores, refurbishing and improving the look and feel of the stores, changing sourcing to Asian countries, rationalisation of man power and cost reduction measures, etc., the performance of the stores has steadily improving over the period. The major financial highlights for financial year 2010-11 are as under: For the year ended Mar 2011, GAUKLs sales were Rs.129.75 million compared to sales of Rs.117.06 million during 2009-10, representing a growth 10.84%. Store margin increased from 40.30% in FY 2009-10 TO 40.67% in FY 2010-11. On the costs front, people costs reduced marginally from 11.72% to 2009-10 to 11.68% 2010-11. Operating profits or EBITDA turned around from a negative of Rs.3.01 million in 2009-10 to a positive of Rs. 1.71 million in 2010-11. As the recovery process gradually falls in to place, the economic conditions in UK are excepted to be more conducive for retail stores like Store Twenty One. CAPACITIES: The total capacity as on March 2011 and post completion of on-going expansion is given in table no. 7 below. Table No. 7: Particulars Existing Under Implementation Total Nos. Mn. Nos. Mn. Nos. Mn. Stitches Stitches Stitches Schiffli Embroidery Machines 68 8400 6 550 74 8950 Multihead 66 22915 - - 66 22915 Embroidery Machines Quilting 1 300 - - 1 300 Machine Total 135 31615 6 550 141 32165 HUMAN RESOURCES: The Company believes that Human Resource Development is the framework around which employees develop their personal and organizational skills, knowledge, and abilities. The HR function encompasses employee training, employee career development, performance management and succession planning, key employee identification and organization development. Your organization survives and thrives because of the capabilities and performance of its people. The Human Resources (HR) function in Grabal includes a broad spectrum of specialties such as manpower planning, recruiting, induction to new joinees, payroll, policy, safety, training and development, and performance management. In other words, the responsibility of HR is to handhold the recruitment to retirement process of employees. Your companys HR members are advocates for both the company and the people who work in the company. Consequently, these professionals perform a constant balancing act to meet both needs successfully. During the year under review, industrial relations continued to remain cordial and with no instances of stoppage of work or accidents. As at March 31, 2010, your company had a total headcount of 1,911 whereas this number was 2017 as at March 31, 2011. INFORMATION TECHNOLOGY: Grabal Alok shares SAP application instance and landscape with Alok Group. The group migrated to the latest version ECC 6 successfully during the year. Further fine tuning, performance optimisation and functional enhancements are done on a regular basis to improve productivity of resources and quality of data. The company has initiated implementation of HCM (Human Capital Management) module which is expected to go live during the 3rd quarter of 2011-12. This brings in further standardisation, consolidation and best practices of HCM activities across Grabal and Alok Group. The group is also evaluating feasibility of a functional upgrade to EHP 5 (latest Enhancement Package). During the year, additional MPLS links (of another service provider) were installed at Grabal locations to provide required redundancy/backup to the existing MPLS links. This ensures best network performance and uptime on a 24x7 basis. The commercial impact of such enhancements is kept very minimum by regularly negotiating the tariff with service providers. Further to the prevailing data security systems such as off-site data replication, daily backup of database, hourly backup of logs and other devices such as firewalls, anti-virus/anti-spam appliances and software applications, we have successfully carried out POC (Proof Of Concept) of an online data replication system. Further techno/commercial evaluation of the product, key metrics of recovery point objective (RPO) and recovery time objective (RTO) are being worked out. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY: The company has an adequate system of internal controls, commensurate with the size of its business, to ensure: (a) that its assets are safeguarded and protected against loss from unauthorised use or disposition; and (b) that transactions are reliably authorised, accurately recorded and reported quickly. The Company has appointed a Chartered Accountants firm as internal auditors to carry out concurrent audits at all its locations. The scope of internal audit programme is authorised by the Audit Committee of the Board of Directors, who are then briefed every quarter about the findings by the internal auditors. Remedial actions are suggested by both the auditors and the Audit Committee and the same are implemented at the operational level. RISKS AND MITIGATIONS: RAW MATERIAL COST: The main raw material for the company is cotton/blended fabrics and cotton/synthetic yarn. Any change in the price of these raw materials can impact companys performance. To mitigate this risk, the company has developed multiple vendor base for both fabric and yarn. The large scale operations enables it to negotiate better and avail quantity discounts. Moreover, since its bulk of the production is made to order, it is able to pass it on the increased raw material cost. MARKET DEMAND FLUCTUATION: Embroidered fabrics and garments being fashion products, their demand fluctuates from time to time as per prevailing market trends. Therefore, understanding the changing demand scenario and quickly responding to that is critical. The company has developed a wide market for its products both in domestic as well as in exports markets. It has in-house trained designing team, which track the markets continuously. The in-house sampling and product development infrastructure along with its modern capacities enable it to provide the Speed to Market demanded by customers. FOREIGN CURRENCY FLUCTUATIONS: The companys exports constitute about 50% of its sales and therefore are subject to the risk of currency fluctuation. Most of its export sales are in US Dollars. On the liability side, it has foreign currency loans by way of Foreign Currency Convertible Bonds (FCCBs) in US Dollar. The company, through its group treasury, track the currency fluctuations and take appropriate measures from time to time to mitigate this risk. MARKET COMPETITION: The company markets its products in both the domestic and export markets and is subject to market competition in both the markets. Domestically, the major competitors are un-organised and small players whereas in the international market, it faces competition from China, Turkey, EU countries and other Asian countries. The Company due to its large scale, wide product range, diversified customers and market, better quality and designing capabilities is able to produce large to medium volumes at competitive prices. It continues to explore new markets and new applications for its products. FUTURE PROSPECTS: With the steady growth in global textile trade as well as domestic consumption, the opportunities for Indian textile industry are immense. On the export front, the major embroidered products for India are fabric, garments, bed sheets, curtains, sofa covers, quilts, laces and embellishments. While, embroidered fabrics are mainly exported to African and Middle East countries, the embroidered garments, bed sheets, curtains, etc., are mostly exported to US and Europe. The export market is on an average growing at a CAGR of 10%. Domestically, India is worlds second biggest market for embroidery after China. With the wide spread usage of high speed embroidery machines, now, embroidery is commonly seen in peoples day-to-day wear. With the improvement of living standards, people have started using embroidery for bed sheets, curtains, ladies undergarments and so on. The domestic market is also growing at a CAGR of around 10%. Your company has always believed in diversifying its risk and accordingly, has developed export as well as domestic market equally. The company has developed a strategy to be multi product, multi market and multi customer. The order book of the company is quite healthy and the expanded capacities are getting absorbed. There are new emerging markets, especially on the African and Latin American continents, which your company is continuously exploring. The Board of Directors of the company in their meeting held on 30 July, 2011 has approved the amalgamation of the company in to Alok Industries Limited (Alok) subject to approval of the shareholders, creditors, financial institutions, Honble High Court, relevant stock exchanges and other statutory authorities. Alok is an integrated textile producer with large capacities across the textile value chain. The company would, accordingly, get the benefit of Aloks integration, scale, market reach and sound infrastructure to further develop its market. On the overseas retail venture, Grabal Alok (UK) Ltd, the performance is encouraging and company achieved positive cash profit during the year. The prospects of Value Format Stores like Store Twenty One look good with the gradual recovery of the UK economy. CAUTIONARY STATEMENT: The management of Grabal Alok Impex Ltd. has prepared and is responsible for the financial statements that appear in this report. These are in conformity with accounting principles generally accepted in India and, therefore, include amounts based on informed judgments and estimates. The management also accepts responsibility for the preparation of other financial information that is included in this report. Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. The management has based these forward looking statements on its current expectations and projections about future events. Such statements involve known and unknown risks significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, labour relations, exchange rate fluctuations, interest and other costs and may cause actual results to differ materially.