H P Cotton Textile Mills Ltd Management Discussions

During FY 2022-23, the sale of Sewing Threads decreased by 37.53% over the previous year and stood at Rs. 7,727.60 Lacs as compared to Rs. 12,371.28 Lacs in FY 2021-22. No Hosiery Yarn was sold by the Company during FY 2022-23 due to captive consumption.

HP MMF is a wholly-owned subsidiary company of H.P. Cotton Textile Mills Limited. The Company is yet to commence its operations.

The Textile industry as well as the Company are undergoing a significant transformation, resulting in heightening of risks related to strategic choices and execution, in addition to the traditional operational, financial, regulatory, and compliance-related risks. The business objectives of the Company are articulated as a set of specific near-term goals, and long-term strategic goals in a corporate scorecard. These goals cover the dimensions of consistent financial performance, market penetration, operational excellence, cost optimisation initiatives, attracting and retaining talent, and long-term sustainability of the organisation. A detailed Risk Management Policy lays down the framework of Risk Management within the Company.

Mechanisms for identification of risks include periodical risk surveys across the Company, industry benchmarking, periodic assessments of the business environment, incident analysis, findings of internal audits, etc.

The identified risks are structured across the following categories: Name of Risk, Scope of Risk, Nature of Risk, Quantification of Risk, Risk Tolerance/Appetite, Risk Treatment and Control Mechanism, Potential Action for Improvement, and Strategy and Policy Development.

Risk assessment is the process of risk prioritisation or profiling. The likelihood and impact of risk events have been assessed for the purpose of analysing their criticality. The likelihood of occurrence of risk is rated based on the number of past incidents in the industry, future trends, or research available. Risk may be evaluated based on whether they are internal or external, controllable or non-controllable, and inherent or residual.

Treatment of risk is the process of selecting and implementing measures to mitigate risks. Risk control actions are prioritize as per their potential to benefit the organisation. Risk treatment includes risk control/mitigation and extends to risk avoidance, risk transfer (insurance), risk financing, risk absorption, etc.

The textile industry seems to be headed towards a positive and steady growth phase, after a period of turbulence and uncertainty. The buoyant mood stems from a series of measures taken by the Union Government to revive the fortunes of the textile industry coupled with relief from the Covid-19 pandemic. Measures ranging from PLI scheme to providing an impetus to the technical textiles, the launch of mega textile parks and signing of FTAs and MoUs with many countries, etc. will spur demand for the Indian Market. With an added advantage of high-quality standards and globally renowned accreditations, the Company is confident of harnessing the unfolding opportunities and growing steadily.

Currently, the volatility in cotton prices and the global recession, resulting from the ongoing Russia-Ukraine conflict, pose the biggest threat to the industry. This is leading to escalated pricing of finished goods. Consumers are therefore shifting their focus from cotton to man-made fibers. Further, increase in prices of other commodities such as coal, dyes and chemicals are also making the textile industry non-competitive.

Considering employees as one of the most valued stakeholders and nurturing an employee-centric culture has been the key differentiator for HP Cotton. The Company is committed to cultivating a professional environment that empowers its people and helps them to grow in their careers. To remain competitive, improving employee productivity is of utmost importance to the organisation. The Company constantly strives to strengthen its manpower in alignment with the business needs and continues to engage them through various employee engagement activities. The number of permanent employees on the Companys rolls as on 31 March 2023 stood at 1,215.

On a standalone basis, the Companys total income for FY 2022-23 declined by 36%, as compared to the previous year. The total expenditure, including depreciation for FY 2022-23, went down by 16%, and EBITDA declined by 160.44% as compared to FY 2021-22. The Profit After Tax for FY 2022-23 declined by 356.43% as compared to the previous year.

On a consolidated basis, the total income for FY 2022-23 was Rs. 8,605.57 Lacs and the Loss after Tax attributable to shareholders and non-controlling interests stood at Rs. 1,807.22 Lacs.

1) Net Capital Turnover Ratio: Decreased primarily on account of loss incurred in current year

2) Interest Coverage Ratio: Decreased primarily on account of loss incurred in current year

3) Debt Service Coverage Ratio: Decreased primarily on account of loss incurred in current year

4) Debt-Equity Ratio: Increased primarily on account of decrease in shareholders equity and increase in debt during the year

5) Operating Profit Margin: Decreased primarily on account of loss incurred in current year

6) Net Profit Margin: Decreased primarily on account of loss incurred in current year

7) Return on Net Worth: Decreased primarily on account of loss incurred in current year

8) Return on Investment: Decreased primarily on account of loss incurred in current year

The Company maintains adequate and effective Internal Control Systems commensurate with its size and complexity. It believes that these systems provide, among other things, a reasonable assurance that transactions are executed with management authorisation. It also ensures that they are recorded in all material respects to permit preparation of financial statements, in conformity with established accounting principles, along with the assets of the Company being adequately safeguarded against significant loss or misuse. An independent Internal Audit function is an important element of the Companys Internal Control System. This is supplemented through an extensive internal audit program and periodic review by the management and the Audit Committee of the Board.

Statements in the Management Discussion & Analysis Report describing the projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations includes, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws, and other statutes and incidental factors.