Harish Textile Engineers Ltd Management Discussions

The purpose of this discussion is to provide an understanding of financial statements and a composite summary of performance of our business. Management Discussion and Analysis (MDA) is structured as follows:

OVERALL REVIEW:

Despite significant challenges, the global economy showed remarkable resilience in the financial year 2023-24. These challenges included post-pandemic supply-chain disruptions, a global energy and food crisis due to the Russian-Ukraine conflict, increased logistics costs from the Red Sea crisis, and a notable rise in inflation leading to synchronised monetary policy tightening worldwide. Contrary to many forecasts, the world avoided a recession, the banking system remained largely robust, and major emerging market economies did not experience sudden stops.

Global GDP growth was 3.2% in 2023 and is expected to stay the same in 2024, with a slight increase to 3.3% in 2025. By late 2023, headline inflation in most economies had nearly returned to its pre-pandemic level for the first time since the global inflation surge began.

Global equity markets ended 2023 on a high note, with major global equity benchmarks delivering double-digit returns.

The Indian economy grew 8.2% in FY 2023-24 fiscal against 7.0% in FY 2022-23 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector.

In FY 2023-24, the CPI inflation averaged 5.4% with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5%, a sharp decline from 6.2% in FY 2022-23.

Indias exports of goods and services touched USD 778 Billion in 2023 compared to USD 770 Billion in the previous year.

India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves.

The Indian textile and apparel market was valued at USD 197.2 Billion in 2023 and it is further expected to reach USD 592.7 Billion by 2032, at a CAGR of 12.6% from 2024-2032. The textile and apparel industry is an integral part of Indias economy contributing approximately 2.3% to the GDP, 13% to industrial production and 12% to exports. The textile industry in India is expected to double its contribution to the GDP, rising from 2.3% to approximately 5% by the end of this decade.

COMPANY PERFORMANCE/ REVIEW OF OPERATIONS:

For the Fiscal year 2023-24, Company has attained the top line of Rs. 132 crores, this records for almost 13% Y-o-Y growth in the annual turnover of the Company. The Non-Woven business performed exceptionally well showing an annual increase in the turnover by almost 4%. The performance of the PSF division was also increased by approximately 3%. The Textile Engineering business performed significantly showing an annual increase in turnover by almost 43%.

The focussed actions for the textile engineering business have resulted in the attaining the better turnover for the year, further appropriate cost optimisation measure, the management expects that the Engineering division will also do better in the current year.

Brief Introduction of Your Company:

Your Company is one of the leading producers of textile processing and finishing machinery in India. The Machinery produced by your Company has found acceptance by reputed clients in India and abroad. Your Company has also exported its products to over 25 countries, including to a prestigious market like U.K.

Your Company has manufacturing facilities spread over 50,000 square feet in Umbergam, Gujarat.

Your Company is also engaged in Production of Non-woven fabrics used mainly for auto interiors and filtration and hygiene segments at its plant in Umbergam which has factory building of approx. 1,10,000 square feet.

Your Company is also engaged in the production of polyester staple fibre by recycling pet bottle and waste polyester, at its plant in Gonde, Nashik.

Strengths:

Over the years your Company has acquired Product and Domain Expertise in all the products manufactured. Your Company also has excellent technical and design team that can take up special tailor-made projects even for non-textile applications. Your Company has best in class infrastructure and plant and machinery in this business. The PSF business is environmentally friendly green business as it recycles Pet Bottles and Other Polyester Scrap into PSF. Your Company has domain expertise and experience in this Business and best in class infrastructure. Your Company has ambitious Plans of Expansion in this Business.

Your Company has wide range of Products in its Non-Woven Business which caters to a wide range of clients. With PSF plant providing assured raw material supply, your Company is in a unique position in the Business.

Quality:

Harish Machines are known and well respected for its Quality and productivity and command a premium valuation.

The PSF and Non-Woven Products of Your Company are well known and respected for their Highest Quality Standards.

Outlook:

Outlook for the current financial year 2024-25 seems to be better with Non-Woven business attaining monthly highest turnover and expanded Non-Woven capacity has started to yield fruits in the current year.

The overall scenario for Engineering and PSF is also encouraging.

The recycling industry has evolved from viable businesses in medium term to long term and now the recycling industry is seen/taken as "must have" from "good to have" for overall ecological development resulting to move the industry to main stream from the side stream.

A number of Companies are looking for recycled material to reduce their carbon foot prints, automotive industries is one of the leading industries among this. Our Companys products Fibre and Non-Woven Fabrics are mainly supplied to automotive ancillary companies and hence we are one of the few Company that can address their growing appetite/demand.

Opportunities:

For engineering business export markets offer exciting opportunities. Specialised, tailor made non textile customers also offer excellent growth prospects.

For PSF business, there are ambitious expansion plans and with the auto sales picking up sharply, the opportunities for Non-Woven and PSF have improved substantially.

Threats:

The threats are in relation to the economic slow-down, liquidity issues, recent spurt in Raw Material prices and any adverse government policies. However, since textile industry is one of the top-three employment generators, the government policies are expected to be conducive and supportive.

• Emerging geopolitical trade

• Restrictions and supply chain challenges

New Competition:

• New competitors are entering the market Financial:

• Volatility in Indian Rupee (?) and US Dollar ($) exchange rates

• The emerging scenario of higher interest rate regime.

Cvber-Securitv:

• Data loss/Thefts

• Domain-based threats

• Hacktivism

• Site non-availability

• Looming threat of global recession

• Supply chain disruptions

• Employee Health & Wellness

RISKS AND CONCERNS:

The recent liquidity crunch and global economic down turn due to liquidity tightening and higher interest rate regime followed by the Central Banks all over the world are the risks and concerns being faced by the industry.

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Companys well-defined organizational structure, documented policy guidelines, defined authority matrix and internal financial controls ensure operational effectiveness, reliability of financial data and compliance with applicable laws, regulations and Companys policies.

The financial control framework includes internal controls, delegation of authority procedures, segregation of duties, system access controls, and document filing and storage procedures. The Internal Auditor ensures the continued effectiveness of the Companys internal control system. The Audit Committee reviews internal financial control reports prepared by the internal auditor. The Company has framed risk based internal audit policy as part of its oversight function. The objective of risk based internal audit review is to identify the key activities and controls in the business processes, review effectiveness of business processes and controls, assess the operating effectiveness of internal controls and provide recommendations for business process and internal control improvement.