Hindoostan Mills Ltd Management Discussions

Industry Structure & Development:

Indias textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand- woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/ yarns from natural fibres like cotton, jute, linen, silk and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.

Indias textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

Natural fibres are regarded as the backbone of the Indian textile industry, which is expected to grow from US$ 138 billion to US$ 195 billion by 2025. Indias textiles industry has around 4.5 crore employed workers including 35.22 lakh handloom workers across the country.

The Financial Year 2024 marks the third successive year of over seven percent growth of the Indian economy even as the global economy struggles to grow at more than 3 percent. The Union government has built infrastructure at a historically unprecedented rate, and it has taken the overall public sector capital investment from ?5.6 lakh crore in FY15 to ?18.6 lakh crore in FY24, as per budget estimates.

Flows into NRI deposits has been doubled to $6.1 billion in April-October period (December 22, 2023). Higher interest rates and stable rupee have attracted more Non-Resident Indians (NRIs) to deposit money in various deposit schemes offered by domestic banks.

Total FDI inflows in the textiles sector stood at US$ 4.34 billion between April 2000-September 2023. The textile sector has witnessed a spurt in investment during the last five years.

India is the worlds largest producer of cotton. The global cotton availability is expected to be higher after July this year due to increased production in Australia, Brazil and other countries. The Intercontinental Exchange (ICE) cotton future is also expected to experience a huge inverse post July 2024, which in turn will soften the Indian domestic cotton prices.

The textiles ministry is formulating its Vision 2047 based on five thematic pillars-research & innovation, infrastructure, trade & investment, marketing & brand promotion, skilling & quality and sustainability. India is working on an ambitious target to achieve $600 billion of textile exports by 2047 from $44 billion in FY22 and the domestic market to grow to $1.8 trillion from $110 billion in 2022, led by a surge in fast fashion and growth in ecommerce.

The Centre has reiterated its proposal to offer the minimum support price (MSP) guarantee for cotton to farmers for the next five years in a bid to push greater crop diversification amid receding water levels. This may result in an increase in cultivation of Cotton.

Spinning mills were keen in selling their stocks in the export market as they were getting better prices after the rise in ICE cotton. On the other hand, the local consumer industry was not ready to pay higher prices as the demand from the downstream industry was still seen as benign. The market also experienced tight payment flow due to the financial year closing. Sluggish demand in the downstream industry dragged cotton prices down until the end of January, causing them to dip below the minimum support price (MSP).

The slow off take of cotton due to weak global demand, mainly from high-consumption countries such as China, has softened cotton futures contracts in international markets. This bodes well for domestic cotton spinners, which were in turmoil for several quarters as weak yarn sales and high cotton prices squeezed.

The geopolitical situation has affected trade in the international market. Last year, textiles were down in the US as well as in Europe. However, Retail sentiment in America has now been improved. In India too, 2025 is expected to be better than 2024. The market is now stable and is expected to grow further in 2025. Post covid, people prefer value added products, new products to support their lifestyle. Buyers want to derisk their resources. Indias market share is therefore improving since India is well positioned. E-commerce players are doing very well since people prefer to have convenience. Market size is expected at $387.3 billion by 2028.

Strengths and Opportunities:

Our textile business has an integrated manufacturing facility for yarns and fabrics which helps serve unique customer requirements and strictly adheres to committed quality and delivery schedules. In addition, the business strives to serve large and small customers with the same level of service and quality. The Company is perceived as a producer of quality goods and this goodwill is helpful in staying competitive in the domestic and export markets. The Company also scores on the services being provided to the customer, especially terms of timely delivery and after sales service. With a wide range of products in cotton, polyester cotton, linen and linen blends, viscose, modal and lycra in greige and finished varieties, our textile business continues to be a one stop shop for discerning buyers.

The demographics and increasing purchasing power of the countrys population indicate a growth in textile demand in the country which is a positive indication for the Company.

Weaknesses and threats:

The ever-increasing no. of low-cost unorganized manufacturing hubs in textiles, especially fabrics, continuous drop in demand and labour issues continue to pose a challenge to us. In the long term, volatility of raw material and process costs is bound to have a negative impact on the market.

Outlook:

We will continue our focus on value addition by developing innovative products, increasing the share of sustainable products while also optimizing utilization and productivity and providing the best services to all our stakeholders.

B. BUSINESS SEGMENT - ENGINEERING:

Industry Structure and Development:

EHL has strong design and engineering capability, knowledge and manufacturing prowess. It has transformed itself to a preferred development partner through concentrated focus on innovation, technology and value addition. Business performance enhancement, market opportunity assessment, market penetration, sector mapping and growth strategy were key focus areas throughout to indulge in new sectors. We are keen to establish ourselves in the Sheet Metal Industry, MDF and Plywood, and Corrugation industry with our applicator rolls and press rolls. We have strengthened our position in Calender Manufacturing and are on the path of expanding our reach and share of the wallet in the market.

Strengths and Opportunities:

Innovation is a continuing on-going process in the Company, which has helped us to explore new ideas and deliver solutions for transformation consistently. The pooling of our technical know-how enables us to uniquely provide optimal results every time and everywhere. The opportunity to build up a better sales pipeline and on top projects with diversification of products has increased our share of wallet in machine building along with customer satisfaction. Supplier consolidation, Product portfolio, material substitutions are few factors to enhance strategic change.

Weaknesses and threats:

> High volatility in prices of key raw materials.

> Inventory management.

> Long sales cycle in steel industry.

> Market competition - grey market pricing.

> Technological upgrades, industry dynamics.

> Import lead time and its dependency across all business segments.

> After sales support on site especially in machine building.

> Iteration rate.

Outlook:

The general business outlook remains positive in view of the overall demand condition. Increasing the share of value-added products remains one of the top priorities with focused cost management and continuous bench marking of best practices. Continuous efforts to enhance the brand image of the Company by focusing on R&D, quality, cost, timely delivery and customer service will help to increase our market share.

Performance, Risks and concerns, Internal control systems and their adequacy and industrial relations are mentioned in the Directors Report.

Key ratios are mentioned in Annexure A to Notes to financial statements, page No. 117.