Hisar Spinning Mills Ltd Management Discussions.

ECONOMIC OVERVIEW

World

2017 was expected to be a good year for the, global economy as growth was forecasted to reach 3.7 per cent. However, the economy grew overwhelmingly at 3.8 per cent, surpassing the projections. This growth can be attributed to the rise in Global trade. The Growth was driven by an investment recovery in advanced economies; continued strong growth in emerging Asia, a notable upswing in emerging Europe, and signs of recovery in several commodity exporters. The year ended on a high with a growth rate of over 4 per cent in the second half.

Global growth is expected to tick up to 3.9 percent this year and next, supported by strong momentum, favorable market sentiment, accommodative financial conditions, and the domestic and international repercussions of expansionary fiscal policy in the united States.

Long term growth for advanced economies is forecasted to remain subdued due to their slow growth potentials. However, emerging markets and growing economies are on track to continue delivering stable growth. The reason for the growth in emerging economies being gradual recovery in export and projected growth in India s growth. This provides some offset to Chinas gradual slowdown and emerging Europes return to its lower-trend growth rate.

The months following the US elections saw a period of uncertainty in the trade market and investments were subdued. Over the next few months the market again gained the pace as a result of positive sentiments towards the decisions taken by the new US government. Therefore, business confidence is up and trade grew last year faster than under the previous government.

However, recent import restrictions announced United States, actions by China, and potential retaliation by the retaliatory announced other countries raise concerns in this regard and threaten to damage global and domestic activity and sentiment. Similarly, changes in US tax policies are expected to exacerbate income polarization which could affect the political climate for policy choices in the future. Climate change, geopolitical tensions, and cyber security breaches pose additional threats to the subdued medium-term global outlook.

Across advanced economies, the 0.6 percentage point pickup in 2017 as compared to 2016 is explained almost entirely by investment spending, which remained weak since the 2008-09 global financial crisis and was particularly subdued in 2016 due to the European sovereign debt crisis of 2010-2012 and the global commodity price realignments of 2014- 2016. Both stronger gross fixed capital formation and an acceleration in stock building contributed to the pickup in investment, with accommodative monetary policy, stronger balance sheets, and an improved outlook helping release pent-up demand for capital goods.

The year saw a cyclic rebound in global trade as it recovered strongly after two years of weakness. The trade growth rose from 2.2 per cent in 2016 to 6.4- per cent in 2017, reflecting improved investment growth rates in formerly stressed commodity exporters as well as the recovery in advanced economy investment and domestic advanced economies, large exporters, such as Germany, Japan, the United Kingdom, and the United States, contributed strongly to the recovery in exports. The same is true for imports, all major advanced demand more generally. Among economies reflected an upwards trend except for the United Kingdom.

India

This year India has shown growth of around 7.5 per cent, which makes it the fastest growing economy among the G20 nations. The acceleration of structural reforms, the move towards a rule-based policy framework and low commodity prices have provided a strong growth impetus.

Reforms are gradually paying off as confirmed by the recovery in industrial production and investment after several weak years. With capacity utilization rising, corporate earnings recovering and the recapitali7ation of public banks, investment has revived. Private consumption has suffered from the confidence and employment shocks associated with demonetization However, a recovery is underway as suggested by the recent rebound in two-wheelers sales and other vehicles. The number of employees eligible for social security benefits has been boosted by an amnesty scheme for companies, but still stands Emerging Economies below 10% of total employees. Employment data are partial but suggest that overall job creation has been lackluster.

Recent deregulation measures and efforts to improve the ease of doing business have boosted foreign investment. Investment is still held back by the complexity of the GST reforms, a slow land acquisition process, regulations Which remain stringent in some areas, weak corporate balance sheets, high non-performing loans which weigh on banks lending, and infrastructure bottlenecks.

The inflation has continued to moderate this year with Consumer Price index declining to 3.3 per cent for April- December 2017 as compared to the same period in 2016. However, the Wholesale Price Index stood at 2.9 per Cent when compared to 0.9 percent in 2016. The sudden spike after years of subdued figures can be attributed to the volatility in the crude oil prices.

Corporate income in India continued to grow at 15-20 per cent supported strongly by recovery in capital expenditure. On the tax front, the year saw its share of ups and down, complexities of GST and the slow process of returns has hurt exporters. At the same time, tax collection figures for the year show an increase in net direct taxes by 19.5 per cent year-on-year and an increase in net direct taxes by 222 per cent year-on-year. According to the Reserve Bank of India. The export contributing sectors with high working capital/sales ratio were hit the most clue to these liquidity constraints. Textile industry has a working capital to sales ratio of around 34 per cent.

Such Investments and exports when supported by smoother implementation of Goods and Service Tax (GST) reforms have the potential of becoming the primary growth drivers of the Indian Economy Growth will be supported by an acceleration in private investment as excess capacity diminishes, deleveraging by corporates and banks continues and infrastructure projects mature The IMF . projects Indian economy to grow at 7.6 per cent for 2018-19, Robust private consumption and new reforms have been the support pillars for the Indian economy for years and will continue to sustain the stable growth expected from the country.

GLOBAL T&A INDUSTRY

In 2017, global textile and apparel trade stood at US$ 768 billion and has grown at a CAGR of 4% since 2005. Apparel is the largest category with a share of 58%, followed by fabric with a share of 19%.

The global textile and apparel trade is expected to grow at a rate of 6% from the present worth of US$ 768 billion to USS 1,230 billion by 2025 Growth in global trade indicates an attractive opportunity for countries with large manufacturing capacities and competitive manufacturing.

India can be one of the gainers in the changing trade landscape.

Country T&A Exports Share 2017 (%)
China 280 36 %
India 37 5%
Bangladesh 36 5%
Germany 36 5%
Italy 34 4 %
Vietnam 33 4%
Turkey 27 3%
USA 26 3%
Spain 19 2%
France 16 2%
Belgium 15 2%
Korea 13 2%
RoW 197 26 %
Grand Total 768

China has successfully leveraged its low manufacturing cost and large scale infrastructure to achieve notable share of 37% in global textiles and apparel trade followed by India with a share of 5%. It is then followed by Bangladesh and Germany with a, share of 5% each and Italy & Vietnam each having a share of 4%. It is worth noting that many major exporting nations do not have presence of the entire value chain. Bangladesh and Vietnam having 3rd and 6th position in global trade respectively, have negligible presence in textiles trade and are major apparel exporters. Similarly, Korea Is more focused on exports of textiles.

There was a 4% decline in trade in 2016 compared to 2015 owing to stilled global economic scenario. However, the trade in 2017 showed a positive growth of 3% after the downfall in 2016.

Share of Major Suppliers:

Over the last decade, share of top 10 global suppliers has increased from 62% in 2007 to 71% in 2017 indicating consolidation of global sourcing. China & HK has maintained the top position with 37% share in global exports in 2017. India has emerged as second largest exporter of textile and apparel.

INDIAN TEXTILE INDUSTRY OVERVIEW

Textile and apparel sector is one of the leading segments of the Indian economy and one of the largest sources of foreign exchange earnings. It accounts for about 5% of the gross domestic product (GDP), and around 13% of the total exports earnings. The sector also provides direct employment to 52 million people and indirect employment to an additional 69 million people.

Indias key strengths in this sector lies in availability of all types-of natural and manmade fibres, large pool of manpower across the levels of hierarchy, presence of complete value chain and a large and growing domestic market. Indian exporters are also well supported by Government Schemes such as Duty Drawback, Rebate of State Levies_ (ROSL), Merchant Export from India Scheme (MEIS), Advanced Authorization, etc. Several state governments like Gujarat, Jharkhand, Maharashtra, etc. are also offering sector specific incentives like capital subsidy, interest subsidy, wage subsidy, etc. These support initiatives allow Indian exporters to overcome a large part of duty disadvantage they face in markets of EU and US where some of the competing nations get a zero duty access. These factors make India a preferred destination for textile investments as compared to its competing nations like Bangladesh, Vietnam, and Lanka etc. This section further details the current status of Indian textile and apparel industry, key trends, challenge and the way ahead for the sector.

Indian textile and apparel sector has double advantage of being export competitive as well having large domestic consumption which is growing, Indian textile and apparel market is currently estimated at USS 127 Bn. The domestic consumption of textiles and apparel constitutes approximately 70% of the total market size while exports constitute the rest 30%.

Domestic Market Overview

The current domestic textile and apparel market is estimated at USS 90 billion, with apparel having "75% share. With growth of disposable income, favorable demographics and changing lifestyle, consumption of products and services expected to grow continuously in the foreseeable future, including textiles and apparel.

Indian consumers affinity towards brands and organized retailing is increasing, which is helping the consumption growth of all products, including textile and apparel. Organized retailing in India currently stands at only 8% of the overall retail market of US$ 600 Bn. Within this, apparel has a share of approximately 8%. With growth of disposable income, favorable demographics, changing lifestyles and a high, potential for penetrating non-urban metro market the share of organized markets in India is expected to reach 31% by 2025, India is also witnessing growth of aspiring middle class who tend to seek value and consume premium products This shift in number of households with different income brackets will improve the consumption of products and services, which will definitely include textile ai apparel as a lifestyle choice to enhance fashion. The vast population base and growing economy has caused glob retailers and brands to enter the Indian market, either on their own or through local partners.

Indian Exports Overview

In terms of global ranking, India is ranked 2nd in textile export with 6% share and 5th in apparel export with 11% share Overall, India holds second position with 5% share of global exports Indias textile and apparel exports were USS billion in 2017-18 and have grown at 6% CAGR since 2005. Availability of raw material, skilled manpower and favorab central & state govt, schemes would further help Indian exporters increase their market share and glob competitiveness.

Indian Textile Manufacturing Scenario

India is one of the few countries in the world which has production at each level of textile manufacturing viz. fib manufacturing, spinning, weaving, knitting, processing, garmenting, made-ups and technical. Textiles. The snapshot installed capacities of textile infrastructure in India is provided in the table below:

Table 2: Installed Capacities in Indian Textile Sector (2016-17)

Description Capacities
Spindles 52 Mr
Rotor 0.9 Mn.
Looms (Including Power Looms) 2.6 Mn.
Man Made Fibre 1.8 Bn. kg.
Man Made Filament 2.2 Bn. kg.

Indias total staple fiber production stood at 9,189 million kg in 2016-17. Natural fiber production in India has reduced at 1% CAGR, but the production of man-made staple fiber grew at 2% CAGR since 2011-12.

Indias one of the most competitive producer of spun yam. The production of spun yarn stood at 5659 million kg in 2016-17, growing at a CAGR of 3% since 2011-12.

Fabric production in India has grown at a CAGR of 1% since 2011-12. Cotton fabrics have the majority share of 60% while manmade fabrics and blended fabrics have a share of 23% and 17%, respectively.

Indias Global Position

Share in global trade and future projections

Global textile and apparel trade grew at a rate of 4% over the last decade to reach a value of USS 743 Bn. in 2016. During the same period, Indias export of textile and apparel grew at a comparatively higher rate of 7% to reach an export value of US$ 37 Bn. in 2016. Indias textile and apparel exports are expected to grow at a CAGR of 6% to reach US$60 Bn. in 2025.

India currently enjoys the position of being the second largest exporter of textile products to the world, next to China. Availability of raw material: skilled manpower and favourable central & state govt, schemes would further help Indian exporters increase their market share and global competitiveness.

THE COMPANY

INTERNAL CONTROL SYSTEM

A strong internal control is pervasive in the Company. The Company has a well established framework of internal control in all areas of its operations, including suitable monitoring procedures, competent and qualified personnel. The Internal Audit department also assesses the opportunities for improvement in business processes, systems and controls, provides recommendations, designed to add value to the Company. In addition to statutory audit, the financial controls of the Company al various locations are reviewed by the Internal Auditors, who report their findings to the Audit Committee of the Board. The Audit Committee actively reviews the adequacy and effectiveness of internal control system and suggests furthering strengthening the same, if so required. The Committee meets to review the progress of the internal audit initiatives, significant audit observations, planning and implementation of follow up action required. The Company conducts its business with integrity and high standard of ethical behavior and in compliance with the applicable laws and regulations that govern its business.

POLICY ON PREVENTION OF SEXUAL HARASSMENT AT WORKPLACES

The Company has zero tolerance for sexual harassment at workplace and has adopted a Policy on Prevention of Sexual Harassment at Workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Management of the Company has also constituted an Internal Complaints Committee at its workplaces to consider and redress the complaints of Sexual Harassment During the year under review, the Company has not received any complaint on sexual harassment.

RISK MANAGEMENT FRAMEWORK

Business risks exist for every Company having national and international exposure. Your Company also faces some such risks, the key ones are unfavourable raw material price, financial & liquidity & unexpected changes in regulatory framework. To ensure long-term success, it is therefore essential that risks be effectively identified, analyzed and then mitigated by means of appropriate control measures.

We have a comprehensive risk management system/policy in place, which enables us to assess, mitigate and to monitor the different risks exposed to the industry in which the Company operates and to take the appropriate action, where ever required.

HEALTH AND SAFETY MEASURES

The Company has health and workplace safely programs in place and has established policies and procedures aimed at ensuring compliance with applicable laws/legislative requirements. The Company believes that the health and safety of the workers and the persons residing in the vicinity of its plants is fundamental to the business. Commitment to the identification and elimination or control of the workplace hazards for protection of all Is utmost importance.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The permanent employee strength of Company as on 3141 March 2018 was Sixty One. The Company recognizes the importance and contribution of its human resources for its growth and development and is committed to the development of its people. The Company has been adopting methods and practices for Human Resources development. With utmost respect to human values, the Company continues to develop its human resources, through appropriate trainings, workshops, motivation/leadership techniques and employee welfare activities at regular intervals.

CAUTIONARY STATEMENT

Statements in the Boards Report and the Management Discussion & Analysis describing the Companys objectives, expectations or forecasts may be forward looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and yarn prices in the domestic and overseas markets, changes in government regulations, tax laws and economic developments.

By order of the Board of Directors
Sd/- Sd /-
Place: Chandigarh (Anurag Gupta) (Sapna Kansal)
Dated: September 05, 2018 Managing Director Executive Director
DIN-00192888 DIN-06892410