Indian Card Clothing Company Ltd Management Discussions

A) Industry Structure and Developments: Indian Spinning Industry and outlook for 2025-26

India has one of the largest spinning capacity in the world with about 48 million spindles processing wide range of yarn from Ne 2 to Ne 180. Out of the total, about 70% of the total spun yarn produced is the cotton yarn, followed by wide varieties of synthetic fibre like polyester, viscose and natural fibres like linen, bamboo, jute and various blends of these fibres. India is one of the largest producers of cotton and accounts for about 25% of global cotton production. The area of cotton cultivation during the financial year 2024-2025 was approximately 115 lakh hectares, which is lower than last financial year by approximately 12 lakh hectares. As against the total cotton production of 325 lakh bales during the financial year 2023-24, the estimate of the total cotton production during the year 2024-25 is 294 lakh bales of 170 kgs. each. The average yield in kilograms per hectare as projected for the financial year 2024-25 is 436 kilograms, which is almost same as previous financial year. [Figures are as estimated by the Committee on Cotton Production and Consumption (COCPC) in its meeting held on 24.03.2025]. India is currently the leader in yarn export and holds about 30% share of the global yarn trade exporting around 1.2 billion kgs. of yarn annually,

Following subdued demand over the last two financial years, the Indian spinning industry continues to experience strong headwinds. Although domestic demand for cotton yarn has started showing early signs of improvement and cotton fibre prices have moderated, a decline in cotton fibre output in 2025 could exert some pressure on margins over the medium term. Also, consumption of polyester and viscose or cellulosic fibres are increasing in the country.

Looking ahead to 2026, the industry may benefit from an improving global apparel demand and the "China plus one" effect, which encourages diversification of sourcing beyond China. UK-India FTA is another positive development which would grow market share of Indian textile & apparel industry in the UK. Despite these positive trends, major challenges remain. Firstly, the uncertainty in global trade dynamics due to the punitive tariff imposed by USA on India has already begun to dampen demand for yarn and apparel exports. In absence of vibrant exports to the USA, many spinning mills, apparel and home textile manufacturers will have to reduce capacity further pushing down demand for card clothing.

Secondly, the spinning industry needs urgent modernization, as over 15 million spindles out of nearly 48 million installed spindles are over 20 years old. Additionally, India is facing competition from Vietnam, Pakistan and Indonesia. Further, Bangladesh has significantly expanded their spinning capacities which has been a major market for Indian yarns. The dampened demand for apparel and home textiles in the last two years and the uncertainty in global trade in the wake of the new tariff regime has meant that the investment scenario in the Indian spinning industry has not picked up.

Thirdly, profitability of Indian spinners continues to be affected by the twin impact of higher freight costs due to the conflagration in the Middle East and Red Sea area raising operational costs and negligible exports to China and Bangladesh due to political tensions, the two important markets for Indian yarn.

Although the Production Linked Incentive Scheme and the PM Mitra Schemes have been announced, negative sentiment in the textile industry has not yet resulted in attracting major investments in man-made fibre and technical textile products.

The Indian spinning industry, which differentiates itself with its widest varieties of yarn counts with different fibre mixing, relies on the production of quality products at an optimum cost. Good quality of card clothing is essential for achieving good quality of yarn.

The spinning is a process of converting fibre to yarn. It has a sequence of machine in which several machines are used and involves opening of fibre tufts to remove impurities, aligning, i.e., parallelising of the fibres and then drawing and twisting to prepare yarn. The cleaning and aligning of the fibres is carried out in the first two process machineries i.e., Blow Room and Carding. For achieving good quality yarn, it is essential to carry out a thorough individualisation of fibre without rupturing it. The carding process is called the heart of the spinning process as the final yarn quality largely depends on it. This function of carding is carried out by processing fibres through moving surfaces covered with fine wire points, generally referred to as "Card Clothing". In a typical carding machine, a large rotating main cylinder is covered with fine metallic teeth and a number of narrow cast iron or aluminium flat bars covered with flexible wire points which travel in an endless path on belts around a portion of the main cylinder. The main Cylinder and the flat bars clothed with "Card Clothing" perform carding action while working at a very close proximity and at a different surface speed. As the extent of individualisation and cleaning of fibres depends on the quality of the Card Clothing, it is an important input for the spinning mills to produce quality yarn.

All new Carding machines are supplied with Card Clothing, which on completion of its life, is replaced with new Card Clothing. The re-clothing cycle of the Cards depends on type of fibres being processed, production rate of the carding machine and utilisation of the machines. The volume of re-clothing depends on the installed operational capacity of carding machines.

There are a few reputed carding machinery manufacturers like Rieter, Truetzschler and LMW. Rieter & Trutzschler, have their own Card clothing companies, namely, Graf and Trutzschler Card Clothing (TCC) respectively, which they use to clothe their carding machine. Lakshmi Machine works (LMW) in India, uses Lakshmi Card Clothing (LCC) for their card. Saurer manufactures carding machine in China and reclothes their card with Chinese card clothing. Marzoli who has recently relocated its manufacturing facility in India, mainly uses Graf card clothing. LMW, Truetzschler and Rieter controls more than 97% market.

In the re-clothing market, for initial couple of re-clothing cycles, Graf and TCC are preferred for Rieter and Tr?tzschler cards respectively. They offer annual maintenance contracts, which covers machine and card clothing. Card Clothing companies like ICC and Groz – Beckert compete for market share of re-clothing for all carding machines with the OEM suppliers like Graf, TCC and LCC. Chinese Card Clothing companies have also developed products for high production machines and are able to sell due to lower prices.

B) SWOT Analysis:

Strengths:

3 Brand re-call due to its presence in the market for around 70 years.

3 The company has constituted a continual program of automation to meet the market demand of high-quality products with minimum possible lead time for supplies. This would help the company when the textile spinning industry revives.

3 Strong sales and service support in all major spinning centers in India and in Turkey.

3 ICC is the major non-woven wire manufacturer in India.

Weaknesses:

3 The company depends on high quality expensive raw material. The raw material is primarily imported, affecting the companys profit margin.

3 The company does not have any association with the leading carding machine manufacturer either in India or overseas, which requires additional effort to establish products on new cards.

3 The performance of the company depends heavily on the cyclical Spinning Industry.

3 The companys traditional and mainstay market has been the low-speed cards which is a declining segment and bears the brunt of any slowdown in the Spinning industry

3 Low-cost products being offered by Chinese card clothing manufacturers in some South-East markets which have been the Companys stronghold, has affected sales.

Opportunities:

3 ICC has introduced new products for high speed carding machines. The major growth of card clothing will be in this segment; ICC is optimistic to increase share in this segment.

3 The non-woven and technical textile Industry continues to grow. ICC is putting special focus in this segment and emerging as a major supplier.

3 Turkey has a good demand for non-woven card clothing. Having fully equipped sales and service establishment in Turkey, ICC is aiming for even better performance during coming time.

3 The cotton prices have been steady since last two quarters. This is bringing stability in spinning industry.

3 FTA with UK, entry of big group expected to give boost to the textile Industry.

Threats:

3 Due to persistent sluggish demand for apparel and home textiles, many spinning mills are working partial shifts leading to lower demand for card clothing.

3 Bangladesh has been a major exports market for ICC. The political unrest in Bangladesh and the tensions between the two countries has had an adverse impact the Companys direct exports.

3 Ministry of Steel of the Government of India has introduced QCO (Quality Control Order) requiring the import of high grade raw material in alloy and high carbon steel to meet specific Indian Standards causing disruption in timely procurement.

3 Spinning Mills defer reclothing, during periods of low demand for yarn or lower profitability.

3 Many Card Clothing manufacturers who supply their products as OEM with carding machines, provide maintenance contracts to shut out others like ICC in the reclothing market.

3 Entry into Spinning Mills with higher speed cards is a slow process, which will require more time and deliberate steps.

C) Operations

i) Product-wise Operational performance:

Metallic:

The sale of Metallic wires declined approximately by 7 per cent compared to the previous financial year. The sale of the Prolyf Gold Tops has decreased by approximately 20 per cent over the previous year. The new high PPSI flat tops have given encouraging results and increase of market share in fine count segment is expected.

Non-woven:

Wires for the non-woven market decreased by approximately 7.46 per cent compared to the previous year, largely due to reduced sales to Garnett Wire Limited, UK the Companys wholly owned subsidiary and decreasing sales at its Turkey Branch. The constraints with respect to the raw material are being addressed and expect smooth supply during new financial year.

Machines:

The sale of Machines for mounting, maintenance and servicing card clothing declined by approximately 55 per cent as the capital investments by spinning mills were postponed. Most of the carding machine manufacturers are working with less than 40 per cent capacity and hence the demand for service machine will remain dull.

Servicing:

The revenue from providing services to textile mills reduced by approximately 6% as compared to the previous financial year.

ii) Measures taken for improving the operational efficiency:

Various automation projects were undertaken during the period under review to improve the manufacturing processes and raise productivity.

Notwithstanding the challenging market conditions the operations team undertook projects to improve operational efficiency of the Plant applying LEAN manufacturing principles.

D) Outlook:

The outlook for the ensuing years is extremely challenging. The demand for textile and clothing in the international market is sluggish due to the subdued economic outlook in Europe and the high tariff regime imposed on India by the USA.

The Directors are sceptical of any turnaround in the card clothing business in the near or medium term.

E) Risks and Concerns:

The demand for Card Clothing in the re-clothing market is entirely dependent on the current operational capacity of carding machines, their production rate and consumption of fibre. The slowdown in demand in the textile spinning industry, particularly cotton for the previous financial years shows no signs of abating and will directly impact the prospects of the Company going forward.

The card clothing industry depends on a limited number of suppliers for commodities like steel, cotton and rubber due to the criticality of raw material required for manufacturing card clothing. The card clothing manufacturers have very little control over such suppliers since their volume of business is comparatively small for the suppliers. Apart from the risk associated with the volatility in raw material prices, the Company is also exposed to other general risks related to volatility in Foreign Exchange rates, change in taxation structures, changes in interest rates, natural / manmade disasters, and political risks. The QCO issued by the Ministry of Steel of the Government of India has had a negative impact on the cost of critical raw material of high carbon steel and alloy steel.

While tapping the growth opportunities, the major risks and areas of concern for the card clothing industry are, increasing input costs, high price of power and its inadequate supply and lack of infrastructure among companies in small and very small-scale sector.

The challenging political situation in various countries in the world is another major area of concern. The cost-of-living crisis remains unabated in key European countries, which has caused stagnation in the demand for apparel and home textiles. There are no immediate signs of improvement. The overturning of global trade norms by the USA has also injected tremendous uncertainty.

F) Internal control systems and their adequacy:

The Company operates in ERP environment and has implemented the Oracle System for the purpose of "Internal Financial Controls" within the meaning of the explanation to Section 134(5)(e) of the Companies Act, 2013, read with Rule 8(5)(viii) of the Companies (Accounts) Rules, 2014. The completion of the restructuring exercise of the Finance and Accounts function of the Company got delayed due to changes in the operating personnel in the finance function. This restructuring exercise also includes restructuring of Finance and Accounts function of Companys subsidiaries, its branch at Turkey and functioning of the audit trail feature in Oracle and some of its other support functions. This exercise shall re-define the Risk Control Matrix for the purpose of strengthening internal financial controls. The restructuring activity of Finance and Accounts function also includes maintenance of the books of accounts at Turkey Branch in respect of the transactions effected at the said branch. Presently the same is prepared, monitored and kept at the Registered Office of the Company.

Your Directors expect that this restructuring exercise would be completed in the current financial year. As a result of the delay in completion of the exercise of restructuring of Finance and Accounts function, the Company was not able to provide sufficient information to the Statutory Auditors related to the Internal Financial Controls exercised by the Company.

However, this has not affected any of the internal financial controls exercised by the Company during the financial year under review. The internal financial controls of the Company are adequate and were operating effectively during the year under review.

The Companys manufacturing facility has ISO 9001 certification, which is renewed from time to time.

A firm of auditors manned by technically and commercially qualified personnel carries out internal audit, of Nalagarh plant, which is followed up by discussion with each department, the Chief Executive Officer and in the Audit Committee. Wherever risks have been identified in processes or systems, these have been addressed by implementing a more robust process.

The Company has a costing system to help control costs and to take decisions on pricing. Pursuant to Notification No. G.S.R. 725(E) dated July 31, 2018 whereby the Companies (Accounts) Amendment Rules, 2018 were notified, the Company is maintaining the Cost Records under sub-section (1) of section 148 of the Companies Act, 2013. A certificate of a Practising Cost Accountant has been obtained certifying that the Company has maintained the Cost Records as per the statutory requirements mentioned above.

G) Financial performance and operational performance:

3 Standalone Financial Performance

During the year under review, the Company earned a total revenue of Rs. 7,995.38 Lakh as against Rs. 6,899.02 Lakh in the previous year. The profit for the financial year 2024-25 which mainly includes profit on sale of Commercial Premises of the Company, has been Rs. 9,184.72 Lakh as against profit of Rs. 788.23 Lakh for the financial year 2023-24.

3 Consolidated Financial Performance

During the year under review, the Company along with its subsidiaries achieved a total consolidated revenue of 8,591.50 Lakh for the year ended March 31, 2025, as against Rs. 7,537.65 Lakh for the previous year ended March 31, 2024. The consolidated profit after tax for the year under review has been Rs. 9,186.88 Lakh as against consolidated profit after tax of Rs. 796.59 Lakh for the previous year.

H) Material developments in Human Resources / Industrial Relations:

Industrial relations of the Company were cordial throughout the year. Your Company recognises the need for a strong, dynamic and motivated Human Resources. Over the years Company has maintained consistency in its efforts in training and developing its human resource to sustain in the increasing competition.

I) Key financial ratios, significant changes therein and its explanation:

Particulars	2024-25	2023-24	Remarks
Debtors Turnover Ratio	3.72	3.90	Marginal improvement due to better
(in times)			collections.
Inventory Turnover Ratio	1.52	1.88	Marginal improvement due to better utilisation
(in times)			of Inventory.
Interest Coverage Ratio	12.12	9.69	Debt service ratio has improved as the
(in times)			operating profit increased in current year.
Current Ratio (in times)	3.57	5.45	The Current Ratio has decreased during the
			year primarily due to an increase in current
			borrowings. The increase in current borrowings
			is mainly due to the reclassification of a loan
			from Holding Company, which was payable
			after one year in the previous year in the
			previous year but has become payable within
			one year in the current year and has therefore
			been shifted from non-current borrowings to
			current borrowings.
Debt Equity Ratio (in times)	0.04	0.09	The major decrease in this ratio is on account
			of repayment of loan of USD 10 lakhs,
			equivalent to INR 873 lakhs during the year
Operating Profit Margin	74.43%	64.78%	Increase in the operating profit margin is due
(in %)			to the profit on sale of assets of the Company
			as well as an increase in the fair value of the
			investments.
Net Profit Margin (in %)	255%	16.06%	Net profit ratio increase in the current year as
			compared to the previous financial year is
			primarily due to the profit recognized on the
			sale of land and building as well as an
			increase in the fair value of investments.

J) Return on net worth, significant changes therein and its explanation:

Return on net worth for the financial year 2024-25 was 28.97% as against 3.61% for the financial year 2023-24. The increase in the return on the net worth was due to the increase in profitability on account of sale of the commercial premises of the Company as also due to fair value gain of financial assets during the financial year under review.

K) Cautionary Statement:

Statements in the Management Discussions and Analysis Report describing the Companys projections, estimations, expectation and predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from the expressed or implied. Important factors that would make a difference to the Companys operations include demand and supply conditions, raw material prices, changes in government regulations, tax regimes, competition and economic developments within and outside the country.