Jakharia Fabric Ltd Management Discussions.

SEGMENT REVIEW AND ANALYSIS

Our Company is engaged in the business of dyeing and processing of fabrics on job work basis for other textile companies as well as for own manufacturing product lines. Our Company procures Grey Fabric from the market and further dyes and finishes the same as per the clients requirements on the basis of quality of the fabric, sizing requirements etc. Our Company also out sources certain processes like weaving of the fabric and printing as per the demand of the customers based on the quality required. Our Company manufactures and processes the fabric specially suitable for Shirtings.

Our Company has set up additional processing facility at Plot No. J1/1, MIDC Tarapur Industrial Area, Boisar, Palghar - 401 506. This facility is being set up through M/s Jakharia Industries, which is a Partnership Firm, wherein our Company is a partner. The Partnership firm is set up to establish a new processing house with a capacity of Rs 360 lakh meters p.a. for colouring, dying, printing and finishing and processing working or manufacturing of cotton, linen, wool synthetics and various other textile products.

We have made investment in M/s. Jakharia Industries (Partnership Firm), with the intention of targeting further penetration in the Textile industry, further creating a wide market locally as well as internationally. We believe that the Partnership will prove to be beneficial for the Company helping to create a brand image of the Group. We believe that, with a wide Product mix and the available market mix for the processed fabric along-with the modernised facilities adds to the positive factors. We seek to develop our Brand Image by continuing to expand our product portfolio and services offered by adding product categories to complement our product mix and the market mix.

We have positioned ourselves as a multiproduct, multi-fibre and multi-market player ensuring that our products include a diverse mix of fabrics mainly catering to domestic market and also to the international market. Wide ranges of fabric are processed at our Processing house which includes cotton, polyester, viscose and man-made & blended fabrics.

Our Company has set-up two (2) processing units located at MIDC Area of Saravali, Bhiwandi in Maharashtra and MIDC Area of Tarapur, Bhiwandi in Maharashtra. The plant has the facilities for dyeing and processing wide range of fabrics.

We have dedicated semi-automatic machines and skilled operators for manual checking of raw materials as well as Finished Goods. Our Testing and QC Technical team combined with our testing equipments ensures the quality of raw material dispensed in the production process and also the finished goods delivered to our customers. This helps in improving our procurement process thus reducing wastages, returns and other related costs.

The Company is operating only into job-work, Therefore segment/ product-wise details are not applicable.

COMPETITION

Textiles being a global industry, we face competition from small as well as big players in the textile industry in domestic market as well as international market. This industry is highly competitive and fragmented. We have a number of competitors offering services similar to us. Even with a diversified product portfolio, quality approach, processing flexibility and modern technology we may have to face competitive pressures.

We believe the principal elements of competition in textile industry are price, fabric quality, timely delivery and reliability. We compete against our competitors by establishing ourselves as a knowledge-based processing unit with industry expertise in Dying and providing varied quality of fabric which enables us to provide our clients with innovative designs suitable to current fashion and market requirements.

Opportunities and Threats :

The textile industry as well as Company will be driven by increasing urbanisation and higher awareness of fashion trends. The future of the industry looks promising backed by consumerism, increasing population, affordability and rising disposable income.

The threats for the industry and the Company comprises of competition from emerging countries, especially China. Pricing pressures on finished goods, inflation, COVID-19 and similar pandemics, foreign exchange fluctuation, volatility in input cost, cotton crop, interest rates and power cost among others, comprise the key threats.

General economic and business conditions

As a Company with its complete operations in India, we are affected by general economic conditions in the country and in particular economic factors that affect textile industry in India. Indias gross domestic product, or GDP, has been and will continue to be of importance in determining our operating results and future growth. Our growth plans are considerable and would put significant demands on our management team and other resources.

INDUSTRY STRUCTURE & DEVELOPMENTS

The textile and apparel industry can be broadly divided into two segments - yarn and fibre, and processed fabrics and apparel. India accounts for 14 per cent of the worlds production of textile fibres and yarns (largest producer of jute, second largest producer of silk and cotton, and third largest in cellulosic fibre). India has the highest loom capacity (including hand looms) with 63 per cent of the worlds market share.

The Indian Textile Industry is one of the largest in the world in terms of raw material base and manufacturing strength across the value chain. The uniqueness of the industry lies in its strength both in the hand-woven sector as well as in the Capital intensive mill sector. The mill sector, with 3,400 textile mills having installed capacity of more than 50 million spindles and 8,42,000 rotors is the second largest in the world. Traditional sectors like handloom, handicrafts and small-scale power-loom units are the biggest source of employment for millions of people in rural and semi urban area. The Indian textile industry has inherent linkage with agriculture, culture and traditions of the country making for its versatile spread of products appropriate for both domestic and the export markets. The close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles make the Indian textiles sector unique in comparison to the industries of other countries Indias textiles sector is one of the oldest industries in Indian economy dating back several centuries.

India enjoys the position of the second largest textile exporter and fifth largest in apparel exports globally, with a 6% and 4% share respectively. Indias textile and apparel exports were pegged at US$ 38 billion in FY-19, growing at a CAGR of 6% since 2005. Apparel is the largest exported category, accounting for 46% of the total textiles and apparel exports. Apart from apparels, growth is also expected in categories including home textile products and made-ups, which account for 14% of the overall export. Fibre and filament category registered the highest growth in Indian exports growing at a CAGR of 11% over the last decade. EU and USA are the largest markets for Indian textile and apparel exports accounting for a 19% and 18% share respectively, followed by UAE, China and Bangladesh accounting for 9%, 8% and 5% respectively. Easy availability of raw materials, skilled manpower and favourable Central and State Government schemes could catalyse the growth of the Indian textile and apparel exports. Indian textile and apparel exports are expected to expand to US$ 80 billion by 2025, growing at a CAGR of 10%. (Source: Wazir, IBEF)

The Directorate General of Foreign Trade - (DGFT) has revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textiles Industry - Readymade garments and Made ups - from 2 per cent to 4 per cent. The government is also planning to conduct road shows to promote the countrys textiles in non-traditional markets like South America, Russia and select countries in West Asia.

• Textile industry plays a very crucial role in the Indian economy

— It continues to be the second largest employer in the economy, employing over 45 Million people.

— It contributes 4% to the countrys GDP and 21% to the industrial production.

Cotton Prices :

Cotton is the basic raw material for the textile industries. Its prices are influenced by both domestic and international factors. Rising cotton prices following the pink bollworm infestation in the cotton crops, higher Minimum Support Price (MSP) and unfavourable exchange rate fluctuation are the key concern to the industry. During the year trade war between US and China also affected prices of the cotton very badly resulting to high losses to many Indian and global companies.

India is one of the largest producers as well as exporters of cotton yarn. The textile industry is also expected to reach us$ 223 billion by the year 2021.

(Source: IIFL Research report, The Economic Times, Ind-Ra research report)

GOVERNMENT INITIATIVES

The Indian government has come up with several export promotion policies for the textiles sector. It has also allowed 100 per cent FDI in the Indian textiles sector under the automatic route. Some of initiatives taken by the government to further promote the industry are as under:

GST: The Goods and Services Tax Council doubled the threshold limit for textile players from Rs. 2 million to Rs. 4 million from April 2019. It also raised the composition scheme turnover threshold from Rs. 1 crore to Rs. 1.5 crore for FY 2020.

Technology Upgradation Fund Scheme:

Concessional credit was provided to promote modernization and upgradation of the textile industry. Under the Union Budget 2018-19, Rs. 2,300 crores (US$ 355.27 million) was allocated for this scheme. The Amended Technology Upgradation Fund Scheme is expected to create employment for 3.5 million people and enable investments worth Rs. 950 billion (US$ 14.17 billion) by 2022.

National Textile Policy 2000:

A new draft for this policy expects to employ 35 million by attracting foreign Investments. It also focuses on establishing a modern apparel garment manufacturing Centre in every North Eastern state for which the Central Government invested US$ 3.27 million.

FDI: 100% FDI was allowed in the textile sector through the automatic route.

SAATHI: The Union Ministry of Textiles and Energy Efficiency Services Limited, launched a technology upgradation scheme called SAATHI (Sustainable and Accelerated Adoption of Efficient Textile Technologies to Help Small Industries) for reviving the power loom sector of India.

Merchandise exports from India Scheme:

The Directorate General of Foreign Trade revised rates for incentives under the Merchandise Exports from India Scheme for two sub-sectors - readymade garments and made ups - from 2% to 4%.

Capacity building:

The Cabinet Committee on Economic Affairs approved Scheme for Capacity Building in Textile Sector with an outlay of Rs. 1,300 crore from 2017-18 to 2019-20 comprising placement-oriented skilling programs. Under SAMARTH, Rs. 1,300 crore was approved for providing employment-oriented training to Rs 10 lakhs individuals by March 2020.

Textile incentives:

The Textile Ministry earmarked Rs. 690 crore for setting up 21 readymade garment manufacturing units in seven states for the development and modernisation of the Indian textile sector.

INDIAS MAJOR COMPETITORS IN THE WORLD:

To understand Indias position among other textile producing the industry contributes 9% of GDP and 35% of foreign exchange earnings, Indias share in global exports is only 3% compared to Chinas 13.75% percent. In addition to China, other developing countries are emerging as serious competitive threats to India. Looking at export shares, Korea 6% and Taiwan 5.5% are ahead of India, while Turkey 2.9% has already caught up and others like Thailand 2.3% and Indonesia 2% are not much further behind.

Key Strength of the Industry

• Strong and flexible production base of wide range (count) of yarns

• Management teams vast knowledge in the textile industry, which makes the company produce products that are required in the market.

• Low cost and skilled manpower results in competitive advantage

• Vertical and horizontal integrated textile value chain from raw material to finished goods

• Globally competitive spinning industry with diverse design base

• Investment in cutting edge technological machinery ensures that the products supplied to customers meet the desired international standards.

MARKETING APPROACH AND MARKETING SET UP

Our team including Directors through their relevant experience and good rapport with our customers due to the timely delivery of quality products has played an instrumental role in creating and expanding a work platform for our Company. We have a dedicated team of Marketing Personnel in our spinning and Open- End Division. The Marketing division has well trained team. The marketing division is headed by our executive Directors. The sales and marketing is based on factors such as quality, easy availability, and competitive pricing of the products. Our client base includes reputed corporate houses in the India textile industry and in the global markets we export our products to several countries as well.

IMPACT OF COVID-19 PANDEMIC:

The outbreak of COVID-19 had significant impact on the operation of the company. The nationwide lockdown ordered by the Government of India has resulted in significant reduction in business operation of the company. The manufacturing plants & offices of the company were completely shut down from 22nd March, 2020 to mid-September, 2020. The operations have partially started w.e.f. mid- September 2020 and gradually increasing the capacity utilization levels.

Manufacturing & business activities across the world and in domestic market has been affected adversely, planned shipments/dispatches held-up. Impact on Operations Production & sales was disrupted from 22nd March 2020.

The Company is gradually increasing the utilization levels as per market situation and demand. The demand from domestic markets has not yet revived due to extended lockdown and spread of COVID-19 pandemic affecting retail sale & supply chain.

During the period till full operation starts, there will be revenue losses and correspondingly loss of operating margins and fixed expenses including Employee costs.

Impact on Liquidity:

The company is facing liquidity crunch due to slow movement of finished products and delay in receivable from the domestic debtors.

Estimation of future impact

Due to disruption of recession activities throughout the world and lack of consumer demand in International and domestic markets, will affect demand for companys production in FY 2020-21, the exact impact of which cannot be ascertained presently. It is expected that there will be good demand for textile products once situation across the globe normalizes, the company is equipped to capitalize on that on the strength of its state of art technology, large scale of operations, and widespread customer base across geographies and focus on quality.

CAUTIONARY STATEMENT

Certain statement made in this report describing Companys Objective, Projects, estimates and expectations may be forward looking statement within the applicable laws and Regulations. Actual results may differ from such expectations and forward-looking statement due to various risk and uncertainties. Several factors affecting companys operation like economic condition affecting demand and supply, Government regulations and Tax Laws, Competitions prevailing at the relevant time, natural calamities etc. The Company assumes no responsibility to publicly amend, modify or revise any of these statements on the basis of any subsequent developments, information or events.

For and on behalf of Board of Directors

Sd/-

Jignesh Shah

Chairman & Executive Director

DIN:00256315

Place: BHIWANDI

Date: 05.12.2020.