K P R Mill Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

ECONOMY

GLOBAL

The Global economy journey has been eventful, starting with supply-chain disruptions in the aftermath of the pandemic, an energy and food crisis triggered by Russias war on Ukraine, a considerable surge in inflation, followed by a globally synchronized monetary policy tightening. Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose. Many large emerging market economies are performing strongly, increasing their footprint on the global economy. Despite these welcome developments, numerous challenges remain, and decisive actions are needed.

 

INDIA

Indias economy is projected to grow by 6.8% in 2024, according to a report by the IMF which noted that multinationals extending their manufacturing processes into the country to diversify their supply chains will have a positive impact on Indian exports. The expansion in 2023 was driven by strong public investment outlays as well as the vitality of the services sector which benefited from robust local demand for consumer services and firm external demand for the countrys business services exports. These factors are expected to continue to support growth in India in 2024.

 

TEXTILE INDUSTRY

GLOBAL

The Global Textile market is anticipated to rise at a considerable rate due to factors such as the continued increase in global population and urbanization, the rapid expansion of e-commerce, heightened expenditure on leisure activities, the growing retail penetration, increased internet accessibility and smartphone usage, and a rising preference for contactless delivery solutions. Notable trends expected in the forecast period include a shift towards adopting digital textile printing, focus on utilizing non-woven fabrics, an emphasis on the use of organic fibers, a spotlight on sustainable fibers, adoption of digital platforms for textile supply chain management.

 

INDIA

Adverse economic conditions prevailed in major importing Countries, coupled with the Red Sea crisis are impacting the export of Indian textile products, including ready-made garments, to foreign destinations. However, with the US market showing signs of revival, experts believe exports to improve in the upcoming months. The domestic market, which accounts for around three-fourths of the overall demand, continues to witness a steady growth. Demand ahead of the spring-summer season in the West is likely to boost the off take of garments from India, thereby supporting the growth of the entire value chain. With better consumer demand big retailers in the overseas markets will have to restock inventory, improving order flow from Indian exporters. A favourable landscape marked by easing cost pressures and demand revival is likely to support the growth of Indian textiles in 2024. Addressing structural challenges and leveraging policy support are pivotal for the textile industrys sustained growth.

 

COTTON

Cotton is one of the most important cash crops in India. As a raw material for the textile industry, cotton contributes significantly to the agricultural and industrial economics of India and exerts considerable influence on Indias economy. India is one of the major cotton producing as well as cotton consuming countries in the world. The area under cotton crop in India is the largest, constituting nearly one fourth of the world cotton area. KPR is in the Hosiery segment using predominantly the best available cotton (Shankar 6) through meticulous procurement system by engaging competent Personnel of the Company at procurement area exclusively for the purpose. This ensures production of high quality products that carry reputation in the competitive market.

 

INDIAN COTTON BALANCE SHEET FOR THE SEASON 2023-24

As on 31.03.2024	(In Lakh Bales)
Opening Stock	61.16
Production	323.11
Imports	12.00
TOTAL SUPPLY	396.27
Consumption	317.00
Exports	27.00
TOTAL DEMAND	344.00
Closing Stock	52.27

 

(Source: Committee on Cotton Production & Consumption)

YARN

The Global cotton yarn market size has grown strongly in recent years due to the growth of the textile industry, the preference for natural fibers, trends in global cotton production, innovations in cotton yarn, and the increased affordability and accessibility of textile materials. However the year under review has witnessed an unprecedented lower margin due to drop in yarn prices on account of fluctuation in cotton prices and lesser demand. The surge in the power cost has also impacted its margin.

 

GARMENTS

The increasing product demand within the apparel sector is leading the market towards growth. This can primarily be attributed particularly to the growing popularity of casual and sportswear worldwide. This trend is largely attributable to shift in societal norms, lifestyle changes, and the rise of athleisure fashion, which blends comfort with style. Knitted fabrics with their inherent properties of flexibility, elasticity and breathability are ideally suited for the production of casual wear and athletic garments. Its ability to conform to body movements while providing excellent comfort levels is particularly appealing to consumers. The market is also influenced by the growing focus on sustainability. Consumers and businesses alike are increasingly attentive to the environmental impact of textiles. Knitted fabrics, which can be produced with less waste and energy than woven fabrics, are therefore appealing to the environmentally conscious consumers. There is also a rising inclination towards the adoption of more sustainable and ethical production practices. This includes the use of organic and recycled fibers, and fair-trade and transparent supply chains.

 

INTERNAL CONTROL

Internal Control comprises of the plan of organization and all the coordinate methods and measures adopted within a business to safeguard its assets; check the accuracy and reliability of its accounting data and completeness of accounting records; promote operational efficiency; to encourage adherence to the prescribed managerial policies, to assist in achieving the orderly and efficient conduct of business; prevention and detection of fraud and errors and timely preparation of financial statements.

Our Internal Control System is fully equipped with necessary checks and balances ensuring that the transactions are adequately authorized and reported correctly. The Internal Auditor conducts regular Audits of various departments and Units to ensure that necessary controls are in place. The Audit Committee while reviewing the system and the Internal Audit Report, call for comments of Auditors on internal control systems and discuss any related issues with the Auditors and the Management of the company before submission to the Board. The Independent Directors also satisfy themselves on the integrity of financial information and ensure that financial controls including Signature controls, Budget Controls, Data control and systems of risk management are in place. The systems and procedures are documented by way of Manually.

 

EMPLOYEE WELFARE

KPRs HR Policy is entwined with the societal objective of economic empowerment of its employees in every possible manner. 90% of its employees are women recruited from Villages and they are equipped with proper training and outstanding welfare facilities including the most admired Higher education facilities. The trendsetter HR Policy was devised on the Principle that in the changing dynamics of the society, women empowerment is much relevant and very important for the progress of the society as well as the Country as a whole. As education plays an important role in building self-confidence among women, it also enables to change her status in the society. Education enables and builds confidence to take decisions in a better way. Skilling and employment empower women financially stable and therefore she is no longer dependent upon others to lead her livelihood. Women, who are educated and earning, are in much better position in our society. Moving one step ahead, KPR has also been extending career placement service to the qualified employees equipping them with suitable training so as to elevate in their career prospects.

 

PERFORMANCE

The FY 2023-24 has been a challenging year for the Industry as a whole due to fluctuating cotton prices, dent in yarn margin, diminishing demand, capacity under utilization and dumping of imported fabrics and garments from China and Bangladesh. Notwithstanding these impediments KPR could achieve considerable revenue and profitability with the support of its inherent strengths.

EXPANSION PLANS

During the year the following Expansion and Modernisation

programmes have been implemented:

8 Establishment of exclusive Vortex Spinning Mill

8 Expansion in Processing & Printing facilities

8 Establishment of additional Roof-top Solar Power generating capacity.

8 Modernisation in Spinning Segment

We hope that the above initiatives would accelerate the revenue in the years to come.

 

RISKS AND THREATS

Risk relating to Raw material

Indian Cotton production during the cotton season 2023-24 is 6% lesser than the previous season, as area for alternative crops was favoured over cotton by the Farmers. Cotton production is also affected by pink bollworm and inadequate monsoon in many parts. Global cotton production is expected to be higher by 3%. The main issue during this year will be demand and not supply. Currently, Indian cotton prices are at par with the International prices. If the international prices decline, Indian cotton will become expensive. The Government of India has announced an increase in the Minimum Support Price (MSP) for unginned cotton (Kapas), potentially boosting earnings for Indian farmers.

However, the prudent and pragmatic cotton procurement strategies and availability of exclusive personnel in the cotton growing areas and cotton market to monitor and report the events affecting its availability and supplies enables KPR to access the quality cotton at competitive prices. As KPR is an integrated Apparel Unit, the impact of higher cost of raw material on its performance is minimal as the additional cost can be shouldered by the resultant products.

 

Risk relating to Technology obsolescence

Further to the sectors potential growth, the technology element plays a crucial role in the growth of the Indian textile industry. Technology has reshaped the textile industry to meet the rising demands and trends by providing data-driven customer operations. The Advanced Technology machinery with high quality cotton enables the company to manufacture superior quality yarn.

Considering these and the factors such as increased efficiency and productivity KPR always buys new advanced Technology Machinery and Equipments only. Moreover, regular updation of technology advancement in the machinery and production process continues, thereby modernization and automation, wherever possible, is introduced which also entails production and supply of high quality goods and services.

 

Market Risks / Industry Risks:

The textile industry is facing a number of challenges due to the massive fluctuations in cotton prices, high inflation, Ukraine war, low demand in Europe and the US, supply chain disruptions and competition from neighbouring countries, high power cost etc. These factors are putting pressures on margin. However, the industry also has a number of opportunities. The industry has grown significantly, tapping into current trends while facing challenges. There are some signs of improvement in the global textile industry. Order cancellations have decreased and inventory levels are under control. Overall, with the remarkable advances and backed by solid domestic consumption and healthy export demand, the future for the Indian textile industry seems to be bright. It is hoped that with the unstinted support from all the Stakeholders KPR would be able to manage such risk.

 

Logistics Risks:

Efficient supply chain management plays a vital role in delivering high-quality textiles at competitive prices. India must focus on strengthening its supply chain infrastructure, optimising logistics and transportation and streamlining processes to reduce costs and delivery time. Inadequate roads, railways, and ports, as well as poor storage facilities lead to delays in the transportation of raw materials and finished goods, which increases costs for the Industry as a whole. However, KPR with its strategic Logistic team is able to source and supply products as per plans.

 

Political environment risks:

The Government has been paying due attention to the problems faced by the industry. The industry associations have also brought before the Government all major issues faced by the industry then and there.

 

Disaster Risks:

The Company has a well-designed safety management policy that eliminates / reduces the risk of workplace incidents, injuries and fatalities through adoption of various well defined safety measures and devices. Its proper implementation and updation enable effective prevention besides equipping the employees to handle any incident that may occur. The properties of the Company are insured against natural risks like Fire, Storm Tempest Flood Inundation (STFI), Earthquakes, etc. with periodical review of adequacy, rates and risks covered.

 

Financial Risks:

Proper financial planning evolved by qualified and competent Personnel is put in place with detailed Annual Business Plans. Annual and quarterly budgets are prepared and put up to the management for detailed discussion and analysis. The Projects and expenses are regularly monitored. Preparation of daily and monthly cash flows ensures utilization of funds in an effective manner. The Budgets are regularly placed at Audit Committee and the Board.

 

i. Credit Risks:

Systems are put in place for assessment of credit worthiness of customers before admission into dealing. Continuous and periodical monitoring of outstanding, appropriate recovery management system including legal course of action and vigorous follow up are adopted by the Company to mitigate this risk.

 

ii. Foreign Exchange Risks:

We have foreign currency exposure in Exports and Imports, significantly in US Dollar & Euro. Foreign currencies are exposed to risk on account of adverse currency movements. Exchange rate fluctuations could cause some of our costs to grow higher than the proportionate revenues. To manage our foreign exchange risk arising from commercial transactions and recognized assets and liabilities, we use forward contracts and selectively enter into hedging transactions to reduce the risks of currency fluctuations. To manage the Forex related matters we have a competent team consisting of qualified and experienced Personnel.

 

Labour Shortage

India has acquired recognition as a desirable outsourcing location, primarily because of the large labour force availability. The textile industry is the only sector in India that offers skilled and unskilled labourers a significant amount of employment; However, there is a shortage of skilled labour. More than 70% of Indian workers are either illiterate or have just a basic education. The skill shortage in the Indian textile manufacturing is unable to take its skillset forward, or help the sector grow beyond a certain point. The need of the hour is for encouraging education and knowledge transfer through activities like vocational training programs that will also aid in creating job prospects in rural regions. Considering the industrys growth potential and employment generation, in the recent years, the government introduced the Integrated Skill Development Service (ISDS) Scheme to address the skilled labour required to run the diverse textiles sector and its segments.

That is why KPR has been consistently concentrating on upgrading the Employees academic and skill strengths through its industry acclaimed HR Practices that are embedded with Higher education and Vocational facilities that are unique and distinctive from others. Low absenteeism and attrition rate, higher productivity, ability to source required work force are the fruits of its strategic HR policies.

 

Stiff competition from low cost Countries

Indian textile exporters can benefit from the FTA as tariff and non-tariff barriers may be eased under the deal. Currently, Bangladesh, Sri Lanka, Pakistan and some other countries get preferential treatment while exporting to the UK, Europe and US. Indian exporters feel that they are not getting level playing field in the developed economies. It is expected that the concluded and the on-going FTAs will provide Indian exporters some relief.

 

CYBER RISK AND SECURITY

In the present world, the cyber threats presented by modern tech are a cause of concern and as such cyber security measures are inevitable. Cyber security encompasses technologies, processes and methods to defend computer systems, data, and networks from attacks. The Company employs different best practices to secure computer systems and networks as suggested by the cyber security team consisting of Tech Savvy Personnel who has wide knowledge in the IT field. Periodical monitoring of the measures is also in place to strengthen the security systems.

The following measures are adopted by the Company to mitigate the risk:

1. End-user training

2. Operating System and Application patches and updates

3. Endpoint Update and Monitoring

4. Strong password policy

5. Access control measures

6. Minimize administrative access

7. Network segmentation and segregation

8. Device security

9. Protect mobile devices

10. Strong IT policies

11. Staff training on cyber security awareness and policies

12. Data backups

 

 

Periodical Forensic Audit - Vulnerability Assessment and Penetration Test (VAPT) was conducted by Ernst & Young Global Limited. Their recommendations are under implementation by our IT department.

 

 

FUTURE PROSPECTS

 

 

The increasing base of domestic per capita consumption of textile Products is an encouraging factor for the textile industry across the value chain. With the US market showing signs of revival, experts believe that the textile exports to improve in the upcoming months. According to CRISIL, Indias textiles industry is expected to rebound in the current year on three tailwinds: consistent improvement in domestic demand, gradual recovery in exports and lower cotton prices. We are optimistic that the new government, post- election, would expedite the signing of FTAs under progress. A favourable landscape marked by easing cost pressures and demand revival is likely to support the growth of Indian textiles. Addressing structural challenges and leveraging policy support are pivotal for the textile industrys sustained growth.

	FOR AND ON BEHALF OF THE BOARD
	K .P. Ramasamy
	Chairman
Coimbatore
02.05.2024	DIN: 00003736