K P R Mill Ltd Management Discussions

ECONOMY

GLOBAL

Surging US tariffs is expected to impact the global economy and push up inflation. It may slow global growth, but may not cause a worldwide recession. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development. Policy action at the global and national levels is needed to stimulate a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change and thus accelerate long-term growth and development.

Global growth is expected to slow to 2.3%. This marks a sharp deceleration compared to the average annual growth rates of the pre-pandemic period, which were already sluggish. (Source: UN Trade and Development-UNCTAD).

INDIA

India is expected to remain the fastest-growing major economy with a 6.5 per cent growth rate in 2025, (UNCTAD) report. India has been listed among the countries that are propelling growth with higher government expenditure and monetary policy stimulus. Though supported by strong domestic demand, narrowing trade deficit and controlled Inflation, the trade challenges persist due to weak global demand. While foreign investor outflows pose risks, increased domestic investment provides resilience. The RBIs proactive policies have played a crucial role in stabilizing liquidity and inflation expectations. Overall, Indias economy is well-positioned for growth, but uncertainties in global markets, financial volatility and trade disruptions remain key risks. Sustained policy support and domestic resilience will be essential in maintaining economic momentum.

TEXTILE INDUSTRY

GLOBAL

The global textile market size presently at USD 2.04 trillion is forecasted to reach around USD 4.91 trillion by 2037. The rapidly growing consumer preference towards sustainable products is forcing major textile companies to focus on restructuring their business and investing in manufacturing practices that target sustainable products.(Source: Research Nester).

The textile and apparel industry is a highly globalized, multiO trillion-dollar sector. Today, production networks are dominated by low-cost Asian countries with very large labour-pools, which has made it increasingly difficult for other producers around the world to compete. To increase the competence, the Governments Key policies should focus on developing human capital through industry-specific training initiatives; intensifying investment attraction efforts; and aggressively investing in both hard and soft infrastructures to reduce barriers to trade and enhance lead time responsiveness. The punitive tariffs introduced by the US with the highest rates reserved for countries heavily reliant on garment exports to the U.S., represent a direct and unprovoked threat to entire industries. While the pause on US reciprocal tariffs led to strong initial rebounds in financial markets, market conditions remain fluid. Leading to the lowering of global real GDP growth forecast from 2.5 percentto2.2 percent. (Source: WTO).

INDIA

Indias exports of textiles & apparel have attained a growth of 6.32 percent during the current financial year ended on 31s March, 2025, as compared to the previous year with the apparel segment being the main growth driver. The robust performance in apparel exports and steady growth in textiles amid global headwinds highlight the resilience, adaptability and global competitiveness of the Indian Textile and Apparel Industry. The growing momentum in forging new trade alliances and supportive policy decisions by the government have helped build confidence among exporters. (Source: CITI).

The industry remains optimistic about maintaining this growth trajectory, especially in light of evolving global trade dynamics. The ongoing trade tensions appears to present a strategic opportunity for India, particularly in textile and apparel trade. The increased tariff announced by US presents an opportunity for India compared to its competitors in terms of better market access.

Given the uncertainty surrounding tariff structures, Indian exporters also need to explore alternative global markets to sustain and enhance trade volumes. Strategic engagement with the US remains critical, but a parallel focus on expanding into new destinations and enhancing the countrys trade facilitation measures will ensure resilience. Factors like high domestic demand, PLI schemesand ease of doing business will continue to drive the economy on the progressive path, making India a global manufacturing hub.

COTTON

The Indian textiles industry is one of the largest in the world with a large raw material base of natural fiber including cotton, silk etc. All India cotton sowing area for the crop year 2024-2025 is 8.70% lower than last year and consequently its production has also come down, compared to previous year. Global cotton production is expected to rise by 7% over the previous year. However, India is predominantly self-sufficient in Cotton production. Market trends indicate stable demand and supply conditions, with minor fluctuations suggesting a cautious trading approach. (Source: Cotton Association of India & USDA).

KPR always use Shankar 6, the best available Cotton in India for knitted segment. It is procured through judicious system whereby a competent Personnel of the Company is placed at the cotton growing area exclusively for the purpose. This system ensures procurement of cotton of the required quantity and standard at competitive prices and at right time.

INDIAN COTTON BALANCE SHEET FOR THE SEASON 2024-25

As on 31.03.2025	(In Lakh Bales)
Opening Stock	47.10
Production	294.25
Imports	25.00
TOTAL SUPPLY	366.25
Consumption	318.00
Exports	18.00
TOTAL DEMAND	336.00
Closing Stock	30.35

(Source: Committee on Cotton Production & Consumption)

YARN

Cotton yarn, made from cotton fibres, is widely used in textiles for its softness, breathability, comfort and versatility in creating various clothing options. The cotton yarn market size is expected to grow at CAGR of 6.9%. The growth can be attributed to textile industry growth, natural fibre preference, global cotton production, cotton yarn innovation, technological innovations in spinning processes, affordability and accessibility, regulatory emphasis on sustainable practices, demand in emerging markets and global trade dynamics. The spinning sector that was reeling under difficult market condition in the previous year started picking up and the margin has started improving. (Source: Research and Markets).

GARMENTS

Knitted fabric offers unique properties and benefits such as flexibility, elasticity, breathability and efficient production. These qualities facilitate moisture absorption and conformability, providing superior comfort and fit. Predominantly, it is used in apparel manufacturing due to its adaptability and comfort. The market is primarily driven by the rising popularity of casual and sportswear, which extensively use knitted fabrics that is ideal for this sector. The market is also influenced by the growing focus on sustainability.

The Indian Apparel Industry is on a strong growth path, driven by innovations, government support and increasing global demand. Companies that embrace eco-friendly practices will lead the way in the global market. It will remain at the forefront of textile manufacturing, exporting high-quality products to the world and catering to an ever-growing domestic market. The next few years will be transformative for the industry, making India a central hub for textile innovation and sustainable production. However, the Industry must continue to innovate, improve infrastructure and address environmental concerns to fully realise its potential.

INTERNALCONTROL

Internal control may be described as a process designed to provide reasonable assurance that the Company is meeting the objectives such as efficient and effective operations, reliable reporting, adequate compliance with applicable laws, regulations and internal policies.

Our Internal Control System is fully equipped with necessary checks and balances ensuring that the transactions are adequately authorized and reported correctly. The Internal Audit Team consisting of competent and experienced professionals conducts regular Audits of various departments and Units to ensure that necessary controls are in place and followed to ensure proper regulatory compliances. 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 Manual.

EMPLOYEE WELFARE

KPRs sustained strategic talent management has led to various unique HR practices that support employee growth preO dominantly and the organization as well. It encompasses a wide range of factors, including physical, mental, emotional and social health, all of which are interconnected and contribute to overall sense of well-being. Employees who feel supported in their wellO being are not only happier but also more likely to be engaged, motivated and productive in their roles. As most of the workforce consists of women, KPRs HR policy is entwined with the social cause women empowerment also in a big way. Some of the significant HR practices are continued higher education that they were deprived of due to their economic compulsion, outstanding facilities making them feel at home, career development process etc.

PERFORMANCE

After sailing through tough time, the yarn market recovered during the year with settled cotton price, demand and margin for yarn. The new vortex yarn spinning mill and the modernization implemented in the spinning segment have increased the yarn production and the ramping up of brown field expansion in garment capacity at Chengapally unit has also increased the garment production. These factors along with additional solar power resources enabled improved performance over previous year.

EXPANSION PLANS

The exclusive Vortex Spinning Mill established at Sathyamangalam has started yielding results; ramping up of garment capacity at Chengapally accelerated the production of garments; with the addition of roof top solar power source the renewable energy resource has been further strengthened. To increase production in Spinning segment modernization programs are continued. We are continuously monitoring the textile market conditions to decide on ourfuture plans.

RISKS AND THREATS

Risk relating to Raw material

The countrys cotton acreage has reduced to 113.60 lakh hectares this season from previous season. With the anticipated decline in cotton production and notable increase in the export performance of textiles & clothing, coupled with high price of domestic cotton as against the international prices, the Industry urged the Government to remove the 11% import duty on cotton, not only to have a level playing field in the global market but also to sustain the export momentum. However, India continues to be Cotton surplus Country. (Source:COCPC)

However, in KPR with the continuity ofthe prudent and pragmatic cotton procurement strategies, the sustained supply ofthe quality cotton at economized cost is assured. As KPR being an integrated Apparel Unit, fluctuation in cost of raw material on its performance is nominal since the additional cost can be passed on to the resultant products.

Risk relating to Technology obsolescence

Indias textile ecosystem is actively embracing the rise of technological advancements, bringing forth digitization to give a complete makeover to the textile production process. Enhancing production efficiency and quality, the ascent of technological upgradation has also been instrumental in streamlining the entire supply chain, reducing production costs and optimizing inventory management, enabling the textile industry to seamlessly cater to the demands of a tech-savvy consumer base. KPR has always been investing in new advanced Technology Machinery, Equipment and Process only. In addition, regular upgradation of technology advancement in the machinery and production process continues, through modernization and automation, wherever possible, ensuring production and supply of high quality goodsand services.

Market Risks / Industry Risks:

The global textile industry has been facing unprecedented challenges. Weakening demand, inflation, geopolitical issues, raw material price volatility, steep increase in energy charges, shortage of labour and rising interest rates, trade war among leading nations, impose of high tariff by USA had been reported as the major root causes for the slowdown of the global textile industry.

In addition to the above adverse factors, the challenges on the raw material front (both cotton and manmade fiber) and steep increase in power cost in most ofthe textile manufacturing States have also impacted the Indian textiles and clothing industry in India. It is hoped that with the unstinted support from all the Stakeholders KPR would be able to manage such risk.

Logistics Risks:

The textile industry in India is witnessing a drive to enlarge its presence in the global market, and a well-optimized logistics network plays a pivotal role in achieving this objective. In todays highly competitive business landscape, characterized by rapidly-evolving customer expectations and global supply chain complexities, a streamlined and agile supply chain becomes imperative. An efficient logistics-backed supply chain ensures seamless flow of raw materials, effective processing and timely delivery to and from manufacturers. This improves a firms ability to adapt to challenges, changing markets and shifting industry trends. However, KPR with its strategic Logistic team is able to source and supply products as per plans.

Political environment risks:

The textile industry is critical for Indias development as it generates vast amount of revenue and provides employment to millions of people. The sector holds great potential for further growth and can play a significant role in achieving the governments development goals. Considering the pivotal role played in the Indian Economy, 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

The sectors growth was tempered by pressing challenges like Labour shortages, as per media reports, particularly in hubs like Tiruppur, disrupted production schedules, delaying orders etc. Migrant workers reluctance to return after elections further exacerbated this issue. However, Better wages, safer environments and clear career pathways can attract and retain talent.

That is why KPR has been consistently concentrating on upgrading its industry acclaimed HR Practices that are unique and distinctive from others. Low absenteeism & attrition rate, higher productivity, ability to source required workforce are the fruits of its strategic HR policies.

Stiff competition from low cost Countries

India, despite being the sixth largest exporter of textiles and apparels in the world, is facing tough challenges from countries like Bangladesh and China on the cost-competitiveness front. The government is creating an enabling ecosystem for the textile industry to attain a $100 billion exports target by 2030 with FTA routes to capture emerging market opportunities. Though the US Tariff hike looks negative for global market it may lead to improve the competitiveness of Indian Textile Industry.

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. Periodical monitoring of the measures is also in place to strengthen the security systems.

In a sector as intricate and ever-evolving as textiles and fashion, effective risk management is non-negotiable. By implementing proactive strategies and staying vigilant to emerging risks, KPR not only ensures its own longevity but also elevating the overall resilience of the industry.

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

1. End-usertraining

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 cybersecurity awareness and policies 12. Data backups 13. Periodical Forensic Audit - Vulnerability Assessment and Penetration Test (VAPT) was conducted by Ernst & Young Global Limited 14. Advance Threat Protection installed for all Mail users. 15. Configured Cloud based Disaster recovery for Data Security.

FUTURE PROSPECTS

Indian Textile Industry is expected to rebound in the current year on consistent improvement in the domestic demand, lower cotton prices and gradual recovery in exports. It also remains optimistic about maintaining this growth trajectory, especially in light of evolving global trade dynamics. The ongoing trade tensions between the US and China present a strategic opportunity for India, particularly in textile and apparel trade. With the US actively seeking to diversify its sourcing base beyond China, India is well- positioned to emerge as a reliable and preferred partner. However, this will require proactive diplomacy and a concerted effort to secure a more favourable and stable tariff regime. Indias strategic decision to revoke the transhipment facility for neighbouring competing Countries and the influence of tariff war are likely to encourage global buyers to engage directly with Indian manufacturers whose direct export model is gaining favour for efficiency, greater compliance and trust.

With an ability to achieve impressive performance, even in difficult market conditions; adapt to changing market dynamics and a focus on emerging opportunities, KPR stands well positioned to further expand its market share and maintain its consistent growth level.