k p r mill ltd share price Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT ECONOMY

Global

The global economy is still marred by profound shocks and unprecedented uncertainty. Mixed signals are emanating from the geopolitical situation and financial market volatility. Just as the COVID-19 pandemic was receding, the war in Ukraine overwhelmed the world and fundamentally altered the global economic outlook. Surges in food and energy prices and shortages in key staples have severely affected the poorer sections across the world. Though international food, energy and other commodity prices have eased moderately in recent times, in ation remains high and broad-based.

India

In this hostile international environment, the Indian economy remains resilient, drawing strength from its macroeconomic fundamentals. Our financial system remains robust and stable. Banks and corporates are healthier than before the crisis. India is widely seen as a bright spot in an otherwise gloomy world. Yet, our in ation remains elevated, as in most parts of the world.

TEXTILE INDUSTRY

Global

The Russia-Ukraine war impacted the pace of the global market recovery from the COVID-19 pandemic. The war has led to economic sanctions on multiple countries, a surge in commodity prices and supply chain disruptions, causing in ation across goods and services affecting many markets across the globe. However, the global textile market grew from $573.22 billion in 2022 to $610.91 billion in 2023 at a compound annual growth rate (CAGR) of 6.6%. Growth of E-commerce - Increasing demand for online shopping is expected to drive the textile manufacturing market. The Textile market is expected to grow to $755.38 billion in 2027 at a CAGR of 5.5% (Source-Business Research Company).

India

Empowered with the abundant availabilities of Cotton, India also has a large pool of manpower which is advantageous since textile and apparel is a labour-intensive sector. The Indian Textile and apparel manufacturing is second largest in the world that spans the entire value chain from bre to finished goods. All these factors promoted India as one of the leading manufactures and a sourcing hub. The enthusiasm in the textile industry on account of the latest FTAs is expected to move beyond enhanced market access and trade.

There appears to be plenty of opportunities for the Indian T&C Industry arising globally as the majority of Companies and Customers are looking for market diversi cation and explicitly, India is the most favoured destination. The Country has the potential to grab the emerging demands and markets by making investments in sustainability, circularity and traceability, supported by the concluded / yet to be concluded FTAs.

Cotton

Cotton has a prominent share in the textile manufacturing sector. India has the distinction of having the largest area under cotton cultivation which is about 38% of the world area under cotton cultivation and is one of the largest producer of cotton in the world accounting for about 22% of the world cotton production. However cotton yield is still lower against the world average yield. The increasing applications and usage of cotton in various industries are driving the demand for cotton from many countries across the globe.

Speculative trading, unseasonal rains and global shortage were the route cause for the historical increase in cotton price. The notable point is that the farmers are already taking the price reflecting on international and national commodities market as reference price.

INDIAN COTTON BALANCE SHEET FOR THE SEASON 2022-23

As on 31.03.2023

(In Lakh Bales)
Opening Stock 39.48
Production 337.23
Imports 10.00

TOTAL SUPPLY

386.71
Consumption 311.00
Exports 30.00

TOTAL DEMAND

341.00
Closing Stock 45.71

(Source: Government of Indias Committee on Cotton Production & Consumption)

YARN

The majority of cotton yarn produced across the globe is used to manufacture apparels. Currently, consumers and brands are promoting sustainable fashion like never before, and clothing made using cotton yarn is an excellent choice for sustainability. High cotton yarn price was compounded by a rise in cotton prices. Challenges such as the Russia Ukraine war have further contributed to the price rise. However, the prices of cotton are returning to normalization as the supply chain is getting back on track. This in turn is expected to normalize the industry in the next few years. Nowadays, key fashion houses and retailers have started to progressively incorporate cotton into the supply chains resulting in a significant increase in the product demand. This is anticipated to benefit and create new opportunities for the cotton yarn market growth. Thus, rising demand from the global textile industry is likely to drive its market growth.

GARMENTS

Growing awareness of the latest fashion trends among the young generation helps to propel the textile garment market. Increased spending on apparel and accessories from online platforms and rising willingness to pay a premium for high-quality apparel, and increasing awareness towards sustainable and eco-friendly clothing helps to boost the growth of the textile garment market. In the total global textiles trade, 60% represents apparel. India is the sixth largest exporter of textiles and apparel products in the world with a massive raw material and manufacturing base. India has a large working population, which can be a great asset in the labour intensive textiles sector, particularly in the garments industry. Garment players in particular are expanding their scale and process capabilities to International Standards and gradually gaining market share. The Indian textiles sector needs to act fast and grab the huge opportunity opening up due to a change in global textiles trade patterns. While the opportunity is huge, the government and the industry need to act in coordination, as the world will not wait.

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 Manual.

EMPLOYEE WELFARE

The economic and social developments of Women in our Country relies on their access to employment opportunities and other services such as Education, Health Care, Finance etc, enabling their better participation in the economy and society. Education provides each individual a basis for the development of their performance laying the foundation for employability. Realising and recognising the above societal needs, KPR has ensured that 90% of its workforce represents female fraternity and that too mostly from rural places. Besides industry acclaimed welfare facilities, they are also equipped with higher education facility empowering their competence. Moreover KPR also extends placement services to them commensurate with their educational quali cations, in other reputed enterprises which is hailed as one of the innovative services towards development of Women and the Society. We are very happy to share that our work force demonstrates their outstanding performance making best use of the higher education facilities and the placement services.

PERFORMANCE

The historical high demand for Cotton resulted in spiralling its prices both the domestic and international markets. However the consequential increase in yarn prices was not commensurate with the increase in price of cotton thereby impacting the margin in yarn segment. Though due to Ukraine war, garment orders from Europe in general were slow, since we are in the basic segment its impact was less. The garment sales, margin and order position continues to be good. With regard to Sugar and Ethanol the encouraging trend continued.

RETAIL BUSINESS - FASO

In addition to the stylish Mens wear, we have also introduced Womens wear during the year, which was also responded well. Towards Pan India plans, besides South India we have also covered 7 more States and in the Current year planning to stretch our wings to other states also. Moreover, established Two exclusive stores and tie up with large format stores have also been entered. Our products are also very active in online trade.

EXPANSION

The expanded capacities in Garment & Sugar, Cogen and Ethanol segments have started adding revenue to the Company. Fabric Printing Capacity has been doubled (15000 MT per annum). We have installed 10 MW rooftop Solar Power plant at Arasur Factories and awaiting the approval from the TANGEDCO.

We are also contemplating setting up of a separate Spinning Mill for viscose yarn and expansion of Ethanol production capacity through our wholly owned Subsidiary Companies. Depending on the market scenario and prospects the Board may consider further expansion at appropriate time.

RISKS AND THREATS

Risk relating to Raw material

Cotton plays an important role in the Indian economy as the countrys textile industry is predominantly cotton based. India is one of the largest producers as well as exporters of cotton yarn. Cotton accounts for more than 51 percent of the total raw material cost in the Indian textile industry and continues to remain at an elevated level. The wild fluctuation in its prices - highest in a decade - has impacted the margins of the Industry as a whole. However, it is reported that the increase in the cotton crop area as well as its yields are also likely to mitigate its impact during the next financial year. Though the cotton prices have cooled down against its peak price, the prices are still higher than the pre-covid level only.

The prudent and pragmatic cotton procurement strategies and availability of exclusive personnel in the cotton growing areas and 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

As the Indian Textile Industry is maturing, the levels of competition are also escalating. In order to survive and thrive in the present-day world, textile manufacturers are increasingly relying on a wide range of machinery testing equipment for ensuring optimal quality of output. The onus is on textile producers to maintain a balance between speed, quality and expertise and technology is helping them do precisely that. Considering these and the factors such as increased efficiency and productivity KPR always buy new advanced Technology Machinery and Equipments only. Moreover, regular updation of technology advancement in the machinery and production process continues, thereby automation, wherever possible, is introduced which also entails production and supply of high quality goods and services.

Market Risks / Industry Risks:

The calamities such as Ukraine war and the pandemic pose a grave risk to the world economy. The world economic growth has slowed and accordingly International fashion retailers have reported rise in inventory and pressure on their margins since summer. This is also reflected in the slump in their o take from supplying countries. However, as we are in the basic segment, its impact is expected to be less. It is hoped that with the unstinted support from all the Stakeholders KPR would be able to manage such risk.

Logistics Risks:

One of the foremost challenges that the logistics sector faces today arise due to poor infrastructure. Physical infrastructure impacts transportation which facilitates logistics. The country faces challenges in port and roadways infrastructure which directly impacts the transportation of goods. Fuel costs and policy changes directly impact the logistics sector, since higher the costs of fuel, higher are the transportation and freight costs which would directly impact the costs and disrupt the supply chain. 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 re, 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 scarcity of skilled workforce is a matter of concern for the Labour Intensive Indian Textile Industry. The Government is trying to curb the skilling gap in the textile segment with the help of schemes like PMKVY. However, KPR doesnt face this issue because of its best HR practices that are unique and distinctive from others. Low absenteeism & attrition rate, higher productivity, ability to source required work force are the fruits of its strategic HR policies.

Sti competition from low cost Countries enjoying duty

concessions

Indian textile exporters can benefit from the FTA as tari and non-tari 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 equal treatment in the developed economies. It is expected that the concluded and the ‘on-going FTAs will provide Indian exporters a level playing eld to some extent.

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 and a Director who has wide knowledge in the IT eld. Periodical monitoring of the measures is also in place to strengthen the security systems.

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

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. Sta training on cyber security awareness and policies 12. Data backups 13. Periodical system audit

FUTURE PROSPECTS

After the covid-19 disturbance, the world is aggressively diversifying outside China and looking for a reliable, sustainable, and scalable partner in textiles trade. Empowered by the significant advantages in availability of raw material and labour, India should capitalise the opportunity to increase its share in global apparel and textiles trade with a quantum leap, rather than the incremental gains that it achieved in the past. The Government of India has an ambitious target of taking textile and apparel (T&A) exports to US$ 100bn in FY28 and taking encouraging efforts for promoting and supporting the textiles sector such as Free Trade Agreements (FTA), Production Linked Incentive (PLI) scheme, development of textile parks, and its exports-promotion schemes. Its initiatives are focused on promoting technology upgradation, creation of infrastructure, skill development and sectoral development in textile sector. These initiatives are likely to create a positive environment and provide a conducive environment for textile manufacturing across the globe. KPR, equipped with the hi-tech integrated facilities, enthused work force, progressive business model and empowered by strong performance track record, loyal customer base and drive for enhancing value for all stakeholders, remains optimistic about healthy growth and prosperity in the coming years also.

For and on behalf of the Board

K.P. Ramasamy

Coimbatore Chairman
03.05.2023 DIN: 00003736