Kallam Textiles Ltd Management Discussions

ANNEXURE – I

MANAGEMENT DISCUSSION AND ANALYSIS

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 nonwoven fabrics, an emphasis on the use of organic fibers, a spotlight on sustainable fibers, adoption of digital platforms for textile supply chain management.

INDIA

The textile industry in India is largest industry afteragriculture and is also highly labour intensive offering the largest volume of employment. India is among the worlds largest producer of textiles and apparels. The textiles and apparel industry in India has strengthsacross the entire value chain from ber, yarn, fabric to apparel. The Indian textile and apparel industry is highly diversied with a wide range of segments ranging from products of traditional handloom, handicrafts, wool, and silk products to the organized textile industry in India. The organized textile industry in India is characterized by the use of capital-intensive technology for the mass production of textile products and includes spinning, weaving, processing, and apparel manufacturing The global cotton yarn market size is projected to grow from $86.11 billion in 2024 to $117.79 billion by 2032, at a CAGR of 4.0% during the forecast period.

COMPANY OVERVIEW

During the year the company made defaults in repayment of term loan instalments. The banks classified these loans as NPA and issued notices for recovery of these dues u/s 13(2) r.w.s 13(3) of SARFAESI Act, 2002. The banks also taken possession of the properties offered as security u/s 13(4) of the Act. The company applied for restructure of these loans which is pending.

Reasons for sickness:

The volatility in cotton and cotton yarn prices, non availability of regular power supply for mills, increase in cost of private power and increase in finance cost were the reasons for decline in profits which are overall industry specific reasons . Besides the company has been suffering with specific problems, which are very well known to the bank authorities. To narrate the main reasons- , Under utilization of high end facilities procured by the company which enable to produce Combed and compact yarn which is not able to produce due to lack of demand, Labour migration, blocking of funds receivable from Govt. Power rebate and delay in getting TUF rebate are the main reasons.

In light of the above, as the company is already facing financial crisis, it is very difficult to honour the commitments regularly to the banks for next 2 years. It enables the company to consolidate and strengthen in 2 years. In future the performance will be improved in light of the expected favorable conditions of the state particularly for power and projected better environment for industries with the help of Central and State Govt. polices, as the both the Governments are interested to develop manufacturing sector in our country.

The above stated reasons had adverse impact on the performance of the company which resulted into decrease in profitability of the company in FY 2023-24 .

OPPORTUNITIES & THREATS [SWOT ANALYSIS]

(i) Opportunities

The textile Industry scenario continues to be difficult and anticipated recovery process is at slow pace.

High volatility in cotton price eroded the working capital of the Textile units, including spinning mills a part from affecting the profitability.

MPEIis"yarnsellingprice–cleanrawmaterialcost",i.e.,conversioncost+profit.Aconsiderable reduction in this value is continuing, indicating the slow recovery from stress faced by textile units.

Our First Quarter ended with Loss and Second quarter is also expected to end with loss, though it may be in declining trend.

Textile units are mostly under stress due to low profitability and slow pace recovery of the industry.

Also, there is still no parity between the raw material price and the yarn selling price. The segment performed well when there was parity between the two factors The spinning mills ,are operating at low-capacity utilization due to low demand in international market due to:

• Russia-Ukraine war

• Recession in major international markets

• Moving customer preference from traditional textiles to recycled textiles

• High raw material cost

• High volatility in raw material cost, etc.

Disruptions in Raw Materials Supply

• Declining cotton production from the level of 398lakh bales to 320to330 lakh bales; India has become a cotton deficit country from state of net exporter of cotton.

• India might require over 400 lakh bales to meet 360 lakh bales for domestic consumption and remaining for exports.

• Man Made Fiber (MMF) Quality Control Orders stalled imports and disrupted supply of key MMF raw materials like Viscose Staple Fiber and Polyester Staple Fiber including specialty fibers (functional finish fibers, Bamboo, etc.)not produced in the country

Threats

• safety and health of the workers and staff; • disrupted supply chains

• lack of demand or the fear significant drop in demand

• Lack of liquidity.

• Cotton contamination and quality problem.

• Increased pressure on prices.

• Competition from international brands.

OUR COMPETITIVE STRENGTHS:

Manufacturing facility with locational advantage and state-of-the-art machinery to deliver quality products

We have two manufacturing facilities in the state of Andhra Pradesh and our hydro power plant is located in the state of Telangana. Our manufacturing facility located in Guntur, AP enjoys locational advantage since Guntur is a major and one of the best quality cotton growing areas in India that produces MCU5, which is long staple cotton and is suited for fine counts. It is also a major centre for cotton breeding in southern zone. Our Guntur unit is located NH16, Golden Quadrilateral connecting Chennai and Calcutta and in proximity to Krishnapatanam port and Vishakhapatnam port which helps in saving logistics cost for export operations. Further, our weaving and dyeing units are located near to tri-junction with highway access to Chennai, Hyderabad and Calcutta. .All the manufacturing facilities are well equipped to deliver quality products.

Quality control measures

Our Company has implemented stringent quality control measures to produce superior quality yarn and fabric for our domestic and international customers. As the quality of our products depends on the raw material quality, so we source the superior quality raw material from farmers/suppliers. We carry raw material inspection on Uster HVI Spectrum and Uster Afis Pro -2 for 2.5% SL, uniformity, MIC, Strength, Short fiber content % and neps /grm. Bale management system is followed for consistent superior yarn quality, and for this, cotton stock is maintained for 5-6 months. Carding and combing process is optimized for NRE of 75% to 85% and 65% to 70% respectively. RIETER D35 /D40 / D45 draw frames are maintained for less than 0.50%.In ring frame breakages are maintained below 5 to 6 breaks per 100-spindle hour. In auto coner utmost care is taken for achieving 85% splice strength with defect-free packages.

Further, apart from in process inspection system, our mill has adopted stringent final inspection procedure before dispatching yarn to its customers.

Wide range of products across cotton yarn and woven fabrics businesses

We have continuously expanded our range of products to cater to the customized requirements of our customers. Our product range includes Ring Spun combed yarn (from Ne.30s to Ne.80s combed warp / compact), TFO ring spun yarn, Open End yarn (from Ne10s to Ne20s), TFO open end yarn,, BCI certified yarn and woven fabric such as yarn dyed shirting and bottom weight fabric. Our yarn dyed shirting includes cotton range and blended products.

Experienced management team with strong industry expertise

Our Managing Director, Mr. Poluri Venkateshwara Reddy, has been instrumental in developing Ginning Business of our Company. He has in depth knowledge in selection of Kapas and Cotton. Mr. Gurram Venkata Krishna Reddy, Joint Managing Director and CEO, has vast experience in Manufacturing of Cotton Yarn. He also looks after the day-to-day affairs of the Company.

OUR STRATEGY

Improvement in range of our Products:

We are focusing on development of more specialized and customized grades for specific applications in conjunction with our Customers. For this purpose, we are also focusing on improving our technical expertise to support customers and market development.

Customer relationship, sales, and distribution strategy

In India, we have been selling our products mainly to customers in South and Western India. Furthermore, our growth also depends on our ability to attract additional fabric and garment manufacturers, and distributors. Accordingly, we intend to continue to focus on developing and strengthening our sales and distribution network, and introducing integrated solutions for the benefit of our customers. As a part of our sales and distribution strategy, we propose to penetrate the domestic market further and at the same time we propose to continue our endeavor to establish a global presence for our products through the export market in the near future by further developing strategic relationships with key clients.

Captive power: Clean/Green Energy

We are working on reducing electricity cost. SITRA report on Energy monitoring is submitted. Operational Cost Optimization-Captive Power Electricity is one of our biggest costs by adding captive power generation will reduce our operational costs. Increasing our captive solar power generation will help us strengthen our PAT in the future. We have total requirement of 4.0 MW solar power to feed all the units so far we are executing net metering project under HT metering GNT 509, GNT3035& ONG 828 totaling 3MW capacity.

Our fabric made of organic or BCI cotton in combination with clean energy will make our fabric more sustainable and attract clothing brands in the future.

RISK & AREAS OF CONCERNS:

The Key factor in determining a companys performance is the companys ability to manage the risks in it business/ environment effectively. Many risks exist in a companys operating environment and they emerge on a regular basis,Viz Currency Risk, Commodity price Risk and Human Resource Risk. Risk management is embedded in operating framework of your Company. The risk management framework defines the risk management approach of the Company and also includes the periodical review of such risks. Your Company believes that managing risks helps in maximizing returns. The Board and the Audit Committee review the risk management framework periodically.

Other risk, factors include:

Rising input costs

Labor availability

Weak economic environment and consumer sentiment

Competition

Trade Barriers

THE DETAILS IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS AND RISK MANAGEMENT PRACTICES.

The Details regarding adequacy of internal control system is available in the Directors Report, which should be treated as forming part of this Management Discussion and Analysis Report.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED i. Safety, Health And Environment:

Safety, Health and Environment is one of the primary focus areas for your Company. We are conducting our business with respect and care for people and the environment. We have the responsibility towards the utilization of natural resources.

Your Company will always set the objectives and targets that result in continuous improvement of our Safety, health and environmental performance. Your company has Complying with agreed corporate requirements that embrace the duty of care, including compliance with applicable laws. ii. Human Resources And Industrial Relations:

The Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. Your Directors wish to convey their gratitude and place on record their appreciation for all the employees at all levels for their hard work, solidarity, cooperation and dedication during the year. Industrial relations were cordial throughout the year.

During the Year under review 580 employees were employed in various activities of the company

DISCLOSURE OF ACCOUNTING TREATMENT:

Disclosure of Accounting Treatment in the preparation of the financial statements, the Company has followed the Accounting Standards referred to in Section 133 of the Companies Act, 2013. The significant accounting policies, which are consistently applied, are set out in the Notes to the Financial Statements.

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 dedicated teams of Marketing Personnel in our Ring Spinning and Open End Division as well as Weaving and Dyeing Division. The Marketing division has well trained team with six officials for spinning division and seven in weaving division. The marketing division is headed by an official of the rank of Vice President and is directly under control of our executive Directors. The sales and marketing of Yarn and fabric 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 a number of countries as well. Some of our major domestic corporate clients include Universal Cottex, Gimatex Industries Limited to whom we sell our Yarn and Jhakaria Fabrics to whom we sell fabric. We also export our products to Paramount Textiles Limited in Bangladesh, Zhejiang Zhongda Group International Trading Co. and Xiamin ITG Group Co. Ltd. in China. Our Company has loyal and committed customer base who keep buying company products from time to time.

MANUFACTURING FACILITIES:

The details of our manufacturing facilities are as given below:

Ginning, Spinning & Open End Plants – Our Ginning, Spinning and Open End plants are located at NH 16, Chowdavaram, Guntur -522 019, Andhra Pradesh, spread in an area of 23.14 acres. We operate 59,280 spindles of Ring Spinning out of which 34,416 are compact & 24,864 are Non-Compact and 2,912 rotors for manufacturing open end yarn. Ginning Division has a capacity to press 6,000 bales per month. Ring Spinning Division has a production capacity of 420 tons per month whereas our Open end Division has a capacity of 500 tons per month.

Weaving & Dyeing Plants – Our weaving and dyeing divisions are located at Kunkupadu village - 523265, Addanki mandel, District – Bapatla, Andhra Pradesh spread in an area of 134.01 acres. Our Weaving division has production capacity of 248 looms whereas our dyeing division has a capacity of 3,000 kgs per day.

Hydel Plants – Your Company has three hydroelectric plants with a total capacity of 4.0 MW, two with the capacity of 1.6 MW each and one with 0.8 MW. The plants are located at Nelakondapalli - 507160, District - Khammam, Telangana spread in an area of 39.06 acres. These plants are on 16th & 17th branch canal of Nagarjuna Sagar project left to main canal..

Solar Plants – Your Company had established 2.0 MW AC at spinning unit, chowdavaram and 1.0MW AC at weaving unit, kunkupadu , addanki. The generation had been very encouraging. We plan to increase solar capacity in the next financialyear.your company is expanding solar plant at Guntur by 1.0 MWAC and at Weaving palny by 0.6 MWAC

The details of sale of our products for FY 2023 - 2024 is as under:

	Year ended 31st March, 2024		Year ended 31st March, 2023
Particulars	Quantity (in Kgs)	Revenue (in Rs.)	Quantity (in Kgs)	Revenue (in Rs.)
i) Cotton Yarn	63,19,651	15,307.94	48,02,069	14,390.81
ii) OE Yarn	34,79,712	6,081.53	44,19,415	8,622.84
iii) Cotton PC Yarn	12,672	21.95	6,09,339	1,218.39
iv) Cotton PV Yarn	35,742	64.21	2,36,992	455.00
v) Cotton Waste	11,05,605	874.89	11,32,653	1,020.38
vi) OE Waste	7,32,957	182.62	10,39,817	245.42
vii) Cotton Seed	14,45,101	423.45	22,35,304	758.24
viii) Cotton Lint	7,48,917	1,197.36	11,80,965	2,212.41
ix) Sale of Gray Fabric (Mtrs)	1,94,29,905	12,690.11	1,75,09,761	13,301.87
x) Sale of Fabric Waste	1,19,328	42.70	98,937	43.15
xi) Sale of Dyed Fabric (Mtrs)	29,74,306	3,390.54	28,61,878	3,651.63
xii) Sale of Dyed Yarn (Kgs)	5,05,008	1,997.49	5,25,201	2,528.29
xiii) Gray Yarn	-	-	-	-
xiv) Sale of Solar Power (KWH)	96,06,375	432.29	83,15,253	374.19
xv) Sale of Power (KWH)	2,88,250	16.56	54,25,842	297.93
		42,723.64		49,120.56
Less: Inter divisional transfers
Cotton Yarn	7,15,966	2,312.60	4,52,325	1,769.77
OE yarn	50,450	94.79	53,820	132.09
Dyed yarn	5,05,008	1,997.49	5,25,201	2,528.29
Gray Yarn	-	-	-	-
Cotton Waste	8,34,501	665.07	9,43,514	892.04
Cotton Lint	7,48,917	1,197.36	11,80,965	2,212.41
Solar Power	96,06,375	432.29	83,15,253	374.19
		6,699.59		7,908.78
TOTAL		36,024.05		41,211.77

CAPACITY AND CAPACITY UTILISATION:

	Fiscal 2023-24		Fiscal 2022-23		Fiscal 2021-22
Manufacturing Facility	Installed capacity	Capacity Utilization	Installed capacity	Capacity Utilization	Installed capacity	Capacity Utilization
Ginning Division	28 Gins	31.7	28 Gins	44.1	28 Gins	27.35
Spinning Division	59,280 Spindles	80.86	59,280 Spindles	76.49	59,280 Spindles	90.31
Open End Division	2,912 Rotors	92.42	2,912 Rotors	90.33	2,912 Rotors	96.32
Weaving Division	248 Looms	85.73	248 Looms	72.03	248 Looms	81.62
Dyeing Division	3,000 KG/P.A	57.49	3,000 KG/P.A	47.18	3,000 KG/P.A	49.06
Hydel Plant	4MW	NIL	4MW	20.63	4MW	13.77

 

Sl. No. Particulars	Formula	Year Ended March 31, 2024 (Audited)	Year Ended March 31, 2023 (Audited)	Variance (in %)	Reason for variance
1 Current ratio - [no. of times]	Current assets / current liabilities	0.52	0.81	-35.81%	Increase in utilisation of working capital during the year
2 Debt-equity ratio - [no. of times]	(Non-current borrowings (+) current borrowings ) / Equity	6.34	3.54	-78.91%	Increase of debt and decrease in profitability
3 Debt service coverage ratio (DSCR) - [no. of times]	(Profit after tax before depreciation, amortisation, finance costs) / Interest expenses (+) principal repayments of long-term debt)	0.18	0.30	-41.35%	Decrease in profitability compared to last year
4 Return on equity (%)	(Profit after tax) / Average Shareholders equity	-54.97%	-23.07%	-138.27%	Decrease in profitability compared to last year
5 Inventory turnover - [no. of days]	Average inventory / (revenue from operations / no of days for the period)	13.85	15.70	11.78%
6 Trade Receivables turnover - [no. of days]	Average trade receivables / (revenue from operations / no of days for the period)	19.36	19.95	2.95%
7 Trade payables turnover ratio - [no. of days]	Average trade Payables / (Raw material Purchases / no of days for the period)	24.04	13.67	-75.81%	Increase in trade payables during the year
8 Net capital turnover (no. of times)	Turnover / (Current assets - current liabilities)	(2.87)	(9.29)	-69.00%	Decrease in working capital during the year
9 Net profit Ratio (in %)	Profit after Tax / Turnover	-10.19%	-5.16%	-97.48%	Decrease in profitability compared to last year
10 Return on Capital employed (%)	EBIT / (Net worth + Total debt)	-5.64%	-0.27%	-1988%	Decrease in profitability compared to last year
11 Return on investment (%)		Nil	Nil	Nil

CAUTIONARY STATEMENT:

Statements in the Directors Report and Management Discussion and Analysis describing the Companies objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable security laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the companys operations include, among others, economic conditions effecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

For and on behalf of Board of Directors

		For and on behalf of Board of Directors
	Sd/-	Sd/-
Date : 01-08-2024
	G.V. Krishna Reddy	P. Venkateswara Reddy
Place : Chowdavaram, Guntur	Joint Managing Director	Managing Director
	DIN: 00018713	DIN : 00018677