Kandagiri Spinning Mills Ltd Management Discussions.

The core business of the company is manufacture and sale of cotton yarn. The management discussion and analysis given below discusses the key issues of the cotton yarn spinning sector.

(a) Industry structure and developments:

The FY 2016-17 witnessed high volatility and abnormal increase in cotton prices and sluggish demand for yarn products both in domestic and international markets. Cotton prices were uneconomical in relation to market price of yarn. Surplus production, uneconomical exports and reduced demand for medium quality yarn in the domestic market are some of the reasons for the lower performance of the industry. These circumstances have created challenges of shifting towards new value added products, selling at higher price or premium price for the better quality of yarn, better productivity and enhancing marketing strategies for evolution of new markets. Decision to reduce exports at the present juncture due to the uneconomical prices also aggravated situation due to competition from other developing countries like Indonesia, Vietnam, Bangladesh, Philippines etc.

(b) Outlook

The industry expects an improvement during the current year. Further, there is an increasing demand for value added yarns and also other cellulosic fibres in both domestic and international markets. In view of these factors, Companys performance is expected to improve substantially during the year 2017-18.

(c.) Strategies and Future plans

By using the sale proceeds of Unit-III asset, your company propose to repay a substantial portion of term loans and other payment obligations and propose to utilise the balance sale proceeds towards working capital requirements. Further for betterment in the operations of the Company, in addition to cotton yarn, your directors have planned to produce value added products viz., Viscose, Polyester and Mlange varieties of yarn based on the market requirements. And the production of these varieties had already been started and it is well received in the market. The profitability is also quite good as compared to cotton yarn.

(d) Risks and Concerns

Your Company has devised Risk Management Policy which involves identification of the business risks as well as the financial risks, its evaluation, monitoring, reporting and mitigation measures. The Audit Committee and Board of Directors of the Company periodically review the Risk Management Policy of the Company so that management controls the risk through properly defined network. Head of Departments are responsible for implementation of the risk management system as may be applicable to their respective areas of functioning and report to the Board and the Audit Committee. The details of risk management mechanism and key risks faced by the Company are enumerated in the risk management policy. Risk management policy is uploaded in the companys website www.kandagirimills.com.

(e) Internal control systems

The Company has in place a well established internal control procedures covering various areas such as procurement of raw materials, production planning, quality control, maintenance planning, marketing, cost management and debt servicing. Necessary checks and balances have been instituted for timely correction with an effective internal audit system.

Your company is certified ISO 9001: 2008 for Quality Management System Standards (Manufacture and supply of yarn) and ISO 14001: 2004 for Environmental Management System Standards (the systems). Further, your companys laboratory is also certified by NABL.

(f) Human resources management

Employees are your companys most valuable resource. Your Company continues to create a favourable environment at work place.

The company also recognises the importance of training and consequently deputes its work force to various work related courses/seminars including important areas like Total Quality Management (TQM), Technical skills etc. The fact that the relationship with the employees continued to be cordial is testimony to the companys ability to retain high quality workforce.

(g) Environmental Protection, Health and Safety (EHS)

EHS continues to receive the highest priority in all operational and functional areas at all locations of your Company. Systematic process safety analysis, audits, periodic safety inspections are carried out by expert agencies and suitable control measures adopted for ensuring safe operations at the site. Various processes as required for Pollution Control and Environmental Protection are strictly adhered to.

(h) Corporate Social Responsibility

Board of Directors of the Company has constituted Corporate Social Responsibility (CSR) Committee and devised a CSR policy to carry out CSR initiatives in line with the requirements specified under the Companies Act, 2013. Since the Company has no average net profit, there is no CSR Obligation for the FY 2016-17. However, Company has spent Rs. 1.23 lakhs towards unspent CSR obligation of previous year which the details have been given in the annexure to this report. The CSR policy has been hosted on the website of the Company www.kandagirimills.com.