Kapil Cotex Ltd Management Discussions

The management discussion and analysis present the industry Overview, opportunities and Threats, Initiatives by the Company and overall strategy of Kapil Cotex Limited becoming a market driven producer of various innovative models and ranges of Textiles products. The company is very optimistic of capturing a substantial share of market in the midst of the threats faced due to the liberalization and increased competition from well established companies from abroad.

1. Overview of economy:

Indias textiles sector is one of the oldest industries in Indian economy dating back several centuries. Even today, textiles sector is one of the largest contributors to Indias exports with approximately 11 per cent of total exports. The textiles industry is also labour intensive and is one of the largest employers. The textile industry has two broad segments. First, the unorganised sector consists of handloom, handicrafts and sericulture, which are operated on a small scale and through traditional tools and methods. The second is the organized sector consisting of spinning, apparel and garments segment which apply modern machinery and techniques such as economies of scale. The Indian textiles industry is extremely varied, with the hand-spun and hand woven textiles sectors at one end of the spectrum, while the capital intensive sophisticated mills sector at the other end of the spectrum. The decentralized power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles make the Indian textiles sector unique in comparison to the industries of other countries. The Indian textile industry has the capacity to produce a wide variety of products suitable to different market segments, both within India and across the world.

2. Industry Structure and Development:

The textile and apparel industry can be broadly divided into two segments - yarn and fibre, and processed fabrics and apparel. India accounts for 14 per cent of the worlds production of textile fibres and yarns (largest producer of jute, second largest producer of silk and cotton, and third largest in cellulosic fibre). India has the highest loom capacity (including hand looms) with 63 per cent of the worlds market share. The domestic textile industry in India is estimated to reach US$ 350 billion by 2030 from US$ 250 billion in 2019, while cotton production in India is estimated to reach 302.25 lakhs bales in FY 2024-25.

India enjoys the position of the second largest textile exporter and fifth-largest in apparel exports globally, with a 6% and 4% share respectively. Indias textile and apparel exports were pegged at US$ 38 billion in FY19, growing at a CAGR of 6% since 2005. Apparel is the largest exported category, accounting for 46% of the total textiles and apparel exports. Apart from apparels, growth is also expected in categories including home textile products and made-ups, which account for 14% of the overall export. Fibre and filament category registered the highest growth in Indian exports growing at a CAGR of 11% over the last decade. EU and USA are the largest markets for Indian textile and apparel exports accounting for a 19% and 18% share respectively, followed by UAE, China and Bangladesh accounting for 9%, 8% and 5% respectively. Easy availability of raw materials, skilled manpower and favourable Central and State Government schemes could catalyse the growth of the Indian textile and apparel exports. Indian textile and apparel exports are expected to expand to US$ 80 billion by 2025, growing at a CAGR of 10%. (Source: Wazir, IBEF)

The Indian home textile industry was estimated at USD 10 billion for FY24, and is projected to reach USD 16 billion by FY31, growing at a CAGR of 7%.

The Directorate General of Foreign Trade (DGFT) has revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textiles Industry - Readymade garments and Made ups - from 2 per cent to 4 per cent. The government is also planning to conduct roadshows to promote the countrys textiles in non-traditional markets like South America, Russia and select countries in West Asia.

3. Government Initiatives

The Indian government has launched several initiatives to boost the textile industry, including the National Technical Textiles Mission, Production Linked Incentive (PLI) scheme for Textiles, and the PM MITRA scheme. These initiatives aim to enhance domestic manufacturing, promote technical textiles, attract investment, and create jobs.

National Technical Textiles Mission (NTTM):

Launched in 2020, NTTM focuses on research, market growth, exports, and skill development in the technical textiles sector. It also supports 168 research projects and aims to train 50,000 individuals.

Production Linked Incentive (PLI) Scheme for Textiles:

This scheme aims to boost domestic manufacturing of MMF apparel, MMF fabrics, and technical textiles. It seeks to create global companies, attract investment, and generate new employment opportunities.

PM Mega Integrated Textile Region and Apparel (PM MITRA) Parks:

This scheme aims to establish 7 PM MITRA parks with world-class infrastructure to attract investment and boost employment.

Integrated Processing Development Scheme (IPDS):

IPDS supports the textile industry in meeting environmental standards, including the development of Common Effluent Treatment Plants.

4. Indias major Competitors in The World

Indias major competitors in the global textile and apparel industry include China, Bangladesh, Vietnam, and Turkey. China is the largest exporter, followed by India, Italy, Germany, and Turkey. Within the textile and apparel sector, Indias main competitors are those with large manufacturing bases, particularly in low-cost apparel production, like Vietnam and Bangladesh.

5. Road Ahead

The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. The organized apparel segment is expected to grow at a Compound Annual Growth Rate (CAGR) of more than 13 per cent over a 10-year period.

STRENGTHS

Strong long-term demand potential as clothing consumption in emerging markets is likely to take a greater share of household spend

Global rebound in the luxury goods segment after a plateau period

WEAKNESSES

Decreasing length of fashion cycles giving rise to sustainability issues

Oversaturation of the retail space in the context of digitalization

6. Financial Performance / Product wise Performance

During the year under review your company has not generated any revenue from its core business activities. Your directors are hopeful that in current year company will generate revenue from its new objective and better financial results would follow.

7. Risks and concerns

Among the largest textile markets there are two major groups. On the one side, the developed countries demonstrate slow or negative sales growth. This trend translates into the top-line challenges even for the largest apparel manufacturers. On the other side, the emerging markets represent the biggest long-term growth opportunities and despite the fact that the size of some emerging markets, such as China and India, already surpasses that of some matured markets there is still plenty of room for growth considering their current per capita spending and the rise of the middle class.. The two most important challenges faced by the industry are both related to technologies. One is developing an online sales channel to offset the declining sales in physical stores and failure to do so may have serious consequences as suggested by an impressive number of insolvent clothing retailers in the US in 2024, which partly explains our "sensible" risk stance in this country. Another one is investing in automatization technologies helping to improve margins in the context of ever-increasing labor cost in countries traditionally considered low-cost. On top of that Amazons first investments in the fashion industry were made last year and more moves in this direction can be expected in 2018 adding to the list of worries for companies targeting low to middle income consumers.

8. Cautionary Statement

The Management Discussion and Analysis statement of the Annual Report has been included in adherence of the spirit enunciated in the code of Corporate Governance approved by the Securities and Exchange Board of India. Statement in the Management Discussion and Analysis describing the Companys objectives, projects, estimates, expectations may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference of the Companys operation include economic conditions affecting demand.