Karnika Industries Ltd Management Discussions

Forward-Looking Statement

Within the framework of applicable securities laws and regulations, certain statements in this Management Discussion and Analysis of Financial Condition and Results of Operations may be regarded as forward-looking. Such statements reflect the Companys goals, expectations, or forecasts and are based on assumptions and anticipated future developments.

The Company makes no assurance as to the accuracy, completeness, or realization of the forecasts and assumptions underlying the forward-looking statements contained herein. The Company undertakes no obligation to publicly update, revise, or modify any such statements in light of subsequent events, new information, or future developments.

Actual results may differ materially from those expressed or implied in these statements due to a variety of factors, including, but not limited to, changes in tax laws, government regulations, economic conditions, industry trends, and other significant events that could affect the Companys business operations and financial performance.

The financial statements are prepared in compliance with the Accounting Standards specified under Section 133 of the Companies Act, 2013, as applicable, using the accrual basis of accounting, historical cost convention, and generally accepted accounting principles in India (Indian GAAP). Karnika Industries Limiteds management has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.

Overview

The global economy in FY2024—25 grew at a moderate 3.3%, navigating a turbulent environment shaped by ongoing geopolitical conflicts, supply chain realignments, and intensifying tariff wars between major trading blocs. The Russia—Ukraine conflict, instability in the Middle East, and rising U.S.—China trade frictions have collectively strained global commerce, leading to higher logistics costs, disrupted shipping routes, and volatility in commodity markets.

For Indias textile and apparel industry (an export-oriented sector contributing nearly 2.3% to national GDP and about 12% to exports while also employing over 45 million people) these external shocks have had tangible effects. The imposition of 50% tariffs by the U.S. on Indian exports, including textiles and apparel, has created immediate pressures. With the United States accounting for 28—33% of Indias textile and apparel exports, the industry faces the prospect of a 20—25% decline in export volumes within the next six months. Economic institutions estimate the toll on growth could be significant: GDP forecasts suggest a slowdown of 0.3 to 0.8 percentage points for the year.

Yet, India remains a resilient player in the global textile value chain. As the second-largest producer of cotton with a 24% share of global output, and holds over 4% of global textile and apparel exports, the country is strategically positioned to benefit from supply chain diversification away from tariff-impacted regions like China and Bangladesh. In FY2024—25, Indias overall merchandise exports stood at USD 820.93 billion, with textiles forming a significant share. To offset tariff pressures, the government has targeted 40 new export destinations, including the UK, EU, Japan, and South Korea, while strengthening domestic consumption.

For companies in the sector, this environment underscores the dual imperative of risk management and growth. While tariff wars and geopolitical uncertainties heighten near-term challenges, Indias structural advantages—robust cotton supply, integrated manufacturing, skilled labour, and proactive policy support through the PLI Scheme and PM MITRA Parks—create a pathway for sustainable expansion. The industrys focus on sustainability, digitisation, and market diversification is expected to mitigate external shocks and reinforce Indias long-term competitiveness in global textiles.

Global Garments Market Context

The global textile market has exhibited strong growth in recent years and is projected to continue expanding steadily. In 2024, the market was valued at approximately USD 1,976.84 billion, with forecasts indicating an increase to USD 2,123.72 billion in 2025. Looking ahead to 2034, the market is expected to reach USD 4,016.50 billion, growing at a CAGR of 7.35% from 2025 to 2034.

The Asia Pacific region remains the largest contributor to the global textile market, accounting for 54% of total market share in 2024, driven by easy availability of raw materials, rising demand for fashionable clothing and home furnishing products, and strong investment in the textile sector. North America is expected to register the fastest regional growth during the forecast period, fuelled by rising per capita income, demand for premium and durable clothing, and increasing urbanization. Europe is also projected to grow significantly, supported by the adoption of sustainable fabrics, online shopping trends, and favourable trade policies.

Market Segmentation and Trends

By raw materials, cotton continues to dominate the market due to its widespread use in apparel, medical textiles, and home furnishings.

From a product perspective, natural fibres led the market in 2024, supported by increasing awareness of sustainable clothing and growing use in fashion and interior applications. Synthetic fibres such as polyester are projected to grow rapidly due to their durability, cost-effectiveness, and versatile applications in apparel.

In terms of applications, fashion and clothing accounted for the largest share of the market in 2024, benefiting from rising disposable incomes, urbanization, and evolving consumer preferences for branded and customized apparel. The technical textiles segment is expected to experience the fastest growth, driven by demand for high-performance textiles in sectors such as transportation, automotive, construction, and protective clothing.

Market Drivers and Opportunities

The textile market is being propelled by multiple factors: the rising demand for sustainable and eco-friendly products, increasing government initiatives supporting textile development, innovations in fabric technology, and the growing adoption of smart textiles for sports & healthcare. Additionally, social media-driven e- commerce and digital retail platforms are enabling broader market reach and faster adoption of emerging textile trends.

Market Challenges

Despite positive growth trends, the market faces challenges, including high production costs arising from raw material price fluctuations, labour expenses, and technological investments. These factors may affect profit margins and constrain market expansion in certain regions.

While the market faces challenges such as high production costs and fluctuating raw material prices, Karnika Industries addresses these challenges by emphasizing quality, durability, and sustainability in its products. By leveraging advanced manufacturing processes, innovative designs, and eco-friendly materials, Karnika Industries ensures consistent product excellence while remaining responsive to evolving consumer demands.

Trends in Garments and Kids wear Exports

The global garment export sector is witnessing significant changes. E-commerce growth is transforming retail models, offering faster access and wider variety to consumers. Sustainable fashion, emphasizing biodegradable fabrics and ethical production, continues to gain prominence. In the kids wear segment specifically, the market is projected to grow to USD 366.72 billion by 2032, driven by customization trends, premiumization, and online retail adoption. Indian manufacturers, including Karnika, are well-positioned to capitalize on these opportunities through innovation, sustainability practices, and strategic export initiatives.

Operational Excellence and Manufacturing Strength

Karnika operates modern facilities in Howrah, West Bengal and Manesar, Haryana, integrating advanced manufacturing technologies with optimized processes. Auto-layering, high-end cutting, digital printing, CAD design, and ERP systems enable the Company to maintain high production volumes without compromising quality.

Strong quality control measures, sustainable material management, and rigorous inspections across the production cycle ensure consistent product standards, reinforcing customer trust and loyalty.

Strategic Strengths and Competitive Edge

The Company differentiates itself through a diversified product portfolio, customer-focused operations, and strong brand presence. Branding and marketing initiatives, including trade shows, fashion events, and digital campaigns, expand visibility, engage retailers and end-consumers, and support sustained market growth. Karnikas ability to adapt to shifting fashion trends, maintain timely delivery, and ensure product excellence underpins its competitive advantage in a market characterized by moderate competition from organized and unorganized players.

Risk Management and Mitigation

Karnika proactively manages key risks including labour availability, raw material price fluctuations, credit exposure, supply chain disruptions, and competitive pressures. Measures include stringent credit policies, prudent working capital management, ongoing technology investment, and strong customer relationship management. Environmental compliance and adherence to labour laws are embedded in operational processes to mitigate regulatory and reputational risks.

Internal Controls and Governance

The Company maintains robust internal control systems to safeguard assets, ensure accurate financial reporting, and monitor compliance with laws and regulations, including Companies Act, SEBI regulations, and tax provisions. Independent audit reviews and the oversight of the Boards Audit Committee ensure operational efficiency, financial integrity, and corporate governance excellence.

Human Capital and Workforce Development

Employees are central to Karnikas growth strategy. The Company prioritizes attracting, developing, and retaining top talent to foster innovation, operational excellence, and adaptability. Human resources initiatives focus on skill development, work-life balance, and inclusive workplace practices, positioning employees as key contributors to long-term business objectives.

Financial Overview

The financial performance of the Company for the year ended March 31, 2025, is as follows:

Total Revenue from Operations at Rs. 17627.97 Lacs in FY 2024-25, as against Rs. 12845.65 Lacs in FY 2023-24, representing a marginal YoY increase of 37.23%.

EBITDA was at Rs. 2976.36 Lacs in FY 2024-25 as against Rs. 1925.95 Lacs in FY 2023-24, increase of 54.54 % YoY.

Profit after Tax was Rs. 1803.04 Lacs in FY 202425 compared to Rs. 1010.49 Lacs in FY 2023-24, YoY increase of 78.43 %.

Basic EPS stood at Rs. 14.54 in FY 2024-25 as compared to Rs. 8.15 in FY 2023-24.

Details of Significant Changes in the Key Financial Ratios and Return on Net Worth

In accordance with Schedule V to the SEBI Listing Regulations, the following information pertains to any changes in the companys Return on Net Worth and any noteworthy changes in Key Financial Ratios (defined as changes of 25% or more from the immediately prior financial year), along with an explanation for such changes.

Particulars	FY 2024-25	FY 2023-24	(%) Variance	Explanation
Debtors Turnover (in times)	2.74	2.78	-1.41%	N.A.
Inventory Turnover (in times)	2.76	2.00	37.73%	Cost of Good Sold increased in F Y 2024-25 as compared to F Y 2023-24
Interest Coverage Ratio (number of times)	6.66	3.95	68.60%	Earning increased as compared to decrease in Finance Cost in F Y 2024-25 as compared to F Y 2023-24
Current Ratio (number of times)	1.68	1.76	-4.69%	N.A.
Debt Equity Ratio (number of times)	0.85	0.98	-13.60%	N.A.
Operating Profit Margin (%)	11.85	9.75	21.49%	N.A.
Net Profit Margin (%)	10.45	7.94	31.61%	Net Profit & Revenue from Operations increased in F Y 2024-25 as compared to F Y 2023-24
Return on Net Worth (%)	21.82	17.57	24.23%	N.A.

Outlook and Future Strategy

Karnika Industries is well-positioned to leverage both domestic and global growth opportunities. Strategic investments in technology, product innovation, sustainable practices, and supply chain optimization will enable the Company to maintain competitive advantage, expand market share, and deliver long-term value to stakeholders. The focus on customer satisfaction, quality, and operational efficiency ensures that Karnika remains resilient and agile in an evolving marketplace.