Kaytex Fabrics Ltd Management Discussions

GLOBAL ECONOMY

The global economy slowed during the period under review. The International Monetary Fund projects world output to grow 3.0% in 2026 and 3.4% in 2027, below the average of about 3.5% recorded in 2024 and 2025. Growth remained uneven across regions, with advanced economies expanding modestly and emerging markets in Asia continuing to grow at a faster pace. The most significant development of the year, from the perspective of a manufacturer that buys yarn and greige fabric, was renewed conflict in the Middle East, which disrupted trade routes, weighed on business confidence and pushed up commodity and input prices for a period. Part of this drag was offset by momentum in the global technology cycle and the continued adoption of artificial intelligence, which supported investment in several large economies.

Inflation moderated across most major economies over the year, allowing central banks to begin easing monetary policy, though interest rates and financing costs remained higher than in the years before the recent inflationary cycle. For globally traded goods such as textiles, the combination of softer end demand in developed markets, volatile input costs and a gradual reordering of supply chains defined the operating environment. These conditions had a direct bearing on the Company, both through the sharp movement in raw material prices during the year and through the broader shift in global sourcing towards India, which is discussed below.

Source: International Monetary Fund, World Economic Outlook Update, July 2026.

The International Monetary Fund projects world output to grow 3.0% in 2026 and 3.4% in 2027, below the average of about 3.5% recorded in 2024 and 2025.

INDIAN ECONOMY

India remained among the fastest-growing major economies during the year. Real gross domestic product is estimated to have grown by about 7.7% in FY26, up from about 7.1% in the previous year, with the manufacturing sector expanding by about 10.7%. Growth was supported by resilient domestic consumption, sustained public investment in infrastructure, a stable financial system and moderating inflation, which together cushioned the economy from a subdued and uncertain external environment.

For a fabric and fashion manufacturer, the more relevant indicators are private consumption and demand in semi-urban and rural markets, both of which held up reasonably well through the year despite localised disruption. Rising household incomes, the steady formalisation of retail, deeper penetration of e-commerce and the pull of fast fashion into smaller towns all support demand for the kind of value-led fabrics and garments the Company makes. While regional disturbances and floods in parts of northern India weighed on local trade for part of the year, the underlying trajectory of domestic consumption remained supportive, and the Company expects this to continue over the medium term.

Source: Ministry of Statistics and Programme Implementation, Provisional Estimates of National Income 2025-26, May 2026.

GLOBAL TEXTILE AND APPAREL INDUSTRY

The global textile and apparel industry is large, mature and closely tied to consumer spending. The global apparel market is estimated at about US$1.47 trillion in 2025 and is expected to reach about US$1.66 trillion by 2030, while the wider textile market is estimated at about US$1.16 trillion in 2025. Growth is shaped by value-conscious consumption in developed markets, the rapid expansion of digital and omni-channel retail, and a rising consumer and regulatory preference for responsible production, including lower water use, reduced waste and greater supply-chain transparency.

Manufacturing remains concentrated in Asia, where competitive costs, an established raw material base and supportive government policy continue to draw global brands and retailers. At the same time, brands are placing greater weight on speed to market, shorter lead times, smaller and more frequent production runs, and the ability to customise, all of which favour manufacturers that can offer integrated capability and flexible, technology-led production. These structural shifts play to the strengths of vertically integrated Indian manufacturers, and to digital printing in particular.

Source: Mordor Intelligence, Apparel Market Size and Share Analysis, 2025; industry estimates.

A SHIFT IN GLOBAL SOURCING TOWARDS INDIA

Global brands and retailers are diversifying their sourcing away from a single country under a China Plus One approach, seeking to reduce concentration risk and build more resilient supply chains. India is a principal beneficiary of this shift. The country offers a large and skilled workforce, an integrated raw material base spanning cotton and man-made fibre, competitive costs, and a widening set of trade agreements that improve access to key export markets. As brands rebalance their sourcing, more orders are moving towards Indian manufacturers, particularly those able to demonstrate scale, quality, compliance and reliable delivery.

For the Company, this shift underpins the opportunity in its small but growing export business, which expanded about 42% during the year and earns higher margins than domestic sales. While the Company remains predominantly a domestic supplier today, the structural reordering of global sourcing represents a durable tailwind that it intends to pursue selectively, building on its integrated model and its digital printing capability from a small base.

The domestic textile and apparel market is estimated at about US$225 billion in 2025 and is expected to reach about US$350 billion by 2030, growing at roughly 10% to 12% a year

PROSPECTS FOR THE INDIAN TEXTILE INDUSTRY

India is the worlds second-largest producer of textiles and garments and among the largest exporters globally, holding a share of about 4.6% of global textile and apparel trade. The industry contributes about 2% of the countrys gross domestic product and about 11% of manufacturing gross value added, and employs more than 45 million people directly, making it one of the largest sources of employment in the economy. By 2030, the industrys share of gross domestic product is expected to approach 5%, reflecting both rising domestic consumption and growing exports.

The domestic textile and apparel market is estimated at about US$225 billion in 2025 and is expected to reach about US$350 billion by 2030, growing at roughly 10% to 12% a year, driven by rising incomes, growing e-commerce penetration and changing consumer preferences. On the export side, Indias textile and apparel exports remained resilient despite subdued global demand, with ready-made garments the single largest category, followed by cotton textiles and man-made textiles. The combination of a large and growing home market, a competitive export base and the shift in global sourcing towards India provides a favourable medium-term backdrop for organised, integrated manufacturers such as the Company.

Source: India Brand Equity Foundation (IBEF), Indian Textiles and Apparel Industry Analysis, February 2026; Ministry of Textiles, Government of India.

GOVERNMENT INITIATIVES

The Government of India continues to support the sector through a range of measures aimed at building scale, modernising infrastructure and improving export competitiveness. The Production Linked Incentive scheme for textiles, focused on man-made fibre fabric, apparel and technical textiles, had attracted investment of about Rs. 8,118 crore and created more than 33,400 jobs across some 170 approved companies as at 31 March 2026, encouraging large-scale, capital-efficient manufacturing.

The PM Mega Integrated Textile Regions and Apparel (PM MITRA) parks programme is developing seven integrated textile parks that offer world-class, plug-and-play infrastructure across the value chain, with significant potential for investment and direct and indirect employment at each site. Alongside these, the National Technical Textiles Mission supports research and adoption in specialty fibres and application-led textiles, while a widening network of free trade agreements, including those with the UAE, Australia and the European Free Trade Association, is improving access to major export markets. Together with the broader shift in global sourcing, these measures are expected to aid growth for organised, integrated manufacturers over the medium term.

Source: Ministry of Textiles, Government of India; Press Information Bureau, 2026.

KEY GROWTH DRIVERS: DIGITAL TEXTILE PRINTING

Within the broad textile market, digital textile printing is a small but fast-growing segment, and the one most relevant to the Company. The global digital textile printing market is projected to reach about US$11.6 billion by 2030. India, which accounted for about 8% of the global market in 2024, is the fastest-growing regional market in the Asia Pacific and is projected to approach US$1,134 million by 2030, with growth estimates ranging from about 13% for the global market and around 16% for India.

The shift from traditional printing to digital is structural rather than cyclical. Digital printing allows customisation and on-demand production, which suit fast fashion, shorten lead times and reduce the overstocking associated with long production runs. It uses significantly less water and generates less waste than conventional methods, aligning with the growing preference for responsible production. Continuing advances in printheads, inks and equipment keep improving quality, speed and cost. These drivers, combined with the Companys early and rapid scaling of digital printing capacity, its in-house integration and its design capability, position it to participate in the growth of the segment while managing the competitive pressure that its attractiveness inevitably brings.

Source: Grand View Research, Digital Textile Printing Market Outlook to 2030, 2025.

COMPANY OVERVIEW

Kaytex Fabrics operates as a vertically integrated manufacturer of fabrics and ready-to-stitch fashion, serving apparel brands as a brand enabler, its own-brand consumers, and the non-branded trade. Founded in 1996 and based in Amritsar, Punjab, it manufactures digitally printed, jacquard, corduroy and dobby fabrics, and ready-to-stitch womenswear and accessories. Its competitive position rests on in-house control of the full production chain, a rapidly growing digital printing capability, a portfolio of established own brands led by Rasiya, and a well-spread distribution network with low and declining customer concentration.

FINANCIAL PERFORMANCE

Revenue from operations grew to Rs. 16,124.12 lakh in FY26, from Rs. 15,481.15 lakh in FY25 and Rs. 12,660.31 lakh in FY24. Growth of about 4% over the previous year was below the Companys historical trend of around 25% to 26% a year, reflecting a combination of raw material cost volatility, regional disturbances in Punjab and floods during the second quarter, each of which weighed on trade and consumer activity for part of the year. Over the two years since FY24, revenue has grown by about 27%.

EBITDA was broadly stable at Rs. 2,999.00 lakh, compared with Rs. 2,986.23 lakh in FY25, with the EBITDA margin at 18.60%, against 19.29% in the prior year and 17.67% in FY24. Profit after tax rose about 10% to Rs. 1,742.70 lakh, from Rs. 1,578.65 lakh, and the PAT margin improved to 10.81%. The Companys margins remain high for the textile industry, a direct result of its vertical integration and the rising share of digital printing and value addition in its output.

The balance sheet strengthened markedly following the public issue. Shareholders funds rose to Rs. 11,652.32 lakh, from Rs. 4,973.78 lakh a year earlier, and the debt-to-equity ratio fell to 0.21 times, from 0.80 times in FY25 and 1.05 times in FY24. This provides the Company with a sound base from which to fund its planned expansion without undue reliance on borrowing, and reflects the disciplined use of the proceeds raised at the time of listing. Rs.161.24 crore

REVENUE FROM OPERATIONS

SEGMENT REVIEW

Digital printing has been the principal driver of both growth and margin, supported by the structural market shift towards digital methods, the Companys in-house integration and its design capability. The Company scaled this capability rapidly over recent years and continues to invest in it, while remaining mindful that rising competition in the segment has begun to weigh on per-unit margins.

By channel, own brands led by Rasiya formed the largest part of branded and non-branded product revenue in FY26, with the brand-enabler and non-branded channels providing scale and steady capacity utilisation. Rasiya, the Companys principal brand, recorded the strongest growth in the portfolio during the year, supported by consistent consumer demand in its core Punjab market and the balance of quality, design and price it is able to offer. Kaytex and Darbaar-e-Khaas, both anchored in jacquard products, continued to operate steadily within their established bases.

By geography, domestic sales were Rs. 15,179.97 lakh and exports Rs. 944.14 lakh in FY26, taking the export share of revenue to about 5.9%, up from about 4.4% in FY25. Exports, though from a small base, grew about 42% over the year and earn higher margins than domestic sales. The Company intends to keep building this business selectively, supported by the shift in global sourcing towards India, while its primary focus remains the domestic markets of northern India.

COST STRUCTURE AND MARGINS

The Companys largest cost is materials, principally yarn, greige fabric, and chemicals, dyes and inks. During the year, conflict in the Middle East pushed the prices of yarn and greige fabric up sharply for a period, with a meaningful part of the input cost base affected, while ink and other printing inputs remained comparatively stable. The Company limited the impact on volumes by procuring raw material in advance, which provided a cushion through the most volatile months, though the episode weighed on the year as a whole.

Over the medium term, the Companys margins are supported by two structural features. The first is vertical integration: because the Company carries out weaving, dyeing, processing, printing and value addition in-house, it retains value that peers typically share with a chain of outside vendors, and it exercises tighter control over quality, timelines and cost. The second is the rising share of higher value-added digital printing and value-addition processes in the mix. Together these explain why the Company earns high margins, and why profit after tax grew faster than revenue during the year. The Company is conscious that digital printing is attracting more entrants and that margins in that line have come under pressure in recent months, and its focus is to protect margins through the depth of its integration and continued value addition.

WORKING CAPITAL AND CASH FLOW

A significant part of the Companys profit remains invested in working capital, and its cash conversion cycle is long relative to smaller, less integrated peers. Its integrated model, with many stages of production carried out in-house, requires it to hold more inventory than an average manufacturer of its size, both to feed multiple internal processes and to keep stock ready for quick delivery. Part of this intensity is structural to the textile industry, with its longer payment terms, and part is specific to the Companys in-house processes.

The Company regards the streamlining of inventory and related processes as a priority, and expects to make progress as its systems, data collection and reporting mature. At the same time, it recognises that a certain level of inventory is necessary to protect its service levels and its margins, and that it will continue to run a higher working capital intensity than a comparable company that outsources part of its production. The strengthened balance sheet following the public issue provides headroom to manage this while funding growth.

DEPLOYMENT OF PUBLIC ISSUE PROCEEDS

The Company is deploying the net proceeds of its public issue against the objects stated at the time of the offer. Progress to 31 March 2026 is set out below. The advanced fabric processing system has been commissioned and incremental working capital has been drawn, while the dedicated sales office and additional warehouse facility are under construction and are expected to support future growth and customer experience as they come on stream.

Object ( Rs. lakh)	Planned	Deployed	Status
Advanced fabric processing system	501.00	501.00	Commissioned in May 26
Incremental working capital	3,000.00	3,000.00	Drawn
Dedicated sales office, Amritsar	373.20	99.80	Under construction
Additional warehouse facility, Amritsar	255.55	0.00	Under construction

KEY FINANCIAL RATIOS

Ratio	FY24	FY25	FY26
Operating profit margin	17.67%	19.29%	18.60%
Net profit margin	8.81%	10.20%	10.81%
Debt-to-equity (x)	1.05	0.80	0.21
Return on net worth	37.94%	37.73%	20.96%
Return on capital employed	27%	29%	19%
Current ratio	1.66	1.78	3.36
Inventory turnover (days)	90	86	120
Debtor turnover (days)	78	75	93
Interest coverage (x)	4.85	5.99	7.47

OPPORTUNITIES AND THREATS

The principal opportunities before the Company are the structural growth of digital textile printing, in which it has built early scale; the shift of global sourcing towards India, which supports the growth of its higher-margin export business; the deepening of its own-brand presence, led by Rasiya, in under-served Tier 2, Tier 3 and Tier 4 towns of northern India; and the extension of its reach into adjacent markets such as Chandigarh, Delhi, Haryana and Jammu using its expanded printing capacity. Broader industry tailwinds, including supportive government policy and rising domestic consumption, reinforce these opportunities.

The principal threats are raw material price volatility, which can compress margins at short notice; rising competition in digital printing and the margin pressure that follows; the Companys working capital intensity, which limits free cash generation; and its regional concentration in Punjab, which exposes it to localised disturbances and weather events. The Company seeks to manage these through vertical integration, value addition, advance procurement, a diversified customer base and the gradual broadening of its geographic footprint.

RISKS, CONCERNS AND MITIGATION

Raw Material Price Risk

Yarn and greige fabric prices moved sharply during the year on account of global conflict, affecting a meaningful part of the input cost base. The Company mitigates this through advance procurement, the higher in-house inventory that its integrated model naturally carries, and its ability to retain value across the chain, though volatility remains a risk that cannot be fully eliminated.

Competition and Margin Risk

Digital printing is attracting more entrants, and per-unit margins in the line have come under pressure in recent months. The Company relies on the depth of its integration, its design capability and continued value addition to defend its margins, and is broadening its range of in-house finishes, including aari embroidery, to differentiate its offering.

Working Capital Risk

The in-house model requires higher inventory and a longer cash conversion cycle than average, which constrains free cash flow. The Company is working to streamline inventory and related processes while preserving the service levels and margins that the model supports.

Demand and Macro Risk

Demand can fluctuate with consumer trends and the broader economy. The Companys spread across three routes to market and a wide product range provides some insulation against shifts in any single segment.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company maintains internal control systems appropriate to the size, scale and nature of its business. These cover the accurate recording of transactions, the safeguarding of assets against loss or unauthorised use, adherence to the Companys policies, and compliance with applicable laws and regulations. The systems are reviewed for adequacy and effectiveness on an ongoing basis, and observations are acted upon in a timely manner. As part of its move towards institutional standards following listing, the Company continues to strengthen its processes, controls and management information systems, and is investing in the people and systems needed to support a larger and more complex organisation.

HUMAN RESOURCES

The Companys people are central to its plans to professionalise and grow. A central theme of the year has been the deliberate broadening of the organisation beyond the founding family, with clearer roles, defined functional responsibilities and the recruitment of professional talent to strengthen the layer of management beneath the promoters. This is measured, long-term work, and it underpins the Companys broader institution-building effort.

The permanent workforce as at 31 March 2026 was 630, supported by an in-house design team of 47. The Company maintains cordial relations with its employees and workers, and continues to invest in skills and capability across design, printing, production, processing, procurement and merchandising.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward looking within the meaning of applicable laws and regulations. These statements are based on assumptions and information available as on the date of this report. Actual results could differ materially from those expressed or implied, on account of factors including raw material prices, demand and supply conditions, changes in government regulations, tax regimes, economic developments within India and abroad, and other incidental factors. The Company undertakes no obligation to publicly update or revise any forward-looking statement on the basis of subsequent developments, information or events.