KG Petrochem Ltd Management Discussions

WORLD ECONOMY

Global growth is projected to be in line with the April 2025 World Economic Outlook (WEO) forecast, at 3.3 percent in 2025 and 3.1 percent in 2026. Services inflation is holding up progress on disinflation, which is complicating monetary policy normalization. Upside risks to inflation have thus increased, raising the prospect of higher for even longer interest rates, in the context of escalating trade tensions and increased policy uncertainty. The policy mix should thus be sequenced carefully to achieve price stability and replenish diminished buffers. Global inflation is forecast to decline steadily, from 5.9 percent in 2024 to 4.5 percent in 2025 and 3.6 percent in 2026, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually.

The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy. Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. Chinas recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient.

In most economies, the priority remains achieving sustained disinflation while ensuring financial stability. Therefore, central banks should remain focused on restoring price stability and strengthen financial supervision and risk monitoring. Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable. Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels.

INDIAN ECONOMY

The Indian economy demonstrated strong resilience and robust performance during the financial year 2024-25, achieving an impressive GDP growth rate of 8.2%, a significant improvement compared to 7% in the previous financial year (2023-24). This growth comes despite ongoing global uncertainties and challenges in the international market.

Reflecting this momentum, the World Bank has revised its GDP growth forecast for India in FY 2024-25 from 6.4% to 6.6%, citing strong public and private investment, a rebound in private consumption, and sustained strength in industrial and services sectors. This upward revision comes even as agricultural output faces some headwinds.

Looking ahead, the World Bank also upgraded its forecast for FY 2025-26 from 6.5% to 6.7%, reinforcing confidence in Indias economic trajectory.

India continues to be recognized as the fastest-growing major economy in the world. Leading global institutions have echoed this sentiment:

- The Reserve Bank of India (RBI) projects a 7.2% growth rate for FY 2024-25.

- Morgan Stanley anticipates 6.8% growth.

- Moodys forecasts the economy to expand by 6.6%.

Other global organizations such as the International Monetary Fund (IMF), United Nations (UN), and the Asian Development Bank (ADB) have also revised their outlooks positively, further validating the strength and resilience of Indias economic fundamentals.

Despite global headwinds and a moderated performance in agriculture, Indias growth continues to be driven by robust domestic demand, proactive fiscal policies, and a favourable investment climate.

GLOBAL TEXTILE INDUSTRY

The global textile market grew from about US$ 690 billion in 2024 to US$ 696.16 billion in 2025 at a compound annual growth rate (CAGR) of 8.7%. The growth in the historic period can be attributed to growth in world population, increased demand in man-made fibers, government initiatives for the textile industry, strong economic growth in emerging markets and a ban on plastic usage.

The factors that affected the industry for the financial year are;

- Inflation Increasing the Cost of Living

- Increasing Demand for Luxury Fashion

- Key Players Are Changing Their Trade Policies

- Continued Globalisation of Value Chains

- Greenwashing vs. Sustainability

- New And Emerging Business Models

- New And Emerging Business Models

- The Growing Talent Deficit

The textile industry is an ever-growing market, with key competitors being China, the European Union, the United States, and India. China is the worlds leading producer and exporter of both raw textiles and garments. India is among the top five textile manufacturing country and is responsible for more than 4% of the total textile production, globally. The rapid industrialization in the developed and developing countries and the evolving technology are helping the textile industry to have modern installations which are capable of high-efficient fabric production.

INDIAN TEXTILE INDUSTRY

India continues to strengthen its position as the worlds second-largest producer of textiles and garments, with the industry maintaining a healthy growth rate of 10% in the previous fiscal year, making it the second-fastest-growing textile industry globally.

A key growth driver within this sector is the technical textile segment, which is playing an increasingly significant role in both the Indian and global economy. In FY 2024–25, technical textiles accounted for 15% of Indias total textile market, reflecting rising domestic consumption and industrial demand.

Market Outlook and Growth Projections

- The Indian technical textile market is projected to grow at a CAGR of 6.2% from 2024 to 2030, fueled by increased demand in sectors such as healthcare, agriculture, construction, and defense.

- Globally, the technical textile market was valued at USD 240 billion in 2024 and is expected to reach USD 330 billion by 2028, growing at a CAGR of 8.2%.

- Key global growth drivers include increasing emphasis on safety and security textiles, as well as a surge in demand for filtration and separation technologies.

Export Performance

- In FY 2024–25, exports of readymade garments (cotton including accessories) reached USD 11.68 billion as of March 2025, registering an approximate 6.7% growth over the previous year. The Indian textile and garment export industry remains on track to achieve its ambitious target of USD 100 billion in exports by 2030.

Growth Enablers

Indias technical textile sector is poised for continued expansion, driven by:

- Rising domestic demand across diverse industries

- Government initiatives and policy support, including the National Technical Textiles Mission (NTTM)

- Availability of skilled labor and infrastructure

- Strong emphasis on innovation, sustainability, and smart textiles

COMPANY OVERVIEW

Incorporated in 1980, Jaipur-based KGPL is promoted by Mr. G. S. Kandoi. KGPL is engaged in the manufacturing of terry towel and made up as well as artificial leather. KGPL also works as a consignment stockist of GAIL (India) Ltd. for polymers for Rajasthan under its agency division. Terry towel segment is the major revenue earner for the company, contributing ~77% of its TOI in FY24. The manufacturing facility of KGPL is located at Tehsil Kotputli, near Jaipur, Rajasthan with an aggregate installed capacity of 6,200 Metric Tonne Per Annum (MTPA) for terry towel division and 100 lakh meters for Synthetic PU/PVC leather as on March 31, 2025, while agency division is operated from unit located at Vishwakarma Industrial (VKI) Area, Jaipur. The companys stitching unit is also located in VKI area, Jaipur.

Your company is engaged in the business of manufacturing and services as under:-

i. Manufacturing and marketing of Terry Towel, Made-ups & Garments etc. in the international market as well as domestic - Textile Division.

ii. Manufacturing and marketing of Garments Products i.e. Bath Robe, Pillow, Cushion Cover and Quilts etc. – Garment Division.

iii. Consignment Stockiest of GAIL (I) LTD. for marketing and distribution of polymers in Rajasthan- Agency Division.

iv. Technical Textiles - Manufacturing of Artificial leather through technical textile

OPPORTUNITIES & THREATS

Positive factors

- Maintenance of Total Operating Income (TOI) above Rs.300 crore along with improvement in operating profitability and Return on Capital Employed (ROCE) each, above 10%, resulting in better gross cash accruals.

- Maintenance of overall gearing below unity

Negative factors

- Decline in TOI below Rs.200 crore and/or moderation in PBILDT margin below 7% on a sustained basis.

- Moderation in capital structure above 1.20x along with moderation in debt coverage indicators.

- Elongation of working capital cycle beyond 180 days on sustained basis.

The Company faces various risks including fluctuations in market interest rates, rising raw material costs, compliance issues, personnel risks, currency exchange rate movements, changes in Indian government policies, and competitive pressures. To manage these risks, the Company employs forward booking and effective inventory management strategies. It also actively develops and maintains strong vendor relationships and leverages its reputation for quality and product differentiation. Compliance risks are addressed through regular internal and external audits. The Companys approach includes providing comprehensive solutions and innovative products, which helps hedge a significant portion of its expected export revenues. Additionally, it keeps a close watch on government policies to mitigate any potential adverse effects and strengthens client relationships to lessen competitive risks. However, an appreciation of the Rupee against the USD and changes in the GST regime could pose significant financial challenges.

BUSINESS OUTLOOK

KGPLs TOI remained moderate at Rs.334.35 crore in FY24 (Rs.306.32 cr. In FY23). It grew by 9% y- o-y due to increase in sales volume of terry towels with recovery in export demand from Q4FY24 onwards. Sales for the artificial leather segment however declined from Rs.66.18 cr. in FY23 to Rs.44.60 cr.

Operating margin of the company has witnessed continuous moderation over last two years ended FY24 to 6.48% (9.60% in FY23 and 12.04% in FY22), due to volatile input prices (cotton yarn and dyes & Chemicals) and constrained sales realizations owing to a slowdown in export market. Furthermore, though the terry towel segment witnessed improvement in sales and profitability in Q4FY24, the overall profitability remained subdued owing to continued losses in the artificial leather segment. With this, company registered gross cash accruals (GCA) of Rs.13.87 crore, which stood significantly lower than the GCA of 30 crore registered in FY22. CARE also notes significant deviation in the GCA as against envisaged during the last review.

For FY25, company is expected to register moderate growth in TOI alongwith some improvement in operating margin owing to recovery in terry towel demand and correction in raw material prices. However, considering the significant moderation in profitability vis-a-vis previous years, extent of this recovery shall remain crucial from credit perspective.

Leveraging its efficient management and skilled workforce, the Company is committed to driving growth in turnover while reducing expenses. We aim to sustain this positive trend by expanding into both domestic and new international markets. Our ongoing efforts include comprehensive training for staff to lower costs and enhance productivity and efficiency. Despite these initiatives, the competitive landscape—both internationally and domestically—exerts continuous pressure on our product pricing.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

The Companys robust internal control systems for financial reporting are appropriately tailored to its size and industry. These controls enhance efficiency and productivity at all levels, while safeguarding assets. Comprehensive procedures ensure accurate recording and dependable financial and operational support. Internal operations are meticulously monitored by the internal team and an Audit Committee, with the Management Board receiving timely updates on any issues. To facilitate seamless growth, the company implements strategies for risk identification, assessment, and mitigation based on these evaluations.

The corporate audit division, under the leadership of the Chief Financial Officer, is responsible for the ongoing assessment of the effectiveness of internal controls. Its mission is to provide the Audit Committee and the Board of Directors with independent, objective assurance on the adequacy and efficiency of the organizations risk management, control, and governance practices. Additionally, this division identifies opportunities to enhance business processes, systems, and controls, offering recommendations to add value to the organization. It also tracks the implementation of corrective actions and process improvements following the Audit Committees review.

RISK & CONCERNS

The prices of raw cotton are volatile in nature and depend upon factors like area under production, yield for the year, international demand supply scenario, export quota decided by the government and inventory carry forward from the previous year. Also, the production of cotton in India is dependent upon the vagaries of the monsoon. Accordingly, any sharp adverse fluctuations in cotton prices may affect the profitability of KGPL. Further, KGPL earns large part of its revenue from exports, which exposes its profitability to volatility in forex rates. However, majority of forex risk is mitigated as KGPL hedges entire forex exposure through forward contracts.

The Company is exposed to risk from market interest rates and increase of raw material prices, compliance risk, people risk, currency movements, change in Indian government policies and competition. The Company is impacted by the change in the business environment both within the Country and globally and this necessitates continues evaluation. The Company proactively manages these risks through forward booking and Inventory Management, proactive management of vendor development and relationships, and Companys strong reputation for quality, product, differentiation and services. The Company is mitigating the compliance risk through regular review of legal compliances through internal as well as external compliance. Companys strategy of providing end-to-end solutions and innovative products, hedges significant portion of its export revenues expected for the following year, The Company continuously monitors govt policies and take measures to minimize any adverse impact and maintaining strong relationship with clients helps in reducing competitive risks. Rising of Rupees against USD will be a big loss to the company along with few changes made in GST regime.

STATUTORY COMPLIANCE

On obtaining confirmation of having complied with all the statutory requirements, a declaration regarding compliance of the provisions of various statutes is made elsewhere in this report.

INDUSTRIAL RELATIONS

As in the past, Industrial relations continued to remain cordial at the manufacturing units of the company.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS

We look our employees as our most valuable assets and have been working towards keeping them motivated and enthused. The employees of the company are working in a healthy atmosphere. The Company is constantly endeavoring to source and develop skilled manpower at all levels. Lack of skilled manpower availability is a challenge of today. But the Company is constantly recruiting fresher and trains them to become suitably skilled.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report containing your Companys objectives, projections, estimates and expectations may incorporate certain statements, which are forward- looking within the meaning of applicable laws and regulations. The statements in this Management Discussion and Analysis Report could differ materially from those expressed or implied elsewhere. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in governmental regulations, tax regimes, forex markets, economic developments within India and the countries within which the Company conducts business besides other incidental factors.