lagnam spintex ltd Management discussions

The management discussion and analysis report provide an over view of the financial activities for the fiscal year ended on 31^st March 2023, gives an overall sight of the yarn industry, opportunities and threats in the business and Companys strategy to deal with that. This report is designed to focus on current years activities, resulting changes and other known facts in conjunction to the financial and strategic position of the Company.

ECONOMIC SCENARIO

The textile industry in India is largest industry after agriculture and is also highly labour intensive offering the largest volume of employment. India is among the worlds largest producer of textiles and apparels.

The textiles and apparel industry in India has strengths across the entire value chain from fiber, yarn, fabric to apparel. The Indian textile and apparel industry is highly diversified with a wide range of segments ranging from products of traditional handloom, handicrafts, wool, and silk products to the organized textile industry in India. The organized textile industry in India is characterized by the use of capital-intensive technology for the mass production of textile products and includes spinning, weaving, processing, and apparel manufacturing.

Indias Economic Survey 2022-23 indicates that private investment gathered momentum during the current fiscal in all major sectors, including the textile sector. However, manufacturing industries like textiles, apparel and leather have been showing tepid growth as the export demand for these products remained soft due to slow global demand. The survey was tabled in Parliament by finance minister Nirmala Sitharaman on January 31.

A quick study of the survey report by the Confederation of Indian Textile Industry (Cm) showed that the textile sector recorded private investment of about Rs.10,000 crores in first half of 2022-23 (i.e., April 2022 to September 2022). But the investment slowed down to around Rs. 7,000 crores in second half of the current fiscal. Textile sector was underperformer during the financial year 2022-23 as compared to other economic sectors like steel, electricity, chemical, auto and pharma.

The growth in textile sector was disappointing because of tepid demand from global market. In the first eight months of the current fiscal, the sector could maintain positive growth (of 5.9 per cent year- on-year) only in May. The textiles sector growth remained negative in the remaining seven months from April to November 2022. The sector witnessed negative growth of 0.4 per cent in April 2022, 3.1 per cent in June, 9 per cent in July, 12.5 per cent in August, 13.9 per cent in September, 18.7 per cent in October and 9 per cent in November 2022.

As per the report, wearing apparel industry recorded growth in April (55.2 per cent), May (69.9 per cent), June (42.6 per cent) and July 2022 (15.1 per cent). But it went into red in August (-18.3 per cent), September (-21.6 per cent), October (-36.6 per cent) and November 2022 (-11.7 per cent). Leather and related products noted growth of 5 per cent in April, 47.5 per cent in May and 1.9 per cent in June 2022. But they too turned negative in subsequent months and registered degrowth of 13.5 per cent in July, 16 per cent in August, 17.5 per cent in September, 25.5 per cent in October and 2 per cent in November 2022.

The survey indicated that most of the segments within the manufacturing sector, except the textile industry, witnessed growth in credit offtake in November 2022. Foreign Direct Investment (FDI) could not recover in the textile sector after COVID disruption in fiscal 2020-21.

If talk about the Overall Economy, the Indian Economy is expected to grow at 7 per cent by the year ending March 2023. This follows an 8.7 per cent growth in the previous financial year.

Despite the three shocks of COVID-19, Russian- Ukraine conflict and the Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies, agencies worldwide continue to project India as the fastest-growing major economy at 6.5- 7.0 per cent in FY23.

INDUSTRY DEVELOPMENTS & FUTURE OUTLOOK

India is the worlds second-largest producer of textiles and garments.

Indias textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital-intensive sophisticated mills sector on the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of yarns from natural fibres like cotton, jute, silk and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.

India is one of the largest producers of cotton and jute in the world. India is also the 2^nd largest producer of silk in the world and 95% of the worlds hand- woven fabric comes from India. The Indian technical textiles segment is estimated at $16 bn, approximately 6% of the global market.

The textiles and apparel industry in India is the 2^nd largest employer in the country providing direct employment to 45 million people and 100 million people in allied industries.

• India is the worlds second-largest producer of textiles and garments. It is also the sixth-largest exporter of textiles spanning apparel, home and technical products. India has a 4% share of the global trade in textiles and apparel.

• The textiles and apparel industry contribute 2.3% to the countrys GDP, 13% to industrial production and 12% to exports.

• The textile industry has around 45 million of workers employed in the textiles sector, including 3.5 million handloom workers.

• During April-October in FY23, the total exports of textiles stood at US$ 21.15 billion.

• Indias textile and apparel exports (including handicrafts) stood at US$ 44.4 billion in FY 22, a 41% increase YoY.

• Total textile exports are expected to reach US$ 65 billion by FY 26.

• The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26.

• The Indian apparel market stood at US$ 40 billion in 2020 and is expected to reach US$ 135 billion by 2025.

• The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk and wool to synthetic/man- made fibres like polyester, viscose, nylon and acrylic.

• The Indian textiles market is expected to be worth >US$ 209 billion by 2029.

• In December 2022, the Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution, and Textiles, Mr. Piyush Goyal, advocated that India should take its textile exports to US$ 100 billion by 2030.

Key segments of the textile industry

The Indian Textile Industry has inherent linkage with agriculture and with the culture and traditions of the country making for its versatile spread of products appropriate for both domestic and the export markets. The textile industry is operating under different segments such as Spinning (the process of converting cotton or manmade fiber into yarn), Weaving and Knitting (converting yarn into woven or knitted fabrics), Fabric Finishing/ Processing (dyeing, printing and other cloth preparations) and Clothing (apparel manufacturing). The textiles and apparel industry in India have strengths across the entire value chain from fiber, yarn, fabric to apparel. Presently, spinning is the most consolidated and technically efficient sector in Indias textile industry.

The textile sector also has a direct link with the rural economy and performance of major fibre crops and crafts such as cotton, wool, silk, handicrafts and handlooms, which employ millions of farmers and crafts persons in rural and semi-urban areas. It has been estimated that one out of every six households in the country depends directly or indirectly on this sector. India has several advantages in the textile sector, including abundant availability of raw material and labour. It is the second largest player in the world cotton trade. It has the largest cotton acreage, of about nine million hectares and is the third largest producer of cotton fibre in the world. It ranks fourth in terms of staple fibre production and fourth in polyester yam production. The textile industry is also labour intensive, thus India has an advantage.

(Source: IBEF- India Brand Equity Foundation and Pib.gov)

Export have posted strong growth over the years:

• During April-October in FY23, the total exports of textiles stood at US$ 21.15 billion.

• Exports of textiles (RMG of all textiles, cotton yarns/fabs./made-ups/handloom products, man-made yarns/fabs./made-ups, handicrafts excl. handmade carpets, carpets and jute mfg. including floor coverings) stood at US$ 44.4 billion in FY22.

• Indias ready-made garment (RMG) exports are likely to surpass US$ 30 billion by 2027, growing at a CAGR of 12-13%.

Raw Material

Cotton is one of the most important cash crops and accounts for around 25% of the total global fibre production. In the raw material consumption basket of the Indian textile industry, the proportion of cotton is around 60%.

This has forced the manufacturers across the textile value chain - from spinning mils and weaving units to garment makers -to seek the abolition of an import duty on cotton (effectively to the tune of 11%, including cesses) and the creation of a strategic reserve of about 10-15% of market supplies by the government to help stabilize prices.

Rising raw material costs have also created inter- segmental conflicts in the industry. "There is a continuous spike in cotton yarn prices. The government should step in to bring stability to raw material prices.

As Indian Cotton prices continue to be costlier against the international market, cotton yarn exports have taken a major hit to touch historic lows with 59% decline in the first half of FY23 as compared to the year ago period. Raw cotton exports declined 73% during the same period.

Cotton yarn export declined 28.9 crore kg in the first half of FY23 against 69.5 kg in the corresponding period in the previous fiscal year. Less cotton production in FY22 pushed cotton prices up in the Indian market by 140% touching a peak of Rs. 1.1 lakh per lakh candy in the first quarter of the FY23.

In the first 6 months of the financial year 2023, Indias cotton yarn exports decreased by 59% while raw cotton exports plunged by 73%. Low Cotton production in the FY22 season pushed Indian cotton prices up 140% and Indian cotton prices remained 20-25% higher than international prices.

For the first six months of the FY23, Indias cotton yarn exports decreased to 28.5 crore kg from 69.5 crore kg recorded in the last FY 22. In September this year, Cotton yarn exports stood at only 3 crore kg, a decrease of 76% compared to the September 2021 figures. Indias raw cotton exports dropped to 15.9 crores kg from 58.6 crore kg in the period under review.

TEXPROCIL committee of administration member Rahul Shah said:

The projection of Indias cotton crop lowered from around 3.55 crore candy (356kg each) to 3.15 crores candy and it resulted in an unprecedented rise in cotton prices, reaching Rs. 1.10 lacs per candy from its traditional price of about Rs. 45,000 per candy. The Price of Indian Cotton remained at least 20% higher than that of other varieties and therefore our competitiveness against Turkey, Vietnam and China went down. He added, "In fact, India imported about 10000 tonnes of cotton yarn from Vietnam to Ahmedabad and South India, probably for the first time."

However, the new season the FY 23 seems promising and produced approx. 3.50 crores candy. Mr. Jayesh Patel, vice president of spinners association Gujarat (SAG) said:

"Spinning mills had cut down production to lower losses and the demand is still low. However, we have seen some orders coming in for cotton yam exports as cotton prices have come down to around Rs. 65,000 per candy. In the Coming months, the prices will go down further."

(Source: TEXPROCIL and The Times of India)

Despite all the difficulties faced during the year 2022- 23 due to unfavorable international market condition, Russia-Ukraine war, and higher cotton prices, Your Company has never shut down the production units and tried mitigate it and entered in to new markets, delivering best qualify products and adopting better marketing strategies.

Raw Cotton Production:

• India is the worlds largest producer of cotton.

• Natural fibres are regarded as the backbone of the Indian textile industry, which is expected to grow from US$138 billion to US$195 billion by 2025.

• The cotton production in 2022-23 is approx. 341.91 lakh bales (LB) with 80.25 LB in Maharashtra, 0.065 LB in Uttar Pradesh and 15.19 LB in Madhya Pradesh.

Government Support and Notable Trends in Textile Sector

1. Textile Parks

• Since 2014, 59 textile park projects have been sanctioned under SITP and PPP with 40% government assistance of up to Rs. 40 crore (US$ 6 million). Of these, 24 textile parks are operational.

• In February 2023, the union government approved 1,000 acres for setting up a textile park in Lucknow.

• Under the Union Budget 2021-22, Minister of Finance and Corporate Affairs, Ms. Nirmala Sitharaman, launched a Mega Integrated Textile Region and Apparel (MITRA) Park scheme to establish seven textile parks with state-of-the-art infrastructure, common utilities and R&D lab over a three-year period.

• In March 2022, the Bihar government submitted a proposal to Ministry of Textiles to set up a mega hub under the PM Mitra Mega Textile Park.

• In March 2022, Tamil Nadu Chief Minister Mr. MK Stalin announced that the State Industries Promotion Corporation of Tamil Nadu Ltd (SIPCOT) will set up a mega textile park in the Virudhunagar district.

2. Incubation in apparel manufacturing

• The objective here has been to promote entrepreneurs in apparel manufacturing by providing the man integrated workspace and reducing operational and financial cost for establishing and growing anew business.

• As of July 2019, three projects were sanctioned by the Government, one each in Madhya Pradesh, Odisha and Haryana.

3. Technical textiles

• Increased awareness of goods, higher disposable incomes, changing customer patterns and some sector-specific growth drivers are estimated to bolster the Indian technical textiles market to US$ 23.3 billion in 2027, up from US$ 14 billion in 2020 in the Asia-Pacific region.

• The technical textiles market for automotive textiles is projected to increase to US$3.7 billion by 2027, from US$2.4 billion in 2020. Similarly, the industrial textiles market is likely to increase at an 8% CAGR from US$ 2 billion in 2020 to US$ 3.3 billion in 2027.

4. Public Private Partnership (PPP)

• The Ministry of Textiles commenced an initiative to establish institutes under PPP to encourage private sector participation in the development of the industry.

• In August 2021, Flipkart and Himachal Pradesh State Handi crafts and Handloom Corporation Ltd. (HPSHHCL) signedamem or and um of understanding (MoU) to help the states master crafts men, we avers and art is ans showcase their hall mark products one-commerce platforms.

5. Promotion of khadi

• In January 2023, Prime Minister Mr. Narendra Modis vision of " Khadi for Nation, Khadi for Fashion and Khadi for Transformation", a first- ever spectacular Khadi Fashion Show took place in white fields at Rann of Kutch. It was organized by the Khadi and Village Industries Commission.

• Khadi and Village Industries Commission (KVIC) achieved turnover of Rs. 1.15 lakh crore (US$ 14.68 billion) in FY22, a growth of 20.54% YoY, and more than any Indian FMCG company managed in FY22.

In May 2022, Minister of Micro, Small and Medium Enterprises, Mr. Narayan Rane, inaugurated the Center of Excellence for Khadi (CoEK) at NIFT, Delhi. In order to produce innovative fabrics and apparel that will meet the needs of both domestic and foreign consumers, the CoEK will seek to introduce the newest designs and adopt procedures that adhere to international standards.

In November 2021, Mr. Federico Salas, the Mexican Ambassador to India, visited the Khadi India Pavilion at the India International Trade Fair 2021 and suggested that India and Mexico should come together to promote Khadi globally.

6. Diversification

• Raymond group under its group company, J.K. Helene Curtis, is looking to ramp up male grooming segment by unleashing new variants of shampoos and deodorants.

• In October 2020, Aditya Birla Fashion and Retail Limited approved issuance of equity shares on a preferential basis to Flip kart Investments Private Limited aggregating to Rs. 1,500 crore (US$ 203.66 million). The company also entered in to a commercial agreement in relation to the sale and distribution of its various brands.

7. R&D

• In December 2022, a total of 44 R&D projects were started, and 23 of the mwere successfully completed in the silk industry

• Defence Research and Development Organisation (DRDO) is helping the Indian textile industry to produce yarns and eliminated pendence on import of Chinese and other foreign clothing form ilitary uniforms.

• In October 2021, IIT Delhi converted the SMITA Research Lab Centre of Excellence in smart textiles to work one merging materials and technologies; this step was taken to innovate the countrys textile industry.

• On February 4, 2021, the South India Textile Research Association (SITRA) inaugurated alaboratoryat the South India SpinnersAssociation (SISPA), in Coimbatore, to test cotton and yarn.

8. Scaling-uporganic cotton industry

• In March 2022, the Tamil Nadu government included a Sustainable Cotton Cultivation Mission in its agriculture budget by allocating US$ 1.86 million (Rs.15.32 crore) to enhance the yieldo for ganic cotton.

• Despite being the worlds largest producer of cotton, only 2% of the total amount of cotton produced in India is organic.

• In March 2021, Inditex partnered with DBS Bank in Singapore to launch a pilot programme, which would finance >2,000 Indian farmers to grow/produce organic cotton. DBS will leverage the network of local Farmer Producer Organisations (FPOs) to reach >2,000 farmers in Inditexs supply chain to evaluate their financing needs.

Government Schemes & Policies

SAATHI Scheme

• The Ministry of Textiles, Government of India, along with Energy Efficiency Services Ltd. (EESL), has launched a technology upgradation scheme called SAATHI (Sustainable and Accelerated Adoption of Efficient Textile Technologies to Help Small Industries) for reviving the power loom sector of India.

Remission of Duties or Taxes on Export Product(RoDTEP)

• The government of India introduced a new scheme, named RoDTEP, in September 2019 and released a budget allocation of Rs. 500 billion by March 13, 2020, in a move to replace MEIS (which ends in December 2019) and RoSL (only refunds state taxes). The new scheme is in terms with the conditions of the WTO, where incentives cannot be provided, but the taxes incurred during the process can be refunded. Hence, the government plans to refund all state (RoSL) and Central government taxes incurred by the export players during the manufacturing process of RMG. According to the government, this new scheme would "adequately compensate" for the current 6% (4% MEIS and 2% RMG) benefits being availed of by the RMG exporters and help them stay competitive enough in the international trade market.

Merchandise Exports from India Scheme

• 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% to 4%.

Scheme for Integrated Textile Parks (SITP):

• The setting up of integrated textile parks is one of the flagship schemes of the Ministry of Textiles primarily setup to assist small and medium entrepreneurs in the textile industry to clustered investments in textile parks by providing financial support for world class infrastructure in the parks.

• SITP has majorly boosted Indian textile industry. A total of 59 textile parks have been sanctioned under SITP by the Ministry of Textiles out of which 22 textile parks have been finalized and rest are under various stages of construction. While 13 textile parks will receive a grant of Rs. 520 crores from the Government for infrastructure development, they are estimated to bring in private sector investment of about Rs. 3,240 crores. This scheme is a true game changer as the financial aid provided to companies seeking to setup manufacturing units but unable to do so due to the sky high prices of land has caused many new entrants to enter this sector. Furthermore, the easing of the red-tape with the plug and play setup in these parks has made India a hotspot not only for domestic but also international players seeking to enter the domain of textiles and apparel.

• This scheme provides textile units infrastructure, including power, water, roads, and drainage system, and assistance to meet environmental norms. It is expected to attract considerable investments to set up huge integrated textile facilities. This is a positive step towards making India a hub for textile products. As per union budget 2021-22, the government has allocated Rs 800 million (budgeted estimate) under SITP.

PDI

• Foreign direct investment (FDI) of up to 100% is allowed in the textile sector through the automatic route.

Mega investment textile parks scheme (MITRA)

The Government of India announced the establishment of 7 mega textile parks in the next 3 years over 1,000 acre land to boost production and support export competitiveness. The government earlier launched SITP in 2005 and announced that 40 integrated textile parks will be set up across the country. While India gained share in cotton yam exports in the interim till fiscal 2015, the share dropped in the subsequent 5 years as countries such as Vietnam and China gained due to better incentives and facilities provided by their governments under textile park schemes. The key challenge was relatively the small size of Indian textile parks compared with those set up in rival exporting nations. Except for one park of 1,000 acres, the remaining parks under the SITP scheme were smaller with ~27 parks being under 50 acres and 20-25 parks being between 50- 70 acres. In comparison, parks of global competitors such as China, Bangladesh or Vietnam average 100 acres or more. Also, incentives offered in Bangladesh are far better than those offered in India.

To attract investments, the government needs to provide better incentives and facilities in the newly planned parks like those provided by the global competitors. Also, along with the PLI scheme, these parks should be executed in a timely manner as international rivals will also continue to build scale through such schemes.

If implemented well, the scheme has the potential to drive both MMF and technical textile players to invest in increasing capacities, thereby increasing Indias export share of MMF-based RMG.

Education, training and skill development: Skill development plays a major role in development and adoption of new technologies. Indian education, skill development and human resources are not at requisite levels to meet the technologically challenging and fast growing technical textiles segment. This mission aims to promote education at various levels related to technical textiles and cover application areas including engineering, medical, agriculture, aquaculture and daily segments. In addition, skill

development will also be promoted to create an adequate pool of highly skilled manpower to meet the needs at technical textile manufacturing units. Furthermore, an allocation of Rs 4,000 million has been made to achieve these targets.

SAMARTH

• A total of 73,919 people (SC: 18,194, ST: 8,877, and Women: 64,352) have received training, out of which 38,823 have received placement under SAMARTH.

• In 2019, Ministry of Textiles signed a pact with sixteen states for skilling around 400,000 workers under the SAMARTH scheme.

• In November 2022, local weavers in Tuensang in Nagaland were provided 45 days of skillupgrading training, which would equal 315 hours under the SAMARTH programme.

• In June 2022, the Kerala government announced that it would provide free training to 1,975 candidates under the SAMARTH scheme of the textile industry.

Production Linked Incentive (PLI): Aimed at increasing manufacture and export of Indian technical textiles, the newly launched PLI scheme is amuch-needed step as it would fuel the V-shaped recovery that had begun in many sectors, including the apparel sector. Globally there is huge demand for technical textiles with U.S alone having a market of approximately Rs 3 lakh crores. By filling up the gaps caused by existing hurdles in man-made fiber production, PLI hopes to capture a large chunk of this market and elevate Indias position to the top exporter of technical textiles.

Government Incentives

• In the academic year 2022-23, the opening of a new campus of the National Institute of Fashion Technology (NIFT) in Daman. Moreover, new campus buildings are being constructed in Bhopal and Srinagar.

• Under the National Technical Textile Mission (NiTM), 74 research projects for speciality fibre and technical textiles valued at US$ 28.27 million (Rs. 232 crore) were approved.

• For the export of handloom products globally, the Handloom Export Promotion Council (HEPC) is participating in various international

fairs/events with handloom exporters/weavers to sell their handloom products in the international markets under NHDP.

• The Ministry of Textiles has also been implementing Handloom Marketing Assistance (HMA), a component of National Handloom Development Programme (NHDP) all across India. HMA provides a marketing platform to the handloom weavers/agencies to sell their products directly to the consumers, and develop and promote the marketing channel through organizing expos/events in domestic as well as export markets.

• In August 2021, Minister of Petroleum & Natural Gas and Labor & Employment, Mr. Rameswar Teli, launched ONGC-supported Assam handloom project UjjwalAbahan through the virtual platform. The project will support and train >100 artisans of Bhatiapar of Sivasagar, Assam in Hathkharga handicraft.

• In October 2021, the Ministry of Textiles approved continuation of the comprehensive handicrafts cluster development scheme with a total outlay of Rs. 160 crore (US$ 21.39 million). Through this scheme, the government aims to support domestic SMEs and local artisans.

COMPETITION IN FOREIGN MARKETS

• The Indian cotton textile industry has been facing increasing competition in world markets. This is largely due to high cost of production and consequently high prices of cotton. It is paradoxical in a country where wages are low and cotton is internally available.

• Availability of quality cotton in required volume can be made achievable through framing Government Policies for increasing the productivity of cotton on par with international producers.

• Though the mandatory compliance of BIS Standard for several textile products including MMF Fibre, Yarn, Technical Textile products, etc., by way of issuing Quality Control Orders (QCO) is a welcome move and would encourage AtmaNirbhar Bharat, it lacks workable standards. Also, the initial investment towards establishment of lab and its connected mandates is beyond the capacity of the growing MSME sector that accounts over 85% of the entire textile value chain. The industry, industry Associations and the government are actively involved in addressing the issues in complying the QCOs. The Government is in the process of bringing more than 100 QCOs covering the entire textile value chain.

• Indias textile and apparel industry can be labelled as that rocket which zoomed off to the skies but lost its fizz somewhere in between. Despite being the second-largest exporter of textiles and accounting for 5% of the global share of textiles and apparel, Indias first runners up crown face stiff chances of being taken away by smaller countries like Vietnam and Bangladesh.

• The principles of sustainability, traceability and circularity have begun to rule the export market. The domestic manufacturers are also working towards incorporating the same in the manufacturing process. However, the cost of certification to prove the same is already on higher side and still escalating.

GROWTH FACTORS

• India is the third largest producer of cotton with the largest area under cotton cultivation in the world. It has an edge in low-cost cotton sourcing compared to other countries.

• Presence of entire value chains

• Competitive manufacturing costs

• Availability of skilled manpower

• Large and growing domestic market

• Rising per capita income, higher disposable incomes and preferences for brands

• India has gathered experience in terms of working with global brands and this should benefit Indian vendors.

• China losing its competitive edge to India

• Easy and on-demand availability of credit Strategies:

• Lean Manufacturing- to minimise waste and create more value-oriented products

• Assets Reliability- adopting smart machineries and incorporate artificial intelligence

• Organisational Alignment- clear assignment of duties towards every management personnel for smooth and efficient operations

• Energy- sustainable manufacturing and use of energy efficient machinery

OPPORTUNITIES AND THREATS

Opportunities- Immense growth potential

• The Indian textile industry is set for strong growth, buoyed by both strong domestic consumption as well as export demand.

• The textile and apparel industry is expected to grow to US$ 190 billion by FY26.

• In October 2021, the government announced the target to achieve US$ 100 billion from Indias textile exports in the next five years.

• Urban is at ion is expected to support higher growth due to change in fashion and trends.

Supply chain:

In recent times, China is facing issues with respect to wage increases and shortage of workforce. This would be an opportunity for India which could act as an alternative destination for foreign players to enter. In addition, this would aid investors to avoid the US- China trade issues thus reducing the supply chain disruptions. Furthermore, India being worlds largest manufacturer of cotton and second largest manufacturer of polyester and viscose would further support the yarn manufacturing industry.

• Increased Disposable Income and Purchasing Power of Indian Customer opens New Market Development.

• Product development and Diversification to cater global needs.

• Large, Potential Domestic and International Market.

• Opportunity in European Union (EU)

• Government Initiatives for exports Proposed FDI in multi-brand retail

• For the textile industry, the proposed hike in FDI limit in multi-brand retail will bring in more players, thereby providing more options to consumers.

• It will also bring in greater investment along the entire value chain-from agricultural production to final manufactured goods.

• With global retail brands as sure do fadomestic foot hold, outsourcing will also rise sign ificantly.

Challenges-

• Raw material price fluctuations

Raw material cost (raw cotton) is the largest cost component for the yarn-manufacturing industry, accounting for a major share in players operating income. In case of cotton yarn, as cotton is a seasonal commodity, procuring raw cotton supplies at the right time and at the right price is crucial. Similarly, fluctuations in the price of naphtha would affect the polyester yarn manufacturers. These raw material price fluctuations impact yarn players, due to limited ability to fully pass on the price rise and inventory losses, when sharp price correction happens. Hence, the major determinant of profitability for a yarn manufacturer is the management of raw material price fluctuations, which also makes it a key challenge for the industry.

• Competition from other developing countries.

• Currency risk/ Exchange rate fluctuations

• International labor and Environmental Laws.

• Reduced government support

The spinning industry is capital-intensive and requires huge investments. Investments were hindered, as interest rates in India were very high during the 1990s. Hence, the Ministry of Textiles launched the Technology Upgradation Fund Scheme (TUFS) in 1999 to upgrade the technology at textile units. The scheme initially provided a 5% interest subsidy on loans borrowed from specified institutions to all segments within the textiles value chain. As of June 2010, spinning mills received 34% of the total funds disbursed under TUFS.

In fiscal 2012, the scheme was renamed as the Restructured Technology Upgradation Fund Scheme (R-TUFS) with a few changes. The refurbished scheme provided reimbursement of 5% on interest charged by the lender, for loans taken to upgrade technology at a textile unit. However, the scheme provided a 4% interest reimbursement for new standalone spinning machinery or for replacement/modernisation. However, R-TUFS was updated and named as the Revised Restructured Technology Upgradation Fund Scheme (RR-TUFS) with

effect from April 1, 2012. Under the updated scheme, the interest benefit to standalone spinning units was further reduced to 2% in October 2013. On January 13, 2016, a new scheme Amended Technology Upgradation Scheme (ATUFS) was approved by the government to provide a one-time capital subsidy for investments in the employment- and technology-intensive segments of the textile value chain. Under ATUFS, no subsidy is provided for the spinning sector.

• To make balance between price and quality. GLOBAL OUTLOOK

India aims to achieve a prominent global position in manufacturing and exports of different types of textiles including jute, silk, cotton and wool. India has the potential to increase its textile exports from US $40 billion to US $100 billion in the next five years. Exports of Cotton yarns are a significant component of Indias export basket, as it plays a vital role in boosting the domestic economy.

Exporters gaining from strong global demand

• India is the worlds second-largest textile exporter. Capacity built over years has led to low cost of production per unit in Indias textile industry. This has lent a strong competitive advantage to the countrys textile exporters over key global peers.

• During April-October in FY23, the total exports of textiles stood at US$21.15 billion.

• Textile exports reached US$ 44.4 billion in FY22, a 41% YoY growth.

• In the coming decade, Africa and Latin America could very well turn out to be the key markets for Indian textiles.

• In April 2022, Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, Mr. Piyush Goyal, said that new Economic Cooperation and Trade Agreements with Australia and the UAE would open infinite opportunities for textiles and handloom. Indian textile exports to Australia and the UAE would now face zero duties, and he expressed confidence that soon Europe, Canada, the UK and GCC countries would also welcome Indian textile exports at zero duty.

• In March 2021, the Ministry of Textiles favoured limited deal for the India-UK free trade agreement that could boost the garments sector. Under the proposed trade agreement, the Textile Ministry expects more market access for the Indian textiles and clothing sector in order to achieve its full potential.

SEGMENT ANALYSIS

Yarn is the core of all fabrics- be it garments or home furnishings. The Company produces Cotton Yam using Cotton as raw material. We can call it a Sustainable Yarn production because it has been manufactured keeping environment, humans and the economy in balance. Our yarns do not deplete the earths resources or cause carbon footprints. They are organically grown or manufactured by recycling.

As the Company is manufacturing only the one product i.e. Cotton Yarn, Therefore, segment/ product-wise details are not applicable.

COMPANY REVIEW

The manufacturing facility of The Company (LSL) is situated at A 51-53, RIICO Growth Centre, Hamirgarh of Bhilwara District in Rajasthan State and spreads over 48,263 square meters. The Company has at present an installed capacity of 1,920 rotors in open- end segment and 25536 spindles in ring spinning segment for cotton yam having capacity to produce 35.10 tons per day of high-quality yarn.

We have continuously expanded and modernized our facilities in line with the industry trend. The plant is equipped with modern and automatic plant and machinery. The level of advancement determines the productivity of machines and labour, which in turn, determines the production, operating cost and profitability of The Company. Our technical team in spinning is well equipped with modern spinning technology and processing techniques by virtue of which we are able to ensure quality yam.

The Company has already announced to expand its manufacturing facilities by adding 41,472 spindles of compact cotton yarn, costing of Rs. 218 Cr. and having production capacity of approx. 34.35 tonnes cotton yarn per day, at its existing manufacturing facility. The Expansion project is on schedule. Delivery of imported machineries has started and building structure is almost ready to install the machineries in premises. The Expansion Project is estimated to be commissioned before the scheduled commissioning date of 01^st April, 2024.

Lagnam Spintex is presently exporting cotton yarns to countries like Portugal, Bangladesh, Colombia, Poland, China, Pem, Germany, Mauritius, Malaysia, Korea, Turkey, Taiwan, Italy, USA, Spain, Germany and others. The products are widely used in apparel and garment industry, industrial fabrics, towels, Denims etc.

PERFORMANCE

• The Company has recorded total revenue from operations during the Financial year 2022-23 ofRs. 30465.93 Lacs against the total revenue of Rs. 34844.14 Lacs in the previous financial year 2021-22.

• The Total expenses of the Company during the financial year 2022-23 is Rs. 29216.33 Lacs against the expenses ofRs. 30841.18 Lacs in the previous financial year 2021-22.

• The Profit after tax is Rs. 976.28 Lacs for the financial year 2022-23 as compare to Rs. 2879.85 Lacs in the previous financial year 2021-22.

RISK & CONCERNS

No industry is free from normal business risk and concerns. Indian Textile Industry continues to face stiff competition from China, Bangladesh, Taiwan and other emerging economies. The relative competitiveness of Industry is dependent upon the raw cotton prices, exchange rates and prevalent

interest rates regime. The primary raw material for the manufacturing of yarn is cotton which is an agriculture produce. Its supply and quality are subject to forces of nature i.e. Monsoon. Any increase in the prices of raw cotton will make the things difficult for the Textile Industry resulting weak demand and thin margins. Thus availability of raw cotton at the reasonable prices is crucial for the spinning industry. Any significant change in the raw cotton prices can affect the performance of the Industry.

The high rate of interest is affecting the financial performance of the Textile Industry. The Spinning industry being more capital intensive requires huge funds, long term as well as short term in the form of working capital for its operations. The Government must support the industry by providing cheap finance so that the industry remains financially viable. Though Government has taken some remedial measures in this regard but still a lot more is required so that the Textile Industry could meet the challenges ahead.

Moreover, the ongoing Geopolitical conflict between Russia and Ukraine has affected global trade. The imposition of sanction by the U.S. and European Union on Russia has severally impacted Indias exports to several countries. The Indian Textile Industry which is one of the major foreign exchange earner for the country, has affected by said sanctions.

Besides, the prevailing weak economic scenario, supply chain disturbance and rise in prices of oil and energy, high inflation has started causing significant disturbance and slow down of the Global economies. The future is still uncertain and no one knows where it leads to usRs. Thus, the Company consider it a possible concern resulting into a treat to the Industry.

In addition to the above, the other concerns like higher transaction costs, high cost of labour, continuously increasing prices of raw material are posing a risk to the growth of Indian Textile Industry. The Government should extend a helping hand to the existing Textile Units so that they can become globally competitive and contribute towards the growth of the country.

INFORMATION TECHNOLOGY

In todays global marketplace change is inevitable and to keep ahead of this any organization must use Information Technology to drive Innovation which is the path to quick business decisions. Lagnam is a firm believer that without IT no organization can function, therefore our end-to-end Business Process Management tool based on Infor LX ERP platform went live along with our COD in 2019. After making significant investment in its IT infrastructure and solutions, Lagnam would be one of the very few manufacturing companies that has significant budget allocated for IT upgradation to adopt to ever evolving technological solutions.

As our systems are maturing, we are immensely proud to use the full potential of technology in various day to day activities:

• We have a centralized single network infrastructure secured by a robust Firewall monitored and managed by our team on regular basis. On this network all our manufacturing machines as well as user computers are connected for ease of access

• All our end user machines and servers are protected by McAfee Enterprise level End Point Security system to safeguard any virus attacks on our network

• The management and operational team have easy access to all the operational data of various machines on the tip of their fingers at all the time for a quick proactive action.

• We have a complete HRMS and Payroll system to fully utilize our human resource potential.

• We recently invested in a customized Cotton Bale Management system to keep our product quality consistent.

• We have developed inhouse Open source email server to support our BPM system to send out reports by department to everyone at the end of the day to take corrective actions as and when required.

• Use of collaborative tools for easy information sharing across various departments.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has implemented proper system for safeguarding the operations/ business of the Company, through which the assets are verified and frauds, errors are reduced and accounts, information connected to it are maintained such, so as to timely completion of the statements. The Company has adequate systems of Internal Controls commensurate with its size and operations to ensure orderly and efficient conduct of business. These controls ensure safeguarding of assets, reduction and detection of fraud and error, adequacy and completeness of the accounting records and timely preparation of reliable financial information.

The Audit Committee of Board of Directors reviews the efficiency and effectiveness of internal control systems and suggests the solution to improve and strengthen. The Internal control system were tested during the year and no material weakness in design or operation were observed. There quirement of having internal auditor compulsory by statue in case of listed and other classes of companies as prescribed shall further strengthen the internal control measures of Company.

HUMAN RESOURCES AND INDUSTRIAL RELATION

The Company had cordial and harmonious industrial relations at all levels of organizations. The company believes that the industry has the tremendous potential to impact the society, nation and the world positively. Its employees are major stakeholders and their efforts have direct stake in the business prospectus of the organization. The employees have extended a very productive cooperation in the efforts of the management to cany the company to greater heights. The Company considers employees as their biggest competitive advantages. The Company takes initiative like training and development for its people to increase the performance. The Company has taken various steps to improve and enhance skill of its people. The industrial relations remained cordial in our plant. The Company has continued to give special attention to human resources and overall development. At present company has employed man power of around 460 peoples including technical, non-technical, managerial and non- managerial, casual and contract labour.

ENVIRONMENT AND SAFETY

The need for environmentally clean and safe operations is companys key priority. The Company policy requires the conduct of all operations in such a manner so as to ensure the safety of all concerned, compliance of statutory and industrial requirements for environment protection and conservation of natural resources to the extent possible.

CAUTIONARY STATEMENT

Certain statement made in this report describing Companys Objective, Projects, estimates and expectations may be forward looking statement within the applicable laws and Regulations. Actual results may differ from such expectations and forward- looking statement due to various risk and uncertainties. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized.

The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.