Lakshmi Mills Company Ltd Management Discussions

I. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Indian Textile Industry is a cornerstone of the economy, contributing 2.3% to GDP, 13% to industrial production and 12% to exports, while employing over 45 million people directly. As the worlds second largest producer of fiber and exporter of textiles, it spans from traditional handlooms to modern high tech manufacturing such as technical textiles. The growth is increasingly driven by a shift towards sustainable eco friendly green textiles and technological integration through smart fabrics.

II. OPPORTUNITIES AND THREATS TEXTILES

a) Opportunities

Expanding domestic market on account of growing middle income group and consumption trends are driving demand. The rising global demand like shifts in supply chains due to geopolitical, favours India. The Government support such as PLI Scheme (Production Linked Incentive), RoSCTL (Rebate of State and Central Taxes and Levies), export incentive for garments and made ups are timely measures extended to the textile industry. Indias growing focus on textile in recycling and circular economy focusing sustainable manufacturing.

The Production-Linked Incentive is designed to boost domestic manufacturing and reduce textile imports by offering incentives based on cumulative sales of locally produced MMF apparel, MMF fabrics and technical textiles. The Bharath Tex 2025 being Indias largest global textile event, serving as a platform to advance the "Farm to Fibre, Fabric, Fashion and Foreign Markets" vision strengthening Indias position in the global textile industry.

India has signed Free Trade Agreements (FTA) with Australia, United Kingdom, Oman and New Zealand. Ongoing negotiations are with US, EU (European countries), Canada, SACU countries like Botswana, South Africa etc. and expected to be concluded shortly. These FTA are expected to result into higher export opportunities to India.

The Union Budget 2026-27 prioritizes the textile sector for job creation and export growth. The textile sector is set to grow to US $ 350 billion by 2030. The future of textiles is moving towards functionality. The government is promoting technical textiles as part of its focus on high value added products. India aims to become a key player in the global technical textiles market which is expected to grow substantially in the coming years.

b) Threats

Unlike China and Vietnam, Indias textile supply chain is not integrated leading to inefficiencies and higher costs due to lack of vertical integration. Global regulations (like EU sustainability laws) demand stricter environmental and labour standards and thereby increasing production costs. As regards to water, energy and waste management challenges need to be addressed for sustainable growth.

Intense Global Competition: Countries like Bangladesh and Vietnam offer lower production costs and benefit from Preferential Trade agreements, challenging the market share of traditional leaders like India and China.

Geopolitical and Trade Risks:

Tariff volatility: New or impending punitive tariffs, particularly from major markets like the US, can lead to decreased Profit margins and reduced export competitiveness.

Environmental and Regulatory Pressure:

Stringent Green Mandates: New International laws, such as those from the EU, require highest transparency, waste recycling and lower carbon foot prints, which can be costly for small and medium sized enterprises (MSMEs) to implement.

Traceability Requirements:

Brands are increasingly forced to provide full traceability of raw materials from farm to self.

Economics and material volatility

Raw material price fluctuations: Erratic yields due to climate change lead to high volatility in natural fibre prices (eg.Cotton) which squeezes margins for manufacturer with low pricing power.

Rising costs: Increased freight, labour and power costs are significant hurdles in maintaining competitive pricing with changing consumer behavior.

The future of textile industry in India hinges on digital transformation, sustainable practices and up skilling its massive work force.

Rental Services

(1) Opportunities:

Rental services in India face a polarized landscape: high performing Grade A Centres are thriving, while one fifth are having vacancies.

High Rental Income growth: ICRA Projects rental income for premium malls growth by 7 - 8% in F.Y. 2025 and 8 - 9% in F.Y. 2026, driven by high demand for quality space.

Expansion of Organised Retail: Growing middle class consumption and expansion of branded retail in Tier II cities are increasing and hence demand for Grade A retail space.

Experience led Retail: Malls focusing on the "experience economy" - combining shopping with food, beverages and entertainment are seeing higher occupancy.

Technology & Flexible Leasing: Improved tech enabled property management allows for more adaptive revenue sharing lease models.

(2) Threats:

Around 15.5 million sq.ft. of retail space is considered dormant due to poor, out dated design and weak tenant mixes.

E-commerce & Digital shifts: Online shopping continues to reduce footfall in physical stores, making it difficult for smaller or non-prime malls to retain tenants.

High operational costs: Mall tenants face high common area maintenance (CAM) charges, property taxes and operating expenses, which can be burdensome particularly in low-footfall locations.

Vacancy & Tenant Retention: Despite overall rent growth vacancy rates have risen in some areas due to excessive supply, leading to high turnover of retailers.

Competition from High Street: High Street retail locations often offer lower rental costs and lower maintenance charges posing a threat to mall competitiveness.

III. SEGMENT WISE OR PRODUCT WISE PERFORMANCE

Textiles

Textiles consists of manufacturing and sale of Yarn and trading in fabric. The company manufactures Cotton and manmade yarn at Palladam with 77472 spindles in Tirupur District and the other unit at Kovilpatti with 66960 Spindles in Thoothukudi District. The trading unit is at Coimbatore.

COMPARITIVE SALES PERFORMANCE FOR THE YEAR 2025-26 Vs 2024-25

Due to adverse market conditions, full production could not be achieved in both the financial years. Rental Services:

The rental income during the financial year is more by 303.75 lakhs on account of revenue sharing, Events conducted and new tenants. The Companys mall being situated in the heart of the city with tenants of good brands attracting large consumers.

IV. OUTLOOK

Textiles

The spinning sector is already moving towards a wider fiber mix, more specialized yarn and sustainability and the company is not an exception in spinning blends or even four fibers in one yarn. The focus is steadily moving towards application based yarns that offer a clear functional and commercial edge rather than remaining in the commonality pace.

The raw material basket has also undergone a change; within cotton also, we have organic cotton, BCI cotton, recycled cotton fiber and also increasing use of linen, hemp, bamboo, tencel and silk in spinning. The Governments mission for cotton productivity is to address bottlenecks, declining growth and quality concerns in Indias cotton sector. The mission focuses on enhancing cotton productivity through development of High Yielding Variety (HYV) seeds resistant to disease and pests and promotion of Extra Long Staple (ELS) cotton as well as branding and traceability initiatives under Kasturi Cotton. Bharath to position Indian Cotton as a premium sustainable and globally trusted product.

Supply chain control, capital cost, technology renewal and the spread of modern practices of the industry are now at the centre. Indias textile opportunity is no longer in question what will decide the outcome in how the industry restructures itself on the ground, quite literally - the focus away from capacity and production strength to the issues that will naturally determine competition.

Rental Services

The Indian mall industry is witnessing a clear bifurcation between successful, well managed assets and struggling ones. The future favours mall that can pivot to mixed use experiences rather than relying solely on retail, particularly as rental income remains healthy for top tier developers.

V. RISKS AND CONCERNS

The Company has a risk management process and frame work in place. The process is co-ordinated by the Board to review risks with planned actions.

1. Business and Market Risks:

On inventory valuation, EBITDA, Finished goods pile up, power cost, unhedged forex etc.

2. Financial Risks:

Working capital block, Term loan timely permit, statutory dues etc.

3. Operational Risks:

Technology upgradation, labour shortage, quality claims etc.

4. Regulatory and Compliance:

SEBI LODR: SEBI quarterly result, Related Party Omnibus approval, Board composition etc.

5. Environmental and Labour:

Pollution Control Board Norms, labour laws, code on wages, PF, ESI etc.

VI. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an adequate internal control system commensurate with its size and operations to safeguard the assets and ensure reliability of financial results.

VII. DISCUSSIONS ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The revenue during the year 2025-26 is 245.42 Crores and the Company earned a Profit of 7.30 Crores after depreciation and taxes. The EBITDA stands at 31.32 Crores.

The Companys energy consumption cost during the year is lower by 3.43 lakhs due to savings on captive generation of Solar and Wind energy. In the ensuing financial year 2026-27, the 8.5 MW Solar power in full capacity, an annual savings of 11 Crores is expected and thereby 60% of the total energy consumption will be met from fossil energy resulting in reduction of carbon emission.

VIII. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NO. OF WORKERS EMPLOYED

The relations with permanent employees continue to be cordial. The Company had on its Roll 319 employees as on 31.03.2026 as against 311 employees as on 31.03.2025.

IX. KEY FINANCIAL RATIOS