Le Merite Export Management Discussions


Global economic overview and outlook:

The worldwide economic activity underwent a widespread slowdown, accompanied by inflation reaching levels not seen in decades. Factors such as the cost-of-living crisis, tighter financial conditions in most regions, Russias invasion of Ukraine, and the ongoing COVID-19 pandemic all had a profound impact on economic growth. In 2022, the growth rate declined sharply, dropping from 6.4% in 2021 to 3.4%.

However, there is optimism on the horizon as global economic output is projected to experience a steady increase. This growth will be driven by efforts to stabilize inflation through central bank policies, a resurgence in consumer sentiment, and renewed investor confidence. Advanced economies, including the United States, have seen their employment situations improve significantly since the pandemic, and rising disposable income is expected to bolster growth in the years to come. Additionally, emerging and developing countries are also experiencing growth across various sectors, fueled by government investments in infrastructure and manufacturing. China, in particular, has rebounded from the economic impact of COVID-19 on its businesses and economy.

Looking ahead, the global economy is anticipated to achieve a growth rate of 2.8% in the calendar year 2023, with expectations that this rate will gradually rise and stabilize at 3.0% in 2024. Emerging markets and developing economies, including India, are leading the way in many instances, with significant growth rate increases expected this year.

Outlook

India is poised to be one of the swiftest expanding major economies globally in the upcoming 2023-24 period, contributing a substantial 15% to the worlds growth. This contribution is the second largest, surpassing the combined contributions of the United States and the European Union. The countrys economic growth prospects are expected to benefit from a convergence of factors, including an increase in disposable income, readily available credit, and reduced interest rates as inflation stabilizes.

Indian Cotton and Textile Market:

India holds the prestigious title of being the worlds second largest producer of cotton. In the cotton season of 2021-22, it recorded an estimated cotton production of 312.03 lakh bales, and projections indicate an increase to 330 lakh bales in 2022-23. However, the cotton textiles industry faced numerous challenges in the fiscal year 2022-23. These challenges included steep increases in cotton prices, disparities between international and domestic cotton prices, and a sluggish demand for cotton textiles. Consequently, the industry had to curtail production and encountered reduced profit margins.

Opportunities and Threats:

Opportunities

In 2023, the Indian textile and cotton industry stands at a pivotal juncture, characterized by a dynamic interplay of opportunities and challenges.

On the side of opportunities, the industry continues to draw strength from Indias demographic dividend. With a large and youthful population, there exists a resilient and burgeoning domestic consumer market for textiles and apparel.

The Union Budget announced by the Textile Ministry and Finance Minister has provided a major boost to the industry. The Governments plans to set up seven mega textile parks across India is a move that will not only create more employment opportunities but also strengthen the MSME sector. These parks are equipped with advanced infrastructure and provide tax and other benefits to textile companies.

An even bigger opportunity that was announced is the Production-Linked Incentives (PLI) worth $1.4bn, which will help the textile and apparel manufacturing units realise their capacity potential. These initiatives by the Government are positive steps in facilitating the growth of the industry.

Initiatives and Policies to Promote Exports

- Duty Drawback Scheme

- Technology Upgradation Fund Scheme

- Export Promotion Capital Goods Scheme

- Invest India Scheme

Markets such as Europe, Central America and Latin American countries offer significant scope to increase the exports of cotton yarn and fabrics from India. All these countries are sourcing most of their requirement of textiles from their neighbouring countries and various reasons, including Regional Trade Agreements, tariff advantages and other such factors. Considering inherent advantages of yarn manufacturing in India it is possible to increase Indias market share in these countries with an in-depth understanding of the market requirements and by undertaking appropriate marketing strategies.

Furthermore, the global sustainability movement has created a significant opening for India to distinguish itself as a leading producer of eco-friendly and organic textiles. As consumers worldwide become increasingly conscious of their environmental footprint, there is a growing appetite for sustainable fashion. This presents a golden opportunity for Indian textile manufacturers to align themselves with this trend, tapping into a discerning global consumer base that values environmentally responsible production practices.

Threats

Decreased Production of Cotton Crops and its price instability

According to the latest data by the agriculture ministry, sowing of cotton across India remains 8.5% lower on-year at 7 million hectares due to a decline in cultivation in some major cotton-growing states such as Maharashtra, Andhra Pradesh and Telangana amid patchy rainfall

Lack of modern machinery and Low Yield of Cotton Crop

The textile industry lacks technology-oriented machinery and production systems. If these are not updated then they could take a heavy toll on its production. This will later reflect in its sales and profits. Most cotton textile plants in India still rely on outdated technology, which poses serious challenges to the industrys competitiveness. In addition, our country crop yield is far less than China, Australia, and USA. Technological advancement in the cotton seeds and other factors to increase yield is need of time.

Global Competitiveness

The Indian textile industry is confronted with stiff competition from several other exporting countries, each of which has established its own core competencies and unique selling points (USPs) in the global market. Foreign nations have made significant strides in the textile sector, posing challenges to Indias position in the international market.

Product Wise Performance:

The Annual Report includes essential information, with detailed product-wise performance data available in Note No. 21 and 22 of the Standalone Financial Statements and Consolidated Financial Statements respectively for the financial year ending on March 31, 2023.

Risk and Concerns:

The Management Discussion and Analysis section primarily consists of statements that may include forward-looking predictions based on perceptions and are, as a result, subject to potential risks and uncertainties. It encompasses the collective sum of the Companys expectations, beliefs, assessments, and projections, which may either be forward-looking or pessimistic in accordance with applicable laws and regulations. It is important to note that the actual outcomes may significantly differ from those expressed explicitly or implicitly in this context. Shareholders are advised to consider this factor in conjunction with the Companys financial statements.

Internal Control Systems and their adequacy:

The Company is maintaining an efficient and effective system of Internal Financial Control for facilitating accurate compilation of financial statements. The companys Internal Control system is designed to ensure operational efficiency, protection and conservation of resources, accuracy and promptness in financial reporting and compliance with procedures, laws and regulations. The Companys Internal Control system commensurate with the nature of its business and the size of its operations.

The Company is having Internal Audit Department to test the adequacy and effectiveness of Internal Control Systems laid down by the Management and suggests improvement in the systems. Internal Audit Reports are discussed with the Management. During the year, Companys Internal Controls were tested and no reportable weakness in the system was observed. The Audit Committee of the Company reviews and discuss the Internal Audit Reports in their meetings and all the significant audit observation and follow up action thereon are taken care of by the Audit Committee.

Introducing LMEL Company Overview:

We at “Le Merite Exports Limited” are vertically integrated into the Manufacturing of Cotton Yarn & Greige Fabrics. LMEL was incorporated in the year 2003. “Le Merite” is a well-renowned & popular brand name in several yarn-importing countries. LMEL has longstanding customer relationships, exclusive tie-ups & agents in top importing countries of Cotton yarn & fabrics. Bangladesh, China, Turkey, Portugal, Egypt, Guatemala, South Korea, Spain, Italy, Vietnam, Thailand, Peru, UAE, USA, LMEL is exporting to 25+ countries.

Our company believes in team building & growing inorganically by way of the asset-light model. Our biggest investment is in talent acquisition. We have expertise in marketing & branding; our motto is to achieve the highest standard of customer satisfaction & retention.

Our organization thrives on open and transparent communication, which fosters a culture of trust and collaboration. By cultivating a positive and inclusive environment, we have built strong bonds and mutual respect among our team members.

Embracing sustainability stewardship is not only in line with our values but also provides tangible benefits to our business. We firmly believe that by integrating sustainability into our operations, we can drive profitability, achieve revenue growth, enhance our reputation, boost employee engagement, reduce turnover, and gain easier access to capital.

With an unwavering commitment to responsible business practices, we strive to achieve our organizational goals while upholding principles of governance, sustainability, and our core values.

Adhering to these principles ensures that our actions are in harmony with our broader vision of creating a sustainable future for all.

At LMEL, we recognize that profitability and sustainability are interconnected, and we are dedicated to maximizing both. Through operating our business with integrity, prioritizing sustainability, and remaining true to our core values, we are confident that we can achieve long-term success while making a positive difference in the world.

Human Capital Management:

Going beyond the confines of a balance sheet, a companys most significant and invaluable asset invariably emerges as its human resources. Within this narrative, the company firmly asserts its belief that human resources constitute the pivotal force propelling the organization towards progress and ultimate success. This declaration serves as a testament to the intrinsic value of the individuals who comprise the companys workforce.

The core ethos of the company is reflected in its unwavering commitment to the paramount importance of its human capital. Rather than viewing employees merely as a line item on a financial statement, this perspective acknowledges them as dynamic, multifaceted contributors whose skills, dedication, and ingenuity steer the companys trajectory. Employees, in this context, are not passive entities but the active agents responsible for the companys continued growth and achievement of its strategic goals.

In alignment with this philosophy, the company has consistently pursued a proactive strategy of attracting and recruiting the finest talent available in the market. This approach is a strategic imperative, recognizing that the challenges and opportunities that lie ahead in the ever-evolving business landscape require a workforce characterized by excellence, innovation, and adaptability. By seeking out the best talent, the company positions itself to navigate the complexities of a competitive marketplace with confidence.

Details of Significant Changes in the Key Financial Ratios:

As per the Schedule V to the Listing Regulations read with Regulation 34(3) of the Listing Regulations, details of significant changes (i.e., change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios of the Company including explanations therefor have been provided in note no. 31 of the Standalone Financial Statements of the Company.

Cautionary Statement:

Though the statement and views expressed in the above said report are based on best judgment but the actual future results might differ from whatever is stated in the report.

Achievements at a glance

1. Synthetic & Rayon Textiles Export Promotion Council (SRTEPC)

SRTEPC is the oldest Export Promotion Council in India promoting Exports of Indian man-made fibre and textiles.

Category in which award accorded to LMEL in the Financial Year 2022-23

SRTEPC Special Award for Merchant Exporter

Best Export Performance for the year 2021-2022

Mr. Piyush Goyal Honble Minister of Textiles presented the awards to Mr. Abhishek Lath, MD & CFO, and Mrs. Sweta Lath, Executive Director of Le Merite Exports Limited.

2. Award from the Federation of Indian Export Organisations (FIEO)

FIEO is a Non-Profit entity that represents the Indian entrepreneurs spirit of enterprise in the global market.

Category in which award accorded to LMEL in the Financial Year 2022-23

3- Star Export House Category Silver Award in the 7th Set of Export Excellence Awards for the year (2019-2020)

Silver Award in 7th Set of Export Excellence Awards for the year (2020-2021)

Ms. Anupriya Patel Honble Minister of State for Commerce and Industry of the Government of India presented the award to Mr. Abhishek Lath, MD & CFO, and Mrs. Namita Nair, President-Yarn, of Le Merite Exports Limited.