M K Exim (India) Ltd Management Discussions

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Jul 24, 2024|02:44:00 PM

M K Exim (India) Ltd Share Price Management Discussions

Global economic prospects continue to be uncertain and the latest developments in the financial markets, especially in the advanced economies, have added to this uncertainty. In its April 2023 update of the World Economic Outlook (WEO), the IMF has attempted to clear the path of uncertainty. It has projected global growth to decline from 3.4 per cent in 2022 to 2.8 percent in 2023. Growth is forecasted to marginally improve to 3.0 per cent in 2024, but not enough to beat the growth rate of 2022 while falling significantly short of the 6.4 percent mark attained in 2021. Elevated inflation and financial tightening, which have weakened the growth process, are thus expected to weigh on economic activity for at least three years since the armed conflict broke out between Russia and Ukraine in February 2022. The slowing of global growth, accompanied by pressures from deglobalisation and supply chain disruptions, has also moderated global trade. IMF projects the increase in global trade volume to fall from 5.1 per cent in 2022 to 2.4 percent in 2023 before slightly improving to 3.5 per cent in 2024.

Policymakers the world over are currently facing a predicament. The last two years have seen the global economy struggling to deal with overlapping crises, the latest being the liquidity troubles after a series of global bank crises. While the impact appears to have been contained, these uncertainties continue to undermine the confidence among consumers and businesses to spend, therefore impacting economic growth.

Even as external stability strengthened, factors contributing to internal stability also improved. Fiscal parameters for the centre and the states in FY23 have been robust, as seen in solid revenue generation and improvement in the quality of expenditure. The improvement in expenditure quality is driven by significant capex by the centre and the rationalisation of revenue expenditure consequently.

Indias gross domestic product (GDP) at current prices in the first quarter of 2022-23 was estimated to be Rs. Rs. 36.85 lakh crore as against Rs. 32.46 lakh crore) in 2021-22, showing a growth rate of 13.5%.

Despite slowdown of world and Indian Economy your Company delivered a strong performance in FY 2022-23 across businesses, leading to delivery of highest ever consolidated profit.

The Company does not anticipate any challenges in its ability to continue as going concern or meeting its financial obligations.

1. Financial Performance

The following are relevant financial performance details with respect to the operational performance of the Company.

Salient features relating to the Profit & Loss Account:

(Rs. In Lakhs)

Particulars

Year ended 31.03.23

Revenue from Operations

10365.58

Other Income

338.09

Total Income

10703.68

Profit Before Financial expenses & Depreciation

2271.63

Less: Depreciation & Amortization Expenses

31.31

Less: Finance Costs

20.51

Profit before tax

2219.81

Taxation

583.73

Profit after tax

1636.08

During the year the Company has achieved a total turnover of Rs. 10703.68 Lakhs and earns profit before Tax [PBT] of Rs. 2219.81 Lakhs and profit after taxes of Rs. 1636.08 Lakhs. The Segment wise performance has been given in financial statements in the Report. The report of the Board of Directors may be referred to for financial performance.

KEY RATIOS:

Current Ratio

6.32 7.17 -11.83

Debt-Equity Ratio a

0.04 0.08 -53.90

Debt Service Coverage RatioAA

101.97 34.05 199.45

Return on Equity Ratio

0.28 0.31 -8.02

Inventory Turnover Ratio aaa

6.07 4.36 39.06

Trade Receivables Turnover Ratio

5.38 6.05 -11.05

Trade Payables Turnover Ratio

25.12 29.15 -13.85

Net Capital Turnover Ratio

0.51 0.48 7.91

Net Profit Ratio

15.78 18.10 -12.79

Return on Capital Employed

0.10 0.10 -8.00

Return on Investment

0 0 0.00

a On account of reduction in debt and increase in equity

AA On account of decrease in debt service

aaa On Account of increase in amount of Cost of Goods sold

Outlook Textile Industry

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, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fiber/ yarns from natural fibers like cotton, jute, silk and wool, to synthetic/man-made fibers like polyester, viscose, nylon and acrylic.

The decentralized power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. Indias textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

Indias textiles industry has around 4.5 Crore employed workers including 35.22 lakhs handloom workers across the country.

After agriculture, textile in India is the largest industry which generates the highest employment, both skilled and unskilled. The sector contributes ~5% to the countrys GDP, 7% of industry output in value terms and 12% of the countrys export earnings. India is the 6th largest exporter of textiles and apparel in the world. These points to one reality... the textile industry is critical for Indias growth.

The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26. India has a 4% share of the global trade in textiles and apparel.

Challenges: There appears to be a considerable promise for the sustained growth of the sector owing to a plethora of opportunities on the horizon. Likewise, there are challenges too. They are:

The huge spike in raw cotton prices could dent Indias competitiveness in the global market despite being the largest producer of cotton in the world

Lack of scale and restricted access to key markets.

The Amended Technical Upgradation Funds (ATUF) scheme, which provides a capital investment subsidy of 10-15% to textile manufacturers, is about to expire. The industry does not have any clarity on the possibility of its extension

Government impetus: The Government is aware of the position of the textile industry and the promise it affords in accelerating the wheels of the economy. It has made important announcements that can draw considerable investments in this sector.

Government allowed 100% FDI in textiles under automatic route.

The Central Government announced Production-linked Incentive (PLI) Scheme worth Rs. 10,683 crore for manmade fibre and technical textiles over a five-year period.

The Indian government has notified uniform goods and services tax rate at 12% on man-made fabrics (MMF), MMF yarns and apparel, which came into effect from January 1, 2022.

Under the Union Budget 2022-23 the total allocation for the textile industry is Rs. 12,382 crore

Huge funds in schemes such as Rs. 900 crore (US$ 109.99 million) for Amended Technology Upgradation Fund Scheme (ATUFS) have been released by the Government in the union budget of 2023-24 to encourage more private equity investments and provide employment.

In order to attract private equity and employee more people, the government introduced various schemes such as the Scheme for Integrated Textile Parks (SITP), Technology Upgradation Fund Scheme (TUFS) and Mega Integrated Textile Region and Apparel (MITRA) Park scheme.

FMCG

M.K. Exim (India) Limited is part of the Fast-Moving Consumer Goods (FMCG) industry which continues to be one of the biggest longterm sustainable business opportunities that our country offers. Despite being one of the fastest growing markets globally for FMCG products, Indias per capita FMCG consumption is still amongst the lowest in the world. Rural markets account for more than 60% of our countrys population and contribute to just about 30% of FMCG consumption; thus, offering significant headroom for growth. Rising affluence, large working population, nuclear family structures, urbanization and rapidly increasing adoption of technology will positively impact the growth of FMCG industry in the country. The operating environment this year continued to remain volatile and challenging. India witnessed a devastating second wave of Covid-19 during the year 2019 to 2022 with a significant humanitarian and economic impact. Due to the disruption in global supply chains, inflation in many key commodities like crude oil derivatives and packaging rose to historic highs. The latter half of the year witnessed a marked moderation in the FMCG market growth with volumes being impacted due to high inflation. As we gradually emerged from the challenging phase of the pandemic, the consumption of hygiene products moderated. Consumers are also increasingly choosing brands which they see as making a positive impact on the world. India is undergoing rapid digital transformation, new-age technologies are transforming the landscape of consumer goods market, bringing opportunities for brands, consumers, and customers alike. E-Commerce continues to gain traction as more consumers shop online and with more digital-first brands entering the market. With a technology-focused approach, retailers are reinventing their business models to stay more connected in the digital world. The two years of pandemic and Russia and Ukrain war has made us a stronger, better business which is much more resilient and responsive. As the economy, consumer and channel landscapes rapidly evolve, we continue to be agile to leverage our strengths, capture opportunities and navigate through the challenges.

Our strategy is constantly evolving in line with the trends and forces shaping our markets and impacting our multi-stakeholders. We remain committed to delivering 4G growth - growth that is consistent, competitive, profitable, and responsible.

We are growing our core business by investing in our purposeful brands and delivering superior products. India is a diverse country - with different climatic conditions, varied skin and hair types and even differing quality of water. We are bringing to life our product philosophy of designing for India and Winning in Many Indias (WiMI).

We have a long-standing relationship with our customers that are based on trust and mutuality of interest. We continue to work with all our partners to serve the evolving needs of our shoppers. Our Endeavour is and has always been to ensure that our brands are easily available wherever shoppers choose to shop.

Partnering for growth:

As the customer landscape continues to evolve, we have been taking several steps to ensure that our partners and distributors remain future-fit.

This financial year was unpredictable and challenging with continued pressure from Covid-19 and unprecedented cost inflation. As global supply chains were disrupted, firstly, due to the pandemic and then later due to the geopolitical crisis, inflation in many commodities like crude oil derivatives, vegetable oils, packaging, etc. rose to historic highs resulting in significant input cost pressures. High inflation also resulted in a marked moderation in FMCG market growth with volumes declining in second half of the year.

Our performance in a challenging environment, we have shown resilience and agility to deliver strong all-round performance. We have gained market shares in all our divisions, across price segments and across regions. In Hair Care and personal care division performing well on a strong base comparator. Our dynamic financial management, a strong savings programme and calibrated pricing actions helped protect our business model against rising input costs.

3. Risks and Concerns

The both textile and FMCG industries are facing the issues of lack of skilled labour, inflexible labour laws, lack of modernization and infrastructure bottlenecks. Due to fragmented nature of the industry, there are higher logistic costs, higher lead time and lack of economies of scale. Also, global volatility can put any business to the risk of unforeseen inflationary pressures and affect demand for its products. Disturbances in geopolitics can affect the operation of supply chains and cost of other factors of production. Your company has a systematic process of material procurement and has a robust framework for continuous monitoring, identification and redressal to meet unforeseen challenges.

Risk management is integral to your Companys strategy and to the achievement of Companys long-term goals. Our success as an organization depends on our ability to identify and leverage the opportunities generated by our business and the markets we operate in. In doing this we take an embedded approach to risk management which puts risk and opportunity assessment at the core of the Boards agenda, which is where we believe it should be. Companys appetite for risk is driven by the following: • Our growth should be consistent, competitive, profitable, and responsible; • Our actions on issues such as plastic and climate change must reflect their urgency, and not be constrained by the uncertainty of potential impacts; • Our behaviours must be in line with our Code of Business Principles (Code) and Code Policies; • Our ambition to continuously improve our operational efficiency and effectiveness. Our ap

proach to risk management is designed to provide reasonable, but not absolute, assurance that our assets are safeguarded, the risks facing the business are being assessed and mitigated and all information that may be required to be disclosed is reported to Senior Management and Board & Board Committees including, where appropriate, the Chief Executive Officer and Managing Director, Audit Committee. For each of our principal risks we have a risk management framework detailing the internal controls we have in place and who is responsible for managing both the overall risk and the individual controls mitigating that risk. Our assessment of risk considers short and long term as well as internal and external risks including financial, operational, sectoral, sustainability (particularly Environment, Social and Governance related risks), information, legal & compliance and any other risks as may be determined by the Company Leadership teams.

4. Internal Control Systems and their adequacy

The Companys internal control systems and procedures commensurate with the size and nature of its operations. The Company has adequate system of Internal Controls to ensure that the resources of the Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use and the transactions are authorized, recorded and reported correctly. Financial and other data are reliable for preparing financial information and other data and for maintaining accountability of assets. The management periodically reviews the internal control systems and procedures for efficient conduct of the Companys business. Internal Audit is conducted by independent Chartered Accountants, on quarterly basis. To maintain its objectivity and independence, the Internal Auditors report directly to the Audit Committee of the Board. The Audit Committee reviews the Internal Audit Reports and effectiveness of the Internal Control Systems. If required, the corrective actions are taken and the controls strengthened. The Company maintains a system of well-established policies and procedures for internal control of operations and activities. The Company continuously strives to integrate the entire organization - from strategic support functions like finance, human resource and regulatory affairs to core operations like research, manufacturing and supply chain management. The internal audit function is further strengthened in consultation with statutory auditors for monitoring statutory and operational issues. The Company adheres to standard operating practices in its manufacturing and operating activities. The Company has appointed independent agencies as internal auditors. The prime objective of this audit is to test the adequacy and effectiveness of all internal control systems and suggest improvements. Significant issues are brought to the attention of the audit committee for periodical review.

5. Human Capital

The Companys Industrial relations at all the levels remained cordial throughout the year. The Company provides to its employees favourable work environment conducive to good performance with customer focus while adhering to quality and integrity.

6. Cautionary Statement

Statements in this Management Discussions and Analysis Report describing the Company objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable security laws or regulations. These statements are based on reasonable assumptions and expectations of future events. Actual results could however, differ materially from those expressed or implied. Factors that could make a difference to the Companys operations include market price both domestic and overseas availability and cost of raw materials, change in Government regulations and tax structure, economic conditions affecting demand / supplies and other factors over which the Company does not have any control. The Company takes no responsibility for any consequence of decisions made based on such statements and holds no obligation to update these in future.

Important factors such as economic developments within the country, demand and supply conditions of the industry, input prices, changes in Government regulations, tax laws and other factors such as litigation and industrial relations, influence the Companys operations. This may lead to the Companys projections and approximate estimates to dispose them as "forward looking statements".

Though, these qualitative aspects are usually set in the framework meaning of applicable securities laws and regulations. The actual results may sometimes materially differ from those expressed or implied.

For M.K. Exim (India) Limited

Murli Wadhumal Dialani

Chairman

DIN:08267828

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