Mafatlal Industries Ltd Management Discussions

ANNEXURE I TO DIRECTORS REPORT OVERVIEW OF THE ECONOMY

In 2023-24, the global economy exhibited remarkable resilience by holding steady growth amid supply chain disruption with ongoing geopolitical tensions. The Russian-Ukraine war and the war situations in other regions also triggered a global energy and food crisis, with a considerable surge in inflation for the short tenure. Despite such challenges, the global economy avoided recession and inflation returned to normal with measures taken by central banks.

Developed economies showcased resilience, as their central banks took proactive measures to stabilize the inflation. Emerging economies except China, have been buoyant with capital inflows, resulting in a surge in equity valuations and ease in financialconditions. Global GDP growth is expected to remain stable at 3.2% for 2024 and 2025. Furthermore, latest projections from the IMF indicate that India is poised to maintain its position as a favorable contributor to global economic growth, despite prevailing global headwinds. Growth in India is projected to remain strong at 6.8% in 2024 and 6.5% in 2025.

India is witnessing robust economic growth driven by continuing strength in domestic demand, a rising working-age population and proactive government policy measures. According to the RBI, domestic economic activity continues to expand at an accelerated pace, supported by fixed investment and improving global environment. The Second Advance

Estimates (SAE) placed real GDP growth at 7.6% for 2023-24, the third successive year of 7% or higher growth. On the supply side, Gross Value Added (GVA) expanded by 6.9% in 2023-24.

The manufacturing and services sectors turned out to be the key drivers. Real GDP growth for Q3 of financial year 2023-24 was placed at 8.4%, underpinned by strong investment and an improvement in private consumption.

Indias trade deficit showed 2023-24 (April-March). Overall trade deficit March) is estimated at USD 78.12 Billion as compared to the deficit of USD 121.62 Billion during 2022-23 (April-March), registering a decline of 35.77%.

Despite its relative resilience and continued growth, the country continues to face challenges with the escalation in the geopolitical hostilities, overall slowdown in the global demand and persistent food price pressure from extreme weather-related disturbances. To address these challenges, the Government is actively involved in diplomatic efforts, implementing strategies to enhance the resilience of the external sector and acceleration in private investment spurred by governments continued capex push.

OVERVIEW OF THE BUSINESS

Deeply rooted in a rich heritage and centuries-old legacy, the Indian textile sector stands as a fundamental pillar of the nations economy. In India, the domestic apparel and textile industry contributes approx. 2.3% to GDP, 13% to industrial production, and approx. 12% to exports. India has a 4% share of the global trade in textiles and apparel. The overall textiles and apparel industry in India is the second-largest employer in the country providing direct employment to 45 Million people and 100 Million people in allied industries.

The textiles and apparel industry in India has strengths across the entire value chain from fiber, yarn, fabric to apparel, and the industry is diversified with segments like traditional textiles, branded garments, technical textile products, traditional handlooms, handicrafts, wool, and silk products.

Indias total textile and apparel exports stood at USD 30.89

Billion in 2023-24 (4% of world market share) compared to

USD 32.08 Billion in 2022-23. This includes ready-made garments, cotton, yarn, made-ups, handloom products, and technical textiles etc. The top three textile and apparel exporters are China with 31% market share, and Bangladesh and Germany with 5% market share each, in world trade.

Over the past decade, Indias textile industry has witnessed a remarkable growth, propelled by various factors, including proactive Government policies. The Government has approved the establishment of 7 PM Mega Integrated Textile

Region and Apparel (PM MITRA) Parks Scheme, to develop world-class infrastructure, and plug-and-play facilities, with a budget of 4,445 Crores. These endeavors align with

Indias pursuit of United Nations Sustainable Development Goal 9: ‘Build resilient infrastructure, promote sustainable industrialization and foster innovation. This is further driven by the Honble Prime Ministers 5F vision: Farm to Fiber to

Factory to Fashion to Foreign.

In our country, various state governments and central government procure goods in a multitude for social welfare considerable improvement in schemes running for its citizens, priority sector businesses and low-incomefor 2023-24 (April- groups. These procurement efforts play a pivotal role in the successful implementation of welfare programs and elevating the quality of life for people in various states. Product categories like uniform, health and hygiene products, and IT-enabled infrastructure are a part of essential budgetary allocation for all the state governments.

The Right to Education guarantees free and compulsory education for all children. Thus, under the Samagra Shiksha scheme, the Government is providing two sets of uniform to all girls, and SC/ST and below poverty line (BPL) children. To promote menstrual hygiene among adolescent girls in the age group of 10-19 years in rural areas, under the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP), Government is providing sanitary napkins at highly subsidized rates to ensure easy availability of the menstrual health services at affordable prices.

The Government has also increased its focus and budgetary allocation in the education sector. For financial year 2024-25, the net grant under the union budget has increased by ~6% to 73,008 Crores. Along with the continuing program for establishing ICT labs, Digital classrooms for Government and Aided schools under the centrally sponsored scheme of samagra shiksha, also to promote crucial critical thinking skill and to give space for creativity,

Government is working on establishing 750 virtual labs and 75 skilling e-labs.

Additionally, there are various government schemes which provides the various items in the consumer role durable in the Companyscategory to the lower income groups, constructions workers and anganwadis to support the lower income group. growth of 51% in revenue. This growth was

COMPANY OVERVIEW

Mafatlal Industries Limited (referred to as ‘MIL or ‘the Company) primarily operates in textile and related products, digital infrastructure and consumer durable and others. The

Company has identified consumer durables as a separate reporting segment from quarter ended March 31, 2024.

Over the years, MIL has implemented several strategic initiatives and adopted an outsourcing led asset-light model focused on a mix of in-house production and specification-based outsourcing. The strategic initiatives involve diversifying the product portfolio, optimizing sales teams, significantly reducing debt, and minimizing interest costs by monetizing non-core assets. Additionally, the Company has capitalized on opportunities by nurturing strong relationships with channel partners. These transformations at the organizational level have played a significant performance during the reporting period.

During the review period, several key factors contributed to a significant by the successful implementation of tenders with various state governments, maintaining its leadership position in the school and corporate uniform segment, and enhancing its robust supply chain network across the country,

PERFORMANCE REVIEW

The total revenue increased by 51%, reaching 2,142.22 Crores. Additionally, the earnings before interest and depreciation EBITDA amounted to 109.37 Crores, compared to 73.89 Crores in the previous financial year.

( in Crores)

Particulars	March 31, 2024	March 31, 2024	March 31, 2023	March 31, 2023
	Amount	% of Revenue	Amount	% of Revenue
Revenue from Operations	2,078.41	97%	1,370.52	97%
Other Income	63.81	3%	45.10	3%
Total Revenue	2,142.22	100%	1,415.62	100%
Cost of Material Consumed	150.05	7%	200.57	14%
Purchase of Stock-in-Trade	1,556.12	73%	906.62	64%
Changes in Inventory of Finished Goods, Work-	25.46	1%	(34.61)	(2%)
in-Progress and Stock-in-Trade
Employee Benefit Expenses	60.75	3%	52.04	4%
Net Impairment Loss	9.17	0%	5.99	0%
Other Expenses	231.29	11%	211.12	15%
Total Expenses	2,032.84	95%	1341.73	95%
EBITDA	109.37	5%	73.89	5%
Finance Cost	15.34	1%	17.72	1%
Depreciation and Amortization	15.00	1%	15.36	1%
Profit Before Exceptional	79.04	4%	Items and Tax 40.81	3%
Exceptional Items	0.00	0%	(0.54)	0%
Profit Before Tax	79.04	4%	40.27	3%
Net Tax Expenses	19.71	1%	(2.79)	0%
Profit for the Year	98.75	5%	37.48	3%

Change in Key Financial Ratios and Reasons Thereof

Ratios	2023-24	2022-23	Variance
Debtors Turnover Ratio	4.49	5.07	(11.44%)
Inventory Turnover Ratio	22.33	15.38	45.19%
Interest Coverage Ratio	6.15	3.3	86.36%
Current Ratio	1.11	1.03	7.77%
Gross Profit Margin (in %)	12.48	14.37	(13.15%)
Net Profit Margin (in %)	4.75	2.73	74.73%
Debt Equity Ratio (in %)	0.1	0.15	(33.33%)
Return on Net Worth (in %)	13.82	5.76	140.80%

the finance cost. Furthermore, net decreased by 12.8 Crores. The Company maintained borrowings to provide working capital support for its core business operations.

FINANCE COSTS

The finance cost for the financial year 2023-24 was 15.34 Crores as against 17.72 Crores for the financial year 2022-23. The reduction in finance costs is primarily on account of repayment of the long-term debt along with the optimum utilization of the working capital limits.

DEPRECIATION

There has been a slight decrease in depreciation to 15 Crores in the financial year 2023-24 as against 15.36 Crores in the financial year 2022-23.

EXCEPTIONAL ITEM

For the financial year 2023-24, MIL acknowledged Nil, contrasting with 0.54 Crores in the financial year 2022-23, as ex-gratia compensation. This payment was designated for employees who opted for retirement during the year and was classified as an exceptional item.

HUMAN RESOURCES AND SAFETY

MIL, with a strong commitment to employee well-being and growth, actively engages its workforce. Through continuous engagement activities and training seminars, the Company fosters an environment that supports both personal and professional development, nurturing a goal-oriented focusmindset among employees. It also places significant on a performance-driven culture, ensuring that talent and merit receive due recognition and are appropriately rewarded. During the past year, the Company began a ‘high-potential leadership development training program aimed at developing future leaders from its middle management team.

The Company maintains its dedication to fostering a safe workplace environment by continuously implementing initiatives and measures to uphold safe work practices. As

During the financial year 2023-24, MILs key financial ratios exhibited an improvement over the previous year. The

Companys debtors turnover ratio slightly declined from 4.49% in the financial year 2023-24 to 5.07% in 2023-24, reflecting longer credit period. The inventory turnover ratio climbed from 15.38 times in 2023 to 22.33 times in 2023-24, due to increase in revenue indicating swifter inventory movement and optimized inventory management. Additionally, the interest coverage ratio improved from 3.30 in financial year 2023-24 to 6.15 in 2024. This underscores the Companys ability to meet interest obligations more comfortably.

MILs current ratio strengthened from 1.03 in 2023 to 1.11 in the financial year 2023-24, signaling a relatively better liquidity position with more current assets to cover short-term liabilities. The gross profitmargin declined from 14.37% in 2023 to 12.48% in 2024, due to one of the segments having lower margin in sales revenue. Furthermore, the debt-to-equity ratio showed improvement, moving from 0.15 in 2023 to 0.10 in 2024, indicating better management of debt levels.

Moreover, MILs net worth improved, from 615 Crores in

2023 to 815 Crores in 2024.

REVENUE FROM OPERATIONS AND OTHER INCOME

The Company witnessed a 51% increase in revenue from operations compared to the previous financial year. This rise in in revenue is primarily attributed to a significant the execution of institutional tenders.

EBITDA

For the financial year 2023-24, the total EBITDA was 109.37 Crores compared to the previous years figure of73.89 Crores. This uptick can be attributed to a strategic diversification of the product portfolio and significant increase in revenue.

DEBT the There has been a significant past three consecutive years. MIL repaid a total 29.15 Crores in long-term debt, which is in the form of rupee-term loans, in line with its repayment schedule. The Company also repaid

2.5 Crores in long-term debt before maturity to reduce of March 31, 2024, the Company employed a total of 1,216 permanent employees, reflecting an increase from the previous years count of 1,121.

OVERVIEW OF PRODUCT PORTFOLIO AND OPERATING PERFORMANCE

MILs strategic focus is on catering to the growing domestic demand across three key segments: consumer textiles, education-led technology projects, and health and hygiene. In the consumer textile portfolio, the Company has established its position as a leading supplier of various products, including school uniforms, corporate attire, fashion fabric investments in thesold to brands, end-to-end woven and non-woven supply to the hospitals and fabrics sold directly to consumers. The Company is also one of the top voile exporters from India.

MIL remains dedicated to addressing the increasing demand for textiles, especially from rural areas and Tier II/III markets. To achieve this goal, it relies on its extensive network of dealers, totaling over 1000 nationwide. Leveraging its in-house technical expertise within the textile sector, MIL ensures high-quality standards, fosters innovation in new product categories, and maintains swift turnaround times. The Company capitalizes on its existing supply chain network, strong vendor base and its expertise and capabilities of executing large government orders in the space of textiles, health and hygiene, digital infrastructure, and consumer durables. It is also expanding its reach through various channels, including e-commerce, social media campaigns, and an extended sales network, with a focus on enhancing its over-the-counter, home furnishing, and hygiene product brands. This includes ready-to-stitch hampers, suiting fabric, bedsheets, baby and adult diapers, and sanitary napkins.

OUTLOOK

MIL remains confidentin its ability to sustain growth, especially given the enduring nature of aggregator-business models and recurring business opportunities. Through this model, the Company focuses on generating value, contributing modestly yet significantly to the nations growth. The Governments textile persistent support and significant sector are recognized as vital for ensuring market stability.

The Company acknowledges current trends, particularly in consumer textile, health, hygiene, and digital infrastructure, aligning its focus with evolving consumer demands. By leveraging a diversified product portfolio to serve institutional and governmental needs, MIL has solidified its market position. Its extensive distribution network for consumer- facing products and robust supply chain further enhances its competitiveness.

Amid changing market dynamics, the Company remains vigilant, actively monitoring external factors like inflation, credit growth, and geopolitical risks to mitigate potential challenges. Furthermore, despite the complexities of the business environment, MIL maintains an optimistic outlook, in both revenue and operating margins over the medium term.