Mafatlal Industries Ltd Management Discussions.

1. Overview of the Economy

The Indian economy started fiscal year 2020 21 with a challenging economic scenario. The COVID-19 pandemic affected the global economies, including India severely disrupted the domestic as well as the global supply chains and created significant volatility and disruption in financial markets. Our Central Government, as well as the state and local governments took various far-reaching measures to mitigate the spread of COVID-19, including travel restrictions, stay-at-home orders, restrictions on public gatherings, social distancing measures, mandated closures of non-essential businesses, occupancy limits, and other public health related safety measures during the first quarter of fiscal year 2020-21.

India reported a GDP de-growth of (-) 24.4% in the first quarter compared to 5.4% growth for the same quarter, previous year. However, with easing of the restrictions, the economy started recovering slowly and GDP Growth improved to negative (-) 7.3% during the second quarter followed by 0.4% in third quarter. Quarter four of fiscal year 2020-21 witnessed encouraging growth in economic activities as the rapid spread of the COVID-19 pandemic subsided, and both business activities and consumption started reviving to pre-pandemic levels. The growth in GDP during 2020-21 is estimated at negative (-) 8% as compared to 4% in 2019-20 as per second advance estimates released by the Central Government.

2. Overview of Textile Sector

The textile sector largely depends on discretionary spending of the consumer, and consumer spending was severely affected during the fiscal year 2020-21 in the wake of the pandemic. The industry witnessed significant contraction of demand in both domestic and international markets, till the second quarter. However, consumption and production improved during the latter half of the year on account of the pent-up demand as economy started to revive.

The year 2020-21 also witnessed the US - China trade disputes, worldwide anti-China sentiments and ban of Xinjiang (China) Cotton and cotton made products over violation of human rights. This development created some space in the global textiles market, primarily in the home furnishings category. This provided a boost to the yarn and cotton players in India as well.

3. COVID-19 Business Response

The Company continued to closely monitor the impact of the COVID-19 pandemic on its businesses, and prioritised activities such as safeguarding the health of employees, managing liquidity, and continuing to serve customers notwithstanding adverse supply chain circumstances. Consistent with these objectives, the Company took several decisive steps at appropriate junctures throughout the year. In the context of the huge emerging demand for health-care products, the Company leveraged its distribution channels and contacts with health-care institutions. It repurposed part of the operations to manufacture and source critical products like PPE suits, face-masks, temperature guns, and sanitizers to cater to surge in demand for these products.

The Company also took effective steps to manage the adverse liquidity situation, by:

- Implementing salary reductions across Company

- Making adjustments in the quantum of the workforce deployed to align with demand for its products

- Aggressively reducing inventories and driving collection of receivables

- Deferring non-essential capital expenditures and discretionary spending

- Working with vendors to re-negotiate terms in the context of the adverse economic conditions all around.

4. Overview of the Company Performance

Business environment for the Textile Industry in which the Company operates, is highly dependent on discretionary spending by consumers and movement of people. With the lockdowns imposed by the authorities across the Country to restrict the spread of the pandemic the performance of the Company in H1FY21 was severely impacted. The Company witnessed loss of production, order cancellations & substantial loss of revenue along with the continuing burden of fixed costs.

The Company enjoys on a sustained basis, a sizeable share of the School uniform fabric and garments market segment. As a result, this category has a large share in the Company’s product portfolio. Unfortunately due to the pandemic, schools have been closed throughout the year across the Country. Consequently this line of business has been very severally affected.

Although the H1FY21 performance was impacted by COVID-19, during latter part of the year, the Company secured better business performance arising from growing volumes and the positive impact of a series of strategic decisions. To address medium to long term challenges of operating costs and workforce productivity, Company entered into a Memorandum of Understanding with the Worker’s Union at its manufacturing unit situated at Nadiad to reduce its permanent workforce by launching a Voluntary Retirement Scheme (VRS). The Company also undertook a strategic initiative of moving towards lean management by re-organising and downsizing its management structure.

During the year, the Company established itself as reputed and reliable supplier of protective wear (PPE suits, Face Mask, Face Shield etc.) and hygiene products (Adult Diaper and Baby Diaper etc) and consolidated its position as a one-stop source of Uniform solutions for public and private institutions. Company has taken major steps towards developing and expanding its product range of Hygiene & Healthcare and Uniform Solutions.

With the spike in crude oil prices and ban on imports of Xinjiang (China) Cotton, prices of raw materials like Polyester, yarn, Greige fabric and chemicals significantly increased in Q4FY21. This upward revision forced the Company to pass on the impact of the raw material price escalations to its consumers by way of increase in prices of its products.

The business environment continues to remain uncertain in view of the volatile nature of the COVID-19 pandemic and its negative impact by way of economic disruption. However, the Company believes that its long term presence and its experience of catering to Government tenders for supply of textiles and other allied products will act as viable hedge against the loss of sales of conventional fabric products owing to drop in demand under the pandemic scenario. Further, with healthcare receiving a major impetus, the wide range of products which Company has launched in healthcare & personal hygiene space in both B2B & B2C markets, would contribute towards augmenting its revenue and profits. Besides, the Company has started implementing a strategy of making its business "asset light" by reducing the dependence on its manufacturing operations and expediting its moves for outsourcing operations. This strategy would enable it to drive a wider product portfolio, which can become a natural hedge against one another, in the current uncertain times. The longer term business viability, can thus be sustained, as this wider product portfolio is serviced without commensurate increase in fixed assets, through the outsourcing model.

i. Performance Review

Total Revenue declined by 40% to 63,784.20 Lakhs and Earnings Before Interest & Depreciation (EBIDTA) turned negative to 1,112.32 Lakhs. This is essentially due to lower sales volumes, both for domestic and export sales, arising from the adverse impact of the COVID-19 pandemic on the economy at large. ii. Table of Financials ( In Lacs)

For the year ended on


March 31, 2021

March 31, 2020

Amount % of Revenue Amount % of Revenue
Revenue from Operations 60,219 94% 1,00,535 95%
Other Income 3,565 6% 5,677 5%
Total Revenue 63,784 100% 1,06,212 100%
Cost of Material Consumed 7,632 12% 29,158 27%
Purchase of Stock-in-trade 38,187 60% 50,732 48%
Changes in Inventory of Finished Goods, Work-in-progress & Stock-in-trade 6,950 11% (1,472) (1%)
Employee Benefit Expenses 5,317 8% 8,835 8%
Other Expenses 6,811 11% 13,976 13%
Total Expenses 64,897 102% 1,01,228 95%
EBIDTA (1,112) (2%) 4,985 5%
Finance Cost 2,210 3% 3,143 3%
Depreciation & Amortisation 1,705 3% 1,718 2%
Profit/ (Loss) Before Exceptional Items & Tax (5,028) (8%) 123 0%
Exceptional Items (4,083) (6%) (1,459) (1%)
Loss Before Tax (9,111) (14%) (1,336) (1%)
Net Tax Expenses (264) 0% (35) 0%
Loss for the year (9,375) (15%) (1,371) (1%)

Revenue from Operations and Other Income

Total Revenue of the Company declined by 40% over previous financial year. Other Income (consisting of Interest Income, Net Gain on Foreign Currency Transactions and Other Non-Operating income from sale of non-core assets) also declined by 37% compared to previous year.


The Company repaid 4,562.87 Lakhs of long-term debt, essentially rupee-term loans, in accordance with the specified repayment schedule. Net short-term borrowings also decreased by 1,278.44 Lakhs. During the year Company availed fresh long term borrowing of 5,000.00 Lakhs, to sustain the working capital support to the Company’s core business.

Finance Costs

The finance cost for FY 20-21 was 2,210.27 Lakhs as against 3,143.29 Lakhs for FY 19-20. The reduction in finance cost was achieved through the timely repayment of both long term and short term debt. However, finance cost as a percentage to total revenue remained at almost the same level, in view of the drop in revenues.


Depreciation in absolute terms decreased marginally to 1,705.06 Lakhs as compared to 1,717.98 Lakhs in FY 19-20. However depreciation as a percentage to Total Revenue, increased to 3% from 2% in FY 19-20, primarily due to the drop in revenues.

Exceptional Item

During the year, the Company has carried out the assessment for the impact of COVID-19 on its liquidity, and recoverability and carrying value of assets. Based on the assessment, Company recognised an impairment loss of 1,819.11 Lakhs under Exceptional Item. Further, the Company recognised an amount of 2,264.27 Lakhs, being the ex-gratia compensation payable to those employees who have opted for retirement under the Voluntary Retirement Scheme launched during the year, also as an Exceptional Item.

Changes in Key Financial Ratios and Reason thereof

The Key Financial Ratios for the year under review have undergone changes as compared to previous FY 2019-20, on account of the Operating performance getting adversely affected due to the impact of COVID-19 pandemic on the economy. All Profitability Ratios like EBIDTA Margin (down to -1.7% from 4%), Net Profit Margin (down to -7.9% from 0.1%) & Return on Net worth (down to -20.1% from -4.8%) have been adversely affected arising from losses incurred during the year under review, as a result of the impact of COVID-19 pandemic. The significant slowing down of Sales and the Collections from the Debtors, reflected in the worsening of Debtors Turnover (2.9 for FY 20-21 as against 4.2 for FY 19-20), Inventory Turnover (25.5 for FY 20-21 as against 9.3 for FY 19-20) & Current Ratio (0.9 for FY 20-21 as against 1.0 for FY 19-20). The Debt Equity Ratio, however, improved marginally to 0.3 for FY 20-21 from 0.5 for FY 19-20, on account of repayment of the debt during the year under review.

Human Resources and Safety

During the year, as a consequence of COVID-19 pandemic and the difficult business conditions arising thereof, the Company had to take the painful decision of effecting a cut in the salaries and wages across the organisation, and also reducing the strength of as well as management staff. These difficult decisions were implemented smoothly based on open and transparent communications among all the stakeholders involved. The Company executed a Memorandum of Understanding with the Worker’s Union at its manufacturing unit at Nadiad for implementing a Voluntary Retirement Scheme (VRS).

The Company stands by its strong belief that people are the key enablers to bring about a turnaround of the business and drive its subsequent growth with profitability. The Company is therefore emphasising on creating a performance driven organisation where talent and merit are suitably rewarded. The Company also continuously takes initiatives and measures towards building a workplace with safe work practices. The total number of permanent employees as on 31st March, 2021 stands at 998.

iii. Overview of Product Portfolio & Operating Performance

The COVID-19 pandemic led to drastic disruptions during most part of the year FY 2020-21, both for the Indian as well as International Markets, as most nations resorted to lockdown and closure of non-essential economic activities. These disruptions forced apparel retailers and brands to close stores for several months at a stretch, in the course of the year. The purchase of apparels also reduced significantly during the year consequent to reduced disposable incomes in the wake of salary cuts and job-losses, increased emphasis on savings in the context of an uncertain economic environment and lower effective consumption with the closure of offices, schools, colleges, and restrictions on social gatherings.

In response to such acute disruptions, the Company repurposed its supply chain network and available resources towards the Health & Hygiene Sector for wide range of products like Protective Wear StaffUniform, and Sanitary Care products. Solutions, Healthcare Gradually, with the ease in lockdown and opening up of the economy, the sale of fabric and uniforms to institutional buyers improved, with a growth in demand.

With the schools remaining closed throughout the year 2020-21, the school uniform fabric and garments segment of business, which is a substantive part of the Company’s portfolio, was impacted significantly. Besides, with the drop in consumer demand for the segments like home furnishing and traditional textiles, overall sales momentum remained sluggish throughout the year.

As the Company is strategically moving towards an "asset-light" business model, the textile manufacturing operations are being restructured to operate as a low-cost and efficient process house with products ranging from bleached, white, dyed, voiles & printed woven fabric. With several measures undertaken for reduction of fixed costs, the manufacturing unit is seeking to regain competitive advantage, which will drive improvement in the operating margins in subsequent periods.

While the performance of the Company during the first half of FY 2020-21 was severely impacted as a fallout of the pandemic, the improvement in the performance in the second half of 2020-21 was encouraging, despite a challenging business environment.

iv. Outlook

As the business environment remains uncertain due to the unknown duration of the COVID-19 pandemic and its related economic consequences, the Company continues to focus on reducing fixed costs, restructuring of manufacturing operations consistent with its strategy, driving growth in volume through selective outsourcing, continuously re-calibrating its product portfolio in line with changing market demand, conserving cash and monetising of its non-core assets. The health and safety of employees, customers, suppliers, and the communities in which our operations are located remain a priority. The Company is confident that, with the current strategic initiatives undertaken, it will be able to weather the storm of the ongoing disruption, over the nearer term, and shall emerge as a viable and stronger business in the medium term.