maral overseas ltd share price Management discussions

THE OPERATING ENVIRONMENT

World economy: A year since Covid-19 was declared a global pandemic, economies have progressed significantly to move into the positive zone. Advanced economies have reported positive GDP growth in the first half of the 2021 which augurs well for the world.

Unfortunately though, the pandemic has had a significant impact on lives and livelihoods. From an economic perspective, in 2020, World output shrank by 3.3%, significantly lower than the GDP decline in 2009 owing to the Global Financial crisis.

The pandemic hit the developed economies the hardest, with an estimated output decline of 4.7% in 2020, due to strict and prolonged lockdown measures that were imposed in many European countries and some parts of the United States during the outbreak. The contraction was comparatively milder in the developing countries, with output shrinking by 2.2% in 2020. The aggregate figure masks, however, significant regional variation.

Governments around the world responded rapidly with various fiscal and monetary stimulus packages to reduce the impact on the economy, limited fiscal space and high levels of public debt constrained the ability of many developing countries.

Global growth prospects have improved against the backdrop of rapid vaccination rollouts in a few large economies. Following a sharp contraction of 3.3% in 2020, the global economy is now projected to expand by 6.0% in 2021and 4.4% in 2022.

While the world economy is treading towards a recovery, the pandemic has shown that sustainable development— promoting inclusive and equitable growth, reducing inequality and enhancing environmental sustainability— can provide safeguards and resilience against future crisis.

Indian economy: FY21 was one of the most unprecedented years in living history for most.

A pandemic that brought the economy to a grinding halt, forced Indians to stay confined within their homes and mandated businesses to align with the new reality. The pandemic and subsequent lockdown across India for about a month decelerated Indias economic progress.

Although, on a year-on-year basis, Indias GDP contracted by 7.3% in FY21 against a 4% GDP growth in FY20, India witnessed an interesting V-curve resurgence.

After a contraction in GDP for the first half of FY21, India recovered smartly to emerge as one of the select few economies that witnessed positive year-on- year growth in the three month period October-December20. This growth only strengthened to 1.6% in the fourth quarter of FY21. The improvement was due to calibrated and steady opening of the economy.

A more incisive analysis of the year under review reveals interesting realties.

While the first quarter was a complete washout owing to the lockdown and staggered unlocking, the resilient Indian economy registered a sharp rebound with the economy reporting a positive resurgence in Q3 and Q4. Also, GST collections for the last five months of FY21 were in excess of B1 Lakh Crore - showcasing healthy business activity.

The external sector exhibited resilience as current account turned surplus for the first time since 2004, on weaker domestic demand, falling oil prices and strength in Indias services exports. FDI and equity FII flows were strong, driving Indias forex reserves to an all-time high of ~US$580 billion by the end of FY 2020-21, against ~US$475 billion by the end of FY 2019-20.

In view of the economic momentum in Q4 of 2020-21, leading opinion makers had estimated a sharp growth in India GDP for 2021-22. But the outbreak of the second wave of Covid-19 in India, these estimates have been revised downwards.

THE BUSINESS SPACE

Global textile and apparel:

Global apparel consumption is expected to reach US$ 2.6 trillion by 2025-26 from US$ 1.8 trillion in 2017-18. The industry is experiencing structural changes wherein market share is moving from earlier dominated developed countries like USA, European Union (EU) to destinations like China, South Asia including India, Bangladesh and Vietnam. These developed countries are currently facing challenges on consumption side due to ongoing slowdown in economic growth in the regions while on the other hand, countries such as China, India and other South East Asian countries are experiencing growth.

The EU and the US were the largest apparel market in 201718 accounting for ~41% share while they are home to just 11% of the world population. However, pressure from demand slowdown is expected to further trim their share in future by passing it to countries like China and India which are expected to grow at a much faster CAGR of 10-11% (20172025). Rise in per capita income will boost demand in both countries with higher economic growth which will in turn result into a combined ~23% share by 2025-26 from ~16% share in 2017-18 in apparel consumption.

On the supply side, global textile and apparel trade is expected to cross US$ 1 trillion mark in 2025-26 from US$ 764 billion in 2017-18, growing at a CAGR of 3.4% during the same period. While apparel is the most traded category, holding ~58% share, fabric is the second largest category which accounts for ~19% of total trade. Though export growth rate has been slow in China lately wherein it is also losing some share in global market, it continues to be the largest exporting nation within textile and apparel industry. This could have helped countries like India, Bangladesh and Vietnam etc. to increase their trade share with similar trajectory, abundance of raw material and the availability of low-cost manpower. Though, with just about 4 to 5% individual share, these countries still need to go very far to reach anywhere near China, which holds ~37% of total textile and apparel exports

Indian textile and apparel space: Textiles is one of the oldest industries in the Indian economy. It not only provides livelihood to millions of households but is a storehouse and carrier of traditional skills, heritage and culture. According to India Brand and Equity Foundation (IBEF), India is one of the worlds largest producers of textiles and garments.

The textile and apparel industry can be broadly divided into two segments - yarn and fibre, and processed fabrics and apparel.

The domestic Indian apparel market can be classified into mens wear, womens wear and kids wear. Mens wear holds the largest share in the apparel market, accounting for 41% of the pie. Womens wear claims around 38%, while kids wear takes the rest 21% of the market.

While India has the advantage of being integrated across the entire value chain in the industry, the value chain is uncompetitive. The organized textile industry is characterised by the use of capital-intensive technology for mass production of textile products and includes spinning, weaving, and processing.

The Indian apparel industry created world history by establishing a ?7,000-Crore (US$1 billion) personal protective equipment (PPE) and N95 mask industry in the midst of a pandemic in just two months.

Outlook: Indias textile and apparel industry, especially the organised sector, is marked by radical innovation, shifting markets, evolving supply chains and distribution channels and is gradually drifting towards responsible and sustainable manufacturing. Being the second largest in the world, this industry holds immense potential.

According to the data released by the Confederation of Indian Textile Industry (CITI), the recovery for the domestic market is expected to be quite steep post pandemic with domestic market estimated to reach US$ 120 billion (C 9,074 billion) by 2024. Apparel retail is even projected to contract by ~US$ 27 billion (C 2,042 billion) in FY 2020-21 as compared to Pre Covid-19 projections for the same period against the ~US$ 20 billion (C 1,512 billion) from the base of FY 2019-20.

Where Bangladesh scores over India

1) Bangladeshs competitiveness is that it is cheaper to produce goods in Bangladesh than in India. According to a working paper titled Automation and Future of Garment Sector Jobs: A Case Study of India written by Pankaj Vashisht and Nisha Rani of ICRIER: "The unit labour cost of producing a cotton shirt in the United States is around US$7, while the unit labour cost of producing the same shirt in India comes at around 50 cents, whereas in Bangladesh the unit labour cost is only 22 cents.

2) According to the Economic Survey of 2019-20: "Bangladesh... [has] more than 80% of market value of exports by large enterprises, India has 80% by small enterprises." Readymade garment exporters in Bangladesh, therefore, have economies of scale. Also, Bangladeshs exports to the European Union and Canada are largely duty-free.

3) Rigid laws prevent flexibility in manning for a seasonal industry. India has only three or four garment makers with turnover in excess of $100 million.

Hence, the turnaround time of Indian firms from order to delivery is 63 days.

In Bangladesh, this turnaround time is far less at 50 days. Also, it takes only one day for a consignment to reach a port in Bangladesh. In India, it can take as many as 10 days for a consignment to reach a port. All such factors are barriers to creating scale

The Indian spinning sector:

Being the largest cotton producer globally, and the second most populous nation in the world, has enabled India to emerge as one of the largest cotton yarn manufacturer and exporter.

The prospects of the spinning industry are closely aligned to the global textile industry as India exports close to a third of its yarn output to global destinations - China being a key importer of Indian yarn. As such, with the pandemic surging across the globe, the yarn sector was expected to be hit badly.

As per the initial estimates by ICRA, revenue of Indian cotton spinners could decline by 25 % year-on-year in 2020-21 due to Covid-19 pandemic-led disruptions in manufacturing activities and weakness in demand in global as well as domestic markets. This was owing to the fact that yarn, being an intermediate product, would most likely face a ripple effect of the contraction in demand in the downstream segment.

Also the flareup of geo-political tensions with China was another cause of worry for the Indian spinning sector.

But with the unlocking of businesses in a phased manner, the fortunes of the spinning industry improved.

Rural India, the economic engine of India, reported robust demand for garments - casuals and knit wear. With a normal monsoon, agriculture was good leading to considerable disposable income among the rural masses. Also, the impact of the pandemic in rural India (excl. migrant labour issues) was relatively lesser than urban India. But while demand increased, supply remained constrained. This was because some of the smaller capacities shut operations while some others operated way below their optimum capacity utilisation levels. As a result, yarn prices for all categories skyrocketed. Cotton yarn price jumped owing to high domestic and export demand.

Following the US sanctions on China-Indias cotton exports gained traction. As such, India received sizeable orders from Cambodia, Bangladesh and Vietnam among other nations. Hence, while the first quarter of FY21 was a clear washout, the third and fourth quarter ensured that the spinning sector more than made up for the initial losses.

Going forward, industry experts are of the opinion that while yarn prices could settle to more sustainable levels, demand for yarn is expected to remain healthy. This assumption comes with a caveat - the second wave of Covid which has spread far and wide across the Indian landmass. If lockdowns are initiated to contain the spread, business prospects could take a beating.

The cotton year 2020-21: With good monsoon this year, cotton production in the next season (October 2020 to September 2021) will also be higher.

Cotton Association of India (CAI) has estimated that the crop estimate for the 2020-21 season would be 358.50 Lakh bales. The CAI Crop Committee has estimated the total cotton supply till end of the cotton season 2020-21 is at 497.50 Lakh bales. This augurs well for Indias spinning sector.

THE BUSINESS & ITS PERFORMANCE

About Maral: Part of the LNJ Bhilwara Group, Maral Overseas is a vertically-integrated textile player that manufactures and markets a wide range of products that span the entire textile value chain - yarns, fabric and garments.

The Companys three manufacturing facilities house sophisticated equipment that manufacture world-class products which are sourced by leading Indian and global textile players and retail brands. While yarn is the flagship product vertical for Maral, the garment division has cemented the Maral brand in the minds of discerning global brands.

Performance: In a year where uncertainty and turmoil ruled large, Maral Overseas registered a turnaround in business fortunes driven by superior performances by the yarn and apparels verticals. The Company achieved a Turnover at B 632.02 Crore for the year ended 31^st March, 2021 against

B 675.95 Crore in the previous year ended 31^st March, 2020. Further the Company achieved an operational profit of B 61.42 Crore as against B 24.83 Crore achieved in the previous year. The Company recorded a Net profit of B12.53 Crores against a Net Loss of B15.28 Crore reported in the previous year.

While cost management helped in optimising expenses, the teams for all three business divisions remained alert and agile to capitalise on every business prospect, domestic and international. In addition to gaining market share from existing clients, the teams added new customers and entered new geographies which widened potential opportunities.

Change in Return on Net Worth in comparison to the previous year:

During the financial year ended 31^st March, 2021, the net worth of the Company was B 97.64 Crore as compared to B 83.75 Crore in the previous financial year ended 31^st March, 2020. The return on net worth was 12.84% in the financial year ended 31^st March, 2021 against (18.24%) in the previous financial year ended 31^st March, 2020. The increase in net worth was mainly due to higher profit in the financial year 2020-21.

The Company has earned higher profit due to favourable market conditions from second quarter onwards in the financial year 2020-21 as compared to the losses due to adverse market conditions in the financial year 2019-20.

	FY21	FY20	% Change	Remarks
Stability Ratios
Debt equity Ratio (incl. CPTL)	0.49	0.45	8.89
Debt equity Ratio (excl. CPTL)	0.27	0.24	12.5
Debt Service Coverage Ratio	1.92	0.66	190.91	Higher profit due to favourable market conditions from second quarter onwards in the FY 2020-21 as compared to losses due to adverse market conditions in the financial year 2019-20.
Interest Coverage Ratio	8.69	2.34	270.21	Higher profit due to favourable market conditions from second quarter onwards in the FY 2020-21 as compared to losses due to adverse market conditions in the financial year 2019-20.
Liquidity Ratios
Current Ratio (incl. CPTL)	1.09	0.88	23.86
Current Ratio (excl. CPTL)	1.19	0.94	26.60	Change happened mainly due to lockdown restriction in the last month of previous financial year. Accordingly, the debtors were lower than the average. Further in the financial year 2020-21, the debtors were at normal level, therefore, the debtor turnover ratio was higher due to high debtor in the FY 2020-21 as compared to the last financial year.
Debtor Turnover Ratio (days)	56.53	40.73	38.79	Change happened mainly due to lockdown restriction in the last month of previous financial year. Accordingly, the debtors were lower than the average. Further in the financial year 2020-21, the debtors were at normal label, therefore, the debtor turnover ratio was higher due to high debtor in the FY 2020-21 as compared to the last financial year.
Inventory Turnover Ratio (days)	27.83	32.30	-13.84
Profitability Ratios
Operating Profit Margin (%)	9.73	3.68	164.40	Higher profit due to favourable market conditions from second quarter onwards in the FY 2020-21 as compared to losses due to adverse market conditions in the financial year 2019-20.
Net Profit Margin (%)	1.99	-2.26	-11.94

Disclosure of Accounting Treatment

The Company has followed the same Accounting treatment as prescribed in the relevant Accounting Standards while preparing the Financial Statements.

INTERNAL CONTROLS AND THEIR ADEQUACY

The Companys internal controls are commensurate with its size and the nature of its operations. They have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use and ensuring compliance with corporate policies. The all-encompassing control framework covers all key business functions in addition to governance, compliance, audit, control and reporting.

The Companys state-of-the- art ERP system coupled with stringent procedures ensure high accuracy in recording and providing reliable financial & operational information, meeting statutory compliances.

The Companys internal audit team keeps a close eye on business operations and any deviations are promptly brought to the notice of the leadership. The Internal Audit reports are periodically reviewed by the management and the Audit Committee of the Board and necessary improvements are undertaken, if required.

These findings provide input for risk identification and assessment. Timely and adequate measures are undertaken to ensure undisrupted functioning of the business. The Company has engaged independent Chartered Accountant firms with vast experience and knowledge to monitor internal controls. The Companys robust and comprehensive internal control systems and processes are reviewed periodically in line with the evolving business ecosystems

HUMAN RESOURCE

People have been the cornerstone of Maral Overseas success. Their unwavering passion and disciplined perseverance have fueled the Companys growth aspiration to challenge the status quo and go beyond perceived ii boundaries.

In FY21, Maral Overseas made a remarkable transformation driven by its treasured capital - its people. Despite the mayhem caused by the pandemic, the Company stayed the course with its ambition to be a safe and friendly workplace, adhering to the organisational values at the same time.

The human resources (HR) department focused on purposeful involvement of each team member leveraging technology tools to enhance knowledge, increase team bonding and keep the team engaged in meaningful ways which would, over the near-term, benefit them professionally and personally.

The HR department continued to foster a conducive environment to develop ownership, accountability and positive energy in individuals. Town hall meets and periodic interaction with the leadership teams built morale of the team. The sustained team building efforts manifested itself in a heartening turnaround of business fortunes in a year which, most predicted, would have been a washout for business enterprises

RISK MANAGEMENT

At Maral Overseas, our risk strategy is determined by a risk appetite defined for a series of risk criteria. The criteria are based on sectoral circumstances, liquidity available and our earnings target within accepted volatility limits. These criteria provide a reference for our operating divisions.

The Companys risk management framework encompasses strategy and operations and seeks to proactively identify, address and mitigate existing and emerging risks with a goal of making the business model emerge stronger and ensuring that profitable business growth becomes sustainable.

Cautionary Statement

Statements in this document/discussion relating to future status, events, or circumstances, including but not limited to statements describing the Companys objectives, projections, estimates and expectations maybe forward looking statements within the meaning of applicable laws and regulations. Such statements are subject to numerous risks and uncertainties and are not necessarily predictive of future results. Actual results may differ materially from those either expressed or implied in the statements. Important factors that could make a difference to your Companys operations include economic conditions affecting demand/supply and price conditions in the market in which the company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.