Mohit Industries Ltd Management Discussions.

OVERVIEW OF THE ECONOMY

Global prospects remain highly uncertain one year into the pandemic. New virus mutations and the accumulating human toll raise concerns, even as growing vaccine coverage lifts sentiment. Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic-induced disruptions and the extent of policy support. The outlook depends not just on the outcome of the battle between the virus and vaccines-it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis. Global growth is projected at 6 percent in 2021, moderating to 4.4 percent in 2022. The projections for 2021 and 2022 are stronger than in the October 2020 WEO. The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility. High uncertainty surrounds this outlook, related to the path of the pandemic, the effectiveness of policy support to provide a bridge to vaccine-powered normalization, and the evolution of financial conditions. (Source: World Economic Outlook by IMF).

After the 2020 huge GDP contraction, economic growth is projected to bounce back in 2021, driven by pentup demand for consumer and investment goods, before declining in 2022. The dramatic infections upsurge since February has weakened the nascent recovery and may compound financial woes of corporates and banks. As public anxiety over the virus spreads and lockdowns multiply, high-frequency indicators suggest that a marked slowdown may have taken place in the April-June quarter, although the overall annual impact is likely to be muted. Wholesale and retail inflation rates remain elevated, but within the target range of the central bank (Source: Economic Forecast Summary). India focused on saving lives and livelihoods by its willingness to take short-term pain for long-term gain, at the onset of the COVID-19 pandemic. An early, intense lockdown provided a win-win strategy to save lives and preserve livelihoods via economic recovery in the medium to long-term. India was the only country to announce structural reforms to expand supply in the medium-long term and avoid long-term damage to productive capacities. Upturn in the economy, avoiding a second wave of infections - a sui generis case in strategic policymaking amidst a once-in-a-century pandemic. Indias strategy flattened the curve, pushed the peak to September, 2020. After the September peak, India has been unique in experiencing declining daily cases despite increasing mobility. V-shaped recovery, as seen in 7.5% decline in GDP in Q2 and recovery across all key economic indicators vis-a-vis the 23.9% GDP contraction in Q1. COVID pandemic affected both demand and supply. Governments and central banks across the globe deployed various policy tools to support their economies such as lowering policy rates, quantitative easing measures, etc.

INDIAN TEXTILE INDUSTRY

The outbreak of Coronavirus disease (COVID-19) has acted as a massive restraint on the textile manufacturing market in 2020 as supply chains were disrupted due to trade restrictions and consumption declined due to lockdowns imposed by governments globally. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on rise, further Government is making efforts by supporting the sector through funding and machinery sponsoring. Increasing demand for online shopping is expected to drive the textile manufacturing market. Manufacturers can now sell their products on a larger platform than before, which will increase their customer base geographically driving the growth of the textile manufacturing market. Further the textiles sector has witnessed a spurt in investment during the last five years. The industry (including dyed and printed) attracted Foreign Direct Investment (FDI) worth US$ 3.68 billion from April 2000 to December 2020.

At the same time, robust monetary and fiscal policies have propped up incomes, allowing consumption and imports to rebound once lockdowns were eased. Indias exports have been under much stress in the current financial year. However, given the continued emphasis of the Government of India, on increasing competitiveness of Indian exports, through Export Promotion Councils and the larger exporter community, Indias export performance will be promoted vigorously in the face of these adverse developments. Further, Department of Commerce, Government of India has set an ambitious target of 400 billion USD for the year 2021-22. Indias exports in Rupee terms, exports were Rs. 2,28,071.76 crore in April 2021, as compared to Rs 78,951.41 crore in April last year. As compared to April 2019, exports in April 2021 exhibited a positive growth of 17.62 per cent in Dollar terms and 26.17 per cent in Rupee terms.

OPPORTUNITIES

• Under Union Budget 2020-21, a National Technical Textiles Mission is proposed for a period from 2020-21 to 2023-24 at an estimated outlay of Rs. 1,480 crore (US$ 211.76 million).

• In March 2021, The Ministry of Textiles favoured limited deal for the India-UK free trade agreement that could boost the garments sector.

(i) In 2020-21, the UK is Indias fourteenth largest trading partner, accounting for US$ 8.7 billion in exports and US$ 6.7 billion in imports.

(ii) Under the proposed trade agreement, the Textile Ministry expects more market access for the Indian textiles and clothing sector in order to achieve its full potential.

• In March 2021, toys were identified as one of the 24 primary sectors listed under the self-reliant India initiative. The Department for Promotion of Industry and Internal Trade (DPIIT) has developed a National Action Plan for toys that calls on several central ministries, including textiles, MSME, I&B, Education, DPIIT (under the Ministry of Commerce) and other departments, to nurture and promote the industry.

• Effective 01 January 2021, to boost exports, government have extended the benefit of the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) to all exported goods.

• On September 2, 2020, the Union Cabinet approved signing an MOU between textile committee, India and M/s Nissenken Quality Evaluation Centre, Japan, for improving quality and testing Indian textiles and clothing for the Japanese market. This India-Japan pact on cooperation in textiles will facilitate Indian exporters to meet the requirements of Japanese importers as per the latters technical regulations.

• In 2020, New Textiles Policy 2020 is expected to be released by the Ministry of Textiles.

• The Directorate General of Foreign Trade (DGFT) has revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textiles Industry - readymade garments and made-ups - from 2% to 4%.

• The Government of India has taken several measures including Amended Technology Up-gradation Fund Scheme (A-TUFS), estimated to create employment for 35 lakh people and enable investment worth Rs. 95,000 crore (US$ 14.17 billion) by 2022.

CHALLENGES

• The industry faced a complete shutdown for around 2-3 months. Disrupted logistics and frozen external trade caused due to the pandemic affected the entire value chain alike. Indias April and May 2020 net trade were around 50% lower month-on-month compared to that of the previous year.

• Due to the uncertainty across the market, international and domestic buyers cancelled or suspended their orders, adding to the woes of the industry.

• Export demand remained subdued due to pandemic.

RISK AND CONCERN

• Limitation of latest technology and failures to meet global standards in the highly competitive export market

• Changing Government Policies at the state and central level affects the textile industry.

• Overall negative impact is expected across the industry due to current COVID 19 pandemic. A shift towards online business is expected to happen due to the fear & the restrictions to maintain the social distancing. Also, there could be short time recessionary pressure due to job losses and money crunch in the market and it will take a good month before we could see demand coming back in the Textile industry.

BUSINESS OUTLOOK

Your company has 16 Texturising Machines, 150 High Speed Shuttle-less water jet Looms with a capacity to manufacture 18,000 tonnes of Draw Texturised Yarn (DTY) per annum and 14 Million meters Grey fabrics per annum respectively. Your Companys textile products has a Competitive edge of Quality, design, Innovative Product but still company is taking all efforts to improve the quality and productivity to get more orders at competitive rates. The company has recorded export turnover of Rs.5698.84 lakhs.

COMPANYS FINANCIAL/OPERATIONAL PERFORMANCE

During the year under review, your Company has recorded its revenue from operations as Rs.14951.01 lakhs against revenue recorded of Rs.17501.02 lakhs in the previous year. The EBIDT recorded at Rs.893.99 lakhs against last years figure of Rs.997.76 lakhs. Depreciation and finance cost during the year stood at Rs.800.08 lakhs and Rs.984.72 lakhs respectively however, Finance cost and depreciation costs decreased by Rs.184.64 lakhs. Profit before taxation is Rs.103.90 lakhs, which is 0.69 % margin on its revenue from operations, has increased at 835.37 % against last years figure of Rs.11.11 lakhs. Net profit after tax is Rs.67.74 lakhs.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has a proper and adequate internal control system to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and those transactions are authorised, recorded and reported correctly. The internal control is exercised through documented policies, guidelines and procedures. It is supplemented by an extensive program of internal audits conducted by in house trained personnel. The audit observations and corrective action taken thereon are periodically reviewed by the audit committee to ensure effectiveness of the internal control system. The internal control is designed to ensure that the financial and other records are reliable for preparing financial statements and other data, and for maintaining accountability of persons.

RISK MANAGEMENT

Risk is inherent in all kinds of business and is an integral part of the textile business. In the normal course of business, a company is exposed to various risks like Credit risk, Market risk and Operational risk, besides other residual risks such as Liquidity risk, Interest rate risk, Regulation risk etc. With a view to efficiently manage such risks, your Company has put various risk management system and practices. Your Company aims at enhancing and maximizing shareholders value by achieving appropriate balance between risks and returns. The risk management strategy adopted by your Company is clearly based on a clear understanding of the risk and the level of the risk appetite and that is dependent on the willingness to take the risk in the normal course of business.

Various committees operate within the broad policy framework to ensure and enhance the risk control and governance framework.

HUMAN RESOURCES/ INDUSTRIAL RELATIONS

The Companys HR philosophy is to establish and build a high performing organization, where each individual is motivated to perform to the fullest capacity: to contribute for developing and achieving individual excellence and departmental objectives and continuously improve performance to realize the full potential of our personnel. The Company is giving direct employment to 500 employees including workers. Industrial relations are cordial and satisfactory.

Disclaimer Statement

The discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. No representation is made on the accuracy and comprehensiveness through the same is based on sources believed to be reliable. Utmost care has been taken to ensure that the opinions expressed by us herein contain our view on the significant events having impact on the Companys operations but it is not exhaustive.