Mohit Industries Ltd Management Discussions.
OVERVIEW OF THE ECONOMY
For the global economy the year 2018 was difficult, with the world output growth falling from 3.8 per cent in 2017 to 3.6 per cent in 2018 (Source: World Economic Outlook by IMF). Further, the slowdown in the world economy and Emerging Market and Developing Economies (EMDEs) in 2018 followed the escalation of US China trade tensions, tighter credit policies in China, financial tightening alongside the normalization of monetary policy in the economy and some slow down across developed markets.
Growth is projected to remain strong in emerging and developing Asia. Indias growth expanded at 7.3 per cent in 2018 and 7.4 per cent in 2019 with strengthening investment and robust private consumption. Further, growth of GDP moderated to 6.8 per cent in 2018-19 from 7.2 per cent in 2017-18 even with this lower growth for 2018-19, however India was still reckoned as fastest growing major economy in 2018-2019. The year under review was marked by structural reforms: GST introduction, the inflation-targeting framework, the Insolvency and Bankruptcy Code, and steps to liberalize foreign investment. Introduced in 2017, GST was one of the most anticipated tax reforms in India, and has had far-reaching implications on how businesses will operate in the country. While GST provides a simplified, single tax regime in line with the tax framework applicable in several major economies across the globe, it had a huge impact on the supply chain and associated mechanisms for the industry. The industry has responded by taking this as an opportunity to redefine supply-chain models, customise IT processes and rationalise tax costs. The performance of the banking system has improved as NPA ratios declined and credit growth accelerated. The ecosystem for insolvency and bankruptcy is getting systematically built out with recovery and resolution of significant amount of distressed asset as well as palpably improved business culture. Indias foreign exchange reserves were US$ 405.64 billion in the week up to March 15, 2019, according to data from the RBI. (Source: IBEF, PwC)
"Indias economy is picking up and growth prospects look brightpartly thanks to the implementation of recent policies, such as the nationwide goods and services tax. As one of the worlds fastest-growing economiesaccounting for about 15 percent of global growthIndias economy has helped to lift millions out of poverty". - International Monetary Fund (IMF) and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnership. The Government of India, under the Make in India initiative, is trying to give boost to the contribution made by the manufacturing sector and aims to take it up to 25 per cent of the GDP from the current 17 per cent.
INDIAN TEXTILE INDUSTRY
The fundamental strength of Indian Textile Industry flows from its strong production base of wide range of fibres /yarns - from natural fibres like cotton, jute, silk and wool to synthetic/man-made fibres like polyester, viscose, nylon and acrylic. The Indian textile industry is likely to continue its strong growth, buoyed by both strong domestic consumption as well as export demand and has been growing robustly, further it is expected to reach US$ 226 billion by FY 2023. The Indian Textile Industry, the second largest manufacturer and exporter in the world, contributes 12.65 per cent manufacturing and 2.3 per cent to GDP. The sector is the biggest employer after agriculture employing 4.5 crore people directly and another 6 crore people in allied sectors. The strong performance of textile exports is reflected in the value of exports from the sector over the years. Textile exports increased to US$ 39.20 billion in FY18 and witnessed a growth (CAGR) of 6.90 per cent over the period of FY 06 to FY18. It reached US$ 31.65 billion in FY19. [Source: IBEF & Economic Survey 2018-2019]
In FY19, growth in private consumption is expected to create strong domestic demand for textiles.
India enjoys a comparative advantage in terms of skilled manpower and in cost of production relative to major textile producers.
Huge investments are being made by Government under Scheme for Integrated Textile Parks (SITP) -(US$ 184.98 million) and Technology Upgradation Fund Scheme (TUFS) -(US$ 216.25 million released in 2017) to encourage more private equity and to train workforce.
Under Union Budget 2019-20, the government has allocated Rs. 700 crore (US$ 97.02 million) for Amended Technology Upgradation Fund Scheme (ATUFS).
In May 2018, textiles sector recorded investments worth Rs. 27,000 crore (US$ 4 billion) since June 2017.
Foreign direct investment (FDI) of up to 100 percent is allowed in the textile sector through the automatic route.
The Textile Ministry of India earmarked Rs. 690 crore (US $106.58 million) for setting up 21 readymade garment manufacturing units in seven states for development and modernization of Indian Textile Sector.
The Indian textile industry has its own limitations such as accesses to latest technology and failures to meet global standards in the highly competitive export market.
The environmental and social issues like child labor and personal safety norms are also some of the challenges for the textile industry in India.
The tax structure GST (Goods and Service Tax) make the garments expensive and the other important threat is raising interest rates and labor wages and workers salaries.
RISK AND CONCERN
Highly Fragmented Industry and dominated by unorganized sector and Small and medium Industries.
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.
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. 10,062.95 lakhs, has increased at 45.25% against last years figure of Rs. 6,928 lakhs.
COMPANYS FINANCIAL/OPERATIONAL PERFORMANCE
During the year under review, your Company has recorded its revenue from operations as Rs. 19,147.00 lakhs against revenue recorded of Rs. 15,791.06 lakhs in the previous year. The EBIDT recorded at Rs. 1300.73 lakhs against last years figure of Rs. 1234.33 lakhs. Depreciation and finance cost during the year stood at Rs. 383.36 lakhs and Rs. 856.80 lakhs respectively however, Finance cost and depreciation costs increased by Rs. 70.58 lakhs. Profit before taxation is Rs. 60.57 lakhs, which is 0.32 % margin on its revenue from operations, has declined at 29.98 % against last years figure of Rs. 86.50 lakhs. During period under review decrease in profit of company in comparison to last year profit due to bad debt expense recorded at Rs. 66.58 lakhs. Net profit after tax is Rs. 68.40 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 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.
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.