mohit industries ltd Management discussions

ION

AND ANALYSIS REPORT MANAGEMENT DISCUSSION AND ANALYSIS:

MOHIT INDUSTRIES LIMITED

1. DISCLAIMER

Statements in the Directors Report & Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the Companys operations include raw material availability and its prices, cyclical demand and pricing in the Companys principle markets, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other ancillary factors.

2. OVERVIEW OF ECONOMY

Indias economy will grow 7.5% in fiscal year (FY) 2022 and 8% in FY2023, supported by increased public investment in infrastructure and a pickup in private investment. The outlook assumes sustained progress in coronavirus disease (COVID-19) vaccinations and that any new variants of the virus are of limited severity. It also factors in the impacts of Russias invasion of Ukraine—primarily higher global oil and commodity prices that will contribute to rising inflation and a widening of the current account deficit.

Large public infrastructure investments planned over the next 2 years will encourage more private investment. Together with the PM Gati Shakti initiative to improve Indias logistics infrastructure, increased financial and technical support to states to expand capital investment will boost infrastructure spending and help spur economic growth. Private consumption will pick up as labor market conditions improve. Forecasts are based on a normal monsoon, which, coupled with rising wheat prices, is expected to boost agriculture output and improve farmers income. The governments production-linked incentive scheme will provide a thrust to the manufacturing sector in FY2022 and FY2023.

Inflation will likely increase to 5.8% in FY2022 amid rising oil prices. While monetary policy will remain accommodative, the central bank may hike policy rates in the later part of the fiscal year due to tightening of the United States federal funds rate and elevated oil prices. The current account deficit is projected to widen to 2.8% of gross domestic product in FY2022 due to the rising oil import bill, and is expected to decline to 1.9% in FY2023 amid an uptick in export growth. Foreign direct investment inflow is expected to moderate amid rising global uncertainty and tightening of global economic and financial conditions.

3. INDIAN TEXTILE MARKET

India is the worlds second-largest producer of textiles and garments. It is also the fifth- largest exporter of textiles spanning apparel, home and technical products. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk and wool to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.

The textiles and apparel industry contribute 2.3% to the countrys GDP, 13% to industrial production and 12% to exports. Around 45 million people are working in the textile business, including 3.5 million people who work on handlooms. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26. The Indian apparel market stood at US$ 40 billion in 2020 and is expected to reach US$ 135 billion by 2025.

India enjoys a comparative advantage in terms of skilled manpower and in cost of production relative to other major textile producers. Indias textile and apparel exports

(including handicrafts) stood at US$ 44.4 billion in FY22, a 41% increase YoY. Exports of readymade garments including cotton accessories stood at US$ 6.19 billion in FY22.

The textiles industry (including dyed and printed) attracted Foreign Direct Investment (FDI) worth US$ 3.99 billion from April 2000-March 2022. 100% FDI (automatic route) is allowed in the Indian textile sector.

Companies involved in home textiles are using technology to optimise the value chain. For example, in October 2021, Welspun India introduced Wel-Trak 2.0—an upgraded, patented end-to-end traceability technology—to track textile raw materials throughout the supply chain.

The Governments Rs. 10,683 crore (US$ 1.44 billion) PLI scheme is expected to be a major booster for the textile manufacturers. The scheme proposes to incentivise MMF (man-made fibre) apparel, MMF fabrics and 10 segments of technical textiles products.

The Government approved the Mega Integrated Textile Region and Apparel (MITRA) Park scheme worth Rs. 4,445 crore (US$ 594.26 million) to establish seven integrated mega textile parks with state-of-the-art infrastructure, common utilities and R&D lab over a three-year period, which will boost textile manufacturing in the country.

The government has allocated funds worth Rs. 17,822 crore (US$ 2.38 billion) between FY16-22 for the Amended Technology Up-gradation Fund Scheme (A-TUFS) to boost the Indian textile industry and enable ease of doing business.

To support the handloom weavers/weaver entrepreneurs, the Weaver MUDRA Scheme was launched to provide margin money assistance at 20% of the loan amount subject to a maximum of Rs. 10,000 (US$ 134.22) per weaver. The loan is provided at an interest rate of 6% with credit guarantee of three years.

The new Economic Cooperation and Trade Agreements with Australia and the UAE will open multiple opportunities for textiles and handloom. Indian textile exports to Australia and the UAE will now face zero duties, and the government is expecting that soon, Europe, Canada, the UK and GCC countries would also welcome Indian textile exports at zero duty.

Top players in the textiles sector are attaining sustainability in their products by manufacturing textiles that use natural recyclable materials. Top players in the textiles sector are attaining sustainability in their products by manufacturing textiles that use natural recyclable materials.

4. ROAD AHEAD

India is working on major initiatives, to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on rise. Government is supporting the sector through funding and machinery sponsoring.

Top players in the sector are attaining sustainability in their products by manufacturing textiles that use natural recyclable materials.

The future for the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market.

High economic growth has resulted in higher disposable income. This has led to rise in demand for products creating a huge domestic market.

Major Trends in Textile & Apparel Industry:

1. Emergence of new garmenting hubs:

Increase in labour and raw material cost has brought a shift in global textile industry, forcing companies to shift their base from developed countries to developing countries like India, Ethiopia, Myanmar, Vietnam and Cambodia. These developing countries offer cheap labour and good quality raw material at lower prices.

2. Increasing importance of Industry 4.0:

Textile 4.0 is a fourth industrial revolution focusing on automation of industry. This automation can be achieved by data exchange, robotics, the internet of things, cloud computing and through various other measures. This automation will result in lower operating cost with customary processes and improved quality standards.

3. Development of new trade Alliances:

Trade alliances and Free Trade Agreement (FTA) are some measures by various governments to connect markets. Through this the exchange of technologies will become easier. These alliances will ultimately lead to increase in flow of FDI, improved infrastructure and more job opportunities helping economies to grow.

4. Shift towards Sustainable Fashion:

With rising awareness about climate change, consumers prefer brands that adopt sustainable business practices. As a result, the textile industry has been witnessing a shift towards sustainable processes right from manufacturing of products to selling them. This shift will not only enable them to reduce their footprints on the environment but also offer sustainable fashion solutions.

5. INDUSTRY OUTLOOK

Indian Textile Industry is showing a notable increase in recent years. Indian textile brands and manufacturers are focusing on increasing their export globally. Considering the significant proportion that India commands inside the international trade of textile and garb, and the industry is ready to add more exceptional manufacturing capabilities.

Along with a boom in potential, encouraging fabric guidelines and favorable exchange fee moves could help India achieve a large export boom.

By the year 2020, the additional ability will be added to existing production facilities; the ratio of home and exports is possibly to alternate from 65:35 to 55:45.

The Indian government is taking many initiatives to enhance the countrys textile area. The benefits offered by government authorities are in all likelihood to percolate to the Indian textile industry in the coming years. This will also ensure its steady growth, and fuel the growth of the textile industry in India.

6. SWOT ANALYSIS OF TEXTILE INDUSTRY

STRENGTHS

• Flexible Labour market

• Worldwide Demand

• Involved Industries Increase

• Strong Backward linkage facilities

• Presence of economic zones

• Automation of production processes and proper infrastructure

• Availability of raw materials

WEAKNESS

• Lack of Modern Machineries

• Unable to go with flow

• Lack of forecasting

• Depending on some specific buyers

• Higher Bank interest rates and Insurance policy

• Increase in mid-market / value retailers results in a negative impact for the higher end retailers and increase an opportunity to introduce lower market brands.

• Fluctuation in prices to cope up with changing demands and trends.

• Short time for optimization of products.

• Unavailability of skilled labour.

• Increase in unit cost, high tariff barriers and export duties.

OPPORTUNITY

• Better consumer knowledge and power driving the demand for more ethical and sustainable

• Buyers attention in Asian and Worldwide market

• Governments training Program

• Buyers initiative for productivities

• People are willing to buy quality products and long lasting investment pieces at a competitive prices.

• Establishment of E-commerce allows more consumers to enter the chain of market.

• Apart from manufacturing jeans the fabric is used in manufacturing of other products like shirts, trousers, handbags etc.

• Introduction of sustainable development practices.

THREATS

• E-shopes and On demad shops

• High making cost

• Political and environment crisis

• The market is saturated with existing brands.

• The market is continuously growing with brands coming up with innovative ways to compete and stay relevant in the market.

• The ethical textile market already has a number of early entrants which have gained significant market share.

• Unstable economy results in reduced consumer confidence and spending.

• The entry of several international players in the retail industry after opening up of FDI would also pose as a threat for the brand.

• It is difficult to make balance between price and quality when competitors have lower price.

• Quick obsolesce of technology.

7. CUSTOMER ORIENTED ORGANISATION:

Mohit Industries Limited makes constant efforts to include the diversity in people around the globe by creating products that would meet every customers wishes. Customers are also offered delivery services, and Mohit Industries Limited makes sure that the products are delivered on time regardless of any procurement hassles. The company believes in working with passion to honor every commitment made to its customers. It also prioritizes regular product innovation to give customers the best experience. Quality and variety has always been one of the major focuses of the company.

8. FINANCIAL RESULTS & PERFORMANCE

(Rs. in Lakhs)

Particulars	Standalone	Consolidated
	For the year ended 31-03-2022*	For the year ended 31-03-2021*	For the year ended 31-03-2022*	For the year ended 31-03-2021*
Revenue from operations	16665.45	14951.01	16665.45	14951.01
Other Income	320.72	168.87	320.72	168.87
Total Revenue	16986.16	15119.88	16986.16	15119.88
Profit before tax and Exceptional Items	35.42	93.90	35.42	93.90
Exceptional Items	0.81	10.00	0.81	10.00
Profit before Taxation	36.23	103.90	36.23	103.90
-Current Tax	20.72	32.72	20.72	32.72
-Deferred Tax	(20.22)	(8.98)	(20.22)	(8.98)
-Short Provision for Income Tax expense relating to prior Year	7.26	12.41	7.26	12.41
Net Profit/ (Loss) For The Year	28.47	67.75	28.47	67.74
Other Comprehensive Income for the Year, Net	569.63	18.85	8436.91	1952.63
of Tax
Total Comprehensive Income for the Year	598.10	86.59	8449.32	2021.35

* Figures regrouped wherever necessary

The Company discloses financial results on quarterly basis of which results are subjected to limited review and publishes audited financial results on an annual basis. The Financial Statements as stated above are also available on the Companys website www.mohitindustries.com.

During the year, Your Company recorded total revenue of 16,986.16 Lacs against Rs. 15,119.88 Lacs in the previous year, representing a increase of 12.34% during the year and Profit before Tax Rs. 36.23 Lacs as compared to Rs. 103.90 Lacs during the year. Total Comprehensive Income during the year Rs. 598.10 lacs as compared to Rs. 86.59 lacs in the previous year.

9. IMPACT OF COVID-19 PANDEMIC:

The second and third wave of COVID-19 pandemic had impacted the normal business operations of the Company by way of interruption in production, supply chain disruption, unavailability of personnel, etc. However, the company was well geared with set processes and precautionary measures as a result there was not much impact on production and supply of goods.

The situation relating to pandemic is, however, dynamic and changing rapidly giving rise to uncertainty around the extent and timing of the potential future impact of the pandemic which may be different from that estimate made by the Company. We have clearly seen the impact of second wave of the pandemic in the first quarter of FY 202122. The Company has made detailed assessment of its business scenario for the current year (FY 2022-23) and do not foresee any major challenges on this account. The Company is closely monitoring and would account for any material changes arising out of future economic conditions and impact on its business.

10. OUTLOOK:

The Indian textile industry at large is expected to grow further in the coming years. The global industry also has a promising future. This implies growth opportunities for Mohit Industries Limited, in the domestic as well as global market. Owing to the growth in demand of apparels, especially from developing countries, as well as rise in income, the demand for textile has significantly increased and will continue to grow. Over the last 4-5 years, textile demand has increased steadily and several Indian textile players, including our company, have increased their capacity under the prevailing government incentive scheme. The industry has become more competitive in these terms. However, the recent outbreak of Covid-19 pandemic has significantly impacted the industry as well as the Company. The situation has caused temporary slowdown and is estimated to bounce back once the situation gets normalized. The Companys values that focus on constant evolution and product innovation will help it in maintaining its strong standing in the industry and will eventually help in growing further in the future.

11. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has made adequate investment for an effective internal control and risk- mitigation system, and they are constantly assessed and strengthened from time to time with new standard operating procedures. The Audit committee, in its meeting, along with the CFO formulates a detailed audit plan for the internal auditor to test and review controls, appraisal of risks and business processes, besides benchmarking controls with best practices in the industry. The Internal Auditors attend the Meetings of the Audit Committee at regular basis and submit their recommendations to the Audit Committee. The Audit Committee in consultation with the Statutory Auditors and the Business Heads reviews the recommendations placed by the Internal Auditors, suggests improvements, take corrective actions, wherever needed, to strengthen the internal control system and place it before the Board. Significant audit observations and corrective actions taken by the management are presented to the Audit Committee. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee.

12. KEY RISKS

RISK AND CONCERNS

The Company is exposed to specific risks that are particular to its business and environment within which it operates, including Foreign Exchange Risk, Interest Rate Risk, Commodity Price Risk, Risk of Product Concentration and other Business Risk. While risk is an inherent aspects of any business, the Company is conscious of the need to have an effective monitoring mechanism and has put in place appropriate measure for its mitigation including business portfolio risk, financial risk and legal risk and internal process risk.

The list of the potential risks the industry is exposed to domestically/internationally is given below:

Business Operational Risk: The business operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events like economic and market conditions, cut throat competitions at local as well as at international level, introduction of new players in textile markets, even events which are not directly connected with the organization like natural disasters, political and military turmoil etc. It can be minimized by decreasing labour turnover, power cost, logistics, balancing demand & supply risks, implementing latest technologies to create new and innovative designs of textile products, techniques required to upgrade plants, boiler house, machines, equipment, Un-interrupted availability of raw material at competitive prices so as to avoid production loss, maintenance of quality and harmonizing production for completing the orders in time as well. Fluctuations in yarn prices in international market which can impact the price / cost of a particular product(s) and its blend(s) is also a part of business operational risk.

Environmental Risk: The safety of environment is important because of its ecological, economic or social significance to an ecosystem. If environment get impact/suffer more due to highly polluting nature or due to violation of any environmental law/norms by the industry/business then it may get adverse remarks from the Regulator/Statutory Authority or may have to face penal provisions as well as implications. An effort should be made to recycle the waste, make reusable products, use natural resources instead of hazardous chemicals to protect the environment.

Raw material risk: There is always a risk of inadequate or non-availability of raw materials in the market due to volatility in the prices of cotton, transportation cost etc which could impede business profits and prospects.

Quality risk: Easy entry of various competitors in the market could affect the quality of products in order to match the competitive prices. Also inability to match the stringent quality standards of leading retails brands consistently could impact product off take. Working capital risk: To expand the business operations requires increased working capital and its proper management.

Purchasing power risk: It means loss of purchasing power due to the effect of inflation. This risk is also known as inflation risk. When there is inflation in the economy, the currency loses its value due to the rising price level in the economy. The higher the inflation rate, the faster the money loses its value.

Foreign Exchange / Currency risk: It is the uncertainty associated with changes in the relative value of currencies. Currency risk arises from the change in price of one currency against another. The Company while doing foreign transactions deals with the currencies of other countries and therefore any fluctuations in foreign currency may impact margins of Company. The fluctuations in the exchange rate are caused basically by the supply of and the demand for the currencies being exchanged. The depreciation in exchange rate increases the risk of foreign banks, which leads to large foreign currency exposures in the emerging markets. The adverse exchange rate movement increases the repayment obligations of the banks borrowers in terms of domestic currency. The investors or companies, in order to avoid currency risks should properly hedge their positions with the foreign banks.

Financial Risk: It is the uncertainty associated with how firms finance its business like by issue of shares, debentures, taking loans from government / financial institutions etc. Such financial transactions also include risk of default in payment of interest, dividend or repayment of capital due to various internal or external factors like increase in credit days of debtors, inflation, interest rate fluctuations, change in government policies etc. It may lead to loss of liquidity, falling assets value, significant change in cash inflow and outflow etc.

Liquidity Risk: Liquidity Risk reflects the possibility/position that a party may have insufficient funds to settle an obligation for full value when due because of insufficient capital or difficulty in selling as asset or an investment to generate capital, but will have funds to cover settlement obligations on some unspecified date thereafter. In nonbankruptcy situations, the allowable methods to cover short positions are generally driven by local market conventions. As a result, liquidity could be adversely affected by prohibitions on transactions such as Repos, Reverse Repos, Securities Lending and other allied components.

Global Risk: Global risk refers to an uncertain event or condition that can cause significant negative impact to several countries or industries for a long period of time. India is still emerging in the market of textile industries. There is a tremendous competition around the world. Indian manufacturers will have to face a tough fight to sustain in the competition. Due to poor infrastructure facilities, the production and transaction cost remain high in India. Also Indias logistic disadvantage due to its geographical location can give it a major thumbs-down in global trade. As a result, high cost of shipments and longer lead time coupled with lack of infrastructure facility may prove to be a major hindrance. To overcome this problem, India needs to increase the size of its industrial infrastructure to capture the efficiencies of the economies of scale and it must cluster the textile production.

Political Risk: Political risk may be defined as the probability that a political event will impact adversely on a firms profit. It represents the financial risk that a countrys government will suddenly change its policies. A new law or a change in an existing could have a significant impact on an investment. Whatever laws the government passes today may be extinct tomorrow. This risk covers restriction on remittances in the buyers country or any government action which may block or delay payment to the exporter, war, revolution or civil commotion in the buyers country, cancellation or imposition of new export / import licensing restrictions in the buyers country, any other kind of loss occurring either in India or outside India which is not within the control of the exporter or the buyer.

Technological risk: Technology can response corporate culture and facilitate innovative procedures. In a garment manufacturing industry, the firm is constantly required to make changes and transformations in the production process over time, upgrade their machinery besides creating new facilities and additional capacities in order to survive in the highly competitive market.

Currency Risk: The Company is subject to currency exposure risk given its significant size of exports. The companys imports are much lower as compared to its exports and thus as far as foreign currency payments are concerned, the company has a natural hedge. The Company has been sanctioned a limit to hedge the currency exposure on export receivables and has started covering exports to the extent needed to cover open risk (net). The Company also has in place a hedging policy to mitigate currency risks. The currency risk is thus adequately mitigated.

Working Capital

Working capital requirement in the business went up because of the fact that our key distributors are required to offer elongated credit to the garment manufacturers who are their customers, and the garment manufacturers are also required to offer extended credit periods to their own customers and thus in the process the entire working capital cycle has been significantly elongated.

13. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has appropriate internal control systems for business processes, with regard to efficiency of operations, financial reporting, compliance with applicable laws and regulations etc. All operating parameters are monitored and controlled. Regular internal audits and checks ensure that responsibilities are executed effectively. The system is improved and modified continuously to meet with changes in business conditions, statutory and accounting requirements. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening them, from time to time.

14. HUMAN RESOURCES DEVELOPMENT / INDUSTRIAL RELATION

The Company rely that the health and safety of the workers and the persons residing in the vicinity of its plants is fundamental to the business. Commitment to the identification and elimination or control of the workplace hazards for protection of all is utmost importance. The manufacturing operations are conducted to ensure sensitivity towards the environment and minimize waste by encouraging "Green" practices. The Company continued to enjoy healthy industrial relations during the year.

15. SUSTAINABLE DEVELOPMENT

Sustainability has been deeply embedded into the Companys business and has become an integral part of its decision making process while considering social, economic and environmental dimensions. During the year 2020-21, a Sustainable Development Strategy was developed with a focus on the following areas:

1. Water Pollution Control Measures

Our Company is a member of Gujarat Eco-Textile Park (GETP) since 2014; The Park helps us to reduce water pollution. The Company has made sure that it implements various measures across all its operations to control fugitive emissions from polluting our water bodies.

2. Air Pollution Control Measures

Initiatives have been taken to reduce air pollution which is caused due to production processes. Our Company has obtained a license from Gujarat Pollution Control Board (GPCB) to ensure pollution control. Gujarat Pollution Control Board (GPCB) ensures that the pollution control limits are maintained by surprise inspections at the factory. These inspection samples are then tested in their own laboratory and report is issued. The Company has also installed Air Receiver in the weaving department to reduce and control on toxin emissions.

16. HEALTH & SAFETY

The company believes Health & Safety as an indispensable province. Company has placed suitable facilities for all workers and employees like proper lighting, ventilation, no congestion, medical kits, stretchers, fire extinguishers etc. at prominent places. Personnel at supervisory level have been trained in basic life support techniques.

The safety measures taken by the company has resulted in improving the conditions under which workers are employed and work, consequently increasing the productivity.

17. INFRASTRUCTURE

The company is equipped with modern infrastructure facilities which assist in smooth production. The companys manufacturing unit is outfitted with advanced machines and equipment and a trained staff, who have years of experience behind them.

To sell products to the clients, the company has facilitated a smooth transportation mechanism through a strong base of transporters and traders.

18. SIGNIFICANT CHANGES:

Ratio	2021-22	2020-21
Current Ratio	1.40 times	1.39 times
Debt To Equity Ratio	1.63 times	1.58 times
Debt Service Coverage Ratio	0.79 times	1.23 times
Return On Equity Ratio	0.39 %	2.18%
Inventory Turnover Ratio	7.32 times	6.96 times
Trade Receivable Turnover Ratio	9.05 times	8.83 times
Trade Payable Turnover Ratio	29.12 times	25.12 times
Net Working Capital Turnover Ratio	9.73 times	11.32 times
Net Profit Ratio	0.07%	0.46%
Return On Capital Employed	4.90%	6.94%
Return On Investments	120.02%	120.27%

19. CAUTIONARY STATEMENT:

The above Management Discussion and Analysis contains certain forward looking statements within the meaning of applicable security laws and regulations. These pertain to the Companys future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from those in such forward looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties, regarding a fluctuations in earnings, our ability to manage growth, competition, economic growth in India, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, government policies and actions with respect to investments, fiscal deficits, regulation etc. In accordance with the Code of Corporate Governance approved by the Securities and Exchange Board of India, shareholders and readers are cautioned that in the case of data and information external to the Company, no representation is made on its accuracy or comprehensiveness though the same are based on sources thought to be reliable. The Company does not undertake to make any announcement in case any of these forward looking statements become materially incorrect in future or update any forward looking statements made from time to time on behalf of the Company.

Place: Surat	For the Board of Director
Date: 27/08/2022	Mohit Industries Limited
	Sd/-	Sd/-
	Narayan Saboo	Naresh Saboo
	Managing Director	Director