Mohit Industries Ltd Management Discussions.

OVERVIEW OF THE ECONOMY

Global headwinds and challenges in the domestic financial sector moderated the growth of Indian economy in 2019-20. The real GDP growth moderated to 5.0 percent in 2019-20 as compared to 6.8 percent in 2018-19 (Source: World Economic Outlook by IMF). The growth of the economy appears to have bottomed out due to the Pandemic COVID 19 break down in the second half of March affected the numbers adversely and all the markets have literally been stopped across the globe. The COVID-19 pandemic may see multiple waves of outbreaks in the coming period and sovereign debt and financial crises cannot be ruled out.

Indian economy had begun to regain momentum with clear signs of uptick in consumption and investment towards the end of Q3:2019-20, only to be halted by COVID-19 that made government enforce country-wide lockdown in late March 2020. Green shoots had appeared with Index of Industrial Production (IIP), Index of Core Industries (ICI) and merchandize exports rebounding with positive growth in February 2020 along with signs of revival in consumer sentiment. However, sharp negative growth of merchandize exports and imports in March 2020 gave first signs of distress having already entered the countrys economic space. With the imposition of lockdown from 24 th March, FY 2019-20 closed with a seven-day period of economic inactivity. Besides trade, negative growth in IIP and ICI indices and particularly the decline in electricity generation in March 2020, reflected the economic adversity of the lockdown. As a result manufacturing and services activity came to a standstill in April 2020 resulting in supply side disruptions and demand falling to unprecedented lows. On the external front, the rupee weakened against the dollar with sharp foreign portfolio investor (FPI) outflows. RBI responded to the economic fallout of the lock down by significantly cutting the repo and the reverse repo to a greater extent to discourage banks from parking funds with it. In addition, it flushed the Indian banking system with liquidity in April 2020. (Source: Macro Economic Report by Department of economic affairs)

INDIAN TEXTILE INDUSTRY

The COVID 19 break down in the second half of March affected the numbers adversely and all markets have literally been stopped across the globe. It has led to lockdown and shrinkage in all economies world-wide very sharply. The above has put a lot of pressure on Textile industry in India which was already facing a lot of challenges due to delays in receiving the GST refunds as well as delay in receiving export benefits. On positive note there is surge in E-commerce and online sales. Indian textile industry is facing huge liquidity crunch and uncertainty pertaining to future orders.

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 September 2019, textiles export witnessed a 6.2 per cent increase post GST as compared to the period pre-GST.

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 two per cent to four per cent.

The Government announced a special package of US$ 31 billion to boost export, create one crore job opportunity and attract investment worth Rs 80,000 crore (US$ 11.93 billion) during 2018-2020. As of August 2018, it generated additional investments worth Rs 25,345 crore (US$ 3.78 billion) and exports worth Rs 57.28 billion (US$ 854.42 million).

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.

Going ahead, there could be a positive side for textile business as USA and EU customers who will be looking for alternative for China, may move to other countries such as Vietnam, Bangladesh, India, etc. Hence it is expected that demand will increase in textile fabrics for exports, but we need to ensure that we prepare ourselves to take the advantage of the expected business which might drift away from China.

CHALLENGES

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.

Currently the biggest threat is COVID 19 and its impact. It is expected that overall textile business will be severely affected which would result in various job losses across the value chain.

• First half of FY 21 is expected to be very tough and the second half is expected to give some relief to the business and the society in general if all the countries specially India is able to control the COVID 19 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 6 to 8 months 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. 8,782.51 lakhs.

COMPANYS FINANCIAL/OPERATIONAL PERFORMANCE

During the year under review, your Company has recorded its revenue from operations as Rs. 17501.02 lakhs against revenue recorded of Rs. 19,147.00 lakhs in the previous year. The EBIDT recorded at Rs. 997.76 lakhs against last years figure of Rs. 1300.73 lakhs. Depreciation and finance cost during the year stood at Rs. 311.46 lakhs and Rs. 383.36 lakhs respectively however, Finance cost and depreciation costs decreased by Rs. 255.45 lakhs. Profit before taxation is Rs. 13.05 lakhs, which is 0.07 % margin on its revenue from operations, has declined at 78.45 % against last years figure of Rs. 60.57 lakhs. Net profit after tax is Rs. 23.36 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.