Morarjee Textiles Ltd Management Discussions

Overview: Global Economy:

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia?s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. The United States, the Euro area, and China are all undergoing a period of pronounced weakness, and the resulting spill overs are exacerbating other headwinds faced by emerging market and developing economies (EMDEs). The combination of slow growth, tightening financial conditions, and heavy indebtedness is likely to weaken investment and trigger corporate defaults. Further negative shocks—such as higher inflation, even tighter policy, financial stress, deeper weakness in major economies, or rising geopolitical tensions—could push the global economy into recession. In the near term, urgent global efforts are needed to mitigate the risks of global recession and debt distress in EMDEs.

The baseline forecast is for growth to fall from 3.4 per cent in 2022 to 2.8 per cent in 2023, before settling at 3.0 per cent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 per cent in 2022 to 1.3 per cent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 per cent in 2023 with advanced economy growth falling below 1 per cent. Global headline inflation in the baseline is set to fall from 8.7 per cent in 2022 to 7.0 per cent in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Infiation?s return to target is unlikely before 2025 in most cases.

Textile Industry:

India is one of the largest producers of textiles It provides direct employment to 51 million people and indirectly 68 million. Due to changing government policies at the state and central government levels because of which major challenges are arising in the textile industry. The tax structure GST (Goods and Service Tax) makes the garments expensive. Another important threat is raising interest rates and labour wages and workers? salaries at the hubs of textile garment industries all over India at places such as Bangalore, Mumbai, Tirupur, and New Delhi. These manufacturers have the ability to produce the entire range of woven wear and knitwear at a low cost with reasonably good quality. The Indian textile industry has its own limitations such as access to the latest technology and failures to meet global standards in the highly competitive export market. Countries like China, Bangladesh and Srilanka give fierce competition in low price garment market. The formulation of policy, planning, development, export promotion, and regulation of the textile industry in India is administered under the Ministry of Textile, Government of India.

Challenges of Textile Industry:

• Shortage in supply of raw materials;

• Increase in the cost of raw materials;

• Environmental problems;

• Infrastructure bottlenecks;

• Impact of GST;

• Shortage of labourer?s due to a mass return;

• The decline in Apparel export.

Shortage in supply of raw materials: Because of pollution issues some unit of china and Europe has been shut down due to which rise in the prices of basic raw material has resulted and there are many other factors like weather, crop quality etc. which are influencing the raw material supply.

Increase in cost of raw material: Unpredictable market conditions, weather, policies etc. have resulted in an increase in raw material costs.

Environmental problems: Environmental compliance often isn?t at the top of textile and garment importers? concerns. Infrastructure bottlenecks: The low quality of India?s infrastructure continues to lag behind that of many other Asian countries.

The key advantages of the Indian Textile industry are:

• India is among the worlds largest producers of Textiles and Apparel. The domestic apparel & textile industry in India contributes 5% to the countrys GDP, 7% of industry output in value terms, and 12% of the countrys export earnings;

• It is the industry in the country which is self-reliant and complete in the value chain i.e. from raw material to highest value added products;

• India is the largest producer of cotton with the largest area under cotton cultivation in the world. It has an edge in low cost cotton sourcing compared to other countries;

• Average wage rates in India are 50-60 per cent lower than that in developed countries, thus enabling India to benefit from global outsourcing trends in labour intensive businesses such as garments and home textiles;

• Design and fashion capabilities are key strengths that will enable Indian players to strengthen their relationships with global retailers and score over their Chinese competitors. Production facilities are available across the textile value chain, from spinning to garments manufacturing. The industry is investing in technology and increasing its capacities which should prove a major asset in the years to come;

• Large Indian players have established themselves as quality producers in the global market. This recognition would further enable India to leverage its position among global retailers. India has gathered experience in terms of working with global brands and this should benefit Indian vendors;

• Robust demand: Cotton production in India is projected to reach 7.2 million tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing demand from consumers.

• Competitive advantage: Abundant availability of raw materials such as cotton, wool, silk and jute;

• Policy support: In October 2021, the government approved a scheme worth Rs. 4,445 crore (US$ 594.26 million) to establish seven integrated mega textile parks and boost textile manufacturing in the country;

• Increasing Investments: Huge funds in schemes such as Integrated Textile Parks (SITP) (US$ 184.98 million) and Technology Up gradation Fund Scheme (US$ 961.11 million) released by Government during 2015-16 to 2019-20 to encourage more private equity and provide employment.

• PM MITRA (Pradhan Mantri Mega Integrated Textile Region & Apparel) Parks to come up in Tamil Nadu, Telangana, Gujarat, Karnataka, Madhya Pradesh, Uttar Pradesh & Maharashtra.

Outlook:

The revenue generated by the global apparel market is steadily increasing over the course of the observed time period. The global apparel market grew from $610.12 billion in 2022 to $652.94billion in 2023 at CAGR of 7%. The Russia-Ukraine war disrupted the chances of global economic recovery from the Covid-19 pandemic, at least in the short term. The war between these two countries has led to economic sanctions on multiple countries, a surge in commodity prices, and supply chain disruptions, causing inflation across goods and services and affecting many markets across the globe. The global apparel market is expected to grow to $830.69 billion in 2027 at a CAGR of 6.2%.

The Indian textiles market is expected to be worth more than US$ 209 billion by 2029:

The apparel market encompasses every kind of clothing, from sportswear to business wear, from value clothing to statement luxury pieces. After difficulties in 2020 during the coronavirus pandemic, when sales across the apparel industry took a hit, the global demand for clothing and shoes is set to rise again. The countries that account for the majority of this apparel demand are the United States and China, both generating substantially higher revenues than any other country. It is perhaps no surprise that the same two countries play a significant role in international trade. China leads the rankings for the highest value of apparel exports. The U.S. is second only to the EU in the value of apparel imports.

Increasing demand for online shopping is expected to help the apparel manufacturing market grow. Manufacturers can now sell their products on a larger platform than before, which will increase their customer base geographically driving the growth of the apparel manufacturing market. In countries such as India, for instance, e-commerce portals have boosted the sales of traditional garments by giving larger exposure to producers who were con_ned to one geography where the weaving community was located. Along with digitalization, another key apparel industry trend is sustainability. More consumers are concerned about the future of the planet and are putting pressure on fashion brands that do not have eco-friendly practices.

Risk Management:

Risks are inherent in all businesses. The challenge for the Company is to effectively and responsibly manage and control the risks on a sustained basis to enhance returns.

Industry Risk:

The demand for textiles is perennial and major fluctuations occur largely due to changes in overall economic growth and manufacturing competitiveness.

However, the business is cyclical on the supply side considering the quantum of capital investment involved in capacity expansion. This makes it necessary for the Company to incur large capital expenditure at the right time.

Risk Mitigation:

Morarjee has consistently invested funds in its manufacturing plant to bring them in line with the latest technology. This prudence is reflected in the enhanced market presence due to higher production and improved quality at a lower cost of production.

Raw Material Risk:

The company is exposed to the vagaries of nature, with cotton being the principal raw material for fabric manufacturing.

Risk Mitigation:

Procurement of raw cotton at right price remains crucial. The Company covers its cotton requirements from time to time through the domestic and international markets. The Company also seeks out alternative cotton varieties and blends to increase its raw material basket. Thus, this enables an in built risk mitigation for cotton price fluctuation.

Product Substitution Risk:

Man Made Fibres are a direct substitute for cotton textiles.

Risk Mitigation:

The company specialises in producing the best quality cotton fabrics, which are at par with the highest global quality standards and has created a niche positioning with products which cater to high-end customers. The company also produces high quality printed cotton fabric.

Financial Snapshot: Standalone

( Rs In Lakhs)

Particulars	Year Ended	Year Ended
	31.03.2023	31.03.2022
Income	20,816	27,351
EBITDA	(5,071)	723
% to income	-24.36%
Interest	7,960	7,246
Depreciation	2,233	2,289
Loss Before Tax &	(15,264)	(8,812)
Exceptional Item
Exceptional Item	3,274	-
Loss Before Tax	18,538	(8,812)

(Rs In Lakhs)

Particulars	Year Ended	Year Ended
	31.03.2023	31.03.2022
Tax	4	-
Loss After Tax	(18,542)	(8,812)
Other Comprehensive	26	(12)
Income (Net of Tax)
Total Comprehensive	(18,516)	(8,824)
Income

Consolidated:

(Rs In Lakhs)

Particulars	Year Ended	Year Ended
	31.03.2023	31.03.2022
Income	20,816	27,351
EBITDA	(5,053)	723
% to income	-24.27%	2.64%
Interest	7,960	7,246
Depreciation	2,233	2,289
Loss Before Tax & Exceptional	(15,246)	(8,812)
Item
Exceptional Item	3,274	-
Loss Before Tax	18,520	-
Deferred Tax & MAT	4	-
Loss After Tax	(18,524)	(8,812)
Share in Profit of Joint	(3)	(2)
Ventures
Other Comprehensive	26	(12)
Income (Net of Tax)
Total Comprehensive	(18,501)	(8,826)
Income

KEY FINANCIAL RATIOS:

Sr.	Ratios	2022-23	2021-22	Explanation for
No.				significant change
1	Debtor Turnover Ratio (times)	11	9.7	Debtor Turnover ratio has improved as the Company was able to secure faster realisation of debtor.
2	Inventory Turnover Ratio(times)	4.2	4.2	Not Applicable
3	Current Ratio (times)	0.2	0.5	Ratio Decreased due to increase in liabilities
4	Debt Equity Ratio (times)	-	-	Ratio is not calculated as the networth of the Company is Negative.
5	Interest Coverage Ratio (times)	(0.6)	0.1	Ratio has decreased because of loss
6	Operating Profit Margin (%)	(35.3)	(5.7)	Because of Lower Turnover the margin is impacted
7	Net Profit Margin (%)	(89.6)	(32.4)	Because of lower turnover company could not cover the fixed expenses and also the increase in interest cost and other exceptional item the Net Profit Margin decreased significantly.
8	R e t u r n o n Net Wor th (%)	-	-	Ratio is not calculated as the networth of the Company is Negative

Internal control systems & their adequacy:

The Company has proper and adequate systems of Internal Control to ensure that all the assets are safeguarded from loss, damage or disposition. Checks & balances are in place to ensure that transactions are adequately authorised and recorded and that they are reported correctly. The Board of Directors considers internal controls as adequate.

Human Resource:

The Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. The company?s belief is that its people are the primary source of its competitive advantage and consistently puts emphasis on Human Resources Development, which remains vital and strategic to the company. The Company is committed to nurturing, enhancing and retaining talent through Learning & Organizational Development to support the organization?s growth and its sustainability in the long run.

However, during the year under review, the workers at the factory plant of the Company, due to some operational difficulties resorted to Strike for few days and later with effect from 17^th April, 2023, as the operation difficulties increased more, again called out strike which is continuing as on date.

Cautionary Statement:

Statements in this report on Management Discussion and Analysis describing the Company?s objectives, projections, estimates, expectations or predictions maybe forward looking statements within the meaning of applicable laws or regulations. These statements are based on certain assumptions and reasonable expectation of future events. Actual results could however differ materially from those expressed or implied. Important factors that could make a difference to the Company?s operations include global and domestic demand – supply conditions, finished goods prices, raw materials cost & availability, changes in Government regulations and tax structure, economic developments within India and the Countries with which the Company has business contacts and other factors such as litigation and industrial relations. The Company assumes no responsibility in respect of the forward looking statements herein which may undergo changes in future on the basis of subsequent developments, information or events.