Nachmo Knitex Ltd Management Discussions

NACHMO KNITEX LIMITED ANNUAL REPORT 2007-2008 MANAGEMENT DISCUSSION AND ANALYSIS Forward Looking Statements: This management discussion and analysis contains certain forward looking statements and words like estimates, intends, projects, expects, will, believes, anticipate, plans and the like. These statements and the words are made to address the future and to describe the company strategies, growth, product development, market positions, etc., and are thus forward looking. These forward looking statements are based on certain assumptions and expectations of future events. The company cannot guarantee that these assumptions and expectations are accurate or will be realised. The companys actual results, performance or achievements could thus differ materially from those projected in any such forward-looking statements. The company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events. Overview: Indian Textile industry has been put on a different plateau after the quota regime. Indian exporters have gained considerably due to some of the countries in South East Asia being accorded GSP status by European Union. Simultaneously with the increase in demand for Indian textile products, the industry is facing stiff competition from other Asian countries. On account of this the sales prices are under pressure on one hand and on the other the strong Rupee vis-a-vis US Dollar has affected the export realisations adversely. The knitting garment industry as a whole is facing the unprecedented lull and the company is also no exception to this. However, on account of efforts put by the company in development of new customers higher production and sales could be achieved. The profitability has marginally improved despite there being inflationary pressure on prices of input and increase in manufacturing expenses. Segment analysis and review: The company deals in only one segment namely knitted fabrics. The company has achieved better performance in terms of higher production and sales on account of substantial emphasis on development of new products and new markets with broad basing its customer base. The capacity utilisation for knit-processing and grey knitted fabrics has improved. On account of higher production and sales the aggregate value additions have marginally improved. The knitting industry is dominated by small scale players and some integrated knit garment manufacturers who have in-house knitting and processing capacities. However, your company with its reasonably stabilised capacity utilisation and customer-base looks forward for a better future on long term basis. Financial results and outlook: Financial performance: The financial performance of the company at operating level has improved marginally during the year under review. Increase in exports and broadening of the customer- base, has resulted in increased capacity utilisation of knit-processing which is 72% as compared to 68% in the previous year. Capacity utilization for grey knitted fabrics has been 79% as compared to 73% in the previous year. The sales and other income for the year ended March 31, 2008 were Rs. 47.77 crores. The exports sales of the company during the year had been to the tune of Rs.1568 lacs compared to Rs.1409 lacs in previous year. The GSP benefits available to Srilanka for imports by European countries, and the capability of the company to supply high value added products like yarn-dyeds, melange etc., have opened up export market for the company. The company has posted improved profit of Rs.112.91 lacs at operational PBDIT level as compared to Rs.93.16 lacs in the previous year on account of higher production and better sales realisations. Costs: The plants of the company are now more than 11 years old and require higher maintenance and repairs. Overall variable costs during the year under review has increased due to inflationary pressure of prices in the country. The company has efficiently managed the fixed costs to the same level as in the previous year. The long term outlook for knitted fabrics is positive. There is a growing demand for knits garments like sports-wear, casual-wear, ladies and childrens garments world over and considering the capabilities of Indian manufacturers to supply a very wide variety of knitted fabrics to suit the requirements of garments manufacturers, there is vast potential for Indian manufacturers in quota-free regime. At the same time, in the post quota regime there is intense price competition and pressure on profitability in the short to medium term and the recovery is expected to be slow. The Debt-restructuring package sanctioned by CDR has been withdrawn. The management will continue to strive for improving the profitability by better capacity utilisation and optimising value additions. Risks and concerns: There is no foreign currency debt and hence no currency risks. The company being in textiles business the volatility in prices of cotton-yarn, which is dependent on cotton prices which again is a function of multiplicity of variables like crop of cotton in India, exports from and import into India, Govt. policies etc., could affect the company like any other business. The company having focus on exports markets could face further risk on account of fluctuations in foreign exchange rates. Apart from these there are normal business risks. Opportunities: Opening up of international market after abolition of quota, increasing demand for knits the world over, organized sector units having capabilities to deliver quality goods have great potential in the long run. With product development efforts matching with the demands of todays fast changing fashion world, the manufacturers having in-house capabilities to supply entire range of knit goods hold a vast potential to expand and grow in times to come. Threats: The phasing out of quotas has brought in intense competition from China, Pakistan, Bangladesh, Srilanka and Thailand. Further, due to incentives offered by Govt. of India many new capacities are created in India to take advantage of opening of international market after abolition of quota. Due to this intense competition has developed among Indian manufacturers. Further the unprecedented rise in the Rupee against US Dollar is a cause of concern affecting the export sales realisation. Finding newer markets, development of new products and increasing cost effectiveness will be imperative to thwart competition. Internal control systems: The company has a good, efficient and well established internal control system, which enables it to react and take corrective action immediately. The internal control systems and management reporting on areas of risks and threats enables the company to take necessary proactive steps and continue to focus on its targets. The systems and procedures are reviewed periodically to identify snags and enable to have better and efficient systems. The companys management has made necessary changes to further stabilise the marketing set up to remain focused on the targets. At present the control systems are adequate considering the size of the company and nature of its operations. The internal audit department has covered newer areas of audit this year. Quality: The company strives for quality and its continued efforts to improve on quality has enabled it to sustain the market and its customers despite the trying times it is moving through. Your company believes in quality products and its this attitude of No compromise on quality has earned it high reputation in both domestic and international market. Your company is considered to be one of the top-notch quality manufacturers of knitted fabrics in the country. Research and development: The drive for quality requires continuous research and development, identifying newer and better products, which are cost effective, environment friendly and customer oriented. The company has developed fabric with special finishes like Teflon coating, moisture management fabric, stain-free, 3 thread fleece varieties, etc. as a result of its product development efforts. Health, safety and environment: The company has already established a safety committee which looks into the issues relating to working environment, prevention of work related health hazards, and provision of proper medical aids. The company continues to have a risk free working environment and history of nil major accidents. Environment: The company is committed to having pollution free environment and strives to work towards it on a continuous basis. We have always achieved as a group high environmental standards. The group has been in past awarded prestigious awards for having achieved and maintained high environmental standards, by The Greentech Foundation. The company has well maintained lush green gardens, green lawns and trees which have been instrumental in curbing pollution and maintaining pollution free working conditions for its employees. Human resources development: The company has been strongly working towards developing and motivating the employees for further growth. The company has been able to recruit and hire best talent in the industry with its strong HR policies. Ongoing management and refresher training programmes have enabled the employees to sharpen their skills for further development. The company has a rigorous selection process to identify best talents in the business and the same are reviewed and assessed periodically. The various employee welfare schemes and measures encourage the employees to work hard and give in their best.