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.
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
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:
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.
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.
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.
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.
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.
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
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.
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