Nagreeka Exports Ltd Management Discussions

1) Economic Scenario: a) Global Economy.

During the Financial Year 2023-2024, the export of ready-made garments fell substantially as compared to the corresponding period a year ago. However, Exports of Cotton Yarn have improved. Overall export of cotton textiles have also shown a growth over the previous year.

Export has reduced mainly due to adverse economic conditions in major destinations such as the European Union (EU), the US, and West Asian nations, Adverse economic conditions, coupled with the Red Sea crisis, are impacting the export of textile products, including ready-made garments, to foreign destinations. The export performance of different categories in the textile sector varied during the current fiscal year.

Adverse economic conditions in Western markets have indeed had a negative impact on textile and apparel exports. Some of these challenges can be overcome by exploring markets in the east such as Japan and Korea along with a focus on natural fibres and cotton which will continue to see growth in demand. Presently the main buyers of Indian ready-made garments (RMG) are European nations led by Germany, the Netherlands, Italy, Poland, Denmark and USA.

However, industry experts are hopeful that exports will improve in the upcoming months, especially with the US market showing signs of revival. According to CRISIL, Indias textile industry is expected to grow in calendar year 2024, driven by a consistent improvement in domestic demand, gradual recovery in exports, and lower cotton prices.

b) Indian Economy

India is a key player in textile exports, being a large exporter of textiles and clothing. The Indian textile industry stands as a cornerstone of the nations economy, boasting a rich heritage and centuries-old legacy. From the production of raw materials to the creation of finished goods, textiles play an important role in everyday life. The Indian textile industry is a dynamic and integral sector of the countrys economy, characterized by its rich heritage, various product diversity/ranges, and important contributions to various economic indicators. The Indian textile industry is highly diversified, containing a wide range of features from traditional handloom products to modern, capital-intensive textile manufacturing. The sector produces various textiles, including cotton, jute, silk, wool, and synthetic fibers, catering to both domestic and international markets. The luxury sector is relatively immune to economic cycles and can be an opportunity for Indias rich tradition in weaving and embroidery,

The economic benefits of textile exports in India are multifaceted, contributing to macroeconomic indicators and individual livelihoods. Textile exports serve as a major source of employment to over 45 Mn People in India, particularly in rural areas, where the industry provides livelihoods to millions of skilled and semi-skilled workers. The textile sector is a significant contributor to Indias gross domestic product (GDP), generating substantial revenue, tax income, and investments that fuel economic growth and development. Textile exports contribute significantly to Indias foreign exchange earnings, bolstering national reserves, stabilizing currencies, and supporting imports of essential goods and services. Indian exporters can implement strategic measures to improve their competitiveness and market share, overcome challenges, and capitalize on opportunities within the global textile market.

2) Industry Scenario and Development:

The Indian textile industry is balanced for continued growth, with projections indicating a significant expansion in market size. Calculations suggest that the industrys market size is expected to grow at a compound annual growth rate (CAGR) of 10% to reach US$ 350 billion by 2030, reflecting the sectors potential or further development and global competitiveness. India is the worlds sixth-largest exporter of textiles and apparel, with the domestic apparel and textile industry contributing about 2.3% to the countrys GDP, 13% to industrial production, and 12% to exports.

In conclusion, textile exports play a key role in pushing economic growth and development in India, contributing especially to foreign exchange earnings, employment generation, and industrial output. However, Indian exporters must navigate challenges such as competition, quality control, and sustainability concerns to succeed in the global market. By adopting strategic measures and leveraging Indias strengths in traditional craftsmanship and modern manufacturing, the Indian textile sector can continue to grow and contribute to the nations wealth.

3) Opportunities, Threat & Outlook

Exchange Rate: Fluctuations in exchange rates can impact the competitiveness of Indian textile exports. For example, in the current scenario, a depreciating Indian rupee against major currencies like the US dollar can make Indian textiles more competitive in international markets.

GDP: The countrys economic performance and GDP growth can influence the demand for textile exports. With Indias GDP growth rate at 7.8% in Q4 of last fiscal , there is a positive outlook for increased domestic demand and potentially higher textile exports.

Foreign Direct Investment (FDI): FDI inflows can affect the overall export performance of the textile industry. In the current year, FDI inflows into the textile sector have increased by 15%, indicating growing investor confidence and potential for export expansion.

Trade Quotas: Quotas imposed on textile exports can impact the volume and market access of Indian textiles. Currently, India has successfully navigated trade quotas, with textile exports showing a steady increase despite global trade challenges. India has signed Free Trade Agreement (FTA) with Australia, UAE and in negotiation with UK, EU & Canada. These will make Indian Textile more competitive in the market.

Technological Advancements: Technology adoption and innovation in the textile sector can enhance export capabilities. With investments in technology and digitalization, Indian textile exporters have improved efficiency and quality, leading to growth in textile exports.

Political Stability: Political stability plays a crucial role in creating a favourable environment for textile exports in India. The current stable political environment has provided a platform for supporting growth in textile exports, contributing positively to the sectors performance.

Competition from Low-Cost Countries

Indian textile exporters face extreme competition from countries with lower production costs, such as Bangladesh, Vietnam, and China. These nations often benefit from lower labour costs, government subsidies, and simplified regulatory processes, allowing them to offer textiles at more competitive prices.

Red Sea Crisis: As Yemens Houthi militants continue to target ships in the Red Sea, Indian exports are facing higher shipping costs due to rerouting around Africa. Around 95% of vessels have rerouted around the Cape of Good Hope, adding 4,000-6,000 nautical miles and 14-20 days to journeys, the commerce ministry had stated in a report. The cost of freight has increased multifold and availability of shipment space is very difficult.

Environmental Sustainability Concerns in India

The Indian textile industry is under increasing pressure to address environmental sustainability issues, including water consumption, pollution, and waste management. Textile manufacturing processes, particularly those involving dyeing and finishing, are often water-intensive and contribute to water pollution through the discharge of untreated effluents. Additionally, the industry generates notable amounts of solid waste, including fabric scraps and packaging materials, which pose disposal challenges and environmental risks. To address these problems, Indian textile exporters are slowly transitioning towards eco-friendly manufacturing practices, such as water recycling, energy efficiency measures, and the use of biodegradable materials. Implementing sustainable supply chain practices, engaging in eco-certifications, and collaborating with environmental organizations can further improve the industrys sustainability performance and reputation in global markets.

India is already re-processing pre-consumer textile waste in a big way. Efforts are underway to increase recycling of post-consumer waste.

4) Management perception of Risk Concern

The prices of raw cotton play a vital role on the fortunes of the textile industry. Various strategies are adopted by the Management from time to time to hedge the said risk. With an established Currency Risk Management Policy, the foreign currency exposures are continuously monitored and hedged accordingly which helps mitigate risk arising from volatile and fluctuating currency exchange rates.

5) Internal Control System

The Company has an effective and adequate internal control system and procedures which are commensurate with its size and nature of business. The Internal control systems are designed in such way that all the assets are safeguarded and protected against loss and all transactions are authorized, recorded and reported correctly. The Audit Committee monitors and evaluates and reviews the Internal Financial Control systems of the Company. Regular Internal Audits and checks are carried out to provide assurance that the responsibilities at various levels are discharged effectively and that adequate systems are in place.

6) Human Resources / Industrial Relations

Employees are the cornerstone of our business success. The Company has a supportive work culture and the employees have a strong affinity to the Company. We have an experienced and qualified workforce across multiple disciplines. We are also led by a dedicated and experienced executive management team that has a median of about 20 years of experience across the trade. Performance management is the key word for the company. Your Company also conducts in house training program at various levels. Industrial relations have been very smooth throughout the year.

7) Cautionary Statement:

The report may contain "forward looking statement" that describes our objectives, plan or goals. All these forward looking statements are subject to certain risks and uncertainties including but not limited to Government action, economic development, global and domestic demand-supply conditions, finished goods prices, raw materials etc. that could cause the actual results to differ materially from those contemplated by the relevant forward looking statements.

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.