Nahar Industrial Enterprises Ltd Management Discussions.

Overview of the economy

In the starting of FY2018-19, it was estimated that Global economy would grew by 4% growth. This rate of development gradually declined to 3.6 %. (Source: world economic outlook by International Monetary Fund). In the past couple of years the world is witnessing increasingly harsh protectionist measures by means of higher tariffs, trade barriers, etc. This compounded by the US China trade dispute, uncertainty surrounding Brexit and slowdown in China & Europe have contributed to the lowest global trade volumes. The Indian economy has also been affected, the private consumption, the main stay of aggregate demand and economic activity continues to remain sluggish. Indias GDP is expected to close the year 2018-19 with a growth rate of 6.8% (source : business today).

Industry Structure/ Development (Textiles)

Indian textile and clothing industry (Textile industry) is one of the oldest industries in Indian economy. The Indian textiles industry is extremely varied, with the hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital intensive sophisticated mills sector at the other end of the spectrum. The close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes the Indian textiles sector unique in comparison to the industries of other countries. The Indian textile industry has the capacity to produce a wide variety of products suitable to different market segments, both within India and across the world. The textile and apparel industry is one of the leading segments of Indian economy and one of the key sources of foreign exchange earnings. India is the worlds second-largest textile manufacturer after China. It has a large raw material base and capable of producing a wide variety of textiles and end products. This industry contributes to 7% of industrial output in value terms, 2% of Indias GDP and 15% of the countrys export earnings with over 45 million people employed directly, the textile industry is one of the largest sources of employment generation in the country. (Source Annual Report 2017-18, Ministry of Textiles, Government of India)

During the year under review, the textile industry remained fragile and the macro environment surrounding the textile business continues to be challenged by various factors like increased costs of raw material, stressed working capital cycles and over production capacities. On the exports front, Indian Textile industry seems to be losing out against Bangladesh and Vietnam in terms of the cost competitiveness. However to further strengthen the textile sector in the country various incentives and schemes were rolled out by the Government of India from time to time. The Government of India has taken several measures which includes;-

• The Amended Technology Up-gradation Fund Scheme (A-TUFS), scheme is estimated to create employment for 35 lakh people and enable investments worth Rs 95,000 crore by 2022.

• The Government of India has approved a skill development scheme named Scheme for Capacity Building in Textile Sector (SCBTS) with an outlay of Rs 1,300 crore from 2017-18 to 2019-20.

• The Union Ministry of Textiles, Government of India, along with Energy Efficiency Services Ltd (EESL), has launched a technology upgradation scheme called SAATHI (Sustainable and Accelerated Adoption of Efficient Textile

Technologies to Help Small Industries) for reviving the power loom sector of India.

• In March 2019, the Central government approved a scheme to rebate State and Central Embedded Taxes for apparels and made-ups exports.

• 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 2 per cent to 4 per cent.

• The Government of India announced a Special Package to boost exports by US$ 31 billion, create more job opportunity and attract investments during 2018-2020. (Source: IBEF, care ratings and Business Standard)

Management perception of Risk/Concern/Threat/

Indian textile industry is mainly dominated by cotton and accounting for nearly 3/4th of the total fibre consumption in the country. Cotton is the primary raw material for the textile industry. Availability of raw cotton at the reasonable prices is crucial for the textile industry; any significant change in the raw cotton prices can affect the performance of the industry. Cotton is largely dependent on Monsoon as approximately 62% of Indias cotton is produced on rain fed area and 38% on irrigated land.

Global 2018/19 cotton production is expected lower by 4.2 percent from the previous year to 118.5 million bales, as many major cotton producing countries, except Brazil and China, witnessed decreases. Indias 2018/19 production is estimated at 27 million bales, down 6.9 percent from the preceding year on lower area and yield. As a result, Indias crop dropped below Chinas for the first time in five years. Harvested area is estimated at 12.3 million hectares, marginally down 1.6 percent from 2017/18 as below-average monsoon rainfall and pink bollworm infestation truncated harvesting. Indias 2018/19 yield is estimated at 480 kg/hectare, down 5.3 percent from the previous season with deficient rainfall and pest infestation in the major cotton producing areas of Gujarat and Maharashtra. (Source Cotton outlook /forum).

Due to reduced supply of cotton the cotton price remained firm in India in the current year as compared to other Cotton producing countries. In fact for most of the season, Indian Cotton price traded well above the new MSP level, announced by Government of India based on the recommendation by Commission for Agricultural Costs & Prices (CACP). International Cotton prices remained volatile throughout the Year mainly influenced by trade related developments between US and China. Such global volatility also imparted volatility to the Cotton prices in India.Due to the stressed liquidity and weak demand in the domestic and Export markets, it is difficult to pass on the cost to end customers; hence the margins are under pressure. Further, globally consumer shifting preference from cotton fibre to manmade fibre, which is available at lower prices, is also putting pressure on prices.

The advanced economies whimsical move most importantly the growing protectionism policy which holds out the risk of a global trade war. The mounting trade tension between two largest economies of the world i.e. USA and China is posing a risk of slow down.

Indian textile industry is facing tough competition from other Asian Countries like Bangladesh, Vietnam, and Sri Lanka due to favourable tariff structures on exports to developed markets. GSP plus for Sri Lanka, zero duty for Bangladesh to the EU are serious challenges. For Sri Lanka, the EU has taken several initiatives for export competitiveness.

The risk of inflation, increasing prices of raw material, rising labour cost, high transport cost, rising International oil prices, higher current account deficit, declining exports, rising imports, and rupee weakening are other key challenges faced by the Indian textile industry. While both a weak and a strong rupee have advantages and disadvantages, minimum volatility in currencies is good both for industry and economy.

Opportunities & Outlook

Growth in the textile sector largely depends on consumer spending and multiple factors are affecting consumer spending like actual and perceived economic condition, disposable income, employment and consumer credit availability. The rural economy is likely to see an improvement in view of the various proposals contained in the Union Budget 2018-19. Once rural economy starts growing it will be beneficial for industry at large.

Global Textile and Apparel Trade has grown at a CAGR of 3.6 % since 2005 to reach US $ 764 billion in 2017. Apparel share in the trade was 58% followed by fabrics with 19 % share in total trade. Indian domestic textile and apparel market is estimated to be us $ 100 billion (2018-19) which is expected to grow to US $ 220 billion by 2025 at ACAGR of 12%. (source wazir advisors annual report on Indian Textile & Apparel Industry).

China, the worlds largest apparel manufacturer and exporter, continued to shed market share in the global trade but India was not able to capitalise on the opportunity. Instead, a large chunk was garnered by Bangladesh and Vietnam. The developed countries have acknowledged that it is not viable for them a thriving textile industry because of high cost of labour and skilled manpower. These countries are looking at India as suitable and reliable choice for their requirements. This shift is expected to happen in the long run which is providing new place of opportunities as per the theory of "expected vacating places, to make India a dependable source of supply of textile products for the world. Consequently, Indian textile industry has opportunity to promote exports Even though apparel industry is dominated by developed markets of EU and the US presently account for 41% of the global apparel market, the emerging markets led by countries such as India and China are becoming consumption markets. Simultaneously India and the China have strong textile manufacturing base and thus are emerging as both sourcing and consuming nation.

The Government of India through its National Textile policy and National Textile Vision Document has set the target for Indian Textile and Apparel Industry to $ 350 billion by 2025 (domestic $ 200 billion and export $150 billion). With the government pursuing liquidity creation, growth, employment and consequently consumption, hopefully addressing the few remaining issues of GST for the industry, and also considering appropriate measures to compensate fully for the tax incidence on the industry, the situation should improve going forward.

The Government initiative for structural reforms; implementation of GST, growing resolution of problems associated with non-performing assets, FDI liberalization, bank recapitalization etc. and continuing efforts for ease of doing business-much has been done but a lot more needs to be done. RBIs efforts on controlling inflation are continuing. Though RBI has taken some remedial measures in this regard but still a lot more is required so that the textile Industry could meet the challenges ahead.

The Textile industry is passing through a difficult phase of uncertainties. The demand for textile products has fallen because of global slowdown in the economy. The high cotton prices coupled with lower global demand are affecting the fortunes of the textile industry. Spinning mills have already cut down their production even some mills have closed their operations because of prevailing adverse scenario. Uncertainties prevailing and future are still not clear. With the right Government policies, we believe that the Indian Textile industry is well poised to benefit from the large opportunities offered in the domestic and export market. The textile sector has perfect alignment with Governments key initiatives of Make in India, Skill India, and Rural Youth Employment.

Once demand for textile products recover and sustain it will boost the economy and industry. Indias consumption growth story, driven by favourable demographic trends and rising income level, is still intact and will further improve the fortunes of the industry. For India though the long term prospects for continued growth remain there, actual pace will depend on revival in private sector investment; long term players would need to continue to incur investment to both sharpen competitiveness, reduce costs, as well as expansion/ modernization to capture the potential of evolving demand. The Government must support the industry to retain its competitive edge. Industry expects Fiscal stimulus from Government of India to boost the economy.

Industry structure/Development (sugar)

The Indian sugar industry is the second largest agro-based industry in India. The Indian sugar industry has played pivotal role in the socio-economic development of rural India. It supports over 50 million farmers and their families. The Indian sugar industry is highly fragmented by the co-existence of private, co-operative and public sector. The crushing period in India varies from region to region beginning in Oct/Nov and goes on till March/April except in southern states where it continue till July/Aug depending upon the availability of sugar cane. Sugar industry was under severe crisis owing to higher production of sugar in sugar season 2017-18 and anticipated higher production in sugar season 2018-19. As a result of back to back higher production in two years, the sugar prices tumbled to a lower level. The Central Government took some measures to arrest the downfall in sugar prices i.e.

• Announced the Minimum Selling Price (MSP) of sugar at Rs. 29 per kilogram in June 2018 below which no sugar mills can sell sugar in India. This was raised to Rs. 31 per kg in Feb 2019.

• Notified the Scheme for creation and maintenance of Buffer Stock of 30 lakh tonnes of sugar for a period of one year from 1st July18. Interest cost, insurance and storage costs on buffer stock are reimbursed by Govt. Sugar Mills are eligible to get reimbursement @10.50 % p.a on value of buffer stock maintained.

• Notified the Scheme of Minimum Indicative Export Quota of 50 lakh tonnes for the sugar season 2018-19. In Oct18 announced financial assistance of Rs. 13.88/ qtl of cane crushed during SS 2018-19 subject to fulfillment of conditions.

• Notified the Scheme for Extending Soft Loan to Sugar Mills for SS 2018-19 in March 2019, covering 40 lakh MT of sugar stock. Sugar mills are eligible for this for 10.55% of SS 2017-18 sugar production with interest subvention support upto 7% for one year.

Management perception of Risk/Concern/Threat

In view of fragmented capacity and high input costs, Indian sugar industry suffers un competitiveness in the world market. As a result, sugar exports often times have to rely largely on the crutches of Government support measures. The mismatch between sugar and sugarcane prices in the absence of Price Stabilization Fund advocated by CACP creates periodical pressures, more particularly during industry downturn. Sugar industry is more vulnerable to government policies being regulated by the Central and state Governments that influence the cost of production.

Indian Sugar Production has historically been cyclical in nature with 3-4 years of bumper crop usually followed by 2 years of shortfall. The shortage years helped to restore Mills and farmers financial position. Since sugarcane farming is more profitable than any other cash crop in India. However this cyclical pattern has been broken lately with Sugar production outpacing consumption for six consecutive years from 2010-11 until 2015-16. Sugarcane is largely dependent on monsoon and unavailability of groundwater used for irrigation of sugarcane is condemned as water guzzler.. The management of your company periodically reviews to identify the major business risks as applicable to the Company and works out their mitigation strategy.

Opportunities and Outlook

India has a low per capita consumption of sugar with growing income. Sugar industry has huge opportunities to meet the countrys food, fuel and power needs in eco-friendly manner. This sector is the focal point of socio-economic development of the rural India. The long term outlook for sugar industry remains positive and promising on account of; growing energy consumption in India allowing the sugar industry to play a vital role, environmental friendly power generated by Co-generation Units equipped with high-pressure boilers and turbines that intelligently use the fuel to get optimum energy output, mandatory blending of Ethanol with petrol will boost the revenue of sugar mills and profitability. The company continued to work closely with farmers and emphasized more on cane development, to increase farm yields and cane quality

Segment wise/ Financial/Operational performance

The company operates in two segments i.e Textiles and Sugar. Please refer Directors Report on the performance review.

Highlights of the Companys Financial Performance:

(Rs. in lakhs)
Particulars Current Year Previous Year
Revenue from operations 186616.24 176274.88
Profit/(loss) before Tax (1752.38) 1780.81
Profit/(loss) after Tax (2157.52) 1722.14


Ratios Current Year Previous Year Change (%)
Debtor turnover ratio 7.71 9.79 21.25
Inventory turnover ratio 0.35 0.46 23.91
Interest Coverage ratio 0.84 1.25 32.80
Current ratio 1.28 1.31 2.29
Debt equity ratio 0.33 0.44 25.00
Operating profit margin (%) 3.01 5.02 40.04
Net profit margin (%) (1.16) 0.98 218.36
Return on Net Worth (3.11) 2.47 225.91

Internal Control System and Their Adequacy

The company is having adequate internal financial control systems and procedures which commensurate with the size of the Company. The Company is having Internal Audit Department which ensures optimal utilization and protection of Companys resources. The internal Auditors monitors and evaluate the efficiency and adequacy of internal control systems in the Company, its compliance with operating systems, accounting procedures and also ensures that the internal control systems are properly followed by all concerned departments of the company. Significant audit observations and corrective actions taken thereon are presented to the Audit committee of the Board.

Material Development in Human resources/ Industrial Relation Front

The Company is of firm belief that human resources are the driving force that propels a company towards progress and success and the company is committed to the development of its people. Your company is committed towards building a safe work place with underlining safe work practice. The total permanent employees strength was 10244 as on 31/03/2019. The industrial relations were cordial and satisfactory.

Cautionary statement

Though the statement and view expressed in the said report are on the basis of certain assumptions and best judgment but actual results could differ from whatever is stated in the report. Important factors that could make a difference to the Companys operation include global demand-supply conditions, finished goods prices, raw materials cost and availability, changes in Government regulations and tax structure, economic development within India and the countries with which the Company has business. The Company assumes no responsibility in respect of forward looking statements herein, which may undergo changes in future on the basis of subsequent developments, information or events.

For and on behalf of the Board of Directors
Jawahar Lal Oswal
Place : Ludhiana (DIN: 00463866)
Date : 14th August, 2019 Chairman