Nitin Spinners Ltd Management Discussions.
The year 2016-17 was witnessed several fast-pace events, punctuated by significant and unpredictable political and economic changes. The rise of populism in the globalised economy, driven by events like Brexit, the US Presidential election, and the recent referendum on reforms in Italy. With global economic recovery still remaining subdued, the popular discourse over relentless use of unconventional monetary policy support has now started to pave way for a prudent fiscal policy role in countries like US, UK, and Japan.
These global undercurrents will continue to dominate economic and financial outcomes in 2017.
India emerged as the fastest growing economy globally with a growth rate of around 7% in 2016-17. The economy performed up to its potential despite fears of slowdown owing to demonetisation of high value notes. The countrys business environment is gradually becoming attractive in the backdrop of favorable Government policies, lower inflation and lower interest rate scenario. The high-impact micro reforms and critical structural reforms have begun to redesign the macro frameworks and institutions. Resultantly, Indias ranking in the 2016-17 Global Competitiveness Index, released by the World Economic Forum, improved 16 places to 39, which is the fastest improvement among 138 countries surveyed. The long-term effects of demonetisation are expected to be positive with an increased liquidity in the banking system and decreased lending rates. The implementation of G.S.T in July 2017, and various other reforms, will eventually help the nation towards improving its productivity and generate positive business climate.
The Textile Industry plays a significant role in the Indian economy. It constitutes 20% of Industrial Production, contributes around 10% to the Export revenues and 20% to the employment in the Industrial Sector. India further accounts for 20% of the global installed capacity of spindles and is one of the largest exporters of yarns in the international market. The industry is driven by the following strengths:
Availability of a wide variety of cotton fibre
Fast growing synthetics-fibre industry
Wide range of cotton/spun yarn
Presence across the value chain
Trained manpower-technical and managerial
With these fundamental advantages, the overall picture of the Indian textile and apparel sector presents an enormous potential.
Key Industrial Developments
In the year 2015-16, the textile industry witnessed several challenges, especially in the cotton textile sector. Low acreage and decline in productivity was one of the primary area of concern. This led to decline in cotton production to 338 Lacs bales in 2015-16 as against 386 Lacs bales in 2014-15. The estimates for current cotton 2016-17 season are marginally higher at 351 Lacs bales. The cotton prices witnessed unusual surge of around 30%, even at the beginning of current cotton season from October, 2016. This further led to an increase in the yarn prices, however sluggish global demand coupled with marginally flat domestic demand adversely impacted the margins of the textile industry. Going ahead, the cotton season of 2017-18 is expected to witness production improvement to bring stability in the prices of cotton in the local and global market.
Opportunities and Threats
The global textile and clothing trade is valued around US$650 Billion with India contributing to around 5.50% vis-a-vis Chinas 44%. The global trade is further projected to grow around US$1,300 Billion by 2022. Assuming Indias share of about 10%, an export performance of about US$ 130 Billion is expected over the next seven years i.e. an addition of US$ 90 Billion to the present level of about US$ 40 Billion. This shows Indias potential to emerge as a global manufacturing hub for textile and clothing. The domestic market also offers significant growth opportunities for Indian textile industry. The domestic fibre consumption of less than three kg, is one of the lowest globally. Increasing population, favourable demographics, rising per capita income, affordability and global trend awareness will further drive the domestic growth. As a result, the fibre consumption is expected to grow from the present levels of 9 Million tons to above 14 Million tons by 2020. This will lead to the growth of the Company and improvement in the margins in the coming years.
The threats comprise severe competition both in domestic and international markets, leading to pricing pressures on finished goods, inflation, foreign exchange fluctuation, volatility in input cost, cotton crop, interest rates and power cost among others. Government Policies also play significant role in the growth of the Industry.
Please refer to the paragraph under the heading "Financial Results" and "Operational Review" in the main Boards Report.
The Management reviewed the disclosure requirement of Segment wise reporting and is of the view that since the Companys products are covered under Textile Industry which is single business segment in terms of AS-17 and therefore separate disclosure on reporting by business segment is not required.
Environment and Safety
The Company is conscious of the need for environmentally clean and safe operations. The Company policy requires the conduct of all operations in such manner so as to ensure safety of all concerned, compliance of statutory and industrial requirements for environment protection and conservation of natural resources to the extent possible.
Human Resource and Industrial Relations
Human resource is the most valuable asset in any organisation. The Company focuses on the training and development of its people. The Company has taken various initiatives to improve and enhance skill of its people. The industrial relations remained cordial in our plant. The total strength as at the end of the financial year 2016-17 was 2,864 employees.
Internal Control System and Their Adequacy
The Company has proper systems for Internal Control. The systems are improved and modified continuously to meet with changes in business conditions, statutory and accounting requirements.
The Audit Committee of Board of Directors actively reviews the adequacy and effectiveness of internal control systems and suggests improvements for strengthening them. The Company has strong Management Information System, which is an integral part of control mechanism.
The risk management framework of the Company establishes risk management across all service areas and functions of the Company, and has in place procedure to inform the top Management about the risk assessment and minimisation process. The Company is exposed to risks from market fluctuations of foreign exchange, finance and commodity price risk.
Foreign Exchange Risk
The Company has considerable exposure in foreign currency as the export constitutes about 63% of the total turnover. In the market determined exchange rate regime and volatility in the forex market affects realisation of the Company.
Mitigation measure: The Company has well documented foreign exchange risk policy and currency risks are hedged accordingly through forward contracts.
The Company has financed a substantial part of its expansion plans through debt. The debt agreements are subject to financial covenants.
Mitigation measure: The forecast cash requirements of the Company are closely monitored along with actual and projected to ensure adherence to covenants.
Commodity Price Risk
The Company is exposed to the risk of price fluctuation on cotton and coal well as finished goods. Input costs, being based on agriculture, are influenced not only by the vagaries of nature but also government policies and the movements in the international market.
Mitigation measure: The Company continues to recognise the importance of the price value equation and the need to be sensitive to price changes to counter the volatility of input costs and the same is managed through judicious purchase and stocking.
Risk Element in Individual Business
Apart from the risks on account of interest rate, foreign exchange and regulatory change, various business of the Company is exposed to certain operating business risks
Mitigation measure: The potential risks are proactively managed by regular monitoring and corrective actions.
Statement in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factors.
|For and on Behalf of the Board of Directors|
|R. L. NOLKHA|
|Date: 6th May, 2017||Chairman|
|Place: Bhilwara||(DIN 00060746)|