Nitin Spinners Ltd Management Discussions.

Economic Scenario

Global

The global economic growth is anticipated at 3.1% in 2018 with East Asia and Pacific remaining one of the worlds fastest-growing developing regions with a moderating growth of 6% in 2019, on account of broadly stable commodity prices, a moderation in global demand and trade, and a gradual tightening of global financial conditions. In the euro zone, the job market continued to improve with unemployment rate dropping to 7.8%. Further, retail sales accelerated in February demonstrating a growth of 2.8% YoY, reflecting a strong economic recovery. The growth was further driven by accelerating growth in developed economies, a steady performance in East Asia, and recovery from recession in several developing and transition economies. Investment growth on account of new investment in some commodity sectors was also witnessed as global commodity prices partially recovered from the steep losses of 2014 2015.

In the coming fiscal, the global economic growth is anticipated at 2.9% in 2019 owing to, moderation in International trade and manufacturing activity, elevating trade tensions and substantial financial market pressures. Further, slowing external demand, rising borrowing costs, and persistent policy uncertainties which are expected to weigh on the outlook for the emerging market and developing economies. While developed market is anticipated to grow at 1.9% in 2018-19, the rest of the region is expected to grow at 5.2% as strong demand offsets the negative impact of slowing exports. Despite slower global trade growth and tighter external financing domestic factors, particularly policy reforms, are anticipated to bolster growth in the African region reaching 1.9% in 2019. These economies are required to focus on mobilizing domestic resources, strengthening debt and investment management practices and building more resilient macro-fiscal frameworks. (Source: World Bank)

Indian

The Asian Development Bank has projected Indias growth forecast at 7.2% for 2018-19 as against 6.6% in 2017-18 owing to moderation in global demand. The acceleration in GDP reflects significant recovery of country from transition shocks leading to strengthening investment and robust private consumption. The countrys medium-term growth prospects remain strong at 7.75%, aided by ongoing structural reform and a favourable demographic dividend.

However, current account deficitworsened to 3% of GDP in 2018-19 before improving to around 2.5% in 2019-20. Further, inflation is projected at 4.7% in 2018-19 as against 3.6% in 2017-18 owing to accelerating demand and rising fuel prices.

Core inflation rose to about 6% during the year as a result of a tapering output gap and pass-through effects from higher energy prices and exchange rate depreciation.

Growth of the economy is expected to rebound to 7.6% in 2020 as policy rates are cut and farmers receive income support, bolstering domestic demand. Recent policy measures by the government to improve the investment climate and boost private consumption and investment will also help India to lift economic growth in the next two fiscal years. However, the growth forecast for India has some downside risks such as moderation in global demand as financial conditions tighten, uncertainty arising global trade tensions and the weak economic outlook in industrial countries. On the domestic front, growth could suffer if tax revenue falls short or any disruption affects the ongoing resolution of the twin problems of bank and corporate balance sheets. However, India will continue to be one of the fastest growing major economies in 2019- 20. (Source: ADB, Economic times)

Industry Overview and Outlook

Global Textile and Apparel Industry

The global textiles and apparel trade stood at 764 Billion USD and has grown at CAGR of 3.6% since 2005.Under this, the apparel segment accounted for market share of 58% while fabrics captured a share of 19% in the market. China, during the year, emerged as the largest exporter witRs 36% market share. India became the second largest exporter with a market share of 5% followed by Bangladesh and Germany.

Outlook

The industry is expected to reach USD 1000 Billion by 2025 growing at CAGR of 3.4%. While, the growth developed countries market are expected to slow down, the large emerging economies will emerge as the key drivers of the industry growth. Also, China and India, with a large population base, will be the fastest growing markets in the segment.

Indian Textile and Apparel Industry

India is the worlds largest producer of textiles after China and the second largest employment generator after agriculture. The textile industry contributes 10% to the manufacturing production of India. The country has abundance of natural resources like cotton, jute and silk which gives favourable demographics for textile industry. It is diversified with hand spun, hand woven textiles at one end of the scale while capital intensive sophisticated mills sector at the other end of the scale. This sector contributes 13% to the export earnings of India.

As an industry the apparel sector significantlycontributes to the economy of a country. The apparel industry promotes trade relations between different economies beyond geographical boundaries and helps generate revenues that contribute to the countrys GDP.The introduction of technology has considerably changed the global outlook towards apparel manufacturing and a higher importance is laid on advertising, designing and manufacturing of fashion accessories. Consumers these days are more informed and educated about fashion trends due to exposure to use of internet. (Source: Economic Survey, Fibre2Fashion, Wazir analysis)

The domestic textiles and Apparel market is estimated to be USD 100 billion in 2018-19 , growing at CAGR of 10% since 2005-06.The apparel demand at US$74 billion has dominated the domestic market with a share of about 75% in the total textile and apparel market. Moreover, it is the largest exported category capturing a share of 46% in the textile and apparel exports.

Outlook

The Domestic Textiles and Apparel trade is expected to grow at CAGR of 20% and expected to reach USD 220 Billion by 2025.The demand is driven by rise in per- capita income, favourable demographics and a shift to branded product preference In the present times, apparel manufacturing for domestic consumption is moving towards a huge shift towards scale, evolution of processes and systems, focus on higher compliance and accountability, and an era of responsive supply-chain facilitating faster turnaround.

Cotton Industry

The cotton crop production for 2018-19 (till January 2019) is estimated at 330 lakh bales of 170 kgs each. The crop estimate have been reduced for Telangana by 2.50 lakh bales, Andhra Pradesh by 50,000 bales and Karnataka by 2 lakh bales as the farmers in the Southern Zone have uprooted their cotton plants due to moisture deficiency as a result of which there is no scope for 3rd and 4th pickings. The total cotton supply projected during the months of October 2018 to January 2019 is 198.80 lakh bales, which consists of the arrival of 170.32 lakh bales and imports of 5.48 lakh bales up to 31st January 2019 and the opening stock at the beginning of the season estimated at 23 lakh bales. However, noticeable cracks have developed in land across Saurashtra region due to lack of soil moisture following heat waves in the region.

This has made second and third picking of cotton flowers impossible. Farmers have also started uprooting plants and clearing the field for rabi crop sowing. This also poses threat of spike in cotton prices in the near period.

Opportunity in the sector

• The rich availability of raw materials, skilled manpower and relatively lower cost of production such as cotton, wool, silk, jute provides India an edge over the other countries.

• Substantial investments by the Government in implementation of schemes such as SITP(Scheme for Integrated Textile Parks) and Technology Upgradation Fund(TUFS) provides a boost to the industry.

• Investment promotion scheme by State Government which provides Interest and Power subsidy

• The current FDI policy allows 100% foreign direct investment for the textile industry. The government also supports free trade with ASEAN countries such as China, Japan, Republic of Korea, Australia, New Zealand etc.

The proposed agreement with European Union is expected to bring a hike in the exports.

The rapid growth of Indian E-commerce companies provides ample opportunities to Indian Textile Industry.

The textile ministry of India has allocated RS 690 crore for setting up 21 readymade garment manufacturing units in seven states for upgradation of Indian textile sector.

Challenges faced by the sector

Indian textile industry grapples with domestic issues such as outdated technology, inflexible labour laws, infrastructure bottlenecks, and a fragmented nature of the industry.

Volatility in Cotton Prices have significantly impacted the exports of cotton and cotton yarn, pressurising the margins of the spinning companies.

• Competition from other low cost neighbouring countries such as Bangladesh, Vietnam, Indonesia and Pakistan is the biggest threats to Indian textile industry.

Company Overview

One of the leading players in the textile industry, Nitin Spinners commenced its operations as commodity yarn player, and has now expanded the operations to value added yarns. The Company manufactures a range of yarns, including open end yarns, multi-fold open end yarns, ring spun combed yarns, multi-fold ring spun yarns, compact yarns, fancy slub yarns, core spun yarns, S and Z twist yarns, dyeable cheese cones and organic cotton yarns and blends. Its product range in knitted fabrics include single jersey, pique structures, inter-lock structures, rib structures and three thread fleece. The Companys products are applicable in manufacturing products, such as apparel and garments, under garments, terry towels, woven fabrics, home furnishings, carpets, denim, industrial textiles and medical textiles among others. Further, looking forward to a promising growth in apparel sector, the company has forayed into finished fabrics segment, thus being equipped to cater to all type of fabric demand of apparel manufacturers.

Core Competencies

Management team has rich experience in marketing & textile manufacturing.

Well-defined quality and process system.

• Favourable location of plants, near to cotton producing belt and major consumption centres & ports.

Qualified and experienced professionals with rich and proven experience.

Established systems for process and plant management

Key Financial Ratios & Performance
Particulars FY 2018-19 FY 2017-18 Explanation in case change 25% or more as compared to Previous Year
Revenue (Rs In Lacs) 124251.05 114524.89 N.A.
EBITDA (Rs In Lacs) 18084.33 15717.39 N.A.
EPS 11.43 10.56 N.A.
Debtor Turnover 10.76 13.00 Higher Credit Cycle
Inventory Turnover 5.70 5.57 N.A.
Interest coverage Ratio 6.26 5.32 N.A.
Current ratio 1.43 1.97 Surplus Funds Deployed in expansion Project
Debt Equity Ratio 1.40 0.87 New Loans for expansion Project
Operating Profit Margin 14.55% 13.72% N.A.
Net Profit Margin 5.16% 4.57% N.A.
Return on Net Worth 13.29% 12.57%

For financial and product wise performance with respect to operational performance, please refer to "Financial Results" and "Operational Review" section in the Boards Report.

Risk Mitigation

Increase in the prices of raw material could negatively impact the business profitability The company thoroughly reviews the purchasing policy so as to control the purchase price of the commodity. Further, company also stores raw material to mitigate the impact of rising prices.
Company has global operations which involves dealing in foreign currency. Any fluctuation in the exchange rates could affect companys profitsand revenues. The company actively manages its currency rates exposures by application of hedging principles.
Textile industry is a huge industry involving large number of players. Inability of the company to face the competition may affect its operations The company has a team of experienced personnel who effectively and efficiently manages the
They understand the market demand and provides products in accordingly. This helps the company increase its customer base and stand strong against the competition.
Implementation of any policy, unfavourable for the business, may impact the operations of the company. Government have implemented various policies such as SITP, TUFS, Make in India etc. which has provided boost to the industry and company has successfully capitalised on it.
Company has operations in more than 50 countries across the globe. Lack of focus in any of the countries could lead to reduction in market presence in those countries. 32.07% of companys revenue is derived from the domestic market. Further, company efficiently manages its operations in the international boundaries as well which is reflected in the revenue of RS 844.06 Crores earned from the international business.

Environment and Safety

The need for environmentally clean and safe operations is companys key priority. The Company policy requires the conduct of all operations in such a manner so as to ensure the safety of all concerned, compliance of statutory and industrial requirements for environment protection and conservation of natural resources to the extent possible. The Company has also been accredited with OHSAS 18001:2007 (Occupational Health & Safety Management System) certification from British Standards

Human Resource

Employees, for Nitin, are the most valuable assets of the organisation. Driven by strong ethics, quality, integrity and team work, company works towards achievement of its goals and fulfilment of the objectives. Further, company takes various initiatives to improve the competencies and skills of its employees and provide them opportunities to build a career across ranks at Nitin. The company also organises various training and development programs to improve the performance of their employees which, in addition to improving career of the employees, proves beneficialto the companys operations. The Company has also been accredited with SA 8000:2014 (Social Accountability System) certification from British Standards India (BSI). During the year ended 31 March 2019, the company had strength of 3130 employees in the work force.

Internal Control System and their Adequacy

The Company has appropriate systems for Internal Control.

The systems are improved and modified continuously to meet with changes in business conditions, statutory and accounting requirements. The Company has strong Management Information System, which is an integral part of control mechanism. The Audit Committee of Board of Directors reviews the efficiency and effectiveness of internal control systems and suggests the solution to improve and strengthen. The Internal control system was tested during the year and no material weakness in design or operation was observed. India(BSI).

Cautionary Statements

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 : 10th August, 2019 Chairman
Place : Bhanwaria Kalan (DIN 00060746)