omansh enterprises ltd share price Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Economic context and Textile and Apparel market situation

Though 2021 saw the Global economy grow at 6.1%, it is projected to slow down to 3.6% in 2022 and 2023 as per IMF. Employment and output are expected to be below pre-pandemic trends through 2026. Significant downside risks to the global economy are dominated by a possible worsening of the Russia-Ukraine war, escalation of sanctions on Russia, a sharper-than-anticipated deceleration in China as a strict zero- COVID strategy is tested by Omicron, and a renewed flare-up of the pandemic should a new, more virulent virus strain emerge. Moreover, the war in Ukraine has increased the probability of wider social tensions because of higher food and energy prices, which would further weigh down the Global economy. The invasion has contributed to economic fragmentation as a significant number of countries sever commercial ties with Russia and risks derailing the post-pandemic recovery. Although many parts of the world appear to be moving past the acute phase of the COVID-19 crisis, deaths remain high, especially among the unvaccinated. Moreover, recent lockdowns in key manufacturing and trade hubs in China will likely compound supply disruptions elsewhere.

The unprecedented support provided by fiscal and monetary policies around the world enabled us to live through peak pandemic quarters with a lighter than potential economic impact. However, the same along with supply side challenges is driving inflation to historical levels. Fuel and food prices have increased rapidly, with vulnerable populations—particularly in low-income countries— most affected. For 2022, inflation is projected at 5.7 percent in advanced economies and 8.7 percent in emerging markets and developing economies. In some advanced economies, including the United

States and some European countries, it has reached its highest level in more than 40 years, in the context of tight labor markets. In the matter of a few weeks, the world has yet again experienced a major transformative shock. Just as a durable recovery from the pandemic-induced global economic collapse appeared in sight, war and inflation have erased all the gains.

All this will lead to a slowdown in US, UK and Eurozone whose economies are expected to grow at 3.7%, 3.7% and 2.8% in the coming year respectively. As the western world becomes the epicentre of global tensions, advanced economies are expected to grow slowly at around 3.3% while emerging and developing economies are expected to grow at 3.8%.

Leading the surge of growth in developing countries is India. Indias estimated growth in FY21-22 is going to be between 8.3% to 8.8%, followed by equally strong growth of more than 7.4% in FY22-23 as per FICCI. It forecasts the growth for industry and services sectors at 5.9% and 8.5%, respectively, during the fiscal year. Indias growth has also been hit by the recent war with rising prices of crucial imports like crude oil, wheat, fertilizer and edible oil. However, the Indian economy has strong fundamentals to be on the ascent. The results of growth- enhancing policies and schemes such as production-linked incentives and governments push toward selfreliance, and increased infrastructure spending will start kicking in from 2023, leading to a stronger multiplier effect on jobs and income, higher productivity, and more efficiency—all leading to accelerated economic growth. Furthermore, pent-up demand is expected to pick up with a slight delay as partial pass-through of higher food and oil prices weighs on consumers sentiments and pockets.

The global textile market is expected to grow by 8.03% from $530.97 billion in 2021 to $575.06 billion. The market is expected to grow to $760.21 billion in 2026 at a compound annual growth rate (CAGR) of 7.2%. The pandemic has acted as a massive restraint on the textile manufacturing market in 2021 as supply chains were disrupted due to trade restrictions and consumption declined due to lockdowns imposed by governments globally.

Cotton textile, the major contributor to the Indian textile industry has been adversely affected by the unimaginable rise in cotton prices fuelled by low cotton stock availability. That coupled with inflation leading to frequent demands among labourers for salary hikes has put extreme pressure on margins. But, the Indian governments support moves like increase in rates of incentives for the exports of readymade garments and dress materials from 2% to 4%, the National Technical Textiles Mission, allowing 100% Foreign Direct Investment (FDI) in the textile industry, Scheme for Capacity Building in Textile Sector (SCBTS) launched by the Cabinet Committee, Production-linked incentive (PLI) schemes for promoting the Textile and apparel industry, Prime Minister Mega Integrated Textile Region and Apparel (PM MITRA), etc are going to provide a massive fillip to the industry. The government has also drawn certain schemes for farmers growing silk and cotton in India. This might help to lower prices of raw materials for the industry. Indias domestic textile and apparel production is worth $140 billion. Cashing in on a resurgence of demand from advanced economies, India shipped out textiles, garments and allied products worth almost $40 billion in FY22, up 67% from a year before. The government has set an export target of $100 billion over the next five years, from $34 billion (201920). This kind of scale will help drive efficiencies in logistics and procurement, and will bring down the cost of manufacturing allowing India to compete with the likes of Bangladesh and Vietnam.

"China Plus One" sentiments are also lending India a favourable position as global companies look at sourcing and manufacturing destinations outside the "factory of the world". The first port of call were Bangladesh and Vietnam, which have now gotten saturated. For last 3-4 seasons, many programs have migrated their sourcing to India, and have stayed that way indicating a permanent shift.

In summary, the global environment looks challenging, though the markets in India are likely to do much better. The industry support by the government, the favourable Geo-political equations coupled with the resilience of Indian entrepreneurs will likely hold the Indian economy and the Textiles and Apparel sector in good stead.

Revenue

FY22 started on a challenging note as the Delta variant caused significant loss of life and disrupted economic activity severely. However, things improved quickly thereafter and the Company posted full year revenues of Rs. 3,65,58,006/-.