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Pashupati Cotspin Ltd Management Discussions

410.05
(1.41%)
Jul 18, 2024|03:32:07 PM

Pashupati Cotspin Ltd Share Price Management Discussions

GLOBAL ECONOMIC OVERVIEW

Indias Economic Survey 2022-23 indicates that private investment gathered momentum during the current fiscal in allmajor sectors, including the textile sector. However, manufacturing industries like textiles, apparel and leather have beenshowing tepid growth as the export demand for these products remained soft due to slow global demand.

A quick study of the survey report by the Confederation of Indian Textile Industry (CITI) showed that the textile sectorrecorded private investment of about 10,000 crore in first half of 2022-23 (i.e., April 2022 to September 2022). But theinvestment slowed down to around 7,000 crore in second half of the current fiscal. Textile sector was underperformercompared to other economic sectors like steel, electricity, chemical, auto and pharma.

The growth in textile sector was disappointing because of tepid demand from global market. In the first eight months ofthe current fiscal, the sector could maintain positive growth (of 5.9 per cent year-on-year) only in May. The textiles sectorgrowth remained negative in the remaining seven months from April to November 2022. The sector witnessed negativegrowth of 0.4 per cent in April 2022, 3.1 per cent in June, 9 per cent in July, 12.5 per cent in August, 13.9 per cent inSeptember, 18.7 per cent in October and 9 per cent in November 2022.

As per the report, wearing apparel industry recorded growth in April (55.2 percent), May (69.9 percent), June (42.6 percent) and July 2022 (15.1 per cent). But it went into red in August (-18.3 per cent), September (-21.6 per cent), October(-36.6 per cent) and November 2022 (-11.7 per cent). Leather and related products noted growth of 5 per cent in April,47.5 per cent in May and 1.9 per cent in June 2022. But they too turned negative in subsequent months and registereddegrowth of 13.5 per cent in July, 16 per cent in August, 17.5 per cent in September, 25.5 per cent in October and 2 percent in November 2022.

The survey indicated that most of the segments within the manufacturing sector, except the textile industry, witnessedgrowth in credit offtake in November 2022. Foreign Direct Investment (FDI) could not recover in the textile sector afterCOVID disruption in fiscal 2020-21.

Minister Goyal has encouraged the textile industry to utilise current ministry schemes, including the National TechnicalTextiles Mission and Scheme For Capacity Building In Textile Sector (Samarth). The dialogue focused on sustainability,R&D centre establishment, ESG compliance, and value-added product creation in the upcoming PM MITRA parks. Aphased development of these parks for resource efficiency and better textile value chain integration was emphasized. Two action teams were proposed to study ESG norms and global best practice park design for future PM MITRA units.

Following Prime Minister Narendra Modis 5F vision (Farm to fibre; fibre to factory; factory to fashion; fashion to foreign)to create a self-reliant India and strengthen its position in global textiles, a scheme was announced in the 2021-22 UnionBudget to set up seven PM MITRA Parks. The PM MITRA scheme aims to establish an integrated textile value chain,reducing industry logistics costs. Expected to create about 100,000 direct and 200,000 indirect jobs per park spreadover 1,000 acres, with proposed investment of around 70,000 crore, these parks will be developed through Public-Private Partnership.

INDIAN ECONOMIC PROSECTIVE

The financial year 2022-23 opened with a firm belief that the pandemic was rapidly on the wane and that India waspoised to grow at a fast pace and quickly ascend to the pre-pandemic growth path. The economy was expected to growat 6.5 to 7% for FY23 despite pandemic recovery and the Russia-Ukraine war. Indias economic growth in FY23 has beenprincipally led by private consumption and capital formation.

Global growth has been projected to decline in 2023 and is expected to remain generally subdued in the following yearsaswell. Outlook: 2023-24.

The consumers in US, Europe and other major markets have cut spending on clothing following a surge in inflation afterthe Ukraine war.

However, the overall Indian economy is relatively strong and is outperforming major economies; the textile sector is anotableexception. Exports which constituted 22% of industry have fallen significantly. Domestic market is flooded withcheap imported garments that have disrupted the local manufacturers.

Indias recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by soliddomestic demand and a pickup in capital investment. The Indian textile and apparel industry is expected to grow at10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26. India has a 4% share of the global trade in textiles andapparels.

In 2022, the overall size of the home textiles & furnishing industry, including the unorganized sector, was about $18-19billion,of which $8.2 billion was exported and remaining $10 billion was domestic consumption. About 40% of domesticconsumption in home textiles was for the bed & bath category alone. Still, over 95% of domestic demand is met by theunorganized andMSME sectors. Wider definition of furnishing will also include furniture and home decor accessoriesand these numbers would get better.

Even though Indias outlook is positive for the upcoming financial year, the global outlook, especially the advancedeconomyare weighed down on account of a combination of a unique set of challenges expected to impart a few downsiderisks. This would have an impact on the export market for textile industry which has been tepid for most part of H2 of FY23. However, theinclusive and higher expected domestic consumption would compensate for the reduced exports.

OUTLOOK:

After the historical rise in cotton prices in the last cotton season, the new season cotton prices have reduced and remained at around INR 60-62K/candy. At the same time the yarn prices reduced disproportionately in comparison to yarn prices. On account of higher cotton prices, export of yarn, fabric and garment sector was hit badly. This has reducedin overall demandin textiles and has also affected the textile value chain. Many of the manufacturers in textile industryhave operated their facility at partial loads for the last year. The Company alsohad to operate the facility at partial loadsincurring huge costs. Further, the quantum of job-work basis being undertaken at our facility was reduced on account offinancial in viability as a result of lower yarn prices.

OPPORTUNITY

Subdued domestic demand and declining export demand due to lockdowns in global markets on account ofCOVID-19 come as a double blow for textile companies While domestic demand expected to revive in third quarter ofFY22 with the onset of festive season and reopening of retail spaces, export demand would fairly depend on recoupof major economies such as the US and the UK & China.

As food and clothing will continue to remain key purchases, there is always hope for this industry.

THREATS

• safety and health of the workers and staff;

• disrupted supply chains

• lack of demand or the fear significant drop in demand

• Lack of liquidity.

• Cotton contamination and quality problem.

• Increased pressure on prices.

• Competition from international brands

SEGMENTAL REVIEW AND ANALYSIS

Your Company continues to operate in one business segment onlyi.e. processing of Kapas (raw cotton) by way of Ginning of cotton, spinning of cotton yarn and delineating Process. Production at both units has been maintained and therewas a sustained demand for yarn of all varieties. The efforts to keep costs under control continue with emphasis onincreased productivity.

OUR COMPETITIVE STRENGTHS:

Manufacturing facility with locational advantage and state-of-the-art machinery to deliver quality products

Our manufacturing facility located in Kadi taluka in Gujarat which enjoys locational advantage since Kadi is a major and one of the best quality cotton growing and processing areas in India that produces one of the best cotton. It is also a major centre for cotton breeding in western zone. Our Kadi unit is located near mehsana so the connectivity to the big ciies such as Ahmedabad, and ports such as kandla and Mundra are easy to reachout which helps in saving logistics cost for export operations.

Quality control measures

Our Company has implemented stringent quality control measures to produce superior quality yarn for our domestic as well as international customers. As the quality of our products depends on the raw material quality, so we source the superior quality raw material from farmers/ suppliers. Bale management system is followed for consistent superior yarn quality, and for this, cotton stock is maintained for 5-6 months. In auto coner utmost care is taken for achieving 85% splice strength with defect-free packages. Further, apart from in process inspection system, our mill has adopted stringent final inspection procedure before dispatching yarn to its customers.

Experienced management team with strong industry expertise

Our Companys Managing Director, Mr. Saurin Jagdish Bhai Parikh, has been instrumental in developing Ginning business of our Company. He has in depth knowledge in selection of Kapas and Cotton. Mr. Tushar Rameshchandra Trivedi, Whole-Time Director of Company, has vast experience in manufacturing of best quality cotton yarn. He also looks after the day-to-day affairs of the Company.

RISK AND CONCERN

The Key factor in determining a companys performance is the companys ability to manage the risks in it business/environment effectively. Many risks exist in a companys operating environment and they emerge on a regular basis,Viz Currency Risk, Commodity price Risk and Human Resource Risk. Risk management is embedded in operating framework of your Company. The risk management framework defines the risk management approach of the Company and also includes the periodical review of such risks. Your Company believes that managing risks helps in maximizing returns. The Board and the Audit Committee review the risk management framework periodically.

Other risk, factors include:

• Rising input costs

• Labor availability

• Weak economic environment and consumer sentiment

• Competition

• Trade Barriers

KEY RATIOS

Sr. No. Particular Ratio For F.Y. Variance
2021-22 2020-21
1. Debtors Turnover Ratio 6.56 Times 13.19 Times -50.27% Due to decrease in the turnover as compare to previous year
Formula: Debtors Turnover Ration= Net Credit Sales/Average Account Receivable
Definition: The Debtors Turnover Ratio also called as Receivables Turnover Ratio shows how quickly the credit sales are converted into the cash. This ratio measures the efficiency of a firm in managing and collecting the credit issued to the customers.
2. Inventory Turnover Ratio 7.61 Times 8.97 Times -15.16%
Formula: Inventory Turnover= Sales/Inventory
Definition: Inventory turnover is a ratio showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.
3. Current Ratio 1.16 Times 1.94 Times -40.21% Reason for Change : Due to increase in short term borrowing.
Formula: Current Ratio=Current assets/ Current liability
Definition: The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations. It compares a firms current assets to its current liabilities, and is expressed as follows: The current ratio is an indication of a firms liquidity.
4. Debt Equity Ratio 1.56 Times 1.64 Times -4.88%
Formula: Debt Equity Ratio = Debt/Total Equity
Definition: The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders equity and debt used to finance a companys assets. Closely related to leveraging, the ratio is also known as risk, gearing or leverage.
5. Net Profit Margin Ratio 1.11% 1.87% -40.64% Increase in earnings due to better operating margins in line with revenue growth which in the previous year was affected mainly due to Covid-19 pandemic.
Formula: Net Profit Margin= Net Profit/ Sales
Definition: The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production, administration, and financing have been deducted from sales, and income taxes recognized.

FINANCIAL AND OPERATIONAL PERFORMANCE

(Standalone) (Amount in lakh. Except EPS)

Particulars for the year ended March 31,2023 March 31,2022
Net revenue from Operations (Sales) 44273.28 66138.19
Profit Before Depreciation and Tax 1481.67 2962.04
Less: Depreciation 867.64 1354.69
Profit Before Extra ordinary Items and Tax 614.03 1607.36
Extra Ordinary Items 0.00 0.00
Profit Before Tax 614.03 1607.36
Tax Expense
-Current Tax 40.47 641.06
Less: MAT Credit Receivable 0.00 0.00
-Deferred Tax 162.79 (146.25)
Profit After Tax 410.77 1112.55
EPS (Basic) (In ) 2.69 7.28
EPS (Diluted) (In ) 2.69 7.28

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Relations with the employees were cordial throughout the year. The Company provides to its employees favourable work environment conducive to good performance with high degree of qualityand integrity. The Company continuously nurtures this environment to keep its employees highly motivated and result oriented. Effective Human Resource Practices and customized training programmes enable building a stronger performance culture.

The Company took measures to protect its employees during second wave of Covid-19 pandemic. The Company introduced safety norms, created continuous awareness about the pandemic and introduced preventive and safety measures including workplace sanitization, thermal screening, demarcation of work areas, etc.

CAUTIONARY STATEMENT

Statements in this Management Discussions and Analysis Report describing the Company objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable security laws or regulations. These statements are based on reasonable assumptions and expectations of future events. Actual results could however, differ materially from those expressed or implied. Factors that could make a difference to the Companys operations include market price both domestic and overseas availability and cost of raw materials, change in Government regulations and tax structure, economic conditions affecting demand / supplies and other factors over which the Company does not have any control. The Company takes no responsibility for any consequence of decisions made based on such statements and holds no obligation to update these in future.

By Order of the Board of Directors
For, PASHUPATI COTSPIN LIMITED
SD/-
Saurin Jagdish Bhai Parikh
Date: 06/09/2023 Chairman & Managing Director
Place: Ahmedabad DIN: 02136530

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