Patspin India Ltd Management Discussions

Economic Review

Global Economy and Outlook :

Global economy during CY 2023 witnessed remarkable resilience in the face of continuing economic adversities like geopolitical challenges, disrupting supply chain, demand slowdown and fluctuations in commodity prices led to inflationary pressures in both advanced and emerging markets. Additionally, the global economy witnessed significant increase in interest rate. All these posed challenge to the global growth. However, greater than expected Government spending, robust household consumption, and a notable expansion on the supply side the economic challenges were mitigated. The global outlook is expected to be stable or improve in CY 2024 and the global inflation is also receding to a greater extent. With no end to the geo-political crises in the near future, consumers are getting used to the prevailing situation which is reflected in rising international demand. However, downside risk to this outlook predominate with the geo-political situation like rising conflict in the Middle East which could lead to surging energy prices, financial stress from elevated real interest rates, persistent inflation, weaker than expected growth in China and Europe. These factors collectively contribute to uncertain and challenging global economic outlook.

Indian Economy:

Amidst challenging global economic scenario, India continued to be the fastest growing major economy surged to 4^th place in global ranking and established its position as a major economic power house. India exhibited strong resilience in FY 2023-24, primarily driven by government push for infrastructure, digitalization, ease of doing business, inclusive growth and improved quality of fiscal spending. The capital expenditure push particularly on roads and railroads has favoured in maintaining the economic growth rate. The manufacturing sector grew by 9.9% in FY 2024 owing to the favourable demand conditions in the economy. In FY 2024, Indias GDP touched 7.6% with Current Account Deficit (CAD) at 1.9% of GDP. With the improvement of business accessibility, the general investment climate is growing more favourable. According to World Bank estimates, the Indian economy is expected to grow at 7.5% in FY25 mainly led by activity in services and industry, rapid increase in investment and government consumption. Financial conditions in India have remained accommodative amidst global challenges.

Indian Textile sector:

The Indian Textile Industry has been a key contributor to the countrys economy with:

• 7% of the manufacturing production

• 2.3% of the GDP attributed to the sector

• 4% world share of US$ 840 billion global textile and apparel market,

• 13% to the export earnings of India and

• Employs more than 21% (45 Mn) of total employment (both skilled and unskilled)

The Indian Textiles Industry, which has been grappling with low demand for almost a year, is now feeling optimistic as the market begins to recover. Once the main reasons for this new found optimism is the decrease in inventory levels across the entire value chain. Additionally, China has recently purchase 6,000 tons of cotton yarn, boosting confidence in the market. The domestic market has also witnessed an improvement in demand, particularly as cotton prices stabilised. Cotton prices have remained stable at around Rs. 55,000-55,500 a candy and there has been good cotton supply in the market.

The top five export markets for the Indian Textiles sector are USA, Bangladesh, China, Sri Lanka and the UAE. The US accounts for over 25 per cent of Indias total cotton yarn, fabrics/made-ups and handlooms exports, followed by Bangladesh (16 per cent), China (6.6 per cent), Sri Lanka (4.4 per cent) and UAE (2.35 per cent). In 2023-24, the outbound shipments also entered new geographies like Anguilla, British Overseas Territory in the Eastern Caribbean, Serbia, Georgia, Sweden, Cyprus, Azerbaijan and Iran. The other new market explored by domestic exporters from the sector include Zambia, Cote Dlvore, Sierra Leone, and Russia. Brazil and Vietnam are promising markets where these shipments can be potted. On average, Indias exports of these products worth USD one billion every month.

Some of the most important textile production locations in India are Gujrat, Maharashtra, Tamil Nadu, Punjab, Uttar Pradesh, and West Bengal. The domestic market faced several headwinds during the recent years including fluctuation of cotton prices. Even the festive season did not bring enough market demand and at the same time increasing imports of fabrics from Bangladesh at lower production cost also put pressure in the domestic market. Although India is the largest exporter of the textiles and apparel in the global market, the contribution of the industry in trade declaimed in FY 2024. However, the export statistics indicate that cotton yarn, fabrics and handloom products experienced an increase of 6.71% in their exports.

Cotton

India is the biggest producer of cotton, accounting for 22% of the total cotton production in the world. More than 11.7 Million hectares of cotton in India are grown, compared to 31.2 million hectares worldwide, taking up 37% of the total world area under cotton cultivation. The Indian cotton industry provides a livelihood to about 60 million people.

In terms of exports, India is the third highest exporter of raw cotton globally, accounting for about 10.20% of the total global exports. India exported cotton to more than 159 nations worldwide in 2021-22. Between April 2021 and February 2022, Indias top cotton importers were Bangladesh, China and Vietnam. The three countries together accounted for 60% all exports from India. Gujarat accounts for 35% of all cotton produced in India, followed by Maharashtra with 21% of the countrys total production. Nearly two-thirds of Indias cotton production comes from the States of Maharashtra, Gujarat, Andhra Pradesh and Telangana, which are collectively referred to as the "Cotton Basket of India".

The cotton production in India for the cotton season 2022-23 (October to September) was 319 lakh bales (170 kgs) compared to 307lakh bales produced in the previous cotton season, representing a 4% increase. However, due to sluggish market demand for cotton yarn, the cotton price remained range-bound between Rs. 57,000 to Rs. 62,000 per candy. Despite some price correction in cotton, the fall in yarn prices was much sharper, leading to a wider disparity that affected the margins yarn spinners across India.

Present scenario

The Government of India consistently made efforts to support the growth of this industry.Some of the Key initiatives undertaken by the Government of India are –

(a) PM Mega Integrated Textile Region and Apparel Parks Scheme (PM MITRA Scheme) to build and develop textiles infrastructure

(b) Production Linked Incentive Scheme for Textiles (PLI Scheme)

(c) Kasturi Cotton Bharat – branding traceability and certification exercise

(d) National Technical Textile Mission (NTTM)

(e) Higher budget allocation in FY 2024-25 for Ministry of Textile at Rs. 4392.85 crores, 27.60% increase showing commitment of Government support

(f) Removal of Import duty on Extra Long Staple (ELS) Cotton

(g) Indian government is working on signing the Free Trade Agreement (FTA) with many countries, with UAE and Australia FTAs having been signed. For the UK, Canada and Europe, the negotiations are going on. If India becomes successful in getting 15% of the market share in the countries mentioned above, then our exports in the textiles sector will rise by US$15-20 billion.

Despite the aforementioned growth initiatives, we acknowledge the existences of certain market challenges including volatility in cotton prices and the availability of high quality cotton crops. We also anticipate headwinds in downstream segments, such as home textiles, while demand from the apparels and innerwear segment continues to recover. The domestic and export textile markets may remain moderate for some more time. Furthermore, we anticipate that changes trade policies and fluctuations in foreign exchange rates may impact the prices of imported cotton.

Companys outlook

Due to liquidity stress on account of delayed implementation of Restructuring / Resolution Plan (RP) by the Lenders and challenging market conditions for the Indian Textiles Industry, especially for Spinning segment, due to geo political situation and other external factors continued to impact Companys performance. In view of this, the Company continues to engage in Job work / Contract manufacturing during the financial year 2023-24. Major markets (USA & EU) are now showing signs of improvement due to moderate inflation and improved disposable income. Countrys cotton yarn exports also improved by 37% during the second half of FY 2023- 24 over the same period in the previous year. Further, with the various measures initiated by the Government to revive and give impetus to the Indian Textile Industry, company expect improved business opportunity and planned to resume own manufacturing operations, post restructuring of debt (WCTL) as aforesaid. With the significant reduction in the debt level as well as rationalization of labour cost through VRS measures and reducing cotton prices, own manufacturing operation could generate a cash profit to service the debts. On completion of restructuring process, the Company proposes to resume own manufacturing activities and carry on trading in cotton yarn for better prospects of the Company.

RISK AND CONCERNS

a. Raw Cotton, an agricultural product, is the key raw material used for the manufacture of cotton yarn. Almost 65 percent of area under cotton cultivation is rain-fed and hence is dependent on vagaries of monsoon, which this year has shown uncertain signs so far. Adequate availability of raw cotton at right prices is crucial for the Company. Any disruption the supply and/or violent changes in the cost structure would affect the profitability of the Company.

b. Your Company follows an efficient inventory management system and a well-crafted strategy of procuring raw materials through a mix of spot and long-term contracts. The companys conscious efforts on maintaining a judicious mix markets for its sales and thrust on specialty products like Better Cotton Initiative (BCI), Supima yarns and Giza yarns have also proved to be beneficial.

c. Volatility in foreign currency exchange rates vis-a-vis Indian Rupee is another area of concern since a sizable production of cotton yarn is exported by your company. The Company has in place various Management Information Systems, which enable the management to take decisions on exposures relating to exports and imports. The Company continues to strengthen these systems to minimize the risk involved due to adverse movement of exchange rates. d. Your Company has a system of assessing the risks on an ongoing basis. This includes an effective internal control and management reporting system. Further, the framework also captures the existing practices to manage commodity price risk, interest risk, and foreign exchange risk etc. An important aspect of this framework is to promote a balanced approach that considers risk and return.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a proper and adequate internal control system to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and that all transactions are authorized, recorded and reported correctly. The internal control is supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. The internal control is designed to ensure that financial and other records are reliable for preparing financial statements and other data and for maintaining accountability of assets.

DISCUSSIONS ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Please refer to Directors Report on performance review.

DETAILS OF SIGNIFICANT CHANGES

As required the details of changes of 25% or more as compared to the immediately previous financial year in key financial ratios along with details of reasons therefore are as under:

SN.	Particulars	Current Year 31.3.2024	Previous year 31.3.2023
1.	Debtors Turnover ratio	52.04	14.94
2.	Inventory Turnover Ratio	5.18	6.22
3.	Debt Equity Ratio	-4.71	-4.44
4.	Net Profit Margin (%)	-13.45	-24.14
5.	Return on Net Worth (%)	-7.52	-18.58

Reasons of variance

The company is operating now with plant in Kanjikode Palakkad, Kerala and due to aforesaid reasons company continue contract manufacturing / job work in the FY 2023-24. Hence it has impacted its performance and the key operating ratios.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

The Company recognizes the importance and contribution of its human resources for its growth and development and is committed to the development of its people. The Company has been adopting methods and practices for Human Resources Development. With utmost respect to human values, the Company continues to develop its human resources, through a variety of services by providing appropriate training, motivation techniques and employee welfare activities.

Industrial relations were cordial and satisfactory.

As on 31^st March, 2024, the Company has about 584 employees in its offices and factory.

CAUTIONARY STATEMENT

Statements made in this report describing the Companys projections, estimates, expectations or predictions may be forward looking predictions within the meaning of applicable securities laws and regulations. Actual result may differ from such estimates, projections, etc. whether expressed or implied. Factors which would make a significant difference to the Companys operations include availability of quality raw cotton, market prices in the domestic and overseas markets, changes in Government regulations and tax laws, economic conditions affecting demand / supplies and other environmental factors over which the Company does not have any control.