Pioneer Embroideries Ltd Management Discussions

Management Discussion and Analysis

Global Economic Overview

In CY23, the global economy has shown resilience amid challenges like supply chain disruptions from geopolitical conflicts and the lingering effects of the pandemic. Headline inflation, which peaked in CY22, gradually receded due to supply-side improvements and proactive Central Bank measures. Technological advancements are expected to enhance labor productivity and drive global growth, while structural reforms and improved talent allocation in Emerging Markets are expected to offer significant opportunities. Economic growth projections remain stable at around 3.2% for CY24 and CY25, supported by strong performances in the United States and major Emerging Markets, despite subdued demand in Europe and China. However, growth is still below the historical average, due to elevated Central Bank rates, sluggish productivity growth, and supply-demand imbalances. The integration and growth of G20 Emerging Markets, such as China, India, and Russia, are crucial for supporting global trade and investment, thereby fostering economic stability.

Global Economic Growth: Actual and Projections {%)

Particulars	2022	2023	2024	2025
Global Economy	3.4	2.8	3.2	3.2
Advanced Economies	2.7	1.6	1.7	1.8
Emerging Markets and Developing Economies	4	4.3	4.2	4.2

Source:https://www.imf.org/en/Publications/WEO/lssues/2024/04/16/world-economic-outlook-aprit-2024

India Economic Outlook

Indias GDP growth rate surged to an impressive 8.4% in the third quarter of fiscal 2024, driven by strong private investments and a revival in private consumption. This exceeded market analysts expectations and projected growth estimates. Revised data from the first three quarters indicated an 8.2% YoYgrowth, prompting a revision in growth predictions for the full year to a range of 7.6% to 7.8%. While growth in the fourth quarter was expected to be modest due to uncertainties from the general elections and modest consumption growth, future growth predictions remain stable at around 6.6% for fiscal 2025 and 6.75% for fiscal 2026, despite geopolitical uncertainties.

The remarkable growth has highlighted shifts in consumer spending patterns, with rising demand for luxury and high- end products driven by the expanding middle-income class. This trend is expected to continue as disposable incomes increase, although challenges such as rising household debt and falling savings could impact long-term growth sustainability. Controlling household debt will be essential to maintain economic stability and protect households from financial vulnerability. As private investments gain momentum and global conditions improve, Indias economic outlook remains optimistic despite inflation concerns and supply-side constraints.

Source:https://www2.deloitte.com/us/en/insights/economy/asia-pacific/india-economic-outlook.html

Global Textile & Apparel Industry

The textile market has experienced robust growth in recent years, expanding from $638.03 billion in 2023 to $689.54 billion in 2024 at a compound annual growth rate (CAGR) of 8.1%. This growth can be attributed to various factors, including the expansion of the global population, increased demand for man-made fibers, supportive government initiatives, strong economic growth in emerging markets, and restrictions on plastic usage. Looking ahead, the market is expected to grow to $903.45 billion by 2028 at a CAGR of 7.0%. The continued increase in global population and urbanization, the rapid expansion of e-commerce, higher expenditure on leisure activities, growing retail penetration, increased internet accessibility, and a rising preference for contactless delivery solutions are expected to drive this growth. Notable trends include the adoption of digital textile printing inks, the use of non-woven and organic fibers, a focus on sustainable materials, the integration of blockchain technology, the adoption of digital platforms for supply chain management, collaboration with tech companies to develop smart fabrics, investments in robotics and automation, and the incorporation of artificial intelligence.

The growth of the textile manufacturing market is further bolstered by the rising demand for online shopping, allowing manufacturers to reach a broader audience and diversify their customer base geographically. In countries like India, e-commerce portals have significantly boosted the sales of traditional garments, offering greater exposure to producers previously limited to specific regions. Increasing internet penetration and smartphone usage also play a crucial role in driving market dynamics. The surge in smartphone users, along with expanding internet access, is expected to facilitate increased online shopping for apparel and other products, further driving market growth in the forecast period. Social media channels also enable the textile sector to connect influences and fashion icons with audiences, disseminating the latest trends and fashion insights.

"The textile market is projected to reach $903.45 billion by 2028, fuelled by e-commerce expansion, increased internet use, and innovative fabric technologies."

Source:https://www.researchandmarkets.com/reports/5939119/textile-giobai- market-report

https://www.ibef.org/industry/textiles

Indian Textile & Apparel Industry

Market Overview

The Indian Textiles and Apparel market is projected to grow at a 10% CAGR, reaching US$ 350 billion by 2030. India is the worlds third-largest exporter of textiles and apparel and ranks among the top five global exporters in several textile categories. Exports are expected to reach US$ 100 billion by 2030. The Textiles and Apparel Industry contributes 2.3% to Indias GDR 13% to industrial production, and 12% to exports. The industrys GDP contribution is predicted to double from 2.3% to approximately 5% by the end of this decade. The Manufacturing of Textiles Index for December 2023 stood at 112.4.

Cotton Production

India is the worlds largest producer of cotton. The agriculture ministry projected cotton output for 2023-24 at 31.6 million bales. According to the Cotton Association of India (CAI), the total availability of cotton in the 2023-24 season is pegged at 34.6 million bales, against a domestic demand of 31.1 million bales, including 28 million bales for mills, 1.5 million for small-scale industries, and 1.6 million bales for non-mills. Cotton production in India is projected to reach 7.2 million

tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing consumer demand. The cotton market is expected to surpass US$ 30 billion by 2027, with an estimated 4.6- 4.9% share globally.

Fiber and Yarn Production

In 2022-23, fiber production in India stood at 2.15 million tonnes, while yarn production was 5,185 million kgs. Natural libers are regarded as the backbone of the Indian Textile Industry, which is expected to grow from US$ 138 billion to US$195 billion by 2025.

Exports and Employment

Indias Textile and Apparel exports stood at US$ 28.72 billion in FY24(April-January). Exports of textiles (RMG of all textiles, cottonyarns/fabs/made-ups/handloom products, man-made yarns/fabs/made-ups, handicrafts excl. handmade carpets, carpets, and jute mfg. including floor coverings) stood at US$ 23.79 billion in FY24 (April-December).

Exports for 247 technical textile items amounted to Rs.5,946 crore (US$ 715.48 million) between April-June 2023-24.

Indias textiles industry employs around 45 million workers, including 3.5 million handloom workers across the country.

"The Indian textiles and apparel market is projected to grow at a 10% CAGR, reaching US$ 350 billion by 2030, with exports expected to hit US$ 100 billion."

"This industry significantly contributes to Indias economy, accounting for 2.3% of GDP, 13% of industrial production, and 12% of exports, and is expected to see its GDP contribution more than double by the end of the decade."

Government Initiatives

• FDI and Export Promotion: The Indian Government allows 100% FDI in the textile sector under the automatic route and has introduced various export promotion policies.

• Production and Export Targets: Government outlined a roadmap to achieve US$ 250 billion in textile production and US$ 100 billion in exports by 2030.

• SAMARTH Scheme: In July 2023, 43 new implementing partners were added to the SAMARTH scheme, targeting the training of 75,000 beneficiaries. As of now, 1,83,844 beneficiaries have been trained.

• R&D and Technology Upgradation: In June 2023, the government approved R&D projects worth US$ 7.4 million. Additionally, Rs.. 900 crore and Rs.450 crore have been allocated to the Amended Technology Upgradation Fund Scheme and the National Technical Textiles Mission, respectively.

• Foreign Trade Agreements: New trade agreements with Australia and the UAE are expected to boost textile exports with zero duties, and similar agreements are being pursued with Europe, Canada, the UK, and GCC countries.

• Sustainability and Innovation: The Sustainable Textiles for Sustainable Development (SusTex) project promotes sustainable production and employment in the textile sector. The government has also set up the Center of Excellence for Khadi and is working on enhancing the yield of organic cotton

Opportunities and Threats

Opportunities

• The Indian textile industry is expected to reach US$ 190 billion by FY26, driven by strong domestic and export demand.

• Collaborative projects like the Indo-German Technical Cooperation focus on value addition in sustainable cotton production.

• The government allocated Rs. 900 crore for the Amended Technology Upgradation Fund Scheme and Rs. 450 crore for the National Technical Textiles Mission to boost innovation.

• Increasing the FDI limit in multi-brand retail is expected to enhance consumer options and investment in the textile value chain.

• The technical textiles market for automotive textiles is set to grow from $2.4 billion in 2020 to $3.7 billion by 2027. The industrial textiles market is expected to increase from $2 billion in 2020 to $3.3 billion by 2027, with an 8% CAGR. The overall Indian textiles market is projected to surpass $209 billion by 2029.

• Upgraded CoEs like BTRA for Geotech and SITRA for Meditech are developing incubation centers and testing facilities.

• The National Textile Policy draft aims to attract foreign investment and create 35 million jobs through government promotion efforts abroad.

Threats

• The Indian textile industry faces stiff competition from countries like China, Bangladesh, and Vietnam, which have more advanced manufacturing capabilities and lower production costs.

• Fluctuations in the prices of key raw materials, such as cotton and synthetic fibers, can impact the profitability and sustainability of textile companies.

• Stringent environmental regulations and compliance requirements can pose challenges for the industry, particularly for small and medium enterprises (SMEs) that may lack the resources to adapt.

• While there are significant investments in technology upgradation, the industry still faces challenges in adopting the latest technologies and innovations at a pace comparable to global competitors.

• The industry is labor-intensive and often faces issues related to labor availability, wage inflation, and labour rights, which can affect production efficiency and cost structures.

Source:https://www.ibef.org/industiy/textiles

Company & Business Overview

The Companys product portfolio consists of SPFY, Embroidered Laces and Fabrics, Braided Laces, etc. The products of the Company and their manufacturing locations are as follows:

Product Location

Specialized Polyester Filament Yarn Kala-amb

(Himachal Pradesh)

Embroidered Laces- Fabric & Sarigam(Gujarat), Guipure, Embroidered dress material Degaon (made on Schiffli machines) (Maharashtra)

Embroidered Fabrics Allover Fabrics Naroli (Dadra & & Laces (made on Schiffli machines) Nagar Haveli)

Braided Laces (made on Bobbin Sarigam (Gujarat) Lace Machines)

Performance Review

Specialized Polyester Filament Yarn (SPFY) Business

The Companys SPFY business remains the cornerstone of PELs business, contributing 83.9% to the overall turnover and accounting for the bulk of operating profits. The SPFY segment reported a full-year income of Rs.28,213 lakhs, up from Rs.24,905 lakhs in the previous year. Sales volumes increased by about 17% to 18,535 MT from 15,789 MT, with an average realization of Rs.152 per kg. Value-added products comprised approximately 66% of the volume and 73% of the value, with turnover from these products rising by about 28% to Rs.20,611 lakhs.

The share of value-added items in volume was approximately 66% and in value was 73%. Turnover from value-added products increased by 28% to T20,611 lakhs over FY23.

Domestic sales of SPFY saw a significant growth of 14.6%, reaching Rs.23,894 lakhs in the current year, up from T20,856 lakhs the previous year. Export revenues also experienced a modest increase of 6.7%, rising to T4.320 lakhs from T4.049 lakhs. The increase in turnover was on account of enhanced capacities.

To solidify its market position, the company undertook a capacity expansion project to increase annual production capacity from 18,000 MT to 26,000 MT. Production from this expansion is commenced from Q2 of FY24, and value-added product manufacturing started from Q3 of FY24.

The SPFY business has demonstrated resilience and adaptability despite facing various challenges, such as fluctuating input costs, changing export prospects, varying local demand levels, and pricing pressures. This success is attributed to continuous investments in capacity expansion, development under the Silkolite brand, an expanded product range, value-added processes, improved efficiencies, process automation, product development, and a robust marketing network.

The SPFY segment introduced several innovative products. One of the standout offerings includes biodegradable yarns crafted from corn fiber, designed to naturally degrade over time. Additionally, the Company has developed camouflage yarns specifically tailored for military apparel, enhancing both functionality and durability. Another noteworthy innovation for Pioneer is thermal ya rns, engineered to offer heat resista nee and retain body warmth, making them perfect for cold environment garments. These advancements underscore our commitment to pushing the boundaries of textile innovation.

Embroidery and Laces Business

The Embroidery and Laces (EL) business witnessed a decent recovery in demand across both domestic and international markets. This led to a turnover of T5.405 lakhs, marking a 13.6% increase from the previous years T4.759 lakhs. The Company consolidated and enhanced its production capacities in EL business at its new manufacturing unit at Degaon, Maharashtra.

EL segment reported a 39% increase in domestic revenues, amounting to Rs.5,065 lakhs up from Rs.3,641 lakhs in the previous year. To further enhance and sustain the growth of the Embroidery and Laces (EL) segment, PEL plans to implement several strategic initiatives. These include investing in new equipment, optimizing operations, reducing overhead costs, improving outsourcing practices, exploring new sales channels, and enhancing overall business efficiency. These measures are anticipated to drive increased profitability in the coming quarters

FINANCIAL OVERVIEW

In the fiscal year reviewed, Pioneer Embroideries Ltd. demonstrated robust financial performance across key metrics. Total income from operations saw a notable increase of 13.3% YoY, reaching Rs.33,619 lakh.

During the year, EBIDTA surged by 72.3% to Rs.2,639 lakh, with an EBIDTA margin improvement from 5.2% to 7.8%. Operational cash profit stood at Rs.1,712 lakhs, compared to Rs.1,167 lakhs previously.

Profit Before Exceptional Items and Tax rose by 43% to Rs.458 lakhs The Net Profit for the year stood at Rs.388 lakhs (previous year Rs.871 lakhs), a decline of about 55%, mainly on account of exceptional income generated in previous year.

Overall, PELs FY24 financial results indicate strong operational performance and strategic gains, albeit with lesser net profitability and demand challenges. The financial performance broadly indicates top-line growth driven by the SPFY segment but highlights challenges in enhancing profitability amidst evolving market dynamics. The demand scenario in export and domestic markets has resulted in lesser margins and profitability than was expected. Hence, the benefits of expansion in both the businesses is yet to play out fully for the Company. Pioneer is well-equipped to gain from the upturn in both SPFY and EL businesses, as and when it happens.

Thecompanysfocusoninnovationandoperational efficiencies will also be crucial in navigating future financial performance.

Si turnover for the year rose to T33.619 113.3% increase. Meanwhile, operational / 72.3%, underscoring significant financial erational efficiencies."

Risks and Concerns

The company has a strong Enterprise Risk Management framework in place to identify, assess, and mitigate significant business and operational risks in a timely and effective manner. The following are the primary risks and their accompanying mitigation measures:

• Raw material risk and Mitigation:

The volatility of raw material prices, such as cotton, specialised fibres and yarns, glass roving, specialty chemicals, and a range of resins, raises input costs, reducing the Companys profitability.

To ensure timely acquisition of raw materials at competitive prices, the Company analyses price variations and adopts inventory management and responsive procurement policies. It also enters into contracts with clients and attempts to pass on changes in raw material pricing to them in order to safeguard margins.

• Economic risk and Mitigation:

The geopolitical upheaval, global economic slowdown, high inflation, and the danger of a future recession in important markets such as the United States and Europe have slowed the export market. Demand contraction would have a negative impact on the Companys export business.

The macro climate in the US/EU markets has begun to improve in the outlook, however export demand remains uncertain. The domestic market, on the other hand, will continue to generate significant business prospects for the Company.

• Logistics risk and Mitigation:

The ongoing Russia-Ukraine conflict and the Red Sea situation has had a negative influence on the global supply chain network. Any disruptions in the supply chain, increased container shipping costs, availability, and delays pose significant problems to the business. Furthermore, insufficient and inefficient logistics in India cause delays and excessive logistical expenses.

For smooth operations, the company has enhanced its supply chain network and created strong partnerships with suppliers and vendors.

• Technology Risk and Mitigation:

To improve efficiency and production, there is a continuing need for technological advancement and ongoing R&D. Failure to deploy cutting-edge, long- lasting technologies to meet the changing needs of the global market may result in business failure.

The Company prioritises technology and invests aggressively in R&D, contemporary and sustainable technologies, machinery and equipment for enhancing manufacturing processes and quality, as well as strengthening its product line to meet evolving market trends.

Human Resources / Industrial Relations

The Company regards its people as its most valuable asset and an essential component of its competitive position. It has a well-designed human resources policy that fosters a positive work environment, inclusive growth, equitable opportunities, and competitiveness, as well as aligning employees goals with the organizations growth vision. Its human resources division is critical in developing a robust and competent team. It offers possibilities for professional and personal growth and conducts comprehensive employee engagement and development programmes to boost staff productivity and capabilities. As of March 31, 2024, the Company employed 1,088 people. Furthermore, during the year, industrial relations remained tranquil and cooperative.

Internal Control Systems and their Adequacy

The Company maintains an effective internal control system that is proportionate to the size, nature, and complexity of its operations. The internal control system is in charge of taking care of growing risks in the organisation, ensuring the dependability of financial information, timely reporting of operational and financial activities, asset safeguarding, and strict adherence to applicable laws and regulations. The Companys internal auditors are in charge of regular monitoring and examination of these controls. The Audit Committee evaluates the audit reports on a regular basis and ensures that any deviations are corrected as needed. Key observations are relayed to management, who takes immediate corrective action.

Disclaimer

The Companys objectives, projections, outlook, expectations, estimates, and other information expressed in the Management Discussion and Analysis may be considered forward-looking statements under applicable securities laws and regulations. These statements are based on certain assumptions that the Company cannot guarantee.

Several circumstances, some of which the Company may not have direct control over, could have a substantial impact on the Companys operations. As a result, actual results may differ materially from such projections, whether expressed or implied, because it would be beyond the Companys ability to successfully implement its growth strategy. The Company assumes no obligation or responsibility to update forward-looking statements or to publicly amend, modify, or revise them to reflect events or circumstances that occur after the date of the statement on the basis of subsequent development, information, or events.

The Management of Pioneer Embroideries Ltd. (Pioneer, or the Company) presents below an analysis of its performance during the year under review, i.e., accounting year ended 31st March, 2024 (for the period April 1, 2023 up to March 31, 2024).