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Prakash Woollen & Synthetic Mills Ltd Management Discussions

39.2
(3.16%)
Jul 15, 2024|11:22:00 AM

Prakash Woollen & Synthetic Mills Ltd Share Price Management Discussions

1) OVERVIEW OF THE ECONOMY Global Economy

The global textile industry impacts nearly every human being on the planet. The global textile industry has shown an average capacity utilization rate stagnating at 74 per cent since the beginning of the year. This indicator is still lower than anticipated six months ago (it was expected to be at 79 per cent in March 2023), as per the International Textile Manufacturers Federation (ITMF). The capacity utilization rate remains at a relatively low level on average, albeit higher than in November 2022. The main factor in keeping the rate up is the improved situation in China, where domestic consumption is picking up pace slowly, according to the 19th ITMF Global Textile Industry Survey (GTIS) conducted in the second half of March 2023.

A look at various regions shows that capacity utilization rates have been steadily decreasing in South-East Asia, Europe (including Turkey), and North and Central America. The fall is slower in Europe where the share of textile machinery companies is relatively high. A very high order backlog in this segment slows down the fall in the region. The rate is lower in Africa on average and has been improving in East Asia and South America since January 2023. The significant improvement in East Asia can be explained by higher domestic consumption in China since the end of the Zero-COVID-policy.

The capacity utilization rate is still relatively high for the textile machinery segment. The high order backlog accumulated during 2021 and early 2022 helps to keep the rate high. The production of textile machines is not delayed anymore by disrupted supply chains as this was the case until 2021-2022. On the other side of the spectrum, a relatively high volatility can be observed in the spinning industry. A very low-capacity utilization rate was reported by home textile companies. Since the middle of 2021, home textile producers have seen a steady drop to very low rates.(Source:https://www.fibre2fashion.com/news/textile-news/global-textile-industry-s-mar-2023-capacity-utilisation-at-74-itmf-287056-newsdetails.htm)

Indian economy

The textile industry plays a significant role in the Indian economy. It is one of the largest contributors to the countrys industrial output, employment generation, and foreign exchange earnings. Here are some key points about the textile industry in the Indian economy: Contribution to GDP: The textile industry contributes around 7% to Indias GDP. It is a vital sector that has a substantial impact on the overall economic growth of the country.

Employment generation: The textile industry is one of the largest employers in India, providing direct and indirect employment to millions of people. It offers job opportunities across various segments, including spinning, weaving, knitting, dyeing, printing, garment manufacturing, and more. The sector is known for its labor-intensive nature, which makes it a significant source of livelihood for both skilled and unskilled workers, especially in rural areas.

Export earnings: India is one of the leading textile exporters globally. The industry contributes significantly to the countrys foreign exchange earnings. Textile and apparel exports account for a substantial portion of Indias total merchandise exports. Major export destinations for Indian textiles include the United States, European Union countries, the Middle East, and South-East Asian nations. Diverse textile segments: The Indian textile industry is diverse and encompasses various segments, including cotton, silk, wool, jute, synthetic fibers, and ready-made garments. India is renowned for its traditional textiles, such as handlooms, handicrafts, and traditional embroidery work, which have a rich cultural heritage and attract domestic and international markets.

Government initiatives: The Indian government has implemented several initiatives to support and promote the textile industry. These include financial assistance schemes, tax incentives, infrastructure development, and skill development programs. The Make in India campaign launched by the government aims to boost domestic manufacturing, including textile production.

2) ANALYSIS AND REVIEW

1. Business Outlook:The business outlook in the textile industry is influenced by various factors, including global economic conditions, consumer preferences, technological advancements, and sustainability concerns. While I can provide a general perspective, please note that specific market conditions may vary depending on the region and segment of the textile industry. Global Market Growth: The global textile industry is expected to experience steady growth in the coming years. Increasing population, rising disposable incomes, and urbanization in emerging economies contribute to the growing demand for textiles and apparel.

2. Technological Advancements: Technology continues to play a crucial role in the textile industry. Innovations such as 3D printing, smart textiles, digital printing, and automated manufacturing processes are transforming the way textiles are produced and consumed. These advancements enhance efficiency, reduce costs, and provide opportunities for customization and personalization.

3. Sustainability and Eco-friendly Practices: Environmental concerns and consumer demand for sustainable products have driven a shift towards eco-friendly practices in the textile industry. Companies are adopting sustainable manufacturing processes, using organic and recycled materials, and implementing responsible supply chain practices. This focus on sustainability not only meets consumer expectations but also helps companies meet regulatory requirements and enhance their brand image.

4. E-commerce and Direct-to-Consumer (D2C) Sales: The rise of e-commerce has significantly impacted the textile industry. Online platforms provide wider reach, convenience, and accessibility to customers. Additionally, the growth of direct-to-consumer (D2C) sales allows textile companies to establish a direct relationship with consumers, eliminating intermediaries and gaining better control over their brand and customer experience.

5. Shift in Consumer Preferences: Consumer preferences are evolving, with a greater emphasis on comfort, functionality, and fashion sustainability. There is a growing demand for athleisure wear, sustainable fashion, and customization options. Textile companies need to stay attuned to these changing trends and adapt their product offerings accordingly.

6. Supply Chain Disruptions: The textile industry is susceptible to supply chain disruptions, including raw material availability, transportation challenges, and geopolitical factors. Events such as natural disasters, trade disputes, or public health crises (e.g., COVID-19) can significantly impact the industrys operations, production, and distribution.

7. Rising Production Costs: The textile industry faces challenges related to rising production costs, including labour wages, energy expenses, and raw material prices. Manufacturers need to find ways to optimize costs while maintaining quality standards and meeting sustainability requirements.

8. International Trade and Regulations: International trade policies, tariffs, and regulations can have a significant impact on the textile industry, as it is a globally interconnected sector.Changes in trade agreements or regulations may affect supply chains, sourcing strategies, and market access, requiring companies to adapt their business models accordingly. Bottom of Form

3) Indian Textile Industry

Indias textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fiber/yarns from natural fibers like cotton, jute, silk and wool, to synthetic/man-made fibers like polyester, viscose, nylon and acrylic.

The decentralized power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. Indias textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

In order to attract private equity and employee more people, the government introduced various schemes such as the Scheme for Integrated Textile Parks (SITP), Technology Upgradation Fund Scheme (TUFS) and Mega Integrated Textile Region and Apparel (MITRA) Park scheme.(Source:https://www.ibef.org/industry/textiles)

4) Opportunities and Threats

A textile industry SWOT analysis offers the best possible opportunities for the textile industry. This will clearly show which part of the sector could be so much better with a little push. Lets take a look at them: Flexible Labor Market: This sector in particular needs an abundance of manpower. However, in Asia, the price of labor is very low. The labor rates in the textile industry (compiled by Warner International) show that the average hourly wage rates for Bangladesh, India, Pakistan, and Sri Lanka were respectively 0.23, 0.56, 0.49, and 0.39 USD.

Worldwide Demand:Everyone wants to have a good quality product for a lower price. Thats where the textile industries come in. They offer decent clothes for a reasonable price. This is the main reason, they get many buyers.

Involved Industries Increasing: In modern society, many support industries are growing. These industries form a relationship of mutualism with the textile industry. Both parties are dependent on each other. These industries are dyeing, finishing, embroidery, printing, etc.

Open costing facility for the international buyer: Many international customers find their interest in this field being renewed by the open costing facility. This gives them a huge advantage to draw more buyers in.

Government and non-government training programs: There are a lot of people who work in this field. Even though they have curiosity, they often lack the skills that are needed. So, these government and non-government training programs can help them to enhance their skill-set. This provides the chance of improvement to this sector.

Buyer initiatives for productivity: In this field, many times buyers take responsibility to initiate the push for productivity. This shows that the buyers are actually interested in the said products. So, this gives a huge boost to the morale.

A textile industry SWOT analysis will help to highlight these Threats. They are enlisted below:

Lack of modern machinery: The textile industry lacks technology-oriented machinery and production systems. If these arent updated then they could take a heavy toll on its production. This will later reflect in its sales and profits.

E-shops and on-demand shops: There are many e-shops and on-demand shops that are mushrooming their way into the market. Now, the market actually has some internal competition going on. So, these new shops often end up stealing a lot of customers away from the industry.

Higher bank interest and insurance policy: This industry has to face a lot of unfair treatment. Especially when it comes to banks and insurance companies. Banks require a high interest while taking loans, which is illogical. Many insurance companies, if not all, have high-priced insurance policies with partial conditions. The industry has to suffer for this (Source:https://swothub.com/textile-industry-swot-analysis/)

5) Risk and Concerns

There are numerous health and safety issues associated with the textile industry. They include:

Physical Hazard in Textile Industry: The textile industry consists of a number of units engaged in spinning, weaving, dyeing, printing, finishing and a number of other processes that are required to convert fiber into a finished fabric or garment Physical Hazard in Textile Industry: The textile industry consists of a number of units engaged in spinning, weaving, dyeing, printing, finishing and a number of other processes that are required to convert fiber into a finished fabric or garment Electrical Hazards in Textile Industry: Electrical hazard can be defined as a dangerous condition where a worker could make electrical contact with energized equipment or a conductor, and from which the person may sustain an injury from shock, there is potential for the worker to receive an arc flash burn, thermal burn, or blast injury.

Risk mitigation is an exercise aiming to reduce the loss or injury arising out of various risk exposures. Prakash Woollen adopts a systematic approach to mitigate risks associated with accomplishment of objectives, operations, revenues and regulations. The Company will consider activities at all levels of the organization and its Risk Management with focus on three key elements, viz., (1) Risk Assessment (2) Risk Management and Monitoring (3) Risk Mitigation The Audit Committee has additional oversight in the area of financial risks and controls. The major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. (Source: http://www.ijirset.com/upload/ 2019/may/17_kavin%20JOURNAL_N.pdf)

6) Internal Control Systems and theirAdequacy

The Companys internal audit system has been continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The Audit Committee reviews reports presented by the internal auditors on a regular basis. The Committee makes note of the audit observations and takes corrective actions, if necessary. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively. Apart from the above the company has engaged M/s PulkitRastogi& Co. - Amroha, Chartered Accountant, to conduct Internal Audit during the year 2022-23.

7) Financial and operationalperformance

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013 and Generally Accepted Accounting Principles in India. Please refer Directors Report in this respect.

The Company is engaged in the blankets business only. Therefore there is only one reportable segment in accordance with the Accounting Standards on Segment Reporting (Ind AS 108).

There are no material changes or commitments affecting the financial position of the Company which have occurred between the end of the financial year and the date of this Report.

8) Human Resources and Industrial Relations

Human resource is considered as the most valuable of all resources available to the Company. The Company believes that the quality of the employees is the key to its success and is committed to equip them with skills, enabling them to seamlessly evolve with ongoing technological advancements. During the year the no. of employees associated with the company were 419. The role of human resource management in organization is at counter stage. Managers are aware that HRM is a function that must play a vital role in the success of organization. It is an active participant in charting the strategic course an organization must take place to remain competitive, productive and efficient. Its focal point is people, people are the life blood of the organization. The uniqueness of HRM lies in its emphases on the people in work setting and its concerns for the well living and comfort of the human resources in an organization.

Industrial relation is the one of the major component which determine the potentiality and stability of the employees as well as helps to enrich the productivity of the business establishments. Textile industries were contributing more to the Indian economy in terms of export earnings as well as generating employment opportunities. The relationship between the employees and employers determine the productivity of the enterprises. If the industrial relation is good the enterprise will attain the success in all the side especially in terms of producing the materials without much defects.

9) Key Financial Ratios

Changes in key financial ratios are as under:

S. No. Ratio 2022-2023 2021-2022 % Variance Reason for variance
1 Debtors turnover Ratio 22.39 20.54 9.01 -
2 Inventory turnover Ratio 6.04 7.51 -19.57 -
3 Interest Coverage ratio 0.51 3.67 -86.10
4 Current Ratio 1.16 1.53 -24.18 1
5 Debt Equity Ratio 1.07 0.66 62.12 2
6 Operating profit margin (%) 8.29 2.38 248.32 -
7 Net profit Margin (%) -4.86 -0.06 8000 -
8 Return on Net Worth (%) -10.69 -0.11 968.18 -

Reason for variance

1. Usage of Internal accruals in new projects caused decline in current ratio and increase in net capital turnover ratio.

2. New Term loans for new projects caused increase in the ratio.

3. Prepayment of instalments in the previous year caused lower ratio in that year.

4. Net loss in the current year caused decline in the ratio.

5. Better recovery management from debtors reduced the ratio.

6. Variance in the ratio is market driven.

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