pranavaditya spinning mills ltd share price Management discussions

Industry Structure and Development

The Spinning Industry, which is highly capital intensive, marks the initial stage of textiles and apparel value chain. In order to meet the domestic demand for yarns, the Government formulated policies to develop and support this industry, as textile industry is one of the largest providers of employment in India. As a major cotton producing country, for sustainability and financial viability of the spinning industry, export of cotton yarn is of very much importance. Having the second highest spindleage in the world, the spinning industry in India contributes to more than one-fourth of global trade of cotton yarn. Cotton textiles comprise more than 60 per cent of Indian textile exports.

During FY 2021-2022, the demand of yarn was increased and hence, yarn prices had also shown increase compared to previous year.

India accounts for about one-third of global cotton area. The Cotton production declined from 356 lakhs bales in 2020-21 to 335 lakhs bales in 2021-2022, while cotton consumption was 340 lakhs bales in 2021-22 as compared to 335 lakh bales in 2020-21.

Domestic cotton prices remained firm during 2021-2022. Cotton yarn prices were increased as compared to FY 2020-21, giving the spinners improved margins in first three quarters. However, during last quarter of March, 2022, margins were squeezed.

Operational and Financial Performance

Due to separation of all workers under VRS/Separation scheme announced by the Company, the production at Companys factory stopped from August, 2020. Further, the Board of Directors of the Company approved the scheme of amalgamation of the Company with Indo Count Industries Limited, Holding Company and till amalgamation, the Board approved leasing of land, building and machinery to the Holding Company and third parties. Hence, there was no revenue from operations for FY 2021- 22 and the total income comprised of lease rentals received from Holding Company and third parties. For the year ended 31st March, 2022, total income amounted to Rs. 396.34 lakhs and Company achieved Net profit of Rs. 72.24 lakhs as compared to loss of Rs. 590.86 lakhs in the previous year.

For the year ended 31^st March 2022, as the Company did not have any debt/borrowings, the debt equity ratio, interest coverage ratio and debtors turnover ratio are not applicable. Further, there were significant change (i.e. change of 25% or more) in other financial parameters viz. Inventory Turnover ratio, Operating Profit margin (%), Net Profit margin (%) and Return on Net Worth (%) for the financial year ended March, 31, 2022 due to stoppage in production and no revenue from operation during FY 2021-22.

Opportunities, Threats, Risks and Concerns

The condition of the spinning industry is dependent on the vagaries of cotton fibre production in the country. The acreage, output rainfall and minimum support prices always have bearing on the fortunes of the industry from time to time. Adequate availability of cotton at right prices is very much crucial for spinning mills. The cotton prices are exposed to price fluctuations and in case of exports, the exchange fluctuations is also one of the major risk. The Company has risk management policy and commodity risk management policy to manage price and exchange fluctuation.

Some of the threats faced by spinning industry include technological obsolescence, high minimum support price for cotton, overcapacity in industry, increasing input costs, skilled labour availability besides fluctuating demand for yarn.

With the opening up of domestic and international markets, overall demand for cotton yarn is projected to remain good. The up trend in domestic yarn price and its higher exports may provide opportunities and some respite to the spinning industry.

However, global pricing might impact the Indian textile sectors supply and demand dynamics.

Industry Outlook

There has been a gradual recovery in both supply and demand for cotton yarn thereafter during three quarters. There are signs of pickup in economic activity however war situation may affect global demand of yarn. The future of Indian textile industry looks promising, buoyed by strong domestic consumption and export demand.

However, yarn prices are expected to taper as cotton yarn realisations remain unsustainable at current levels, which may affect its demand.

Segment

Your Company operates in a single segment i.e. Textiles.

Internal control systems and their adequacy

Your Company maintains adequate internal control system and procedures commensurate with its size and nature of operations. The internal control systems are designed to provide a reasonable assurance over reliability in financial reporting, ensure appropriate authorization of transactions, safeguarding the assets of the Company and prevent misuse/ losses and legal compliances.

Compliance with Indian Accounting Standards (Ind-AS)

In the preparation of the financial statements, the Company has followed the Indian Accounting Standards (Ind-AS) notified by Ministry of Corporate Affairs from time to time. The significant accounting policies which are consistently applied have been set out in the Notes to the Financial Statements.

Human Resources

Industrial relations remained cordial during the period under review. In July 2020, the Company announced Voluntary Retirement Scheme (VRS)/ Separation Scheme (SS) for the workers of the Company, pursuant to which, all workers exercised the option of separation from the Company. As on March 31, 2022, your Company has 27 permanent employees.

Cautionary Statement

The statement in the "Management Discussion and Analysis Report" describe Companys objectives, projects, estimates and expenditure which may be "forward-looking statement" within the meaning of the applicable laws and regulations. The actual results could differ materially from those expressed or implied, depending upon the economic and climatic conditions, government policies, taxation and other incidental factors.