Priyadarshini Ltd Share Price Management Discussions
PRIYADARSHINI SPINNING MILLS LIMITED
ANNUAL REPORT 2010-2011
MANAGEMENT DISCUSSION AND ANALYSIS
TEXTILE INDUSTRY:
Textiles and clothing constitutes the largest manufacturing industry in the
country accounting for 4 per cent of GDP, 14 per cent of industrial
production and around 12 per cent of the countrys total exports. The
industry directly provides employment to 35 million workers and provides
indirect employment to another 47 million workers.
2010-11 was a good year for the sector in terms of turnover, sales, profit
and growth in investments.
The spinning sector has invested over Rs. 40,000 crore in modernization and
capacity expansion and
its current installed capacity has risen from 38 million spindles in 2001
to 45 million spindles in 2011,i.e., within a 10 year period. The
government has been encouraging yarn exports and the domestic consumers
never had short supply of yarn. Almost all the global leading players in
textiles and clothing manufacturing in countries like European Union, USA,
far-east countries including Japan, Bangladesh, have been depending on
Indian cotton yarn over decades.
When the cotton prices became highly volatile and speculative during the
last year, the yarn price increased steeply though it never matched the
abnormal increase in cotton price. Because of persistent demand of value
added segments, the government fixed a cap of 720 million kg for exports
during the year 2010-11 as against industry demand for 1100 million kg,
brought controls on yarn exports and suspended exports for almost three
months (Jan-Mar. 2011). In the process, the Indian spinners lost their
credibility in the international market as a reliable supplier and lost
very valuable customers with whom they had over two decades of business
relationship. In addition, the government also withdrew all export benefits
including the DEPB/DBK.
The demand for cotton yarn domestically declined substantially and the
closure of nearly 1000 dyeing units in Tamil Nadu due to pollution issue
(by the High Court) added fuel to the situation. All this resulted in
accumulation of stock with Spinning Mills. As on 31st March 2011, the
closing stock exceeded 300 million kgs and by May it exceeded 500 million
kgs due to sudden glut in the international and domestic markets.
THE IMPACT OF COTTON POLICY
During the year 2010-11, the world witnessed a global shortage of cotton as
it was assessed by International Cotton Advisory Committee (ICAC) that the
crop of raw cotton will be lower by 10%. The international prices of cotton
increased from US $ 0.84 per pound in October, 2010 to a record level of US
$ 2.30 per pound in April, 2011, within a period of 6 months, which was
unprecedented and a record price in cotton history. The cotton price in
India moved in tandem with the world market and also increased from
Rs.35,000/- per candy to Rs. 62,500/- per candy during the same period. The
premature announcement of cotton exports and lower stock use ratio made
cotton prices highly volatile.
OUTLOOK ON OPPORTUNITIES RISK AND CONCERN
The Fundamental growth drivers of Indian Economy remain strong despite the
economic turmoil in the world. There would be growing opportunities in the
international market as well as domestic market. The consumption is growing
in response to growing per capita income, population and strong retail
push. With regards to textile industry, there are significant opportunities
in the domestic market as more consumers are buying readymade garments and
also consumption of the cloth per capita continues to increase due to
growth in the economy which is adding to the purchasing power of the
Consumers.
Macro economic factors including rupee appreciation increase in interest
rates are the major risk factors presently for the textile industry. If
there is an appreciation of rupee, then the competitiveness of industry vs.
other countries will decrease. Since the products would be diverted to the
domestic market, the price realization will decrease even though there is
growth in the domestic consumption. Increase in interest rates will affect
the profitability. Since the industry is capital intensive.
ADEQUACY OF INTERNAL CONTROLS:
The Company has a proper and adequate system of internal controls to ensure
that all assets are safeguarded, and protected against loss from
unauthorized use of disposition, and that transactions are authorized,
recorded, and reported correctly. The internal control system is
supplemented by an extensive programme of internal audits, review by
management and documented policies, guidelines and procedures.
The internal control system is designed to ensure that the financial and
other records are liable for preparing financial statements and other data
and for maintaining accountability of assets. The audit Committee
comprising independent Directors will review the internal control system on
quarterly basis.