R&B Denims Ltd Management Discussions.

DISCLAIMER

Readers are cautioned that this discussion and analysis contains forward looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate," "believe," "estimate," "intend," "will," and "expected" and other similar expressions as they relate to the Company or its business are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results, performances or achievements, risks and opportunities could differ materially from those expressed or implied in these forward-looking statements. Readers are cautioned not to place undue reliance on these forward looking statements as these are relevant at a particular point of time & adequate restrain should be applied in their use for any decision making or formation of an opinion.

The following discussion and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto.

Indian Economy:

Ease of Doing Business Index: India improves rankings

India moved up by 23 places in the World Banks Ease of Doing Business Index 2018 and got 77th rank. This is attributed to 6 reforms this year- starting a business, getting electricity, construction permits, getting credit, paying taxes and trading across borders. The maximum improvement was of 129 places in construction permits to reach 52nd rank in 2018 as compared to 181st in 2017. The Prime Minister further said, "If we do focused improvement, breaking into the top 50 is not out of reach." This certainly points towards more such reforms in the near future.

Indian Textile Industry

The textile industry has always occupied an esteemed place in Indian industrial system. Textile sector accounts for 13% of the total exports of the country, being one of the major contributors. It is one of the largest employers and has a considerable contribution to Indian GDP. Indias overall textile exports during Financial Year 2017-18 was US$ 39.2 billion and in the Financial year 2018-19 is US$ 31.65 billion which is expected to increase to US$ 82.00 billion by 2021.The sector is one of the largest sources of job creation in the country, employing about 45 mn people directly. Between April-December 2018, Ready-made garments (RMG) exports from India stood at $ 11,350.44 mn

The Indian government has also come up with a number of initiatives and export promotion policies for the textiles sector. It has also allowed 100 % FDI in the Indian textiles sector under the automatic route.

Due to a change in buying habits, consumers are shifting from need-based clothing to aspiration-based clothing. Contrary to previous years, where the Indian consumers purchased fashion items as and when required, buying clothes has become more than a basic need; it is now a reflection of aspiration, personality, and a status symbol. Though basic textiles continue to represent a part of the consumers basket, the demand for aspirational clothing has increased significantly in recent years. Given the timely policy support and intervention to boost exports, the industry is hoping to achieve the target of $12.65 bn set for exports of cotton textiles during FY 2018-19.

With all this positive steps and recent trends, the future of Indian textile and clothing industry looks very positive.

OUTLOOK

1. . INDIAN DENIM MARKET

In India Denim fabric manufacturing is considered a sunrise industry also it is one of the fastest growing segments as its demand has been growing at a phenomenal pace in the recent years. Denim is the one most preferred outfit to work, at least in the non-government sectors, in India. The consumption of denim in quantitative terms shows an increasing trend over the last few years. The demand for the Denim products is major in the Young generation as they are using the denims products generously. Also there exists a remarkable difference of the consumption between the mens wear and womens wear. The womens wear segment of denim trousers goes to lower age groups and the higher age groups very quickly discard the denim use. This may be because of Indian tradition and comforts of other wears while the women are indoors.

The acceptance of smart casuals in corporate has boosted growth of western wear among working professionals. Formal wear is not restricted only to shirts and trousers but has a wide range of other options such as smart jackets, brightly coloured or patterned shirts complemented with loafers, etc.

Initially, the denim brands used to focus primarily on men, but with the change in the demand and preferences of women, they started catering to women consumers as well. Stretch denims have seen a huge demand among women

2. . FUTURE PROSPECTS

The blue denim has remained a wardrobe essential for decades. Due to its increasing popularity in India, denim wear is now also witnessing huge demand among masses. There are certain key attributes which are making the future of denim wear industry promising which are as follows:

Variety: Usage of denims has not been limited to clothing and accessories but it has expanded its horizons in the fields of shorts, bags, shoes, jackets, shirts etc.

Purpose: Denim serves almost all purposes and is available in many ranges of colours. It can be used as a formal wear as well as casual wear. This versatility has made economic sense to consumers to buy jeans compared to other bottoms.

Convenience: Comfort and durability are one of the striking features of denim wears.

Changing trends/fashion: Todays generation is fashion conscious that tilts towards changing fashion and are adopting fashion that is easily available and comfortable in their daily life thereby increasing the demand for the product exponentially.

Prices: The price of denim wear depends on a number of factors like the quality of material, texture, comfort, cut, and wash. From extremely cheap jeans for everyday use to expensive luxury denim, there are denim products available to suit everyones budget and needs.

Organised Sector: The expansion of organised retail sector has further added to the momentum of denim industry. India is a preferred supplier of denim fabrics to almost all global brands.

Target Market: Earlier, denim used to be the choice of teenagers and people in their 20s and 30s. However, times have changed and denim has become the preferred choice of everyone from kids to the elderly.

Innovation: Innovation is the need of the hour and the denim market is constantly making efforts to redefine and reinvent it with new designs, washes, cuts, and embellishments which keep the masses interested and keeps the demand high.

3. . II INDUSTRYNDUSTRY OUTLOOK

Though the Denim Industry is one of the most promising industries in India it faces it own set of issue and challenges. There is a lot of scope of improvement in right processing and value addition in denim through fashion-led processes and finishes. Establishment of high quality processing and washing units could help to improve the quality of finishes and colours, this attracting more consumers to try denim.

Some of the key driving factors for the denim market in India are:

• An aspiration youth (15 to 29 year olds) with higher spending power than previous generations, which make 26% of the consuming population

• A wide range of consumer segment that consider denim as an apparel of choice owing to its comfort and style

• Favoured preference for denim amongst youth owing to its versatile association

• Increasing usage of denim products by women and youth in smaller cities and rural India.

The denim market in India has been evolving fast with introduction of more styles, colours and some distinct trends in the product offering. Some of the key trends in denim market are:

• The demand for stretch denim is growing at a faster rate in India market due to its comfort and fit characteristics

• The colour of denim jeans is no longer limited to traditional blue colours. Indian youth has started accepting denim in different colours including green, red, yellow etc.

• The use of denim fabric is not only limited to jeans but is now used in manufacturing of Jackets, shirts, trousers, leggings, handbags, belts etc.

SWOT ANALYSIS OF DENIM INDUSTRY::::

1. . Strengths

• Adequate availability of raw material

• Abundant availability of excellent quality cotton suitable for denim.

• Increasing demand in domestic as well as international market

• Proper infrastructure

• Adequate labor available

• Loyalty of customers

2. . Weaknesses

• Unavailability of skilled labour.

• Cost of utility & natural gas increases

• High tariff barriers and export duties.

3. . Opportunities

• Apart from manufacturing jeans the fabric is used in manufacturing of other products like shirts, trousers, handbags etc.

• Introduction of sustainable development practices.

4. . Threats

• Entry of multinational companies in domestic markets.

• Rapid shifting fashion and fabric demands.

• Increase in cost of labour

• Establishment of E-commerce allows more brands to enter the market.

• To make balance between price and quality

• Global competitors

REVIEW OF OPERATIONS

Your directors report that during the year under review your company has posted higher income of Rs. 24, 811.2 (in Lakhs) in the current year as compared to Rs. 21, 737.53 (in Lakhs) in the corresponding previous year. During the current year your company has shown profit of Rs. 390.76 (in Lakhs) as against to the net profit of Rs. 588.36 (in Lakhs) in the corresponding previous year.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has made adequate investment for an effective internal control and risk-mitigation system, and they are constantly assessed and strengthened with new standard operating procedures. The Audit committee along with the CFO formulates a detailed audit plan for the internal auditor and actively reviews the adequacy and effectiveness of the plan and suggests improvements to strengthen the same. The main thrust of internal audit is to test and review controls, appraisal of risks and business processes, besides benchmarking controls with best practices in the industry. The Internal Auditors attend the Meetings of the Audit Committee at regular basis and submit their recommendations to the Audit Committee.

The Audit Committee, Statutory Auditors and the Business Heads are periodically apprised of the internal audit findings and corrective actions taken. Significant audit observations and corrective actions taken by the management are presented to the Audit Committee. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee.

KEY RISKS AND CONCERNS

The list of the potential risks the industry is exposed to domestically/internationally is given below:

• Business Operational Risk: ::: The business operational risk is associated with economic and market conditions, cut throat competitions at local as well as at international level, introduction of new players in textile markets, labour turnover, power, logistics, demand & supply risks, latest technologies, techniques required to upgrade plants, boiler house, machines, equipment, Un-interrupted availability of raw material at competitive prices so as to avoid production loss, maintenance of quality and to harmonize production for completing the orders in time as well. Fluctuations in yarn prices in international market, hence impact to pricing/costing of particular product(s) and its blend(s). New designs, innovative textile products, developing new customers residing in different countries carrying lots of choice, ideas may also constitute operational risk for the Company.

• Geographic and Environmental Risk: This is a risk to an investment in a specific disturbed geographic area. The disturbance may be at local level or may be at national/international level. The safety of environment is also important because of its ecological, economic or social significance to an ecosystem. If environment get impact/suffer more due to highly polluting nature or due to violation of any environmental law/norms by the industry/business then it may get adverse remarks from the Regulator/Statutory Authority or may have to face penal provisions as well as implications. An overdependence on a single geography could impact business growth going forward.

• Raw material risk: Non-availability of adequate cotton and volatility in the prices of cotton could impede business profits and prospects.

• Quality risk: Inability to match the stringent quality standards of leading retails brands consistently could impact product off take.

• Working capital risk: Increased business scale would necessitate increased working capital requirement.

• Foreign Exchange risk: The Company while doing foreign transactions deals with the currencies of other countries and therefore any fluctuations in foreign currency may impact margins of Company. The depreciation in exchange rate increases the risk of foreign banks, which leads to large foreign currency exposures in the emerging markets. The adverse exchange rate movement increases the repayment obligations of the banks borrowers in terms of domestic currency.

• Financial Risk: ::: Financial risk is an umbrella term for multiple types of risk associated with financing, including financial transactions that include company loans in risk of default and inflation risk too. It may lead to loss of liquidity, falling assets value etc. . Interest rate fluctuations due to change in Government policies and Banks/financial Institutions Policies put a significant effect on cash inflows and outflows of the Company. The market prices of financial derivatives, forward or future also keeps changing.

• Liquidity Risk::: Liquidity Risk reflects the possibility/position that a party may have insufficient funds to settle an obligation for full value when due, but will have funds to cover settlement obligations on some unspecified date thereafter. In non-bankruptcy situations, the allowable methods to cover short positions are generally driven by local market conventions. As a result, liquidity could be adversely affected by prohibitions on transactions such as Repos, Reverse Repos, Securities Lending and other allied components.

FINANCIAL PERFORMANCE AND OPERATIONAL PERFORMANCE

The company has reported total revenue of Rs. 24,937.15 (in Lakhs) as compared to previous year Rs. 22,051.19 (in Lakhs) and PBT stood at Rs. 506.30 (in Lakhs) as compared to previous year Rs. 702.21 (in Lakhs). The Increase in sales was led by volume of growth in domestic and export market.

Financial Performance as of Financial Year 2018-19

Revenue from Operations

There has been increase in Revenue from Operations from Rs. 21,737.53 lakhs in FY 2017-18 to Rs. 24,811.20 lakhs in FY 2018-19, rising by around 14.14%.

Cost of materials consumed

Cost of materials consumed accounted for 75.14% of total income from operations (88.01% in 2018). Cost of material consumed decreased by 2.54% in 2019 over 2018. Whereas amount of color/chemical consumption was increased by 30.08% in 2019 as compared to 2018.The cost of material is hiked mainly due to consumption of color/chemical in the current year.

Power & Fuel

The power and fuel (Electricity Expenses) spent was Rs. 775.96 (in Lakhs) which constitutes 3.13% of the total income from operations of the company.

SUSTAINABLE DEVELOPMENT

Sustainability has been deeply embedded into the Companys business and has become an integral part of its decision making process while considering social, economic and environmental dimensions. During the year 2018-19, a Sustainable Development Strategy was developed with a focus on the following areas:

1. . Water Pollution Control Measures

• Our Company is a member of Gujarat Eco-Textile Park (GETP) since 2014; The Park helps us to reduce water pollution. The Company has made sure that it implements various measures across all its operations to control fugitive emissions from polluting our water bodies.

2. . Air Pollution Control Measures

• Initiatives have been taken to reduce air pollution which is caused due to production processes. Our Company has obtained a license from Gujarat Pollution Control Board (GPCB) to ensure pollution control. Gujarat Pollution Control Board (GPCB) ensures that the pollution control limits are maintained by surprise inspections at the factory. These inspection samples are then tested in their own laboratory and report is issued. The Company has also installed Air Receiver in the weaving department to reduce and control on toxin emissions.

HEALTH & SAFETY

The company believes Health & Safety as an indispensable province. Company has placed suitable facilities for all workers and employees like proper lighting, ventilation, no congestion, medical kits, stretchers, fire extinguishers etc.at prominent places. Personnel at supervisory level have been trained in basic life support techniques.

The safety measures taken by the company has resulted in improving the conditions under which workers are employed and work, consequently increasing the productivity.

INFRASTRUCTURE

The company is equipped with modern infrastructure facilities which assist in smooth production. The companys manufacturing unit is outfitted with advanced machines and equipment and a trained staff, who have years of experience behind them.

To sell products to the clients, the company has facilitated a smooth transportation mechanism through a strong base of transporters and traders.