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.

OPERATIONS

Indias textiles sector is one of the oldest industries in Indian economy dating back several centuries. Even today, textiles sector is one of the largest contributors to Indias exports with approximately 13 per cent of total exports. The textiles industry is also labour intensive and is one of the largest employers.

The textile industry employs about 105 million people directly and indirectly. Indias overall textile exports during FY 2017-18 stood at US$ 37.74 billion.

The Indian textiles industry, currently estimated at around US$ 150 billion, is expected to reach US$ 230 billion by 2020. The Indian Textile Industry contributes approximately 2 per cent to Indias Gross Domestic Product (GDP), 10 per cent of manufacturing production and 14 per cent to overall Index of Industrial Production (IIP).

As a global trend from decades, men are more interested in casual denims as compared to formal wear because of the growing fashion consciousness among them. Due to the rising acceptance of fast fashion wear, such as jeans, jackets and shirts for men in corporate or commercial environments, its demand for men is projected to stay ahead to that of women, during the forecast period.

Apart from this, the concepts of e-marketplace and e-commerce are revolutionizing the fashion industry from the past few years and are directly impacting the denim market, positively.

OUTLOOK

1. INDIAN MARKET

India is the fifth largest destination in the global retail space, making the Indian apparel industry the second largest contributor in the retail industry. Basis industry statistics, denim is the single most leading segment in the fashion industry.

Denims became the garment of choice for urban Indians – both men and women. Today the Indian denim fashion industry is at an exciting place – with huge growth opportunities ahead. There is a strong and technically sound production base that has evolved through the export base of garment manufacturers. The design sensibility of Indian brands is at par with international brands. The ability to produce well-designed denims at affordable prices is the strength and forte of Indian brands. They can exploit the opportunity to position themselves in the middle of the consumption pyramid and span across all metros, Tier -I, Tier -II and even Tier -III towns to gain scale, while premium brand continue to struggle with this.

Womens jeans continued to grow during 2017, as Western wear has become increasingly acceptable amongst urban women consumers. Indian consumers see Western jeans as basic apparel and the convenience and comfort associated with them when compared to traditional Indian wear is making them popular amongst the masses.

Driving Factors for Denim Market 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

More men – 41.76 percent of against 39.46 percent of women own between four to six pairs of jeans. Both spend around Rs 1,000 to Rs 2,000 on their denims.

Denim wear is considered durable as it is made up of a sturdy cotton twill textile. It is woven in a manner that it can be effortlessly worn in any condition.

Denim wear is now much more easily available in the market, deeper across the country and across different market segments and varied price points as well. Thus, bringing it within the reach of different income groups.

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: Not only Jeans but various other items like clothing and accessories like shirts, shorts, dresses, bags, shoes, jackets etc are made out of Denims.

Purpose: Denim serves almost all purposes and are available in many range 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: Denim is comfortable and long lasting.

Changing trends/fashion: Todays generation is fashion conscious tend towards changing fashion and are adopting the wear that are 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 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: The denim market is constantly redefining and reinventing itself with new designs, washes, cuts, and embellishments which keep the masses interested and the demand high.

3. Industry Outlook

With all the initiatives the government is taking to boost the countrys textile sector, the coming years are going to be crucial for the industry. The Government is soon to announce its ambitious target of achieving 20% share of the global textile trade and helping the domestic industry attain a size of $650 billion by 2024-25. The target can be achieved with a strong focus on investments, better labour law reforms, and skill enhancement.

With the government taking so many steps to boost the nations textile sector, its benefits are likely percolate to the Indian denim industry in the coming years and ensure its steady growth which will be further fuelled by the various demand drivers for this sector in India.

SWOT ANALYSIS OF DENIM INDUSTRY:

1. Strengths

• Existence of sufficient productive capacity

• Managements with professional and business background

• Existence of qualified technical personnel

• Easy availability of raw materials

• Large domestic market

• Abundant availability of excellent quality cotton suitable for denim

• Brand Conscious customers

2. Weaknesses

• Non availability cost efficient skilled labour

• Cost based market set up

• Not ready for diversification of products

3. Opportunities

• Growing domestic and international demands

• Indian market is most reliable and efficient market for US, Europe & UK Buyers

• Product mix and product diversification

4. Threats

• Entry of multinational in domestic markets

• Demand supply mismatch, resulting into oversupply position in Domestic Market

• Stiff competition from other Asian countries such as China, Indonesia, Thailand,

Bangladesh and Pakistan

• Fast changing fashion and fabric demands

• Increased competition in domestic market

REVIEW OF OPERATIONS

Your directors report that during the year under review your company has posted higher income of Rs. 21,735.91 (in Lakhs) in the current year as compared to Rs. 20,775.50 (in Lakhs) in the corresponding previous year. During the current year your company has shown a positive trend in net profit of Rs. 588.36 (in Lakhs) as against to the net loss of Rs. 47.94 (in Lakhs) in the corresponding previous year.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board.

The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company including the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosure. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls.

RISK AND CONCERNS

The Company is exposed to risks from market fluctuations of foreign exchange, interest rates and commodity prices and other business risks.

1. Foreign Exchange Risk

Your Companys policy is to hedge its long-term foreign exchange risk as well as short-term exposures within the defined parameters

2. Interest Rate Risk

Your Company is exposed to interest rate fluctuations on its Rupee denominated borrowings. It uses a judicious mix of fixed and floating rate debts within the stipulated parameters. The Company continuously monitors its interest rate exposures and whenever required, uses derivative instruments to minimize interest rate risk and interest costs. In view of the continuous risk mitigating strategy adopted by the Company, it does not perceive interest rate risk as having any material impact on its profitability, at any point of time.

3. Commodity Price Risk

The Company is exposed to the risk of price fluctuation on raw materials as well as finished goods in all its products. The Company proactively manages these risks in inputs through purchase contract or forward booking for cotton, its main raw material and inventory management. The Companys reputation for quality and the existence of a strong marketing network mitigates the impact of price risks on finished goods.

4. Other Business Risks

Apart from the risk on account of interest rate, foreign exchange and regulatory changes, the business of the company is exposed to certain operating business risks, which are managed by regular monitoring and corrective actions.

FINANCIAL PERFORMANCE AND OPERATIONAL PERFORMANCE

The company has reported total revenue of Rs. 2,055,328.92 (Rs. in Thousands) as compared to previous year Rs. 1,626,462.13 (Rs. in Thousands) and PBT stood at 4400.51 (Rs. in Thousands) as compared to previous year Rs. 21,057.89 (Rs. in Thousands). The Increase in sales was led by volume of growth in domestic and export market.

COSTS-DENIM BUSINESS

During the year 2018, the economy witnessed an upward movement in the overall cost structure and the Company continued to focus on cost improvements through its excellent programs.

1. Cost of materials consumed

Cost of materials consumed accounted for 88.01% of total income from operations (82.89% in 2017). Cost of material consumed increased by 11.09% in 2018 over 2017. Whereas amount of Yarn consumption were increased by 7.18% in 2018 as compared to 2017 whereas amount of Coal/Lignite consumption were decreased by 40.9% in 2018 as compared to 2017 and amount of Grey consumption were increased by 24.90% in 2018 as compared to 2017. Amount of Color/Chemical consumption were decreased by 36.12% in 2018 over 2017 and amount of stores/packing materials consumption were increased by 33.62% in 2018 as compared to 2017. The cost of material is hiked mainly due to consumption of grey in the current year.

2. Power & Fuel

The power and fuel (electricity Expenses) spent was Rs. 729.40 (in Lakhs) which constitutes 3.36% of the total income from operations of the company.

3. Other Expenditure

Other expenditure (exclusion of Manufacturing Expenditure) constitutes 0.88% of total income from operations of the Company. The decrease in other expenditure (exclusion of Manufacturing Expenditure) stood to 16.57% in 2018 over 2017.

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 2017-18, a Sustainable Development was developed with a focus on the following areas:

1. Water Emissions

• Our Company is a member of Gujarat Eco-Textile Park (GETP) since 2014, The Park helps us to reduce water pollution. The Company has also implemented various measures across all its operations to control fugitive emissions.

2. Air Emissions

• Initiatives were taken to reduce air pollution causes due to production processes. Company has taken license from Gujarat Pollution Control Board (GPCB). The officers of the board often visits on a surprise check to our factory and verify the level of air pollution. The samples are tested by GPCB in their own laboratory and report is issued to us. The Company has also installed Air Receiver in weaving department to reduce and have control on Air Emissions.

HEALTH & SAFETY

Health & Safety (H&S) remains the Companys top priority. The company is equipped with proper first aid facilities, Medical facilities and stretchers. The shift supervisors have been trained in basic life support techniques.

With regard to safety, two key areas of focus identified were Facility Management for the employees and Equipment, Tools & Material Management. The Facility Management initiative was implemented to ensure adequate welfare facilities for employees such as washrooms with bathing facilities, rest rooms, proper availability of drinking water etc. The Equipment, Tools & Material Management program ensured that the tools used by employees were safe and the company provides earplugs, helmet, nose & face mask, hand gloves, safety shoes to protect its employees. The process of screening of employees was made more stringent to ensure that the employees were aligned with the Companys objectives.

HUMAN RESOURCES

Human resources are a significant part of your companys overall development. Your Company emphasized talent nurturing and retention, providing avenues for learning and development through functional and, behavioural training programs have helped the Organization, achieve higher productivity levels. Your Company is engaged in a constructive relationship with employees with an emphasis on innovation; productivity efficiency improvements and underlining safe working practices. A significant effort has also been undertaken to develop leadership as well as technical/functional capabilities in order to meet future talent requirement.

The Companys HR processes such as hiring and on boarding, fair transparent performance evaluation and talent management process, and market aligned policies have been seen as at good level practices in the Industry. Your Directors further state that during the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Industrial relations with staff and workmen during the year under review continued to be cordial.

1. Employees of Choice:

The Company has positioned itself as one of the best companies to work for. The Company invest on hiring the best talent, developing and retaining the available talent to ensure a sustainable talent supply within the organization. The Company also uses various communication channels to seek employees feedback about the overall working environment and the necessary tools and resources they need to perform at their best potential.

2. Leadership Development:

As a part of leadership development, talented employees have been seconded to the senior leadership team to mentor them and prepare them for the next higher role. Apart from this, a large number of senior, middle and other employees are sent for leadership programs or are assigned to small independent projects, which are planned for identified talent. The Company also provides various opportunities to the employees to develop and work on their skills to take up higher responsibilities in the organization.

3. Industrial Relation:

The Company shares relevant business information with the union in order to enlighten them and make them sensitive towards business requirements. This has helped to build a healthy relationship and resolve issue through mutual dialogue. There has been no dispute between the management and workers during the year.

4. Individual Development Planning:

This is an annual process tied to business planning and the budget cycle, whereby the management in our organization establishes training goals and plans for employees of the organization.