Raj Rayon Industries Ltd Management Discussions.

Industry Structure and Development

The economic development of India is greatly dependent on export earning of Textile Industry. Textiles represent nearly 30% of the countrys total exports, providing direct employment to over 45 million persons in the mill, power loom and handloom sectors making it the biggest employer in the country after the agricultural sector. India is the worlds second-largest producer of textiles after China. It is also the worlds third-largest producer of cotton after China and the USA. Indias total exports of textiles and apparel are expected to grow at a CAGR of 12.03% to reach $82 billion by 2021. At present, a third of Indias textile production is exported. India is the worlds second-largest exporter of textiles and apparel, and the textile industry contributes significantly to the countrys economy, making up 7% of industry output, 2% of the national GDP, and 15% of the countrys total exports earnings. The US and the European Union are the two largest markets for Indian textile exporters. With all the export promotion & development planning it is expected to grow to US$2,600 billion by 2025.

However, the pandemic of COVID- 19 has affected all over the world economy. Due to Covid- 19, The Indian Textile Industry fell as the yarn and ready-made garments exports fell by 90% during April as per the report. Till the quarter of March, the export of ready-made garments declined by 16% and by April further to 91%, whereas yarn exports fell about 30% during the quarter of March and further to 80-90% in April. China accounts for a third of Indias yarn export and Bangladesh which accounts for a fifth of Indias yarn export. Under the impact of Covid-19 garment, units were shuttered in these countries so their imports declined, as a result, the Indian export of yarn.

Opportunities & Threats

Opportunities

The black swan event has affected the Indian textile & apparel industry, in terms of both trade and domestic consumption. With the steep reduction in demand due to sudden halt of global trade and domestic sales due to the closure of retail stores, the industry is likely to face unprecedented and severe losses. The spread of the virus initiated in China and later spread to EU and the US, which are huge markets for Indian textile & apparel products. Hence, the Indian textile value chain is bound to face adverse repercussions of the pandemic.

Threats

Labour force and employment:

T&A provides direct employment to over 45 million people but the nationwide lockdown have led to a temporary closure of factories and lay-offs have already begun among low wage worker.

Import & Exports of raw material and readymade garment:

The COVID-19 pandemic is primarily expected to adversely impact exports and with second- order impact on the domestic markets with both exports as well as domestic sales falling.

OUTLOOK

The nationwide lockdown in India is likely to impact the textiles sector both in terms of demand and supply. The COVID-19 pandemic is likely to continue to impact the global textile production and supply chains and thereby textile product prices. The Indian textiles industry has taken a major hit because most of Indian yarn exports are to China. It is estimated that Indias exports will be substantially hit till the first half of FY21, which had already reduced by more than 40 per cent till January 2020 due to the US-China trade war. The fabric industry is dominated by few players which have strong liquidity to manage the downside caused by COVID-19, while small and medium-size players would face the brunt of economic lockdown.

Internal Controls:

• RRILs well defined organisation structure, policy guidelines, predefined authority levels and an extensive system of internal controls, ensure optimal utilisation and protection of resources, IT security, accurate reporting of financial transactions and compliance with applicable laws and regulations.

• RRIL has adequate system of internal control in place to ensure that assets are safeguarded against loss from unauthorised use or disposition, and that transactions are authorised, recorded, and reported correctly.

• RRILs internal audit function is empowered to examine the adequacy, relevance and effectiveness of control systems, compliance with laws, regulations and policies, plans and statutory requirements.

• RRIL has an exhaustive budgetary control system. Actual performance is reviewed with reference to the budget by the management on an ongoing basis.

• RRILs Audit Committee of the Board reviews the findings and recommendations of the internal auditor.

The system is improved and modified continuously to meet changes in business conditions, statutory and accounting requirements.

Research & Development:

The Company always strives to be innovative and cost competitive, aided by its fully equipped R & D facilities. Besides producing POY of Denier range fine to coarse, the Companys array of products includes yarn of various cross sections namely Round, Trilobal and Octalobal, as also Full Dull, Semi Dull, Bright Yarns, Cationic Yarn, Doped Dyed Yarn, Fire Retardant and Anti Microbial yarns.

Quality Management:

RRIL continues to take quality improvement measures to enhance quality of various polyester yarns and polyester chips. The Companys ISO certification in respect of its products and processes stands upgraded to ISO 9001:2008 by Bureau Veritas (UKAS) and Bureau Veritas (NABCB).

Environment and Safety:

Being conscious of the need for environmentally clean and safe operations, the Company conducts its operations ensuring safety of all concerned, compliance of statutory and industrial requirements for environment protection and conservation of natural resources to the extent possible.

Human Resources and Industrial Relations:

The Company recognises that Human Resources are its most valuable assets that provide competitive edge to stay ahead. The Companys focus is on developing the most superior work force so that the Company and individual employees can accomplish their work goals in service to customers.

The Companys strategy for development of Human Resources is through providing a motivating work environment, recruiting the best talents, providing challenging goals and by creating a culture for learning and growth. Industrial relations remained cordial in all the plants.

Key Risks & Mitigation Measures

The Company is under Corporate Insolvency Resolution Process and soon it will come out of the new plans for the safeguarded the interest of shareholders.