Rajapalayam Mills Ltd Management Discussions.



In India, cotton production was estimated at 325 Lakhs bales during cotton season 2018-19 (October to September) as against 365 Lakhs bales during the previous year, a drop in production of 11% due to erratic monsoon in cotton growing area and reduced yield. The cotton production in India is continuously declining from the peak production of 400 Lakhs bales produced during the cotton season 2013-14. The current years cotton crop is the lowest production in the last 10 years. The Government of India has increased the Minimum Support Price (MSP) for cotton by more than 25% during the year under review. The lower production coupled with increased MSP has resulted in spike in cotton prices and Mills were forced to buy good quality cotton at higher prices.

The depreciation of Rupee against US-Dollar has made the import of cotton very expensive. The waste cotton prices (raw material for Open End Spinning) has prevailed at reasonable level. The Company has judiciously procured high quality cotton by closely monitoring the demand and supply situation and also the price movements in domestic and international cotton markets.


The Company is now focusing on production of customized, fine / super fine yarn to get better contribution. Some of the ring frames and open end frames have been stopped for few days for shifting of machines and modernization. Due to this, the production volume has decreased to 150.16 Lakhs Kgs during the financial year 2018-19 as against 151.92 Lakhs Kgs of last year.


The sale volume has decreased in line with production and accumulation of stock during the financial year 2018-19 and it was 146.12 Lakhs Kgs as compared to 155.89 Lakhs Kgs of last year. The sale value of yarn has decreased to र 401.92 Crores during the FY 2018-19 as compared to र 417.60 Crores of last year.

The Company was able to attract more customers from overseas market and continues to have a good demand from International customers on account of supply of consistent and superior quality of yarn. Due to good demand for our cotton yarn in export markets, yarn prices in exports in dollar terms have improved during the financial year 2018-19. However, yarn prices in domestic yarn markets were stagnant inspite of higher cotton prices. Reduced consumption of yarn in India, due to import of fabric which was grown by 20% during the year 2018-19 coupled with excess spinning capacity has created over supply situation for yarn and hence the Mills were not able to pass on the increased cost of production in the yarn prices. The Companys focus on value added customized yarn counts viz. Mercerized Yarn, Melange Yarn, Core Yarn etc., has helped to mitigate the impact to some extent.

The Company has setup the preliminary production process for the above value added yarns successfully and commercial production has started. The sale volume of mercerized yarn has increased from 38 Tonnes to 122 Tonnes and the mlange yarn volume has increased from 2 Tonnes to 44 Tonnes. The full benefit of such value added production will start yielding results in the forthcoming years.


We have made export of Cotton Yarn (including merchant exports) for a value of र 127.96 Crores as against र 113.66 Crores of the previous year. In addition to our regular International Market, our sales volume has grown considerably in new markets viz. Turkey, Portugal etc. where our yarn quality is well accepted.

Your Directors are thankful to M/s. Mitsubishi Corporation, M/s. Doko Spinning Co. Ltd., and M/s. Unitika Ltd., Japan for their continued support and efforts for promotion of exports to Japan.


During the financial year 2018-19, the Company was able to consume power from its own wind farms to the extent of 64% of total power requirement as compared to 71% consumed during the last year. Because of lower power generation from wind mills, the Company was forced to consume power from other sources which are high cost and due to this, the power cost has been increased during the financial year 2018-19 to र 36.98 Crores as compared to र 30.94 Crores incurred during previous year.


The Finance cost during the financial year 2018-19 has increased to र 2,198.07 Lakhs, from र 1,752.58 Lakhs mainly for the additional borrowings for modernization of spinning machineries, automation and investments made in machineries to produce value added counts.


During the financial year 2018-19, the Company has received dividend income of र 20.86 Crores (PY: र 10.27 Crores) which includes an amount of र 10.59 Crores (PY: Nil), being dividend on Preference Shares declared and paid by M/s. Thanjavur Spinning Mill Limited. The dividend received on Preference Shares includes arrears of dividend related to previous financial years from 18-07-2014 to 31-03-2018 to the extent of र 8.34 Crores and dividend for the financial year 2018-19 of र 2.25 Crores. M/s. Thanjavur Spinning Mill Limited is taking steps for redemption of Preference Shares.


Pursuant to Schedule V(B) of SEBI (LODR) Regulations, 2015, the Key Financial Ratios for the year 2018-19 are given below:

Particulars 31-03-2019 31-03-2018 Formula adopted
1 Debtors Turnover Ratio (Days) 50 40 365 Days / (Net Revenue / Average Trade Receivables)
2 Inventory Turnover Ratio (Days) 117 112 365 Days / (Net Revenue / Average Inventories)
3 Interest Coverage Ratio 1.91 2.44 (Profit Before Tax + Interest)/ (Interest + Interest Capitalised) Current Assets / (Total Current Liabilities - Other Financial
4 Current Ratio 1.03 1.08 Liabilities - Current maturities of Long Term Debt)
5 Debt - Equity Ratio 1.55 0.88 Total Debt / Total Equity
6 Operating Profit Margin 19% 18% EBITDA / Net Revenue
7 Net Profit Margin 7% 7% Net Profit / Net Revenue
8 Return on Networth 9% 11% Total Comprehensive Income / Average Net worth
9 Total Debt / EBITDA 5.74 3.16 Total Debt / EBITDA
10 Return on Capital Employed 8% 9% (TCI + Interest)/ (Average of Equity plus Total Debt)
11 Price Earning Ratio 22 28 Market Price per share as at 31 March / Earning per share)

Notes: a) For serial no. 5 and 9 there have been significant change (ie., 25% or more) in the ratios compared to previous year. The same is due to increase in debt for fabric projects / modernisation of spinning mills.

b) EBITDA denotes Profit Before Tax + Interest + Depreciation