R&B Denims Ltd Management Discussions.

A Management Discussion and Analysis is a written explanation of a public companys performance for the reporting period. It also provides details on the focus areas of the management and how they look forward to achieving the business and financial objectives.

DISCLAIMER

This discussion and analysis report contains forward looking statements about strategy, objectives, and expected financial and operational results. Forward-looking statements are typically identified by words such as "may", "should", "could", "would" and "will", as well as expressions such as "believe", "expect", "forecast", "anticipate", "intend", "plan", "estimate" and other similar expressions and are based on broad assumptions. Such broad assumptions also involve some risks and uncertainties which are by definition difficult to predict and are beyond our control. 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. We may be required to make adjustments to targets and historical results to enhance comparability of the data and follow industry best practices. Thus 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.

This report 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 14 places and got 63rd rank (as compared to 77th rank) according to the World Banks Ease of Doing Business Index 2020. The rankings are benchmarked to May 01, 2019 and are based on the average of each economys ease of doing business scores for the 10 reform topics which are included in the aggregate ranking. Indias ranking is attributed to 4 reform topics this year - starting a business, dealing with construction permits, trading across borders and resolving insolvency. India, which has conducted a remarkable reform effort, joins the list of the top 10 improvers for the third year in a row. Given the size of Indias economy, these reform efforts are particularly commendable. This certainly points towards more such reforms to demonstrate tangible progress in the near future. Prime Minister Narendra Modis new campaign on "Make in India" also focus on attracting foreign investment, boosting the private sector; manufacturing in particular and enhancing the countrys overall competitiveness.

Indian Textile Industry

Indias textiles sector is one of the oldest industries in the Indian economy and one of the largest in the world with a large raw material base and manufacturing strength. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital-intensive sophisticated mills sector on the other end. The textile industry has always occupied an esteemed place in Indian industrial system. Indias textiles industry has a capacity to produce wide variety of products suitable for different market segments, both within India and across the world.

During the year Indias textiles industry contributes to 7% of industry output in value terms, 2% of Indias GDP and to 15% of the countrys export earnings. With over 45 Million people employed directly this year, the textile industry is one of the largest sources of employment generation in the country. Also India is the second largest exporter in the world after China.

Indias overall textile exports during Financial year 2018-19 was US$ 31.65 billion, 2019-20 was US$ 39.2 billion and India is expected to reach to US$ 82.00 billion in 2021. Out of this Indias Ready-made garments (RMG) exports for the Financial Year 2019-20 stood at US$ 15,488.70 million which is equivalent to INR 109694.78 Crore. The Indias top 10 RMG product exports to the World covers cotton shirts, T-shirts, shorts, trousers etc for men or boys or babies, cotton or synthetic dresses, shirts, blouses etc for women and other garments of man-made fibres.

The Indian government is also coming up with a number of initiatives and export promotion policies every year for growth in the textiles sector. As a result; as of 2019, 348 technical textiles products were developed according to Bureau of Indian Standards (BIS). The Government has also allowed 100 % FDI in the Indian textiles sector under the automatic route.

The future for the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Pepe Jeans, Levis etc into the Indian market.

High economic growth has resulted in higher disposable income. This has led to rise in demand for products creating a huge domestic market.

OUTLOOK

1. INDIAN DENIM MARKET

The Indian denim market is exhibiting continuous growth over the years. With new technologies, trends and higher market reach, this sector has promising growth potential. Denims are now an innate part of the Indian fashion scene. From metros to the most remote of small towns, this fabric is all pervasive today. It has become the go to fashion preference of individuals across all walks of life – irrespective of gender and age. Even in rural areas, denim is becoming highly fashionable with most men and teenager girls who are now opting denim wear over traditional outfits. Considering Indias proclivity to adhere to its cultural heritage, the popularity and wide usage that denim enjoys today in India stands as a testimony to this fabrics timeless appeal.

One of the biggest triggers for this shift in trends was Denims use as an all-weather and evergreen piece of apparel for all men, women and even children. Another reason for its meteoric rise in popularity has been its durability and maintenance in the long run which actually turns out cost-effective for all.

Further fashion, traditionally, has been more about style than comfort. However, times are rapidly changing with the opposite being true today. Fashion is becoming next-level functional, with consumers seeking comfortable, fuss-free styles that adapt to the moment and can be used while traveling anywhere. Just like the busy and aspirational lives they lead, consumers want clothes that work as hard as they do and are durable, comfortable, timeless and eco-friendly. Gone are the days when peoples perception of work wear use to be ‘what you wear is what you do wherein professionalism was always symbolized by a suit and tie/formal wear. People have evolved and are opting smart casuals for business meetings which also include smart denim wear, as business no longer happens only in boardrooms but at caf shops, business events, etc. Jeans are now an acceptable office garb even in smaller towns in India. This is another major factor that has propelled denim into wardrobes across the nation.

Over the years, denim has become seasonless and very versatile in terms of its wearability and comfort.

2. FUTURE PROSPECTS

With massive developments in technology, denim is no more restricted to its ruggedness. Today a pair of denims can look classy with a bit of sheen, feel supple to give you that feather touch feeling, can look rugged but can be super flexible, can behave like knits and still look and wash like denim. The market today has been updated with revolutionary denim products almost routinely. Further 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.

The main drivers for the increase in the denim sectors market share are:

Variety: Denims have become very versatile. Its use has not been limited to clothing and apparels like jeans, shirts, shorts, dresses, jackets etc but also various other accessories like bags, shoes and even upholstery products are now made from denims.

Purpose: In todays society, denim serves almost all purposes. It comes in a range of colours and can be worn as formalwear as well as casual wear. There is a different type of denim to suit every occasion.

Convenience: A pair of denim can be worn for almost any occasion and is easy to care for than formal clothes. It is comfortable, long lasting and demands low maintenance.

Changing trends/fashion: Denim has always been an integral part of fashion for a long time and is unlikely to go out of style anytime soon. Indian youth are becoming increasingly fashion conscious and their spending power is increasing sharply, which makes life easier for the fast-growing ‘premium category of denim wear brands. It has become a trend to own a collection of denims in different colours.

Youth population: India has the worlds largest youth population, which is becoming fashion conscious owing to mass media and social media penetration. Youth (15 to 29 years old) who comprise 26 percent of the consuming population, are a key growth driver of denim wear in the country. Increasing disposable income, comfort, quality and brand consciousness are major reasons behind increasing acceptance of denim wear among this young population.

Prices: Denim reaches different market segments at various price points to suit everyones budget and needs. The price of denim wear depends on a number of factors like the quality of material, texture, comfort, cut, and wash.

E-Commerce: Due to the ease of ordering online, generous and flexible return policies, and the cash on delivery system, the youth of India is more likely to purchase denims online.

Influence of international brands: The entry of the international brands in the country is one of the biggest drivers of denim wear. Their entry has widened the perspective of consumers which in turn has resulted in higher acceptability of new trends, styles in the market. With the increasing exposure to international fashion trends, the Indian consumer today is aware of global trends and has given him more variety to choose from.

Exports: The global demand for denim is growing. With an abundance of raw materials, the availability of trained manpower, and state-of-the-art technology, India has the potential to become a major denim exporter globally. The depreciating value of the rupee gives a competitive advantage to the Indian exporters.

Organized 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.

Increased rural spending: Rural areas are developing at a rapid pace and so is their purchasing power. With the percolation of mass media, people in rural areas are also aware of fashion trends and the deman for denims is growing in rural areas also.

Target Market: Earlier, denim used to be the choice of city 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 and everywhere from metros to most remote small towns.

Innovation: Innovation is a compulsion and a need to stay in the competition. In line with changing preferences of consumers towards comfort, the denim market is constantly making efforts to redefine and reinvent innovative materials with new designs, washes, cuts, and embellishments which keep the masses interested and demand high and cater the needs of a wider audience.

Urbanization of Work Culture: In recent times, denim has come to be accepted as business wear. Many large companies are making denims a part of their daily work culture to promote uniformity and to create a relaxed environment which is more conducive to work in. This is creating a huge demand for the denim market in India.

3. INDUSTRY OUTLOOK

The denim segment has always reigned as one of the leading segments in the fashion industry. Though the Denim Industry is one of the most promising industries in India it faces its own sets of issues and challenges. These issues and challenges are associated with the value chain which will determine the growth of denim apparel market in the country.

Development of a consumer centric denim value chain will create the avenues to unleash the great potential inherent in Indias denim market. A two-prong strategy that in one hand addresses the needs of consumers encourages them to consume more of denim and on the other hand ensures to improve the existing gaps in supply chain shall make Indias denim market more dynamic and consumer centric with better opportunities and scopes for all elements involved in the eco-system. A larger portfolio of denim garments and accessories is required.

SELECT TRENDS IN DENIM MARKET

The denim market in India has been evolving fast with introduction of more styles, colours and some distinct trends in the product offering. A few yarn manufacturers have come up with innovative solutions to bring in a fresh change to this otherwise static industry. This has led to the introduction of new varieties of denims such as blended cotton yarn and biodegradable yarn made from wood pulp to attribute unique properties like softness, flexibility, and comfort in denim wear. Due to the changing dynamics of the products, the denim industry continues to remain an evergreen fashion favourite among the youth.

Some of the key trends in denim market are:

• In India most of the denim manufacturers focus on the domestic markets as the value realisation remains higher in domestic market than in export markets

• In the recent times the industry has witnessed entrance of new fabric manufacturers which is expected to make the market for denim fabric more price competitive in the coming years

• Cotton remains the fibre of choice in denim apparel. In blended denim fabrics polyester is being used as weft threads.

• The demand for stretch denim is growing at a faster rate in Indian 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. Internal Strengths

• Jeans are a wardrobe staple that everyone owns.

• The denim market is segmented into smaller and niche sections, making it easier to target different consumers. The demand is increasing in both domestic as well as international markets.

• Competitors are not competing on exactly the same product. Difference styles, prices and materials are available.

• Easy diversification into other product lines like footwear, innerwear, accessories to make it a complete lifestyle brand.

• Automation of production processes and proper infrastructure

• Availability of raw materials

2. Internal Weaknesses

• The high impact the cotton industry has on the environment as a result of denim manufacturing.

• The denim market is already dominated by several big brands.

• Increase in mid-market / value retailers results in a negative impact for the higher end retailers and increase an opportunity to introduce lower market brands.

• Fluctuation in prices to cope up with changing demands and trends.

• Short time for optimization of products.

• Unavailability of skilled labour.

• Increase in unit cost, high tariff barriers and export duties.

3. External Opportunities

• Better consumer knowledge and power driving the demand for more ethical and sustainable denim

• Innovative ways of manufacturing denim and more ways to differentiate from competitors.

• People are willing to buy quality products and long lasting investment pieces at a competitive prices.

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

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

• Introduction of sustainable development practices.

4. External Threats

• The market is saturated with existing brands.

• The market is continuously growing with brands coming up with innovative ways to compete and stay relevant in the market.

• The ethical denim market already has a number of early entrants which have gained significant market share.

• Unstable economy results in reduced consumer confidence and spending.

• The entry of several international players in the retail industry after opening up of FDI would also pose as a threat for the brand.

• It is difficult to make balance between price and quality when competitors have lower price.

• Quick obsolesce of technology.

REVIEW OF OPERATIONS

Your directors report that during the year under review your company has posted higher income of Rs. 25,790.78 Lakhs in the current year as compared to Rs. 24,811.2 Lakhs in the corresponding previous year. During the current year your company has shown net profit of Rs. 329.02 Lakhs as against Rs. 388.71 Lakhs.

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 from time to time with new standard operating procedures.

The Audit committee, in its meeting, along with the CFO formulates a detailed audit plan for the internal auditor 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 in consultation with the Statutory Auditors and the Business Heads reviews the recommendations placed by the Internal Auditors, suggests improvements, take corrective actions, wherever needed, to strengthen the internal control system and place it before the Board. 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 defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events like economic and market conditions, cut throat competitions at local as well as at international level, introduction of new players in textile markets, even events which are not directly connected with the organization like natural disasters, political and military turmoil etc. It can be minimized by decreasing labour turnover, power cost, logistics, balancing demand & supply risks, implementing latest technologies to create new and innovative designs of textile products, 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 harmonizing production for completing the orders in time as well. Fluctuations in yarn prices in international market which can impact the price / cost of a particular product(s) and its blend(s) is also a part of business operational risk.

• Environmental Risk: The safety of environment is 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 effort should be made to recycle the waste, make reusable products, use natural resources instead of hazardous chemicals to protect the environment.

• Raw material risk: There is always a risk of inadequate or non-availability of raw materials in the market due to volatility in the prices of cotton, transportation cost etc which could impede business profits and prospects.

• Quality risk: Easy entry of various competitors in the market could affect the quality of products in order to match the competitive prices. Also inability to match the stringent quality standards of leading retails brands consistently could impact product off take.

• Working capital risk: To expand the business operations requires increased working capital and its proper management.

• Purchasing power risk: It means loss of purchasing power due to the effect of inflation. This risk is also known as inflation risk. When there is inflation in the economy, the currency loses its value due to the rising price level in the economy. The higher the inflation rate, the faster the money loses its value.

• Foreign Exchange / Currency risk: It is the uncertainty associated with changes in the relative value of currencies. Currency risk arises from the change in price of one currency against another. 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 fluctuations in the exchange rate are caused basically by the supply of and the demand for the currencies being exchanged. 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. The investors or companies, in order to avoid currency risks should properly hedge their positions with the foreign banks.

• Financial Risk: It is the uncertainty associated with how firms finance its business like by issue of shares, debentures, taking loans from government / financial institutions etc. Such financial transactions also include risk of default in payment of interest, dividend or repayment of capital due to various internal or external factors like increase in credit days of debtors, inflation, interest rate fluctuations, change in government policies etc. It may lead to loss of liquidity, falling assets value, significant change in cash inflow and outflow etc.

• Liquidity Risk: Liquidity Risk reflects the possibility/position that a party may have insufficient funds to settle an obligation for full value when due because of insufficient capital or difficulty in selling as asset or an investment to generate capital, 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.

• Global Risk: Global risk refers to an uncertain event or condition that can cause significant negative impact to several countries or industries for a long period of time. India is still emerging in the market of textile industries. There is a tremendous competition around the world. Indian manufacturers will have to face a tough fight to sustain in the competition. Due to poor infrastructure facilities, the production and transaction cost remain high in India. Also Indias logistic disadvantage due to its geographical location can give it a major thumbs-down in global trade. As a result, high cost of shipments and longer lead time coupled with lack of infrastructure facility may prove to be a major hindrance. To overcome this problem, India needs to increase the size of its industrial infrastructure to capture the efficiencies of the economies of scale and it must cluster the textile production.

• Political Risk: Political risk may be defined as the probability that a political event will impact adversely on a firms profit. It represents the financial risk that a countrys government will suddenly change its policies. A new law or a change in an existing could have a significant impact on an investment. Whatever laws the government passes today may be extinct tomorrow. This risk covers restriction on remittances in the buyers country or any government action which may block or delay payment to the exporter, war, revolution or civil commotion in the buyers country, cancellation or imposition of new export / import licensing restrictions in the buyers country, any other kind of loss occurring either in India or outside India which is not within the control of the exporter or the buyer.

• Technological risk: Technology can response corporate culture and facilitate innovative procedures. In a garment manufacturing industry, the firm is constantly required to make changes and transformations in the production process over time, upgrade their machinery besides creating new facilities and additional capacities in order to survive in the highly competitive market.

4. FINANCIAL PERFORMANCE AND OPERATIONAL PERFORMANCE

The company has reported total revenue of Rs. 25,835.70 Lakhs as compared to previous year Rs. 24,937.15 Lakhs and PBT stood at Rs. 452.76 Lakhs as compared to previous year Rs. 506.30 Lakhs. The Increase in sales was led by volume of growth in domestic market. The Export Sales for the year is 11.88 Cr.

FINANCIAL PERFORMANCE AS OF FINANCIAL YEAR 2019-20

i. Revenue from Operations

There has been increase in Revenue from Operations from Rs. 24,811.20 Lakhs in FY 2018-19 to Rs. 25,790.78 Lakhs in FY 2019-20, rising by around 3.95%.

ii. Cost of materials consumed

Cost of materials consumed accounted for 85.51% of total income from operations (75.14% in 2019). Cost of material consumed increased by 18.30% in 2020 over 2019 and amount of color/chemical consumption was increased by 48.52% in 2020 as compared to 2019. The cost of material is hiked mainly due to consumption of color/chemical in the current year.

iii. Power & Fuel

The power and fuel (Electricity Expenses) spent was Rs. 1068.42 Lakhs which constitutes 4.14% of the total income from operations of the company.

5. 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 2019-20, 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.

6. 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.

7. 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.

Sd/-
Place: SURAT Rajkumar Mangilal Borana
Date: 12/08/2020 (Chairman & Managing Director)
DIN: 01091166