Reliance Chemotex Industries Ltd Management Discussions

Global economic overview

Global economic growth declined from 3.5% in 2022 to around 3.1% in 2023. A disproportionate share of global growth in 2023-24 is expected to come from Asia, despite the weaker-than-expected recovery in China. There was also a sustained weakness in USA, increased logistics cost induced by the Red Sea crisis, weak global consumer sentiment on account of the Ukraine-Russia war, and higher energy costs in Europe. The result is that the global economic current was tentative at the close of the last financial year.

Growth in advanced economies is expected to slow from 2.6 percent in 2022 to 1.5 percent in 2023 and to 1.4 percent in 2024, partly on account of the monetary policy in these countries continuing to remain conservative as the respective governments focus on controlling consumption and inflation through high interest rates. Emerging market and developing economies are projected to report a modest growth decline from 4.1 percent in 2022 to 4.0 percent in 2023 and 2024. Global inflation is expected to decline steadily from 8.7 percent in 2022 to 6.9 percent in 2023 and to 5.8 percent in 2024, due to a tighter monetary policy aided by relatively lower international commodity prices. Core inflation decline is expected to be more gradual; inflation is not expected to return to target until 2025 in most cases.

Global trade in goods was expected to have declined nearly US$2 trillion in 2023; trade in services was expected to have expanded by US$500 billion. The cost of Brent crude oil averaged $83 per barrel in 2023, down from $101 per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

Regional growth (%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

(Source: UNCTAD, IMF)

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022

China: GDP growth was 5.2% in 2023 compared to 3% in 2022

United Kingdom: GDP grew by 0.1% in 2023 compared to 4.3% in 2022

Growth of the Indian economy

Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022

Germany: GDP contracted by 0.3% in 2023 compared to a growth of 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint)

Outlook

Asia is expected to continue to account for the bulk of global growth in 2024-25. Inflation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy is expected to remain resilient around the levels of the previous year even in the face of sustained inflation and monetary tightening. (Source: World Bank).

Indian economic overview

The Indian economy was estimated to grow 7.8 per cent in the 2023-24 fiscal against 7.2 per cent in 2022-23 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India retained its position as the fifth largest economy. The Indian rupee displayed relative resilience compared to the previous year; the rupee opened at Rs 82.66 against the US dollar on the first trading day of 2023 and on 27 December was Rs 83.35 versus the greenback, a depreciation of 0.8%.

In the 11 months of FY 2023-24, the CPI inflation averaged 5.4 percent with rural inflation exceeding urban inflation. Meanwhile, lower production and erratic weather led to a spike in food inflation.

Core inflation, on the other hand, averaged at 4.5 percent, a sharp decline from 6.2 percent in FY 23. This decline can be attributed to the easing of global commodity prices.

The nations foreign exchange reserves reached $645.6 billion. This was attributed to the credit quality of Indian companies remaining robust between October 2023 and March 2024 following deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Furthermore, the rating upgrades continued to surpass rating downgrades in the second half of FY24.

UPI transactions in India posted a record 56 per cent rise in volume and 43 per cent rise in value in FY24.

	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	7.8 E

E: Estimated

Growth of the Indian economy quarter by quarter, FY 2023-24

	Q1FY24	Q2FY24	Q3FY24	Q4FY24E
Real GDP growth (%)	8.2	8.1	8.4	8 E

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

Indias monsoon for 2023 hit a five-year low. August was the driest month in a century. From June to September, the country received only 94 per cent of its long-term average rainfall. Despite this reality, wheat production was expected to touch a record 114 million tonnes in the 2023-24 crop year on account of higher coverage. Rice production was expected to decline to reach 106 million metric tons (MMT) compared with 132 million metric tonnes in the previous year. Total kharif pulses production for 2023-24 was estimated at 71.18 lakh metric tonnes, lower than the previous year due to climatic conditions.

As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output was estimated to grow 6.5 per cent in 202324 compared to 1.3 per cent in 2022-23. The Indian mining sector growth was estimated at 8.1 per cent in 2023-24 compared to 4.1 per cent in 2022-23. Financial services, real estate and professional services were estimated to record a growth of 8.9 per cent in 2023-24 compared to 7.1 per cent in FY 2022-23.

Real GDP or GDP at constant prices in 2023-24 was estimated at Rs 171.79 lakh crore as against the provisional GDP estimate of 2022-23 of Rs 160.06 lakh crore (released on 31^st May 2023). Growth in real GDP during 2023-24 was estimated at 7.3 per cent compared to 7.2 per cent in 202223. Nominal GDP or GDP at current prices in 2023-24 was estimated at Rs 296.58 lakh crore against the provisional 2022-23 GDP estimate of Rs 272.41 lakh crore. The gross non-performing asset ratio for scheduled commercial banks dropped to 3.2 per cent as of September 2023, following a decline from 3.9 per cent at the end of March 2023.

Indias exports of goods and services were expected touch $900 billion in 2023-24 compared to $770 billion in the previous year despite global headwinds. Merchandise exports were expected to expand between $495 billion and $500 billion, while services exports were expected to touch $400 billion during the year.

By January 2024, Indias net direct tax collection rose by 19% to H14.71 lakh crore. The gross collection saw a 24.58% increase compared to the same period the previous year. Additionally, the gross GST collection reached H20.2 lakh crore, reflecting an 11.7% increase. The average monthly GST collection was H1,68,000 crore, exceeding the previous years average of H1,50,000 crore.

The agriculture sector was expected to see a growth of 1.8 per cent in 2023-24, lower than the 4 per cent expansion recorded in 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3 per cent in 2023-24, a contraction from 14 per cent in 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9 per cent, despite global supply chain disruptions and rising ownership costs.

The construction sector was expected to grow 10.7 per cent year-on-year from 10 per cent in 2023-24. Public administration, defence and other services were estimated to grow by 7.7 per cent in 2023-24 compared to 7.2 per cent in FY2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9 per cent, down from 7 per cent in 2022-23.

India reached a pivotal phase in its S-curve, characterized by acceleration in urbanization, industrialization, household incomes and energy consumption. India emerged as the fifth largest economy with a GDP of US$3.6 trillion and nominal per capita income of INR 123,945 in 2023-24.

Indias Nifty 50 index grew 30 percent in FY2023-24 and Indias stock market emerged as the worlds fourth largest with a market capitalization of US$4 trillion. Foreign investment in Indian government bonds jumped in the last three months of 2023. India was ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Indias unemployment declined to a low of 3.2% in 2023 from 6.1% in 2018.

Outlook

India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass USD 4 trillion in 2024-25.

The global textile industry overview

The textile market size stood at US$638.03 billion in 2023 and it is expected to be at US$689.54 billion in 2024, growing at a year-on-year rate of 8.1%.

The U.S. textile market size stood at US$ 259.15 billion in 2023 and is expected to reach USD 320.4 billion by 2030, growing at a CAGR of 3.1% during the forecasted period. Meanwhile, the Asia-Pacific textile market was estimated at US$ 391.20 billion in 2024 and is expected to reach US$ 443.72 billion by 2029, growing at a CAGR of 2.55% during 2024-2029.

The anticipated growth over the next five years can be attributed to factors such as the continued increase in global population and urbanization, the rapid expansion of e-commerce, heightened expenditure on leisure activities, the growing retail penetration, increased internet accessibility and smartphone usage. Notable trends expected include a shift towards digital textile printing inks that enhance garment attractiveness, a focus on utilising non-woven fabrics, emphasis on the use of organic fibres, spotlight on sustainable fibres, integration of blockchain technology into manufacturing processes, adoption of digital platforms for textile supply chain management, collaboration with technology companies to design and develop smart fabrics, investment in robotics and automation and incorporation of artificial intelligence.

(Source: The Business Research Company, Grand View Research, Textile Insights, Mordor Intelligence Research and Markets, fibre2fashion.com)

The Indian textile industry overview

The Indian textile and apparel market size reached US$ 197.2 billion in 2023. The textiles and apparel industry contributed 2.3% to the countrys GDP, 13% to industrial production and 12% to exports.India contributed 4% share to the global trade of textile and apparel.

Indias textile exports saw a drop for the second year in a row in FY 2023-24, with geopolitical tensions affecting the global economy. During this fiscal year, textile exports from India reached $34.4 billion, down by more than $1 billion and a 3% year-on-year decline from FY 2022-23. Furthermore, textile exports declined sharply by 16.3% when compared to FY 2021-22 when exports had been $41 billion. Despite this downturn, there was a silver lining ; cotton yarn, fabrics, made-ups, and handloom products delivered a year-on-year increase of $740 million in exports in FY 2023-24.

North America stood as largest market for Indias textile exports at $11 billion. Europe came in second with $10 billion, while exports to West Asia and North African countries amounted to $4 billion.

The Western economy was marked by recessions in pockets leading to tentative consumer confidence. The Red Sea crisis, doubled freight costs.

The decline in textile exports began to stabilise, as the drop between FY23 and FY24 was less pronounced compared to the decrease in the previous year . In the readymade garments segment, which makes up 42% of the total textile exports, there was a 10% reduction in FY24 compared to the previous fiscal year.

Indias Production Linked Incentive scheme proposes to incentivise MMF (man-made fiber) apparel, MMF fabrics and 10 segments of technical textiles products. Additionally, the expanding presence of e-commerce platforms and distribution networks dedicated to premium fabrics and apparel is contributing to a positive market outlook. Besides, growing consumer demand for durable or sustainable clothing and footwear, driven by increased awareness of the environmental damage caused by fast fashion, cataysed market growth in India.

The textile sector has witnessed substantial growth in recent years, owing to favourable government policies and increasing demand for Indian textiles globally. The industry was also catalysed by Make in India, Atmanirbhar Bharat, and Production Linked Incentives initiatives, which aim to promote domestic manufacture and exports.

(Source: CII, IMARC Group, Economic Times)

Outlook

Looking forward, the Indian textile market is projected to grow attractively, catalysed by increasing consumer demand for natural and manmade fabrics, domestically and internationally.

(Source: Textile Insights, Business Wire, IBEF, Invest India)

Opportunities

Indias textile sector is especially strong because of the countrys abundant supply of both natural and synthetic yarns and fibers. Indias textile industry is capital-intensive and technologically sophisticated. On the other hand, China is expected to contribute up to US$ 378 billion to the industry by 2025, making it the most attractive market, while India is predicted to contribute up to US$ 121 billion, making it the second most attractive destination.

With the US textile market showing signs of revival, exports could improve . The Indian textile industry is anticipated to rebound in calendar year (CY) 2024 on the back of three tailwinds: consistent improvement in domestic demand, gradual recovery in exports and lower cotton prices.

The pre-season demand for the spring-summer season in the West is expected to propel the garment exports, strengthening the value chain. With better consumer demand, big retailers in the overseas markets will need to restock their respective inventories, accelerating order flows. Cotton prices in India declined from their peak levels. An anticipated increase in cotton production during this cotton season could keep cotton prices reasonable . The greater availability of cotton and lower prices could catalyse the domestic textile industry, which predominantly relies on natural fibers over synthetic.

(Source: CRISIL, Indian Textile Journal)

Growth drivers

Growing market: Indias population is expected to reach 1.45 billion by 2030, providing a large market for textile products. Increasing disposable incomes: Indias middle class is growing and so are disposable incomes, expected to increase demand for quality textile products.

Export potential: India ranks as one of the worlds largest exporters of textiles and the trend is expected to continue. Indias textile exports could grow attractively across the coming years. .

Increased government support: The Indian government has taken several actions to advance the nations technical textile industry in response to perceived constraints in the conventional textile sector. In important strategic sectors such as specialised fibre, protective textiles, high-performance textiles, geotextiles, medical textiles, sustainable textiles, and textiles for building materials, Indias Ministry of Textiles approved 33 research and development projects. Besides, the initiation of RoSCTL scheme, PM MITRA and National Technical Textiles Mission (NTTM) by the Indian government are expected to catalyse the demand for textiles . Technology adoption: The adoption of advanced technologies such as automation, robotics, and digitalisation in textile manufacturing processes could improve efficiency, reduce costs, and enhance product quality and drive growth in the industry.

Infrastructure development: Investments in infrastructure development, including textile parks, improved logistics, and connectivity, facilitate the growth of the textile industry.

PLI Scheme: The Production Linked Incentive (PLI) scheme for textiles targets 40 man-made fibre (MMF) garment items, 14 MMF fabric products, and 10 technical textile items. The government allocated Rs. 10,683 cr. in 2023 to this scheme to stimulate domestic manufacturing, create employment opportunities, and increase textile exports.

(Source: Technical Textile.com, PIB)

Government initiatives

RoSCTL scheme: The RoSCTL scheme was initially introduced to offset embedded State and Central taxes and levies on garment and made-up exports, which has been extended in line with the governments objective to enhance competitiveness. The Budget allocation was Rs. 9,246 cr. for FY 2024-25.

100% FDI: This has been permitted by the government in the textile sector through the automatic route.

PM MITRA: The government launched the PM Mega Integrated Textile Region and Apparel (PM MITRA) Parks Scheme to develop superior infrastructure with an outlay of Rs. 4,445 cr up to 2027-28. The PM MITRA Parks Scheme was inspired by the 5F Vision (Farm to Fibre to Factory to Fashion to Foreign) and expects to generate around Rs. 70,000 cr. investment.

Increased allocation: The government increased the Budget allocation for textile sector by 27.60% to Rs. 4,392.85 cr. for 2024-25.

National Technical Textiles Mission (NTTM): Furthermore, the Government launched a National Technical Textiles Mission (NTTM) with an outlay of Rs. 1,480 cr. The key pillars of NTTM include ‘Research Innovation & Development, ‘Promotion and Market Development, ‘Education, Training and Skilling and ‘Export Promotion. The focus of the Mission is for developing the use of technical textiles in flagship missions and programmes including strategic sectors. (Source: PIB, Fibre2fashion, The Hindu, Business Standard)

Key financial ratios

Particulars	31.03.2024	31.03.2023	Change in %	Reason*
Debtors turnover ratio (days)	6.22	7.65	-17.39	-
Inventory turnover ratio (days)	54.46	46.15	19.64	-
Interest coverage ratio	2.99	1.51	-36.91	Due to completion of the expansion amounting to Rs. 131 Crores the long term debt has increased
Current ratio	0.95	0.94	1.06	-
Debt/equity ratio	2.09	1.50	39.33	Due to completion of the expansion amounting to Rs. 131 Crores the long term debt has increased
Operating profit margin (%)	6.78	8.26	-17.92	-
Net profit margin (%)	0.86	3.47	-74.32	Due to adverse market conditions margins are under severe pressure
Return on net worth(%)	2.42	8.64	-75.46	Due to adverse market conditions margins are under severe pressure

*(If more than 25% change)

Threats, risks and concerns

The Company is exposed to risks like fluctuation in interest rates, vulnerability to foreign exchange movement, and changes in the price of petroleum and raw materials. The Company is exposed to regulatory risks like shifts in government import and export policies.

Electricity accounts for 13% to15% of the total manufacturing costs in spinning yarn. The Company commissioned 5 MW solar panels in its Udaipur production facility to reduce costs and decarbonize.

The Company has designed manufacturing processes to optimize capacities and resources, any interruption could impact operations.

Segment-wise and product-wise performance

Since yarn is the Companys main business segment, no other segment-specific data is offered. The Company exports yarn made in India; it does not engage in any other business.

Revenue from operations	2023-24	2022-23
Export income	19,656.91	21,316.05
Domestic income	15,938.65	14,489.12
Total	35,595.55	35,805.17

Internal control system and adequacy

To prevent asset loss, unlawful use, or disposal, the Company has implemented an appropriate internal control system that is in line with its size and kind of business. Every transaction has been duly approved, documented, and reported to management. To correctly maintain the books of accounts and report financial statements, the Company complies with all applicable accounting standards. The Companys internal auditor monitors and validates the internal control system in compliance with the policy that the Company has implemented. Corrective action is implemented in response to the internal audit findings, which are reported to the department heads, the statutory auditor, and the audit committee of the Board of Directors. The audit committee is presented with the audit observations and the managements comments. The Company considers its internal financial control system to be well-designed and functioning as planned.

Human resource

The Company understands that its workers are a vital resource essential to its expansion. The organisation is committed to finding, keeping, and developing exceptional team players. The Company has further structured its performance management system around an inclusive growth philosophy.

The system emphasizes the significance of organisational goals while concentrating on the advancement of individual personnel. The emphasis on multiskilling and job rotation has intensified under this approach. The Companys human resources department is dedicated to helping workers grow, with a focus on output, quality, and customer satisfaction. The Company constantly offers in-house training to its staff to retain a skilled workforce. In addition, it deputes them to training institutes and machinery manufacturers for specialized training as and when needed.

The organisation has a sophisticated management information system that gives all management levels access to the necessary data. These reports are regularly examined, and the corporation takes appropriate actions to enhance workforce productivity and efficiency.

In the fiscal year under review, the Company employed 2211 people. Including expert and unskilled manpower.

Cautionary statement

Statements in the Boards Report and the Management Discussion and Analysis describing the Companys objectives, expectations or predictions may be forwardlooking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Crucial factors that could influence the Companys operations include global and domestic demand and supply conditions affecting selling prices, new capacity additions, availability of critical materials and their cost, changes in government policies and tax laws, economic development of the country and other factors that are material to the business operations of the Company.