An economic overview
Indias economy demonstrates resilience amidst a volatile global environment.
According to the second advance estimate released by the Ministry of Statistics and
Programme Implementation, Indias GDP will grow by 7.2% in FY23 against 9.1% in FY22. The
drop in the year-on-year growth rate is also partly due to waning of pandemic-induced base
effects, contributing towards higher growth figures in FY22.
India once again showcased its resolve and resilience towards economic growth despite
the uncertainties prevailing in global markets, persistent inflations, and the enduring
impact of geopolitical fractures.
In FY23, Industrial Production in India (IIP) recorded a growth of 5.1% for the entire
year. The eight-core sectors, which comprise little more than 40% of IIP, stood at 7.6% in
the same period. Electricity generation surged 8.9% in FY23 over the corresponding
previous year.
The CPI has slowed to a 15-month low of 5.66% in March 2023, below RBIs ceiling of 6%.
This data is indicative of RBIs estimate of inflation slowing down.
In the context of macroeconomic challenges on a global scale, Indias overall exports
showed a stellar performance. The exports grew by 13.84% to a record US$770.18 billion in
2022-23. Export of services are estimated to have grown by 26.79%, compared to merchandise
exports at just over 6% during the fiscal year.
World Bank has revised Indias real GDP growth projection for 2023-24 downwards to 6.3%
from 6.6% owing to muted consumption and continued global crisis. The growing borrowing
costs and slower income growth would impact private consumption, while government
consumption is likely to moderate owing to the withdrawal of pandemic-related fiscal
measures.
The World Bank has projected the current account deficit (CAD) to moderate to 2.1% of
GDP in 2023-24 compared to 3% of GDP estimated for 2022-23. It expects inflation to ease
to 5.2% as compared to 6.6% in the current fiscal.
The sectoral overview
Indian Textile Sector
The Textile industry is one of the largest in the world, with a hefty raw material base
and manufacturing strength across the value chain. India is one of the dominant players in
the global textile and apparel trade and holds a 4% share of the global trade in textiles
and apparel. However, exports in recent years have faced challenges due to the
preferential tariff treatment towards countries like Bangladesh and Vietnam.
The Indian textile industry continues to be predominantly based on cotton; 65% of the
raw materials consumed is cotton. It is one of the few industries to provide substantial
employment opportunities to both the skilled and unskilled workforce.
The sector is also critical for the economy owing to its contribution to the national
exchequer and economic progress.
Performance in FY23: While the overall economy was relatively strong and
outperformed major economies, the textile sector was a notable exception, and orders
suggest the downturn will continue well into 2023, raising the risk of layoffs in an
industry that employs more than 45 million people. A sharp rise in cotton yarn prices at
the start of the year (FY23) and moderation in export demand adversely impacted industry
revenue and profitability.
Exports: After 18 months of robust growth through mid-2022, global retail sales of
clothing have been dragged down by high inflation and depressed consumer sentiment.
Exports, which constitute about 22% of the industry, continued to drop every month for the
second half of CY22. Consumers in the United States, Europe, and other big markets have
cut spending on clothing following a surge in inflation consequent to the Russia-Ukraine
war.
As per the Department of Commerce under Indias Ministry of Commerce and Industry,
Indias exports of readymade garments (RMG) of all textiles increased by 1.10% to
US$16,191.47 million in FY23. RMG exports were recorded at US$16,014.84 million in FY22.
But the exports of cotton yarn, fabrics, made- ups, and handloom products declined by
28.45% to US$10,946.20 million in 2022-23 from US$15,298.02 million in the corresponding
period of the previous fiscal.
Moreover, overseas orders for next summer (Summer of 2023) were down by about
one-third, hurting the prospects of a quick revival.
Domestic market: Domestic sales remained sluggish owing to high costs and cheap
imported garments. The unprecedented volatility in cotton prices made it impossible for
textile players to pass on the cost hike to consumers and forced them to cut production.
Textile players had to shut plant operations to manage operating losses.
Possibilities in FY24: The textiles industry is set for moderation in revenue
growth in 2023-24 (FY24) as export demand, which usually accounts for a fourth of the
total market, is expected to be limited due to a slowdown in key markets. Domestic demand
will continue to grow at a steady pace.
In the readymade garment (RMG) segment, ease of discretionary spending in leading
consumer markets such as the US and EU will tone down the revenue growth of key export-
oriented RMG clusters. On the other hand, clusters that depend more on the domestic market
are likely to register a healthy performance.
In FY24, cotton yarn prices are projected to fall almost 15% due to a high base and
subdued export demand. While it may dent realisation, it should help in improving
profitability.
Government thrust: The Government remains focused on strengthening the prospects of
the Indian textile industry through favorable policies and important strategic
initiatives:
• In the Union Budget 2023, the Government has focused on the yield of extra-long
staple cotton to increase the manufacturing of value-added garments and lessen the import
of ELS cotton.
• A National Technical Textiles Mission has been set up that aims at an average
growth rate of 15-20% to increase the domestic market size of technical textiles to US$
40-50 Bn by the year 2024 through market development, market promotion, international
technical collaborations, investment promotions, and the Make in India initiative.
• The Government approved the setting up of seven Pradhan Mantri Mega Integrated
Textile Region and Apparel (PM MITRA) Parks in Greenfield/Brownfield sites with an outlay
of RS. 4,445 crore for a period of seven years up to 2027-28. These parks will enable the
Indian textile industry to become globally competitive, attract significant investment,
and boost employment generation.
• The scheme of Rebate of State and Central Taxes and Levies (RoSCTL), effective
from March 2019, has been extended till March 31,2024, for exports of apparel/garments and
made-ups to make the Indian textile sector competitive in the international markets.
• The Government has stepped up efforts to ink Free Trade Agreements (FTAs) with
all major exporting nations. Once materialised, these FTAs would give India a level
playing field with competitors who enjoy duty-free access. The Government has already
inked such pacts with Australia and other key export nations.
- India-Australia Economic Cooperation and Trade Agreement that came into force will
boost textile and apparel exports. Under this agreement, Australia is offering zero-duty
access to India for about 96.4% of exports (by value) from day one. Australia is the
largest importer of garments in the Southern Hemisphere, giving textile and garment
exporters substantial business opportunities.
- The historical India-UAE Comprehensive Economic Partnership Agreement (CEPA) was
signed on February 18, 2022. The UAE has traditionally been the topmost trading partner
for Indian garment exports. With the signing of the UAE-India CEPA agreement giving
duty-free access to Indian garment exports, this share is expected to increase further.
A new trend: Recently, traceability and sustainability have become crucial when
exporting textiles and apparel (T&A) products to Western markets, including the UK,
EU, and US.
Sustainability in textile production uses methods that minimise the use of water and
electricity, the release of harmful chemicals, and the requirement for at least 20%
recyclable materials.
Traceability, on the other hand, refers to the capacity to track a products whole
lifecycle, from its raw materials through the end users, including its recycling and
disposal.
With the call for sustainability and traceability strengthening across the world, to be
able to continue to compete in the global markets, the ability to integrate technology
into the textile sector at a swift pace will play a crucial role, and the Governments
commitment is something to look forward to.
By focusing on technology integration into the textile sector, tech players involved in
this space will be able to increase productivity and improve utilisation.
This is especially important given the limited technologies currently available and the
fact that both of these concepts are relatively new.
It will also pave the way for our country to become self-reliant. Rather than depending
on imports of yarns & textiles, we can start focusing on exports, thereby becoming the
global backbone of the textile sector.
While technology integration is a big piece of the puzzle, simultaneous prioritising of
infrastructure development, particularly for the unorganised sector that makes up Indias
natural fiber ecosystem, is crucial.
Indias spun yarn spinning industry is one of the few industries that has gained global
eminence for many factors, which include scale, productivity, guality standards, share in
global yarn trade and respect as a dependable supplier of guality products, etc. India has
the second- largest capacity for spinning and is the market leader in global yarn trade.
Indian spinning industry also has the unigue capability of offering the entire range of
yarns from the coarsest count to the finest ones for domestic and export markets.
As a cotton-growing country, cotton-based yarn, fabric, and apparel have dominated
offerings from India for decades and which, as a natural progression, developed into a
robust organic cotton movement at the turn of the new century. As such, cotton yarn
manufacturing constitutes the backbone of the textile industry in India.
As a result, India has gained the reputation of being a strong spinning center
primarily because of cotton yarns. Many fabrics and apparel manufacturing destinations
rely on India for sourcing raw materials.
Performance in FY23: In FY23, cotton yarn exports have been affected as orders from
the countrys top two textiles and apparel exports market - US and EU- dried up. Further,
business profitability for spinners was significantly impacted due to the sharp volatility
in cotton prices, reaching an all-time high level in May 2022, followed by a sharp drop.
Estimates for FY24: According to CRISIL Ratings, Indias cotton yarn spinners could
see a fall in revenue in FY24 due to lower realisation and muted exports. At the same
time, they could see an improvement in business profitability owing to reduced input
costs. Flowever, the challenges to this estimate are lifting of the ban on Xinjiang cotton
and any adverse movement in domestic cotton prices in the coming months.
Man-made fibers are fast becoming a favorite choice amongst many weavers and spinners
in India. They contribute to around 100% of noncotton fabrics and blended fabrics. With
the rise in demand for technical and medical textiles, India has seen a surge in demand
for man-made fibers. Additionally, with the increase in the price of raw materials, such
as cotton, many weavers and spinners have started blending man-made fibers to stay cost
competitive.
Viscose and Polyester are also flexible and durable, hence able to endure high-speed
machinery. Moreover, these fibers also have multiple uses due to properties such as being
hydrophobic. As a result, man-made fiber is emerging as a critical pillar of Indias
textile industry.
A new opportunity: Bangladesh has shifted its focus towards India from China for
importing man-made fiber yarn and fabric due to competitive pricing, improved lead time
with the opening of two new land ports and growing demand for the vital apparel raw
material globally.
Industry stakeholders suggest that the United States anti-China position may have also
played a role in Bangladeshs shift towards India for man-made fiber, the import volume of
which is likely to double in the next five years.
Cotton
Cotton is one of the most important commercial crops in India, accounting for around
25% of the total global cotton production. It plays a significant role in sustaining the
livelihood of an estimated 6 million cotton farmers and 40-50 million people who engaged
in related activities such as cotton processing & trade.
Cotton Association of India (CAI) further reduced its cotton crop estimate for the
2022-23 season to 313 lakh bales as production is expected to decline in Maharashtra,
Telangana, and Haryana. The total cotton production in the last season was estimated at
307.05 lakh bales. The domestic consumption for the season is estimated at 300 lakh bales,
which is at the same level as estimated earlier. The exports for the season have been
estimated at 30 lakh bales leaving a carry-over stock of 26.89 lakh bales.
Denim has been the quickest sector to recover from the pandemic outbreak. India is one
of the leading countries in denim fabrics. In the recent past, the jeans market has been
expanding steadily, quicker than the rate of global expansion. As per industry experts,
the Indian domestic denim market has maintained an average 8-9% CAGR and is anticipated to
reach RS. 91,894 crore by 2028.
However, as per the latest statistics released by the Ministry of Commerce and Industry
(India), the overall denim fabrics shipment value dropped in FY23 against FY22. This
decline is attributed to the recessionary trends in Western countries leading to piled-up
inventories in retail stores.
Despite the not-so-positive year, the strong demand for denim in India is conducive to
the future growth of the denim industry. To expand denim manufacturing capabilities, some
mills are investing in spindles to enhance their self-dependence and optimise costs to
capitalise on opportunities in the domestic and international markets effectively.
Trends and prospects: Undoubtedly, denim continues to be a fashion mainstay,
regardless of the season. Denim is always in style. It is simple to wear and simple to
style with any wardrobe staple. It can be dressed up or down and offer the promise of
options.
Denim is never out of fashion and is always in demand. To cater to the evergrowing
demand, the denim market recurrently witnesses new trends and innovations of new
varieties. As of today, soft and stretchable denim is in demand. Regular denim is 100%
cotton, non-stretchable, and firm. Stretchable denim, denim spandex fabric is comfortable
and softer than regular denim. Owing to the demand for stretchable denim, we have seen an
increase in the use of spandex in manufacturing denim. The resulting product is lighter
that is comfortable yet fashionable for everyday wear.
With the US and European countries now targeting other Asian countries to meet their
demands, this policy could be a blessing in disguise for India. India is the
second-largest denim producer after China. Chinas Covid-related policies have disrupted
the global supply chain. This disruption, coupled with the Wests China plus one policy,
is an opportunity for the Indian textile industry to increase its penetration in the US
and European markets.
Sustainability is pivotal for Western customers because todays consumer is
well-informed and environment conscious. Hence, there is a growing demand for sustainable
and environment-friendly fabric. The real challenge for domestic manufacturers is adopting
new technologies and using sustainable raw materials while ensuring the affordability of
the end products. The recycled denim market is still at the nascent stage. R&D and
investments are required to develop the sustainable and recycled denim market further.
Demand from the domestic market is also increasing at a healthy uptick. With Indias
expanding economy, booming consumption, urbanising population, and growing middle-class
income, denim wear has a huge potential and opportunity to grow. Until a few years ago,
denim was popular in urban cities only. However, it has gradually become popular in the
semi-urban and rural markets.
Some of the key factors driving denim consumption in India are enlisted below:
A youthful and enterprising India.
The Start-up ecosystem in the country has evolved dynamically since 2016 with the
launch of the Start-up India initiative. From a mere 417 start-ups in 2016, the number
has proliferated with each passing year, taking the count to 20,160 in 2021. The start-up
ecosystem is driving the demand for denim.
Growing western influence
Over the years, India has been influenced by the Western style of dressing, and this
influence has been consistent. Increasing disposable income in the urban youth is driving
the demand for denim. As a result, denim will continue to be an innate part of the
wardrobe of Indias growing youth population.
Denim as workwear
With a more youthful and gender- diverse workforce, denim has emerged as the preferred
office wear fabric. Its diversity of fitting into the semi-formal and casual styles has
increased its acceptability among the youth.
Preference for the branded
Indian domestic jeans have the potential to grow as there are many unorganised hubs
with small denim factories. Industry experts say they make around 75 to 80% of jeans for
the Indian domestic market. With an increasing preference for brands, the organised sector
can hike its share of the domestic pie.
Operational performance
FY23 was an operational challenge for the Indian textile industry, and it was no
different for RSWM. Muted demand and rising costs impeded operations for the yarn and
fabric divisions. On the operations front, the attention was squarely on cost
optimisation, and improving systems and processes for higher productivity.
The Company successfully commissioned its knitted fabrics unit, which promises to
emerge as an essential growth level for the Company over the medium term.
The Company also added new capacity to its yarn and melange yarn units which should
help in effectively capitalising on the impending uptick in the textile sector.
On the marketing front, the team worked untiringly to onboard new customers. This was
particularly difficult in a dull environment when the global textile world was
experiencing a slowdown. The team hopes to nurture these relations over time, which would
help it fill in the additional capacities.
Financial performance
After a stellar performance in FY22, the Companys performance was tepid as the
positive trend reversed because of the Russia-Ukraine crisis , leading to spiraling
inflation and recessionary headwinds.
Revenue from operations dipped by 1% from RS. 3,817.42 crore in FY22 to RS. 3,788.90
crore in FY23 while EBITDA slipped by 27% to RS. 339.53 crore. Likewise, EBITDA margin
dropped by 320 basis points. Profit after tax stood at RS. 109.61 crore against RS. 239.98
crore. The pronounced drop in profits and profitability was due to the severe volatility
in cotton prices which could not be passed on to consumers owing to the hostile market
conditions.
Shareholders Fund increased from RS. 998.54 crore as on March 31,2022 to RS. 1,268.42
crore as on March 31,2023. Total debt (current and non-current) was at RS. 1,150.67 crore
as on March 31,2023 against RS. 1,102.52 crore as on
March 31,2022. The debt-equity ratio was comfortable at 0.91x as on March 31,2023. The
Company is scheduled to repay long-term debt amounting to RS. 84.94 crore in FY24.
The working capital requirement increased over the previous year which was primarily
due to the increase in business operations. The Companys debtors management helped
reduce the debtors cycle. The overall current ratio improved appreciably.
|
FY23 |
FY22 |
% Change |
| Stability Ratios |
|
|
|
| Debt Equity Ratio |
0.91 |
1.10 |
(17.27) |
| Debt Service Coverage Ratio |
1.81 |
2.04 |
(11.27) |
| Interest Coverage Ratio |
4.59 |
6.87 |
(33.19) |
| Liquidity Ratios |
|
|
|
| Current Ratio (incl. CPTL) |
1.44 |
1.29 |
11.63 |
| Current Ratio (excl. CPTL) |
1.58 |
1.46 |
8.22 |
| Debtor Turnover Ratio (days) |
44 |
51 |
(13.73) |
| Inventory Turnover Ratio (days) |
65 |
49 |
32.65 |
| Profitability Ratios |
|
|
|
| Operating Profit Margin (%) |
8.96 |
12.16 |
(26.32) |
| Net Profit Margin (%) |
2.89 |
6.29 |
(54.05) |
Human resource
RSWM believes that human capital is its most invaluable asset. For it is their
entrepreneurial spirit, nurtured over the years, that has enabled the Company to attain
and strengthen its leadership position in an otherwise cluttered business space.
Consistent with this belief, the Company continues to invest in its people - building
their capability, sharpening their expertise, and nurturing the spirit of leadership,
which makes it a learning and delivering hub.
Key initiatives in FY23
The Company partnered with an external agency to undertake a manpower study. The team
completed a threadbare study of three large operating facilities and provided valued
insights into restructuring and reorganising the team which will be implemented in the
current year (FY24). The team completed the study of the other operating facilities in the
current year and submitted its findings.
To broaden the pool of middle managers with leadership potential, the Company continued
to recruit fresh graduates from leading Indian Institutes. In FY23, the Company made two
improvements in the campus recruitment process:
• The team connected with the families of selected Textile/ Engineering Graduate
Trainees to build a bond with them. The HR team informed the parents first before
notifying the colleges, believing that the family should receive the good news first. This
initiative helped the Company establish a relationship with the new hires families and
made them feel more comfortable and supported in their new roles.
• Created a structured training curriculum comprising intensive training by
internal and external faculty. The senior management also interacted with the new joinees
which helped them in strengthening the initial connection with the organisation.
The Company organised excursion tours for its employees and their family members to
Shimla/Manali, Gangtok/ Darjeeling, Kerala, and Jammu & Kashmir in a group of 100-125
family members for 6/7 days. A total of 2,000+ family members participated.
For the Middle level and senior-level managers, the HR team sent selected members to
reputed B-schools for strengthening and sharpening their management and leadership skills.
Information technology (IT)
With the digital transformation sweeping across India, it is hard to think of any
enterprise without an IT backbone.
It has silently transformed its relevance from being a business enabler into a business
imperative, without which managing a business enterprise is unthinkable.
RSWM had maintained its business on a robust IT platform much before it emerged as a
business mandate. Its IT solutions have facilitated in creation of a more cohesive and
closely connected organisation even as the Company expanded its operations geographically.
The Company continues to leverage the latest technologies to increase its efficiency and
effectiveness to support the ambitious business growth targets.
Some of the key initiatives implemented in FY23 include:
Advanced Email Security Solutions:
The Company has successfully implemented advanced email security solutions, ensuring
impeccable protection against phishing attacks, malware, and other cyber threats. This has
resulted in a significant reduction in email-related security incidents and has
strengthened the overall cybersecurity position.
CRM Implementation: The Company has successfully implemented a Customer
Relationship Management (CRM) system. This tool will be pivotal for sales and marketing
engagement, customer communication and get overall advanced analytics for enquiries.
Digitisation of Board Meetings: The Company has successfully digitised board
meetings, leveraging secure online platforms for virtual meetings, document sharing, and
decision-making. This has resulted in more collaborative and productive Board Meetings,
and significant time and cost savings.
Optimum Usage of ITSM Tool: The team has optimised the usage of the IT Service
Management (ITSM) tool, streamlining IT processes, improving incident resolution times,
and enhancing overall IT service quality.
This has effected increased employee productivity and improved customer satisfaction.
Technology Upgradation: RSWM IT team has successfully upgraded the IT
infrastructure, including servers, storage, and networking equipment, to ensure optimal
performance, enhanced reliability, and improved security. This has improved system
performance, reduced downtime, and increased data security.
Service Monitoring by NMS Tool:
RSWM has implemented a robust network monitoring system (NMS) tool to proactively
monitor and manage IT services, identify and resolve issues in real-time, and ensure high
service availability. This has resulted in improved service uptime, reduced service
disruptions, and enhanced customer satisfaction.
Disaster Recovery (DR) Mock Drill:
RSWM has conducted a successful disaster recovery (DR) mock drill, testing the DR
plans, processes, and systems. This has helped identify and address potential
vulnerabilities, ensuring readiness for any unforeseen events and minimising potential
downtime in a disaster.
Enhanced Usage of CCTV: RSWM has expanded and upgraded its closed- circuit
television (CCTV) system, improving physical security measures and increasing surveillance
coverage across the premises.
Internal control and its adequacy
RSWM recognises that adequate control systems are the backbone of the company and
accordingly maintains a system of well-established policies and procedures for internal
control of operations and activities. The Company continuously strives to integrate the
entire organisation from strategic support functions like finance, human resource, and
regulatory affairs to core operations like research, manufacturing, and supply chain
management
The internal audit function is continuously strengthened in consultation with statutory
auditors for monitoring statutory and operational issues.The Company has obtained ISO 9001
and ISO 14001 certifications and adheres to standard operating practices in its
manufacturing and operating activities. The Company has appointed independent agencies as
internal auditors.
The prime objective of this audit is to test the adequacy and effectiveness of all
internal control systems and suggest improvements. Significant issues are brought to the
audit committees attention for periodical review.
Risk Management
The Company has adopted a comprehensive and integrated risk appraisal, mitigation, and
management process.The risks and mitigation measures of the Company are placed before the
Board periodically for review and improvement, which will help achieve organisational
goals in a more structured manner.
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