Salona Cotspin Ltd Management Discussions

Industry Structure and Developments:

Industry Structure and Developments: The close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles make the Indian textiles sector unique in comparison to the industries of other countries. The Indian textile industry has the capacity to produce a wide variety of products suitable to different market segments, both within India and across the world. The textiles industry is also labor intensive and employs large number of persons. The fundamental strength of the textile industry in India is its strong production base of wide range of natural fibers like cotton. The Textile Industry is a major export earner for the country by export of cotton yarn and value-added products like fabrics and garments. The revival of economy in the overseas market will add stimulus to the industry. The industry depends upon availability of cotton at a stable price. The Management continues to upgrade the quality of yarn produced to ensure competitive advantage in marketing its products more through exports and sustain profitability.

Opportunities and Threats:

Opportunities:

i. Our long-standing relationship with our major customers has been one of the most significant factors contributing to our growth. Our comments on quality and customer service practices have been strong contributing factors to our healthy customer relations.

ii. The Strategy of the Management, which has over five decades of experience in the Market, in procurement of Cotton, demand for Yarn and Fabrics, for domestic and export, enabled good performance during the year.

Threats:

i. In both domestic & International Markets the overall demand for cotton yarn is projected to remain good.

The uptrend in domestic Yarn price and its higher exports may provide opportunities and some respite to the

Spinning Industry.

ii. However, global pricing might impact the Indian textile sectors supply and demand dynamics.

Product-wise performance: The Companys main product range continues to be Cotton Yarn and Knitted fabrics catering to the needs of Hosiery/Knitted Garment Industries. The company continues to pursue a policy of constant up-gradation of quality of yarn and fabric produced.

Outlook: Due to competitiveness at all levels, it is necessary to implement consolidation strategies such as cost reduction measures, improving productivity and exploring new markets, maintaining high quality and these measures are under way as ongoing process.

With the capacity addition of 18000 spindles added during the year, the machineries of which are under refurbishment and would commence the production during the fiscal 2024-25, the company hopes to increase its production and thereby revenues in the coming years.

Risks and Concerns: Though banks may be liberal in sanctioning loans, but higher interest cost will affect the margin. The key raw material for our industry is cotton and major area under cotton cultivation is rain-fed and hence it is dependent on vagaries of monsoon. Price fluctuation is high in both domestic and imported cotton. Any disruption in the supply and / or violent changes in the cost structure would affect the profitability of the company.

Power also plays a major role in cost structure.

Internal Control Systems and their Adequacy: The Company has proper and adequate systems of internal controls commensurate with its size and nature of its business, to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition. These systems also ensure that all transactions are authorized, recorded and reported correctly. A strong system of internal audit and effective and comprehensive reviews by the Audit Committee have strengthened the internal controls within the organization. The Company has a well-defined organization structure, authority levels and internal rules and guidelines for conducting business transactions.

The Companys Financial Performance and Analysis: The Company earned post tax Profit of Rs. 612.74 Lakh (Previous Year Rs. 1756.94 Lakh). The Financial performance of the company is explained in Detail in the Directors Report.

Human Resources/Industrial Relations: The efforts of the employees and the management are on imparting

continuous training to improve overall working practices. Industrial relations are cordial and satisfactory.

Details of Significant Changes in Ratios -

• Debtors Turnover Ratio increased from 4.04 to 5.06 due to Increase in Term Loans and Borrowings during the Year.

• Inventory Turnover Ratio increased from 7.40 to 11.65 due to Increase in Turnover during the Year.

• Interest Coverage Ratio decreased from 3.15 to 1.55 due to Increase in Term Loans and Borrowings during the Year.

• Debt Equity Ratio increased from 2.12 to 3.22 due to Increase in Term Loans and Borrowings during the Year.

• Return on Net Worth decreased from 12.62 to 6.95 due to Increase in Finance Costs and Subsequent Decrease in Earnings during the Year.

Cautionary Statement: Certain Statements in this Report may be forward looking statements which have been issued as required by applicable Securities Laws and Regulations. There are several factors which would be beyond the control of Management and as such, may affect the actual results which could be different from that envisaged.