Salona Cotspin Ltd Management Discussions

Industry Structure and Developments

The Indian textile industry is unique due to its close linkage with agriculture?€”particularly for raw materials such as cotton?€”and its deep-rooted connection to the countrys ancient culture and traditions in textiles. This sector possesses the capacity to produce a wide variety of products catering to diverse market segments, both domestically and internationally.

Being highly labour-intensive, the industry provides employment to a large workforce. Its fundamental strength lies in a robust production base of a wide range of natural Fibers, especially cotton. The textile sector is also a significant contributor to Indias foreign exchange earnings through the export of cotton yarn and value-added products such as fabrics and garments.

A revival in global economic conditions is expected to stimulate industry growth further. However, sustained progress depends on the availability of cotton at stable prices. The management remains committed to continuously upgrading the quality of yarn to maintain a competitive edge in export markets, strengthen brand positioning, and ensure long-term profitability.

Opportunities and Threats:

Opportunities

?‚? Established customer relationships ?€“ Our long-standing relationships with key customers, supported by strong quality and customer service practices, continue to drive growth and foster loyalty.

?‚? Experienced management strategy ?€“ Over five decades of market expertise in cotton procurement and understanding demand trends for yarn and fabrics, both domestically and internationally, have enabled consistent performance and market adaptability.

Threats

?‚? Volatile pricing trends ?€“ While domestic demand and export prospects for cotton yarn remain strong, fluctuations in yarn prices can create both opportunities and competitive pressures for the spinning industry.

?‚? Global market influence ?€“ International pricing trends may affect Indias textile sector, impacting both supply and demand dynamics, and potentially narrowing margins.

Product-wise Performance

The Companys primary product portfolio comprises cotton yarn, and knitted fabrics catering to the hosiery and knitted garment industries. The Company remains committed to the continuous upgradation of yarn and fabric quality to meet evolving customer requirements and industry standards.

Outlook

In view of the highly competitive market environment, the Company is implementing consolidation strategies focusing on cost reduction, productivity enhancement, market diversification, and maintaining stringent quality standards. These initiatives are being pursued as part of an ongoing process.

During the year, the Company added capacity of 18,000 spindles, with commercial production commencing in the fourth quarter of FY 2024?€“25. This expansion is expected to enhance production volumes and contribute to

higher revenues in the coming years.

Risks and Concerns:

Although banks may be liberal in sanctioning loans, the higher interest cost will put pressure on margins. The key raw material for our industry is cotton, and a major portion of its cultivation is rain-fed, making it heavily dependent on the vagaries of the monsoon. Price fluctuations are significant in both domestic and imported cotton. Any disruption in supply and/or sharp changes in the cost structure could adversely affect the companys profitability. Power is also a critical component of the cost structure, and fluctuations in its availability or price can have a material impact on operations.

?‚? SEGMENT WISE - There is only one segment, textiles.

?‚? OUTLOOK - Already dealt with.

?‚? RISKS AND CONCERNS - Already dealt with under threat.

?‚? INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has established proper and adequate internal control systems, commensurate with its size and nature of operations, to safeguard assets and protect them from loss due to unauthorized use or disposition. These systems ensure that all transactions are duly authorized, accurately recorded, and appropriately reported. A robust internal audit mechanism, supported by effective and comprehensive reviews by the Audit Committee, has further strengthened the internal control framework. The Company also maintains a well-defined organizational structure, clear authority levels, and internal rules and guidelines to govern business transactions.

?‚? CAUTIONARY STATEMENT:

Certain statements in this report are forward-looking and have been made in accordance with applicable securities laws and regulations. These statements involve risks and uncertainties, as several factors beyond the control of management may cause actual results to differ materially from those anticipated or implied.

?‚? MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

Number of people employed ?€“ 356

The employees and management are committed to providing continuous training to enhance overall working practices. Industrial relations remain cordial and satisfactory.

?‚? FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The Company reported a post-tax profit of Rs. 313.31 lakh, compared to Rs. 612.74 lakh in the previous year. A detailed analysis of the Companys financial performance is provided in the Directors Report.

?‚? DETAILS OF SIGNIFICANT CHANGES IN RATIOS

Debtors Turnover Ratio decreased from 5.06 to 4.71, primarily due to a reduction in turnover during the year. Inventory Turnover Ratio decreased from 11.65 to 9.83, attributable to a decline in turnover during the year. Interest Coverage Ratio decreased from 1.55 to 1.29, reflecting an increase in term loans and borrowings during the year.

Debt-Equity Ratio decreased from 3.22 to 2.89, driven by an increase in term loans and borrowings during the year.

Return on Net Worth increased from 6.95% to 7.59%, due to higher finance costs leading to a reduction in