MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Indias textiles sector is one of the oldest industries in the Indian economy, dating
back to several centuries. 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 decentralised power looms/ hosiery and knitting sector
forms the largest component in the textiles sector. The close linkage of textiles industry
to agriculture (for raw materials such as cotton) and the ancient culture and traditions
of the country in terms of textiles makes it unique in comparison to other industries in
the country. Indias textiles industry has a capacity to produce wide variety of products
suitable for different market segments, both within India and across the world.
(a) Industry Structure and Development
Indias Textiles industry has around 4.5 crore employed workers. The industry
contributed 7% to the industry output (by value) in 2018-19. The Indian textiles and
apparel industry contributed 2% to the GDP, 12% to export earnings and held 5% of the
global trade in textiles and apparel in 2018-19. Exports of textiles (RMG of all textiles,
cotton yarns/fabs./made-ups/handloom products, man-made yarns/fabs./ made-ups, handicrafts
excl. handmade carpets, carpets and jute mfg. including floor coverings) stood at US$
22.89 billion between April 2021 and October 2021. The Indian textiles market is expected
to be worth >US$ 209 billion by 2029. Cotton production is expected to reach 37.10
million bales and consumption is expected to reach 114 million bales in FY21—13%
growth over the previous year. The production of raw cotton in India is estimated to have
reached 35.4 million bales in FY20A. During FY19, production of fibre in India
stood at 1.44 million tonnes (MT) and reached 2.40 MT in FY21 (till January 2021), while
that for yarn, the production stood at 4,762 million kgs during same period. Indias home
textile exports grew at a healthy rate of 9% in FY21 despite the pandemic.
Investments and Key Developments
The textiles sector has witnessed a spurt in investment during the last five years. The
industry (including dyed and printed) attracted Foreign Direct Investment (FDI) worth US$
3.75 billion from April 2000 to March 2021.
The production-linked incentive (PLI) scheme for man-made fibre and technical textiles
will help boost manufacturing, increase exports and attract investments into the sector.
The Company:
The Company is vertically integrated multi-product textile company, manufacturing
various kinds of Yarn and Terry Towels with production facilities located at various
locations in India. The Company has integrated business operations. Its key competitive
advantage is presence across the entire textiles chain right from sourcing the
fibre/cotton to yarn production, fabric production to garmenting and terry towels. The
integration allows the Company to optimise decisions of in-house and external sales and
purchase at every stage to improve business returns depending on market conditions. It is
this flexibility that provides the Company with a strong competitive edge in the market
(b) Companys Performance:
During the year under review, your company has achieved Revenue from Operations of Rs.
19038.45 lacs as compared to Rs. 29104.29 lacs in the previous year. After deducting
Expenses there was loss of Rs. 24842.90 lacs as compared to loss of Rs. 9351.94 lacs
during the previous year. After adjusting Exceptional Items there was Profit of Rs.
510393.75 lacs as compared to Loss of Rs. 254101.36 lacs during the previous year. After
providing for other adjustments/comprehensive income, the current year Profit/Income stood
at Rs. 513138.25 lacs as compared to loss of Rs. 254819.07 lacs during the previous year.
Pursuant to an application filed before the Honble National Company Law Tribunal,
Chandigarh Bench ("NCLT") by State Bank of India against SEL
Manufacturing Company Limited ("Corporate Debtor"), under Section 7 of
the Insolvency and Bankruptcy Code, 2016 read with the rules and regulations framed
thereunder, as amended from time to time ("Code"), the NCLT vide its
order ("Admission Order") dated April 11, 2018 ("Insolvency
Commencement Date") had admitted the application for the initiation of the
corporate insolvency resolution process ("CIRP") of the Corporate Debtor.
Subsequently, the NCLT vide its order dated April 25, 2018 ("IRP Order")
appointed Mr. Navneet Kumar Gupta, as the interim resolution professional of the
Corporate Debtor ("IRP").
Subsequently, on a writ petition filed by the Corporate Debtor and the managing
director of the Corporate Debtor against the Admission Order, the Honble High Court of
Punjab and Haryana ("High Court") vide its order dated May 01, 2018,
while disallowing the writ petition, kept the CIRP of the Corporate Debtor in abeyance and
ordered that the IRP not take over the management of the Corporate Debtor till May 15,
2018 ("First Abeyance Order"). Pursuant to the First Abeyance Order, the
existing management of the Corporate Debtor continued to manage the affairs of the
Corporate Debtor during the period of abeyance. Against the First Abeyance Order, a
special leave petition was filed before the Honble Supreme Court, which, while dismissing
the said special leave petition, vide its order dated May 12, 2018, extended the abeyance
of the CIRP by another week, during which period the existing management retained control
over the management of the Corporate Debtor. Accordingly, upon the lapse of the period of
abeyance, as stipulated by the Honble Supreme Court, the CIRP of the Corporate Debtor
resumed on May 21, 2018 and Mr. Navneet Kumar Gupta, resumed his position and duties as
the IRP on the same date. Thereafter, in accordance with the provisions of the Code, the
first meeting of the committee of creditors of the Corporate Debtor was held on June 15,
2018 wherein inter alia the IRP was confirmed as the resolution professional of the
Corporate Debtor ("Resolution Professional").
Subsequently, a petition was filed by one of the promoters and directors of the
Corporate Debtor, before the High Court ("Petition") wherein the High
Court, vide its interim order dated June 22, 2018, directed the CIRP of the Corporate
Debtor to be kept in abeyance ("Second Abeyance Order") and directed the
earlier board of directors of the Corporate Debtor to operate their bank accounts and bank
operations as before the initiation of the CIRP of the Corporate Debtor to protect the
interest of the bank consortium. This Petition was transferred to the Honble Supreme
Court ("Transferred Case"). The Honble Supreme Court vide its order
dated September 6, 2019 as prayed for, dismissed the Transferred Case as withdrawn ("Withdrawal
Order"). A copy of the Withdrawal Order was published on September 11, 2019
("Publication Date"). Accordingly, on and from the Publication Date, the
CIRP of the Corporate Debtor stood restored and the Resolution Professional had resumed
his position as such.
As such on and from the Publication Date, the Resolution Professional had again assumed
control over the management of the affairs of the Corporate Debtor and the powers of the
board of directors of the Corporate Debtor.
As narrated above, the Company was undergoing Corporate Insolvency Resolution Process
("CIRP ") in accordance with the provisions of the Insolvency and
Bankruptcy Code, 2016 read with the IBBI (Insolvency Resolution Process for Corporate
Persons) Regulations 2016. Upon re-initiation of CIRP, the management of the Company was
handed over from the existing board of directors to the resolution professional appointed
by the Honble NCLT.
Further the Honble National Company Law Tribunal, Chandigarh Bench on February 10,
2021 approved the Resolution plan submitted by Consortium of Arr Ess Industries Private
Limited and Leading Edge Commercial FZE ("Consortium" or "Resolution
Applicant") in respect of SEL Manufacturing Company Limited ("Company")
and the Monitoring Committee ("MC") of the Company (constituted in terms
of the Resolution Plan) in its meeting held on March 13, 2021 duly appointed the nominees
of the Resolution Applicant as Directors of the Company and approved the reconstitution of
the Board of Directors of the Company ("Reconstituted Board").
Pursuant to the Resolution Plan submitted by the Consortium of ARR ESS Industries
Private Limited and Leading Commercial Edge FZE (Collectively referred to as the
"Resolution Applicant") and its approval by the Honble National Company Law
Tribunal, Chandigarh bench, vide their orders dated 10th February, 2021 for the corporate
insolvency of the Company, which is implemented from 13th March, 2021 (i.e.
closing date as defined under the resolution plan) the following consequential impacts
have been given in accordance with approved resolution plan:
i) The existing directors of the Company as on the date of order have stand replaced by
the new Board of Directors from their office with effect from 13th March, 2021.
ii) The erstwhile promoter group has been classified as public shareholders.
iii) With effect from 13th March, 2021, the existing issued, subscribed and
paid up equity share capital of the Company has been reduced from Rs. 33,134.70 lakhs
divided into 331,347,000 equity shares of Rs. 10 each to Rs. 33.13 lakhs divided into
3,31,347 equity share of Rs. 10 each thereby reducing the value of issued, subscribed and
paid up equity share capital of the Company by Rs. 33,101.57 lakhs. Further, with effect
from 13th March, 2021, the existing issued, subscribed, paid up 69,710,000, 1% Redeemable,
Non Cumulative, Non Convertible Preference Shares of Rs. 10 each stand fully cancelled and
extinguished. As prescribed in the Resolution Plan, the reduction in the share capital of
the Company amounting to Rs.33,101.57 lakhs is adjusted against the debit balance as
appearing in its profit and loss account (i.e. retained earnings). As per the approved
Resolution Plan, 32,803,353 equity shares (new) were allotted in favour of financial
creditors and resolution applicant.
iv) Transfer of Subsidiary Company M/s SEL Textiles Limited: As a part of the
Resolution Plan, the Parent Company has transferred its identified subsidiary to the trust
alongwith its entire equity/ownership interest held in the subsidiary, at a fair value on
"as is where is whatever there is" and without recourse basis".
v) Pursuant to the approved resolution plan by NCLT, the Company has issued Unlisted
NonMarketable Secured/Unsecured Non-Convertible Redeemable Debentures (i.e. 3,19,80,898
Debentures of Rs.100/- each) amounting Rs. 319,80,89,800.00 to the Financial Creditors and
Resolution Applicant of the Company.
Other terms of Resolution Plan are also provided in Notes to the Financial Statements.
(c) Dividend
No dividend has been declared for the financial year 2020-21.
(d) Outlook: Opportunity, Threats, Risks & Concerns:
Though there are many opportunities and investment in the textile industry, like any
other industry, the textile industry of India also undergoes certain challenges. The
frequently changing policies stated by the government at the central and state levels
create an immense pressure on the textile industry. The GST applied on the products make
the garments and clothes even more expensive.
Another challenge that the textile industry faces is the limitation to access the
latest and best technology while also failing to meet the global standards in the
competitive export market. Apart from these issues like child labour, competition from
neighbouring countries regarding low-cost garments, personal safety norms are some of the
challenges the Indian textile industry faces.
Failing to comply with environmental regulations can put supply chain in jeopardy, as
pressure mounts for the apparel industry to improve environmental compliance efforts.
Unlike in developed countries, textile factories in India are not fully automated and
remain labour-intensive and moreover Unorganized weaving sector is another issue
Challenges: The Indian textile industry is at present is one of the largest and most
important sectors in the economy in terms of output foreign exchange earnings and
employment in India. The Textile industry has the enriched potential to scale new height
in the globalized economy.
The textile industry in India has gone through significant charges in anticipation of
increased international competition. The industry is facing numerous problems and among
them the most important once are those of liquidity for many organized sector units, and
insufficient price realization. The long-range problems include the need for sufficient
modernization and restructuring of the entire industry to cater more effectively to the
demands of the domestic and foreign markets for textiles as per the needs of today and
tomorrow.
Opportunities
The textile industry in India is very strong as it has a variety of natural and
man-made fibres and yarns. Indias textile industry plays a technological and
capital-intensive role and is compared with industries like heavy machinery, automobiles
etc. Since the pattern of industrialisation in trade has become common in consumer goods
industries and labour-intensive industries there is immense opportunity in the textile
industry. India is estimated to be the second most appealing market by the year 2025. .
This boost results in a wide range of capacity to manufacture different products that can
be transported within India as well as across the world.
Apart from this, India has one of the most extremely varied textile sectors as it has
hand-woven textiles on one end while capital intensive mills on the other end which
results in an enormous number of opportunities in the textile industry.
Our principal operating strategies are to:
Our focus firstly would be on development of new markets, cost cutting across
departments, enhance the quality of our products to satisfy and exceed the expectations of
the market. Emphasis would be on better quality and customer service.
Threats, risks and concerns:
Cotton/power and fuel costs are of concern. There are general threats/risks like Labour
availability, Increase in Input Costs, Consumer sentiment, Competition, Currency
Movements, Change in Government Policies and other Trade barriers. Our primary raw
material is cotton, which we source from the domestic market. Cotton is an agricultural
product and its supply and quality are subject to forces of nature. Any material shortage
or interruption in the domestic supply or deterioration in the quality of cotton due to
natural causes or other factors could result in increased production costs, which we may
not successfully be able to pass on to customers, which in turn would have an material
adverse effect on our business. Any increase in cotton prices would have a material
adverse effect on our business. Power and Fuel are also major manufacturing costs while
producing textiles. Any increase in these costs has a negative impact on the profits of
the company.
(e) Internal Control System and their adequacy
The Company has in place adequate internal control systems and procedures commensurate
with the size and nature of its business. We believe that the Internal Control System must
tend to develop a strong culture of Internal control for which it must encourage all
personnel to understand its importance and to commit actively with the process and the
management shall also promote high ethics and integirty standards in the staff. The
systems adopted by the Company provide a reasonable assurance in respect of providing
financial and operational information, complying with applicable statutes, safeguarding of
assets of the Company, prevention & detection of frauds, accuracy & completeness
of accounting records and ensuring compliance with corporate policies. Most of the
Companys critical functions such as operations, supply chain, finance & accounts and
human resources are linked through implementation of Enterprise Resource Planning,
(ERP)/Systems, Applications, and Products in Data Processing (SAP).
(f) Human Resources:
The aim is to create an inclusive working environment that attracts and retains the
best people, enhances their flexibility, capability and motivation and encourages them to
be involved in the growth of the Company. We believe in sophisticated equipment and
skilled employee resources, together with strong management and design capabilities. As on
31.03.2021 the Company has 7280 number of employees on rolls of the company.
(g) Details of significant changes in key financial ratios:
The Company went through Corporate Insolvency Resolution Process (CIRP). The company
had been facing cash flow mismatch and not able to serve debt obligations. Due to adverse
financial performance and erosion in net worth and ratios in negative, the Company is
unable to comments on the financial ratios.
Cautionary Statement:
Statements in Management discussion and analysis report with regard to projections,
estimates and expectations have been made in good faith. Many unforeseen factors may come
into play and affect the actual results, which could be different from what the management
envisages in terms of performance and outlook. Market data and product information
contained in this report have been based on information gathered from various published
and unpublished reports and their accuracy, reliability and completeness cannot be
assured.
The management of the Company reserves the right to re-visit any of the predictive
statement to decide the best course of action for the maximization of the shareholders
value apart from meeting social and human obligations.
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