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SEL Manufacturing Company Ltd Management Discussions

50.94
(-1.93%)
Oct 10, 2024|03:40:04 PM

SEL Manufacturing Company Ltd Share Price Management Discussions

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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