Simplex Mills Company Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

Indian Economy

The economy of India is the worlds fifth largest economy by nominal GDP. The Indian economy grew at a rate of 7.2 per cent in the FY 2022-2023. World Bank has revised its FY24 GDP forecast of India to 6.3 per cent as against its earlier projection of 6.6 per cent. "Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures," the bank said. The International Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023 24 and by an average rate of 6.1% over the next five years.

The textile industry in India is one of the oldest and most important industries in the country. It is an important source of employment and income for millions of people. The textiles and apparel industry in India has strengths across the entire value chain from fiber, yarn, fabric to apparel. The Indian textile and apparel industry is highly diversified with a wide range of segments ranging from products of traditional handloom, handicrafts, wool, and silk products to the organized textile industry in India. The organized textile industry in India is characterized by the use of capital-intensive technology for the mass production of textile products and includes spinning, weaving, processing, and apparel manufacturing. The apparel industry is progressing fast with more varieties of products and spreading in more countries across the world, enhancing its export revenue. India has increased its market share in apparel exports in the US, Europe and many other countries recently and the signing of free trade pact with the UAE and Australia will further accelerate it. Indias readymade garment exports to see a CAGR of 12-13% and surpass $ 30 Bn by 2027. The textile industry plays a significant role in Indian economy by providing huge employment opportunities to both skilled and unskilled workforce an estimated 45 million people are in direct jobs and another 100 million opportunities in allied sector. As per the Research Gate report, the domestic textiles and apparel industry contribute 2% to Indias GDP, 7% of industry output in value terms, and 12% of the countrys export earnings.

The Indian textile industry is poised for significant growth in the next few years, according to a recent report by the Confederation of Indian Textile Industry (CITI). Demand for textiles in India is expected to increase at a compound annual growth rate (CAGR) of 14.8% from 2021 to 2025. The report further states that the industry will reach a size of $350 billion by 2025, making it one of the largest segments in the country. Indias growing population and their living standards has been a key driver of textile consumption growth in the country. Rising income has also been a key determinant of domestic demand for the sector; and also with income rising in the rural economy as well, there is upward push on demand.

Textile industry is concerned about the various threats which includes factors such as rising competition in the market both on the domestic & export front, duty free access to competing countries in US & European markets, uncertain business environment including geopolitical tensions, fluctuating rupee, cost of raw material and its availability, slowdown in demand & change in fashion trends, increase in interest rates, etc. Besides this, industry is also exposed to change in government policies, duties & taxes, availability of power from the grid, availability of labour etc. The Indian textile industry has its own limitations such as accesses to latest technology and failures to meet global standards in the highly competitive export market. There is fierce competition from China, Bangladesh and Sri Lanka in the low price garment market. In the global market tariff and non-tariff barriers coupled with quota is posing major challenge to the Indian textile Industry.

In todays challenging and competitive environment, risks are inherent in all businesses. The Companys risk management strategy encompasses the proper and in-depth identification, assessment and prioritization of risks, followed by speedy mobilization of resources to minimize, monitor and control the probability of unfortunate events.

The Company has proper and adequate system of internal control system to ensure maintenance of proper accounting records, their accuracy and that all the assets are safeguarded from loss or damages.

The Company has reported total income of 6,306.92/- thousands as compared to 6,195.45/- thousands in the previous year. The Company has reported a net loss of 665.68 thousands as compare to 7,004.83 thousands in the previous year.

The Key Financial Ratios for the financial year 31st March, 2023 are as under:

Profit in previous year was higher compare to current year due to exceptional income in the previous year, hence return on net worth, profit margin, interest coverage and EBITDA margin was lower in the current year. Current ratio is lower due to capital advances received in current year which is shown as current liabilities. Debtors turnover is higher because average debtors are lower for the current year and Inventory turnover is higher due to lower level of inventory in current year.

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking, considering the applicable laws and regulations. These statements are based on certain assumptions and expectation of future events. Actual results, could, however differ materially from those expressed or implied.