Sintex Industries Ltd Management Discussions

(a) Industry structure and developments

1. The textile industry

Indias textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries.

Indian textile and apparel industry plays an important role in development of economic activity in India. As of fiscal 2020, in terms of Gross Value Added (GVA), Indian textile, apparel and leather products occupy a share of 13%, which has seen an increase from 11% in fiscal 2012. As per Ministry of Textile annual report 2020-21, Indian textile and apparel has contributed to 11.8% of overall exports during fiscal 2020. It also states that Indian textile and apparel segments occupies a share of 5% in global textile and apparel segment. The key strength in Indian textile and apparel segment lies in large raw material base and manufacturing units present across the value chain. The industry caters to an employment of over 45 million individuals and 100 million individuals indirectly, which includes employment for women and rural population. The textile and apparel segment finds alignment with the Indias vision programs such as Make in India and Skill India.

(i) India has a strong textile value chain

The textile industry in India is diversified with hand loom/shuttle loom/shuttle less loom/ knitting/hosiery textile at one end and sophisticated textile mills, which are capital intensive on the other end of the spectrum. The spinning industry is organized if compared to weaving industry, which is dominated by the decentralized production units. Presence of players across the value chain starting from production of raw material to production of yarn, fabric and garments in the country makes the Indian textile industry well placed at a global level in comparison to countries such as Vietnam and Bangladesh.

The domestic textile industry, which had seen demand slump in fiscal 2020 owing to onset of the Covid-19 pandemic, is firmly on course to recover in fiscal 2021 on the back of reopening of businesses, educational institutions and retail outlets with increase in the vaccinated population. Sanctions on Chinese textiles have boosted Indian textile exports as well.

Government announcements such as the Production Linked Incentive scheme, setting up of mega textile parks, and extension of the Rebate of State and Central Taxes and Levies scheme are also supporting the sector.

Indian government has come up with several export promotion policies for the textiles sector. It has also allowed 100% FDI in the sector under the automatic route.

(ii) Other Initiatives taken by Government of India are:

• Effective 01 January 2021, to boost exports, government have extended the benefit of the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) to all exported goods

• The Indian government has notified uniform goods and services tax rate at 12% on man made fabrics (MMF), MMF yarns, MMF fabrics and apparel, which will come into effect from January 1, 2022.

• In July 2021, the government extended the Rebate of State and Central Taxes and Levies (RoSCTL) scheme for exports of apparel/garments and made ups until March 2024. This will help boost exports and enhance competitiveness in the labour-intensive textiles sector.

• In September 2021, Prime Minister Mr. Narendra Modi approved the production-linked incentive (PLI) scheme in the textiles sector for man-made fibre (MMF) apparel, MMF fabrics and 10 segments/products of technical textiles at an estimated outlay of Rs 10,683 crore (US$ 1.45 billion).

• In October 2021, the Ministry of Textiles approved continuation of the comprehensive handicrafts cluster development scheme with a total outlay of Rs 160 crore (US$ 21.39 million). Through this scheme, the government aims to support domestic SMEs and local artisans.

• The government allocated funds worth Rs 17,822 crore (US$ 2.38 billion) between FY16 and FY22 for the Amended Technology Up-gradation Fund Scheme (A-TUFS), to boost the Indian textile industry and enable ease of doing business.

• In October 2021, the government introduced SAMARTH training at 75 training centers across the country, to accelerate the schemes coverage among artisans.

• In April 2022, the government initiated "Economic Cooperation and Trade Agreements" with Australia and the UAE. Indian textile exports to Australia and the UAE would now face zero duties. The government is also keen to initiate FTAs with Europe, Canada, the UK and GCC countries.

After dip in year FY 21 (due to pandemic & subsequent lockdowns), India witnessed growth in export in year FY 22. After the ban on Xinjiang cotton, global supply chain started reshuffling. Hence, India could achieve its export target of US$ 44.4 Bn.

b. Indias Textile & Clothing export (Values in Mn USD)

Description / Year	2019-20	2020-21	2021-22
a. Cotton Yarn	2774.19	2802.67	5518.93
b. Cotton Madeups	3717.12	3957.14	4986.55
c. Cotton Fabrics	2230.4	2004.94	3101.7
d. Raw Cotton	1057.2	1896.69	2816.44
A. Cotton Textiles (a+b+c+d)	9778.91	10661.44	16423.62
1. Man-made Textiles	5,324.46	4179.64	6,293.66
2. Handloom Products	319.15	223.25	269.15
3. Wool & Woollen Textiles	181.49	108.67	166.33
4. Silk	72.33	76.41	108.98
5. Handicrafts & Carpets	3,171.16	3198.93	3,878.36
6. Coir & Coir Manufacturers	340.42	476.63	568.97
7.Jute	357.21	397.35	537.48
B. Other Textile (1 to 7)	9,766.22	8,660.88	11,822.93
Total Textile (A+B)	19,545.13	19,322.32	28,246.55
Readymade Garments (C)	15,488.05	12,272.21	16,016.03
Grand Total (A+B+C)	35,033.18	31,594.53	44,262.58

(Source: TEXPROCIL, Ministry of Textiles)

From the above table, it indicates that growth in Textiles plus Garments is 40% in 2021-22. Growth in cotton textile is 54%. In the same category, cotton yarn export witnessed 97% growth. In terms of quantity, growth witnessed 35%, which is a remarkable.

Developments:

After a long time, the Indian textile Industry could able to achieve the export target of US$ 44 bn in FY 2021-22. The domestic demand has also supported the textile and clothing industry after COVID-19. This led to improve performance of all segments of the textile industry in FY 2021-22.

Indian cotton price remains over priced in the world. The sky high cotton prices, could not translate into higher yarn prices. This forced the company to cut production and shift away from cotton based products to blended or manmade fiber products as a temporary measure. When the industry realized that cotton crop is not good, they started looking at the option of import of cotton. Unfortunately, the same could not happen because of 11% Custom Duty on Raw Cotton that was imposed in Union Budget 2021-22. As a result, entire spinning industry was starving of cotton and about 30-40% spinning mills decided to stop production rather than incurring losses

(b) Opportunities and Threats:

Opportunities: Major opportunities for Indian spinning industry

• USAs ban on Xinjiang cotton

• Supply chain reshuffling due to ban on Chinas cotton

• "China+1" strategy adopted by International Brands

• Second largest spinning industry nation with 24% share (Chinas share is reducing)

• Second largest cotton producing country in the world with 24% share

In year 2020, Indian cotton prices were lower than US cotton. Meantime, Covid-19 Pandemic struck to the entire world. The global cotton textile, garment production and supply chains hampered. Trade war between USA and China took a major turn in September as USA initiated three withhold release orders (detention orders) on Xinjiang cotton products owing to human rights abuses.

Xinjiang is Chinas largest cotton producing province with more than 80% cotton produced (out of 6 Mn MT) in this region. The news of ban on Xinjiang cotton in September 2020 affected 80% Chinese cotton products prospects, right from fibre to garments.

USA ban on Xinjiang (China) based cotton and derived products led to increase in export demand for cotton yarn, fabric, RMG and home textiles in other neighbouring countries. As Indian textile industry is second largest after China, the impact of USA ban attributed positive impact on the Indian cotton yarn sector.

Below chart indicates Indias monthly cotton yarn export

Barring one month, entire FY 2021-22 witnessed strong export demand for cotton yarn. During this period, overall 35 percent growth in the cotton yarn export witnessed. This growth attributed to economic recovery, downstream demand revival along with low base in fiscal 2021. Export demand for cotton yarn increased from China, Vietnam, and Bangladesh etc.

However, in FY 2022-23, from April 22 onwards cotton yarn exports reduced as Indian yarn remained costlier in the world market due to high cotton price. Threats:

Exorbitant cotton prices posed a major threat in two quarters of FY 2021-22

Raw material cost, i.e. cost of raw cotton, is the largest cost component for a spinning mill. As cotton is a seasonal commodity, procuring raw cotton at the right time and at the right price is crucial as it directly affects the operating margins of a spinning mill.

Chinese spinning mills preferred to procure international cotton due to ban on local cotton. Chinese farmers looked to cultivate alternative crops due to lower demand for cultivated cotton. As demand for international cotton increased, Chinas cotton imports surged. From September 2020, Chinas cotton prices were consistently higher than International cotton prices and this trend was consistent till March 2022.

For last several years, Indias domestic cotton prices are ruling below Rs 50,000 per candy. However, India has surpassed this benchmark price in the month of June 2021. Prices in the domestic market increased with improvement in yarn demand in both the domestic and export markets. The cotton prices were continuously in upward trend and reached over Rs 100,000 per candy in the month of May 2022.

Below chart indicates Cotton Prices (S-6) in last five years ( Rs per Candy)

Following factors affected on cotton prices.

• Cotton production - Lower cotton production due to unseasonal rain and crop concerns.

• Cotton arrival was slow from October 21 to December 21. It was expected to receive 200 lakh bales during these three months. However, actual arrival was 120 lakh bales. This was due to holding of the crop by farmers.

• Cotton consumption has increased in India due to strong demand from mills.

• Raw cotton (Kapas) prices were ruled 80 to 84% above MSP price. MSP for 29 mm is Rs 5975/Quintal and 29.5 mm to 30.5 mm is Rs 6025/Quintal. Kapas prices remained around Rs 10,000/Quintal. Hence, farmers were reluctant to sell cotton easily.

Below chart indicates Kapas Price trend in the last one year ( Rs per Quintal)

Kapas prices have increased from Rs 6,158 to 11,468 per quintal in the month of August 22.

• Cotton fibre export remained lower as it was a need of the hour.

• Spinning mills have insisted to abolish import duty on cotton 11% (CIF price). Accordingly, GOI revoked import duty from 14^th April to 31^st October 2022. However, Indian mills could not import more than 14 lac bales due to short duration and low price parity in domestic and international cotton.

• In order to reduce cotton prices, few spinning mills and Textile Associations have demanded to ban cotton commodity futures. Hence, SEBI suspended trading in cotton futures on MCX for a month January 2023.

• Cotton supply was very tight. Cotton trading MNCs, cotton traders, & ginners hoarded sizeable amount of cotton stocks. This has affected on supply side and cotton prices witnessed exponential price hike.

Thus, exorbitant cotton price posed a major threat in two quarters of FY 2021-22 and first two quarters of FY 2022-23.

(c) Segment wise or product wise performance:

Performance in FY 2021-22

In the month of April 21 and May 21 due to the second wave of the pandemic, economic activities had suffered. The restrictions and lockdowns in various parts of India have affected the demand for yarn. The spinning, textile and apparel industry faced more challenges due to its labour intensive nature during this period. In the mid of May, demand for cotton yarn started picking.

However, during this period, cyclone "Tauktae" hit the entire coastal region of Gujarat. There was a severe damage at our factory plant situated at Taluka Jafarabad, Lunsapur, Amreli, Gujarat due to Cyclone on 17th May, 2021 and 18th May, 2021. The company had incurred a huge financial, operational and material loss. However, the company could not restart its operations due to power outage at our factory and surrounding tehsils. Electrical power network supply was restored at our plant on 5th July, 2021.

A) Impact of cyclone "Tauktae":

Severe cyclonic storm originated from an area of low pressure in the Arabian Sea made landfall on this coast on 17th May 2021. It was one of the severe tropical cyclone brought heavy winds, rains and floods in the factory area. Mahuva - Jafrabad coast in Saurashtra region of Arabian Sea was the worst affected.

Winds blew at critically high-speed and rained heavily in the wind direction. Directions of winds were swiftly changing, taking heavy toll everywhere. The uplift pressures mounted by cyclone winds caused catastrophic failures in all the spheres of our establishments in the Factory and Housing Township. It took a very heavy toll on all the roofs covering of the main plants & allied buildings. All solar panels on our three units flew away with high speed in the trajectory and fell over the roofing area hugely affecting all our other units, raw material godowns and other ancillary and utility set up. Solar panels / metallic parts rolled over the sheeting roofs led to broke roofs & false ceiling and fell down over the machines. Overhead water tanks on the rooftops of the housing buildings fled distantly. The wind had smashed majority of glass windows and doors in both plants & township.

The high wind velocity of 220Km/hr wiped out majority of the buildings and other constructed features and grounded numerous HT towers of 220KV/66 KV in the approx. 50 Kms radius of plants putting entire vicinity in to the dark and due to this reason there was no power supply at the pumping station and water supply was interrupted.

The companys plant, machinery, factory buildings, raw material / finished goods warehouses and residential colonies have severely damaged due to cyclone

& subsequent rain. As roofs have damaged, rainwater poured on the machines and remained in the factory for next few days due to heavy rain showers. All internal electrical & automation installations had to undergo major refurbishing.

The production machines and utilities were not in a position to operate again due to clogging and failures of its several internal and external parts. It was a huge task and voluminous job to restore factorys operations as if setting up a brown field project. The damage has affected on the production and operations of all the units. The raw material stock, WIP material, finished goods (Yarns) stocks were severely damaged. The company focussed to civil / electrical / mechanical procurement and installation work on top priority. The company tried its level best to restore its operations by replacing damaged roofs, false ceilings, floorings, spare parts of various machines, electrical / electronic / instrumentation components on a war footing. The company has to undergo rigorous refurbishment, maintenance and recalibration of entire production and utility equipment.

Entire factory operation came to complete halt during 18th May 2021 to 5th July 2021. All of the residential buildings in the township suffered moderate to major damages including collapsing of two RCC staircases of three workers housing blocks. Entire residential townships electricity supply was running on generators during that period. All mobile communication towers of service providers too collapsed & connectivity to the rest of the world was lost for almost a period of three weeks.

Internal road network in the factory area was blocked due to scattered damaged roofing, solar panels, glass pans and uprooted trees. Over 130,000 square metre new roof sheeting was laid with replacement of underdeck insulation in the three units and approx. 50,000 square metre was replaced in patches in the other units simultaneously with refurbishing of affected machines and other installations.

Restoration work of five units was completed in two weeks by June end and these plants started operating on resumption of HT power supply on 5th July 2021. Other three units started operating from 12th July onwards and by 22nd July all units were in operations. Township was restored to normalcy within three weeks.

Entire operations were under shut down for more than 50 days due to power outage. Restoring power after a wide-area outage was a big challenge. During this period, the company focussed to control the damage and incurred repairing work on war footing.

As supply of electrical power network supply restored, operations of the company have commenced in a phased manner. However, it took next several days to reach its highest capacity utilisation level and normalise the production.

All primary nature of restoration work for factory operations were prioritized and secondary works of restoration of allied structures are continued.

Thus, the company had incurred a loss in terms of revenue/profitability in first and second quarter due to cyclone "Tauktae". In the third quarter, the company tried to achieve its maximum capacity utilisation.

B) Scarcity of cotton

Lower cotton production, hoarding of cotton led to exorbitant cotton price

1. Impact of cotton crop concerns and prices Cotton quality was a major issue for procurement.

• Quality of the cotton - North Punjab and nearby area cotton crop affected due to pink bollworm. Gujarat, Andhra Pradesh, Telangana and Maharashtra region witnessed unseasonal rain. This led to affect cotton crop badly.

• Crop concerns have affected on cotton quality in terms of grade. (Required RD value 73 to 75 has reduced to 68 to 70). The availability of good quality cotton by grade was low.

• In SILs product basket, average count is above Ne 34s. Hence, for cotton procurement for its products (Ne 30s and below counts as well as Ne 30s and above counts) the company has to procure cotton from different states.

• There was uncertainly, in the markets about cotton prices. Hence, the company managed to procure requisite cotton quality at competitive price.

2. Volatile market scenario in domestic yarn market

• The S6 cotton surpassed its Rs 50,000/candy mark in the month of June. The price has jumped by 80 percent to touch a record height of Rs 90,000/candy in the month of March 2022 over a period of 8-9 months. Due to increase in cotton price, yarn prices were increased. However, hike in yarn price could not percolate in the downstream textile value chain on immediate basis.

• Textile value chain felt the heat of spiraling cotton prices. Domestic weavers and knitters were reluctant to buy the yarn at high price as their end customers such as fabric buyers, RMG units, brands were not paying them the requisite price hike at fabric stage. The volatile demand supply situation occurred in domestic markets.

• Demand for home textile segment especially for bed bath was inconsistent. Denim sector could not gear up for its potential demand.

• Garment unit owners at Tirupur staged one-day strike and hunger protest by closing down their units to condemn yarn price hike. In North India, knitters also protested against the hike in yarn price. The industry representatives met several times to Government officials to control the cotton prices and insisted to remove import duty on cotton.

• As covid waves were looming, yarn buyers remained under wait and watch for few weeks

3. Indian cotton price higher than US cotton

Cotton price - Normally Indian cotton S6 prices are lower than International cotton (US Cotton) prices. In FY 21-22, June, July, August and September Indian cotton prices surpassed International cotton. In the last quarter of 2021-22, Indian cotton was consistently expensive by 8 to 10 US Cents/Lb to international cotton due to tight supply.

• Indian cotton price remained costlier than US cotton for almost eight months. In the initial four months price gap was lower. However, in the last quarter Indian cotton increased by 10 US Cents/Lb. Hence, price competition increased in international markets.

• International buyers of yarn could not confirm the yarn orders as Indian yarn became costlier vis-a - vis yarn from Vietnam, Bangladesh, Indonesia etc.

• China market was under holidays due to spring festival and arrival of New Year 2022. In addition to this Chinas buying of cotton yarn started reducing. Chinas government was focusing on to increase consumption of Xinjiang cotton in domestic textile value chain. In Turkey, yarn prices remained lower due to lower price of international cotton. Hence, in surrounding European countries such as Portugal, Italy, challenges witnessed to sell yarns. Buyers from Bangladesh, Vietnam, Egypt have insisted for yarn prices commensurate with international cotton prices. While sufficing the buyers need, yarn margins compressed.

• Secondly, currency fluctuations observed during the year. Indian Rupee weakened against US Dollar. In the month of April 2021, 1 USD was equivalent to INR. 74.06. In March 2022, 1 USD became equivalent to Rs 75.90. This impact (2.48%) on currency has affected to change yarn price in USD terms. During May 21 and August 21 the Indian Rupee had appreciated to certain extent. However, volatility affected on yarn price.

Currently, 1 USD is equivalent to Rs 82.

Below chart indicates currency fluctuations USD Vs INR for last one and half year

• Thus, in international markets, margins have affected due to high cotton price and yarn price fluctuation in USD terms.

4. Overall impact

• Shipping, freight, fuel costs were remained on higher side and all other expenses have increased.

• As crude oil prices have increased, Polyester Staple Fibre prices witnessed surge in the price.

• Raw material prices have increased over 80% in the last quarter. This hike has affected to shrink W.C. by 50%. This led to changes in cash flow cycles and scarcity of W.C.

• With input costs rising, working capital requirement increased and demand was softening which was adding to cost pressures

Conclusion:

In Year 2021-22, the company managed its operations well within its available resources. However, suffered due to cyclone and volatile cotton price:

1) Cyclone "Tauktae"- First & second quarters revenue/profitability and operations of factory were badly affected.

2) High raw material price - Increased burden on working capital. Cotton price increased by 80% affected to shrink W.C. by 50%. Cash flow cycles changed, Substantial reduction in inventory affected to increase RM % in yarn price.

3) Cotton quality in terms of grade - Crop concerns affected on productivity and yarn realisation.

4) Domestic market - Reluctance from downstream textile value chain to absorb cotton price hike affected on net price realisation.

5) Export market - High Indian cotton price than international cotton, Currency fluctuations, lower demand from China, cut throat competition from Bangladesh, Vietnam, Egypt have affected on net price realisation and profitability

6) Increase in shipping, freight, fuel costs and all other expenses - Affected on margins.

From market perspective, yarn profitability was good in first, second and third quarter of FY 2021-22. However, during first two quarters the companys profitability hampered due to Cyclone. The company had lost almost revenue of one-quarter during April to September period. In the third quarter, the company tried to achieve its maximum capacity utilisation. However, in the fourth quarter as cotton prices have hiked, market could not support to absorb price hike in yarn.

The company managed its cash flows within available resources of funds. However, unpredictable cyclone and high cotton price were beyond its control.

(d) Outlook

Future prospects & business outlook Future prospects:

Government is keen to double Textile + Clothing export target to US 100 Bn $ in next five years. Demand for Indian cotton products from USA will remain for next several years till the ban on China cotton. India is the second largest spinning installed capacity nation after China. Naturally, India can fill the gap vacated by China on immediate basis. Hence, India has a strong potential to bounce back and strengthen its position in the world textile industry.

Sintex has set up over 6.6 lakh spindles at single location in Gujarat. The location is nearest to the seaport Pipavav which is 25 kms away from factory. This is the major advantage for export of yarn and import of fibres. The factory is located in the heart of cotton-belt in India. Thus, transport cost is minimum for raw materials and export of yarn. The company produces 100% cotton combed compact, 100% carded compact and 100% wet linen yarns and various blended yarns such as poly/cotton, special blends such as flax/cotton, flax/viscose, cotton/modal, cotton/bamboo etc.

"State of the art" digital technology commensurate with industry 4.0 accreditation, sophisticated machines and highest degree of automation has ensured that the facility operates on a no touch yarn" principle.

The product basket includes 100% cotton yarn (Ne 10s to Ne 140s) compact weaving and knitting yarns in combed/carded varieties to cater to leading weavers and knitters in India and across the globe. Sintex is exporting its yarns to over 50 nations.

SIL has an opportunity to produce Giza, Supima, Contamination free, Organic, BCI yarns. The company has installed machinery for Melange and dyed yarns. Brands like PVH insists for double yarns in gassed category. Hence, company can look into these special and value added yarns. There yarns will certainly fetch premium over normal yarns and help to improve topline.

Business outlook:

"Indian cotton became costlier than China Cotton Index and US cotton"

In 2020-21 Indias cotton consumption has increased due to increased demand for Indian cotton products as supply chains reshuffled in domestic and international markets. India is gaining its export share to USA in textiles consistently.

However, cotton crop was a major concern in 2021-22. Indias cotton crop was lower by 13 percent over last year. This has created scarcity of cotton in India. The below cotton data from Cotton Association of India (Published on 30th September 2022).

Details	2021-22	2020-21
Supply
Opening Stock	71.84	125
Crop	307.05	353
Imports	14	10
Total Supply	392.89	488
Demand
Mill Consumption	293.00	294
Consumption by SSI Units	19	25.66
Non- Mill Consumption	6	18.5
Total Domestic Demand	318	338.16
Available Surplus	74.89	149.84
Exports	43	78
Closing Stock	31.89	71.84

(Figures in No. of Lac bales / each bale of 170 kgs)

Cotton crop affected in USA, Brazil, Pakistan, and India. After ban on Xinjiang cotton, China focussed on importing more cotton from international destinations. As India could not import cotton, domestic supply was low, which resulted to increase in cotton price. Government of Indias decision to revoke the import duty on cotton did not show anticipated outcome.

Indias cotton prices have doubled from Rs 48,000 per candy (peak level price for last decade) to Rs 108,000 per candy. Chinas yuan is falling and its cotton price started reducing from April 2022. Thus, Indian cotton yarn prices remain costlier in the world market.

In the FY 2021-22, China cotton index was consistently higher by 25 to 30 US Cents/lb than US & Indian cotton. Gap between US cotton & Indian cotton was prevailing around 5 to 7 US Cents/lb. From price perspective, this is an ideal situation for Indian spinning industry in normal market conditions. But from January 2022 onwards, gap between Indian & US cotton started widening. In March & April 2022 yarn prices from China, Vietnam, Uzbekistan, Indonesia, Turkey, Pakistan etc. became more competitive than Indian yarn as international cotton prices remained lower by 10 to 20 US Cents/lb than Indian cotton price.

Below chart indicates cotton prices in last three years.

From the middle of April 2022, Indian cotton price has surpassed China Cotton Index. This has created an alarming situation for Indian spinners. India lost its competitiveness in the world market as Chinas yarn became more competitive than Indian yarn due to its higher export rebates.

Due to unexpected reduction in China cotton index, the company lost its business in China. US cotton price is lowest in the world market. Hence, the countries like China, Vietnam, Pakistan & Indonesia started exporting more quantity of cotton yarn in export markets due to its improved cost competitiveness on RM front. Several buyers in various countries (especially Egypt) have cancelled yarn orders from India. The company lost its cotton yarn market share in the world market due to these reasons.

As export demand has dwindled, more yarn quantity is available for supply in domestic markets. Domestic market is not in a position to consume surplus export quantity. As cotton price hike is not percolating in textile value chain, lifting of yarn is slow in domestic markets. Buyers, fabric merchants / garment buying houses / brands are reluctant to pay requisite fabric price to fabric manufacturers. Supply is more than demand in domestic market. Yarn stocks are piling at several spinning mills. Majority of the spinners have reduced its operations by 30 to 50%. Due to lower demand, the company is coming under pressure to sell its yarns and maintain its cash flows. Thus, due to cut throat competition amongst spinners to sell its yarn and maintain liquidity, yarn prices have come down. Lot of spinning mills reduced their operations due to financial losses.

As yarn profit margins are eroding, the company is struggling to maintain its cash break even. The company has reduced its operations to certain extent with focus to retain its work force. The company has introduced alternative yarns such as Polyester/Viscose, blended yarns, fine count cotton combed yarns, carded yarns to reduce cotton consumption. The company is constantly introducing and establishing new markets. The company has implemented new cost saving measures. The company is taking utmost precaution and trying its level best to sail through this difficult period.

Due to changed business dynamics, Indian yarn stockists have started importing cotton yarn. This is proving a biggest threat to Indian spinning industry. Multiple impacts of cotton price hike are denting prospects of the Indian spinning industry. New crop is arriving but yarn demand is low in the market. Weavers and knitters feel that during December 2022 cotton prices shall come down to bottom level. Hence, buyers are maintaining bare minimum yarn inventory.

Exorbitant Indian cotton price in comparison to the world market and substantial import of yarn, survival made quite difficult. In FY 2022-23, first two quarters remained uncertain for yarn business. In the third quarter, cotton prices are reducing since new crop arrival has started. However, demand is a major issue in domestic and international markets.

Following factors are influencing the demand.

1) Ukraine / Russia war

2) Inflation

3) Fear of recession / Global economic slowdown

4) Covid resurgence in China and Chinas zero covid policy

5) Currency volatility of USD / CNY/ INR

6) USAs Federal Bank interest rate hike / increased interest rates

7) Crunch in working capital faced by domestic weaving/knitting industry due to doubled cotton prices

8) Cut throat competition among Indian spinners for survival

Conclusion:

Indian cotton price remains over priced in the world. The sky high cotton prices, could not translate into higher yarn prices. This forced the company to cut production and shift away from cotton based products to blended or manmade fiber products as a temporary measure. When the industry realized that cotton crop is not good, they started looking at the option of import of cotton. Unfortunately, the same could not happen because of 11% Custom Duty on Raw Cotton that was imposed in Union Budget 2021-22. As a result, entire spinning industry was starving of cotton and about 30-40% spinning mills decided to stop production rather than incurring losses. As new crop arrival started, cotton prices have eased but demand for yarn is a big concern. The buyers are reluctant to buy yarn and still waiting in anticipation of further reduction in cotton price. The company is trying its level best to run its operation to maximum extent, but market situation is beyond its control. Unstable market situation is forcing the company to reduce its operations in FY 22-23. Thus, in FY 2022-23 first three quarters, the companys performance hit badly.

It is expected, that demand will pick up in domestic and export markets in the coming months. We hope that in the mid of January 2023 demand will further increase for yarn and profitability shall improve in the last quarter of FY 2022-23.

(e) Risk and concerns

The Company has a robust risk management framework to identify and mitigate risks arising out of internal as well as external factors. There is a formal monitoring process at unit and company level, wherein new risks are identified, categorised as per impact and probability, mapped to key responsibilities of select managers and managed with appropriate mitigation plan. To ensure transparency and critical assessment, the Companys Risk Management Team coordinates the risk management system and ensures that it continues to remain relevant with evolving economic and sectoral changes. The risk management framework is reviewed annually by the Audit Committee on behalf of the Board.

(f) Internal control system and their adequacy

In an increasingly dynamic and competitive business landscape a robust internal control mechanism is an essential business imperative. For it is a critical element in ensuring that the organisation functions in an ethical manner, complies with all legal and regulatory requirements and meets the generally accepted principles of good corporate governance. It is an extension of the overall corporate risk management framework as well as is an integral part of the accounting and financial reporting process.

The Company has in place adequate systems of internal controls and documented procedures covering all financial and operating functions. These have been designed to provide reasonable assurance with regard to maintaining proper accounting control, monitoring operational efficiency, protecting assets from unauthorised use or losses and ensuring reliability of financial and operational information. The internal controls are designed to ensure that financial and other records are reliable for preparing financial statements, collating other data and for maintaining accountability of assets.

(g) Discussion on financial performance with respect to operational performance

In the first quarter of 21-22, on 17th May cyclone "Tauktae" hit the entire coastal region of Gujarat. There was a severe damage at our factory plant situated at Taluka Jafarabad, Lunsapur, Amreli, Gujarat due to Cyclone on 17th May, 2021 and 18th May, 2021. The company had incurred a huge financial, operational and material loss. However, the company could not restart its operations due to power outage at our factory and surrounding tehsils. Electrical power network supply was restored at our plant on 5th July, 2021.

Restorations of five units was completed in two weeks by June end and these plants started operating on resumption of HT power supply on 5th July 2021. Other three units started operating from 12th July onwards and by 22nd July all units were in operations.

Restoring power after a wide-area outage was a big challenge. During this period, the company focussed to control the damage and incurred repairing work on war footing. As supply of electrical power network supply restored, operations of the company have commenced in a phased manner. However, it took next several days to reach its highest capacity utilisation level and normalise the production.

Entire operations were under shut down for more than 50 days due to power outage. In addition to this 22 more days required to electrical/Mechanical/ Process/Quality calibration, machine tuning, trial run, process optimisation etc.

Below table indicates analysis of financial performance and operational performance. ( Rs in crores)

FY Year 2021/22 / Quarter Ending	MAR 22	DEC 21	SEP 21	JUN 21
Revenue	1,075.91	990.74	660.49	476.72
PBDIT	141.72	177.75	99.98	87.60
PBDIT%	13%	18%	15%	18%
Operational performance
Production achieved in mn Kgs	26.83	27.29	21.14	13.86
Production target in mn Kgs	27.90	27.90	27.90	27.90
Shortfall in production %	4%	2%	24%	50%

In quarter ending June 21, the company could not operate from 17th May to 30th June 21 due to cyclone and electricity outage (45 days ~ 50% production shortfall). Revenue is in line with production.

In quarter ending September 21, the company could not operate from 1st July to 22nd July 21 due to cyclone and electricity outage (22 days ~ 24% production shortfall). In addition to this, trial runs, calibration / re-establishment of quality parameters, damaged goods affected on revenue.

Thus, companys overall financial performance is in commensurate with operational performance.

(h) Human resource

Sintex firmly believes that its intellectual capital plays a defining role in transforming business strategies into on-ground realities and is the critical catalyst towards sustaining profitable business growth.

In line with this conviction, the management continues to invest in its people capital to nurture skill and build capabilities, which in turn results in sustaining its industry outperformance.

The Companys business (fabric and yarn) is managed by a team comprising 5508 members who are expert in their area of operations.

Sintex believes that empowering women fosters stability and prosperity in their family and the local area. In keeping with this belief, the Company has recruited a number of female members for managing the operations at its yarn.

The Company is also investing in a residential colony for its workforce with contemporary amenities namely a shopping center, sports field, amphitheater, small cinema hall and a large mess.

(i) Changes in key financial ratios

The details of changes in the key financial ratios as compared to previous year are stated below:

Particulars	FY 21-22	FY 20-21	Reason for Significant Change, if any
Debtors Turnover (Days)	9.30	13.17	Improvement in average collection days.
Inventory Turnover (Days)	17.73	21.65	-
Interest Coverage Ratio (Times)	0.62	0.25	Due to improve in earning during the year
Current Ratio (Times)	0.74	0.73	-
Debt Equity Ratio (Times)	6.58	4.15	Due to provision of interest on Debt upto 31st March, 2022
Operating Profit Margin (%)	16.22	11.92	Due to improve in earning during the year
Net Profit Margin (%)	-18.14%	-77.07%	Due to improve in earning during the year
Return on Net Worth	-43.48	-69.45%	Due to improve in earning during the year

Cautionary Statement

Statements in this document that are not historical facts are forward-looking statements. These forward-looking statements may include the Companys objectives, strategies, intentions, projections, expectations, and assumptions regarding the business and the markets in which the company operates. The statements are based on information which is currently available to us, and the Company assumes no obligation to update these statements as circumstances change. There may be a material difference between actual results and those expressed herein. The risks, uncertainties and important factors that could influence the Companys operations and business are the global and domestic economic conditions, the market demand and supply, price fluctuations, currency and market fluctuations, changes in the Governments regulations, statutes and tax regimes, and other factors not specifically mentioned herein but those that are common to the industry