Siyaram Silk Mills Ltd Management Discussions

<dhhead>Management Discussion and Analysis</dhhead>

Economic Overview

Global Economy

The global economy exhibited impressive resilience in 2023; however, the pace of growth remained slow. According to the International Monetary Fund (IMF), the global economy achieved a modest growth rate of 3.2% in 2023. Factors such as escalating (NSO), India’s GDP growth geopolitical conflicts,higher inflation, prolonged higher interest rates, a sluggish recovery in China, and volatility in energy prices and food markets, have led to a slowdown in global economic growth. Furthermore, the Red Sea crisis has caused the biggest diversion of global trade in decades, leading to delays and heightened expenses for shipping lines. andPositive factors such as ongoing disinflationary strong economic performance in the United States and several major emerging markets and developing economies indicate signs of stable growth and a reduced likelihood of a severe economic downturn. The US has witnessed the strongest recovery among major economies. Its GDP increased from 1.9% in 2022 to 2.5% in 2023, supported by a stronger performance in private consumption, swift containment of a looming banking crisis, a tight labour market, and rising wages. Despite experiencing a contraction in GDP growth of 0.4% in 2023, the Euro Area managed to avert recession and has shown fortitude in navigating through unprecedented shocks from the ongoing Russia-

Ukraine war, surge in energy prices and the lingering effects of tight monetary policy.

Global inflation 8.7% in 2022 to 6.8% in 2023. While headline inflation has sustained a decline from its unprecedented peaks, core inflation has proven to be sticky and is expected to decline gradually. Advanced economies are returning to their inflation targets sooner than emerging market and developing economies, fostering optimism for continued easing of financial conditions and improvement of monetary policy frameworks.

The global economy is expected to maintain its resilience in 2024, with the IMF projecting a growth rate of 3.2% for both 2024 and 2025. Advanced Economies (AEs) are projected to witness a modest uptick in growth from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. Emerging Markets and Developing Economies (EMDEs) are expected to experience a slight decline from 4.3% in 2023 to 4.2% in 2024 and 2025.

Global headline inflation in 2024 and 4.5% in 2025. With the improvement in the economic landscape, the World Trade Organisation predicts a moderate recovery in global merchandise trade volume, with growth rates expected to reach 2.6% in 2024 and further increase to 3.3% in 2025.

 

Indian Economy

Amid a volatile global economic landscape, India shines as a beacon of stability. The Indian economy maintained a steady growth trajectory, solidifying its position as the fifth-largest economy in the world. According to the provisional estimates of gross domestic product (GDP) growth released

Office bytheNationalStatistical rate has exceeded the second advance estimate and is estimated to reach 8.2% in FY 2023-24 compared to 7.0% in FY 2022-23 . The fourth quarter of FY 2023-24 witnessed a robust growth rate of 7.8% Y-o-Y due to strong performance in the manufacturing sector. The overall economic growth was supported by strong domestic demand, increased investment, moderate inflation and a stable interest rate environment.

India’s per capita GDP in current prices is estimated at 2.11 lakh in FY 2023-24, achieving healthy growth of 8.6%.

Rising levels of disposable income have led to an upswing in household consumption, stimulating demand across sectors. The growth observed in the Index of Industrial Production (IIP), Goods & Services Tax (GST) collections, manufacturing

Purchasing Managers’ Index (PMI), per capita income, and increasing private capital expenditure collectively signifies strong economic momentum. Furthermore, headline inflation softened to 5.4% during FY 2023-24 from 6.7% in the previous year. However, volatile food prices hinder the trajectory of disinflation. The RBI opted to maintain the policy repo rate at 6.50% and remain vigilant to take effective measures to achieve the target of 4% inflation. India’s economic outlook remains promising, with the IMF continues to recede at a faster pace from projecting a GDP growth rate of 6.8% in FY 2024 -25 and

6.5% in FY 2025-26. The economy is poised to benefit from the demographic dividend, increased capital expenditure, proactive government policies, robust consumer demand, and improving rural consumption prospects. As headline inflation eases towards the target, it is expected to stimulate consumption demand, especially in rural areas.

The government’s continued emphasis on capital expenditure, and fiscal consolidation efforts, coupled with growing consumer and business optimism augur well for investment and consumption demand. Key government initiatives such as ‘Make in India 2.0’, Ease of Doing Business and PLI scheme are poised to bolster the infrastructural and manufacturing base, enhance economies of scale, boost exports and position India as a global manufacturing hub. Furthermore, the

Interim Budget isexpectedtodecreaseto5.9% 2024-25 outlines a comprehensive economic management strategy, including infrastructure development, digital public infrastructure, taxation reforms, and proactive inflation management. These measures lay the foundation for achieving the vision of a developed and self-reliant India by 2047.

 

Industry Overview

Indian Textile and Apparel Industry

The textile and apparel industry contributes 2.3% to the country’s GDP . The Indian textile and apparel market size is valued at approximately US$ 165 billion in FY 2022-23, with the domestic market contributing ~76% to the market size and exports accounting for the remaining 24%. The market is projected to grow at a 10% CAGR to reach US$ 250 billion by FY 2030-31, driven by sustained growth in domestic demand and significant export potential.

The industry witnessed several challenges in FY 2023-24, including fluctuating capacity under-utilisation, and the influx of imported fabrics and garments from China and Bangladesh.

Additionally, sluggish demand persisted in major garment-importing countries for an extended period, significantly impacting exports. India’s textile exports declined by ~3% compared to the previous fiscal year, reaching US$ 34.4 billion in FY 2023-24. Within the textile sector, the segment encompassing cotton yarn, fabrics, made-ups, and handloom products witnessed a notable Y-o-Y increase in exports by US$ 740 million in FY 2023-24 over the previous year, due to a surge in cotton yarn exports. The segment of readymade garments, comprising 42% of total textile exports, experienced a 10% decline in FY 2023-24 compared to the previous year. India’s textile export performance was adversely affected by unfavourable economic conditions in Western markets, geopolitical tensions, inflation, and increased sea and air freight charges. The ongoing Red Sea crisis has notably contributed to a substantial rise in logistics expenses.

According to CRISIL research, the domestic textile industry is on a path to recovery. Growth is expected to revive, supported by sustained domestic demand, stability in cotton prices, and export recovery. Additionally, it is anticipated that orders from major US retailers will rise as the backlog of inventory from FY 2022-23 diminishes due to improvements in global supply chain challenges and a gradual sales recovery.

India’s competitiveness is expected to improve in the medium term due to positive developments, such as free trade agreements (FTA) with the UK and the establishment of textile parks under the PM MITRA scheme and Scheme for Integrated Textile Park (SITP), further supported by conducive government initiatives. From allowing 100% FDI in the Indian textile sector to initiating various schemes, the government aims for comprehensive improvement within the textile industry, bolstering domestic manufacturing capabilities, and boosting exports in the textiles and apparel sector.

The PLI Scheme, with an outlay of 10,683 crore for textile products like MMF apparel, MMF fabrics, and technical textiles over five achieving size and scale . Furthermore, the government’s class infrastructure and an outlay of 4,445 crore until

FY 2027-28 is anticipated to propel the growth of the textile sector. This initiative will enable the transition of

India’s traditional textile industry to become a global hub for MMF and technical textiles. Furthermore, the National Technical Textiles Mission (NTTM), aimed at promoting and supporting the technical textile sector in the country, is expected to create lucrative opportunities for the Indian textile market to capture the global market. The textiles and apparel industry is positioned for impressive growth in the coming years, buoyed by government policy measures, resilient domesticrawmaterial prices, reduced demand, demand, and a gradual improvement in exports.

 

Opportunities and Challenges

Opportunities

• The growing disposable income and a burgeoning middle class have led to changing consumer preferences and rising demand for high-quality textile and apparels.

• E-commerce expansion and meteoric rise of the retail sector are contributing to the growth of the industry.

• There is a growing demand for environmentally friendly and sustainable textiles and garments as consumers are increasingly concerned about the environmental impact of textiles and are demanding more sustainable options.

• Comprehensive Economic Partnership Agreements (CEPAs) and Free Trade Agreements (FTAs) with various countries are poised to boost exports of Indian textiles and open up new markets for the sector.

The trade diversification policy presents an opportunity for the Indian textile and apparel industry, as global companies are seeking to diversify their production and sourcing activities away from China. India is well-positioned to capitalize on this trend, capture a considerable share of this global shift and establish itself as a global manufacturing hub.

• The PM MITRA Parks across seven states in India would attract large investments, including FDI in the textile sector, generate huge employment and create an integrated textiles value chain.

• The rapid penetration of digital technology and social media influence is providing consumers with extensive access to fashion trends, styles, and brands. This shift in consumer behaviour creates opportunities for branded textiles to cater to evolving consumer preferences.

 

Challenges

• years,willfacilitatethetextilesectorin Fluctuations in raw material prices and the high cost of energy and transportation pose significant for the industry players, as increasing prices exert pressure on margins.

• Consumer demand for textiles and apparel may falter amid high inflation and economic slowdown in key markets. Sluggish demand in the international and domestic markets may lead to high inventories, low production and a decline in exports.

• The textile industry in India is highly capital-intensive, which impacts its competitiveness in the global market.

• Increasing competition from textile manufacturing hubs in countries, like Bangladesh, Vietnam, Indonesia and China will pose a threat to India’s textile and apparel exports. Furthermore, the industry faces stiff competition from international retailers and fashion brands.

• Rising labour costs, the shortage of skilled labour and overreliance on labour-intensive technologies may impact the operations.

• Stringent environmental norms and regulations may impact operations and profitability.

• Fast-changing trends and consumer preferences are shaping the textile industry and may impact demand.

 

Company Overview

Siyaram Silk Mills Limited is one of India’s most renowned manufacturers and marketers of fabrics, readymade garments, and other textile products. The Company boasts of a rich legacy of over 45 years and has earned a reputation for its superior quality fabrics and apparel using different blends made from poly viscose, cotton, wool, linen, bamboo and stretch.

The Company sells its products under different reputed brands such as Siyaram, J Hampstead, Oxemberg, and Cadini. These brands have high recall value with consumers.

The Company’s vast distribution network across the country provides access to high-quality fabrics and apparel at attractive price points. Siyaram’s brands are the preferred choice in India’s fast-growing yet untapped market. The

Company has established a remarkable global presence.

The Company’s highly integrated manufacturing is bolstered by its state-of-the-art manufacturing facilities situated in Tarapur, Amravati, Daman and Silvassa. These plants are equipped with modern technologies and intricately linked by a supply chain network.

 

Key Advantages

• Strong brand recall: The Company has solidified its brand presence in both domestic and global markets.

The brand ‘Siyaram’ is synonymous with excellent craftsmanship, earning a reputation in the industry for its remarkable growth, steadfast reliability, and its global success.

• Proven track record: With its array of influential spanning the entire target group for menswear, the Company is uniquely positioned to provide versatile and timeless styles suitable for every occasion. Despite facing fierce competition in the industry, it sustains its success through judicious fiscal management, unwavering commitment to crafting superior-quality products and delivering sustainable value to its diverse stakeholders.

• Low_debt_profile: _ The Company adheres to prudent debt management and is committed to pursuing a path of organic and sustainable growth. Since its establishment, the Company has consistently maintained profitability, adeptly manoeuvring through previous economic cycles, and surpassing numerous rivals in the textile industry.

• Asset-light business model: The Company follows an asset-light model for manufacturing and distribution, enabling it to control capital investment, enhance its ROCE and strengthen its balance sheet for sustainable growth.

• Well-balanced product mix: The Company’s wide range of affordable and luxury brands and products catering to all occasions across both the mass and the premium market segments result in strong customer loyalty.

• Strong distribution network: Leveraging a robust, pan-India distribution and franchisee network, the Company extends its market reach by penetrating the sizeable, unorganised, and untapped markets in India.

• Market expansion strategies: The Company aims to utilize its market penetration strategy to broaden its network and seize market share from unorganised competitors in rapidly growing Tier II and Tier III cities, presenting a sizeable opportunity for expansion. Furthermore, Siyaram’s targeted marketing campaigns, customised for specific markets, have earned it a loyal customer base worldwide.

• Omnichannel retail presence: The Company has established a strong omnichannel presence by integrating and aligning online and offline retail channels to reach its target audience effectively. It continues to strengthen its online platform and use leading third-party online channels to maximise its online sales. This multi-pronged approach provides consumers with convenient access to Siyaram’s products and a seamless experience at all touchpoints.

 

• Leadership in branded poly viscose segment: Siyaram has established itself as the leading player in the poly viscose fabric segment in India. Its competitive advantage lies in utilising poly viscose as a substitute raw material, which offers both cost compared to cotton, the primary raw material used by most competitors. This alternative material is favourably received by consumers and shields the Company from the price fluctuations of cotton.

• Good governance: Good governance serves as a key cornerstone for the Company. Siyaram adheres to a set of values and is committed to operate ethically. It strives to uphold transparency, compliance, and good governance across all operational levels. This commitment to social responsibility enhances the

Company’s reputation and brand image.

• Experienced management with strong leadership: The Company continues to derive strength from strong leadership and the vast experience of its management team with a proven track record of remarkable growth, profitability and financial discipline.

 

Business Strategies

• Expanding distribution network: The Company is focused on expanding its distribution network nationwide, utilising it to capture fast-growing untapped markets and enhance its gross margins.

• Manufacturing through outsourcing partners: The Company aims to boost its manufacturing capacity by leveraging outsourcing partners, seizing opportunities in emerging markets both in India and abroad, to fulfill the additional requirement of production.

• Leveraging brand Siyaram’s: The Company remains committed to strengthening its brand presence and fostering a loyal customer base by harnessing its brand equity and surpassing customer expectations.

• Store expansion through franchise model: The

Company’s expansion strategy involves opening more stores through a franchise model and maximising revenue potential through all channels.

• Innovation and quality management: The Company is dedicated to enhancing the quality and expanding the product range in its core portfolio through innovative measures.

• Fostering tailoring in the Community: The Company plays an active role in promoting tailoring in India, empowering tailors through training and advocating for sustainable livelihoods.

 

Other Focus Areas

• Enhancing consumer experience: The Company endeavours to deliver an exceptional experience to its valued clientele. It conducts regular customer surveys to adapt its products according to evolving fashion trends aiming to stay at the forefront of customer preferences in the highly competitive fashion industry. durability

• Product assortment: The Company has reduced SKUs and continues to be selective with its product strategy. It has increased focus on fast-moving products and preferred designs to maintain lower inventory levels and reduce the working capital cycle, leading to enhanced profitability and receivables.

• Efficient_ _ marketing_ strategies: The Company’s traditional marketing strategy yielded favourable outcomes in the domestic market, establishing an extensive network and penetrating tier-I, tier-II and tier-III cities. The Company is focused to strengthen its omnichannel capabilities and attract online shoppers by targeting the digital space.

• Reinventing sales strategy: The Company transitioned from consignment sales to net sales as a measure to reduce the risk associated with sales and the collection cycle, eliminating provisions for returns and replacements and preventing blocked working capital. This strategy conserves management bandwidth and facilitates more accurate product demand analysis.

• Accelerating digital adoption: The Company embraces digitalisationinitsdailyoperationstoenhanceefficiency, providing regular training programmes to assist employees in adapting to digital transformation initiatives.

 

Financial Performance

Financial Highlights

Profit_and_Loss_	FY 2023-24	FY 2022-23	Y-o-Y
Summary
Revenue	2,087.17	2,229.31	-6.4%
EBITDA	322.40	409.08	-21.2%
% of Revenue	15.45%	18.35%
Profit After Tax	184.67	251.81	-26.7%
% of Revenue	8.85%	11.3%

 

Balance Sheet Summary	FY 2023-24	FY 2022-23
Long-Term Debt	1.19	9.21
Current Maturities of Long-Term	8.02	24.24
Debt
Short-Term Debt	163.09	140.41
Key Ratios	FY 2023-24	FY 2022-23
Debt Equity Ratio	0.18	0.17
ROCE	19.64%	26.17%
ROE	16.19%	22.07%

 

Risk Management

The Company has an efficient risk management framework for the timely identification, assessment and mitigation of key business and operational risks. The Company’s key risks and their corresponding mitigation measures are depicted below:

Risk	Impact Mitigation
Macroeconomic and geopolitical risk	The Company’s operations in multiple markets The Company remains vigilant, utilising insights exposes it to risks related to macroeconomic from its treasury and strategy teams to monitor conditions and country-specific regulatory and macroeconomic trends and regulatory changes. political changes. Geopolitical tensions, disruptions Furthermore, it prioritises expanding its in the supply chain, higher inflation, monetary geographical reach, strengthening its e-commerce tightening, and global economic slowdowns may capabilities, and manufacturing innovative impact global trade, demand in key markets, products. The Company also explores ways to consumer spending, as well as the Company’s optimise its supply chain for enhanced profitability and growth. and resilience.
Subdued demand risk	Persistent inflation has contributed to a weak The Company actively invests in research and demand environment in both domestic and development to innovate its product range and international markets. This ongoing demand stay aligned with emerging trends. Through regular compression poses a risk of declining sales and interactions with customers and dealers, coupled with profitability. Moreover, operating across multiple surveys, the Company gains valuable insights into segments adds complexity, as the Company must shifting preferences and market dynamics, enabling navigate changing market dynamics and meet it to optimise its product offerings accordingly. evolving customer needs. Additionally, intense Additionally, the Company’s focus on offering high- pricing pressure exacerbates the situation. quality products at competitive prices has resonated well with the Indian middle class, positioning it as a brand accessible to a wider audience.
Raw material risk	Volatility in raw material prices, can directly impact The Company consistently evaluates alternative the overall input costs of the Company. Moreover, materials and production processes to reduce reliance the inability to pass on higher prices due to stiff on volatile raw materials. While most competitors competitive intensity can have a significant use cotton as a primary raw material, Siyaram utilises on the profitability of the Company. Polyviscose as a substitute raw material, which is both less expensive and more durable than cotton. Furthermore, the Company passes the increase in input price to the end customers with lag effect. It also strives to optimise its production, planning, and distribution processes to ensure price-sensitive consumers have access to its products.
Risk	Impact Mitigation
Shifting trends risk	The textile and apparel industry constantly evolves The Company has embraced innovation and agility to meet rapidly changing consumer preferences, to stay relevant, adapting to evolving consumer presenting a risk for companies unable to adapt preferences and market dynamics. It offers a quickly. Staying abreast of these shifting trends, diverse range of products, focusing on affordability, including sustainability trends, is crucial for industry variety, and contemporary fashion trends to meet players to remain competitive and effectively the diverse needs and aspirations of Gen Z and customer demands Millennial customers. Additionally, Siyaram’s online retail platforms are geared towards enhancing the overall customer experience.
Foreign exchange rate risk	The Company is exposed to fluctuations in foreign The Company adheres to an efficient hedging exchange rate as it exports products to various policy to mitigate the impact of unfavourable international markets. The volatility in currency currency fluctuations. It actively monitors changes rate has the potential to negatively impact the in exchange rates and adjusts its position Company’s profitability. accordingly. Additionally, cultivating long-lasting relationships with suppliers allows the Company to adeptly navigate volatile markets.
Reputational risk	The textile industry faces significant The Company is renowned for its brand reputation from the proliferation of counterfeit products, a and is committed to preserving it. Siyaram’s major concern for the Company. This issue results brands enjoy high recall value and boast a robust in substantial losses for both the purchasers and customer base. To mitigate reputation risk, the the legitimate sellers of the original products. Company educates dealers, distributors, and Counterfeits not only undermine the brand’s customers on the authenticity of its products, value but also adversely affect the sentiments ofproviding guidance on distinguishing between authentic product buyers, who pay premium prices genuine products and duplicates. Additionally, for genuine products. the Company addresses the risk of counterfeits through trademark registrations, legal actions against intellectual property rights (IPR) infringers, and the implementation of technology solutions.

 

Human Resources

The Company values its human resources as its most valuable asset and appreciates their contributions to the Company’s growth story. It prioritises training and skill enhancement for its workforce, fostering continuous employee engagement. It regularly conducts in-house training and skill-building programmes across all functions and levels to augment employee competencies.

The HR policy of the Company fosters a culture of inclusion and diversity, promotes trust and transparency, and a sense of teamwork among the employees to build a future-ready organisation. The Company promotes equal opportunity and competitiveness to unleash the full potential of its employees. It trusts that its human resources will play a vital role in enhancing the organisation’s long-term value.

The Company also fosters a workplace that is free from harassment, where individuals are treated with dignity and respect. During the year under review, no cases were filed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Industrial relations with staff and workers during the year under review continued to be cordial. As on March 31, 2024, the Company’s total employee strength stood at 2,750.

 

Information Technology

The Company employs robust IT systems, incorporating cutting-edge Enterprise Resource Planning (ERP) software to adeptly manage its core and ancillary business operations. This integrated software encompasses Purchase, Production, Inventory management, Sales and Accounting processes and is designed to support all Strategic-Business-Units (SBUs) of the Company.

The Company has made significant software solutions and systems, including Business Intelligence and Point-of-Sales (POS) to establish a robust infrastructure capable of managing its present and future expansion. These systems are tailored to accommodate evolving business needs and are adaptable to dynamic business landscapes. Additionally, they incorporate mechanisms to implement necessary checks and controls, ensuring the accuracy of captured data and the dissemination of valuable insights. Embracing global best practices, the Company proactively adapts to evolving statutory mandates and compliance standards. It employs stringent security features to mitigate unauthorised access and uphold the integrity of its data and information. Additionally, the Company strives to explore emerging technological solutions to effectively expanding business and informational requirement. The Company is also receptive to incorporating technological advancements such as AI, ML, Analytics, Cloud, and Low Code/No Code Platforms to reap the benefits of their adoption.

 

CSR and Environment

The Company has strived to establish a meaningful, exceptionally

Social Responsibility (CSR) programme, as evidenced by tangible initiatives such as in Education, Healthcare and Societal Development.

 

Internal Control Systems

The Company has established a well-framed internal control system tailored to the nature and size of its business. It safeguards the Company’s assets, detects and prevents errors and frauds, addresses the evolving risks in the business, prepares reliable financial statements in a timely manner, maintains accurate and comprehensive accounting records, and evaluates the reliability of financial controls and compliance with laws and regulations.

The Company’s Statutory/Internal Auditors conduct audits of all departments to ensure the implementation of internal controls, presenting Quarterly Reports to the Audit Committee for review. The Audit Committee regularly examines these Reports to ensure seamless operations and minimise the risk of fraud or discrepancies. Additionally, the

Statutory Auditors review the Company’s internal financial control system and rectify any variances as necessary. The Management implements corrective actions when necessary.

No significant inefficiencies were reported during the year.

 

Cautionary Statement

The Management Discussion and and Analysis may contain somesocially impactful Corporate statements describing the Company’s objectives, projections, estimates, and expectations which may be ‘forward-looking statements’ within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those either expressed or implied in the forward-looking statements depending on various risks and uncertainties. These risks and uncertainties include raw material availability and prices, cyclical demand and pricing in the Company’s principal markets, competitive pressures, changes in government regulations, Tax laws, economic developments in India and key markets abroad, exchange rate fluctuations, and other statutes and incidental factors that may impact the

Company’s business and financial performance. The Company undertakes no responsibility to publicly amend, modify or revise any forward-looking statements, whether as a result of any subsequent developments, new information, future events, or otherwise.