skumars nationwide ltd share price Management discussions

Management Discussion And Analysis

Economic Overview and Industry Structure

For the Indian economy, FY 2012-13 was a challenging year. GDP growth declined to 5% from 6.2% in the previous year on account of high fiscal deficit, high inflation, worsening current account deficit and slowdown in global economic growth. During the second half of FY 2012-13, the government intervened with some policy reforms to stabilise the economy and also took steps to attract foreign direct investment and market-based prices for petro products to improve current account deficit. However, concerns exist over containing the high current account deficit, prevailing supply side constraints and inadequate infrastructure investments. Though the long term prospects of the economy look promising, cautious optimism is the feeling in the short to medium term.

Nevertheless, India’s growth story is attractive as compared to other advanced and emerging economies. The policy reforms announced by the Government are expected to show results in time to come. In FY 2013-14, GDP growth is projected to rise modestly to around 6.0%, with much of the improvement likely only in the second half of the year. Industrial activity will continue to be adversely affected by regulatory bottlenecks. In summary, the Indian economy continues to have the potential for sustained high growth. There has been positive movement in some areas, with the fiscal contained and inflation moderating, though the current account deficit continues to be high.

The impact of rupee depreciation and higher petroleum prices is now being felt by the textile industry, as fabric and apparel makers remain hesitant to pass on higher costs to the final consumers on concerns over weak demand. The industry has been able to pass on only a part of the increased operating costs, which has resulted in squeezed margins.The year’s outlook for Indian cotton textiles is negative-to-stable due to subdued demand, though margins are likely to benefit from softening of raw material prices.

Opportunity / Threats / Challenges

The Company continued to perform fairly satisfactorily in the face of global and domestic economic uncertainty. Reid & Taylor and Belmonte brands continue to remain key contributors to the overall performance of the Company.

High raw material costs, slowdown in global as well as domestic economy and competition from other countries in the neighbourhood could adversely impact the profitability and the competitiveness. However, the Company’s operations are resilient enough to withstand unfavorable conditions.

A brief review of some of the SBU’s is given hereunder:

Blended and Uniform fabrics

Consumer Textiles division focuses on the economy and mid-price strata of the society and deals in fabrics for work wear, uniforms and daily wear. The company is market leader in Uniforms with 30% market share and is one of the largest institutional suppliers of textiles to defence and police forces in India.

Total Home Expressions

Though the Carmichael House brand has been well-accepted, the market for Home Textiles has been generally lukewarm and therefore the growth in the Division continues to be subdued.

Baruche Superfine Cottons (BSFC)

The Luxury Cotton division manufacturing high quality shirting fabric, also for export, is a high margin business and is achieving good growth with high capacity utilization at the state-of-the-art plant near Bharuch in Gujarat.

Luxury Textiles

Reid & Taylor (India) Ltd., a subsidiary, continued to be one of the major revenue drivers reporting satisfactory performance over a period of time. EBIDTA margins were under stress owing to increased selling expenses and rising raw material prices for both polyester and wool.

Ready to Wear

This Division consists of garments / apparel represented by Reid & Taylor and ‘Belmonte’ and ‘World Player’ endeavours to achieve significant improvement in revenues and profitability with good market penetration extending to several districts

International Businesses

International operations are now restricted to Leggiuno in Italy where the market is showing signs of recovery. Looking at the suggish market conditions and prolonged recessionary trends in US market, Company filed vountary petition under chapter 11 in October 2012, for undertaking the restructuring exercise of operations and to reconganize capital structure to maximize value for HMXs shareholders. DKNY franchisee in U.K. was surrendered as the operations required more and more funds infusion.

Growth Prospects

The Company historically has followed a well-planned growth strategy. Capacity expansion at Dewas, Mysore and Bharuch have been implemented. The Company plans to capture more value from direct retailing and increasing the share of ready-to-wear in revenue composition.

Financial Performance

Though turnover and profitability are reduced owing to various factors of downturn in economy, market constraints and tight liquidity, the company is able to keep its head above water because of the established brands and diversity of its product range.

Risks and Concerns

The domestic, regional and global economic environment directly influences the consumption of textile products. Any economic slowdown can adversely impact demand-supply dynamics and profitability of all industry players including our Company. However, with some exception, the Company’s operations have historically shown significant resilience to the fluctuations of economic and industry cycles. The Company’s diverse product portfolio and broad product mix basket is an added asset, providing a buffer against market fluctuations.

The Company is exposed to risks from market fluctuations of foreign exchange, interest rates, commodity prices, business risk and compliance risks. Business risk evaluation and management is an ongoing process within the Company which is managed by regular monitoring and corrective actions. The Company adopts a prudent and conservative risk-mitigating strategy to minimize any adverse impact. The Company’s strong reputation for quality product differentiation and service, the existence of a powerful brand image and a robust marketing network mitigates the impact of price rise of raw materials.

Adequacy of Internal Control

The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition, and that transactions are authorized, recorded and reported correctly.

The internal control systems are supplemented by an extensive programme of internal audits, reviews by management and documented guidelines and procedures. The internal control systems are designed to ensure that the financial and other records are reliable for preparing financial statements and other data and for maintaining accountability of assets.

Cautionary Statement

Statements made in this report in describing the Company’s objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized by the Company. Actual results could differ materially from those expressed in the statement or implied due to the influence of external and internal factors, which are beyond the control of the Company.

The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, information or events.