Sky Industries Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

Global Economy Outlook

Understanding the current state of the global economy necessitates a deep dive into the intricate interplay of evolving industrial structures. As the fundamental pillars of economic activity, industries are always changing in reaction to a wide range of circumstances such as shifting consumer tastes, geopolitical changes, and technological breakthroughs. In order to successfully traverse the complexity of the contemporary economic landscape, politicians, businesses, and individuals must all have a thorough understanding of these dynamics.

The Global Economy growth is estimated at 3.2 % in 2023 and projected to continue at the same pace in 2024 and 2025. Advanced economies expected to see slight increase in growth from 1.7% in 2024 followed by 1.8% in 2025. Emerging and developing economies are overall expected to experience stable growth of

4.2% in 2024 and 2025.Multilateral cooperation is needed to limit the costs and risks of geoeconomic fragmentation and climate change, speed the transition to green energy, and facilitate debt restructuring.

The global Hook & Loop market was valued at US$ 2234 million in 2023 and is anticipated to reach US$ 3096.1 million by 2030, witnessing a CAGR of 4.7% during the forecast period 2024-2030. Advancements in manufacturing techniques and materials science have facilitated the development of hook and loop fasteners that boast increased durability, strength, and adaptability to various conditions. Furthermore, an emphasis on sustainability, cost-effectiveness, and lightweight design in product development and assembly drives market expansion.

Indian Economy Outlook

Despite external exogenous shocks, India continues to be among the fastest-growing economies in the world. The accelerated pace of economic reforms and strong domestic consumption have led to higher and sustainable growth of the Indian economy and strengthened its position in the world. India remained an outlier and reported an estimated 7.6% growth in FY 2023-24, driven by robust performance broadly across all economic sectors. India is expected to remain the fastest-growing nation among the G-20 nations in the years ahead. Also, Indias presidency of the

G20 Summit in 2023 has significantly bolstered its international standing. With reduced uncertainties at the beginning of FY24, businesses are expected to focus on their growth potential.

Indian Textile Industry Outlook

The Indian textiles industry is poised for growth, driven by strong domestic consumption and export demand. India is actively pursuing various initiatives to enhance its technical textile industry. The Indian Technical Textile market has a huge potential of a 10% growth rate, increased penetration level of 9-10% and is the 5^th largest technical textiles market in the world.

Global apparel market is expected to grow at a CAGR of around

8% to reach US$ 2.37 trillion by 2030 and the Global Textile & Apparel trade is expected to grow at a CAGR of 4% to reach US$

1.2 trillion by 2030.

The domestic apparel and textile industry in India contributes approximately 2.3% to the countrys GDP, 13% to industrial production and 12% to exports. India has a 4% share of the global trade in textiles and apparel. Indias exports of textiles and apparel are expected to reach $100 Bn. in the next 5 years, growing at a

CAGR of 11%.

Company Review

The company has amalgamated its routes in the field of exports in more than Ten (10) countries including USA and Europe. The Company supplies to 800+ domestic and 20+ export customers with major presence in the USA, Europe. Taking this into consideration, the domestic front showed an uplifting growth over previous Financial Year.

The Company also booked revenues of Rs. 82.46 Crore in the Fiscal year 2023-24 and Rs.74.92 Crore in the previous Financial Year 2022-23. The business utilized its resources strategically.

The EBIDTA of the company jumped from 5.63 Crore to 9.12 Crore.

OUTLOOK

The company remains confident in its ability to deliver its long term commitment led by its best-in-class manufacturing process, continuous process enhancements, strong R&D focus and an unwavering commitment to innovation. The company is investing in various R&D projects catering to the development. The company also engages in global exhibitions to stay informed about current trends and expand its customer base.

We are implementing new and cutting-edge technology to improve our operations concerning digitalization and sustainability. Our Company is persistently pursuing a long-term lean manufacturing approach, consistently emphasizing the development of products with added value products.

The company has outlined its updated strategy for narrow woven fabrics in the future. This means keeping up the companys performance in its main business divisions while also looking into new ones. The Narrow Woven Fabrics Market is expanding. Collaboration and marketing arrangements are creating new opportunities.

OPPORTUNITIES AND THREATS

The company is confident about its growth trajectory and the future as a company. The company has faith in its potential to expand organically while increasing output through the use of new technology. The company is always looking for ways to boost margins and reduce risk through targeted projects and worldwide support.

SEGMENT–WISE PERFORMANCE

The company has astounding progress setting new sales records demonstrating the industrys prominence as one of the fastest growing industries.

The companys primary business is "Fastening solutions within the more general category of Narrow Woven Fabrics". Thus, the Institute of Chartered Accountants of Indias Accounting Standard on Segment Reporting, (AS-17) is not applicable.

The business has done well, maintaining margins even in the face of rising input costs. Despite cost increases, the company has managed to boost margins through improved purchasing economies, increased manufacturing yield and consumption, and overall cost control.

RISKS AND CONCERNS

Risk management plays a pivotal role in business. Managing risk differs from managing strategy. The company cannot eliminate risks outright, though they can be managed.

Various types of risks are faced by the company, including those related to manufacturing the targeted quantity of products and those related to the selling structure of Hook and Loop Tape fasteners and Weaving/Velvet Tapes. The entry of new competitors into the market has led to heightened competition, resulting in lower prices and a greater emphasis on innovation and quality by existing businesses.

Sky Industries Limited principal risks and their mitigation:

Key Risk	Details	Mitigation
Compliance &Regulatory Risk	The manufacturing industry faces the risk of legal or regulatory sanctions, substantial financial losses, and damage to reputation due to non-compliance with laws, regulations, self-regulatory standards, and industry codes of conduct.	• Your Company has a robust framework, monitored by the s?nior management team to mitigate compliance and regulatory risk.
		• All regulatory amendments are closely monitored.
		• Intemal audit process assists in complying with all the existing laws and regulations.
		• Monitoring through compliance tracker and reporting timelines.
Raw Material Risk	Every manufacturing organization faces the inherent challenge of managing the availability of essential raw materials, which may sometimes be restricted or unavailable. Furthermore, fluctuations in expenses can directly impact profitability.	The enduring partnerships between your company and its vendors play a pivotal role in ensuring a consistent and uninterrupted supply of raw materials at competitive prices, fostering operational continuity and cost efficiency.
Innovation Risk	R&D plays a vital role in ensuring the long-term viability of the hook and loop tape fasteners as well as the velvet/webbing market. To maintain a competitive edge, companies must prioritize innovation and focused research and development efforts.	Your Company is committed to enhancing its technical expertise in niche applications. Through strong customer connections, we leverage knowledge transfer from our customers to drive innovation and develop specialized products.
Employability risk	There are potential challenges and uncertainties related to the ability of the workers to maintain their jobs or find new employment opportunities due to factors such as technological advancements, automation, outsourcing, or economic fluctuations.	Your Company is involved in implementing strategies such as workforce training and upskilling programs to align with technological advancements. It fosters a culture of lifelong leaming and adaptability among employees to diversify skills. It also explores opportunities for retraining or reskilling for displaced workers and facilitates smooth transitions in the labour market.
Liquidity Risk and Interest Rate Risk	Liquidity risk is the inability of a company to meet its obligations as they become due, without adversely affecting its financial condition.	• Your company maintains liquidity in the form of investments in mutual funds.
		• It maintains tight control over debtors Quarterly monitoring of liquidity ratios including Liquidity Coverage Ratio (LCR).
		• Further, to strengthen intemal Controls, an audit process is in place to ensure implementation of the above-mentioned measures and is carried out effectively.
Cyber Security Risk	Cyber Security Risk means the risk of cyber-attacks on Sky Industries Limited systems through hacking, phishing, ransom ware and other means, resulting in disruption of our Services or theft or leak of sensitive intemal data or customer information.	• You company conduc?s regular assessments to identi?y vulnerabilities and threats specific to manufacturing processes and systems.d>
		• It has implemented robust firewalls, intmsion detection/prevention systems, and access Controls to protect critical networks and infrastmcture.
		• Implementing physical security Controls to protect our manufacturing facilities, equipment, and data from unauthorized access.
Industrial Safety, Employee Health and Safety Risk	The labour-intensive nature of the task and the diversity of production facilities raise health concems for personnel due to factors such as human error and machinery failure, among others.	• Your Company provides extensive training to employees/workers on safety protocols, procedures, and the proper use of personal protective equipment (PPE) to minimize the risk of accidents and injuries.
		• Your Company ensures olear communication of hazards and safety procedures through signage, labels, and training programs to keep employees informed and aware of potential risks.
		• Conduc?s routine inspections of equipment, machinery, and facilities to identi?y potential hazards and address maintenance issues promptly.
		• Your Company conduc?s yearly health check-ups for its employees/ workers.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has designed adequate internal control systems comprising of detailed policies, guidelines and procedures, commensurate with the nature, size and complexity of the industry in which it operates. It is aimed at ensuring business integrity and promoting operational efficiency. The comprehensive internal control system ensures automatic checks and balances and robust financial reporting.

All assets are safeguarded and protected against loss from unauthorized use or disposition and the transactions are authorized, recorded and reported correctly, financial and other data are reliable for preparing financial information and other data and for maintaining accountability of assets. These controls have been providing reasonable assurance over:

The internal control is supplemented by extensive programme of internal audits and review by management. The Company bears the responsibility of ensuring the safety of its assets, preventing fraudulent activities and errors and detecting them promptly, maintaining accurate and comprehensive accounting records, and promptly preparing dependable financial data. Any departure from the norm is brought to the attention of management. To maintain business as normal and keep these exposures at manageable levels, prompt response is guaranteed. Business continuity is ensured via internal control structure.

Your Company has also focused on upgrading the IT infrastructure – both in terms of hardware and software. In addition to the existing system, the Company is presently reviewing the process documentation to ensure effectiveness of the controls in all the critical functional areas of the company.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The health and sustainability of the technical textile industry can be better understood by comparing the sectors financial performance to its operational performance. The following is a summary of important ideas to bring up throughout the discussion:

Revenue Growth: The performance of the sector as a whole can be inferred by tracking revenue growth over time. A stable or growing revenue stream indicates a robust market for technical textiles, whereas a diminishing revenue stream could indicate shifting consumer preferences or market difficulties.

Profitability Evaluating profitability margins, which include net profit margin, operational profit margin, and gross profit margin, aids in determining how well a sectors operations and cost control are working. While broadening margins may suggest successful cost control or price tactics, narrowing margins may imply rising manufacturing costs or pricing pressures.

Operational Efficiency: The effectiveness of the industry in managing resources, production processes, and cash flow can be ascertained by examining operational parameters such as days sales outstanding (DSO), inventory turnover, and asset turnover. Increases in these parameters point to improved asset utilization and operational success.

Research and development (R&D) investment: Assessing R&D investments reveals the industrys dedication to innovation and new product development. New and enhanced technical textiles are frequently introduced as a result of increased R&D spending, enhancing competitive advantages and promoting long-term growth.

Through the analysis of financial performance metrics in combination with operational indicators and external factors, stakeholders can get a full comprehension of the dynamics and future prospects of the technical textile industry. The industrys sustainable growth is supported and strategic decision-making is informed by this all-encompassing strategy.

1. The summary of the operating performance is given below:

Particulars	FY 2023-24	FY 2022-23	% of Change
Revenue from Operation	8246.49	7492.09	10.07%
Operating Profit (EBITDA)	912.99	563.12	62.13%
Finance Cost	128.55	159.64	-19.48%
Depreciation Cost	174.48	169.81	2.75%
Profit Before Tax	609.96	233.67	161.03%
Profit After Tax	467.49	176.82	164.39%

HUMAN RESOURCE MANAGEMENT

Your Companys headcount for the financial year 2023-24 was 272. We have a total of 67 Permanent employees and 205 employees were hired on a contractual basis working in production sites and administrative offices.

Employees relation continued to remain cordial in the year under review. Sky Industries Limited (Sky) recognizes that people are the key to the success of the organization. Sky continued to make substantial investment in human capital to meet its growth targets. The business of your company is managed by a component and passionate team of leaders capable of augmenting companys standing in the market. There were no significant issues outstanding or remaining unresolved during the year under review.

The companys main goal is to help individuals reach their full potential and advance their operational, behavioral, and functional competencies. The management and board of directors would like to sincerely express appreciation for all of the staff members contributions. We think that our ability to draw in and keep important employees with the necessary performance and skill sets will be crucial to our long-term success. The company ensures strict adherence to the internal codes and has defined a zero tolerance policy towards any kind of discrimination. Regular performance conversations and real time feedback form the backbone of the company.

The companys culture is centered on core pillars which are:

KEY FINANCIAL RATIOS OF THE COMPANY SHOWING FINANCIAL PERFORMANCE

In accordance with SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, the details of significant changes (i.e. Change of % or more as compared to the immediately previous financial year) in key financial ratios are given below:

Ratios	FY 2023-24		FY 2022-23	% of Change
Debtors Turnover (Days)		54	60	-10.00%
Inventory Turnover (Days)		88	106	-16.98%
Interest Coverage Ratio	14.08:1	1.46:1	864.38%
Current Ratio	2.14:1	2.05:1	4.39%
Debt Equity Ratio	0.30:1	0.35:1	-14.29%
Operating Profit Margin (%)	7.40%	3.11%	137.94%
Net Profit Margin (%)	5.67%	2.36%	140.25%
Return on Net worth (%)	11.60%	4.97%	133.40%

CAUTIONARY STATEMENT

The Companys goals, projections, estimates, and expectations are described in this Management Discussion and Analysis. These statements may be considered "forward looking statements" under applicable laws and regulations because the companys resolution plan has been put into action. These assertions are predicated on existing expectations as well as forecasts for upcoming events. However, these statements include known and unknown risks, important changes to the political and economic landscape in India or important international markets, tax regulations, litigation, labor relations, fluctuations in exchange rates, interest rates, and other costs, all of which could materially affect actual results. Although great care has been taken in establishing these assumptions, there is no guarantee that these forward-looking statements will come to pass. Any forward-looking statements made whether in response to new information, anticipated events, or otherwise, are not required to be publicly updated.