GLOBAL ECONOMY OVERVIEW
Global economic activity is experiencing a broad-based and sharper-than-expected
slowdown, with inflation higher than seen in several decades. The cost-of-living crisis,
tightening financial conditions in most regions, Russias invasion of Ukraine and its
effects, climate change and the lingering COVID-19 pandemic all weigh heavily on the
outlook. IMF forecasts global growth to slow from 3.4 percent in 2022 to 2.8 percent in
2023 before settling at 3.0 percent in 2024. Advanced economies are expected to see an
especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023*.
However, with the recent relaxations of COVID-19 restrictions in China and the unleashing
of the pent-up demand, there is an expectation of faster-than-expected recovery in the
global economy in a gradual manner.
INDIAN ECONOMIC OVERVIEW
Indias growth continues to be resilient despite some signs of moderation in growth,
says the World Bank in its latest India Development Update, the World Bank Indias
biannual flagship publication.
The overall growth remains robust and is estimated to be 6.9 percent for the full year
with real GDP growing 7.7 percent year-on-year during the first three quarters of fiscal
year 2022/23. There were some signs of moderation in the second half of FY 22/23. Growth
was underpinned by strong investment activity bolstered by the governments capex push and
buoyant private consumption, particularly among higher income earners. Inflation remained
high, averaging around 6.7 percent in FY22/23 but the current-account deficit narrowed in
Q3 on the back of strong growth in service exports and easing global commodity prices.
The World Bank has revised its FY23/24 GDP forecast to 6.3 percent from 6.6 percent
(December 2022). Growth is expected to be constrained by slower consumption growth and
challenging external conditions. Rising borrowing costs and slower income growth will
weigh on private consumption growth, and government consumption is projected to grow at a
slower pace due to the withdrawal of pandemic-related fiscal support measures.
Indian Textile Industry
The Textile Sector in India ranks next to Agriculture. Textile is one of Indias oldest
industries and has a formidable presence in the national economy in as much as it
contributes to about 14 per cent of manufacturing value-addition, accounts for around
one-third of our gross export earnings and provides gainful employment to millions of
people. The textile industry occupies a unique place in our country. One of the earliest
to come into existence in India, it accounts for 14% of the total Industrial production,
contributes to nearly 30% of the total exports and is the second largest employment
generator after agriculture.
Indias textile industry is one of the economys largest. In 2000/01, the textile and
garment industries accounted for about 4 percent of GDP, 14 percent of industrial output,
18 percent of industrial employment, and 27 percent of export earnings (Hashim). Indias
textile industry is also significant in a global context, ranking second to China in the
production of both cotton yarn and fabric and fifth in the production of synthetic fibers
and yarns.
In contrast to other major textile-producing countries, mostly mostly small-scale,
nonintegrated spinning, weaving, cloth finishing, and apparel enterprises, many of which
use outdated technology, characterize Indias textile sector. Some, mostly larger, firms
operate in the "organized" sector where firms must comply with numerous
government labor and tax regulations. Most firms, however, operate in the small- scale
"unorganized" sector where regulations are less stringent and more easily
evaded.
The unique structure of the Indian textile industry is due to the legacy of tax, labor,
and other regulatory policies that have favored small-scale, labor-intensive enterprises,
while discriminating against larger scale, more capital-intensive operations. The
structure is also due to the historical orientation towards meeting the needs of Indias
predominately low-income domestic consumers, rather than the world market. Policy reforms,
which began in the 1980s and continued into the 1990s, have led to significant gains in
technical efficiency and international competitiveness, particularly in the spinning
sector. However, broad scope remains for additional reforms that could enhance the
efficiency and competitiveness of Indias weaving, fabric finishing, and apparel sectors
INDUSTRY STRUCTURE AND DEVELOPMENT:
The global textile industry has been facing exceptionally challenging conditions since
the past two years due to the restrictions imposed because of the Covid-19 pandemic.
Further, the global supply chain had seen unprecedented levels of pressure and disruption
due to logistical impasse. This led to delayed delivery resulting into reduced product
shelf life and increased inventory at importer / retailer level which resulted in
reduction in export orders / delayed picking of confirmed orders, apart from sharp
increase in vessel shipping cost. Further, prodigious liquidity globally led to a
proliferation in commodity prices including Cotton, Dyes, Chemicals, Coal, etc.
The socks industry being majorly an unorganized and fragmented sector the entire
industry size and figures cannot be estimated. The socks and accessories market in India
has grown tremendously over the decade. Indian socks industry is maturing and with urban
population evolving, demand for casuals, sports and fashion socks is picking up.
Millenials are very brand conscious and demand for branded wear is on the rise. There is
growth in the industry in tier I and II markets and brand awareness is growing
significantly.
OPPORTUNITIES AND THREATS:
Accelerated reopening of activities have re-opened opportunities for the textile market
which were quiet for a long time. Further, China plus one policy by USA and Europe will
lead to increase in demand for the Indian Market. With an added advantage of high quality
standards and globally renowned accreditations, our Company will be forging ahead with its
sustainability vision to build potential so as to grab opportunities coming its way.
The demand for socks in India and other countries is on the rise. The flow of orders
has been progressively increasing for last few years. Your Company is well poised to seize
opportunities available in the sock knitting industry on account of its state-of-the-art
production facilities, technical expertise, good quality culture and emphasis on product
innovation and growth potential.
Market is shifting towards Branded Garment. Your Company has been ahead in making
investment in plant and machinery to meet the growth and meet the huge demand creation in
the market. Your company is working with international brands. We are constantly
experimenting products made from innovative yarns and eco-friendly chemicals for
manufacturing most comfortable socks especially for sports. These technically innovative
socks are much in demand by international brands. Given the unrelenting spread of the
second wave of pandemic and the large-scale impact on the lives of the people, the
near-term outlook for the Indian economy is uncertain impacting the growth prospects, the
threat of slow demand for few quarters is possible. Your company therefore is increasing
the customer base and also shortly planning to venture into ecommerce selling to overcome
this.
SEGMENT-WISE OR PRODUCT WISE PERFORMANCE:
The Company has one segment activity namely socks, in line with the definition of
"segment" as per Accounting Standard 17 issued by the Institute of Chartered
Accountants of India. The performance of the Company is discussed separately in the
Directors Report.
OUTLOOK:
Coming year will be challenging with respect to pricing. Due to constant investment in
latest machinery your company is able to target a vast audience, enhancing product
quality, improving delivery schedules and giving superior customer service. Expectations
are high, prospects are bright, but capitalizing on the new emerging opportunities will be
a challenge for the socks manufacturing Companies.
The Companys Socks Division is optimistic of growth through continued network
expansion and innovation. The Business will continue to focus on increasing the premium
and fashion quotient of its offerings on the basis of a deep understanding of consumer
preferences and delivering products of world- class quality.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:
The Company maintains adequate and effective Internal Control Systems commensurate with
its size and complexity. It believes that these systems provide, among other things, a
reasonable assurance that transactions are executed with management authorization. It also
ensures that they are recorded in all material respect to permit preparation of financial
statements in conformity with established accounting principles along with the assets of
the Company being adequately safeguarded against significant loss or
misuse. An independent Internal Audit function is an important element of Companys
Internal Control System. This is supplemented through an extensive internal audit program
and periodic review by the management and the Audit Committee of Board.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:
During the year under review, the total production of the socks was steady but margin
were effected due to increase in input costs. The Profit before tax recorded during the
year was Rs. 127.49 Lakhs as against Profit of Rs. 265.48 Lakhs in the previous financial
year.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER
OF PEOPLE EMPLOYED:
At Spenta, we are committed to sustainable work practices and a transparent work
culture. The year gone by brought many challenges owing to Covid led disruptions which
posed serious threats to the entire mankind. Amidst all these thought-provoking scenarios,
we leveraged use of digital assets to connect with various stakeholders, including our
employees. IT tools were optimally utilised for skills enhancement and training of
employees when most of the business activities were standstill everywhere.
Maintaining balance between safety of employees and business continuity, Work From Home
(WFH) facility was accorded to people immediately post lockdown. As the things started to
ease, proactive measures for employees were undertaken like, workplace SOPs, awareness
sessions, etc. Similarly, our factories resumed operations with robust hygiene norms and
considering all the social-distancing regulations.
As always, people development continues to be an extremely important area in your
Company. Anchoring developmental conversations at every level and ensuring that all
managers are skilled in holding developmental conversations has been an area of focus. The
industrial relations remained cordial throughout the year. The employees of the Company
have extended a very productive co-operation in the efforts of the management to carry the
Company to greater heights.
The Company had on rolls total of 75 permanent employees as on 31st March,
2023 excluding employees on contract basis and job workers.
CAUTIONARY STATEMENT:
Statements in this report on Management Discussion and Analysis, describing the
Companys objectives, projections, estimates, expectations, or predictions may be forward
looking, considering the applicable laws and regulations. These statements are based on
certain assumptions and expectation of future events. Actual results could, however,
differ materially from those expressed or implied. Important factors that could make a
difference to the Companys operations include finished goods prices, raw materials costs
and availability, global and domestic demand supply conditions, fluctuations in exchange
rates, changes in Government regulations and tax structure, economic developments within
India and the countries with which the Company has business contacts. The Company assumes
no responsibility in respect of the forward-looking statements herein, which may undergo
changes in future based on subsequent developments, information, or events.
RISKS AND CONCERNS:
The major challenge that the textile, apparel and hosiery industry faces is of
ever-increasing production costs arising out of rising wages, power and other overheads.
Inflation is expected to remain elevated for the foreseeable future, driven by
war-induced commodity price increases and broadening price pressures. In addition, the
anticipated increase in interest rates by Central Banks in the coming year are also
expected to lower growth and exert pressure on economies particularly those in emerging
markets.
In these circumstances, the ability to successfully navigate cost pressures would have
a significant bearing on the overall performance of your Company. Diminishing purchasing
power and demand due to the economic circumstances could result in fundamental shifts in
consumer behaviours and adversely impact the market for textiles and apparel.
Deterioration in supply chain and demand due to pandemic such as COVID-19 have emerged
as a significant business risk. Strong supply chain system with robust digitization and
interlinking of various divisions is the need of the hour to tackle similar situations in
future.
RATIO ANALYSIS:
Particulars |
2022-2023 |
2021-22 |
Change |
Debtors T urnover Ratio |
3.67 |
3.21 |
0.46 |
Inventory Turnover Ratio |
2.27 |
2.54 |
-0.27 |
Interest coverage Ratio |
2.42 |
3.31 |
-0.89 |
Current Ratio |
1.78 |
1.66 |
-0.12 |
Debt Equity Ratio |
0.75 |
0.79 |
-0.04 |
Operating Profit Margin Ratio (%) |
5.58% |
8.35% |
-2.77% |
Net Profit Margin Ratio (%) |
2.16% |
4.27% |
-2.11% |
Return on Net worth (%) |
4.19% |
8.22% |
-4.03% |
Debtors Turnover Ratio: Slight Change due to high proportion of customers paying off
their debts quickly Inventory Turnover Ratio: Slight Change due to increase in unsold
inventory and decreased demand Interest Coverage Ratio: Significant Change due to decrease
in earnings and increased input costs Current Ratio: No material Change is observed Debt
Equity Ratio: No material Change is observed
Operating Profit Margin: Significant Change due to increase in prices of raw material,
higher labour and power cost, lower margins due to competition
Net Profit Margin: Significant Change due to increase in prices of raw material, higher
labour and power cost, lower margins due to competition
Return On Net Worth: Significant Change due to increase in prices of raw material,
higher labour and power cost, lower margins due to competition
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