Sportking India Ltd Management Discussions

Globally, 2024 has been an eventful year. The year witnessed unprecedented electoral activity on the political front, with more than half of the global population voting in major elections across countries. Meanwhile, adverse developments like the Russia- Ukraine conflict and the Israel-Hamas conflict increased regional instability. These events impacted energy and food security, leading to higher prices and rising inflation. Cyber-attacks also became more frequent and severe, with growing human and financial consequences due to the increasing digitization of critical infrastructure. Geopolitical risks and policy uncertainty, especially around trade policies, have also contributed to increased volatility in global financial markets.

The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity. The IMF predicts a modest growth of 2.8% in 2025 and 3.0% in 2026, indicating a challenging economic environment. The worlds largest economy, the US, is projected to grow by just 1.8%, significantly lower than last years expectations due to policy uncertainty and trade tensions.

The US will also be a major global growth disruptor with regulatory, immigration, trade and tax policy changes representing opportunities and risks worldwide. The composition, timing and magnitude of policy shifts is still uncertain, but likely to have a consequential influence on economic and inflation dynamics in 2025 and beyond. Trade policy, in particular, is likely to have an outsized impact on the global economy in late 2025 and 2026 with tariffs and other protectionist measures that could push the global economy into "stagflation" (economic stagnation combined with elevated inflation), if pursued to their fullest extent. Conversely, tax cuts and stronger private sector confidence on the prospects of pro-business policies and deregulation could support stronger spending and investment in the near-term, even if policy uncertainty should not be underestimated as a headwind.

Meanwhile, geopolitical hotspots - Ukraine, the Middle East and Taiwan - will remain potential disruptors to global supply chains, given their strategic importance in energy, technology and trade routes. The ongoing conflict in Ukraine fuels uncertainty about future pockets of tension and their effects on commodities prices. Tensions in the Middle East, a region central to oil production and trade routes, elevate the risk of energy supply and transport cost shocks that could further strain inflationary pressures globally. Similarly, escalating frictions in Taiwan - a hub for advanced semiconductor manufacturing - pose significant risks to technology supply chains, with potential repercussions for industries reliant on these critical components. Collectively, these geopolitical challenges underscore the fragility of global supply networks in an increasingly fragmented and volatile world.

In this environment, the role of "connector economies" - emerging markets that have advantageous locations and preferential trade agreements across major blocs - will grow. India, Saudi Arabia, Mexico, Brazil, the United Arab Emirates and Southeast Asian economies will benefit from maintaining or developing strong trade and investment relations across geopolitical blocs. India, in particular, will continue to foster trade and investment ties across geopolitical divides while being a critical driver of South-South trade. Southeast Asia is likely to remain the top destination for foreign investment among emerging markets.

In advanced economies, where inflation surged to multi decade highs following the pandemic, price pressures are expected to moderate but remain uneven. Wage cost pressures, potential tariffs and limited innovation undermining global competitiveness in some sectors are likely to persist across European economies and the UK. In the US, we expect the moderating trend in inflation will remain in place through early 2025, though it could then change as deregulation, potential immigration restrictions and tariffs lead to a renewed inflation impulse.

Global headline inflation continues to rule above the target for most economies with persistent services and core inflation hindering the pace of disinflation. IMF in its April 2025 ‘World Economic Outlook predicts global inflation to reach 4.3% in 2025 and 3.6% in 2026, with notable upward revisions for advanced economies and slight downward revisions for EMDEs (Emerging Market and Developing Economies) in 2025.

Generally easing inflation should continue to favor monetary policy recalibration in the near term. But while central banks will find plenty of reasons to pursue their policy easing cycle, they will almost certainly recalibrate with caution given the risks from inflation volatility tied to trade, wages, energy and food cost pressures. As a result, global monetary policy will be desynchronized as central bankers respond to divergent domestic and international conditions and may even be forced to tighten policy amid resurgent inflationary and exchange rate pressures.

In an era marked by escalating global trade tensions and persistent geopolitical uncertainties, the Indian economy has demonstrated remarkable resilience and robust growth. Indias GDP grew by 6.5% in FY 2024-2025. The OECDs 2025 Economic Outlook Report predicts Indias GDP growth will lead G20 nations at 6.3% in 2025 and 6.4% in 2026. Amid global economic slowdowns, India aims for a $32 trillion economy by 2047, focusing on increased business ties with the EU. Indias growth engine remains heavily dependent on the governments infrastructure spending on roads, ports and highways, in the absence of significant improvement in private investment. Going forward, domestic growth should benefit from governments income tax cuts announced in the federal budget, as well as "monetary easing, expectations of an above normal monsoon and lower food inflation"

On the inflation front, domestic inflation declined from 5.36% YoY in FY24 to 4.63% YoY in FY25 - indicating moderation in overall price levels. This is the lowest annual inflation since FY20. This milestone highlights the effectiveness of the RBIs progrowth monetary policy -balancing growth and price stability. Notably, the year-on- year inflation for Mar25 fell to 3.34% - the lowest monthly inflation rate since Aug 2019. RBI projects that Indias CPI-inflation will progressively align towards the inflation target of 4% in FY26. Assuming a normal monsoon, the inflation is predicted to be at 4.0% in FY26.

The Union Budget 2025-2026 promises to continue Governments efforts to accelerate growth, secure inclusive development, invigorate private sector investments, uplift household sentiments, and enhance spending power of Indias rising middle class. The Budget proposes development measures focusing on poor (Garib), Youth, farmer (Annadata) and women (Nari). The Budget aims to initiate transformative reforms in Taxation, Power Sector, Urban Development, Mining, Financial Sector, and Regulatory Reforms to augment Indias growth potential and global competitiveness.

Looking ahead, Indias economic prospects for FY26 are balanced. Headwinds to growth include elevated geopolitical and trade uncertainties and possible commodity price shocks. Domestically, the translation of order books of private capital goods sector into sustained investment pick-up, improvements in consumer confidence, and corporate wage pick-up will be key to promoting growth. Rural demand backed by a rebound in agricultural production, an anticipated easing of food inflation and a stable macroeconomic environment provides an upside to near-term growth. Overall, India will need to improve its global competitiveness through grassroots-level structural reforms and deregulation to reinforce its medium-term growth potential.

Indias textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk, and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.

The textile industry contributes approximately 2.5% to the national GDP, around 7% to industrial output, and nearly 12% of the countrys total export earnings. It is also one of the largest employment-generating sectors, providing livelihoods to over 45 million people, both directly and indirectly, across the entire value chain - from cotton cultivation and yarn production to garment manufacturing and retail.

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 market for Indian textiles and apparel is projected to grow at a 10% CAGR to reach US$ 350 billion by 2030. Moreover, India is the worlds 3rd largest exporter of Textiles and Apparel. India ranks among the top five global exporters in several textile categories, with exports expected to reach US$100 billion.

Indias cotton production for the FY25 season is projected to decrease by 7% Y-o-Y, reaching approximately 30.2 million bales (bales of 170 kg each), primarily due to reduced acreage and crop damage from excessive rainfall. Consequently, cotton imports are expected to rise by 42% to 2.5 million bales, while exports may decline by 37% to 1.8 million bales. The increase in imports is further supported by lower international cotton prices and tariff uncertainties, making imported cotton more cost-effective for Indian buyers.

Indias cotton yarn sector is poised for substantial revenue growth, with Crisil Ratings forecasting a 7-9% increase in FY26. This projection is underpinned by a rebound in exports, particularly to China, which accounts for 14% of the industrys export revenue. Domestic demand is also a significant contributor to this growth.

The Cotton Corporation of Indias (CCI) substantial cotton procurement in the 2025 cotton season will ensure stable availability, minimizing inventory losses and boosting spinners profitability by 50-100 basis points. Operating margins are expected to increase, driven by stable cotton yarn spreads and better availability. The primary driver for the revenue increase in FY26 will be the recovery in yarn exports to China, which declined in FY25 due to high domestic cotton production in China. This decline resulted in a 5-7% de-growth in Indias total cotton yarn exports. However, the normalization of Chinas domestic cotton production is expected to drive a 9-11% growth in exports to China in FY26.

Credit profiles of cotton yarn spinners are expected to remain stable, supported by improved operating performance. Crisil Ratings expects the interest coverage ratio to improve to 4.5-5 times in FY26 from 4-4.5 times in FY25. Gearing is projected to remain stable at approximately 0.55-0.6 times. Capital expenditure will remain moderate, with only select players undertaking significant capex, limiting the need for substantial debt additions. Steady cotton availability will reduce the need for significant incremental working capital financing. However, potential changes in tariffs imposed on India and competing nations, higher inflation, or slowing economic growth in the US, which could lead to a demand slowdown, and any adverse movement in domestic cotton prices compared to international prices, will need to be monitored.

Indias textile industry is a vital contributor to the countrys economy, generating employment, driving exports and supporting industrial growth. As one of the largest producers of cotton and synthetic fibres, the sector encompasses everything from traditional handloom artisans to cutting-edge technical textiles. However, challenges such as fluctuating raw material prices, outdated manufacturing infrastructure and global competition demand strong policy interventions for sustained growth. The Union Budget 2025-26 seeks to address these challenges and propel the industry forward. Rising from INR 4,417.03 Cr in 2024-25 to INR 5,272 Cr—registering a 19% increase in allocation to the Textile Ministry—the budget reflects the governments commitment to addressing long-standing challenges and unlocking new opportunities for growth.

The launch of a five-year Cotton Mission, with an allocation of INR 600 Cr aimed at revitalising Indias cotton sector, seeks to increase productivity, particularly for extra-long staple (ELS) varieties, by providing science and technology support to farmers. By adopting global agronomy best practices and promoting clean cotton production, the initiative seeks to ensure a steady raw material supply, reduces imports, boosts competitiveness and enhances farmer incomes.

Recognizing the importance of MSMEs in the textile sector, the budget introduces initiatives such as enhanced credit access, export promotion measures and the creation of the Bharat Trade Net. This digital platform will streamline trade documentation, facilitate smoother global integration and ease market access for small and medium textile enterprises. Additionally, INR 1,148 Cr has been allocated for the PLI Scheme to boost domestic manufacturing and exports, while INR 635 Cr for the Amended Technology Up gradation Fund Scheme (ATUFS) supports modernization and efficiency in textile machinery. In view of the importance of exports for overall growth of Textile sector, several measures are being taken by Government to enhance exports such as Rebate of State and Central Taxes and Levies (RoSCTL), Production-Linked Incentive (PLI) Scheme and Free Trade Agreements.

The Company is dealing in the Yarn Segment only and Company is persistently facing such challenges and is taking necessary steps to strengthen its export/ indigenous market operations with more value added/ sustainable yarn products/customer base. Further the Company has adequate liquidity and financial resources to meet its operational requirements, financial commitments/ service of debt obligations and statutory liabilities as per indications available as on date.

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, the Company is required to give details of significant changes) in key financial ratios (change of 25% or more as compared to the immediately previous financial year. The detail is as under:-

During the year under review, the Company reported a production volume of 81,049 M.T. of Cotton/Synthetic Yarn, marginally higher than 80,845 M.T. recorded in the previous financial year. The overall capacity utilization remained robust at approximately 96%, underscoring the Companys strong operational efficiency and placing it among the leaders in the industry. Revenue from Operations for FY 2024-25 stood at Rs.2,55,101.65 Lakhs, registering a year-on-year growth of 5.76%, driven by steady demand and optimized production. Notably, Export Sales saw a significant increase of 14.92%, rising to Rs. 1,28,653.70 Lakhs in FY 2024-25 from Rs. 1,11,949.81 Lakhs in FY 2023-24, reflecting the Companys strengthened presence in international markets and its continued focus on expanding its global customer base.

Earnings before Interest Depreciation and Tax (EBIDTA) for the year ended 31st March 2025 improved to Rs. 28,970.09 Lakhs, reflecting a growth of 11.36% over Rs. 24,086.26 Lakhs reported in FY 2023-24. Further Profit before Tax (PBT) increased to Rs. 14,980.25 Lakhs, and Profit after Tax (PAT) rose to Rs. 11,009.12 Lakhs, compared Rs. 9,590.43 Lakhs and Rs. 7,047.30 Lakhs, respectively, in the previous financial year. The Company recorded a strong year-on-year increase of 58% in Profit after Tax (PAT), primarily driven by higher export sales and a reduction in input costs. The rise in export sales was supported by increased demand in international markets and effective market penetration strategies, which contributed to higher revenue. Simultaneously, input costs declined due to favorable raw material prices and improved cost management practices. These combined factors led to a significant expansion in profit margins, reflecting the Companys strengthened operational efficiency and financial performance during the year.).

The Companys Tangible Net Worth increased significantly to Rs. 1,00,582.14 Lakhs as on 31st March 2025, compared to Rs. 90,242.54 Lakhs as on 31st March 2024, reflecting strong internal accruals and overall financial stability. During the year, the Company successfully achieved a substantial reduction in short-term bank borrowings, which positively impacted its liquidity position. As a result, the Current Ratio improved to 2.63 as on 31st March 2025, from 1.85 in the previous year, indicating enhanced short-term solvency. In line with these developments, the Debt-to-Equity Ratio also improved to 0.58, compared to 0.97 as on 31st March 2024, demonstrating strengthened capital structure and reduced dependence on external debt.

The net Block of Property, Plant and Equipment as at 31st March, 2025 were Rs. 75823.81 Lakhs as compared to Rs. 78512.74 Lakhs in the previous year. The Capital work in progress was Rs 494.02 Lakhs for year ended 31st March, 2025 as compared to nil in the previous year.

The current assets as on 31st March, 2025 were Rs. 98398.89 Lakhs as against Rs. 115496.66 Lakhs in the previous year. Inventory level was at Rs. 43383.35 Lakhs as compared to the previous year level of Rs. 64504.71 Lakhs. Trade Receivables level was at Rs. 45632.20 Lakhs as compared to the previous year level of Rs. 35606.32 Lakhs. The current liabilities as on 31st March 2025 were Rs. 37386.28 Lakhs as against Rs. 62469.23 Lakhs in the previous year.

The position of liquidity and capital resources is given below:

CRISIL, a leading credit rating agency, upgraded the Companys Long-Term Credit Rating from "CRISIL A/Positive" to "CRISIL A+/Stable", as per the rating letter dated 21st May 2025. This upgrade underscores the Companys strengthened financial position, consistent performance, and sound risk management practices. Additionally, the Short-Term Credit Rating has been reaffirmed at "CRISIL A1", indicating continued confidence in the Companys liquidity and short-term repayment capabilities. The detailed ratings assigned to the Companys banking facilities are provided separately in this report.

Further all the External Credit ratings are available on Companys website www.sportking.co.in.

During the year under review, the Company has not transferred any amount to reserves

As per Section 134(5) (e) of the Act, the Directors have an overall responsibility for ensuring that the Company has implemented a robust system and framework of internal financial controls. The Company has set up strict protocols to guarantee operational support and financial reporting accuracy. Business operations are regularly observed by an internal team and audit committee, which swiftly notifies the Management Board of any anomalies. To guarantee steady and sustainable growth, the Company creates strategies to recognize, evaluate and reduce risks based on these findings. These internal control mechanisms are essential for upholding regulatory compliance, combating fraud and preserving transparency. Ultimately, the Company attracts investment, builds stakeholder confidence and achieves long-term success in the market by offering strong financial reporting and operational support.

The Statutory Auditors in their audit report have opined that these controls are operating effectively. The Audit team develops an audit plan based on the risk profile of the business activities. The Internal Audit team monitors and evaluates the efficacy and adequacy of internal control systems in the Company, their compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, process owners undertake corrective action(s) in their respective area(s) and thereby strengthen the controls. Audit observations and corrective action(s) thereon are presented to the Audit Committee. The Audit Committee reviews the reports submitted by the Internal Auditors.

The company recognizes its human resources as its most valuable asset and takes pride in the commitment, competence and dedication shown by its employees in all areas of business. The Company has specialized professionals in the respective fields to take care of its operations and allied activities. The Company is committed to nurturing, enhancing and retaining the top talent through superior learning. This is critical pillar to support the organizations growth and its sustainability in the long run. During the year under review, the company enjoyed cordial relationship with workers and employees at all levels.

The Company is conscious of importance of environment clean and safety operations. The Company policy requires the conduct of all operations in such a manner so as to ensure the safety of all concerned, for environment protection and prevention of various natural resources to the extent possible. In its continued commitment towards sustainability and reducing its carbon footprint, the Company has initiated a significant step in renewable energy adoption during the year. The Company has already commissioned Rooftop Solar Power Project at their Bathinda and Ludhiana Units for captive consumption. This initiative not only enhances energy efficiency but also reinforces the Companys commitment to environmental responsibility by reducing dependency on external energy sources and contributing to the reduction of greenhouse gas emissions.

Certain statements presented in this Directors Report and Management Discussion and Analysis Report, encompassing the Companys objectives, projects, estimates, and expectations, may be considered "forward-looking statements" under applicable laws and regulations. Its important to acknowledge that the actual results may deviate from these expectations and forwardlooking statements due to an array of risks and uncertainties. Actual results could differ materially from those expressed or implied. These factors include but are not limited to raw material availability and its prices, cyclical demand and, changes in Government regulations, Tax regimes, economic developments within India and the countries in which the Company conducts business and other ancillary factors.