sri ganapathy mills company ltd Management discussions

Company Business:

The company is one of the pioneers in Textile industry in the Southern peninsula and having installed capacity of 13,856 spindles. The company’s main business activity is manufacture of Cotton Yarn.

Overall Review:

During the year under view, the performance of the company was affected due to economic slowdown and unpredictable yarn prices on account of reduced demand in both exports as well as domestic markets. Due to shortage of working capital, the company has halted its operations for a period of four months from September to December 2015. During the period, the company had sold its Unit B at Virudhunagar with consent of the Bankers and Members of the company and reduced the bank loan liabilities to that extent and resumed business operations from Jan 2016 with help of additional financial assistance from the Bankers. Due to the sale of undertakings, the company had reduced the finance cost as well as showed a net profit in the current financial year.

Operations:

Industry Structure & Development:

India is one of the world’s largest producers of textiles. Abundant availability of raw materials such as cotton and man-made fibers has made the country a sourcing hub. It is the world’s second largest exporter of textiles and clothing in the world. India accounts 63 per cent of the market share of textiles and garments. Raw material costs have been increasing globally, coupled with a shortage of skilled workers. While a shift is taking place of textiles industries from China and Bangladesh to India, the industrial climate in India has also become adverse due to regular increases in input costs. Any further appreciation of the Rupee will adversely affect exports from India. Though the spinning industry has fared somewhat better those with a presence in weaving, processing or even composite businesses are facing the heat due to increases in input cost without being able to pass on such higher costs to customers as the market is simply unable to absorb the same.

Opportunities and Threats

India is one of the most efficient and competitive spinning industries of the world. India is the second largest textile manufacturing infrastructure in the world after China. Indian Textile Industry accounts for about 24% of the world’s spindle capacity and 8% of global rotor capacity, Production of spun yarn registered impressive growth during the last 12 years and cotton yarn accounted for over 2/3^rd of production throughout the period. Consumption of yarn and its exports also increased during the period. China reducing its spinning activities, India will have a growing opportunity in the global markets in this segment in the coming years. This is a good opportunity of which our textile industry should make use but smaller countries like Bangladesh, Sri Lanka, Pakistan, Turkey and Vietnam etc. are becoming formidable challengers. Yarn exports, therefore, need to be encouraged.

Further lack of modernisation, high power costs, high cost of labour and high transaction costs are hindering the progress. However, we are making all out efforts to cope with all these challenges by continuous efforts at cost reduction, process improvements, diversification of products and improving productivity by improving efficiencies.

Yarn prices and demand are decreasing regularly as other input costs including power, labour and logistics

Segment.

The Company is engaged only in one segment i.e. Textile Segment.

Risks and Concerns:

Raw Cotton, an agricultural product, is the key raw material used for the manufacture of cotton yarn. Almost 65% of area under cotton cultivation is rain-fed and hence is dependent on vagaries of monsoon. Adequate availability of raw cotton at right prices is crucial for the Company. Any distruption in the supply and/or changes in the cost structure would affect the profitability of the Company. Any adverse measures in terms of tariff and non-tariff barriers, even in a comparative sense with respect to competing countries, affected by the Company’s target markets are likely to pose a serious threat to its business.

Outlook:

Indian Textile Industry has a good opportunity as share of exports of textiles from China is going down. Indian Textile Industry can expect good growth in domestic consumption. The likely stability in the cotton prices and adequate availability of cotton will be beneficial for the industry. Moreover, with expected stability in the cotton prices, limited possibility of change in China’s policy on import of cotton and cotton yarn in the near term with import of cotton yarn remaining duty free and continued dependence of China on imports to meet its requirement, the yarn export volumes are likely to sustain which will support the capacity utilization and thereby the profit margin of the spinning mills in coming years. However, the above assumption is contingent upon export demand sustaining, given the high export dependence of the domestic spinning industry. Any decline in the export demand will immediately result in shift of the export supply to the domestic market, which will impact the utilization levels and profit margins of the spinning mills.

Further the company has propose to sell some of the vacant land at Tirunelveli in which, prior consent from the bankers and members are already obtained in the last AGM / financial year and thereby able to induct more additional funds in to the company to improve the liquidity and also taken beneficial effects of strengthening the quality / design and innovations in the product. Further reduction of liabilities and moderate changes in the machineries will reduce the cost of the production and gives better results in the ensuing years of the company

INTERNAL CONTROL SYSTEM

The internal audit system in the company is bestowing a good protection to the assets of the company. The internal audit system closely supervised by the senior executives is helping the company to identify the deficiencies in the system and take corrective measures early. This is commensuratingly supported by the contribution of the external auditor both at the branch and Head Office

HUMAN RESOURCES

The welfare measures of the company taken in the past and present is providing a conducive atmosphere where in the employer and employee relationship is being nursed well

Caution Statement

Investors are cautioned that this discussion contains statements that involve risks uncertainties. Words like anticipate, believe, estimate, intend, will expect and other similar expressions are intended to identify such forward looking statements. The company assumes no responsibility to amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. Besides, the company cannot guarantee that these assumptions and expectations are accurate or will be realized and actual results, performance or achievements could thus differ materially from those projected in any such forward looking statements