MANAGEMENT DISCUSSION AND ANALYSIS REPORT
An economic overview
World Economy:
In 2022, the global economy returned to more normal growth - registering a growth of
3.4% again a global GDP growth of 6.1% in 2021. Inflationary pressures, the Russia-
Ukraine war and the resurgence of COVID-19 in China weighed on global economic activity in
2022.
Even as these headwinds persisted across the globe, real GDP surprisingly surged in the
third quarter of 2022 in numerous economies, including the US, the euro area, and major
emerging markets and developing economies. However, the uptick faded considerably in the
last quarter of 2022.
Global headline inflation appeared to have peaked in the third quarter of 2022. This is
owing to a considerable drop in the prices of fuel and nonfuel commodities.
Initial estimates put global trade at US$32 trillion in 2022, Trade in goods and
services saw good growth, despite the Ukraine situation. Trade in goods grew 10% from last
year to US$25 trillion, while trade in services grew 15% to US$7 trillion. A slowdown in
global trade towards the close of the year could intensify in 2023.
Going forward, global growth is projected to fall from an estimated 3.4% in 2022 to
2.9% in 2023, then rise to 3.1% in 2024. The forecast of low growth in 2023 reflects the
rise in central bank rates to fight inflation - especially in advanced economies, as well
as the war in Ukraine.
Also, global inflation is likely to come down from 8.8% in 2022 to 6.5% in 2023 and
further drop to 4.1% in 2024. Structural reforms will help in the fight against inflation
by improving productivity and easing supply constraints. Demand for environmentally
sustainable products is expected to spur global demand.
Domestic Economy: Recovering from pandemic-induced contraction, the Russian-Ukraine
conflict, and inflation, the Indian economy staged a broad-based recovery across sectors.
According to the first advance estimate for 2022-23 released by the National Statistical
Office (NSO), Indias gross domestic product (GDP) growth is estimated at 7% for 2022-23
(8.7% in 2021-22) on the back of a rebound in services and farm sectors.
The Capital Expenditure of the Central Government and crowding in the private Capex led
by the strengthening of the balance sheets of corporates is one of the growth drivers of
the Indian economy in the current year. The Indian Rupee performed well compared to other
Emerging Market Economies in Apr-De Rs.2022.
Indias revenue remained robust in FY23. Direct tax collections, net of refunds,
reached C 12.31 trillion as of January 10, 2023 - 19.5% higher than collections in the
corresponding period last year.
According to experts, direct tax collection (comprising corporate tax and personal tax)
could exceed C 17.50 trillion, which would surpass the budgeted estimate by almost 23%.
GST revenue in FY23 up to January 2023 was 24% higher than the collection during the same
period in the previous year.
While Indias retail inflation rate peaked at 7.8% in April 2022, (above the RBIs
upper limit of 6%), the overshoot above the upper tolerance level was however one of the
lowest in the world. This was owing to the governments multi-pronged approach to tame the
increase in price levels.
The Economic Survey for 2022-23 has projected a GDP growth rate in the range of 6 to
6.8% for FY 2023-24. The renewed thrust for capital expenditure, especially for
infrastructure creation in the recent budget is expected to provide impetus to Indias
economic growth.
The Textile Industry
Textile is the most important basic necessity in the world after food. As such, the
entire worlds population is a user of textiles.
For an individual, textile symbolise her/ his cultural, social, economic, political,
and religious norms. Textile is a powerful medium to express oneself and influence people.
Textile is one of Indias oldest industries and has a formidable presence in the
national economy owing to its employment generation, contribution to industrial production
and foreign exchange.
Not only is the textile sector highly labour intensive, but it also employs unskilled
and semi-skilled labour force and is also an important source of employment for women.
Indias textile industry is one of the largest in the world with a huge raw material
and textiles manufacturing base. It is significantly diversified with hand-spun and
hand-woven textiles at one end of the spectrum and state-of-the-art plants at the other
end.
Indian textile products are used by consumers across the globe owing to the
high-quality fabric used and the affordable cost.
Sources: Fibre2fashion, The Lio blog, Invest India
Performance: After 18 months of robust growth through mid-2022, Indias US$200
Billion textile and apparel industry is facing a crisis. This is primarily because of huge
cuts in spending by consumers in the United States, Europe and other big markets following
a surge in inflation after the war in Ukraine.
Exports, which constitute about 22% of the industry, have fallen for five months in a
row - declining over 15% year-on-year in November to $3.1 Billion.
The home textile segment, which is the second largest export contributor in the textile
industry after ready-made garments, also dropped sharply. Also, the, bed, table, and bath
linen imports by US and Europe contracted considerably owing to depressed consumer
sentiments.
In addition, exports from India have also suffered owing to preferential tariff
treatment towards countries like Bangladesh and Vietnam, cheap imports from China and some
other countries in certain segments. This is hurting the domestic industry.
Domestic sales remained sluggish, despite the healthy economic progress made by India,
due to high raw material costs and cheap imported garments and other textile products with
the reopening of China.
The escalated raw material prices also impacted domestic demand. The price of cotton in
India had more than doubled to cross the C 100,000 mark per candy during the current
financial year, leading to an increase in yarn prices too. This impacted the profitability
of textile majors who could not pass on the raw material cost hike to the end consumer.
While the overall economy is relatively strong and is outperforming major economies,
the textile sector is a notable exception and orders suggest the downturn will continue
well into 2023.
Despite this downturn in fortunes of the textile industry, the government remains
steadfast on its goal of increasing textile exports from India, from the current US$ 44.4
Billion to US$ 100 Billion in the next five years. This will require addressing the
challenges faced by the sector to ensure an efficient and integrated textile sector.
Sources :Economictimes, ThePrint, Business Standard
Government initiatives: The Government has taken important steps for strengthening
the domestic textile sector. They include the following:
• The government of India (GoI) launched PLI (Production Linked Incentive) scheme
with an outlay of Rs.10,683 crore to promote the production of MMF (Man-made Fibre)
apparel, MMF fabrics and technical textiles to facilitate the textile Industry to achieve
both size and scale.
• GoI approved the setting up of 7 PM Mega Integrated Textile Region and Apparel
(PM MITRA) parks to develop world-class infrastructure with a total allocation of RS.4445
crore for a period of up to 2027-28.
• Under National Technical Textile Mission (NTTM), 74 research proposals valued at
RS.232 crore have been approved in the category of specialty fibre and technical textiles.
• Investment of C 10,218 crore confirmed by the industry in 2,443 subsidy cases.
RS.621.41 crore subsidy released in 3,159 cases under Amended Technology Upgradation Fund
Scheme (ATUFS) and Special campaigns.
• A total of 73,919 people have been trained out of which 38,823 persons were
given placement under the SAMARTH scheme for capacity building in the textile sector.
• A new campus of NIFT (National Institute of Fashion Technology) has been
initiated for 2022-23 in Daman. Other new campus buildings are coming up in Bhopal and
Srinagar.
• 44 R&D projects in the silk sector have been initiated and 23 were concluded
with the achievement of training 9,777 persons in various activities related to the
sector.
• Cotton cultivation has increased by 5% to 125.02 lakh hectares as against 119.10
lakh hectares last year. KASTURI COTTON INDIA, the brand name for Indian cotton has been
launched. Further, to boost the mechanised harvesting of cotton, improve the quality of
cotton and reduce labour costs, 75,000 handheld kapas plucker machines are being
distributed.
Source: PIB
Global efforts: The Comprehensive Economic Partnership Agreement with the UAE
became operational on May 1, 2022.
This Government initiative allows most of the countrys exports duty-free access to the
Emirates.
The free trade agreement (FTA) between India and Australia, came into effect on
Thursday, December 29. This agreement promises to strengthen trade ties and will help
scale bilateral trade in goods and services in the next five years.
The Government intensified its efforts to finalise the FTA with the UK. The two nations
reaffirmed their commitment to the early conclusion of a "balanced and
comprehensive" FTA in early 2023.
These Government initiatives should go a long way in strengthening the competitive edge
of the domestic textile industry.
Growth drivers
Easy availability of raw materials: India isone of the largest cotton producers in
the world. As of 2022, about 120.69 lakh hectares of land are under cotton cultivation and
a total of 362.18 lakh bales have been produced in 2021-22 which is one of the largest in
the world. Also, cotton comes in a large variety. Iediais also the 2nd largest producer of
sil kundUUOo of the hand-woven fabrics come from India.
Sources :TEXMiN,
A_ordable production infrastructure and qualified personnel: India is present across
the entire value chain of textiles, right from raw material production to packaging and
selling in the retail market and adds considerable value at each stage of the value chain.
The entrepreneurial mindset of entrepreneurs, qualified personnel trained in good
institutions, low wages, technology upgradation and continuous government support has
enabled India to build a robust textile manufacturing infrastructure that serves as a
textile hub for global brands.
The China+1 policy deepening: Repeated disruptions in China, owing to policy changes
and multiple waves of Covid-19 have appreciably dampened the trust factor in Chinese
textile players. As a result, Western apparel majors have intensified their efforts in
widening their supplier base. This augurs well for the Indian textile industry.
A strong domestic market: Strong economic performance, tamed inflation and increased
disposable income in the hands of the average Indian are expected to shore up the domestic
demand for textile products. Coupled with that, the rapid growth in e-commerce and
organised retail have made the Indian textile market increasingly lucrative where every
industry player is competing to get a sizable chunk of the pie.
E-commerce and organised retail:
E-commerce has catapulted the fortunes of numerous sectors and the textile industry is
no exception. Experts suggest that e-commerce is going to be the catalyst for development
in the future, not just in the textile industry, but in the overall economy as well.
In recent years, the Indian retail sector experienced a massive boom across various
categories which marked the changing attitude of Indian consumers as well as their
acceptance of organised retail formats. With domestic consumption increasing appreciably
post-Covid, experts believe a majority of this demand will be met by organised retail in
the years to come.
Long term estimates: The Indian textile and apparel industry is expected to grow at 10%
CAGR from 2019-20 to reach US$190 Billion by 2025-26
Opportunities for Rotary and Digital Textile Printing
Rising disposable incomes: Indias per capita income has more than doubled over the
past nine years to C 1.97 lakh. This has left more disposable income in the hands of the
average Indian. This is expected to fuel the demand for textile products.
Middle-class boom: Indias 63 biggest cities (which includes Tier 1 & 2 cities)
are now home to more than a quarter of its middle class. They also generate 29% of the
countrys disposable income which fuels the demand for goods and services, supporting
economic progress.
Youth and fashion textile: Powered by rapid urbanisation, higher purchasing power,
a dramatic change in lifestyle, a rising number of young people and ever- changing fashion
trends, the demand for printed fabrics is expected to increase exponentially. Creating
niche designs specifically to cater to the youth is expected to emerge as a key driver for
the growth of printed fabrics.
Fashion as a growth driver: The fashion industry which is heavily inclined towards
the demand of the youth is one of the growth drivers for the fabric printing space.
Diverse fabrics and diverse designs provide a new look to outfits which usually triggers a
new fashion trend that help faster product sales. However, these fashion industry cycles
have a short duration. As a result, it becomes imperative for fabric printers to reinvent
themselves to start a new fashion cycle each time the last trend fades away.
An uptick in real estate: According to the CBRE-CII joint report named Indian
Realty - Charting the growth roadmap for 2022, the real estate sector experienced steady
growth through the year 2022. This upward growth was primarily on the back of rising
demand from office, retail and residential spaces as the government reforms continued to
encourage the overall realty sector. This trend is expected to continue, which should
provide a healthy uptick in the demand for home furnishings.
Travel & adventure: 2022 has been a year of recovery for the travel sector -
best indicated by the fact that 24% of Indians took at least one vacation a month on
average, compared to the global average of 11%. The travel-tourism-hospitality troika is
reasonably confident that this trend will only grow in 2023. This should provide a spurt
to travel-friendly printed fabrics.
Expanding textiles capacities: Buoyed by the sizeable opportunities ahead in the
global and domestic markets further fuelled by favourable government incentives, textile
players, small and large are making a sizeable investment to expand their manufacturing
infrastructure. This should increase the demand for textile printing solutions over the
coming years.
Sources: Moneycontrol, Fortun India, Business India
Threats
Economic challenges: Muted economic growth by major economies of the world, which
could be further dampened by the banking crisis which has only started unfolding could
impact the demand for textiles from global consumers.
Inflationary challenges: Continuing geopolitical stress and the probability of
escalation of the war between Russia and Ukraine is expected to fuel inflation further.
This would dampen consumer sentiments and the prospects for the textile sector.
Fiscal challenges: Increasing interest rates across the world and in India as a
tool to control inflation would put investment plans on the backburner for most industry
houses.
Company overview
Stovec Industries is a part of the prestigious SPGPrints Group headquartered in
Boxmeer, Netherlands and is globally renowned for its new innovations in cutting-edge
printing technology in the textile industry.
Stovec provides diverse technology-driven textile printing solutions to marquee textile
majors in India and across the globe. The Company deals primarily with rotary printing
systems, digital textile printing machines and related consumables.
Aligning with the parent, Stovec uniqueness rests on its passion to develop innovative
machines that meet the dynamic requirements of its customers. Its ability to stay ahead
of the curve has positioned Stovec as the leader in the fabric printing technology space.
Headquartered in Ahmedabad, Gujarat, the Companys operations are spearheaded by Mr.
Shailesh Wani, Managing Director and managed by a strong team of experienced
professionals. The Companys equity is listed on the BSE in India.
Financial performance
The Company recorded an annual revenue of RS.2,358.49 Million in 2022 compared to
RS.2,333.61 Million in 2021. The Profit Before Tax stood at RS.324.46 Million in 2022
against RS.390.46 in 2021.
Changes in financial ratios over last year
| Financial ratios |
2022 |
2021 |
Change (%) |
| Debtors Turnover (in days) |
48 |
49 |
2 |
| Inventory Turnover (in days) |
85 |
62 |
(37) |
| EBITDA Margin (%) |
14.35 |
19.84 |
(38) |
| Net Profit Margin (%) |
10.50 |
12.70 |
(21) |
| Return on Net Worth (%) |
14.81 |
20.02 |
(35) |
1) Inventory turnover ratio effected due to increase in level of raw material and
finished goods inventory.
2) EBITDA margin decreased primarily on account of decrease in net profit before
exceptional item for the year.
3) Return on net-worth reduced due to decrease in net profit before exceptional Item
for the current year.
Segment-wise performance
The Companys segment-wise revenue performances are as follows:
|
|
(Rs. in Million) |
| Particulars |
2022 |
2021 |
| Textile consumables & machinery |
2,060.54 |
1,851.26 |
| Graphic products |
118.47 |
103.29 |
| Galvanic |
179.48 |
379.52 |
Product branding
Inspired by nature, we have rebranded our products with the elements of the
environment. The digital printers Rose, Jasmine, Magnolia are named after
"flowers"; digital inks Morpho, Alcon & Pasha named after
"butterflies"; and our conventional rotary machines Teak, Palm, Kapok are named
after "rainforest trees" & many other products in a similar way. The new
names are complemented with new logos and a new colours scheme.
Participation in exhibitions
Stovec has been forthcoming in participating in exhibitions, relating to both label
& textile market, to showcase the latest innovations in the respective field.
Exhibitions have also served Stovec as an influential platform to engage, share
knowledge and foster lasting relations with industry professionals & experts.
LabelExpo India exhibition
In November 2022, Stovec participated in LabelExpo India exhibition, the largest event
for the label and package printing industry in India. The Company showcased its
RotaMesh?, RotaPlate? screens at its 24
sq. mtr. stall at this 4-day event. The team at the stall interacted with all
prospective customers, introducing them to the unique benefits of rotary screen printing
in field of printed electronics.
India ITME 2022
Stovec also participated in the India ITME 2022 exhibition held in December 2022, a
prestigious textile engineering and technology B2B Exhibition which is hosted once in 4
years in the country. The 135 sq. mtr. SPGPrints booth witnessed huge footfall of visitors
for all four days of the exhibition to understand the latest innovations launched by the
Company in rotary & digital textile printing relating to fashion and the
home-furnishing industry.
At the exhibition, the Company launched two new products - the new robust entry level
digital printer - DART for Indian customers who wish to kick start their journey in
digital textile printing and TEAK, its latest innovation in rotary portfolio which is a
2.45 meters wide rotary printing machine with Universal Repeat functionality.
With the introduction of TEAK, Stovec now possesses the complete rotary printing
machine portfolio to meet all customer demands in the market up to 2.45 meter wide
fabrics.
The Companys investments in exhibitions is expected to yield promising business and
healthy returns over the medium term.
Human Resource & Internal Management
The Company recognises its human assets as the most important resource for growth. The
Company accords the highest importance to human resource development and continuously
endeavors to enhance the capacity and capability of all the team members.
The Company continued to enhance the teams skills and capabilities through its training
curriculum which includes technical, commercial and behavioural skills which is imparted
through the conventional and digital methods. The HR team continued to curate engagement
forums for its team to strengthen team bonding and uplift their motivation.
Further, the Companys employee-friendly HR policies and its seamless roll-out ensures
harmony throughout the Company, nurtures growth, makes communication easier between
different level of the organisation and looks after the overall well-being of all the team
members.
Internal Control System
Internal controls are an important aspect of the Companys overall structure and ensure
compliance with rules & regulations. These controls safeguard assets, prevent frauds
& errors, and aid in tracking of financial transactions. The effectiveness of the
internal control systems is audited by the Companys internal and statutory auditors. The
Boards Audit Committee examines the internal audit plan and guarantees adequacy and
efficacy of these controls. It also examines the operation of the whistleblower system and
keeps track of the actions taken in response to the reported cases.
Risks and Concerns
Risk management is integral to any business. Stovec has devised its risk management
mechanism to predict, preempt and prevent financial or commercial risks, errors and
frauds. It simultaneously strengthens the Companys business model with the objective of
making profitable growth sustainable. The framework involves an integrated risk appraisal
system and mitigation strategy with all key managers being part of the mechanism. The
control measures are placed before the Companys board for periodic review and
improvement.
Cautionary Statement
The cautionary statement forming a part of this Report may contain certain
forward-looking remarks within the meaning of applicable Laws and Regulations. Many
factors could cause the Companys actual results, performances, or achievements to be
materially different from any future results, performances, or achievements. Significant
factors that could make a difference to the Companys operations include domestic and
international economic conditions, changes in Government regulations, tax regimes and
other statutes.
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