Supreme (India) Impex Ltd Management Discussions.

1 Overall Review / Industry Structure and development

At present, cotton textile industry is largest organized modern industry of India. There has been a phenomenal growth of this industry during the last four decades. About 16 per cent of the industrial capital and over 20 per cent of the industrial labour of the country is engaged in this industry. The total employment in this industry is well over 15 million workers.

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.

In spite of the adverse market conditions prevailing in various businesses in which the Company operates, the overall performance of the Company during the year has marginally improved compared to that of the previous year.

It is expected that the economy should grow in the coming years and the demand for and prices of textile products should improve which will enable the Company to regain steady or better performance.

2 OPPORTUNITIES AND THREATS

There is good scope for growth for the textile industry as Indias share in the global trade in textiles is weak compared to other countries. The free trade environment is a great opportunity for the Indian textile industry to increase its share in the global market. Chinese exports are slowing down on account of various factors inclusive of increase in domestic demand and rising costs. 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.

I. Market access through bilateral negotiation

The trade is growing between regional trade blocs due to bilateral agreements between participating countries.

II. Integration of Information technology

‘Supply Chain Management and ‘Information Technology has a crucial role in apparel manufacturing. Availability of EDI (Electronic Data Interchange), makes communication fast, easy, transparent and reduces duplication.

III. Opportunity in High Value Items

India has the opportunity to increase its UVRs (Unit Value Realization) through moving up the value chain by producing value added products and by producing more and more technologically superior products.

THREATS

Lack of uninterrupted power, increased power costs, higher transaction costs, high cost of labour 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. .

I. Decreasing Fashion Cycle

There has been an increase in seasons per year which has resulted in shortening of the fashion cycle.

II. Formation of Trading Blocks Formation of trading blocks like NAFTA, SAPTA, etc; has resulted in a change in the world trade scenario. Existence of bilateral agreements would result in significant disadvantage for Indian exports.

III. Phasing out of Quotas India will have to open its protected domestic market for foreign players thus domestic market will suffer.

3 SEGMENT REVIEW AND ANALYSIS

The entire operations of the Company relate to only one segment viz Textiles. Therefore, segment/product-wise details are not applicable.

4 RISK AND CONCERNS

Although cotton textile is one of the most important industries of India, it suffers from many problems. The fluctuation in the currency especially against the dollar is becoming problematic for long term booking of orders. Cotton prices are increasing regularly as are other input costs including power and logistics. Natural Gas has become so much costlier that its use as a source of power has become prohibitive.

5 STRENGTH and WEAKNESS

1. STRENGTH

I. Raw material base

India has high self sufficiency for raw material particularly natural fibres. Indias cotton crop is the third largest in the world. Indian textile Industry produces and handles all types of fibres.

II. Labour

Cheap labour and strong entrepreneurial skills have always been the backbone of the Indian Apparel and textile Industry.

III. Flexibility

The small size of manufacturing which is predominant in the apparel industry allows for greater flexibility to service smaller and specialized orders. IV. Rich Heritage The cultural diversity and rich heritage of the country offers good inspiration base for designers. V. Domestic market Natural demand drivers including rising income levels, increasing urbanisation and growth of the purchasing population drive domestic demand.

WEAKNESS

I. More dependence on cotton

Due to over specialization in cotton, the bulk of the international market is missed out, synthetic products in India are expensive and fabric required for items like swimsuit, sky-wear and industrial apparel is relatively unavailable.

II. Spinning Sector

Spinning sector lacks modernization and there is a need of introducing new technology.

III. Weaving Sector India has relatively less number of shuttle-less loom.

IV. Fabric Processing

Processing is the weakest link in the Indian textile value chain, adversely affecting its ability to compete in exports.

V. Poor Infrastructure

High power costs and long export lead times are eroding Indias export competitiveness across the textile chain.

VI. Low Labour Productivity

Productivity levels for manufacturing various apparel items are far lower in India in comparison with its competitors.

6 OUTLOOK

During the current year there is an improvement in the demand for the Companys products. The forthcoming monsoon season shows hope for higher production of cotton and consequently lower price. Therefore, there is an encouraging climate for the business of the Company in the coming year.