Suryajyoti Spinning Mills Ltd Management Discussions

Background

Indias textiles sector is one of the oldest industries in Indian economy dating back several centuries. Even today, textiles sector is one of the largest contributors to Indias exports with approximately 11 per cent of total exports. The textiles industry is also labour intensive and is one of the largest employers. The textile industry has two broad segments. First, the unorganised sector consists of handloom, handicrafts and sericulture, which are operated on a small scale and through traditional tools and methods. The second is the organised sector consisting of spinning, apparel and garments segment which apply modern machinery and techniques such as economies of scale. The textile industry employs about 40 million workers and 60 million indirectly. Indias overall textile exports during FY 2016-17 stood at US$ 40 billion.

The Indian textiles industry is extremely varied, with the hand-spun and handwoven textiles sectors at one end of the spectrum, while the capital intensive sophisticated mills sector at the other end of the spectrum. The decentralised power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles make the Indian textiles sector unique in comparison to the industries of other countries. The Indian textile industry has the capacity to produce a wide variety of products suitable to different market segments, both within India and across the world.

Market Size

The Indian textiles industry, currently estimated at around US$ 108 billion, is expected to reach US$ 223 billion by 2021. The industry is the second largest employer after agriculture, providing employment to over 45 million people directly and 60 million people indirectly. The Indian Textile Industry contributes approximately 5 per cent to Indias Gross Domestic Product (GDP), and 14 per cent to overall Index of Industrial Production (IIP).

The Indian textile industry has the potential to reach US$ 500 billion in size#. The growth implies domestic sales to rise to US$ 315 billion from currently US$ 68 billion. At the same time, exports are implied to increase to US$ 185 billion from approximately US$ 41 billion currently.

Government Initiatives

The Indian government has come up with a number of export promotion policies for the textiles sector. It has also allowed 100 per cent FDI in the Indian textiles sector under the automatic route. The government of india has announced H7500 Crores for garment industry. The Key Initiatives announced in the Union Budget 2017-18 to boost the textiles sector are listed below:

• Encourage new entrepreneurs to invest in sectors such as knitwear by increasing allocation of funds to Mudra Bank from RS.1,36,000 crore (US$ 20.4 billion) to RS.2,44,000 crore (US$ 36.6 billion).

• Upgrade labour skills by allocating RS.2,200 crore (US$ 330 million). Some of initiatives taken by the government to further promote the industry are as under:

• The Government of India plans to introduce a mega package for the powerloom sector, which will include social welfare schemes, insurance cover, cluster development, and upgradation of obsolete looms, along with tax benefits and marketing support, which is expected to improve the status of power loom weavers in the country.

• The Ministry of Textiles has signed memorandum of understanding (MoU) with 20 e-commerce companies, aimed at providing a platform to artisans and weavers in different handloom and handicraft clusters across the country for selling their products directly to the consumer.

• Memorandum of Understanding (MoU) worth RS.8,835 crore (US$ 1.3 billion) in areas such as textile parks, textile processing, machinery, carpet development and others, were signed during the Vibrant Gujarat 2017 Summit. The Union Minister for Textiles inaugurated Meghalayas first-ever apparel and garment making centre to create employment opportunities in the region.

• The Union Minister for Textiles also mentioned Meghalaya has been sanctioned H32 crore(US$ 4.8 million) for promotion of handlooms. The Government of India has announced a slew of labour-friendly reforms aimed at generating around 11.1 million jobs in apparel and made-ups sectors, and increasing textile exports to US$ 32.8 billion and investment of RS.80,630 crore (US$ 12.09 billion) in the next three years.

• The Clothing Manufacturers Association of India (CMAI) has signed a memorandum of understanding (MOU) with China Chamber of Commerce for Import and Export of Textiles (CCCT) to explore potential areas of mutual co-operation for increasing apparel exports from India.

• The Government of India has started promotion of its India Handloom initiative on social media like Facebook, Twitter and Instagram with a view to connect with customers, especially youth, in order to promote high quality handloom products.

Subsidies on machinery and infrastructure

• The Revised Restructured Technology Up gradation Fund Scheme (RRTUFS) covers manufacturing of major machinery for technical textiles for 5 per cent interest reimbursement and 10 per cent capital subsidy in addition to 5 per cent interest reimbursement also provided to the specified technical textile machinery under RRTUFS.

• Under the Scheme for Integrated Textile Parks (SITP), the Government of India provides assistance for creation of infrastructure in the parks to the extent of 40 per cent with a limit up to H40 crore (US$ 6 million). Under this scheme the technical textile units can also avail its benefits.

The major machinery for production of technical textiles receives a concessional customs duty list of 5 per cent.

The Government of India has implemented several export promotion measures such as:

• Specified technical textile products are covered under Focus Product Scheme. Under this scheme, exports of these products are entitled for duty credit scrip equivalent to 2 per cent of freight on board (FOB) value of exports.

• Under the Market Access Initiative (MAI) Scheme, financial assistance is provided for export promotion activities on focus countries and focus product countries.

• Under the Market Development Assistance (MDA) Scheme, financial assistance is provided for a range of export promotion activities implemented by Textiles Export Promotion Councils

Road Ahead

The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. The organised apparel segment is expected to grow at a Compound Annual Growth Rate (CAGR) of more than 13 per cent over a 10-year period.

The Union Ministry of Textiles, which has set a target of doubling textile exports in 10 years, plans to enter into bilateral agreements with Africa and Australia along with working on a new textile policy to promote value addition, apart from finalising guidelines for the revised Textile Upgradation Fund Scheme (TUFS).

The Indian cotton textile industry is expected to showcase a stable growth in FY 2017-18, supported by stable input prices, healthy capacity utilization and steady domestic demand.

Operational and Financial Performance

During the current financial year, your Company had produced 7681.80 MTs of yarn and 15.38 lakh meters of fabric as against 14748.50 MTs of yarn and 92.59 lakhs meters of fabric in 2015-16.

The Companys Net sales for the financial year 2016-17 stood at Rs. 12620 lakhs when compared to Rs. 36192 lakhs for the financial year 2015-16 and incurred a loss of Rs.12905.54 lakhs for the year ended 31.03.2017 when compared to loss of Rs. 2108 lakhs in the previous year. The main reason for the increase in loss is mainly due to higher raw material prices and partly due to decrease in finished goods prices.

During the FY 2016-17 the FOB value of your companys exports was Rs.17.04 crs when compared with the exports of Rs. 102.31 crs in the corresponding previous year.

Internal Financial Control Systems and their adequacy

The Company has proper and adequate internal financial control system commensurate with the size and complexity of the Organization. The internal control is supplemented by an extensive programme of internal audits, reviewed periodically by the Audit Committee of the Board of Directors. The internal control is designed to ensure that the financial and other records are reliable for preparing financial statements and other data.

Material developments in human resources/ industrial relations front, including number of people employed

Suryajyotis HR policy has been based on the underlying values of fairness, merit, equal opportunity and social responsibility. The spinning Industry is highly labour oriented and the Company follows best practices to attract, train and retain the resource pool. With utmost respect to human values, the Company served its human resources with integrity, through a variety of services by using appropriate training, motivation techniques and employee welfare activities. As a result, industrial relations are cordial and satisfactory.

80% of the workers employed by the Company reside in accommodation provided by the Company close to production units. By providing fair employment conditions and an environment conducive to social development, the Company has created strong relationships with its workforce to manage the attrition rate successfully. As on 31 March 2017, the Company has about 850 permanent employees in its offices and units.

CAUTIONARY STATEMENT

Readers are advised to kindly note that the above discussion contains statements about risks, concerns, opportunities, etc., which are valid only at the time of making the statements. A variety of factors known/ unknown, expected or otherwise may influence the financial results. These statements are not expected to be updated or revised to take care of any changes in the underlying presumptions.

Readers may therefore appreciate the context in which these statements are made before making use of the same.