Suryalata Spinning Mills Ltd Management Discussions

Corporate Information

Suryalata Spinning Mills Limited (the Company) is a public limited company incorporated on May 23, 1983, having experienced in manufacturing Synthetic Blended Yarns and proved as Quality Producer. Its Registered office situated at 105, S P Road. Surya Towers, 1^st Floor, Secunderabad, Telangana State. The company is listed on the Bombay Stock Exchange.

Organization Overview

The company is engaged in producing the best quality of Synthetic Blended Yarns and it is one ofthe largest producers of 100% PSF Yarns, 100% VSF Yarns, P/V blended yarns and value-added Yarns like Slub yarns, Elite Twist and T F O (two for one twister) yarns etc., with counts ranging from 10s to 60s. The company is producing Yarn quantity about 80 MTs per day. The company is having two manufacturing units on Kalwakurthy and Urukondapet— Jadcherla Road in Nagerkurnool District, Telangana, only an hour away from the Hyderabad International Airport and the distance between the two units is 5 Kms. The Company is having total installed capacity of 1,16,976 spindles. The units are maintaining standard operational system and certification of "ISO 9001:2015".

The company also installed Vortex Spin equipments as it is a proven technology to produce superior quality yarns and it started to produce Vortex Spin Yarns in the current financial year, with an equivalent capacity of 12000 Ring spindles. This New product of Vortex Yarn is under the process of establish its quality and quantity to increase the operational capacities.

The company sells its finished goods (Yarn) to various dealers located in the Indian domestic market as well as in the international market.

Global Economic Review

The global economic outlook for 2023 is among the weakest in decades, with global real GDP growth forecast to increase by 2.3% in 2023, further down from 3.3% recorded in 2022. Though global inflation is expected to moderate from 9.1% in 2022 to 6.8% in 2023, it is still at historic highs. The high costs of living, rising interest rates and ongoing geopolitical uncertainties will continue to dent private consumption and investment in many parts of the world, undermining the global growth outlook.

Slowing demand and rising interest rates in most economies globally will continue to weaken inflationary pressures over the course of 2024. However, multiple risks could prompt inflation resurgence in the short term. In the medium term, worsening geopolitical tensions, the rewiring of global supply chains and increasingly frequent extreme weather events pose considerable inflation risks.

Asian emerging markets, including India and some Southeast Asian countries, are expected to still outperform, though with a slower pace of growth compared to the previous year, as waning demand from the US and Europe will hit the countries exports and services sectors. Similarly, sluggish oil demand and volatile commodity prices will weigh on growth prospects for the Middle East and African economies. In Latin America, economic growth is expected to remain subdued in major emerging markets such as Brazil and Mexico in the short and medium term, given tighter monetary policies and political instability.

Global Textile Industry:

The global textile market was valued at USD 1,837.27 billion in 2023 and is anticipated to grow at a compound annual growth rate (CAGR) of 7.4% in revenue from 2024 to 2030. Fashion is gaining increasingly higher importance in consumers lifestyles. Fashion is the largest application segment in the region, owing to the fastchanging fashionable trends and ease of adoption due to the rapidly emerging online fast fashion companies. The ever-increasing apparel demand from the fashion industry and the meteoric growth of e-commerce platforms are expected to drive market growth. The rapidly growing consumer preference towards sustainable products is forcing major textile companies to focus on restructuring their business and investing in manufacturing practices that target sustainable products. Expanding application scope of textiles in the formulation of products related to oil & gas, automotive, and aerospace industries is expected to remain a favorable factor for the market. There has been an increasing trend in the use of smart textiles in the market and is expected to propel the growth of the technical application segment in the textiles market. Moreover, increasing population, urbanization in emerging economies and an increase in demand for formal & casual wear and other fashionable clothing among all age groups in the global population is a major driver for the textiles market growth.

Indian economic review:

India has been showing both resilience as well as progress despite all risks and uncertainties in the global economic landscape. Reforms undertaken over the last ten years by the Union government have formed the foundation of a resilient, partnership-based governance ecosystem and have restored the ability of the economy to grow healthily. With the policy reforms that the government has already rolled out and which are on the anvil, there is significant optimism and confidence in the Indian economy and its prospects today. India embarks on her ‘Amrit Kaal with confidence and the attitude that challenges to growth and inclusive development is stepping stones. Through timely and effective policy actions aimed at achieving macro stability and repairing the balance sheets of financial and non-financial sectors, as well as by investing significantly in building world-class physical and digital

public infrastructure, India has been able to withstand the challenges, both domestic and global, and ensure that the economy continues to progress on a steady path.

Indias growth is expected to remain strong, supported by macroeconomic and financial stability. Presently, the official estimate for growth in FY24 stands at 7.3 per cent and the headline inflation is expected to gradually decline to the target. Resilient service exports and lower oil import costs have resulted in lowering Indias current account deficit to 1 per cent of GDP in the first half of FY24.

Indian Textile Industry:

India is the worlds second-largest producer of textiles and garments. It is also the fifth-largest exporter of textiles spanning apparel, home, and technical products. The Indian textiles and apparel industry contributed 2.3% to the GDP, 12% to export earnings, 13% to industrial production and held 4% of the global trade in textiles and apparel in 2023. The textile industry in India is predicted to double its contribution to the GDP, rising from 2.3% to approximately 5% by the end of this decade.

India ranks among the top five global exporters in several textile categories. India has a 4.6% share of the global trade in textiles and apparel. India is the worlds 3rd largest exporter of Textiles and Apparel. with exports expected to reach US$ 100 billion by FY 2030. The Indian Technical Textile market has a huge potential of a 10% growth rate, increased penetration level of 9-10% and is the 5th largest technical textiles market in the world. The Indian Medical Textiles market for drapes and gowns is around US$ 9.71 million in 2022 and is expected to grow at 15% to reach US$ 22.45 million by 2027.

The Indian composites market is expected to reach an estimated value of US$ 1.9 billion by 2026 with a CAGR of 16.3% from 2021 to 2026 and the Indian consumption of composite materials will touch 7,68,200 tonnes in 2027.

Around 45 million people are working in the textile business, including 3.5 million people who work on handlooms. India enjoys a comparative advantage in terms of skilled manpower and in cost of production relative to other major textile producers. The country is having Large pool of skilled and cheap work force, Entrepreneurial skills Efficient multifiber raw material manufacturing capacity, Large domestic market, Flexible textile manufacturing systems and vast textile production capacity are the available key factors for growth of textile industry. Rising population, demographic dividend, urbanization and consumer preference are the key growth drivers, reinforcing sectorial demand.

Government Initiatives For Textile Industry:

The Governments Rs. 10,683 crore (US$ 1.44 billion) PLI scheme is expected to be a major booster for the textile manufacturers. The scheme proposes to incentivize MMF (man-made fiber) apparel, MMF fabrics and 10 segments of technical textiles products.

The Government announced the continuity of Rebate on State and Central Taxes and Levies (RoSCTL) scheme for apparel and made ups. This will help textile industry to earn more profits by exporting their products.

The Government of India has continued to implement several export promotions measures such as, Focus Product Scheme (FPS), Market Access Initiative (MAI) Scheme, Market Development Assistance (MDA) Scheme etc,.

The government has improved the existing Credit Guarantee Trust for micro and small enterprises by adding more funds for textile business owners. The government also aims to encourage private investments through investments under Integrated Textile Park Scheme and the Technology Upgradation Fund.

The government allowed 100% foreign direct investment (FDI) in the textile industry, making it easier for small companies to grow and export their products to other countries.

The establishment of seven PM Mega Integrated Textile Region and Apparel (PM MITRA) Parks with a total investment of US$ 541.82 million (Rs. 4,445 crore) for the years up to 2027—28 was approved by the government.

To support the handloom weavers/weaver entrepreneurs, the Weaver MUDRA Scheme was launched to provide margin money assistance at 20% of the loan amount subject to a maximum of Rs. 10,000 (US$ 134.22) per weaver. The loan is provided at an interest rate of 6% with credit guarantee of three years.

In February 2023, the union government approved 1,000 acres for setting up a textile park in Lucknow.

In June 2023, the Government approved R&D projects worth US$ 7.4 million (Rs. 61.09 crore) in the textile sector.

In August 2023, the Ministry of Textiles approved 26 engineering institutions for the introduction of Technical Textiles under the National Technical Textiles Mission.

In September 2023, the Khadi and Village Industries Commission signed 3 MoUs to promote Khadi Products.

In February 2024, largest global mega textiles event of Bharat Tex 2024 host is a testament to Indias commitment to becoming a global textile powerhouse.

Green Power / Renewable Energy:

The Sun has been worshiped as a life-giver to our planet since ancient times. The industrial ages gave us the understanding of sunlight as an energy source. India is endowed with vast solar energy potential. Off-grid decentralized and low-temperature applications will be advantageous from a rural application perspective and meeting other energy needs for power, heating and cooling in both rural and urban areas. From an energy security perspective, solar is the most secure of all sources, since it is abundantly available. There has been a visible

impact of solar energy in the Indian energy scenario during the last few years. In order to utilize the natural sunlight, Government of India has taken several steps for promotion of solar energy in the country. These include:

1. Permitting Foreign Direct Investment (FDI) up to 100 percent under the automatic route,

2. Waiver of Inter State Transmission System (ISTS) charges for inter-state sale of solar and wind power for projects to be commissioned by June 30, 2025,

3. Declaration of trajectory for Renewable Purchase Obligation (RPO) up to the year 2029-30,

4. Notification of standards for deployment of solar photovoltaic system/devices,

5. Setting up of Project Development Cell for attracting and facilitating investments,

6. Standard Bidding Guidelines for tariff based competitive bidding process for procurement of Power from Grid Connected Solar PV and Wind Projects.

7. Government has issued orders that power shall be dispatched against Letter of Credit (LC) or advance payment to ensure timely payment by distribution licensees to RE generators.

Now, India stands 5th in solar PV deployment across the globe at the end of2023 (Ref. REN21s Global Status Report 2023 & IRENAs Renewable Capacity Statistics 2023). Solar power installed capacity has reached around 70.10 GW as on 30-06-2023. The country has set an ambitious target to achieve 500 GW renewable energy by 2030.

Considering the importance giving by the Indian Government and the available State Government guidelines of the Solar Policy, the company installed Solar Power Plants about 15 MW within the manufacturing units for Captive consumption of power generations. These installed capacities mitigate 30% of the company annual power requirements and it reduces the dependence on DISCOM power supplies. The average cost of power from operating of these plants will be about Rs.2.20 per unit, thereby the company able to reduce the average unit cost of power. The company also proposed to install further capacities with in the manufacturing units towards Cost Reduction Techniques in the coming years. The company also has a state-of-the-art Sewage Treatment Plants in both the units whereby 95% of the water used in the factories is purified and recycled.

Further, the 100% Subsidiary company namely Suntree Solar Energy Pvt Ltd, having 10 MW AC Capacity Solar Power Plant with Power Purchase Agreement for 20 years (remaining period of11 years) with Telangana Government, installed in 64 acres of land in the state of Telangana.

Expansion in core activity of Spinning :

The company had installed proven technology of Vortex Spin equipments and the Yarn produced with this technology are under process to establish quality and quantum for a decision to expand this Yarn product volumes. Presently installed Vortex Spin equipment equivalent to 12000 Ring Spindles, having created infrastructure to increase the capacities to the equivalent of 30000 Ring Spindles in the coming years

Opportunities & Threats of Company:

Suryalata holding on hand opportunities to strengthen its position with -

(a) Availability of advanced technology equipment.

(b) Experienced management team.

(c) Emphasis on Quality Products

(d) Timely deliveries to Customers.

(e) Long standing Customer Relations

(f) Simple and Strategic market potentiality.

(g) Rich resources of raw materials like PSF.VSF, Silk and Cotton.

The Company estimates the Threats to Synthetic Industry such as -

a) Significant changes in raw cotton prices effects to Synthetic Fiber prices .

b) Losgistic costs are adversely affecting its ability to compete in exports.

c) High power costs and High Interest costs are burdened for this Thin margin industry.

d) Long export lead times are eroding Indias export competitiveness across the textile chain.

d) Currency fluctuations are highly affecting the synthetic spinning industry.

e) Profitability undermined with inflation and causing to raise wages

f) Fierce competition stressed by e-commerce activities

g) Changing consumer behavior (e.g. fast fashion).

Risks and Concerns:

Risks are integral part of the growth of a business. However, the Company frames the effective risk management which helps to mitigate the risks effectively and ensures business sustainability.

Effective risk management comprises the,

i) Standard policy to pass the cost increases with its premium quality.

ii) Consciously up-keep of equipment and implementing the cost control methods,

iii) Strengthen and widen the customer base with timely supplies.

iv) Change into high count patterns which support high contributions Future Outlook of the Company Products:

Synthetic Yarn Products are expected to grow at significant rate over the coming years. The growth can be attributed to its beneficial properties such as high strength, chemical & wrinkle resistance, quick drying etc., are towards personal care and hygiene applications. It is also used in households as cushioning & insulating material in pillows and in industries for making carpets, Tyres, air filters, coated fabrics and other products.

Also the fashion segment dominated the market owing to the increasing consumer spending on clothing and apparel. In addition, high consumer requirements for crease-free suiting & shirting fabrics and quality dyed & printed fabrics are likely to drive and to increase the demand for Synthetic products.

Considering all these present applications and forecasting the future requirement of Synthetic Yarn Products, the company focused on technically proved Vortex Yarns to have new product in the basket, increase the volumes, improve the margins and to strengthen the financial position.

Internal Control Systems and their Adequacy:

The Company has a well-established framework of internal controls in all areas of its operations, including suitable monitoring procedures and competent personnel. In addition to statutory audit, the financial controls of the Company at various locations are reviewed by the Internal Auditors, who report their findings to the Audit Committee of the Board. The Audit Committee is headed by an Independent Director and this ensures independence of functions and transparency of the process of supervision. The Committee meets to review the progress of the internal audit initiatives, significant audit observations and planning and implementation of follow-up action required. The Company conducts its business with integrity and high standard of ethical behavior and in compliance with the laws and regulations that govern its business.

Review of Financial & Operational performance:

The Standalone Net turnover of your Company for the Financial Year 2023-24 was dropped to Rs.441.01 crores as compared to previous year 479.26 crore, inspite an increase in quantum of product volumes to 29109 MTs from 27496 MTs in previous year.

Your Company has earned a Consolidated Profit Before Tax Rs. 25.26 crore in comparison to Rs.46.60 crore in the previous year due to price stress in the sluggish market. Consolidated Profit after tax is Rs. 18.65 crore as against Rs.34.34 crore in the previous year.

Key Financial Ratios:

Debtors / Turnover	Current year — 21.28 % (previous year 18.88%)	Increased due to higher volume of year end —March sales.
Inventory/ Turnover	Current year — 18.40 % (previous year 15.61%)	Marginal increase in sluggish market conditions
Interest Coverage Ratio	Current year — 5.54 (previous year 11.50)	Due to increase in borrowings with new TLs & drop in margins
Debt / Equity Ratio	Current year — 0.41 % (previous year 0.28%)	New Term loans Borrowings for Vortex & Solar Projects
Operating Profit Margin (PBT)	Current year — 3.85% (previous year 8.96%)	Stress on Margins in sluggish market conditions
Net Profit Margin (PAT)	Current year — 2.68 % (previous year 6.42%)	Stress on Margins in sluggish market conditions
Return on Net Worth	Current year — 5.0 % ( (previous year 13.70%)	Drop in profit margins

Human Resource Developments / Industrial Relations:

The Company firmly believes that Human Resource Development strategies and practices will continue to provide a sustained competitive advantage and will continuously work towards nurturing and enhancing a competitively superior position in terms of human capital, people processes and employees behavior.

There were no material developments in the Human resources. The industrial relations were generally found satisfactory.

During the period under review, the total number of people employed by the Company is 1,478 in addition to indirect employment created.

Corporate Social Responsibility

The company formulated CSR policy to touch and transform peoples lives by promoting health care, education including special education among children and employment opportunities for women, providing malnutrition, sanitation and drinking water, animal welfare etc,.

During the year Suryalata has continued to educate Vedic students thru Vedic Pathasala, in the form of contributions to provide Food & Sanitization for Old Age people to enhance their health in the society.

Cautionary Statement:The statement and views expressed by the management in the above said report are on the basis of best judgment but the actual results might differ from whatever stated in the report. The Company takes no responsibility for any consequence of decisions made based on such statements and holds no obligation to update these in future. Readers are cautioned not to place undue reliance on these forward-looking statements.