Suryalata Spinning Mills Ltd Management Discussions.

ORGANISATION - PROFILE

Suryalata Spinning Mills Limited is one of the largest producers of Synthetic blended Yarns. The company produce 100% PSF, 100% VSF, Melange, P/V blended yarns with counts ranging from 12s to 60s. The company is having two manufacturing units on Kalwakurthy and Urukondapet — Jadcherla Road, only an hour away from the Hyderabad International Airport and the distance between the units is 5 Kms. The Company had total installed capacity of 93,264 spindles, Urukondapet unit has an installed capacity of 56,976 spindles and Kalwakurthy unit has an installed capacity of 36,288 spindles. The Company has taken up the Modernization cum Expansion at Kalwakurthy unit under Telangana Textile & Apparel Policy (T-TAP). After completion of the said project, Spindle capacities will increase to 1,15,000 spindles. Both the manufacturing units are certified "ISO 9001:2008".

Textiles in India have long history dating back to more than 5000 BC and there were archaeological evidence that we had an abundant resources and forefront in supply the finest textile products to the rest of the world. This sector cannot be ignored because it is the second largest sector providing employment opportunities both organized and unorganized sectors. The textile industry employs about 51 million people directly and 68 million people indirectly. The textile industry has two broad segments. First, the unorganized sector consists of hand-loom, handicrafts and sericulture, which are operated on a small scale and through traditional tools and methods. The second is the organized sector consisting of spinning, apparel and garments segment which apply modern machinery and techniques such as economies of scale.

The Indian textile industry exhibits rich cultural heritage of India with wide variety of fabrics, techniques and hues that reflect the diverse set of people and traditions across the country. One of the oldest industries in India, It covers an extensive spectrum of segments, from hand woven/ hand-spun, unorganized segment on one end to capital and technology intensive organized segment on the other. India is the largest producer of Jute in the world and is the second largest producer of silk and cotton globally.

INDUSTRY STRUCTURE AND DEVELOPMENT GLOBAL ECONOMY:

The global textile industry impacts nearly every human being on the planet. The industry is currently worth nearly US $3 trillion and includes the production, refinement, and sale of both synthetic and natural fibers used in thousands of industries. There are many developing countries ready to crack or climb in the near future as their investment into the textile or garment industry increases. Countries such as Pakistan, Sri Lanka, and a number of South American countries have seen considerable growth in their textile markets in recent years. The United States is the leading producer and exporter of raw cotton, while also taking the prize for the top importer of raw textiles and garments. China is the worlds leading producer and exporter of both raw textiles and garments. As China moves towards a service-based economy, and labor prices continue to rise, it is logical to assume many garment producers will move away from China and into developing markets where labor is cheap and readily available.

Indian Economy

In India, Currency Demonetization and Induction of GST, reduction of Incentives in India and a shift in the dynamics of US Retail Trade Regulations are made sizable re-distributive consequences across sectors and countries; a related slowdown in investment and trade; and declining capital flows to emerging market and developing economies. These realignments—together with a host of noneconomic factors, including geopolitical tensions and political discord—are generating substantial uncertainty. On the whole, they are consistent with a subdued outlook for the world economy—but risks of much weaker global growth have also risen.

Indian synthetic fiber industry is the new addendum to the ever-growing Indian Textile Industry. Unlike the other sectors of Indian Textile Industry, the India synthetic fiber industry is an organized sector. This industry accounts for about 2.09 billion kg i.e. 44%, of man-made fiber or yarn industry. The product of this industry includes polyester staple fiber, acrylic staple fiber and polypropylene staple fiber. The import of India synthetic fiber industry showed a mixed trend over the last five years. Further, the export of India synthetic fiber industry had grown by 50% during the same period. India is major exporting country as far as textile sector is concerned and not dependent on import.

The Indian Textile Industry is estimated at USD 108 bn and projected to reach USD 223 bn by 2021. The textile sector is one of the largest contributors to Indias exports — approximately 11% of its output is exported Indias textile exports in 2015-16 were nearly $ 40 bn and expected to reach $ 80 bn by 2020. The segments contributing in the growth is likely to be from technical textiles and apparels. India has a potential to double its market share in global trade from 5% to 10% by 2025.

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 key initiatives announced in the Union Budget 201819 to boost the Textiles sector are listed below:

The Budget has given a big thrust to Medium, Small and Micro Enterprises (MSMEs) to boost employment and economic growth. A sum of Rs.3794 crore has been provided for giving credit support, capital and interest subsidy and for innovations.

MUDRA Yojana launched in April, 2015 has led to sanction of Rs.4.6 lakh crore in credit from 10.38 crore MUDRA loans. 76% of loan accounts are of women and more than 50% belong to SCs, STs and OBCs. It is proposed to set a target of Rs.3 lakh crore for lending under MUDRA for 2018-19 after having successfully exceeded the targets in all previous years.

Also the government attempt to contribute 12% of the wages of new employees in EPF for all the sectors for next 3 years with the extension of fixed term employment in all sectors and reduction in women employees contribution to 8% for first three years from 12 % are also positive steps for the textile sectors, he added

Upgrade labour skills by allocating outlay of Rs.7,148 crore for the textile sector in 2018-19 as against Rs.6,000 crore in 2016.

Skill Development under the Integrated Skill Development Scheme (ISDS), the Ministry has trained more than 5.3 lakh youth in textile trades over the last two years, particularly in the garmenting segment. More than 81 % of persons trained have been placed including 79 % of the trained women.

With regard to increase in allocation of funds under the TUF Scheme from Rs.2013 crore in 2017-18 to Rs.2300 for 201819, the chairman said that the proposal is a positive one.

The reduced income tax rate of 25 percent will immensely benefit the micro, small and medium enterprises who have reported turnover up to Rs.250 crore in the financial year 2016-17.

He said these sort of measures will create employment opportunities especially for women in textiles sector and contribute significantly towards "Make in India" campaign.

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.

SWOT Analysis

STRENGTHS : Our strengths are,

(a) Experienced management team with exposure in textile industry.

(b) Good reputation in the market due to quality and timely supplies.

(c) Emphasis on quality of product nurtured across the company.

(d) The company has established strong presence in the market for several years.

(e) The business model is simple & needs minimum marketing requirement.

(f) India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc

WEAKNESS

a. 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.

b. Spinning Sector

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

c. Fabric Processing

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

d. Poor Infrastructure

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

e. Others:

Profitability undermined by volatile raw material prices and rising wages

Fierce competition weighing on margins and further stressed by e-commerce activities

Changing consumer behavior (e.g. fast fashion) forcing T&C to become more flexible

OPPORTUNITIES

(a) Booming Hosiery manufacturing sector in India. Who are probable customers of the Company.

(b) Lucrative export marker for the yarn especially 40s/45s count.

(c) High demand in premium inner-wear market which generally require 40s count yarn.

THREATS

(a) Chinese import of yarn at lower prices in India as well as global market.

(b) Raw material constitutes a significant percentage of the companys total expenses. However, this is common for any spinning unit.

(c) The company faces significant competitions in its principal markets. Slowdown in academic growth in India could cause the companys Business to suffer.

(d) The market is high competitive and is high price sensitive.

OUTLOOK

The economy is on the path of recovery and the company expects good demand for its products in domestic as well as international markets. Your Company believes that the competition in the emerging markets will be met by developing production system based on cost efficiency, high Productivity, quality assurance, etc. Raw materials, uninterrupted power supply and labor are the three critical inputs for our industry. Raw materials, inventories are maintained adequately while maintaining excellent relationship with domestic producers of polyester and viscose. The company invested in building quarters at units to reduce labor shortages that had plagued our performance in the past. Power cost to be addressed on generation and use of conventional energy, for which the company taken steps to install 1 MW Solar Plant initially and there after to increase another 5 MW. The company also had undertaken modernization cum expansion of capacities. With this the entire process, the Company able to increase the plant performance further in the coming years.

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.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

The Net turnover of your Company for the Financial Year 2017—18 was Rs.33,412 Lakhs in comparison to Rs.35, 122Lakhs in the previous year. The production during the year was 23,401 MTs in comparison to 24,889 MTs in previous year.

Your Company has earned a Profit Before Tax of Rs.1,240 Lakhs in comparison to Rs.1,369 Lakhs in the previous year. The Company earned a profit after tax of Rs.789 Lakhs in comparison to Rs.883 Lakhs in the previous year in spite of losses incurred by the Indian Textile Industries across the board.

HUMAN RESOURCE DEVELOPMENTS / INDUSTRIAL RELATIONS:

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

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.

During the period under review, the total number of people employed by the Company is 1,462 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 taken up initiative to educate Vedic students, so far studied 61 students in Vedic vidyalayam established by the company. The Company also provided donations to various charitable institutions and providing malnutrition for up keep the Animals Welfare.

ROAD A HEAD :

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 organized 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.

The Indian cotton textile industry is expected to showcase a stable growth in FY 2018-19, supported by stable input prices, healthy capacity utilization and steady domestic demand

Certificate by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

We, Vithaldas Agarwal, Managing Director and K Nageswara Rao, CFO of Suryalata Spinning Mills Limited hereby certify to the Board that:

a) We have reviewed the financial statements and the cash flow statements for the year ended 31st March, 2018 and certify that to the best of our knowledge and belief;

i) These statements do not contain any materially untrue statement nor omit any material fact not contain statements that might be misleading; and

ii) These statements together present a true and fair view of the Companys affairs and are in compliance with the existing accounting standards, applicable laws and regulations.

b) There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year, which are fraudulent, illegal or in violation of the Companys code of conduct;

c) We accept responsibility for establishing and maintaining internal controls in the Company and that we have evaluated the effectiveness of the internal control systems of the Company and we have disclosed to the auditors and the audit committee, deficiencies in the design or the operation of internal controls, if any, of which we are aware and the steps that we have taken or propose to take and rectify the identified deficiencies;

d) We have indicated to the auditors and the Audit Committee of:

i) Significant changes in the internal control over financial reporting during the year;

ii) Significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

iii) There are no instances of significant fraud of which we have become aware.

e) We affirm that we have not denied any personnel access to the Audit Committee of the Company (in respect of matters involving alleged misconduct).

f) We further declare that all Board Members and designated Senior Management have affirmed compliance with the Code of Conduct for the Current year.

Place: Secunderabad Vithaldas Agarwal K Nageswara Rao
Date : 19th May, 2018 Managing Director Chief Financial Officer