Suumaya Industries Ltd Management Discussions.

We are pleased to present our performance highlights for FY 2018-19 and the business outlook for this year:

INDUSTRY STRUCTURE AND DEVELOPMENTS

With investor friendly policies of GoI and boost in domestic and export consumption, the demand for readymade apparels will continue to grow in years to come. It is anticipated that consumption shall rise by a healthy rate, also due to various supporting factors.

One of the largest and the most important sectors of the Indian economy in terms of capital investment, output, employment and domestic consumption, the Indian Textiles and Apparels (T&A) industry accounts for approximately 4% of the global T&A market. It contributes approximately 7% to industrial output in value terms, 2% to the GDP and 15% to the countrys export earnings. It also provides direct employment to over 45 million people and is the second largest provider of employment after agriculture. The country is ranked as 5th largest exporter of readymade garments/apparels (RMG) in the world, as per WTOs "World Trade Statistical Review 2018".

The RMG industry is the largest segment of the Indian T&A industry accounting for approximately 50% of the total industry. The domestic RMG sector accounts for approximately three-fourths of the total Indian RMG industry. Given that RMG manufacturing units can be viable at all size levels due to low entry barriers, this sector is dominated by a large unorganized segment. However, the branded apparel market has made steady inroads in the past few years.

Within the textile industry, fragmented power looms and knittng sector is the largest segment followed by the organized cotton/manmade fibre textile mill industry, the manmade filament yarn industry, the woollen textile industry, the silk textiles industry, handlooms, jute textiles industry and textiles exports.

On the demand side, the global apparel market is primarily composed of worlds largest economies of US, European Union (EU), Japan and China; the first two accounting for 60% of total global imports. On the supply side, China is the major player but due to rising labour cost and strong currency, over the past few years, it has been ceding ground to Bangladesh and Vietnam. Countries like Turkey, Morocco and Tunisia too have emerged as key exporters to EU recently on account of their proximity to EU nations.

The global apparel trade expanded for the second consecutive year in CY2018 (refers to Calendar Year) with a Y-o-Y growth of ~3%, following a 2% growth in CY2017 in US$ terms. The positive trends during the last two years

has been led by the strong recovery in apparel imports by the European Union (EU), which accounts for two-fifth of the global apparel trade (including the trade within EU) and reported a growth of 5.8% in CY2018. Unlike the EU, apparel imports by the United States of America (US) remain muted with a 2% growth in CY2018, though the trend has improved during the past two years.

The domestic apparel industry has two primary segments namely, consumption within the nation and exports. While export numbers of the industry are readily available; the market size of the domestic market from a supply side is not readily available due to the fact that the unorganised sector does not report revenue and the data collection being an onerous task. Hence often a suitable proxy from the consumption size has been utilised i.e. value of the private final consumption expenditure (PFCE) on clothing. Consequently the total market size is a combination of export value of apparel products from India and value of PFCE on clothing in India.

The apparel industry (domestic + exports) in India grew at a CAGR of 13% from Rs. 2,432 bn in FY10 to Rs. 6,484 bn in FY18. The export market grew at a slightly slower CAGR of 9.8% from Rs. 508 bn in FY10 to Rs. 1,076 bn in FY18. The domestic apparel industry in India grew at a CAGR of 13.8% from Rs.1,924 bn in FY10 to Rs. 5,408 bn in FY18. The growth can be attributed to i) rising per capita disposable income, ii) changing fashion trends, iii) growing consumer class, iv) rising urbanization, v) increasing retail penetration, vi) growing service class and vii) increasing share of the designer wear. Apparel production is dominated by big clusters - Tirupur, Ludhiana, Bangalore, Delhi NCR, Mumbai, Kolkata, Jaipur, Indore and Surat.

The domestic Indian apparel market can be broadly classified into mens wear, womens wear and kids wear. Currently, mens wear holds the largest share in the apparel market, followed by womens wear and kids wear, respectively contributing 41%, 38%, and 21% of the market.

By price, the domestic apparel market can be broadly classified as super premium, premium, medium, economy, and value segments. Cities such as Delhi NCR, Mumbai, Bengaluru, Chennai, Kolkata are the biggest consumer markets with over 20% contribution. The urban population followed by Tier-I and Tier-II cities have higher purchasing power, compared to rural population which largely prefers the economy and value segments, by price.

Various estimates have indicated that Indias apparel exports de-grew by 4-5% in FY2019, following a similar de- growth of ~4% in FY2018 and modest growth rates of 1% and 3% in FY2016 and FY2017 respectively.

While a reversal in trend has been witnessed in the recent months with a 14% Y-o-Y growth in Indias apparel exports in Q3 FY2019, compared to a sharp decline reported during Q3 FY2018, amid downward revision in export incentives under the GST regime. However, the trend seems to have bottomed out and recovery has set in with internal challenges and abrupt pressures subsiding.

OPPORTUNITIES

The domestic apparel industry in India grew at a CAGR of 13.8% from Rs.1,924 bn in FY10 to Rs. 5,408 bn in FY18. After successfully weathering the liquidity crises of FY08 and FY09, the economy again witnessed a slowdown beginning FY12 because of spiralling inflation and high lending rates. In the recent scenario, with the general elections, now a thing of the past, the newly elected government is in a better position to take decisions and take policy stands that would attract higher investment and fuel the rise in income levels and consequential consumption levels.

The demand from both domestic and international markets, has picked up in the last few months. Moreover, the demand drivers like growing private final consumption expenditure, growing population and changing fashion trends, etc., still make a compelling case for the healthy economic scenario in the future, subject to policy implementation by the government. The domestic apparel market to expected to grow at a decent pace, by 10% - 12% per annum.

EXTERNALTHREATS

The growth story of the apparel industry in India is confronted by challenges such as :

Developments in the international trade including USs allegations against certain export subsidy schemes in India as well as progress on certain large free trade agreements (FTA) can materially alter the trade dynamics. As for EU market, the EU-Vietnam Free Trade Agreement, can weaken Indias competitive positioning in one of its key apparel markets. This can be corroborated from the fact that Bangladesh, which enjoys a duty-free access to the EU market since 2001 under the Generalised Scheme of Preference, has been able to expand its market share from less than 7% in 2001 to ~20% at present. Though India has been able to maintain its share at ~6-7%, it faces higher trade barriers compared to other competing countries like Bangladesh, Vietnam and Pakistan in key global markets of USA and EU.

The country suffers from a geographical disadvantage as it is located far away from major global fibre-consuming markets like America and Europe compared to its global counterparts. As a result, India has to bear higher shipment cost with longer lead times thereby impacting exports. Further, wider geographical spread coupled with the high inland transportation cost has also affected the growth of export oriented textile and related industries in India.

Indian textile industry is predominantly a cotton based industry. Approximately, 74 per cent of the apparels exported from India are made up of cotton. However, the global apparel consumption is well diversified across fibres. Therefore, to remain competitive in the global apparel industry, India needs to increase the share of man- made fibres (MMF) based apparels in its overall apparel export portfolio.

GOVERNMENT REGULATIONS

• In order to increase exports of textiles including readymade garments (RMG), Government has undertaken several measures, which include:

• In March 2019, the Central government approved a scheme to rebate State and Central Embedded Taxes for apparels and made-ups exports.

• Interest Equalization Scheme (IES) provides interest subsidy at 5% per annum on pre and post shipment export credit. Market Access Initiative (MAI) Scheme provides assistance to exporters to participate in various international events and invite buyers to domestic events. IGST has been exempted on import under Advance Authorisation and Export Promotion Capital Goods Scheme (EPCG) for apparel products.

• The Directorate General of Foreign Trade (DGFT) has revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for Readymade garments and Made ups - from 2% to 4%.

• The Government of India has increased the basic custom duty to 20% from 10% on over 500 textile products, to boost indigenous production and the Make in India program.

• The Government of India announced a Special Package to boost exports by US$ 31 billion, create one crore jobs and attract investments worth Rs. 80,000 crore during 2018-2020.

• The Amended Technology Up-gradation Fund Scheme (A-TUFS), scheme is estimated to create employment for 35 lakh people and enable investments worth Rs. 95,000 crore by 2022.

• The Government of India has approved a skill development scheme named Scheme for Capacity Building in Textile Sector (SCBTS) with an outlay of Rs 1,300 crore from 2017-18 to 2019-20.

• The Union Ministry of Textiles, Government of India, along with Energy Efficiency Services Ltd (EESL), has launched a technology upgradation scheme called SAATHI (Sustainable and Accelerated Adoption of Efficient Textile Technologies to Help Small Industries) for reviving the power loom sector of India.

INDUSTRY OPERATING COSTS

High maintenance and operation cost of players and some of the sub-industry segments in the supply chain have hampered the productivity of the apparel manufacturers in India. At around 50% of the revenue, raw material constitutes the largest share of the overall operating costs of apparel manufacturers.

The average gross working capital cycle of the industry has increased from 125 days to 145 days with the numbers coming in at the highest in FY18. The payables days has also increased; hence effect in the net working capital increase to 93 days in FY18 as compared to 90 days in FY11 and was subdued as compared to the rise in the gross working capital cycle. The industry observed an increase in its debtors period from around 51 days in FY11 to around 64 days in FY18. The inventory holding period for the industry decreased marginally to around 82 days in FY18, which was around 86 days during FY11.

Employee cost also forms substantial part in the overall cost structure as apparel industry is labour intensive. Employee costs have witnessed a steady increase from 9% in FY10 to 13% in FY18. Due to high degree of dependence on labour, the industry is plagued by unionization issues. Power & Fuel Cost, Depreciation and Interest costs have remained fairly stable for the above period.

On account of the low investment requirement and absence of stringent licenses for seffing up a garment unit, many small players have flocked into the industry making it highly fragmented and competitive thereby constraining profitability margins and leading to intense competition.

OUTLOOK

As textile production is positively correlated to GDP, reduction in economic uncertainties to revive growth in medium to long-term period is needed. The apparel industry is largely consumption-driven and therefore, the economic cycles have a direct impact on the performance of the industry. High growth in the GDP leads to higher per capita income which in turn increases the purchasing power of the people. Higher purchasing power leads to increased spending, thereby driving the demand for apparels and home textiles while during the economic slowdown, the spending power and in turn consumption decreases.

The domestic apparel market to expected to grow by 10% - 12% driven by the growth in the Indian economy leading to the rise in disposable income, increased usage of plastic money leading to impulsive buying among the Indian consumers. Also, the increasing percentage of the youth in the Indian economy, rising mall culture would continue to drive growth of the apparel industry.

Going forward, steps taken by the Government of India to address the challenges, will remain crucial for a broad- based recovery across the sector. This also remains crucial for the domestic apparel players to capitalise on the revived global apparel trade.

(Source: Care Ratings Industry Report, April 2019 ICRA Ratings Industry Report, February 2019)

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

Suumaya Lifestyle Ltd is presently operational in only one segment i.e. Manufacturing of Fabrics & Garments.

Your Company is engaged in the manufacturing of designer wear for women like kurtis, ethnic tops and salwar suits etc. - offering the finest collection to the end-consumer. With experience in Indian Ethnic merchandise market, Suumaya Lifestyle Ltd is ideally positioned to offer innovative designs and configurations, ranging from traditional women apparels to contemporary, each of which is crafted with utmost care, beauty and class.

Suumaya is a young Company taking firm steps in the market, managed by mature minds with a rich experience of over three decades in the textile business. Earlier we were engaged in the business of manufacturing and trading but subsequent to our successful IPO during the last fiscal, the Company is now concentrated on manufacturing and marketing of womens apparels. The IPO proceeds has helped in boosting the business of the Company.

The Company markets products under the brand name "Ekka", "Ira" and "Tag 9". We are both in retail and wholesale business where we provide our designs and satisfy our customers. We serve our customers through a range of channels such as retail and wholesale. The fabric and accessories are sourced from several suppliers with whom we have long-term relationships. Our in-house design team constantly develops new styles, fits and finishes to meet the latest fashion trends.

RISKS AND CONCERNS

The Company has robust risk management procedures to identify and evaluate risks on an ongoing basis. The identified risks are integrated into the business plan and a detailed action plan to mitigate the identified business risk and concerns is put in place.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations and that such internal financial controls are adequate and were operating effectively.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Your Companys core competency lies in the deep understanding of its customers buying preferences and behavior across the Indian market. This has enabled the Company to post good financial performance, year-after- year.

During the year ended March 31, 2019, the total income of the Company for the year was Rs. 175 crore as compared to Rs. 3,77.43 crore as on March 31, 2018. The figures are lower during the last year as Your Company discontinued trading activities and therefore they are not comparable. The second half cyclical performance is less that of first half cyclical performance since trading was stopped. The trading business entailed requirement of more working capital with less margins, hence it was decided to channelise the resources in manufacturing activity which, has yielded attractive net profit returns.

The net profit was Rs. 3.45 crore for the year as compared to Rs. 1.45 crore in last fiscal and is higher by 150.34%. The net profitability is a reflection of healthy growth achieved by Suumaya Lifestyle Ltd. This has been largely helped by an increase in our manufacturing business, establishing of a Pan-India presence besides a strict control and rationalisation of costs.

Your company has improved upon its financial performance on major parameters as can be observed from the below ratio analysis. All important ratios have registered improvement during the period under review, FY 2018-19 compared to FY 2017-18 except debtors turnover ratio and inventory turnover ratio. The change in debtors and inventory turnover ratios is due to change in strategy by focusing on manufacturing of branded garments and discontinuing activity of trading of garments.

The improvement in remaining ratios is due to efficient management of Current Assets, Cash Flow cycle, Trade Payables cycle etc. Further, our Cash position has improved by 50%. As regards Long term borrowings, they have been obtained at zero coupon rates as the erstwhile promoter has reinvested the proceeds received from sale of its shares. The following comparison makes it evidently clear.

Sr No Financial Ratios Year
2018-19 2017-18
1 Debtors Turnover Ratio 4.63 14.92
2 Inventory Turnover Ratio 16.48 80
3 Debt Equity Ratio 0.39 0.04
4 Operating Profit Margin 2.91% 0.56%
5 Net Profit Margin 2.08% 0.39%
6 Return on Net Worth 11.9% 5.9%

Pragmatic business policies and strategies have enabled the Company to be on the desired path, as envisioned by the promoters, right from the outset. Some of the significant being continuous emphasis on scaling market penetration in virgin markets, reduction of costs and enhancing operational efficiency focus on developing and maintaining long term sustainable relationships with stakeholders, manufacturing quality end-products and constant innovation in designs and prevailing trends. All of these have strengthened our ability to stay ahead in the dynamic women apparels segment.

MARKETING & SELLING STRATEGY

During the year gone by, your Company has strengthened its market presence across retail format - Exclusive Brand Outlets (EBOs), Multi-Brand Outlets. Store-In-Store (SIS) and online. Today our products have strong presence in 21 states, 100+ cities, 850 MBOs/EBOs/SIS and online such as Amazon, AJIO and Rajwadi. In addition, the Company has opened stores in malls within cities like Mulund (Mumbai), Surat, Bhopal and Aurangabad; it had recently opened its first MBO in Dubai and on e-commerce portals. Besides brand promotions, social media promotions and publicity are also undertaken rigorously to increase brand visibility, loyalty and brand value which will eventually enhance shareholders value.Our expansion plans in deepening market penetration over the next five years are fairly robust.

Suumayas core competency lies in the deep understanding of its customers buying preferences and behavior across the Indian market. Moreover, strong relationships with our supply-chain have enabled continuous growth of business. This has also helped us to better manage our inventories and supply quality products on timely basis to our customers which in turn has facilitated repeat business. We are pleased to inform that Your Companys in-house research team has made significant progress in developing/designing apparels made out of organic cotton and this will very soon enable us to cater to a new class of consumer segment which is growing at a good pace.

The marketing strategy of our Company is the combination of direct and indirect marketing, using the distribution network and sales force. Conversation with retailers, educating them and campaigning for our Companys products all the year round are integral to marketing and sales efforts. This is further supported with the activities at the grass root level through regular contacts. The Company also participates regularly in trade exhibition and consumer fairs to boost sales. Having said that, it ought to be stated that all of these actions have to be efficiently backed by inventory management, warehouse management and supply chain management.

COMPETITION

Intense competition in every sphere of life and business is a given in todays world. In that sense while competition cannot be ignored by businesses in general, every player has to change and adapt as per the prevailing typical competitive conditions in their industry. Your Company too is no different, as it faces intense competition from established as well as unorganized players. Our competition depends on several factors which includes quality, price and most importantly to upgrade with the latest trend to reap optimum sales. Our products face competition from organized sector and unorganized sector, primarily from local manufacturers. However, amidst all these, Suumaya has been able to protect and grow its sales due to strong brand names, timeliness, reliability, quality of products, price and; ability to anticipate consumer demands and maintain appeal of products to customers. These are the success factors the Company depends on.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYEE

The total manpower strength of your Company has increased from 18 employees in FY2018 to 34 in FY2019, mainly in sales and marketing area. Subsequently the Employee benefit expenses has increased considerably. Nonetheless these additional expenses on marketing and promotions will yield results in the long term.

The Company provides best opportunities for its employees to enable them to reach their full potential. The HR function aims at fueling the growth ambitions of the organization by equipping the Human Assets for effective & efficient delivery as well as providing them a nurturing environment.

The HR function is aligned to the Companys Business Strategy. This has helped in proactively facilitating the achievement of organizational plans, targets and challenges through timely identification, preparation and deployment of appropriate human resources.

Some of HRs best practices include a robust and transparent Performance Management system which enables fostering a performance based culture and performance assessment in line with Industry best practices. Recognition of individual contribution as well as team efforts of Young Talent, Functional Experts, Innovators and Supporting Staff is done on regular basis.

Continuous Learning & Development (Training) is in place for employees. Prime focus is given for Leadership Development within the organisation for sustainable growth as Suumaya places high value on nurturing & developing its people. This is further supplemented by having open communication channels and absence of hierarchical barriers.

CAUTIONARY STATEMENT

Investors are cautioned that this discussion contains statements that involve risks and uncertainties. Words like anticipate, believe, estimate, intend, will, expect and other similar expressions are intended to identify such forward looking statements. The Company assumes no responsibility to amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. Besides the Company cannot guarantee that these assumptions and expectations are accurate or will be realized and; actual results, performance or achievements could thus differ materially from those projected in any such forward looking statements.