H P Cotton Textile Mills Ltd Management Discussions

OVERVIEW

The objective of this report is to convey the Managements perspective on the external environment and textile industry, as well as the Companys strategy, operating and financial performance, material developments in human resources and industrial relations, risks and opportunities, and internal control systems and their adequacy during the Financial Year 2024-25.

The global economy is at a critical juncture. Signs of stabilisation were emerging through much of 2024, after a prolonged and challenging period of unprecedented shocks.

Inflation, down from multidecade highs, followed a gradual though bumpy decline toward central bank targets. Labour markets normalised, with unemployment and vacancy rates returning to pre-pandemic levels. Growth hovered around 3% in the past few years, and global output came close to potential. However, major policy shifts are resetting the global trade system and giving rise to uncertainty that is once again testing the resilience of the global economy.

For advanced economies, growth under the reference forecast is projected to drop from an estimated 1.8% in 2024 to 1.4% in 2025 and 1.5% in 2026. Growth in the euro area is expected to decline slightly to 0.8% in 2025, before picking up modestly to 1.2% in 2026. Rising uncertainty and tariffs are key drivers of the subdued growth in 2025. For emerging market and developing economies, growth under the reference forecast is projected to drop to 3.7% in 2025 and 3.9% in 2026, following an estimated 4.3% in 2024. (Source: IMF – World Economic Outlook – April 2025).

Growth moderated in fiscal year 2024 (FY2024, ended

31 March 2025) as the industry slowed. Favourable macroeconomic policies and robust consumption demand will push growth higher during the forecast horizon, even as short-term prospects for private investment and exports are dampened by global factors.

GDP growth will rise to 6.7% in FY2025 and 6.8% in FY2026. Growth will be supported by more favourable monetary and fiscal policies, rising rural incomes, and moderating inflation, which will boost However,. consumer net confidence exports will be undermined by global economic uncertainty, notwithstanding robust growth in service exports. (Source: Asian Development Outlook – April 2025)

The global textile market size was estimated at USD 1,976.84 billion in 2024 and is predicted to increase from USD 2,123.72 billion in 2025 to approximately USD 4,016.50 billion by 2034, expanding at a CAGR of 7.35% from 2025 to

2034. The rising demand for natural fibers globally is driving the growth of the textile market. Asia-Pacific dominated the textile market in 2024. The growth of the market is generally driven by the easy availability of raw silk along with the rising demand for fashionable clothes and home furnishing commodities. (Source: www.precedenceresearch.com)

The textile industry in India, thus, gains a pivotal role in knitting the tapestry of dynamism and growth of the sector with about a 4.5% share in the global textile and apparel trade. With a diverse range of fabrics and intrinsic craftsmanship, the textile sector offers a wealth of opportunities. India possesses the capability to manufacture the entire value chain, and its products are exported to more than 100 countries. The sector provides employment to over 45 million people and produces about 22,000 million pieces of garments per year, with the market size projected to reach USD 350 billion by 2030, from the current USD 174 billion. With transformative changes in the textile sector, the government has also launched the PM MITRA Park Scheme with an outlay of INR 4,445 crore to create an integrated textiles value chain from spinning to manufacturing at a single location. In line with the growth roadmap, the Indian textile market currently ranks fifth globally, and the government is actively working to accelerate this growth to a rate of 15-20% over the next five years. (Source: investindia.gov.in)

The Company operates in only one segment i.e. manufacturing of Threads. The Company deals in the production of two types of thread i.e. Sewing Threads and Hosiery Yarn.

During FY 2024-25, the production of Sewing Threads increased by 39% over the previous year, to stand at 13,34,511 kg as compared to the previous years level of 9,57,419 kg. The Company has not produced Hosiery Yarn during the year under review.

During FY 2024-25, the sale of Sewing Threads increased by 36% over the previous year and stood at 12,076.41 lacs as compared to 8,874.41 lacs in FY 2023-24. No Hosiery Yarn was sold by the Company during the year under review due to captive consumption.

( in Lacs)

HP MMF is a wholly-owned subsidiary company of H.P. Cotton Textile Mills Limited. The Company is yet to commence its operations.

The broader economic trends are poised to directly affect a companys growth potential. Persistent inflation has increased commodity prices worldwide. Furthermore, the anticipated rise in central bank interest rates in the coming year may dampen growth and strain economies, especially in emerging markets. It is thereby important to manage cost pressures to sustain the Companys overall performance in these conditions.

Efficiency of the Companys risk management practice is derived from the knowledge and hands-on engagement of our management team. The Company acknowledges that risk is an integral and unavoidable component of the business and intends to manage the risk proactively and efficiently. A detailed Risk Management Policy lays down the framework of Risk Management within the Company.

Mechanisms for the identification of risks include periodical risk surveys across the Company, industry benchmarking, periodic assessments of the business environment, incident analysis, findings of internal audits, etc.

The identified risks are structured across the following categories: Name of Risk, Scope of Risk, Nature of Risk,

Quantification of Risk, Risk Tolerance/Appetite, Risk

Treatment and Control Mechanism, Potential Action for Improvement, and Strategy and Policy Development.

Risk assessment is the process of risk prioritisation or profiling. The likelihood and impact of risk events have been assessed for the purpose of analysing their criticality. The likelihood of occurrence of risk is rated based on the number of past incidents in the industry, future trends, or research available. Risks may be evaluated based on whether they are internal or external, controllable or non-controllable, and inherent or residual.

Treatment of risk is the process of selecting and implementing measures to mitigate risks. Risk control actions are prioritised as per their potential to benefit the organisation. Risk treatment includes risk control/mitigation and extends to risk avoidance, risk transfer (insurance), risk financing, risk absorption, etc.

• With increasing global awareness around sustainability, Indian textile companies have a unique opportunity to lead in organic and eco-friendly fabrics.

• The Indian government continues to bolster the textile sector through schemes such as the Production Linked Incentive (PLI) scheme, Make in India, and tax incentives for exporters.

• India remains one of the top textile exporters globally. With rising global demand for affordable yet high-quality textiles, Indian manufacturers can leverage free trade exportagreements, markets, diversified and global supply chain disruptions to strengthen their foothold in international markets.

• The volatility in raw material prices, particularly cotton and synthetic fibres, continues to impact production costs.

• While India has a large workforce, a shortage of skilled labour in advanced textile manufacturing processes remain a challenge.

• As sustainability norms tighten globally, businesses must adapt to stricter environmental regulations.

• Investing in green technology, waste reduction strategies, and responsible sourcing is critical to meeting compliance standards and consumer expectations.

The Company is committed to cultivating a professional environment that empowers its people and helps them to grow in their careers. To remain competitive, improving employee productivity is of utmost importance to the organisation. The Company constantly strives to strengthen its manpower in alignment with the business needs and continues to engage them through various employee engagement activities. The number of permanent employees on the Companys rolls as on 31 March 2025 stood at 1,628.

On a standalone basis, the Companys total income for FY 2024-25 increased by 36%, as compared to the previous

year. The profit before finance cost, depreciation and tax for

FY 2024-25 increased by 131% as compared to the previous year. The Profit After Tax for FY 2024-25 increased by 180% as compared to the previous year.

On a consolidated basis, the total income for FY 2024-25 increased by 36%, as compared to the previous year. The profit before finance cost, depreciation and tax for FY 2024-

25 increased by 132% as compared to the previous year.

The Profit After Tax attributable to shareholders and non-controlling interests for FY 2024-25 increased by 184% as compared to the previous year.

1) CreditorsTurnover Ratio: Increased primarily on account of an increase in purchases in the current year

2) InventoryTurnover Ratio: Increased primarily on account of increase in profitability in the current year

3) Net Capital Turnover Ratio: Decreased primarily on account of an increase in sales in the current year and negative working capital as at the end of the current year

4) Interest Coverage Ratio: Increased primarily on account of loss narrowed in the current year

5) Debt Service Coverage Ratio: Decreased primarily on account of an increase in shareholders equity and a decrease in debt during the current year

6) Operating Profit Margin: Increased primarily on account of profitability in the current year

7) Net Profit Margin: Increased primarily on account of profitability in the current year

8) Return on Net Worth: Increased primarily on account of profitability in the current year

9) Return on Investment: Increased primarily on account of increase in investment in the current year

Your Company has effective internal controls and risk mitigation systems, which are constantly assessed and strengthened with new/revised standard operating procedures. The Company maintains adequate and effective Internal Control Systems commensurate with its size and complexity. It believes that these systems provide, among other things, a reasonable assurance that transactions are executed with management authorisation. It also ensures that they are recorded in all material respects to permit the preparation of financial statements, in conformity with established accounting principles, along with the assets of the Company being adequately safeguarded against misuse. An independent Internal Audit significant function is an important element of the Companys Internal Control System. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and are also apprised of the internal audit findings and corrective actions.

Statements in the Management Discussion & Analysis Report describing the projections, estimates, and expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations, tax laws, and other statutes and incidental factors.