Source Industries (India) Ltd Management Discussions

OVERVIEW OF INDUSTRY:

The Indian textile industry holds a pivotal position in the global textile market and is one of the most significant contributors to the Indian economy in terms of output, employment, and exports. As per the Ministry of Textiles, the Indian textile and apparel market was valued at approximately USD 160 billion in 2024 and is expected to reach USD 250 billion by 2030, driven by increasing domestic consumption and export potential.

Within this vast ecosystem, the "Other Textile Products" segment-which includes processed cloth, blankets, home furnishing textiles, and technical/functional fabrics-has shown steady growth. This segment primarily caters to domestic institutional demand (hospitals, defense, hospitality), export markets, and semi-urban retail.

The textile processing industry, which involves dyeing, bleaching, and finishing of fabrics, plays a crucial role in the textile value chain. However, it remains highly fragmented and concentrated among MSMEs. Key challenges include rising costs of dyes and chemicals, compliance with Zero Liquid Discharge (ZLD) and environmental norms, and competition from integrated textile players.

Railways are a backbone of national logistics, enabling efficient movement of goods and passengers across vast distances. Rail transport is among the most energy-efficient modes, contributing to reduced carbon emissions compared to road and air travel. High-speed rail, automation, and smart signaling systems are transforming the industry worldwide.

Key Industry Trends:

• Shift toward sustainability: Brands and buyers are demanding eco-friendly processing, leading to investments in green chemistry and water-efficient technologies.

• Policy support: Government schemes like the PLI Scheme, Amended Technology Upgradation Fund Scheme (ATUFS), and the National Technical Textile Mission (NTTM) are encouraging modernization and investment.

• Global opportunity: India is emerging as a competitive alternative to China in the global supply chain, especially in semi-processed and value-added textile products.

Challenges:

• Input cost volatility (cotton, dyes, chemicals).

• Capital-intensive compliance with environmental norms.

• Fragmented market with price-based competition.

The growth of organized retail, e-commerce in home textiles, and export incentives continue to provide growth avenues for small and mid-sized processors like Source Industries (India) Limited, provided there is sustained focus on quality, compliance, and modernization.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

The Indian textile and apparel industry is one of the oldest and most important sectors, contributing significantly to employment generation, industrial production, and exports. The "Other Textile Products" segment, including processed cloth and woolen goods like blankets, continues to be a niche but steady sub-sector.

During FY 2024-25, the industry experienced moderate growth, backed by increased demand for home furnishing and institutional textiles. Government initiatives under the National Technical Textile Mission (NTTM), PLI Scheme, and support for MSMEs further contributed to capacity expansion in textile processing.

However, input cost volatility, dependence on imported dyes and chemicals, and energy costs remained areas of concern. Sustainability and environmental compliance (like ZLD norms) have also become increasingly important in textile processing operations.

The Railway Industry has been allocated Rs. 2.62 lakh crore in FY 2024-25, a 77% increase over the past five years. - Over 31,180 km of new tracks commissioned in the last decade.41,655 route kilometers electrified between 2014-2024, nearly doubling the previous total. Ahmedabad-“Mumbai corridor underway; four more corridors planned by 2035.Indigenous Train Collision Avoidance System being deployed across 37,000 km.15,000 km being upgraded to automated signaling for safer and faster operations.

OPPORTUNITIES & THREATS:

Opportunities:

1) The growth in population and economy leading demand for infrastructure and its opportunity to provide better infrastructure

2) Rising demand for value-added processed fabrics in the hospitality and health sectors.

3) Export incentives and FTAs (Free Trade Agreements) opening access to new markets.

4) Scope for modernization through eco-friendly dyeing and energy-efficient processing.

5) Drawing up medium- and long-term strategies, based on expected growth in the sector

6) Benchmarking current and expected IRRs with those projected by industry

7) Understanding the impact of the regulatory environment on business

8) Massive investments in track electrification, high-speed corridors, and station redevelopment.

9) Shift from road to rail for bulk cargo is accelerating, especially with Dedicated Freight Corridors (DFCs).

10) Deployment of KAVACH, Indias indigenous Train Collision Avoidance System, across 37,000 km. Threats:

1. Uncertainty, especially Mining sector due to delay in resolving environmental and social issues.

2. High fixed costs relative to low operating scale.

3. Competition from large integrated textile mills.

4. Unpredictable monsoon and cotton availability affecting input supply chain.

5. Regulatory pressure on effluent treatment and emissions.

6. Demand for higher capacity equipment, in line with the global market trend.

7. High expectations of contractor segment.

8. Increasing pressure on reducing ownership costs.

9. Improved technology for operational cost to stay ahead in business.

10. Innovative marketing strategies to counter competition from MNCs by

11. i. Uncertainty in Defense business.

ii. Attrition in skilled manpower.

iii. Project imports at nil duty.

iv. Opening up of Defense purchases to private sector increasing further competition.

12. Slow implementation of critical systems like KAVACH due to high costs and logistical challenges.

13. Budget airlines and improved highway networks pose a threat to short-haul rail services.

14. Labor disputes and skill shortages can disrupt operations

SEGMENT - WISE PERFORMANCE:

The Company continues to focus on textile processing services, including dyeing, bleaching, and finishing. The core revenue for FY 2024-25 remained flat due to subdued orders and underutilization of installed capacity. Operational focus remained on serving limited B2B clients with consistent quality, albeit at small volumes.

No new product lines or business segments were launched during the year.

INDUSTRY OUTLOOK:

The Company expects modest improvement in operational turnover in FY 2025-26, driven by:

• Strategic tie-ups with institutional buyers for processed cloth and blankets.

• Exploring digital outreach and cost-efficient operations.

• Optimizing fixed costs to sustain during low-volume periods.

Going forward, Source Industries aims to upgrade part of its machinery to meet modern sustainability benchmarks and cater to a broader base of clients seeking eco-compliant textile processing.

Rising disposable income

As disposable income increases, demand for textile goods in both the local and foreign markets is expected to grow.

Government assistance

The government is expected to help the industry grow through initiatives that attract foreign investments. Retail sector expansion

The rapid expansion of the retail sector is expected to contribute to the industrys growth.

Innovation

The industry is expected to remain relevant by evolving to meet the demands of a changing world, including embracing innovation, sustainability, and consumer preferences.

Digital technologies

Industry players can use digital technologies, such as e-commerce platforms, online retailing, and digital marketing strategies, to expand their market reach and tap into the global market.

RISK AND CONCERNS:

The textile industry faces many risk concerns, including:

• Chemical exposure: From processing and dyeing materials, as well as exposure to cotton and other organic dusts

• Musculoskeletal stresses

• Waste: More than 5% of the worlds landfills are filled with textile waste

• Raw materials: A lack of quality raw materials and supply bottlenecks

• Infrastructure: Problems with infrastructure and an unorganized sector

• Environmental concerns: Heavy noise pollution and rising environmental concerns

• Technology: A lack of attention to technology upgrades and regular R&D

• Fragmentation: Fragmentation and skill shortages

The Company faces the global economic conditions. Inflation, changes in tax, trade, fiscal and monetary policies, scarcity of credit etc. However, we do not expect to be significantly affected by this risk.

Mitigation:

Economic risk can be mitigated by proper planning and staying updated with the global and economic scenarios.

Finance risk:

Inability to fund the expansion of the business in a cost-effective manner could affect growth. Competition risk: Growing competition could affect profitability.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has an internal control system designed to provide high degree of assurance regarding optimization and safeguarding of resources, quality and reliability of financial and operational information, compliance with applicable statutes and corporate policies. It is the Companys Endeavour to align all its processes and controls with global best practices.

The internal control and risk management system is structured and applied in accordance with the principles and criteria established in the corporate governance code of the organisation. It is an integral part of the general organisational structure of the Company and the Group and involves a range of personnel who act in a coordinated manner while executing their respective responsibilities. The Board of Directors offers its guidance and strategic supervision to the Executive Directors and management, monitoring and support committees.

HUMAN RESOURCES/ INDUSTRIAL RELATIONS:

The Company firmly believes that motivated and empowered employees are the cornerstone of competitive advantage. The Companys employee value proposition is based on a strong focus on employee development, providing a satisfying work environment, performance appraisal and counseling and appropriate empowerment.

The internal audit process is designed to review the adequacy of internal control checks in the system and covers all significant areas of the companys operations. The internal audit department performs risk based audits, based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors and the audit committee. The Audit Committee reviews audit reports submitted by the internal auditors and follow up on the implementation of corrective actions periodically.

As a small-scale unit, the workforce remains lean and skill-based. Industrial relations during the year remained cordial. Training for quality improvement and safety practices continued. The management values employee welfare and ensures compliance with labour laws and safety protocols.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

Discussion on Financial Performance with respect to Operational Performance:

i. Total Income as on 31st March 2025 is 13.72 Lakhs.

ii. Share Capital: The Paid-up share Capital as on 31st March, 2025 is 1140.311 Lakhs.

iii. Net Profit as on 31st March, 2025 is 0.78 Lakhs.

iv. Earnings per Share (EPS) as on 31st March, 2025 are 0.01.

The Earning per Share for the Financial Year 2024-25 is Rs. (0.13) per share (Face Value: Rs.10/- each). Your directors are putting continuous efforts to increase the performance of the Company and are hopeful that the performance in coming year will overcome from the present situation.

DISCLOSURE OF ACCOUNTING TREATMENT:

The Company has prepared financial statements which comply with Ind-AS applicable for periods ending on March 31, 2025, together with the comparative period data as at and for the year ended March 31, 2025, as described in the summary of significant accounting policies. Primarily, a treatment different from

that prescribed in an Accounting Standard has not been followed in the preparation of financial statements. However, as regards amendments to certain accounting standards, the applicability / effect on the financial statement has been evaluated and been treated accordingly as explained in Notes to the standalone Financial Statements.

CAUTIONARY STATEMENT:

Statements in this management discussion analysis describing the Companys objectives, projections, estimates, expectations may be forward looking within the meaning of applicable securities-laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could make difference to Companys operations include economic conditions affecting the domestic market and the overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.