United Cotfab Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with our restated financial statements included in the Prospectus. You should also read the section entitled "Risk Factors" beginning on page 22, which discusses several factors, risks and contingencies that could affect our financial condition and results of operations. The following discussion relates to our Company and is based on our restated financial statements, which have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI Regulations. Portions of the following discussion are also based on internally prepared statistical information and on other sources. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year ("Fiscal Year") are to the twelve-month period ended March 31 of that year.

The financial statements have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditors dated December 19, 2023 which is included in this Prospectus under the section titled "Restated Financial Information" beginning on page 152 of this Prospectus. The restated financial statements have been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. We do not provide a reconciliation of our restated financial statements to US GAAP or IFRS and we have not otherwise quantified or identified the impact of the differences between Indian GAAP and U.S. GAAP or IFRS as applied to our restated financial statements.

This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those described under "Risk Factors" and "Forward Looking Statements" beginning on pages 22 and 13 respectively, and elsewhere in this Prospectus Accordingly, the degree to which the financial statements in this Prospectus will provide meaningful information depend entirely on such potential investors level of familiarity with Indian accounting practices. Please also refer to section titled "Presentation of Financial, Industry and Market data" beginning on page 12 of this Prospectus.

BUSINESS OVERVIEW

Our Company was originally incorporated as United Cotfab LLP as a limited liability partnership under the provisions of the Limited Liability Partnership Act, 2008 vide Certificate of Incorporation dated August 25, 2015, issued by the Registrar of Companies, Gujarat, Dadra and Nagar Havelli. Later on, United Cotfab LLP was converted from a limited liability partnership to a private limited company under Part I chapter XXI of the Companies Act, 2013, pursuant to a resolution passed in the Partners Meeting of the LLP dated September 15, 2023 and consequently, the name of the company was changed to United Cotfab Private Limited and a fresh certificate of incorporation dated November 02, 2023 was issued to the company by the Registrar of Companies, Central Registration Centre. Subsequently, United Cotfab Private Limited was converted from a private limited company to a public limited company pursuant to a resolution passed in the ExtraOrdinary General Meeting of the company dated December 04, 2023 and the name of the company was changed to United Cotfab Limited with a fresh certificate of incorporation dated December 14, 2023 issued to the company by the Registrar of Companies, Ahmedabad. The Corporate Identification Number of our Company is U13111GJ2023PLC145961. Our Company is promoted by Mr. Nirmalkumar Mangalchand Mittal and Mr. Gagan Nirmalkumar Mittal. Our promoters have a combined experience of more than 55 years in the field of cotton textile industry.

We are engaged in the manufacturing of high quality open end yarn catering to the textile industry. Our manufacturing process adheres to stringent quality standards and is backed by advanced technology and machinery. We follow a systematic approach that includes raw material selection, blending (if required), spinning, winding, and quality control. During the Financial Year 2020-23, Company was in the process acquisition of land admeasuring area of 7264 sq mtrs located at Village Timba, Taluka Daskroi, Ahmedabad, for setting up Manufacturing facility having an installed capacity of approx 9125 (MT) per annum. Our Manufacturing facility is close to the rich cotton growing areas of Saurashtra region of Gujarat and Maharashtra. Our Company commenced the production of cotton yarn in April 2023. Our Manufacturing facility is equipped with modern and automatic plant and machinery. The level of advancement determines the productivity of machines and labor, which in turn, determines the production and profitability of our Company. Our technical team in spinning is well equipped with modern spinning technology and processing techniques by virtue of which we are able to ensure quality yarn. Technology is a crucial aspect of the cotton yarn industry. Our experienced team of technicians and operators ensure that every batch of open end yarn produced meets the highest quality parameters. We have implemented a comprehensive quality management system that covers every stage of production. We conduct rigorous testing and inspection of raw materials, intermediate products and final yarns to ensure they meet the specified standards. We are committed to sustainable manufacturing practices and environmental responsibility. Our processes are designed to minimize waste, conserve energy and reduce the environmental impact. We have built strong relationship with a diverse range of clients, including textile manufacturers, garment exporters and distributors. Our emphasis on quality, reliability and timely delivery has helped us establish long term partnerships with our customers. . During FY 2022-23, our company was engaged in the business of trading of cotton yarn. In April 2023, Our Company commenced the manufacturing of open ended cotton yarn. Cotton yarn is a type of yarn that is made from cotton fibers. Cotton yarn comes in various thicknesses, known as yarn weights, which determine its suitability for different products. Common yarn weights include lace, fingering, sport, worsted, and bulky, each with its own characteristics and recommended uses. It is widely used in the textile industry for various applications, including knitting, weaving, and crocheting. Cotton yarn is known for its softness, breathability, and versatility, making it a popular choice for clothing, home textiles, and other fabric-based products.

FINANCIAL KPIs OF OUR COMPANY

The financial performance of the company for stub period and last three years as per restated financial Statement:

( in Lakhs except disclosed otherwise)

	For the Period ended on
Particulars	31-Mar-24	31-Mar-23	31-Mar-22	31-Mar-21
Revenue from Operations ( in Lakhs)	11,529.41	44.20	-	-
Gross Profit	2,692.50	3.62	-	-
Gross Profit Margin (%)	23.35%	8.19%	NA	NA
EBITDA ( in Lakhs)	1,767.90	1.17	(0.28)	(0.11)
EBITDA Margin (%)	15.33%	2.65%	-	-
Profit After Tax ( in Lakhs)	866.86	13.93	1.60	-0.11
PAT Margin (%)	7.52%	31.51%	-	-
RoE (%)	72.77%	1.66%	0.47%	-40.91%
RoCE (%)	26.95%	0.04%	-0.04%	-0.11%
Net Fixed Asset Turnover (In Times)	2.79	0.02	0.00	-
Operating Cash Flows ( in Lakhs)	747.75	-232.76	-687.74	19.95

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO LAST AUDITED BALANCE SHEET:

After the date of last Audited accounts i.e. March 31, 2024 the Directors of our Company confirm that, there have not been any significant material developments.

FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS:

Our Companys future results of operations could be affected potentially by the following factors:

Natural Calamities e.g. Tsunami

Global GDP growth

Prevailing commercial freight rates;

Changes in laws or regulations

Political Stability of the Country;

Competition from existing players;

Our dependence on limited number of customers/suppliers/brands for a significant portion of our revenues;

Any failure to comply with the financial and restrictive covenants under our financing arrangements;

Failure to obtain any applicable approvals, licenses, registrations and permits in a timely manner;

Failure to adapt to the changing technology in our industry of operation may adversely affect our business and financial condition;

Occurrence of Environmental Problems & Uninsured Losses;

Conflicts of interest with affiliated companies, the promoter group and other related parties;

The performance of the financial markets in India and globally;

Our ability to expand our geographical area of operation;

Concentration of ownership among our Promoters.

OUR SIGNIFICANT ACCOUNTING POLICIES:

For Significant accounting policies please refer Significant Accounting Policies and Notes to accounts, "Annexure 4" beginning under Chapter titled "Restated Financial Information" beginning on page 152 of this Prospectus.

RESULTS OF OUR OPERATION

The following table sets forth detailed total income data from our restated statement of profit and loss for the period ended on March 31, 2024, 2023, the components of which are expressed as a percentage of total Income and Financial Years 2023, 2022 and 2021, the components of which are expressed as a percentage increase from previous year.

	Financial Year ended on
Particulars	March 31, 2024	March 31, 2023	March 31, 2022	March 31, 2021
Revenue from operations	11,529.41	44.20	0.00	0.00
Total Revenue from Operation	11,529.41	44.20	0.00	0.00
% of growth	25981.87%	-	-
Other Income	23.33	19.81	1.88	0.00
% of growth	17.77%	955.07%	-
Total income	11,552.74	64.02	1.88	0.00
% of growth	17,946.65%	3309.22%	-
Expenses
Cost of Material consumed	9,612.17	40.58	0.00	0.00
% Increase/(Decrease)	23585.00%	-	-
Changes in inventories of Finished Goods, WIP and Traded Goods	-775.25	0.00	0.00	0.00
% Increase/(Decrease)	0.00%	-	-

 

	Financial Year ended on
Particulars	March 31, 2024	March 31, 2023	March 31, 2022	March 31, 2021
Employee benefits expense	219.27	0.00	0.00	0.00
% Increase/(Decrease)	0.00%	-	-
Finance Costs	336.49	0.00	0.00	0.00
% Increase/(Decrease)	0.00%	-	-
Depreciation and amortization expenses	252.29	0.00	0.00	0.00
% Increase/(Decrease)	0.00%	-	-
Other expenses	705.63	2.45	0.28	0.11
% Increase/(Decrease)	28,683.71%	784.50%	147.69%
Total Expenses	10,350.59	43.03	0.28	0.11
% Increase/(Decrease)	23,951.65%	15427.07%	147.69%
% to Total Revenue	89.59%	67.23%	14.76%	-
Profit/(Loss) Before Extra-Ordinary Items and Tax	1,202.16	20.98	1.60	-0.11
% to total revenue	10.41%	32.77%	85.24%	-
Exceptional Items	0.00	0.00	0.00	0.00
Profit before Tax	1,202.16	20.98	1.60	-0.11
% Increase/(Decrease)	5,629.69%	1210.86%	-1530.36%
% to total revenue	10.43%	32.77%	85.24%	-
Total tax expense	335.51	7.05	0.00	0.00
% Increase/(Decrease)	4,658.93%	-	-
Profit and Loss after tax	866.65	13.93	1.60	-0.11
% to total revenue	7.52%	31.51%	85.24%	-
Profit and Loss for the period as Restated	866.65	13.93	1.60	-0.11
% Increase/(Decrease)	6,120.96%	770.38%	1530.36%

COMPARISON OF FY 2023-24 WITH FY 2022-23:

INCOME:

Revenue from operations

The Company is engaged in the business of manufacturing of high quality open end yarn catering to the textile industry. Our revenue from operation increased to 11529.41 lakhs for the FY 23-24 from 44.20 lakhs for the FY 22-23. Revenue from Operations includes revenue from sale of Cotton Yarn and sale of waste within the state. Revenue from sale of Cotton Yarn and Sales of Waste constitutes 95.84% and 4.16% of total revenue from operations. In April 2023, Our Company commenced the manufacturing of open ended cotton yarn therefore majority revenue is generated in FY 2023-24.

Other Income

Other income of the company were 23.33 lakhs and 19.81 lakhs for FY 2023-24 and FY 2022-23 respectively showing an increase of 17.77%. Increase in other income is majorly on account of increase in Other miscellaneous income which is partially offset by decrease in interest income. Other Income mainly includes Interest income and other miscellaneous income.

EXPENDITURE:

Cost of Materials consumed

Our cost of materials consumed includes Purchase of Raw material and Change in Inventory of Raw material. During the financial year ended on March 31, 2024, and March 31, 2023 our cost of Materials consumed amounted to 9612.17 lakhs and 40.58 lakhs respectively.

Change In Inventory of Finished Goods, Stock In Trade and WIP

Our opening stock of Finished Goods, Stock In Trade and WIP was Nil as at April 1, 2023 and as at April 1, 2022. Our closing stock of Finished Goods, Stock In Trade and WIP was 775.25 lakhs as at March 31, 2024, while it was Nil as at

March 31, 2023. The changes in inventories of work-in-progress decreased to (775.25) lakhs in FY 2023-24 from Nil in FY 2022-23.

Employee Benefit Expenses

Employee Benefit expenses for the financial year ended March 31, 2024 were 219.27 Lakhs. The Employee Benefit expense represents 1.90% of Total Income. Employee benefit expense mainly includes Director Remuneration and Sitting Fee, Salaries, wages and bonus, expenses towards gratuity & other fund and staff welfare expenses.

Finance Costs

Finance Costs for the financial year ended March 31, 2024 was 336.49 Lakhs which representing 2.91% of Total Income. Finance Costs mainly includes interest expense on loans and other finance costs.

Depreciation and amortization

Depreciation and amortization expense for the financial year ended March 31, 2024 was 252.29 Lakhs representing 2.18% of Total Income. Depreciation and amortization expense includes Commercial Vehicle, Computers & Printers, Factory Building, Furniture & Fixtures, Office Equipment, Plant & Machinery, Electrical Installation and Factory Equipment.

Other Expenses

Other Expenses increased to 705.63 Lakhs for FY 2023-24 from 2.45 lakh for FY 2022-23. Other expenses mainly consist of manufacturing expense such as labour cost, power expense, conveyance & travelling, professional & legal charges, insurance and other miscellaneous expense.

Profit before Tax

As a result of the foregoing, our profit before tax, amounted to 1,202.16 lakhs in FY 2023-24, as compared to 20.98 lakhs in FY 2022-23. The Profit before Tax for the FY 2023-24 was 10.41% of the total revenue and it was 32.77% of total revenue for the FY 2022-23.

Profit after Tax (PAT)

As a result of the foregoing, our profit for the year from 13.93 lakhs in the FY 2022-23 to 866.65 lakhs in the FY 2023-24. The Profit after Tax for the FY 2023-24 was 7.50% of the total revenue and it was 21.76% of total revenue for the FY 2022-23.

COMPARISON OF FY 2022-23 WITH FY 2021-22:

INCOME:

Revenue from operations

The Company is engaged in the business of manufacturing of high quality open end yarn catering to the textile industry.

Our revenue from operation increased to 44.20 lakhs for the FY 22-23 from 0.00 lakhs for the FY 21-22. Revenue from Operations includes revenue from sale of Cotton Yarn within the state. Revenue from sale of Cotton Yarn constitutes 100.00% of total revenue from operations.

Other Income

Other income of the company were 19.81 lakhs and 1.88 lakhs for FY 2022-23 and FY 2021-22 respectively showing an increase of 955.07%. Reason for such high percentage is due to small base in the previous FY 2021-22. Other Income mainly includes Interest income and other miscellaneous income.

EXPENDITURE:

Cost of Materials consumed

Our cost of materials consumed includes Purchase of Raw material and Change in Inventory of Raw material. During the financial year ended on March 31, 2023, and March 31, 2022 our cost of Materials consumed amounted to 40.58 lakhs and 0.00 lakhs respectively.

Change In Inventory of Finished Goods, Stock In Trade and WIP

Our opening stock of Finished Goods, Stock In Trade and WIP was Nil as at April 1, 2022 and as at April 1, 2021. Our closing stock of Finished Goods, Stock In Trade and WIP was 363.30 lakhs as at March 31, 2023, while it was Nil as at

March 31, 2022. The changes in inventories of work-in-progress decreased to (363.30) lakhs in FY 2022-23 from Nil in FY 2021-22.

Other Expenses

Other Expenses increased to 2.45 Lakhs for FY 2022-23 from 0.28 lakh for FY 2021-22 showing an increase of 784.50%. Reason for such high percentage is due to small base in the previous FY 2021-22. Other expenses mainly consist of labour cost, conveyance & travelling, professional & legal charges, insurance and other miscellaneous expense.

Profit before Tax

As a result of the foregoing, we recorded an increase of 1210.86% in our profit before tax, which amounted to 20.98 lakhs in FY 2022-23, as compared to 1.60 lakhs in FY 2021-22. Reason for such high percentage is due to small base in the previous FY 2021-22. The Profit before Tax for the FY 2022-23 was 32.77% of the total revenue and it was 85.24% of total revenue for the FY 2021-22.

Profit after Tax (PAT)

As a result of the foregoing, we recorded an increase of 770.38% in our profit for the year from 1.60 lakhs in the FY

2021-22 to 13.93 lakhs in the FY 2022-23. Reason for such high percentage is due to small base in the previous FY 2021-22. The Profit before Tax for the FY 2022-23 was 31.51% of the total revenue and it was 85.24% of total revenue for the FY 2021-22.

COMPARISON OF FY 2021-22 WITH FY 2020-21:

INCOME:

Other Income

Other income of the company were 0.00 lakhs and 1.88 lakhs for FY 2020-21 and FY 2021-22 respectively. Other Income consists of Interest income.

EXPENDITURE:

Other Expenses

Other Expenses Increased to 0.28 Lakhs for FY 2021-22 from 0.11 lakh for FY 2020-21 showing an Increase of 147.69%. Reason for such high percentage is due to small base in the previous FY 2020-21. Other expenses consist of professional & legal charges, Auditors remuneration and other miscellaneous expense.

Profit before Tax

As a result of the foregoing, we recorded an increase in our profit before tax, which amounted to 1.60 lakhs in FY 2021- 22, as compared to loss of 0.11 lakhs in FY 2020-21. The Profit before Tax for the FY 2021-22 was 85.24% of the total revenue.

Profit after Tax (PAT)

As a result of the foregoing, we recorded an increase in our profit after tax, which amounted to 1.60 lakhs in FY 2021-22, as compared to loss of 0.11 lakhs in FY 2020-21. The Profit after Tax for the FY 21-22 was 85.24% of the total revenue.

DISCUSSION ON THE STATEMENT OF CASH FLOWS

The following table sets forth certain information relating to our Companys statement of cash flows for the periods indicated:

( in Lakhs)

	For the Financial Year/Period Ended
Particulars	March 31, 2024	March 31, 2023	March 31, 2022	March 31, 2021
Net cash flows generated from operating activities	747.75	(232.76)	(687.74)	19.95
Net cash flows (used in)/generated investing activities	(905.91)	(3144.71)	(666.03)	-
Net cash flows (used in)/generated from financing activities	157.14	3362.75	1349.00	0.50
Net increase/(decrease) in cash and cash equivalents	(1.02)	(14.72)	(4.77)	20.45
Cash and cash equivalents at the beginning of the period/ year	1.09	15.81	20.58	0.13
Cash and cash equivalents at the end of the period/ year	0.07	1.09	15.81	20.58

Operating activities

In Financial Year 2023-24, net cash generated from operating activities was 747.75 Lakhs. This comprised of the profit before tax of 1,202.16 Lakhs, which was primarily adjusted for depreciation and amortization expenses of

252.29 Lakhs, interest and other income of 23.33 lakhs, finance cost of 324.44 lakhs, provision for Gratuity 2.93 Lakhs, change in working capital (966.30) lakhs and income tax paid of (44.44) Lakhs.

In Financial Year 2022-23, net cash generated from operating activities was (232.76) Lakhs. This comprised of the profit before tax of 20.98 Lakhs, which was primarily adjusted for interest and other income of (17.38) lakhs, change in working capital (229.30) lakhs and income tax paid of (7.05) Lakhs.

In Financial Year 2021-22, net cash generated from operating activities was (687.74) Lakhs. This comprised of the profit before tax of 1.60 Lakhs, which was primarily adjusted for interest and other income of (1.88) lakhs, change in working capital (687.46) lakhs and income tax paid of 0.00 Lakhs.

In Financial Year 2020-21, net cash generated from operating activities was 19.95 Lakhs. This comprised of the profit before tax of (0.11) Lakhs, which was primarily adjusted for change in working capital 20.07 lakhs and income tax paid of 0.00 Lakhs.

Investing Activities

In Financial Year 2023-24, net cash used in investing activities was 905.91 Lakhs, which is mainly due to purchase of property, plant and equipment and decrease in long term loans and advances.

In Financial Year 2022-23, net cash generated in investing activities was (3144.71) Lakhs, which is mainly due to purchase of property, plant and equipment and repayment of loans and advances.

In Financial Year 2021-22, net cash generated in investing activities was (666.03) Lakhs, which is mainly due to purchase of property, plant and equipment and repayment of loans and advances.

Financing activities

In Financial Year 2023-24, net cash generated financing activities was 157.14 Lakhs, which predominantly due to interest and other income received of 23.33 Lakhs, interest and finance charges paid of 324.44 lakhs and proceeds of short term and long term borrowing 457.88 Lakhs.

In Financial Year 2022-23, net cash used in financing activities was 3362.75 Lakhs, which predominantly due to proceeds from issue of shares 297.66 Lakhs, interest and other income received of 17.38 Lakhs and proceeds of long term and short term borrowing 3047.71 Lakhs.

In Financial Year 2021-22, net cash used in financing activities was 1349.00 Lakhs, which predominantly due to proceeds from issue of shares 680.15 Lakhs, interest and other income received of 1.88 Lakhs and proceeds of long term borrowing 666.97 Lakhs.

In Financial Year 2020-21, net cash generated from financing activities was 0.50 Lakhs, which predominantly due to proceeds from long term borrowing 0.50 Lakhs.

RELATED PARTY TRANSACTIONS

For further information please refer Annexure 30 "Related Party Transaction" under Chapter titled "Restated Financial Statement" on page 152 of the Prospectus.

FINANCIAL MARKET RISKS

We are exposed to financial market risks from changes in borrowing costs, interest rates and inflation.

INTEREST RATE RISK

We are currently exposed interest to rate risks to the extent of outstanding loans. However, any rise in future borrowings may increase the risk. EFFECT OF INFLATION

We are affected by inflation as it has an impact on the material cost, operating cost, staff costs etc. In line with changing inflation rates, we rework our margins so as to absorb the inflationary impact.

INFORMATION REQUIRED AS PER ITEM (2) (C) (I) (11) OF PART A OF SCHEDULE VI TO THE SEBI REGULATIONS, 2018:

Factors that may affect the results of the operations:

1. Unusual or infrequent events or transactions

Except as described in this Prospectus, there have been no other events or transactions to the best of our knowledge which may be described as "unusual" or "infrequent".

2. Significant economic changes that materially affected or are likely to affect income from continuing operations. Our business has been subject, and we expect it to continue to be subject to significant economic changes arising from the trends identified above in ‘Factors Affecting our Results of Operations and the uncertainties described in the section entitled "Risk Factors" beginning on page no. 22 of the Prospectus. To our knowledge, except as we have described in the Prospectus, there are no known factors which we expect to bring about significant economic changes.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section titled "Risk Factors" beginning on page no. 22 in this Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Future changes in relationship between costs and revenues, in case of events such as future increase in labour or material costs or prices that will cause a material change are known.

Our Companys future costs and revenues will be determined by demand/supply situation, government policies and other external and internal economic factor.

5. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or increased sales prices.

Our Company is engaged in business of manufacturing of high quality open end yarn catering to the textile industry. Increases in revenues are by and large linked to increases in Sale of our products and also dependent on the price realization of our products i.e. cotton yarn.

6. Total turnover of each major industry segment in which the issuer company operated.

Our Company is engaged in business of manufacturing of high quality open end yarn catering to the textile industry.

Relevant Industry data, as available, has been included in the chapter titled "Industry Overview" beginning on page no. 91 of this Prospectus.

7. Status of any publicly announced new products or business segment.

Our Company is engaged in business of manufacturing of high quality open end yarn catering to the textile industry. Our company has not publicly announced any new business segment till the date of this Prospectus.

8. The extent to which business is seasonal.

Our Company is engaged in business of manufacturing of high quality open end yarn catering to the textile industry. Business of our company is not seasonal in nature.

9. Any significant dependence on a single or few suppliers or customers.

The Business of our company is dependent on few numbers of customers. Our top ten customers contribute to 79.57% and 100.00% of our total sales for the period/year ended March 31, 2024, and March 31, 2023, respectively.

Further, we also have significant dependence our raw material and packaging material suppliers, our Top ten Suppliers contributes to 93.53% and 100.00% of our total purchase of Raw material and Packaging material for the year ended on March 31, 2024and March 31, 2023 respectively.

10. Competitive conditions:

We face competition from existing and potential competitors which is common for any business. We have, over a period of time, developed certain competitors who have been discussed in section titles "Business Overview" beginning on page no. 103 of this Prospectus.