Valson Industries Ltd Management Discussions.

Economy Overview:

The Textile industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital-intensive sophisticated mills sector on the other end. The decentralised power looms/ hosiery and knitting sector forms the largest component in the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. Indias textiles industry has a capacity to produce wide variety of products suitable for different market segments, both within India and across the world.

The Indian textiles sector has been one of the worst hit sectors due to the COVID-19 crisis. In the context of its socio-economic primacy for the Indian economy, which is second only to agriculture, the industry must be given sufficient attention in academic and policy circles. This perspective is an earnest attempt at filling the void in scholarship on the issue of linkages between the Indian textiles sector and the COVID-19 crisis. The unprecedented crisis in the form of COVID-19 flu pandemic has threatened to derail the socio-economic life of people globally.

The effect of COVID-19 on the Indian textiles industry is manifold. Be it demand or supply, inputs or output, the flu pandemic has impacted almost all facets of the Indian textiles industry. Needless to say, the issues and challenges presented by this pandemic need a proper discussion to mitigate and contain its impact not only on the industries but also on the entire economy, given the preeminence of this sector within Indias economic landscape.

Indias textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. Indian apparel market is expected to reach US$ 85 billion by 2021.Rising Government focus and favourable policies is leading to growth in the textiles and clothing industry.

Government Initiatives

The Ministry of Textiles is encouraging investment through increasing focus on schemes such as Technology Up-gradation Fund Scheme (TUFS). In Union Budget 2020-21, the Government has allocated Rs. 761.90 crore (US$ 109.01 million) for Amended Technology Upgradation Fund Scheme (A-TUFS). The Cabinet Committee on Economic Affairs (CCEA), Government of India has approved a new skill development scheme named ‘Scheme for Capacity Building in Textile Sector (SCBTS). The Government announced a special package to boost export by US$ 31 billion, create one crore job opportunities and attract investment worth Rs. 80,000 crores (US$ 11.93 billion) during 2018-2020. Cumulative FDI (Foreign Direct Investment) inflow in the textiles sector stood at over US$ 3.46 billion between April 2000 to September 2020.

Initiatives taken by Government of India are:

In Union Budget 2020-21, the Government of India has allocated around Rs. 3,515 crore (US$ 502.93 million) to the Ministry of Textiles and Rs. 80 crore (US$ 11.45 million) for the scheme on Integrated Textile Parks. The Ministry of Textiles has announced Rs. 690 crore (US$ 106.58 million) for setting up 21 readymade garment manufacturing units in seven states for development and modernisation of Indian textile sector. National Technical Textiles Mission is proposed for a period from 2020-21 to 2023-24 at an estimated outlay of Rs. 1,480 crore (US$ 211.76 million).

Government launched production linked incentive scheme to provide incentives for manufacture and export of specific textile products made of man-made fibre.

The Directorate General of Foreign Trade (DGFT) has revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textiles Industry - readymade garments and made-ups - from 2% to 4%.

The Government of India has taken several measures including Amended Technology Up-gradation Fund Scheme (A-TUFS), estimated to create employment for 35 lakh people and enable investment worth Rs. 95,000 crore (US$ 14.17 billion) by 2022.

In March 2021, under the ongoing sub-mission on agroforestry (SMAF) scheme, the Ministry of Agriculture and Farmers Welfare signed a memorandum of understanding (MoU) with the Central Silk Board, under the Ministry of Textiles, on a convergence model to implement agroforestry in the silk sector.

Effective 01 January 2021, to boost exports, government have extended the benefit of the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) to all exported goods

To support the handloom and handicrafts sector, the government has taken steps to onboard weavers/artisans on Government e-Marketplace (GeM), provide a wider market and enable them to sell their products directly to various government departments and organisation. As of December 31, 2020, 171,167 weavers/artisans/handloom entities have been registered on the GeM portal.

Defense Research and Development Organisation (DRDO) is helping the Indian textile industry to produce yarns and eliminate dependence on import of Chinese and other foreign clothing for military uniforms. Indian defense sector has expressed support towards the Indian technical textile sector.

In March 2021, while addressing the 9th edition of TECHNOTEX 2021 organized by FICCI, General Bipin Rawat, Chief of Defence Staff appreciated the innovations in Indian technical textile and stated that the armed forces will rather reduce imports and instead procure technical textiles from Indian industries as a part of the Aatmanirbhar Bharat initiative.

Outlook:

The post-Covid era has provided a big opportunity for the online textile industry. The sales in the online textile industry witnessed a jump in various cities and states of India due to the lockdown that was imposed to curb the spread of coronavirus-caused Covid-19 pandemic.

Despite all these negative aspects, there is a silver lining as well - many people, sectors, and industries have turned the coronavirus crisis into an opportunity. One such sector is the Textile Industry. Indian textiles and apparel industry contributed 2.3 percent to the GDP of India, 13 percent to industrial production, and 12 percent to export earnings (as of March 22, 2021).

The Indian textiles industry has immense potential to register an indelible mark while contributing to the growth and success story of the nation but the sector needs more support from the government like policy initiatives, crackdown on red-tapism involved in availing schemes meant for the textile industry.

India is working on major initiatives, to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on rise. Government is supporting the sector through funding and machinery sponsoring. The future for the Indian textiles industry looks promising, buoyed by 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.

High economic growth has resulted in higher disposable income. This has led to rise in demand for products creating a huge domestic market.

Risks and concerns:

The COVID-19 pandemic has exposed decades-old risks, while creating new ones, in the global textile industry relating not only to the disastrous environmental impacts of garments but also geopolitical tensions impacting resource supply. However, the circular economy can potentially provide solutions to mitigate these risks but the transition will need to involve new governance mechanisms and incorporate just transition principles in order to be successful.

There are some areas of concerns, which need to be stated here. Along-with recovery, the textile industry is also facing increase in input prices in sync with the global trends and appreciating rupee. The major risk and concerns are as follows:

1. Shortage in supply of raw material

2. Increase in cost of raw material

3. Pressure to meet stringent social and environmental norms

4. Infrastructure bottlenecks

5. Lack of efficiency due to manual work

6. Unorganized weaving sector

Companys Business

The company has established its brand name "VALSON" in polyester texturised yarn since 1983. Today we are one of the leading manufacturers of Polyester Texturised & Twisted Yarn and Processors of Cotton, Polyester and other Fancy yarns in India with Customers having diverse uses its end-users comprise players from the shirting, suitings, label, upholstery, hosiery, furnishings, automative and ready-made garments industries etc.

Quality Products and Services has been our top most priority and after continuous research, we have ventured into the dyeing of various qualities of yarns. We have more than 65000 shades in our data bank.

The Company is into manufacturing and exporter of Polyester Dyed Yarn and processors of

Cotton and other fancy yarn.

It has activities like Texturising, Twisting, Coning and Dyeing Plants to produce Quality Polyester Texturised Twisted Yarn and other fancy yarn. The Manufacturing process is as under: The basic raw material used for texturising is Partially Oriented Yarn popularly known as POY. It is fragile, weak, delicate and easily breakable. POY does not have any purposeful use as it lacks the stability, strength, and therefore it cannot be directly used for weaving or knitting.

The term texturising means the production of a permanent crimp in the initially straight fiber or filamentyarn. It increases the bulk and improves the elasticity of yarn. This activity fully draws POY yarn to comply with the market requirement and therefore it is different commercial commodity. The POY after the texturising process is known as "Weft Yarn". The twisted crimp yarn is hard, strong and not easily breakable. It gives the yarn a feel of natural like cotton or wool.

The "Weft Yarn" is further twisted for the purpose of imparting the required strength, which is necessary to withstand the high-speed run-on looms for the purpose of weaving. The twisted yarn is known in commercial parlance as "Warp Yarn".

The Texturised and twisted yarn is properly washed and thereafter is dyed under quality parameters to get Colour Strength, Tone, Dispersion and Sublimation fastness.

The Dyed Yarn is wound around standard size cones before they are packed for dispatch.

The Company has established its brand as reputed manufacturer of quality, polyester dyed yarn and processors of cotton and other fancy yarn. It has been supplying its products through the network of agents in market. There are about 10 to 15 major agents spread over in Maharashtra, Delhi, Punjab, Northern and Southern India.

There scope of activity of agents will also include the following: -

1) To book the orders and to render various incidental services including the monitoring of the follow up of the same.

2) To obtain the general market information and acquaint the Company from time to time.

3) To receive the payment and statutory forms for and on behalf of the Company in respect of direct invoice raised on the customers for supply of material delivered as per their instruction at anywhere in India.

The Company is exploring new avenues to increase the export base and has chalked out strategic growth plan for the potential market in Middle East, U K, Egypt, Russia and other European markets.

We are getting incentives like duty drawback for export of our goods and have covered our products under MEIS Scheme declared by Ministry of Commerce as an additional incentive to increase the export and capture global market.

Opportunities:

The post-Covid era has provided a big opportunity for the online textile industry. The sales in the online textile industry witnessed a jump in various cities and states of India due to the lockdown that was imposed to curb the spread of coronavirus-caused Covid-19 pandemic.

It goes without saying that cloth is one of the basic needs and requirements after food. It is nothing less than any essential commodity, and thats why even during lockdown online textile industry witnessed a boom in sales.

In the year 2021, e-retailers will prove to be a big game-changer by playing a pivotal role recovery of the Indian economy in the post-Covid era. Indian textiles and apparel industry have contributed 2.3 percent to the GDP of India, 13 percent to industrial production and 12 percent to export earnings. Post Covid-19 pandemic, when the Indian economy is showing green shoots of recovery, the future of the online textile industry looks promising in the wake of increased domestic consumption after a lockdown in addition to export demand playing an important role.

The Indian textiles industry has immense potential to register an indelible mark while contributing to the growth and success story of the nation but the sector needs more support from the government like policy initiatives, crackdown on red-tapism involved in availing schemes meant for the textile industry.

Moreover, the Centre also took the decision to rationalize the duties on raw material inputs. But, more export promotion policies are required for the textiles sector, like in the past, the Central government allowed 100 percent FDI in the sector under the automatic route.

Threats:

The Indian textiles sector has been one of the worst hit sectors due to the COVID-19 crisis. In the context of its socio-economic primacy for the Indian economy, which is second only to agriculture, the industry must be given sufficient attention in academic and policy circles. This perspective is an earnest attempt at filling the void in scholarship on the issue of linkages between the Indian textiles sector and the COVID-19 crisis. The unprecedented crisis in the form of COVID-19 flu pandemic has threatened to derail the socio-economic life of people globally.

The Indian textile sector is besotted with issues such as lack of technology upgradation, inefficient infrastructure, fragmented industry structure, sluggish demand in major export markets like the USA and the EU due to the vestigial impact of the Global Financial Crisis and rising competition from countries such as Vietnam, Bangladesh, China and Turkey in areas such as apparels, cotton fabric and carpets.

Indian textile exporters are facing stiff competition and they lack policy and labour law reforms. But the Company through its quality production upgradation of technology (automation) work hard to competes and do well with other players in this sector.

Segment–wise performance:

The Companys business activity falls within a single business segment viz. ‘Yarns and the sales substantially being in the domestic market, the financial statements are reflectiveof the information required by Accounting Standard 108 "Segment Reporting", notified under the Companies (Indian Accounting Standards) Rules, 2015.

Human Resources:

Valson recognizes that nurturing and developing human resources by recruiting the best talent is vital to the long-term success of the company. Employees are provided with continues opportunities for active learning and development which are viewed as the key drivers of our growth and thereby contributing to the success of the Company. The remuneration structure is linked directly with performance and reward.

The Company acknowledges that human resources are its biggest asset and hence who have been nurtured and strengthened over the years.

Insurance:

Valson Industries Limited has insured its assets and operations against all insurable risks including fire, earthquake, flood, and etc. as part of its overall risk management strategies.

Safety, Health and Environment

At Valson, safety is considered a high priority and all efforts are made to ensure safe working environment for employees. All probable incidents are analyzed and corrective actions are taken. Employees are trained in safe practices to be followed at work places at all the times.

Environmental Preservation:

Quality of human life is the most important factor to sustain life and this could be achieved through preservation of natural environment. The Companys R & D Department continues to develop new shades in an environmentally sustainable manner. The Company always consumes eco-friendly dyes, colours and chemicals. The Company has also installed an Effluent Treatment plant for proper treatment of waste water. Your companys strength lies in consistent quality consciousness and eco-friendly awareness.

Material developments in Human Resources / Industrial Relations:

The company has always considered human resources as the driving force for progress and success and they are the main assets of the company. Management is of the firm belief that the growth of the company is due to the continuous contribution from its manpower. The company has the required number of skilled and semi-skilled persons and it constantly tries to improve their quality and productivity and provides a congenial working environment for them. The company is committed for continual improvement in all aspects of social standard, business and employees welfare to grow as an ethical business. We believe that harmony amongst employees, employer and business leads to socio economic improvement. The industrial relations continued to be extremely cordial during the year.

Internal control systems and their adequacy:

The Company has adequate system of internal controls to ensure that all the assets are safeguarded and are productive, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. Necessary checks and controls are in place to ensure that transactions are properly verified, adequately authorized, correctly recorded and properly reported. The scope and authority of the Internal Audit (IA) function is defined in the Internal Audit Charter.

The Internal Audit department carried out audits in different areas of your Companys operations. Post audit reviews were carried out to ensure that audit recommendations were implemented and they monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and observations and corrective there by strengthen the controls. Significant actions thereon are presented quarterly and yearly reports to the chairman of Audit Committee of the Board to maintain its objectivity and independence.

The Audit Committee reviewed the audit program and findings of the Internal Audit department and the Company when needed takes corrective actions.

Discussion on financial performance with respect to performance: operational

The Covid-19 pandemic is primarily expected to adversely impact exports and with second order impact on the domestic markets with both exports as well as domestic sales falling.

The operations of the Company were disrupted in last week of March, 2020 due to lockdown. The Company restarted the operations in phased manner after necessary permissions from the Statutory Authorities in the last week of April, 2020.

Due to unpredictable and fast changing COVID-19 situation, it is very difficult to assess the future impact of COVID-19 on business operations and it is expected to evolve over a period of time. However, with the joint efforts our committed employees and quality of leadership we had achieved revenue of Rs. 6352.91 Lakhs (i.e. 69.40%).

Performance review of the company (Important ratios):

Year Ended March 2021 2020
Operating Profit /(Loss) (1.13)% 5.18%
Gross Profit / (Loss) Margin (2.94)% 4.00%
Interest / Sales 1.81% 1.18%
Net Profit / (Loss) after Tax (7.73)% 0.85%
Return of Net worth (RONW) (18.29)% 2.45%
Debt / Equity Ratio 0.5 0.3
Current Ratio 1.2 1.5
Inventory Turnover Ratio 6.9 10.2
Interest Coverage (0.6) 4.3
Debtors Period (in Days) 41.9 28.9

This year was globally extra-ordinary and unexpected for everyone including the textile industry and our company has also got hit. The company was in lock down till 1st week of May 20 and was not fully operated due to Govt. Covid19 guidelines till September 2020. There was fluctuation in raw-material prices, increase in power cost at UT Dadra & Nagar Haveli, Diu and Daman and increase in staff (Labour) cost.

Please find below the highlights of the financial performances of your Company during the financial 2021: year 2020-

1) There is a decline of 19.48% in Texturising production (4113 MT) compared to last year (5108 MT).

2) There is a decline of 37.45% in Twisting production (1488 MT) compared to last year (2379 MT).

3) There is decline of 20.34% in Sales (4346 MT) compared to last year (5456 MT).

4) There is a decline of 37.06% in Dyeing production (2505 MT) compared to last year (3980 MT).

5) There is a decline of 30.7% in terms of Revenue from operations (Rs. 6352.91 Lakhs) compared to last year (Rs. 9154.72 Lakhs) mainly due to fluctuation/volatility in crude price.

6) During the year there is an increase in finance cost to Rs. 107.80 Lakhs from 107.80 Lakhs (i.e. increase of 6.8%).

7) The company has reduced and controlled its staff cost to Rs. 842.15 compared to last year Rs. 1304.60 Lakhs (during the year company had reduced the existing salary to 50%, 60% 75% category wise for few months).

8) The companys power cost has also reduced to Rs. 688.78 Lakhs compared to Rs. 985.98 Lakhs mainly due to lockdown and restrictions and Solar Power production.

9) Depreciation is Rs. 311.05 Lakhs and has increased in comparison to last year (Rs. 308.38 Lakhs).

10) The Operating Profit/(Loss) before Other income and Interest and Depreciation and Tax decreased by 126.26% (Loss) Rs. 109.81 Lakhs as compared to last year amount of (Rs. 418.14 Lakhs).

The Company shall direct all its efforts and resources towards a strong and healthy shareholders wealth creation.

For and on behalf of the Board of Directors
of Valson Industries Limited
Suresh N. Mutreja
Place: Mumbai Chairman & Managing Director
Date: June 30, 2021 DIN: 00052046