Valson Industries Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Economy Overview:

The Indian textile sector is set to benefit from the governments priorities outlined in the budget 2023. The budget indicates the governments commitment to enhancing the textile sectors competitiveness, employment opportunities, and exports.

The government has set aside substantial funds for the textile industry, including Rs. 10,000 crore for the production-linked incentive (PLI) scheme for textiles, Rs. 500 crore for the Indian Technical Textiles Mission, and Rs. 1,000 crore for the National Technical Textiles Mission. These measures are expected to boost the sectors production and exports, as well as create more employment opportunities for people in the country.

In addition, the government has announced several other initiatives to support the textile sector, including establishing mega textile parks, providing infrastructure development support, increasing support for the Handloom sector, and supporting the growth of the jute sector.

The textile sector is a significant contributor to Indias economy, and the governments focus on it in the 2023-24 budget is expected to have a positive impact on the sectors growth and development. The governments commitment to the textile sectors development is also in line with its goal of making India a global manufacturing hub and boosting its exports.

The new budget for 2023-24 contains a sizeable increase in grants for the textile industry, with a total allocation of Rs. 4,389.34 crore. These and other features of the budget show the governments priorities for the textile industry.

Other Initiatives taken by Government of India are:

• From an allocation of Rs. 650 crore for ATUFs in 2022-23, this figure has increased to Rs. 900 crore in 2023-24; this will enable quicker payment processes for any pending cases.

• To help with the productivity of extra-long staple cotton, there will be a cluster based and value chain approach using public private partnerships, providing raw material security for the garment industry. Additionally, five new HS Codes have been identified for further classification of cotton as per staples length. The support from the Cotton Corporations Price Support Scheme has been withdrawn but they are yet to predict the full impact of this action.The Increased allocation to both RoDTEP and RoSCTL have also been increase as well as a corpus of Rs 9,000 crore revamping credit guarantee schemes which aims provide collateral free guaranteed credit worth RS 2 lakh crore.Furthermore, an interest equalization scheme (IES) has been implemented with an allocation of Rs 2376 crore in 2022-23 increasing to Rs 2932 crore in 2023-24.

• Efforts are also being put into creating a green infrastructure that will reduce our carbon footprints while making apparel facilities sustainable too.

• This efforts to promote sustainability within the textile industry as well as technology such as Industry 4/0 courses including coding, AI and robotics via Pradhan Mantri Kaushal Vikas Yojana 4.0 show great promise in creating a credible workforce adept at current manufacturing jobs quickly and skilling countrys youth for international opportunities through Skill India Centres.

• Lastly, states are encouraged to set up Unity Malls promoting and selling ODOPs (One Distrcit One Product), GI products and other handicraft products locally and from other states too encouraging local produce on a larger scale than before.

• Additionally, a cluster-based value chain approach with Public Private Partnership (PPP) is being implemented to enhance productivity of extra-long staple (ELS) cotton by connecting farmers, states, and industries together through sources, services, and market linkages.

• The government has allocated a 38% increase in the allocation of Technology Upgradation Funds (ATUFs), going from Rs.650 crore in 2022-23 to Rs.900 crore in 2023-24.

Outlook:

The Textile Market (2023-2025) features an extensive analysis of the markets various types [Cotton, Jute, Silk, Synthetics, Wool] and applications [Apparel, Industrial Textile, Medical Textiles, Home Textiles], providing valuable insights into the market conditions, growth factors, and competition analysis. Our report includes 105 pages and tables, along with figures that present the most valuable data for the forecast period up to 2025.

The technical textile sector specialises in producing advanced fabrics by employing cutting-edge technology on natural and synthetic fibres. This industry prioritises materials with heightened durability, exceptional insulation and enhanced heat resistance. Innovative fabrics like Nomex, Kevlar and Spandex have diverse applications in healthcare, automotive, construction, security and other sectors. Soon, the demand for technical textiles is expected to soar, particularly in medical, eco-friendly, industrial, sports, healthcare, automotive and housing applications, thereby significantly influencing the textile industrys trajectory.

The textile industrys outlook for 2024 and beyond is characterised by a strong emphasis on sustainability, incorporating both natural and synthetic fibres, prioritising yarn quality, embracing technical textiles and digital printing and maintaining a resolute dedication to creating a more environment-friendly and ethical future. Looking ahead, the Indian textile market is anticipated to exceed a valuation of US$ 209 billion by 2029. The textile sector remains resilient by evolving to meet the demands of a changing world, actively embracing innovation, sustainability and consumer preferences to maintain its enduring relevance.

India stands as the worlds second-largest producer of man-made fibres. These fibres contribute to nearly 100% of non-cotton and blended fabrics, offering versatility and cost-efficiency. Currently, the country produces a staggering 1,441 million kilogrammes of synthetic fibres and over 3,000 million kilogrammes of synthetic filaments. Man-made fibres, such as viscose and polyester, have proven to be flexible, durable and capable of withstanding high-speed machinery. Their hydrophobic properties open doors to multiple applications. Consequently, man-made fibres have become a vital pillar of Indias textile industry, providing the sector with the agility to adapt to changing market dynamics.

Indias textile sector is poised for growth with a 28% increase in the budget allocated for the sector in the fiscal year 2024-25. This significant boost in funding is expected to drive innovation, enhance productivity, and create new opportunities for the textile industry in India. The increased investment underscores the governments commitment to supporting the growth and development of the textile sector, which plays a crucial role in the countrys economy. With this increased budget allocation, the textile sector is well- positioned to capitalize on emerging trends and capitalize on new opportunities in the global market.

The future of the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. Overall, the increased budget allocations is a positive step for the Indian textile sector. However, its actual impact will depend on the specific measures implemented and how effectively the industry leverages this opportunity.

Risks and concerns:

The textile sector is one of the critical sectors of the Indian economy, accounting for more than two per cent of the total GDP and more than 12 per cent of the manufacturing sector gross domestic product (GDP). The sector is also the second largest provider of employment in India, after agriculture. It provides employment to an estimated 45 million people directly and to another 60 million indirectly through allied activities. Not only is the textile sector highly labour intensive, it also employs unskilled and semiskilled labour force and is also an important source of employment for women.

The Indian domestic market is sluggish too. Even the festival season did not bring cheers to the manufacturers, unlike earlier years. It seems that the people are giving preference for food items, buying consumer equipment, gadgets like mobiles, i-pads, etc. as also cars and bikes over garments. The spinning sector reeled under high under-utilization due to reduced yarn imports by China as well as reduced buying by weavers and knitters. Reduced exports and dull local consumption resulted in trouble for the local textile industry. The PLI and PM Mitra schemes are expected to attract investments in man-made fibre and technical textile products and reduce the import dependability over the years. The athleisure and sportswear segment has however shown tremendous growth with the brands doubling their sales in the last two years. However, in this segment too most of the man-made fibre spandex fabrics have been imported from China, Vietnam and Taiwan. The margins of the textile mills are under pressure, although the cotton prices have stabilized by now around 2-year low.

The Indian textile industry is now grappling with a significant setback as freight costs witness a staggering 40% increase due to unrest in the Red Sea. This unexpected spike in transportation cost has raised concerns about its impact on operational costs and pricing. 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 issues textile industry of India is facing like:

• Shortage in supply of raw materials

• Increase in the cost of raw materials

• Environmental problems

• Infrastructure bottlenecks

• Impact of GST

• Shortage of laborers due to a mass return

• The decline in Apparel export.

• Industry has unfavorable labor Laws.

• India has disadvantage in terms of Geographic Locations. Because of this there is Global Logistic Disadvantage as shipping cost is higher.

• There is uneven supply chain model and inbound freight traffic is low which affects cost of shipping.

• India lacks in various trade memberships, which restrict to tap potential market.

• Inappropriate energy supplies to rural and sub-urban areas.

• Industry needs to compete on the basis of Price, Quality and Delivery for the different segments.

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 filament yarn. 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 RODTEP Scheme declared by Ministry of Commerce as an additional incentive to increase the export and capture global market. Opportunities:

Opportunities:

The Indian textile and apparel market size reached US$ 197.2 Billion in 2023. Looking forward, IMARC Group expects the market to reach US$ 592.7 Billion by 2032, exhibiting a growth rate (CAGR) of 12.6% during 2024-2032. The increasing demand for premium quality clothing and footwear items, rising number of schemes launched by the Government of India to empower weavers, and the growing ethically sourced sustainable materials represent some of the key factors driving the market.

Piyush Goyal, Minister of Commerce and Industry, announced that the government is establishing 12 new industrial parks across the country and has plans for 5-6 mega textile parks. He encouraged the private sector to seize these opportunities.

The textile PLI scheme might see a reduction in the investment threshold and include more man-made fabric (MMF) products, with considerations also being made to include apparel in the scheme.

The cabinet is expected to soon decide on whether to extend the benefits of production-linked incentive (PLI) schemes to additional products within the textiles, food processing, and pharmaceuticals sectors. The expansion of products under the PLI scheme is under consideration at the cabinet level, with proposals to include more products, particularly in the textiles sector.

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

Textile And Leather Sector

Reduced BCD on MDI for Spandex Yarn: The Basic Customs Duty (BCD) on methylene diphenyl diisocyanate (MDI) for spandex yarn production will be reduced from 7.5% to 5%. This move addresses duty inversion and reduces input costs for manufacturers.

Lower BCD on Down Filling: The BCD on real down filling material from ducks or geese will be lowered from 30% to 10%, making premium filling materials more affordable for garment manufacturers.

Expanded Exemptions: The list of exempted goods for manufacturing textile garments, leather, footwear and other leather articles for export will be expanded, further reducing production costs.

Simplified Export Duties: The export duty structure on raw hides, skins and leather will be simplified and rationalized to streamline export processes.

The Union Budget 2024 -2025 has increased the allocated budget for the textile sector by INR 974 crore to INR 4,417.09 Crore.

The budget also raised the allocation for research and capacity building to INR 686 crore from INR 380 crore. The proposal also includes reducing the basic customs duty (BCD) on real down-filling material from ducks and geese to improveIndian leather and textile export competitiveness.

In addition, the allocation of the budget for the National Technical Textiles Mission rose by 120.59%, from INR 175 crore in 2023-24 to INR 375 crore this FY

Technical textiles are special textile fabrics designed for performance and functionality. They are primarily used in healthcare, construction, agriculture, automotive, aviation, home care, and protective gear.

These textiles can be made from both natural and synthetic fibers, like Spandex, Twaron, Nomex, and Kevlar.

As of 2023, India exports approximately $2.5 billion worth of technical textiles, with medical apparel being the most exported. India aims to increase this number to $10 billion in the next five years.

Furthermore, the budget allocated for the National Handicraft Development Programme is INR 236 crore, a significant 38% jump from the previous financial years INR 171 crore.

The budget for silk promotion has been raised to INR 900 crore, up from INR 875 crore. Currently, India ranks as the worlds second- largest silk producer. The silk industry, or sericulture, employs about 9.2 million people in rural and semi-urban areas. Despite this, India imports silk due to high domestic demand.

Funding for centrally sponsored schemes has surged by 45.6% to INR 3,866 crore from INR 2,654 crore in 2023-24. This increase supports the promotion of geotextiles in the North-East, PM-MITRA, handloom protection, and raw material supply.

The future for the Indian textile industry looks promising, buoyed by both 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.

Threats:

Indias textile industry weaves a vital thread into the nations economic tapestry, contributing 2.3 per cent to the GDP, 13 per cent to industrial production and 12 per cent to exports. The textiles and apparel sector the countrys second-largest employer, directly engaging 45 million workers and indirectly supporting 100 million more in allied industries is especially significant as India grapples with an unemployment crisis.

Indian Textile Industry is highly fragmented Industry that is lead by several small-scale industries. Because of this, there is lack of Industry Leadership. These small companies do not have fiscal resources to invest in technological up-gradation and they are not able to generate economies of scale. This leads to inability to establish a world-class competitive player. Despite many policies, Industry is bound with historical regulations that are reason for Complex Industry Structure. Though Industry has cheap and skilled manpower but they are less productive. There is lack of technological up-gradation in various steps of value chain that affect the quality, cost and distribution.

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.

The issues textile industry of India is facing like:

• Global Competition

• Shortage in supply of raw materials with rising the cost of raw materials

• Environmental problems

• Infrastructure bottlenecks (Over dependency on Manual Efforts)

• Impact of GST

• Shortage of laborers due to a mass return

• Heavy Noise Pollution and Rising Environmental Concerns

• Inadequate Attention Paid to Technology Upgradation and Regular R&D

• The decline in Apparel export.

• Fragmentation and Skill Shortage

• High Volume of Waste Material; Exposure to Chemical Hazards

• Market Volatility and uncertainty

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 reflective of 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 wastewater. 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 thereby strengthen the controls. Significant audit observations and corrective 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 operational performance:

During the year 2023-2024, the company has performed very well the topline was decrease a bit almost 4.70%. The company has done a well and it comes in the profit lots of fluctuation in the crude prices which affected the POY, Dyes & Chemicals price and steep rise in price of coal and also due to shortage of container the freight prices has increase very sharply, in last two quarters company has done reasonably well and try to control the cost and other expenses.

The highlights financial performances of your Company during the financial year 2023-2024:

Year Ended March	2024	2023
Operating Profit /(Loss)	3.50%	3.33%
Gross Profit / (Loss) Margin	2.42%	2.36%
Interest / Sales	1.08%	0.97%
Net Profit / (Loss) after Tax	0.79%	0.01%
Return of Net worth (RONW)	3.65%	0.07%
Debt / Equity Ratio	0.67	0.68
Current Ratio	1.48	1.28
Inventory Turnover Ratio	10.49	11.48
Interest Coverage	2.85	3.66
Debtors Period (in Days)	23.36	26.18

1) There is an increase of 2.20% in Texturising production (6260 MT) compared to last year (6126 MT).

2) There is a reduction of 7.60% in Twisting production (2420 MT) compared to last year (2620 MT).

3) There is a reduction of 0.30% in Sales (6614 MT) compared to last year (6594 MT).

4) There is a reduction of 4.50% in terms of Revenue from operations (Rs. 12457.64 Lakhs) compared to last year (Rs. 13044.66 Lakhs).

5) During the year there is marginally increase in finance cost to Rs. 134.18 Lakhs from 128.82 Lakhs.

6) The staff cost to has decreased 0.10% to Rs. 1424.22 lakhs compare to last year Rs. 1425.51 Lakhs.

7) The companys power cost has decreased to Rs. 1380.72 Lakhs compared to Rs. 1463.04 Lakhs.

8) Depreciation is Rs. 255.51 Lakhs and Rs. 272.61 Lakhs.

9) The Operating Profit/(Loss) (P/(L)BOIDT) before other income and Interest and Depreciation and Tax has decreased marginally by 1.22% Rs. 380.99 Lakhs as compared to last year amount of Rs. 385.68 Lakhs.

10) Earnings before Interest, Tax, Depreciation (EBITDA) has decreased marginally by 0.42% Rs. 435.41 Lakhs as compared to last year amount of profit Rs. 437.24 Lakhs.

During the year 2023-2024 the company has procured the need base machinery and ancillaries of Rs. 318.38 Lakhs including Capital WIP The said CAPEX has been partly financed way of term loan from by Kotak Mahindra Bank (i.e. Rs. 125.00 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
	Suresh Mutreja
	Chairman & Managing Director
	DIN:00052046
	Varun Mutreja
	Whole Time Director - CFO
	DIN:07022832
	Kunal Mutreja
Place: Mumbai	Whole Time Director - CEO
Date: May 29, 2024	DIN: 07022857