Veejay Lakshmi Engineering Works Ltd Management Discussions

As required under reg.34(2)(e) read with schedule v-b(1) of sebi (lodr) regulations,2015, a detailed report on the management discussion and analysis is given below.

Industry structure and developments

The company has been manufacturing post spinning machines and subsequently diversified into textile spinning from 1993. Both the twisting machines produced and the yarn and fabrics produced fall into the same category and the fortunes in the textile units impact the engineering units prospects also.

Indian textile industry is one of the largest industries at the global level with a large manufacturing base with a strong presence across the entire value chain. The growth of indias textile industry is restricted in view of fluctuation in the raw material prices which remain higher than international prices. The industry expects the government to come to its aid by withdrawing import duty on cotton. The textile and apparel sector is the second largest employment generator next to agriculture providing direct and indirect employment. The governments both at the state and central levels have been supporting the growth of the industry through various fiscal incentives.

Textile division

The textile division has a spinning mill producing 100% cotton yarn of coarse counts with facilities for twisting and knitting to sell the yarn with value addition. The performance of this division has not been up to satisfactory level in the year under review. The demand for the yarn in the domestic market from garment manufacturers continues to be sluggish. Steady deliveries in export of yarn, to some extent, had compensated fluctuating domestic demand. But the margins were lower not fully covering the production cost and overheads. Although cotton prices have been stable during the year yarn prices did not pick up in view of lower domestic demand. The working result had not improved significantly over the previous year. The cost of cotton in the year under review was stable compared to previous year. Constraints in achieving higher productivity is also a reason for poor performance.

The companys captive-generated power from wind mills and rooftop solar equipment supplements its energy needs. The capacity utilization of the textile division had improved by around 10% over the previous year. The higher utilization in the year under review however did not enable expected result due to low margins/price realization.

The products of engineering division are capital goods used in textile industry and the performance of this division depends upon the general performance of the textile industry. Two for one twister has been the main product of the engineering division contributing to the sales and profits. Assembly winders are sold in small volumes. Two for one twister is used in post spinning process for value addition and the demand for this product is derived from the demand for twisted yarn. The reduced demand for domestic consumption or export of twisted yarn affects the demand for this machine. The market is segmented and a considerable portion of the demand of twisting machines from independent job workers of twisted yarn is catered by manufacturers from western india who offer very low prices

The continuing recessionary conditions in the market had an impact on the order inflow for the engineering division during the year under review. Despite the incentives provided by few state govts and also the pli scheme of govt., there has not been any noteworthy improvement in the capital expenditure in the spinning sector. There has been a significant fall in the total production of spinning machinery in the country and the companys production volume of textile machinery has also come down. The company could sell only 35 nos of twisting machines during 2024-25 compared to 63 machines sold in the previous year.

The company is also facing stiff competition from other manufacturers who offer low prices. The company has taken steps to develop a machine of new design with the main focus on bringing down the cost of production. There has been, however, an increase in the sale of spare parts from rs. 357 lakhs in 2023-24 to rs.698 lakhs in 2024-25

Opportunities and threats

Textile industry caters to the basic needs and is a growing industry with a wide spectrum of activities from fibre to apparels. Govts both at the central and state level are giving all support for the growth of the industry. There is good scope for increasing the export of textile products.

The major threat for the cotton spinning industry is the fluctuation in prices and availability of good quality cotton. Cotton has to be purchased from other states and hence there is a locational disadvantage compared to other spinning mills in cotton growing states. Unsustainable cotton and yarn prices also is a threat and result in less margin or no margin.

Engineering unit is facing stiff competition from competitors from india and china. The competitors offer low prices.

Segmentwise sales / profit

(in lakhs)

Higher price realization in the sale of machines in domestic/export markets and increase in the sales volume of spares has contributed to a small amount of profit in engineering division compared to loss in the previous year.

Although capacity utilization/production volume of yarn in textile division increased marginally over the previous year, the reduction in sales revenue is due to lower market price that prevailed for yarn. There was also some reduction in cotton prices compared to previous year and this has reduced the loss in textile division.

Outlook

The operating margins can improve only if the domestic demand for yarn increases with higher price realization. The capacity utilization and productivity also have to improved to above 95% level as the margins are thin in coarse counts and profits can be realized only with higher volumes. The industrys prospects are cyclical and it is forecast that the demand outlook remains strong for the indian textile sector considering likely tariff hikes by usa on china, rising costs in east asian countries and prevailing instability in bangladesh.

The companys market share for twisting machines have been declining due to acute competition from manufacturers from india and china. The market share can be improved/sustained only when the company is able to offer machines at competitive prices. As it is not feasible to offer the machines of current design at lower prices, the company is taking steps to develop new models to offer the machines at competitive prices. The company is hopeful that the long reputation in the market as producers of twisting machines of reliable quality will assist the company to strengthen its position in the market and improve sales volumes/profits.

Risks and concerns

Although the company is keeping the machinery in engineering and textile divisions in good condition, most of the machines are getting due for modernization / replacements involving substantial capital expenditure.

- vagaries in the prices of cotton and yarn which affects profitability.

- tariff regulations and preferential treatments by importing countries affecting the demand for the products in export market.

- competition from other manufacturers of twisting machines.

- reliance on migrant workers.

- strain on liquidity due to losses and increase in borrowing cost due to infusion of additional funds by way of loans.

Internal control system and adequacy

The company has a proper and adequate system of internal controls commensurate with its size and nature of business.

All the assets are safeguarded, properly utilized and protected against loss from unauthorized use or disposition and the transactions are regulated, recorded and reported correctly. A chartered accountant carries out the audit at regular intervals to monitor the effectiveness of the internal checks and controls in different areas and reports/suggests measures for improvement.

Financial performance with respect to operational performance

The workings during the year has resulted in loss, which has eroded the working capital and has affected the liquidity position of the company. However, the promoters have provided loans to improve the liquidity. The company has been able to meet all its liabilities including loan servicing and interest obligations, in time, without any delay.

Key financial ratios for operations during the year:

(given in note 33 of financial statements)

Material developments in human resources and industrial relations

The company has a dedicated team of professionally qualified/experienced personnel in all functional areas. Opportunities are provided for self-development and career growth wherever necessary. Employees undergo training programs conducted in house and also outside by other professional bodies. The industrial relationship has been cordial throughout the year. The company has a total of 454 employees at the end of the year.

Cautionary statement

Statements in this report on management discussion and analysis describing the companys future objectives, projections, estimate and expectations may be forward looking statements within the meaning of applicable security laws or regulations. These statements are based on certain assumptions and expectations of future events, as they are perceived by the management at this juncture the actual results, however, may differ materially from those which have been made explicit or which are implied. The major factors that could make a difference to the companys operations include the supply demand condition of the companys products, both domestic and global, the price realizations, which are market related, and all other factors such as litigation and industrial relations.