Vishal Fabrics Ltd Management Discussions

In CY 2023, the global economy endured various macroeconomic challenges. Notwithstanding persistent geopolitical turmoil, supply chain disruptions, increased inflation rate and tight monetary policies, the global economy demonstrated resilience and achieved a growth rate of 3.2%. The year under review witnessed the emerging market and developing economies (EMDEs) achieve a higher growth rate as compared to the advanced economies. While the EMDEs grew by 4.3%, the advanced economies grew by 1.6%.

The growth in the global economy was complemented by the decline in the global inflation level. Global inflation declined from its CY 2022 peak to 6.8% in CY 2023, owing to effective monetary policies undertaken by the central banks of the major economies. Additionally, the fall in the energy price aided the global inflation level to decline. With inflation declining faster-than-anticipated in most regions, the recovery of global economic activities was further bolstered in the reported year. is further projected to decline to 5.9% in CY 2024. As per the reports, global inflation is anticipated to decelerate faster in the advanced economies than in the EMDEs.

As global inflation reaches its target level, central banks of major economies are expected to ease their policy rates, accelerating the revival of economic activities and promoting global economic growth. However, with some of major countries conducting their general election in CY 2024, notable shifts in the economies are expected.

The global economy is expected to sustain its growth at 3.2% for both CY 2024 and CY 2025. Additionally, global inflation level

India is one of the fastest-growing economies in the world, achieving a growth rate of 8.2% in the year under review². Additionally, with inflation anchored at 5.4%³, it promoted private consumption among individuals. The strong economic growth was supported by effective policies and initiatives taken by the Reserve Bank of India (RBI) and the Indian Government.

With the aim to cultivate an attractive business environment, the Government of India (GoI) made significant investment in infrastructure and extended support to small businesses. Further, India attracted significant foreign direct investments (FDI) in FY 2024. The growth in the FDI was driven by Indias presidency of G20, attracting global investors to the country.

Further, different sectors in the economy witnessed robust growth, especially the manufacturing sector. The reported year witnessed the manufacturing sector achieve a growth rate of 9.9%⁴, driven by strategic interventions made by GOI. One such initiative was Make in India, which attracted significant investments in the manufacturing sector and bolstered its growth.

The Indian economy is expected to sustain its positive growth momentum in the forthcoming years, facilitated by the steady decline in the inflation level.

The Indian economy is poised to become the third largest economy in the world. It is expected that its GDP will surpass Japan and Germany to become an economy worth USD 5 trillion by 2027⁵. The Indian Government is proactively supporting this growth by strengthening every economic sector of the country by drafting relevant policies and programmes. With the aim to develop as a global manufacturing hub, the Government of India is emphasising upon strengthening the manufacturing sector of the country.

In the Interim Budget FY 2024-25, the corporate tax for some new manufacturing companies was reduced as an incentive to encourage its growth. Additionally, the Indian economy can expect some major changes due to the General election in India. It is expected to bring changes in the governance and policy, redefining the growth trajectory in the coming years.

The Indian textile industry is one of the largest industries in the world, buoyed by an abundant supply of raw materials. India is one of the largest producers of cotton, jute and the second largest producer of silk globally. The industry is considered as Indias largest employer, providing employment opportunities in various areas including farming of the raw materials, spinning, weaving, dyeing, printing and manufacturing. Additionally, the industry plays a pivotal role in bolstering the growth and development of the country, contributing to the countrys GDP by 13% in the reported year.

India is one of the largest exporters of textiles and apparel in the global market. Indian textile products are exported to more than a hundred countries. Although the overall textile exports declined in FY 2024, cotton yarn, fabrics and handloom products experienced a year-on-year (YoY) increase in their exports in the year under review.

In FY 2024, the industry faced various challenges, including fluctuations in cotton prices, dumping of imported fabrics and dwindling demand. However, the Indian Government made significant interventions to support the growth of the domestic textile industry. Simultaneously, the Ministry of Textiles along with a consortium of 11 Textile Export Promotion Councils organised Bharat Tex 2024, a global textile mega event, in FY 2024. This event was organised to attract policymakers and global buyers to support the industrys growth, highlighting the strength, innovation and development of the Indian textile industry.

The abundant availability of raw materials in the country supports the growth and development of the industry, facilitating expansion by improving productive efficiency and reducing the input cost.

In FY 2024, the Ministry of Textiles approved 18 research and development projects across key strategic areas, including sustainable textiles⁷. This is a significant growth opportunity for the industry, bolstering innovation and enhancing operational excellence.

The Indian Government is working on signing the Free Trade Agreement (FTA) with various countries to promote exports of the textile industry. In FY 2024, the Indian Government signed a Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association, providing product development opportunities and leveraging advanced technologies to expedite the growth of the textile industry.

With the advent of digitalisation, the Indian textile industry is well-positioned to embrace the lucrative growth opportunities. Digital transformation enables textile manufacturers to produce quality products at low cost and in less time, facilitates data-driven decision-making and effective inventory management to meet market demand.

The China+1 business strategy offers significant growth opportunities for the Indian textile industry. With countries diversifying their supply chain, the Indian textile industry can capitalise on this opportunity, attracting international buyers and generating increased revenues from the global markets. This is anticipated to further fortify Indias position in the global textile industry.

In FY 2024, the export of textile products experienced a challenging situation due to the Red Sea crisis. Additionally, increasing imports of fabrics from Bangladesh at lower production costs impacted the domestic players in the textile industry.

The reported year witnessed a subdued Indian textile market demand, even during the festive season. Low consumption along with reduced exports, restricted its growth.

As per the analysis, the industry is expected to record positive growth in the coming years. The Indian Government is actively drafting strategies to improve the contribution of textiles in the export. Additionally, by 2030, the Indian textile industry is anticipated to reach a total production size of USD 250 billion and export of USD 100 bn⁸. This growth is projected to be driven by leveraging technology, enhancing product innovation, fostering strategic partnerships and utilising data-driven decision-making processes. Moreover, factors including increasing Government support, recovery in textile export, rising disposable income and a growing middle-economic population are expected to further support the growth of the industry in coming years.

Established in 1985, Vishal Fabrics Limited (VFL) envisions promoting denim as a household narrative rather than merely a style statement. Vishal Fabrics is a prominent player, known for dyeing, printing and processing denim, and other fabrics. As prominent players, we have propelled the growth of denim through a combination of advanced technology, sustainable practices, and tailored offerings that cater to diverse consumer needs. Companys prowess in fabric development and robust distribution networks has not only solidified their standing domestically but also earned on a global scale.. These factors have helped the Company to stay ahead of the curve.

Strategically located in Gujarat, the Company benefits from a strong infrastructure facility that ensures smooth business operations. Additionally, the Company has established an extensive international presence in different countries including South Africa, Thailand, Sri Lanka and Bangladesh.

VFL has gained recognition for its capability and proficiency in dyeing, printing and processing denim and various other fabrics. The Companys manufacturing prowess has enabled the Company to consistently produce high-quality denim fabrics, outperforming its peers. VFLs diversified product portfolio facilitates meeting the ever-changing customer expectations and acquiring a global clientele. Additionally, VFL has undertaken relentless initiatives to streamline its operations and achieve consistent growth and success.

In FY 2024, the Company consistently reflected a strong operational performance and invested strategically to support the long-term growth of the Company.

VFL has two manufacturing units at Dholi and Narol in Ahmedabad, Gujarat. These state-of-the-art plants are equipped with advanced technologies, optimising productive efficiency and enabling the Company to develop products that surpass customer expectations. This further supports the Company to enhance its competitiveness and establish itself as a prominent player in the market.

Companys manufacturing capabilities in the denim sector are truly impressive, a dyeing capacity of 80 million meters per annum (MMPA) and a processing capacity of 105 MMPA. These robust capabilities have enabled the company to achieve remarkable operational efficiency and productivity.. Additionally, the adoption of sustainable production practices has further enhanced operational excellence and bolstered the Companys growth. Moreover, VFLs manufacturing units have earned various certifications, including ISO 9001:2015, ISO 14001:2015, OEKO-TEX, BCI and GOTS, ensuring the Companys manufacturing activities meet international standards.

The Company believes that its workforce is one of the primary assets of the organisation. The Company had a total workforce of 1074 in the workplace. The Company, understanding the necessity of a skilled and competent workforce, provides training and development programmes to ensure the employees can enhance their skills and strengthen their leadership abilities to drive the organisation to new heights of success.

Additionally, the Company conducted an employee engagement program to augment productivity and promote an engaging working environment. These initiatives not only enhance employee satisfaction but also play a crucial role in improving employee retention. Moreover, the Company prioritises maintaining proper communication channels to facilitate open communication. This further, aided the Company to establish a transparent and collaborative work culture.

VFL is poised for substantial growth in the forthcoming years, facilitated by a favourable business environment and strengthened Indian manufacturing sector. The Company is well-positioned to capitalise on the different growth opportunities. VFL aims to improve operational efficiency and diversify its product portfolio in the coming years. - Additionally, the Company is considering making strategic investments in its group companies to reinforce its market leadership by boosting productivity.

Vishal Fabrics maintains appropriate internal control systems that are constantly upgraded and updated to match changing business conditions and meet statutory and accounting requirements. The company also has a powerful Management Information System, which is a critical component of its control mechanism. The Audit Committee of the Board of Directors evaluates the efficiency and effectiveness of these internal control systems regularly, making recommendations for improvements and reinforcements. Throughout the year, the internal control system was thoroughly tested, revealing no major flaws in its design or operation.

The MDA section contains forward-looking statements highlighting the Companys potential future prospects. These statements are subject to inherent risks and uncertainties, which may cause actual outcomes to differ significantly. Furthermore, macroenvironmental shifts and the unpredictable character of global events, such as the pandemic, pose unexpected obstacles to the Company and its operational environment. The information in the report is based on assumptions derived from both internal and external sources, which may vary over time, resulting in revisions to the estimations provided. It is crucial to note that these forward-looking statements reflect the Companys current objectives, beliefs, or assumptions and are accurate as of the date they were made. The Company is under no responsibility to update or alter these statements in light of new information or future events unless required by relevant regulations.