Winsome Textile Industries Ltd Management Discussions.

Global Economic Overview

The year 2018 experienced a decline in the global economy, with growth rate falling to 3.6 per cent, which is a decrease from the 2017 growth rate i.e. 3.8 per cent. The decline was attributed to a fiscally induced growth acceleration in the United States of America which offset a slower expansion in a few large economies, including Argentina, Canada, China, and Turkey. In many developed countries, growth rates had risen close to their potential, while unemployment rates had dropped. Among the developing economies, the East and South Asia regions remained on a relatively strong growth trajectory, amid robust domestic demand conditions.

Growth in global industrial production and merchandise trade volumes had been tapering since early 2018, particularly in the trade-intensive capital and intermediate goods sectors. In several countries, leading indicators point to some softening in economic momentum, amid escalating trade disputes, risks of financial stress and volatility, and an undercurrent of geopolitical tensions. At the same time, a few developed economies were facing capacity constraints, which may have weighed on growth in the short term.

Despite an improvement in growth prospects at the global level, several large developing countries saw a decline in per capita income in 2018. While a modest recovery was projected in 2019, per capita incomes were still likely to remain stagnant or grow only marginally in Central, Southern and West Africa, Western Asia, and Latin America and the Caribbean. The global economy was facing a confluence of risks, which could severely disrupt economic activity and inflict significant damage on long term development prospects. These risks included an escalation of trade disputes, an abrupt tightening of global financial conditions, and intensifying climate risks.

In 2018, the United States decisions to increase import tariffs had sparked retaliations and counterretaliations. A prolonged episode of heightened trade tensions and a spiral of additional tariffs posed a significant risk to the global growth outlook. Global economic activity was impacted through several channels, including slowdown in investment, higher consumer prices and a decline in business confidence.

A period of subdued trade growth would also weigh on productivity growth in the medium term and long term growth prospects. Trade supports productivity growth via economies of scale, access to inputs, and the acquisition of knowledge and technology. These channels are strongly intertwined with investment decisions, productivity gains, economic growth and even sustainable development.

Indian Economic Overview

India was and will be in a period of unprecedented opportunity, challenge and ambition in its development. It is already the worlds third largest economy in purchasing parity terms. Long term GDP growth has become more stable and resilient in 2018. Over the next few years, India is expected to grow at well over 7 % per year, with progress being supported by dynamic reforms in the macroeconomic, fiscal, tax and business environments.

The GDP was 7.1 which is expected to reach 7.5% by the end of the year 2019. The slow growth caused by GST and demonetisation ended this year. There was a huge increase in trade within the country, making India a much more attractive place to invest.

Amid the 3.5% inflation experienced in the year 2018, GDP at current prices reached 2.97 thousand US dollars and briefly took India to become the 6th largest economy in the world. France in the later part of the year regained its 6th spot, pushing India back to 7th. However, going by the growth forecasts, India is expected to overtake France again with a year owing to its phenomenal industrial growth. With a labour force of 521.9 million, India is moving at an industrial growth rate of 5.5% since 2017.

However, there are a few speed bumps in this growth story. The population below poverty line is still 21.9% and unemployment rate is at the highest in over 4 decades at 6.1 %. In order to grow India will have to make more use of the young population. The countrys youth not only has a low dependency ratio and healthy savings but it is also increasing integration into the global economy. Thus, the long term challenges remain significant, including inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, high spending and poorly targeted subsidies, inadequate availability of quality basic higher education and accommodation rural-to- urban migration.

In the year 2018-19, merchandise exports increased significantly by 8.85% to reach a value of US$ 298.47 billion In December 2018, Foreign Direct Investment reached US$ 409.15 bn. with major contributions coming in from services, computer software and hardware, telecommunications, construction, trading and automobiles.

Textile and Apparel Industry Overview

Global Textile Industry

Consumption

Global apparel consumption is projected to be approximately US$ 1.9 trillion in 2018. The global apparel demand is expected to grow at a CAGR of 5% from the current US$ 1.9 trillion to reach US$ 2.6 trillion by the year 2025. Among the top eight markets of apparel, India and China are expected to grow at steady CAGR of 12% and 10%, respectively as compared to world total of 5%. Higher economic growth and rise in per capita income will lead to the growth in the apparel market in these developing countries.

Trade

In 2018, global textile and apparel trade was estimated at US$ 790 billion and has grown at a CAGR of 4.3% since 1995. Apparel is the largest category with a share of 58%, followed by fabric with a share of 19%.

The global textile and apparel trade is expected to grow at a rate of about 4% from the present worth of US$ 790 billion to US$ 1,200 billion by 2030. Growth in global trade indicates an attractive opportunity for countries with large manufacturing capacities and competitive manufacturing. India can be one of the gainers in the changing trade landscape.

There was a 4% decline in trade in 2016 compared to 2015 owing to stifled global economic scenario. However, the trade is showing a positive growth after the downfall in 2016.

Share of Major Suppliers

China is the largest exporter with 35% share in global textile & apparel exports in 2018, followed by India with 5% share. Other major exporters include Bangladesh, Germany, Italy and Vietnam. Over the years, manufacturing has shifted towards low cost countries, with the share of US and Europe decreasing continuously and Asian countries growing, led by China, Bangladesh, India and Vietnam.

Indian Textile and Apparel Industry

Textile and apparel sector is one of the leading segments of the Indian economy and one of the largest sources of foreign exchange earnings. It accounts for about 5% of the gross domestic product (GDP), and around 13% of the total exports earnings. The sector also provides direct employment to 45 million people.

Indias key strengths in this sector lies in availability of all types of natural and manmade fibres, large pool of manpower across the levels of hierarchy, presence of complete value chain and a large and growing domestic market. Several state governments like Gujarat, Jharkhand, Maharashtra, etc. are also offering sector specific incentives like capital subsidy, interest subsidy, wage subsidy, etc. These support initiatives allow Indian exporters to overcome a large part of duty disadvantage they face in markets of EU and US where some of the competing nations get a zero duty access. These factors make India a preferred destination for textile investments as compared to its competing nations like Bangladesh, Vietnam, and Sri Lanka, etc. This section further details the current status of Indian textile and apparel industry, key trends, challenges and the way ahead for the sector.

Indian textile and apparel sector has the double advantage of being export competitive as well as having large domestic consumption which is growing. It is currently estimated at US$ 137 billion The domestic consumption of textile and apparel constitutes approximately 73% of the total market size while exports constitute the rest 27%.

Domestic Market Overview

The current domestic textile and apparel market is estimated at US$ 100 billion, with apparel having about 74% share. With growth of disposable income, favourable demographics and changing lifestyle, consumption of products and services is expected to grow continuously in the foreseeable future, including textiles and apparel.

Indian consumers affinity towards brands and organized retailing is increasing, which is helping the consumption growth of all products, including textile & apparel. Organized retailing in India currently stands at only 10% of the overall retail market of US$ 790 billion Within this, apparel has a share of approximately 9%. With growing disposable income, favourable demographics, changing lifestyles and a high potential for penetrating non-urban metro markets; the share of organized markets in India is expected to reach 25% by 2030. India is also witnessing growth of its aspiring middle class who tend to seek value and consume premium products. This shift in number of households within different income brackets will improve the consumption of products and services, which will definitely include textile and apparel as a lifestyle choice to enhance fashion. The vast population base and growing economy has caused global retailers and brands to enter the Indian market, either on their own or through local partners.

Indian Exports Overview

In terms of global ranking, India is ranked 3rd in textile export with 6% share and 6th in apparel export with 4% share. Overall, India holds second position with 5% share of global textile and apparel exports. Indias textile & apparel exports were US$ 37 billion in 2017-18 and have grown at 6% CAGR since 200506. Availability of raw material, skilled manpower and favourable central & state government schemes would further help Indian exporters increase their market share and global competitiveness.

India has large manufacturing capacities across the complete manufacturing value chain viz. natural and manmade fibre, spinning, weaving, knitting, processing, garmenting, made-ups and technical textiles.

Table 1: Installed Capacities in Indian Textile Sector (2016-2017)

Description Capacities
Spindles 53 million
Rotors 0.9 million
Man Made Fiber 1.8 billion kg.
Man Made Filament 2.2 billion kg.
Looms (Including power looms) 2.6 million
Sewing machines 5 million

Indias Global Position

Global textile and apparel trade grew at a rate of 4% over the last decade to reach a value of US$ 790 billion in 2018. During the same period, Indias export of textile and apparel grew at a comparatively higher rate of 6% to reach a value of US$ 37 billion in 2018. Indias textile and apparel exports are expected to grow at a CAGR of 10% to reach US$ 120 billion in 2030.

India currently enjoys the position of being the second largest exporter of textile products to the world, next to China. Availability of raw material, skilled manpower and favourable central and state government schemes would further help Indian exporters increase their market share and global competitiveness.

Spinning Industry Overview

The global yarn market is estimated to be around US$ 40 billion in 2017 and is expected to grow at a CAGR of 1.05% to reach US$42 billion by the year 2022. In 2018 with an installed capacity of about 53 million spindles, India is one of the largest producer and exporter of cotton yarn in the world with a production of 5,122 million kgs.

China is the largest importer of cotton yarn (25% share) from India, followed by Bangladesh and Pakistan with 20% and 7% share, respectively. The top five importers form 62% of Indias total cotton yarn exports.

The high cotton yarn exports out of India can be attributed to the local availability of abundant raw material and modern infrastructure in the spinning section of the value chain. Indian spinners over the last few decades have invested extensively in bringing in the latest spinning technologies and infrastructure to India.

Table 2: Indias Cotton Yarn Production in Million Kg

Yarn Production 2012-13 Production 2017-18 CAGR 2012-2017 (%)
100% Cotton Spun Yarn 3,583 4,059 3
Cotton Blend Spun Yarn 828 1,063 5
Total 4,411 5,122 3

Some of the advantages of the Indian spinning industry are as follows:

• Large scale installed capacity

• Good raw material availability - India is largest producer of cotton

• Modern set ups with high quality and efficiency levels

• Sustainable value chain demand in domestic market

• Potential increase in export markets like Bangladesh, Pakistan etc.

Fabric Industry Overview

Fabric being the primary raw material of the apparel industry, is an indispensable part of the supply chain. The global trade of fabrics registered a value of US$ 146 billion in 2017. Woven fabrics constituted the majority share of 76% with a value of US$ 111 billion. The remaining value of US$ 35 billion was for the trade of knitted fabric. Over the last five years, the trade of woven fabric has shown de-growth at a CAGR of 1.5%, while the trade of knitted fabric has been growing positively at a CAGR of 1.5%.

Indias exports of fabrics stood at US$ 4.6 billion in 2017, which was dominated by woven fabrics with a share of over 99%. The exports of knitted fabrics was just US$ 343 million when compared to the US$ 4.3 billion woven fabric exports. The countrys exports of knitted fabric has been growing at a CAGR of 9.5% over the last five years. However, woven fabrics have shown a decline at a CAGR of 1.6% in the same time period.

In 2017, the fabric production in India stood at 66,515 million sq. m, which has grown at 1% CAGR in the past five years. Woven fabric had the major share of 73%, while the rest being knitted fabric. However, the production of woven fabric has grown at a CAGR of 1% while knitted fabric production has increased at 4% CAGR in the last half a decade.

Operational Performance and Financial Overview

The financial performance in the 2018-19 financial year may have been subdued, but our farsighted approach has paid exciting dividends this year, considering the phase that the melange yarn market is going through. Our firm ideology and focus on producing innovative products and strengthening our value chain have reflected in our financials for this year. Constantly innovating our products over the years to be better than ourselves has helped our organization. This financial year, we also benefited from our decision to expand the capacity of the knitting division, a decision that we feel was well timed considering the current situation of the spinning industry. The construction of an in-house Hydro plant provides us with electricity at rates cheaper than the Government. Overall, these measures ensured that we could reduce our financial liabilities and have helped us stabilize our debt-equity ratio around 1.8 for two years running.

Human Resources

The Company believes that a motivated and efficient workforce can help it attain its targets. Taking cognizance of that fact, the Company provides extensive training to its employees in order to develop their skill sets and keep them motivated. The company under the PMKVY 2.0 scheme has been accredited and affiliated to provide training. Upon completion of the training provided under the scheme, trainees are directly placed into the company. Our employee base as on 31st March 2019 was 2,231.

Internal control system

Winsome Textile has well-established policies and procedures for internal control of operations and activities. We continuously strive to integrate the entire organization - from strategic support functions like finance, human resources, and regulatory affairs to core operations like research, manufacturing and supply chain management.

Moreover, the Company has obtained ISO 9001, ISO 14001, ISO 18001, GOTS, Supima and Oeko-TEX certifications and adheres to standard operating practices in its manufacturing and operating activities.

The remaining mandatory information required to be provided under Management Discussion Analysis have been mentioned elsewhere in the Annual Report.

Rs. in crores
Particulars 2018-19 2017-18
Total Income 724.18 699.62
Depreciation & Amortization Expenses 23.74 24.71
Profit before tax 14.31 6.89
Profit for the year 12.12 4.96
Net Worth 189.39 176.51
Return on Net Worth 6.40 (%) 2.81 (%)

Return on Net Worth is higher in current financial year as compared to last financial year because the company has earned higher profits in current financial year.

Winsome Textiles Commitment towards Society, employees & Environment

Conservation of Energy

A topic of high value and importance on which the future now rests is Conservation of Energy. Every day we are nearing towards global rise in temperature due to continuous use of fossil fuels among other factors. This non-renewable energy is limited and we have to reduce its use to a bare minimum so as to conserve it for future generations.

In 2018-19 we did energy conservation in the following areas.

• Up gradation of Card Waste Collection.

• Leakage arresting in Compressed Air system in whole plant.

• Installation of LED Street Lights 100W in place of Metal Halide 250W.

• Modification in Blow Room Waste Collection System.

• Replacement of Pneumafil Fan by Laser Sensor in Speed Frame LF1400 in Speed frame.

• Replacement of Old Rewind Motor by new Motor with Card C1/3.

• D.G. Set and grid power etc. is generally used by the Company with regard to alternate source of energy.

• Implication of energy management system by use of KWH meters to reduce unnecessary usage of electricity by end users etc.

• Apart from Grid power, DG sets a standby power and Company has purchased power from IEX through open access power system. Further, Company has also used another source of energy of Captive power from Manuni HEP 3.5MW through Open access system.

Corporate Social Responsibility

Giving back to the society has always been of priority to our organization as we strongly believe that the community is an important contributor in the success of a company. Thus we focus on social and environmental development and support for the local community. We dynamically get involved in various activities concerning the social and economic development of the communities in which we operate.

As required under Section 135 of the Companies Act, 2013, the CSR Committee comprising of Mr Ashish Bagrodia as the Chairman and Mr Chandra Mohan and Mr Satish Girotra as its Members. The CSR Committee of the Company has laid down the policy to meet the Corporate Social Responsibility. The CSR Policy includes any activity that may be prescribed as CSR activity as per the Rules of Companies Act, 2013. The key areas of attention remain Education, Environmental Safety, Health care and Family welfare. Contribution towards various relief funds setup by the Government of India and/or any State Government are also made.

Total Quality Management Projects

Implementation TQM, an important aspect for cost saving and building trust with the various clients has till now helped us to save Rs. 240 lacs in the year 2018-2019.

• Reduction in Omega Lap Clutch failure

• Minimization in Link Coner Suction arm Housing jam problem

• Reduction in Lapeta cutting for simplex Bobbins

• Increase in lot size of Sampling bath

• Reduction in correction in Mixing

• Processing (Compactor) productivity increased

• Remnant control & lot Management in Grey Godown

Risk Management Policy

The textile sector needs continuous monitoring and regulated assessment for risks. The analysis of these risks helps to maintain the optimum and most efficient ways to mitigate these risks. To achieve the same, the company has laid down a Risk Management Policy.

Companys Risk Management Framework includes three key elements:

• Risk Assessment

• Risk Management and Risk Mitigation

• Risk Monitoring

The different kind of risk we monitor are:

• Credit Risk

• Foreign Exchange Risk

• Financial and Liquidity Risk

• Business Operational Risk

• Legal and Political Risk

• Geographic and Environmental Risk

The Risk Management Committee of the Board of Directors of the Company periodically reviews the functioning of Risk Management Policy. The Board of Directors after considering the recommendations of Risk Management Committee amend various polices in whole or in part, at any time consistent with requirements of applicable laws, rules and regulations.

Child Labour Policy

We believe children should get the right education and knowledge at their age and hence we have employed workers who meet the applicable minimum legal age requirement or at least 15 years of age, whichever is higher. We also comply with all other local child labour laws including those related to hiring, wages, and hours worked, overtime and working conditions.

Labour Policy

We employ workers on the basis of their ability to do a job and not on the basis of their personal characteristics. They are given equal opportunity and fair treatment. We pay and provide regardless of the gender, religion, caste, age, marital status, social origin and membership in workers organisations including unions, or political affiliation. We treat all workers with respect and dignity.

Prevention of Sexual Harassment Policy

Providing a safe and congenial work environment to all employees especially women is an integral part of the Companys sexual harassment policy. Management of the Company has constituted Internal Complaint Committees to consider and redress complaints of Sexual Harassment in a time bound manner. Thus, we expect responsible conduct of behaviour on the part of all our employees at all levels.