Winsome Yarns Ltd Management Discussions

OVERALL REVIEW, INDUSTRY STRUCTURE AND DEVELOPMENTS

India s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries.

The 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. India s textiles industry has a capacity to produce wide variety of products suitable for different market segments, both within India and across the world.

The operations in the year under review had been severely impacted due to the Corporate Insolvency Resolution Process (CIRP) against the Company. The overall performance of the Company for the year under review has significantly gone down wherein Revenue from Operations of the Company registered decrease in the sales, compared to the previous year.

The performance of the Company during the year under review showed decrease in the sales due to the non -supportive markets and varied changes in the customer preferences and impacted due to the initiation of Corporate Insolvency Resolution Process (CIRP).

OPPORTUNITIES AND THREATS:

The Company is engaged in manufacturing of textile and allied products. The threat is from small players who will enter the market and existing players creating competition in these segments due to which the margins will be under pressure in the future. The major threats are as follows:-

1. SHORTAGE OF RAW MATERIALS AND LOW PRODUCTIVITY OF LABOUR

65% of the overall cost of production is determined by raw materials. Cotton is in low supply in the nation, especially long-staple cotton that is imported from Pakistan, Kenya, Uganda, Sudan, Egypt, Tanzania, the United States of America, and Peru. It is unfortunate that despite having the largest amount of cotton planted (26% of the worlds acreage), the country only contributes 9% to global cotton production. Low production and illnesses in the mills are caused by fluctuating prices and unpredictability in the availability of raw materials.

2. HIT BY COMPETITION, GARMENT INDUSTRY SEEKS TECH UPGRADE:

Punjab textile industries facing major competition from industries located in other states, the micro and small units dealing in the garment and products in Punjab pinned high hopes on the new Punjab government to equip them with the latest technology by starting new schemes.

The garment and textile industry of Punjab which at one point of time was the leader in the country is now lagging behind other states. That happened as the newer units which came up in other states especially in South India adapted latest technologies. Therefore, demand from the new government should pay special attention to technological upgrade of the existing units in and support financially to adopt new machinery and technology.

Textile and garment units of Punjab are fast becoming uncompetitive as compared to similar units in other states. The cost of production of textile and garment industry in other states is decreasing due to adoption of new technologies. We have already suffered a lot as significant percentage of the total business of garment and textile units has been taken over by the industry from other states. It s high time that the state government takes appropriate measures like starting unconditional technology upgrade fund scheme for old units so that we can easily adopt new techniques.

3. INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) AND APPROVAL OF THE RESOLUTION PLAN:

The Corporate Insolvency Resolution Process ( CIRP ) in the case of Winsome Yarns Limited ( Company/ Corporate Debtor ) was initiated the Honble National Company Law Tribunal, Chandigarh Bench ( Adjudicating Authority ) under Section 7 of the IB Code vide its order dated 22nd December 2023. The Adjudicating Authority vide the order of the same date appointed Mr. Sanjay Gupta having Registration No. IBBI/IPA-002/IP-N00982-C01/2017-2018/10354 as the Interim Resolution Professional ( IRP ) to conduct the CIRP of the Corporate Debtor. Later, in the CoC Meeting of the Corporate Debtor held on 23 rd January, 2024, M/s. ARCK Resolution Professionals LLP, having Registration No. IBBI/IPE-0030/IPA- 1/2022-23/50013 was appointed as the Resolution Professional ( RP ) to run the CIRP of the Corporate Debtor.

Interim Resolution Professional had issued invitation for Expression of Interest (hereinafter referred as EOI ) in FORM G on February 20, 2024 in compliance with Regulation 36A of CIRP Regulations,

2016 in the newspaper in English language for the submission of a resolution plan in accordance with the provision of the code.

As per the published FORM G, the last date for submission of EOI was stipulated as March 5, 2024, and last date stipulated for submission of resolution plan was April 20, 2024 which was later on extended till 31.03.2024.

The Resolution Professional received three Resolution plans which were duly opened in presence of the COC Members in its 6th COC Meeting. Due discussion and negotiation on all three resolutions plans were conducted by the COC. The members of the COC in its COC Meeting decided that another FORM G be published for exploring more potential bidders and for wealth maximization to all Stakeholders.

Thereafter, Resolution Professional had re-published invitation for Expression of Interest (hereinafter referred as EOI ) in FORM G on July 18, 2024 in compliance with Regulation 36A of CIRP Regulations, 2016 in the newspaper in English and Vernacular (Punjabi) language for the submission of a resolution plan in accordance with the provision of the code.

As per the published FORM G, the last date for submission of EOI was stipulated as August 2, 2024 through Email and August 3, 2024 original in physical form at the office of the RP, and last date stipulated for submission of resolution plan was September 12, 2024, which was later on extended till

28.09.2024.

The Resolution Professional received four Resolution plans which were duly opened in presence of the COC Members in its 15th COC Meeting. The members of the COC duly discussed and negotiated in terms and clauses of the Resolution Plans including the financial bid and thereafter decided to go for inter-se bidding for challenge mechanism. Pursuant to inter se bidding convened on 22.10.2024, final Resolution Plans were submitted by all 4 RAs. All 4 compliant Resolution Plans have duly been placed to e-voting before the members of the COC for their approval.

That pursuant to the approval of the Resolution Plan of Mohini Health & Hygiene Limited by the members of the COC, an application for approval of the resolution plan has been filed before Hon ble NCLT for its approval. The said application is pending adjudication.

OPPORTUNITIES

• Favourable government initiatives such as the National Technical Textiles Mission (NTTM), 100% FDI in the sector, SAMARTH- Scheme for Capacity Building in the Textile Sector, etc. for the development of the textile industry.

• Extension of the scheme for Rebate of State and Central Taxes and Levies (RoSCTL) till March 31, 2026, for the export of apparel, garments and made-ups with the same rates would benefit textile companies.

• The China plus one diversification policy will benefit Indian manufacturers. As global retailers are looking for an alternate supply base, India has emerged as an attractive option for manufacturing and exports of textiles and apparels.

• The growth of the technical textile market will create lucrative opportunities.

• The rapid growth of the retail sector and E-commerce will boost the growth of the textile and apparel industry.

• Rising disposable incomes will stimulate domestic demand.

• The growing popularity of fast fashion products will contribute to the growth of the textile and apparel industry.

• Approval of the Resolution Plan for the Company by the Committee of Creditors (COC) and the said resolution plan as approved by the COC is pending for approval from Hon ble National Company Law Tribunal (NCLT), Chandigarh Bench can be seen as an opportunity for the company to revive and compete with the other players in the market, under the supervision and guidance of the new management.

SEGMENT WISE AND PRODUCT WISE PERFORMANCE

The Company s business activities falls within a single primary segment viz. Textiles (Yarn, Knitwear & related revenue). The Company does not have any other segment as of now. The products and dealings are closely related with textiles and its allied products.

COMPANY OUTLOOK:

As Resolution Plan for the Company approved by the Committee of Creditors (COC) and the said resolution plan, as approved by the COC, is pending for approval from Hon ble National Company Law Tribunal (NCLT), Chandigarh Bench can be seen as an opportunity for the company to revive and compete with the other players in the market, under the supervision and guidance of the new management. The Company hopes to turn around its performance in forthcoming years.

FINANCIAL PERFORMANCE:

During the year ended 31.03.2025, the Company incurred a loss of Rs. 1729.6 lakhs in comparison to the loss of Rs. 1094.24 lakhs during the previous year ended 31.03.2024. Your Companys turnover of Rs.419.08 lakhs against the previous year turnover of Rs. 2542.58 lakhs for the aforementioned reasons. The Company has since undertaken manufacturing for third parties on job work basis, and is able to recover variable costs and part of fixed costs.

RISK MANAGEMENT:

Current & Future Challenges and Problems in the Apparel Industry:

The new trends, changing consumer habits, and market shifts have shed a light on the new challenges the e- Commerce app arel industry is facing in 2025.

• Difficulty in managing customized order allocation and inventory sync.

• U nable to align warehouse operations manually amid such hard times.

• Problems in selling pandemic essentials such as face masks in combo packs.

• Inability to manage deliveries, leading to higher % of Customer Initiated Returns (CIR).

• Hard to align multiple sales channels and offline stores alongside.

• Back-breaking for eCommerce platforms to manage multiple vendors.

• Untimely and inefficient delivery of products.

• No stock rotation leads to outdated stock.

• The increased cost of Reverse Logistics.

• Hard transition to present Taxation policies.

The issues in textile industry of India is facing like:

• Shortage in supply ofraw materials.

• Increase in the cost of raw materials.

• Environmental problems.

• Infrastructure bottlenecks.

• Impact of GST.

• Shortage of laborers due to a mass return.

• Increasing ofpower cuts.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company maintains an efficient internal control system commensurate with the size, nature and complexity of its business. The internal control system is responsible for addressing the evolving risks in the business, reliability of financial information, timely reporting of operational and financial transactions, safeguarding of assets and stringent adherence to the applicable laws and regulations. The internal auditors of the Company are responsible for regular monitoring and review of these controls. The Resolution Professional periodically reviews the audit reports and ensures correction of any variance, as may be required. Key observations are communicated to the management who undertakes prompt corrective actions.

HUMAN RESOURCES / INDUSTRIAL RELATIONS

The Company considers its employees as the most important asset and integral to its competitive position. It has a well designed HR policy that promotes a conducive work environment, inclusive growth, equal opportunities, and competitiveness and aligns employees goals with the organisation s growth vision. Its human resource division plays a crucial role in nurturing a strong and talented workforce. It provides opportunities for professional and personal development and implements comprehensive employee engagement and development programmes to enhance the productivity and skills of its employees. The Company s employee strength stood at 167 as on March 31, 2025 Further, industry relations remained peaceful and harmonious during the year.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE (Forms part of Director s Report)

MATERIAL DEVELOPMENT IN HUMAN RESOURCES/ INDUSTRIAL RELATION FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

The employees are satisfied and having good relationship with the Management.

DECLARATION REGARDING COMPLIANCE BY BOARD MEMBERS AND SENIOR MANAGEMENT PERSONNEL WITH THE COMPANYS CODE OF CONDUCT:

This is to confirm that the Company has adopted a Code of conduct for its employees including the director. It is confirmed that the Company has in respect of the financial Year ended 31st March, 2025, received from the Senior Management team of the Company and the members of the Board, a declaration of Compliance with the code of Conduct as applicable to them.

OTHER DISCLOSURES

FINANCIAL STATEMENT

In accordance with SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2018, the Company is required to provide details of significant changes (a change of 25% or more as compared to the previous financial year) in key financial ratios, along with detailed explanations thereof. The key financial ratios are given below:

Key financial ratios	2024-25	2023-24	Difference (%)
Debtors \u2019 turnover	103.19	35.86	67
Inventory turnover	5.69	6.48	-0.79
Interest coverage ratio	Not Applicable	Not Applicable	-
Current ratio (in times)	0.63	0.6	0.03
Debt equity ratio (in times)	-1.28	-1.33	-0.05
Operating Profit Margin (in %)	-4.33	-0.61	3.72
Net profit margin (in %)	-4.12	-0.43	3.69
Return on net worth (in %)	0.04	0.03	0.01

The reason of the Operating Profit and Net Profit Margin is more than 25% or more as compared to the previous financial year due to decrease in the sales, non-supportive markets, varied changes in the customer preferences and initiation of CIRP by NCLT wide order dated 22th December 2023 which effected the marketability of the Company. As the global textile market is interconnected, this outbreak has a global impact on the business.