Zodiac Clothing Company Ltd Management Discussions

1. ECONOMIC OVERVIEW:

The year 2024 began with more than sixty nations - among them major economies like India, France, the United Kingdom and the United States - heading to the polls to choose their governments and respective fiscal road maps. This wave of democratic activity materially influenced policy direction, and the global economy has since faced a complex confluence of geopolitical tensions and evolving trade patterns.

Growth and inflation remain uneven across regions. Global headline inflation is projected to decline to 4.2% in 2025 and further to 3.5% by 2026, with advanced economies anticipated to reach their inflation targets ahead of their emerging and developing counterparts. In response to abating inflationary pressures, several monetary authorities enacted rate cuts to support economic momentum. Monetary policy notwithstanding, against a backdrop of persistent geopolitical frictions and uncertain tariff regimes, the global landscape appears poised for a period of short- to medium- term volatility. Should tensions escalate, a consequential surge in commodity prices would almost certainly follow.

On the growth front, the International Monetary Funds World Economic Outlook paints a picture of divergence across regions, compounded by escalating trade tensions. These headwinds prompted a downward revision of the global growth forecast by 50 basis points for 2025 and 30 basis points for 2026. The IMF now anticipates global GDP growth of 2.8% in 2025, with advanced economies projected to expand by 1.4% and emerging & developing markets by 3.7%.

Indias economic performance in FY 2024-25 remained resilient, albeit with a moderation in growth shaped by a combination of domestic factors and external uncertainties. Real GDP growth is forecast at 6.5%, down from 9.2% in the previous fiscal year - a deceleration attributed to reduced government capital expenditure, tepid private investment, and subdued consumption demand.

The Union Budget for 2025-26 introduced various measures designed to accelerate infrastructure development, improve the ease of doing business, empower states through targeted capital allocations, and incentivize private consumption through tax relief. Collectively, these initiatives aim to stimulate domestic demand and advance inclusive growth. Private consumption appears poised to be the biggest beneficiary, buoyed by improved agricultural prospects and measures to support rural incomes, alongside tax concessions benefiting the middle class including higher exemption thresholds and reduced rates across various slabs.

Complementing fiscal policy, the Reserve Bank of India implemented two successive 25-basis-point reductions in policy rates, marking a clear shift from its earlier inflation- containment stance. In addition, the cash reserve ratio was lowered by 50 basis points to 4% as of December 2024 to augment systemic liquidity. With inflation showing discernible signs of easing, the RBI is expected to maintain an accommodative posture, prioritizing the revival of demand and the stimulation of private consumption.

Infrastructure expansion remains a focus for the Indian government, with sustained emphasis on the development of roads, railways, ports, and aviation - underpinned by a broader commitment to inclusive and sustainable economic growth. The real estate sector continues to thrive, fueled by surging demand in the residential segment and record- high leasing activity in commercial and office spaces. Strengthening private consumption is further propelling the retail and hospitality sectors.

2. industry structure and development:

The clothing industry is among the most dynamic and competitive sectors globally, characterized by rapid shifts in fashion trends, technological advancements and evolving consumer preferences. As of 2024, the size of the global apparel market is estimated at USD 1.8 trillion, and it is projected to grow at 4% annually to reach USD 2.3 trillion by 2030. Global apparel trade amounted to USD 515 billion during 2024, with China continuing to account for the lions share, followed by Bangladesh and Vietnam and then India.

Indias domestic market for apparel is estimated at USD 108 billion in 2024 - the market has grown at a CAGR of 7% since 2019 and is projected to continue growing at a similar pace to reach USD 175 bn by 2030. Apart from domestic demand, India exported apparel to the tune of USD 16 billion during the year.

The fiscal year was a challenging one for Indian apparel retailers, with most organized players experiencing subdued sales growth, particularly in the first half, largely on account of inventory overhang from the prior year. The latter half of the year saw some improvement in demand, driven by festive sales and a busy wedding season. The outlook going forward is cautiously optimistic.

From an export standpoint, the ongoing Russia-Ukraine war led to persistent high inflation and subdued consumer demand across Europe during the year. The challenging demand environment was exacerbated by the Red Sea conflict in early 2024, which disrupted freight costs and transit times. Meanwhile, the civil unrest in Bangladesh following the change in leadership caused a significant disruption to the countrys garment industry and broader export operations, leading buyers to divert their sourcing to other countries, including India.

Looking ahead, all eyes are currently on the United States, where proposals for wide-ranging reciprocal tariffs against key supplier nations have raised the prospect of significant disruptions to global trade flows, should such measures be enacted. More encouragingly, Indias is expected to soon conclude a Free Trade Agreement with the United Kingdom, which shall be a welcome milestone that should provide a substantial fillip to apparel exports to the UK.

In other industry trends, sustainable sourcing in the textile industry has shifted from being a niche aspiration to a core strategic imperative, driven by rising consumer expectations and regulatory pressures. The growth of the market for sustainable apparel is expected to far outpace that of the wider apparel industry, underpinned by brands increasingly

prioritizing transparency, eco-friendly materials, and ethical labor practices. This collective push is fostering innovation on materials, production processes and waste management.

Digitization and artificial intelligence are increasingly being deployed across the textile and apparel value chain - from automated process control on shopfloors and realtime quality monitoring to predictive demand forecasting and inventory optimization in retail. These technologies are already delivering measurable improvements in efficiency and cost control, and their role is expected to expand significantly in the years ahead, transforming both manufacturing competitiveness and consumer engagement

3. (A) OPPORTUNITIES

The global textile and apparel industry is undergoing a period of transformation, offering considerable scope for expansion and innovation. Post the pandemic, a marked shift in consumer preferences has emerged, with growing emphasis on sustainability and environmentally responsible practices. This trajectory is expected to persist, as consumers increasingly gravitate towards brands that demonstrate a commitment to both ecological stewardship and social responsibility. Your Company has already taken meaningful steps in this direction, including the adoption of GOTS-certified organic cotton and the establishment of water-positive manufacturing facilities. The momentum towards eco-conscious production, resource efficiency, and circularity is anticipated to intensify, presenting a singular opportunity to further distinguish our offerings and capture market share.

Indias demographic profile remains a structural advantage. With a median age of 28.4 years, the country enjoys a youthful, aspirational population that is well-positioned to fuel consumption-led growth—particularly across the lifestyle, retail, and discretionary segments. Rapid urbanization continues to reshape patterns of consumption, driving demand for premium fashion and lifestyle products. In addition, the Governments decision to raise the personal income tax exemption threshold to r 12 lakhs in the Union Budget 2025-26 is expected to bolster consumer confidence and stimulate expenditure across retail, apparel, and luxury categories.

Concurrently, Indias digital economy is expanding at an unprecedented pace, with e-commerce accounting for approximately 20% of total retail purchases in 2024. The number of digital transactions is projected to triple over the next five years, rising from 159 billion in 2024 to 481 billion by 2029. The confluence of increased internet penetration and widespread smartphone adoption is fundamentally altering the consumer landscape, ushering in a new era of digitally enabled commerce.

India is poised to become the worlds third largest economy by 2027, with the retail market projected to be around USD 2 trillion by 2032. Within the fashion sector, the shift towards organized retail and premiumization is becoming increasingly pronounced. Consumers are demonstrating heightened brand awareness, prioritizing quality, variety, and exclusivity in their purchasing decisions.

Through the deployment of data analytics, customer relationship management tools, and digital engagement platforms, your Company has redefined its interaction with customers - delivering personalized, seamless, and enduring brand experiences.

In conclusion, the Indian textile and apparel sector stands to benefit significantly from both global and domestic tailwinds. By capitalizing on its capabilities in manufacturing, sustainability, and technology, Zodiac is well positioned to serve an expanding share of the market, both at home and abroad. Our enduring commitment to innovation and ecological responsibility will remain central to our growth strategy in the years ahead.

We are also pleased to report that Zodiacs fully integrated production facility in Bangladesh is scheduled to commence operations by August 2025. This initiative will enable us to serve price-sensitive export markets more efficiently.

(B) THREATS:

Persisting geopolitical tensions—including the protracted Russia-Ukraine conflict—continue to disrupt global supply chains, elevate input costs, and dampen economic sentiment. These dynamics are likely to exert pressure on consumer demand.

Recognizing Indias emergence as a key growth market, several international apparel brands have established operations within the country, underscoring the sectors increasing strategic importance on the global stage. Escalating retail rentals, a proliferation of e-commerce platforms, and the entry of new players are expected to intensify competitive pressures across both online and offline channels.

Macroeconomic headwinds—such as elevated inflation and shifting discretionary spending patterns—may affect consumer purchasing behavior, necessitating agility in pricing models and marketing strategies.

A fast evolving Indian retail space, rising retail rentals, rising e-commerce players and new entrants are likely to increase competitive pressures.

The threat of further geopolitical instability, such as potential new conflicts or trade wars also looms large. These risks could disrupt global supply chains, increase costs and create uncertainty in key markets, impacting both availability of raw materials and demand for finished products.

Competition from low-cost manufacturing hubs—such as Bangladesh, Vietnam, and Cambodia—continues to grow, driven by favorable trade agreements that place Indian exporters at a relative disadvantage. The appreciation of the Indian rupee against regional currencies such as the Bangladeshi Taka and Vietnamese Dong further erodes the global competitiveness of Indian goods.

The rise of fast fashion and constantly evolving consumer preferences have heightened the demand for speed and agility in manufacturing. Brands unable to respond with swift product cycles risk ceding ground to more nimble competitors.

The increasing penetration of ecommerce platforms has intensified competition, with many new entrants offering deep discounts and aggressively pricing their products to gain market share, thereby putting pressure on traditional brick and mortar retailers and established brands to innovate and adapt quickly or risk losing relevance.

Technological disruption, while offering substantial opportunity, also poses existential risks for companies that are slow to adopt and invest in new digital tools and platforms. The growing importance of data analytics, AI driven customer insights and automation in manufacturing requires continuous upgrading of capabilities to remain competitive. Companies that lag in this digital transition may encounter operational inefficiencies and forego valuable market opportunities.

Sustainability, while presenting opportunities, also imposes challenges like increasing regulatory scrutiny and consumer demand for eco- friendly products, thereby compelling companies to adopt more sustainable practices. However, the transition involves considerable investments in new technologies, systems and processes. Companies that are unable to meet these demands risk losing market share to more agile, sustainability-forward competitors.

In the domestic market, the Indian clothing industry continues to face the challenge of slowing demand, exacerbated by erratic weather patterns and subdued agricultural growth. This has continued to impact mass consumption segments, particularly in rural areas, where spending has been weaker than expected. Additionally, inflationary pressures, though moderated in the past year, continue to pose a threat to consumer spending, particularly in lower-income segments

Regulatory challenges also persist. Delays in Goods and Services Tax (GST) refunds have created acute liquidity constraints—especially for micro, small, and medium enterprises (MSMEs). Moreover, the lack of clarity regarding future trade policy and regulatory direction compounds strategic uncertainty, hampering long-term planning and execution.

In summary, while the Indian textile and apparel industry presents a host of promising opportunities, it must contend with a range of complex and material risks. Navigating these will require disciplined cost management, sustained investment in innovation, and an unwavering commitment to sustainability to preserve relevance and remain competitive.

4. SEGMENT / PRODUCT WISE PERFORMANCE:

The Company is exclusively engaged in the business of clothing and clothing accessories and in the context of the Indian Accounting Standard (Ind AS 108) constitutes one single operating segment. the Companys three segment leading brands Zodiac, Zod and z3 are well established and cater to diverse customer needs.

The geographical segment is identified and given below:

Year Ended 31^st March, 2025 - On a Consolidated Basis (Unit: R lakhs)

*Based on location of Customers

** Based on location of Assets

@ Excluding Financial Assets and deferred tax asset

5. OUTLOOK:

Escalating trade frictions and heightened policy uncertainty are exerting a discernible drag on global economic momentum. World output is projected to expand by 2.8% in 2025 and 3.0% in 2026, materially below the historical average of 3.7% achieved between 2000 and 2019. By contrast, Indias growth outlook remains comparatively resilient, with GDP expected to rise by 6.2% in 2025, supported largely by private consumption, particularly within rural markets.

Absent substantive structural reforms, the global economy is likely to remain weighed down by persistent headwinds - over the medium term, growth is forecast at 3.2%, once again below the historical trend cited above. Demographic shifts - most notably population ageing - are emerging as a common structural constraint: reducing productivity, dampening labor force participation, and eroding long-term growth potential.

Indias economic prospects for FY2026 remain cautiously optimistic. While external risks persist - ranging from geopolitical instability to commodity price shocks - several domestic factors may provide support. Sustained capital investment by the private sector, underpinned by the conversion of strong order books into actual deployment, together with improving consumer confidence and rising corporate wages, will be key drivers. Additionally, rural demand is expected to strengthen, aided by a recovery in agricultural output, an anticipated easing of food inflation, and continued macroeconomic stability.

A notable structural trend within India is the rapid pace of premiumisation and the expansion of the luxury segment. Rising disposable incomes, the pervasive influence of social media, and easier access to consumer credit are fueling a discernible shift in consumer behavior. Increasingly, customers view premium and luxury goods as investments in quality and longevity, while simultaneously seeking exclusivity and products that reflect status and personal identity. This phenomenon is particularly visible in fashion, where demand for high-quality and luxury offerings is accelerating, driving the growth of premium retail and broadening the presence of luxury brands.

Against this backdrop, Zodiac is strategically positioned to leverage its competitive strengths in manufacturing excellence, sustainability, technology and innovation. The Company continues to expand its product portfolio, enhance its digital presence, and deploy technology to improve operational efficiency, while maintaining a strong commitment to sustainable practices. These pillars will remain central to success in both domestic and international markets.

As part of its long-term growth strategy, Zodiac has undertaken the following notable initiatives during the year:

Made-to-Order Programme: Select Zodiac stores now offer discerning customers bespoke services, enabling them to commission jackets, trousers, shirts, and bandhgalas in fabrics of their choice, tailored precisely to individual measurements.

To cater to the growing demand for luxury products Zodiac has extended its range of high- end shirts called Carletti. They are crafted from the very rare single 100 s count Italian-woven Egyptian Giza 87 cotton and are available exclusively at flagship ZODIAC Stores across metro locations.

Product Line Extension: The Company has entered the premium mens innerwear category under the brand Inner Wear. This line is crafted from 94% Supima cotton blended with 6% Mobilon yarn, reinforcing Zodiacs commitment to comfort, quality, and innovation.

Zodiac Clothing Bangladesh Limited, the Companys step down subsidiary is all set to commence its initial production from August 2025. This facility has been set up based on best practices and experience gathered over decades across our several manufacturing units. The key to this factory lies in the high level of automation coupled with ML software which learns from real time usage. Use of technology enables this unit with the unique flexibility to handle both small and large production runs and is highly scalable.

Zodiacs Direct to Consumer business on its own its digital platform has seen unprecedented growth year on year without compromising on the brand values of strict non - discounting and 100% pre-paid transactions. This performance was fueled by investing in a highly scalable and robust cloud infrastructure coupled with UI/UX optimization and data driven experiments on consumer behavior. Technology was used to enhance the customer shopping experience from click to delivery resulting in faster shipping and fostering higher repeat purchases. Leveraging consumer insights and analytics enabled us to maximize bottom funnel conversion while bringing new customers into the ZODIAC ecosystem. Our adoption of AI & ML extended beyond creative and media use cases into software engineering, manufacturing and omnichannel consumer insights.

6. RISKS AND CONCERNS:

The Company has identified key risks to include fluctuation in raw material prices, weak demand,

increased global and local competition, currency fluctuations and sales channel disruptions. In addition, regulatory risks include changes in taxation regime, government policies with respect to textiles and clothing, pollution control, industrial relations issues & failure to comply with regulatory provisions. Rising interest rates and unwarranted blockage of funds in GST refunds are another significant risk. A Company- wide awareness of risk management policies and practices is being inculcated to mitigate the adverse effect of foreseeable risks on the operating results.

7. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Companys internal control systems, which are supplemented by an exhaustive internal audit (by an independent audit firm reporting directly to the Audit Committee), which is regularly subjected to in-depth involvement of the management. Internal Audit covers the various functions, processes and other activities, including own retail operations of the Company. Transactions are authorised, recorded and reported accurately and subjected to audit as well. The system of internal controls also ensures that all assets are safeguarded, insured and protected against loss. The internal control systems are designed to ensure that the financial statements are prepared based on reliable information. The reports presented by internal auditors are reviewed by the audit committee on a routine basis. The committee makes note of the audit observations and takes corrective actions, if necessary. The committee maintains constant dialogue with statutory and internal auditors to make sure that internal control systems are operating effectively.

(STANDALONE):

Operational Revenue & Profits:

Loss before tax decreased during FY 2024-25, in spite of the continued challenges arising out of the volatile macro-economic environment, supply chain disruptions and geopolitical unrest most notably the ongoing war in Ukraine and the recent conflict in Gaza and Israel. Despite this, the Company continues to remain focused on executing its strategic roadmap, reducing expenses and building on the foundations that we have laid to spur our future growth.

The company continues its focus on expanding its digital presence and operational efficiency through technology, thereby substantially improving the companys sales through this channel.

All this should result in increased EBIDTA, going forward.

During the Year:

The Company is in compliance with the Code of Conduct for Prevention of Insider Trading formulated in terms of provisions of SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time.

9. HUMAN RESOURCES DEVELOPMENT / INDUSTRIAL Relations:

The Company recognizes the need of continuous growth and development of its employees to meet the challenges posed by a rapidly growing consumer facing organization, besides fulfilling their own career path objectives. Consequently, the role of Human Resources continues to remain vital and strategic to the Company.

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 organizations growth vision. Its human resource division plays a crucial role to build 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.

Most importantly, it places great emphasis on eliminating all forms of discrimination in terms of employment and professional activities (gender, age, race, political affiliation, religion, among others). It pays special attention to professional equality, gender equality, the employment of seniors and young people, the employment of people with disabilities.

Talent and culture are among the key building blocks in shaping us into a resilient and sustainable organization. We will continue to focus on defined strategic areas to leverage the potential of our human capital. As of 31st March, 2025, the Companys strength stood at 1008 employees.

10. standalone key financial ratios:

11. cautionary statement:

Statements in the report on Management Discussion and Analysis describing the Companys objectives, expectations or predictions 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. Actual results could, however, differ materially from those express or implied. Important factors that could make a difference to the Companys operation include global demand-supply conditions, finished goods prices, raw materials cost and availability, changes in Government regulations and tax structure, economic development within India and the countries with which the Company has business contacts and other factors such as litigation and industrial relations in India, trade agreements, especially with the EU and the US.

The Company assumes no responsibility in respect of forward looking statements herein, which may undergo changes in future on the basis of subsequent developments, Information or events.