MANAGEMENT DISCUSSION AND ANALYSIS Industry Structure and Developments Textile Industry has played a key role in the country's progress over the years and the situation is likely to gain momentum in the times ahead. The Industry continues to hold a dominant position in country's economic structure because of its huge contribution towards employment generation, Industrial Output and Export earnings and meets out the basic needs of people at large, popularly pronounced as Roti, 'Kapada' aur Makan. It is also an established fact that in any country which is on the path of growth, from developing to developed countries, growth of Textile industry becomes a priority. Therefore it is expected that looking at the expected growth of Indian economy down the line.Textile industry will certainly look up. There will definitely upward movement in demand for the Textile products. From National economic growth point of view it is noticed that Textile industry provides employment to 45 million people, contributes about 5% to India's GDP, 14% to Index of Industrial Production(IIP). It contributes 11% to the country's total exports basket.(source: www.ibef.org ) As per current estimation size of Indian Textile Industry is around $110 billion but the Government of India through its National Textile Policy and National Textile vision document has set the target for Indian Textile and apparel industry to $350 billion by 2025(domestic $200 billion and Export $150 billion). With this ambitious target the industry can change the job scenario and manufacturing landscape thereby fulfilling the Prime Minister vision to put textile segment as part of "MAKE IN INDIA" programme. To give a further push to the textile industry, the Government too has initiated several measures which includes 100 percent FDI in the Indian Textile Sector under the Automatic Route, Duty Free Entitlement to Garment Exports, Proposed 24/7 customs clearance facility at 13 airports and 14 sea ports, Integrated Skill Development scheme, North East Region Textile Promotion Scheme, Focus Market scheme etc. It is expected that these measures will help the Industry to grow further and increase its global share, which is poor second to China, at brsent. In line with the global trends and to remain competitive, your company continues to modernize, upgrade and expand its capacities. The company's expansion cum modernization plan has been completed during the year. After the said expansion Company's spindlage capacity stands increased to 498592 spindles and 1080 rotors. This enhancement/upgradation of capacities is with the idea of VALUE ADDITION and also reach to the OPTIMUM LEVEL OF ECONOMIES OF SCALE.As you are aware this is a must for Textile Industry, which is a very capital intensive industry and growth is expected only when there is a value addition and the optimum level of economies of scale. Thus your company has positioned itself as one of the leading integrated Textile Players to reap the benefits of economies of scale and become globally competitive in terms of cost and quality. Opportunities and Threats The past year has been a challenging year for the Textile Industry with lots of ups and downs. Inspite of the above, the industry has been able to maintain its steady performance during the year under review. The recoveries in US, European and Asian economies is good for the Industry and will boost the exports to these economies. The slowdown of China textile exports on account of various factors i.e. Increased labour cost,currency value and increased domestic demand is providing new place of opportunities as per the theory of "expected vacating places". This is going to prove blessing in disguise for the Indian Textile industry and offer an excellent opportunity for increasing Textile exports to the overseas markets. The developed countries including US, UK, Germany and Japan all have accepted the reality that commercially it is not viable for them to have a thriving textile industry, because of high cost of labour and skilled manpower. Hence imports are the only solution to meet their requirements , especialy of garments. These countries are looking at India as suitable and reliable choice for their requirements of Garment. This is a huge opportunity and it must be grabbed by the Textile Industry so that it can increase its share in the Global trade. Besides India's consumption growth story, driven by favourable demographic trends and rising income level, is still intact and will further improve the fortunes of the industry. From the above it is evident that there are ample opportunities for the industry to increase its share in the domestic as well as global markets. Seeing the good prospects of growth of the Textile Industry, the Government of India through its National Textile Policy and National Textile vision document has set the target for Indian Textile and Apparel industry to $350 billion by 2025(domestic $200 billion and Export $150 billion). Though the future of the Textile industry appears to be bright but it is not free from normal business risks and threats. The Indian Textile exports continues to face stiff challenges from the small countries like Bangladesh, Sri Lanka, Taiwan and Pakistan etc., who have got the brferred treatment from the countries of European union and U.S. Instead of giving additional incentives to compete with these countries, the government has withdrawn the focus Market Scheme, whereby companies were getting incentives of two percent for exports to Central American countries and Europe. This is going to affect the Indian Textile Industry severely and exports to these countries has already been affected badly. Moreover the volatile currency fluctuations is also a matter of concern as any apbrciation in Rupee could result fall in exports as Indian goods will become costlier as compared to other countries and will affect exports. From the above it is evident that the opportunities are more than the challenges. The government must support the industry to retain its competitive edge and face the challanges for future sustainability and growth. . Future Outlook We would like to inform you that the last year has been a challenging year for the textile industry. The slowdown in the global demand from US, European Union and other countries adversely affected the Textile Industry. Likewise changes in China Textile Policy severely affected the country's export to that country. In spite of the above, we are of the firmed opinion that the future of the Textile Industry is quite promising. We hope that with the the recoveries in economies of U.S.A and European Union will propel the growth of the Textile Industry. Moreover the growth drivers of the yesteryears, such as ever growing retailing sector and increased purchasing power of both urban and rural people, are still brsent in the economy and will lead to the growth of the Industry. The shifting of orders from China to India, due to various favourable factors will also help the Industry to increase its global share. Your management is quite optimistic that the industry will be able to meet the challenges ahead and will emerge as a winner. We also expect that the Government will continue to support the industry in the form of favourable Textile policies, incentives and other benefits which are of paramount importance for the future growth of the Industry. Risks and concerns No industry is free from normal business risk and concerns. Indian Textile Industry continues to face stiff competition from China, Bangladesh, Taiwan Sri Lanka and other emerging economies. The relative competitiveness of Industry is dependent upon the raw cotton prices, exchange rates and brvalent interest rates regime. The primary raw material for the manufacturing of yarn is cotton with share of around 60% of total cost. Cotton being an agriculture produce, its supply and quality are subject to forces of nature i.e. Monsoon. Any increase in the prices of raw cotton will make the things difficult for the Textile Industry resulting weak demand and thin margins. Thus availability of raw cotton at the reasonable prices is crucial for the spinning industry. Any significant change in the raw cotton prices can affect the performance of the Industry. The favourable exchange rate has provided a short term relief to the exporters but the situation is not likely to continue in future. The Reserve Bank of India as a Central Bank has started taking steps to stablise the rupee as stable currency is not only good for the industry but for the country as well. The high rate of interest and tight monetary policy are affecting the financial performance of the textile industry. Though RBI has taken some remedial measures in this regard but still a lot more is required as the Textile Industry is a capital intensive industry. In addition to the above, the other concerns are like increased power costs, uninterrupted power supply, higher transaction costs, high cost of labour, continuously increasing prices of raw material are posing a risk to the growth of Indian Textile Industry. Further to give boost to the industrialisation of the state, some Governments through their industrial policies have announced certain incentives for the New Industrial units in their state. Though it is advantageous to the new industrial units as they will have differential benefits in view of the different policies of the state nevertheless existing industrial units needs some compensatory benefits like freight equalisation policy for having equilibrium for Textile Industry at large. This will enable them to become Globally competitive and contribute towards the growth of the state as well as country. Internal Control Systems and their adequacy The Company is maintaining an efficient and effective system of Internal control for the facilitation of speedy and accurate compilation of financial statements. The company's Internal control system commensurate with the nature of its business and the size of its operations. In order to further strengthen the Internal control system and to automate the various processes of the business, company is making use of Enterprises Resource Planning (ERP). Pursuant to the provisions of section 138 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, the Company has also appointed Internal Auditor. The Company is also having an Internal Audit Department to test the adequacy and effectiveness of Internal Control Systems laid down by the management and to suggest improvement in the systems. Apart from this, an Audit Committee consisting of three non executive directors has been constituted. All the significant audit observation and follow up action thereon are taken care of by the Audit Committee. The Audit Committee met four times during the financial year under review. The Company has also established a Vigil Mechanism as per section 177(9) of Companies Act, 2013 read with Rule 7 of the Companies (Meeting of Board and its Powers) Rules, 2014. Financial Operation and Performance The Company is operating in one segment only i.e. 'Textile'. During the year under review, your company has performed well. The company achieved a operating income at Rs. 2149.61 crores out of which Rs. 1393.20 crores is export turnover. The Company earned a profit before tax and debrciation of Rs. 145.40 crores. After providing for debrciation, income tax (including adjustment of tax of earlier year) and deffered tax, the Company earned a net profit of Rs. 20.21 crores. The detailed performance has already been discussed in the Director's Report under the column 'Operational Review'. Human Resources/Industrial Relations Beyond Balance Sheet lies Company's singly biggest Asset Human Resources. The Company is of firm belief that the Human Resources are the driving force that propels a company towards progress and success. The company continued its policy of attracting and recruiting the best available talent so that it can face business challenges ahead. The Company also offers attractive compensation packages to retain and motivate the professionals so that they can give their best. The total permanent employees strength of the Company was 12071 as on 31st March, 2015. The industrial relation continued to remain cordial during the year. Cautionary Statement Though the statement and views exbrssed in the abovesaid report are on the basis of best judgement but the actual future results might differ from whatever is stated in the report. FOR AND ON BEHALF OF THE BOARD JAWAHAR LAL OSWAL (Chairman) DIN: 00463866 PLACE: LUDHIANA DATED: 5th August, 2015 |
