Ashnoor Textile Mills Ltd Management Discussions

A. Business Overview of Ashnoor Textile Mills Limited (ATML)

Ashnoor Textile Mills Limited is engaged in the manufacture and export of terry towels. It has only one plant located at Gurugram. The company generates more than 70% of its income from operations through the export of its products to the USA. So, the business prospects of the company are dependent on global, particularly the economic conditions in the USA, as well as the Indian economy.

B. Industry Structure and Development

Indias textile sector provides livelihoods to millions of households and has the second largest employer, employing more than 40 million workers. The textile sector, generating formal and productive jobs, has the potential for broader social transformation, generating exports and growth. The terry towels form an integral part of the home-textile segment. The demand for terry towels varies across the countries depending upon various factors like population, demographics, living style, economic status, and climatic conditions. In India, terry fabrics are manufactured mainly in decentralized handloom and power looms sectors, and only 10-15% of total terry fabric production was produced in the organized sector. We are one of the prominent terry towel manufacturers in the organized sector. Most of the organized sector units are engaged in catering to the market of export and also the quality segment of domestic markets.

Europe and USA continue to be the prime markets for terry towels but Indian exporters of terry towels have a comparative disadvantage in exporting to Europe due to tariff protection given to exports from other countries like Pakistan, Turkey, and Bangladesh. So, the main focus of the company is to concentrate on exporting to the USA. According to the US Offices of Textiles and Apparels data, India caters to about 45% of the total import of terry towels imported by the country. Indian exporters have been able to capture the share due to easy cotton availability and favorable labor conditions.

C. Opportunities and Threats and Future Outlook and Global Economic Conditions

The company is engaged in the manufacture and export of terry towels which are used mainly in the hotel industry. After COVID-19, the demand-supply dynamics have undergone volatile changes. In the financial year 2022-2023, there was a slowdown in demand due to a cooling down of the pent-up demand seen post COVID. The raw material (cotton) prices went to extraordinarily high levels in the first half of the FY 2022-2023 which led to very high production costs and a slowdown in demand in the second half of the last financial year. The effect of an increase in capacities by the Indian manufacturers post-COVID to fulfill pent-up demand also aggravated the impact of the slowdown in demand. The central banks have followed monetary tightening policies all over the world which has aggravated the slowdown in demand. As a result of it, the demand scenario has been sluggish in FY 2023-2024.

Now, the tightening cycle is over and the US is expected to reverse the tightening policy in the coming months which should boost the demand. Since we are primarily exporting to the USA, the demand scenario there becomes very important. It suggests that the demand recovery will be gradual and the worst is over in the industry. During the last few months, the prices of cotton yarn have cooled down to normal levels which is a positive development. The foreign exchange market is in a stable zone. So, we feel that there should be a gradual improvement in the performance of the company.

D. Segment Reporting

The company has only one segment of activity namely Terry Towels, as per the definition of "Segment" according to the Accounting Standard-17 issued by the Institute of Chartered Accountants of India. The companys performance in the said segment has been discussed in detail in this report.

E. Risks and Concerns

For towels, the export demand in India is mainly driven by the US, the largest market for terry towels and the company primarily caters to exports to the US. The volatility in raw material prices and exchange rate fluctuations is another risk that can turn both favorable and unfavorable. The macro conditions in terms of demand slowdown is also a matter of concern.

F. Internal Control Systems and their Adequacy

The Company maintains adequate systems of internal controls to ensure that all assets are safeguarded against loss from unauthorized use or disposition. The Companys policies, procedures, and guidelines are in place. The Company also has adequate procedures for internal financial controls to detect and prevent fraud and protect the Companys resources. The financial statements are prepared in accordance with the accounting standards issued by the Institute of Chartered Accountants of India and a report on the Internal Financial Controls under clause (l) of sub-section (3) of Section 143 of the Companies Act, 2013 as given by the Independent Auditors and attached with Annual Report signifies that an adequate internal financial controls system over financial reporting is maintained and such financial controls over financial reporting were operating effectively as at March 31, 2024.

G. Financial and Operational Performance

During the year under review, the income of the company from operations decreased from Rs 176.95 crore in FY 2022-2023 to 129.10 crore in FY 2023-2024. The decline was due to a slowdown in the export markets due to monetary tightening by central banks and the cooling down of a sudden spurt in pent-up demand post-COVID 19. But, due to strict cost control measures adopted and other incomes generated from surplus working capital, the profit after tax increased by 17.64% from Rs.612.43 Lakh to Rs.743.56 Lakh.

Although there has been a decline in activity, the company has maintained a comfortable liquidity position and liquidity and solvency ratios have improved implying the preparedness of the company to tap the next upturn in the business cycle. In the current year, the first quarter was good and promises a sign of recovery in the international markets.

H. Human Resources/Industrial Relations

The Company has always valued its human resources. It believes in the unlimited potential of each of its staff. Dedicated and efficient employees are great assets of the Company and the most important ingredient for achieving good performance. During the financial year, the overall industrial relations remained cordial in the Company.

I. Accounting Treatment

The financial statements of the Company have been prepared to comply with the Indian Accounting standards (‘Ind AS), including the rules notified under the relevant provisions of the Companies Act, 2013. The Company had prepared the Financial Statements for the previous year by complying same Accounting Standards.

Details of significant changes in key financial ratios, along with details are given below:

Ratios	As on 31.03.2024	As on 31.03.2023	Percentage change	Remarks/ Response
Current	1.67	1.85	-10.21%	The current ratio is down because both current assets and current liabilities have increased to finance current-year operations.
Debt Equity	1.18	1.25	-5.72%	The decline is due to the repayment of loans and consolidation of net worth through plough-back of increased profits
Debt Service Coverage Ratio	2.32	1.83	26.83%	It has improved due to a decline in loans and an increase in cash accruals
Return of Equity	12.32%	11.43%	7.76%	It has improved due to an increase in profits
Inventory Turnover	2.72	3.91	-30.35%	It has reduced due to a decline in sales
Trade Receivable Turnover	4.26	3.54	20.26%	Improved due to better collection of receivables
Trade Payable Turnover	21.89	11.04	98.22%	Improved due to timely payments to creditors
Net Capital Turnover	5.96	15.30	-61.01%	Declined due to a decrease in sales
Net Profit	5.47%	3.45%	58.43%	Increased due to increase in profits
Return on Capital Employed	16.54%	13.05%	26.78%	Improved due to an increase in profits
Return on Investment	31.97%	3.26%	879.66%	Increased due to high returns earned on investments
Operating Profit	6.78 %	11.03%	62.59 %	Due to strict cost control measures adopted and other incomes generated from surplus working capital

Disclaimer

Readers are cautioned that this discussion and analysis contains certain forward-looking statements. All these statements always have certain risks and uncertainties. Actual results could differ materially from those expressed or implied and the Company is not bound to publicly update or revise forward-looking statements.

Therefore, readers are cautioned not to place undue reliance on these forward-looking statements.

By the order of the Board
Sd/-	Sd/-
Suneel Gupta	Sangeeta Gupta
Managing Director	Director	Place: Gurugram
DIN-00052084	DIN-00052121	Date: May 30, 2024