Celebrity Fashions Ltd Management Discussions

Economic Overview

The International Monetary Fund (IMF) has projected global growth to decline from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023

Industry Structure and Development

Indias Textile & Apparel (T&A) Industry is one of the oldest industries and has a formidable presence in the national economy. Indian T&A industry is the second largest in the world after China and spans across the entire value chain. T&A sector is the 2nd largest employment-providing sector in India after agriculture. It provides direct and indirect employment to more than 10 crore people including a large number of women and the rural population.

The textile and apparel industry faces weaker sentiments due to global concerns, domestic lifestyle changes, and slower export demand High inflation across the globe has reduced the consumers purchasing power, which is the major cause of slowdown in textiles and apparel exports. Developing countries including India are facing serious challenges in textiles and exports.

The two major markets the US and EU accounting for over 60 per cent of the Indian textiles and apparel demand, have remained sluggish for the last six months, due to headwinds arising out of surge of inflation and uncertain geopolitical scenario. Consumers in these two and other markets have cut down spending on clothing, as they have to spend more on other household expenses.

Indias textile and apparel exports to the US declined by 23.94 per cent to $4.70 billion during July-December 2022 compared to $6.18 billion during January-June 2022. Likewise, Indias export to EU-27 countries also declined by 24.54 per cent to $3.29 billion in the second half of 2022 compared to $4.36 billion during January-June 2022.

Opportunities & Threat:

TheIndiantextileandapparel market has significant potential, with the industry projected to reach $190 billion by 2025-26.

Due to the ‘China Plus One sourcing strategy adopted by global brands and retailers, China is expected to continue losing its share in the global markets, which could be beneficial for Indian Exporters.

This global economic gloom is increasingly reflected in consumers shopping habits, and the fashion industry is expecting that demand will be weakened or unpredictable in the year ahead.

Segment Review

Celebrity Fashions Limited is engaged in the business of designing, manufacturing and selling of garments and we cater to the demand of leading international brands.

Risks and Concern

The textile industry is facing limitations in accessing the latest and best technology while also failing to meet the global standards in the competitive export market. Apart from these issues like child labour, competition from neighboring countries regarding low-cost garments, personal safety norms, infrastructure bottlenecks, rising environmental concerns are some of the challenges the Indian textile industry faces.

Several risks including the lower profit share, alongside cost reduction pressure from the buyers threaten the survival of the Readymade Garment exporters.

Outlook

Indias textile and garment industry faced a significant a challenging start to the new fiscal year.

The coming year is likely another year full of challenges and opportunities for the

Indian apparel industry. Despite the challenges ahead, we believe that our principal competitive strengths, which differentiate us from other players in the garments industry will help us to progress in the right direction in times of uncertainty.

Internal Control Systems and their Adequacy

The Company has developed adequate internal control system commensurate to its size and business to ensure that all assets are safeguarded and protected against any loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly. The internal audit reports are periodically reviewed by the Management together with the Audit Committee of the Board. The Company has a strong Management Information System as a part of Control Mechanism.

Human Resources/Industrial Relations

Industrial relations have continued to be harmonious at all units throughout the year. No man-days were lost due to strike, lock out etc.

Measures for employees safety, their welfare and development received top priorities. Your Company has a vision of being an ‘Injury Free and ‘Zero Environment Incident organisation. Over the past many years, your Company has been progressing well on the safety record in factories and facilities. The Company had around 3993 employees as on 31st March 2023.

Financial Performance:

The Companys performance during the year as compared with previous year is summarized below:

	FY 2022-23		FY 2021-22
	Amount (In Crs.)	% to Revenues	Amount (In Crs.)	% to Revenues
Revenue from Operations	364.21		327.69
Other Income	0.13	of our business operations & ensuring 0.28
Total revenues	364.34		327.97
Cost of Materials	227.14	62.37%	196.79	60.05%
Changes in Inventories of	(23.96)	(6.58)%	6.03	1.84%
Finished Goods & Work-in-
Progress - (Inc) / Dec
Employee Benefit Expenses	80.57	22.12%	65.51	19.99%
Other Expenses	58.99	16.20%	37.57	11.47%
Total Expenses	342.74	94.11%	305.9	93.35%
EBIDTA	21.6	5.93%	22.07	6.74%
Depreciation	8.23	2.26%	7.31	2.23%
Finance Costs	7.22	1.98%	5.98	1.82%
Profit / (Loss) before Tax and Exceptional Items	6.15	1.69%	8.78	2.68%
Exceptional Item - Expense / (Income)	0	0.00%	0	0.00%
Profit / (Loss) before Tax after	6.15	1.69%	8.78	2.68%
Exceptional Items
Tax Expenses	0	0.00%	0	0.00%
Other comprehensive income	0.55	0.15%	(2.46)	(0.75)%
Total Comprehensive Income	6.70	1.84%	6.32	1.93%
for the year

Profitability and Financial risks

Ratios	FY 2022-23	FY 2021-22	Change (%)
Current Ratio	1.16	1.11	4
Debt Equity Ratio	3.06	5.08	(40)1
Operating Profit Margin (%)	5.93	6.74	(12)
Net Profit Margin (%)	1.69	2.68	(37)2
Interest Coverage Ratio	1.90	2.50	(25)
Debtors Turnover Ratio	7.26	5.37	353
Inventory Turnover Ratio	2.43	3.10	(22)
Return on Net worth	25.09	42.19	(41)4

1. Increase in Share capital and decrease in borrowings. 2. Decrease in profit on account of increase in other expenses. 3. Debtors turnover is higher due to realisation of debtors during FY23. 4. Due to increase in share capital during FY23.

Disclaimer

Statement in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could materially differ from those expressed or implied

Forex Risk

The Companys policy is to systematically hedge its long term foreign exchange risks as well as short term exposures in line with its hedging policy. In addition to this, the company also has a natural hedge on the imports of the company which is almost 40%-50% of its Exports.

Business Philosophy

At Celebrity Fashions, our business philosophy is based on 3 pillars:

1. Operational Excellence

2. Wastage Elimination

3. Fiscal Discipline/Cost Management

The 3 fundamentals frame the culture of the organization and permeate all interactions of stakeholders, both internal & external.

I. Operational Excellence

As the preferred supply chain partner for global brands, our approach is centered that we optimize onmaximizingthe fixed asset turnover. We continue to focus on building a culture of performance with a relentless focus on execution

Our operations are modular in nature, involving the synchronization of multiple stations & processes to deliver product to our customer i. On time ii. World class quality iii. At a Competitive price

We have focused on the real time application of the above principles to ensure that once an order is taken into production, that it is packed and delivered without any disturbances. Our aim is to shift from an efficiency allow the organization to benefit from continuous cash flows to forecast our future revenues better.

II. Wastage Elimination

The above pillar can be further segregated into 2 categories:

Wastage in terms of i. Raw Materials ii. Non-Value Adding processes

As a manufacturer with 30 years of experience, there is a large amount of domain knowledge existing in the company that has come from working with the very best of global brands across product categories. In the coming quarters, we aim to centralize this domain knowledge with a focus on elimination non-value adding processes; resulting in more predictability in our outcomes & maximizing our opportunity to ship given a set of inputs. We have prioritized preparatory work & other R&D activities to ensure that the factory is able to pursue a plug and play approach which would allow them to minimize disruptions and maximize output.

III. Fiscal Discipline

The business of Apparel Manufacturing is price sensitive & competitive. As a member of a global supply chain, we are competing with vendors from across the globe. As mentioned earlier, countries such as Bangladesh & Vietnam enjoy far lower labor costs putting India at a straight disadvantage as a result.

Apart from the yields that bear fruit as result of the combination of the earlier 2 points, we are also driving a culture of fiduciary responsibility across all stakeholders. Our focus is on rationalizing every rupee spent to ensure that it is spent to improve the performance of the organization and weed out any unnecessary expenditure. This fundamental has pushed us to relook at our inventory carrying levels to minimize holding & interest costs. We continue to work with our vendors and suppliers with the aim to save every possible rupee in the value chain, without compromising on the world class service that we are known for.