Deepak Spinners Ltd Management Discussions

INDUSTRY STRUCTURE & DEVELOPMENT

Indias textile sector is one of the oldest industries in the Indian economy, dating back several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk, and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.

As of date, India produces all types of Man-Made Fibers (MMFs). India produces fibre, yarn, fabrics, made- ups, and home textiles. The MMF fabrics hold a majority share in the segment exports, followed by made- ups and yarn. India is completely self-dependent across the value chain, from raw materials to garments.

In the Financial Year 2023-24, textile exports experienced a setback for the second consecutive year. The decline can be attributed to geopolitical tensions casting a shadow on the global economy.

OPPORTUNITY AND THREATS

Globally, the textile trade is dominated by MMF. For India to increase its share in the global textile trade, it will have to increase its competitiveness in the MMF value chain, in terms of price as well as diversification in products. Indias self-sufficiency in raw materials across the entire value chain and manufacturing capacity are factors favouring India over other countries. India has a large indigenous raw material base. Due to the large working population, human resource availability is an advantage for the MMF industry.

India has recently signed several trade agreements including India - UAE CEPA (Comprehensive Economic Partnership Agreement), and India - Australia ECTA (Economic Cooperation and Trade Agreement). The upcoming India-EFTA (European Free Trade Association Agreement), will further catalyze the growth of the Indian Textile Industry, especially in terms of critical inputs, technology, and product development opportunities. The EFTA members which include Iceland, Liechtenstein, Norway, and Switzerland is an important trade bloc for the Indian Textile Industry,

The rapid deterioration of the global economic outlook following the Russia -Ukraine war and mass layoffs of employees by global corporations, has severely impacted demand and margins. Lack of modern technical know-how, non-availability of skilled manpower near factories, volatile raw material prices, infrastructure bottlenecks, are other factors that may pose a threat to progress of MMF industry.

However, through enhancing export competitiveness, attaining manufacturing excellence, and strengthening the textile value chain, the sector can improve its profitability. Emphasis on automation and digitalisation to improve processes and efficiency levels, bringing a strong focus on people and skill development, leveraging Free Trade Agreements (FTAs) to tap new markets, and adopting global best practices for manufacturing excellence can lead to the advancement of this sector.

SEGMENTAL REVIEW AND ANALYSIS

The Company has continued its policy of undertaking modernization and upgradation despite several challenges including geo-political issues. During the year, Rs. 22.91 Crores were spent on modernization and upgradation. The new 4MW solar power plant at Guna unit is under installation and is expected to be completed and commissioned in June 2024. The Solar Power Plant investment has been approximately Rs. 11 Crores during the year. Substantial savings are expected to accrue therefrom during the coming years.

We are committed to achieving manufacturing excellence through adopting new technology and debottlenecking our constraints. Savings from the modernization are expected to be achieved during the current year.

Fabrics imported from China are a big threat to our domestic market. Global freight increased due to war in different countries. Export demands were subdued and the supply of goods for the domestic market was more than demand. This oversupply in the domestic market affected yarn prices adversely.

Your Company is optimistic and is evaluating all possible avenues to maintain profitability. The efforts to keep costs under control continue with an emphasis on improved productivity and profitability OUTLOOK

The demand for MMFs will be further boosted by factors like evolving consumer trends, including a growing focus on fitness and hygiene, rising brand consciousness, rapidly changing fashion trends, and increasing womens participation in the workforce. These trends will work positively for the Indian synthetic and MMF textiles industry.

MMFs have many other important uses. The most important among them is in the industrial applications such as tyres used in automobiles, advertisement boards, tarpaulins, ropes & threads, airbags in automobiles, and many others. Another major area where MMFs are widely used today is in home textiles such as bed sheets, curtains, upholsteries, and many others, due to the cost-effective nature of these products. Furthermore, sanitary pads and diapers are also another major area where MMFs are extensively used as raw materials.

RISKS AND CONCERNS

The Indian MMF industry faces several key challenges, particularly in the realms of technology and global competition. These challenges are technology upgradation and innovation, global competition, supply chain and infrastructure issues, environmental concerns and sustainability, skilled workforce, market diversification, and policy and regulatory framework.

Addressing these challenges requires a concerted effort from both the industry and the government. This could involve investment in technology, enhancing skill development, improving infrastructure, focusing on sustainability, and creating favourable policy frameworks to support the growth and global competitiveness of the Indian MMF industry.

Rising import of MMF fabrics and relatively higher domestic prices of MMF fibres are severely impacting Indian businesses. It is not just imports but under-invoicing of imported fabrics is also a major issue. Global freight increased and demand for export of finished goods decreased due to geopolitical disturbances.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Companys internal control systems and procedures are commensurate with the size and nature of its operations. The Company has an adequate system of Internal Controls to ensure that the resources of the Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use and the transactions are authorized, recorded and reported correctly. Financial and other data are reliable for preparing financial information and other data and for maintaining accountability of assets. The management periodically reviews the internal control systems and procedures for efficient conduct of the Companys business. Internal Audit is conducted by independent Chartered Accountants, every quarter. To maintain its objectivity and independence, the Internal Auditors report directly to the Audit Committee of the Board. The Audit Committee reviews the Internal Audit Reports and effectiveness of the Internal Control Systems. If required, corrective actions are taken and the controls are strengthened.

FINANCIAL PERFORMANCE

a) The report of the Board of Directors may be referred to for financial performance.

b) Details of significant changes (i.e. changes as compared to the immediately previous financial year) in key financial ratios -

HUMAN RESOURCES

The employees on roll in the Company as on 31^st March 2024 were 3127 (3093 as on 31^st March 2023). Relations with the employees were cordial throughout the year. The Company provides to its employees favourable work environment conducive to good performance with customer focus while adhering to quality and integrity.

CAUTIONARY STATEMENT

Statements in this Management Discussions and Analysis Report describing the Company objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable security laws or regulations. These statements are based on reasonable assumptions and expectations of future events. Actual results could, however, differ materially from those expressed or implied. Factors that could make a difference to the Companys operations include market price both domestic and overseas availability and cost of raw materials, changes in Government regulations and tax structure, economic conditions affecting demand/supplies and other factors over which the Company does not have any control. The Company takes no responsibility for any consequence of decisions made based on such statements and holds no obligation to update these in future.