Dhanlaxmi Fabrics Ltd Management Discussions

Your Directors are pleased to present the Management Discussion and Analysis Report for the year ended 31^st March, 2023.

The Management Discussion and Analysis have been included in consonance with the Code of Corporate Governance as approved by The Securities and Exchange Board of India (SEBI). Investors are cautioned that these discussions contain certain forward looking statements that involve risk and uncertainties including those risks which are inherent in the Companys growth and strategy. The company undertakes no obligation to publicly update or revise any of the opinions or forward looking statements expressed in this report consequent to new information or developments, events or otherwise.

The management of the company is presenting herein the overview, opportunities and threats, initiatives by the Company and overall strategy of the company and its outlook for the future. This outlook is based on managements own assessment and it may vary due to future economic and other future developments in the country.

The operational performance and future outlook of the business has been reviewed by the management based on current resources and future development of the Company.

OVERALL REVIEW:

India has the distinction of being sixth largest exporter of Textiles and Apparel in the world. Textile and Apparel Industry is second largest employer in the country next to Agriculture providing direct employment to 45 million people and 100 million people in allied industries. The Indian Textiles and Apparel industry contribute 2.3 per cent to the countrys GDP, 13 per cent to industrial production and 12 per cent to exports.

The Indian Textile and Apparel Industry is highly diversified with a wide range of segments. There are over 1,200 textile mills with a spinning capacity of about 29 million spindles. While yarn is mostly produced in the mills, fabrics are produced in the power loom, knitting and handloom sectors as well.

The Indian textile industry is highly fragmented and labor-intensive. The textile industry is being dominated by unorganized sector and Small and medium industries. The foreign investors are not investing in the textile sector which is also one of the areas of concern. The government policies and tax structure are not favoring this industry textile industry is highly competitive and the present situation demands the companies to benchmark their products with the best in the world and try to upgrade the quality and production processes. The paper tries to provide insights into the Indian textile industry. The article attempts to explain the opportunities, challenges and suggestions.

The global luxury industry has seen steady growth over the past 16 years and it is commonly believed to be one of the most appealing and profitable industries in the world. In addition to its economic value, luxury fashions brands help develop the best fashion products for the market. They are leaders in the fashion world and drive a lot of mass-market imitators. Moore and

Birtwistle focused on Gucci to study the nature of "parenting advantage" in luxury fashion. They reviewed Guccis annual reports and other secondary information sources and identified the "ten-year renaissance" in Gucci. They argued that there is an intra-business group synergy in Gucci and this synergy is crucial for saving Gucci from the financial crisis that it faced at that time. They also established a multidimensional luxury fashion branding model which identifies various critical components and their interactions for luxury fashion brands. They believed that their proposed model can help luxury fashion brands to better shape the branding strategies and develop a competitive edge.

India is the worlds second largest producer of textiles and garments after China. It is the worlds third largest producer of cotton after China and the USA and the second largest cotton consumer after China. Indian textile industry currently estimated to be US $220 billion and expected to reach US $400 billion in the year 2030.The industry is the second largest employment generator after agriculture by employing 45 million people directly and 60 million people indirectly.

The global apparel market size is expected to reach US $2.6 trillion in 2025 growing by a projected rate of 4%. The major growth drivers of the global apparel market will be the developing economies, mainly China and India, both growing in double digits. China will become the biggest apparel market adding more than US $378 bn. in market size by 2025, while India will be the second most attractive apparel market adding around US $121 bn. by 2025.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

India is the worlds second largest producer of textiles and garments after China. It is the worlds third largest producer of cotton after China and the USA and the second largest cotton consumer after China. Indian textile industry currently estimated to be US $220 billion and expected to reach US $400 billion in the year 2030.The industry is the second largest employment generator after agriculture by employing 45 million people directly and 60 million people indirectly.

The Indian textile industry presently contributes around 14 percent to industrial production, and 4 percent to GDP, 17 percent to the countrys exports, and 21 percent employment. India has abundance of natural resources like cotton, jute and silk. Indian products are preferred for their fine designing, embellishment and craft. From the ages the Indian fabric designers and weavers are recognized as one of the best in the world. At present industry is growing at 9-10 percent with Indian economy. Indian textile industry currently possesses a share of 4.7% in world market of textiles and clothing.

Export of clothing from India is increasing world over due to the versatility of different products. The major retailers include JC

Penney, Nautica, Dockers, Bed, Bath and Beyond, Target, Kohls Liz, Calvin Klein, Sprit, Marks & Spencer, GAP, United Colors of Benetton, Mango, Zara and Dillards etc. European Union and USA the largest markets for textile and apparel with a share of 36% and 14% respectively. Among the nations, China is the largest supplier of textile and apparel in the world with a major share of 40%. It is distantly followed by countries such as India, Italy, and Germany etc. each with an approximate share of 5% in the global textile and apparel exports.

The fundamental strength of Indian textile industry is its strong production base with wide range of fibers/yarns. These are natural fibers such as cotton, jute, silk and wool and synthetic/man-made fibers like polyester, viscose, nylon and acrylic. In producer-driven value chains, large, usually transnational, manufacturers play the central roles in coordinating production networks. Textile industry is capital- and technology-intensive comparable with automobiles, aircraft, computers, semiconductors and heavy machinery industry. Buyer-driven value chains are those in which large retailers, marketers and branded manufacturers play the pivotal roles in setting up decentralized production networks in a variety of exporting countries, typically located in developing countries. This pattern of trade-led industrialization has become common in labor intensive, consumer-goods industries such as garments, footwear, toys, handicrafts and consumer electronics. Large manufacturers control the producer-driven value chains at the point of production, while marketers and merchandisers exercise the main leverage in buyer-driven value chains at the design and retail stages. Apparel is an ideal industry for examining the dynamics of buyer-driven value chains. The relative ease of setting up clothing companies, coupled with the prevalence of developed-country protectionism in this sector, has led to an unparalleled diversity of garment exporters in the third world. Apparel is an ideal industry for examining the dynamics of buyer-driven value chains.

The global apparel market size is expected to reach US $2.6 trillion in 2025 growing by a projected rate of 4%. The major growth drivers of the global apparel market will be the developing economies, mainly China and India, both growing in double digits. China will become the biggest apparel market adding more than US $378 bn. in market size by 2025, while India will be the second most attractive apparel market adding around US $121 bn. by 2025 [1].

A large and growing domestic demand coupled with increasing spending power of people in these two countries will result in the combined addition of around US $500 bn. in the global apparel market size by 2025. The combined apparel market size of China and India i.e. US $795 bn. is expected to exceed combined market size of EU and USA i.e. US $775 bn, by 2025. India is one of the fastest growing economies with the GDP growth of 7.2 percent in the last quarter of 2017-18. These growths also boost the purchasing power and propel the demand for the textile products.

The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. The organized apparel segment is expected to grow at a Compound Annual Growth Rate (CAGR) of more than 13 per cent over a 10-year period

STATE OF AFFAIRS OF THE COMPANY:

In textile segment the company is having fabric process house and yarn dyeing unit at Dombivali, District Thane and weaving unit at Ichalkaranji, District Kolhapur. Fabric process house is fully equipped with latest machinery to bleach, dye, print& finish all type of textile fabric. Yarn dyeing unit is also fully equipped to bleach & dye the yarn required for fancy fabric. Weaving unit is consisting of 36 air jet looms equip to produce 50 lacs mtr per year.

In power segment the company has installed Wind turbine of 1.25 MW in Dhule Maharashtra.

The overall profitability of the Company during the year under review, as compared to the previous year, has been increased.

The Companys capital and Banking facilities has remained intact. There were no liquidity concerns as the Company have/had sufficient unutilized Banking limits available. Further Banks have offered additional limits. However, the company is witnessing delay in receivable collection from buyers as buyers are extending payment terms.

The Company has sufficient working capital limits to meet financial requirements. Though the cash position was challenging, with our limits and tight control over expenditure, the company will be able to serve its debt and other financing arrangement.

The Company has taken Cash flow control and overhead control measures to manage the operations, weekly review mechanism adopted to review accounts receivables and measures.

OPPORTUNITIES AND THREATS:

The Indian government has come up with a number of export promotion policies for the textiles sector from time to time. It has also allowed 100 per cent FDI in the Indian textiles sector under the automatic route.

Followings are the various Initiatives taken into consideration by Government of India.

a) The Union Ministry of Textiles Government of India along with Energy Efficiency Services Ltd (EESL), has introduced a technology up gradation scheme called SAATHI (Sustainable and Accelerated Adoption of Efficient Textile Technologies to Help Small Industries) for reviving the power loom sector of India. b) The Government has taken initiative to connect with 5 crore (50 million) village women to charkha (spinning wheel) in next 5 years with a view to provide them employment and promote khadi and also, they inaugurated 60 khadi outlets which were renovated and re-launched during the completion of KVIC s 60th anniversary and a khadi outlet.

c) The Textiles Ministry will organize ‘Hastkala Sahyog Shivirs in 421 handloom-handicrafts clusters across the country which will benefit over 1.2 lakh weavers and artisans.

d) The Gujarat governments decision to extend its textile policy by a year is set. It is estimated to attract Rs 5,000 crore (US $50 billion) of more investment in sectors across the value chain. The government estimates addition till now of a million units of spindle capacity in the spinning sector and setting up of over 1,000 units in technical textiles.

e) The Textile Ministry of India earmarked Rs 690 crore (US $106.58 million) for setting up 21 ready- made garment manufacturing units in seven states for development and modernization of Indian Textile Sector.

The Government of India plans to introduce a mega package for the power loom sector, which will include social welfare schemes, insurance cover, cluster development, and up gradation of obsolete looms, along with tax benefits and marketing support, which is expected to improve the status of power loom weavers in the country.

Further, China plus one policy by USA and Europe will lead to increase in demand for the Indian Market. With an added advantage of high quality standards and globally renowned accreditations, our Company will be forging ahead with its sustainability vision to build potential so as to grab opportunities coming its way.

The Indian textile industry is highly fragmented and is being dominated by the unorganized sector and small and medium industries. The changing government policies at the state and central government levels are posing major challenges to the textile industry. The tax structure GST (Goods and Service Tax) makes the garments expensive. Another important thereat is raising interest rates and labor wages and workers salaries. There is higher level of attrition in the garment industry. Although central government is wooing the foreign investors the investment is coming in the textile industry. In India places such as Bangalore, Mumbai, New Delhi and Tirupur are the hubs of textile garment industries. These manufacturers have ability to produce the entire range of woven wear and knitwear at low cost with reasonably good quality within the short notices. The Indian textile industry has its own limitations such as accesses to latest technology and failures to meet global standards in the highly competitive export market. There is fierce competition from China, Bangladesh and Sri Lanka in the low price garment market. In the global market tariff and non-tariff barriers coupled with quota is posing major challenge to the Indian textile Industry. The environmental and social issues like child labor and personal safety norms are also some of the challenges for the textile industry in India.

In other words the Industry is also exposed to Human Resource Risks, Statutory Risks, Commodity Price Risks, Economic Risks and Operational Risks.

SEGMENT WISE OR PRODUCT-WISE PERFORMANCE:

In the Textile Industry the Companys main business vertical is Textile Processing for both Yarn and fabric. Being an integrated unit weaving i.e. fabric making is another vertical wherein company is involved in cloth manufacturing as well as job work. The company plans to hold stronger direct selling in the coming time to increase the top & bottom line for the year.

The other Segment was Real Estate, which was closed due to unavailability of any opportunity and its not the companys core competency. At the same time the Company has started operating in to other segment which was Fabrics Processing segment.

CHANGE IN THE NATURE OF BUSINESS, IF ANY:

There was no change in the nature of business of the Company or any of its subsidiaries during the year.

RISK AND CONCERNS:

There is a proliferation in cotton prices which cannot be absorbed in finished goods prices. Preference is shifting from Cotton fibre to man-made fibres i.e. synthetic, polyester etc., which are available at lower prices. This is putting pressure on margin.

The Company is always devoted on its core competence stuff in yarn and fabric processing, weaving, printing activities with creative ideas in designing, by and large to cater the market demand. This has a great impact on the operational performance in all the divisions of the company and effects on cost of production. Quality production is the essence of our job work of weaving and processing division.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has in place an adequate system of internal control commensurate with the size and nature of its business. These have been designed to provide reasonable assurance that all assets are safeguarded and protected against loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly and the business operations are conducted as per the prescribed policies and procedures of the Company. The Audit Committee, Internal Auditor and the management have reviewed the adequacy of the internal control systems and suitable steps are taken to improve the same.

To achieve optimum use of available resources i.e. Material, Manpower, Money and Energy Companys operating procedures and controls are in place and monitored with intense care and supervision of the staff and management. The company uses technology and manpower in a great combination to achieve the best of results.

PERFORMANCE OF THE BOARD AND COMMITTEES:

During the year under review, the performance of the Board & Committees and Individual Director(s) based on the below parameters was satisfactory:

(a) Most of the Directors attended the Board meeting;

(b) The remunerations paid to executive Directors are strictly as per the company and industry policy. (c) The Independent Directors only received sitting fees.

(d) The Independent Directors contributed a lot in the Board and committee deliberation and business and operation of the company and subsidiaries based on their experience and knowledge and Independent views. (e) The Credit Policy Loan Policy and compliances were reviewed periodically; (f) Risk Management Policy was implemented at all critical levels and monitored by the Internal Audit team who places report with the Board and Audit committee.

DISCUSSIONS ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

The Turnover of the company has increased almost by 19.29% from 65.69 crores to 78.37 crores as compared to previous year turnover.

Particulars	2022-23	2021-22
Turnover	(Rs. In Lakhs)	(Rs. In Lakhs)
Fabrics / Yarn /Garment Sale	4923.63	3,743.54
Processing Charges / Job work	2876.79	2,784.59
Power Sale	36.64	41.75
Total	7837.06	6,569.87
Profitability
Net Profit after Taxation	71.73	54.06

KEY FINANCIAL RATIOS:

In accordance with the amended SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, the Company is required to give details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations thereof:

The Company has identified following ratios as key financial ratios:

Particular	Numerator	Denominator	F.Y. 2022-23	F.Y. 2021-22	% of Variance
Current Ratio	3,121.92	1,125.56	2.77	1.84	50.59
Debt-Equity Ratio	901.76	5,332.19	0.17	0.28	-39.03
Debt Service Coverage Ratio	545.62	184.12	2.96	2.76	7.22
Return on Equity Ratio	71.73	5,296.33	0.01	0.01	-
Inventory Turnover Ratio	7,837.06	1,488.11	5.27	4.62	13.91
Trade Receivable Turnover Ratio	7,837.06	1,078.46	7.27	5.65	28.59
Trade Payable Turnover Ratio	3,510.25	433.27	8.10	8.08	0.23
Net Capital Turnover Ratio	7,837.06	1,996.36	3.93	4.01	-2.08
Net Profit Ratio	71.73	7,837.06	0.01	0.01	-
Return on Capital Employed	198.04	6,272.47	0.03	0.02	32.73
Return on Investment	-	-	-	-	-

HUMAN RESOURCES MANAGEMENT:

The Company continues to accord the highest priority to health and safety of its employees and communities it operates in. The Company has been fully committed to comply with all applicable laws and regulations and maintains the highest standard of Occupational Health and Safety and ensures safer plants. We believe in good health of our employees.

We take this opportunity to thank employees at all levels for their dedicated service and contribution made towards the growth of the company. The relationship with the workers of the Companys manufacturing units and other staff has continued to be cordial.

To ensure good human resources management at the company, we focus on all aspects of the employee lifecycle. This provides a holistic experience for the employee as well. During their tenure at the Company, employees are motivated through various skill-development, engagement and volunteering programs.

FUTURE OUT LOOK

The Company remains steadfast on its strategy to grow manufacturing operations while keeping trading operations status-quo. The Company started its Processing division. Over the next five years, the Company will aim to achieve revenue of Rs. 200 crores from manufacturing and operations, which should drastically improve its net profitability.

For F.Y. 2023-24, the Company will focus on the recovery of the outstanding and ensuring the earliest dispatches of the finished goods inventory to have a tighter control on the working capital and reigning in fixed costs to conserve cash.

The Company is proactively responding to the changing business environment and is confident of sustaining its market share by improving competitive position in the market. The overall business outlook for the Company is promising with improvement in overall economic environment. Efforts towards higher operational efficiencies shall continue.

Being more than 30 years old unit placed within the thickly populated area at the out skirts of Dombivali is very much thirsty for expansion and looking for sizable land parcel. To make further investment in the plot & machinery, the company is exploring the possibility of bank & equity funding.

The management has decided to carry out major structural renovation for its 30 years old factory building and technological advancement and upgradation for its Plant and Equipments installed and located at its Dombivali Unit ("Processing Unit") including installing BOD, COD online meter. However the Weaving Unit of the Company located at Kolhapur will remain in operations.

The management is planning to start the renovations, reformations and upgradation work from April 1st, 2023 after receiving necessary approvals from the local authorities and will close down the Dombivali factory unit for 6-8 months till the completion of renovation and upgradation work and process.

The Company continues to examine the possibilities of expansion and will make the necessary investments when attractive opportunities arise.

CAUTIONARY STATEMENT:

Statements in foregoing paragraphs of this report describing the current industry structure, outlook, opportunities, etc., may be construed as "forward looking statements", based on certain assumptions of future events over which the Company exercises no control. Therefore, there can be no guarantee as to their accuracy. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those that may be implied by these forward looking statements.