Faze Three Ltd Management Discussions

Annexure IV

Management Discussion and Analysis Report for the financial year under review as stipulated in Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

ECONOMY AND OUTLOOK

The Global economy considerably slowed down in 2022 relative to 2021. Following a slowdown at the end of 2022, economic activity rebounded in H1 2023. This rebound was driven in part by strong growth in China, as the lifting of COVID-19 restrictions unleashed pent-up demand, though recent indicators suggest that momentum is slowing in China predominantly in Real estate sector companies & youth employment crises, the Chinese yuan also has been weaker in 7.15-30/$.

Europe showed resilience to the energy price shock stemming from Russias war against Ukraine. The US economy remains strong, Real consumer spending grew at a solid pace early 2023 however owing to higher interest rates and tighter financial conditions it appears to be moderating. Manufacturing output and real fixed investment has been stable over last year or so. The Labour / Job market remains strong in terms of job openings and wage increases have moderated. In the last 9 months, Crude Oil has remained ~$75-85 $ after rising above $120 in 2022 and core metals too have corrected from their peaks though their current levels are elevated from pre-pandemic era.

Asia (ex-China) is the bright spot, viz India, Vietnam, Indonesia, etc. The demographic dividend, stable governments, China Plus One and positive capital flows aided good economic recovery despite geopolitical issues around the region.

2024 looks promising despite an expectation of recession by global pundits in the next 6-9 months mainly on account of housing / real estate sector which forms major part of US & Chinese economy, withdrawal/reduction of stimulus by G7, relatively higher energy prices & geopolitical challenges. Lastly, the Global economy has sustained a COVID shock, 5%+ USD rates, Semiconductor shortage, Oil price Shock, War, etc. all in the last 3 years yet emerged strong and grown, which reiterates the resilience of the Global economy. Also there has been significant underinvestment in manufacturing ex-China globally over last 15 years, which presents an opportunity of growth for incumbents and fresh investments into productive side of the economy perhaps at the cost of excesses in the tech and consumer side of the economy.

India is set to be the second-fastest growing economy in the G20 in FY 2022-23, despite decelerating global demand and the tightening of monetary policy to manage inflationary pressures. Indias economy is likely to post a resilient 6-7% growth in FY24 because of softer global growth and higher interest rates. While the global economy is expected to deaccelerate, however, its growth outlook has improved.

Indian economy is propelled by growth in priority sectors and driven by favourable megatrends, Indias manufacturing sector has opened itself into new geographies and segments. Building on the competitive advantage of a skilled workforce and lower cost of labour, the manufacturing sector is also witnessing an increased capex and heightened M&A activity, leading to a surge in manufacturing output and resultant increased contribution to exports.

The Production Linked Incentive (PLI) scheme has been notified for Large Scale Manufacturing in India. The scheme aims to attract large investments in various sectors including electronics, MMF textiles, semiconductors, etc. The positive developments in the manufacturing sector, driven by production capacity expansion, government policy support, heightened M&A activity, and PE/VC-led investment, are creating a robust pipeline for the countrys sustained economic growth in the years to come.

TEXTILE INDUSTRY

The textile industry in India is one of the oldest in the country and is a big one. With hand-woven, hand-spun, and various mills, the textile sector is extremely varied. It is one of the biggest sectors with about 4.5 crore people employed and being second largest sector providing employment. India is leading exporter of textiles and clothing after China. Increased penetration of organized retail, favorable demographics, and rising income level are likely to drive demand for textiles. Superior quality and ample availability of Cotton and Polyester makes companies in India a leader in exports almost two-third of Indias export of textiles is to US and UK. Indian products have gained a significant market share in global home textiles in the past few years.

Indias textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

India holds 5-6% share of the global trade in textiles and apparel, while China has over 40% share. India is one of the largest producers of cotton and jute in the world. India is also the 2nd largest producer of silk in the world and 95% of the worlds hand-woven fabric comes from India. The Indian technical textiles segment holds approximately 5-6% of the global market.

Home textiles are the third largest segment of Indian textile industry after apparels and technical textiles. Bed linen and bath linen are the two largest selling products and together account for two-third of home textile market. Kitchen linens, curtains, upholstery, and rugs / carpets are the other major products in the sector. India is one of the leading exporters of home textile products including bed linen, curtains & drapes, and other home furnishing articles. The market penetration achieved by Indian home textile sector in developed markets is a mark of its quality standards, which is on par with global standards. Development of textile manufacturing infrastructure in the country with various Government initiatives together with a market-friendly regulatory framework has helped in creating a world class textile manufacturing infrastructure.

FAZE THREE LIMITED COMPANY OVERVIEW

Faze Three Limited (hereinafter referred to as FTL) is engaged in manufacturing and export of superior quality high-end Home Textile products supplying to top retailers across the globe. It has a diversified product line, main products include Bathmats, Bath Rugs, Chairpads, Blankets, Rugs, Throws, Floor covering, Bed spreads, Patio Mats, Seat covers etc., The Company is known for its sheer pursuit for innovation, ideas and designs which reflects in its products and has enjoyed being a preferred vendor to most of its customers. Majority of FTLs revenue (90%) is derived from Exports to USA, UK and Europe region. The company has eight facilities to manufacture home textiles situated at Dadra and Nagar Haveli, Vapi (Gujarat), Aurangabad (Maharashtra) and Panipat (Haryana) in India. Refer www.fazethree.com for more details.

PERFORMANCE - YEAR 2022-23

Financial Performance

1. Total Consolidated Income for year ended March 31, 2023 stood at INR 563.76 Crores vs INR 511.44 Crores for year ended March 31, 2022. Growth of ~ 10 % y-o-y.

2. Consolidated Net Profit before Tax for year ended March 31, 2023 stood at INR 77.62 Crores vs INR 71.40 Crores for year ended March 31, 2022. Growth of ~ 8% y-o-y.

3. Consolidated Net Profit after Tax for year ended March 31, 2023 stood at INR 58.30 Crores vs INR 51.08 Crores for year ended March 31, 2022. Growth of ~ 14% y-o-y.

4. Earnings Per Share for year ended March 31, 2023 INR 23.97 per share versus INR 21.00 per share for year ended March 31, 2022.

Awards and Ratings

• The Company was awarded with Dun & Bradstreet "Business Enterprises of Tomorrow 2022" Business Excellence Awards in Category Mid-Corporate – Textile & Textile Articles on November 29, 2022.

• The Company was recognized as one of the "Best Global Business Category (Mid-Corporates) in India – 2021"by Dun and Bradstreets Business Excellence Awards 2021 on November 24, 2021.

• The Company was recognized as one of the leading "Mid-Corporates in India - 2020 "by Dun and Bradstreets premier publication released on November 25, 2020.

• The Company was awarded the Dun & Bradstreet - RBL Bank SME Business Excellence Awards 2019 in the Mid- Corporate Segment for excellence in the Textile Sector.

• The Credit Rating of the Company was re-affirmed with revision in outlook to positive CARE A-; Positive/CARE A2+ (in September 2022).

Products

The Company has a diversified product basket which includes cotton and rubber backed bathmats, blankets, durries, throws, hand tufted carpets and rugs made of cotton and wool, cushion covers, curtains as well as poly cotton and cotton mask, table covers, patio mats, seat covers amongst many others under the technical textiles ambit.

Geographic distribution

Majority (~90%) of Revenue is derived from direct exports to organized retail in USA, UK and Europe region, of which USA ranges from 55-65%.

SWOT ANALYSIS

The core strengths of the Company are its long track record of business with existing customers, in-house design and development pedigree, extensive experience of the management team, global benchmarked Manufacturing facilities / Infrastructure, etc. Diversified product portfolio coupled with established relationships with reputed clients ensuring stable revenue visibility and growth opportunities. The company has significant ability to develop new products and build supply chains for the same within a short period of time. The company undertakes order backed manufacturing only and does direct exports to the customer. Further the Company is long term debt free and has strong capital structure.

The Eureka moment of 2008-09 in demand for Sheets and Towels from India leading to India being a leader today within a decade, is NOW here also for categories other than Sheets and Towels which includes Floor coverings, TOB, window curtains, value added products etc. The Company is well positioned to make most of the products in the said categories which were dominant out of China, estimates suggest about 15-20 times of India over last decade. The giant shift is underway alongside normal growth in coming years. India has level playing field on Manufacturing costs, import tariffs and most importantly Customer Mindset which has changed in fact in Indias favour for reasons well known.

The Company is well positioned to cater the increased demand as Company has concluded Expansion at Silvassa factory in April 2022 which will have 3x capacity on existing spare land, under Floor coverings / Rugs segment and Top of Bed / Blankets segment. The Company has also commenced expansion at Handloom Home Textiles division located at Panipat for expanding capacity to 3x from current capacity which is expected to be completed by Mar 2024.

Tangible shift of demand to India from China as elaborated above and transforming consumer spending trends have resulted into higher demand of home textile products.

FY 23 saw part reversal of FY 22 in terms of high costs of cotton, coal, containers and all other key input raw materials while the demand also moderated over FY 22. US retailers guided in April 22 on their goals to reduce inventory levels from over 20% of revenue (including inflation impact) to under 10% revenue. This correction coupled with reduction in various input prices from peak led to moderation in growth versus FY 22. In other words, the sector already went through a recession of its own over last 12-15 months in a bid to correct inventory levels and prices. The coming fiscals look very promising as USA is witnessing on of the strongest jobs market along with rising incomes which is a big blessing. Inflation peak is behind us and despite very high rates, the US economy has held up very well.

The Company has a strong position in Indian textile industry buoyed by strong export demand and readiness to grow quickly owing to expanded capacity available for use, however, the Company faces geographic concentration risk with ~60-70% revenue from USA. The company also faces challenges from significant volatility in raw material prices (eg. Crude prices leading to rise in polyester prices in 2022), foreign exchange fluctuations, etc. Also being relatively export competitive viz. China and other south Asian counterparts require government policies and global FTAs aligned and level playing over long term.

However, the Company has an operational track record of more than three decades (being incorporated in 1985) which indicates its ability to survive economic and business cycles.

INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY

FTLs internal controls are commensurate with its size and the nature of Companys operations and are working effectively. The affairs of the Company are managed in such a way that there is free flow of information between the management and the same is only communicated on a need to know basis. The Internal controls of the Company are designed in such a way that reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance of corporate policies is possible.

The Internal Control systems are quarterly assessed by the Audit Committee and the report of the same is submitted to the Board for its review. Our audit committee has concluded that, as of March 31, 2023, our internal financial controls were adequate and operating effectively.

HUMAN RESOURCES/ INDUSTRIAL RELATIONS

The Company has 8 state-of-the-art manufacturing facilities situated at Dadra and Nagar Haveli, Gujarat, Haryana and Maharashtra in India and employs over 3000 workers directly and indirectly.

The Company is led by an experienced management team with vast domain knowledge. The operations are overlooked by its directors / professional management who are highly qualified and have extensive industry experience. The management is also backed by well-defined second-tier management with designated functional heads for each department. The long standing presence in the industry along with experience of the management has helped the Company to scale up its operations even during Covid times. The Company has continued its investment in Human Resource and Talent acquisition during last year.

The Company continuously taking efforts to provide safe working environment, trainings, strict standards of personal hygiene, necessary infrastructure and equipment across all our operations. We are equally focused on protecting the lives and livelihoods of all our employees. The operations of the Company are conducted in such a manner that it ensures safety and security of all the workers and employees.

POLLUTION AND ENVIRONMENTAL CONTROLS

The Company endeavors to have minimum impact to the environment with sustainable production methods, use of energy efficient and environment friendly technology, use of recycled and eco-friendly raw materials, etc., Sustainability has always been a culture in the Company which believes in giving back to the environment and the society. It believes that profitability not only depends on the actual profit but also the benefit derived by the community through the activities of the Company.

The Company is moving towards processes and machines which are more sustainable and reduce energy use. The new machines are reviewed from the point of view of energy consumption as well along-with production efficiency and output while making purchase decisions. The newly built expanded capacity at Silvassa consist of lithium Ion MHE (warehouse truck & forklifts) leading to efficiency, energy saving and further additions towards ESG goals. The company has continued its sustainable practice with implementation of Rain Water harvesting system at all the units which reduces dependency on external sources during summer as well as saving the water. The Company has also taken various steps to conserve energy such as Installation of Low KwH LED lights across the units, installation of transparent sheets in warehouses to receive natural daylight minimizing use of power lights, Electric scooters to transport goods within unit, installation of Turbo ventilators in the roofs of the units.

The Company is continuously looking for ways to replace fossil fuel energy with renewable energy. The Company has already invested and installed a 110-kWh solar power plant at one of its Dadra unit. The company has installed 1.0 MW of Solar Rooftop at Silvassa units in Apr-May 2022, which would generate around 30% of current electricity consumption at said units. Companys finished goods warehouses (capacity upto 130 HQ containers at a time) are operated by fully Electric lithium-ion fleet of forklifts / reach trucks. Apart from being cost effective, it enhances goal & commitment towards ESG. Along with collection and processing, your Company is also progressing towards making plastics packaging circular by eliminating unwanted plastics by moving from Conventional polybag to Recycled polybags as well as ensuring there is 0% plastic wastage at all the units.

All the manufacturing facilities of the Company have requisite permissions and certificates under the pollution and environmental laws of the state. The Company actively participates in the sustainability programs with international standards by adopting strict measures and alternatives to control the negative impact on the environment which includes optimum production methods, use of renewable energy, responsible sourcing, use of recycled materials, zero waste, high health and safety standards, etc., Such efforts by the company are regularly applauded by the customers which help them tick their responsible sourcing commitments.

OUTLOOK

The Company is looking at pipeline of opportunities in all of our core business categories, the growth potential is immense based on customers projections subject to ones ability to manufacture, bandwidth across design & development to turnaround faster. The Company is looking at very encouraging feedbacks from customer on our enhanced ability to now deliver larger volumes in our core focus on value added home & technical textiles.

KEY FINANCIAL RATIOS:

Sr. No.	Ratios	2022-23	2021-22	Explanation for significant change
1.	Debtor Turnover Ratio (times)	5.75	5.98	Not applicable
2.	Inventory Turnover Ratio (times)	2.55	2.51	Not applicable
3.	Current Ratio (times)	1.66	1.58	Not applicable
4.	Debt Equity Ratio (times)	0.35	0.38	Not applicable
5.	Interest Coverage Ratio (times)	0.63	0.59	Not applicable
6.	Operating Profit Margin (%)	18.87	18.12	Not applicable
7.	Net Profit Margin (%)	0.11	0.11	Not applicable
8.	Return on Net Worth (times)	0.25	0.27	Not applicable

CAUTIONARY STATEMENT

Statements used in the Management Discussion and Analysis should be read in conjunction with the Companys Audited Standalone and Consolidated financials along with the auditors report as on March 31, 2023 which forms an integral part of the annual report, describing the Companys objectives, projections, estimates and expectations, may constitute ‘forward-looking statements within the meaning of applicable laws and regulations. Although the expectations are based on reasonable assumptions, the actual results might differ.

For and on behalf of Board of Directors Faze Three Limited

	Sd/-
	Ajay Anand
Date: May 23, 2023	Chairman & Managing Director
Place: Mumbai	DIN: 00373248