K-Lifestyle & Industries Ltd Management Discussions

The Management of K- LIFESTYLE AND INDUSTRIES LIMITED presents its Analysis report covering performance and outlook of the Company. The Report has been prepared in compliance with the requirement of Corporate Governance as laid down in the SEBI (Listing Obligations and Disclosure Requirements Regulations, 2015). The Management accepts responsibility for the integrity and objectivity of the financial statements. However, investors and readers are cautioned that this discussion contains certain forward looking Statements that involve risk and uncertainties.

INDUSTRY STRUCTURE AND DEVELOPMENTS

The textile Industry, in general, had a negative impact due to the after effects of structural transformation that took place in the form of implementation of demonetization and GST. Further, post GST, import duty has come down sharply, thus making imports cheaper for the domestic industry which has placed pressure on selling prices for the textile industry as a whole.

The textile Industry Contribute to 7% of industry output in Value Terms, 2% Indias GDP and to 15% of the Countrys export earnings. The textile industry is one of the largest sources of employment generation in the country.

The textiles sector is the second largest provider of employment after agriculture. Thus, the growth and all round development of this industry has a direct bearing on the improvement of Indias economy. Textiles exports from India will touch US$ 185 billion by the year 2024-25.

MARKET SIZE

India has the potential to increase its textile and apparel share in the world trade from the current level of 4.5% to 8 % and reach US$ 80 billion by 2020. The growth implies that with a 12% CAGR in domestic sales the industry should reach a production level of US$ 350 billion by 2024-25 from the current level of about US$ 100 billion for the domestic market. At the same time, Exports of textiles increased to USD 41.67 billion i.e by 3%.

In rupee terms, to Rs.2.55 lac crores as against Rs.2.48 lac crores in the last year there by showing a growth of 3%. Growth in exports of certain segments were high such as handicrafts (17%), carpets (15%) and ready made garments (12%), India has a share of approximately 5% of the global textile and apparel trade.

INDIAN TEXTILE INDUSTRY: CHANGING PROFILE

The Indian textile industry has embarked on an ambitious program of modernization and technological up gradation in recent years to transform the textile sector from a state of low technology level to a producer of high technology products. Technological up gradation in India has resulted in:

• A shift from commodity based trading to high value added fashion garments.

• Vertical integration and horizontal consolidation of production process leading to lowering of manufacturing costs.

• Improved productivity gains

• Efficient supply chain management

• Development of Economies of scale

INVESTMENTS

Textiles Policy aims at creating 35 million new jobs by way of increased investments by foreign companies (expected to be 180200 billion US$).

OPPORTUNITY AND THREATS

Chinas slow investment in textiles and shift to high tech industries will have a positive impact on Indian exports in the coming years. Further, USAs withdrawal from Trans-Pacific Partnership (TPP) and chances of termination of North American Free Trade Agreement (NAFTA) between USA - Canada - Mexico for free trade will increase their cost due to application of import duties amongst their countries. Consequently, Indian industry should have opportunity to promote its own exports. The international brands like Marks & Spencer, IKEA, Zara, H & M, Walmart etc. who have multiple sources to cover fabrics and convert into garments in Bangladesh, Vietnam and Cambodia etc. for retailing in India at better prices will make it difficult for Indian textile industry to compete with them apart from e-commerce / online business and cheaper imports..

Strengths:

• Availability of low cost and skilled manpower provides competitive advantage to industry.

• Availability of large varieties of cotton fibre and has a fast growing synthetic fibre industry.

• India is one of the largest exporters of yarn in international market.

• Growing economy and potential domestic and international market.

• Industry has large and diversified segments that provide a wide variety of products.

Weaknesses:

• Small size and technologically outdated plants result in lack of economies scale, low productivity and week quality control.

• Cotton availability is vulnerable to erratic monsoon and low per hectare yield.

• With the exception of spinning, other sectors are fragmented. Sectors such as knitted garments still remaining as a SSI domain.

• Labour laws and policies lack reforms.

• Infrastructure bottlenecks for handling large volumes.

• India lacks in trade pact memberships, which leads to restricted access to the other major markets.

• Huge unorganized and decentralized sector.

Opportunities:

• Emerging retail industry and malls.

• Elimination of quota restriction leads to greater market.

• Growth rate of domestic textile industry.

• Shifting towards branded readymade garment.

• Product development and diversification.

GOVERNMENT INITIATIVES

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

The key initiatives announced in the Union Budget 2019-20 to boost the textile sectors are listed below:

The Ministry of Textiles launched Technology Mission on Technical Textiles (TMTT), The objective of TMTT is to promote technical textiles by helping to develop world class testing facilities at eight Centres of Excellence across India, promoting indigenous development of prototypes, providing support for domestic and export market development and encouraging contract research.

The Government raised special package by 19 per cent to Rs 71.48 billion for apparel sector to boost exports. In 2019, the government had announced a special package of Rs 60 billion for the same purpose.

The leather and footwear industry is expecting that the Rs 26-billion special package announced by the governed recently, will help the stagnant sector grow by easing the pricing pressure.

• Concept of Zero defect and Zero effect approach.

• Under the Make in India initiative, investment opportunities for foreign companies and entrepreneurs are available across the entire value chain of synthetics, value-added and speciality fabrics, fabric processing set-ups for all kinds of natural and synthetic textiles, technical textiles, garments, and retail brands.

• The government has also proposed to extend 24/7 customs clearance facility at 13 airports and 14 sea ports resulting in faster clearance of import and export cargo.

• The technical textile sector has demonstrated encouraging growth trends in India with a CAGR of 8% for the last few years it has reached a size of $13 billion.

• The sector is expected to show a CAGR of 16% to reach $ 31 billion by 2020-21.

• The Revised Restructured Technology Up gradation Fund Scheme (RRTUFS) covers manufacturing of major machinery for technical textiles for 5 per cent interest reimbursement and 10 per cent capital subsidy in addition to 5 per cent interest reimbursement also provided to the specified technical textile machinery under RRTUFS.

• Under the Scheme for Integrated Textile Parks (SITP), the-, Government of India provides assistance for creation of infrastructure in the parks to the extent of 40 per cent with a limit up to Rs 40 crore (US$ 6 million). Under this scheme the technical textile units can also avail its benefits.

• Government has undertaken a number of steps to improve Ease of Doing Business in India, to function as single window for obtaining government clearances.

OUTLOOK

As the industrial and economic growth of the Country is showing steady improvement, the Company has drawn out and is implementing an action plan which comprises thrust on high margin products, reduction in raw material costs, rationalization of operations and over-heads, optimizing inventory level, selective credit policy to customers and liquidation of slow-moving inventories and overdue receivables.

The Company with its superior product mix and higher value-addition, coupled with the change in industry scenario like more fiscal incentives as announced by Government of India for textile industry, change in consumer preferences from woven to knitted clothes etc., has benefitted significantly during the financial year 2018-2019 and is expected to do the same in the years to come.

RISK AND CONCERN

There are no Major risks and concern to Companys Operation, however Some of the key issues and concerns analysed in the report are:

1. Fragmented industry.

2. Lower productivity and cost competitiveness.

3. Tech obsolescence. Quality is not consistent.

4. Lac of trained manpower and low labour productivity due to lack of technological development.

5. The export-import policy of India changes too frequently due to which it becomes very difficult for importers to import goods.

6. Inefficient supply chain management

7. Lack of economies of scale and advance processing capabilities.

8. Certain Regional trade blocks and trade agreements can change competitive parameters.

INTERNAL CONTROL SYSTEM

The Company has been marinating a well-established procedure for internal control system. For the purpose financial control, Company is adequately staffed with experienced and qualified personnel at all levels and play an important role in implementing and monitoring the statutory and Internal policy control environment. There has been a review conducted by Mr. Priyavrat Gupta, the Internal Auditor, about the financial and operating controls.

The Audit Committee approves and reviews the audit plan for the year based on risk assessment as well as the Companys objectives and strategies. As with any element of business strategy, the key to targeting audit efforts has been to understand the opportunities and risks to the business from a sustainability standpoint.

FUTURE OPPORTUNITIES

• Favourable demographics in the domestic market; increasing young population coupled with rising income levels.

• Emergence of retail industry as a whole and development of various malls provide huge opportunities for the apparel segment.

• Opportunities in product diversification (for e.g. Technical Textiles).

• Change in consumption pattern, including rising demand for high-quality premium fabrics and development of various products cater to global needs.

• Replacement of the Multi Fibre Agreement (MFA) and integration of the textile industry resulting in huge opportunities for exports. Moreover, gradual development in the technical side of the industry provides an opportunity.

ROAD AHEAD

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. Taking innovative measures in partnership with the industry and learning from experience, India could aspire to achieve 20% growth in exports over the next decade. In any case the achievement of 15% growth rate in exports should be feasible. In the domestic market, sustaining an annual growth rate of 12% should also not be difficult. This implies that with a 12% CAGR in domestic sales the industry should reach a production level of US$ 350 billion by 2024-25 from the current level of about US$ 100 billion for the domestic market.

As the industrial and economic growth of the Country is showing steady improvement, the Company has drawn out and is implementing an action plan which comprises thrust on high margin products, reduction in raw material costs, rationalization of operations and over-heads, optimizing inventory level, selective credit policy to customers and liquidation of slow-moving inventories and overdue receivables.

The Company with its superior product mix and higher value-addition, coupled with the change in industry scenario like more fiscal incentives as announced by Government of India for textile industry, change in consumer preferences from woven to knitted clothes etc., has benefitted significantly during the financial year 2018-2019 and is expected to do the same in the years to come.

As part of HR-initiatives, thrust is given for Leadership Development to meet the aspirations and long-term goals of the Company. The Company has also laid qualitative objectives to maximize overall growth. Emphasis was placed on building a cohesive workforce to maximize returns to all stakeholders. Focused attention was given for knowledge updating and application of new technologies available to reduce costs and to meet the business challenges.

The focus of Human resource is on building and developing intellectual capital through innovative ideas. The industrial relation climate of the Company continues to remain harmonious with focus on quality and safety.

Forward looking statements are based on certain assumptions and expectations of the future events that are subject to risk and uncertainties. Actual results and trend may differ materially from historical results, depending on variety of factors.

REVIEW OF OPERATIONS:

During the year, the Revenue from operations of Company has reduced to Rs. 920.55 Lacs as against Rs. 5,257.52 Lacs in respect of the previous Financial Year ended 31st March, 2018. The Company has incurred Net Loss of Rs. 3266.75 Lacs as against Net Loss of Rs. 5170.05 Lacs in the previous financial year ended 31st March, 2018. However, there is no cash loss during the year the loss is due to heavy burden of Finance Cost and Depreciation.

DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATION FRONT

As part of HR-initiatives, thrust is given for Leadership Development to meet the aspirations and long-term goals of the Company.

The Company has also laid qualitative objectives to maximize overall growth. Emphasis was placed on building a cohesive workforce to maximize returns to all stakeholders. Focused attention was given for knowledge updating and application of new technologies available to reduce costs and to meet the business challenges.

The focus of Human resource is on building and developing intellectual capital through innovative ideas. The industrial relation climate of the Company continues to remain harmonious with focus on quality and safety.

CAUTIONARY STATEMENTS

Statements Made in this Report may be “forward looking statements” within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of the future events that are subject to risks and uncertainties. Actual future results and trend may differ materially from historical results, depending on variety of factors like changes in economic conditions affecting demand/supply, price conditions in which the Company operates Government regulations, tax laws and other statutes and incidental factors.