Shri Techtex Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

Financial statements included in the Red Herring Prospectus. You should also read the section entitled "Risk Factors" beginning on page 26, which discusses a number of factors, risks and contingencies that could affect our financial condition and results of operations. The following discussion relates to our Company and, is based on our Restated Financial Information, which have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI Regulations. Portions of the following discussion are also based on internally prepared statistical information and on other sources. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year ("Fiscal Year") are to the twelve-month period ended March 31 of that year.

OVERVIEW:

Our Company was originally formed and registered as a partnership firm under the Partnership Act, 1932 ("Partnership Act") in the name and style of "M/s Shree Tech Tex Company", pursuant to a deed of partnership dated January 7, 2011. Subsequently, the constitution of partnership firm were changed on February 18, 2016, July 01, 2017, March 14, 2018 and June 12, 2020 by admission and retirement of partners. Later on, Name of "M/s Shree Tech Tex Company" was changed to "M/s Shri Techtex" on July 03, 2018 by amendment in Deed of Partnership. "M/s Shri Techtex" was thereafter converted from a partnership firm to a private limited company under Part I chapter XXI of the Companies Act, 2013 in the name of "Shri Techtex Private Limited" and received a certificate of incorporation dated September 08, 2018 from the Central Registration Center, Ministry of Corporate Affairs. Subsequently, our Company was converted into a Public Limited Company pursuant to shareholders resolution passed at Extra-ordinary General Meeting of our Company held on December 31, 2022 and the name of our Company was changed to "Shri Techtex Limited". A fresh Certificate of Incorporation consequent upon Conversion from Private Limited Company to Public Limited Company dated January 03, 2023 was issued by the Registrar of Companies, Ahmedabad. The Corporate Identification Number of our Company is U36900GJ2018PLC104005.

Our company is engaged in the business of manufacturing of Polypropylene (PP) Non-Woven Fabric. The practical use of non-woven fabric is more ecological for certain applications, especially in fields and industries where disposable or single use products are important, such as organic farming, hospitals, health care, nursing homes, home furnishing, vehicle upholstery seat fabrication, Mattress & furniture covering, ecological packaging, industrial and consumer goods. We manufacture PP non-woven fabric in variety of sizes and density. As on the date of this Red Herring Prospectus, we manufacture PP non-woven fabric upto 4.5 meters size and 15 GSM to 800 GSM.

Our manufacturing facility is situated at Simaj of Dholka Taluka in Ahmedabad District of Gujarat. The manufacturing facility is well connected with near about transport hubs. Our manufacturing facility is spread across 41548 sq. meters. The manufacturing facility is installed with manufacturing capacity of 3600 MT PP non-woven fabric per annum.

In past, since FY 2011, as a Partnership firm, we were engaged in the business of industrial trading activity in Polymers, Chemicals, Packaging Materials and other allied products. Upon conversion of Partnership Firm to company, our company continued manufacturing on job work basis and in the initial phase we were engaged in job work basis exclusively for our group companies. However, w.e.f. April 01, 2021, as a result of demerger, the said business of contract manufacturing was transferred to resultant company Aurum Fabritech Private Limited (Aurum Fabritech Private Limited was converted to LLP w.e.f. February 02, 2022). After the demerger, till date, our company is engaged in the business of manufacturing of Polypropylene (PP) Non-Woven Fabric.

Till date, in our existing manufacturing vertical, we have been catering majorly to offshore customers. In last 3 years we have derived our revenue from exports from countries namely USA, Taiwan, Canada, Denmark and China. However, recently, we have started focusing more on domestic market for products manufactured by us. As on the date of this Red Herring Prospectus, we derive revenue from domestic sales from states namely Gujarat, Tamil Nadu and West Bengal.

In order to improve our product portfolio, Our company is planning for business expansion by adding new business lines viz. Manufacturing of Hot melt Coating Lamination and PP Multifilament Yarn. Our company expect both machineries to be ready for commercial production by April 2024 having installed capacity of 3360 tons and 1200 tons per annum respectively. For more details please refer to the chapter titled "Objects of the Issue" beginning from page no 85 of this Red Herring Prospectus. The financial performance of the company for last three years as per restated financial Statement:

(Rs in Lakhs)

	For the Year ended on March 31
Particulars	2023	2022	2021
Revenue from Operations (Rs in Lakhs)	5,692.39	5,117.63	3,946.76
Growth in Revenue from Operations (%)	11.23%	29.67%	-
Gross Profit	2,086.39	2,242.32	3,052.74
Gross Profit Margin (%)	36.65%	43.82%	77.35%
EBITDA (Rs in Lakhs)	1,250.78	1,226.21	1,807.08
EBITDA Margin (%)	21.97%	23.96%	45.79%
Profit After Tax (Rs in Lakhs)	910.63	826.56	1,265.68
PAT Margin (%)	16.00%	16.15%	32.07%
RoE (%)	35.84%	39.59%	121.95%
RoCE (%)	20.07%	29.21%	44.55%
Net Fixed Asset Turnover (In Times)	1.50 Times	1.69 Times	2.24 Times
Net Working Capital Days	186 Days	60 Days	148 Days
Operating Cash Flows (Rs in Lakhs)	-759.79	2,175.10	355.13

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE BALANCE SHEET:

After the date of last Audited accounts i.e., March 31, 2023, the Directors of our Company confirm that, there have not been any significant material developments.

FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS:

Our Companys future results of operations could be affected potentially by the following factors:

COVID-19 Pandemic;

Political Stability of the Country;

World Economy;

Government Regulation & Policies;

Competition from existing players;

Failure to adapt to the changing technology in our industry of operation may adversely affect our business and financial condition;

Dependency on our end customers;

Disruption in supply of Raw Materials and Labour Supply at our facilities;

Occurrence of Environmental Problems & Uninsured Losses;

Conflicts of interest with affiliated companies, the Promoters group and other related parties;

The performance of the financial markets in India and Globally;

Our ability to expand our geographical area of Operation;

Concentration of ownership among our Promoters.

failure to comply with regulations prescribed by authorities of the jurisdictions in which we operate;

Our ability to make interest and principal payments on our existing debt obligations and satisfy the other covenants contained in our existing debt agreements;

Our ability to retain our key management persons and other employees

OUR SIGNIFICANT ACCOUNTING POLICIES:

RESULT OF OUR OPERATION BASED RESTATED FINANCIAL INFORMATION

Particulars	For the year ended March 31, 2023	For the year ended March 31, 2022	For the year ended March 31, 2021
Revenue from operations	5692.39	5,117.63	3,946.76
Total Revenue from Operation	5692.39	5,117.63	3,946.76
% of growth	11.23%	29.67%	145.51%
Other Income	115.19	64.51	74.82
% of growth	78.56%	-13.78%	311.42%
Total income	5807.58	5,182.15	4,021.58
% of growth	12.07%	28.86%	147.37%
Expenses
Cost of Material Consumed	3027.43	2,923.78	943.24
% Increase/(Decrease)	3.54%	209.97%	195379.02%
Changes in Inventories of finished goods, work in progress and stock -in-trade	1139.72	(48.47)	(49.23)
Employee benefits expense	-561.14	52.29	272.33
% Increase/(Decrease)	86.17	-80.80%	31.28%
Finance Costs	64.79%	116.77	88.48
% Increase/(Decrease)	80.72	31.98%	22.14%
Depreciation and amortisation expenses	-30.87%	110.55	114.33
% Increase/(Decrease)	124.12	-3.31%	7.12%
Other expenses	12.27%	963.82	973.33
% Increase/(Decrease)	749.44	-0.98%	54.67%
Total Expenses	-22.24%	4,118.75	2342.49
% to total revenue	4646.45	79.48%	58.25%
Profit/(Loss) Before Extra-Ordinary Items and Tax	81.63%	1,063.39	1,679.09
% to total revenue	1161.13	20.52%	41.75%
Exceptional Items	20.40%	-	-
Profit before Tax	0.00	1,063.40	1,679.09
Total tax expense	1161.13	236.84	413.41
Profit and Loss after tax for the Year as Restated	250.50	826.56	1,265.68
% to total revenue	910.63	15.95%	31.47%

COMPARISON OF FY 2022-23 WITH 2021-22:

Income from Operations

Our Company is engaged in the business of Polypropylene (PP) Non-Woven Fabric manufacturing. The revenue from operations for the FY 2022-23 was 5692.39 Lakh as compared to 5117.63 Lakh during the FY 2021-22 showing an increase of 11.23%. Income from Operations increased mainly on account increase in sales volume of Products of our company. Revenue from Operations mainly includes sales from manufacturing operations and Jobwork Charges. Other Income was 115.19 Lakhs for FY 2022-23 and 64.51 Lakhs for FY 2021-22. The other income mainly income includes income from Fixed Deposit and foreign exchange fluctuation gain.

Expenditure:

Cost of Material Consumed:

Cost of Material Consumed for FY 2022-23 was 3,027.43 Lakhs as against 2,923.78 Lakhs for the FY 2021-22. Cost of material consumed increased by 3.54% in FY 2022-23.

Purchases of stock-in-trade

Purchases of stock-in-trade in FY 2022-23 was 1139.72 Lakhs as against Nil for the FY 2021-22.

Employee Benefit Expenses

Employee Benefit expenses increased from 52.29 Lakh for FY 2021-22 to 86.17 Lakh for FY 2022-23 showing a increase of 64.79% over previous year, i.e., F.Y. 2021-22. Employee Benefit Expenses mainly includes Salary Expenses, Bonus & Ex-Gratia Expenses, Bonus & Ex-Gratia Expenses, Remuneration paid to directors/KMP, Contributions to provident and other funds and Staff Welfare expenses. Employee expenses increased mainly on account of Remuneration paid to directors/KMP.

Finance Cost

Finance cost decreased from 116.77 Lakh in FY 2021-22 to 80.72 Lakh in FY 2022-23 showing decrease of 30.87%. Finance Cost Mainly Includes Interest cost on borrowings and Other Finance Charges. Finance cost is decreased due to reduction in borrowings of the Company with higher rate of Interest.

Depreciation

The Depreciation and amortization expense for FY 2022-23 was 124.12 Lakh as compared to 110.55 Lakh for FY 2021-22 which is increase of 12.27%.

Other Expenses

Other Expenses decreased from 963.82 Lakh for FY 2021-22 to 749.44 Lakh for FY 2022-23 showing a decline of 22.24%. Other expense mainly includes Manufacturing Expenses, Rent, Rates and taxes, Insurance, Repair & Maintenance expense, Freight & Container Expenses and Audit Fees. Other expense decreased mainly on account of decrease in Freight & Container Expenses.

Profit before Extra-Ordinary Items and Tax

The Profit before Extra-Ordinary Items and Tax for the FY 2022-23 was 20.40% of the total income and it was 20.78% of total income for the FY 2021-22. The Profit before Extra-Ordinary Items and Tax has increased from 1063.40 Lakh in FY 2021-22 to 1161.13 Lakh in FY 2022-23.

Profit after Tax (PAT)

PAT increased from 826.56 Lakh in the FY 2021-22 to 910.63 Lakh in FY 2022-23 showing increase of 10.17%. PAT of our company for FY 2022-23 has increased from 826.56 Lakh to 910.63 Lakh mainly on account of increase in Revenue from Operations.

COMPARISON OF FY 2021-22 WITH 2020-21:

Income from Operations

Our Company is engaged in the business of Polypropylene (PP) Non-Woven Fabric manufacturing. The revenue from operations for the FY 2021-22 was 5,117.63 Lakh as compared to 3,946.76 Lakh during the FY 2020-21 showing an increase of 29.67%. Income from Operations increased mainly on account increase in sales volume of Products of our company. Revenue from Operations mainly includes sales from manufacturing operations and Jobwork Charges. Other Income was 64.51 Lakhs for FY 2021-22 and 74.82 Lakhs for FY 2020-21. The other income mainly income includes income from Fixed Deposit and foreign exchange fluctuation gain and Freight Income.

Expenditure:

Cost of Material Consumed:

Cost of Material Consumed for FY 2021-22 was 2,923.78 Lakhs as against 943.24 for the FY 2020-21. Cost of material consumed increased 209.97% in FY 2021-22 due to increase in the turnover of the Company.

Employee Benefit Expenses

Employee Benefit expenses decreased from 272.33 Lakh for FY 2020-21 to 52.29 Lakh for FY 2021-22 showing a decrease of 80.80 % over previous year, i.e., F.Y. 2020-21. Employee Benefit Expenses mainly includes Salary Expenses, Bonus & Ex-Gratia Expenses, Bonus & Ex-Gratia Expenses, Contributions to provident and other funds and Staff Welfare expenses. Employee expenses were reduced mainly on account of demerger.

Finance Cost

Finance cost Increased from 88.48 Lakh in FY 2020-21 to 116.77 Lakh in FY 2021-22 showing Increase of 31.98%. Finance Cost Mainly Includes Interest cost on borrowings and Other Finance Charges. Finance cost is increased due to increase in borrowings of the company.

Depreciation

The Depreciation and amortization expense for FY 2021-22 was 110.55 Lakh as compared to 114.33 Lakh for FY 2020-21 which is decreased by 3.31%.

Other Expenses

Other Expenses decreased from 973.33 Lakh for FY 2020-21 to 963.82 Lakh for FY 2021-22 showing a decline of 0.98%. Other expense mainly includes Manufacturing Expenses, Rent, Rates and taxes, Insurance, Repair & Maintenance expense, Freight & Container Expenses and Audit Fees.

Profit before Extra-Ordinary Items and Tax

The Profit before Extra-Ordinary Items and Tax for the FY 2021-22 was 20.52% of the total income and it was 41.75% of total income for the FY 2020-21. The Profit before Extra-Ordinary Items and Tax has decreased from 1679.09 Lakh in FY 2020-21 to 1063.40 Lakh in FY 2021-22.

Profit after Tax (PAT)

PAT decreased from 1,265.68 Lakh in the FY 2020-21 to 826.56 Lakh in FY 2021-22 showing decrease of 34.69%. Our company was engaged in the business of Third Party Manufacturing of Polypropylene (PP) Non-Woven Fabric on job work basis in Unit I upto September 30, 2021. Our company started is own manufacturing of Polypropylene (PP) Non-Woven Fabric in Unit II after demerger of Unit I. PAT of our company for FY 2021-22 has decreased from 1,265.68 lakhs to 826.56 Lakhs mainly on account of demerger of UNIT I of our company in FY 2021-22. Our company started its own manufacturing in UNIT II w.e.f. October 01, 2021. Prior to which our company was engaged in the third-party Manufacturing on job work basis.

COMPARISON OF FY 2020-21 WITH 2019-20:

Income from Operations

Our Company is engaged in the business of Polypropylene (PP) Non-Woven Fabric manufacturing. The total revenue from operations for the FY 2020-21 was 3,946.76 Lakh as compared to 1,607.54 Lakh during the FY 2019-20 showing an increase of 145.51%. Income from Operations increased mainly on account increase in sales volume of Products of our company. Revenue from Operations mainly includes sales from manufacturing operations and Jobwork Charges. Other Income was 18.19 Lakhs for FY 2019-20 and was 74.82 Lakhs for FY 2020-21. The other mainly income includes Freight Income, Interest on Fixed Deposit and Profit on sale of Fixed assets. Other Income increased mainly on account of freight Income.

Expenditure:

Cost of Material Consumed:

Cost of Material Consumed for FY 2020-21 was 943.24 Lakh as against 0.48 Lakh for the FY 2019-20. Our company was engaged in the business of manufacturing on Jobwork basis for our group companies upto March 31, 2021 in Unit-I which was subsequently de-merged with Aurum Fabrictech Private Limited (now converted to Aurum Fabrictech LLP). From FY 2021-22 our company started own manufacturing in Unit II. Thereafter from October 2021 our company started own manufacturing.

Employee Benefit Expenses

Employee Benefit expenses increased from 207.44 Lakh for FY 2019-20 to 272.33 Lakh for FY 2020-21 showing an increase of 31.28%. Employee Benefit Expenses mainly includes Salary Expenses, Bonus & Ex-Gratia Expenses, Bonus & Ex-Gratia Expenses, Contributions to provident and other funds and Staff Welfare expenses.

Finance Cost

Finance cost Increased from 72.44 Lakh in FY 2019-20 to 88.48 Lakh in FY 2020-21 showing Increase of 22.14%. Finance Cost Mainly Includes Interest cost on borrowings and Other Finance Charges. Finance cost is increased due to increase in borrowings of the company.

Depreciation

The Depreciation and amortization expense for FY 2020-21 was 114.33 Lakh as compared to 106.73 Lakh for FY 2019-20 which is increase of 7.12%.

Other Expenses

Other Expenses increased from 629.30 Lakh for FY 2019-20 to 973.33 Lakh for FY 2020-21 showing an increase of 54.67%. Other expense mainly includes Manufacturing Expenses, Rent, Rates and taxes, Insurance, Repair & Maintenance expense, Freight & Container Expenses and Audit Fees.

Profit before Extra-Ordinary Items and Tax

The Profit before Extra-Ordinary Items and Tax for the FY 2020-21 was 41.75% of the total income and it was 37.48% of total income for the FY 2019-20. The Profit before Extra-Ordinary Items and Tax has increased from 609.33 Lakh in FY 2019-20 to 1,679.09 Lakh.

Profit after Tax (PAT)

PAT increased from 447.23 Lakh in the FY 2019-20 to 1,265.68 Lakh in FY 2020-21 showing increase of 183.01%.

RELATED PARTY TRANSACTIONS

For further information please refer "Annexure IX - Statement of Related Party & Transactions" under section "Restated Financial Information" beginning from page no. 161 of this Red Herring Prospectus.

FINANCIAL MARKET RISKS

We are exposed to financial market risks from changes in borrowing costs, interest rates and inflation.

INTEREST RATE RISK

We are currently exposed interest to rate risks to the extent of outstanding loans. However, any rise in future borrowings may increase the risk.

EFFECT OF INFLATION

We are affected by inflation as it has an impact on the operating cost, staff costs etc. In line with changing inflation rates, we rework our margins so as to absorb the inflationary impact.

INFORMATION REQUIRED AS PER ITEM (2) (C) (I) (11) OF PART A OF SCHEDULE VI TO THE SEBI REGULATIONS, 2018:

Factors that may affect the results of the operations:

1. Unusual or infrequent events or transactions

Except as described in this Red Herring Prospectus, there have been no other events or transactions to the best of our knowledge which may be described as "unusual" or "infrequent".

2. Significant economic changes that materially affected or are likely to affect income from continuing operations. Our business has been subject, and we expect it to continue to be subject to significant economic changes arising from the trends identified above in ‘Factors Affecting our Results of Operations and the uncertainties described in the section entitled "Risk Factors" beginning on page no. 26 of the Red Herring Prospectus. To our knowledge, except as we have described in the Red Herring Prospectus, there are no known factors which we expect to bring about significant economic changes.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section titled "Risk Factors" beginning on page no. 26, in this Red Herring Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Future changes in relationship between costs and revenues, in case of events such as future increase in labour or material costs or prices that will cause a material change are known.

Our Companys future costs and revenues will be determined by demand/supply situation, government policies and other economic factor.

5. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or increased sales prices.

Increases in revenues are by and large linked to launch of new products and increase in volume of business.

6. Total turnover of each major industry segment in which the issuer company operated.

Our Company is engaged in the business of Polypropylene (PP) Non-Woven Fabric manufacturing. Relevant Industry data, as available, has been included in the chapter titled "Industry Overview" beginning on page no. 106, of this Red Herring Prospectus.

7. Status of any publicly announced new products or business segment.

Our Company is engaged in the business of Polypropylene (PP) Non-Woven Fabric manufacturing. Currently our company has not launched any new product publicly. In order to improve our product portfolio, Our company is planning for business expansion by adding new business lines viz. Manufacturing of Hot melt Coating Lamination and PP Multifilament Yarn.

8. The extent to which business is seasonal.

Our Company is engaged in the business of Polypropylene (PP) Non-Woven Fabric manufacturing and business of our company is not seasonal and demand and supply of our products are market driven.

9. Any significant dependence on a single or few suppliers or customers.

Our top Five customers Contributes 94.08%, 94.09% and 89.05% of our total sales for the year ended on March 31, 2023, March 31, 2022 and March 31, 2021 respectively. Further Our top Five suppliers contributes 69.69%, 97.93% and 100% of our total purchase of year ended on March 31, 2023, March 31, 2022, and March 31, 2021 respectively.

10. Competitive conditions:

We face competition from existing and potential competitors which is common for any business. We have, over a period of time, developed certain competitors who have been discussed in section titles "Business Overview" beginning on page no. 114 of this Red Herring Prospectus.