Suryalata Spinning Mills Ltd Management Discussions

Suryalata Spinning Mills Limited (the Company) is a public limited company incorporated on 23^rd May, 1983 having experienced in manufacturing Yarns for forty years. Its registered office at 105, S P Road. Surya Towers, 1^st Floor, Secunderabad, Telangana State. The company is listed on the Bombay Stock Exchange.

ORGANIZATION OVERVIEW

The company is engaged in producing the best quality of Synthetic Blended Yarns and it is one of the large producers of 100% PSF Yarns, 100% VSF Yarns, P/V blended yarns and value-added Yarns like Slub yarns, Elite Twist and T F O (two for one twister) yarns etc., with counts ranging from 10s to 60s. The company has a production capacity of approx 80 MTs per day. The company is having two manufacturing units on Kalwakurthy and Urukondapet? Jadcherla Road in Nagerkurnool District, Telangana, only an hour away from the Hyderabad International Airport and the distance between the two units is 5 Kms. The Company is having total installed capacity of 1,16,976 spindles. The units are maintaining standard operational system and certification of “ISO 9001:2015“.

The company sells its finished goods (Yarn) to various dealers located in the Indian domestic market as well as in the international market.

GLOBAL ECONOMIC REVIEW

The global economic growth declined from 6% to 3.2% in 2022. The weakness in global sentiment was largely on account of two events. The Russia-Ukraine conflict affected global trade and consumer sentiment through the course of the last year. Besides, the trade disruption between US and China affected product movements across continents. These events translated into a structural shift of importance: the world began to consider resource procurement from non-China supply chain partners with the objective of moderating their excessive dependence on China.

The Indian economic growth declined from 8.7% in FY 2021-22 to 7.0% in FY 2022-23, which is still a creditable performance considering that the growth of the previous year was on account of a lower base of FY 2020-21, a year marked by the pandemic. Besides, Indias growth was possibly the fastest within the G20 economy and the country retained its position as the fifth largest global economy. We consider this preference to have significant global implications; even if a fifth of the global supply coming out of China could move to alternative countries like India, there could be a considerable redistribution of capacity that could transform some of these nations.

GLOBAL TEXTILE INDUSTRY

The global textile market size was valued at USD 1,695.13 billion in 2022 and is anticipated to grow at a compound annual growth rate (CAGR) of 7.6% in terms of revenue from 2023 to 2030. The ever-increasing apparel demand

from the fashion industry, coupled with the meteoric growth of e-commerce platforms, is expected to drive market growth over the forecast period.

The Russia-Ukraine war disrupted the chances of global economic recovery from the COVID-19 pandemic, at least in the short term. The war between these two countries has led to economic sanctions on multiple countries, a surge in commodity prices, and supply chain disruptions, causing inflation across goods and services and affecting many markets across the globe.

However, the rapidly growing consumer preference towards sustainable products is forcing major textile companies to focus on restructuring their business and investing in manufacturing practices that target sustainable products. Fashion is gaining increasingly higher importance in the lifestyle of consumers. The fashion segment dominated the market with more than 72.4% of the global revenue share in 2022, owing to the increasing consumer spending on clothing and apparel. In addition, high consumer requirements for crease-free suiting & shirting fabrics, as well as quality dyed & printed fabrics across the globe, are likely to drive the global market demand for textiles over the forecast period.

The natural fibers product segment led the market and accounted for a revenue share of 44.1% in 2022 because of their extensive use in diverse applications of the fashion and apparel industry. The surging demand for natural fibers from the apparel and fashion industries is expected to be a key driver for the growth of the natural fibers segment of the textile market over the forecast period. However, these fibers are costlier than synthetic fibers, which can act as an obstacle to the growth of the natural fibers segment of the textiles market.

Polyester is expected to witness a growth rate of 7.4% from 2023 to 2030, which can be attributed to its beneficial properties such as high strength, chemical & wrinkle resistance, and quick drying. It is used in households as cushioning & insulating material in pillows, as well as in industries for making carpets, air filters, coated fabrics, and other products.

INDIAN ECONOMIC REVIEW

Despite the three shocks of COVID-19, Russian-Ukraine conflict and the Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies, agencies worldwide continue to project India as the fastest-growing major economy at 6.57.0 per cent in FY23.

Indias economic growth in FY23 has been principally led by private consumption and capital formation and they have helped generate employment as seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. Moreover, Worlds second-

largest vaccination drive involving more than 2 billion doses also served to lift consumer sentiments that may prolong the rebound in consumption. Still, private capex soon needs to take up the leadership role to put job creation on a fast track.

The growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors. Further support to economic growth will come from the expansion of public digital platforms and path-breaking measures such as PM Gati Shakti, the National Logistics Policy, and the Production-Linked Incentive schemes to boost manufacturing output.

INDIAN TEXTILE INDUSTRY

India is the 3rd largest exporter of Textiles & Apparel in the world. Indias textiles and clothing industry is one of the mainstays of the national economy. The textile industry continues to contribute immensely to the exchequer ? 4% to the global trade in textiles and apparels, 2.3% to the GDP and constitutes 7% of industry output in terms of value and 12% of the countrys export earnings. As India strives to become ‘ATMANIRBHAR, textiles assume higher significance in helping the country expand its global footprint and achieve the mission of ‘Make in India.

Indias yarn production was pegged at 341.91 lakh bales in FY 2022-23. Indias yarn exports declined in volume but increased in value during the first half of 2022. India exported 9.69 lakh ton yarn worth $3.472 billion during the year under review. Bangladesh remained the top buyer with 32.72% share, while Turkey stood second with import of 11.40% of all Indian exports during the period.

Man Made Fibers are poised to grow as a result of significant investments in world class production plants, ongoing innovation, new product mix and the need for countries to seek an alternative to China in their restructured supply chain

To push this forward, the government has stepped up efforts to enter into Free Trade Agreements (FTAs) with all major exporting nations. Once materialized, these FTAs would give India a level playing field with competitors who enjoy duty-free access. The government has already inked such pacts with Australia and other key export nations.

China has long been accused of human rights violations and forced labour in the Xinjiang Uyghur Autonomous Region (XUAR), which produces 20% of the worlds cotton. To check this, the US implemented the Uyghur Forced Labor Prevention Act in June 2022, which requires enterprises to be able to certify that imported items from XUAR were not created using forced labour, failing which they will have their shipment seized. The European Commission has proposed a similar prohibition.

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sales from products manufactured in domestic units, are collectively set to serve as a sure-shot booster dose to propel the countrys post-pandemic growth story.

GOVERNMENT INITIATIVES FOR TEXTILE INDUSTRY

The Textile industry is one of the largest source of employment generation in the country with an estimated 45 million people directly engaged in this sector including a large number of women and rural population. The Government is promoting investment in this sector which will create additional jobs, businesses and skilling opportunities under the broad objectives of various policy initiatives of the Government including “Skill India” and “Make in India”:

1. Scheme for Capacity Building in Textile Sector (SAMARTH) - To address the skilled manpower requirement across textile sector, the scheme was formulated, under the broad policy guidelines of “Skill India” initiative and in alignment with the framework adopted for skilling programme by Ministry of Skill Development and Entrepreneurship.

2. Amended Technology Up-gradation Fund Scheme (ATUFS): In order to promote ease of doing business in the country to achieve the vision of generating employment and promoting exports through “Make in India with “Zero effect and Zero defect” in manufacturing, ATUFS was launched in January 2016 to provide credit linked Capital Investment Subsidy (CIS) to units for purchase of benchmarked machinery in different segment of Textile Sectors (excluding spinning). This scheme is effective up to March, 2022.

3. National Technical Textile Mission: Creation of National Technical Textiles Mission for a period of 4 years (2020-21 to 2023-24) was approved with an outlay of Rs.1480 crore for developing usage of technical textiles in various flagship missions, programmes of the country including strategic sectors.

4. Production Linked Incentive (PLI) Scheme - The PLI Scheme for Textiles to promote production of MMF apparel, MMF Fabrics and Products of Technical Textiles in the country to create 60-70 global players, attract fresh investment of Rs. 19,000 crore approximately and generate almost 7.5 lakh new employment opportunities.

5. PM-MITRA: To attract investment for ‘Make In India initiative and to boost employment generation through setting up of 7 (Seven) PM Mega Integrated Textile Region and Apparel (PM MITRA) Parks in Greenfield/Brownfield sites with world class infrastructure including plug and play facility with an outlay of Rs.4445 crore for a period of seven years upto 2027-28.

6. Scheme for Integrated Textile Parks (SITP): The scheme provides support for creation of world-class infrastructure facilities for setting up of textile units.

7. Integrated Processing Development Scheme (IPDS): In order to facilitate the textile industry to meet the required environmental standards and to support new Common Effluent Treatment Plants (CETP)/ upgradation of CEPTs in existing processing clusters as well as new processing parks specially in the Coastal Zones.

8. Special Package for Textile and Apparel sector: Rs. 6000 crore package was launched in June 2016 to boost employment and export potential in the apparel and made up segments.

Green Power / Renewable Energy:

Indias energy demand is expected to increase more than that of any other country in the coming decades due to its sheer size and enormous potential for growth and development. The Central Electricity Authority estimates Indias power requirement to grow to reach 817 GW by 2030. and India plans to meet 50% of its electricity needs from renewable sources majorly from solar by 2030.

There is a greater focus on renewable energy in India. The country has set an ambitious target to achieve 500 GW renewable energy by 2030. India is reporting the fastest solar electricity growth; by 2026, new capacity additions are expected to double. With the increased support of the Government and improved economics, the sector has become attractive from an investors perspective. As India looks to meet its energy demand on its own, which is expected to reach 15,820 TWh by 2040, solar energy is set to play an important role.

The Indian Prime Minister pledged at the COP26 Climate Conference in Glassgrow that India would achieve net zero carbon emissions by 2070, \marks a historic point in the global effort to combat climate change.

Considering the importance giving by the Indian Government and the available State Government guidelines of the Solar Policy, the company installed Solar Power Plants of 11 MW within the manufacturing units for Captive consumption of power generations. These installed capacities mitigate 20% of the company annual power requirements and reduces the dependence on DISCOM power supplies.. The Company has approval from the Board to install more such solar generation plants and increase the capacities for captive consumption and contribute to the improving of the environment as well as bring in cost efficiencies. The company also has a state-of- the-art Sewage Treatment Plants in both the units whereby 95% of the water used in the factories is purified and recycled.

The Company also acquired Suntree Solar Energy Pvt Ltd as its 100% subsidiary, which is having 10 MW AC Capacity Solar Power Plant with Power Purchase Agreement for 20 years (remaining period of 12 years) with Telangana Government, installed in 64 acres of land in the state of Telangana.

FUTURE OF SPINNING PROJECTS:

The company had evaluated the various technology changes in spinning industry and taken a decision to expand Yarn product volumes thru the new product of Vortex Yarn, with an investment of Rs.115.0 crore, which is an equivalent to 30000 ring spindle capacities, expecting to complete in the current financial year 2023-24. On completion of this project, the company top line will increase by about Rs.100.00 cr per annum.

OPPORTUNITIES & THREATS OF COMPANY: Your Company has always taken advantage of the opportunities ahead of time due to the visionary insight of its management to improve its operations and be consistent even in turbulent times. The following are the USPs of your Company:

a) Installation of advanced technology equipment

b) Experienced management team with exposure in textile industry.

c) Good reputation in the market due to quality and timely supplies.

d) Emphasis on quality of product nurtured across the company.

e) The company has established strong presence in the market for several years.

f) The business model is simple & needs minimum marketing requirement.

g) India has rich resources of raw materials of textile industry. It is one of the largest

producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc,.

The Company estimates the Threats to Synthetic Industry such as :

a) Over specialization and significant changes in raw cotton prices effects to Fiber prices;

b) Processing is the weakest link in the Indian textile value chain, adversely affecting its ability to compete in exports;

c) High power costs and high Interest costs are burdened for this thin margin industry;

d) Long export lead times are eroding Indias export competitiveness across the textile chain;

e) Currency fluctuations are highly affecting the synthetic spinning industry;

f) Profitability undermined by volatile raw material prices and rising wages;

g) Fierce competition weighing on margins and further stressed by e-commerce activities;

h) Changing consumer behavior (e.g. fast fashion) forcing T&C to become more flexible.

RISKS AND CONCERNS:

Risks are inevitable in todays world and Suryalata strongly believes that its success depends upon identification of potential risks in advance and the creation of appropriate mitigation strategies to bypass or minimise impact, to the extent possible.

Effective risk management comprises of:

i. constantly scans its external environment to identify emerging threats while also evaluating its impact on its business goals.

ii. Standard policy to pass the cost increases with its premium quality positioning.

iii. Consciously following with the up-keep of equipment and implementing the cost control methods

iv. Strengthen and widen the customer base with quality products and timely supplies.

FUTURE OUTLOOK OF THE COMPANY:

Synthetic Yarn products are the most preferred yarns in the textile industry due to its unique features like lower price and availability at uniform throughout the year. The future for the synthetic textile industry looks promising, buoyed by both strong domestic consumption as well as export demand in segments of apparel, home furnishing, automotive, and filtration, personal care and hygiene applications.

Further, Government support to speed up the release of input tax credits, providing export incentive schemes, supporting with PF contributions to new workers, reduction in ESI contributions helps for cost reduction, Skill development training supports to mitigate and to protect the textile industry to some extent.

Considering all these initiatives and supports, the company focuses to strengthen the financial position and to increase the volumes from the expanded capacities.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has a well-established framework of internal controls in all areas of its operations, processes and tasks including suitable monitoring procedures and competent personnel. The Companys internal financial control framework is commensurate with the size and operations of the business and is in line with requirements of the Companies Act, 2013.To make its internal controls effective and sound, Suryalata thoroughly and regularly evaluates the nature and extent of such risks to which the Company is exposed. In addition to statutory audit, the financial controls of the Company at various locations are reviewed by the Internal Auditors, who report their findings to the Audit Committee of the Board.

The qualified, experienced and independent Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal controls systems and suggests improvements whenever required.

The Committee meets to review the progress of the internal audit initiatives, significant audit observations and planning and implementation of follow-up action required. The Company conducts its business with integrity and high standard of ethical behavior.

REVIEW OF FINANCIAL & OPERATIONAL PERFORMANCE:

The Net turnover of your Company for the Financial Year 2022-23 was Rs. 479.26 crores in comparison to Rs. 480.34 crore in the previous year. The production during the year was 27496 MTs in comparison to 26,427 MTs in previous year.

Your Company has earned a Profit Before Tax of Rs. 43.29 crore in comparison to Rs. 60.58 crore in the previous year. The Company earned a Profit After Tax of Rs. 31.03 crore in comparison to Rs. 47.75crore in the previous year.

KEY FINANCIAL RATIOS:
Debtors / Turnover	Current year ? 4.51 % (previous year 6.15%)	Improved with speed collections and due to lower volume of exports
Inventory/ Turnover	Current year ? 4.93 % (previous year 7.96%)	Low volumes of raw materials and finished goods due to price volatile
Interest Coverage Ratio	Current year ? 1.08% (previous year 1.57%)	Repayments of borrowings
Debt / Equity Ratio	Current year ? 0.21 % (previous year 0.35%)	Repayment of Term loans installments
Operating Profit Margin (PBT)	Current year ? 10.05% (previous year 12.61%)	Pressure on Pricing, drop in margins of finished goods and cost inflation for inputs
Net Profit Margin (PAT)	Current year ? 6.42 % (previous year 9.90%)	Pressure on Pricing, drop in margins of finished goods and cost inflation for inputs
Return on Net Worth	Current year ? 13.71 % (previous year 24.43%)	Pressure on Pricing, drop in margins of finished goods and cost inflation for inputs

HUMAN RESOURCE DEVELOPMENTS / INDUSTRIAL RELATIONS:

Human resources have always been one of the most valued stakeholders of the Company and the Company firmly believes that human resource development strategies and practices will continue to provide a sustained competitive advantage and will continuously work towards nurturing and enhancing a competitively superior position in terms of human capital, people processes and employees behavior.

There were no material developments in the Human resources. The industrial relations were generally found satisfactory.

During the period under review, the total number of people employed by the Company is 1,497 in addition to indirect employment created.

CORPORATE SOCIAL RESPONSIBILITY

The company formulated CSR policy to touch and transform peoples lives by promoting health care, education including special education among children and employment opportunities for women, providing malnutrition, sanitation and drinking water, animal welfare etc,.

Cautionary Statement: The statement and views expressed by the management in the above said report are on the basis of best judgment but the actual results might differ from whatever stated in the report. The Company takes no responsibility for any consequence of decisions made based on such statements and holds no obligation to update these in future. Readers are cautioned not to place undue reliance on these forward-looking statements.