Vardhman Textiles Ltd Management Discussions

Global economy

As per IMF latest economic outlook (April 2023), the baseline forecast for GDP growth is likely to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see a slowdown in growth from 2.7 percent in 2022 to 1.3 percent in 2023. With further financial sector stress, global growth may decline to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent. A lot hinge on the inflation behavior especially in advance economy in 2023, which acted as a trigger for tight monetary policy causing shortage of money supply and demand contraction.

Fundamentally, China is rebounding with the reopening of its economy and witnessing easing of supply-chain disruptions. With China absorbing about a quarter of exports from Asia and between 5% and 10% from other geographic regions, the reopening and growth of its economy generally generate positive spillovers. However, China also exports significant part of its output to advance economies. With slower growth in these economies, any positive and sharp trickle down impact on rest of Asia is also less likely.

As per IMF April 2023 economic outlook, Chinas projected growth will be 5.2% and 4.5% in 2023 and 2024 respectively whereas Indias projected growth will be 5.9% and 6.3% in 2023 and 2024 respectively. Global inflation will decrease from 8.7% in 2022 to 7% in 2023 and about 5% in 2024. A fall in energy and commodity prices, particularly, for the United States, Euro Area, and Latin America has contributed to this decline. However, the global economic outlook will continue to have down side biases for next couple of years.

As per WTO, world merchandise trade volume is projected to grow 1.7% in 2023 before picking-up to 3.2% in 2024. Trade growth in 2022 was lower than expected at 2.7%.

Indian economy outlook

Despite the global slowdown, Indias economy has been growing well in comparison of the rest of world and driven primarily by robust domestic consumption while exports have not been encouraging. The Central Governments strong infrastructure push under the Prime Ministers Gati Shakti initiative, logistics development and industrial corridor development is likely to contribute significantly to raising industrial competitiveness and boosting future growth. Improving labour market conditions will drive growth in private consumption. The Central Governments commitment to significantly increase capital expenditure in FY23 is also likely to support domestic demand. But Indian economy being an integrated part of global economy could face headwinds due to sagging exports.

The merchandise exports increased to USD 447.46 billion in FY23 from USD 422 billion in FY22. Growth in goods exports is forecasted to improve in FY24, as production-linked incentive schemes and efforts to improve the business environment, such as streamlined labour regulations, improved performance in electronics and other areas of manufacturing, will play a positive role.

The retail inflation has decreased to 5.66% in March 2023 from 6.95% in March 2022 and is projected to hover at around 5%-5.5% in FY24. This has led to abating in rise of interest, which if unchecked could cause demand destruction, especially, in housing and consumption segments.

Global textile industry

Chinas textile and clothing exports reached USD 323.34 billion in 2022 up 2.5% year-on-year from USD 315.45 billion in 2021. Vietnams textile and clothing exports registered a 10.19% growth in 2022 to USD 42.28 billion from USD 38.37 billion in 2021. Bangladeshs total textile and clothing exports during FY22 (Jul 21 – Jun 22) stood at USD 46.18 billion.

USAs imports of textile and clothing from world increased by 16% in 2022 to USD 132.14 billion from USD 113.95 billion in 2021, which largely seems to be on account of higher prices than matching increase in volumes. China exported worth USD 32.68 billion of textile and clothing exports in FY22 to USA whereas India, Vietnam and Bangladesh exported worth USD 11.05 billion, USD 19.65 billion and USD 10.04 billion of textile and clothing exports to USA, respectively during FY22. Bangladeshs textiles and apparel exports increased by 35%, Vietnam (27%), Indonesia (37%) and India (12%) to USA in 2022 over 2021.

Indian textile industry

The FY23 has been difficult for the Indian textile industry. The textile and apparel exports of India decreased to USD 32.08 billion in FY23 from USD 36.93 billion in FY22. The exports of ready made garments witnessed a slight increase by 1% to USD 16.19 billion in FY23 from USD 16.01 billion in FY22. The textile exports decreased to USD 15.89 billion in FY23 from USD 16.19 billion in FY22.

Besides international business environment, which has not been encouraging for textiles and apparel exports, the import duty imposed on cotton fiber imports in India amidst weak supply of cotton at higher prices led to poor performance of the textile industry. While demand stagnation, both domestic and exports, has suppressed yarns and fabric prices and given the higher cotton prices prevailing in the country resulted into lower margins for the industry. Various reports have indicated that Indias textile industry is constrained to work with reduced margins and lower capacity utilization in the event of continued slowdown especially in exports market.

World Cotton Outlook

World cotton production for 2022-23 is expected to remain at 25.2 million tons almost same as in the cotton year 2021-22 (25.2 million tons). Global cotton consumption is expected to decline by approx. 5% in the year 2022-23 from last year, due to low demand and signs of recession. Global cotton consumption is projected at 24.0 million tons in the year 2022-23 against 25.3 million tons in the year 2021-22. Closing stocks will increase from 18.8 million tons in 2021-22 to 20.0 million tons in 2022-23 due to low consumption of cotton during 2022-23 in comparison to 2021-22. (Soruce: USDA WASADE Report- April Month).

Indian Cotton Outlook

Indias textile industry is mainly cotton based, therefore, it plays a major role in the Indian Economy. The area under cotton cultivation in the year 2021-22 in India was about 12.4 million hectares which is increased by approx. 5% to 13.0 million hectares in the year 2022-23. It is increased because of better prices that prevailed during the season 2021-22. However, some rain happened at the time of harvesting so, cotton yield is estimated to be at 425 kg/hectare which is one of the lowest in last one decade.

The estimation for production of the cotton crop for the 2022- 23 season is 303 lac bales (of 170 kgs each). The cotton consumption in the year 2022-23 is projected to be at 311 lac bales. Import of cotton is estimated to be around 12 lac bales. Export of cotton is estimated to be at 30 lac bales (approx.) in 2022-23. (Source CAI-April Month).

Financial Review

Particulars	FY 2022-23	FY 2021-22	Change (%)
	(Rs. in crore)	(Rs. in crore)
Revenue from Operation	9,840.79	9,386.10	4.84
Operating Profit (EBITDA)	1,477.85	2,647.38	-44.18
Finance Cost	101.86	99.53	2.34
Depreciation Cost	388.95	362.10	7.42
Profit before Tax	987.04	2,185.75	-54.84
Profit after Tax	749.07	1,677.44	-55.34

Financial Ratios

Particulars	2022-23	2021-22	Change	% Change	Reason
Debtor Turnover Ratio (Days)	44.00	51.00	-7.00	-13.73
Inventory Turnover (Days)	86.00	109.00	-23.00	-21.10
Interest Coverage Ratio (Times)	12.30	21.36	-9.06	-42.42	Decrease in operational profits and investment income
Current Ratio (Times)	4.09	3.04	1.05	34.54	Due to decrease in borrowings
Debt- Equity Ratio (Times)	0.20	0.26	-0.06	-23.08
EBIDTA Margin (%)	14.73	27.09	-12.36	-45.63	Decrease in operational profits and investment income
Net Profit Margin (%)	7.47	17.17	-9.70	-56.49	Decrease in operational profits and investment income
Return on Net Worth (%)	9.03	22.25	-13.22	-59.42	Decrease in operational profits and investment income

Human resources/ Industrial relations

Human resource is considered as the most valuable of all resources available to the Company. The Company continues to lay emphasis on building and sustaining an excellent organization climate based on human performance. The Management has been continuously endeavouring in fostering high performance culture in the organization. During the year, the Company has employed around 28,401 employees on rolls. Further, industrial relations remained peaceful and harmonious during the year.

Internal control systems and their adequacy:

Your Company has been regularly reviewing and updating its internal controls by benchmarking against the industry standards. Dynamics of changing business requirements, statutory compliances and corporate governance are adopted in existing systems after careful review to remain in line with compliance requirements and expectations of business partners like customers and institutions. Senior management monitors the recommendations of internal audits for continuous system updating. IT System infrastructure is updated regularly to support business decision making as well as better controls.