Virat Industries Ltd Management Discussions

Overview:

Global economic scenario remained turbulent in the year under review, especially in Europe where 90% of your Companys exports are shipped. The uncertainties continued to remain in the current year as well and this may further moderate growth if economy of the countries purchasing your Companys products does not improve.

Indias GDP growth decelerated for the second year in succession to 4.5%, due to abysmal performance in all sectors, especially in the manufacturing sectors.

In the fiscal year ended March 2014, total outbound shipments from India touched $ 312 billion, recording nominal growth of 3.96% over the last financial year.

Despite odds, the performance of your Company in the year under review is noteworthy when viewed in the backdrop of an extremely challenging environment, especially during the second half of the year.

During the year, the Company carried out sales in the following geographical segments:

(In Rs. )

	United Kingdom	Switzerland	UAE	India	Rest of the World	Total
Revenues	84,732,521	85,762,750	18,571,139	10,330,685	3,286,752	202,683,848

Industry Structure and Development

Indian textile industry including hosiery and clothing accounts for nearly 11% share of the Countrys total export basket and employs 35 million people. The industry contributes around 5% to Indian GDP and 11% to manufacturing production. For the Indian economy, it is the second largest generator of employment, after agriculture.

Textiles and apparels exported from India consume mainly indigenous inputs and are, therefore, big earners of net foreign exchange. This helps the country reduce its current account deficit.

Opportunities

Your Company is well poised to seize opportunities available in the sock knitting industry on account of its state-of-the-art production facilities, technical expertise, good quality culture and emphasis on product innovation and growth potential.

The socks produced by your Company are meeting international quality norms of comfort, stretch, sizing, skin care and other parameters essential for inner wear intimate apparel. They also meet the fashion demands in terms of design, different knits and multiple shades. The socks manufactured by your Company are sold in Supermarket Chains and upper end Retail Stores.

With the era of domination of the worlds textiles, including hosiery items, originating in China, decreasing slowly, the base is shifting to India and other Emerging/Developing Countries. This augurs well for Indian Companies in the textile and hosiery sector.

The domestic market for textiles, including clothing and hosiery items, has great growth potential for the following reasons;

(i) Higher disposable incomes: Indias per capita income is estimated at USD 1200 per annum and rising.

(ii) Favourable demographic profile: The proportion of Indias economically productive population (15-16 years) is rising; almost 50% of its population, below 26 years, catalyses textile consumption.

(iii) Higher Urban growth: Indias urban (and related) income is rising rapidly, strengthening apparel consumption.

All major overseas customers of your Company insist on social audits to be carried out in the factory at least once in two years, by the internationally acclaimed "Business Social Compliance Initiative Agencies". Such audits cover compensation to employees, health, safety, environment and management practices. New customers also insist on such audits to be conducted, before they start the business. The compliance of such audits brings healthy and ethical culture in working and creates goodwill of the Company among its clients. Your Company has successfully complied with many such audits and has thus ensured continuance of business with major clients for long periods.

Threats and Risks:

Your Company derives over 94 to 95 % of its revenue from the export market. Any problem of economic slowdown or decline in demand in the country of buyer of your Companys product will have adverse impact on the working of Company.

Your Company is potentially exposed to any changes in exchange rates, tariff, duty drawback rates, and also the Government Policies of the Countries which purchase your Companys product.

In the international market, countries like Turkey have developed an edge over the Indian manufacturers due to reduced freight cost and much reduced delivery time. Besides, Turkey enjoys exemption of 10.6% custom duty in relation with EU countries. This has posed a threat to the Indian socks suppliers and may pressurise them to reduce prices and thereby squeeze their margins. Even Bangladesh enjoys exemption in import duty by virtue of its being a less developed country and exports goods at prices, which Indian socks suppliers cannot compete.

The Company is exposed to risks attached to various statutes and regulations. The Company is mitigating these risks through regular reviews of legal compliances, through internal as well as external compliance audits.

Dyed cotton yarn is the main constituent of raw materials used by your Company. The prices of cotton have been highly volatile and can have adverse impact on the profits of your Company.

Cheap imports of socks from China are posing problem of fierce competition to Indian products.

However, because of your Companys good reputation for quality products, timely delivery, better communication and fair business practices, foreign buyers have been patronizing your Company regardless of benefits that accrue to them from the other countries.

Internal Control System and their Adequacy

Your Company believes in formulating adequate and effective internal control systems and implementing the same to ensure that assets and interests of the Company are safeguarded and reliability of accounting data and accuracy are ensured with proper checks and balances. The Internal control system is improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control system and suggests improvements for strengthening them. The Company has a sound Management Information System which is an integral part of the control mechanism. The Audit Committee of the Board of Directors and Statutory Auditors are periodically apprised of the internal audit findings and corrective actions taken.

Human Resources and Industrial Relations

Industrial relations continue to remain cordial and peaceful at the manufacturing unit at Navsari. There are 127 employees working at the manufacturing unit for a common objective of Profit, Growth and Excellence.

ANNEXURE "B" TO THE DIRECTORS REPORT

Disclosure of particulars with respect to Conservation of Energy, Technology Absorption and Foreign Exchange earnings and outgoings as required under the Companies (Disclosure of Particulars in the Board of Directors Report) Rules, 1988 are given below:

A CONSERVATION OF ENERGY:

a Energy Conservation Measures Taken:

Electricity:

i Maintained the power factor in the range of 0.998 to 0.999, throughout the year and got rebate of Rs. 168,119/- on this account in electricity bills.

ii New Atlas Copco make GA-37 FF, VSD (Variable Speed Drive) air compressor installed in February 2013, is regularly working. It draws electricity power according to the plant load.

Natural Gas:

i Reduced steam leakages from boiler house to plant level and maintained the same throughout the year.

ii Installed float trap of right specification to reduce the condensation losses.

iii Further reduced down time of boarding machines by 4%.

b Additional Investments and Proposals being implemented in Consumption of Energy: -

c Impact of Measures at (a) and (b) above for Reduction of Energy Consumption and on the Cost of Production of Goods:

The Measures taken above have helped us reduce natural gas consumption per pair of sock from 0.017 SCM to 0.0135 SCM (21% reduction).

Total saving amounts to Rs. 6.02 lac in Natural gas consumption in the year,

d Total Energy Consumption and Energy Consumption per Unit of Production:

The above information is furnished in Item C above and also presented in Form A annexed.

B TECHNOLOGY ABSORPTION:

Efforts made in Technology Absorption are as per Form B annexed.

C FOREIGN EXCHANGE EARNINGS AND OUTGO:

Activities relating to Exports, Initiatives to Increase Exports, Development of New Export Markets for Products and Services and Export Plan:

Ours is an export unit operating under Export Promotion Capital Goods (EPCG) Scheme. The Company has been exporting goods mainly to the European and Gulf Markets. All efforts are directed towards increasing exports. In the year under review about 95% of total revenues were derived from export.

Total Foreign Exchange Used and Earned:	(Rs in Lacs)
a Total Foreign Exchange earned	1,923.53
b Total Foreign Exchange used
i For import of Plant and Machinery	44.41
ii For Spares, etc.	43.04
iii Raw Materials	7.02
iv For Dividend remitted	7.39
iv Others	15.62
SUB-TOTAL	117.48
% of Import to Export	6.11%

FORM A

PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY

A Power and Fuel Consumption

	Current Year	Previous Year
1 Electricity
a Purchased
Unit (Lac)	16.31	15.33
Total Amount (Rs. in Lac)	105.00	95.59
Rate/Unit (Rs. )	6.44	6.24
b Own Generation
i Through Diesel Generator Unit	-	-
Unit per Itr. of Diesel	-	-
Cost/Unit	-	-
ii Through Steam Turbine/Generator Units	—	—
Units per Itr. of Fuel Oil/Gas	-	-
Cost/Unit	-	-
2 Coal (specify quality and where used)
Quantity (Tonnes)	-	-
Total Cost	—	—
Average Rate	-	-
3 Furnace Oil
Quantity (K.L.)	-	-
Total Cost	—	—
Average Cost	-	-
4 Others -
Natural Gas from GSPC (SCM)	60041	74082
Total Cost (Rs. in Lac)	23.35	23.61
Rate/Unit (Rs. )
Natural Gas (Per SCM)	38.89	31.87

B Consumption per Unit of Production

	Standards (if any)	Current Year	Previous Year
		No. of Pairs
Product: Socks (Captive)	Knitted Boarded	4,442,929 4,442,929	4,337,552 4,337,552
Electricity (KWH/pair of Socks)	-	0.367	0.353
Furnace Oil	-	-	-
Coal (specify quality)	-	-	-
Others - HSD (Itrs/ per pair of socks)	-	-	-
Natural Gas (SCM per pair of socks)	-	0.0135	0.017

FORM B

PARTICULARS WITH RESPECT TO ABSORPTION

Research and Development (R&D)

1 Specific areas in which R & D is carried out by the Company:

A Development of new products

i Developed tube socks/sleeves, by using fur yarn made from microfibre nylon yarns. Such socks/tubes are used for removing loose dirt of golf balls. They are kept in Golfers pocket.

ii Introduced embroidery in thick crew socks having rib and horizontal strips for which bulk orders are received.

iii Attractive gift boxes containing three pairs were introduced, with good value addition.

B Repairing of imported parts

i The technicians at factory have developed the technique to repair motor drives (IRT), PCB and other electronic parts of the knitting machines.

ii We have also developed an indigenous source to repair the broken cylinders of our knitting machines.

2 Benefits derived as a result of the above R&D:

i New business with higher profit margins.

ii Reduction in the Cost of electronic parts.

3 Future plan of action:	To be planned
4 Expenditure on R & D:	Not ascertainable
a Capital	-
b Recurring	-
c Total	—

d Total R&D Expenditure as a percentage of total turnover. -

Technology absorption, adaptation and innovation:

1 Efforts in brief, made towards technology absorption, adaptation and innovation:

The Company has not imported any technology. It has imported major plant and machinery.

2 Benefits, derived as a result of the above efforts, e.g. product improvement, cost reduction, product development, import substitution, etc.:

Not Applicable

3 In case of imported technology (imported during the last 5 years reckoned from the beginning of the financial year), following information may be furnished:

a Technology imported b Year of Import

c Has technology been fully absorbed

Information as per Section 217(2A) read with Companies (Particulars of Employees) Rules, 1975 and forming part of the Directors Report for the Year ended 31st March, 2014.

A Names of Employees employed throughout the Financial Year and were in receipt of remuneration of not less than Rs. 6,000,000/- in terms of Section 217 (2A) (a) (i):

Name	Age (yrs.)	Designation/ Nature of Duties	Remuneration Gross Rupees	Qualification and Experience	Date of Commen- cement of Employment	Last employment/ Name of Employer/ Designation held and period
	NONE

B Names of Employees employed for a part of the Year and were in receipt of remuneration of not less than Rs. 500,000/- per month in terms of Section 217 (2A) (a) (ii):

Name	Age (yrs.)	Designation/ Nature of Duties	Remuneration Gross Rupees	Qualification and Experience	Date of Commen- cement of Employment	Last employment/ Name of Employer/ Designation held and period
	......NONE......

Note: Gross Remuneration includes Salary, Companys Contribution to Provident Fund, House Rent Allowance, Medical Allowance, Leave Travel Allowance and Leave Encashment.