VTX Industries Ltd Management Discussions

Industry Structure and Developments Textile Industry

During the year 2013, the country textile and garment industry may witness an increase of 15-20 per cent in exports. Garment exports from India grew by 19 per cent in the period July 2012 - July 2013 to touch US $1.27 billion, on the back of increasing demand in developed economies such as the US, according to data released by the Apparel Export Promotion Council (AEPC).

Factory compliant manufacturing in India has surged with new and unprecedented export orders in the current season because world-renowned chain stores and international brands have preferred expanding their sourcing of the merchandise from India. Also as the Government has assured full support and is planning to implement some new measures to boost exports, Industry is expecting 15-20 per cent growth in exports this year .

Some of the measures announced by The Government of India are :

To set up a Rs 100 crore venture capital fund to provide equity support to start-ups in the textile sector, in order to encourage innovative ideas.

To allow 100 per cent FDI in the sector through the automatic route.

To make textile processing units more environment-friendly and globally competitive, the Cabinet Committee on Economic Affairs (CCEA) has approved an Integrated Processing Development Scheme (IPDS) with an investment of Rs 500 crore.

Under the Technology Up gradation Fund Scheme (TUFS), the textile industry of India will receive subsidy on the capital expenditure done on Hi-tech approved machinery.

Government Resolution on Revised Restructured TUFS has been issued for operation of scheme in the 12th Five Year Plan (2012-17).

Hence, the future for industry looks promising, in 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 into the Indian market.

Indias growing population has been a key driver of textile consumption growth in the country. Changing lifestyle, rising incomes and increasing demand for quality products are set to fuel demand for apparel.

Under the above circumstances, the organised apparel segment is expected to grow at a compound annual growth rate (CAGR) of more than 13 per cent over a 10-year period.

Opportunities

The Company is equipped with efficient quality control department with latest quality control and testing equipments, most of which are imported from Switzerland and efficient & trained personnel. This helps the company to ensure internationally recognized high quality products.

• The company expands its export horizon by exploring the markets of developing countries for enlarging its customer base.

• The Company takes necessary measures for brand building of its products in the domestic market as well as international market.

• The company is actively engaging in promotional activities including attending textile fairs in India and abroad to ensure orders and enquiries from International customers and also doing sales campaigns in domestic market so as to establish identity and recognition for its products.

Threats and Challenges to the Industry

The textile companies are facing liquidity concerns due to delays in bank line enhancements and highly working capital intensive operations. Considering weak credit quality and rising proportion of the textile sector in non-performing assets, banks are cautious and stricter in lending norms to this sector. Credit profiles of companies going for large debt-funded Capex will remain subdued in 2013 given the input price risks and high borrowing costs.

The textile industry is presently facing challenges like slow demand and a loss in margins, but a recovery is expected on account of falling cotton prices, though this could be negated by further volatility in input costs or forex movements. The margin pressure would persist for the textile industry which is driven by rising power & wage costs and higher interest rates.

The union budget for 2013-14 has announced positive packages for accelerating the recovery of the textile industry and there has been sign of recovery in the industry for past few months and some of the positive features of the budget would help this process further. In order to address the slowdowns in the textile industry, the government proposed a debt restructuring package for textile industry. Despite the reigning challenges, the textile industry which otherwise was seen seeking to overcome the depressing blues of reduced demand in overseas market, is witnessing an incipient turn around in the financial year 2014-15.

Threats to the Company

Due to increase in competition globally as well as domestically, there arises need to follow the austere measures in the operational side and the shift of focus would be more on striving for continuous improvement in quality aspects of the products, which would help the company to strengthen its competitiveness in the global arena particularly against the big players in the market. It is identified that the companys large dependence on customers in US and EU region has caused hardship and the company is slowly shifting its focus to new regions like Brazil, South Africa, Argentina, Australia etc. so as to enlarge its customer base.

Setback to the Textile business due to factors such as deep recession in the principal markets of the Company( in the US & Europe), depressed economies around the world, increase in prices of raw materials,in labour costs, and the insurmountable problems due to electricity cuts in Tamilnadu,a mismatch between input and output prices, increase in air freight cost, high interest costs, failure of the lenders to bridge the working capital gap further compounded the situation of the Company affecting maximum utilization of capacity and thereby adversely affecting the productivity of Company. These conditions, which are beyond the Companys control, caused severe liquidity crunch and thus the Company could not meet with its obligation of timely repayment of dues to the lenders.

Segment- wise and Product - wise performance

The entire operations of the Company relate to only one segment viz Textiles therefore, segment/ product-wise details are not applicable.

Outlook

With the optimum utilization of very modern machinery and the measures taken by the company to overcome Power crisis, it is expected that the Company would be able to improve efficiency. The company has been taking steps to increase the export sales as well as up-country sales for improving the sales turnover and focusing on the increase on value added products.

Risks and Concerns

The continued policy of Government controlling free exports and volatile economic environment have a bearing on the overall performance of the company.

Internal Control System and adequacy

The Company has put in place effective control systems in respect of all its operations and such systems are continuously reviewed and upgraded.

Discussion on Financial Performance with Respect to Overall Performance

The key financial data are furnished below for the current year as compared to the previous year

(Rs in Lakhs)

	Current Year 2014	Previous Year 2013
Increase in Net Sales	(13,142.03)	(2,646.93)
Increase in Net Sales (%)	(74.54)	(13.05)
Increase in Exports	(10,811.05)	(3,875.00)
Increase in Exports (%)	(83.46)	(23.03)
Operating Profit Margin before Tax(%)	(502.17)	(0.44)
Operating Profit Margin after Tax (%)	(502.17)	(0.44)
Cash Profit Margin before Tax (%)	(470.90)	9.80
Cash Profit Margin after Tax (%)	(470.90)	9.19
Net Profit Margin before Tax (%)	(499.34)	1.07
Net Profit Margin after Tax (%)	(499.34)	0.46

* Profit Margin calculations are on the basis of Net Sales

Human Resource Development/Industrial relation

The Company continued to enjoy healthy industrial relations during the year. The total number of employees as on 31.3.2014 was 747.

Safety and Environment

The Company ensures high safety and environmental standards in all its operations at all the units. Safety needs are continuously monitored and preventive actions are initiated through departmental safety committees consisting of plant staff and workmen.

Cautionary Statement

Statements in this report, especially those relating to Management Discussion and Analysis giving details of companys objectives, projections and expectations may be construed as forward looking statements" within the realm of applicable laws and regulations. Actual results might be liable to differ materially from those either expressed or implied