MANAGEMENT'S DISCUSSION AND ANALYSIS

BUSINESS REVIEW

Economic Outlook

Global economy is not growing as expected. Global growth was 3.4% during calendar year (CY) 2014, similar to (CY) 2013. Emerging markets were characterized by a sharp fall in growth rates, especially in China. However, Europe's dysfunctional policy environment to accelerate growth through investment and reforms could make the recovery look moderate compared to the United States. China will continue its "soft fall" growth trajectory, as already limited government stimuli will have less effect despite recent monetary easing, and expose the weakening of China's creditworthiness more clearly. Other major emerging markets will continue to grow, but their pace will vary depending on the net impact of declining oil prices and exchange rate debrciations, as well as progress of their own reform agendas. New geographies for growth, such as Africa and parts of Asia, offer opportunities to build sustainable growth models but they also bring challenges on economic, legal, and institutional fronts.

In the domestic market, better macroeconomic conditions, coupled with improved sentiment post the general elections helped India to be among the better performing emerging market economies. There was a slight increase in the GDP growth and the Rupee remained relatively stable during the year. Inflation, measured by the Consumer Price Index (CPI), moderated sharply during fiscal 2015 partly supported by the drop in international crude oil prices. CPI, which was recalibrated to a new base year fiscal 2012 from the earlier base year fiscal 2010, eased from 8.3% in March 2014 to 5.2% in March 2015. In fiscal 2015, the Central Statistical Organization (CSO) introduced a new methodology for calculation of Gross Domestic Product (GDP) and also revised the base year from fiscal 2005 to fiscal 2012. As per the revised methodology, India's GDP grew by 7.4% in FY 2015 compared to a growth of 7.0% in the corresponding period of fiscal FY 2014.

The Government envisages GDP growth to accelerate to 8% in FY 2016 driven by strengthening macroeconomic fundamental and implementation of policy reforms recently announced. Reforms like e-auctions of coal mines and telecom, FDI in insurance, speedier regulatory approval etc. will be improve the investment outlook and ease of doing business in country. Reforms currently underway such enhancing the foreign investment limit in defence, railways and insurance sectors, fuel subsidy reforms in terms of deregulation of diesel prices, review of gas pricing and direct transfer of LPG subsidies into the beneficiaries' accounts; improving access to long-term financing for infrastructure projects; and auction of coal mines and spectrum are expected to provide the requisite growth in long terms.

Textile Outlook

Apart from providing one of the basic necessities of life, the textile industry also plays a pivotal role through its contribution to industrial output, employment generation and export earnings of the country. It contributes about 14% to India's industrial production and 13% to the country's export earnings & 27% of the foreign exchange inflows.For the Textiles industry, the global focus is shifting from China to India due to cost and stability factors. The government's positive steps are expected to help this shift and if foreign investments in textiles retail materialize, the consumption of the textile products in the domestic market should increase in the years to come. Recently, Government has withdrawn the requirement of export contract registration for cotton & cotton yarn and now these are in the free list, without any requirement of registration.Steps towards bringing the entire process of TUFS on IT platform and development of software for making the entire process efficient, transparent and easy have been initiated.

Being the second largest employer in India (after agriculture) coupled with strong industry linkage with the rural economy augurs Indian textile industry as one of the most significant sectors with an incremental growth potential. The country's overall textile and Apparel Industry contributes around 6% to India's GDP. The country's overall textile Industry export has contributed $ 41.4 billions in 2014-15.

While Indian textile industry has strong brsence across the value chain, manufacturing value chain is unbalanced. India is 2nd largest producer of man-made staple fibre. With 50 million spindles, India is one of the world's leading and most cost efficient producer of the spun yarn. While it has 2ndlargest no. of looms globally, the organized mill sector contributes only 5%. India needs to upgrade its loom as well as processing machinery. We are 7th largest apparel exporter in the world with a share of 3.7% of the total apparel trade.

In the mid-long term, the Indian textile industry is expected to grow very strongly with growth being balanced from both domestic consumption as well as exports demand. In the near-term, domestic demand is expected to grow strongly with the revival of the overall economy and improvement in purchasing power of Indian consumers. On the exports front, there are both opportunities and threats. Opportunities include the weak currency and decreasing cost competitiveness of China that are likely to give positive

impetus to the Indian exports. At the same time, factors like structural impediments to industrial growth, volatile foreign exchangerates and increase in cotton and yarn prices are likely to negatively affect growth and profitability for the textile exports.

Cotton

For the 2014-15 seasons, the Cotton Advisory Board has projected cotton production at 390 lakh bales (of 170kgs each) which is a reduction from 400 lakh bales projected earlier. This reduction has been due to untimely rains and hail storms all over the country. Total demand is estimated to be at 390 lakh bales in 2014-15, compared to 416.80 lakh bales in the brvious season.

In terms of the global trade picture, government policies in India will play a role in the outlook for the coming year. Under the current climate of weaker market prices, an increased Minimum Support Price (MSP) for 2014 crop has caused a significant amount of India's production to move into government stocks. In the short term, procurements by the Cotton Corporation of India have reduced India's brsence in the world, which is significant since India normally occupies the spot as the second largest exporter. However, unlike the Chinese government, India generally does not hold stocks for an extended period of time and at some point, the cotton will be sold from reserves and enter the marketing channels.

Factors such as contraction in domestic yarn production for exports, unlikely recovery in cotton exports and a fall in domestic cotton prices below MSP have pushed domestic cotton stocks high, for the revised outlook. All these factors, it said, are likely to keep domestic cotton prices under brssure in 2015­16. Conversion of China's cotton reserve policy into a direct subsidy policy in April 2014, will increase reserve cotton sales and reduce its cotton imports to half in 2015-16.

Cotton Yarn & Exports

Cotton Yarn Export is on the decline this financial year, due to weak demand from China, the largest importer of India's cotton yarn. The export fell to $11,353 million in 2014-15 as against $13,306 million in 2013-14, a fall of 14.7 per cent. Yarn export to China has declined by 20 per cent due to a slowing in the textile industry there. Exporters have tried to compensate from elsewhere and there has been a slight rise in yarn export to Sri Lanka, Bangladesh and Vietnam in recent months.

Further, due to removing of anti dumping duty of 5% by Egypt against import of cotton yarn from India with effect from 31/12/2014 which will boost the exports of Indian Cotton Yarn to Egypt. The Government has recently announced the much awaited Foreign Trade Policy 2015- 2020 in which the export obligation for domestic procurement of capital goods under EPCG has been reduced from 90% to 75% and the said Policy has also introduced a single Merchandise Exports from India Scheme (MEIS) as against 5 different schemes for rewarding merchandise exports with different kinds of scripts with varying conditions. This has simplified the procedure/documentation to get the export benefits quickly, which will promote textile exports from India.

Opportunities and Threats

Globally, India has the 2nd largest textile manufacturing capacity the Indian textiles industry accounts for about 24 per cent of the world's spindle capacity and eight per cent of global rotor capacity. It is now the 2nd largest textile exporter in the world. The size of the Indian textiles and apparel industry is expected to reach USD 223 billion by 2021. Towards Ease of doing business the Ministry has decided to join the DIPP e-biz portal for the Textiles sector and brsent one front face to a potential investor in the manufacturing sector. Content creation has been initiated ranging from initial information for sector and product selection to the process to be followed for setting up manufacturing facilities to running of the industry to the post production feedback right up-to closure. Also Skill Development Scheme has been scaled up during 12th Plan with an allocation of Rs. 1900 crore to train 15 lakh persons. To meet the needs of the industry for a skilled workforce and thereby support its competitiveness, Ministry has trained 3.75 lakh youth in textile trades, particularly in the rapidly growing garmenting segment of the industry under the Integrated Skill Development Scheme. Ministry is also in the process of further expanding the implementation of the scheme in the Public-Private Partnership mode.

The textile industry is a highly capital intensive industry due to which there is a high level of borrowings and the assets turnover ratio is in the range of 1:1 due to which high interest cost is being incurred. Increase in the power costs, high transaction costs, high cost of labour and general increase in input costs, are all hindering progress. Debrciation of the Euro against the Indian Rupee has adversely affected the Indian textile products from the European Union. Also un-seasonal monsoon in many parts of the country has placed adverse brssure on consumer demand in general.

FINANCIAL ANALYSIS

Production/Sales Review

During the year under review, the company achieved production of 46150 M.T. of Cotton/Synthetic Yarn against brvious year production of 42983 M.T. with an increase of 7.37% and gross turnover / operating income of Rs.1146.07Crores (including exports / export incentives of Rs.595.55 Crores) against brvious year gross turnover/operating income of Rs.1067.29 Crores with an increase of 7.38%. The value of the exports remained at the same level.

Profitability

The company achieved Gross Profit (Profit before debrciation, interest and income tax) of Rs. 152.89 Crores with ratio of 13.34% during FY 2014-15 as compared to Rs. 170.91 Crores in the brvious FY 2013- 14 with ratio of 16.01%. The interest cost remained flat at Rs. 80.24 Crores as compared to Rs. 81.25 Crores in the brvious year due to full year impact of interest of term loan borrowings made in FY 2013-14 off-set by lower interest cost on reduced working capital borrowings. The company earned gross cash profit of Rs. 72.65 Crores against Rs. 89.66 Crores in the brvious year which was partly affected due to decline in prices of cotton yarn in Q2 of FY 2014-15 with the expected decline in the prices of raw cotton of the Cotton Season 2014-15 beginning from October 2014. The level of profit before tax had declined to Rs. 2.64 crores due to increased debrciation of Rs. 70.01 crores for FY 2013-14 as per the new provisions of the Companies Act 2013 applicable from 1st April 2014 vis-a-vis debrciation of Rs. 46.63 crores for FY 2013-14. Had the Company continued with the debrciation rates as per the provisions of Companies Act 1956, the debrciation for FY 2014-15 would have been lower by Rs. 16.67 Crores and consequently the net profit (before Tax) would have been higher by this amount.After providing for current tax of Rs. 0.24 Crores (Net of MAT Credit) (Previous year Nil), deferred tax liabilities of (-) Rs. 5.62 Crores (Previous Year Rs. 15.59 Crores) there was a net profit after tax of Rs. 8.02 Crores against brvious year net profit (after tax) of Rs. 27.44 Crores. After transfer of Rs. 0.43 Crores to Capital Redemption Reserve and debrciation adjustment of prior period of Rs. 1.67 Crores the surplus in the Profit & Loss Appropriation Account stands at Rs. 90.87 Crores.

With the production of value added compact/ contamination free cotton yarn having better realizations, stable cotton prices and cost/interest reduction measures, the management is hopeful that the Company's performance will improve in the coming period.

RESOURCE UTILISATION Fixed Assets

The company made additions of Rs. 27.46 Crores in the Gross Fixed Asset during the year under review.The company had four manufacturing units as on 1st April 2014, the operations of its oldest spinning unit (set up in the year 1993) at Village Meharban, Ludhiana with a meagre installed capacity of 6720 spindles (out of Company's total capacity of 211344 spindles) had been discontinued from end of September 2014. The company had sold a part of the machinery of this unit having written down value of Rs. 0.26 crores for Rs. 1.14 crores i.e. on a profit of Rs. 0.88 crores and the remaining operative machinery of this unit had been transferred to other manufacturing units. The Gross Block of Fixed Assets (including work-in-progress) had increased to Rs. 723.14 Crores as on 31st March, 2015 as compared to Rs. 701.22 Crores in the brvious year, while the Net Fixed Assets (including work-in-progress) as at 31st March 2015 were Rs. 452.41 crores as compared to Rs. 497.71 Crores in the brvious year. The installed capacity of the company now stands at 204624 spindles.

Current Assets and Current Liabilities

The inventory level decreased by Rs. 77.37 Crores from Rs. 237.38 Crores at the end of the brvious year to Rs. 160.01 Crores at the end of the year under review. The Sundry Debtors level also decreased by Rs. 33.02 Crores from Rs. 97.92 Crores at the end of the brvious year to Rs. 64.90 Crores at the end of the year under review while the level of other current assets increased by Rs. 6.99 Crores to Rs. 93.97 Crores at the end of current year from Rs. 86.58 Crores at the end of brvious year due to increased level of operations. The level of trade payables/short term borrowings/other current liabilities and provisions decreased by Rs. 114.59 Crores i.e. from Rs. 403.34 Crores at the end of brvious year to Rs. 288.83 Crores at the end of current year.

The company is utilizing cash accruals for meeting term loans repayment commitments, acquisition of balancing equipments/fixed assets and improvement of net working capital funds.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has internal audit department to oversee internal control systems and procedures to ensure efficiency of decisions for optimum utilization and protection of resources and compliance with applicable statutory laws and regulations and internal policies. Reports are submitted by the internal auditor to the Audit Committee of the Board and necessary action/ recommendation are made thereafter by the said committee. Continuous efforts are being made to further improve and strengthen the internal control systems.

HUMAN RESOURCES / INDUSTRIAL RELATIONS

The company recognizes its human resources as its most valuable asset and takes pride in the commitment, competence and dedication shown by its employees in all areas of business. The Company has specialized professionals in the respective fields to take care of its operations and allied activities. The Company is committed to nurturing, enhancing and retaining the top talent through superior learning. This is critical pillar to support the organization's growth and its sustainability in the long run. During the year under review, the company enjoyed cordial relationship with workers and employees at all levels.