I am pleased to present our performance for 2015-16 Iwherein the Companysrevenues increased 20% while profit after tax strengthened 24%. I must assure shareholdersthat given the diverse challenges that the sectoral and company encountered thisprofitable growth represents a validation of our strategic direction.
Over the last few years Sutlej resolved to escape the cyclical trap of its business.The Company began to focus on a long-term strategy whereby any decline in sectoralfortunes would have at worst a minimal impact on its revenue and profits where as asectoral rebound would immediately translate into an improved topline and bottomline.
The core of this counter-cyclical strategy was that we would: Maximise the productionof value-added yarn varieties Accelerate capacity creation at the lowest cost in theshortest time Strengthen cost leadership and Enhance capacity of fast-growing synergisticbusinesses (Home Textiles) This strategic direction has already been validated. During theyear under review Sutlej reported increased revenues and profits even while it wasengaged in aggressive reinvestment with the objective to enhance capacity and sustainprofit growth. I have no doubt that as the import of this strategy unfolds revenuesprofits and margins will strengthen graduating the Company to the next orbit of scalegrowth and sustainability.
The global economy continued to be sluggish with World Bank moderating 2015 growthforecasts from an initial 3.3% to 3.1% compared to 3.3% growth achieved in 2014.
The global textile industry continued to suffer from an extended slowdown marked bysluggish off-take on the one hand and price erosion on the other. The result was that mosttextile manufacturers reported a decline in revenues and profits affecting their overallsustainability.
Indias rural economy continues to reel under the impact of a second successiveweak monsoon which affected rural incomes and consumption engines. In turn thistranslated into a slower off-take of fabric which in turn affected yarn realisations.
The growth of Indias infrastructure sector was affected by weak policyimplementation and correspondingly weak government investment. This weakness affectedrural employment and incomes translating into weaker prospects for the countrystextile sector.
China reported its weakest annual growth in about a quarter of a century. The resultwas that China moderated the consumption of a number of products textiles included. Theresult was that realisations of textile products declined the world over affecting theviability of related manufacturers.
At Sutlej we had proactively prepared for this sectoral slowdown through anoverarching focus: stronger customer orientation.
The Company studied emerging customer needs worked closer with customers developednew products and empowered customers to win in their respective markets through timelyinvestments in business diversification capacity increase and evolving product mix.
Our revenue increase with enhancement in profit should be seen as positive achievementsin this scenario.
At Sutlej we had visualised that the most effective strategy to counter a businessslowdown would lie in capacity addition and revenue growth. In view of this the Companyacquired the Birla Textile Mills (BTM) spindleage capacity of 83376 spindles in financialyear 2015-16 and is set about enhancing the Companys overall capacity by 35280spindles in financial year 2016-17. The larger volumes helped the Company effectivelyamortise fixed costs. The result was that the Company reported an increase in profitsvalidating its acquisition and expansion priorities.
At Sutlej we had recognised that capacity increase would not alone be enough; what wewould require was a churn in our yarn manufacturing capacity towards value-added yarnvarieties. In line with this priority the Company increased the proportion of spindlesdedicated to cotton blended and cotton mlange dyed yarns from 23% in 2011-12 to 29% in2015-16. Besides the proportion of revenues derived from these premium yarns alsoincreased.
At Sutlej we had anticipated that it would not be adequate to play the game in abetter way; it would be necessary to change the game itself. The result was that someyears ago we invested in the manufacture of home textile products. We are pleased tostate that during the year under review this nascent division turned around providing uswith the incentive to substantially scale its capacity across the foreseeable future.
The result of these initiatives was that overall capacity utilisation of Sutlej standsabove 95% in 2015-16 and virtually marketed all that it manufactured. This realityindicates that Sutlej does not make to stock but makes to order; that Sutlej enjoys robustand enduring customer relationships that represent a steady order pipeline across marketcycles; that Sutlej has strengthened its credentials as a sustainable textilesorganisation.
There are a number of reasons why I am optimistic of our prospects.
The downtrend in the global textiles sector could end over the foreseeable future assoon as global demand revives.
The Indian governments push to the rural sector through its recent Union Budgetand Make in India policy is expected to strengthen rural consumption.
The infrastructure-building emphasis is expected to kick start the Indian economy.
At Sutlej we are attractively placed to capitalise on national and sector revival forsome good reasons.
One there is a distinctive organisational clarity about what we are and what wedesire to do. The result is an overarching respect for return on invested resources; theCompany will select to invest in only those businesses and their related niches thatgenerate optimal returns and enhance (not merely maintain) overall profitability.
Two we possess a robust Balance Sheet that is only likely to get stronger. Forone we are already invested (and financially closed) for nearly three straight years ofgrowth starting 2016-17. Our attractive depreciation provision provides adequate resourcesto fund year on year capacity investments. The accruals that we are likely to generatefrom the timely implementation of upcoming projects will be value-added and high-margin.These accruals in turn are likely to be invested in debt liquidation strengthening ourBalance Sheet. We believe that an under-borrowed Balance Sheet and an improving creditrating will serve as a foundation for low-cost funds mobilisation (a sustainableadvantage) whenever we consider the need to finance organic or inorganic businessopportunities.
As the Company was exploring for inorganic growth in its spinning capacity it acquiredBirla Textile Mills (BTM) having a capacity for 83376 spindles during the year. The BTMacquisition provided the Company operational spinning capacity and also benefited throughadding new customers in the domestic and export markets.
Three our Home Textiles business is at the cusp of an attractive take-off. Thebusiness turned around during the financial year under review allaying the fears ofanalysts that this would eat into our profitability. Our focus on curtains and upholsteryproved relevant our designed products were well accepted our customer relationshipsproved enduring and our order books are growing. This encouraging reality encouraged usto increase our production capacity from 0.42 mn metres per month in 2014-15 to aprojected 0.8 mn metres a month (projected commissioning by the close of 2016-17).
Four there is a sectoral shakeout likely to transpire for reasons that extendbeyond the industry slowdown. The Indian government modified significantly itsconcessional TUFS loan arrangement for the countrys textiles sector in January 2016.With the advantage of this low cost funds pipeline declining over time textilemanufacturers will need to bank on the strength of their Balance Sheet to mobilise lowcost funds. At todays spindle commissioning costs and without concessional debt webelieve that greenfield textile projects will lose its attractiveness strengtheningprospects of competitive longstanding textile manufacturers. Your Company will beattractively placed following debt repayment an increased net worth and stronger creditrating creating attractive operating leverage to fund sustainable growth. Fivethe financial mechanics of what is behind our performance for the last financial yearindicates that we are headed in the right direction. For instance even as our total debtincreased by C169.39 crore during the year under review our finance cost was pegged atC46.52 crore as compared with C52.99 crore in last year a sign that bankers are beginningto correlate the strength of our business model into their lending terms. We believe thatthe full benefit of this will be progressively manifested when our additional capacitiesare fully implemented setting in motion a virtuous cycle of profitable growth.
I must assure shareholders that our relative strength at a time of sectoral weaknessprovides an insight into our competitive position and the fact Company is indeed placed atan attractive inflection point. If this is how we performed during the deep end of asector downtrend then I am robustly optimistic of our prospects when the sector rebounds.
As our investments translate into timely project commissioning across the foreseeablefuture we expect to report higher revenues superior margins and increased surpluses thatgraduate us into the next growth orbit.
As we say at Sutlej we are charged to grow higher!
I would like to thank all the stakeholders for their continued support.
With best regards