NACHMO KNITEX LIMITED
ANNUAL REPORT 2006-2007
Your directors present herewith the twenty fifth annual report of your
company together with the audited annual accounts for the year ended on
March 31, 2007.
1. Financial performance:
Your company's financial performance during the year is summarised below:
(Rupees in lacs)
(12 months) (15 months)
Loss before interest and depreciation 20.81 70.78
Less: Interest 82.19 357.89
Loss before depreciation 103.00 428.67
Add: Depreciation and amortisation of expenses 368.92 447.21
Loss before tax 471.92 875.88
Add: Provision for taxation 2.14 3.23
Loss after tax 474.06 879.11
Add: Extraordinary exps. / (gain) - Net - (2.80)
Loss after tax and extraordinary items 474.06 876.31
Add: Loss brought forward from previous period 4,136.48 3,260.17
Deficit carried to balance sheet 4,610.54 4,136.48
In view of the loss during the year under review and carried forward losses
of earlier years, your directors express their inability to recommend any
dividend on equity shares of the company.
3. Year in retrospect:
During the year under review the performance of the company has improved
reasonably well due to broadening of customer base both geographically and
in number, increased exports, improved value additions and reduction in
variable costs. The exports of the company have improved remarkably as
compared to previous period, leading to better capacity utilisation.
However due to impact of one time write off of bad debts of humidification
division, the company has incurred loss before depreciation and interest.
The company has continued its efforts in improving its performance and
looks for further improvement in future.
The detailed performance has been discussed in the management discussion
and analysis given with this report.
The company has applied for deeper restructuring of its debts, looking to
the present market scenario, competition and sustainable debt levels in
comparison of the earning capacity. The existing debt restructuring package
has been withdrawn.
The company's accumulated losses at the end of the financial year have
exceeded the net worth of the company. Pursuant to provisions of section
3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985
('Act'), the company has Sec )me a sick industrial undertaking and hence
pursuant to provisions of section 15(1) of the Act, the company is required
to get registered with Board of Industrial and Financial Reconstruction,
4. Listing agreement:
At present the equity shares of the company are listed on the stock
exchanges at Ahmedabad and Mumbai. The company has paid listing fees to
both the exchanges.
5. Corporate governance:
The corporate governance and management discussion and analysis report as
amended from time to time forms an integral part of this report and are set
out as annexures to this report.
The certificate of the statutory auditors of the company certifying
compliance of conditions of the corporate governance as per clause 49 of
the listing agreement is annexed with the report of corporate governance.
6. Director's responsibility statement:
As required under section 217(2AA) of the Companies Act, 1956, the
directors confirm that :-
(i) In the preparation of the annual accounts, the applicable accounting
standards, have been followed alongwith proper explanation relating to the
material departures, if any,
(ii) Appropriate accounting policies have been selected and applied
consistently, and the judgements and estimates that have been made are
reasonable and pr4dent so as to give a true and fair view of the state of
affairs of the company as at March 31, 2007 and the loss for the year ended
on March 31, 2007.
(iii) Proper and sufficient care has been taken for maintenance of adequate
accounting records in accordance with the provisions of the Companies Act,
1956 for safeguarding the assets of the company and for preventing and
detecting fraud and other irregularities.
(iv) The annual accounts have been prepared on a going concern basis.
During the year under review Mr. B. Ravi resigned as director of the
company w.e.f. March ?9, 2007. Mr. Nitin D. Parekh is appointed as director
to fill casual vacancy caused by resignation of Mr. B. Ravi w.e.f. March
At the ensuing annual general meeting of the company Dr. Bakul H. Dholakia
is to retire by rotation and being eligible offers himself for re-
All the properties and insurable interest of all the divisions of the
company including buildings, plant and machinery, and stocks have been
9. Auditors' report:
Dhirajlal Shah and Company, Chartered Accountants, Ahmedabad, statutory
auditors retire at the ensuing annual general meeting. They being eligible
for re-appointment have given their consent to act as statutory auditors of
the company, if re-appointed. You are requested to re-appoint Dhirajlal
Shah and Company, Chartered Accountants, Ahmedabad as statutory auditors of
the company to hold office from conclusion of this annual general meeting
till the next annual general meeting of the company.
The relevant notes forming part of accounts are self-explanatory and give
full information and explanation in respect of the observations made by the
statutory auditors in their report.
10. Information regarding conservation of energy etc.~and employees:
The company has been continuously working towards saving of energy costs.
Information required under section 217 (1) (e) of the Companies Act, 1956
read with rule 2 of the Companies (Disclosure of Particulars in the Report
of Board of Directors) Rules, 1988 as amended from time to time, forms part
of this report. There are no employees who have received remuneration which
in aggregate is Rs.24 lacs for the full year or employed for a part of the
year who were in receipt of remuneration of Rs.2 lacs per month. However,
as per provisions of section 219 (1)4b)(iv) the report and accounts are
being sent to all members of the company excluding the information relating
to conservation of energy, technology absorption and foreign exchange
earning and outgo, and the statement of particulars of employees. Any
member. interested in obtaining such particulars may inspect the same at
the registered office of the company or write to the secretary for a copy.
The company has accepted fixed deposits to the tune of Rs.187.70 lacs upto
March 31, 2007 out of which due but unclaimed/unpaid deposits were Rs.15.59
The company has stopped, accepting fresh deposits from April 1, 2004 and
has been repaying all such matured deposits as are not renewed, as per the
schedule in time and hence has not exceeded the limits.
Your directors are thankful to all its employees for their dedicated
services and places their sincere appreciation of the same.
Your directors are grateful to all the constituents like customers,
vendors, investors, and above all banks and financial institutions who have
given their utmost support to the company. The directors also thank the
Government of India, State Government and others for their valuable support
and look forward to the same in future also.
For and on behalf of the board
Ahmedabad Chintan N. Parikh
Date : April 24, 2007 Chairman
MANAGEMENT DISCUSSION AND ANALYSIS
Forward looking statements
This management discussion and analysis contains certain forward looking
statements and words like 'estimates', 'intends', 'projects', 'expects',
'will', 'believes', 'anticipate', 'plans' and the like. These statements
and the words are made to address the future and to describe the company
strategies, growth, product development, market positions, etc., and are
thus forward looking. These forward looking statements are based on certain
assumptions and expectations of future events. The company would like to
caution that these are based on assumptions and hence the company assumes
no responsibilities to publicly amend modify or revise any forward looking
statements on the basis of any subsequent developments, information or
events. The company cannot guarantee these assumptions and expectations.
The actual performance, achievements or results can substantially vary and
could be materially different than those projected, which the readers may
please be vary of. The readers are also cautioned that the management
discussion and analysis is to be read as of date along with the financial
statements and notes attached to this annual report and these forward
looking statements should not be unduly relied on.
The post quota regime has put Indian Textiles on a different plateau. There
has been surge in demand for textile products manufactured in India and at
the same time Indian manufacturers are facing stiff competition from Asia
Pacific exporters including China in global markets. There is marked
pressure on sales price of all the products. Also during the. year Indian
exporters have gained considerably due to some of the countries in South
East Asia being accorded GSP status by European Union.
For the company the year under review witnessed improvement in performance
with concentrated efforts of management. The improvement of performance has
been due to broadening of customer base both in terms of number and
geographical boundaries. Exports have gone up so is value additions.
Overall variable costs have reduced. Improved sales have resulted in better
capacity utilisation leading to better economies of scales. During the year
company has been able to post positive operating profit.
Segment analysis and review
The company deals in only one segment namely textiles. The,company has been
able to show better performance during year under review and operating
profit has turned positive. The company has put substantial emphasis on
development of new products and new markets with broadening its customer
base. This has resulted in development of new customers in both domestic as
well as export market. This also helped company in reducing its reliance
on few large,customers. In order to get better control over the market in
terms of consistent orders there was also conscious effort to reduce
dependence on job work business. This in turn also helped in improving
capacity utilisation of grey knitted fabrics.
All above efforts resulted increase in exports, which is more remunerative
market, jumping up by 70% in terms of tonnage and 83% in value terms
compared to last period, There has also been marked improvement in value
additions of the company during the year under review which has increased
to Rs.98/- per kg. from Rs. 93/- per kg of previous period. The higher
capacity utilisations have helped in reducing some of the costs and overall
operational performance has improved and become more efficient.
The knitting industry is dominated by small scale players and some
integrated knit garment manufacturers who have in-house knitting and
processing capacities. However your company with its reasonably stabilised
capacity utilisation and customer-base looks forward for a better future on
long term basis.
Financial results and outlook:
The financial performance of the company has improved reasonably well
during the year under review. Increase in exports and broadening of the
customer base has resulted in increased capacity utilisation of knit-
processing by 15%. Overall production has gone upto 1905 tons from 1653
tons (on annualised basis) of previous period. The sales and other income
for the year ended March 31, 2007 were Rs. 66.54 crores. During the year
under review company has decided to reduce dependence on trading business -
being a low margin business, hence trading sales have gone down. This has
resulted in top line of the company going down by 11%.
The exports sales of the company during the year had been to the tune of
Rs. 1,409 lacs compared to Rs.768 lacs in previous period on annualised
basis. The GSP benefits available to Srilanka for imports by European
countries, and the capability of the company to supply high value added
products like yarn-dyeds, melange etc., have opened up export market for
the company. The manufacturing value additions for the company has
increased to Rs. 1,755 lacs against Rs.1,441 lacs of previous period on
The company has posted improved operating profit of Rs. 93.16 lacs compared
to loss of Rs. 56.62 lacs in the previous period on annualised basis, on
account of higher product on and better sales realisations. However due to
one time expense of bad debts written off/provided for Rs.113.97 lacs
pertaining to humidification division of the company the reported PBDIT of
the company is negative Rs.20.81 lacs.
The plants of the company are now more than 10 years old and require higher
maintenance and repairs. For the year under review, company has been able
to reduce its operating costs significantly on account of higher production
and the cost saving measures implemented by the company during the year.
The company has been able to reduce cost of dyestuffs and chemicals on
account of development of alternate cheaper recipes without compromising on
quality and procurement of material at better rates from suppliers. The
cost of utilities during the year, however, has increased mainly on account
of increase in production and marginally on account of increase in prices
of fuels like HSD, agro-waste etc. Other manufacturing expenses comprising
stores and spares, packing materials, etc., have increased on account of
increased volumes and higher maintenance of plant and machinery.
There has been increase in fixed costs during the year 2006-07 compared to
the previous period 2005-06 keeping in line with inflation.
The long-term outlook for knitted fabrics is positive. There is a growing
demand for knits garments like sports-wear, casual-wear, ladies and
children's garments world over and considering the capabilities of Indian
manufacturers to supply a very wide variety of knitted fabrics to suit the
requirements of garments manufacturers, there is vast potentials for Indian
manufacturers in quota-free regime. At the same time, the post quota regime
has thrown up intense price competition and there is a pressure on
profitability in the short, to medium term and the recovery is expected to
The debt-restructuring package sanctioned by CDR has been withdrawn. The
company has submitted a request for re-working of the package on the basis
of expected profitability considering the current revenue and cost factors
and the sustainability of debt.
The management will continue to strive for improving the profitability by
better capacity utilisation and optimising value additions.
Risks and concerns
There is no foreign currency debt and hence no currency risks. The company
being in textiles business the volatility in prices of cotton-yarn, which
is dependent on cotton prices which again is a function of multiplicity of
variables like crop of cotton in India, exports from and import into India,
Govt. policies etc., could affect the company like any other business. The
company having focus on exports markets could face further risk on account
of fluctuations in foreign exchange rates. Apart from these there are.
normal business risks.
Opening up of international market after abolition of quota, increasing
demand for knits the world over, organised sector units having capabilities
to deliver quality goods have great potential in the long run. With product
development efforts matching with the demands of today's fast, changing
fashion world, the manufacturers having in-house capabilities to supply
entire range of knit goods hold a vast potential to expand-and grow in
times to come.
The phasing out of quotas has brought in the related threats of competition
from China, Pakistan, Bangladesh, Srilanka and Thailand. Further, due to
incentives offered by Govt. of India many new capacities are created in
India to take advantage of opening of international market after abolition
of quota. Due to this intense competition has developed among Indian
manufacturers. Finding newer markets, development of new products and
increasing cost effectiveness will be imperative to thwart competition.
Internal control systems
The company has a good, efficient and well established internal control
system, which enables it to react and take corrective action immediately.
The internal control systems and management reporting on areas of risks and
threats enables the company to take necessary proactive steps and continue
to focus on its targets. The systems and procedures are reviewed
periodically to identify snags and enable to have better, and efficient
systems. The company's management has made necessary changes to further
stabilise the marketing set up to remain focused on the targets. At present
the control systems are adequate considering the size of the company and
nature of its operations.
The internal audit department has covered newer areas of audit this year.
The company strives for quality and its continued efforts to improve on
quality has enabled it to sustain the market and its customers despite the
trying times it is moving through. Your company believes in quality
products and its this attitude of 'No compromise on quality' has earned it
high reputation in both domestic and international market. Your company is
considered to be one of the top-notch quality manufacturers of knitted
fabrics in the country.
Research and development
The drive for quality requires continuous research and development,
identifying newer and better products, which are cost effective,
environment friendly and customer oriented. The company has developed
fabric with special finishes like Teflon coating, moisture management
fabric, stain-free, 2 thread fleece varieties, etc. as a result of its
product development efforts.
Health, safety and environment
The company has already established a safety committee which looks into the
issues relating to working environment, prevention of work related health
hazard, and provision of proper medical aids. The company continues to have
a risk free working environment and history of nil major accidents.
The company is committed to having pollution free environment and strives
to work towards it on a continuous basis. We have always achieved as a
group high environmental standards. The group has been in past awarded
prestigious awards for having achieved and maintained high environmental
standards, by The Greentech Foundation. The company has well maintained
lush green gardens, green lawns and trees which have been instrumental in
curbing pollution and maintaining pollution free working conditions for its
Human resources development
The company has been strongly working towards developing and motivating the
employees for further growth. The company has been able to recruit and hire
best talent in the industry with its strong HR policies. Ongoing management
and refresher training programmes have enabled the employees to sharpen
their skills for further development. The company has a rigorous selection
process to identify best talents in the business and the same are reviewed
and assessed periodically. The various employee welfare schemes and
measures encourage the employees to work hard and give in their best.