There are two ways to appraise the performance of our Company during the year underreview.
The conventional way would be to compare the annual performance of FY 2020-21 with thatof the previous year. Based on this approach the Company reported a 5.70% decline inrevenues and a 73.93% increase in profit after tax.
We believe that even when seen from a conventional prism the Company reported areasonable performance given that the performance was effectively based on ten months ofoperational performance the first two months being washed out on account of the lockdownannounced in the wake of the pandemic.
The conventional appraisal would be on the basis of the recovery that we reportedacross the four quarters of the last financial year. The Company reported revenues ofH95.59 crore in the first quarter; thereafter revenues rose every single quarter andpeaked at H192.19 crore in the fourth quarter of the last financial year. The capacity ofthe Company to report growth quarter-on-quarter is partly a commentary on the globalrecovery and partly on the Company's capacity to capitalise.
The fourth quarter
At no point during the course of the last year was the capacity of the Company tocapitalise more evident during a record last quarter.
I am pleased to communicate that Winsome Textile reported its best ever quarter duringthe last quarter of the last financial year. Sales increased 7.67% over the immediatelyprevious quarter. There are two important numbers I must draw your attention to: theCompany reported an EBIDTA margin of 14.36% during this last quarter which compared with9.53% reported for the full year under review and 10.12% with what the Company achieved inFY 2019-20. The improvement in the margins reported by the Company indicate astrengthening of the business model and the capacity of the Company to capitalise withspeed on emerging opportunities.
The second number that I must draw the attention of our shareholders to is that ofinterest cover (EBIDTA divided interest outflow). My reference to this number comes in thebackdrop of a growing priority for financial liquidity. At a time when the global economyis hesitant and consumer spending muted there is a priority for businesses to remainliquid.
A rise in our interest cover from 1.38 in FY 2019-20 to 1.81 in FY 2020-21 and a peakof 3.47 in the fourth quarter of FY 2020-21 indicates a growing liquidity.
This does not just indicate that the worst is over for spinning companies like ours; itindicates that a robust recovery is underway and that the Company moved with speed tocapitalise.
The global scenario
The sharp improvement in our performance of the fourth quarter was the result of astructural shift that has begun to transpire in the global textile sector.
The US administration announced that it was considering trade sanctions against theimports of textile yarn and garments utilising cotton grown in China's Xinjiang province.The proposed trade sanction was on account of the perceived mistreatment by China'sadministration of its Uighur Muslim minority community as highlighted by theinternational media.
The proposed trade sanctions implied that the western world (influenced by the UnitedStates administration) would boycott exports from China unless the latter country couldprove that its cotton products were not made from harvests out of Xinjiang putting apremium of integrity and traceability.
Should this trade sanction sustain - as it appears it may - India could substantiallybenefit. India is the world's largest cotton producer and the world's second largestcotton yarn producer. When China's cotton and cotton yarn are removed from the globalmarket these are some of the realities that we expect will transpire: increased exportsout of India of cotton and yarn; higher realisations for cotton yarn; a switch in supplychains from China; evolution of India from a distant Plan B within the global cotton yarnand cotton apparel eco-system to a long-term partner. We see this as a decisive shift inglobal policy that could benefit India into the long-term.
The Winsome advantage
At Winsome Textile we are attractively placed to capitalise on this structural shift.
We are a predominantly cotton-based yarn manufacturer; 80%+ of our revenues werederived from yarn varieties that were made using cotton (cotton melange yarn down tocotton blended yarn). The Company retained its position among the top 100% cotton melangeyarn manufacturers in India. The Company is respected - globally and within India - forits ability to customise products as per the evolving and demanding needs of marqueecustomers. The range of yarn that we manufacture coupled with our ability to understandcustomer needs and work backwards (blending different fibers) to arrive at desired needsmakes us a brand that inspires the following recall: 'One-stop solution provider.' Theresult is that by the virtue of our brand recall fabric manufacturers are beingincreasingly asked by apparel brands to buy yarns from our Company.
The Company's manufacturing facility is proximate to the cotton belt of North India. Alarge part of our Company's cotton appetite is sourced from within a 300 Kms radius.During the year under review the average price at which the Company's cotton appetite wasprocured was attractively lower than the peak price for that season or year. The Company'scotton requirement was procured from agencies who in turn sourced from hundreds offarmers broad-basing the Company's purchase.
The result is that Winsome Textile possesses the scale stability scope andsophistication to generate sustainable growth across the foreseeable future.
At Winsome Textile we recognise the importance of translating our potential into valuefor our stakeholders.
During the last few years the Company consistently mobilised debt to build capacity;this was done on the assumption that the Company's competitive advantage would translateinto consistent revenue growth. The slowdown in the Indian economy and thepandemic-induced disruption were unexpected developments.
The cumulative impact of external realities that could not be controlled warranted aone-time restructuring of the Company's debt repayment. Following this restructuring ourdebt profile will be extended the repayment will be done across a longer period and theimprovement in cash flows will begin.
The Company enjoys among the better margin profiles closer to the highest enjoyedwithin the sector. The complement of a higher interest cover and attractive margins shouldstrengthen our credit rating and attract investors.
At Winsome Textile we are at the right place at the right time.
We expect to capitalise by entering into robust and stable supply chains of someprominent apparel brands seeking to defray their excessive dependence on China. We areoptimistic that this rebalancing will not be limited to a few quarters; it could extendinto a multi-year reality that transforms our Company's scale and enhances value for allthose invested in our Company.
Chairman and Managing Director