Our passion for innovation has helped us in carving out a differentiated position forourselves in the industry.
At Winsome Textile we have generally maintained a consistent sequence of revenue andprofit growth across the last number of years.
The year under review was marked by an exception.
Our total income declined by 8.31% while there was a negative profit after taxreported by the Company the first instance of a decline in the Company's bottomline in anumber of years.
I must however assure our shareholders that the Company performed creditably inprotecting itself from the broad downside and securing its business model with theobjective to post an attractive rebound as soon as market conditions revive.
The year under review was marked by an economic slowdown in the Indian and globalmarkets.
The scenario in India was affected by a crisis in the country's non-banking financesector which in turn affected credit disbursal asset creation income growth andconsumer sentiment. In this environment apparel offtake was also affected whichconsequently moderated the demand for fabric and yarn.
The Indian economy reported declining GDP growth - from 6.2% in 2018-19 to 4.2% in
2019-20. The Company's GDP erosion was more pronounced in the quarterly numbers thegrowth declining to a low of 3.2% in the last quarter of 2019-20. During the last quartergrowth was also affected by the outbreak of the Covid-19 pandemic which affected offtakeof all products starting from the last week of the financial year under review.
The scenario was no better in the international markets. The trade war between the USand China affected global growth. Besides the global consumer sentiment was affected byBritain's exit from the European Union economic weakness in China and India as well as UStrade sanctions on Iran. In view of this global growth declined from 3.6% in 2018 to 2.9%in 2019.
These realities made it challenging for the Company to operate in the markets of Indiaand abroad.
The Covid-19 pandemic
The outlook for our business was affected by the outbreak of the Covid-19 virus inChina in December 2019 which affected demand in the global markets from the first quarterof 2020 and in India from the last week of March 2019. As India went into a lockdowndemand was extensively eroded downstream consumers halted their production (and henceprocurement) and the priority of the day was to protect the
integrity of the Balance Sheet and safety of the Company's eco-system.
At Winsome we responded with speed to unfolding developments. We communicated to ourbuyers within India and abroad of the logistical challenges in material dispatch on theone hand and temporarily halted manufacturing operations on the other.
Besides the Company embarked on various initiatives to protect its eco-system.
It protected employees by discontinuing operations which we restarted in the secondweek of April from home and engaging with them electronically to enhance motivation. Itconnected with vendors to apprise them of a change in procurement volumes and schedules.
It protected shareholder interests by selecting to freeze major capital expenditureconserving cash and protecting the integrity of the Balance Sheet. It remained activelyengaged
with customers on their production plans with the objective to capitalise with speed onprospective demand improvement.
Even as the prevailing environment is unprecedented we are cautiously optimistic thatwe possess the competitiveness to capitalise as soon as demand normalises.
Performance review 2019-20
During the last financial year as revenue reported degrowth at around 8.31% there wasa decline in our profitability. EBIDTA declined from H87.19 crore in 2018-19 to H67.19crore in 2019-20; PAT declined from H12.87 crore in 2018-29 to a negative H2.92 crore in201920; EBIDTA margin declined from 12.04% in 2018-29 to 10.12% in 2019-20.
This decline in margins and surplus was the result of a sharp increase in the minimumsupport price announced by the government on raw cotton. This unexpected developmentincreased the outgo on account of raw material costs for our Company. Besides thisincreased the cost of raw cotton in India to higher than the landed cost of importedcotton landed cost of similar quality the first such instance in years. This not onlymade the country's raw cotton uncompetitive in the global markets but also narrowedmargins enjoyed by downstream yarn spinners.
The Company could not pass the cost increase to customers and was required to absorbit affecting competitiveness.
Besides the slowdown in the global markets affected overall
realisations and offtake. The decline in realisations was felt largely in thevalue-added segment; the Company moved with speed to address the volume segmentconsciously embracing a decline in overall profitability.
During the last few years a sharp increase in the melange manufacturing capacitywithin India began to affect the demand-supply balance for the product segment. During theyear under review melange yarn realisations were affected and because we were one of thelargest melange players in the country our performance was also affected.
At Winsome we embarked on a number of initiatives to protect our competitivenessduring the last financial year.
The Company worked closer with customer brands. We believe that downstream apparelmakers will need an increasing throughput of innovative products. During the year underreview we deepened our engagement with such customers and strengthened our service withthe objective to increase our wallet share.
The Company strengthened new melange product development widening choice andstrengthening its brand as an innovation-driven player.
The Company highlighted its dependence from a national and corporate point of view at atime when global apparel makers are seeking a supply alternative to China with theobjective of broad-basing their geographic risk profile.
The Company focused in sweating its manufacturing assets with the objective
of generating superior economies of scale; the Company addressed the midvalue yarnsegment where volumes were larger and offtake quicker.
The Company deepened its recall as a dependable partner through quality consistencyservice responsiveness product innovation portfolio breadth and supply quantum.
The Company deepened its engagement with global agents (over traders) deepening marketaccess. The Company ended the year by protecting its recall as a go-to vendor ('If therequirement is specialised go to Winsome').
At this point it will be difficult to estimate when consumer sentiment will return.The global economy is poised to de-grow during the current calendar and financial year.
We estimate that the longer the lockdowns and erosion in global growth the greaterwill be the deferral in consumer spending and the larger the down-trading.
As realisations remain weak a sectoral shakeout is likely to emerge: companies withweak Balance Sheets are likely to exit the business. This could correct the marketimbalance (where supply is temporarily higher than demand) creating a healthier industryenvironment.
At Winsome we are attractively placed to see through the downturn: we are a focusedplayer; the low and medium value melange range that we manufacture is structured aroundlow inventories; the high value melange range that
we manufacture is secured by a made-to-order approach that protects our interests.Besides we enjoy a distinctive brand recall complemented by relevant economies of scale:we are among India's largest melange yarn manufacturers and the largest cotton dyed yarnplayer.
Going ahead we intend to moderate our debt strengthen our credit rating and emergestronger from this downturn.
|Our best lies ahead. |
|Ashish Bagrodia |
|Chairman and Managing |