We trust all of you and your families are safe and well.
We have lost our Respected Beloved Founder Chairman in November 2019. He was oftendescribed as a towering personality truly a giant a doyen and a founding father of theclothing industry in India with several notable achievements to his credit. His spiritprinciples and teachings will always continue to guide the Company he started.
A few months earlier we lost Mr. M. L. Apte one of the earliest Independent Directorsof the Company shortly after he stepped down from the Board due to ill health.
The year was a difficult one owing to low consumer demand GDP growth of 4.2% noappreciable increase in investment growing unemployment and finally the lockdown in themost crucial run up to the year end which impaired the top line as well as the bottomline. The lockdown hit the year end fervour in both the International business as wellas the Branded business.
Other factors like intense competition in the markets disrupted by the economicslowdown the US China trade war (which could have been and continues to be anopportunity to capture some of the swing of business out of China) the volatility in theForex markets and strengthening Rupee easing imports of clothing into India especiallyfrom Bangladesh all added to the woes of the clothing industry which was already reelingfrom the closure of several large brick & mortar retailers globally due to theonslaught of online - Covid 19 only severely aggravated this further although onlinebusiness continued internationally during the lockdown online business in India wasimpacted because during the lockdown online business in India came to a standstill aswell. The equity markets are totally out of sync with ground realities.
One must mention here that the China-US cold war-in trade technology and finance-comes with its own rich prospects besides the swing away from China. Indian bornexecutives like Satya Nadella (Microsoft) Sundar Pichai (Alphabet) Arvind Krishna (IBM)and Indira Nooyi (former of PepsiCo) are in a position to drive investments/jobs to Indiagiven the right conditions here.
In the International business the competition for a shrunken market is mostly fromcompeting low wage countries with favourable trade agreements and exaceberated ourcountry's weaknesses such as export of our taxes and low productivity in India. Besidesissues of dependability poor infrastructure and expensive logistics higher turnaroundtime for orders (90 days from India v/s 30 days from Turkey) longer transit time becauseof trans shipments of consignments for a significant part of India's export due toinadequate availability of direct vessels/ mother vessels add to our weakness.
Export of clothing from the country declined by 4% (from USD 16.19 B in 2018-19 to USD15.49 B in 2019-20).
On the Branded business front the situation of fall in demand even before Covid 19led to cut throat discounting promotions & free give aways throughout the year. TheMBO channel continues to weaken despite being pampered with every possible inducement bythe competition. One bright spot continued to be our own webstore.
The impact of Covid on both businesses has been dramatic. Very low revenues ensued inboth businesses during the lock down period and phased unlockings spread over severalmonths for both production facilities and retail stores. There were several largebankruptcies in the international market where demand crumpled early resulting incarrying forward of inventories deferring of shipments and payments for suppliers tothose markets - all this coming together with the lurking fear of the global resurgenceof the virus as winter approaches continues to keep business subdued.
The Company has taken several dramatic steps to reduce costs curtail capex andconserve cash. We have moved large components of fixed expenses to variable (revenue shareinstead of fixed rental in case of stores) created an asset light model which has beendiscussed in this report. Thankfully the Company has met all it's commitments to it'steam in terms of their remuneration on time without any reduction; we have also met allour statutory obligations well in time. The pivot for the result for the year ahead willbe the revival of demand both internationally as well as in India.
The Government is formulating a policy of WTO compliant refund of taxes and duties(RODTEP) which when implemented and executed efficiently and on time will sharpenIndia's competitiveness. The proposed merging of 44 labour codes into 4 codes will be agiant step towards workers across the board getting formal contracts. The insolvencyreform has lost it's sting after the business community lobbied hard against losingprized assets which the Government is trying to bring back on track.
During the year the Company has incurred a Capex of Rs 392.48 Lakhs primarily inproduction equipment and information systems to sharpen our competitiveness besides newstores.
During the year 12 new Stores were opened (16 unviable stores were closed - a netdecrease of 4 stores) with 116 stores at the end of the year.
The decline in turnover of both International and Branded businesses coupled withgestation on new stores and extended gestation on some stores opened in the recent pastreduction of duty drawback/ ROSL (for partial reimbursement of taxes/duties paid) as wellas high depreciation and mark to market under IND AS of some large ticket items hasresulted in the Company's operational performance being hit.
The Company has been advised by ICRA (an associate of Moody's Investor Service) thatthe rating process shall be done only after the Financial accounts for the Financial year2019-20 are finalized and approved.
During the year Mr. Vaman Apte was appointed as an Additional Director of the Companywith an aim to refresh our Board with younger Independent Directors possessing skills andperspectives to help us steer our path in the current environment. The appointment of Mr.Vaman Apte is proposed to be regularized at the 36th AGM of the Company. Ms.Elizabeth Jane Hulse Independent Director having completed her first term of 5 years hasbeen appointed as an Additional Director and it is proposed to regularize her appointmentand also appoint her as an Independent Director of the Company for a second term of 5years i.e. upto 11th August 2025.
The Board of Directors of your Company have not recommended any dividend for theFinancial Year 2019-20.
I would like to conclude with a vote of thanks to all our stakeholders. Ourshareholders for the confidence reposed in the management our customers Governmentdepartments bankers solicitors distributors suppliers and other business associatesfor their wholehearted support and for the contribution made by them towards thedevelopment of the Company.
My grateful thanks to our eminent Independent Directors for their valuable guidance andadvice in steering the Company during these turbulent times and especially for the highstandard of Corporate Governance that has been sustained by the Company as a direct resultof their inputs as well as for their continuously guiding the Company towards bestpractices across industries.
I would also like to place on record my deepest appreciation and thanks for thesignificant contribution made by the employees at all levels. Facing the challengingtimes was made possible by their hard work strong work ethic solidarity co-operationand unstinted support. Covid induced WFH has truly put their skills and dependability totest.
We continue to be committed to our quality transparency environment friendlyfactories sustainable production and community driven values while delivering betterproduct per rupee to the consumer and remain as committed as ever to the Company's goals- our transparency values and uncompromising principles/ ethics are hopefully cherishedby all our constituents.
As always I look forward to your continued support in our future endeavors to takethe Company to greater glory.
A. Y. Noorani