MANAGEMENT DISCUSSION ANALYSIS FORMING PART OF THE ANNUAL

REPORT

1. INDUSTRY STRUCTURE, DEVELOPMENT AND PRODUCT WISE PERFORMANCE

The Company is in the business of manufacturing of Cotton, Polyester, polyester-viscose Blended Yarns and readymade garments at its factories situated at Aliabad, Shameerpet Mandal, Rangareddy District; Bhongir, Nalgonda District, in the state of Telangana and Rajna, Madhya Pradesh, catering to both domestic and the export markets.

In terms of textile units, Indian Textile & Garment industry is one of the largest in the world. Most of the processing units in India are independent units, with some being integrated with spinning, weaving or knitting units. The garment sector is decentralized, with substantial part of production being sub-contracted to small fabricators and contract manufacturers. It is estimated that there are over 75,000 garment units in India, but most of them are small in size and undertake work as contract manufacturers for large exporting firms.

2. INDIAN TEXTILE INDUSTRY

The Indian textiles industry is extremely varied, with a hand-spun and handwoven sector at one end of the spectrum, and the capital intensive sophisticated mill sector at the other. The decentralised power looms/ hosiery and knitting sector form the largest Section of the Textiles Sector. The close linkage of the Industry to agriculture and the ancient culture, the traditions of the country make the Indian textiles sector unique in comparison to the textiles industry of other countries. This also provides the industry with the capacity to produce a variety of products suitable to the different market segments, both within and outside the country.

The Indian textiles industry, currently estimated at around US $108 billion, is expected to reach US $ 141 billion by 2021. The industry is the second largest employer after agriculture, providing direct employment to over 45 million and 60 million people indirectly. The Indian Textile Industry contributes approximately 5 per cent to GDP and 14 per cent to overall Index of Industrial Production (IIP).

The Indian textile industry has the potential to grow five-fold over the next ten years to touch US$ 500 billion mark on the back of growing demand for polyester fabric, according to a study. The US$ 500 billion market figure consists of domestic sales of US$ 315 billion and exports of US$ 185 billion. The current industry size comprises domestic market of US$ 68 billion and exports of US$ 40 billion, according to a study.

Apparel exports from India have registered a growth of 17.6 per cent in the period April—September 2014 over the same period in the brvious financial year.

3. PRODUCTION OF YARN

Spinning is a matured textile sub-segment in India. India is a leading spun yarn producer in the world and also the most cost competitive producer. Approximately, 75% of the total spun yarn produced in India is 100% cotton yarn.

Global cotton supply continues to outpace demand, resulting in increase in cotton stocks for the fifth consecutive year. The growth in the domestic cotton yarn production has slowed down in FY 2015 (YTD) as the spinning mills have been operating at high utilization levels which has resulted in capacity constraints.

However, with changes in cotton policy in China leading to increased consumption of domestic cotton, the import demand of Indian yarn from China has reduced. This is also reflected in decline in the yarn exports from India by in HI FY 2015 over the same period last year to 544 million Kg. The domestic yarn prices which had remained firm till July 2014 have started declining since August 20l4 due to decline in the domestic cotton prices and also due to moderation in the export demand which has resulted in oversupply in the domestic market. The Indian yarn prices have declined by ~I7% over the period

4. GARMENTS

Garments business is now picking up in India with increasing labour costs in China. In addition, there is an increase in domestic consumption, which is further fuelling the growth and demand for finished garments. Apart from this, it requires significant level of industrial engineering. Traditionally, China, Bangladesh, Africa, Sri Lanka and Vietnam have dominated the garment manufacturing over the years. While India has always been among the largest fabric exporters globally, now it is an emerging destination for major branded players for garment manufacturing with its advantage over cost-effectiveness and quality benchmarks.

Your Company has been chosen one of the brferred vendors for the supply of readymade garments by the big global label and retailers like Jordache Ltd, USA and Caulfield Apparels, Canada, Tharanco Life Styles LLC, USA. Your company is well equipped to cater to the requirements of international buyer for the supply of various types of readymade garments viz., Polos, Sweatshirts and Shorts. Your company is well equipped to handle any kind of complicated needle work required to make high-end fashion garments. A variety of embellishments, both Indian and imported are being used.

Your Company has set up a dedicated team that monitors and analyses the changing trends, designs, fashions across the globe. This helps the Company produce different shades, textures and fabrics which create a benchmark for their clients. Due to recession in global market, your Company has developed its own brand "WOODSIDE", an exclusive range of polo shirts and crew neck t-shirts for men and women. This range of new products is brsented to the market with totally new design concepts and colour scheme. These shirts are also available on online portals Snapdeal, amazon, flipkart and paytm. The Company aims to increase its brsence in the semi-urban and rural areas.

5. OPPORTUNITIES AND THREATS

5.1 Opportunities:

The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. The organised apparel segment is expected to grow at a compound annual growth rate (CAGR) of more than l3 per cent over a l0-year period.

• Low cost of production: With the growing economy, India is today a dream market for most marketers. The availability of low cost of skilled labour and creation of state-of-the art infrastructure by most companies, create an ideal situation for India to grow further.

• Global competitiveness: Currently India is the second largest exporter of textiles in the word with a share of 5%, behind China enjoying a share of 39%. However, increasing labour cost in China and non-compliance of regulatory norms by large factories in Bangladesh, brsents India a significant advantage.

• Vendors to partners: With large number of global textile players heading to India, the manufacturers are now not just supplying, but partnering with the world's leading brands. The long-term association does not only add sustained order book flow for the companies, but adds to the enhanced profitability levels as well.

• Make in India: The government's thrust on the 'Make in India' concept aids in futuristic growth in more ways than one. An experienced, enriched and technologically empowered textile sector will only emerge as an international powerhouse in the coming time.

5.2 Threats:

Firms in textiles sector are facing following problems in adding capacity due to:

• Shortage of skilled manpower and labour related issues

• Power shortage

• High cost of capital

• Uncertainty in market conditions

• High prices of raw materials / intermediates

• Low export demand and uncertainty of economic environment

• Low domestic demand

• Competition from imports

• High financial charges

6. RISKS AND CONCERNS:

¦ Economic slowdown

Textile as a product is highly dependent on macro-economic scenario of the countries across the world. Any slowdown in the economy might have a direct impact on the operations of the Company. With the new government at the centre, the country is expected to potentially hit the sweet spot in the coming few years, and reaffirm its position as the fastest growing country in the world, overtaking China. This will adequately help the Company to sustain its topline and profitability levels.

¦ Evolving fashion trends

The Company might lose its customers and market share if it does not cater to the changing needs of its customers. The Company has set up a dedicated team that monitors and understands the fashion trends across the globe. This helps the Company produce different shades, textures and fabric which create a benchmark for their clients. This has helped company generate majority of its revenues from value-added products.

¦ Increase in cotton prices

Cotton accounts for significant portion of the cost of production for textile. Volatility in the cost of raw material might dent the margins of the company and affect its bottomline. The Company has plants located within close proximity to cotton growing regions, which adds to savings on its procuring cost. In addition, it also sources bulk of its requirements from regulated government agencies, at reasonable cost and assured supply.

¦ Apbrciation in Indian currency

Majority of the revenues of the Company is derived through exports. Any significant apbrciation in currency might result in loss of revenues in near short-term for the Company. The volatility is currency is directly linked to raw material prices. Hence, any significant apbrciation in the currency, will result in decline of raw material prices, thus giving a natural hedge, with no impact on margins.

7. OUT LOOK:

While the cotton production in India in the year 2015-16 is expected to decline by 3 to 5% as farmers shift to alternate crops, the cotton availability in India is expected to remain comfortable and further improve from that in the year 20l4-l5 with stock to consumption ratio expected at 28 to 33% at the end of the year 20l5-l6. The improvement will be driven by higher carry forward stock from the year 20l4-l5 as exports had declined due to lower demand from China and expectation of limited cotton exports in the year 20l5-l6 as well.

Despite the decline in the production, India will remain the world's largest cotton producer.

The cotton consumption is expected to increase by 3 to 4% in the year 20l5-l6 on account of low cotton prices which has resulted in a significant decline in the sbrad between cotton and polyester stable fiber and also the expected improvement in the global economic growth, which will lead to improved demand for textile products.

Going forward, we expect the Indian economy to pick-up. Besides, factors such as rapid urbanisation, growing consumer confidence, increase in disposable income and fashion & lifestyle changes are expected to boost the consumption of apparels. Furthermore, traditional economies such as the United States and the European Union along with new markets like UAE, Latin America and Africa are likely to foster the overseas demand for apparels. As a result, we expect the industry's sales growth to accelerate to l5.l per cent in 20l5-l6. On the expenses front, prices of raw materials such as cotton yarn and synthetic yarn are expected to decline in 20l5-l6. This is likely to reduce the input cost brssure on the industry. The post-operating expenses are also expected to grow at a slower pace. Resultantly, net profit of the industry is likely to grow by a healthy 18.9 per cent during the year.

8. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an adequate internal control system commensurate with the size and complexity of the organization. The Company has undertaken a combrhensive review of all internal control systems to take care of the needs of the expanding size of the Company and also upgraded the IT support systems. A system of internal audit to meet the statutory requirement as well as to ensure proper implementation of management and accounting controls is in place. The Audit Committee periodically reviews the adequacy of the internal audit functions.

9. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

There are no material developments in the Human Resources area. The industrial relations have been generally satisfactory. The Company constantly reviews the man power requirements and has a properly equipped Department to take care of the requirements. The total number of people employed by the Company as on 3l.03.20l5 was 783.

10. DISCUSSION ON FI NANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The total Revenue for the year 20l4-l5 was Rs. 129.23 crores and profit after tax was of Rs. 0.07 crores.

NOTE:

1. Readers are advised to kindly note that the above discussion contains statements about risks, concerns, opportunities, etc., which are valid only at the time of making the statements. A variety of factors known / unknown, expected or otherwise may influence the financial results. These statements are not expected to be updated or revised to take care of any changes in the underlying brsumptions.

2. Readers may therefore apbrciate the context in which these statements are made before making use of the same.