The economic revival in the country started taking shape after a bountiful monsoon in 2016 on the back of consecutive droughts for two years. However, this was stymied by the effect of demonetization of 86% of the currency in circulation during the third quarter of the financial year. The challenging domestic business environment continued post-demonetization well into Q4 of FY2017. Sutlej could withstand the challenges and showed growth on a Y-o-Y basis in 2017. Our revenues increased by 8.50% while our profit after tax strengthened by 10.09%.
This profitable growth represents validation of our strategic direction.
Changes in global economic, social and political environments are having a major impact on the textile industry. Manufacturing technologies are changing. Consumer trends are changing. With a rapidly growing middle-class in China, there is an increasing cost of doing business in China. The speed to market products has never been more important. Retailers are facing challenges from on-line shoppers.
In this backdrop, developments in global and Indian economic scene become important.
The global economy failed to gain traction as developed economies continue to remain tepid, while emerging economies lacked vibrancy and did not show any significant momentum. The advanced economies have been experiencing their longest period of slow growth in many decades. In the last six years, up to 2016, their average rate of growth has been barely 1.6%. It gets worse, if we take a slightly longer period, beginning from the crisis year of 2008, the average rate of growth being barely 1.1%. There is no period since World War II 70 years ago, when the economies that are now bracketed as economically advanced, have seen such a sustained period of slow growth. The picture is not about to change soon.
The persistent low growth rate of developed countries is leading to stagnation, prospect of job losses and rising social tension. These stresses are contributing to demands for inward-looking solutions like anti-immigration, anti-globalization and even anti-free trade at the expense of open, dynamic markets that have delivered worldwide growth throughout most of the post-war era.
Meanwhile, the growth performance of what are bracketed together as the emerging market and developing economies, present a soothing contrast. The last nine years (2008 to 2016) have seen an average rate of growth of more than five per cent, which is better than their historical performance. The worrying signal, though, is that the growth rate for these countries has dropped in the last couple of years to barely four per cent. Both Latin America and Africa have seen growth collapse in 2015 and 2016. It is the superior performance of the two largest economies in this category, namely China and India, which has propped the average for all the lower income countries. The other two BRICS economies, Brazil and Russia, have seen GDP actually shrink.
The Indian economy is going through an interesting phase with a temperate economic growth rate, benign inflation and GST, described as a game-changer with the idea of one tax, one nation. Continued fiscal consolidation, inflation management along with consistent reforms push by Government continue to underpin macroeconomic stability. India returned to fiscal consolidation in 2016-17 by bringing the deficit down to 3.5% of GDP from 3.9% the previous year, supported by a near-elimination of fuel subsidies and enhanced targeting of social benefits. But a sustained increase in economic growth at this juncture is critically dependent on credit intermediation of banks, which are caught in the vortex of NPAs and so cannot lend effectively to corporate, which themselves are struggling and stretched. Given the predominance of this twin Balance Sheet problem manifesting in of a leveraged corporate sector and stressed banking sector, the move to a higher growth trajectory looks difficult. The data on the ground shows that the economy is not gaining momentum.
It is believed that remonetisation, a good monsoon and possible interest rate cuts along with the Goods and Services Tax should lead to a recovery in H2FY18.
I am pleased to state that over the last few years, Sutlej has begun to achieve what it always professed: that the company would report margins, profits and capital efficiency higher than the industry average, coupled with relative insularity, whereby our decline during sectoral troughs would be less than the others in the conventional market space. The strategic shift in direction made by the company in the last few years stands resoundingly validated as Sutlej is no more a mere commodity supplier but a differentiated textile solution provider - a company that conjures up a number of diversely challenging variables to outperform and enhance shareholder value.
Our strategy has provided adequate de-risking: we work with almost 300 active products; this basket comprises a mix of nascent as well as mature products; we work with diverse downstream spaces (knitting, weaving, home applications, industrial and miscellaneous) that liberate us from an excessive dependence on any one space; we are present in more than 60 countries, adequately de-risking geographical concentration. We enjoy average realizations higher than the benchmark of the conventional sectoral terrain; we have established formidable cost leadership and we enjoy attractive pricing power in specific products.
Our strategic long-term consistency is visible in our numbers: during the five years ending 2016-17, Sutlej posted an increase in profits during four years; the aggregate cash profits of five years ending March 2017 was 134% higher than the aggregate profits of the previous five years combined; the aggregate cash profit of the last five years was an attractive Rs.966 crores that ensured periodic reinvestment and capital rejuvenation.
There are number of reasons why we are optimistic of our sectoral prospects and corporate performance.
One, India remains one of the fastest growing economies in the world.
The macroeconomic situation in the country is expected to improve considerably in the coming years owing to various policy initiatives taken by the government.
Two, India is one of the most attractive global textile markets passing through a major transition from the staple to the value-added. This transition is marked by an unprecedented increase in consumer preference for fashion apparel; we believe this preference evolution will be sustainable on the back of increased disposable incomes and improving aspirations.
Three, nearly half of India''s 1.25 billion people are still under 26 and by 2020, India is likely to emerge as the youngest country in the world with a median age of 29. Young earners are spending more on discretionary apparel consumption than ever; are experimenting more with emerging fashion trends, and widening their wardrobes faster than before. The business of looking good has never looked better.
Four, India''s rural markets are underpenetrated which will account for considerably faster growth that could translate into years of sustainable sectoral growth.
Five, India''s per capita textile consumption is low compared with global average. We believe that following growth in disposable incomes, this gap will narrow, accelerating India''s sectoral growth higher than the global average.
Six, when international economies revive, the Company expects increased export demand.
Proactive and Prepared
Sutlej brings to this sectoral optimism the robust fundamentals of a forward-looking company.
Your company focused on enhancing growth of operations in value-added products. Sutlej has emerged as India''s largest spun-dyed yarn manufacturer including that for cotton and cotton blended dyed and mélange yarns.
With commissioning of the expansion project of 35,280 spindles in March 2017, the Company''s total spinning capacity increased to 416,616 spindles, enhancing economies of scale. Your company has decided to expand its Baddi (Himachal Pradesh) Unit by 28,800 spindles to manufacture 100% Polyester Industrial yarn and other grey blended specialty synthetic yarns.
Your company produces niche yarns like synthetic and blended dyed yarns, cotton and cotton blended dyed and mélange yarns, fancy yarns in wide range of counts, blends and shades for apparel and non-apparel applications. Not more than 5% spindles (out of a total installed capacity of about 50 million spindles) in the country manufacture such products. This differentiates the company from commodity yarn manufacturers.
Your company''s products comprise a prudent mix of cotton and man-made fibres resulting in a superior ability to absorb unforeseen cost increases through timely blend changes. Your company''s products are fibre-dyed, providing superior product consistency, large production volumes and ready-to-use convenience for downstream processors.
Sutlej''s enduring customer relationships have been forged with quality-driven customers who demand value-added products.
The Company strengthened its cost leadership through asset debottlenecking and asset up gradation.
The company decided to focus on the Home Textiles business and undertook an expansion of its capacity from 2.5 million metres per year to 9.6 million metres per year, which was completed in March 2017. Our Home Textiles business is at the cusp of an attractive take-off.
Your Company possesses a robust Balance Sheet and strong credit rating. This will serve as a foundation for low-cost funds mobilization whenever we consider the need to finance organic or inorganic business opportunities.
Though the present industry scenario is challenging, Sutlej expects to sustain its growth on the back of various initiatives taken in the past and in the coming years. Sutlej is proactive and prepared. I am optimistic of our prospects when the sector rebounds.
I would like to thank all the stakeholders for their continued support.
With best regards,