The basic foundations that make up our business are significantly stronger. As
managers, we have a tighter grip on the business and our capital allocation strategy is
better than when we started.
Dear Shareholders,
I am proud to say that the year gone by has been a record year for us in many aspects.
We hit our all-time highest ever revenues, volumes, EBITDA and profitability. We must also
remember that this was a year of increasing costs. Freight, energy costs, packing costs,
costs of auxiliaries such as SPCs, spin finish oils, chemicals, dyes, etc. went up
significantly. It was especially encouraging to achieve these numbers in such a fiscal.
This year was important not just for the financial records but also a few non-financial
milestones that our business accomplished this year which I've highlighted below.
• This year was yet another year where we grew the volumes of value-added products
such as Comfeel, Automotive Yarns, IDY, Wonderfeel, Sorona, SDN etc.
• For the first time in our company's history we been able to successfully
commercialise patent pending yarns. Due to the popularity and market fitment of some of
these innovations, we have been able to commercialise several of these proprietary
products in an incredibly short time frame. This year we have received bulk orders (post
successful customer trials) in innovations such as Synergy, Kashmere and Hygeia. We hope
to add more to this list in the coming few years. This together with our value added yarns
mentioned above should make our business incrementally more robust.
• Our focus on operational excellence and cost paid off this year. The Rakholi
plant saw record numbers on metrics such as Waste percentage, Downgrade percentage,
Packing cost per kg, Value Loss percentage, etc. In terms of absolute production in
tonnage, our throughput improvement initiatives continue to deliver and the plant saw
record production volumes yet again with relatively lower investment as we were able to
tweak more production from the same machines. Cost initiatives in Palghar helped us
significantly reduce utility consumption and conversion costs.
• We were able to successfully install new capacity in flooring yarns and are now
looking to commercialise that capacity with some of our proprietary innovations and value
added products.
• Exports as a percent of sales continued to remain consistently around 45% and
hit an all time high number.
I believe that we continue to become incrementally more robust as a business with each
passing year. While we will feel the gyrations of economic cycles, I believe that the
amplitude of the fluctuation of our results will reduce as we continue along our journey.
While we haven't completely transformed yet, I believe that we are closer than when we
started. Our view of the competitive environment and corresponding investment decisions,
too, have come a long way since we started this journey and we are incrementally
outsourcing parts of the business which can easily be made by others.
As I write, however, while the cost pressures have begun to ease, slowing demand is
already beginning to dent our capacity utilisations. The biggest impact is coming to us
from the fact that people world over are moving their spending habits from purchasing
goods to services which was artificially suppressed during the peak pandemic years. This,
of course, was a tailwind for us in the previous fiscal as people sat at home and spent
significantly on goods, in particular, on improving their homes. Furthermore, if we see
drop in raw material prices, while this may be good for the medium to long term, this may
create an impact on short term profitability as we take stock losses. Nonetheless, we
continue to tirelessly execute on previously identified opportunities and discover new
ones that will help us to maintain or increase our base of earnings.
• We have committed capacity expansion in some of the value added products named
above with customers expecting us to increase volumes. We hope to commercialise this
additional capacity towards the end of H2. We have also geared up sales/marketing efforts
in these areas and hope to widen our net.
• One of the key challenges in the coming year will be maintaining capacity
utilisations in an atmosphere of slowing global economy. As I write this letter,
utilisations are down 10% and one of the biggest priorities this year will be to find
business with which we can fill this gap.
• Needless to say, moving up the pyramid of specialisation is a continuous goal
for us at AYM. We continue to work on identifying new niches in and around the market
areas that we operate in. We hope to introduce some new products in the technical area
this year through new capacity (and capability) that we hope to commission this year. Our
interest would be to find more such small to mid size opportunity baskets which might not
be sizeable enough to attract some of the larger low cost players but are significant in
size and margin accretive for us.
• Despite rising margins in the commodity segments of business last year, we
maintained the discipline to not add any capacity in areas which are not strategically
important to us. However, in this area, too, we have a roadmap to increase margins by
using the same equipment to make more premium and niche products within the sphere of
commoditised business. This is a dormant opportunity that we hope to capture over the next
couple of years.
• While we continue to do incremental de-bottlenecking, we don't expect to make
any large capex commitments over the next 12 months which will be in excess of our
internal accruals. With inflation at what we hope is the peak, our working capital
commitments too should come down this year. I therefore expect to see moderation in our
overall net debt levels over the short to medium term.
We have come a long way since we started our journey in 2015. Furthermore, the
heartening thing to note is that we continue to have high ROI improvement opportunities.
This means that as we execute on these low hanging fruits, our bottom line and ROE can
look vastly better. The basic foundations that make up our business are significantly
stronger. As managers, we have a tighter grip on the business and our capital allocation
strategy is better than when we started. As we make further progress on this journey, we
hope to be more in control of the profitability as opposed to wildly swinging with market
cycles.
I would finally like to end this letter on a note of thanks to all our shareholders,
who have continued to support us through this journey. Finally, I would also like to thank
all of our employees for continuing to believe in our vision and working tirelessly
towards it.
- Abhishek R Mandawewala
MD & CEO.