Resumption Of Work Is Restoring Supply Chain, Supporting Deliverables: LMW

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LMW is focusing on restarting the business cycle which will eventually restart the working capital cycle. The company is experiencing low turnover on account of customers reviewing their capex investments. LMW is taking structural measures to overcome the situation – ensure that customers are serviced, costs are contained, the company is agile enough to adapt to the new economic environment.

LMW had temporarily suspended its operations during phase 1 & 2 of lock down period which was in force from 25th March, 2020 to 5th May, 2020. After ensuring that the Standard Operating Procedures given by Government of India (GOI) and Tamil Nadu government with regard to maintenance of health and hygiene at workplace, have been properly complied with, the company gradually started its operations from May 6, 2020.

“LMW has successfully and in compliance with the government regulation as prescribed, has reopened all the units. We have enabled working from home option, social distancing measures and all defensive actions as a part of the restarting of the units,” according to a company statement filed with the BSE.

The company further stated, “The lockdown and the current market scenario puts many customers and partners along the textile value chain under pressure. In the interests of customer confidence and long-term partnerships, LMW will continue to support its customers in all areas. LMW normally has a stable order book position and hence production plans and inventory levels are in tandem with the requirement. However, the black swan event has disrupted the business cycle. The lockdown has significantly impacted the distribution of goods, including raw materials and finished goods. With partial resumption of work, we have seen restoration of supply chain, which is able to support our operations and deliverables to customers.”

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In assessing the recoverability of the company’s assets, such as investment, trade receivable, inventories etc, the company said it has considered internal and external information and expects to recover the carrying amount of the assets.

“LMW does not have any bank borrowing. Our focus in on restarting the business cycle which will eventually restart the working capital cycle. Complete lockdown has resulted in non-operational days and had its effect on turnover, also after commencement of operations, the company is experiencing low turnover on account of customers reviewing their capex investments. The impact of the Covid-19 crisis on the business of LMW can still not be reliably estimated and strongly depends on the duration of the crisis and its impact on the global economy. The revival of textile, machine tool, foundry and Advanced Technology Centre is dependent on revival of economic activity in the country and across the globe.

“We are taking all structural measures necessary to overcome the situation. These measures ensure that our customers are serviced, costs are contained and provide us with the agility to adapt to the new economic/business environment. LMW will reassess and reset itself to deal with the new normal.”

LMW has keenly analysed the state of the industry, with some interesting outcomes.

Raw material price
Fibre price and demand is under pressure due to Covid-19 crisis. India’s cotton yarn exports, especially to China, have significantly declined in the past two months. This has led to surplus cotton yarn being diverted to the domestic market. As a result, cotton yarn prices have witnessed a decline of 3-5% during the past month. Indian cotton prices (Shankar-6 quality), eased from 62 cents to 60 cents a pound. In domestic terms, values fell from Rs 37,000 to Rs 35,700 a candy (355.6 kgs/candy).

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Also globally, there is warehoused supply of cotton, estimated to be 97.2 mllion bales. This will be the highest level of inventory since 2014-15, when stocks hit their record level of 106.7 million bales.

With reduced demand and falling oil prices, there has been an impact on polyester prices as well. Polyester prices have fallen by more than 20% due to reduced demand and has resulted in significant losses for the fibre players. The prices for standard viscose were 33% lower than in the prior-year quarter.

Demand
The nationwide shutdown has brought India’s textile and apparel industry to a standstill. The outbreak of coronavirus in China had disrupted the supply chain and Indian apparel manufacturers faced a shortage in supply of synthetic fabrics and accessories. But after coronavirus started to impact Europe and USA, production has started to slow down. With retail stores in these markets temporarily closing down, brands started putting their orders on hold or have cancelled them. The textile industry has been hit hard with brands holding payments and cancelling all the orders. With India under lockdown, the domestic market has also come under complete halt and is now facing an uncertain future. It is expected that this disruption is expected to reduce total market demand by around 15-20% resulting in large scale loss in production and jobs and apparel retail in India will reduce from 20% to 48% depending on the developing crisis. The black swan event has affected the Indian textile and apparel industry, in terms of both trade and domestic consumption

With the increasing spread of coronavirus in the US and EU, the two major markets for apparel globally, there has been a significant reduction in demand. A growing number of retailers across the globe have announced temporary closure of their brick and mortar stores in an effort to prevent the spread of coronavirus. A large number of buyers have cancelled their running orders and frozen future buying as well. However, with the emerging health crisis and a period of uncertainty ahead, Covid-19-induced economic slowdown could end up hitting the holiday sales, when many retailers make the bulk of their profits. With uncertainty on the extent of duration of this virus, there is expected to be a prolonged impact on global apparel demand.

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Both the US and European Union have also released estimates for consumer spending by category in March. In each location, clothing suffered more than any other set of goods (certain service categories, such as travel, fared worse). In the US, consumer spending on apparel was down 28% year-over-year. In European Union countries, consumer spending on apparel was down 42% year-over-year. In both cases, these were the steepest declines on record, and steeper decreases could be expected in data for April 2020. Part of the pullback can be attributed to the unavailability of supply, with brick and mortar stores shuttered. Part can also be attributed to demand, with consumers postponing purchases until their outlooks on employment and income improve.

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