Spinning Sector Overview

SPINNING | WORKING CAPITAL MANAGEMENT • The largest component of working capital of the spinning sector is inventory with the sector's average inventory days standing at ~80. Spinning | Working Capital Cycle 100 . Inventory consists mostly of raw material (i.e. ginned cotton) and finished goods while work-in- process makes only a small contribution. 80 60 40 • The margins of the sector are largely dependent on cotton procurement terms. Timely and efficient cotton procurement at better prices results in better margins. 20 • . Many players within the organized segment are forward integrated resulting in more efficient working capital management and ease of procurement of raw material. The inventory days reach their peak in December on the back of procurement season. The sector then offloads inventory in third & fourth quarter of financial year. The sector's average trade receivable days are ~40 while the average trade payable days stand at ~12. The cycle for payables peaks during the second quarter of each fiscal year on the back of local cotton procurement season. The sector meets its working capital financing requirements through short term borrowings. 23 PACRA Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Inventory Days Trade Receivable Days Sep-19 Dec-19 Mar-20 Trade Payable Days Source: PACRA Database

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