Sri Lakshmi Saraswathi is in the business of manufacturing yarn used for making woven and knitted fabrics. The company has reported reasonable operating profitability (for a textile business) over the last five years including a spurt in recent performance with operating profits of 14cr on revenues of about 100cr. It generated this performance, however, with slightly uncomfortable debt levels (though manageable if the recent performance continues) in relation to accounting net worth. The business is exposed to myriad problems of rising cotton prices, heavy government regulations and frequent arbitrary intrusion through implementation of the ‘quota’ system for exports of yarn as well as cotton (raw material) impacting their prices (usually adversely), persistent oversupply of yarn capacity in Tamil Nadu as compared to fabric capacity (resulting in greater bargaining power for customers), power shortages, wage increases, foreign exchange rate risks on exports, etc. M
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