grp ltd Management discussions

for the Financial Year 2022-23

Company overview

GRP Limited, a sustainable materials producer focussed on helping brand owners embed circular materials in their products. Your company started as a tyre recycler and today offers materials from end of life (EOL) waste of tyres (as raw material in production of tyres, conveyor belts, auto products), textile (as raw material in production of engineering plastic compounds), consumer plastic waste (as raw materials for use in paint pails, battery containers, lubricant pails, auto products). In addition, your company also uses EOL tyre & plastic waste for manufacture of composite boards (for use in transportation segment) and custom-die forms (for use in hardware, agricultural equipment and transportation sectors). During the year under review, the focus on sustainable materials has become increasingly mainstream. From governments to global think tanks to corporate action, the themes for major dialogues world over focussed on efficient collection of end of life (EOL) waste, investment and technology adoption for greater use of recycled materials. In this backdrop around the world, your company has reported an improvement in key performance metrics.

Key Parameters	2022-23	2021-22
Net Sales ( Lakhs)	44,475	38,314
Profit after Tax ( Lakhs)	1,023	578
Profit after Tax to Turnover (%)	2.30	1.51
Sales to Fixed Assets Employed (ratio)	1.80 times	1.41 times
Current Ratio	1.62	1.49
Return on Capital Employed (%)	7.83	5.31
Market Value per share () (As on 31st March) (BSE)	2576	1393
Sales value- growth/(decline) in % over previous year	16%	38%
Sales volume growth/(decline) in % over previous year	5%	22%
Domestic sales value growth/(decline) in % over previous year	24%	37%
Export Sales ( lakhs)	28,441	25,345
Export sales Value- growth/(decline) in % over previous year	12%	38%

Business overview:

At GRP, our businesses contribute towards a greener future. Our commitment to the principles of sustainability and environmental responsibility remains embedded in each of our businesses. At the same time, our businesses are centred around serving the mobility sector, be it the Reclaim Rubber (RR) business which has a 70% dependence on the automotive sector (tyre manufacturers, automotive component manufacturers), Engineering Plastics (EP) which has a 40% dependence on automotive OE supply chain, Rubber Composite (RC) which has a 80% dependence on the transportation sector (ground transportation trailers and shipping), Custom Die-forms (CDF) which has a 40% dependence on the agricultural and earth moving equipment.

Reclaim Rubber (RR): The RR business during the year under review has consolidated capacity across 3 manufacturing locations and currently has the capacity to process 72,000 tons per year. The demand for materials based on recycled EOL tyres continues to grow on account of new technology developments (which are allowing for increased use of such materials), government regulations and incentives & consciousness of brand owners. Focus in the year under review was on a) the strengthening leadership position with increasing share of wallet at key customers, b) gross margin management despite the high ocean freight rates (for most part of the year) emanating from the geopolitical conflict in Europe, c) increase in share of renewable energy at its plants, d) advancement in technology for manufacturing of high-performance RR, among others.

Engineered Plastics (EP):

While this business was developed out of the tyre chord from EOL tyres, your company has been able to expand its portfolio to also include EP compounds from waste textile, fish net waste and post-industrial waste (PIR). The company undertook expansion of recycling capacity from 2600 tons to 3600 tons and compounding capacity from 3,400 tons to 6,200 tons of this business during the year under review on account of increased customer approvals and acceptance of the product portfolio. The consolidation in the industry by the multinational material manufacturers has left a void in the general purpose grades of engineering plastic products, which your company hopes to fill. During the year under review, the key focus was on a) the adoption of your companys products in the Automotive sector, b) introduction of line of business of manufacturing recycled materials from EOL Polyolefin packaging waste, c) collection of EOL plastic waste through on ground innovative partnership models and d) positioning itself as a reliable supplier in light of the increased consolidation in the Engineering Plastic business.

Polymer Composite: This business is exclusive to a particular customer in the United States and the high freight costs impacted this business negatively. Your companys customer has undergone a tough period and is in the process of restructuring. We, at GRP continued to remain committed to the business and believe in the long-term potential of the technology and continue development of alternate markets, applications across other sectors of the economy.

Repurposed Polyolefins: This business has its genesis in the Government of India (GOI) regulation on extended producer responsibility (EPR) in the Plastics sector. Under the regulation slated to be enforced from April 1, 2024, brand owners are liable to ensure incorporation of recycled polymers in their packaging medium. Your company has been at the forefront of development of materials from rigid EOL packaging waste based on Polyolefin materials (mainly Polypropylene, Polyethylene). Your company in the year under review has gained approvals from Mobil (one of the largest producers of lubricants) for use of its materials in their packaging. This was a big boost for our efforts and provides the impetus for other brand owners to work with your company in establishing use of its products. The capacity for the business stands at 6,000 tons annually.

As per the Indian Accounting Standards (Ind AS) 108 on operating verticals, "Reclaim Rubber" has been identified as reportable verticals and smaller business verticals not separately reportable (Polymer composites, Engineered Plastics) have been grouped under the heading "Others".

Verticals wise revenue:

- Revenue of 40,609 lakhs was generated from Reclaim Rubber vertical and

- Revenue of 4,468 lakhs was generated from Other verticals.

Capital Expenditure:

During the year under review, the company has invested in capital expenditure towards debottlenecking its RR capacity for improved efficiency spending a total of 16.02 crore, almost doubled compounding capacity in the EP business from 3,400 to 6,200 tons/year, has invested 3.6 crore in renewable energy (3.75 MW by way of wind energy) and 1.91 crore in Solar power plant in Solapur to augment its energy needs in Maharashtra, in the process ensuring a greener footprint and lower operating costs. Investments in reduction in manpower is ongoing and coverage to multiple lines was achieved in the year under review. Investments to the tune of 3 crore were also made in a building to house equipment for its WOS to produce recycled Polyolefins.

Joint Venture and Subsidiaries: Marangoni GRP Pvt. Ltd. (MGPL):

During the year under review, your company has transferred its entire shareholding in this joint venture company to the group company of its former partner, Marangoni SpA, Italy.

Grip Polymers Limited (GPL) :

Your company has sold its entire shareholding in this wholly owned subsidiary company in the year under review in line with its policy of divesting its non-strategic investments.

GRP Circular Solutions Limited

With the developmentofproductsbasedonrecycledPolyolefin,your company has set-up a wholly owned subsidiary for processing such plastic waste. Given the independent nature of the business, an independent supply chain and customer segments, a separate company with an independent team will focus on opportunities in this sector. The implementation of extended producer responsibility (EPR) based credits introduced in the Plastic packaging sector provides the relevant impetus for the future of the business.

Industry Structure and Development:

Economic growth in different end markets of your company have been mixed resulting in mixed year of performance for your company. The North American economy grew at a tepid 1.6% compared to 2.4% in the previous year, Europe on the other hand on account of the geopolitical tensions and an out-of-control energy market grew by a mere 0.6% compared to the previous year of 2.3%. The APAC region (another one of the large markets for your company) maintained a growth of 4.4% vs 4% of the previous year while closer home in India, the economy grew at 5.9% vs the previous years growth of 6.8%. In this backdrop, given below is a snapshot of each of the BUs your company operates in.

Reclaim Rubber (RR):

The core business of your company continues to maintain its leadership position in the industry. While advances in tyre technology poises challenges for RR use, the intent of brand owners coupled with advances in technology for manufacturing of RR continues to provide a positive momentum to this business. The domestic tyre industry (measured by rubber consumption) grew at 4% over the previous year. Your company has been successful in growing its market share amongst the leading tyre companies and continues to develop alternate products for future use. Your companys share of exports from India continues to remain around 35% and while the share of your companys sales in India has dipped marginally to 16%, the share amongst the tyre companies remains at close to 30%. While the overall rubber consumption in India has grown by 4%, your companys sales in India for CY 2022 from CY 2021 has grown by 7%. Global consumption of Rubber has witnessed a reduction by 0.8% vis-a-vis your companys export volume change of 7% from CY 2021 to CY 2022. In the international markets, your company continues to be recognized as the industry leader and while the international demand for RR remains stable, brand owners continue to engage with your company to switch to cleaner technologies to produce high performance RR. We have taken major strides in alternate technology development and remain confident of being able to introduce and commercialize the improved technology to produce high performance RR during FY 2024.

In July 2022, the government of India (GOI) has introduced the extended producer responsibility (EPR) regulation which mandates tyre producers to offset their production with purchase of EPR credits from recyclers, wholl be entitled to receive credits for the production of specified materials from EOL tyre waste. This regulation (likely to be implemented during the first half of FY 2024) will provide recyclers an additional source of income, which is intended for use in new technology development, offset costs associated with supply chain for sourcing EOL tyres and organize the supply chain to upgrade EOL collectors. Your company shall be a major beneficiary revenue to help create an inclusive supply chain and develop higher performance materials for the future.

While your company has addressed challenges of the past years through internal restructuring, there also remain external challenges by way of increasing inputs costs (wage inflation and energy in particular). The RR business at GRP has over the years developed its capabilities on the back of export dependence and a global outreach. In the year under review, the ocean freights rates continued to remain high for most part of the year but have softened since December 2022 and are likely to offer improved margins as a result to your company. This volatility of freight costs has also highlighted potential risks for your companys supply capability to distant continents. The need to differentiate technology and offer value add to the customers shall dictate priority in the coming years. The company continues on similar fronts to engage with its key customers in development programs to enhance opportunities in increasing use of RR in formulations.

Other Business:

During the year under review, revenue from non-RR business increased by 71% YoY. Revenue contribution from non-RR businesses increased to 10% (from 7%) in FY 2023.

The EP business has had impressive success with new customer approvals that cover automotive, compounding and electrical end applications. While the RR business depends on the tyre industry, which in turn depends on a buoyant replacement market for growth, the fortunes of the EP business are dependant closely on the OE sales growth. The OE automotive industry witnessed a healthy double-digit growth and that helped the EP business register a strong performance. In addition, brand owners such as Kia, Hyundai, apart from other global brands have announced targeted use of 30% recycled plastics by 2025, providing much needed impetus to our plans. The global engineering plastic compounding industry continues to consolidate (the largest transaction till date being the merger of DSM & Lanxess) while India continues to remain attractive for several large material manufacturers to invest in (Lyondell Basel, CPH Chemicals, Radici, Domo all setting up new capacities in India). Coupled with the auto and compounding industry performance, the government spending on housing projects across the country led to a growth in the electrical segment for your company. The business grew by 57% although the domestic market growth was in the range of 7-8%. The pipeline of customers evaluating your companys products now encompasses global customers across Asia, Europe & Middle East. The key strength your company has in this industry is the backward integration to the source of EOL waste. This coupled with the development focus has and will continue to bring growth for this vertical. The key focus for your company will be in extracting higher volume from the EOL tyres.

While the fire at your companys plant in Solapur slowed the growth rate, we have made arrangements for toll compounding of noncritical grades and continue to serve key customers. The new facility for EP will be operational within the first half of FY 2024 and the envisioned facility shall incorporate improved infrastructure and processes.

The Polymer Composite business has been non-operational for close to 6 months of the year under review, while our customer reorganizes ownership. A revised agreement is in the works that will allow restoration of past volume of business and opportunities for your company to freely market these products to other geographies around the world. Developments for incorporating alternate low-cost materials have yielded success and we anticipate better margins for this business upon restart.

The non-RR businesses of the company have had their share of struggles akin to start-ups but have been nurtured with an experienced team that is hungry for success. Your company has assimilated a team which has experiences from a combination of Polymer producers, Plastic recycling, Plastic compounding and Waste collection industries. This team has already built a network of supply chain partners for collection of EOL plastic waste, developed a wide product portfolio across each of the non-RR businesses and can boast of a high pedigree list of customers in the respective segments.

Changes in key financial ratios :

Sr. No.	Particulars	Ratio as on 31st March, 2023	Ratio as on 31st March, 2022
(i)	Debtors Turnover	5.67	5.14
(ii)	Inventory Turnover	13.86	14.19
(iii)	Interest Coverage Ratio	4.70	5.39
(iv)	Current Ratio	1.62	1.49
(v)	Debt Equity Ratio	0.57	0.71
(vi)	Operating Profit Margin (%)	4.05%	3.12%
(vii)	Net Profit Margin (%)	2.30%	1.51%
(viii)	Return on Net worth (%)	6.92%	4.13%

Opportunities, Risks and Concerns:

An integrated recycling company has the opportunity to leverage supply chain capability, opportunity for technology development using common infrastructure, opportunity to leverage customer approvals as a confidence booster as it expands across value chains. With a focus on building a sustainability footprint across aligned sectors, your company is well positioned to not only strengthen its presence in the tyre recycling sector but has developed goodwill in the plastic recycling space too. The foundation for success for such integrated players has been laid GOIs introduction of Extended Producer Responsibility (EPR) for Tyres and Plastics, apart from other 9 sectors of the economy. The regulation has prompted brand owners and material manufacturers to invest along with material recovery and recycling companies for improved value addition. Your company is well poised for investment in other forms of tyre recycling to leverage the GOI policy and remains in pole position in the EOL tyre ecosystem. With a large export customer base, your company has access to low cost EOL materials from around the globe and that will help future efforts at profitablegrowth. Your company has been approached by several global waste management companies for possible cooperation, joint working and we continue to evaluate such opportunities to create a global manufacturing footprint to augment the global market presence. The stated public goals of tyre companies and brand owners of plastic packaging material offer adequate opportunities for growth in the sector and provide us the confidence to continue investments. In the plastic recycling sector, developments of of material manufacturers to introduce upgraded virgin polymers is paving the way for introduction of quality recycled materials and providing the necessary impetus to your companys development agenda.

While in the past, the largest market for your companys products were international, the growth in India coupled with domestic focus of the plastic recycling business shall mean insulation from the volatile ocean freight costs in the future. Increasing indirect trade barriers (similar to the REACH regulation in EU) are being introduced in several geographies where your company is supplying RR and is likely to add to the cost of doing exports from India. On the other hand, restrictions for import of EOL waste could possibly lead to increased prices of key raw materials across all BUs of your company. While your company continues to invest in process upgradation for reduced manpower costs, availability of labour for low skill jobs in manufacturing jobs is reducing and the government (Gujarat) has increased minimum wages by 25% through a recent notification, putting pressure on your company to automate quicker and across more parts of its operations.

Outlook:

With focus on sustainability at its peak, demand for recycled materials remains robust across each of your companys BUs. So, while the fear of recession looms, your company is cautiously optimistic about its performance. We continue to be confident market share including prospects of increasing share of wallet compared to the virgin polymer & elastomer consumption, driven by increased substitution and new product introductions. The Tyre industry experts in India are expecting an uptick in the market for next 3 years on back of available new capacities, anticipated economic and infrastructure growth and internationally rubber consumption is expected to notably recover driven by expected growth in auto sector and rebound in China.

As we recover from the effects of the fire at the plant in Solapur, the recovery in the non-RR businesses will remain slow for the first half of the year, although we expect a sharp pick-up in demand during the rest of the year. The revenue share from the non-reclaim rubber business as a result is expected to grow compared to the previous year. The engineering plastic industry in India is expected to grow in line with the GDP growth in the country.

Internal Control Framework:

Your Company conducts its business with integrity and high standards of ethical behaviour, and in compliance with the laws and regulations that govern its business. Your Company has a well-established framework of internal controls in operation, supported by standard operating procedures, policies and guidelines, including suitable monitoring procedures and self-assessment exercises. There are Internal Audit and Compliance functions in place which are responsible for independently evaluating the adequacy of all internal controls and ensuring that operating and business units adhere to internal processes and procedures as well as to regulatory and legal requirements. The audit function also proactively recommends improvements in operational processes.

In addition to external audit, the financial and operational controls of your Company at various locations are reviewed by the Internal Auditors, to report significant findings to the Audit Committee of the Board. and effectiveness of the implementation of audit recommendations including those relating to strengthening the Companys risk management policies and systems. Compliance with laws and regulations is also monitored through a matrix of a well laid down framework which requires individual functions to confirm and report statutory compliances on all laws and regulations concerning their respective functions and which gets integrated with the overall compliance reporting on all laws and regulations for the purposes of review and monitoring by the Audit Committee.

People and Practices:

The Company recognizes the importance and contribution of its human resources for its growth and development and values their talent, integrity and dedication. With the focus to develop leadership talent from within, the Company launched the GRP Future

Leaders Program through which selected managers were assessed and individual development plans have been rolled out. Employee motivation is key to organization success. On these lines, the Company conducts its Recognition and Rewards program, where exceptional contribution of employees belonging to all levels are being recognized in public and rewarded. To stay in line with the current market practices and promote opportunities of job enrichment, practices like Traineeship programs, Internal Job Posting, Flexitime, Hybrid work models etc. were continued. Understanding the need of a safe and secure workplace, the Company has invested in renovating the workplaces including all manufacturing units. Employee Wellbeing, being a key focus area, the Company continues to have awareness programs on mental health, ergonomics, health & nutrition and other related topics. The Company continues to foster a high-performance culture by recognizing good performers and providing them with career enhancing opportunities. Several HR initiatives have been taken for the strategic alignment of HR function with the business objectives. These initiatives encompass employee engagement, learning and development. The Company has been successful in attracting and retaining key professionals and intends to continue to seek fresh talent to further enhance and grow its business. As a result of all the above, the company continued to being certified A Great Place to Work. As the Company grows its other business units, talent acquisition and development will remain a continued focus of the future.

GRP Board continues to challenge the management and push for higher targets. The Boards well-rounded experience comprises individuals with experience in leading tyre industry, chemical industry, private equity, branding and marketing fields. The Board continues to provide long term direction to the Company and engages actively towards initiatives inputs on the Companys long-term vision.

Manufacturing operations:

Your company continues to maintain the necessary standards of manufacturing practices as demanded by its customers. Your company maintains the IATF certification for all its manufacturing locations and continues to invest in upgrading its plant processes towards increased automation and towards building an Industry 4.0 architecture.

Your company has been regularly audited under global ESG standards and secured a Bronze rating under the Eco Vadis ratings platform that assesses corporate social responsibility and sustainable practices. Your companys operations are also audited under the Carbon Disclosure Project (CDP) that runs the global disclosure system for companies to manage their environment impact and GRP continues to improve on its previous scores. The Company has adopted the principles of ESG and has taken targets to monitor and improve its performance of ESG parameters. This forms part of the Companys performance review process, thereby ensuring its adoption and implementation across all levels. Company has also launched the ESG profile of the organisation on website through ESG World.

Environment, Health and Safety (EHS):

Your Company targets zero injuries and incidents via an active EHS program deployed across all its plant locations and Head Office. As a part of this program various systems like air pollution control system, fume extraction system and eco ventilators are in place at all its manufacturing sites. Required safety systems are in place at all sites to maintain high standard of safety and health of employees as well as plant machinery, building and material. Safety Council, comprising of cross-functional plant teams, as well as third party EHS audits have been instituted to identify, assess and mitigate the risks in the EHS area. Ongoing automation drive is also helping significantly improve our manufacturing process and workforce job across its plants.

In addition to above, your company also initiated internal cross plant Safety auditing mechanism for cross-plant knowledge sharing and horizontal replication of best practices. To minimise the energy consumption and encourage energy efficient operations, Energy audit was conducted at all the locations with the help of third-party industry experts. Company also initiated Electrical and fire safety audits at all its locations through third-party industry experts.

Risk Management:

Enterprise Risk Management (ERM) process is embedded in the organizations working methodologies and decision-making process and is aligned to the Companys Strategic Planning Process. The process involves identification, evaluation, mitigation and review of risks and opportunities both at business and enterprise level.

ERM process is owned by the internal committee consisting of functional heads and is a comprehensive process that ensures coverage of majorstrategic,marketing,finance,people related, environmental, economic and operational risks that could possibly derail achievement of the companys objectives and goals.

Risk owners, identifiedfor each risk, prepare detailed mitigation plans which are formulated based on projects undertaken and in line with the companys goals, both short and long term.

ERM framework promotes a risk awareness culture with a monthly risk review mechanism in place by individual and cross-functional teams with quarterly reporting of the enterprise risks and mitigation plans to the Audit Committee of the Board.

Sustainability practices:

Your company has been an active advocate of adopting the Sustainable Development Goals (SDG) under the aegis of the United Nations Development Plan (UNDP) goals as part of its sustainable practices. As part of GRPs commitment to circularity, it has adopted 6 specificSDGs to incorporate in the way we do business. Each SDG goal adopted and listed below has a 1, 3, 5-year measurable objective.

Under SDG 3 aimed at Improved Health and Wellbeing, your company continues to implement targeted initiatives to support not only the communities in which we operate but also prioritize the wellbeing of our employees. Your company recognizes the importance of addressing mental health, which is why we organize Mental Health Awareness sessions to provide support. Additionally, to ensure employees comfort and safety we implement ergonomic practices at the workplace. Through Healthy Diet and Nutrition programs, we encourage our staff to make informed choices for a balanced lifestyle. Furthermore, we actively contribute to the community by organizing blood donation camps and participating in events like the TATA Marathon, encouraging physical fitness and social causes. During the year under review, we had Zumba Dance and Yoga sessions to promote holistic wellness. We value work-life balance and offer Nap Time at our Head Office to promote rejuvenation and productivity.

Under SDG 4 aimed at Education, your company remains dedicated to strengthening educational institutions and promoting inclusive learning opportunities. As part of our commitment, we provided education kits to Blind school for girls, enabling visually impaired students to access educational resources and enhance their learning experience. Additionally, we contributed to the development of children in the Ankleshwar and Solapur communities by distributing play kits that encourage creativity, cognitive skills and promote social interaction among the children. By actively supporting educational initiatives, we strive to empower individuals and foster brighter future for all.

Under SDG 5 aimed at Gender Equality, your company has increased participation of women employees across the hierarchy of the company through being a signatory of the Women Empowerment Program (WEP) of the United Nations, we endeavour to achieving 30% participation of women across variety of job roles by 2025. To celebrate our people, we organize Womens Day and Mens Day celebrations across the company. In support of gender equality initiatives, we participated in the OXFAM virtual walk, advocating for equal rights and opportunities for women. We also actively contributed sports accessories to a charitable organization in Solapur. Additionally, we sponsored higher studies for medical admission, for deserving women, enabling them to pursue their dreams. Furthermore, we extended our support to education by providing education kits to ZP schools in Chincholi, ensuring that girls have access to quality educational resources. Through these initiatives, we are committed to creating a more gender-equal and inclusive work environment while empowering women and promoting their advancement in our society.

Under SDG 6 aimed at Clean Water and Sanitation, the company has upgraded its manufacturing processes at 4 of its 5 manufacturing plants to eliminate discharge of wastewater from the process. Recycling plants to reuse water used in the manufacturing process have helped to reduce net new consumption of water in the process. Your company has actively contributed to building of drinking water stations and upgraded toilets at all locations to improve hygiene standards and reduce the spread of water borne diseases. Under SDG 7 aimed at Clean Energy, your company has installed Solar panels at its facility in Solapur and invested in 3 windmills to augment its power needs through sustainable sources. Sustained capex in this area is being committed to reach our target of 50% green energy by 2025.

Under SDG 12 aimed at Responsible Production and Consumption, your companys businesses are organized around the principles of 3Rs, and it is playing an important role in encouraging responsible production and consumption. Through the development of the Plastic compounding business, your company has ensured that waste materials from one business can successfully be converted to usable material for another opportunity. Similar application focus is being deployed to replace wood, other natural resource-based materials in the organization and at customer sites. Furthermore, we have taken steps to minimize our carbon footprint by replacing diesel forklifts with electric forklifts. Embracing the concept of Extended Producer Responsibility (EPR), we are now recycling paint pails and other rigid plastic waste, ensuring they are effectively managed and recycled to minimize environmental impact.

Cautionary Statement:

Statements in the Management Discussion and Analysis report describing the companys objectives, projections, estimates and expectation may be forward looking within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied. The company assumes no responsibility to publicly amend, modify or reverse any forward-looking statements, based on any subsequent developments, information or events.

While we have come a long way since the return from the pandemic, the focus of the organization will remain on building scale in the non-reclaim rubber business in the days to come apart from focusing on cleaner upgraded process for reclaim rubber manufacturing. As a sustainable materials company, we shall endeavour to create Impact Positive in all the sectors we operate in.

	For and on behalf of the Board of Directors
Place : Mumbai	Rajendra Gandhi	Harsh Gandhi
Date : 27th May, 2023	Managing Director	Joint Managing Director