Industry Structure and Developments:
Market and Emerging Trends: In FY 22-23, India witnessed major challenges due to
Ukraine war started in Feb 2022 at a time when they were gradually looking to rise above
the pandemic distress. GDP growth rate slowed down in the first two quarters of 22-23 due
to higher commodity prices (mainly Oil & Energy), rise in inflation trends globally,
recession fears, supply chain constraints, trade imbalances etc. This has led to the
breakdown of a number of key infrastructure projects in India. However, India has bounced
back well in the later part of 22-23 and has reinforced the countrys belief in its
economic resilience as it has withstood the internal and external challenges alike. Even
though,
India pace of growth is likely to slow down, it is still considered as a fastest
growing economy in the coming years.
Indian logistics industry: Accounts for 14.4 per cent of the GDP. The sector is growing
rapidly with an aim to achieve $380 billion by 2025. The surge in hyperlocal logistics
along with the e-commerce industry are the major fac tors driving the industrys growth.
Additionally, technological advancements and the government promoting local manufacturing
through the ‘Make in India campaign are also contributing to the industrys
progress. The recent launch of the National Logistics Policy which will help speed up the
industrys growth and ensure the seamless movement of cargo and people across
transportation modes. To sum up, the logistics sector is walking on the growth path and
seems to have a progressive future. The NLP initiative will bring a paradigm shift in
multimodal transport and position India as a global player in the digital and paperless
logistics system.
India Retread Tyre Market: India retread tyre market size is projected to grow at a
CAGR of 3.21% during the forecast period between 2023 and 2029. The commercial vehicle
sector is one of the major drivers of the India retread tyre market. The expanding
automobile industry is creating new opportunities in the market place. Also, consumers are
more likely to prefer sustainable solutions. Leading retread tyre manufacturers are
implementing advanced manufacturing processes and strategies to eliminate operational
issues and deliver high-quality retread tyres to end users. The expansion of the logistics
industry and rising freight demand have created an advantageous environment for the sale
of retreaded tyres. The demand for tyre retreading is increasing rapidly due to increased
wear and tear of tyres.
Sales channel: India retread tyre market is divided into State transport and
Independent Service Provider segments. The independent service provider segment is a
higher contributor to the India retread tyre market. Major vehicle fleet owners prefer to
retread tyres from independent service providers, cementing their dominance as the
preferred sales channel in the market. The strategies used by the major market leaders of
tyre Industry are new product launches, mergers & acquisitions, and alliances. To grow
their market share, these companies are also focusing on investing in innovations,
collaborations, and expansions.
Opportunities: Expansion of National Highway network, Collaboration between State
Transport/Fleets/Retreading Organizations, Product innovations, Regulatory standards,
Consolidation of Tread rubber manufacturers (Organized v/s Unorganized at 50% each) etc
bring more focus into this Industry. As in most parts of the world, tyre retreading in
India is done extensively for commercial vehicles such as trucks and busses. The primary
reason for retreading tyres is to save operational costs as applying a new tread can be
done at less than half the cost of a new tyre. With further growth of the economy, there
will be an increased numbers of vehicles in transport as well as passenger vehicles and
hence more tyres will be required. Hence, there is a very wide scope for retread tyres as
an original replacement. The Government is working towards expanding the National Highway
network to two-lakh kilometer by 2025. Apart from the National Highways, the Government
has also taken measures to address village-level road network through the Gram Sadak
Yojana. Indias vast geography with this improving networks and connectivity will further
improve the road transportation and is important for tyre and related industries to grow
further.
Threats: Supply chain constraints, Chinese products, and Regulatory compliances pose
threats. Further the prediction of low monsoon can affect the rural demand and any extreme
weather events can impact agriculture and other activities which can indirectly impact the
industry.
Growth Drivers: Rising demand for cost effective and economical tires, Increasing
Logistics market, Environmental friendly and availability of retreaded tires
Government support: The new Extended Producer Responsibility (EPR) for waste tyre
Policy, released on July 23 by Indias Ministry of Environment, Forests and Climate
Change, has given the countrys retreading industry a huge boost by recognizing retreading
companies as a necessary element of the waste tyre management system and by including
retreading as an integral part of the Policy. On production of retreading certificates,
the extended producer responsibility obligation will get deferred by one year for the
corresponding quantity of waste tyre.
Segment-wise or product-wise Performance of our Company in FY 22-23:
ETL manufactures quality tread rubber, rubber compounds, cushion/bonding gum and black
vulcanizing cement. Production of tread rubber in FY 22-23 was 2,638 tons v/s 3,518 tons
in FY 21-22 shows a reduction of 880 tons. Others include Compounds, Cushion/bonding gum
etc. lower by 268 tons in FY 22-23. Sales in FY 22-23 was 3313 tons v/s 4563 tons in FY
21-22 shows a reduction of 1250 tons. Tread rubber products constitute 83% and the rest
17% are others.
Business strategy and actions undertaken:
Our Company, ETL focused on the following areas in FY 22-23 which intends to have a
long standing effect on the Companies profitable performance in the coming years:
Product innovations: Worked on new product solutions (particularly radial tyre
retreading), product mix combinations to make long life/high comfort products. Regional
Transport Corporation (RTC) Sales: Brought down the business due to outstanding debts and
delayed receipts of funds. This has strengthened the balance sheet. Sales in FY 21-22 was
1164 tons v/s 226 tons in FY 22-23. Reduction of 938 tons. Procurement strategy: Natural
rubber prices were consistently on the rise. Evaluated different markets for products as a
substitute for the natural rubber. Import of synthetic rubber was one such strategy. Raw
material costs constitute almost 70% of the total sales value. Unprofitable
branches/depots: Closed down 2 branches and worked on Zones which has high potential of
growth. Credit limits reset: Due to high receivables in FY 21-22, we had implemented
revised credit limits with the Customers (Cash & carry, advance payments, bank
guarantee etc.). This has impacted sales but improved the Balance sheet Asset quality. The
cash generated from operations in FY 22-23 was Rs. 480 Lakhs compared to Rs. 139 Lakhs in
FY 21-22 which shows a significant improvement. This is mainly on account of reduction in
inventory levels and outstanding receivables- Rs. 2,749 Lakhs in FY 21-22 reduced to Rs.
2,032 Lakhs in FY 22-23. Also the bank liability levels have come down from Rs. 2,220
Lakhs in FY 21 -22 to Rs. 1,829 Lakhs in FY 22-23. Revamped Production/Marketing team:
Brought in professionals who has wider experience in the Industry and better networking
capabilities to work on targeted performance of the Company. Fleet management services:
Company is aggressively started working with fleets in starting complete tyre management
services, which will help the fleet and the Company to develop long term partnership and
insulate the fleet from fluctuating costs. Extended Producer Responsibility: Evaluated
various opportunities as part of this clause to grow business profitably.
ETL being the pioneer in manufacturing and marketing of tyre retreading materials. The
Company is confident of maintaining a strong position in the market due to the above steps
in the coming years. It has developed several distinct strengths such as robust brand
image, best-in-class service capability and wide portfolio of quality products. We are on
the path to build comprehensive and industry leading capabilities that would generate long
term opportunities in India and worldwide. With an increasing distribution presence and
high quality products and services, ETL is hopeful of enhancing its share of the various
markets it addresses. Our main objective is to become a one-stop shop for our customers
requirements and deliver substantial economic returns to their businesses.
Risks management:
The Companys Risk Management Committee, periodically reviews the risks in the
organization, identifies new risk areas, develops action plans and monitors and reports
the compliance and effectiveness of the policy and procedure to the Audit Committee and
Board. The Companys performance primarily depends on the performance of the tyre
replacement market. This market has several growth levers like growth of the economy,
development of infrastructure, commercial vehicle sales and other trends relating to the
transportation sector. The Companys Board of Directors perceives the following risks as
current high risks areas:
Financial Risk: In the course of our business activities, financial risks may arise
from changes in interest rates, exchange rates, raw material prices, or share and fund
prices and ETL is exposed to certain financial risks namely interest risk, currency risk
and liquidity risk. The financial risks are managed in accordance with the risk management
policy/practices. We use cash and carry, advance payments and bank guarantees to mitigate
credit risk on account of material supplied to customers and payments received. There is
an ongoing follow-up, which arrests any delay of payments from customers.
Fluctuation in Raw Material Price and Other Input Costs: Risks can arise due to
unexpected changes in commodity prices, which are following the global move can impact
margins. We purchase a variety of raw materials and products, which we use in our
production. Major risks could arise from a few raw materials, which we use such as Natural
Rubber, Synthetic Rubber and Carbon Black. The Company manages this by actively managing
the sourcing and private purchases. As we import many categories of products, we are also
exposed to foreign currency fluctuation, which could lead to a significant fluctuation in
these raw material costs. We have maintained raw material inventories to mitigate this
risk, which adversely impacted working capital and put pressure on interest costs. We
generally factor in normal variations of raw material prices and input costs when fixing
product prices with customer but any exceptional fluctuations in input costs combined with
market pricing patterns may have an adverse impact on profitability.
Changes in Governments Policies: Unanticipated changes in Government policies may
affect the companys financial position.
Operational Risk: Preventive maintenance is carried out periodically to achieve
increased machine availability. Adequate inventory of stocks at each stage of operation is
maintained to run production schedules uninterrupted.
Product Risk: Research and development efforts are undertaken to continuously develop
new products categories and expand the portfolio, along with improved service and value to
our customers.
Internal Control System and their Adequacy
ETL has implemented suitable controls to ensure the achievement of its operational,
compliance and reporting objectives. The Company has adequate policies and procedures in
place for its current size as well as the future growing needs. The Company has a
well-defined and structured internal control mechanism, commensurate with the size and
nature of the business and complexity of its operations. Internal audit is conducted
periodically to provide comprehensive risk-based combined assurance plan.
These policies and procedures play a pivotal role in the deployment of the internal
controls. They are regularly reviewed to ensure both relevance and comprehensiveness, and
compliance is ingrained into the management review process. ETL follows stringent
procedures to ensure accuracy in financial information recording, asset safeguarding from
unauthorized use, and compliance with statutes and laws. All employees adhere to high
standards of ethical conduct inspired by formally stated and regularly communicated
policies.
The internal control is supplemented by an extensive audit by internal and external
audit teams and periodic review by the top management, Audit Committee and Board of
Directors. The Audit Committee reviews the adequacy and effectiveness of the Companys
internal control environment and monitors the implementation of audit recommendations.
During the year, the Company has taken steps to review and document the adequacy and
operating effectiveness of internal controls.
Nonetheless, your Company recognizes that any internal control framework, no matter how
well designed, has inherent limitations and accordingly, regular audits and review
processes ensure that such systems are reinforced on an ongoing basis. The statutory
auditors, as part of their audit process, carry out a systems and process audit to ensure
that the ERP and other IT systems used for transaction processing have adequate internal
controls embedded to ensure preventive and detective controls.
During the period, external agencies were appointed as internal auditors. The internal
audit reports were reviewed quarterly by Audit Committee as well as by the Board. Internal
audit supports in assessment of Internal Control Systems and identification of other
important issues as a powerful tool for risk control and governance. The system has
designed to adequately ensure the reliability of financial and other records for preparing
financial information and other data and for maintaining accountability of our assets.
Further, the Board reviews the effectiveness of the Companys internal control system.
Further Secretarial Audit is applicable for the company and the auditors evaluates legal
and compliance issues.
The Directors and Management confirm that the Internal Financial Controls (IFC) are
adequate with respect to the operations of the Company, evaluations and reinforcement
actions were taken for better controls. The external auditors have evaluated the system of
internal controls in the Company and have reported that the same is adequate and
commensurate with the size of the Company and the nature of its business. A report of
Auditors pursuant to Section 143(3)(i) of the Companies Act, 2013 certifying the adequacy
of Internal Financial Controls is annexed with the Auditors report.
Financial & Operational Performance: As mentioned in note earlier, in FY 22-23 the
Company has taken all steps to clean up the balance sheet and improve operational
performance more profitably. The impact of these actions will be fully seen in the coming
financial years as well.
Key highlights of financial performance are as follows:
Total Revenue reported 5,992 lakhs compared to the previous years figure of 7,261
lakhs. However, 2022-
23 EBIDTA was (-) 280 lakhs when compared to the previous years figure of (-) 486
lakhs due to better implementation of business performance measures. The company expects
to register profitable growth in coming years.
Profit before Tax (PBT) – Loss stood at 723 Lakhs compared to 968 Lakhs in
previous.
Earnings per share – Loss per share has come down to 13.82 in FY 202223 compared
with 18.50 in -2021-22 The cash generated from operations in FY 22-23 was Rs. 480 Lakhs
compared to Rs. 139 Lakhs in FY 21-22 which shows a significant improvement. Reduction in
inventory levels and outstanding receivables- Rs. 2,749 Lakhs in FY 21-22 reduced to Rs.
2,032 Lakhs in FY 22-23. Bank liabilities levels have come down from Rs. 2,220 Lakhs in FY
21-22 to Rs. 1,829 Lakhs in FY 22-23.
Key Financial Ratios:
Key financial rations, are as given in Note No 2.40 of the Financial Statement.
Impact of COVID-19:
The spread of COVID-19 has affected the normal operations of the Company during the
period. Covid impact on the operations of the company are disclosed in Note No 2.37 of the
Financial Statement.
Human Resource Development and Industrial Relations:
ETL recognizes that a committed, empowered and thinking team is the most important
asset to maintain the companys progress and to retain its leadership position in the
industry. Development and retention of talent, providing employees with cross functional
experiences, extending enriched learning, an array of awards and recognition programme,
and supporting personal and professional aspirations are some leading HR practices being
followed at the Company. Hiring of apt talent and ensuring role optimization to improve
efficiencies has been a key focus area. The Company recognizes the need for change
management and talent management throughout the business and their criticality to its
future growth and success as any other element of its commercial strategy.
We pursue management practices designed to enrich the quality of life of our employees,
developing their potential and maximizing their productivity. Cordial and harmonious
relationship is maintained between the management and employees at every location. We
continue to organize various training programs with experts engaged to interact with our
employees at various levels. A significant emphasis is placed on training personnel,
increasing their skill levels, and fostering ongoing employee engagement and recognition
with a holistic development perspective. In addition to casual workers, ETL had 157
permanent employees as on 31st March 2023.
Cautionary Statement
Statements in this Annual Report, particularly those that relate to Management
Discussion and Analysis, describing the
Companys objectives, projections, estimates and expectations, may constitute
‘forward-looking statements within the meaning of applicable laws and regulations.
Although the expectations are based on reasonable assumptions, the actual results might
differ.
Important factors that could influence the Companys operations include economic
developments within the country, global and domestic demand and supply conditions in the
industry, input prices, changes in Government regulations, tax laws and other factors such
as litigation and industrial relations. The Company assumes no responsibility in respect
of the forward-looking statements, which may undergo changes in future on the basis of
subsequent developments, information or events. For and on behalf of the Board of
Directors
|
Sd/- |
| Place: Ernakulam |
Navas M Meeran |
| Date: 04 September 2023 |
Chairman |
|
DIN: 00128692 |
+91-9892691696
