Eastern Treads Ltd Management Discussions

Industry Structure and Developments

The tread manufacturing industry in India, which focuses on producing tyre treads and associated components, plays a crucial role in the automotive sector. It supports both commercial and passenger vehicle segments by extending the lifespan of tyres, reducing costs, and contributing to environmental sustainability. Key segments of the Treads industry includes Commercial Vehicles (CV), Passenger Vehicles (PV) and Two-wheeler segment (TW). The CV segment remains dominant due to high demand for retreaded tyres in freight and logistics whereas the PV segment is emerging as a result of increased vehicle ownership and a focus on cost-saving measures by consumers. The TW segment includes both scooters and motorcycles, with a focus on cost-effective solutions for a rapidly growing segment.

The key drivers to the market include rising vehicle numbers, cost-saving preferences, and regulatory support for sustainable practices. The industry is influenced by government policies on waste management and recycling, as well as automotive safety standards. Innovations in retreading technology, including improved materials and processes, enhance the performance and durability of retreaded tyres.

Domestic tyre demand is likely to grow at 6-8% in FY2024 driven by growth in replacement demand and select OE segments. Domestic demand growth may moderate to 4-6% in FY2025 as high base impacts OE demand growth. Consumer segments are expected to record healthy growth while commercial segments growth would be impacted by high base and impact of the General Elections on Government capex

Industry revenues witnessed muted growth of 2.6% on a YoY basis in 9 months FY2024, on account of contraction in exports and impact of high base on domestic volume growth. Moreover, realisations were flattish as input costs eased in the past four quarters

Our Countrys freight transportation sector is rapidly expanding to satisfy the rising demand for goods among a growing consumer base. Currently, road transport, mainly through trucks, dominates the movement of goods, handling 70% of domestic freight. Heavy and medium trucks are central to this system. As road freight continues to grow, the truck fleet is expected to increase to approximately17 million by 2050. This growth will also drive up demand for tyres in both the Original Equipment Manufacturer (OEM) and replacement markets.

The operating margins of the industry has expanded to 16.8% in 9 months during the FY 2024 from 10.9% in FY 2025.On the back of softened input cost margins are expected to expand by 400-600 bps in FY2024 but moderate in FY2025 with increasing raw material (natural rubber and crude) prices and limited flexibility in passing on the same to customers owing to already elevated prices.

Indias tyre industry is expected to post a revenue growth of 7-8 per cent in fiscal year 2026 (FY26), primarily driven by a strong replacement demand. The replacement market, which accounts for nearly half of tyre sales, is projected to grow 6-7% by this year, driven by a large vehicle base, steady freight movement, and signs of rural recovery. In comparison, sales to Original Equipment Manufacturers (OEMs) are expected to rise by 3-4%, while exports may grow 4-5% supported by demand from Europe, Africa and Latin America. Although exports showed improvement in the second half of the year, overall profitability was constrained by continued cost pressures. Capital expenditure was also scaled back, with companies shifting focus toward operational efficiency and the development of premium product segments. This strategic adjustment indicates a more cautious approach in response to a more challenging business environment.

Adoption of newer technologies such as improved vulcanization processes and high-performance tread compounds is on the rise. These advancements are aimed at enhancing the durability and performance of retreaded tyres. Increased use of automation in production lines and digital tools for quality control and inventory management are improving operational efficiencies. There is a growing emphasis on environmental sustainability, with companies adopting more eco-friendly materials and processes. The government is also encouraging recycling and waste management practices.

Currently, 60% of truck and bus tyres are radial, and this trend is steadily increasing. Radial tyres are stronger and can support multiple retreads. Additionally, there is a growing demand in the retreading sector from bus owners seeking high-quality retreads.

Natural rubber makes up over 30% of the raw material mix, with carbon black at 25%, synthetic rubber at 20%, nylon tyre cord fabric at 10%, and other rubber chemicals making up the rest. Since many of these inputs are derived from crude oil, their prices generally follow oil price trends, though with some delay, in addition to being influenced by their own supply and demand conditions.

The tread manufacturing industry in India is poised for growth in FY 25-26, driven by technological advancements, increased market demand, and supportive regulatory frameworks. Companies are adapting to the evolving market landscape through innovation, strategic expansion, and a focus on sustainability. Despite facing challenges such as raw material costs and regulatory compliance, the industry is well-positioned to capitalize on emerging opportunities and continue its growth trajectory.

Opportunities and Threats

Opportunities

? Rising Demand for Automobiles: The automotive sector in India is gearing up for substantial growth fueled by increasing demand and favorable market conditions. As the third largest automobile market and fourth largest in production, globally Indias automotive sector contributes substantially to the countrys economy, around 7% of GDP. It also plays vital role in boosting exports by contributing 8% of total exports leading to increase in new tyres & retreaded tyres.

? Cost-Effectiveness: Retreaded tyres offer a cost-effective alternative to new tyres, making them attractive to budget-conscious consumers and businesses.

? Environmental Sustainability: Retreading helps in reducing tyre waste and the environmental impact associated with tyre disposal. This aligns with growing environmental concerns and regulations. Further the industry can capitalize on its eco-friendly image by emphasizing its role in recycling and waste reduction.

? Regulatory Support: Evolving regulations that promote environmental sustainability and recycling can create a more favorable business environment for retreading companies.

? Infrastructure Development: India has the second largest road network in the world. With the governments focus on infrastructure development, the demand for vehicles is likely to increase, driving the demand for tyres. This enhances connectivity and boost economic activity, leading to increased tyre sales and replacement demand.

Threats

? Volatility in Raw material Cost: Fluctuations in the prices of key raw materials, such as rubber can impact production costs and profit margins for of Treads.

? Export Tariff Rates : The industry faces significant uncertainty due to the looming threat of tariffs, particularly with the US imposing 25% of tariffs on exports which is leading to higher production costs and supply chain disruptions.

? Intense Competition: The industry faces competition from both domestic and international manufacturers, which can put pressure on prices and margins.

? Meeting ESG standards : The industry faces significant challenge in meeting Environmental, Social and Governance (ESG) Standards, particularly with Europe accepting ESG- Compliant companies. This shift towards sustainability and responsible business practices requires tyre manufacturers to adapt their operations, supply chains and products to meet the stringent ESG criteria. Non compliance may lead to exclusion from key markets, impacting exports and revenue.

? Technological Risks: Rapid technological advancements in tyre manufacturing and retreading could render existing technologies obsolete or less competitive. Significant investment in new technology and equipment may be required to stay competitive, posing a financial risk. Alternative technologies, such as airless tyres, could potentially reduce the demand for retreaded tyres.

Segment-wise or product-wise Performance

The Company manufactures Pre cured tread rubber, Conventional Tread Rubber, Black Vulcanizing Cement, Bonding Gum and Tyre repair patches. The contribution of these products to the current years turnover is 51%, 26%, 9%, 12% and 2% respectively.

Outlook

With the increased competition in tyre and related industries, the companies in this sector are slowly moving from product offering companies to service offering companies. This helps the customers to get better services of the product and improves efficiencies. The companies are able to get long-term relationships and usage of high end efficient products, which due to cost escalations customers are unable to afford. This also helps tyre related industries to offer service which the unorganized sector is unable to offer, thereby improving the market penetrations and helping customers building trust on the products. Our company has also taken various initiatives to place our brand as a cost effective service provider, with high quality products and services to fleet, based on cost per kilometer approach, which has expected to bring in positive impact in our business model.

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, the company 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.

Over the years, our company has invested aggressively in educating and growing the market, benefits of which will be seen in the medium to long term. We have achieved Pan-India presence with an extensive network and are further expanding our distribution footprint. We also have presence in overseas markets, catering to higher global demand for tread rubber. All these initiatives are expected to give ETL the platform from which we can achieve success in expanding our business.

During the FY 2024-25 we have marked our presence in global markets such as United States, Mexico and South Africa. New investments were carried out to improve the quality, consistency and reduced cost of operations. The company further invested in new moulds for fresh patterns to cater domestic and export markets.

Risks and Concerns

Risks and opportunities are inevitable and inseparable components of all businesses. The Companys Directors and management take proactive decisions to protect stakeholder interests. The Company has in place a Risk Management Policy covering risk, risk exposure, potential impact and risk mitigation process. Major risks identified by the business and functions are systematically addressed through mitigating actions on continuing basis. These are monitored and reviewed under the guidance of Audit committee and Risk Management Committee. Various departmental heads meet regularly to identify processes which are exposed to risks.

The Companys Risk Management Committee, periodically reviews the risks in the organization, identifies new risk areas, develops action plans and monitors and reports any deviations if any, from the policy to the Audit Committee.

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 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

The company 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. The company follows stringent procedures to ensure accuracy in financial information recording, asset safeguarding from unauthorised 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 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 the adequacy and operating effectiveness of internal controls.

Nonetheless, your Company recognises 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.

Operational Performance

Besides the products for trucks and busses which are the major customer for the Company as well as competitors we have also developed specialised compound formulation for the growing LCVs, cars and two wheeler markets.. With the mining industry opening up, the Company which is dominant in this sector hopes to get good growth opportunities. With the reduction in Chinese low cost tyres in the market the demand for retreaded tyres is also expected to grow further.

With the demand for services over products growing up, most of the tyre manufactures have started offering tyre management services for various fleets. Our company has also started supporting some of those tyre manufacturers who do not have retreading business in retreading their one time used tyres. Besides this the Company has its own fleet management service for selected customers with pay-per kilometre model.

Financial Performance

The cash generated from operations in FY 24-25 was Rs. 46.00 Lakhs compared to Rs. 290 Lakhs in FY 23-24 which shows a significant improvement. This is mainly on account of reduction in inventory levels and outstanding receivables Rs.1924 Lakhs in FY 23-24 reduced to Rs.1764 Lakhs in FY 24-25. Also the bank liabilities levels have come up from Rs. 1863 Lakhs in FY 23-24 to Rs. 2199. 95 Lakhs in FY 24-25.

The Company continues to undertake cost saving initiatives and is moving into more profitable areas of business, based on higher value-addition to customers.

Significant financial highlights in Financial Year 2024-25 are as follows;

" Revenue

Total Revenue reported Rs. 6,063 lakhs compared to the previous years figure of Rs. 5,977 lakhs. Revenue has increased by 1.5%. Revenue increased due to value realization in the second half of the financial year.

" Earnings Before interest, Tax, Depreciation and Amortization (EBITDA)

During the fiscal 2024-25 EBIDTA reported as Rs. 48 lakhs when compared to the previous years figure of Rs. 107 lakhs.

" Profit Before Tax (PBT)

PBT was at Rs.(-) 378.41 lakhs in FY 2024-25, compared with previous years Rs.(-) 311.78 lakhs.

" Profit After Tax (PAT)

PAT stood at Rs. (-) 303 lakhs in FY 2024-25 as compared to Rs.(-) 295 lakhs in FY 2023-24.

" Earnings Per Share (EPS)

EPS in FY 2024-25 stood at Rs. (-) 5.79 compared to EPS of Rs. (-) 5.63 in fiscal 2023-24.

Key Financial Ratios

Key financial ratios, are as given in Note No 39 of the Financial Statement.

Human Resource Development and Industrial Relations

The Company recognises 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, the company had 208 permanent employees as on March 31, 2025.

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.

Further to be noted that the corporate Governance Report as per SEBI (LODR) Regulations, 2015 is not applicable to the company. However, the company has prepared this Governance Report to show case the Governance practices followed in the company for information purpose only.

	For and on behalf of the Board of Directors
	sd/-
Ernakulam	Navas Meeran
August 14, 2025	Chairman
	DIN: 00128692