Eco Recycling Ltd Management Discussions

In todays digital era, technology is integral to our daily lives. From smartphones and laptops to televisions and kitchen appliances, electronic devices are essential tools that enhance our productivity, entertainment, and communication. However, the rise in consumption of Electrical & Electronic Equipment (EEE) is a clear indicator of global socio-economic growth, and the concomitant increase in e-waste presents a significant opportunity for the e-waste management industry.

According to Allied Market Research, the global e-waste management market is projected to reach USD 244.6 billion by 2032, growing at a compound annual growth rate (CAGR) of 15.7%. The reduction in the lifespan of electronic devices and the scarcity of precious and rare earth metals are driving this market growth.

In contrast to the global CAGR of 15.7%, Indias e-waste management sector is expected to grow at an estimated CAGR of about 25%, a trend likely to continue for the next decade. This is driven by substantial investments from both government and private sectors in automation, digitization, and continuous upgrades to telecom infrastructure. The success of the Production Linked Incentive (PLI) scheme and increasing government funding are propelling the production of telecom and IT equipment to meet Indias rising demand and support export growth.

Resource securitization is crucial for Indias sustained growth. With high demand and limited supply of critical metals, recycling and re-utilization present immense opportunities. Embracing circular economy principles will be essential for managing e-waste effectively and recovering valuable metals from electronic waste, printed circuit boards (PCBs), spent lithium-ion batteries, and autocatalytic converters.

In response to the growing need for critical metals and the goal of earning foreign exchange through exports, the Central Governments latest budget, presented on July 23, 2024, outlines a proactive approach. Finance Minister Nirmala Sitharaman announced the establishment of a Critical Mineral Mission aimed at domestic production, recycling of critical minerals, and international acquisition of critical mineral assets. This mission will focus on technology development, skilled workforce enhancement, an extended producer responsibility framework, and a suitable financing mechanism. The budget also proposed customs duty exemptions for 25 critical minerals and reductions for two others, which will boost processing and refining efforts and secure availability for strategic sectors such as nuclear energy, renewable energy, space, defense, telecommunications, and high-tech electronics.

The rapid advancement in technology, increased buying power, and changing consumer preferences are shortening the lifecycle of electronic devices and consequently increasing e-waste volumes. E-waste encompasses discarded IT devices, communication equipment, home appliances, medical equipment, and lighting devices. While e-waste contains valuable materials like gold, silver, copper, and aluminum, it also includes hazardous substances such as lead, cadmium, and mercury. Effective management of e-waste is vital to prevent environmental contamination and health risks. Stringent regulations and rising consumer awareness about improper e-waste disposal further underscore the business opportunities in this sector.

The global e-waste management market is increasingly aligning with qualitative compliance standards. Ecoreco, with its renowned international partners, provides comprehensive solutions for multinational corporations, global brands, producers, and public sector entities, ensuring local and global compliance. Our leadership in e-waste management exemplifies our commitment to responsible recycling practices and environmental sustainability. Electronic devices contain valuable metals that can be recovered and reused, while responsible recycling ensures the proper management of hazardous materials, minimizing environmental impact.

Ecoreco has been a pioneer in organized e-waste management in India for two decades, adhering to the highest environmental and legal standards. As Indias first company authorized by the Maharashtra Pollution Control Board (MPCB) and registered with the Central Pollution Control Board (CPCB), Ecoreco is R2v3 and ISO certified and a member of TERRA, NAID, MRAI, and other reputable associations. Our services range from IT asset disposal and e-waste recycling to battery recycling, data destruction, extended producer responsibility (EPR), corporate social responsibility (CSR), and more. We are also recognized for our innovative "Recycling on Wheels-SmartER" initiative, which was flagged off on October 2, 2023, and recommended for all Smart Cities by the PSA. Ecorecos services have been recognized & admired by the PM Shri Narendra Modiji on 29th Jan 2023 in his 97^thMann Ki Baat.

At Ecoreco, we believe integrating the expertise of informal workers into scientific recycling practices is crucial for transforming the e-waste management sector. Through our subsidiary, Ecoreco Enviro Education Pvt Ltd, we provide training and skill development for these workers, aiming to improve their livelihoods and extend their career opportunities. Despite the challenges faced by these workers, who play a vital role in e-waste collection across millions of households and businesses in India, our initiatives aim to uplift their conditions and integrate them into the formal recycling sector.

Trend: Green technologies and Sustainable Practices

A prominent trend shaping Indias e-waste management market is the adoption of green technologies and sustainable practices. As environmental consciousness gains traction, green technology encompasses innovations like biodegradable PCBs, potentially reducing hazardous e-waste significantly. As for sustainable practices, large corporations in India e-waste management market are taking the lead in adopting circular economy principles. There is a movement towards extended producer responsibility (EPR), where manufacturers are held accountable for the entire lifecycle of their products including disposal and recycling.

Challenge: Lack of structured Regulation and Inadequate Infrastructure

Despite the introduction of E-waste (Management) Rules in 2016, the enforcement and implementation on the ground remain inconsistent. The e-waste sector in India is estimated to be only about 5 % organized, with the majority of e-waste still being handled by informal sectors that lack the necessary health, safety and environmental standards.

Compounding the challenge is the fact that less than 10% of e-waste in India is collected and recycled by formal recyclers. The existing infrastructure for e-waste management is to handle the countrys e-waste output, which is growing at a rate of 30% annually.

Company Scenario

Eco Recycling Limited ("Ecoreco") is the oldest and largest fully integrated electronics and IT asset disposition provider and cyber-security focused hardware destruction Company in India. Ecoreco holds the highest level of certifications available for both data destruction and responsible recycling, being the only provider to have all the facilities certified by NAID, e-Stewards, and R2.

For Ecoreco, 2024, was a particularly exciting year. We doubled down on innovation, contributions to the circular economy and our long standing, solution driven focus to make the world a better place by protecting people, planet and privacy.

It was also a year in which our environmental and social related activities were brought to a new level of excellence. We continue to lead the industry, both in terms of our own internal culture and operations and also for our partnerships with many of the worlds largest brands who turn to Ecoreco to assist them with achieving their ESG and cybersecurity/ data destruction goals.

Despite all our success, its key to note that responsible recycling remains uphill battle. Whether due to lack of education or being neglect, we all face challenges to get things done. Its not easy, but its critically important.

Opportunities:

Recycling and recovering: developing efficient recycling process can extract valuable materials from e-waste, reducing the need for raw materials and minimizing environmental impact.

Extended Producer Responsibility (EPR): implementing EPR holds manufacture accountable for the entire lifecycle of the product, from production to disposal which encourages sustainable design and responsible disposal practice.

Circular Economy Models: shifting towards a circular economy promotes product reuse, refurbishment, and recycling - minimizes waste and maximizes lifespan of the electronic devices.

Innovation in material design: research into eco-friendly materials for electronic components can reduce the environmental impact of e-waste.

Threats:

Consumer behavior only 2% of individuals think of the impact on environment while disposing off their old electrical equipment.

The average lifespan of most electronic gadgets has been constantly reducing. Most companies today design their products for panned and perceived obsolescence. Risk of investment cost is threat to formal sector. The high investment cost necessary for advanced technology also entails the risk of underutilization of the process due to competition from less expensive recycling practices (formal and informal), which takes advantage of reduced costs in terms of recycling technology, pollution control systems and safety procedure.

OUTLOOK

Still only 17% of the worlds electronic waste is properly managed and recycled. E-waste remains the fastest growing solid waste stream globally. And there is no slowdown in sight.

Due to number of societal factors, including new and improved technologies being introduced faster than ever, electronics are becoming obsolete at a much faster rate than ever before. This results in approximately 100 billion pounds of e-waste generated each year, a metric which is growing at a staggering rate.

INDUSTRIAL RELATIONS

The industrial relations scenario continued to be largely positive across all the facilities. Long Term Wage and Bonus settlements were closed amicably for all the facilities. The sustained efforts towards building a transformational work culture resulted in zero production loss in the FY 2024 and helped create a collaborative, healthy and productive work environment.

Productive and employee centric practices, a focus on transparent communication of business goals, an effective concern resolution mechanism and a firm belief that employees are the most valuable assets of the Company, are the cornerstone of our Companys employee relations approach.

Ecoreco Skill Excellence

Skill excellence is an internal platform that aims at industrial skill enhancement program for the shop floor associates.

A Healthy Work Environment

Various awareness sessions on driving employees towards healthy and better lifestyle were touched upon by experts during the exclusive sessions for employees. Health and wellness always remained priority of the Companys philosophy.

The Company had a total of 51 permanent employees in its rolls as on March 31, 2024.

INTERNAL CONTROL SYSTEMS

Your Company maintains adequate internal control systems commensurate with the nature of its business and size and complexity of its operations. These are regularly tested for their effectiveness by Statutory as well as Internal Auditors.

The framework is a combination of entry level controls, including enterprise risk management, legal compliance framework, internal audit and anti-fraud mechanisms such as ethics framework, code of conduct, whistle-blower policy, etc, process level controls, information technology-based controls, period end financial reporting and closing controls.

Further, the Internal Control Systems have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information. In the highly data privacy IT environment of the Company, validation of IT Security receives focused attention from IT specialists and Statutory Auditors.

The Internal Auditor reports administratively to the Chairman of the Board and functionally to the Audit Committee. The Internal Audit function develops an audit plan for the Company, which covers, inter alia, corporate, core business operations, as well as support functions. The Audit Committee reviews the annual internal audit plan. Significant audit observations are presented to the Audit Committee, together with the status of the management actions and the progress of the implementation of the recommendations.

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.

Your Companys Management has carried out the evaluation of design and operative effectiveness of these controls and noted no significant deficiencies/material weaknesses that might impact financial statements as at the Balance Sheet date.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Overview

The financial statements have been prepared in accordance with Ind AS as per the Companies (Indian Accounting Standards) Rules, 2015 as amended and notified under section 133 of the Companies Act, 2013 ("Act") and other relevant provisions of the Act.

The Groups consolidated financial statements have been prepared in compliance with Ind AS 110 on Consolidation of Accounts and presented in a separate section.

FINANCIAL PERFORMANCE – STANDALONE

Property, Plant and Equipment and Intangible Assets

As at march 31, 2024, the Property, Plant and Equipment and Intangible Assets stood at Rs. 3,934 lakhs as compared to Rs. 3,370 lakhs as at march 31, 2023. During the year, the Company incurred capital expenditure of Rs. 636 lakhs. The major items of capital expenditure were on acquiring new facilities and capacity enhancement.

Trade Receivables

Trade receivables are Rs. 445 lakhs as at march 31, 2024 as compared to Rs. 174 lakhs as at March 31, 2023. As a percentage of revenue from sales of scraps and services, trade receivables are higher at 15.89% as at March 31, 2024, as compared to 9.81% for the previous year mainly on account of higher volume.

Results of Operations

Income

(Rs. in lakhs)

Particulars	Amount	FY 2024 % of revenue from operations	Amount	FY 2023 % of revenue from operations	Change %
Sale of Finished Goods	2129	76.04	1131	63.90	88.24
Sale of Services	263	9.39	425	23.97	-38.12
Other Operating revenue	408	14.57	215	12.13	89.77
Revenue from Operations	2801	100	1773	100	57.98
Other income	461	16.46	369	20.81	24.93

Other Income

During the year ended March 31, 2024 at Rs. 461 lakhs is higher than Rs. 369 lakhs earned in previous year mainly on account of proceedings from sale of current investment in the current year as compared to previous year.

The total expenditure during the year as a percentage of revenue is 64.79% as compared to 80.26% in the previous year. The reduction is a reflection of the cost management initiative undertaken by the Company.

Expenditure

(Rs. in lakhs)

Particulars	Amount	FY 2024 % of revenue from operations	Amount	FY 2023 % of revenue from operations	Change %
Material cost	461	16.46	401	22.62	14.96
Employee benefit expenses	325	11.60	291	16.41	11.68
Finance cost	697	24.88	146	8.23	377.40
Depreciation, amortization and impairment cost	80	2.86	93	5.25	-13.98
Other expenses	252	8.99	492	27.75	-48.78
Total expenses	130	64.79	149	80.26	-12.75

Material Cost

Material cost as a percentage of revenue has decreased from 22.62% in the previous year to 16.46% in current year mainly on account of elevated levels of input costs and supply side challenges witnessed during FY 2024.

Employee Benefit Expenses

The personnel cost as a percentage of revenue from operations has decreased from 16.41% in the previous year to 11.60% in the current year mainly due to the higher revenue base in the current year.

Other Expenses

Other expenses as a percentage of revenue from operations have decreased from 27.754% in the previous year to 8.99% in the current year mainly on account of stringent cost control measures adopted by the Company coupled with higher revenue base in the current year.

Depreciation, Amortisation and Impairment Expense

Depreciation, amortisation and impairment as a percentage of revenue from Operations have decreased from 5.25% in the previous year to 2.86% in the current year mainly due to higher revenue base in the current year.

Finance Cost

The interest expense as a percentage of revenue has increased from 8.23% in the previous year to 24.88% in the current year mainly on account of lease agreement borrowings in the current year.

Tax Expense

The provision for current tax and deferred tax for the year ended March 31, 2024, as a percentage to prof it before tax (before exceptional items) is higher than the previous year mainly on account of higher revenue base in FY 2023-24 as compared to FY 2022-23.

CONSOLIDATED FINANCIAL POSITION

As on March 31, 2024, for the purpose of consolidation as per Ind AS, the group comprised of the flagship holding company Eco Recycling Limited and 2 subsidiaries.

The Consolidated Revenue from operations is Rs. 2,801 lakhs in the current year as compared to Rs. 1,773 lakhs in the previous year, registering an increase of 57.98%.

The consolidated profit before exceptional items, share of profit of associates and joint ventures and tax for the year is Rs. 2,220 lakhs as against Rs. 660 lakhs in the previous year, registering an increase of 236.36%. The consolidated profit after tax after non-controlling interests and exceptional items for the year is Rs. 1,950 lakhs as against loss Rs. 88 lakhs in the previous year.

Ecoreco Enviro Education Private Limited, a wholly owned subsidiary in the business of imparting environment preservation and protection related education and skill development training, registered an operating revenue of Rs. 19 lakhs as compared to Rs. 18 lakhs in the previous year, registering an increase of 4.1%. The profit after tax after non-controlling interests for the year is Rs. 21.44 lakhs as compared to Rs. 21.84 lakhs in the previous year, registering an decrease of 1.83%.

Ecoreco Park Private Limited, a subsidiary in the investment business, reported an operating revenue of Rs. 262 lakhs as compared to Rs. 4.62 lakhs in the previous year. The profit after tax after non-controlling interests for the year is Rs. 181 lakhs as compared to a loss Rs. 19 lakhs in the previous year.

DISCLAIMER

Certain statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable laws and regulations