GRP Ltd Management Discussions

Business overview:

At GRP, our businesses and initiatives are oriented towards fostering a more sustainable future. Our commitment and responsibility to the environment remain embedded in each of our businesses and in our CSR work outside the business. The six Sustainable Development Goals (SDGs) adopted by your company are Good Health and Wellbeing, Education, Gender Equality, Clean Water and Sanitation, Clean Energy, and Responsible Production and Consumption. A brief overview of your companys work in these areas is provided below. Although our businesses primarily focus on the mobility sector, be it the Reclaim Rubber (RR) business (with 70% dependence on the automotive sector viz. tyre manufacturers and automotive component manufacturers), the Engineering Plastics (EP) business (with a 40% reliance on the automotive OE supply chain), the Polymer Composite (PC) business (with 80% dependence on ground transportation, trailers, and shipping), and the Custom Die-forms (CDF) business (with a 40% dependence on the agricultural and earth-moving equipment sectors), our strategic vision is to expand our footprint in sustainable materials and capitalize on the theme of a circular economy.

Our almost 50 years of experience provide us with a strong backbone that will be leveraged to expand into other products like polyolefins for the packaging industry and opportunities for chemical recycling of tyre and plastic waste.

Reclaim Rubber (RR): The demand for materials based on recycled end-of-life (EOL) tyres continues to rise due to advancements in technology enabling increased usage, government regulations and incentives such as RODTEP, EPR, and the growing consciousness of brand owners. Key focuses during the year included: a) Operational excellence to improve manufacturing efficiency and reduce production costs, b) Gross margin and product sale optimization, c) Increase in the share of renewable energy at its plants, and d) Advancement in technology for the manufacturing of high-performance RR, among other initiatives.

Engineered Plastics (EP): The vertical, originally centered on tire cord extracted from end-of-life (EOL) tires, has diversified its portfolio to encompass EP compounds derived from ocean plastics and post-industrial textile waste (PIR). The company focused on stabilizing its operations after the fire incident that took place in February 2023 and was able to increase its footprint of approvals and acceptance of the product portfolio. During the year under review, the key focuses were a) Streamlining operations post-fire in an upgraded facility with improved processes, b) Adopting automation and machine learning, c) Expanding the product portfolio, and d) Securing product approvals in automotive applications.

Polymer Composite: This business caters exclusively to a specific customer in the United States and faced challenges due to increased freight costs in 2022-23. However, during the year under review, with freight costs decreasing and our partner restructuring operations to manage turbulent times, the business has steadily been getting back on track. At GRP, we remain steadfast in our

commitment to the business and have initiated development efforts for new applications and market expansion. To provide more space for operations, the manufacturing facility was relocated to the newly acquired facility in Chincholi.

Repurposed Polyolefins:

This business initiative stems from Government of India (GOI) regulation on extended producer responsibility (EPR) within the plastics sector. Under the regulation slated to be enforced from April 1, 2025, brand owners are liable to ensure incorporation of recycled polymers in their packaging mediums. Your company has been a pioneer in developing materials from rigid end-of-life (EOL) packaging waste, focusing on polyolefin materials such as polypropylene and polyethylene. While continuing its partnership with one of the largest producers of lubricants, your company, in the year under review, gained approvals from the largest paint company in India for paint pails of various sizes. The approvals during the year were extended, and more converters are adopting the use of your companys products. This development has been a significant boost for our efforts and encourages other brand owners to consider working with your company to adopt its products. The business currently operates with an annual capacity of 6,000 tons, and the capacity utilization continues to improve with each passing month. The entire business of Repurposed Polyolefins will operate under the wholly owned subsidiary GRP Circular Solutions Limited.

Verticals wise revenue:

- Revenue of ? 40,844 lakhs was generated from Reclaim Rubber vertical and

- Revenue of ? 5,317 lakhs was generated from Other verticals.

Capital Expenditure:

Throughout the year under review, the company has invested about ? 4300 lakhs in:

- Biofuel heating systems across all its RR plants to replace current systems aimed at reducing GHG emissions in the manufacturing process and operating costs.

- Technology upgrades in a new manufacturing process, site upgrades across all locations, upgraded fire-fighting systems, expansion of the current RR capacity, and relocation of the Polymer Composite business.

- Acquiring land for Crumb rubber and potential downstream recycling technologies business to derive value-added products from ELTs.

Subsidiary:

GRP Circular Solutions Limited

With approvals in place for operating the plant at your companys facility in Solapur, the WOS has commenced operations for manufacturing Repurposed Polyolefins business.

Capital Expenditure:

- Your company also invested a sum of ? 660 lakhs in current year towards the infrastructure for Repurposed Polyolefins business industry Structure and Development:

The economic landscape in which our company operates has exhibited varied growth across different markets, influencing our overall performance. North America maintained a growth rate of 2.5%, compared to 2.3% the previous year, while Europe faced challenges with modest growth of 1% amidst geopolitical tensions, contrasting with 2.5% in the prior year. The APAC region continued to show resilience with a growth rate of 4.8%, compared to 4% in the previous year, and in India, the economy expanded by 7.8%, marking an improvement from 7% growth the previous year. These dynamics underscore the diverse external environment impacting our business operations.

Reclaim Rubber (RR):

Our companys core business continues to lead the industry. Despite challenges posed by advancements in tyre technology affecting RR utilization, the commitment of brand owners and ongoing technological advancements in RR manufacturing sustain positive momentum in this segment. We have successfully increased our market share among top tyre manufacturers and are actively

expanding our product portfolio for future growth opportunities. Despite significant challenges related to the Red Sea issue affecting shipping logistics, our company has maintained a stable export share from India at around 35%.

While overall rubber consumption across India rose by 4%, the domestic tyre industry experienced a 1% increase in rubber usage compared to the previous calendar year. While the reclaim rubber consumption has gone down by 4% in the industry, we are pleased to announce that your companys sales in India for the calendar year 23 have grown by 12% from previous year (21% by financial year), increasing our market share in domestic market by 3%, driven by the acquisition of new customers and an increase in our share of wallet with existing customers. Our export volumes for the calendar year decreased by 11% (5% by financial year), aligning with the subdued global market conditions reflected in a 3.5% decline in rubber consumption and nearly unchanged Reclaim rubber exports from India. 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/suppliers are looking forward to easing of supply chain so that the export sales can pick up pace. The OEMs are getting engaged with your company in order to develop new sustainable product which will help them attain their sustainability goals with a much cleaner technology. The process has already started, and the products are at testing/commercialisation stage. We have made substantial advancements in alternative technology development and are confident in our capability to ramp up production of the improved technology to produce high performance RR during FY 2025.

The Government of India (GOI) has introduced the extended producer responsibility (EPR) regulation, which mandates tyre producers to offset their production by purchasing EPR credits from recyclers. Recyclers will receive credits for the production of specified materials from end-of-life (EOL) tyre waste. This regulation has already been implemented in the industry and is providing recyclers with an additional source of income intended for use in new technology development, offsetting costs associated with the supply chain for sourcing EOL tyres, and organizing the supply chain to upgrade EOL collectors. Your company stands to be a major beneficiary of this regulation, helping to generate additional revenue to create an inclusive supply chain and develop higher-performance materials for the future.

However, external challenges persist, notably rising input costs such as wage inflation and energy. However, on account of substitution to alternate green sources by way of Wind power & solar and steps toward automation and improved manpower efficiency contained the impact on margins.

Our RR business at GRP has cultivated robust capabilities over the years, on the back of our strong focus on exports and global outreach. During the year under review, we benefited from a softening of ocean freight rates compared to previous highs, which positively impacted our margins. Despite increasing geopolitical tensions in the Middle East towards the end of the year, our margins have remained resilient and are expected to sustain at current levels.

Looking ahead, your company continues to collaborate closely with key customers, focusing on development programs aimed at enhancing the utilization of RR in various formulations.

Other Business:

During the year under review, revenue from non-RR business increased by 13% YoY. Revenue contribution from non-RR businesses increased to 11% (from 10%) in FY 2024.

The EP business has had success with new customer approvals from automotive, compounding, furniture end applications. Despite the fire at the plant, in a very short period we were able to consolidate, restart and stabilize the entire operations of the plant. The performance of our EP business is closely tied to the growth of OE sales. We are pleased to see that the double-digit growth in the OE automotive industry has translated into a fairly good performance for our EP business during the year. We achieved significant milestones, including approvals from a tier one molder in both the 4-wheeler and 2-wheeler segments. Additionally, we secured two product approvals from one of the largest global compounding companies for our export business. Furthermore, we strengthened our presence in the furniture segment by partnering with a major furniture manufacturer. Despite initial setbacks, including a fire incident, we managed to achieve a 13% volume growth in FY 2024. Our strategic focus moving forward is to reduce our reliance on in-house nylon fiber by developing products using alternative PCR and PIR feedstocks, such as end-of-life fishnet and PIR textile yarn.

We have set up a Polypropylene recycling facility at Solapur for GCSL, a subsidiary of GRP Ltd. The plant is equipped with automatic colour sorting, mixing and packing equipment. Further plans of putting up an independent inhouse washing facility are under way and will be ready by Q3 2025. Despite severe competition from players with decades of experience in Repurposed Polyolefins, we could establish our product in paint pails and lube pails market and secured approvals from leading brands. Within a year of establishment, we are successfully supplying to major tier 1 moulders in rigid packaging, establishing a strong platform for exploring other opportunities in plastic space, especially in rigid packaging applications. We are actively developing value-added compounded products and thermoplastic elastomer products for automotive, electrical, and furniture segments. Our key focus remains on vendor development, new product development and in securing further approvals in rigid packaging applications to drive growth in this vertical.

The Polymer Composite Business: With ocean freights coming down progressively and our USA partner restructuring operations to manage turbulent time, your companys business has come back on track. Developments for incorporating alternate low-cost materials have yielded success and we anticipate better margins for this business upon restart. Products developed for local market are getting customer acceptance because they meet their sustainability goals. Volume in local market is expected to increase in FY25.

Your companys non-RR divisions have encountered challenges akin to start-ups, yet they have been guided towards success by an experienced team. This team amalgamates proficiency from various sectors including polymer production, plastic recycling, plastic compounding, and waste collection. They have successfully built a strong network of supply chain partners for collecting end-of-life plastic waste, broadened our product range in each non-RR business, and secured an esteemed clientele in their respective sectors. We are confident in our teams capabilities and their abilities to navigate obstacles, ensuring sustained growth and success in our non-RR endeavors.

Opportunities, Risks and Concerns:

The much-needed boost for the recycling sector in India to mirror global scale arrived in the form of the Extended Producer Responsibility (EPR) in 11 nominated sectors under the aegis of the PMO through the Niti Aayog starting 2022 until recently. As is the case for any new policy, the journey from its conceptualization to implementation was fraught with challenges, delays, modifications, until its streamlining. On similar lines, the EPR policy for Tyres and Plastics finally was implemented towards the end of the year under review. While itll continue to experience modifications to reflect on ground realities, the portal for generation and transfer of credits was set-up and your company was able to transfer and transact part of its credits generated for the year 2022-23 during the year under review. This additional stream of income for recyclers that use domestic raw materials (ELT waste) will allow for technology upgradation, improved living standards for its collection partners and provide your company the opportunity to invest capital to build global scale. Your company will use proceeds from such EPR credits for investment in related business opportunities across the value chain. As tyre companies and plastic packaging companies endeavour to increase circularity and partner with recyclers for product and technology development, your company offers itself for such long-term association and remains bullish on prospects for the same.

While your company has a diversified customer base, it remains dependent on the mobility sector for the majority of its offerings. The geographic diversity of its markets offers a hedge, but given the increasing geopolitical volatility year after year, customers are starting to prefer near sourcing, and supply chains need to be closer to customer sites. Your company continues to invest in developing technology and processes that can be brought closer to customer manufacturing sites but currently lacks this capability. The recently introduced EPR regime, while promising significant financial windfall for your company, is also in its nascency.

Outlook:

The addition to capacity in the year under review for the RR business is likely to see improved utilization on account of the robust outlook shared by customers in India and from international markets. We expect the new technology to stabilize and lead to healthy volume growth in the upcoming year. Several new application approvals and new geographies have been entered into and theyre likely to reflect in volume growth for the current financial year. With growing focus on sustainable materials, your company continues to develop exclusive partnerships with customers for introduction of new type of Reclaim Rubbers. On similar lines, the Engineering Plastics business has gained a key international approval which is likely to result in growth in exports in the upcoming financial year. With the restart of the manufacturing site stabilized post fire, the order book continues to grow each quarter during the current year.

As the EPR regulation in the plastic industry gains momentum, the companys repurposed Polyolefin business will continue the momentum of new customer approvals and new product categories for development.

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. The Audit Committee reviews the adequacy 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:

GRP is celebrating its 50^th year of operations. With focus to the future, the Company undertook an exercise to redefine its Vision and Values. An expert consultant was engaged, and a participatory process was followed to understand the aspirations of all quarters of the organization. This was followed by a cross functional team session including the senior management and representatives across various management levels where the Vision Statement and Values were finalised. The Vision statement and the Values were thereafter communicated across the organization through a townhall and through further cascade initiatives across the organization. The Company recognizes the importance and contribution of its human resources for its growth and development and values their talent, integrity, and dedication.

Continuing with its aspiration of growth & diversification, 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. The Companys efforts of leadership development is showing results as a considerable number of critical positions have been filled by internal talent. Understanding the need of a safe and secure workplace, the Company has invested in renovating the workplaces including all manufacturing units. Various improvements brought in the work processes, to ensure safety and also improve productivity. The Company continues to maintain its focus on overall skill development, holistic employee wellbeing.

The company is certified as A Great Place to Work on its golden anniversary. As the Company & its business units grow, talent acquisition, training & development of its people will remain a continued focus of the future.

The GRP Board is constituted of seasoned professionals with expertise in the tyre industry, chemical sector, private equity, and the fields of branding and marketing. The Board persistently offers strategic guidance to the Company and actively participates in shaping the Companys long-term vision.

Manufacturing operations:

As global brands place increasing emphasis on their ESG credentials and emission scopes, they demand greater transparency from their supply chain partners. We have proactively met these expectations, enhancing our metrics over the years. Consequently, we are proud to be the first reclaim rubber manufacturer to achieve ISCC+ certification. Our efforts to improve supply chain and workplace practices have led to an upgrade in our CDP rating, and our Engineering Plastics & Repurposed Polyolefin plant has earned GRS certification, ensuring traceability in recycling processes. All our manufacturing locations uphold IATF and IMS certifications, and we have improved our EcoVadis scores. ESG performance is integral to your companys performance review process, ensuring comprehensive adoption and implementation across all levels. Our ESG profile on our website, accessible through ESG World, provides a comprehensive overview of our efforts in this area. We remain dedicated to leading the industry in sustainability and operational excellence, consistently striving to meet the highest standards for the benefit of our customers, stakeholders, and the environment.

Environment, Health and Safety (EHS):

The Company upholds stringent EHS program standards. Achieving an year of zero accidents, the Company also ensured no Near Misses in FY24. By implementing essential safety systems everywhere and conducting regular EHS audits with esteemed external agencies, the Company is well-prepared to manage any situations that may arise. With a focus on workplace safety, routine trainings and awareness sessions are held throughout the organisation. Cross-functional teams are established to foster a safety culture across the organisation. These teams operate within set timeframes and offer all employees the opportunity to participate and contribute.

The Company aims to meet 50% of its energy requirements through sustainable sources by 2025. It ensures adherence to all relevant EHS standards, maintains its status as a zero-discharge organisation, and records no time loss due to injury or occupational illness.

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 major strategic, marketing, finance, people related, environmental, economic and operational risks that could possibly derail achievement of the companys objectives and goals.

Risk owners, identified for 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 adopted the Sustainable Development Goals (SDG) under the aegis of the United Nations Development Plan (UNDP) goals as part of its sustainable commitments. As part of GRPs commitment to circularity, it has adopted 6 specific SDGs to incorporate in the way we do business.

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. Health checkups for all employees are a practice in GRP for long and is taken with lot of seriousness from all over the organization. During the year under review, we had Stress Management workshops, Zumba Dance Therapy, Sound Therapy and Yoga sessions to promote holistic wellness. Understanding the need to prevent our workforce who work in outdoor conditions, we arranged awareness sessions towards snake bites - prevention and handling post bite conditions. Wellbeing cannot be complete without safety at home along with workplace. We ran awareness programs towards fire safety including safety handling LPG & CNG at home. Awareness camps towards tobacco and substance abuse were also organised across the Company. The Company also offers opportunities of physician consultation, emergency support, participation in fitness groups, medicines and preventive health services through its health service partners. During the year under review, your company has contributed towards the creation of a Kidney dialysis centre in the JB Mody Hospital in Ankleshwar.

Under SDG 4 aimed at Quality Education, your company continues to honour its commitments towards offering quality education opportunities to school children in Ankleshwar and Solapur, which includes encouraging creativity, enhancing cognitive skills and promote social interactions. In addition, the company encourages its employees to volunteer their time towards education at various school, undergraduate & post graduate institutions both in technical and social sciences fields. The company also offers internship opportunities for engineering, and management students regularly, thereby enhancing their knowledge & skills. The company encourages its employees in their pursuit to higher education as well.

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 20% participation of women across variety of job roles by 2025. To achieve our mission of Gender Equality, we have focussed on identifying job roles for women, create appropriate infrastructure and environment for women workers, identify and support women entrepreneurs and regularly conduct awareness sessions towards Prevention of Sexual Harassment. Your Company is also a proud member of the India Gender Collaborative and contributing towards increasing participation of women in the manufacturing sector at large. With close to 30% women employees at its Corporate Office, your Company provides focussed internship and apprenticeship

opportunities to women professionals across job roles thereby creating equal opportunities for both genders.

Under SDG 6 aimed at Clean Water and Sanitation, the company continues to have zero discharge plants. 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 operates Solar panels in addition to the wind energy. During the year under review, your company has also invested in biofuel heating systems to replace its fuel source from Furnace Oil (a fossil fuel-based system). The resultant impact on GHG emissions on the companys fuel needs will be significant. This investment was made across all its RR manufacturing plants.

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.