Indag Rubber Ltd Management Discussions

The tyre replacement market continues to play a pivotal role in driving the growth of the tyre retreading industry. A significant portion of overall tyre demand, particularly within commercial and fleet segments, is generated by the need to regularly replace worn-out tyres to maintain safety and operational efficiency. Retreading has emerged as a cost-effective and environmentally sustainable alternative to new tyre purchases, making it an increasingly preferred option for fleet operators and logistics companies aiming to optimize costs and extend tyre lifespan.

In India, the tyre retreading industry remains largely fragmented, with around 10,000 active retreaders. However, the organised sector has demonstrated notable growth, with its market share rising to approximately 50-55% in recent years (ICRA). This positive shift is attributed to advancements in retreading technology, enhanced product quality, and growing awareness among fleet operators regarding the benefits of high-quality retreaded tyres. While demand for retreading remains robust in the medium and heavy commercial vehicle (MHCV) segment, the light commercial vehicle (LCV) segment is also witnessing increased traction, supported by the rapid expansion of the e-commerce sector.

Key growth drivers for the retreading industry include:

1. Enhanced Road Infrastructure: The continued improvement of Indias road network has extended tyre lifespan, reduced damage, and increased the supply of tyres suitable for retreading. Better roads enable vehicles to travel longer distances in lesser time with low tyre wear, higher tonnage vehicles with more tyres can be accommodated creating optimal conditions for retreading. This will also lead to a reduction in vehicle downtime and can extend the life of the tyres.

2. Commercial Vehicle Growth: The CV market in India is expected to reach USD 80.10 billion by FY33 at a CAGR of 5.24% (IMARC). This directly translates into an expanding pool of tyres available for retreading in subsequent years. This steady expansion of the commercial fleet provides a solid foundation for retreading demand.

3. Regulatory Support: Policies such as GST implementation, E-way bills and anti-overloading regulations have benefited the organized retreading sector by formalizing industry practices, increasing the creation of structured value chains and reducing unorganized operations. These regulations focus on minimizing tyre damage while encouraging sustainable practices within the industry.

4. Environmental Consciousness: Extended Producer Responsibility (EPR) for tyres increases awareness about sustainability and promotes circular economy. Also, the EPR acknowledges the environmental benefits of retreading, including reduced raw material consumption, lower carbon emissions, and decreased landfill waste. This aligns with both corporate sustainability goals and governmental environmental policies.

5. Increasing Radialisation: The growing share of radial tyres in the commercial vehicle segment enhances retreading opportunities, as these tyres are structurally suited for multiple retreads. The current radialisation rate of approximately 60% in the MHCV segment is expected to reach 68-72% by FY29 (source: CRISIL).

6. Electric Vehicle Transition: While representing challenges for traditional automotive components, the shift toward electric vehicles maintains demand for tyres and, by extension, retreading services. New tyre designs for EVs are creating fresh opportunities for specialized retreading solutions.

The tyre retreading industry is currently positioned at a crucial inflection point, offering considerable opportunities for growth while also presenting a range of emerging challenges. The proliferation of ‘Hub and Spoke model is leading to higher tonnage vehicles with more tyres for long distance travels (called Hubs) and increased Light Commercial Vehicles (LCV) for last mile deliveries (called Spokes). Increasingly, fleet owners and operators are recognizing retreading as a vital element to manage tyre costs as overall operating costs have gone up due to increase in fuel, toll, driver expenses and increasing cost of replacement tyres.

The industrys outlook is buoyed by several positive factors. The revival of industrial and construction activities, underpinned by the Governments continued focus on infrastructure development, is fueling demand for commercial vehicles and, by extension, tyres. Additional growth in sectors such as mining, quarrying, real estate, transportation, and logistics is further amplifying tyre demand. The accelerating adoption of radial tyres, ongoing formalization of industry value chains, and a robust replacement market for used tyres are expected to sustain industry momentum through FY29, with a projected CAGR of ~4% (Blue Weave Consulting).

Radialisation in the Indian market has reached approximately 60%. While this is a substantial achievement, the full benefits to retreading industry will only be realized as radialisation approaches 80%. However, the industry currently faces challenges related to limited repair knowledge and technical expertise for radial tyres. This has led to higher casing rejection rates, as many radial tyre casings are not adequately repaired or prepared for retreading. Consequently, the availability of quality casings suitable for retreading remains constrained, despite the growing prevalence of radial tyres. Radial tyres also have a longer replacement cycle—now averaging 150,000 kms compared to 100,000 kms for most of the fleets and 60,000 kms for bias tyres—with an average lifespan of 13-14 months versus 6-7 months for bias tyres. While this enhances value for end-users, it delays the availability of casings for retreading and necessitates advanced repair and retreading techniques. Addressing this skills gap through targeted training and upskilling is essential for improving casing recovery rates and maximizing the benefits of increased radialisation.

Despite these positive trends, several challenges require careful attention. Raw material price volatility—especially for natural rubber—remains a significant threat to profitability. The recent sharp increase in natural rubber prices has created additional cost pressures, and the inability to pass these costs on to customers in this financial year may compress profit margins.

Other factors that could further complicate the business environment include:

• Persistent shipping challenges in critical maritime routes, such as those resulting from the Red Sea crisis, impacting global supply chains.

• Disruptions to natural rubber production in Thailand and Malaysia, leading to volatile pricing and uncertain raw material availability.

• Chinas economic resurgence, which may intensify competition for key resources and commodities such as natural rubber.

• Ongoing geopolitical conflicts, including the Russia-Ukraine war and the implementation of U.S. tariffs, which continue to affect global trade flows and commodity prices.

To address these challenges and capitalize on emerging opportunities, the Company is committed to proactive monitoring of industry trends and the development of strategic responses. Our ongoing focus is on enhancing operational efficiency, expanding market presence, digitalization initiatives and maintaining healthy profit margins, even in the face of external pressures.

The outlook for the tyre retreading industry remains optimistic, underpinned by its fundamental value proposition of sustainability, safety, and cost-effectiveness. As resource conservation gains significance, the retreading industry stands out within the automotive ecosystem for its ability to conserve large amounts of raw materials such as oil, natural rubber, and steel. Additionally, its role in reducing carbon emissions further enhances its appeal and sustainability credentials.

Retreaded tyres generate 70% material savings compared to non-retreadable alternatives, substantially reducing natural resource consumption and environmental impact. Our comprehensive retreading solutions enable fleet owners to achieve lower tyre cost-per-kilometer (CPKM) while reducing carbon footprints. This dual economic- environmental benefit positions us favorably as corporate sustainability initiatives gain prominence across transportation sectors.

Our FY26 strategy focuses on growth through market penetration in existing regions, expansion into new domestic markets, targeting and educating transport undertakings and expanding organized retreader network across the

Country. The Company aims to enhance its presence with current products while innovating new offerings tailored to diverse applications and export needs.

Our existing production capacity remains sufficient for projected growth, allowing us to direct investments towards research and development to maintain our technological edge. Our continued focus on market education drives long-term sustainable growth for the Company. With our established nationwide infrastructure encompassing over 200 dealers, more than 1500 retreaders, 50+ dedicated sales and service teams, and 16 strategically positioned depots, we maintain unparalleled market access and customer support capabilities.

Our emphasis on differential management for Indag Certified Retreaders through regular training, technical support and audits will further strengthen customer loyalty.

With respect to Millenium, our Subsidiary Company, we are positioning ourselves as Indias leading power electronics manufacturer focused on de-risking global supply chains in renewable energy and BESS infrastructure. The Companys core mission aligns with two critical trends: the global shift toward clean energy and the strategic diversification of manufacturing away from geopolitical hotspots. Millenium leverages Indias emerging strengths in engineering talent, cost efficiency, and policy alignment with Western markets to serve clients in the U.S., Europe, and Japan.

Indias electronics manufacturing services (EMS) sector, projected to grow at a 13.3% CAGR to $55 billion by 2027 (BNP Paribas), provides a fertile ground for Milleniums ambitions. The Subsidiary Companys Mohali facility, equipped with advanced manufacturing infrastructure, taps into Indias competitive advantages: skilled labor, design proficiency, and government incentives under the "Make in India" initiative. This aligns with global OEMs increasing preference for regionalized, resilient supply chains amid trade wars and tariffs.

The Company maintains a well-defined risk management framework covering risk identification, analysis, potential impact assessment, and mitigation processes. Regular exercises are conducted to identify, evaluate, manage, and monitor various risks. The Audit Committee and the Board periodically review identified risks and suggest measures to manage or mitigate them through a structured framework.

Key risk areas being monitored include:

1. Raw material price volatility, particularly natural rubber and synthetic rubber prices

2. Global supply chain disruptions affecting input costs and availability

3. Regulatory changes related to environmental compliance and waste management

4. Competitive pressures from both organized and unorganized sectors

5. Technology shifts that could impact product development and manufacturing processes

During the year, no major risks were identified that might threaten the Companys existence. Our proactive approach to risk management continues to strengthen our operational resilience and strategic flexibility.

The Company has adequate internal control systems and procedures designed to effectively control the operations at its Head Office, Plant(s) and Depots. The internal control systems are designed to ensure that the financial and other records are reliable for the preparation of financial statements and for maintaining assets. The Company has well designed Standard Operating Procedures.

Independent Internal Auditors conduct audit covering a wide range of operational matters and ensure compliance with specified standards. Planned periodic reviews are carried out by Internal Auditors. The findings of Internal Audit are reviewed by the top management and by the Audit Committee of the Board of Directors.

Based on the deliberations with Statutory Auditors to ascertain their views on the financial statements including the Financial Reporting System and Compliance to Accounting Policies and Procedures, the Audit Committee was satisfied with the adequacy and effectiveness of the Internal Controls and Systems followed by the Company.

The financial statements have been prepared in accordance with the requirements of the Companies Act, 2013 and applicable Accounting Standards.

During the year, the Company had cordial relations with workers, staff and officers. The shop floor management is done through personal touch, using various motivational tools and meeting their training needs. The Company has taken steps for safety of employees and implemented regular safety audit, imparted machine safety training, wearing protective equipments etc. During the year, Company has implemented ISO 45001:2018 standard.

The Company believes in empowering its employees through greater knowledge, team spirit and developing greater sense of responsibility. On the job training and management development programme series on skill upgradation has been attended by functions like Sales, Finance & Accounts, Purchase, Exports, Secretarial, IT and HR. The leadership team is also playing the role of mentors in order to support knowledge transfer, skill-building and career growth for their respective teams, fostering a supportive work culture across the organization. There were 288 regular employees as at March 31, 2025.

The significant changes in the key financial ratios of the Company, which are more than 25% as compared to the previous year are as given below: