indag rubber ltd Management discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

IMF has projected global GDP growth to decelerate to 2.8% in CY23 from 3.4% in CY22 due to developments related to instability in financial sector, expectations of steeper interest rate hikes by major central banks to fight inflation and spillover effects from the war in Ukraine with gas supplies from Russia to Europe tightening. The growth in China is expected to rebound sharply to 5.2% in 2023 from 3% in 2022 led by a removal of Covid-19 restrictions.

As per IMF, despite the shocks of COVID-19, the Russian-Ukraine conflict, and synchronized policy rate hikes by central banks to curb inflation, India Continues to be the fastest-growing major economy in FY24, with a projected GDP growth rate of 5.9%.

Indias economy has position itself to ascend to the pre-pandemic growth path. However, high inflation, aggressive tightening of monetary policies by advanced economies, opening up of China and an unstable labor market remain major challenges.

The growth of Tyre Retreading Industry is primarily dependent on the usage of Heavy Commercial Vehicles. During the FY2023, the industry registered growth due to post COVID recovery and is expected to return to prepandemic levels by FY 2024. The Commercial vehicle segment has made a sharp recovery and is growing at a positive rate.

The Ministry of Environment in India published Extended Producer Responsibility ("EPR") for Waste Tyre Policy in July 22. EPR policy included retreading as an integral part of the Policy, thereby recognizing retreaders as an essential part of the waste tyre management system. Under this Policy, tyre companies would give a big push to retreading industry because whatever is produced by tyre companies, they are expected to get certificates from reclaim manufacturers/retreaders. We expect that the Governments increased focus on sustainability will help the industry perform better.

OPPORTUNITIES AND THREATS

The demand trajectory is improving due to the growth in the industrial and construction activities along with various government initiatives. Infrastructure, real estate, transportation, and logistics, as well as rising radialization, formalization of value chains, and significant demand for new tyre replacement, are anticipated to promote this business.

Additionally, the current budget policy of the government for infrastructure-related projects has had a significant impact on the economy, leading to increased consumption of raw materials like steel and cement, which will drive demand for trucks going ahead.

During the year, the Company has taken measures to improve quality and focus on increasing outreach to improve brand presence by strengthening organized retreaders and focusing on fleets. This is helping to create value for fleet owners & operators by bringing down tyre costs and reducing cost per km.

Increase in commodity prices, inflation, and supply chain disruptions could have a negative impact on the margins of the Company. In addition to these factors, several other events could also contribute to the challenging business environment such as El Nino impacting agricultural output, the opening up of China leading to increased competition for resources, outcome of geopolitical tensions due to Russia-Ukraine conflict, and OPEC reducing oil production leading to higher oil prices. We need to monitor these trends closely and develop strategies to mitigate their impact on their operations and margins

OUTLOOK

Retreading is one of the most sustainable solution and safe alternative to new tyres with massive amounts of environmental savings in raw materials, (oil, natural rubber, steel), reduced carbon emissions and landfill of used casings. Growing demand for sustainable & cost-effective tyres, the expansion of the logistics industry, and rising freight demand combined with improvements in road infrastructure resulting in faster movement of goods, will boost the growth of Retreading Industry. Other contributing factors include increasing radialization, higher capacity trucks, and regulatory action against overloading. Moreover, the formalization of businesses due to demonetization and the implementation of GST presents a significant growth lever for the industry. Currently, only half of the retreading industry is organized, and this is expected to increase gradually in the coming years. This trend towards formalization can lead to the adoption of advanced technology, improving the quality of retreaded tyres, and increasing the market share of branded retreading products

RISKS AND CONCERNS

The company has laid down a well-defined risk management mechanism covering the risk mapping and trend analysis, risk exposure, potential impact and risk mitigation process. A detailed exercise is being carried out to identify, evaluate, manage and monitor various risks. The Audit Committee and the Board periodically review the risks and suggest steps to be taken to manage/ mitigate the same through a properly defined framework.

During the year, a risk analysis and assessment was conducted and no major risks were noticed, which may threaten the existence of the company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adequate internal control systems and procedures designed to effectively control the operations at its Head Office, Plants 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 Audit. 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.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial statements have been prepared in accordance with the requirement of the Companies Act, 2013 and applicable Accounting Standards issued by the Institute of Chartered Accountant of India.

(Rs. in Lakh

Sl. No.		Particulars	Year ended		Year ended
			March 31, 2023	March 31, 2022	March 31, 2023	March 31, 2022
			Standalone		Consolidated
1.		Revenue from operations	24,385.53	16,692.52	Not	16,692.52
		Other income	838.79	640.98	Applicable	648.04
2.		Total income	25,224.32	17,333.50		17,340.56
3.		Expenses
	Cost of materials consumed		17,506.06	12,150.73		12,150.73
	Purchases of stock in trade		58.99	17.55		17.55
	Changes in inventories of finished goods, stock-in-trade and work in progress		(132.25)	(152.44)		(152.44)
	Employee benefits expense		2,211.55	2,065.85		2,065.85
	Depreciation and amortisation expense		445.71	418.27		418.27
	Finance costs		32.89	16.83		16.83
	Other expenses		3,377.32	2,530.26		2,550.28
4.	Total expenses		23,500.27	17,047.05		17,067.07
5.	Profit before Share of Profit/ (loss) of Joint Venture and tax		1,724.05	286.45		273.49
6.	Share of loss of Joint Venture		-	-		47.41
7.	Profit before exceptional items		1,724.05	286.45	Not Applicable	226.08
8.	Exceptional Items		-	-		-
9.	Profit/(loss) before tax		1,724.05	286.45		226.08
10.	Tax expense
	Current tax		404.06	43.62		61.49
	Deferred tax		(2.47)	(7.29)		(7.29)
	Income tax adjustment for earlier years		(1.20)	(9.06)		(9.06)
11.	Total tax expense		400.39	27.27		45.14
12.	Profit after tax		1,323.66	259.18		180.94
13.	Profit / (loss) after tax from discontinued operations		-	-		24.26
14.	Profit/(loss) for the year		1,323.66	259.18		205.20
15.	Other Comprehensive Income (net of tax)		(166.91)	1,306.45		1,312.39
16.	Total Comprehensive Income		1,156.75	1,565.63		1,517.59

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

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 equipment etc.

The Company believes in empowering its employees through greater knowledge, team spirit and developing greater sense of responsibility. On the job training as well as classroom training by way of seminars, conventions, functional and managerial programs for capability development and building technical expertise were attended by respective functions such as Sales & Marketing, Finance & Accounts, Procurement, Supply Chain, HR etc. There were 293 regular employees as at March 31,2023.

SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

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

Sl.No.	Particulars	FY 2022-23	FY 2021-22	Change (%)	Explanations
(i)	Operating Profit Margin (%)	7.20	1.82	296%	Improved operations of the Company and supply chain post COVID-19 disruptions.
(ii)	Net Profit Margin (%)	5.43	1.55	250%	Increase in revenue from operations.
(iii)	Interest Coverage Ratio	66.97	42.87	56%	Increase in revenue from operations.
(iv)	Debt Equity Ratio	0.19	0.13	46%	Increase in trade payables.
(v)	Return on Net Worth	5.60	7.94	-29%	Reduction in other comprehensive income due to lower income from investments.

 

	For and on behalf of the Board of Directors
	Indag Rubber Limited
	Nand Lal Khemka
Place : New York	Chairman & Managing Director
Date : May 5, 2023	DIN: 00211084