Tinna Rubber & Infrastructure Ltd Management Discussions

1. ECONOMIC OVERVIEW Global Economic OverView

In 2023, the global economy experienced mod?rate growth, with a GDP increase of 2.9%, down from 3.2% in 2022. This slower growth was influenced by the persistent Russia-Ukraine conflict, high interest rates, and inflationary pressures. However, the reopening of Chinas economy post- pandemic and a reduction in the European energy crisis provided positive counterbalances. Global inflation, though projected to decrease to 6.5% in 2023, remained a significant concern.

In 2022, global inflation reached 8.8%, the highest in decades. US consumer prices surged by 6.5%, marking the highest increase in four decades. The Federal Reserve responded by raising its benchmark interest rate to its highest level in 15 years. These factors collectively contributed to moderated global spending, disrupted trade, and increased energy costs, slowing down global economic growth

Impact of Russia-Ukraine War on Recycled Rubber Market

The Russia-Ukraine war has significantly impacted the recycled rubber market by disrupting global supply chains and driving up raw material prices. The conflict has led to shortages in essential inputs for rubber production, such as natural and synthetic rubber, resulting in higher operational costs for manufacturers. Economic sanctions and trade restrictions have further complicated the export and import of rubber products, exacerbating market strain. Consequently, manufacturers are increasingly seeking alternative sources and investing in local production capabilities, which has boosted the demand for recycled rubber as a cost-effective and sustainable solution.

The increase in energy prices in Europe, a direct consequence of the war, has disrupted the supply of gas, which is essential as fuel for power plants. This shortage has prompted a shift towards using End-of-Life Tyres (ELTs) as an alternative fuel source for energy needs in Europe. This development has created new competition for us as it has resulted in an alternate use for these waste tyres accumulated in Europe.

Regional Analysis

The Asia Pacific region leads in both the production and consumption of recycled rubber, driven by the booming manufacturing sectors in countries like India and China. These nations are seeing increased demand for sustainable materials as they prioritize eco-friendly practices. This shift has led to significant growth in the adoption of recycled rubber across various industries, including automotive, construction, and footwear. The regions strong infrastructure development and commitment to circular economy principles are further propelling the recycled rubber market.

Additionally, several governments in Asia Pacific are actively promoting sustainable practices through regulatory frameworks and incentives. Stringent environmental regulations are encouraging industries to adopt recycled materials, with recycled rubber being a key choice. Governments are also creating a favourable environment for the recycled rubber market by offering incentives to businesses that incorporate sustainable materials into their supply chains.

Key Takeaways

The global recycled rubber market is anticipated for significant growth fuelled by rising demand for recycled rubber from end-use sectors like automotive & aircraft tyres.

Strategic partnerships, collaborations, product launches and product developments are crucial for securing parts, components, and expertise.

The Asia Pacific region is expected to continue its dominance, driven by increasing sales of personal vehicles and technology transfer within the automotive industry. China and India have experienced a significant surge in automotive production in recent times.

Indian Economic Review

India demonstrated remarkable resilience amidst global challenges, achieving an estimated economic growth of 6.8% in FY 2022-23. This growth was driven by robust domestic consumption, increased government spending, and a thriving manufacturing sector. India retained its position as the fifth-largest global economy and emerged as the second-fastest- growing G20 economy.

The governments strategic focus on capital expenditure, which saw a 35% increase, played a crucial role in sustaining economic momentum. Total gross tax collections for FY 2022-23 reached INR 18.10 lakh crore, marking a 22% increase from the previous fiscal year. Indias monthly goods and services tax (GST) collections also hit record highs, reflecting the strength of the domestic market.

Per capita income nearly doubled over nine years to INR 172,000, with a 15.8% rise over the previous year. Indias GDP per capita stood at USD 2,320 as of March 2023, nearing the threshold of USD 2,500, which typically signals a significant increase in consumption across countries. India is projected to maintain a growth rate of 6.8% in FY 2023-24, driven by capital expenditure, improved capacity utilization, and a better trade deficit outlook.

Governments Task Force Initiative

Indias commitment to sustainable infrastructure development has been further bolstered by the Government of Indias recent initiative to constitute a Task Force focused on the use of Bitumen/Modified Bitumen in National Highways Projects. The Task Force, established under the direction of the Honble Minister of Road Transport and Highways, is tasked with several key mandates.

These include recommending the appropriate type and grade of bitumen for different climatic zones considering factors such as ambient temperature, rainfall, and traffic loading intensity. Additionally, the Task Force will provide recommendations for maximizing the use of waste materials such as plastic, crumb rubber, and bio-bitumen in road construction.

This initiative is positive for tyre recycling companies, as it underscores the governments commitment to recycling and environmental sustainability. By promoting the use of crumb rubber and other recycled materials, the government is supporting the growth of the recycling sector, which is crucial for reducing waste and fostering a circular economy.

2. INDUSTRY STRUCTURE AND DEVELOPMENT

OverView

As natural resources dwindle, recycling has become a cornerstone of sustainable development globally. The rubber industry, particularly the recycled rubber sector, has gained importance due to the increasing need for sustainable practices. End-of-life tyres (ELTs) have transitioned from being considered waste to becoming a valuable resource. The recycled rubber market was valued at USD 1.2 billion in 2023 and is projected to grow to USD 2.8 billion by 2031, driven by the automotive sectors demand and rising environmental awareness. The increasing inclination of manufacturers towards rubber recycling, driven by rising natural rubber prices, is expected to significantly boost the global recycled rubber market over the forecast period. The automotive industrys demand for recycled rubber, due to its resistance to heat and ultraviolet light, is a key factor propelling market growth. Additionally, the growing use of recycled rubber in footwear manufacturing and rising environmental awareness, as recycled rubber is eco-friendly, are further driving market expansion. However, the introduction of products made from innovative elastomer-based materials poses a significant restraint to the growth of the global recycled rubber market.

Tinna Rubber and Infrastructure Limited (TRIL)

Tinna Rubber and Infrastructure Limited (TRIL) has established itself as a pioneer in the recycled rubber industry. The company is renowned for its Crumb Rubber Modifier (CRM) for bitumen, which has been used in laying over 100,000 lane kilometers in India. TRILs efforts in converting waste to wealth have set a benchmark in the industry. The company aggressively promotes the recycling of Truck/Bus Radial (TBR) tyres for use in new tyres, conveyor belts, and road construction.

TRIL stands out as the only company in India manufacturing rubber-based products for both road bitumen and non-road industries. It produces value-added products from steel reconditioning and ensures a steady supply of ELTs from regions like the Middle East, Africa, and Europe. With manufacturing facilities strategically located across India, TRIL has captured a substantial market share by maintaining high quality, reliability, and customer satisfaction.

TRIL holds a significant market share of over 60%, maintains long-term partnerships with petrochemical Companies and working closely Indias leading construction companies.TRIL manufactures all grades of Cationic Bitumen Emulsions meeting BIS standards provides a durable and cost-effective solution for new construction and maintenance of wearing courses.

TRIL is one of the worlds largest MRP producers. We Utilize an indigenously developed Ambient Grinding Process for production, with matured application in tyre/conveyor belts, MRP exhibits a prime example of Circular Economy. Hi-tensile Ultrafine reclaim rubber/Crumb Rubber/Tyre Crumb is 100% strained and devulcanized rubber which is compliant with REACH, PAH, and RoHS regulations

Segment-wise or Product-wise Performance Infrastructure Segment

The infrastructure segment experienced robust growth, driven by increased highway construction efforts. The segment saw a 16% increase in volume and a 28.5% increase in revenue on a quarter- on-quarter basis. The total revenue for this segment in FY 2024 was INR 1,878 million, up from INR 1,446 million in FY 2023

Industrial Segment

The industrial segment also showed promising growth, with a 13% increase in volume QoQ for MRP (micronized rubber powder). The total revenue for this segment in FY 2024 was INR 922 million, up from INR 813 million in FY 2023. Notably, there was a 100% quarter-on-quarter volume growth in MRP from export accounts, demonstrating the segments expanding international reach

Consumer Segment

There was a 150% YoY increase in volume from rubber mats, brake pads, and other consumer applications. The total revenue for this segment in FY 2024 was INR 367 million, up from INR 215 million in FY 2023. The consumer segment, particularly the turf segment, has witnessed a 15% volume growth on a QoQ basis and a 135% increase in volume on a YoY basis.

Steel Segment

The steel segment experienced a 27% QoQ increase in revenue, driven by higher levels of tyre crushing. The total revenue for this segment in Q4 - FY 2024 was INR 132 million, up from INR 118 million in Q4 FY 2023. Over 20% growth in steel abrasive sales was noted on a QoQ basis

Operational Highlights

Increased Tyre Crushing Volume: Achieved a 30% year-on-year increase in tyre crushing volume, demonstrating enhanced operational efficiency and market demand.

Impact of the Red Sea: The impact of the Red Sea increased input costs approximately by 10% during the year.

Investment in Solar Energy: Announced the establishment of a 1.2 MW solar plant, scheduled to be operational by Q2, which will generate 1.6 million units annually, significantly contributing to our renewable energy portfolio.

Interest Rates Reduction: Reduced interest rates by 1% compared to the previous year, resulting in savings of INR 6 million, enhancing our financial stability.

Debt Equity Ratio: Improved debt-equity ratio to 0.46 from 0.59, excluding the impact of a term loan amounting to INR 254.5 million.

Credit Cycle: Shortened the average credit cycle to 32 days from 40 days, reflecting improved efficiency.

Inventory Turnover Ratio:

Improved inventory ratio to 9.14 from 8.47 year-on-year.

Debtor Turnover Ratio: Debtor Turnover Ratio increased from 9.09 to 11.73

Interest Coverage Ratio: Interest Coverage Ratio improved to 8.52 from 4.77 year-on-year

Current Ratio: decreased to 1.07% from 1.32% year-on-year

Operating Profit Margin: Operating Profit Margin improved to 16.45% from 12.30% year-on-year

Net Profit Margin: improved net profit margin to 11.10% from 7.38% year-on-year

Change in RONW/ROCE and explanation thereof: increased to 27.60% from 22.24% year-on-year

Other Developments

IATF Certification: TRIL achieved IATF certification for its Wada and Gummidipoondi units.

Membership: TRIL is the only Indian company representing the country as a member of the "RUBBERIZED ASPHALT FEDERATION" USA.

Credit Rating: TRILs credit rating was upgraded to BB+ by CARE during Q2 FY24, with further improvements anticipated in FY 25.

Acquisition: TRIL acquired Global Recycle LLC, a tyre recycling company in Oman, investing INR 127.5 million.

CAPEX: TRIL made a capital expenditure of INR 450 million for greenfield projects, including a passenger car tyre recycling plant in Maharashtra and a plastic and rubber composites facility in Panipat, Haryana.

ESOP Scheme: TRIL introduced an ESOP scheme for its leadership team.

Project Initiatives

Varle Plant: In FY 2024, TRIL initiated a capex of INR 440 million to establish a state-of-the-art tyre recycling plant in Varle, Maharashtra. The plant was commissioned in record time and commenced production in February 2024. It has the capacity to recycle approximately 60,000 MT of passenger radial tyres annually. The plant contributed INR 30 million in revenue in FY 2024, with an expected contribution of INR 750 million to INR 1,000 million in FY 2025.

Oman Plant: TRIL acquired its maiden overseas facility in Oman, investing USD 1.5 million, and named it Global Recycle LLC. Production commenced in July 2023, processing approximately 5,000 MT of end-of-life tyres in its first year. The facility generated USD 1.56 million in revenue, with a net EBITDA profit of USD 170,464. The plant has a capacity to process 15,000 MT of waste tyres annually and is currently exporting goods to India and Sri Lanka.

Thermoplastic Elastomer Plant: TRIL set up a thermoplastic elastomer plant within its existing tyre recycling facility in Panipat. The plant, commissioned and operational since March 2024, serves as a pilot with a capacity to process 6,000 metric tons of plastic/rubber components annually. Active R&D is underway to develop customized products with diverse applications, including compounds for footwear, automobile parts, and rubber-molded goods. Commercial sales are anticipated to commence in Q2 FY 25.

TP Buildtech Insights

Established in 2012, TP Buildtech specializes in concrete waterproofing admixtures, cement admixtures, and superplasticizer admixtures. The company operates manufacturing units in Wada and Bawal, supported by exclusive R&D centers in Navi Mumbai, New Delhi, and Kolkata. Future production sites are planned for the eastern and northern regions of India. The company is planning to introduce a new range of products like accelerators and SNF admixtures for concrete, which will commence in Q4.

Financial Performance

TP Buildtech reported sales of INR 6,402 lakh in FY 23-24, up from INR 6,083 lakh in FY 22-23. EBITDA also showed significant growth to 14%, up from 7% doubling in FY24. The companys ability to customize products and its strong presence in Western India have been key drivers of its success. TP Buildtech aims to grow by 30% in FY 25 over FY 24 with the introduction of new product ranges and expansion into Northern and Eastern India.

3.OUTLOOK

Extended Producer Responsibility (EPR)

The EPR policy, notified in July 2022, mandates that producers, importers, and brand owners are responsible for the end-of-life management of their products. This includes collection, recycling, and safe disposal, ensuring minimal environmental impact. The EPR policy aims to enhance recycling rates, reduce landfill waste, and promote the circular economy.

Impact on TRIL and the Recycling Industry

The EPR policy has significant implications for TRIL and the recycling industry:

Market Demand: The mandatory recycling targets set by the EPR policy are expected to boost the demand for recycled materials, benefiting companies like TRIL.

Revenue Growth: TRILs registration with the CPCB and the sale of EPR credits contributed INR 66 million to the companys revenue in FY24.

Sustainability: The policy supports sustainable practices, aligning with TRILs commitment to environmental stewardship.

Industry Growth: The EPR policy encourages investments in recycling infrastructure, driving industry growth and innovation.

Opportunities and Threats

Opportunities

Expansion of Recycling Capacity: Increasing the capacity to recycle end-of-life tyres and other materials will allow TRIL to meet growing market demand.

Growing Demand for Sustainable Products: Rising awareness and demand for sustainable materials provide a significant market opportunity.

Regulatory Incentives: Government regulations promoting recycling and sustainable practices will support industry growth.

Export Potential: TRILs strategic expansion into international markets presents opportunities for revenue growth and market diversification.

Launching Specialised Polymers: TRIL is launching a new range of specialized polymers. We have advanced significantly with our pilot plant in Panipat. Were developing polymers like TPE, TPR, and TPV using Micronized Rubber Powder (MRP) blended with waste plastics for applications such as plastic pallets, auto parts, masterbatches, and footwear, which is in advanced trial stages.

Industry Partnership with ITTAC / ATMA on the Crumb Rubber Project :In FY 2024-25, Tinna Rubber and Infrastructure Ltd. proudly joined the Crumb Rubber Project as an industry partner, a pivotal initiative under the Industry-Academia Collaboration program by the Indian Tyre Technical Advisory Committee (ITTAC) & the Automotive Tyre Manufacturers Association (ATMA). This collaboration aligns with our commitment to circularity & sustainability. As a leading crumb rubber manufacturer in the country, Tinna Rubber will play a crucial role in the projects preliminary discussions, focusing on the grade, specifications, and quality of crumb rubber produced at our plant . This partnership exemplifies our dedication to advancing sustainable practices and fostering innovation within the industry.

Growth Drivers

Regulatory Support: The EPR regulations and government policies promoting sustainable practices are expected to drive demand for recycled rubber products.

Infrastructure Development: Increased government spending on infrastructure projects will boost the demand for modified bitumen and CRM.

Technological Advancements: Continuous innovation in recycling technologies will enhance efficiency and product quality, supporting market growth.

Global Market Expansi?n: TRILs efforts to expand its presence in international markets, particularly in Europe and Asia, will contribute to revenue growth.

Threats

Raw Material Price Fluctuations: Volatility in the prices of raw materials, particularly imported waste tyres, can impact profitability.

Environmental and Health Risks: Improper disposal of end-of-life tyres poses environmental and health risks, which could lead to regulatory challenges.

Technological Obsolescence: Rapid technological changes necessitate continuous innovation to remain competitive.

Regulatory Changes: Unfavourable changes in government policies and tax regulations could adversely affect the companys operations and profitability.

Risks and Concerns

TRIL adopts a proactive risk management approach aimed at protecting its employees, assets, and the environment while ensuring business growth and continuity. Key risks identified include:

Fire and Flood Risks: The inflammable nature of tyres poses fire risks, mitigated through comprehensive insurance and firefighting measures.

Regulatory Risks: Changes in government policies could impact demand and profitability.

Technological Risks: Rapid changes in technology necessitate continuous investment in innovation.

Economic Risks: The macroeconomic environment influences the demand for bitumen modifiers and other products.

Internal Control Systems and Their Adequacy

TRIL has implemented a robust internal control system that is commensurate with the size and nature of its business. Key features include:

Compliance: Ensuring adherence to laws, regulations, and internal procedures.

Asset Protection: De-risking assets and resources to prevent loss.

Financial Integrity: Ensuring accurate and authorized recording and reporting of transactions. Budget Monitoring: Preparing and monitoring annual budgets for all functions.

Information Reliability: Ensuring the reliability of financial and operational information.

Audit Committee: Regular reviews of audit plans and findings by the Audit Committee.

IT Systems: Continuous upgrades of IT systems to support business operations.

Financial Performance Viz-a-Viz Operational Performance

The details of the financial performance of the Company are appearing in the Balance Sheet, Profit & Loss Statements and other financial statements forming part of this Annual Report. For financial highlights please refer to the heading FINANCIAL RESULTS of the Directors Report.

Human Resources and Industrial Relations

TRIL recognizes the importance of its human resources in driving its success. The company has implemented policies that foster continuous learning and innovation. As of March 31, 2024, TRIL had a dedicated team of 811 employees, maintaining strong industrial relations.