GRP Limited (509152) Earnings Call Transcript & Summary

A very good morning to all of you, ladies and gentlemen. Thank you for joining us on the annual fiscal '20 earnings conference call. Along with me today, I have our company CFO, Ms. Shilpa Mehta; and SGA, our investor relations advisers on the call. Firstly, I'd like to ask if each of you are safe and everyone around you is safe and in good health, given the current times that we are all in. We have uploaded our results on the stock exchange, and I hope all of you have had a chance to go through the same. While most of you are familiar with the company and what we do, I'd just like to kind of run a quick recap on our businesses and the verticals, just so that there is greater clarity, and then will help you guys prior to the Q&A section. So the company was incorporated more than 45 years ago. And over the years, we've grown from being a single-product company operating in the Reclaim Rubber business to now a multiproduct business, but all of them with a singular focus of providing sustainable material solutions to substitute virgin rubber and plastics. The focus has been also on using a single source of raw material, which has been end-of-life tires, and trying to extract as much value as we can through the multiple business units that have been set up. At the moment, therefore, we are operating 4 business verticals within the company and one which is outside the company which I will talk about separately as well. So the core of the business continues to remain Reclaim Rubber, and this is the predominant business of the company. This is where we recycle end-of-life tires, tube and other automotive product waste to make rubbers which are used again by the tire manufacturers, conveyer belt manufacturers and other auto and industrial product manufacturers, to blend along with the virgin rubbers. In some ways, we are helping most of the tire manufacturers fulfill their circular economy obligations. And therefore, they are able to use this material successfully making new tires. We supply to 7 out of the top 10 global tire companies in the world and all of the Indian tire manufacturers in the country. And we are an export-dependent company. So our exports are to more than 45 countries as far as Reclaim Rubber business is concerned. Our second segment is Industrial Polymers or what we also call Engineering Plastics. This business uses the nylon from end-of-life waste, partly tire waste and also other types of end-of-life waste. And here, we make products which are up-cycled nylon as well as nylon compounds. And this finds application in the sector ranging again from automotive to consumer goods to industrial applications, mainly the electrical and switchgear sector. And in the consumer goods, it is mainly the furniture and the furnishing leather sector. This is an upcoming business. We've been investing steadily over the last few years. And now we've gotten to a stage where commercialization has happened and certain recent capacity expansions and additions have also taken place in this, which I will briefly touch upon a little later. Our other business is a business called Custom Die Forms. Here, we take the end-of-life tires itself and try and recover as much of the engineering and sound barrier properties of this and cut out products which are going in B2C markets, specifically in the U.S. And these are finding end users in agricultural application, in exotic applications like snow mowers in North America. And also in the general-purpose applications like mats and stable mats and so on and so forth. The other business, the fourth business, which I mentioned earlier, is the Polymer Composite business. Now, this is a tie-up with an American company for whom we are exclusive contract manufacturer. And we produce composite boards based on recycled rubbers and plastics. And this end application is used to substitute wood and concrete in a variety of end segments. As the industry is moving away from wood and moving away from products which are more, if I may, environmentally polluting, this end application is a fairly strong niche that we've been able to establish, and hopefully, we'll grow this over the period of the next few years. We also operate a tire retreading vertical, and this is in a separate company where GRP is a 50% joint venture partner with an Italian company called Marangoni. And Marangoni is one of the world's largest independent tire retreading companies. And this business is being built as a franchise model, and the idea is to set up franchises with entrepreneurs in their respective geographies, setting this up in close association with the transportation industry in these centers. And the franchise network will be supported by the joint venture, which is called Marangoni GRP Private Limited, by way of supply of tread rubber and equipment to do the retreading. So this is a little bit about the businesses. Our focus over the last few years has been to diversify business segments to reduce our concentration risk. And with a singular focus earlier on the tire industry, we are now looking to diversify this industry risk and to achieve circularity for the overall mobility industry. And I think as I mentioned before, the core focus continues to remain extracting maximum value from a single raw material source. This enables us, of course, to cater to a wider industry set and, as I mentioned, reduce dependence on a single industry. Most of these businesses that I talked about are research-driven, have a very strong niche compared to other competitors in those industries and certainly will command a much higher profitability as they kind of scale. And the synergies that each of these businesses derive from one another, including the common raw materials, will lead to, in our belief, a much better return on investment in the longer run. Now these businesses, while they have been incubated over a time frame ranging from 2 to 5 years, they have now all moved -- if I may say comfortably, that they all moved from a phase of development to becoming commercial. And all of these have now kind of are gaining more traction than they were -- have been accepted universally across all the applications. And as I've mentioned before, as far as Engineering Plastics is concerned, we just commissioned a new line of production and where our capacity for the business has gone from 2,400 tonnes to 6,000 tonnes. So an addition of 3,600 tonnes per annum has taken place. And this kind of machines arrived only around March but have just been recently commissioned, and therefore, as part of the Unlock 1.0, we've been able to commission this equipment and now take the capacity to 6,000 tonnes. Another significant feather that we've added in our cap has also been the certification as a Great Place to Work. We realize that as we are scaling into other businesses, it is important for us to be able to attract and retain the right kind of talent. And this has been in that sense is a move towards that, to see how we can attract the right kind of talent to kind of expedite growth in some of these businesses. So with this broad introduction, I'd like to sort of ask our company CFO, Shilpa, to take you through the operational and financial highlights of Q4 as well as the fiscal year '20. And thereafter, we will talk a little bit about the near-term impact of COVID and also open up thereafter for Q&A. So over to you, Shilpa, if you can briefly talk about the numbers.

Yes. Thank you, Harsh. Good morning, everybody. So as for our operational and financial highlights of GRP for the financial year '20, total volumes for FY '20 stood at 59,850 metric tonnes as against 64,226 metric tonnes in FY '19. So it was approximately down by 7%. Of total volumes, domestic volumes constituted 37% while export volumes contributed [ 60% ] in FY '20. Of course, for simplification, we have isolated our business in 2 segments, Reclaim Rubber and non-Reclaim Rubber business. Reclaim Rubber business being the dominant one, which contributes around 95% of total revenue in FY '20; while non-Reclaim Rubber, which comprises Industrial Polymers, Custom Die Forms, Polymer Composite, contribute the rest. Consolidated revenue from operations for FY '20 stood at INR 3,487 million as compared to INR 3,574 million in previous year. So that is a reduction of 2% from our previous year. Revenue was poised to grow over the previous year, but due to the drop-down impact on account of COVID in March, it couldn't happen. Consolidated gross profit for FY '20 was at [ INR 1,784 million ] as compared to [ INR 1,852 million ] in FY '19. So there is a reduction of 5 -- 4% over previous year. Consolidated gross margin is at 51.2% for FY '20 as compared to 52.2% of sales for FY '19. Consolidated EBITDA for FY '20 was at [ INR 196 million ] at 5.6% of sales compared to [ INR 254 million ] in FY '19. So over the previous year it is down by 25%. This decline in EBITDA and EBITDA margins were largely due to the disruption in the business during second half of March, when there was no revenue. However, expenses continued to incur off our fixed [indiscernible]. Consolidated PAT, profit after tax, was at INR 30 million in FY '20 as compared to INR 53 million in previous year. Gross debt for the year as at 31st March 2020 was at INR 855 million, reaching both long-term and short-term debt. And here, this is gross and -- which does not include the impact of balance lines [indiscernible] account of INR 82 million. So net debt is at INR 773 million. And [ due to ] -- for March, the lockdown happened due to COVID, so we have estimated the loss on account of this COVID impact or lookdown impact, which occurred due to loss of sales and due to [indiscernible] fixed and variable expenses, which was around INR 1.40 crores. So now I will ask Harsh to take over to explain the impact of COVID on economy and our business.

Thank you. Thank you, Shilpa. I'll give you a brief about what the impact of COVID has been. I'm sure all of you have questions around what has been the impact of COVID and its impact, therefore, on our business. So I will dive into that, such that the Q&A is a little more meaningful for all of us. The rapid outbreak, which sort of has been a significant health crisis around the world has quickly kind of moved from being a health crisis to becoming also as much a significant economic crisis. And I think we are all familiar with and have all become experts at how this is going to impact us, yet all of us continue to be in the dark on how it will -- what it will mean in terms of numbers. So while the government aims at containing the pandemic and yet slowly, slowly opening up the economy, I'd like to dive deeper into what have been the challenges that we as GRP have faced and, therefore, what we are doing to address those. So it is clear for all of us to see that the pandemic has disrupted, not just the supply side, but significantly also the demand side of the equation. As a result, all our manufacturing facilities had to be shut down during March, starting the 21st. Some of them opened -- 2 of the plants opened in April around the 20th of April; 2 plants opened in the first week of May; and then another plant opened in the second week of May. And these were all based on the guidelines issued by the local, central and state government. And as a result of this shutdown, the impact on revenue and profitability is going to be fairly significant. With the easing of the lockdown, one of the biggest challenges has been to resume operations based on the directives that have been given. But more importantly, to restart operations adhering to certain safety and social distancing norms and also ensuring employee well-being is at paramount in terms of focus. So we've developed, obviously, the right workplace guidelines and in line with the directives issued. And all our facilities, I can say fairly confidently, are now operating with utmost care towards ensuring employee health and safety, ensuring distancing norms and ensuring effective work-from-home core functions and departments which are not able to go back to work, and that is specifically the head office in Bombay. We've obviously also focused right from the day of the lockdown in ensuring that our short-term financial liquidity is addressed suitably, and then also taken active steps to ensure long-term survival of the business. Most of our customers in India are obviously shut down, as we all know. And most of them have resumed operations, but again, at varying scales and utilization of capacity levels. But as a result, more or less over the last 2.5 months, we lost all the domestic sales because most people had inventory, et cetera. So our domestic sales have started to resume only by the end of May. For us, the silver lining has been the export customers. I mean most of you are aware that our exports has been more than 2/3 of our total revenue. And most of our customers in overseas markets continue to operate even during the lockdown in India. So this led to a quick resumption in sales in the international markets as and when we were able to restart our plants. So while the demand continues to be significantly lower levels compared to what we were averaging most of last year, we are expecting, hopefully soon that the demand will kind of return to normal levels. Speaking of the automotive industry, I mean I think we all know that, in India, the automotive industry even pre-COVID was going through a fairly significant challenge in terms of the BS-VI challenges that they were facing, increase in fuel prices, higher interest rates on account of the NBFC liquidity crisis, et cetera. And as a result, the pandemic has actually only worsened that situation. Of course, many domestic auto companies have started reporting that things are kind of getting back to normal and so on. I think only time will tell how soon this normalcy will get reverted to or resorted to. At this moment, I can say confidently that GRP is in a very comfortable liquidity position to meet its financial and all other commitments. We have taken active steps of rigorously assessing our operational liquidity and taking significant measures in reducing our cost structures in a variety of areas. Employee costs being one of the major ones, where we have unfortunately had to go through a round of layoffs. We've also frozen hikes in salary, of course. And for the first quarter, we have imposed cuts in salaries across the organization, starting from the senior management level. We have deferred most of our CapEx. And thankfully, again, because of a fairly significant robust debtor book, which were comprised mostly export customers, our collections continue to be at a clip or at a pace which is faster than our expense cycle. So therefore, we have a comfortable liquidity situation in terms of unutilized working capital resources. We believe there will be, obviously, on account of all of this, a significant impact to revenue and profitability for Q1 as well as for all of FY '21. But hopefully, we are confident that we'll be able to adapt to this changing business environment and respond suitably to fulfill the needs of our customers. I'd be happy to take any questions which may be a little more specific towards this impact or even answer questions at this stage on even last year's performance. I'd like to leave now the floor for Q&A, and hope to answer all of your queries over the course of the next hour or so. Thank you.

Thank you very much. [Operator Instructions] The first question is from the line of [ Ankit Agrawal ] from [ ARC Capital ].

Sir, I have a couple of questions. The first one being, like, what's the company's capacity utilization for the whole year?

Sorry. Yes, so capacity utilization in FY '20, it was at about 85% of the installed capacity.

Okay. And what's it for like different segment, if you can give that also?

The utilization by different businesses?

Yes.

So it's a little difficult in the sense that the capacity number is a function of product mix. So normally, when we do talk about our capacities, it is based on a certain product mix. And therefore, it is tough to give a product-wise or a business-area-wise utilization. But as I said, broadly, one can assume that the utilization has been at around 85%. Because product mix determines the eventual end capacity, so it'll be inaccurate to provide a number for each of the businesses as a result.

Right, right. And sir, as you mentioned in your opening speech, that the tire industry has kind of slowed down due to the pandemic. So I mean has there been like reduced orders to GRP as well?

Yes. For the Q1, I mean, in the domestic tire industry, as I've said, we have -- our first sale in the domestic industry happened only towards the end of May. So while we started operating from end of April in some plants, the domestic orders, tire industry orders, started to come in only much later. Because I think everybody was -- struggled with quite a lot of inventory as on March. And as a result, even when they started production, they did not need new materials.

Okay. Right. And my last question is on the raw material. So where do you source the raw materials from, which is end-of-life tires?

95% of our end-of-life tire material is bought from within the country, within India. And this is from a collection network that is spread across the country and a combination of institutional sales, which is options of some state road transport corporations and large corporate fleets. Two, retail collection, which is a pyramid kind of a network where the collection happens at a puncture shop and then aggregates across levels before it kind of reaches our plant. So -- but we have about 180 or 200 active suppliers from across the country from which we source these materials.

And in this situation, you have been like facing difficulty or has it eased? Like what's been the condition there?

So generation of tire waste has obviously taken a little bit of a hit on account of low sales and low economic activity per se. I mean but that's a very short-term trend. Normally speaking, this is times -- like the pandemic at this stage, this is a time when rather than sales of OE, the replacement sales will actually pick up. And whenever there is more replacement sales, it means there is more greater generation of waste tires. So going forward, we expect for this fiscal year, the availability of raw materials will be relatively easy compared to the past years.

[Operator Instructions] The next question is from the line of [ Ayush Agarwal ] from [ Viadent Limited ].

So I have a couple of questions. So first question is what is the demand outlook for the Reclaim Rubber business considering the weak demand from the tire industry?

So I'll put this question in 2 buckets. One is in immediate short-term and then one is a little bit long term. When it comes to the immediate short-term demand, I think one has to rely a little bit more on the way the auto industry and the tire industry are talking about the outlook. So I mean I think we've been hearing a lot of our industry stalwarts from the auto sector, the likes of M&M, likes of Bajaj and the likes of Maruti, if you look at these 3 major segments, and they're all saying that they are starting to see some sort of pickup in demand over the course of the last 7 weeks. Now what really happens is everybody's guess at this moment. But at the moment, there is an expectation that there will be some amount of pent-up demand will kind of get met, hopefully. But in any which case, our expectation is that the replacement demand will kind of start looking better over the course of the next few months. And that should hopefully help the entire value chain as far as the replacement side is concerned. So that's the immediate thing. I mean I'm unable to provide any numbers, but what we are starting to see is some level of normalcy returning in a few sectors of the economy. And therefore, a few types of tires and few types of categories of tires where the demand is starting to kind of return to normal. As far the international markets are concerned, as I mentioned, most of the international plants continue to operate. There, the reduction in demand is not as severe as we have seen in India. And therefore, while it is lower than what their order situation has been, there have been not many cancellations, and for others, there have been post [indiscernible] orders, which means the immediate demand in the international markets is not as bad as what we've seen in the Indian markets. As far as the long term is concerned, our very strong belief based on conversations we've been having with our customers is that in the long term, tire companies and other manufacturers are looking at solutions of sustainability, more so than they have before. And this is clearly because I think pandemics like this provides the right impetus to social businesses, and circular economy businesses are definitely going to gain as a result of this. The other thing that will also happen is that the companies are going to be forced to look at reducing costs. And we have been having active conversations with some of our customers in the tire industry for trying to help them use more of reclaimed rubber in their products. Of course, these are developments that are not going to be overnight. These do take a few months to fructify. But therefore, from an indication point of view, what we are seeing is there is a greater interest in looking at recycled rubber more to fulfill their environmental obligations as well as to reduce cost in the future. So that's how I would categorize the 2, the immediate short-term and the long term.

Okay. So the second question is I want to know the quantity of reclaimed rubber used to manufacture one tire.

So this is not a straightforward answer. And the reason for that is every tire company has a different formulation that they use, and therefore, the percentage varies. Generally speaking, in India, the percentage of reclaimed rubber that is used by the tire industry is at about 7.5% to 8% of the total rubber that they use. Now this depends, in the 2-wheelers, the percentages would be a lot higher, and it would kind of keep reducing as the tire sizes kind of grow. So in a commercial vehicle tire, by weight, the percentage of reclaimed rubber will be much lower, while in a 2-wheeler, it would be much higher. Same in the case of a tractor tires and so on, which are the off-road tires. There, the percentage of reclaimed rubber again would be much higher. So I think the percentage or the weight of reclaimed rubber in a tire will depend on the type or category of tire, and its speed and performance will determine the extent of reclaimed rubber that can be used.

Okay. So do we see increasing trend looking at the current cost rationalization by the tire OEM?

Yes. As I mentioned in the previous question, yes, we are seeing an increasing interest by the tire industry in using more reclaimed rubber in their formulations, and we are running active programs with a few tire companies at the moment to help them in incorporating more reclaimed rubber.

Okay. So have we -- and any demand regarding it?

I'm sorry?

Have we enhanced any demand?

So as I said, these are long-term projects. So these take a few months before they fructify. So our conversations have started with a lot of them over the course of the last 3, 4 months. So we are hoping that in the course of the next few months, we will have an indication of what this means in terms of volumes for us. I can't put a number at this stage.

Okay. So what kind of return on capital you expect from the new non-Reclaim business?

I mean again, I think COVID has thrown a lot of estimations as well as forecasting a little bit out of the window. But I can say confidently that all of the other businesses are all generating high double-digit EBITDA margin. And the return on capital is also fairly healthy and robust compared to the Reclaim Rubber business at this time. I think as we scale these businesses, I think that one will get a better sense of what the ROCE numbers for each of the businesses are. Right now, because a lot of costs are shared across each of the businesses, it's very tough to put out numbers on each of these.

[Operator Instructions] The next question is from the line of [ Atul Shah ] from [indiscernible] Securities.

Sir, I just have a couple of questions. Can you highlight in detail about the business model of our each of non-Reclaim Rubber business?

Sure. As I mentioned in the opening remarks as well, there will be a little bit of repetition, but I'll just go through very briefly. Essentially, the idea is to use the single raw material or majority of our raw materials will be the end-of-life tires. To put it in context, you take a tire and you are able to make components directly cut out of and split out of the tires, and that is the business of CDF, where we assemble it to make mats and barriers for sound as well as insulation in a lot of applications, agriculture as well as the household applications. So that's the business of CDF. Whatever is the rubber and the fiber that is left over, we separate the rubber out and separate the fiber out as much as we can. And for that, we have patented processes to do it. And that business that is separating the nylon fiber out of the tire is the business of Engineering Plastics or Industrial Polymers as we -- as I talked about. And this business uses this nylon that we recover from the end-of-life tire to upcycle to make, again, engineering plastic compounds. So this is, again, nylon that goes into automotive industry, into things like cable ties, into things like gear knobs, switchgears, et cetera. And it also goes in furnishings and furniture to make all the handles and the base of the chairs and so on, which are all nylon-based. So that's the business of Industrial Plastics (sic) [ Engineering Plastics ] or Industrial Polymers, where we separate the nylon and we upgrade that to sell it to the other sectors. The rubber that is left over, we have 2 uses for it. The one use is the Reclaim Rubber as we -- as I mentioned, where we put the rubber through a chemical process to make reclaimed rubber sheets, which go back into making tires and other kind of products. And the other business is the rubber composite business, as I mentioned, where we take, again, partly the recycled rubber, which is the rubber powder from tires, and recycled plastics of different types and we make boards, which are, again, end applications -- end products which go into transportation, oil and gas, defense and some of these applications. So that's broadly how I would say, the overall businesses. The joint venture company, which is a retreading company, they do tire retreading for fleets. And here, the objective is that the fleets have tires of different categories or life. And there are certain tires that can be retreaded, which these franchises are retreading. And there are certain tires that cannot be retreaded which need to be sort of pushed out as waste. And that waste is what our Reclaim Rubber business, again, or our GRP buys and, again, runs it through this process. So end-to-end integration of end-of-life tires is what we do, and each of these businesses cater to those.

Okay. And sir, how is the margin profile different from Reclaim Rubber business and non-Reclaim Rubber business?

In the Reclaim Rubber business, our margins are tied to a great extent on the demand side with the prices of natural rubber and synthetic rubber. And our pricing is based a lot on how those prices move. And therefore, the margins are dictated a lot by that demand-supply equation. When it comes to, similarly, the nylon business, there, the margins are dependent on the price of virgin nylon, which is sold by the likes of GSFC and a lot of other multinational companies like DSM and Dow and BASF and others. The composite business, again, competes, as I mentioned, with wood and concrete. So the pricing and the demand/supply dynamics depend on how our product compares with the price of different kinds of woods that are available in different markets. And the tire retreading business competes in some ways with the price of a brand-new tire, because our objective is to extend the life of the tire. Therefore, the competition is the mileage that our product can give vis-à-vis the mileage of a new tire. So depending on the price of new tire, the tire -- the retreaded tire prices are dependent on, and that's how the margins kind of get determined.

Okay. And sir, what is the most accretive margin business right now?

So these are things that change over a certain polymer cycle. So until, I would say, a few years ago, Reclaim Rubber was the most profitable, but that's when we actually started looking at these other businesses. Today, Reclaim Rubber is not as high-margin because the prices of natural rubber and synthetic rubber are lower. Today, actually, it's the plastic or the nylon business which is the most profitable, followed by the retreading business which is also fairly profitable. But a lot of these profitability metrics are also dependent on the size and scale that we reach. So some of these businesses have so far been supported by the core Reclaim Rubber business in terms of common resources and so on. So I think only when each of these businesses can be truly independent with its own P&L, can one say that which of these businesses is the most profitable. For example, the Reclaim Rubber business, without the overhead costs, continues to still be a double-digit EBITDA margin business. But it is the overhang of the other businesses that kind of brings down the overall company profitability. And as we kind of grow and the other businesses achieve a certain size and scale, I think the margin potential of Reclaim Rubber will also then be seen as fairly attractive.

So -- okay. So how do you plan to grow this non-Reclaim and other rubber businesses?

I think as we said, it has to be a step-by-step process. We've not gone inorganic, it has been an organic expansion in each of these businesses. So they've all gone through a development cycle and therefore the R&D phase, if I may want to call it that, lasted about 2 to 3 years, where a combination of whether the right process, along with the right product which the customer can buy, is made available. Thereafter, there is what we call the seeding phase, which is essentially in some ways, a semi-commercial kind of a phase, where we had smaller capacities in each of these businesses to sort of start seeding the market and start to get the customers used to our product, make any changes to the products as may be required. And then I would say the third phase, which will be the full-blown commercial stage. And there, I think the success depends really on how effectively we are able to market the product, create the niche and be able to attract and acquire new customers. So each of the businesses are at different scales of maturity as far as this time line is concerned. For example, the Engineering Plastics or the nylon business has reached that stage of maturity, and that's why I also mentioned that we have added additional capacity. Because there, we have done the R&D phase, there the seeding phase has also been done. Now we are kind of just at the beginning of the full-blown commercial stage, where the -- a lot more customer acceptance is coming in. We are in the stage of appointing distributors. And hopefully, this business will scale now pretty rapidly. The composite business is concerned, it is in that phase of the development has been done, the relocation of the equipment of our partners has been done and the seeding is going on in a lot of sectors. So while we have had good success in the transportation industry, in some of the other industries, the success is still a little at a nascent stage, which means we just have 1 or 2 customers that has started to buy, but that repeat business still needs to come in. And I think as that kind of happens, we will see even the composite business get to a stage of mature growth, which we are hoping will be a few months down the road. As far as, again, the tire retreading business is concerned, we have had a much longer period of time than we expected to get the product right and get the equipment right and get the product positioning right in terms of the price, because our product is selling at a significant premium to all the competitors in the industry. It has taken some time for our customers to accept the higher initial cost and higher initial payout before they have realized that there is a much lower cost per kilometer that the retreading business offers. So we have kind of got through that hurdle. Now we have grown that business to about 8 franchisees at the moment. And we are in pace to kind of add more or less -- I mean if we will have spoken in February, I would have said we are at a pace of adding 1 franchise every 2 months. But because of COVID, I'm not in a position to say what that looks like. But we're fairly [ significant ] that we will get to double-digit franchise numbers very soon. And hopefully, in the late teens by the end of the year, hopefully.

Okay. And sir, my final question, sir, if you can throw some light on our retreading business as to how this is scaling up. And also, sir, what was the revenue from this business in FY '20?

I think -- this is a joint venture, so the results are not reflected in the GRP financials. It is a separate company. It will get reflected in the consolidated numbers to the extent of interest of that business, which would be 50%. That business, I believe, has generated in the region of about INR 5.5 crores to INR 6 crores of revenue last year. We have, as I said, 8 franchisees in place already. At the moment, we have 3 product lines or product ranges, of which one continues to be an import product, while the rest are domestic. We have localized a lot of equipment manufacturing here in India, which means that earlier, that business was dependent on even equipment coming in as imported equipment. But we found that economically, it was not viable and was not making sense for the entrepreneur to invest. Now that the franchisees are investing in domestic equipment, there is a much higher ROI that they are starting to see on the business. And I think out of the 8 franchisees, I can say confidently that 5 out of the 8 franchisees have -- are generating a much significant profit. Two of them are at the breakeven state and one of them continues to still reach the breakeven stage. So we've done reasonably well of getting the confidence of the franchisees established. And now, in fact the last year, we also had a significant victory by one of the large franchise systems in India. So one of the retreaders that has switched over to us was earlier a franchise for over 15 years with one of the large tire company franchisees and has recently shifted to the MGPL franchise system. And he is fairly happy with the progress that has been made. So going forward, our focus will be on a combination of converting existing franchisees of other retreaders and also growing through other means in terms of adding new franchisees who are people who are in allied businesses. In some ways, the retreading model of business has transformed the way retreading has been looked at in the local geography. It is no longer a mom-and-pop store. It is an organized franchise which by itself generates a reasonably high revenue and profitability. And therefore, the players that we are attracting are companies that are either in the transportation business themselves or are owners of petrol firms that want to offer this as additional service to their fleet owners, or distributors of new vehicles, new trucks and new buses, who are getting into this business as, again, a value-add service to their customers who are the transporters. So we're changing the profile of the retreaders in the country. And out of the 8 franchisees, I can say 6 franchisees are new to the business, one is a conversion and one is a small retreader that has kind of upgraded to becoming a MGPL retreader. So we're changing the dynamic of the industry in that sense with that JV.

Okay, sir. Sir, just my last question. Sir, I know it's very difficult to say as to what will be the impact of COVID-19 on the FY '21 results. But sir, can you elaborate or can you throw some light as to -- in terms of what impact it's likely to have on our Q1 FY '21 results?

It's very hard to give that number. To be honest, I don't want to hazard any guesses at the moment. As I said, we are living on a day-to-day basis. I can only very briefly share in terms of what our percentage of sales has kind of reaching, so that gives you a context of how the top line is likely to be. And I mean April, obviously, was a washout month, more or less. We just had some carryforward sales from March. In March -- in May, we did about 35% to 40% of our normal volumes in the month of May in terms of sales. And in June, our sales looks like it will be closer to the 55% to 60% of the normal sales value -- normal sales volume, sorry.

Okay, okay. That's all for me.

Projections beyond this time, I'm not in a position to provide. So I'm [ only saying ]...

Definitely.

What has happened so far.

No, I agree, sir.

Hello? [Technical Difficulty]

The next question is from the line of Alana Shah from hu Consultancy.

Sir, I had a few questions. One was first was regarding the EBITDA margins. In the coming time, do you see an improvement? I do understand for this year, obviously, the margins were affected. But in the coming time, where could we see better controlling the expenses?

So I'll put it this way. As I mentioned before, as the other businesses start scaling up, the impact of EBITDA margins will start showing positively in the overall company performance. But some of the major cost areas that we are looking at focusing on is, and we've been mentioning this, one of the key cost is the employee cost. And there, we are taking significant steps by way of automation and digitalization of the operations, to be able to reduce our dependence on labor. So that is one of the key areas that we are looking at. We are, of course, also looking at -- I mean one of the other areas where, during the last year, the costs have gone up is on account of international trade and freight costs. And that is on account of certain regulatory changes that have come out globally in the shipping industry. We are hoping that, that will start moderating out starting end of this year. So that should be also a healthy addition to the bottom line. So these would be the 2 major areas where I would say we are taking active steps in reducing costs. But I think the broad margin improvement will occur on account of the scaling up of the non-Reclaim Rubber businesses.

Okay. And on the automation front, sir, I mean where do you see -- what is the time line like in the coming times, that can we see the automation come into effect and we can see the margins? So I do understand the number of employees also would be coming down then once the automation moves into place? So where do you see that coming into action? How many quarters or years?

So it is a slow process because we can't automate processes while production or demand continues. So it has to be done in a phased manner. And this journey we have started on almost about a year or 1.5 years ago. And we continue to make strides and actively, every few months, we are adding more lines to become more automated processes. I'd say majority of our process automation should be complete -- well, I mean as per the original plan, it was supposed to be complete in this fiscal. Now with the deferral in CapEx, I would assume that there will be some delays in this execution. The other part is that the dependence of employee costs in the non-Reclaim Rubber businesses is actually much lower as a percentage to the Reclaim business. So again, as a function of the other businesses growing, the overall average employee costs will start to just come down because the other businesses or -- I mean employee costs are lower than Reclaim Rubber as a percentage of sales.

Okay. Sure, sure. And sir, the second question was on the receivable days. Do we see that coming down or do you see this is the kind of industry standard that the -- that is happening? The number of days which is around probably 60 days or 50 days.

Yes. So I think I'm going to -- I'd say it's a fairly healthy number at 55-odd days. This is -- I mean again, standard industry practice is between 60 to 90 days credit on account of a higher dependency on exports. Our overall debtor days continue to be below 60 days. In fact, in some of the other businesses, like the plastic business and so on, the debtor days are likely to be a little higher than this number because there, the industry standards are closer to the 70, 75 days. But I would say, I mean our overall focus will be on ensuring that this number remains within the 60-day line and we are doing all we can to ensure that, that doesn't go out of or extend beyond 60 days.

Okay. And there is no -- we can try and increase our payment cycle to our creditor trade days, which is around 20 to 30 days right now.

So that is going to be also a challenge because we are dealing with a fairly unorganized sector of people in the collection of end-of-life tire waste. And these are people that are, again, traders that depend on the cash to be able to survive in the business. So we don't expect that the creditor days will go up significantly beyond what it is. Yes, having said that, in the non-Reclaim Rubber businesses where we have other material purchases, like other oils and chemicals and so on, there the credit period is extended beyond 30 days. So the net impact might be positive, but not significantly. Because as long as the end-of-life tire waste continues to be the key raw material for the company, our debtor days -- I mean our creditor days in that segment will be fairly low. That's again the nature of the business in itself. In fact, for imports, we are required to pay everything upfront. So if we kind of, in the future, depend a lot more on imports, there is a possibility that the creditor days may even reduce further.

[Operator Instructions] The next question is from the line of [ Rahul Jain ], [indiscernible] Investments.

I have 2 questions... [Technical Difficulty] Okay. Sir, I have a question on the volumes. If I look at your long-term numbers, in 2013, '14, we were doing close to 60 -- close to 89%, 90% capacity utilization, and still we have the same numbers. And there was no loss on the thing -- the non-Reclaim part. There was no engineering part and all these businesses, you only have this. So what will be the big issue? And how do we do we [indiscernible] it? That is one. Second, there's a lot of R&D which is going on with the tire companies to increase the reclaimed part in their tires, the percentage of reclaimed rubber used. So are we directly involved with these companies? Or are we -- is this going to be a benefit after the R&D is done?

So I'll answer the second part first, which is our R&D development. Yes, our interactions and our conversations and our projects are directly with the tire companies. So to answer that question, we work directly with the tire companies, it's just that the R&D efforts can take anywhere between 6, 7 months to as long as 2 years. And it is very difficult to predict what is the time for each of these developments and it's a slow process. So therefore, by the time the results do come in, it is generally a couple of years down the road. So that's the first part of the question. The second part in terms of utilization, you are right, that our utilization was at similar levels also several years ago. But you've got to therefore look at the revenue numbers and be able to -- what has happened is that the product mix has changed. As I mentioned at the beginning of the call, when someone asked a question about utilization across individual businesses, I said the same thing, that it is tough for me to give a utilization of every business or every product because our capacity in Reclaim Rubber is such that we can quickly or easily move from one to another product category. So if you can think about it, our average sales has been more or less similar volume numbers. But a higher revenue number is a function of the product mix change that has happened. And we have moved from, if I may, call it, the low-value products to the higher-value products. Now as a result, the utilization remains the same but the customers have moved from our product, particular product to an upgraded product. And we in turn have switched capacities from one to another product line or an SKU. So to answer your question, volumes have been remaining more or less stagnant, you are right, but the realization of the revenue impact that you see is on account of the product mix change. Does that answer your question broadly?

Sir, if I can again say that most of our forward-looking CapEx is on the new product, which is a more value-added product, and we would keep the recurring number. So let's say, there's a lot of demand from the Reclaim Rubber side, are we open to [indiscernible] the total percentage of Reclaim number going up in tires in the next 5, 6 years?

Yes. So 2 things have happened. Our customer mix has changed and we used to have a lot larger percentage of business coming from the non-tire industries. But over a period of time, a lot of that business, especially in India, has moved away. And part of the reason is, is the quality of the customers itself and the type or expectation of products that they wanted. They continue to demand the lower category or a lower-value product, and we have moved in terms of our portfolio to a more upgraded product. So that's one of the things. As far as the surplus capacity is concerned, yes, there is still some surplus capacity in our existing plants to be able to add, as I mentioned, at least another 10%, 12% more volume. And I think once we start seeing that momentum build and grow, that's when we will start planning additional lines or rounds of investment for the Reclaim Rubber business. However, having said that, I would like to qualify that at the moment in some of the projects that we are working with our tire company customers, if all of them move towards [indiscernible], yes, there will be a need to invest in higher capacity in the Reclaim Rubber business as well. However, we have not done that at this stage because we want to go slow because of the margin pressures that we are seeing. As far as the other businesses are concerned, as I said, the nylon business was getting close to capacity utilization, and that's why we invested in the additional lines to kind of more than double the capacity from what it was. And we are fairly confident that there -- I mean against the 6,000 tonnes, we should start seeing larger volumes in the coming months and be able to make a significant inroad in that industry. Again, with the composite business, we continue to be at more or less, again, at about 70%, 75% utilization of capacity, so we do have some excess capacity before we think about growing it. So I think every business is poised differently in terms of its current utilization, its current pipeline of products. And therefore, the next wave of expansion will be determined based on getting to a certain utilization rate.

So if I look at the [indiscernible] trajectory for GRP, what are -- I know that COVID was itself a [indiscernible]. But do you have internal working of [indiscernible] part of your business? Or do you want to be [indiscernible] the Reclaim Rubber [indiscernible]? Do you have a percentage mix in your mind, which you've done some working on it?

Yes. So of course, we do have -- each of the businesses have its own -- so we don't look at it as what should be the non-Reclaim as a percentage of the total. I think what we look at is each individual business that we have invested in, what is the potential over the next 3 years or 5 years that each of these businesses can realize. So I think our approach is more the latter, where we say if the nylon business is at a certain level, based on the success that we had and the possibilities we have in terms of raw material and the niche that we have developed, if this is the total market size and this is the piece of the pie that we are aiming at, what is the potential of the nylon business. So I think our approach has been more that, and each of the businesses are in the phase of, if I may, right now recalibrating its business plans because COVID has changed a lot for a lot of people and a lot of industries. For example, nylon business has seen some consolidation happen in the last 2 years in terms of a lot of multinational companies coming in, acquiring domestic players and some domestic capacity getting shrunk and so on. We are trying to assess what is the road map for growth for each of these businesses. So at this moment, I won't have a number to give. But hopefully, down the road in a few months, we should be able to say what each of these businesses is capable of growing to.

Certainly. Sir, right now, I understand [indiscernible] use of cash. But do I foresee that [ build ] for a buyback or are we looking for tender movements or something? Has it ever been discussed? Because our share [indiscernible] there. I don't know how do you look at it, but I'm just trying to figure if that is [indiscernible]. So have you ever considered doing a buyback or...?

So at the moment, I think, if I look at the company's liquidity and the company's cash position, I would rather keep and maintain the cash position to fuel the future growth and ensure survival for the long term. So at this moment, to use any of the company cash to be able to do that, I don't think would be prudent or wise. And therefore, we are not looking at it. When it comes to infusing fresh capital into the company, the promoters are, of course, open to the idea of doing this as and when the need for the same arises. At this moment, as I said earlier in the call also, we feel fairly confident with the liquidity position that the company is in, the level of debt that the company has and is able to leverage and raise further if required. And the current foreseeable cash flow needs for the next 12 to 18 months is a clear indication that at this stage, we do not have the need for additional capital. I mean we could look at promoters putting in more money, but then that money needs to have a certain focus in terms of deployment. I mean at the moment, we don't see the need for deploying that cash into anything else because there is no opportunity in the horizon. As and when an opportunity does come up, we will be open to either of the 2, which means either raising equity or taking any liquidity steps as may be required for the company's purpose.

As there are no further questions, I would now like to hand the conference over to Mr. Harsh Gandhi for closing comments.

Thank you. Thank you all for attending this session. I'm grateful for all of you having taken the time out to ask me the questions that you have. I'd like to only close by saying that, a, I hope I've been able to answer most of your queries. I would be available, including SGA would be available, to answer any specific questions on the financials or on the numbers that you may have. So feel free to reach out to SGA or the company directly. But I'd like to say that we are all at a very difficult situation economically, specifically, the auto industry has been facing a much larger challenge. Thankfully for us, because of our share of business coming from replacement industry or replacement business is also fairly high, we have felt less of the impact of the pandemic and the automotive industry slowdown than a lot of other material suppliers that have been focused only on the OE segment. Plus, because of our export presence, we have been able to mitigate a lot of the risks arising out of being dependent on a single geography. We continue to remain fairly bullish that the world around us, the way it has changed will mean that circular economy businesses like ours will see definitely more interest from end consumers. There is a lot of international forums that are talking about making sustainable materials more mainstream, and we hope to be a beneficiary of that. And our investments in some of these newer businesses are a proof of our confidence in this business. So we hope you join us in this journey and continue to remain interested in our company, and we hope to justify your interest by delivering on performance over the course of the next several years. Thank you so much for your time, and appreciate all the questions that have been asked as well. Thank you.

Thank you. On behalf of GRP Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.