GRP Limited (509152) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GRP Limited Q4 FY '21 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Harsh Gandhi, Joint Managing Director, GRP Limited, for his opening remarks. Over to you, sir.

Thank you. Thank you so much, and a very good afternoon to all of you, ladies and gentleman. Thank you for joining us on GRP's annual FY '21 earnings conference call. Along with me today from the company's side, I have our company CFO, Ms. Shilpa Mehta; also Abhijeet Sawant, who is the Company Secretary. And we also have SGA, who are our investor relations advisers on the call. These are tough times. So I hope all of you that are attending the call as well as all your families are safe and in good health and we hope that we kind of forget over this pandemic sooner rather than later. Our results have been uploaded on the stock exchanges, and I hope everyone has had a chance to go through the same. Before starting with the business update, I would just like to give you a quick recap on the different businesses and the verticals we operate in. This is for the benefit of the first-time shareholders. GRP is a material manufacturer -- sustainable materials manufacturer, and we're focused on helping our customers mostly fulfilling their obligations of responsible end-of-life tire recycling. We started as a tire recycling company, but over the last years, we have transformed ourselves into a sustainable materials company. Keeping customers in the mobility sector is at the center of everything that we do, we operate across the end-of-life tire value chain to offer solutions in generally closing the circular loop of end-of-life tires and also most recently in the plastic space. So the businesses we run include Reclaim Rubber. This is the core of the company. This was on which the genesis of the company as we built. And this business procures tires at its end of life to produce [indiscernible] industry as raw material, along with new [indiscernible] making new tires. The second vertical we operate is recycled nylon, and this business separates nylon from end-of-life tires. Also sources nylon from other end-of-life waste streams and blends together to produce raw material for sale to the engineering plastic manufacturers. These are applications in variety of end users I mean, mostly in automotive, but also in the electrical railway furniture applications. There's another business that has been recently established, which is rubber composites, wherein the residual rubber from the above businesses is used to blend along with recycled plastic waste. This is mostly household plastic waste. And we produce composite materials, which replace wood and concrete in a variety of applications. The applications for these are mainly in the transportation industry and currently limited to only North America. Apart from the above 3 businesses, we also operate a joint venture with an Italian company called Marangoni. This is a commercial vehicle rethreading business, where GRP owns a 50% stake. And here, the idea is to help fleet owners extend life of their tires by providing multiple lives and helping them reduce the cost per kilometer of a tire run. So the end-use applications and customers have grown from predominantly tire manufacturers to now have fleet owners, auto component manufacturers as well as vehicle body manufacturers. And our company is among the leaders in the tire recycling industry in India. Let me give you an overview of what transpired during FY '21 at GRP and how we have kind of moved from a survive mode at the beginning of the year to now, what we'd like to call, a thrive mode between then and now. So during the early days of the pandemic, I think the strict lockdown restrictions meant production stoppages, and this is true for most of the country. The focus of the company in the early days really was on employee safety and well-being. We made adequate arrangements to ensure effective work from home, ensure that the plants were safe for a restart as and when it happens. And along with the above precautions, we focused on ensuring that there was adequate liquidity within the company, tight control over fixed expenses and most importantly, managing key relationships, mostly the customers but as well as the supply chain because your company's supply chain is a lot of underprivileged individuals that are engaged in the end-of-life selection. So supporting them through financial means and other means was also critical for the company to focus on. Our factories resumed operations between April 20 to May 5, different periods of time. And we slowly sort of regained control over operations. A slow return to normalcy resumed towards more or less end of Q2 and this was on the back of continued strength in international orders and slow and steady revival in the domestic demand. Mind you, while we were in the state of lockdown, most of our international customers in a lot of geographies continued to operate. So that resulted in actually a backlog of orders, which we were able to start delivering from, more or less, end of Q2. On a literal basis, everything was not smooth selling, and that was on account of major disruptions in the global shipping industry, massive volatility and availability of containers. And also the lockdown brought with it uncertainty in terms of raw material availability on account of low operational fleets. On account of this economic slowdown, generation of EOL tires, or the end-of-life tires as well as plastic waste was reduced, and this resulted in delayed order fulfillment from our side. Of course, we took a lot of tough calls in rationalization of employee strength, focused quite a bit on outsourcing noncore activities, improved efficiency at a lot of the plants. And all of that has kind of resulted in contribution to reduction in fixed and variable overheads. And I think some of these results are visible in the results as you study the quarter-on-quarter progression. Another painful, but a strategic decision in our view during the year, was to sort of temporarily suspend production at our plant in Tamil Nadu. And with this move, we consolidated our capacities across the remaining 3 plants and improved the overall economy at scale. So in Q2, while revenue reduced by 15% year-on-year, EBITDA increased by 9% year-on-year. In Q3, revenue was down 7% year-on-year, but EBITDA increased 46% year-on-year. And during Q4, revenue reduced -- sorry, revenue increased by 11% and the EBITDA increased actually 67% on a year-on-year basis. So rebound in economic activity that started at the end of Q2 across major geographies helped improve the demand for Reclaim Rubber as well. As I mentioned, during the pandemic, we worked hard on maintaining relationships and that kind of helped in increasing the share of wallet with a lot of key customers. And we're happy to report that in several key customer accounts, while we had success in growing the share of Reclaim, in some instances, we were also able to increase the consumption of Reclaim Rubber in the customer formulation. Now this was obviously, a lot possible also on the back of the commodity price rise that we saw, and that enabled us to pass through quite a lot of price increases as well during the course of the last 2 quarters. The current prospects in the tire sector look promising, mostly in the international tire market, although shipping challenges continue to play effective delivery and on-time delivery. We also started to see and witness growth in the GRG segment, which is the general double good segment. And this, again, is spread across Latin America, North America and even parts of India. So while the focus on operating efficiency was maintained, as I mentioned, the rise in oil prices and a subsequent rise in the commodity prices provided an opportunity for price increases for our commodity. And that helped improve the gross margins as well during the year. With a lower capacity in use across the industry in the country and an opportunity to rationalize the customer base, we believe the cost increase impact from shipping and other input costs was also more than offset by the rise in the selling prices. The continuing firmness in the commodity prices in our view, will continue to provide improved margins compared to the previous years. During the year, we were also able to scale the more profitable non-reclaim rubber businesses. As you're aware that these businesses are aligned along the same value chain and they help the company in diversifying its offerings to various end customers and reduce our overall dependence on the tire sector and help in the concentration risk reduction. During this year, while revenue from Reclaim Rubber business reduced by 22% year-on-year, revenue from the non-reclaim rubber business actually increased by 23% year-on-year. So while it's, of course, a small base, we are pleased to inform that these businesses became financially independent by the year-end. And revenue contributions from the non-reclaim rubber businesses increased from 4.8% in the previous year, which was FY '20, to about 7.5% in FY '21. But importantly, towards the second half, it was closer to the 9%. And this has been in line with our expectation that these businesses will be the future engines of growth for the company. In these businesses, we are only growing the customer base, but adding several Tier 1 and several other multinational customers to the fold, and -- which we believe will give us a lot more traction in the years to come. We've added some capacity in the nylon business specifically, and that is likely to sort of start yielding top line growth in this fiscal. The new businesses, as I mentioned, are more research-driven have a strong interdependence with the car businesses, have potential for long-term partnerships with brand owners and strong synergy for material manufacturers as well. So therefore, we do believe these will command higher profitability when reached to scale which, in a few cases, we're close to achieving. We continue to focus on developing other businesses in the similar scale and with the aim that we want to help fulfill the circular economy goals and help customers fulfill their producer responsibility. With rising focus on recyclability, companies world over are trying to incorporate sustainable materials in their portfolios and we are aiming to expand our offering to cater to this rising demand. Before concluding my part of the speech, I'd like to say that FY '21 has been among the most challenging for the year for the company but it has also given us an opportunity to be bolder with decision-making, allowed us a lot to experiment with new ways of doing business and deeply analyze the cost structures to make it more efficient. Lessons learned during this year will clearly help us in the future and hopefully has made us wiser to take more smart -- informed decisions for the future. With all the steps being taken towards managing health and safety, conducting awareness camps across communities and facilitating vaccinations, I'm relieved that only 4% of our employees contracted COVID through the entire duration with a fatality, which was less than 0.5%. Our endeavor to financially support such employee families will always remain for a longer period of time, but we have also undertaken supporting families, who have lost their breadwinners to COVID in the communities we operate through local NGOs. We have provided ventilators and hospitals around our plants, food support to the community and spread awareness and facilitated a lot of vaccination. In fact, as of last week, almost 25% of GRP employees across all locations have been vaccinated with at least a single dose of the vaccine. Given the strong finish to the fiscal year and a positive outlook ahead, we have decided to pay dividend in line with the payout policy and accordingly, a final dividend of INR 2.5 has been proposed to the shareholders for approval at the upcoming AGM. The last 2 months of the current fiscal, of course, has again brought about a wave of lockdown, the second wave as they're calling it. And there has been a slight slowdown in the domestic demand. So while there is an air of uncertainty, there also remains bullishness with regards to the international markets about the prospects for FY '22. So while it's a mixed bag of the slowdown in India, there is that promise of improved demand in the international markets, but a lot depends on the recovery in the upcoming quarters. With this, I will now turn it over to Shilpa, the CFO, to take you through the financial highlights for the call. Thank you, everybody.

Excuse me, this is the operator. Ms. Shilpa Mehta, we request you to please unmute the line from...

Hello. Good afternoon, everyone. Let me take you to the consolidated financial highlights for Q4 of FY '21 and for FY '21. As COVID-19 lockdowns have really impacted business operations during the last year FY '21, results -- FY '21 results are not directly comparable to FY '20. So I urge you all to view our FY '21 results in perspective of low orders, lower material and manpower availability and global shipping industry disruption. Now let me go through some financial numbers. So Q4 '21 revenue of -- from operations was INR 883 million as compared to INR 794 million of Q4 of last year. So it is up by 11% year-over-year. And FY '21, revenue from operations was INR 2,798 million as compared to INR 3,487 million, which is down by 20% on year-to-year. Revenue from non-reclaim business increased by 23%, that is from INR 166 million to -- in FY '20 to INR 205 million in FY '21. And Q4 '21 gross profit was INR 443 million as compared to INR 429 million that is up by 3% on year-to-year. And gross profit for FY '21 is INR 1,443 million as compared to INR 1,784 million in FY '20. So it was down by 19% from previous years. And EBITDA of Q4 FY '21 is INR 75 million as compared to INR 45 million of the Q4 of FY '20, so up by 67% from previous year. And EBITDA for the year, FY '21, is INR 169 million as compared to INR 189 million of FY '20, so down by 11%. And percentage wise if you see then Q4 FY '21 EBITDA margin increased by 280 bps, so that from a 5.7% in Q4 '20 to it increased 8.5% in Q4 FY '21. And for FY '21, EBITDA margin increase is from 5.4% in FY '20 to 6%. This increase in EBITDA margin is on the back of cost optimization initiatives taken during the year and better product mix in the Reclaim Rubber business and, of course, contribution of higher revenues from non-reclaim rubber businesses. PAT for Q4 of FY '21 is INR 47.1 million as compared to a loss of INR 13.7 million in Q4 of FY '20. And for the year, FY '21 PAT, it is INR 16.7 million as compared to INR 29.7 million in FY '20. On the debt side, I'm pleased to share that we were able to reduce our net debt, which includes both long term and short term by INR 191 million from INR 726 million in FY '20 to INR 535 million in FY '21. Our finance cost also correspondingly reduced by 34% on a year-to-year basis from INR 82 million to in FY '20 to INR 54 million in FY '21. And recently, CRISIL reviewed the ratings and reaffirmed our credit rating and changed outlook from negative to stable. So with this, now I'll hand it over for question-and-answer session.

[Operator Instructions] The first question is from the line of Ankit Agarwal from Spark Capital.

I have a couple of questions here. The first one is regarding the capacity utilization. Sir, we understand that the initial few months, there was no utilization as such. But for the whole year of FY '21, what has been the capacity utilization?

So I'll take this. This is Harsh. So capacity utilization -- you said you had a couple of questions. Why don't you go through all the questions? And I'll be happy to answer.

Yes. Yes, sure. I under that. So in capacity utilization on the -- so for the full year FY '21 as well as for both the businesses, Reclaim and non-reclaim separately as well. The second one -- second question being, sir, do you need to add any more capacity in the next 2 years? And the last one being sir, also, are there any major factors that influenced the pricing of Reclaim level? So any insight on the same? And how has the price movement been during the last 1 year? So these are the questions from my side.

So as far as capacity utilization for the year is concerned, I mean, it's tough to give a number for the year ago because Q1 is pretty much produced I think only a 20% capacity. But I can say that, that kind of progressed to a stage where by Q4, we got to close to 90% of utilization of capacity. So I hope that answers it because it's tough to be give an annualized number because the capacity availability was a challenge in itself. As far as new capacity addition for the year is concerned, we don't have plans to add any new capacity as far as the Reclaim Rubber business is concerned, but there is capacity expansion plans in the non-reclaim rubber business and that is in the region of about 45 -- about 30% to 40% of the existing capacity is going to be added as far as the non-reclaim rubber business is concerned. It is going to come on stream during the year, so it is not likely to all be impacted in the current fiscal. It's coming in phases. So therefore, the last set of capacity expansion will be completed only by February of 2022. As far as price movement or the price indicators are concerned, as we've mentioned always, Reclaim Rubber, especially is a substitute to virgin rubbers, which is natural rubber and synthetic rubber. So the price of the reclaim rubber is quite a bit dependent on the prices of the virgin rubbers. As far as our nylon business is concerned, on similar lines, the price of our composite nylon materials follows a trend, which is similar to that of nylon prices. As far as composite businesses are concerned, because they are replacing wood and concrete, it is to, a great extent, dependent on the price of lumber in North American markets. So this is broadly the interdependencies of prices of our end products with that of the other competing materials like a few places. Does that answer your question?

Yes, yes. Thanks a lot for that explanation and best of luck for the remaining part of the year.

The next question is from the line of Rohit Potti from Marshmallow Capital.

So over the last couple of years, we've been talking in our con calls as well as we've been observing the increasing focus on sustainability across the world. In that context, I -- for -- I mean, my expectation was that the Reclaim Rubber might see a capacity increase going forward. But you mentioned that we've shut down this plant in Tamilnadu and consolidated capacities. So with the increasing sustainability trend, why are we not seeing an increasing -- why are we not looking at increasing capacity in Reclaim Rubber? Or why is the industry demand not growing as much as we expect?

Thank you for the question. First point, one is I think the earlier question that Ankit asked was whether there's any capacity expansion plans in this current fiscal, and my answer was specifically to that as to there is no plans in adding Reclaim Rubber capacity in the current year -- current fiscal. As far as the rationalization of capacity is concerned, I mean, it's not easy to sort of just pull out capacity from the plant we shut down and place it in the other plants. So we've kind of slowly been expanding and adding those capacity. So that full capacity rationalization plan and the rationalization will be completed by this quarter as we speak. And therefore, this capacity will be available for the entire -- or the remaining 9 months of this current fiscal. As far as future plans of expansion are concerned, there are 2 ways to look at it. I mean, while one is to look at physical capacity expansion, the other is debottlenecking and the third is the focus on value-added products. So to put it in context, we are moving away from the lower margin, lower value grades of reclaim rubber to be higher value and higher margin grades. So within the same capacity by only migrating away from the low-value products or the low-margin products to the higher-margin products, I mean, we believe that should be our first attempt before we look to add capacity. So in that senses, we are moving away from certain segments of the industry or end application, which were really the low-cost footwear, low-cost mats and sheets and so on and focusing a lot more of our product portfolio towards the tire industry as well as the, if I may, the -- within the GRG, the higher value-added products. So that rationalization of the portfolio is happening. And that is to improve the margins and the bottom line. And correspondingly, there will be a corresponding increase also in the top line there. But the actual capacity expansion, therefore, will come through once that portfolio rationalization of the product is also completed. As far as non-reclaim rubber is concerned, as I said, we are adding about 30% to 40% capacity in the current fiscal in the nylon business. And all of that will be available in the subsequent year. And we are also evaluating and have on the drawing plans to add capacity in the other businesses, which is in the composite and so on as well. So net-net, there will be in addition to capacity. It's just a staggered approach to -- in the reclaim business, do a rationalization, debottlenecking and then look at a brownfield. While in the nylon, this year, we are focusing on the brownfield. Next year, it will probably be a stage of rationalization in there, while we probably look at adding on the Reclaim Rubber side. So it's a -- we need to balance it also with the cash flow constraints.

That was very, very helpful. So a follow-up to what you mentioned to your current answer. So could you give us an idea of the division, the segmentation within our Reclaim Rubber business of what you consider to be low value in what we consider to be high value in terms of value? How do you segment that? And on a larger scale, so we've mentioned in 1 or 2 calls back that our capacity is 66,000 tonnes and the global capacity is around 3 million, 3.5 million tonnes. So the way we are graduating towards higher-value products, I would assume, and given that the majority of the global capacity is in China, I would assume that our target addressable market might be much smaller. So could you put our strategy of moving towards high-value products in the context of what our total addressable market is today? And how you see that going forward, let's say, over the next 5 years?

Sure. I'd be happy to do that. So I'll put it a little differently. So I mean, there are multiple ways of segmenting the product portfolio. We look at 2 broad ways of broad categories, and that is the percentage of natural rubber and synthetic rubber in the portfolio. And the reason we do that is because the natural rubber portfolio has historically had a lower margin compared to the synthetic rubber reclaim portfolio. However, within natural rubber itself, we have now kind of entered into certain segments, which are used much in larger volumes by the tire industry. So let me call it high-performance natural reclaim or natural rubber reclaim and the lower performance of the standard performance natural rubber reclaim. So within this portfolio, if I was to put it over the last 3 years, I mean, our portfolio of natural rubber and synthetic rubber has moved a little bit in favor of synthetic rubber, and now that occupies about 45% of our total capacity. Within the natural rubber portfolio, the portfolio of the high-performance natural rubber reclaim used to be only, I would say, about 20% of the total natural rubber reclaim portfolio. That stands today at about 25% to 30% of our natural rubber portfolio. So that's the change in the context. So therefore, within that 55% of natural rubber reclaims that we produce, the mix was more like 40%, 45% and 10%, which has now moved closer to about 30% and 25%. So that's really the context of the upgradation of the product portfolio. As far as synthetic rubber reclaims are concerned, we've maintained that share at 45%. There has not been a significant change. But there on account of the growth in the tire industry, we've actually moved away as you rightly said and done a rationalization of the customer portfolio. So while there may be a capacity expansion possibility, we'll focus more on margin expansion and therefore, certain segments or certain geographies, which were not yielding as much of profitability, we'll try to sort of minimize our exposure to that. By increasing, as I said, share of wallet with the marquee customers and marquee tire companies across the world, and reducing dependence on the less margin -- low-margin customers, let's say, in -- mostly in China, if I was to put it. So if you look at geographic mix, our dependence from China has been reduced in the synthetic rubber basket of portfolio of products. Does that answer your question?

Yes, that was helpful. So if you could touch upon the 3 million-tonne global capacity that is there. What would you see is a target addressable market? And what part of the capacity is out of China?

So I think the 3 million has been put it from several reports. But if you look at what is outside of China, these numbers are much, much different. So I mean, outside of China, we believe that out of 3 million, about 1.2 million to 1.4 million tonnes is addressable outside of China. And our share of 66,000 is more or less from there. I would say within this, I mean, if you start focusing on what is the consumption by the tire industry, I mean, generally, tires is roughly a 55% consumer of rubbers, I mean, compared to the GRT sector. So I would imagine that in the Reclaim Rubber space as well, the consumption by the tire industry would be in the region of about 55% of that 1.2 million. And that's really where our focus is because our case, the share of tire industry is in the region of about 60% to 63%. Well, closer to 65%.

This is very helpful. And so a long-term strategic question. So if I...

[Operator Instructions] The next question is from the line of Rohit Balakrishnan from iThought PMS.

So I wanted to understand, I have a couple of questions. So one was, if you look at -- so in your previous con calls, and even in this con call, you articulated that you want to grow your non-reclaim rubber business, which is higher in terms of profitability. So can you just talk a bit about that more in terms of is this architecture there in terms of broadly 2, 3 things maybe in terms of the opportunity that you have? And also in terms of competition and also in terms of the economics, what kind of margins -- you've talked about these are margin accretive businesses, but just wanted to understand in slightly in more detail if you can just speak on that. And then I can maybe ask another question after that.

So 2 things. I mean, as far as the non-reclaim rubber business is concerned, as I said that also has a portion of business, which is related to nylon; a portion of the business, which is related to rubber composites. I mean, these 2 are part of GRP's numbers. I mean, the third business, as I said, is a joint venture. So that's only at a consolidated level that appear in the financial. As far as the nylon business is concerned, in terms of the dynamics nylon is used in 2 major ways or categories. If you look at it, there is a textile and then there is a non-textile, which is the engineering plastics. Our focus and our product is catering only to the engineering plastic space. Now within nylon, I mean, there are different types. So there's a 6, 6, 6, et cetera, and I don't want to get into final details of the same. But we recovered nylon mostly from the tire cord and then we also buy a lot of waste nylon in the form of textiles, et cetera. And then this is what we are upgrading to make it usable by the engineering plastic industry. To put it in context, I mean, this is used for automotive manufacturing of products, mostly -- I mean, combination of both under the hood as well as in the category of products. In the furniture, it has a lot of applications. And then there are applications you guys mentioned in the electrical segment as well. Competing and -- companies would be -- I mean, there's several on the international space. If you look at, there are companies by the names of the DSMs and Domo, et cetera. And in the domestic companies by -- like Ester Industrial or formulated polymers, et cetera. I mean they have a particular business, which is focused on a similar category as we are operating in. So those would be the comparables in this space. As far as end applications, I already talked about. As far as the growth itself in there is concerned, I think nylon as a product right now this is going through a significant growth on account of both the growth in the automotive space, but also specifically in the electrical. I think with the electrification of the country under the Prime Minister's aegis, I think the rural electrification is leading to a huge demand and creating demand in that space. Also, railways is being -- railways being a big consumer and railways looking at a major infrastructure spend, would also kind of lead to growth in that segment. So these are the 2 major segments. I mean one thing I wanted to clarify as far as our nylon business is concerned, it's 100% domestic business. There's no international customers there as of now. Composites, again, as I mentioned, it's only being sold into the North American markets as of now, and we're aiming to see how we can expand that into other markets. So as and when that capacity enhancement plan comes through, it will come through on the basis of expansion of profits beyond the North American ones. Does that answer your question?

Yes. So just I mean in terms of the economics here, so I was just looking at your presentation when you talk about just -- you give out COGS for this business as well as facility. So over FY '21 over FY '20, there's been a significant reduction in COGS for the non-reclaim business. So just wanted to understand, I mean, one, what was the reason for this? And more longer term, what is the kind of gross margins that you see in this business in the non-reclaim the -- I mean, on the 3 parts, nylon, composites and the reclaim business?

So one has to keep in mind that they all have different price dynamics. I would say the margins for nylon business are, to some extent, dependent on the tire business because the raw material that we use continues to still be end-of-life tires. So it just depends on the pace at which the pricing of nylon are moving versus the prices of rubbers are moving. So it's very tough as a result to be able to predict how the margins will move in the future. But I mean, it's clear that at the current level of procurement of end-of-life tires and as the current selling price of nylon, I mean there is a fairly significant gross margin there. As far as composite materials are concerned, again, there also end-of-life tires continue to be the single largest raw material, followed by the household plastics. So I mean, in some ways, therefore, margins are a lot reflected based on how end-of-life tire prices are. And that's, to some extent, dependent as I've indicated in the past as well on alternate uses, which is generally as fuel and so on and so forth. So I mean, they all are very -- they're all interdependent, but they still have strong leanings based on what's happening in those respective industries. Sorry, I'm not able to give you a firm answer on this in terms of what the exact margins would be, but that's because today commodity prices are so volatile that it's very difficult to predict anything.

[Operator Instructions] While we check the line from Mr. Balakrishnan, we'll take the next question from Sriram Rajaram from Ratnatraya Capital.

Congrats for the good set of numbers. So firstly...

Sir, we can't hear you. Are the others able to hear you?

Hello? Yes. Am I audible?

Yes. Better now.

Yes. So firstly, I just want to understand what is the relationship between the rubber price and [indiscernible] industry in the context of historically, how -- what has been the growth rates for us, whenever the rubber price have moved up, especially between 2008 to 2012. I believe that you have done well. So is rubber prices the reason for that? And also, what is the current state of blending of Reclaim rubber in the tire industry? And does it go up whenever there is an increase in rubber price?

So first part of the question is do rubber prices -- do Reclaim rubber prices move in tandem with the prices of natural rubber and synthetic rubber? Answer is yes. However, if I was to put it statistically, is it a 1:1 correlation, answer is no. There is a substitution effect. So therefore, the correlation percentages. So I mean, for example, there has been a 50% spike in rubber prices in the last 6 to 9 months. Against that, our product prices have moved between 10% to 18%, if I may, to 12% to 18% in that sense. So that's the kind of a delta that we have. Is it same all the time? No, answer is a lot dependent on demand and supply. So as of now, with the prices the way they are, we've been able to get price increases ranging from 12% to 18%. The second part of your question was with regard to -- I'm sorry, can you come back again on...

Yes. That was on the current blending. How much percentage of Reclaim rubber go?

Correct. So the blending percentages in the tire industry do not fluctuate significantly with the short-term price changes in commodities because tire products -- I mean, tires are built with a lot more research and orientation towards safety, passenger safety, speeds, et cetera. In the medium to long term, yes, there is a shift. So in a typical commodity price cycle, there is -- when the prices of commodity and expectations of shortfall are likely, there is generally an increase or a tendency to look at Reclaim rubber more favorably than otherwise. But I would say that it takes several months of consistent upward movement before significant change in the consumption pattern as observed in the tire sector. As far as the GRG sector is concerned, yes, a change in price in the natural rubber or synthetic rubber will lead to a generally higher consumption of Reclaim rubber in the formulation because the expectations of quality, et cetera, can be managed with the newer grades of Reclaim rubbers that can be -- that aren't used. So I would say at a 50% increase of price, I mean there is a possibility that a 5% to 7% increase in consumption of reclaim rubber would be witnessed from a lot of GRG manufacturers. But again, these are all specific formulations, so I can't generalize it because the conveyor belt industry would behave very differently to cycle tire industry to a molded good manufacturer to an automotive component manufacturer. So it's very difficult to put a number. Generally, our belief has been that the tire industry consumes in the region of 8% of Reclaim rubber -- 6% to 8% of Reclaim rubber to the virgin rubbers. And if there is a sustained pressure on prices and availability of synthetic and natural rubbers, this could go up to about 10% to 11% because several companies globally are in that ballpark of consumption as well.

Sir, just to put this in context, I mean, what happened for your company, at least from whatever the numbers are, I mean, there has been no tremendous growth between 2010 and '14. So that explains the reason? I mean, whatever you just commented, was that the reason for that growth?

No, there was also capacity expansion. I think there was a volume expansion during that period of time. So it kind of was a combination of both. And we added capacity to piggyback on the growth that was coming through in the tire sector. However, post that, when the prices collapsed a lot of newer product categories where the tire industry was to use Reclaim rubber, they put a lot of those plans on hold. And we continue to invest in the other businesses. As a result of it, the overall operating performance going to get hit because we were in the phase as far as nylon and other businesses were concerned, where we were sort of incubating on achieving those businesses, which meant that we were also taking away money from the Reclaim rubber operations to fund some of those activities. As I mentioned on the call that by Q4, we've kind of -- nylon as well as the composite business have attained financial independence. So hopefully, Reclaim Rubber profitability will now show on its own an improvement on account of lack of dependence of the other businesses on it.

Sir, can I just squeeze in one more question?

[Operator Instructions] The next question is from Niteen Dharmawat from Aurum Capital.

So you mentioned about the CapEx and our focus on non-reclaim or the nylon kind of business. So what is the revenue potential that we have from nylon and composite business once this capacities are completed, CapEx are completed?

So I think a lot will depend on how fast we're able to penetrate the market. I mean, having the capacity will not guarantee us revenues. I think we will need to work a lot on developing customers and end markets. I've given you a sense of who the comparables or who the other competitors in the space are. I think that should give you a broad sense of what is the potential of the industry and what is the potential revenue numbers that the company can make. I mean I think the success of the company will depend on how effectively we are able to execute and therefore, I can't really put a number to it. But yes I mean, we are looking to get -- I mean, currently, we are operating at a fairly low capacity. I think we are looking at getting into a phase where the capacity starts becoming a little decent in comparison to some of the other names that I talked about.

The next question is from the line of Faisal Hawa from HG Hawa & Company.

Yes, my question is that what would be our share in India of the total Reclaim Rubber market? And secondly, are we targeting to develop more manufactured products, which would cater to the tire industry in the future also?

Thank you for the questions. So our share of sales in India, and so I would say that there are 2 parts of this questioning when you asked about the market share. When you talk about the share of our Reclaim Rubber sales in India compared to the rest of the industry, our total sales, I would say, is in the region of about 20% to 22% is the market share. If you compare this market share vis-a-vis the tire industry, our share of the market is closer to 40%. But when you look at the production capacity, because we have almost, as we've been indicating, almost 60% of our product is exported out of the country, when you look at the production capacity, I would say we account for about closer to 28% to 30% of the total capacity in the country. Does that give you a broad sense of the 3 different...

Yes, yes, very much, very much. So would the growth come out of trying of collect more Reclaim Rubber or trying to really ramp up manufacturing facilities a little more? Where is the difficulty coming in increasing sales year-on-year?

Yes. I think -- I mean, if you look at -- so it's a little bit of a mixed bag because we think we've got an export market as well. I think you've got to realize that while it is a good hedge against India, it also means that it has its own challenges. And regulations in different parts of the country and competition in different parts of the world also drives the global demand. So while there are some companies that are obviously looking at enhancing and adding more reclaim to their consumption, there are some that are moving away to other forms of sustainable materials. And reclaim is not the only form of recycled material that is being used. So as a result, there are some of these things. As far as the domestic industry is concerned, the domestic tire industry growth is quite -- I mean, if you look at the last few quarters, it has been quite promising. And against that if you look at GRP share of revenue from the domestic market, we've actually started to grow share in the domestic market. And that's clearly an indication that it is a reflection of how the tire capacities are growing and vis-a-vis that our sales in India is also starting to grow. Does that answer your question?

Yes, very much, very much. Sir, second question is, are you looking at enhancing some more products, which would create up to the Indian tire manufacturing industry?

I mean the Indian tire industry uses rubber when they use rubber chemicals, they use oils and -- I mean, a variety of other products. I mean, I don't see much synergy on the operations or the manufacturing side or on the sourcing side. The only synergy could be on the -- having the same customer to sort of offer an ultimate product to. I mean, we've evaluated opportunities from time to time, but nothing at the moment on the horizon.

Correct, correct. That is not a reason enough to expand any line.

I'm sorry?

That is not a reason enough to expand any product line.

Yes. I mean, yes. As I said, I mean unless there is a strong synergy with these either operations, et cetera. I mean having the same customer does not mean that we can make the same quality of product that they may expect in, let's say, rubber chemical. I mean, I don't know...

I was only trying to understand where the growth would come from.

Yes. So I mean, as we've been maintaining, I think as far as the tire industry is concerned, we've gone through a phase of consolidation as well as actually the lower commodity prices did not help the growth in any way. I think for the next 2 to 3 years, as the commodity price will continue to, at least directionally, show that they're going to remain firm, there is a strong possibility that we will continue to grow in the tire segment or in the tire space. However, as we've also indicated that we are also pinning a lot of our hopes on growth from the non-tire -- the Non-Reclaim Rubber, which is basically the nylon and the composite businesses.

The next question is from the line of Samrat Singh from TPF Capital.

On the Reclaim Rubber side, how does the pricing work there. Is that passed through on a daily basis? Or is it like a quarterly contract?

Thank you for the question. Yes, I mean, depending on the customer and the relationship, the prices are either fixed for a quarter or 6 months or sometimes even as long as the year. And these are all long-term contracts because there is quantity commitments that are also given by the customers. So pricing depends on that. Of course, we do also have a spot market price with the distributors and dealers, which is more or less a monthly change in prices. So it's a combination of customers, monthly, quarterly, 6 monthly as well as annual. If you ask me the majority of the customers in terms of the impact of volume would be quarterly pricing. Very few in the 1 month and in the 12-month category and several in the 6-month pricing category.

Okay. So the increase that you said you've taken of 12% to 18%, was that fully baked in, in your quarter 4 numbers? Or will that now show up in Q1?

So again, I think it's a combination. Some price changes started to happen from Q4 of last year's fiscal. Some started to happen -- the monthly numbers started to change from Q3 of last year. And some of the annual numbers impacts have started from April as well. So I think it's a combination. It's continuing to increase. So the 12% to 18% that I mentioned was what was achieved last year from a point-to-point basis, it was not what you call it, consolidated or the weighted average of the increase. We've also seen this quarter some increases come through and some pass-through also expected in the next quarter. Now mind you that not all of it is on account of only commodity. I think a lot of it is on account of cost increases that we've seen in our operation, mostly on account of trade and the other oil derivatives. I mean, we use a lot of oil derivatives in our processes. And if you look at energy, if you look at packing materials, et cetera, those are all oil derived and oil dependent. So some of these price increases that we are seeking from customers is to only offset the price increases that we've had to see, and some of it is over and above that offset. So it's a combination of all of that. So I mean, this 12% to 18% does not reflect a pure offset. It is a combination of cost increases as well as some of it which is over and above that.

The next question is from the line of Dilip Jain from Ayush Capital.

Is government incentives on exports of Reclaim Rubber set to increase as we have reported in Q4 of FY 2021. Sir, what is the COVID second wave impact on our business operations as of now? Have we entered into any long-term contracts with our customers for supply of Reclaim Rubber? In the past, we had planned for process automation and reduction in manpower cost. What is the progress on the same as of now? And my last question, sir, is with lumber wood prices skyrocketing in North America? Is there a scope for volume expansion in rubber wood by our clients?

This is 5 questions actually. So I don't know whether the operator will allow me to answer all those 5. But let me do 2 things. One is very quickly talk a little bit about the long-term contracts and the COVID second wave and the export incentives. They're pretty much a little linked. I mean, so one, most of our relationships and most of our sales comes from, I would say, 90% to 95% of our customers are all repeat. I mean our orders are all repeat. We get annual and quarterly contracts or contract commitments from our customers. So there is a high level of predictability in the business. Of course, with the COVID second wave, there has been a slowdown in domestic demand. But as I mentioned in the speech, the international market demand continues to be fairly robust at this time. So it's a question of balancing the 2 volumes. I don't know where you picked up this thing about export incentives because export incentives actually are declining as far as the government is concerned. Yes, there have been packages given to exporters for COVID relief, but there's no specific incentives that have been given to exporters. So our export incentive continues to be a drawback income, which is a certain percentage, and that has not changed through COVID period. The last part of the question that you talked about is on the process automation. I think a fair bit of employee costs, of course, not entirely visible in this year's financials because we had a lot of separation costs during the current year but -- I'm sorry, during the last year, but in the current fiscal, you will start seeing the benefit of some of the process automation as far as the cost is concerned. Having said that, I mean, one needs to look at that there is always a wage inflation in the country. So while we are reducing deployment numbers, I think the important thing to note is that wages as a percentage or wages on a per tonne basis continue to keep dropping as far as the organization is concerned. Does that answer all your questions? I have tried to do justice to all your 5 questions, but it's been...

How about lumber wood prices that are skyrocketing in North America. Is there a scope for volume expansion in rubber wood?

Yes. So lumber is used in 2 major industries. I mean, one is construction and the other is in the transportation. To the extent of the -- the housing sector is concerned, there's going to be no impact, obviously, on how that impacts our rubber composite business. Yes, as far as the consumption in transportation is concerned, yes, there will be an impact on the same. Having said that, I think the replacement in these end segments is also a lot dependent on how much of OE sales happen in the transportation segment. So I mean, as commercial vehicle sales grows in North America, you're absolutely correct, there should be a corresponding increase in the composite business, but not just because of the price in lumber, but it is more linked to the OE sales of commercial vehicles. I mean commercial vehicle there are only when they are sold will use the wood for its flooring. They want to replace it through its life cycle. So even if the lumber prices are high, but if the OE sales do not increase, it will not lead to an increase in demand for composite materials. If there is a demand increase in the OE space, yes, there will be an increase in the demand for the lumber composite.

The next question is from the line of Keshav Garg from CCIPL.

Sir, wanted to understand that what has to happen, the external circumstances for us to go back to the EBITDA of around INR 45 crore with 18% operating margin, which we made in FY '12?

The short answer is we need to go back to 2012. But the long answer is, I think there's a combination of a lot of things, right? I mean, in the sense that the demand fundamentals is in terms of -- I mean, you're talking about a situation where natural rubber prices were at INR 250 a kg. You're talking about a time when oil was at close to $150 a barrel. You're talking about a time when synthetic rubber prices were all in the region of $5 to $6 a kilo. So I mean, I think from that perspective and the ability to sort of extract a higher margin for the product depends a lot on how the prices of the virgin rubbers are and where it is going to be. I mean, as we speak today, the natural rubber prices are in the region of INR 150. I mean, they're much higher -- they're 50% higher from what they were about 8 to 10 months ago, but they are nowhere close to what it was at its all-time high. So is the case with synthetic rubber. I mean, not saying that we are only dependent on those prices to change but, I mean I think as we are saying that our effort is to see how we can get into more value-added or high-margin products. And as we have kind of started, the other businesses have started becoming financially independent, I think you will start seeing improved EBITDA margin even from the Reclaim Rubber businesses. I mean, that's the long answer. I mean it's not clear. But I mean the short answer is clearly, we go back to 2012. It's not an...

Sure. And sir, also, sir, you would appreciate that rubber prices and crude prices are cyclical, whereas some of the factors that affect us are basically structural in nature. For example, if we see the cost of collecting the scrap tire, it is very labor-intensive, so it will keep on going up. If we see the power prices, it will keep on going up and especially with more and more radialization, it will become more power intensive, I understand, for us to reclaim the radial tire app compared to the previous tire. So basically, what that means is that, okay. But today, natural rubber prices are favorable to us. But in future, they might go down and -- but these factors like higher cost of collection of rubber scrap, higher power cost, so -- I mean, how do we balance this out?

So important and interesting questions. Thank you so much for the same because rarely people ask those questions. So 2 things. As far as energy is concerned, I mean, you're right, it's the second largest cost for us after raw materials. And I'll address that bit separately. So I mean, as a company, we're focused on -- while we are a sustainable materials company, we're also focused on seeing how we can move to more and more sustainable energy, but also therefore trying to find a way to bring our overall cost down. So I mean, you need to understand, appreciate that energy costs as a percentage of sales has been dropping and that is clearly because we've been moving from, if I may, traditional sources of energy to cleaner sources. I mean, today, we have about 1.2 megawatt of solar installation in our plants. We use about 0.8 megawatt of wind energy and we got a 2-megawatt of gas-based energy that we're using in our plants. So all of this is clean energy but, at the same time it is also lower cost per unit than the traditional fuel that one would buy from the grid. So yes, we have been on a year-on-year basis, taking efforts and reducing the energy cost on a per kilowatt hour unit basis. The second part of the question, which is on the RM cost. Yes, RM collection is going to become more expensive as time goes on. And that's one of the reasons why I talked about a little earlier that we are focusing more on the higher-margin products. And there, the idea is really that I mean, leader, you would buy INR 15 per kg tire, scrap or tire waste and you would try and sell it at INR 30 a kilo. Today, we are looking at buying the same materials, which may cost about INR 17 or so. And I'm giving numbers which are representative. So please don't take these as actual. So while there has been a 10-percent odd increase in the raw material cost, our endeavor is to see how we can sell reclaim rubbers, which will now fetch us not INR 30, but INR 40 in the industry. So I think what we are looking at balancing both RM cost and energy cost is by moving to the higher value product -- higher-margin products and also looking at year-after-year reduction in the rupees per kilowatt of energy that we are consuming. Of course, apart from that, we're also focusing on bringing down the energy cost per tonne, but that is difficult because there, the focus is to see that more automation to reduce people is going to mean higher consumption of energy per tonne of reclaim in the long run, but that we are offsetting by reducing the rupees per kilowatt hour of energy cost. Does that make sense?

Yes, yes, it makes a lot of sense. And sir, lastly, sir, have any fears of RM, have they folded up due to the lockdown, especially in the unorganized sector over the past 1 year?

I would think that consolidation and rationalization in the industry always takes place. I don't want to comment on what's happening as far as the competition is concerned. But I mean, I don't have, right now, absolutely accurate information about how many of our competitors have closed down on account of economics, how many have closed down on account of COVID, et cetera. There's a lot of forces in play at the moment. So it's very tough for me to kind of comment on whether an industry-wise rationalization has happened yet or not.

The next question is from the line of Kirti Gangar from Gray International .

It's a pleasure to talk to you after 10 years. I was at the 2011 AGM at GRP. And I wanted to ask 2 questions. In reclaiming business, what is the market potential for reclaiming business? And how is the company differentiated vis-a-vis other major [ influence ] in that?

Thank you for the question. Good to have you on a call after 11 years -- I mean, almost 10 years. So thank you again for your renewed interest in the company. As far as the reclaiming business is concerned, our model is very differentiated because of 2 things. One is traditional reclaiming involves making a trend which is flat in nature and then, in some ways, curving it around, the tire to force fit it around the tire. The technology that we're bringing into India is -- which has been a technology of Marangoni is essentially produced as a ring and therefore, is able to offer a much significant life as far as the tire is concerned. So I mean, the focus is to see whether we can get to as much as 80% of the life of a new tire with the ring thread that we are fitting on to the fleets or tires. So the focus is really on reducing the cost per kilometer for the fleet owner. And that's the genesis or that's the basis of this. Apart from that, of course, on the second reclaiming and on a store reclaim, we need to have flat tread. So we actually have a differentiation by way of having 3 categories of products. One which is the ring, which is priced higher than anything else out there in the market. We at least command at least 20% to 25% premium over the next best product available in the country. Our flat treads are comparable into other flat treads in the country, and we offer them again in 2 configurations based on the price and the quality of the casing, which is the tire that comes in for retreading. As far as the margins are concerned, today is not a good indicator of what the margins could potentially be because we are not manufacturing the ring tread in India. We -- currently we are bringing it in on a trading basis as a master franchiser. And the reason for that is we need to have a certain minimum volume before it warrants the manufacturing capacity. So I would say, at the moment, the number of franchises that we have, it doesn't warrant building a manufacturing scale plant, but yes, this is something that is in the offing and hopefully in the next several quarters as we hit certain volume of ring treads, we will look at a full-blown manufacturing setup for this. At the moment, the flat treads are also being outsourced on a contract manufacturing basis from within the country. So today's margin profile is really not a clear reflection of what we believe is the true potential of this business. However, we are clear that we need to invest in this business to build it to a certain volume, after which only a manufacturing will make sense. So I don't want to comment on the margins because today, there is more a trading margin than it is not a manufacturing margin. Manufacturing margin numbers would be very different, but I can't comment on it until we have the scale to give you a number.

The next question is from the line of [ Ashok B. Jain from Ayush Capital ].

Sir my first question is regarding in Q4 of last year, our Non-Reclaim Rubber business margin lost significantly compared to Q3. Sir, what the reason for this?

Sorry, Q4 of which year...

Last year, and Q4 of 2021, our Non-Reclaim Rubber business margin dropped significantly compared to Q3?

Compared to Q3. Yes, actually, if you see there is -- there was a slight dip in revenue as well. So this is actually a lot to do with year-end shipping line pressures. And as a result, there was a lot of material which was in transit and was unable to sell through. So I think it was an aberration of such, not a reflection of business. I mean, if you noticed it, it went from 9-something percent to 8-something percent revenue as well. So I think it's more a reflection of that than anything else. So it's treated as an aberration. I don't think it's a reflection of why margins dropped.

Okay. Because in Q3 we reported a margin of 15%, whereas in Q4 we reported a margin of just 8%.

Yes. So as I said, I mean, there's a lot of stock variation and in transit materials at the year end, yes, that was it. I think the shipping crises are actually kind of -- I mean, kind of -- we thought it would start improving in Q4, but it actually started to get worse as well. Even as we speak now, there's a lot of our containers and a lot of our material, which is sitting ready but unable to sort of ship through. And that's one of the reasons why we are not be able to make a lot of sales and conversions at the moment. So I mean if you look at March as far as the Non-Reclaim business is concerned, some of the composite business has to do with that. But yes, I mean, it's an aberration, I would say.

Okay. But it's not improved in this quarter also?

I'm sorry?

It is not improved in this quarter also?

Does it mean in the current quarter, you mean?

Yes. The current quarter, Q1 for April and May, is the shipping life a better, you're able to ship or not?

Not -- I mean, so I think depending on the trade lines, there's a lot of volatility. I mean, all I can say is that there is -- I mean, even after paying for cargoes, there are times when you don't get the containers or you don't get the shipping, I mean, in time. So I think there is a lot of struggle. I would just say that, I mean, some train lines, prices have gone up by as much as 5x or 6x. So it's a very, very difficult time out there. I mean I guess you're probably hearing this from all exporters and they're all struggling on getting containers, and costs have kind of gone and hit through the roof. We are not in any different situation than them. I mean some of the largest tire companies to whom we supply on an FOB basis, which means they are to organize for the cargo, even they are having difficulties in arranging for ships to take the containers on time. So I mean, it's something that everybody is trying to cope with. I mean, these are challenging times. I think it's funny, but there have been a couple of companies that have actually taken airfreight of our cargo just to sort of fulfill and make sure that their plants don't shut down. I mean, it is crazy that somebody would pay INR 50 lakh to ship material, which is worth at INR 10 lakh, but it is as crazy as that.

Sir, is there any correlation between the raw material of the end-of-life tires with the fuel prices?

Yes. So we've been maintaining that the alternate use for end-of-life tires is pyrolysis, and that is closely linked to the price of fuel oils. So to that extent, yes, there is a correlation of raw material prices with that of fuel prices.

Is it 1:1?

No, I don't think so. I mean, again, it's tough to put a number to what it is, but yes, there is a core -- I mean it's -- I mean, pyrolysis recovers 30% of the tire to kind of produce low-grade fuel oil, which is used for different purposes, specifically heating. So I mean, depending on how FO prices move and how some of the other prices like diesel, et cetera, move, their ability to compete and therefore buy is affected. The other issue was also that temporarily, the Ministry of Environment and Forest had banned the import of waste tire material. And as a result, for a period of 3 to 5 months, there was a major scramble and shortage of material because all the guys that were otherwise importing raw material were left to buy materials from domestic sources as a result of which there was a temporary increase in prices of tire materials. That situation is behind us now. I mean, that has temporarily kind of the thing because the government is now offering permissions to import waste tire, as long as it is in shredded form.

Sir, are our plants openly working under this basic chain rule?

[Operator Instructions] The next question is from the line of Rohit Potti from Marshmallow Capital.

Sir, just curious to know your thoughts on -- with the increasing focus on sustainability around the world, do you see the Reclaim Rubber to virgin rubber ratio going up over time, in the sense that the customers might be willing to pay a little higher in order to meet the sustainability targets with time in relation to the past?

So I think why everybody wants to be sustainable, nobody wants to pay a price for it. I mean, that's unfortunately -- so everybody wants sustainable materials, but I'm not sure about the second part of your question is whether they'll pay a premium, the answer is probably not. Do they want to be more sustainable? Answer is yes. I mean, are we working with our customers to increase or help them increase the percentage of reclaim in their formulation? The answer is yes. Will they, therefore, give us a premium for the product? Answer is possibly. So I think there will be a balance in terms of what will be the ratio of natural rubber price or synthetic rubber price to that of reclaim rubber price. And I think that question is better answered by our customer because every customer seems to think differently about this. So I don't want to give you a blanket answer on that. But yes, I mean, from our perspective, it is very clear that we are making attempts at helping our customers and increasing the content of reclaiming their formulations and have been successful in the last 1 year and hopefully will be continuing in the coming months. But I don't see this resulting in any kind of pricing premium or pricing power for us.

That was helpful. And my last question is I mean, from 2003 to '13, our EBITDA margins averaged at 18%, as was mentioned by previous participant. And from '15 to '20, it's been in single digits ranging grew 6% to 9%. So you've mentioned that a part of it was due to external factors like raw material competition, energy costs, et cetera. And a part of it was internal as we invested more into the newer business areas. So could you give us an idea of what percentage of revenues, what for -- was due to internal reasons in the sense you were investing for the long term. How much of the P&L hit was because of that?

I don't have the numbers immediately available for me to comment on. But I would say that on a stand-alone basis, Reclaim Rubber definitely has the potential to get to double-digit EBITDA margins. And I think once we sort of achieve a certain scale, which as part of this rationalization and debottlenecking, we are in line of achieving in the next couple of months, I do believe that we will get to a double-digit EBITDA margin as far as Reclaim Rubber business is concerned.

The next question is from the line of [ Harshad Boleja ], an individual investor.

Yes. I guess on import as a percentage of raw material is consumed and this Q1 FY '22 will be expected to be better than the last year's Q1 because there's increase in the price of rubber and the commodity prices.

So the second part of your question is Q1 of last year was pretty much of a write-off. I mean, you see the -- I mean, we were in the worst part of the pandemic as far as industrial operations are concerned. Yes, our plants are, as I mentioned, operating and we are operating depending on the plants between 65% to 85% of utilization. So definitely, we will be expecting a much better Q1 compared to last year's Q1. Will it be in line with Q4 of the last year? Answer is clearly no, because the second wave has affected us by way of availability of manpower and raw materials and so on and so forth. The first part of the question in terms of what is the percentage of imports of raw material, I mean, I can tell you on a volume basis. But on -- I mean, on the volume basis, it is in the region of about 14% to 15% of our total input material cost -- I mean, input material consumption.

The next question is from the line of [ Rakshit Jain ], an individual investor.

What is the number of franchisees we have right now? Will we be growing it by one every 2 months, which you planned over?

I mean, so at the moment, as far as the retreading business is concerned, we are operating -- so we have 12 signed franchisees that are there. I believe, the level of operation will be depending because they are all spread across different states. So at the moment, franchisees in Tamil Nadu and Kerala was affected while some others in the other parts of the country are not as badly affected. Our stated target of growing at the rate of one franchise a month, obviously, did not assume that we will be in COVID second, third, fourth waves and COVID lockdowns. So to be honest, I can't say that we continue to remain committed to that number. Yes, our attempt and endeavor is to. But I mean, in these times, it's very difficult to set up franchisees at that pace, especially when people don't have enough, I mean, mobility, I doubt that the pace will be the same. I mean, I think once we normalize and if once things kind of go back to pre-COVID kind of situation by way of economic activity, yes, our stated target of adding 1 a month definitely continues. We have made the on-ground readiness and availability to ensure that, that happens by way of whatever is the level of localization as well as the ramp-up in capacity as required for the Indian products by our partners. That is all in place. But I think franchise expansion cannot happen at the same pace if they're going to continue in these lockdowns. So I don't have an answer to what we will add this year because I don't know how long these lockdowns will last as well.

Will we be able to increase our non-reclaim number share to 20% or at least higher fees in this current financial year and to at least 2/3 by the next 3 to 4 years?

Well, that's definitely, I mean, a stated goal, which I have put out publicly as well. So I mean, assuming you're referring to that same one, I mean, yes, that continues to remain the stated goal. I mean, how soon, as I mentioned, we can execute will depend on a lot of factors. And I think the second wave of COVID has a major role to play because the nylon business is 100%, as I said, dependent on the demand from India. So I mean, depending on how soon we unlock and how soon we normalize, I think the growth will depend really on that, but yes we stay true to that. I mean, as I said, we are adding capacity to the extent of about 40% in this current year as far as that business is concerned. Composite business also, we are adding some capacity. So net-net, we continue to invest in the Non-Reclaim Rubber businesses. When will we get to 20% and 1/3, again, tough for me to answer as we speak because of the impeding lockdowns we are all faced with right now.

Yes. My last question, sir. As we shift from reclaim rubber to non-reclaim, will we be able to improve our working capital base?

Well, I think the CFO has already said that I mean, our net debt has come down, and that is a combination of reducing the number of days as well. I mean, both from an inventory as well as from a net debt perspective. So yes, I mean, our attempts are at being fiscally more disciplined if I may. And yes, net debt is something that we are focused on to see how we can bring down our total utilization of working capital limits.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Harsh Gandhi for closing comments.

Thank you so much. Thank you, moderator, for making this conversation seamless. I appreciate and thank each and every one of you that have attended this call, taken time out to learn more about the company. And also some of the questions have been really enriching in terms of also providing us an insight into what are the concerns that you see. So thank you so much for those insights. And I mean as all of us are going through the challenges of COVID, I can only hope and imagine that we sort of get over this as soon as we can and I mean, all of us get back to business as normal. And we can meet in person or at the AGM sooner rather than later, rather than just having 3 AGMs. But yes, I mean, I thank you once again for taking the time out. And I hope that the business environment improves and less lives are lost and more people get vaccinated. Stay say everyone. Thank you so much for the call today.

Thank you very much, sir. Ladies and gentlemen, on behalf of GRP Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.