GRP Limited (509152) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GRP Limited Q4 and FY '22 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 risk and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harsh Gandhi, Joint Managing Director, GRP Limited, for his opening remarks. Thank you, and over to you, Mr. Gandhi.

Thank you so much. Good afternoon, ladies and gentlemen. Thank you for joining us on the annual FY '22 Earnings Conference Call. Along with me today, I have the company's CFO, Ms. Shilpa Mehta; and our Investor Relations from SGA on the call. I hope all of you as well as those around you are safe and in good health. And hope all of you have had a chance to go through the results uploaded on the website and on the system as well. I'd like to provide a quick recap on the different verticals that we operate. GRP has been a sustainable material producer for the last 4 decades. But it is only in the last 4 years that our focus has broadened beyond just tire recycling into other domains of recycling as well. The core business of the company continues to be reclaimed rubber and material which is produced from end-of-life tire and supplied to manufacturers in the automotive tire segment, which, in some ways, we're helping them fulfill their circularity obligations and then producers of conveyor belt manufacturing as well as other auto component manufacturers. They use this rubber to blend along with virgin rubber and our supplies are to more than 50 countries around the world and 7 out of the top 10 global tire companies to boost off as customers. With a stable portfolio of customers and a dedicated supply chain, we spread our activities beyond end-of-life tires to plastic recycling as well. So our industrial Polymer segment uses nylon from waste tires from end-of-life fishnet as well as textile waste to produce upcycle nylon and nylon compounds, which find applications in industrial, consumer goods and in the automotive industry. We also run this by the polymer composite division, where we manufacture composite boards which are blend using recycled rubbers and plastics. These are polyolefin-based plastics. And end applications are, in some ways, substitution for wood and concrete in applications ranging from the transportation sector to the shipping industry, to oil and gas applications as well. During the year, as we sort of decided to sharpen our focus, we decided to continue to remain a material producer and supplier. And as a result, we decided to exit the tire retreading business, which was a joint venture in partnership with Marangoni of Italy. I'll move to an overview of how the events unfolded for GRP during the year gone by. The fiscal year '22 was a challenging year for the company, like most others in our industry. The impact of the second wave of COVID at the beginning of the year led to demand drop in several segments where your company operates. The constant concern during the year was of semiconductor shortages, container shortages and supply chain disruptions. This led to volatility in orders on hand and also in our ability to post a sustained performance throughout the year. However, in spite of all these challenges, we were able to post the highest ever annual revenue in the year and with a strong growth in profitability over the previous years. Our revenue grew by 38% year-on-year, of which 22% was on account of volume growth and about 16% on account of price increases as well as product mix changes. The EBITDA has grown by 37% year-on-year and PAT has more than tripled, although was on a lower grades. The demand was led by strong growth in both our Reclaim as well as non-Reclaim Rubber businesses. Our Reclaim Rubber business grew again by about 37% on the back of improved performance in the replacement tire demand across major geographies in the world. A slow revival in the [ OEs ] sector in India increased offtake by the tire industry, and that was coupled with the growth in mining activity across the world. And that provided an impetus to growth even in the non-tire sector demand for the company. Towards the later half of the year or in the last quarter of the fiscal year, the Russia-Ukraine conflict also brought about a fair bit of uncertainty in our customer demand. But by and large, has been a positive for us since several materials have become short-term supply. This is key rubber, carbon black, among other materials that are used by the tire industry are originating from Russia. And on account of the conflict, there has been shortage of such materials. So the near-term shortage has presented an opportunity for increased substitution of Reclaim Rubber, hopefully, to go through in the next few quarters. The currency changes, especially with regards to U.S. dollar has also allowed for improved pricing power for the company and, hopefully, likely to remain a positive for margins in the next couple of quarters. Another important development during fiscal '22 has been the Ministry of Environment and Forests proposed draft on extended producer responsibility for end-of-life tires, taking clue from what is happening around the world, the government has been very I would say, progressive in taking these steps. And as these become regulation, which we do believe will come through over the course of the next month or 2, it will provide a significant impetus to a more organized supply chain in the end-of-life tire collection. GRP has been an active member of the committee by the government. And we do believe that managing waste tires will present a fairly significant, I would say, demand prospects for our industry. The obligations to responsibly collect waste should drive more circularity by the tire industry and thereby presents in my view, a positive outlook for not just GRP but the industry in general. Of course, while there is a positive outlook on the demand of the product, there are the main challenges on account of input cost pressures and an increased activity in the pyrolysis industry in the country. The high oil prices and the ban on imports of end-of-life tires has prompted aggressive competition for procurement of end-of-life tire collection in India. So while the industry demand currently allow for a seamless pass-through of the result and price impact, it is a development that we at GRP are closely monitoring. During the year, we were also able to ramp up revenues in the non-Reclaim Rubber businesses. The non-Reclaim Rubber businesses, as you are aware, are aligned along the value chain and helps the company diversify its offerings to a variety of end customers, reducing our dependence on the tire sector. During the year, the revenue from the non-Reclaim Rubber businesses grew by 67% on the back of customer approvals in segments such as electrical and furniture industries, apart from the work undertaken by the company in expanding the product portfolio, which is not just limited to nylon, but is also spread across other Engineering Plastics. During FY '22, we expanded our non-Reclaim Rubber businesses with capacity expansion in the Engineering Plastic business by doubling capacity to about 6,000 tonnes and also in the polymer composite business, which was also doubled to close to 3,000 tonnes as of March 2022. The order book for the EP business is fairly robust, and there is fair confidence that we have that the company should get to close to 100% utilization of capacity before the end of this current fiscal. While in case of polymer composites, efforts are underway to develop a local customer base in addition to the U.S. partner where the order book is in line with what we've witnessed last year. The total investment in these CapExs have been in the region of about INR 15 crores funded largely through internal approvals. And when I say this, I want to mention that the company has maintained a strong fiscal discipline and maintains a strong balance sheet strength. During the year, the company has been able to maintain a low working capital borrowings compared to the limits we have in place, been conservative with long-term loans in light of the inflationary trends that are building around us and has also built a cash reserve to enable future funding growth. The external credit ratings also continue to be in line with a fairly strong investment grade. So while we have been at the forefront on developing environmentally sustainable products, which helps our customers fulfill their producer responsibility and a rising focus on recyclability, GRP with its rich product portfolio, we believe is well placed to cater to this rising demand, not just in India, but even globally. A testimony to the above efforts is the external recognition that the company has gained over the last several months. We were recognized as the best circular economy by FICCI Accenture Circular Economy Symposium earlier in the year. And we were also awarded the runner up at the global recycle -- Recircle Awards for our circular business model. Along with these industry accolades, GRP has also been declared a great place to work for the third consecutive year, a testimony to our ability in building a team of committed individuals focused on sustainability in the long run. Before concluding my part of the speech, I'd like to mention that the company has been also a prominent player on the ESG front, and we have launched our ESG profile on the ESG world. This gives our stakeholders, potential investors, analysts and rating agencies, a chance to know the value we are adding through our profile on real-time basis. Given the positive outlook for the company, we have proposed a final dividend of 90% subject to approval of the shareholders at the Annual General Meeting. At this stage, I'd like to hand over to our CFO, Shilpa, she'll take you through the financial highlights for the year gone by. Thank you.

Good afternoon, everyone. Let me take you through our consolidated financial highlights for FY '22. FY '22 revenue from operations was at INR 3,884 million as compared to INR 2,797 million, so it's up by 39% on a year-on-year basis. Revenue contribution from non-Reclaim business increased by 150 bps from 7.3% to 8.8% in FY '22 over previous year. FY '22 gross profit was at INR 2,064 million as compared to INR 1,443 million, up by 43% and EBITDA stood at INR 232 million as compared to INR 169 million, so up by 37% on a year-on-year basis. EBITDA margin stood at 6% at similar level to last year. And PAT in FY '22 was at INR 57.6 million as compared to INR 16.7 million in FY '21, so up by 245%. Our finance costs also reduced by 16% on a year-on-year basis to INR 45.1 million in FY '22 from INR 54 million in FY '21. There were some exceptional items also in profit and loss. Like profit in FY '21, there was profit on sell of assets of INR 10 million whereas in FY '22, there was a loss on sell of asset of INR 10 million. So in effect, compared to FY '21 results, after removing the impact of exceptional items, FY '22 profitability to that extent is higher. And GRP Reclaim business being predominantly export business increased freight charges also affect the margin to some extent. But sale gross margin for the reclaim is better in FY '22 as freight increase was passed over to customers. With this, now I open the floor for questions and answers.

[Operator Instructions] The first question is from the line of [ Umang Shah ] from [indiscernible] capital.

Am I audible?

Yes, sir. You are.

Sir, the first question was what would be our sourcing mix between bias ply tires and radial tires?

[indiscernible] Can you ask all your questions, and then I'm happy to answer them in sequence.

Okay. Perfect. So the first question was what would be our sourcing mix for the bias ply tire and radial tires? The second question is, how is the steel that has recovered from radial tires process? And how the assets sold directly because all the other businesses that you have, none of them is with respect to steel. The third question is the -- the overall global industry is around 3 million tonnes, and do you have around 60,000 tonnes of capacity. So who are the largest players or who would be the players who have a bigger capacity than we do? That would be the third question. These are the 3 questions that I have as of now.

Sure. Just a second. Yes. Okay. So I will start from the bottom up. The industry at 3 million tonnes is actually an estimate. There are a variety of estimates out there. The numbers with and without China are quite different. So it's tough for us to comment beyond that. Yes, we are at 60,000 tonnes approximate sales while the capacities are little higher. The largest manufacturer or player in the industry is a Chinese player by the name Nantong Huili. Others around -- and of course, largest capacities for reclaimed rubber outside India are all mostly in China. As far as other manufacturers are concerned, the other continents where they are. I mean, Elgi Rubber from India is among the largest competitors and then there are several others in the country as well. The second question is about what do we do as GRP for -- when it comes to steel from the radial tires? So while we process radial tires in our formulations, the tires that we receive are already shredded and majority of them do not have much steel left in them. So we purchased shredded tires, the percentage of steel that we recover. Therefore, from our process is fairly small, and it is generally sort of sold to the steel rolling mills within the areas that we operate. But it is normally steel by weight in a tire is about 20%. But because we bring in shredded tires and in some cases, even granulated radial tires, the generation of steel in our process is fairly low. The third question, which was your first question, is the sourcing mix between radial and bias, of our tire reclaim portfolio, about 90% of our raw material continues to still be biased tires, and it's about 10% or so is what is the radial tire reclaim that we process. Overall, as a percentage, therefore, the number would be even smaller. I hope that answers all the 3 questions.

Yes, just 1 follow-up to the last question that you answered was that now that the radial tire mix in the overall transportation sector continues increasing, wouldn't sourcing much like -- so just wanted to understand, are both biased tires and radial tires contributed in our capacity like we have the same output there? Or would we want to take a separate entablement because of the raw material change in terms of bias ply tires to radial tires. And in case that happens, would your machinery need to change substantially, that's not required.

So again, the equipment that we have and which we use, it's like a same equipment, so we could process radial tires and bias ply tires in the same set of processes that we have. Only thing that changes is partially yield as well as the output rates. So really, in some ways, the capacity is fungible between the 2 raw materials. And as the radialization grows in the country, the question that you asked is whether we have the ability to switch? Answer is yes, we have the ability to switch. We need to get a few customers to sort of approve the product that comes out of the radial tires, but we believe that's an incremental process and would not impinge on our ability to switch if the need arises. Having said that, because we are also competing with the pyrolysis industries, and they have a preference towards steel radial because the calorific value is higher. It is kind of in some ways allows us to kind of buy a lot more of the bias tires and that helps us in the long run.

The next question is from the line of [indiscernible] [ Gilani ] from [indiscernible] Securities.

Congratulations on a wonderful set of numbers. So I just have a few questions. So could you give us the segment-wise utilization, please, for all the segments? And the second question is that whether our exports have been -- like exports have been reduced? Or are we facing any container shortage in our exports? And my last question would be that are we planning to enter the tire retreading business again like having a joint venture with any other company in the future?

So when it comes to utilization of capacity, I will run through the numbers. As far as Reclaim Rubber is concerned, our capacity at the beginning of the year -- so here's the thing, I mean the capacity has not been constant throughout the year. We have done debottlenecking of capacity in Reclaimed Rubber through the year and a lot of capacity from Tamil Nadu plant, which was 2 years ago temporarily shut down, has been reallocated to the other plants. And as a result, the capacity utilization number, it's tough to give for the whole year. But I can say that by the end of quarter 4, our utilizations were in the region of about 85-odd percent -- between 82% to 85%. When it comes to Industrial Polymers, I think, again, we doubled capacity, as I mentioned, we grew from about 3,500 tonnes to close to 6,000 tonnes. So again, at the end of the quarter, I would say our utilization of capacity would have been closer to, I would say, about 45% -- 40% to 45%. And that's mainly because most of the new capacity expansion has come through only in Q4 of the last fiscal. Similarly, in polymer composites, the capacity has doubled from what it was a year ago. Again, with majority of the capacity coming through only in February of 2022. And therefore, at the end of the quarter, our utilization of capacity may have been closer to 40% or thereabouts. Yes. So that's the capacity utilization. Your question about tire retreading, I would say that -- as I said before, I mean, our focus is to be a material supplier, and we realized that having operated and been a part -- a JV partner in a retreading business that the synergies that were expected were not as strong as the opportunities we see in aligning and building the portfolio, other recycling opportunities. So I think eventually, it's a question of allocation of capital. And we do believe that given the synergies on the supply chain, there is definitely improved return on capital employed expectations from the allied businesses in recycling as opposed to value chain through a forward end play, which was tire retreading. The third question was about the availability of containers and exports. Yes, the volatility and availability of containers as well as COVID-related shutdown of ports across different parts of the world at different times in the year, has obviously played a role in, I would say, being able to supply material to customers on a just-in-time basis. But I don't think we have been affected to the extent that we have not been able to execute exports on account of nonavailability of containers. Yes, there have been impact on pricing and margins to some extent. But I would say, by and large, we have fulfilled all the obligations and orders that we have had for the customers. It has also meant that excess inventory has been accumulated both at our plants as well as at the customer warehouses, but this is a deliberate plan more keeping in mind that the volatility should not affect and should not lead to any shutdown for our customers. So you would see that there is some excess inventory sitting on our books at the end of the year. But these are deliberate and planned additions to inventory to ensure that there is no disruption for our customers in operating their plants. I hope that's answered all the 3 questions.

The next question is from the line of Ritesh Poladia from Girik Capital.

Sir, as I'm new to the company, I just wanted to understand, if I see the 20 years history from 2002 to 2012, you did a 10x revenue, your margins were strong middle digit -- double digit at about 15%, 18%, 20%. What has changed in this last 10 years where your margin is consistently falling and your revenue is almost -- if I see in March 2012, your revenue was somewhere INR 250 crores. And now it's about INR 350 crores, INR 380 crores. So what has changed in the industry? And what are the levers for the margin from now on this?

I think we can continue to dwell in historic performances. But I think a lot has changed over the last 10 years. I think you if you look through how the prices or the margins of the company have been vis-a-vis the prices of the different commodities, specifically natural rubber and synthetic rubber, it kind of paints a little bit of a picture in terms of substitution of reclaimed rubber and its impact on the margins of our company. But post 2012, the pricing of major commodities sort of reversed as well. And as a result, our revenues kind of remains stagnant, but it was not a reflection only of the volume reduction. Actually, a lot of it was on account of the prices. And therefore, the prices of reclaimed rubber sort of reversed starting in 2012, and that's kind of what affected the margins. There has been a relatively steady volume growth over the last 10 years or so in the retail rubber space. So that's where I would leave it as far as historic versus today is concerned. As far as your question on what are the drivers of margin going forward, a, it is the diversification away from tire into other forms of recycling, plastics being another key area for our growth. And as a result, we believe that the ability to sort of use a common supply chain to collect various other type of materials and be able to recycle and add value in other segment should be the driver of margins and value going forward, if I may. I mean since you've mentioned that you're sort of new to the company, I would also say that our product will substitute the virgin rubbers and virgin plastics and the percentage of substitution depends on a combination of factors, where the key being the commodity prices that it is replacing. And the other is also, in some ways, the alternate uses of the waste product itself. In the last 10 years, another key development that has happened is the advent or entry of the pyrolysis industry in the country, which wasn't the case until 2012 or '13. And pyrolysis in some way, produces 3 fractions, energy to sort of run the plant, oil, which is used as fuel oil and third is char, which is used in a very low-end application. So pyrolysis in the industry is dependent quite a bit to -- on fuel oil prices for survival. And if you look at fuel oil prices in the last few years and as a result, pyrolysis ability to replace fuel oil, that has been the single factor in terms of how our margins have played a role as far as the tire reclaims are concerned. And as I mentioned at the beginning of the speech to kind of derisk ourselves and to hedge ourselves against this 1 particular industry as well, our ability to grow in the other non-Reclaimed Rubber business will be key to growing margins in the time to come. I hope that answers your question.

It was very, very elaborate reply. I understand -- my understanding has gone a launch up and just 1 more on the balance sheet, there is an investment of INR 15 crores in current assets. So it is like a liquidity investment? Or is there anything else on that?

Yes, these are liquid investments and more or less from a perspective of, again, as I mentioned earlier in the other thing, it is for funding hopefully, growth opportunities in the future. I mean this is a combination of improved fiscal prudence, low debt equity and so on.

Sure, sir. So this would be used in the CapEx in a year or 2 down the line?

Absolutely.

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

Sir, I have 3 questions. Sir, firstly, what has been the demand for Reclaim Rubber recently? Secondly, what is the current capacity utilization of Reclaim and non-Reclaim business separately? And lastly, sir, how much is the Reclaim Rubber used in a tire?

Demand for Reclaim Rubber, I can provide an outlook for the same. As I mentioned, that almost 70% of reclaimed rubber is used by the tire industry world over. And if you look at the way the industry landscape is changing and the growth in the replacement car [ air marketed ], we believe that the demand for reclaimed rubber will be fairly robust in the coming years. To add to that, the Russia-Ukraine conflict, again, as I mentioned, is causing shortage of certain key raw materials for use in the tire industry, and that prompts for hopefully higher substitution of Reclaim Rubber. Third key theme has been the increased level of sustainability that the tire industry has publicly stated in their goals on sustainability. And I think most of them have indicated a higher percentage use of recycled materials. Reclaim Rubber is one of the products that is part of that basket of recycled products that the tire industrial could use. So as they act upon their promises of increased recycled materials, we do believe that Reclaim Rubber plays a formidable role in the days to come. Your second question about capacity utilization has actually been answered with the first speaker, so I don't want to take time to do that again. As far as percentage used in tire is concerned, again, depending on the country, the temperatures and performance conditions, the percentage use of reclaimed rubber in tires range from as little as 1.5% in high-performance tires to as high as 20% in really low performance tires. And when I say low performance, I mean things like off the road tires as well as 2-wheeler tires. And I think the percentages change depending on the company and the region that we are talking about. If you look at the statistics, India as a country uses close to 6% Reclaim Rubber as a percentage of polymers in their formulations. The global average in our view, is a little under 4%. So that's the broad indicator of percentage use of Reclaim Rubber in a tire. However, if you look at again the percentage use of recycled materials that most of the tire companies have announced in their annual reports as part of their sustainability agenda, I think the number in the next -- or in the coming decade up to 2040 indicates that the percentage use could go up to as high as 8% to 10%. But again, I would say Reclaim Rubber is 1 of the ingredients of recycled materials that the tire company can use. There are other options and alternatives that potentially this number could go up to between 8% to 10%. I hope that answers all the 3 questions.

The next question is from the line of Deepak Kapoor from Benchmark Capital.

My first question is about your EP division. You mentioned earlier in the call that you expanded capacity and are confident of almost reaching full capacity utilization during the course of this year. So are you already planning on further expansion in the EP division? That's my first question. And my second question is that I'm sorry if I've missed it in your updates in the past, but I'm looking for details on the terms of the status in the joint venture. I think GRP is selling back its stake to Marangoni on the retreading business. Are there any further details on what these terms are?

I'll take your second question first. We have announced the desire to sell, and we are engaged in active conversations. We are to be honest at the final stages of closing of the transaction. So I think by the end of Q1 of this fiscal, you will have an announcement on the terms of the share sale. As far as your second question is concerned, the utilization of the EP business and the expansion therein. I would say we have adequate approvals in the business to sort of confidently say that by the end of the year, we should get to full utilization. But I think in terms of commitment of the next stage of investment is something that we will probably take towards the end of this fiscal. And the reason for that is that the EP business is dependent to a great extent also on raw material availability from the Reclaim Rubber business. So for the growth in the EP business, we need to also expand in the Reclaim Rubber business to be able to recover more nylon from our processes. So I think the 2 have to go in tandem. And I think a call on that can be taken only towards the end of the year as and when we kind of start maxing out or starting to get to the visible end goal of 500 tonnes a month of utilization. So answer as of now, we have on the [ join-door ] plans, but commitment to capacity creation is something that we would take only towards the end of this fiscal.

All right. Just a follow-up question. You had mentioned in the past that you're also looking at sourcing fishnet because that's 1 of the largest pollutants in the sea and in the world and see if that can work as a raw material for you. Is that progressing well? Or any update on that side?

So I would only say that you're right, there is a lot of focus on ocean plastics and the ability to recycle it. So it does present a significant opportunity for growth. However, it has a set of its own challenges because fishnets do come with a lot more contamination than a lot of other materials. So the ability to have supply sources, which provide clean material is something that we are working closely with the points of generation to develop. I'd say we have taken baby steps in there. We have a very small percentage of the product portfolio, which is based on the fishnet waste. However, that will continue to grow as we have greater confidence in the ability to source clean fishnet waste because it has potential of also damaging equipment and high chances of failure rates and so on. So I think it's more a technical question, and I would say we probably take baby steps before we have a larger confidence in that whole project.

[Operator Instructions] The next question is from the line of [ Ankit Agarwal ] from Arc Capital Partners.

Hello?

Go ahead, sir. You are audible.

Yes. I have a few questions. So the first 1 being, what would be the revenue potential from the new CapEx that we have undertaken in the Reclaim and non-Reclaim business? So should I answer all -- should I post all the questions first, and then you'll answer?

Yes, please.

Yes. So that was the first one. The second 1 being, what are the potential consequences of the ERB regulation -- EPR regulation for a company? Like does it help the company in any way? And the last 1 is, there are -- employee cost has increased, if you see. So is the company taking any initiatives to save the cost like automation or something like that?

Right. Thank you. So as far as revenue potential is concerned, I mean, as I mentioned, I mean, a, I'm unable to sort of provide numbers, but I mentioned what is the utilization of capacity in each of the businesses. And I think it's our ability to execute on those plans that will determine what is the revenue. But I mean, automotive, if I was to put it at 6,000 tonnes of Reclaim Rubber capacity that the company currently has, I'd say, the revenue potential from the current levels, which we have indicated is at about INR 350-odd crores. There is probably another 20% upside possible in that. As far as the non-Reclaim Rubber businesses are concerned, I've already indicated that we have just completed a double capacity expansion in both those businesses, which is the engineering plastics and polymer composite. And given that for the year of FY '22, our capacity utilization, hover between around -- I mean, depending on when you look at it, but at the end of the year, since it was in the region of 40% to 45% utilization of capacity, you can estimate what could be the revenue potential from those businesses as well in the FY '23. As I said, a lot of that will depend on the team's ability to execute on those plans. Your second question was about the EPR consequences. I think EPR in general, provides an opportunity for recycling companies like us to have a more organized supply chain and as a result, bringing more efficiencies in the collection network and as a result, possibly in the long run, provide efficiencies by way of margins. Having said that, the EPR regulation for tires is very different than EPR regulation that has come in place for plastics and other materials like e-waste and so on. A lot of those regulations are focused on circularity, which essentially means that brand owners are obligated to use back certain recycled content in their end products. However, in case of tire recycling draft regulations, there is no provision for circularity. So whether it means an impact on demand? Answer is really at this stage, we're not sure. But yes, there will be improved efficiencies in collection. There will be a more organized supply chain. And there will be definitely state and tire company-based funding for the collection of end-of-life waste. What it means to us in terms of margin, I think it's too early for us to predict what will be the outcome. Your third question was regarding employee costs. And again, if I may, I mean, as a percentage of revenue, it has actually reduced in the current year compared to the previous year. Of course, a large part of it is on account of the improved volume sales that we have sort of affected. 2 ways to look at this. I think as our capacity base is expanding, the wage inflation in the country is much higher, but our wage costs are not in line with that wage inflation. That is clearly because the dependence and reduction in the workforce is underway, and a lot of automation initiatives are already underway. Its full impact is tough for us to be able to kind of predict at this stage. But I can say clearly that a key indicator that we use, which is number of people required per ton of production, that continues to reduce on a year-on-year basis over the last 3 to 4 years. I hope that answers your questions.

[Operator Instructions] The next question is from the line of [ Umang Shah ] from [indiscernible] Capital.

Sir, so the undertook expansion in our non-Reclaim Rubber segment to the tune of INR 15 crores given before the capacity utilization has reached a certain level previously. So in terms of ROCE, what is the long term -- like what is the long-term direction that you want to take your ROCE to? Because even in the non Reclaim Rubber business, ROCE have been in single digits for a long time. That was the first question. And the second question is Reclaim Rubber business is very much dependent on the rubber prices, both natural rubber prices and the SPR, the synthetic rubber prices. In terms of non-Reclaim Rubber business, sir, does the role of that price is as important as it is in the case of Reclaim Rubber business? These are the 2 questions.

So of course, our target ROCE numbers obviously would be tending towards mid-teens, if I may, as for the company as a whole. And we do believe that as the non-Reclaim Rubber businesses scale, the ability to generate incrementally higher ROCE, will be much better. Again, tough to kind of give out numbers, and I'm not sure how you're arriving at the ROCE of the non-Reclaim Rubber business. But I mean, the early set of capacities that we had were in some way, semi-commercial and then we're moving to commercial scale only in the last 12 to 15 months. So tough to kind of put out ROCE numbers separately for Reclaim and non-Reclaim. As far as the second part of your question is concerned, could you repeat that again?

Sir, so the question -- the second part of the question was just Reclaim Rubber business operations are pretty much dependent on the prices of the substitutes, such as the natural rubber and the synthetic rubber. In case of non-Reclaim Rubber, the delta of price, change in price is as much as it is in Reclaim Rubber or it will be significantly lower.

So I'll answer this question in 2 separate ways. Again, as I mentioned that the tire industry has an agenda on circularity or in terms of use of recycled materials, -- if you look at the engineering plastic industry, a lot of global as well as Indian compounding companies as well as end manufacturers, including automotive, have again got a fairly strong number that they put out in terms of percentage of recycled content that goes back in there. So to some extent, in the plastic industry, our experience has been that the prices of recycled materials, while are at a discount to the virgin polymer-based compounds, it is not at a significant discount to what we see in the rubber industry. So on a like-to-like basis, for example, in the rubber industry, if the price of Reclaim Rubber is at a range between 30% to 40% of that of the virgin rubber. In case of plastic industry, the prices are closer to 80% to 90% of that of the virgin plastic-based compound. So yes, it is dependent to a large extent on the virgin plastic prices, but the percentage substitution or the percentage impact is much lower. The other -- I think that answers the question, am I right?

Yes, yes. That answers my question. And sir, just 1 more question, if I could squeeze in. Sir, could it be right to say that you will be able to get into double-digit 12% to 13% EBITDA margins in your Reclaim Rubber business? If the realization per kg crosses [ 65% ] or is that a lower number?

So I think the realization per kg is a function of the product mix as well as the currency. So I won't be able to put a number out there as of now. But will the EBITDA margins for the Reclaim Rubber business get into double digits? I mean we sure hope so. I would put it as the freight costs that have risen over the last 18 months, has, to some extent, been a dampener on margins over the last 5 quarters. But by and large, I think the tailwinds in the industry point towards certainly, as I said, greater level of substitution. And if the price trends in the synthetic rubber and natural rubber continue the way they are, we do hope that the margins will start improving from where they were in the last 2, 3 years.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Harsh Gandhi for closing comments.

Thank you to you all for the time taken to sort of attend this call. I appreciate all the questions. They have also provided us a good understanding of how the investor community is growing the business, but more importantly, also provides us insights into areas that we need to focus on. So appreciate the time and the sort of questions that you have all asked me. Thank you so much. I appreciate also the efforts that SGA has taken our Investor Relations partners for their ability to engage with the shareholders. Thank you all, and have a pleasant day.

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