GRP Limited (GRPLTD.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the GRP Limited Q1 FY '26 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 this conference is being recorded. I now hand the conference over to Mr. Harsh Gandhi, Managing Director, for his opening remarks. Thank you, and over to you, sir.

Thank you so much, and a very good afternoon to all, ladies and gentlemen, for joining the call. Thank you for joining us on this call for GRP Limited's Q1 FY '26 earnings. Along with me today, I have the company's CFO, Ms. Shilpa Mehta; and SGA, our Investor Relations advisers on the call. We have uploaded our investor presentation on the stock exchange as well as the GRP website, and I hope all of you have had the opportunity to go through the same. We began this fiscal year amidst a highly dynamic global landscape, marked by persistent macroeconomic uncertainties and evolving geopolitical tensions. Against this backdrop, our performance reflects a significant challenge as we continue to navigate across business units and markets. On a consolidated basis, during quarter 1, our total income witnessed a 2% decline on a year-on-year basis. This dip was due to a 7% reduction in volumes, driven by a combination of external market headwinds and onetime operational downtime for a plant upgrade that was taken up. On a stand-alone basis, GRP's revenue performance was shaped by an unfavorable geographic mix. While our domestic business delivered a healthy 5% growth over the same period last year, export revenues declined by 9% on account of the tariff-related uncertainties across key overseas markets where we operate in and a combination of port congestion challenges in certain other geographies. Although we were able to successfully implement upward price revisions with several customers during the quarter, lower export volumes and unfavorable product mix and continued pressure in a particular product category dented our top line and profitability. Coming over to the Reclaim Rubber sector. From an industry perspective, the global OE tire segment remained flat in first half of calendar year 2025 with sharp declines in Europe and North America to the tune of minus 8% and minus 5%, respectively. This was mainly on account of economic uncertainty and regulatory pressures in these geographies. In contrast, China actually saw a 10% growth in the OE tire sales, supported by government incentives and strong vehicle exports. Given our company's major export sales are in the former 2 markets, which is Europe and North America, that put pressure on our volume sales in these geographies. The Replacement Tire segment showed a moderate 3% year-on-year recovery. Europe grew by about 5%, aided by increased imports, and North America sales rose about 2%, though concerns over tariffs persisted. However, in China, demand for the replacement tires remained flat, impacted by a relatively steady domestic economy. Within India, Reclaim Rubber exports grew by 5% during the quarter, slower than the 10% recorded in FY '25 for the same period, but with notable declines in shipments to Europe and North America, which were down by almost 14%. On the business front, we also encountered logistical disruptions, including congestion at critical ports that delayed shipments. The recently imposed tariffs in the U.S., which is for all practical purposes, conversation on most channels has created major uncertainties in sourcing strategies for global tire manufacturers, impacting demand visibility. In our annual call, I did mention that we were on course to assess and evaluate what would be the impact. And while we continue to actively engage with key customers and explore alternate markets, the impact of this has been fairly significant. On the profitability front, gross margin pressure persists. These are driven by sustained inflation in raw material costs for automotive inner tubes, which is a key raw material for manufacturing of butyl reclaim and challenges related to product and geographic mix, which again is an outcome of the butyl rubber lead shortages. Our Reclaim Rubber domestic business, as I mentioned before, maintain an uptick in revenue on account of price increase and product mix, but export volumes and revenues declined. Specifically around 5% of total volumes for the quarter, representing about 7% by value were impacted by the newly implemented tariffs and global uncertainties. This was mostly in markets which serve the North American tire demand, and this was from a GRP context, demand in Mexico, Thailand, Indonesia and even some Chinese customers that were earlier selling to the North American markets. Additionally, volumes were temporarily affected also due to a planned operational pause for maintenance at one of our plants as we implement digitalization initiatives. This, together with the loss on account of export sales, represents a total volume loss of about 13% for the quarter on a comparable basis. On a more positive note, however, the new technology installed in our reclaim rubber operations has started to yield encouraging results. We have received product approvals from several tire and non-tire customers, providing confidence in capturing incremental volume growth in the upcoming quarters. Another key development from the quarter is the switchover of one line producing a certain SKU to an alternate process, which has a much lower manpower dependence and a significantly lower GHG emissions. Approvals for customers representing this entire line of capacity has been received, and this will provide meaningful incremental margins and significant GHG emission reductions for the Reclaim business as a whole. We are aiming to convert more SKUs to this process in the coming year. Our Non-Reclaim Rubber business registered a strong 17% year-on-year growth, driven by robust performance in Polymer Composite and Custom Die Forms businesses. Both these segments witnessed healthy volume expansion, supported by stable demand and favorable margin profiles. However, this growth was partially offset by a decline in volumes within our Engineering Plastics division, which is facing headwinds due to a combination of reduction in virgin nylon prices and softening demand in the Indian automotive sector, which put some pressure on volumes and margins in this particular business unit. Our subsidiaries, that's GRP Circular Solutions Limited and GSPL continued an improvement in revenue, reporting a combined top line of INR 74 million during the quarter. However, they still continue to bleed as the business is currently operating in suboptimal scale and is in the phase of building a more meaningful portfolio of customers. With the government's mandate on plastic usage coming into effect from April 1, we are already witnessing a steady uptick in the monthly volumes from these subsidiaries. And based on current momentum, we expect these subsidiaries to achieve a positive EBITDA by end of this financial year, marking a key milestone in our diversification and growth strategy. Moving to our CapEx plans and new projects. As previously disclosed, our crumb rubber plant has become operational last quarter. We have started supplying this material of crumb rubber to manufacturers of bitumen modifiers. And again would like to report that we have got several approvals over the last quarter. While the road surfacing season is set to recommence in October, we anticipate a pickup in volumes in the coming quarters. Our first phase of the new project of the manufacture of tire pyrolysis oil is also undergoing cold trials as we speak with final set of trials -- with final production hopefully following through in the course of the next weeks. And therefore, we can confidently say that commercial operations should begin in Q2 of this fiscal. We have finalized the technology for manufacturing of the recovered carbon black and are targeting to commence the commercial operations for that part of the project by end of this fiscal year as well. As part of our ongoing strategic investments, we have therefore drawn a total of EUR 7.5 million from the facility that has been earmarked from PROPARCO as part of the ECB as of Q1 FY '26. The Board has also approved the investment in additional capacity for solar power generation for our Gujarat manufacturing -- Gujarat and Maharashtra reclaim rubber manufacturing units under a group captive arrangement. This is in line with the respective state board policies and will be facilitated through investments in share capital of SPVs created for this purpose. This marks a key step in advancing our renewable energy transition and further reducing our carbon footprint in line with the targeted 50% by 2028. We remain optimistic about the coming quarters and the long-term future of GRP. While we have faced near-term challenges in each of the businesses stemming from prolonged geopolitical and U.S. tariff-related uncertainties, raw material cost pressures, delays in project execution, our focus remains firm. On execution of new technology for RR, growing share of the advanced RR products developed using an alternate low GHG emission process, on successfully commissioning the end-of-life tire to energy business by end of this fiscal, scaling the plastic recycling business to achieve profitability and subsequently, building meaningful scale. We are committed to navigating these headwinds with resilience and to restoring the growth momentum. The focus continues to build a strong foundation for long-term growth and significant scaling for the recycling operations in the company. With this, let me hand over the call to Shilpa to take you through the financial highlights for the quarter.

Good afternoon, everyone. Let me take you through the consolidated financial highlights for Q1 of FY '26. Total income in Q1 FY '26 is at INR 1,247 million as compared to INR 1,267 million in Q1 of FY '25. This is a modest decline of 2% on a year-on-year basis. We recorded an EPR income of INR 4.56 crores during the Q1 of FY '26. Last year same period, we had INR 6 crores of EPR income. Gross profit for Q1 of FY '26 stood at INR 624 million as compared to INR 670 million in Q1 of FY '25, a decrease of 7% on a year-on-year basis due to continued inflation in raw material cost for specific rubber grades and an unfavorable shift in product and geographic mix. On an average, the cost of this grade rose by nearly 37% compared to the previous year. EBITDA for Q1 of FY '26 is INR 109 million as compared to INR 132 million in Q1 FY '25. This is a decrease of 18% on a year-on-year basis. EBITDA margins for Q1 FY '26 stood at 8.7% versus 10.5% in Q1 of FY '25. Profit after tax for Q1 FY '26 is INR 17 million as compared to INR 44 million in Q1 FY '25. Our debt equity ratio is 0.86 as at June 30, 2025. With this, I now open the floor for Q&A.

[Operator Instructions] The first question is from the line of BalaSubramanian from Arihant Capital.

Sir, my first question is regarding this new crumb rubber plant. I think it's been commercialized by last quarter. Just understand like what kind of utilization rate we can expect in this financial year? And is there any like execution risk for the pyrolysis and RCB plants given the tight time line, especially for RCB by Q4 FY '26? And what kind of revenue contributions from the integrated Tier 2 energy vertical like crumb, TPO and RCB in FY '26 and beyond? This is my first question.

Sorry, I didn't follow the last part of your question. Can you say it again?

What kind of revenue contributions expected from integrated like this tier 2 energy verticals like crumb, TPO and RCB in FY '26 and beyond?

All right. Thank you for the questions. As far as the first part of your question, which was regarding the utilization of capacity as far as crumb rubber is concerned, as has been announced, our total capacity for the whole project is at the rate of 35,000 tonnes in the first phase. This is on an annualized basis. Out of this, the expectation is that 30,000 tonnes out of this would be towards the tire pyrolysis business. And within that between 40% and 45% would be for production of RCB. So the remaining capacity and therefore, the capacity of crumb rubber that is being created within this INR 35 crores will depend upon both the demand of crumb rubber as well as the demand from the other products. So we created crumb rubber capacity which is almost 20% more than what is required for pyrolysis. And after tire pyrolysis capacity, about 40% of that capacity is going to get diverted to produce recovered carbon black from char. So that's in a nutshell, the breakup of the capacity. As far as the time line for the RCB is concerned, we have maintained that we will start work on our RCB project once our tire pyrolysis project is commissioned and executed. As I said, our project is almost close to completion. The equipment is entirely -- I mean, almost -- is entirely commissioned. We are in the process of conducting the cold trials of the reactors and the processes because this is a technology that is being developed by us by sourcing equipment from manufacturers, but then the entire digitalization and the safety pieces that have been integrated by our team, including third-party audits and specialists, it has taken a little longer for the entire integration to take place. But in the course of the next few weeks, we are very confident that the pyrolysis operation will be commercial. Now as a result of that, our RCB capacity was to be dedicated and technology finalized once this is in the commissioning phase. Therefore, as I mentioned before, we have already identified the technology, orders placed, project began, and we are very confident that by end of this fiscal, the RCB plant will also be operational. Your last part of the question was the revenue potential from the entire business. I think once the entire 30,000 tonnes of pyrolysis, which means 35,000 tonnes of crumb, along with RCB and everything is commissioned, we expect revenues to be in excess of about INR 125 crores as part of that Phase 1. And when we will achieve that will be a function of achieving a higher utilization. But yes, between INR 125 crores to INR 140 crores of revenue can be expected once this project is completely commercial. Hope that answers all three parts of it.

Yes, sir. Sir, my second question is regarding the exports, like given that weaker demand, especially in that market, how we are diversifying our export strategy beyond year? And like customers are delaying their orders because of this export things?

So I think we have -- I'd like to clarify that firstly, GRP has the highest share of exports out of India when it comes to reclaim rubber. We continue to maintain that market share. So even while our export sales is -- there's been a degrowth, our market share of exports out of India continues to remain more or less the same. There's been a slight dip, but dip is, as I said, because the demand for the reclaim rubber in markets like China and some of these places, where it has grown where we don't have a larger share of the wallet. While in markets where we have a larger share of the wallet, there has been an overall growth in terms of exports out of India. So broadly, we more or less maintain that share of exports out of India. Coming to your second -- your core question on whether the customers are delaying the order, I am not sure whether that is the case. I think some of the markets that we were selling to or we continue to sell to were tire -- were hubs for tire manufacturing and the tires from those hubs were being exported into North America largely. I mean, as I mentioned, likes of Thailand, Mexico, Indonesia, they were -- Philippines to some extent, they were large manufacturing hubs, which were exporting tires to North America. On account of the tariffs and uncertainties, tire imports into the U.S., there has been a change in profile of imports and which countries it is coming from. And as a result, wherever we had a strength and if they were exporting to the U.S., unfortunately, we lost on those shares. As I mentioned, our conversations with our customers are ongoing. We are very deeply and closely connected and talking to them to see how we can restore our share of their total wallet to ensure that the hit on account of the tariffs is recalibrated. These things are not possible, do not happen overnight. These things take time. So therefore, those active conversations are ongoing.

Okay. Sir, my last question, this new application for modified bitumen especially for crumb rubber in roads surfacing. So what is the addressable market in India and like how we are competing with our competitors? And is there any additional CapEx required in this segment?

So as far as we are concerned, we are just entering this industry in this business. So we have a lot to learn. But I can only say that currently, our focus as GRP is going to be on supplying the crumb rubber to the bitumen modification companies and not doing the manufacturing of CRMB on our own. We will supply this to the bitumen modification companies. These would be a combination of private companies and also public sector undertakings that are producing crumb rubber modified bitumen. As far as the total market is concerned, so what we understand, the current crumb rubber market in the country is about 50,000 tonnes to 55,000 tonnes on an annual basis. And this, of course, means that this is blend at a certain ratio in the bitumen. So I can't comment on what is the total size of the bitumen modified market, but this is a crumb rubber market and which we are familiar with. And we are going to be focused on selling crumb rubber to these modifiers. I hope that answers the question.

The next question is from the line of [indiscernible] from Niveshaay Investment Advisors.

My first question is, despite the commercialization of crumb rubber facility, the revenue growth has been subdued. We have cited reasons of export and temporary shutdown for the same. Going forward, how fast can we see ramp-up in revenue? We have done a big CapEx, and there must be some internal calculation. So how confident are we to achieve that and within what time line? And my second question is gross margins have gone for a toss this quarter. So what are the reasons for the same? As I read the PPT, it was for some specific raw materials. So can you tell me which raw materials were increased their prices?

Sure. Thank you. I'll answer the second question first. I mentioned in my opening comments as well that butyl inner tubes, inner tubes that is used to produce a grade of reclaim called butyl reclaim. That is the one that has been most affected. And this is not just for this quarter, but we have been cautioning about the reduction in the gross margins for that particular SKU for the last 3 quarters. So this is the third quarter in a row where we've seen gross margin erosion on account of the pressure on gross margins in butyl reclaim rubber. That used to constitute close to 35% by volume and closer to 44% by value of the total this thing. So that's the grade which is causing the pressure. And as I mentioned, we are actively involved with our customers to see how a significant portion of that can be absorbed or passed through in those conversations. Coming to your other question regarding crumb rubber plant has begun but why is it not showing in top line? That's the way I understood it. Crumb rubber being sold is sold at a much lower value realization. The range of value realization is much, much lower, between INR 25,000 to INR 30,000 a tonne versus reclaim rubber sales are closer to INR 60,000 a tonne of realization. So number one, the capacity came on stream only in the month of March. Post then, we have kind of been selling crumb rubber for approval processes because, again, in the road surfacing industry, there are certain specifications to sort of adhere to. And by the time that our approvals came through, we are in the beginning of the monsoon season where road construction activity pretty much comes to a standstill. So we are hopeful, as I mentioned, that once the season comes back again, we will start participating in the tenders and start to see meaningful revenue growth coming from even the crumb rubber business. But this is the reason that why in Q1 and possibly even in Q2, there might not be much impact from the sale of crumb rubber because the volumes will be much, much lower than what we could otherwise do.

Yes. Also, there was that one question about the CapEx, the time line and some internal calculation for the time line.

So I think we continue to maintain the time line. I think as recently, even at the AGM, we have indicated that the INR 150 crore out of the INR 250 crore announced CapEx, we are fairly confident and we are going to be deploying most of it by December '25 to Jan 2026. And that's why I mentioned that the commencement of the RCB plant by Q4 is the last part of that INR 150 crore round of CapEx. Once entirely commissioned, as I mentioned, that just the end-of-life tire to energy business itself could generate potentially up to INR 130-plus crores of revenue. But if you add the incremental revenues coming from reclaim rubber, from crumb rubber and from the plastics, that should be at least another INR 40 crores to INR 50 crores of additional incremental revenue.

Okay. And also, I had one question that your renewable energy initiatives drive 72% increase in savings. And as you scale up to the target of 50% renewable energy use by 2028, so how do we see this impacting our operating cost and EBITDA margin in long term?

I think if you look at only over the last 8 quarters on a consistent basis, we have seen manufacturing costs have reduced. In fact, even on an annualized basis, last year itself, the operating costs have come down to the tune of about 4%. I mean if you look at just energy alone, our annualized savings from energy was close to INR 7 crores last year on account of the switchover. And in the current year, we expect also similar numbers. But you have to keep in mind that nothing is in isolation. All of these are moving parts. So it's not all building -- I mean, these are partly building blocks, but these are also all moving in tandem with our gross margins and so on and so forth. So as gross margins are getting eaten into on account of other set of challenges, benefits from energy and some of these operating initiatives that we have taken to bring down our overall manufacturing costs, it's kind of getting hidden, but there is already manufacturing costs that are much lower than maybe 2 years ago or 3 years ago.

[Operator Instructions] The next question is from the line of [ Divya Agarwal ] from Fincorp Family Office.

So I list down all my questions and then you can answer it, sir. So firstly, I wanted to know about the volumes for reclaim rubber, non-reclaim rubber segment and as well as the crumb rubber that we sold in this quarter. Secondly, if you could help me with the realizations and the margins for the new technology era, that is the low GHG emissions reclaim rubber. The third question is, can you bifurcate the CapEx of INR 150 crores of Phase 1, of which how much would be for crumb rubber, pyro fuels and the new reclaim rubber? And the last question would be what was the reason that we were not able to pass on the raw material increase from last 2, 3 quarters that we are seeing in the butyl reclaim rubber?

Well, that's a lot of questions, and I'll try and again address them. So let me just go over what you asked for is volume breakup between reclaim, crumb and non-reclaim rubber. Then the second question is, I'm just recapping. So if I have not missed anything, please correct me. Second is the margins from the new process versus the traditional process and what's the delta on that? The third was the breakup of the CapEx of this INR 150 crore and how much has gone into each of the BUs. And the fourth is the butyl reclaim price pressure and why is it that we are not able to pass it on to the customers. Am I right?