Tinna Rubber and Infrastructure Limited (530475) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tinna Rubber and Infrastructure Limited Q4 and FY '24 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the call to Tanuj from Ventura Securities Limited. Thank you, and over to you, Tanuj.

Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to Tinna Rubber and Infrastructure Limited Q4 and FY '24 Earnings Conference Call. The company is, today, represented by Mr. Gaurav Sekhri, Joint MD; Mr. Subodh Kumar Sharma, Director and COO; Mr. Ravindra Chhabra, CFO; and Mr. Anurup Arora, Senior Vice President, CPG and BD. I would now like to hand over the call to the Managing Director of the company, Mr. Gaurav Sekhri, for his opening remarks. Thank you, and over to you, sir.

Hi. Good afternoon. This is Gaurav Sekhri. Am I audible?

Yes, sir.

Okay. Hello, everyone. Welcome to the earnings call of Tinna Rubber and Infrastructure Limited for the fourth quarter of the financial year ending 2024. First off, I would like to thank our host of today's earnings call, Ventura Securities, for hosting this earnings conference call. Now let me take you through some of the key operational highlights of the fourth quarter and also the financial year-end 2024. And after which, my colleague, Subodh, our COO, will take over and give details about the financial performance. It gives me great pleasure to inform you that our company continued on its growth path in the financial year ending 2024, recording around 23% growth year-on-year in consolidated top line, 17% growth in EBITDA and 85% growth in net profit. Our EBITDA margins have improved from 12.42% in the previous year to 17.25% in FY '24. This financial performance is a testament of strategic road map, laid out a few years back, of diversifying our product portfolio and building a pan-India presence for our business. In other developments for the year, we improved our working capital cycle, improved our credit ratings and reduced our interest costs. These improvements in our financial performance have led significant increase in our return ratios as well. On the operational front, in FY '24, our consolidated tire crushing volumes grew by 44% year-on-year, while, for the fourth quarter under review, this year increased by 30% year-on-year, though there was a 10% rise in input cost due to the prevailing issues in the Red Sea area. In FY '24, the Infrastructure segment contributed to 52% of our revenues, while Industrial followed by 25%, Steel contributed to 13%, and the balance 10% revenues came from Consumer segment. In Q4 FY '24, Infrastructure segment witnessed a growth of 16% year-on-year, which is attributed to the accelerated highway construction across the country, which has now surpassed 12,000 kilometers this year. In the Industrial segment, we witnessed a growth of around 45% year-on-year in Q4 FY '24, driven by higher sales in exports, where we have started exporting recycled rubber material to leading multinational tire companies and have further appointed agents in Thailand, Japan, Taiwan and U.S.A. The Consumer segment witnessed a growth of over 100% year-on-year in Q4 FY '24, with volumes increasing by 150% year-on-year from rubber mats, brake pads and other consumer applications. Lastly, the Steel segment witnessed a growth of around 12% year-on-year, which is an outcome of higher tire crushing capacity across our plants. In other developments, the company has made a strategic investment in solar energy to set up 1.2 megawatts of solar power. This is expected to generate 1.6 million units annually, contributing to annual savings of INR 1.25 crores. This plant is scheduled to be operational by Q2 of the coming financial year. On the CapEx front, during FY '24, we commercialized our Oman facility in July '23, which has generated revenues of around $1.5 million and an EBITDA of $170,000. Furthermore, Tinna incurred a CapEx of INR 45 crores for setting up greenfield projects, mainly a passenger car tire recycling plant in Maharashtra, a plastic and rubber composites facility at the existing plant located in Panipat. Our R&D activity is full-on to develop customized products for diverse applications like footwear and auto parts, and we anticipate commercial sales to commence from second quarter of FY '25 for our elastomer business. Lastly, I'm very happy to inform you that the Central Pollution Control Board recently directed all producers to fulfill their assigned EPR obligations for the fiscal year '23, and this has resulted in our company monetizing and selling some of the EPR units that we have earned to the tune of INR 6.6 crores in FY '24. It is to be noted that Tinna is one of the largest recyclers of end-of-life tires in Asia and a prime contributor of India's circular economy plan. And we will continue to benefit from the EPR policy, which is now fully operational. In conclusion, let me reiterate our vision for 2027. We remain completely committed and focused towards achieving it. To reiterate, it is our aim to reach revenues of INR 900 crores by FY '27 and achieve EBITDA margins of 18%-plus and return on capital employed of over 30%. We strongly believe that the current economic and government tailwinds, as well as higher consciousness by all stakeholders on circular economy, Tinna is poised to see this vision through. With that said, I now request Subodh to brief you on the financial performance of the company.

Good afternoon, everyone. Thank you, Gaurav ji. Let me talk briefly on the fourth quarter financial performance first, followed by the performance of financial year ending 2024 on a consolidated basis. The operational revenue for the fourth quarter of FY '24 stood around INR 110 crores, which grew around 51% year-on-year basis. EBITDA reported around INR 22 crores, which grew at over 200% year-on-year basis, with the EBITDA margin standing at 20.47%. Net profit after tax reported was around INR 16 crores, which grew by 130% year-on-year basis, and the PAT margin stood at 14.29%. Coming to the performance for the financial year 2024. The operational revenue was around INR 364 crores, which grew by approximately 23% year-on-year basis. The EBITDA stood around INR 63 crores, which is approximately 70% growth on a year-on-year basis, and EBITDA margin stood at 17.25%. PAT stood at INR 40 crores, which grew by approximately 85%, and PAT margins were reported at 11.10%. I'm also pleased to announce that TRIL has paid an interim dividend of INR 3 per share. And the company Board has recommended a total dividend of INR 5 per share for financial year '23/'24. With that, now we can open the floor to the question-and-answer session. Thank you so much.

[Operator Instructions] First question comes from Nirav Seksaria from Living Root Analytics.

Yes. Am I audible?

Yes, yes, Nirav. You're fine.

Yes. Could you mention about the CapEx plan for FY '25?

I'm sorry, could you repeat?

Could you specify the CapEx plan for FY '25?

See, we expect to continue with investing in new capacity as well as in some process improvement-related CapEx. I believe we will see a CapEx of anywhere between INR 30 crores to INR 40 crores in FY '25.

Okay. And sir, your aim for FY '27 was to have 10 operational plants, right? So how are we going to move forward with that since we need to open 4 new plants?

We are evaluating a variety of options as we speak. I cannot disclose more today on this call, but we are continuing to analyze. And we already mentioned that we are committed to our vision of '27, which is to reach INR 900 crores of top line. Now that could come in a new physical location. It could come in addition of plants in our existing facilities because we have the opportunity to use the base that we have already existing. We have 5 locations that we operate from. All of them have ability to be expanded, so it could come in any form or manner.

Okay. And could you also specify the percentage of exports as a percentage of revenue?

Give us 5 seconds, we will come to you on that.

Okay. First, I'm Ravi Chhabra, CFO. About 8% is our export turnover, INR 34 crores during this year.

Okay. So sir, to follow up on that. So we import like 60% of our tires. With the recent introduction of EPR policy, out of which the natural tariffs benefited off, so would we plan to increase onto our domestically procured tires? Could you explain what's the unit economics or that would be much more cheaper for us?

No, no. It's more complex than that. We will, however, to answer your question, we are always looking to have more localized sourcing of tires because that is the most environment-friendly form of recycling as well, but yes, not at a disadvantage to our overall economics.

So sir, for FY '25, can we expect -- what percentage can we expect from the domestically procured tires to be?

It is impossible to predict and tell you that.

Okay. But we can expect it to narrow down going forward, right?

Like I said, we will just be guessing.

Next question comes from Rishi Kothari from Pi Square Investments.

Am I audible?

Yes, Rishi. Please go ahead.

Yes. First of all, congratulations on good set of numbers. One of my questions is around the Red Sea crisis that we are, right now, facing in terms of exporting of tires. So what percentage of cost that -- you recently mentioned a 10% increase in cost. Because we are more dependent on the export-based tire marketing campaign, so if we are -- what is the problem that you're facing in terms of the main domestic use of end-of-life tires? Is it that the domestic players are not being, i.e., summated? Or is it something different?

Firstly, your voice is coming to us not completely clear. But if I've understood correctly, your question is about the Red Sea. On that, the crisis in Red Sea continue to impact us with some erraticness in the schedules, as well as it has a cost impact, which we are doing our best to pass it on to our end consumers. And we continue to look at alternate options for processing raw materials. We, fortunately, have a fairly large base of supply between domestic as well as overseas, somewhere Red Sea does not play a role. So that is our hedge on the Red Sea issue.

Okay, okay. Got it. And also, one more thing. Your recent agreement of exporting the raw material crumbs to the branches to your foreign players, that's just in the tire industry or Industrial segment. This is for the tire manufacturing, right?

Yes.

Okay. And also, in terms of debt, if we talk about, have we any plans of reducing that debt in the books that we have right now currently?

So we are continuing to service our debt in an efficient manner. At the moment, debt is a very good option for us as access to capital. And I don't see us wanting to reduce our debt in any accelerated fashion.

Okay. So [ in other words ], we continue the pace of increasing the debt in the book because it is, in a way, a good leverage ratio for us?

In routine, Rishi, and in fact, if our CapEx plan, we see opportunities which are compelling, I would also -- I'm not averse to taking on a little bit more term debt on our books because our balance sheet can support it.

[Operator Instructions] Next question comes from [ Abhishek Singhal ] from Naredi Investment.

Sir, my first question. You opened a company in Netherlands. So we import from green importer [indiscernible] or export our product. And in this, what challenges have we established at plant in Netherlands?

Abhishek, the Netherlands company is not yet operationalized. It is not -- it is a dormant company. Our imports or exports are not connected to this company. This vehicle has been set up as an investment vehicle for any other overseas investments and opportunities that we see. But at this point, this company is not operationalized.

Okay. And in your presentation, solar power plants are -- INR 125 million annual savings from solar power plant, and you mentioned INR 1.25 crore annual savings.

The savings will be INR 1.25 crores. That's the accurate number. If you have picked up this number mentioned differently, then it's probably a typing error. We will look into it.

Okay. And in FY '24, we earned INR 6.6 crores from EPR. So it's directly going to bottom line or any expenses were incurred through this income?

No, there is no expense directly related to EPR. The impact of this comes in the top line first and then it drops down to PBT.

So what is the per kg rate for the EPR certificate?

The EPR rate is very fluid. I don't wish to get into details on this call on the prevailing price. It's extremely volatile today. We have only begun this process very, very recently. I would recommend let the market stabilize a bit more, and then we can share more information with you.

Next question comes from [ Pradeep Rawat ] from Yogya Capital.

So my first question is regarding the margin. So earlier, the company used to have a single-digit margin, and now we have high teens [indiscernible]. Sir, can you please explain what has changed internally as well as externally since that pre growth year up to now?

See, the margin improvement has happened on various accounts. It has happened in us moving to a category of customers who value quality and service more than just price. We have improved our margins because of some product lines that we have developed, which enable us to get better margin because we deliver fantastic economics to our end customers, products like MRP, as well as operational efficiency. So all of these have contributed. And we continue to see a lot of opportunities in, for example, operational efficiency, which we hope to harvest the benefits as our business goes towards our target sale of INR 900 crores in FY '27.

Yes, sir. And what has improved externally? Can you please explain a bit about it?

Externally, I would only put it to generally better economics, better economic activity in India. The demand for all products is robust. Government spend in infrastructure is at an all-time high, which has a direct impact on our business. So those factors have contributed immensely as well.

So I'm just jumping into the conversation. If you see our overall growth from the infrastructure sector, that has contributed well. So in the last financial year, we have done fabulous on the infrastructure side. And if you see, I mean, the overall, even bitumen consumption has gone up by 10%. India imports around 3 million metric tons. In the last financial year, they have imported around 4 million metric ton of bitumen. So around 0.8 million to 1 million metric ton bitumen consumption has gone up. So that means more infrastructure is being built, under process, and the more and more demand is coming. And modified bitumen is a reality. And that's the reason you see our overall crumb rubber sale, our overall revenue generation from the infrastructure sector is improving, which is up by 3% to 4% as compared to FY '23.

Yes, great. Understood. And my second question is regarding the revenue generation from our new passenger car radial tire facility and composite facility. So how much of revenue can we generate from this facility in FY '25?

So if you see like that's the overall teamwork and the efforts management has put in to start the -- this Varle facility in Bombay. It's in the record time of 6 months, we completed. And by end of February, the plant came into the operation. The first month, it took us to fine-tune the production, but still, we could make around INR 3 crores of revenue generation from that. But ultimately, the benefit of this location will come into the -- noticed in the FY '25, and we expect to generate approximately INR 75 crores to INR 100 crores of top line from this new facility.

I think there is a typo in the presentation. There is mentioned INR 7.5 crore to INR 10 crores. So the utilization will be somewhere around 60%, 70% on this plant?

Yes. I mean this capacity is around 60,000 tons per annum. So around 5,000 tons of tire, it can handle every month. So we expect a total revenue out of this location is somewhere close to INR 75 crores to INR 100 crores in between.

Okay. And my last question is regarding the extended producer responsibility. So how much of the total revenue is coming from these extended producer responsibility contracts?

Sorry?

Yes. So I think that we generate revenue like from producers also. Those producers are -- like they will give us contract on basis of recycling. They're -- sorry, I will get back to you on that question. My next question is regarding the EPR credits. So how many EPR credits did we generate in FY '24?

Okay. We will be generating annually between 50,000 to 75,000 credits. This is our current business model. And that's all I can share at this point of time. There is still a lot of work being done with the CPCB and the Ministry of Environment on the weightages, et cetera, on -- as confirmed on different product categories. So some of those things, there is still some changes expected. But at this point of time, we think our business could generate between 50,000 to 75,000 credits.

Next question comes from Viraj Mahadevia, MoneyGrow India.

Mr. Sekhri, congratulations to you and the management team on a fantastic finish to FY '24. Given the new capacity added in Q4, you mentioned that there will be a ramp-up during FY '25. At full capacity utilization, how much could you generate in revenues out of this facility?

The Varle facility, with the capacity that has already been created, this plant, as Subodh indicated, will generate between INR 75 crores to INR 100 crores of top line. The basic plant footprint is for more equipment, more machinery, more kind of projects to be put within the same premises. So... [Technical Difficulty]

I'm sorry. Just a moment, sir, let me check. Dear participants, kindly stay connected. Yes. I welcome the management team. Please go ahead, sir.

Viraj, did you get the answer?

No, no. It went on to hold. But I think you were mentioning that you have the ability to add capacities at Varle. So if you can pick up from there, please.

Yes. Varle site has ability for us to add more equipment and more plants in it. But with the CapEx that we have already done, that will result in top line contribution of between INR 75 crores to INR 100 crores.

Understood. And how much can you debottleneck Varle for and with what investment approximately?

There is no debottlenecking.

I'm sorry, brownfield expansion. How much can you do?

See, a lot, Viraj. A lot. It's large premises with an ability to ramp up quite a bit.

Okay, my second question...

Just to give you a perspective. Varle is a 13-acre site versus our next largest plant is our Chennai plant, which is only 5 acres.

Okay. Understood. Sir, my second question is regarding EPR. Where do you source your used rubber tires from? Is it with direct tie-ups with the tire manufacturers? Or it's sourced from the retail channel? And then does that inventory sit of raw material on your books? Or does it sit on a tire manufacturer's books until the offtake in time for processing?

So we have multiple options of sourcing. Some are with tie-ups with tire companies, some are with tie-ups with aggregators, some are with tie-ups from PROs, which are producer responsible organizations. But the inventory, once it is -- we take ownership, so it's obviously on our books.

[Operator Instructions] Next question comes from [ Ritesh Poladia ] from Girik Capital.