Tinna rubber – recycling a rubbery growth path

Here I will try to analyse the sharp decline in the EBITDA margin of Tinna Rubber in Q3.

Earlier, management were guiding 18 to 20% kind of EBITDA margin on sales. Then they reduced it to 16- 18, again 14 to 16 and in Q3 actually it decline to 11%. Although management has achieved the top line growth what they guided earlier but they failed meet the projection on EBITDA margin .So, what was the reason for such decline in a EBITDA margin?

I think some part of such decline was because of depreciating rupee , increase in the price of raw material and increase in Ocean freight as company imports majority of raw material from Europe, middle East and Australia . This is also explained by the management.
The other possible reason I want to highlight, which is not explained by the management, is decline in the prices of steel.

There is nothing to do with the prices of steel while purchasing waste tire as well as on cost of crushing these tire but after crushing it affects significantly on sales figures and profitability.

Two things left after crushing the waste tire, one part is rubber and the other is scrap steel wire. Further the rubber part is converted into value added products like micronized rubber powder/reclaimed rubber for Tyre/Rubber sector and CRM (crumb rubber modifier for bitumen) for road construction sector.

The portion of scrap Steel left after crushing constitutes approximately 1/4th of the total volume crushed as disclosed in investors presentation. Further some parts of that scrap is converted into cut wire shots etc and balance is sold for melting for steel sector. So, sales figures these steel products/scrap is directly correlated with the prices of steel. Higher steel prices means higher realisation per ton and vice versa.

We can see the fluctuations in net realisation per ton of steel products/scrap in my working on annual average basis:-

Here we can correlate it with the price chart of steel :-

Here we can see the sharp decline in steel prices from may 22 when govt. Imposed duty on export of steel till nov. 22 . After withdrawal of duty on export of steel on Nov 22 prices of steel is moving up again.

We can further correlate it with the quarterly EBITDA margin of Tinna Rubber’s financials :-
https://www.screener.in/company/530475/consolidated/

This fall in the steel prices coincided with the fall in the prices of natural rubber along with rise in the raw material prices, slowdown in tyre manufacturing sector, some delay in road construction sector hit the margin of Tinna Rubber. Positive things is that even after these headwinds Tinna’s sales is growing and it is showing net profit. From nov 22 lows, both the prices of natural rubber and prices of steel increased by 15-20%. So,EBITDA Margin of Tinna Rubber should increase due to these advancements in Q4.