Pointers from Tinna Rubber & Infra’s Q1 FY25 concall (Aug 5, 2024)
EPR credits:
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EPR credits for all of FY24 have been booked in Q1 FY25. They amount to INR 10.53 crs. This aligns with what the company had stated in Q4 FY24, that the EPR credits for FY24 are still to be received by the company
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Actual revenue of INR 2.5 crores received by the company against booked revenue of INR 10.53 crores. The remaining INR 8 crores have been booked basis the EPR credits available on CPCB portal and has been calculated at Rs. 2000 per unit. This as per the management is a conservative per unit cost as they’ve realized the sale at higher values
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Going forward the management will add EPR credits to the quarterly revenues as and when they are added to the CPCB portal
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The output (end usage) of the recycled tyres determines how many EPR credits are realized. It is not calculated based on the tons of end of life tyres crushed
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Only the surplus of what EPRs they can sell is reported by them as being net importer of waste tyres they need to use some credits to offset the waste tyres being imported for crushing
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The regulation around EPR policy is fluid as it is still being worked on by the government. There can be further changes to the policy depending on how the regulations shape up
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As per the management, 500 crores of EPR credits will be needed by tyre companies to offset their requirements (as per the management these are the unofficial hearsay numbers and they should not be quoted on the same as they are only trying to guesstimate the demand for EPR credits)
Growth, margins, capex and other points:
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Revenue guidance: The below numbers match what the management had indicated during the last con call
- FY25: 500 crs. Management is very confident of achieving the same.
- FY26: 700 crs
- FY27: 900 crs
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The capex being undertaken is from the view of achieving the guidance provided above. The management had suggested capex of INR 35-40 crs for FY25 on the last call. This is now stated as INR 50 crs for FY25. However, to be fair it remains in the ballpark of what was quoted
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They may take INR 20 crores of term loans in FY25 to meet current expansion plans. They had indicated in the last con call as well that they are not averse to taking debt if it helps them grow in a responsible way
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EBITA margins are ~16.5% on a consolidated basis. Expect to maintain a similar profile unless some major unforeseen costs come up (for e.g. increase in freight rates due to the Red Sea issue etc.). The margin profile for their business abroad will be similar to what they make in India (if not better). For e.g. the EBITDA margin in their Oman business is better than their India business
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Aiming to become a global recycling tyre company. Hence they are pursuing opportunities outside India, like the ones in Saudi Arabia and South Africa
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The new upcoming plant in Saudi Arabia will cater to all product lines
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Focus till FY27 will remain towards tyre recycling itself. Not looking to enter into any other recycling categories
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They are looking at the PPE business where recycled rubber and recycled plastics can be combined for use in various products like – pipes, shoes, plastic pellets etc.
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India generates around 2 mn tons of end of life tyres per year
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Varle plant will generate to 80 – 100 crs per year. Expecting ~70% capacity utilization from Q3 FY24. Numbers quoted are in the same ballpark as the last call
A couple of open questions regarding EPR post the Q4 FY24 and Q1 FY25 call,
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EPR sales in Q4 FY24 was INR 6.6 crores and that was for EPR credits booked in FY23. However, in the Q4 FY24 call they had mentioned that it was not entirely sold. Now EPR value for FY24 is INR 10.53 crores and EPR credits worth ~INR 2.5 crores have been booked in Q1 FY25. So what happened to the EPR credits from FY23 that were not sold? Is it added to FY24?
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Do the unsold EPR credits of ~INR 8 crores also reflect as receivables on the balance sheet as revenues have been booked but the actual amount has still not been realised?
Disc: Invested as a tactical 3-year bet. #1 stock in my stock pf. Will continue to hold as the management is walking the talk.
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