GRP — Q3 FY25 earnings call

Call held 28 Jan 2025

Management summary

GRP Limited reported a strong 20% YoY growth in total income for both Q3 and 9M FY25, driven by increased volumes in both Reclaim and non-Reclaim businesses. Despite this, gross margins faced pressure due to elevated raw material prices and fixed customer pricing, leading to a 246 bps YoY decline in Q3. The company is progressing with its INR 250 crore capex plan for the tyre recycling ecosystem, with the first pyrolysis line expected to commence operations by Q4 FY25, and anticipates margin stabilization from Q4 FY25 due to pricing adjustments.

Highlights

  • Total income for Q3 FY25 was INR 1,327 million, reflecting a 20% YoY growth.

  • Total income for 9M FY25 was INR 3,912 million, reflecting a 20% YoY growth.

  • EBITDA for Q3 FY25 increased 20% YoY to INR 130 million.

  • EBITDA for 9M FY25 increased 22% YoY to INR 363 million.

  • The non-Reclaim business saw a 24% increase in volume, contributing to overall growth.

Concerns

  • Gross margin for Q3 FY25 declined 246 bps YoY to 53.1%, primarily due to elevated raw material prices.

  • Gross margin for 9M FY25 declined 153 bps YoY to 52.3%.

  • Subsidiaries (GRP Circular Solutions Limited and GSPL) incurred a loss of INR 43 million on a revenue of INR 210 million for YTD FY25.

  • EBITDA margin for Q3 FY25 saw a slight decline of 7 bps YoY to 9.8%.

Key financials

2 periods

Q3 FY25

  • Total Income
    1,327 Mn
    YoY +20%
  • Gross Profit
    704 Mn
    YoY +15%
  • Gross Margin
    53.1%
    YoY -2.5%
  • EBITDA
    130 Mn
    YoY +20%
  • EBITDA Margin
    9.8%
    YoY -0.07%
  • PAT
    44 Mn
    YoY +2%

9M FY25

  • Total Income
    3,912 Mn
    YoY +20%
  • Gross Profit
    2,044 Mn
    YoY +17%
  • Gross Margin
    52.3%
    YoY -1.5%
  • EBITDA
    363 Mn
    YoY +22%
  • EBITDA Margin
    9.3%
    YoY +0.22%
  • PAT
    113 Mn
    YoY +3%

What they filed

Q1 FY27: revenue up 26.7%, net profit up 140.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue132 132 160 124 132 +1%135 +2%145 −10%157 +27%
EBITDA10 13 33 10 11 +8%11 −15%9 −73%17 +70%
Net profit3 4 19 2 2 −22%1 −81%-1 −107%4 +140%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Reclaim Rubber Volumes
    9% 9M FY25 Volume Growth
  • Non-Reclaim Business Volumes
    24% Volume Growth
  • EPR Credits
    121 Mn Income YTD FY25180 Mn Stock Value as of Dec 2024
  • Subsidiaries (GRP Circular Solutions Limited and GSPL)
    210 Mn Revenue YTD FY2543 Mn Loss YTD FY25

Order book

low confidence
The company reported volume growth in both Reclaim (9% for 9M FY25) and non-Reclaim (24% for Q3 FY25) businesses, driven by increased adoption of Reclaim Rubber and strategic initiatives in the non-Reclaim segment. While no traditional 'order book' was quantified, management discussed demand trends and approvals for new products.

Source: Inferred

Capital allocation

high confidence
  • Capex ₹33 Cr this quarter · ₹250 Cr (ongoing) planned Line of credit from French DFI Proparco and additional INR 150 crores through Qualified Institutional Placement (QIP)
    • Expand entire tyre recycling ecosystem
    • First line of crumb rubber and continuous pyrolysis line
    As far as our announced capex plan of INR 250 crores is concerned, the documentation for the line of credit from the French DFI Proparco has been completed and the proceeds are expected to be received in the current quarter. Furthermore, I'm pleased to announce that our shareholders have also approved the raising of an additional INR 150 crores through the issuance of equity shares via a qualified institutional placement. So we do have all the approvals in place to be able to execute on our projects to expand the entire tyre recycling ecosystem. So far, we have incurred capex of approximately INR 33 crores for this project, and we remain on track to commence operations for the first line of crumb rubber and the continuous pyrolysis line by Q4 of this financial year.
  • Debt Gross ₹125 Cr · 0.7× EBITDA
    Coming to debt side, our gross debt, which is long-term as well as short-term debt, stood at INR 1,250 million as of 31st December 2024. And our debt equity ratio is 0.70 as on that date.

Guidance & targets

Margin

  • Consolidated EBITDA Margin Margin · future · Medium confidence mid-teens to high-teen
    the overall margin profile of the business to move towards mid-teens and even a little higher towards the high-teen EBITDA numbers for a consolidated level.

    — Harsh Gandhi

  • Rubber Recycling Business EBITDA Margin Margin · future · Medium confidence mid- to high-teen
    the EBITDA numbers would be mid- to high-teen EBITDA for the rubber recycling business.

    — Harsh Gandhi

  • New Pyrolysis Business (GE) EBITDA Margin Margin · future · High confidence 12% to 14%
    overall, as a business, GE as a business will generate in the region of about 12% to 14% EBITDA margins over the revenue.

    — Harsh Gandhi

  • Core Business Gross Margins Margin · forthcoming quarters (from Jan 1, 2025) · Medium confidence stabilize and return to normal levels
    our gross margin will stabilize and return to the normal levels that we've seen in the past.

    — Harsh Gandhi

Profitability

  • Subsidiary Profitability Profitability · post April 1, 2025 · Medium confidence not continue to bleed or make losses
    As we expect that the demand will shoot up post March, April of this year once the regulation kicks in, the utilizations will improve, and therefore, the business will not continue to bleed or make losses.

    — Harsh Gandhi

Operations

  • Pyrolysis Line Commencement Operations · Q4 of this financial year · High confidence start operating
    while we will start operating in Q4 of this year, stabilization of the line, given that it's a typical chemical plant will take a few weeks as well.

    — Harsh Gandhi

What to watch in Q4 FY25

Subsidiary Profitability Turnaround

Post March/April 2025
Current Incurred loss of INR 43 million YTD FY25
Target Not bleeding/making profits

Why it matters

Cessation of losses will significantly improve consolidated profitability and validate the new business segment.

As we expect that the demand will shoot up post March, April of this year once the regulation kicks in, the utilizations will improve, and therefore, the business will not continue to bleed or make losses.

Risks & concerns

  • Gross Margin Compression due to Raw Material Prices and Fixed Pricing

    medium

    Elevated raw material prices for some reclaim grades, combined with fixed customer pricing, impacted gross margins in Q3 FY25, though recovery is expected from Q4 FY25.

    Management acknowledged

  • Subsidiary Operating Losses

    medium

    The repurpose polyolefins business is currently operating at suboptimal capacity, leading to losses, but a turnaround is expected post April 1, 2025, with new regulations.

    Management acknowledged

  • Delay in Formal Approvals for New Products

    medium

    Formal approvals for higher-grade reclaim rubber and TPO from major tyre/carbon black companies are pending commercial scale plant operations, impacting current utilization.

    Management acknowledged

  • Subdued Global Demand for Tyres

    low

    Despite subdued global demand for tyres, the company achieved volume growth, indicating resilience.

    Management acknowledged

Q&A highlights

7 direct
EPR Credit Valuation and Recognition Direct
As recorded, as far as December is concerned, there is always a backlog in generating the credits. But by and large, that is the stock of credits that was available on the portal at the time. ... It includes everything sold so far in the year, up to December 2025.

Clarifies the current value and recognition period for EPR credits, a new revenue stream for the company.

Asked by Dikshi Jain

Margin Profile for New Businesses (Pyrolysis, Crumb Rubber) Direct
As far as the pyrolysis is concerned, while we have individual business margins laid out, and the Crumb Rubber will generate a margin depending on the source of raw material we use, in the extent of low double digits. But overall, as a business, GE as a business will generate in the region of about 12% to 14% EBITDA margins over the revenue.

Provides specific EBITDA margin expectations for the new strategic business segments, crucial for future profitability assessment.

Asked by Dikshi Jain

Subsidiary Losses and Turnaround Timeline Direct
As we expect that the demand will shoot up post March, April of this year once the regulation kicks in, the utilizations will improve, and therefore, the business will not continue to bleed or make losses.

Addresses the current drag on consolidated margins from subsidiary losses and provides a timeline for expected profitability improvement linked to regulatory changes.

Asked by Dikshi Jain

Higher-Grade Reclaim Rubber Approvals and Utilization Direct
while we have started supplying from there, the utilization levels are currently sub 50%, but we are expecting approvals to come through either within this or the next quarter, which will allow us to improve dramatically the utilization levels there.

Highlights the current underutilization of new, higher-grade reclaim rubber capacity due to pending customer approvals and the expectation for improvement in the near term.

Asked by Tanish Mehta

Raw Material Cost Pass-through and Margin Recovery Direct
most of our negotiations with customers happened in December for the calendar year beginning 2025, so in a lot of cases, most of the prices have already been adjusted starting this month or this quarter. And therefore, we don't see this to kind of continue to dent our margin going forward.

Explains the reason for Q3 margin pressure (fixed pricing) and provides a clear timeline for expected margin stabilization and recovery due to new pricing effective January 1, 2025.

Asked by Gargi Singh

Approvals for TPO/RCB from Carbon Black Producers Direct
we do have approvals from one carbon black producer that has approved our carbon black, which is made from the pilot facility. However, the formal approvals will come through only once we have commercial scale plants and operations. The same is the case with the TPO.

Confirms initial product acceptance from key industry players but clarifies that formal, large-scale approvals are contingent on commercial plant operations, setting realistic expectations for ramp-up.

Asked by Gargi Singh

Plastic Waste Management Regulations Direct
for rigid packaging, for example, I can confirm that from April 1, 2025, the regulation will mandate the 30% of the paint pail or the lubricant can will require to have recycled material in it and then that percentage goes to 50 and then subsequently to 70.

Provides specific details on upcoming regulatory tailwinds for the polyolefin business, confirming the market opportunity for recycled materials.

Asked by Prateeksha

3 min read 7 chapters

Detailed narrative

Q3 FY25 Performance Overview

GRP Limited reported a robust 20% year-on-year growth in total income for Q3 FY25, reaching INR 1,327 million, and a similar 20% growth for the nine-month period to INR 3,912 million. EBITDA for Q3 FY25 also increased by 20% to INR 130 million, with a 22% rise for 9M FY25 to INR 363 million. However, gross margins experienced pressure, declining 246 basis points YoY in Q3 FY25 to 53.1%, primarily due to elevated raw material costs and fixed customer pricing.

Reclaim Rubber Business Dynamics

The Reclaim Rubber business saw a 9% increase in volumes for the nine-month period, contributing to the overall 12% volume growth. This growth was achieved despite subdued global demand for tyres, indicating increased adoption of Reclaim Rubber in both tyre and non-tyre segments. While natural rubber prices remained high, they moderated slightly, but are expected to stay elevated in forthcoming quarters.

Non-Reclaim Business and Subsidiary Performance

The non-Reclaim business demonstrated strong performance with a 24% increase in volume, though it was somewhat constrained by the Diwali festive season. The company's subsidiary, GRP Circular Solutions Limited, and GSPL, generated INR 210 million in revenue but incurred a loss of INR 43 million for YTD FY25. Management expects the subsidiary to cease bleeding and improve profitability post April 1, 2025, driven by new regulations on circularity.

EPR Credits and Revenue Recognition

GRP recorded an income of INR 121 million from EPR credits for YTD FY25. As of December 2024, the stock of EPR credits is valued at approximately INR 180 million, calculated at the minimum support price adjusted for transaction costs. The company plans to execute sales of these credits at appropriate times, acknowledging that the timing and value can fluctuate.

Operational Efficiencies and Sustainability Initiatives

The company has achieved operational efficiencies through automation, reducing employee costs from 12.5% to 11.2% during the quarter. Significant savings of INR 0.5 crores from renewable power and INR 2.5 crores from switching to biofuel sources were realized. These initiatives not only mitigate rising power tariffs but also contribute to reducing GHG emissions, aligning with the company's broader vision for sustainable growth.

Capex and Funding for Tyre Recycling Ecosystem

GRP's announced capex plan of INR 250 crores for expanding the tyre recycling ecosystem is progressing, with approximately INR 33 crores already incurred. The company expects to receive proceeds from a line of credit from French DFI Proparco in the current quarter and has secured shareholder approval for an additional INR 150 crores through a Qualified Institutional Placement. The first line of crumb rubber and the continuous pyrolysis line are on track to commence operations by Q4 FY25.

Future Outlook and Margin Expectations

Management anticipates gross margins to stabilize and return to normal levels from Q4 FY25, following pricing adjustments effective January 1, 2025. Consolidated EBITDA margins are projected to move towards mid-teens and potentially high-teens, while the new pyrolysis business is expected to generate 12-14% EBITDA margins. The company remains committed to its long-term growth strategy, leveraging new technologies and investments in new businesses within the circular economy.

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