Demystifying Cerebra Integrated Technologies: India’s leading E-waste management company

Summary:

India generated 3.1 million ton of E- Waste in 2021 and only around 10% of this E–Waste is collected by the formal sector. Cerebra Integrated Technologies Limited (CITL) aims to capture this untapped market and has been entering  several partnerships and agreements with large IT Companies and other Corporates. In India, refurbish and reuse is gathering pace and is reflected in about 12 million units of refurbished PC sales annually. The refurbished category is growing at 4X on a YoY basis and this gives Cerebra an upper hand to gain market share in the said category.

Now, without further delay let’s analyze the company.

About Company:

Established as a partnership firm in 1992, Cerebra Integrated Technologies started its operation as manufacturing of computer systems and trading of its peripherals, components, etc. In 1993 it was converted to a public limited company. CITL is currently engaged in the business of e-waste recycling, refining and refurbishment, electronic manufacturing services and IT infrastructure management. With a market cap of INR 564 crores (as of September 26, 2022) the company is listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Now let’s have a look at their business operations:

Services Offered:

1. E-Waste Recycling:

The company’s major business comes from E-Waste Recycling Management solutions. The company collects/purchases end-of-life and off-lease e-waste products like TVs, Refrigerators, Air Conditioners and Washing Machines and IT Products like Laptops, Desktops and Servers to be recycled and repairs them to reduce new manufacturing. If it cannot be repaired then it is refurbished to be as good as new. If all the above processes fail, the company recycles the e-waste. At present, the company has recycled more than 40,000 MT and Refurbished more than 50,000 products.

2. Business Expertise:

• ITAD program:

This stands for IT asset disposition program. By this segment, the company covers service agreements, managing the STPI/ SEZ documentation to downstream value recovery.

•  Refurbishing:

The company’s main goal is to reuse equipment as much as possible. Through refurbishment, redeployment, resale, and disassembly, greater value recovery and sustainability is achieved. All equipment for this process comes from reliable sources like computer manufacturers (OEM), Fortune 500 companies.

•  PRO:

The company works as a Producer Responsibility Organization (PRO), with domestic and international brands to manage their Extended Producer Responsibility (EPR) mandate in India. The company developed an in-house proprietary tool – SPOCK to track the end to end recycling process.

•  Recycling:

The company is India’s largest recycler and has the capability to handle 97,000 MT of e-waste annually and has got KSPCB (Karnataka State Pollution Control Board) licensing for processing e-waste, recycling, refurbishing and management activities.

•  EMS:

The company’s Electronic Manufacturing Services is a certified plant that manufactures mother-boards, memory modules, graphic cards and networking products.

• Enterprise Solutions:

This includes IT Hardware and Software infrastructure design, planning and implementation. The division has developed many IT projects for government agencies, large corporations, SMBs and start-ups.

•  Device as a Service (DaaS):

The company’s DaaS program provides organizations with customized IT hardware and services solutions on a ‘pay-per-device’ fee.

Manufacturing Facility:

The company has an e-waste recycling & refurbishing plant at Bangalore with the capacity of 20,000 MT. It is recycling e-Waste and also producing refurbished products such as Desktops, Laptops and Servers including its peripherals/accessories such as Mouse, Printers etc.

Cerebra Experience Centers:

The company currently has 33 CECs (Cerebra Experience Centers) wherein a customer could walk-in and pick up refurbished products which are completely refurbished at their state-of-the art facility. Quite surprisingly, it has tied up with leasing companies for providing long term leasing contracts.

Clientele:

In the hardware trading division, the company caters to several government entities like State Treasury Dept., Police Dept.,etc. Further, it also caters to players such as Samsung India, Amazon India, Daikin, LG Electronics, etc.

Recent share price insight:

• With the current price of INR 46.5 as of September 26, 2022, CITL is hovering near the low of its 52-week range of INR 99 – INR 42
• The stock recorded a 5-year return of 15.6% as compared to the Nifty IT return of 60.14%. 

Financial snapshot:

The company reported a 43% rise in its net revenue on Yearly basis from INR 21.22 Crores in June 2021 to INR 30.43 Crores in June 2022. Meanwhile, the net profit plummeted by 25% from INR 2.9 Crores in June 2021 to INR 2.17 Crores in June 2022 on accounts of increased interest cost. EBITDA stands at INR 5.11 crore in June 2022 down 2.85% from INR 5.26 crore in June 2021 while the EPS has decreased to INR 0.18 in June 2022 from INR 0.21 in June 2021.

The total debt of the company stood at INR 32.4 Crores with debt to equity ratio at 0.13. While the company had a cash equivalent of INR 2.27 crores as of 31 March 2022. Further as of September 26, the stock’s PE was 21 while the industry average was 55 which states the stock is still in the buying level.  

The company earned 64.4 percent of its revenue by providing refurbished products while the remaining 35.6% from E waste recycling.

What we like:

1. Established track record of operations and experienced management:

The company commenced its operations in 1992 and has a successful track record of around three decades in the existing line of business. Overall activities of CITL are managed by 9 directors as well as supported by a qualified and well experienced management team.

2.  Diversified customer base:

With a presence of around three decades, CITL has established a healthy relationship with its customers and suppliers. The company caters to several government entities. Also, it caters to well established players such as Samsung India Electronics Limited and LG Electronics in the e-waste division. The company has built a strong track record which has enabled the company in bagging repeat orders from its clients.

3. Healthy financial risk profile:

Company has a strong net worth of INR 258 crore as on March 31, 2022 backed by steady accretion to reserves. On account of low reliance on external debt, gearing is low at 0.05x as on March 31, 2022. Despite the high reliance on creditors, but backed by a strong net worth, the TOL/TNW (Tangible Net Worth) ratio is low at 0.25x as on March 31, 2021. On account of low reliance on external debt and healthy operating profitability, the debt-protection metrics are healthy, reflected in interest coverage ratio (ISCR) at 6.53x respectively in FY22.

Factors to consider:

1. Volatility in margins and operating income:

About 95% of the industry is handled by unorganized players, which operate without any license and use unscientific methods to treat e-waste. Hence the business performance is susceptible to the intense competition in the industry. The revenues were in the range of INR 60-270 crores in the past three fiscal years, while also witnessing large variations in the operating margins. Total operating income (TOI) declined to Rs.63.90 Crore in FY2021 from INR 99.86 crore in FY2020. In 9MFY22 the company achieved TOI of INR 154.16 Crore.

2. Working capital intensive nature operations:

The company has large working capital requirements which are reflected in an elongated conversion cycle 377 days in FY2021 (FY2020: 196 days). The average utilization of fund based working capital limits of the company stood high at ~83% during the last 12 months ending 31st January 2022.

Recent highlights:

1. The 20,000MT capacity is fully utilized currently and hence Company has started the construction of its 3rd factory and the same is expected to be completed by end of November 2021 to result in enhanced capacity. 
2. Company has opened 33 Cerebra Experience Centers stores in FY21 across India through Franchisees to sell Refurbished products and plans to add 20 more in FY22.
3. The Company has signed up with certain other major MNCs and Large Indian Corporates as its Recycling partner during the quarter out of which few are in fortune 500 list. 
4. The company has completed the third facility at Narsapura and obtained 40,000 MT capacity authorization from Karnataka State Pollution Control Board which is double the capacity of previous year.
5. Cerebra has partnered with large OEMs and world’s largest data storage company to collect the used/end of life assets from bulk consumers.
6. Cerebra has added four large OEMs as customers in the EPR business segment.

Industry Analysis:

Globally only 17.4% of Electronic Waste is documented to be collected and recycled properly thus releasing 10 Billion dollars worth of raw materials which can be used in remanufacturing of new products. India generated 3.1 million tonnes of E- Waste in 2021 and only around 10% of this E – Waste is collected by the formal sector. In India, refurbish and reuse is gathering pace and is reflected in about 12 million units of refurbished PC sales annually.

As per the data provided in Global E-waste Monitor, India ranks third behind USA & China in terms of the total E-waste generated in 2019. China generated over 10.12 million Mt of E-waste in 2019, followed by the USA with 6.91 million Metric ton and India with 3.23 million Metric ton. However, in terms of per capita E-waste, India is among the countries with low per capita E-waste with only 2.4 kg per capita in 2019, much lower than the global average of 7.3 kg per capita. China is also marginally less than the global average with 7.2 kg per capita. However, the USA nearly generates 3 times the global per capita E-waste with 21 kg.

Surprisingly, the domestic electronics manufacturing sector in India has seen significant growth in the last six years. Production of electronic goods in India increased by 187% from INR ~1.9tn in 2014-15 to an estimated INR ~5.5tn in 2019-20, with a compound annual growth rate (CAGR) of about 24% With continuous growth of consumer electronics & appliances year-on-year, India has been witnessing a faster e-waste generation in recent times with ~28% growth YoY in FY20, while compound annual growth rate (CAGR) of about ~16% in the country over FY15-20.

Currently, India is dependent on Chile, China, Congo and several other countries for metals that are critical to the growth expected in several sectors. It is expected that by 2030, the increased use of EEE products combined with a spurt in demand for batteries in the telecom, renewables and transportation sectors, will see the creation of ‘urban mines’ that India will need to manage appropriately. A robust ecosystem is needed to reclaim these metals and to reduce their imports.

India’s E-waste generation is projected to rise to 4.5-5 million MT by 2021. With the current growth rate, by 2025, India will be producing 7 million MT of e-waste annually and 14 million MT by 2030.

Also, the refurbished category is growing at 4X on a YoY basis and the Government of India for the first time in the budget speech has acknowledged Circular Economy and its benefits. Cerebra has already embraced the idea of Circular Economy and has been successful in employing repair, remanufacture, remarketing and recycle processes thus enabling the extension of end of life products. By extending the end of life of a single PC, one can delay a carbon footprint of 422.5 KGs by a couple of years. Astonishingly, the company has refurbished over 40,000 PCs during the last financial year and has contributed a lot towards the green environment. 

Further, it is expected that the business of extracting precious metals from E-Waste will grow to US$6 billion by the year 2030, and this will be a big business opportunity for India. With the Capacity of 96,000 TPA, Cerebra will not only have a huge opportunity to become India’s leading E-waste Recycler but also biggest contributor to reducing India’s gold imports and other precious & base metals and thus directly contributing to foreign exchange savings

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