Tinna Rubber and Infrastructure Limited (530475) Q3 FY23 Earnings Concall Transcript

Tinna Rubber and Infrastructure Limited (BSE:530475) Q3 FY23 Earnings Concall dated Feb. 07, 2023.

Corporate Participants:

Subodh Kumar Sharma — Executive Director and Chief Operating Officer

Gaurav Sekhri — Joint Managing Director

Ravindra Chhabra — Chief Financial Officer

Analysts:

Keshav Kumar — RakSan investors — Analyst

Nidhi Babaria — Envision Capital — Analyst

Agastya Dave — CAO Capital — Analyst

Unidentified Participant — — Analyst

Dipesh Sancheti — Manya Finance — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Tinna Rubber and Infrastructure Limited’s Q3 FY 2023 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you and over to you Mr. Sonpal.

Anuj Sonpal — Moderator

Thank you. Good afternoon, everyone and a welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Tinna Rubber and Infrastructure Limited. On behalf of the company, I’d like to thank you all for participating in the company’s earnings call for the third quarter and nine months ended of financial year 2023.

Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management’s beliefs, as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.

The purpose of today’s earnings call is purely to educate and bring awareness about the company’s fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today’s earnings call and hand it over to them for opening remarks.

We have with us Mr. Gaurav Sekhri, Joint Managing Director and Mr. Subodh Kumar Sharma, Director and Chief Operating Officer. Without any further delay, I request Mr. Subodh Sharma to start with his opening remarks. Thank you and over to you sir.

Subodh Kumar Sharma — Executive Director and Chief Operating Officer

Thank you, Anuj. Hello, everyone. Let me first brief you on the consolidated performance for the third quarter of nine months ended of financial year 2023 and then I will hand over to our Joint Managing Director, Mr. Gaurav Sekhri for his remarks. The consolidated operational revenue for the third quarter of the financial year 2023 stood at INR75 crores, which is growth about 13% year-on-year basis. EBITDA was reported at about INR8 crores and the EBITDA margin stood at 11.04%. Net profit after tax reported was around INR5 crores and the PAT margin was 6.25%.

Coming to the consolidated nine monthly performance for the financial year 2023, the operational income was reported at around INR223 crores representing a growth of approximately 33% year-on-year basis, the EBITDA was around INR29 crores with EBITDA margins at 13.2%. Net profit was INR15 crore, which grew by 38% year-on-year basis.

On the operational side, in the road sector, there was a marginal growth on quarter-on-quarter basis in volume terms due to an extended monsoon, festive season and early winter which delayed sales in non-road sector, but business is intact and we expect to recover this in the coming quarter. On the non-road sector, stability was witnessed in the rubber and rubber chemical prices. Currently, Indian tyre industry is operating at approximately 60% of their production capacity, which is impacting volume sales to [Technical Issues] due to higher usage and sales to support sports turfing segment the sales to non-road business continued to be robust.

With reduction in ocean freight cost, we anticipate cost saving on our imported raw material and would be more competitive in export segment. Our Vara [Phonetic] location is qualified for IATF certification, which will strengthen our position with tyre companies as this certification is a need from the respectable suppliers.

Our Gummidipoondi location is already IATF certified. Lastly, a joint study was commissioned along with IIT Tirupati and final report was received during this quarter, which has highlighted that carbon emission saving through use of crumb rubber modified bitumen over virgin binder. In absolute value, use of recycled rubber in bitumen brings down carbon emission by 750 times and this will give us the edge to promote more and more crumb rubber usage for the road construction application and this will strengthen our road sector business.

Now I hand over the call to Mr. Gaurav Sekhri. Thank you.

Gaurav Sekhri — Joint Managing Director

Thank you, Subodh and good afternoon, everyone and my warm welcome to all of you who have joined us on this earnings call. From my side, I am especially pleased about the 32% growth in sales that the company has achieved for the nine month period of this financial year, in-spite of witnessing some slowdown in sales from the road sector, as well as the tyre industry, I think we are all familiar that the tyre industry in India right now is facing some challenges because of downturn in exports to European markets, as well as some slowdown within India. But we as a business have grown 32% in these nine months and I’m quite pleased about that.

Some key highlights that I wish to mention. One is that we have commissioned a centralized plant at Panipat, as well as Gummidipoondi. These are within our facilities, existing facilities. We have just commissioned a centralized plant for sales of bitumen and modified bitumen, this is to make our products more accessible to our end users and we see large projects in the road sector in South India especially coming towards completion, so especially from Tamil Nadu and Andhra, so we want to be ready for that business, so that is one development.

Second, our fourth de-vulcanizer which is the key footprint used for making reclaim rubber has now been commissioned in Gummidipoondi, so that has doubled our reclaim rubber manufacturing capacity in Gummidipoondi from 300 tons to 600 tons per month. This has been achieved as well. I would like to also highlight that we are consolidating our reclaim rubber operations because we have seen merit in operational costs, production costs if we operate two reclaim rubber units within one facility. So now we have two reclaim rubber plants in Gummidipoondi and what we have done is we have shifted our reclaim rubber plant from Panipat facility to our Wada facility.

So going forward, we will have a reclaim rubber manufacturing consolidated in two of our locations, one is Wada and second is at Gummidipoondi. So our capacity does not change dramatically, we’ve just done this to bring some rationalization and operational efficiency. Fourth, I would like to share that I’m very pleased to inform that we have acquired a tyre recycling business in Oman and our intention is to setup a crumbing facility over there. So this was a small business, which was just consolidating collection and aggregation of waste tyres, but we have taken over that and now developing that into a manufacturing facility to make crumb rubber, of course, a small capacity to begin with, but we are very optimistic. This is something that was on the card for us to take our business overseas, take our learnings overseas and we found Oman to be a very good fit. So that is happening as we speak and we expect the benefits of this plan to come in Q1 of next financial year.

Another important highlight I wish to share is that based on our financial performance, our bankers have upgraded the rating for our company and have granted a reduction in rate of interest by 200 basis points. So this will help us in saving costs and better profitability. I would also like to share that our absolute debt which was at INR69 crores on 31st of March 2022 is now down to INR63 crores as of 31st December. And we continue to follow the policy where internal accruals will be used for any long-term, any buildup, etc. We do not foresee taking new long-term debt for the Oman facility.

I would like to close my comments with another piece of good news that the Discovery Channel has a program called Build India, which is covering India’s growth story in infrastructure sector and we are very proud that they decided to feature us as a positive contributor in providing materials for the road sector industry and especially because of our circularity nature of our business where we are taking waste tyres and recovering materials from that which are being used to build new stronger green roads in India. So this will be aired on the 2nd of March, please look out for it. We will be very happy if you spare some time and watch it.

Thank you, Anuj. With this, I close my comments.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question is from the line of Keshav from RakSan investors. Please go ahead.

Keshav Kumar — RakSan investors — Analyst

Hi, good afternoon. Sir, if I look at the past seven quarters, we have been largely flat on EBITDA, we are scaling the revenues pretty well and would meet the yearly top line target. But this growth, has it been realization led or is it the volumes that have grown coupled with rising ELT prices?

Gaurav Sekhri — Joint Managing Director

Hi, Keshav. So our scale up has happened on account of higher value, of course, because generally prices have moved up for raw material. Likewise, we’ve also had — we’ve had the ability to pass on some of that on to our customers. But we’ve also had an absolute growth in our volumes of products.

Keshav Kumar — RakSan investors — Analyst

So, sir and is it possible to sort of give a quantum as to year-on a year-on-year basis, how much would have been the volume growth and how much would be value?

Gaurav Sekhri — Joint Managing Director

See we can give you that breakup also, but in terms of — if I do a consolidate basis, our tyre crushing this year will cross about 70,000 tons…

Subodh Kumar Sharma — Executive Director and Chief Operating Officer

Yeah 68 to 70.

Gaurav Sekhri — Joint Managing Director

Versus it been around 50,000 tons last year. So that is a reflection of the growth in volume of products.

Keshav Kumar — RakSan investors — Analyst

Understood, sir. And sir, the non-road contribution has consistently stayed high and there we have a quarterly pricing, so are we facing some difficulty passing on the costs completely?

Gaurav Sekhri — Joint Managing Director

Definitely, it is never easy, it’s a bitter pill to swallow by any customers when you are seeking a price increase, but fortunately our channel partners, our customers have understood the merit of it, it is based on facts. So while nobody is pleased when they have a cost escalation, but they have cooperated with us and steadily given us increase. We hope to continue to pass on the remaining element also, but we have also at the same time we are starting to see a slight correction in raw material prices, which is quite positive.

Keshav Kumar — RakSan investors — Analyst

Right sir. So the freight cost has also come off quite a bit, so we do foresee the margins to come back in the coming quarters?

Gaurav Sekhri — Joint Managing Director

Yeah, so we have seen our raw material prices go up by about 4% — by 4% points, actually when I say 4% you have to interpret it in the form that our cost of raw material was 13%, now it is 17%, so that’s quite high. And now we are expecting — we are seeing already some correction again in the raw material prices. So we are hoping to see that benefit in our EBITDA margins.

Keshav Kumar — RakSan investors — Analyst

Sure, sir. And sir lastly before I come back in the queue. So we have a very ambitious multi year target of 20% to 25% growth. But realistically, it’s very difficult to factor in the road sector and projections because it’s not really in our hands of how the policy moves. I mean I do understand the merit in our product and what it can serve. So when we are projecting this internal growth target, are we also including road sector or it’s mostly the other bit and EPR also helping us?

Gaurav Sekhri — Joint Managing Director

So, Keshav, we — the beauty of our business is that it has exposure to the road sector to the non-road sector and then within non-road sector, there are multiple segments, the large one being the tyre industry and then you can say the non-tyre industry. This year we have seen a very good traction from the non-road sector, within non-road sector the non-tyre industry. We are quite confident that the road sector business will come back strongly in the coming year basis, how we are seeing progress of the roadworks etc. But yes, it is always a prediction based on some information, which you have available.

I continue to see that because of our ability to generate sales from these three very, very different sectors, if one or two of them continue to grow as we expect, it should result in our growth being fairly robust and north of 20%, 25%.

Keshav Kumar — RakSan investors — Analyst

Right, sir. Thank you. I’ll come back in the queue, sir. Thank you.

Operator

Thank you. The next question is from the line of Nidhi Babaria from Envision Capital. Please go ahead.

Nidhi Babaria — Envision Capital — Analyst

Thank you sir for taking my question. Sir, I just want to understand, historically, our business has been very volatile even the margins and profitability. So what could be the reason for that and what is the correct way to look at the growth prospects for the company in near-term to medium-term?

Gaurav Sekhri — Joint Managing Director

Nidhi, you are not very clearly audible, we couldn’t get your question. Can you repeat please?

Nidhi Babaria — Envision Capital — Analyst

Is this better?

Gaurav Sekhri — Joint Managing Director

Slightly better.

Operator

Babaria, I would request you to kindly use your handset to ask a question now.

Nidhi Babaria — Envision Capital — Analyst

Yeah, is this better?

Operator

Yes, please continue.

Nidhi Babaria — Envision Capital — Analyst

Yeah, so, historically, our revenues have been very volatile even the margins and profit have degrown could be the reason for that and what gives us the confidence for 25% kind of growth rates in near to medium term?

Gaurav Sekhri — Joint Managing Director

Sure, so when you say historically, this is prior to two years where we have seen volatility in our revenue and profitability. That was the phase when our multiple customer base between the road sector and non-road sector had not stabilized, that has been achieved now. Therefore going forward, I feel we have better visibility, better ability to adjust to any down cycle in a particular sector. So we feel more confident now of our revenue projections and as a result our profitability projections.

Nidhi Babaria — Envision Capital — Analyst

Can you help me understand in a more detailed way like what contracts like two years back what contract and where was the stability not given by the road contracts, like what was the product was in the product or the customers or the new order book, which we are getting from say one specific customer which is giving us good visibility in near term?

Gaurav Sekhri — Joint Managing Director

See on the road sector, there is always — we really have to — we can only judge to the extent, a contractor is performing and the progress a contractor makes in the road works because our product the reality is, it is used right at the end. If there is some delay in execution on any account, it tends to have an impact on our business and that is why if you go back seven, eight years, our revenues were exposed to this risk.

However, having a larger base of even the road sector customers also dealing with them in multiple ways, one being through the refineries, second being through mobile vending units, where we set a plant at their sites and the third now the centralized bitumen and modified bitumen plant that we have commissioned in Panipat, as well as Gummidipoondi. We have a larger basket of customers. So if out of 10, three are having some delay in the projects the other seven can kick-in and having a pan-India business presence also helps.

So overall, what this results in is better visibility of business saying that we can still have a large mega project, which could get delayed and that is where we fall back on our non-road sector business to help us meet our revenue targets.

Nidhi Babaria — Envision Capital — Analyst

Okay. So sir what would be our road sectors revenue contribution right now versus what it was three years back?

Subodh Kumar Sharma — Executive Director and Chief Operating Officer

See, Nidhi, I’m Subodh here, so I would like to answer your question. So if you see in the current financial year, our net sales to road sector is around INR61 crores as against of INR88 crores of the last financial year. There is a drop and that drop is only because of like I mentioned in my opening statement, that’s all in the third quarter which is supposed to be a good season for road, but because of the extended monsoon and festival season, you can understand it’s all labor-intensive work, so because of that there was a drop. Important point here is, all of the project are having the clear cut understanding on use of modified bitumen in the top layer, the moment the work will start on the top players, the demand will automatically start coming in.

Nidhi Babaria — Envision Capital — Analyst

Okay. Okay and if we say that INR66 crore of revenues came from the road segment, that means we are roughly 80%, 90% still dependent on the road segment? Is that correct?

Gaurav Sekhri — Joint Managing Director

No, no, no, non-road sales contribution is INR161 crores and the road sector contribution is INR61 crores in the current financial year.

Nidhi Babaria — Envision Capital — Analyst

In the current financial year?

Gaurav Sekhri — Joint Managing Director

Yeah, so total like if we are declaring INR223 crores, so around 30%, approx 30% contribution is from the road sector sales this year.

Nidhi Babaria — Envision Capital — Analyst

30% is road sector?

Gaurav Sekhri — Joint Managing Director

Yeah, in this year.

Nidhi Babaria — Envision Capital — Analyst

And sir, what it was in FY 2019?

Gaurav Sekhri — Joint Managing Director

FY 2019, historically you see, I mean the road sector was INR30 crores and then INR37 crores, then it grew to INR88 crores in 2021, 2022 and in the current financial year it is INR61 crores, which we expect to come back in the Q4 and then again for the next six, it’s a road construction season, I mean, it starts from February and it ends till July and then Monsoon takes place and again, it starts in the September end or something.

Nidhi Babaria — Envision Capital — Analyst

Okay. And sir of our total capital allocation…

Gaurav Sekhri — Joint Managing Director

Likely in terms of weather and all that impacts, so that is why the peak season for the road construction work is February to July.

Nidhi Babaria — Envision Capital — Analyst

Correct, okay. And sir, of our total capex, how much capital has been deployed towards the road sector products versus the non-road sector?

Gaurav Sekhri — Joint Managing Director

For setting up the centralized plants?

Nidhi Babaria — Envision Capital — Analyst

Yeah, yeah.

Gaurav Sekhri — Joint Managing Director

Not really, actually all this — we were — our old machines and everything was in place and we just had extended our location from Panipat to Gummidipoondi, at both the locations we are utilizing our present machines to convert the modified bitumen, bitumen to modified bitumen.

Subodh Kumar Sharma — Executive Director and Chief Operating Officer

I’ll elaborate, Nidhi. So our basic infrastructure is all intact and because it is in our existing facilities, but in addition to that INR102 crores is the capex to set up these two modified bitumen and bitumen plants in Panipat and Gummidipoondi, I hope that answers your question?

Nidhi Babaria — Envision Capital — Analyst

So sir, what was the need to shift our plants by incurring almost INR100 crore of capex, was it to reduce our logistics costs or was it to serve in a better way to our existing customers…

Gaurav Sekhri — Joint Managing Director

INR100 crore capex?

Nidhi Babaria — Envision Capital — Analyst

You just, sorry, are we doing INR102 crore of capex for this year?

Gaurav Sekhri — Joint Managing Director

No, no, I don’t know where you’re getting these numbers from. I said INR1 crore to INR2 crores.

Nidhi Babaria — Envision Capital — Analyst

Sorry INR1 crore to INR2 crores, sorry. INR1 crore to 2 crore capex. Okay. So, yeah, like is this the only capex we are going to incur in coming years?

Gaurav Sekhri — Joint Managing Director

In the road sector, that is correct. We will not do any more capex beyond this INR2 crores, which is more or less done now. And on the non-road sector, I had mentioned about the plant in Oman, which is now underway and also some rationalization of production, whereby we have shifted a de-vulcanizer from Panipat to Wada, those kind of expenditures are being done. So no major capex in short.

Nidhi Babaria — Envision Capital — Analyst

Okay, okay. And in non-road side, what would be the targeted areas and what type of growth are we able to serve in medium term?

Gaurav Sekhri — Joint Managing Director

I didn’t understand your question, you need to be more specific please, what you mean targeted area, you mean customers, you mean location, what are you asking please, just clarify?

Nidhi Babaria — Envision Capital — Analyst

On customer side for non-road segment where exactly are we targeting the growth and how are we — how are we performing in those areas right now?

Gaurav Sekhri — Joint Managing Director

So on the non-road sector side, our major thrust remains to the tyre businesses. We have been very strong with the Indian tyre businesses up until now, we are continuing to make lot of effort to have good business with the multinational tyre companies, that is a key area for growth for us. We have a lot of headroom there. We’re also looking at continuous growth in areas such as sport surfing…

Subodh Kumar Sharma — Executive Director and Chief Operating Officer

Sport surfing, rubber tiling’s etc.

Gaurav Sekhri — Joint Managing Director

Rubber tiling’s etc, so these are areas where we are continuing to make a lot of effort and seeing result.

Nidhi Babaria — Envision Capital — Analyst

Thank you sir.

Operator

[Operator Instructions] We have the next question from the line of Agastya Dave from VAO Capital, please go ahead.

Agastya Dave — CAO Capital — Analyst

Thank you very much for the opportunity. Am I audible?

Gaurav Sekhri — Joint Managing Director

Yeah [Speech Overlap].

Agastya Dave — CAO Capital — Analyst

Sir, actually you have covered almost everything that I wanted to ask, just a couple of clarifications. So you mentioned that last year the total volumes were slightly less than 50,000 tons if I remember. What was the target you mentioned for this year?

Gaurav Sekhri — Joint Managing Director

70, seven zero.

Agastya Dave — CAO Capital — Analyst

70? Sir, you gave a range, so 70, 70 is the mid point of that because I remember you saying — you giving out a range.

Gaurav Sekhri — Joint Managing Director

For the tyre crushing, right, Agastya?

Agastya Dave — CAO Capital — Analyst

Yeah, yeah.

Gaurav Sekhri — Joint Managing Director

Around 70,000 tons will be around plus minus maybe 2000 tons.

Agastya Dave — CAO Capital — Analyst

And how much have you done so far YTD?

Gaurav Sekhri — Joint Managing Director

53,000 tons.

Agastya Dave — CAO Capital — Analyst

Okay. Sir, so if — I was just going through my notes, in Q1 you guys had targeted 60,000 to 65,000 tons. So this is slightly better than what you were expecting in Q1?

Gaurav Sekhri — Joint Managing Director

That’s right.

Agastya Dave — CAO Capital — Analyst

Right. Sir, then you also mentioned that so last quarter was also affected by this monsoon issue and this quarter also there are like some issues that you have listed. And you also mentioned that you expect to make up the volumes and you’re obviously — your volume guidance is kind of indicating that. So can you elaborate a bit more, how can you make up two quarters of disrupted change, have you continued to produce inventory or I mean how will this actually play out? Are we expecting, let’s say this is roughly by my calculation around INR17 crores, INR18 crores of shortfall in sales, at least as for my expectation. So can we expect like a really large sales number in Q4?

Gaurav Sekhri — Joint Managing Director

So, Agastya, couple of things, on absolute basis, the revenue was up 32%, if we put down to the sector, road sector, you’re absolutely right. We probably lost INR15 crores to INR18 crores worth of sale that we were expecting from this and that really would have been very welcome had that come through, but we see that as a deferment and pardon me. So this sale I expect some of it to start becoming visible from end of Q4. And of course, we expect a strong Q1. And we have built some inventory anticipating sale, we didn’t want to have a situation where our customers don’t have product when they wanted. But now we’ve slowed down on that buildup of inventory. Fortunately, our business because of having other alternatives like the non-road sector tyre industry and the sport surfing etc, we could continue to do robust production, increase our tyre crushing and yet not have this major issue of inventory buildup.

But we do have slightly higher inventory than we like on the road sector product, but I hope that will get liquidated towards the end of Q4.

Agastya Dave — CAO Capital — Analyst

So when you said, we will see it towards the end of Q4, you mean in the results of Q4 right, while Q4 is progressing and we as investors will see it in Q4?

Gaurav Sekhri — Joint Managing Director

I believe so yes, because February, March usually are quite good months for road construction industry, that’s when things tend to pick-up nicely because the weather has warmed up in most parts of India, it’s not so cold. So Feb-March, I hope we will see a good pickup in sales.

Agastya Dave — CAO Capital — Analyst

And sir, we are roughly 41, 42 days into the final quarter, so that is progressing as per your expectations?

Gaurav Sekhri — Joint Managing Director

Yes, yes, yes, absolutely.

Agastya Dave — CAO Capital — Analyst

Okay, okay, okay. Sir, you also mentioned, so okay, so you also mentioned you’re building up — you’re sitting on a lot of inventory road product inventory, can you quantify that number like in equivalent amount of sales?

Gaurav Sekhri — Joint Managing Director

I didn’t say we’re sitting on a lot of inventory, I said we don’t [Speech Overlap].

Agastya Dave — CAO Capital — Analyst

Slightly higher inventory, sir, can you quantify like for example, we have lost some INR15 crores to INR18 crores of sales, so are you sitting on like INR10 crores equivalent inventory or is it more than that or less than that, just a rough estimate.

Gaurav Sekhri — Joint Managing Director

I believe it is not more than INR4 crores to INR5 crores.

Agastya Dave — CAO Capital — Analyst

INR4 crore to INR5 crores, but you still have enough capacity in hand that if let’s say, of this INR18 crores, let’s say INR10 crore sales is somehow comes in Q4, you can adjust that right?

Gaurav Sekhri — Joint Managing Director

Yes, very much so.

Agastya Dave — CAO Capital — Analyst

Right. And sir one final question. So as of now, what is your capacity utilization like as of today, what kind of capacity utilizations are you are running your plants at?

Gaurav Sekhri — Joint Managing Director

So on the tyre crushing capacity, we are now close to 90% on the — where we still have growth opportunities is in some of our products for the non-road sector like reclaim rubber, where our capacity utilization is still probably around 60%, 65%. We have a good opportunity to scale-up, but the air crushing capacity we are almost at 90%.

Agastya Dave — CAO Capital — Analyst

Okay sir. So then one final question sir, have you thought about a new greenfield project other Oman in India, because since your capacities are like at least the crushing capacities to full utilization.

Gaurav Sekhri — Joint Managing Director

We are looking at various opportunities, we want to stabilize Oman first, it’s a major step for our company to go overseas and plan something outside India. So once that is stabilized, we certainly have the ambition and India is providing that opportunity for a new plant that we could set-up here. We have couple of locations in mind and yes, so, short answer is, very much so yes.

Agastya Dave — CAO Capital — Analyst

Right, sir. Thank you very much, sir. All the best.

Gaurav Sekhri — Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Saket Kapoor from Kapoor & Co. Please go ahead.

Unidentified Participant — — Analyst

[Foreign Speech] and thank you for the opportunity. Sir, you did spoke about you did guided on a top line closer to INR300 crores for FY 2023 and given the pace we have done nine months, the numbers look matching, but would you like to throw some more light on how the EBITDA percentage would shape up because we have here 14%, so what kind of band can we expect closing the year and for next year with the type of improvement, the capacity enhancement, what should be the ballpark number?

Gaurav Sekhri — Joint Managing Director

Sir, thank you for your interest and for the questions, Mr. Kapoor. We believe our — we have visibility that our top line for this financial year will be plus minus around INR310 crores. And on the EBITDA margin side, last year we were at 16.5%, this year our nine months EBITDA is 13.2%. I am expecting this financial year we will be at the current levels of around 13.5% EBITDA. And we are hoping to get back to our last year EBITDA levels in the next financial year.

Unidentified Participant — — Analyst

Right, sir. Sir, you gave us the mix for the road and on-road INR61 crores for the road sector and INR161 for the non-road and there you also mentioned about a further granular detail other than the non-road, the non-road non-tyre to which sector are you catering to other than this non-road and non-tyre segment, road, non-road non-tyre segment?

Gaurav Sekhri — Joint Managing Director

Okay. Essentially, sir, any other industry, which is not tyre and not road falls in this category and this includes the conveyor belting industry, the sport surfing industry, the rubber tiling industry, any rubber molded goods which are made, even something very small like a like a dropper in a medicine, they all use recycled rubber and all of that falls in category, the last one.

Unidentified Participant — — Analyst

Okay. And can you give that breakup, sir, how much were business have we done in that category?

Gaurav Sekhri — Joint Managing Director

See, our non-road, see our road sector share is about 30% this year, our tyre industry share could be another 35% odd and the balance is in this final category, so they’re all kind of very evenly divided.

Unidentified Participant — — Analyst

Hello?

Gaurav Sekhri — Joint Managing Director

Yes, did you hear my answer?

Unidentified Participant — — Analyst

No, sir, the split-up again.

Gaurav Sekhri — Joint Managing Director

So our raod sector is 30%, which means 70% is non-road and within that 70% of non-road, tyre industry is half of it and the non-tyre industry is the other half.

Unidentified Participant — — Analyst

Correct, sir. Sir, you did spoke about the reduction in interest-rate by 200 basis-points. So what is the current cost of fund for us? What was it for the nine months and what it’s going to be after likely after the reduction?

Gaurav Sekhri — Joint Managing Director

Our borrowing cost historically was around 12%, now it is close to 10%.

Unidentified Participant — — Analyst

And we have seen this interest cost going up also sir on a Q-on-Q basis from 1 crore 80 lakh to 2 crore 21 lakh, so what explains this increase?

Gaurav Sekhri — Joint Managing Director

One second, Mr. Chhabra, who is our CFO will answer this question.

Ravindra Chhabra — Chief Financial Officer

Actually, [Foreign Speech]. We — our increase in utilization of fund has in one region. Secondly, that our reduction in rate has happened just essentially in December only, in December only bank sanctioned us new rate of 10.5%, so it’s a fact will be known visible in second — fourth quarter only.

Unidentified Participant — — Analyst

Right sir. Sir, in your presentation, you did mention about the extended producer responsibility framework. So out of this business that we have done for that under the non-road category, how much would have been rooted from this particular scheme itself?

Gaurav Sekhri — Joint Managing Director

At this point, the impact of this scheme is negligible, Mr. Kapoor, because the scheme is not yet operationalized. I think in my last call also I had mentioned that, while this is a very welcome and a great initiative from the government. But like most things, which are government linked, things to get operationalized for the bylaws to be put in-place, it takes time. I had flagged this even in my earlier earnings call. So the impact of this is not there today, but a lot of conversations are happening now with our friends in the tyre industry to see how we can work together, to meet the requirements of EPR.

The impact of that, my guess is will start becoming visible in the first half of next financial year.

Unidentified Participant — — Analyst

Correct sir. And, sir, if I just throw some light [Speech Overlap] yeah, ma’am, I’ll come in the queue. yeah, ma’am, thank you.

Operator

Sure sir, thank you. Thank you, sir. The next question is from the line of Keshav from RakSan Investors. Please go ahead.

Keshav Kumar — RakSan investors — Analyst

Hi, sir. What sort of tie up extensions are we working on for domestic sourcing with UPR coming?

Gaurav Sekhri — Joint Managing Director

Name right now we cannot disclose, we are closely working with almost all the tyre companies, because all have to meet that obligation.

Keshav Kumar — RakSan investors — Analyst

So sir basically I was not trying to get the names, but like we are seeing with other beneficiaries of the EPR, so if we are in talk with tyre majors to sort of go for tolling kind of a structure as well which can drastically improve our ROCs, especially…

Gaurav Sekhri — Joint Managing Director

No, I don’t think, tolling kind of structure will not be there, because under EPR their obligation is to collect and hand over all kind of tyres where as our entire model and whatever the products we are supplying to these tyre company are made out of 100% truck and bus radial tires only.

Keshav Kumar — RakSan investors — Analyst

Okay, okay, understood sir. Understood. Sir, what’s the rationale for the Oman forray and what’s the crushing capacity over there?

Gaurav Sekhri — Joint Managing Director

See to try and test the market right now, we are aiming around 500 tons of tyre crushing there. And once we see and we gain confidence maybe we can take it forward from there.

Keshav Kumar — RakSan investors — Analyst

Okay. And there are linkage the EU waste shipment rules also coming in, so would Oman be sort of a beneficiary because of that, is that also a line you are looking on?

Gaurav Sekhri — Joint Managing Director

Oman, we always consider either you should be close to your customer, close to raw material, so Oman, we see good visibility on the raw material side, right? And we also see there is a opportunity of exports from directly from Oman to the neighboring countries like Asian countries specifically Sri Lanka, Thailand and all. And secondly, we also can think of making some not specialized, but general product for the sport surfing at much better pricing for the Indian industry also like for the neighboring ports from Oman to west coast side, we can bring these to up to India also.

Keshav Kumar — RakSan investors — Analyst

Understood, sir. Understood. Thank you, sir. That’s all from me.

Operator

Thank you. The next question is from the line of Rohit from ithoughtpms. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hello, am I audible?

Gaurav Sekhri — Joint Managing Director

Yeah.

Operator

Yes.

Unidentified Participant — — Analyst

Hi. Sir, you mentioned that about one-third of your business roughly is coming from tyre segment, so this could be largely reclaim right or are there other products within reclaim you are doing?

Gaurav Sekhri — Joint Managing Director

Yeah, see, we specialized in various recycle rubber materials out of which the micronized rubber border and the reclaim rubber. These are the two products which are being consumed and used by the tyre industry. So micronized rubber powder, we are the pioneer and the largest market share is being is with Tinna only. So these are the two products we are dealing with the tyre industry.

Unidentified Participant — — Analyst

And let’s say out of this one-third within tyre share between micronized and reclaim would be like 50:50 or will be more dominated by micronized roughly?

Gaurav Sekhri — Joint Managing Director

See, micronized rubber product is picking-up very fast because we introduced this product in India around five years, seven years back and reclaim is available to the tyre industry since more than three decades. But the tyre company sees merit on uses of this micronized rubber product, so it is not fast replacing, but it finds a new application area within the tyre and it is improving everytime. So if you see the sales of the micronized rubber product, so in the three to four years only we have almost tripled our capacity to produce the micronized rubber product. And we have now enough capacity to meet the requirement and we see further growth in the micronized rubber product in the time to come.

Unidentified Participant — — Analyst

Okay. So how much would be that out of your total sales today micronized rubber?

Gaurav Sekhri — Joint Managing Director

See, micronized rubber sales is around somewhere around of total sales you are asking?

Unidentified Participant — — Analyst

I’m saying nine months sales, yeah, of the total sales correct, correct, of total sales?

Gaurav Sekhri — Joint Managing Director

Our total sales, micronized rubber product alone will be approximately INR27 crores.

Unidentified Participant — — Analyst

INR27 crores, okay? Understood. And, sir, on the reclaim side, I mean, how are you looking at the market right now, I mean there has been a sharp reduction in natural rubber prices typically like what’s the I mean how do you see that space for the next one, two years, how are you looking at that space, that segment?

Gaurav Sekhri — Joint Managing Director

See, reclaim rubber like I said many years, it is the same, there is no change, there is no upgradation. But in the recent past, I mean in the last one, two years, the market is looking for the high tensile which is a specialized product, even we also have started making it and now approaching all the tyre companies because earlier they were depending on very commoditized grade of reclaim rubber. So they are welcoming the idea of using the high tensile which is a specialized reclaim rubber. So we see there is a further growth in this area, that is the one thing. And second thing is because of this EPR obligation, all the tyre companies are having Mission 2025, Mission 2050, something like that. So we see a growth in both the sides because they have to consume more and more recycled rubber material without affecting the end product quality. So all the tyre companies are working towards it and we see further growth in usage of recycled rubber material within the tyre industry also.

Unidentified Participant — — Analyst

Understood. And [Speech Overlap].

Operator

I would request you to kindly rejoin the queue sir, there are many other participants who are are waiting for their turn. Thank you. [Operator Instructions] Thank you. The next question is from the line of Dipesh Sancheti from Manya Finance. Please go ahead.

Dipesh Sancheti — Manya Finance — Analyst

Hello, am I audible?

Gaurav Sekhri — Joint Managing Director

Yeah, Dipesh.

Dipesh Sancheti — Manya Finance — Analyst

Great. Just wanted to know how much capacity and sales to build — we expect from Oman in FY 2024?

Gaurav Sekhri — Joint Managing Director

Hi, Dipesh. We are expecting a steady scale-up to the Oman business. In the next financial year, I don’t expect our tyre crushing capacity or tyre crushing ability in Oman to be more than 5,000 or 6,000 tons in the coming financial year and we will sort of go from there. So it will be about roughly 10% of our business to the India business, it’s contribution will be roughly 10%.

Dipesh Sancheti — Manya Finance — Analyst

And that 5,000 to 6,000 tons will be how much capacity utilization of the Oman facility?

Gaurav Sekhri — Joint Managing Director

We expect that towards the end of the financial year, our capacity utilization there will be close to 70%, between 70%, 75%.

Dipesh Sancheti — Manya Finance — Analyst

FY 2023 you’re saying?

Gaurav Sekhri — Joint Managing Director

FY 2024.

Dipesh Sancheti — Manya Finance — Analyst

End of FY 2024 we will have this capacity?

Gaurav Sekhri — Joint Managing Director

Oman plant will only be commissioned in Q1 of next financial year.

Dipesh Sancheti — Manya Finance — Analyst

Q1 of next — okay. No just wanted to understand that how much, I mean, we are planning, I mean, are we planning any expansion over there or how much sales will we expect from there when we come to full capacity?

Gaurav Sekhri — Joint Managing Director

In terms of sales you can expect next financial year contribution to be in the region of between INR25 crores and INR30 crores in top line, that will be Oman’s contribution. And in terms of scale up opportunity, we certainly expect Oman to become the size of one of our regular units in India. So the opportunity in Oman for tyre crushing we believe could be between 15,000 and 20,000 tons for us annually. We will start with 5 and then hopefully scale up strategy.

Dipesh Sancheti — Manya Finance — Analyst

Okay. And will we get access of raw-material from other MENA countries also or will we only focus on Oman?

Gaurav Sekhri — Joint Managing Director

We should be able to, but at this point of time our needs for the next three to four years should be met just with Oman also.

Dipesh Sancheti — Manya Finance — Analyst

Okay. Just one question, one more question I have on the line. What is the debt right now and are we looking at raising capital by preferential or any other means as our equity is very small?

Gaurav Sekhri — Joint Managing Director

See our total debt is INR63 crores as of 31st December. We are not looking at any options of preferential allotment etc and neither are we seeing any need not in the next six months or any new debt for long-term on long-term basis.

Dipesh Sancheti — Manya Finance — Analyst

So we will not be reading any funds for our Oman operations also, I mean any fresh funds?

Gaurav Sekhri — Joint Managing Director

We will be using our internal accrual.

Dipesh Sancheti — Manya Finance — Analyst

Internal accruals? Great, great. And going forward, where do we see this growth coming from, I mean, from the road, tyres or non road segment in terms of sale as well as in terms of EBITDA margin.

Gaurav Sekhri — Joint Managing Director

So we are in the midst of finalizing our plan for the next financial year and what I can share with you is that we feel confident that the company should be able to grow at around 25% in the coming financial year also.

Dipesh Sancheti — Manya Finance — Analyst

With margins which are there before either 15% to 17% margins?

Gaurav Sekhri — Joint Managing Director

Yes, we are at 13% EBITDA margin right now, 13.2%, we are — our expectation is to get back to 15% in the coming financial year with this growth.

Dipesh Sancheti — Manya Finance — Analyst

Okay. If I can just squeeze in one more question, in this quarter, our lower margins was due to effect of rubber prices or any inventory losses?

Gaurav Sekhri — Joint Managing Director

It was for a variety of reasons, we did drop to 11% odd EBITDA margin in this quarter, but I expect that to be fixed in Q4.

Dipesh Sancheti — Manya Finance — Analyst

Great, I will fall into the next questions. Thank you.

Gaurav Sekhri — Joint Managing Director

Thank you.

Operator

Thank you. There is a next follow-up question from the line of Nidhi Babaria from Envision Capital. Please go ahead. Ma’am, Ms. Babaria, I have unmuted your line. Kindly proceed with your question. As the current participant is not answering, we move onto the next question. The question is from the line of Saket Kapoor from Kapoor & Co. Please go ahead.

Unidentified Participant — — Analyst

Yeah, thank you for this opportunity, sir. Sir, when we look at your note to the account, we find this contingent liability part of around INR80 crores been through. Could you explain the nature, sir note number two. And also if you could throw some yes, note number two to the consolidated financial result wherein we have spoken about an INR80 crore being considered as contingent liability for the corporate guarantees to the associate company, what is the nature of the same and if you could throw some light? And also sir, about this investment in this companies like BGK Infrastructure to the tune of around INR6 crore and also if I may refer to the last September quarter release, wherein we have also mentioned some investment to Tp Buildtech Private Limited of INR6 crore and there we have also mentioned that the net worth has taken a hit partially eroded. So would like to understand the nature why is the company had to make these investment sir, please elaborate.

Gaurav Sekhri — Joint Managing Director

Sure, Mr. Kapoor, sure, thank you for your question. So there are three things that you have raised in your question — in the questions you asked. One is regarding the INR80 crores in the notes which is mentioned, that is on account of Tinna Rubber has provided corporate guarantee to it’s group entities, primarily it is to a company called Tinna Trade which use to be a subsidiary of Tinna Rubber till four, five years ago, then via simple demerger, it became a separate entity. So it has some working capital lines for which Tinna Rubber has provided corporate guarantee.

These credit lines I would like to mention so that you are aware of the complete picture is that Tinna Trade lines are backed by its own collateral, they are backed by a separate real estate asset as collateral. So, Tinna Rubber’s corporate guarantee is also there, but it is — it is a guarantee amongst to a line which is backed by its own set of very substantial collateral, that is one.

Your second question about the investment in Tp Buildtech, Tp Buildtech I’ll reiterate is basically a joint-venture between Tinna Rubber Group, an ultra-high net-worth individual, Mr. Mayank Singhal owns the other 50% in Tp Buildtech. This company since last six years has made good progress in establishing itself in the construction material space. We see a very strong connect of this business with the road sector business of Tinna Rubber, that is why we continue to support it and continue to invest in it.

Tp Buildtech has a tie-up with a very large Japanese polymer manufacturer called Nippon Shokubai where we import this polymer from Japan and then convert it into a concrete admixture. And the customer base is very similar to that as the road for customers of Tinna. Tp Buildtech has grown approximately 36% in FY 2023 versus FY 2022. We strongly believe in the business model of this company and therefore we will continue to invest in it. We see an excellent opportunity in grooming this business into a full-fledged, one-stop shop kind of company for construction materials.

So I hope this throws some light on the interest that we have in Tp Buildtech. Tp Buildtech sales this financial year is for the first nine months is INR42 crores versus INR30 crores in the last financial year for nine months, so 36% growth as I mentioned. So, lastly you had mentioned about some investment that we have in BGK Infratech etc, those investments we also consider not core to our business. They have been done historically and we are trying our best to get out of these investments without any negative impact to Tinna Rubber balance sheet. We need some more time to be able to execute that, but that is the plan of the company, which is to exit the non-core investments, but Tp Buildtech we consider very much as core to our growth and to our future plans. I hope that this answers your question?

Unidentified Participant — — Analyst

Yes, just a small follow-up. So, if that been the case that Tp Buildtech has grown, then why have the net worth of the same eroded if I refer to the point number five of your September result, it was mentioned that the company as on September 30th as a non-current investment of 6 crore 41 lakh in it’s associate company Tp Buildtech, while net worth of the associate has been partially eroded. The net worth of the associate does not represent the true value of the underlining investment, so this was the reason why I have asked this question, yeah.

Gaurav Sekhri — Joint Managing Director

It’s a fair point, so let me clarify, Tp Buildtech even though it has shown good growth in this financial year has suffered some losses in the past. However, I am pleased to tell you that as of December FY 2023, Tp Buildtech is now net positive, it is making money. So we believe the era of losses is now behind us and we have a bright future to look ahead.

Unidentified Participant — — Analyst

Right, sir. And sir, the Amsterdam subsidiary is the same for the Oman part or is it different?

Gaurav Sekhri — Joint Managing Director

So the company in Amsterdam was setup to look at some investment and growth opportunities in Europe, also in other parts of the world. We already buy a lot of used tyres from Netherlands in fact and this subsidiary was setup if it can play a role in having a better presence there, but we haven’t yet found the opportunity. So while we have the subsidiary setup, it is not operational.

Unidentified Participant — — Analyst

Right, right. And lastly sir, what steps can be taken to insulate us from this Tinna Trade part of the story since it was a LDR, a subsidiary and the lines were there to have that a correlation and since now they’re separate entity, so this INR80 crore continued liability whatever be the case and that is not falling apart, but the mention of the same in our accounts, how are we going to benefit of the same and what steps can be taken to just clear things out of our involvement with Tinna?

Gaurav Sekhri — Joint Managing Director

No, no, perfect, it’s a very valid question. We are working in that direction, if you see, earlier, this was a subsidiary of Tinna Rubber. So we were completely part of — the both businesses were together essentially, but after the demerger it is a separate entity. And the only support is now in terms of the corporate guarantee that we have provided for its clients. We are hoping that within the next one to two years on the outer side, it is our plan that you know Tinna Trade will not need the corporate guarantee support from Tinna rubber and it will be able to stand on its own feat, but we have to jusr remember the history here where it was a subsidiary, a 100% subsidiary of Tinna Rubber till five years ago.

Unidentified Participant — — Analyst

Okay and okay, sir. Sir, lastly sir about the business where we are one of the largest player in the country. If you could give us the size globally, the size of the end-of-life and also end of tyre companies what kind of business opportunity, the work done globally and if you could give us some peer comparison for domestic also that will give us some understanding.

Gaurav Sekhri — Joint Managing Director

Sure, I’ll mention two companies which immediately come to my mind in this space, one is Liberty Recycling from USA, which probably recycle 0.5 million tons of tyres annually. And the other example is Genan out of Europe, which is similar in size, maybe just a little bit smaller than Liberty. So we are — this year we will be at around 70,000 tons of tyre crushing in a country like India, which is producing 2 million tons of waste tyres annually. So that is the scale and opportunity that India is presenting to us and we wish to be ready to recycle such large volumes. But yeah, the two nearest examples would be Liberty tyre from USA and Genan from Europe.

Unidentified Participant — — Analyst

Thanks, sir. And do you have any number for the import, import of used tyre in the country for the nine months, how much has been the import?

Gaurav Sekhri — Joint Managing Director

I believe India’s import of waste tyres could be in the region of 300,000 tons.

Unidentified Participant — — Analyst

This is the annual number?

Gaurav Sekhri — Joint Managing Director

For the nine months, annual number maybe 300,000 to 500,000 tons.

Unidentified Participant — — Analyst

Correct, sir. And sir, lastly just to have better understanding of more dwelling greater that do plant visits part and parcel, can investors request for the same to the IR team or due to COVID policies and all they are not entertained?

Gaurav Sekhri — Joint Managing Director

No we are not entertaining plant visit as of now, of course, we are audited regularly and our customer visit happen from a tyre companies, but at this point we are not taking any one other than that to the plant.

Unidentified Participant — — Analyst

Right, sir. Thank you, sir and all the best for it. And lastly sir, on the capex done sir, how much have we spent this year, I missed the number, you did mention and for the next year, how much are we — what have we planned?

Gaurav Sekhri — Joint Managing Director

So this year about INR3 crores total capex is what we will do, some of it is done, some will get done in the next one or two months. I don’t think we will cross INR3 crores. And in the next financial year, the big major one, where we have visibility is Oman. But we will not be taking any new debt for it. And aside from that, we are working on an opportunity of acquisition or a greenfield plant within India, but that is something which is still only in the works.

Unidentified Participant — — Analyst

Right sir. And the pace of road construction sir, you did alluded to the fact that it depends upon the weather condition also. But the pace has gone down significantly I think so from 33, 34 kilometer per day it has now come down to 21 and our Honorable Minister was guiding for 40, 42 going ahead, doubling of the same, so that would give us some more indication of how things may look like sir going ahead if that comes into reality?

Gaurav Sekhri — Joint Managing Director

See, the kind of even in the recent budget, you must have seen the major allocation to the road infrastructure only. So there is a great future, but again there’s a lot of other things which are beyond one’s control that is something like environment clearances that for the project. Then you know, sometime it is the financial closure of the project, so that all impacts to us also in terms of like the sales to the road developers get delayed. But for sure, I mean, the option of modified bitumen and the provision of using recycled rubber material in the road, it is there and we are on day-to-day basis getting good inquiries on using the recycled rubber material for the road construction. So it is just matter of time and I think the and recently you must have seen even NHAI also has come up with some bonds or something they’re collecting money. So there is a huge investment in the infrastructure, especially for the role is planned, so this will come back.

Unidentified Participant — — Analyst

Thank you for all the elaborate answer sir and hope to have [Indecipherable] going ahead. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management from Tinna Rubber and Infrastructure Limited for closing comments. Over to you sir.

Subodh Kumar Sharma — Executive Director and Chief Operating Officer

Thank you. I would like to thank everyone for participating in this earnings con call. I hope we were able to answer your questions to the satisfaction and at the same time offer you insights into our business. You are welcome to write to us if you have any further queries or write to Valorem Advisors. Thank you again, stay safe stay healthy and please do look out for the Build India program on Discovery Channel, which will be aired on 2nd of March. We are very proud that we were selected and featured in this program, so it will be great if you can spare some time and please watch it. Thank you.

Operator

[Operator Closing Remarks]