Gujarat Reclaim Rubber (now GRP Ltd)

I have been tracking this company for quite some time and I feel it is an excellent company with a fantastic business model.

Co passes through many of the Buffet’s criteria like:

1). Business Moat (the co is a leader in it’s space and is now the third largest co in the world)

2). Honest Promoters

3). High ROCE

4). Business model which has to grow - Reclaimed rubber industry has a very bright future as it is eco-friendly and cheap. Reclaimed rubber sells at about Rs 35/Kg as compared to Rs 180 for Natural Rubber.

Had done a post at my blog earlier :

This is an interesting stock and i believe its quality is still not being reflected in the valuation. I have to go through the ARs yet, haven’t been able to dig much. WIll get back with some inputs once i am done. WHy is no one talking about this??

Gujarat Reclaim & Rubber Products Ltd

Quarter ended Year to
Year ended
% Var - - 201003
% Var
Sales 41.00 29.64 38.33 NA NA NA 140.81 129.30 8.90
Other Income 1.71 0.90 90.00 NA NA NA 3.32 3.92 -15.31
PBIDT 8.82 6.26 40.89 NA NA NA 27.57 26.68 3.34
Interest 0.52 0.46 13.04 NA NA NA 1.85 1.78 3.93
PBDT 8.30 5.80 43.10 NA NA NA 25.72 24.90 3.29
Depreciation 1.21 1.04 16.35 NA NA NA 4.36 3.98 9.55
PBT 7.09 4.76 48.95 NA NA NA 21.36 20.92 2.10
TAX 2.60 1.75 48.57 NA NA NA 7.55 7.41 1.89
PAT 4.49 3.01 49.17 NA NA NA 13.81 13.51 2.22
Equity 1.33 1.33 0.00 NA NA NA 1.33 1.33 0.00

1QFY11 results show good growth. But why was FY10 growth so poor? what is the long term growth record of this company? does it supply only to replacement market??

I tried to look at the Gujarat reclaim rubber long term track record

Following are my observations, purely from the numbers:

1. While 5yr record may look fine with a ~25% CAGR, sales growth has been slowing down. Look at the 3 yr averages for last 3 years

3yr Sales CAGR 35.99 23.39 13.42
2. Margins, Returns and Working capital management has been steady. DPS growth has been good at ~20% 5yr cagr

3. Common size P&l statement throws up teh same trends - steady, no real improvements there

4. Balance sheet - strong nice & clean. Not much cash on books.

Purely from the numbers, this looks like a mature, steady business to me. If I want to park some funds safely, I mayy do it here; on the other hand there may be much better dividend-paying, mature businesses to park the money in? a Wyeth pharma, e.g.

Invite comments from those who track Gujarat reclaim. I have heard too many good things about teh company.

I feel Gujarat Reclaim is a fantastic company and in a business with great future. The company has moat, business leadership and management quality is excellent.

I have been accumulating this stock for last 3-4 years at every level. I buy it even today.

To get a feel of why I like this company, Do read this article - were the cover story of Tyre Asia magazine.

Also read this:

The co has been deliberately consolidating for last 2-3 years as they want to establish the raw material sourcing first.

Triggers for next phase:

1). In Phase - 1, the co is expanding it’s capacity by 50% and the same should be completed in next 3-4 months.

2). In Phase - 2, the co is setting up 2 plants in South India and the capacity should double post that.

Hence in 2-3 years the company should be able to double its turnover.

Thanks Ayush for your views. I certainly need to read up more on the company

I could not download the file properly…Tyre Asia Aprl10.pdf. each time I got a corrupted file. In case you have a copy saved, pls mail me that.


I have emailed the article.

Alternate way to download the same:

If one looks at the 10 year Financials, NPM seems to have stabilized around 8.5-11% but looking at a common size P&l reveals interesting trends. Raw Material % of sales has continuously gone up from 32% in 2000 to about 55 % in 2010. It hasn’t been cyclical rather a linear rise. i am not sure what is the reason for that?? have rubber prices gone up continuously since 2000. While on the other hand the Power & fuel cost,Employee cost,Selling & admin expenses & other expenses have come down and that has resulted in the increased margins despite rise in raw material prices. So i am confused how to interpret this, does it mean margin expansion can only happen if efficiency needs to keep going up. The ROCE has been very impressive although Asset turns have dropped since peaking in 2004. They have also done well to reduce the operating cycle to a negative value. Have to look at ARs still but the numbers look good and the stock is still cheap IMO.

Hi Siddharth,

Look at the last 3 years (FY08-10) more closely -while the 5/10 yr track record may look good, the most recent history shows up none-too-impressive. Couple this with only a 13% 3yr CAGR Sales over last 3 years! And FY10 over FY09 is almost stagnant!

But this Ayush has explained in earlier post about deliberate consolidation. we need to dig deeper and establish more. Also watch quarterly results, closely. 1QFY10 has seen good growth of ~40%.

Variable FY06 FY07 FY08 FY09 FY10
Common Size Sales 100.00 100.00 100.00 100.00 100.00
Common Size Raw Material 40.63 42.07 45.38 44.80 45.27
Common Size Power & Fuel 12.71 12.71 12.23 10.36 11.65
Common Size Employee Cost 10.92 9.72 9.94 9.80 9.93
Common Size COGS 56.73 57.87 60.16 58.51 59.64
Gross Profit Margin 43.27 42.13 39.84 41.49 40.36
Common Size Depreciation 2.75 2.82 3.13 3.03 3.07
Common Size Interest Cost 1.53 1.18 1.44 1.36 1.30
Common Size SG&A 25.81 22.53 23.17 24.73 23.25
Operating Profit Margin 18.15 21.95 16.72 17.41 16.49


I could not find any concrete mention of the 50% expansion plan in AR 2010. The only thing mentioned is 2 plants in the South which will help them benefit from demand there- without any timeframes for the same. Checking BSE announcements, management Interviews too did not yield any results.

Installed capacity is 41000 MT, the company operated at 100% capacity in FY2010. Can you point me to some specifics? Any idea how many MT produced in 1QFY11 for the 41 Cr Sales??

1QFY11 registered a ~38% growth in sales? Is this sustainable? Can they do shifts??



Finally found some info on capacity expansion, here. Strange that the company doesn’t like to talk about it! Some significant excerpts

In December 2009, the company added 6,000 tonne capacity at its Panoli plant, full benefits of which will be available in FY11. The company also has plans to expand its existing plants apart from setting up new units in strategic locations. The company is currently in the process of tying up Rs 63 crore loan to fund these expansions, which could come up over the next couple of years.

The first nine months of FY10 were stagnant for the company, but the fourth quarter registered a sharp 58% jump in net sales with a 54% jump in profits. The lower base effect and additional capacity at Panoli plant were the key reasons behind the spurt.


How many cos do you know who are world leaders in their space, have 10 yr CAGR growth record of 30%, have consistent high margins, have consistent high ROCE of 35-40%+ have a high dividend pay-out policy and a very honest and capable mgmt. Any co having 20%+ operating margins in manufacturing space will surely have somespecialtyor the other. Look at the kind of awards they have been getting.

Yes, last 2-3 years have been dull but stock market is all about looking at the future. The co claims that it will double it’s turnover in next 2-3 yrs. Source? Search the job sites :slight_smile: Also I keep talking to their CFO, he informed that a 50% capacity expansion will be done by the end of this year. (the same can also be confirmed in the latest newsletter at their website). They are also in process of expanding in South which may happen in next 1-2 yrs.

So considering these expansions, I see the co coming back on the growth track of 25-30% for next 3 yrs.


aap to bura maan gaye:)). No one is questioning it’s a stock with a good pedigree!

But please allow me to question gaps in the information set…that sets the premise for future growth. just where is the additional capacity?? It is in place, willing to grant you that…help us get the specifics, so we are better-informed.

1). The AR 2010 mentions installed capacity at 41000 MT. So I assume this includes the 6000 MT expansion at Panoli concluded in Dec 2009. Its already operating at 100% capacity

2). Please talk to your contact within the company and get us details of additional capacity - which plants, how many MT, etc… whats already achieved?

3). 1QFY11, what was the production? 12000-15000 MT?? That will lend credence to sustainability of growth

4). Since exports is at ~57%, can we get a sense if this is being maintained



Hi Donald,

May be the tone of my msg was not right…I wrote it in a normal way :wink:

I think the 41000 MT capacity has remained constant for the co for last 3 years. I’m still not sure about the 6000 MT addition at Panoli plant as mentioned in the ET article.

The increase in qtr turnover to 41 Cr may be due to some addition to capacity and also due to selling of higher grade products. This 41 Cr turnover should repeat for coming qtrs.

I think the production hasn’t increased majorly till now. It will increase post expansion which is expected to be completed by end of December this year.

As per the FY 10 annual report the Gross Block has increased from 60 Cr to 75 Cr and additional 7.5 Cr is WIP. So capacity expansions are very much happening.

Regarding the contact in co, you can always frame queries and send it to the CFO & Vice President - Mr Ganesh. He has always been helpful to the shareholders and answers all the queries.

Exports for this co have always been high as the co is into quality grades which are get better pricing in international markets. Co is trying to increase domestic presence to get more forex stability.



PS: As per the Rubber board website, I think the organised capacity for reclaim rubber is abt 80000 MT…hence Guj Reclaim has more than 50% market share :slight_smile:

Gujarat reclaim is another stock that looks pretty attractive. It has corrected to July/Aug levels of 1090 or so from the highs of 1300 and 1200+ in Nov/Dec 2010

meanwhile the company has been posting excellent growth.

Ayush can you throw more light?

Hi Donald,

I have often highlighted the long term positives which I see in the company above. What has excited me further is the recent qtr nos. Have a close look at their recent qtr nos in the image file attached:

For approx last 7 qtrs (between Sept 08 to March 2010) the company was stuck at highest turnover of about 36-38 Cr because of the capacity constraints. Co had been operating at almost full capacity during this time and this the reason for subdued growth during last 2 yrs.

Now it seems the company is back on aggressive growth plans. I had already highlighted above that the co is putting up a new plant at Solapur and has plans to set up another plant in South India. These two steps will take care of approx 20% growth for next 2-3 yrs.

Anotherhearteningthing is that in the last qtr, nos were really good and the growth was without starting of new plants…the co must have expanded at its existing locations. The new plant at Solapur should start anytime now and would easily add another 20-25% to their topline. So if we try extrapolating the figures…the co could very well be on its path to achieve say 250 Cr turnover in 2012.

Lets see how things shape up. Views Invited.

The image file shows the numbers but not the 1st Column -Sales, operating profit, NP etc.

Could you update another pic?

But what I could make of it sales is up some 33% over corresponding quarters. That’s impressive debottlenecking if expanded capacity is still to come onstream, which means more sustained growth.

Cartainly interesting indeed. Like to concretise when new capacities get added. Will try to find out more.

Gujarat Reclaim has corrected a bit and is coming into an interesting zone. Time to look at it closely? The 9m results are pretty encouraging, anyway you look at it.

The Gujarat Reclaim stock story is updated. Please have a good look. And carry forward the discussions.

We are trying to get a set of questions answered by Gujarat Reclaim Management, so if you have questions fire them away and help us get more out of the interactions!



This looks very interesting looking at the DPS, and the kind of growth the management has shown.

But, the company has been showing a negative free cash flow. Why should that not be considered a negative for it?


Hi Narendra,

Gujarat Reclaim has mostly had high free cash flows:

Cash Flow of Gujarat Reclaim and Rubber Products

in Rs. Cr.
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Net Profit Before Tax 9.09 15.92 14.09 20.93 21.36
Net CashFrom Operating Activities 9.05 8.51 7.25 18.11 14.33

Let me know if I'm missing something.