Name of the company is going to be change to GRP now according to outcome of EGM.
It was good to see the explanation of the co for the name change 
"In order to remain relevant, it is important to reinvent oneself within a fast paced, dynamic environment. Yourcompany is more committed than ever to continue this ongoing effort. In an attempt to move towards seamlessprogression, the existing name of company viz. âGujarat Reclaim & Rubber Products Limitedâ is proposed to bechanged to âGRP Limitedâ.
GRP, the three letter acronym infuses vitality within the organization. It connotes an independent, strong, balancedentity â free from any geographical boundaries, descriptions or preconceived notions. It represents a globalcompany that goes beyond âGujaratâ, it allows for diversification beyond ârubber and reclaimâ. At the same time itretains the legacy of Gujarat Reclaim & Rubber Products Limited, as a company known for its credibility to impactthe positive"
As they had mentioned during the last mgmt meet that they will be developing new lines of business also to scale up they are doing the same now.
Yourcompany seamlessprogression, aGujarat Limiteda bechanged to aGRP Limiteda. balancedentity a globalcompany aGujarata, arubber and reclaima. itretains impactthe
Hi Ayush,
I think you have made a very important point. When I analyzed the company, I noticed that GRIP polymer a nascent business which intends to produce thermoplastics from waste at a fraction of a cost can be a wonderfull businss opportunity. Moreover, thermoplastic has much larger market and is scalable and less competitve. My hunch is that GRIP is going to be a significant part of their overall revenue stream in the longer run and this will definitely lead to revenue growth as well as margin expansion (a newly developed product typically has much higher margin). But at this stage it is only âhunchâ and needs to be validated with numbers over a period of time.
Hi Dhwanil,
I also have a similar expectation though there hasnât been much turnover from Grip Polymers till now but looking at the way they are framing the structure, it seems they might be getting traction there.
If they are able to develop a new line of business and scale up, then this co has a long long way to go. Lets hope for the best
Ayush
q1 resultsare pretty disappointing. it seems like the blip in q4 profits were not of temporary nature. has there been any development which we are not aware of? any comments?
Hi,
Yes, the nos are weak the reason seems to be demand slack. Most of the cos catering to the tyre OEM sector seem to have witnessed lower growth in Q1. hence the growth has been limited while the interest and depreciation has increased due to expansions.
But if we look at the longer term picture the co is good and as the growth will come, the operating leverage should kick in. Probably a short term pain but longer term story is good.
I think these kind of quarterly blips offer good opportunities for long term accumulators of the stock. Key remains to have high level of conviction.
An interesting comparision is there with hawkins.
In Hawkins inspite of poor q1 fy 13 numbers did not lead to stock priceâs mauling mainly because there are a lot of very convinced long term investors. Plus it has the protection of dividend yield of around 3%.
I guess thats where guj reclaim falls short. Plus todayâs fall may be overdone bcos of the pre result rally which was there which pushed stock price all the way up to 1800 levels. Obviously those who bought at 1700-1800 levels (who are there for the ride) are going to bail out once the stock price goes below 1600-1650 levels at whatever price there is a buyer. And to compound the problems, there is very poor liquidity in the counter.
1480-90 levels appear to be key support areas to be watched.
Another possible reason maybe that natural rubber prices have come down a lot and thus reduced the price differential between natural and reclaimed rubber. But long term this is a good scalable opportunity.
Hi,
Sorry for the very belated and basic doubts below, I just read up on this recently and is definitely kicking myself for not doing this earlier.
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Though the price advantage of recl rubber wrt natural rubber is clear, what exactly is the price diff b/w synthetic rubber and recl synth rub? What is the raw material for synthetic rubber (I know raw material for reclaim synth rub is tyre linings and inner tubes)
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If there is demand slack, isnt it a reason to worry especially since FY-13 was mentioned as the year for the full utilisation of expanded capacity to kickin. Cannot fathom the reason for the slack since com mentioned it was ready to sell 80,000 MPTA capacity if it had the same exactly a year back. Did competition move faster than GRP?
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The com has a vision of 1000 Cr sales by 2017. And mentions 500Cr should come from non-rubber reclaim segment which is in nascent stage now. This means they expect only 500Cr sales in rubber relcaimin 2017??So is the same 80000 MPTA plant being used/is slated to be usedfor other reclaims too since they will reach 500 Cr sales within 2 years (I am a little confused here
It was clear from the 2 Management Q&As that the companyâs goal is to âreclaimâ many other things and the name change establishes that now. If the point no 3 above means that non-rubber reclaim will contribute more in 2-3 yrs itself then isnt that a key monitorable?
Is the âGâ in GRP âglobalâ as they mention getting out of limited âgeographicâ perception.
I am keenly awaiting clarity on the demand growth part.
Thank You Ayush and Donald for the really wonderful work done on this stock. I could read the stock story, 3 pages of discussion here and the 2 Q&As to get a very neat picture of the com and their business. The stock story template is very good.
Cheers
Vinod
Hi,
Demand slack and high growth in most expenses has hit the NP. If this is temporary the low base of Q-4 FY 12 should makeup for some of this. Still avergae EPS of 74/quarter for 3 quarters look unlikely to reach our estimate of annual EPS of 260.
| Q-1 FY 12 | Q-1 Fy 13 | Growth | Q-1 FY 12 | Q-1 Fy 13 | |||
| Sales | 6318 | 5534 | 14% | Sales | 100% | 100% | |
| RM | 2928 | 2427 | 21% | RM | 46% | 44% | |
| Employee cost | 644 | 442 | 46% | Employee cost | 10% | 8% | |
| Power | 892 | 610 | 46% | Power | 14% | 11% | |
| Packing | 689 | 620 | 11% | Packing | 11% | 11% | |
| Dep | 235 | 155 | 52% | Dep | 4% | 3% | |
| Other | 370 | 204 | 81% | Other | 6% | 4% | |
| Fin Cost | 150 | 94 | 60% | Fin Cost | 2% | 2% |
Hi Vinod,
Synthetic Rubberâs price is almost near to the natural rubber prices and hence reclaimed rubber is the most economical alternative while using rubber.
Slowdown is there world over and these are some risks attached to every businessâŚcapacities are created on some anticipations etc and hence its normal to have mismatch for some periods. The important thing to check if the long term story is intact. As long term investors we just need to monitor the health and quality of a business as over longer term things will pick upâŚits just a matter of few qtrs.
The mgmt interview is a bit dated now and at that time, it was just a vision which seems to be taking shape now. The co seems to be getting traction at the thermoplactics/industrial polymer business. As per their new revamped website, they do target to achieve 100 Cr turnover from this new business. They had been working on it for last 3-4 yrs. If done, it will be an excellent thing as it will add a new line of business and make the business model a bit diversified.
Ayush
Just got around to reading 2012 Annual report of this company.
What a brilliant Annual Report. Wish all small and midcap companies would follow this level of discussion, analysis and reporting in an Annual Report. I am a fan. I am also invested.
That said, I shall play the devilâs advocate and highlight some features in the AR which bother me.
Current Performance and Future Outlook section:âYour company holds 46% of the equity share capital of Alphanso Net Secure Pvt. Ltd which is its only associate company. Company has provided for an amount of Rs. 19.96 lakhs towards dimunition in the value of investment in the shares of this companyâ
My comments: Why did they invest in a company dealing with routers, firewalls and wireless is something I cannot fathom. Later on in the B/S details, it looks like they have written off the entire investment and only Rs.10k remains, which will be written off next year I guess. Anyway, this diworsification is a bit of a bother.
_Annexure to Auditorâs report (Section 3 (a)-(d)): _
a) The company has granted interest free unsecured loan to an associate company covered in the register maintained under Section 301 of the Companies Act 1956. In respect of the said loan the maximum amount outstanding at any time during the year is Rs. 41.65 Lakhs and the year end balance is Nil.
b) In our opinion and according to the information and explanation given to us, the Nil rate of interest and other terms and conditions are prima facie not predjudicial to the interest of the Company considering that the said loan is to an associate concern in which the company is holding 46% of share capital.
c) There is no stipulation as to interest or repayment of the said loan given. However, during the year loan to an associate company amounting to Rs. 32.50 lakhs have been written off.
d) According to the company, the amount is not recoverable considering the net worth and future business prospect of the said company. The Company has written off the amounts outstanding from the said associate concern.
My Comments: Even if it was an associate company, why would you give an interest free loan. And why is the auditor saying âNil interest is not prejudicial to the interest of the Companyâ? Agreed that the amount might be relatively small compared to the overall revenues and profits, but this practice is a little extreme. When the Company is taking unsecured loans and deposits worth Rs.95L and paying interest on them (@ 12.5%), then you bloody well charge that interest to your associate company, no? And if the associate company was anyway winding down, and in no position to pay you back, why did you loan the money again this year? (maybe to bail out someone?)
_Notes to Financial Statements Section: _There is a total foreign currency loan of approx. Rs. 32 cr with interest rates ranging from 5%-8%. Of course, 67% of the sales are on export-basis and hence act as a natural hedge. Still, something to keep tabs on.
_Subsidiary Company: _Investors who are excited by the potential of Grip Polymers (subsidiary to GRP Ltd.) need to be aware of this. In year end 2011, Grip Polymers had a profit of Rs. 1.54L. In the year ending 2012, Grip Polymers has had a loss of Rs. 1.4L. As you can see, even if this is profitable in 2013-14, it will actually be quite some time before this starts to add significantly to the bottom line. Hence, letâs not expect miracles out of this business in the next 2 years atleast.
Net-net, the long term story remains intact (temporary headwinds in terms of low natural rubber prices exist). However, these little niggles remain.
Views invited.
1 Like
Hi Kiran,
Good to see you taking interest in GRP but this is what happens when one reads just 1-2 yrs of annual report. If you will read it for last 5-7 yrs, you will surely appreciate the steady way in which the company has consistently moved up and remained a leader in its field.
The investment in co - Alphanso Net is not new, this is one of their small venture done years back for their own IT benefit. I see it more as an ITdivisionfor them. The right way to look at this is - GRP has always had small investments or advance to this co and they have never tried scaling up in un-related business till now.
GRP is one of the most technologically advanced co in their industry. They were the first to implement SAP (customised by Patni) in the industry few years back.
Giving interest free advance is the most practical way of seeding your own new venture. The issue comes when the amount is material. Just try putting yourself in promoters shoes.
Secondly look at the materialityâŚthis is a 250 Cr turnover co with almost 50 Cr operating profit and 25 Cr NP co.
Yes, foreign currency loans may put up some M2M losses but over longer term they will be quite beneficial for the co.
Kiran, Yes, Iâm fully aware that as of now thermoplasticâs business (grip polymers) is contributing just 3 Cr turnover but do look into the past - they have been seeding & researching on this business for last 3-4 years and now they seem to be getting traction. I wonât like to comment much here but there is a lot work you can do on the potential by doing some smart work 
Ayush
From a News Report:
Thailand, Malaysia and Indonesia (accounting for 70% of worldâs rubber production) are expected to meet in Bandung, Indonesia in the first week of September 2012 to discuss ways to stabilize natural rubber prices. The chairman of the Malaysian rubber board has hinted that natural rubber prices can increase by 33% after the crucial Bandung conference.
Link here: http://rubbermarketnews.net/2012/08/malaysia-price-of-rubber-may-go-up-next-month-mrb-chairman-said/
It has been consolidating in narrow 1550-1600 range for 6 months now. Any take on Q2 numbers? Long period of coidation and good numbers is an explosive combination
It has been consolidating in narrow 1550-1600 range for 6 months now. Any take on Q2 numbers? Long period of coidation and good numbers is an explosive combination
Last 2 quarter numbers show fundamental weakness
Is it better to stay away from this name?
Any views Ayush?
Thanks
Excel
Hi Excel,
I think the Q2 results may not be great once again but things should start improving from this qtr and perhaps H2 would be much better.
If one looks for a slightly longer term, I think this is an excellent investment opportunity. The co has had a fantastic past track record and after our interaction at the AGM, I feel they are sincere people and totally committed towards their business and innovation. If they can continue with 25% growth for next 2-3 yrs (which they target to), the stock should do pretty well.
Ayush
PS: My views would be biased as this is myfavorite
Thanks Ayush
I have seen that most of the times your conviction has paid
Would like to understand the reason for 3 bad quarters in a row as well what would change in the second half?
Regards,
Excel
myfavorite
I think we should not mix the potential of business and market price. Moreover, buisness characterics and potential does not change dramatically over 6 months especially in kind of business GRP operate. Unless they goof up in execution they should grow over next 5-7 years may be more. How market will reward these growth is anybody guess??