Hi-Green Carbon Ltd – Play on Renewable energy endeavoring wealth from waste

sameernics · December 31, 2023, 7:34am

Company claims “Use of 1 ton of Hi-Green Carbon reduces 2 tons of Green House Gas (CO₂) emissions”

Market cap - 401cr
CMP - 160
Book Value - 29.8
ROE - 68.2%
ROCE - 52.6%
OPM - 27.78%
Debt/Equity - 0.17
EPS – 5.54
Last 3 year sales growth - 47%
Last 3 year profit growth - 67%
Promoter holding - 71.83% (0% pledged) – As of Sep 2023
FII holding - 6.94% - As of Sep 2023
DII holding - 3.74% - As of Sep 2023

Sector - Company is in the renewable energy segment creating wealth from waste (through a patented technology).

Listed Peers - Company claims that it has no listed peers to compare with.

Incorporated in 2011, Hi-Green Carbon Limited (HGCL), previously known as Shantol Green Hydrocarbons (India), is engaged in the business of waste tires recycling. It is a part of Radhe Group Energy, based in Rajkot, Gujarat. The Group’s core focus is on Renewable Energy with a diversified portfolio.

HGCL was established by the promoters with a mission to create wealth from waste. HGCL is engaged in the business of waste tires recycling. Hi-Green Carbon’s manufacturing plant is located in Rajasthan with an installed capacity of recycling of 100 MT waste tires per day. The company has been certified with Environmental Management Measures with ISO 14001:2015, Occupational Health & Safety Management standards with ISO 45001:2018, Quality Management Standards with ISO 9001:2015, Good Manufacturing Practice (GMP) and RoHS. Their product is REACH complied in terms of sustainability standards. The manufacturing plant operates on continuous pyrolysis process. It is an uninterrupted working method with continuous feeding and discharging system controlled by the program logic controller system. The process is fully automatic and requires almost no human intervention. Following continuous pyrolysis, they process the end-of-life tires (ELTs) pieces to produce energy components and raw materials. Company follows the highest quality practice and compliant with Highest Environmental, Health, and Safety (EHS) in recycle industries. The company has modern, Supervisory Control and Data Acquisition (SCADA) operated in integrated recycling plant at the manufacturing plant situated in Rajasthan. The major products are Recovered Carbon Black and Steel Wires under Raw Material Category, Fuel Oil and Synthesis Gas under Energy components category. In order to utilize the energy in efficient manner, they utilize said synthesis gas, produced as by-product of the pyrolysis process, for also manufacturing sodium silicate commonly known as raw glass.

PRODUCT PORTFOLIO

Pyrolysis of scrap tires involves de-polymerization of tires in the absence of oxygen, to speed up the decomposition of inorganic material into its original components such as recovered carbon black, recovered oil, gas and steel wires. Following are major products offerings:

a) Recovered Carbon Black (a substitute product for an expensive virgin carbon black): Recovered Carbon Black (rCB) is a processed solid residue created from the pyrolysis of end-of-life tires (ELTs). Recovered Carbon black (rCB) has been used as a reinforcing agent in tires. Today, the uses of carbon black have expanded to include acting as a pigmenting, UV stabilizing and conductive agent in a variety of common and specialty products, including:

Plastics: carbon blacks are now widely used for plastic master-batch applications, such as conductive packaging, films, fibers, mouldings, pipes and semi-conductive cable compounds.
Toners and Printing Inks: Carbon blacks enhance formulations and deliver broad flexibility in meeting specific colour requirements.
Coatings: Carbon black provides pigmentation, conductivity and UV protection for several coating applications including marine, aerospace and industrial.
Tires and Industrial Rubber Products: Carbon black is used in tyre inner liners, carcasses, sidewalls and treads, as well as in industrial rubber products, like belts, hoses and gaskets.
Activated carbon: Carbon black can be further processed and converted in to activated carbons this has huge demand in filter, purifier and chemical industry. Activated carbon can be sold at 4 time higher value.
As a fuel: Carbon black is rich source of energy, it can be directly used in firing in place of coal and pet-coke. In fact, this generates lesser pollution compared to pet-coke.

b) Fuel Oil: Fuel Oil produced from Pyrolysis, sometimes also known as bio-crude or bio-oil, is a synthetic fuel under investigation as substitute for petroleum. Fuel oil produced from tyre pyrolysis is also known TDF (tyre driven fuel) which has higher energy content. This allows a furnace to burn less fuel, for each BTU of heat produced, as well as often times reducing the cost of fuel in industrial application like Boilers, Furnaces, kilns, Hot water generators, Hot air generators etc. In India, we can use this kind of fuel oil in farming equipment’s as well. Addition to that fuel oil can be further distilled and various valuable chemicals and petro-products can be derived.

c) Sodium Silicate: Sodium silicates are colourless glassy or crystalline solids, or white powders. Except for the most silicon-rich ones, they are readily soluble in water, producing alkaline solutions.

d) Steel Wires: Steel tyre wire scrap from shredding of waste tires. This scrap is derived from shredding of waste tires. This scrap has also carbon content.

COMPETITION

Although company claims that it has no listed peers to compare with, they operate in a highly competitive market and there are number of unorganized players. Price is the main factor in most cases for client making decision to have their products. Competition emerges not only from small but also from big regional and national and international players. Their experience in this business has enabled them to provide quality products in response to the customer’s demand for the best quality.

CAPACITY UTILIZATION

REVENUE BIFURCATION

PRODUCT WISE REVENUE BIFURCATION

PRODUCT DEMAND

CAPACITY EXPANSION PLANS

In response to the anticipated strong future demand, Hi-Green Carbon has strategically decided to expand its production capacity of recovered carbon black (rCB) by investing in new production units at multiple locations in India. Construction of the second unit near Dhule in Maharashtra state is currently underway and is expected to be completed by the mid of 2024. Furthermore, they are in the process of conducting feasibility surveys for the construction of an additional four (4) units at different locations. This expansion will enable them to achieve an impressive production capacity of 50,000 TPA, positioning them as the global leader in the development and production of innovative, high-performance rCB that meets the demanding requirements of our customers. These new plants will be equipped with cutting-edge technology to ensure energy-efficient production, resulting in reduced CO2 emissions and a more sustainable manufacturing process. Recently, company raised money through IPO for setting up a new manufacturing plant in Dhule district of Maharashtra, with capacity of recycling of 100 MT waste tires per day. The company has already acquired land admeasuring 21,500 sq. meters for the said purpose.

FINANCIAL PERFORMANCE

On the financial performance front, for the last three fiscals, HGCL has posted a nice growth in revenues / net profit.

FY 21 - Rs. 24.29 cr. / Rs. 0.10 cr.

FY22 - Rs. 51.14 cr. / Rs. 3.68 cr.

FY23 - Rs. 79.04 cr. / Rs.10.85 cr.

COVID IMPACT ON BUSINESS

On March 24, 2020, the Government of India ordered a national lockdown in response to the spread of COVID-19. However, HGCL business was determined to be operating in an essential industry, which allowed them to continue their operations after the introduction of the lockdown in India, subject to certain adjustments in working patterns.

KEY RISKS

SME company. Company is listed in NSE SME platform.
Top ten customers of the company for FY2022-23, FY 2021-22 and FY 2020-21 contributed for 63.87%, 57.91% and 53.63% respectively of their sales. While they typically have long term relationships with the customers, they have not entered into long term agreements with the customers.
They derive a large portion of domestic revenue from the state of Rajasthan. State of Rajasthan contribute 79.73%, 68.09% and 70.84% of total domestic revenue for financial year ended on March 31, 2023, 2022 and 2021, respectively. This is mainly due to their end users are located in and around their manufacturing plant. However, with new proposed manufacturing plant in Maharashtra and other locations in future may mitigate the risk.
The business requires significant working capital (mostly for the procurement of raw materials), part of which would be met through additional borrowings in the future.
They operate in a highly competitive market and there are mainly unorganized players. Price is the main factor in most cases for client making decision to have their products.

Source of Information : Management interaction in 2023 Alpha ideas SME stars, RHP, Screener, Company website.

Disclosures : Invested and Tracking. Not a buy recommendation.

Krishna19 · December 31, 2023, 4:02pm

Very helpful research .

Jitendra_Vyas · December 31, 2023, 6:11pm

@sameernics at what price did you invest and what % of allocation? Are you looking for long term bet?

Rahil_Dasani · December 31, 2023, 7:19pm

sameernics · January 1, 2024, 5:02am

IMO it is very common sight of concerns raised by villagers wherever the industries goes. Well the concern may be genuine or just politically motivated. In the past, a similar concern was raised by the villagers against Philips Carbon Black Ltd, but the Kerala HC had cleared such allegations. At least I haven’t come across a single PCB notice against Hi-Green Carbon.

sameernics · January 2, 2024, 3:48am

One of the themes to ride on in 2024: The green push holds a lot of promise for investors in the future. According to reports, the global green technology and sustainability market is forecast to record a CAGR of 20.8 percent till CY30. A sustainable bet for investors that offers potentially high returns are those companies that capitalize on “renewable energy, EVs, cutting down on carbon emissions, and those that are developing technologies to make it happen.

Abhigyan_Mandal · January 2, 2024, 10:23am

Is this company similar to Tinna Rubber?

sameernics · January 2, 2024, 10:49am

No.
While the input raw material [i.e. end of life tires] is same for Tinna rubber and Hi-Green carbon, but the product portfolios are different for both companies.

Tinna Rubber’s product portfolio includes crumb rubber modifier (CRM), crumb rubber modified bitumen (CRMB), Polymer modified Bitumen (PMB), bitumen emulsion, reclaimed rubber/ ultrafine crumb rubber compound, cut wire shots, etc.

sameernics · January 3, 2024, 7:00am

While I mentioned a number of end applications for the recovered carbon black (rCB), further information can be read here [Applications].

IMO, there are a couple of big striking opportunities for the company.

a). One of them being substitute for an expensive virgin carbon black in the tire manufacturing.

Recently I read a 2019 news article at rubbernews.com wherein it mentioned Bridgestone Americas Inc began manufacturing tires with recovered carbon black. The tire maker said, rCB recovered from scrap tires retains a structure similar to that of virgin carbon black, allowing it to be used as a partial replacement for virgin black in tires. It said, rCB produced by depolymerization emits 81 percent less carbon dioxide per ton than virgin carbon black produced by a furnace reactor. Bridgestone said, it has purchased approximately 215 metric tons of rCB, the equivalent of about 64,000 end-of-life tires. This reduced carbon dioxide emissions by approximately 765,000 pounds compared with using virgin black. The company plans to use some 6,800 metric tons of rCB by the end of 2020, according to Bridgestone. This is equivalent to about 2 million end-of-life tires and a reduction of some 24 million pounds of carbon emissions, enough to power nearly 2,000 homes or more than 2,300 passenger vehicles for a year, the company said.

From the above use case, rCB holds immense opportunity for the Indian tire makers in terms of reducing costs and carbons emissions.

b). Govt. EPR policy compliance for the tire waste

What is EPR and How Does it Work?

Extended Producer Responsibility (EPR) is a policy framework that holds producers responsible for the entire lifecycle of their products, including their disposal and waste management. The objective of EPR is to promote sustainable practices and reduce the burden on local governments for waste management.

In the case of tire waste, EPR compliance requires tire manufacturers or importers to take responsibility for managing and recycling the waste generated from their products. This includes setting up collection centers, collaborating with recycling facilities, and ensuring proper disposal of end-of-life tires.

EPR Compliance for Tire Waste in India

In India, the Ministry of Environment, Forests and Climate Change (MoEFCC) introduced the E-waste management rules in 2016, which includes provisions for EPR compliance. The Central Pollution Control Board (CPCB) is responsible for overseeing and implementing these rules. https://www.eprtyrescpcb.in/rules/pdf/amendment-Rules-2022.pdf

Under these rules, tire manufacturers or importers are required to obtain authorization from the CPCB to operate as an EPR-compliant organization. They must also submit a detailed plan outlining their strategies for collection, segregation, transportation, recycling, and disposal of end-of-life tires.

Additionally, manufacturers must establish tie-ups with authorized recyclers to ensure proper recycling and disposal of tires. These recyclers must meet specific standards set by the government to ensure environmentally friendly practices.

To understand how EPR policy would benefit the tire recyclers can be found from a recent Tinna Rubber’s investor call.

So, in summary, the opportunities are immense; however, only time will tell how Hi-Green Carbon will capitalize on them.

Bimal_Purohit · January 3, 2024, 3:50pm

Thanks for starting the thread on this company. The name and the sector catered got me interested in this company, due to which I started to do further research. Few of the starting pain points which I haven’t been able to answer from my end are as follows,

RNG Finlease Private Limited [Promoter] - As per RHP,

“Our company was originally formed by Mr. Amitkumar Hasmukhrai Bhalodi, Mrs. Dakshaben Shaileshbhai Makadia (wife of Dr. Saileshkumar Vallabhdas Makadia), Mrs. Binaben Sandip Makadia and Mr. Rajendra Umedlal Mehta in year 2011. Subsequently, M/s. RNG Finlease Private Limited acquired control of our company, by way of acquisition of Equity Share of the company during year 2012 to 2017. Later on, Mr. Amitkumar Hasmukhrai Bhalodi, Dr. Shaileshkumar Vallabhdas Makadia, Mrs. Krupa Chetakumar Dethariya, Mrs. Radhika Amirkumar Bhalodi, Mrs. Shiryakumari Shaileshkumar Makadia, and Mr. Koosh Chetankumar Dethariya acquired a total of 54,00,000 Equity Shares, constituting 28.42% of preissue paid up capital of our company, from M/s. RNG Finlease Private Limited in year 2022. As on the date of this Red Herring Prospectus M/s. RNG Finlease Private Limited is holding 71.58% of pre-issue paid up capital of our company”

Now the part which is worth noticing is following,

“Directors of Rng Finlease Pvt Ltd are Amitkumar Hasmukhrai Bhalodi, Shaileshkumar Vallabhdas Makadia and Krupa Dethariya.”

So there is an exchange of shares between entities which have common stakeholders. The question remains on the need and basis of this transaction.

Related party transactions - Another point is related to transactions between the parent group and the listed entity.

A good amount of machinery is being bought from the parent group. The reason listed is to save costs related to logistics, etc., which makes sense. But further details are given as follows,

So a loan will be made out for the purpose of payment for this machinery, which will go to the parent group.
Questions remain regarding following points,

Interest cost of the loan when compared to costs saved via buying from parent group?
Cost of machinery compared to other sources (Sellers)?

The above 2 points are in no way to be interpreted as mandatory red flags. Requesting fellow researchers to please add / resolve any queries/ doubts.

I will add on in case I get the answers or have further queries.

Disc. - Under study. Not invested.

santroz · January 7, 2024, 7:18am

Thank you for starting this thread and sharing your research. Very interesting industry and company.

PrakashPrabhakar · January 9, 2024, 5:56am

I had first known about this biz in 2010 when a friend of mine (CA, now no more) wanted to set up this up. It had intrigued me.

One of the key concerns was price sensitivity and unorganised sector competition. My friend had signed an agreement to off take used tires from Middle East which was plus for project, after offsetting logistics costs.

In my opinion, in such businesses the quality of management is very vital. Much of opportunity is embedded in what is not apparent.

sammy11 · January 14, 2024, 11:59am

Hi, nice initiation post and good tracking subsequently.

Attaching the SME Conference video https://www.youtube.com/watch?v=L0YJi8kyG8o which gives a very good overview of the business.

One key element of the business is the low cost at which they set up their factory.
Their 100 TPD continuous tyre pyrolysis plant costs Rs. 40-50 cr as capex. A similar plant would cost 2-2.5x to be set up in a place like Europe. Some scuttlebutt indicates that they are competitive at this cost with Chinese players.

The existing plant at Bhilwara is the outcome of 6-7 years of research and development, with constant modifications and improvements being brought about in this time. This is now ready to be replicated in their new plant in Dhule and in future plants.

The equipment is being manufactured by their own group company, and hence they are able to set up the plant at lower cost.

Another point worth mentioning related to pollution issues. Attaching the consent received from Maharashtra Pollution Control Board which is very detailed and shows the various steps that the company needs to take to receive the approval and then continue to follow it because routine inspections keep happening.

Another related document is the SOP for tyre pyrolysis plants by the Central Pollution Control Board which also gives a good overview of the stringent processes that the companies need to follow. Higreen has not been surveyed in this document (not sure why), but one can see that there are very few continuous pyrolysis plants in India and which are covered are less than half the size of Higreen.
Tyre pyrolysis report by CPCB Nov22.pdf (5.4 MB)

Discl - invested and interested.

aashu4uiit · January 18, 2024, 2:22am

I do like the business model and the long-term potential of the business but when I hear that they are the only ones doing continuous pyrolysis for tyres I am not sure if its the case or if there is any MOAT - a quick Google search reveals that anyone with good funding can buy such machines so how good is the claim that we did some R&D and came up with continuous pyrolysis in 6-8 years.

Any thoughts from anyone?

sameernics · January 18, 2024, 4:57am

If I understood correctly (though I am not an expert in pyrolysis), as such the pyrolysis process may not be very unique.

The moat in Hi-Green I see that, they claim it is a patented technology to produce carbon black that matches or even surpasses the quality of costly prime carbon black available in the market.

LarryWink · January 18, 2024, 5:30am

Q.
I really cant fully grasp the word “green” at the company name… why the word “Green” in the name ?

aashu4uiit · January 18, 2024, 10:00am

market perception i assume - imagine if they are called “radhe gree energy” sounds lala types

sameernics · January 18, 2024, 11:44am

If you read my opening statement of my original post… “Use of 1 ton of Hi-Green Carbon reduces 2 tons of Green House Gas (CO₂) emissions”.

Likewise, one delivered FTL of recovered carbon black avoids both the consumption of 68 tons of oil and reduces emissions by 57 tons of CO2.

Thus, I think the company name and their brand truly reflects the purpose of their existence i.e. contributing to green economy.

sammy11 · January 20, 2024, 9:38pm

Hi, valid point.

Yes, pyrolysis process is simple enough in theory.

The company has done a lot of experiments, and done trial and errors with several permutations and combinations to arrive at the optimum reactor settings (which includes differential temperatures in different zones of the rotary kiln, differential horizontal velocity as the tyre passes through the reactor and gets decomposed, and the rotation speed of the kiln) so as to give the highest quality output depending on the quality and chemical composition of the waste tyres. Which differs by geography (tyres from USA for eg, have lesser silica content than European tyres), quality for CV, PV and other tyres are different etc.

The company started with lab scale input and then progressed to commercial scale at lower capacities starting from 1kg and moving higher till they reached 100 tpd capacity. At each stage, the plant and machinery underwent several modifications which was made possible because their own group company was manufacturing it.

One can search on Youtube for batch pyrolysis plants (eg. https://www.youtube.com/watch?v=pvbfOQHlP50) to realise how energy intensive and inefficient such process is. So there is no comparison of continuous process with batch process.

Within continuous process, the edge of the company is the above efforts they have taken and their own in house manufactured machines which have been designed to produce high quality rCB (recovered carbon black) most economically.

sameernics · February 3, 2024, 7:23am

Just for background, company has incorporated wholly owned subsidiary “Shantol Recycling Private Limited” in April, 2023. It is engaged in the business of recycling of waste rubber, waste used tyre, plastic waste, ewaste, municipal waste and other waste material and to produce hydro carbon fuel, carbon blacks, metal scraps and other residue materials as may be produced directly or indirectly from the recycling process and to trade or deal in all such products derived from recycling process.