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Indag Rubber


Indag Rubber manufactures tyre retreading products, which are used to enhance tyre lives at 25-30% of the cost of a new tyre.

The company has an established distribution network.  Tyre price increases, rubber deficits, improved road quality, reduced overloading etc. may boost the retreading industry over the long run as its attractiveness would grow proportionately in that scenario.  The company is also attempting to develop new tread compounds and patterns to increase tyre fuel efficiency and eco-friendliness, which may increase competitiveness.

The company reported consistent growth in revenues and operating profits over the last five years – reporting about 20cr of operating profits on revenues of about 180cr in the last twelve months.  It operated with a minimal debt load (as at 30th September, 2011).

The business is exposed to natural and synthetic rubber price increases, which constitutes about 70% of production cost since these cost increases cannot be passed on fully to customers as they have some bargaining power and show resistance after a certain point.  Moreover, these costs are volatile, with increases of 50% in a six-month period not being uncommon – impairing the value of negotiated fixed-price contracts. 

The business is also characterised by high competition, largely from the fragmented unorganised sector that constitutes 80% of the market.  The tread rubber and retreads appear to be of lower quality, which isn’t helped by the lack of quality manufacturing standards in the retread industry, which hurts long-term customer confidence in the industry.

The business does require investment in working capital, which increases financing costs.  It is also exposed to government policies on import duties (from China, South Korea, Malaysia etc.), and tax benefits – for e.g., 70% of income tax benefits lapsed in 2010, which will lead to reduced net profit margins in the future.

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