The fourth quarter of 2023-24 saw all the listed tyre makers – Apollo Tyres, Balkrishna Industries, Ceat, Goodyear India, JK Tyre & Industries, MRF and TVS Srichakra – making provisions for ‘extended producer responsibility’ (EPR). For waste tyres, EPR refers to the obligation placed on tyre producers to ensure that old tyres are disposed off in an environmentally friendly manner. The obligations are to be fulfilled by purchasing certificates from the recyclers, who are registered with the Central Pollution Control Board (CPCB).
Was it a sudden development? The answer is in the negative. The ministry of environment, forest & climate change had issued a notification on 21 July, 2022, pertaining to EPR for waste tyres. These rules have been named as the Hazardous & Other Wastes (Management and Transboundary Movement) Amendment Rules, 2022, which applies to producers, recyclers of waste tyre and retreaders.
The notification came into effect from 2022-23. Nothing happened in that year but, in February this year, the CPCB asked all the producers to fulfil their EPR obligations for 2022-23 and 2023-24. EPR obligation follows the T-2 years pattern. In essence it means EPR obligation of 2022-23 (the year in which this rule came into force) will be 35 per cent of the quantity of new manufactured or imported tyres 2020-21. And, for 2023-24, it will be 70 per cent of the quantity of new manufactured or imported tyres in 2021-22. The levy is based on domestic revenues.
“This notification was issued in 2022 for producers of tyres to implement the recommendations of that particular notification,” explained Kumar Subbiah, chief financial officer, Ceat, while speaking at Q4, 2023-24 Results’ Conference Call. “Other conditions included having a portal registered for dealers for recycling tyres, as that infrastructure did not exist in 2022-23. In fact, even the first nine months of the current year (2023-24) also, the infrastructure was not fully in place. And even in the current year, only towards the end of the year did the government start insisting on fulfilling obligations.” The notes to accounts of all the seven listed tyre makers say that, in the absence of infrastructure/system, they could not reliably estimate the liability for 2022-23.
How big is the amount? “The cost of EPR would be less than 1 per cent of its revenues,” observed M.S. Bajaj, chief financial officer, Balkrishna Industries. The exact cost of EPR would vary from company to company, because the base for calculating levy as mentioned earlier is on the weight of the tyres. Reportedly, some companies have pegged it at 1.2 per cent and some at 1.4 per cent of its domestic revenues.
Did this levy affect the net profits of these companies? Goodyear India has posted loss in the fourth quarter, Ceat and Apollo Tyres’ profits are down by 23 per cent and 14 per cent in the fourth quarter respectively. TVS Srichakra’s profit in the fourth quarter is up by R2 crore. The other three – MRF, JK Tyre & Industries and Balkrishna Industries – have seen their profits rise.
Balkrishna has made a provision of R11.25 crore, to be precise, which looks small when compared to provisions made by Apollo Tyres, Ceat, JK Tyre and Industries and MRF.
For 2020-21, the consolidated revenue of Balkrishna was Rs5,783 crore (exports: Rs4,480 crore; domestic: Rs1,303 crore). And, in 2021-22, its revenue stood at Rs8,295 crore (exports: Rs6,887 crore; domestic: R1,408 crore).
Recyclers’ certificates To arrive at the EPR obligation, all the three entities – producers, recyclers and retreaders – should be registered with the CPCB, which will generate extended producer responsibility certificates in favour of a registered recycler. The eligible quantity for generating extended producer responsibility certificates will be calculated as per the formula issued in the notification. So, the producers have to just buy these certificates from registered recyclers to fulfil their EPR obligation. This levy for manufacturers or importers will be based on weight (see table). As per the notification, certificates will be available in denominations of 100, 200, 500 and 1,000 tonnes.
EPR obligation for 2020-21 and 2021-22 is perhaps being paid by the tyre makers but, the levy for 2022-23 has to be paid in 2024-25, the current financial year. Will these tyre makers pay from their pockets?
“We have already started charging per tyre basis on the invoice to the customer,” informed Anuj Kathuria, president, India business, JK Tyre & Industries. “This will be a recovery or charge to the customers, which we’re going to recover. The cost of the EPR is based on the per-kg rate on tyre basis.” Added Gaurav Kumar, CFO, Apollo Tyres: “We will mitigate the margin impact of EPR regulation through price increases, which had been already announced in May”.
From 2024-25 onwards, in all probabilities, those who buy tyres will have to pay for EPR obligation. In effect, the polluter pays the price.
Does such regulation exist overseas? “Yes, they are already (US and Europe) there and we are complying with that for the last couple of years,” explained Rajiv Poddar, joint managing director, Balkrishna Industries. “It is being done by our channel partners”.
Of the 27 countries in the European Union, 21 have implemented EPR. Some states in the US and some provinces in Canada also have introduced this system.
Moving to recyclers, listed outfit GRP, in its fourth quarter results for 2023-24, says: “Revenue from operations for the quarter and the year ended 31 March 2024 includes R1,500 lakh toward sale of EPR credits.” Harsh Gandhi, joint managing director, GRP, stated: “It has been an arduous journey, which incentivises recyclers to generate an additional stream of revenue to invest in upgrading supply chain and deployment of new technologies. Your company has partially realised sales of EPR credits against its entitlement for 2022-23 and has generated credits on the CPCB monitored portal for 2022-23 and 2023-24 and also for the current financial year.”
Gaurav Sekhri, joint managing director, Tinna Rubber & Infrastructure, a listed outfit, stated: “I’m happy to inform you that the Central Pollution Control Board has directed all producers to fulfil their assigned EPR obligations for 2022-23 and this has resulted in our company monetising and selling some of the EPR units that we have earned to the tune of Rs6.6 crore in 2023-24. Tinna is one of the largest recyclers of end-of-life tyres in Asia and a prime contributor of India’s circular economy plan, and we will continue to benefit from the EPR policy, which is now fully operational.” How retreaders fared is not known.