Recykal’s Yearly Performance and Challenges in Waste Management

Recykal, a marketplace focused on B2B waste management, experienced significant growth in FY23, achieving a remarkable 4X increase. However, the company faced challenges in maintaining this upward trajectory during FY24, resulting in a nearly 5% decline in gross revenue. Additionally, the firm saw a substantial 31% rise in losses during the same period.

According to consolidated financial statements from the Registrar of Companies, Recykal’s gross revenue fell by 4.4%, dropping from Rs 745 crore in FY23 to Rs 712 crore in FY24.

Overview of Recykal’s Operations

Established in 2016, Recykal provides digital solutions tailored for waste management, aiding companies in achieving Extended Producer Responsibility (EPR) targets, procuring recyclables, and managing industrial waste effectively. The company offers a range of services, including EPR certificates, plastic neutrality initiatives, IT asset disposition (ITAD), a digital marketplace, and solutions promoting circular economy practices.

Revenue Breakdown

An analysis of Recykal’s revenue streams reveals that 85% of its gross income stemmed from scrap and waste sales, which saw a decline of 7.4% year-on-year, decreasing from Rs 657 crore in FY23 to Rs 608 crore in FY24. The remaining revenue was derived from sustainability services, featuring EPR certificates.

In addition to the gross revenue, Recykal accrued Rs 6 crore from interest on deposits and gains from current investments, leading to a total income of Rs 718 crore last fiscal year, down from Rs 748 crore in FY23.

Cost Analysis and Expenditure

The primary cost driver for Recykal remains scrap and waste procurement, constituting 89.5% of the company’s total expenses. As the scale slightly contracted, this cost decreased by 3.6% to Rs 673 crore in FY24.

Employee benefits saw a significant increase, surging by 43.3% to reach Rs 43 crore in FY24, which included Rs 3.2 crore attributed to non-cash ESOP costs. The total expenditure picture was impacted by provisions for doubtful debts, legal costs, rental expenses, communication, logistics, and other overheads, culminating in total costs of Rs 752 crore in FY24.

Impact on Losses and Financial Performance

The reduction in scale resulted in a 30.8% growth in losses, rising to Rs 34 crore in FY24 from Rs 26 crore in FY23. Recykal reported a Return on Capital Employed (ROCE) of -15.66%, an EBITDA margin of -4.04%, and an expense-to-revenue ratio of Rs 1.06.

By the conclusion of FY24, Recykal’s total current assets were recorded at Rs 317 crore, which included Rs 70 crore in cash and bank balances.

Funding and Future Outlook

Recykal has successfully raised over $38 million to date, including a recent round of $13 million led by 360 ONE Asset Management. Insights from various startup data intelligence platforms identify Morgan Stanley as the largest external stakeholder, followed closely by 360 ONE Asset Management.

The slowdown in growth is somewhat puzzling, given that Recykal is still in the early stages of its development. Observers may consider this decline as an isolated incident rather than indicative of a broader trend. Many enterprises in India tend to invest in waste management primarily when prompted by legal requirements rather than from intrinsic motivations. Nonetheless, the industry holds substantial potential as regulatory frameworks increasingly emerge and enforcement strengthens. There is a pressing need for heightened social awareness, moving beyond the current passive acceptance of elevated pollution levels in areas like Delhi NCR and various other urban locales.

Whether necessary changes occur within a year, three years, or influenced by government transparency on health-related data remains uncertain. However, the inevitability of progress is clear. Recykal appears to be strategically positioned to capitalise on these developments and serves as an important entity to observe in India’s efforts to address its waste management challenges.