Gravita India success story

Mayank_Mamania · July 31, 2021, 9:19am

Q1FY2021-22 Results and Presentation

Key Highlights

Generally Q1 is a lean quarter but they are able to perform well in line with Q4FY21. EPS of 3.2 vs 3.15 vs 0.57.
Other Major Highlights are ROCE of 24% vs 17%. Consistent 8 to 10 quarters of avg 8% margins after changing their strategy of hedging their entire quantity. This indicates that it is clearly only a recycling player and metal price volatility cannot affect their results. Another interesting strategy of entering into new recycling verticals such as copper, rubber, e-waste and lithium apart from current verticals of lead, aluminium and plastic will make them a diversified player and make business scale-able. EPR rules, vehicle scrapage policy and GST will help the industry to shift from unorganised sector recycling to organised sector recycling. 25% CAGR growth in revenue and 35% growth in PAT upto FY2025 indicated by management in presentation will lead to massive rerating in this stock.

Disclosure : Invested

navneetsinghvi · January 25, 2022, 6:50am

I was reading recent investor presentation. they are really firing.
however, a plant related news caught my attention. For past many presentations, their Mundra plant is in progress but not getting completed ( they say it is in progress).

is it really WIP ? can anyone please update.

bdvravariya · February 2, 2022, 10:42am

Gravita India Q3 – 2022 concall notes:

Quarter Highlights-
Operational revenue at 557cr up 49% YOY
Indian business 63%, overseas 37%
Lead revenue up 43% YOY
Aluminium Revenue up 112% YOY
Plastics revenue up 51% YOY
Revenue growth is supported bay both growth in volume and prices
Volume growth 14% YOY to 32K MT, margin expansion on all 3 segments.
Value added products contribution - 44%
EBIDTA 54cr, 69% up YOY, EBIDTA margins at 9.7%
PAT 39cr, declared interim dividend of Rs. 3 per share
Operating cash flow in this quarter is 45cr.
QOQ volume degrowth in lead from 26.6K MT to 25.3K MT due to logistical issues in December.

Planning to increate overseas revenue, which have higher margins
Planning pilot projects in rubber and copper recycling at overseas locations
Planning to raise 300cr by QIP

On Guaidance –

Sustainable EBIDTA margin will be 8-9%, This quarter margins increased due to higher aluminium prices
Lead volume will increase up to 10K MT per month next year
Aluminium & plastics volume will remain at 3K to 3.5K MT per month next year
Volume growth shall be 10% next quarter and 30-35% next year
Target is in next 2 years to increase total capacity by 1.2L MT, which is more than 50% of current capacity
Expected operating cash flows for FY23 will be in the range of 250-300cr
Expected EBIDTA margins Rs. 20-22 per ton in long terms for aluminium
Plastics EBIDTA per ton will be around Rs. 12-13.
Capex per annum - 70-80 cr for next 2 years
ROCE is currently 20% by 2025 will try to increase ROCE to 25%, by reducing working capital cycle, using localised scrap processing, more value-added products

Debt-

Current gross debt is 375Cr including long term and short term
Long term debt will be paid in 3-4 years, short term debt will be there for working capital requirement

Indian operations-

Raw material which is scrap is increasing in India. Earlier there was 10-12% from India, in FY 2018-19 it was 25%, now it’s about 50-55%, that’s why need to expand capacity in India and overseas.
Tie ups with Amara raja, Reliance, Indus Towers, Asian Paints for collections of scraps
Plastic scraps procurement is a challenge in India.

Mundra Plant –

Started operation in December.
Mainly will do lead recycling from imported scraps.
Spent 32 cr on plant, current capacity is 19K MT, further expansions are planned at 30 cr to increase capacity up to 48K MT, which will be operational by H2-FY23.
Mundra plant will reduce working capital by 10 working days due to its strategic location.
Expected ROCE 30-35%

Chittoor-

Chittoor plant planned expansion 38K MT at 30 cr, will start operation by H2-FY23.
Expected ROCE 30-35%

East India-

Planning to put up a plant in east India by next year.
Capacity will be around 12K MT. Cost will be around 20 cr.

America –

In America there is regulation to use minimum 25% recycled plastics, gravita has expertise in food grade recycled pet, there is huge demand for food grade recycled plastics in America and prices of recycled pet is increasing every month. There is tailwind coming in this counter
Food grade recycling process cost is higher than non-food grade recycled pet
Currently there is one plastic recycling plant of 10K MT capacity, planning for one more plant of 10K MT capacity.

Africa-

Planning capacity expansion in both Ghana and Senegal, will be operational by Q1-2023.
Senegal plant currently doing lead recycling, planning to put up aluminium recycling also.
Ghana and Senegal have zero tax for 10 years, plants started recently.

Chaitanya_Motani · April 24, 2022, 7:36pm

I was recently researching Exide Industries and came across this release:

Gravita listed Exide as one of their partners. So, if they have themselves been doing this, and from this release, it seems like they are going to get even more aggressive on this, won’t it lead to a shortage of partners for Gravita in the future. Exide is the largest lead battery company in India. What’s stopping other players like Amaraja from doing this?

Would be great if someone has info. in regard to this. This seems like a very big risk to me.

Disc: Invested

basumallick · April 25, 2022, 7:00am

Recycling is a very geo-specific business. Exide does its own recycling in Eastern India and partners with others including Gravita in other regions.

Amara Raja has outsourced nearly completely to Gravita.

Manoj_Pradhan · April 26, 2022, 4:05pm

After years of getting minimal returns from smartphones and laptops, India’s e-waste recyclers have a chance to scale with Li-ion battery recycling, an industry expected to hit $1B by 2030. Hitting the booster button on the segment is a new draft battery recycling law, sending EV makers scrambling to ink deals with recyclers like Attero, Lohum, Exigo

A nice article on Li-ion battery recycling and the startups like Attero, Lohum, Exigo

basumallick · April 27, 2022, 5:07am

Just to be clear, Gravita does not do Li-ion battery recycling. It has plans to do it in the next 3 years but currently does not, and I suspect does not have the technology to do so.

pankaj_xxxx · April 28, 2022, 7:34am

@basumallick @sahil_vi I am trying to think forward, How mass production of Li-Ion or Solid-state batteries will affect Gravita India’s existing lead recycling business. Since the major use of lead is in Lead-acid batteries, the ongoing EV revolution might have a big impact on it.

Currently, the main advantage of a Lead-acid battery is its cost. But the price of Li-ion batteries is constantly coming down, and one day it will be lesser than that of Lead-acid batteries due to economies of scale.

At that time lot of Lead-acid batteries will become scrap. Recycling them might not make sense because lead is mostly used in batteries and lead price may drop drastically because of a decrease in demand. Plus lead is not environment friendly. This is all speculating. Please help me make my thoughts clear.

I understand that Gravita has plans to enter e-recycling. But I am trying to understand what might happen to the current lead recycling business.

basumallick · April 28, 2022, 8:26am

Over time the lead battery recycling business will reduce. Aluminium, Li-ion and other metals will take up that place.

SanketB · April 28, 2022, 8:48am

People i spoke to in industry, believe lead is to stay for next 2-3 decades at max the lead part of business might remain stable in worst case scenario.
One of the reasons to support this claim is mining activities will be curbed globally & hence lithium may not penetrate at that fast pace.
Also since company has a clear vision to penetrate in other categories, dont see risk here.

rakeshglobsyn · May 1, 2022, 2:33pm

Hello sir. As per the confirmation by management they clearly mentioned in the concall Q1 FY 2022 they don’t have any contract with Exide. Is the contract new and subsequently executed ?

sukant1989 · May 22, 2022, 7:56pm

good results,as per concall,they are targetting 25% growth for next 3-4 years

tanishq · June 17, 2022, 3:57am

Some very interesting insights from a report on Gravita India -

While Africa accounts for 25 per cent of the company’s revenues, its share in the company’s earnings stands at 65 per cent . On the other hand, Africa plants account for the company’s 20 per cent total capacity, with Ghana and Senegal contributing half of it.
Gravita’s Africa business is a major profit center, generating about two-third of the group’s earnings currently. Our recent visit to the company’s Senegal and Ghana facilities reaffirmed the growth outlook. We estimate 35 per cent-plus each of volume and Ebitda CAGR over FY21-25E in Africa
Emkay said Africa production volumes contribute 30 per cent of consolidated volumes, driven by significant automotive scrap availability in the region at a cheap rate that are usually 35-45 per cent of LME price.
Gravita has an extensive scrap collection network of small suppliers, Emkay said, adding that the ongoing relocation of the Senegal plant from Sebikotane to Sandiara is expected to enhance the overall capacity contribution of Senegal by more than 2 times over FY25.
Ghana, it said, houses Gravita’s largest overseas plant, with 16.2ktpa of lead capacity (40 per cent of FY22 Africa capacities), with 14ktpa of expansion planned by FY23. This is besides the addition of 6 ktpa of aluminum and 3.6 ktpa of plastics.
We estimate Gravita to record 24 per cent revenue/25 per cent PAT CAGRs in FY22-26E on the back of 27 per cent growth in volume.
The above shows that Procurement is indeed the competitive advantage because they are able to source scrap at 35-45% of LME Prices and that having such a huge network of small suppliers is not an easy job at all.

Wizard_apprentice · June 18, 2022, 10:06am

They mentioned the manufacturing of lead acid batteries linking it to sectors which are cyclical in nature. So if auto sector is still going through a downturn and it rebounds it will be a positive trigger for gravita .

karthikaithal · July 21, 2022, 11:37am

Good to see Ashish Kacholia steadily accumulating this scrapping business. As there will more capacity operational from Q1 FY23, this script can be treasure out of trash.

But, I am still not able to get reason on why this business not able to generate FCF yet? Is this very capital intensive and don’t have much profit margin? or is there any issue with management?

Just got to my radar from Ashish Kacholia holding. So starting digging basic details to check the moat of the business.

Hope still some are investing in this counter.

Disclosure: Not having any position yet. Interested with scrapping business

pennywise · August 19, 2022, 6:05am

Lithium ion will not win in stationary applications, atleast for the next 20 years

For non stationary, like automobiles, where energy density is a much bigger issue, lead will be wiped out very very soon

vnktshb · August 19, 2022, 8:02am

Only thing that bothers me in this story is the EBITDA margins. Company says impact of commodity prices has no impact on margins. But when lead prices collapsed in FY15 margins halved from 9% in FY14 to 4% in FY15 and FY16.

See this statement from FY15 annual report, “International lead prices have been cooling off for almost a year now. From about $2,200-2300 a tonne in July 2014, prices on the London Metal Exchange have dropped by over 25%, to around $1,800 a tonne now. One of the major reasons for this was slow demand in China. With China accounting for 55% of global lead usage, slower consumption in China curtailed demand. The Chinese economy grew at its slowest pace in 24 years in 2014. Hence, while refined lead usage in China was expected to go up by 7.4% in 2014, it actually moved up by only 2%.”

So is the company being truthful when it says commodity prices don’t impact their margins? Against this backdrop please note most commodity prices are collapsing be it PVC or copper. Can someone tell what is happening to lead prices?

By the way even I analyzed it after Kacholia bought. I could not make peace with the CFO and the drop in margins in FY15 (v/s management commentary that there is no impact on margins of commodity price movements)

I believe a competitor is Pondy Oxides which is in the same business as Gravita. Its smaller and trades at lower multiples and BTW Exide is its customer (not Gravita’s)

GrowingAlpha · August 19, 2022, 8:19am

Check the statements, answer lies in NWC . Business is not capital intensive in terms of fixed assets.

Incredible sales growth, incredible PAT, but cash flows are a miss because of very poor WC(which I believe is the nature of business). One can choose if they care but IMO gravita will be lower end of multiples(especially for its growth). Inventory on the rise, Receivables on the rise, Payables cant cover for it.

One more point to your observation on FCF, not just FCF but even CFO is bad(due to NWC). FCF sometimes paints a bad picture as they might be rapidly expanding and using up their capital for growth. CFO paints a better idea on the nature of the business.

Good observation!

tanishq · August 19, 2022, 9:17am

In FY15, the company wasn’t hedging it’s Positions! It started doing this recently and that’s what changed fundamentally since the last many years.
This qtr also margins were good even after such a steep fall in commodity Prices last quarter.

Prices fell by 10-12% and yet, margins were maintained showing that their strategy is Paying off.

Pondy oxide in it’s lead business does an EBITDA margin of 6% while Gravita does a 10% EBITDA for it’s lead business earning close to double the margin of it’s competitor which is no small feat.

Shows the kind of scale ( Pan India + global Presence ) and the competitive advantage they have built in their Procurement of scrap and they will continue to do this because the recycling segment itself has a huge opportunity and the company still is very small compared to the size and it’s very focussed on expanding to further deepen this advantage!

kb_snn · August 19, 2022, 12:59pm

Pl go through Concall transcripts … You will find answers to all your questions … Some snapshots attached from May 2022

then from Latest Concall

One needs to understand the business … This business is cyclical …

One need to understand in Nov 2020 it was available at Rs 40/share – business was dull and commodities prices were low … Management had done lot of right things , but today lot of optimism is the stock …

Discl : I had picked in Nov - Dec 2020 it is very small part of my PF and recently I have sold very small part of my holding . I plan to hold rest …