That might be true however with every passing year EV sales will take away a large chunk of auto mobile sales and lithium ion recycling becomes crucial.
Stock has moved 32% in 2023 and is still trading at 20 PE. Forward PE looks even cheaper based on projections given by management. I personally feel the stock is still undervalued but I can be completely wrong.
When I start story, my entry Value was 17 … exit at 10x @170+ now it making new heights. Story Subject was perfectly right "Gravita growth story "
Interesting slides from the PPT.
Capacity to almost double by FY26E: From 2,33,915 MT to 4,34,319 MT
Working capital cycle to reduce from 83 days to 65 days by FY26. Therefore improving the cash flows.
MOAT?
Apart from the ones mentioned by company. I believe the procurement network of the company and the global & pan india operations setup is a bigger barrier to entry and will be challenging for any new player to replicate easily. Requires years of good relationships with OEM’s and speciality knowledge which takes years to build.
Value added products to increase from current 43% to 50% by FY26E. This should significantly improve the operating profit margins.
Sector tailwinds due to government policies and rules involving Battery Waste Management & stricter implementation of GST. Formal recycling sector to grow from current 35% to 75% by FY26E.
Disclaimer: Invested
In the Q1FY24 concall the management says that they are targetting for 35% bottom-line growth however sales growth might not reflect correctly due to company importing scrap to India from overseas businesses to take advantage of price arbitrage.
Can someone explain how PAT will grow by 35% without topline growth?
Will the growth be reflected in other income?
Well, maybe they mean to say that there cost of materials will decrease by a significant amount resulting in increase in margins and hence profits.
So,though there topline won’t increase but bottomline will increase significantly.
Gravita is a convertor. So metal price movements change the topline but not the margins. So best to track volume and EBITDA per ton. Here also one needs to take adjusted EBITDA as the company hedges it’s metal exposure, so one needs to add the hedging gains and losses which are reported in financial income to the EBITDA. Or for convenience, just track PBIT/t.
‘Gravita’s Pure Lead Empaneled with Multi Commodity
Exchange of India Limited’
Gravita India Q1 concall highlights -
Historical performance -
5 yr revenue CAGR - 22 pc
5 yr PAT CAGR - 35 pc
EBITDA margins - consistent in 9-10 pc range
Q1 financial outcomes -
Sales- 703 vs 580 cr, up 21 pc. Volume growth - 18 pc
EBITDA - 80 vs 64 cr
PAT - 52 vs 42 cr
Volume data for Q1 -
Lead - 29.2 vs 24.7 k MT
Aluminium - 5.3 vs 3.3 k MT
Plastic - 2.7 vs 3.3 k MT
EBITDA per MT -
Lead - 20,958 vs 21,726
Aluminium - 12,823 vs 18,113
Plastic - 10,217 vs 12,512
FY 23 revenues breakup-63:37 - Domestic:Overseas
PAT-49:51 - Domestic:Overseas
Current Capacity (31 Mar)- 233 k MT ( Lead + Aluminium + Plastic + Rubber )
Projected Capacity by End FY 26 - 433 k MT ( almost a doubling )
Capex plan till FY26 ( Existing + New Verticals ) -
FY 24 - 159 + 45 cr
FY 25 - 148 + 100 cr
FY 26 - 110 + 105 cr
Total - aprox 600 cr
Company’s key strengths - deep rooted procurement networks, diversified customer network , OEM approvals
Existing production facilities in -
India - 05
Srilanka
Ghana
Senegal
Mozambique
Tanzania
Togo
Dominican Republic ( near Carribean Islands )
Existing - procurement network -
Yards, Touch points -
Asia - 5, 1000 +
Africa - 26, 450 +
Europe - Nil, 15 +
Americas - Nil, 75 +
Total scap collection - FY 23 - 205 k MT
Customers -
Asia - 305
Africa - 26
Europe - 18
Americas - 27
Current contribution from Value added products -43 pc
Projected to grow to 50 pc by FY26
Most of the lead scrap used by Gravita comes from - Telecom, UPS, automobile, data centre batteries
Current capacity (on 24 Jul) stands at 278 k MT vs 233 k MT on 31 Mar 23 -up by 22pc!!
Slight drop in profitability in Q1 vs Q4 FY23 due - lower end Aluminium prices, Disruption caused by Cyclone Biparjoy which affected Lead business’s volume growth ( lost 1.5 k MT volumes )
Segment wise capacity expansion by 2026 -
Lead- 225 k MT to 300 k MT
Aluminium-30 k MT to 48 K MT
Plastic-22 k MT to 60 k MT
New vertical-Rubber’s capacity expansion will also take place, not quantified by the company
PAT growth guidance for next 4 yrs-35 pc CAGR!!
No further dilution planned by promoters
Unlikely to go for QIP in near future
Aim to keep Debt/Equity below 0.75 throughout the next 2-3 yrs period while the Capex is on
Dominican Rebulic - company to set up plastic and paper recycling there
Company’s top 4 clients for battery collection include - TCS, Infosys, Accenture, Wipro
Disc : intend to pick up a tracking position
One should keep eye on government reforms on precious metal minining / exploration
Not Just TCS, they have an exclusive global contract with TATA group and it forms 20-25% of the batteries collected.
Gravita India - A very promising company
Q2 highlights -
Sales -836 vs 683 cr, up 22 pc
EBITDA -73 vs 59 cr (margins stable @ 9 pc), up 23 pc
PAT - 59 vs 45 cr, up 30 pc
Volume growth @ 14 pc
Last 5 yr CAGR growth rates -
Sales - 22 pc CAGR, from 1242 to 2800 cr (percentage of export sales from 25 to 37 pc)
PAT - 35 pc CAGR, from 15 to 201 cr ( PAT margins expanded from 1.25 to 7.18 pc )
Project updates -
Started lead recycling plant in Togo, expanded lead recycling capacity in Chittor, started rubber recycling in Tanzania, Set up a battery recycling plant in Oman ( via JV ), started Aluminium recycling in Senegal
Vision 2027 -
35 pc + PAT growth
25 pc + revenue CAGR
New recycling verticals - steel, Lithium, Paper
50 pc + value added products
Biggest entry barriers -
Deep rooted procurement network
Diversified customer networks
Customised and value added products
Currently - company has 4 recycling verticals across - lead, rubber, plastic and aluminium spread across 11 recycling plants
Current capacity utilisation @ 55 pc
Current scrap collection capacity @ 2.05 lakh MT
Current capacity @ 2.84 lakh MT/yr - across 4 verticals
Capex lined up for next 4 yrs @ 600 cr for brownfield + Greenfield capex
Slowdown is Aluminium segment in Q2 should reverse by Q4 or Q1 next yr. Lead business leading from the front in Q2. Flatfish business performance in plastic, rubber segments as well. Management expects all the segments to start firing by Q4, Q1 next yr
Company plans to set up Li-Ion recycling plant near Mundra. Have applied for necessary permissions. To start the pilot project first and then scale it up
As lead usage falls due reduced usage of Lead-Acid vs Li-Ion batteries, it may dent the company’s lead business to some extent. However, lead - acid batteries do have applications in various other areas. Also, because of conversion of ICE engine to Li-Ion battery, only the size requirement of lead acid battery is gonna shrink (by 30-40 pc) and won’t lead to their replacement. Lead metal has various other upcoming applications as well like in Nuclear power plants etc. This however remains a key monitorable - IMO
However, the company’s global Mkt share is only 2 pc. Therefore has a long runway to grow
Energy cost in smelting vs recycling of lead is aprox 4:1
Energy cost in smelting vs recycling of Aluminium is aprox 20:1
Also, Gravita India uses pyrolysis oil ( Bio-crude) vs fossil fuel for recycling processes to minimise the carbon footprint
Management insisted that 25 pc CAGR growth in topline should not be a problem in near future
Management also gave a volume growth guidance of 25 pc for medium term !!!
Min ROCE tgt for the company is also 25 pc !!!
H1 capex @ 65 cr. H2 capex tgt @ 100 cr
Next yr onwards, will be spending 100 cr/annum on new verticals - like Li-Ion, Paper and steel recycling
Only 10 pc of Plastic recycling in India is done by the organised sector - a huge tailwind
Current EBITDA contribution from Aluminium + Plastic segment is around 11-12 pc of the total EBITDA
Rubber - these days is also being used as fuel. Should help improve company’s margins as the company’s rubber capacities increase
Disc: holding, may add more, biased, not SEBI registered
Press release today. New Plastic recycling plant, changing sales mix, with more contribution from plastic
I am keeping a tab on the progress of Li-Ion recycling pilot project that the company has undertaken. The success of this pilot project will be crucial and will result in a commercial establishment for the same as it is expected that scrap generation of Li-Ion batteries will start increasing in the coming 4-5 years as the EV industry starts maturing.
Interesting times ahead for the company.
I am currently invested in the company and may add more going forward.
Wrt the Lithium recycling business, does anyone have any details about the installed capacity for which they have applied and in general what are the ROCEs in lithium recycling business in India?
I had seen Tata Chemicals also foray into this and even Eco Recycling ltd. but none have given any details related to operations or profitability.
Kindly help on this.
Also, Company said Lithium volumes wont be great at all in the near time and not expecting anything till FY26/27 so why has it started installing a plant by Q4FY24 onwards itself?
Great to know that Tata Chemical foray into Lithium Recycling.
But they have forayed in 2019.
Yes exactly and yet i see no operations or any kind of info on the same.
@ranvir May I request you to please throw some light, Why Operating profit was less in FY23 compared to FY22
What you think going forward
In the financial year '23, mangement said that out of Rs. 93 crore in other income, Rs. 88 crore came from hedging. The remaining Rs. 5 crore was from interest on fixed deposits and such. They explained that the Rs. 88 crore is counted in EBITDA because it’s part of the operational income.
Thank you very much for your reply. My question was operating profit not the net profit
My intention was to emphasize that management considers other income as a component of operational efficiency. Consequently, operating income in FY23 is not lower than FY22, please disregard this information if it does not align with your focus.
