Gravita India success story

Gravita India FY24 results and conference call:

Consolidated Topline/ Topline growth YoY: 3161Cr / 13%
EBITDA/ EBITDA Margin for FY24: 285Cr / 9%
PAT / PAT GROWTH YoY: 242Crs / 18.6%

Commentary:

1. Gravitas’s wholly owned subsidiary situated in Tanzania, Gravita Tanzania Limited, has increased the battery recycling capacity by 5,000 metric ton per annum, bringing the total capacity of battery recycling of this unit to 12,000 metric ton per annum.

2. Gravita has expanded its total capacity to 3 lakhs plus metric tons per annum in Financial Year ‘24 compared to 2.34 lakh metric tons per annum in Financial Year ‘23, which shows an increase of 28%. The company aims to increase our capacity to 5 lakh plus metric tons per annum by Financial Year ‘27.

3. Volume growth is less in aluminum because there is no hedging mechanism for the same. Alum. alloy contracts are expected to be launched soon on mcx which will help the company hedge the metal.

4. EBITDA per ton for plastic is Rs. 11,176 per ton, lead is Rs. 19,252 per metric ton and aluminum is Rs. 15,308 per metric ton in Q4 Financial Year ‘24. This is in line with the company’s target.

5. 45% of revenue in Financial Year ‘24 came from value-added products, management aims of achieving 50% revenues from this category. India contributed 62% and the balance contribution of 38% is from overseas business.

Vision 2028. Management has stressed on the following points as a par of their 2028 vision.

• Diversifying into new business verticals like lithium-ion, steel and paper.

• Aiming for revenue CAGR exceeding 25%, profitability growth surpassing 35%, maintaining an ROCE of 25% plus

• Elevating non-lead business to over 30%, using 30% plus renewable power and reducing energy consumption by 10%

• Commitment to sustainable development, increasing the proportion of value-added products to 50%

• by fy 2028 the company wants revenue from non lead business to contribute 30% to the topline

Management on Aluminum capacity utilization: The company had only capacity utilization of 11% in the case of ADC12. So, this year, they plan to increase it once the contracts are in place on mcx. Management expects that the derivative should list somewhere in next quarter and then brand empanelment will start. So, in Q4, they expect it to have a growing volume. And next year further, the volume growth and capacity utilization to higher levels. The aluminum business will grow at least by 60% to 70% in terms of volumes because they are also adding capacity at a certain location, at Ghana, that should be operational in the beginning of the Q2.

Management on Supply chain issues: Mgt. also mentioned about the logistics delay and macroeconomic challenges they feel by addressing the issue by diverting the volumes to other geographies, as the company has touchpoints all over the world… So, wherever there is an issue like this they encounter it by diverting the volumes to other geographies without affecting the volume growth.

Arbitrage play: The management mentioned that this year, they have not taken as much domestic scrap simply because the overseas scrap was much cheaper compared to the domestic scrap, and there were some arbitrage opportunities. Overseas markets were lower compared to Indian markets.
So, they bought more international scrap as compared to domestic scrap. So, this also contributed to their increased working capital cycles.

Regarding Amararaja putting up a plant: They mentioned that Amara Raja is only putting a plant in the south, but they sell this battery everywhere in India. while Gravita has plants in the North, in central and even in west India. The specific benefit that we have is that we can process it in the northern plants and then we can give the finished products to Amara Raja from the south plant itself. So, that gives us the advantage over the competition

I feel that this is a good time to deep dive in the recycling sector and feel that garvita is in a great space with a huge market potential. I have made some tracking position and would track it as closely as I can.