Gravita India Limited — Q2 FY25 earnings call

Call held 22 Oct 2024

Management summary

Gravita India delivered a strong Q2 FY25 performance characterized by significant margin expansion and robust profitability growth, despite moderate volume growth of 8%. The company successfully leveraged arbitrage opportunities between international and domestic markets to boost EBITDA per ton. Strategic expansion continues with a new entry into the European market and a clear roadmap (Vision 2028) targeting aggressive volume and profitability CAGR.

Highlights

  • Consolidated Revenue for Q2 FY25 grew 11% YoY to ₹927 crores; H1 FY25 Revenue up 19% to ₹1,835 crores.

  • Consolidated Adjusted EBITDA for Q2 FY25 increased 27% YoY to ₹101 crores, with margins expanding to 11%.

  • Consolidated PAT for Q2 FY25 showed a significant increase of 24% YoY to ₹72 crores.

  • Lead EBITDA per ton increased 22% YoY to ₹21,642; Aluminium EBITDA per ton surged 57% to ₹18,386.

  • Domestic scrap sourcing experienced 140% YoY growth, driven by strict BWMR and EPR regulations.

  • Value-added products contributed 47% of total revenue, nearing the long-term target of 50%.

  • Announced first European acquisition: a waste rubber recycling plant in Romania with 17,000 MTPA capacity.

  • Board approved an enabling fundraise of up to ₹1,000 crores for capex and M&A opportunities.

Key financials

  1. Revenue ₹927 Cr +11%YoY
  2. Adjusted EBITDA ₹101 Cr +27%YoY
  3. PAT ₹72 Cr +24%YoY
  4. EBITDA Margin 11%
  5. Value-added Mix 47%

What they filed

Q1 FY27: revenue up 41.8%, net profit up 14.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue927 996 1,037 1,040 1,036 +12%1,017 +2%1,173 +13%1,475 +42%
EBITDA63 81 92 101 102 +62%120 +48%113 +23%110 +9%
Net profit72 78 95 93 96 +33%97 +24%92 −3%106 +14%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Volume
48,666 tons Total
  • Lead 42,151 tons 86.6%
  • Aluminium 3,515 tons 7.2%
  • Plastics 3,000 tons 6.2%

Guidance & targets

Volume

  • Volume CAGR Volume · Vision 2028 · High confidence >25%
    our strategic emphasis on expanding existing verticals while diversifying into new sectors... aims to achieve a volume CAGR of over 25%

    — Yogesh Malhotra, CEO

  • Lead Volume Growth Volume · FY 25 · Medium confidence 17% to 20%
    And the growth projections for lead is around 17% to 20%.

    — Yogesh Malhotra, CEO

Profitability

  • Profitability Growth Profitability · Vision 2028 · High confidence >35%
    profitability growth exceeding 35% and ROCE of more than 25%.

    — Yogesh Malhotra, CEO

Capacity

  • Total Capacity Capacity · FY 27 · High confidence >5 lakh metric ton per annum
    Gravita is making steady progress towards its goal of increasing its capacity to over 5 lakh metric ton per annum by FY '27.

    — Yogesh Malhotra, CEO

Capex

  • Total Investment Plan Capex · FY 27 · High confidence ₹600 crores
    The company has strong investment plans of INR600 crores which includes capex for both existing as well as new verticals

    — Yogesh Malhotra, CEO

Margin

  • Sustainable Lead EBITDA per ton Margin · FY 25 · Medium confidence ₹18,000 to ₹19,000
    INR18 to INR19 per kg in lead.

    — Sunil Kansal, CFO

Risks & concerns

  • Sustainability of Arbitrage Gains

    medium

    Management noted that the current high EBITDA margins (₹21,642/ton for lead) are partly due to arbitrage and sustainable levels are lower at ₹18,000-19,000/ton.

    Management acknowledged

  • Delays in New Verticals

    medium

    Steel and paper recycling projects are taking longer than expected and are now slated for FY27.

    Management acknowledged

  • Regulatory Implementation Timing

    low

    The implementation of RCM for battery and plastic scrap is still pending, though expected imminently.

    Analyst acknowledged

Areas of evasion (1)

  • Specific unit economics for the new Romania rubber plant were kept vague as it is a 'very small project' currently.

Q&A highlights

3 direct
Arbitrage Strategy and Volume Growth Direct
whenever the Indian prices are higher than the international market... We import that good in the Indian market... those signs that volumes get cancelled whatever we sell from overseas plants to Indian plants, that volume is not considered as sales volume.

Explains why consolidated volume growth appeared lower than peers while margins significantly outperformed due to inter-company transfers capturing price arbitrage.

Asked by Parth Shah

Reverse Charge Mechanism (RCM) and Fundraise Direct
The reverse charge mechanism will also fast track this conversion from unorganized to organized... we may have to put up capacities much faster than we earlier thought. And therefore, we may have to raise some funds for that also.

Links the ₹1,000 crore enabling fundraise to a potential acceleration in domestic capacity expansion as regulatory changes shift market share to organized players.

Asked by Bharat Shah

Hedge Gains and Profitability Direct
whenever the prices of lead goes down, there is a higher profitability from the hedging gain... during that time you will have to hedge that on the purchasing side.

Clarifies the mechanics of the company's hedging strategy and how it contributes to profitability during periods of price volatility.

Asked by Chetan Thacker

2 min read 5 chapters

Detailed narrative

Strategic Entry into European Recycling Market

Gravita announced its first European acquisition through its subsidiary Gravita Netherlands, signing an MoU for a waste rubber recycling plant in Romania. The facility has a capacity of 17,000 MTPA and requires a total investment of approximately ₹40 crores, with Gravita holding 80% equity. This move is strategic, aiming to replicate the company's recycling model in Europe and potentially expanding into plastic, battery, and aluminium recycling in the same geography.

Arbitrage Strategy Drives Margin Outperformance

The company reported a significant jump in EBITDA per ton for lead to ₹21,642, up 22% YoY. This was achieved by leveraging price arbitrage between international and Indian markets, diverting material from overseas plants to India where prices were higher. While this strategy led to lower reported consolidated sales volumes (as inter-company transfers are eliminated), it significantly enhanced the overall profit margins for the quarter.

Regulatory Tailwinds: RCM and EPR

Management highlighted the positive impact of the Battery Waste Management Rules (BWMR) and Extended Producer Responsibility (EPR) on domestic scrap availability, which grew 140% YoY. The upcoming Reverse Charge Mechanism (RCM) for battery scrap is expected to further fast-track the shift from the unorganized to the organized sector. This regulatory shift is a key driver for Gravita's plan to accelerate capacity expansion and its ₹1,000 crore fundraise.

Vision 2028: Diversification and Growth

Gravita remains committed to its Vision 2028, targeting a volume CAGR of over 25% and profitability growth exceeding 35%. The company aims to diversify its revenue stream, with non-lead businesses (aluminium, plastic, rubber) expected to contribute over 30% of total revenue. Progress on new verticals like lithium-ion battery recycling and steel recycling is underway, with pilot projects expected to be operational in H1 FY26.

Domestic Sourcing Transformation

The sourcing mix for Gravita's Indian plants is shifting significantly toward domestic scrap. Three to four years ago, 90% of production was dependent on imported scrap; currently, domestic sourcing has increased to 40%, with a 3x growth in domestic volume over the last four years. This shift reduces reliance on international logistics and improves the company's bargaining power by sourcing directly from small scrap dealers.

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