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    Gravita India Limited

    GRAVITAGood
    Metals & Mining·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

    8

    • 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.

    What Changed1

    vs Q3 FY25

    Guidance items5 → 6 (+1)

    Key financials

    Single quarter

    05 metrics
    1. 01Revenue₹927 Cr+11%YoY
    2. 02Adjusted EBITDA₹101 Cr+27%YoY
    3. 03PAT₹72 Cr+24%YoY
    4. 04EBITDA Margin11%
    5. 05Value-added Mix47%

    Segment breakdown

    • Lead42,151 tons86.6%
    • Aluminium3,515 tons7.2%
    • Plastics3,000 tons6.2%
    Donut· Share of Volume

    Guidance & targets

    6
    CategoryTargetPriority
    Volume
    Volume CAGR
    >25%
    		High
    Volume
    Lead Volume Growth
    17% to 20%
    		Medium
    Profitability
    Profitability Growth
    >35%
    		High
    Capacity
    Total Capacity
    >5 lakh metric ton per annum
    		High
    Capex
    Total Investment Plan
    ₹600 crores
    		High
    Margin
    Sustainable Lead EBITDA per ton
    ₹18,000 to ₹19,000
    		Medium

    Risks & concerns

    4
    RiskSeverity

    Sustainability of Arbitrage Gains

    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

    medium

    Delays in New Verticals

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

    medium

    Regulatory Implementation Timing

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

    low

    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

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.