Gravita India Limited Stock Research Report

CAPITALIZING ON THE RECYCLING REVOLUTION……

Gravita India Limited is a prominent player in the global recycling industry, specialising in the recycling of lead, aluminium, plastic, and rubber. Headquartered in Jaipur, Rajasthan, India, the company operates multiple recycling plants both domestically and internationally. As of FY24, Gravita had 11 recycling plants and 31 owned scrap yards, with an annual recycling capacity exceeding 3 Lc tonnes and a scrap collection capacity of 2.5 Lc tonnes.

Key Rationale

◼ Continued volume growth in Lead and Aluminium:

During the Q2FY25 earnings call, the company noted that recent regulatory changes have improved scrap availability, contributing to an overall volume growth of 8% during the quarter. Some of the output from the overseas subsidiary was utilized to manufacture further refined products internally (in India), without which the volumes would have been higher. The management continues to maintain its three-year volume growth expectations at a CAGR of 25%, with a similar growth range in FY25.

◼ EBITDA to grow at a higher pace:

The company has hedged its exposure to lead prices through forward contracts, which allows it to maintain EBITDA even if pricing variations impact revenue growth. Gravita’s overseas presence also allows it to benefit from arbitrage opportunities between domestic and overseas markets, depending on where prices are comparatively higher. Going ahead, the expected introduction of Aluminium hedging contracts shall allow the company to protect its margins against price variations. The company is also focusing on increasing the share of value-added items and newer recycling products which generate higher margins. Accordingly, Gravita expects EBITDA growth in the next three years at a CAGR of 35% which is much higher than the expected revenue growth rate.

Gravita India Limited Stock Research Report

◼ Strong industry tailwinds:

The company is expected to benefit from regulatory tailwinds and growth opportunities in newer segments and geographies. With an increasing focus on the circular economy globally, the recycling industry is expected to gain strong momentum aided by regulatory incentives. Gravita is also actively exploring inorganic growth opportunities and has received board approval for fundraising of up to Rs 1,000 Cr. It plans to utilize the funds for potential capacity expansion, anticipating demand growth driven by recent regulatory changes, or for acquisition opportunities if a suitable target arises.

◼ Outlook & Valuation:

Gravita is well positioned to capitalize on the industry growth and continues to focus on increasing the share of value-added products, which generate higher margins. The company has consistently increased its recycling capacity and plans to expand it further including in new areas of recycling. We expect Gravita to deliver strong performance supported by a) Its dominant share in a growing market, b) Steady improvement in profitability, c) Regulatory tailwinds, and d) Expanding offerings.

Key Financials (Consolidated)