September 28, 2024
admin
Gravita India Stock Research Report by Motilal Oswal Financial Services
Analysis dated 24 September 2024
Sector:
Price on Analysis date: Rs. 2496,
Target Rs. 2900
(16% upside potential)
Target Period: 12 Months
Gravita India Ltd (Gravita), one of the largest recycling companies in India, is well
positioned to benefit from strong industry tailwinds and healthy traction within the
sector. Its Lead recycling vertical, which accounted for ~88% of revenue in FY24, is
expected to achieve significant growth in the domestic market due to favorable
regulatory changes. Additionally, the expansion of its geographical reach and product
portfolio will be key drivers of its international business.
Gravita is well poised to benefit from the recent favorable regulatory changes
implemented this month. The introduction of Environmental Compensation (EC)
for non-compliance with Extended Producer Responsibility (EPR) targets, along
with the Reverse Charge Mechanism (RCM) under GST for metal scrap, is likely to
improve the availability of domestic scrap for the organized recycling industry.
Further, Gravita’s subsidiary has executed a Memorandum of Understanding
(MOU) to acquire an 80% stake in a ~17,000 MTPA waste tyre recycling facility in
Romania for INR320m. The remaining 20% will be held by other partners based in
Romania.
Gravita’s entry into the European recycling market has significantly expanded
its total addressable market (TAM), with the European total waste recycling
market valued at ~USD155b as of CY22. The strong geographical and product
portfolio expansion will be its key growth lever going forward.
Regulatory tailwinds to boost domestic scrap availability
The Central Pollution Control Board (CPCB) has introduced EC for lead acid
batteries of INR18 per kg for non-compliance of EPR targets according to
the battery waste management rules (BWMR), 2022.
This penalty/compensation on non-compliance would ensure timely
compliances by the battery manufacturers, resulting in higher collection of
batteries and improved demand within the battery recycling space.
In addition, the GST Council has introduced RCM on metal scrap recently,
which is a huge boost for the organized recycling industry players.
Earlier, the organized players were not able to procure from unorganized
small-scale suppliers as they were not able to claim input credit on GST
paid by them due to the non-compliance by such vendors.
However, with the introduction of RCM, companies can directly pay the
GST themselves. This will ensure higher availability of domestic scrap for
the organized recycling companies.
The ease in availability of domestic scrap aids in reducing higher freight
costs incurred by the recycling companies and also reduces the working
capital requirement due to lower transit days for inventory (imported
inventory requires a higher transit period, thus increasing the inventory
days). This, in turn, improves the return ratios for the companies.
Gravita, being a large-scale recycler with a Pan India presence, will be a
key beneficiary of these favorable regulatory changes within the industry.
To study next Research Analysis.. Click
To Study our Small Cap Calls… Click
For Mutual Fund Guidance, Click chanakyaMFguidance.com
https://www.analysislibrary.com/avantel-ltd-stock-research-report/