Earnings Call Transcript Analysis Report #
Gravita India Limited Q3 FY25 Earnings Call Analysis #
Financial Performance #
Key Financial Metrics #
- Consolidated Revenue (9M FY25): INR 2,832 crores (up 23% YoY)
- Consolidated Adjusted EBITDA (9M FY25): INR 295 crores (up 18% YoY)
- EBITDA Margin (9M FY25): 10.4%
- Consolidated PAT (9M FY25): INR 217 crores (up 28% YoY)
- PAT Margin (9M FY25): 7.7%
- Consolidated Revenue (Q3 FY25): INR 996 crores (up 31% YoY, up 7% QoQ)
- Consolidated Adjusted EBITDA (Q3 FY25): INR 102 crores (up 14% YoY)
- EBITDA Margin (Q3 FY25): 10.3%
- Consolidated PAT (Q3 FY25): INR 78 crores (up 29% YoY)
- PAT Margin (Q3 FY25): 7.8%
- Revenue from value added products: 46%
Comparison with Previous Periods #
- Revenue, EBITDA, and PAT all showed significant YoY growth for both the 9-month period and Q3. QoQ revenue growth was also positive.
- Volume for lead, plastic and aluminium increased by 27%, 33% and 92% YoY, respectively.
Revised Guidance/Forecasts #
- EBITDA per ton for lead is expected to remain stable at INR 18-19.
- Aluminium margin guidance of INR 14 per kg
- Plastic margin guidance of INR 10 per kg
Areas of Growth/Decline #
- Strong volume growth across all segments (Lead, Plastic, Aluminium). Aluminium showed particularly strong growth (92% YoY).
- Domestic scrap sourcing increased significantly (50% YoY).
- Stand-alone EBITDA margins, excluding other income, dropped from 8.1% Q3FY24 TO 5.6% Q3FY25
Strategic Initiatives & Business Updates #
Major Strategic Announcements #
- Raised INR 1,000 crores through QIP for growth initiatives.
- Increased stake in Navam Lanka Limited to 100%.
- Commenced commercial production of recycled aluminium alloys at a new facility in Ghana.
New Products/Services/Markets #
- Pilot project for lithium-ion recycling.
- New rubber recycling plant in Mundra, India.
- Evaluating to acquire an existing plan in the Gulf region
- Expecting a license to establish in Dominican Republic by H1 FY26
- Acquired a rubber recycling unit in Romania, transaction to be completed by Q4
Operational Changes #
- Increased focus on domestic scrap sourcing due to government regulations (BWMR and EPR).
- Debt to be at Zero by end of Year
Ongoing/Completed Projects #
- Ghana aluminium recycling facility (Phase 1 operational).
- Mundra projects (lithium-ion and rubber recycling) on track for H1 FY26.
- Capacity expansion to exceed 5 lakh metric tons by FY27
Market & Competitive Landscape #
Industry Trends #
- Positive impact of government regulations (BWMR, EPR, RCM) on scrap availability.
- Shift from unorganized to organized sector in battery recycling.
- Quality Control Order (QCO) implemented for aluminium alloy.
Competitive Positioning #
- Focus on maintaining market share in the domestic market despite increased competition.
- Pan-India presence provides a logistical advantage.
Market Challenges/Opportunities #
- Opportunity to increase domestic scrap sourcing.
- MCX aluminum listing is delayed but expected.
Market Share/Positioning #
- Aiming to maintain or increase market share in the domestic battery scrap market.
- Expect 3x increase in domestic battery scrap in 2-3 years
Risk Factors & Challenges #
Concerns/Challenges #
- Global economic slowdown impacting the metal sector.
- Potential shipping cost fluctuations.
- Geopolitical risks in operating countries (Sri Lanka, Mozambique).
- Risk if Government bans import of battery scrap into India
- New tech could make lead acid batteries obsolete
Regulatory Issues #
- Reverse Charge Mechanism (RCM) in GST for battery scrap is pending due to a technicality (HSN code).
- ELV policy to be active from April 1st 2025
Supply Chain/Operational Constraints #
- Transit time and LME fluctuations impact aluminium profitability (until hedging is in place).
Market Uncertainties #
- Uncertainty around the timing and impact of RCM on plastic scrap.
Forward-Looking Statements #
Outlook/Projections #
- Volume CAGR of 25%+ and profitability growth of 35%+ (Vision 2028).
- ROIC over 25%.
- Non-lead business share to 30%+.
- 30%+ renewable energy use and 10% reduction in energy consumption.
- Debt is expected to be close to 0 at year end
Commitments/Targets #
- Capacity expansion to exceed 5 lakh metric tons per annum by FY27.
- Increasing value-added product revenue to 50% (Vision 2028).
- Return on Invested Capital would be higher than 25%
Planned Investments/Priorities #
- Strategic utilization of QIP proceeds for capacity expansion and new verticals.
- Exploring M&A opportunities.
- INR 2,500 crores of inflow in the next 3 years, including INR 1,000 of QIP
- INR 1,500 crores to be used for expansion, INR 1,000 for working capital
Sentiment about Future Performance #
- Confident about achieving growth targets due to regulatory tailwinds, expansion plans, and diversification strategy.
Q&A Insights #
Most Pressing Analyst Questions #
- Sustainability of EBITDA margins.
- Commissioning timelines for Mundra projects.
- Status of Oman expansion and other overseas projects.
- Update on RCM for battery scrap.
- Utilization of QIP proceeds.
- Aluminium volume and margin fluctuations.
- Impact of competition from battery manufacturers setting up recycling units.
- Outlook on Domestic Polices
- Debt Levels
Management Responses #
- Provided clear timelines and capacity figures for Mundra.
- Explained the delay in aluminium hedging and its impact on margins.
- Detailed the progress on RCM and its expected impact.
- Reiterated confidence in growth targets and provided supporting rationale.
- Addressed concerns about competition and outlined mitigation strategies.
Evasive/Indirect Answers #
- Did not disclose specific companies targeted for M&A.
New Information Revealed #
- Detailed breakdown of scrap sourcing (domestic, imported, overseas for overseas centers).
- Confirmation of exploring PET recycling opportunity.
- Elaboration on the ELV policy and its potential impact.
- Explanation of the foreign currency translation reserve line item in the P&L.
- Total inflow of INR 2,500 crores, INR 1,500 for capex
Management Tone & Sentiment #
Overall Tone #
- Confident and optimistic. Management repeatedly emphasized their strong performance and positive outlook.
Areas of Confidence/Concern #
- High confidence in achieving growth targets and navigating market challenges.
- Confident in the impact of regulatory changes.
- Acknowledged potential risks but presented mitigation strategies.
Summary of Most Important Takeaways #
- Strong Financial Performance: Gravita delivered strong financial results with significant YoY growth in revenue, EBITDA, and PAT.
- Growth Strategy: The company is pursuing an aggressive growth strategy focused on capacity expansion, diversification into new verticals (lithium-ion, rubber), and geographic expansion.
- Regulatory Tailwinds: Government regulations (BWMR, EPR, RCM) are creating favorable conditions for the recycling industry and supporting Gravita’s growth.
- Strategic Investments: The QIP proceeds are being strategically utilized to fund growth initiatives, repay debt, and manage working capital.
- Positive Outlook: Management is confident in achieving its Vision 2028 targets, including a 25%+ volume CAGR and 35%+ profitability growth. They project strong, continued financial improvement.
- Risk Management: Management acknowledges potential risks (geopolitical, shipping costs, competition) but has strategies in place to mitigate them.
- Capital Expenditure: Expecting large capital expenditure of up to 2,500 Cr in the next 3 years.