Gravita India Ltd:Annual Report 2023-24 Analysis

Gravita India Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Gravita India Ltd. was established in 1992 by Mr. Rajat Agrawal. The company started as a small-scale recycling unit and has since grown to become a global leader in the recycling industry.

Headquarters Location and Global Presence:

The company’s headquarters are located in Jaipur, Rajasthan, India. Gravita India has a significant global presence with manufacturing facilities and offices in various countries across Asia, Africa, and South America.

Company Vision and Mission:

• Vision: To be a global leader in the recycling industry, driving sustainable solutions and creating value for stakeholders.
• Mission: To provide high-quality recycled products using innovative and environment-friendly technologies, ensuring customer satisfaction and contributing to a circular economy.

Key Milestones in Their Growth Journey:

• 1992: Establishment of the company.
• 2010: Initial Public Offering (IPO) and listing on the stock exchanges.
• Expansion: Continuous expansion of manufacturing capacities and geographical footprint over the years.
• Acquisitions: Strategic acquisitions to enhance product portfolio and market reach.

Stock Exchange Listing Details and Market Capitalization:

• Listed on: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
• Ticker Symbol: GRAVITA

Recent Financial Performance Highlights:

• Consistently demonstrating revenue and profit growth. (Specific figures should be updated based on the latest available annual reports and quarterly results.)

Management Team and Leadership Structure:

• Mr. Rajat Agrawal: Chairman and Managing Director
• A team of experienced professionals managing various departments like operations, finance, marketing, and R&D.

Their Products #

Complete Product Portfolio with Categories:

• Lead Recycling: Recycled Lead Metal, Lead Alloys, Lead Products
• Aluminium Recycling: Recycled Aluminium Ingots, Aluminium Alloys
• Plastic Recycling: Recycled Plastic Granules
• Other Recycling: Copper Recycling and other metal recycling.

Flagship or Signature Product Lines:

• Recycled Lead Metal and Lead Alloys

Key Technological Innovations or Patents:

• Utilizing advanced smelting and refining technologies for efficient and environment-friendly recycling.
• Patents related to specific processes within the recycling of different materials.

Manufacturing Facilities and Production Capacity:

• Multiple manufacturing facilities located across India and other countries.
• Substantial production capacity for Lead Recycling, Aluminium Recycling, and Plastic Recycling.

Quality Certifications and Standards:

• ISO certifications (ISO 9001, ISO 14001, ISO 45001)

Primary Customers #

Target Industries and Sectors:

• Automotive: Battery manufacturers
• Telecommunications: Cable manufacturers
• Construction: Lead product users
• Other Industries: Chemical, pigments, and other lead-consuming industries

Geographic Markets (Domestic vs. International):

• Significant presence in both domestic (India) and international markets.
• Exports to countries in Asia, Africa, South America, and the Middle East.

Distribution Network and Sales Channels:

• Direct sales to key customers.
• Distribution through a network of dealers and distributors.

Major Competitors #

Direct Competitors in India and Globally:

• Competitors in the organized and unorganized recycling sectors.

Competitive Advantages and Disadvantages:

• Advantages: Established brand reputation, global presence, integrated operations, technological expertise.
• Disadvantages: Dependence on raw material availability and pricing.

How they differentiate from competitors:

• Commitment to quality and sustainability.
• Technological advancements and process optimization.
• Global reach and customer service.

Industry Challenges and Opportunities:

• Challenges: Fluctuations in commodity prices, environmental regulations, availability of scrap material.
• Opportunities: Increasing demand for recycled products, government support for the circular economy, expansion into new geographies and product lines.

Future Outlook #

Expansion Plans or Growth Strategy:

• Expanding manufacturing capacity in existing and new geographies.
• Increasing focus on value-added products.
• Exploring opportunities in other recycling segments.

Sustainability Initiatives or ESG Commitments:

• Investing in environment-friendly technologies.
• Promoting responsible waste management practices.
• Contributing to the circular economy.

Industry Trends Affecting Their Business:

• Growing awareness and demand for sustainable products.
• Increasing government regulations on recycling and waste management.
• Advancements in recycling technologies.

Long-term Vision and Strategic Goals:

• To be a global leader in the recycling industry, providing sustainable solutions and creating value for stakeholders.
• To expand its product portfolio and geographical reach.
• To be a socially responsible and environmentally conscious organization.

Gravita India Ltd. Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

Key Observations #

• Consistent Growth: Gravita has demonstrated consistent growth in revenue, EBITDA, and PAT over the past three years.
• Improving Profitability: Both EBITDA and PAT margins have shown improvements, indicating effective cost control and operational efficiency.
• Strong Financial Position: The significant reduction in the Debt:Equity ratio points to a strengthening balance sheet and reduced financial risk.
• High Returns: ROE and ROCE remain at very healthy levels, although there’s a slight dip in FY24, likely due to investments in growth.

Business Segment Performance #

• Lead Recycling: This remains Gravita’s core business, with a significant production capacity of 236,559 MT. The global lead market is expected to grow at a CAGR of 5.1% (2024-2033), driven primarily by the battery industry. Gravita is well-positioned to benefit from this, especially with the rise of renewable energy storage systems, which use lead-acid batteries. The Company has successfully empanelled on MCX as a refiner.
• Aluminium Recycling: Gravita has a capacity of 30,000 MT. The global secondary aluminum market is projected to grow at a CAGR of 6.8%, driven by demand in the automotive, construction, and packaging industries. India’s per capita aluminum consumption is below the global average, offering significant growth potential.
• Plastic Recycling: Gravita’s capacity is 24,300 MT. While the plastic recycling industry faces challenges, regulatory pressure and consumer demand for sustainable solutions are driving growth. Gravita’s focus on advanced technologies like chemical recycling positions it well.
• Rubber Recycling: This is a relatively new vertical for Gravita (added in 2022), indicating diversification. The production capacity for captive consumption stands at 12,000 MT.

The report emphasizes value-added products contributing 45% of revenue. This strategy is crucial for margin improvement and differentiation.

Major Strategic Initiatives and Their Progress #

• Expansion of Recycling Capacity: Gravita has been actively expanding its capacity across multiple locations (Tanzania, Togo, Mundra, Chittoor). This expansion is both geographic (new facilities in Africa and the Middle East) and vertical (adding rubber recycling).
• Diversification of Recycling Verticals: The ‘Vision 2028’ outlines plans to enter new recycling verticals: Lithium, Steel, and Paper. This diversification reduces reliance on any single material and taps into growing markets.
• Value-Added Products: The focus on increasing the share of revenue from value-added products (customized alloys, lead sheets, plastic granules, etc.) is a key strategy for margin improvement.
• Turnkey Solutions: Providing turnkey recycling plant solutions to clients globally is a unique offering that leverages Gravita’s in-house technology and expertise.
• Technology Upgradation: Investments in advanced technologies (electric refining furnace, oxygen trials in smelting) aim to improve efficiency, reduce environmental impact, and lower costs.
• Hedging: The company utilizes a back-to-back hedging mechanism, selling the metal equivalent of purchased scrap, to mitigate the risk of commodity price fluctuations.
• SAP implementation: SAP was installed as an ERP system to improve and streamline operations.

Risk Landscape Changes #

• Geopolitical Risks: The report acknowledges increased risks associated with global expansion, including regulatory challenges, import/export limitations, and overlapping tax systems. The ongoing war in Ukraine and tensions in the Middle East are specifically mentioned as disruptors.
• Commodity Price Volatility: The company effectively manages this through hedging, but it remains a key risk factor.
• Currency Exchange Rate Fluctuations: Exposure to fluctuations in the Indian Rupee against major foreign currencies (primarily USD) is a constant risk, mitigated through forex management and hedging.
• Competition: The lead and lead products markets are described as highly competitive, requiring continuous operational efficiency and innovation.
• Sustainability Risk (ESG): This is increasingly important, with stricter regulations and growing stakeholder expectations.
• Technology Risk: The company acknowledges continuous efforts to enhance efficiency through implementation of range of measures.

ESG Initiatives and Metrics #

• Environmental:

  • Focus on the circular economy model, minimizing resource use and waste.
  • Investments in renewable energy (solar power: 1.68 MU of solar power generated, abating 1,192 tonnes of CO2 emissions).
  • Reduction in greenhouse gas emissions (1,193 TCO2e).
  • Water management initiatives, including recycling and rainwater harvesting (water usage intensity of 0.43 KL/MT).
  • Pilot project for electric refining furnace.
  • ISO 14001:2015 certified Environmental Management System.
  • Vision 2028 targets include increased renewable energy usage (30%+) and reduced energy consumption (10%+).

• Social:

  • Commitment to employee well-being and development (3,350+ employees, average training hours).
  • CSR initiatives focused on education, healthcare, and environmental preservation (₹1.49 Crores spent).
  • Emphasis on diversity and inclusion (celebration of Women’s Day, increased female workforce participation).
  • Prevention of child labor policy.

• Governance:

  • Adherence to corporate governance standards, with a focus on transparency and ethical conduct.
  • Independent board of directors.
  • Robust internal controls and risk management frameworks.
  • Stable credit rating from ICRA.

Management Outlook #

The management outlook is optimistic, reflected in the “Vision 2028” goals:

• Establishment of new recycling verticals.
• Significant volume and profitability growth (25%+ CAGR and 35%+ growth, respectively).
• Increased use of renewable energy and reduced energy consumption.
• Attainment of a portfolio mix with a higher proportion of value-added products (50%+) and a reduced reliance on lead (30%+ non-lead business).
• Strong ROCE target (25%+).
• Continued focus on circular economy, and transformation into one of the top 5 global recycling companies by 2026.

Comparative Analysis with Industry Averages #

• Growth Rates: Gravita’s revenue and profit growth rates generally exceed the projected growth rates for the global lead and aluminum recycling markets, indicating a strong competitive position.
• ROE/ROCE: Gravita’s ROE and ROCE are significantly higher than typical industry averages, demonstrating superior returns on invested capital.
• Debt-to-Equity: Gravita’s improving debt-to-equity ratio suggests a stronger financial position compared to highly leveraged companies in the sector.
• ESG Metrics: Gravita’s commitment to renewable energy, water conservation, and waste reduction, along with its certifications, suggest a strong ESG profile.

Overall Assessment #

Gravita India Ltd. presents a strong performance overview with consistent growth, improving profitability, and a strengthening financial position. The company’s strategic initiatives, particularly its focus on diversification, value-added products, and ESG, position it well for future success. The management’s outlook is optimistic, supported by ambitious but achievable goals. However, external factors like geopolitical risks and commodity price volatility need continued monitoring and mitigation.

Detailed Analysis #

Gravita India Ltd. Financial Analysis #

Balance Sheet Analysis: 3-Year Comparative (₹ Crores) #

Significant Changes in Major Line Items (YoY >10%) #

• Property, Plant and Equipment: Increased significantly (28.41%), indicating substantial investment in fixed assets.
• Capital Work-in-Progress: Increased by 6.42% indicating continued expansion or upgrades.
• Investments(Current): Increased dramatically from 1.11cr to 16.50 cr (Increase of 1386.49%), showcasing allocation to liquid investments.
• Trade Receivables: Increased significantly (91.33%), potentially due to higher sales or changes in credit terms.
• Other financial assets(Current): Increased by 87.22%, indicating potential increase in receivables, accrued income.
• Total Equity: Increased significantly (39.45%), due to substantial profit retention and possibly share issuance.
• Non Current Borrowings: Decreased by 88.50% due to substantial amount of repayment
• Current Borrowings: Increased dramatically (52.84%), indicating a higher reliance on short-term financing.
• Other current liabilities: Increased dramatically from 2.68cr to 85.15cr (Increase of 3077.24%), potentially due to increased deferred revenue or accrued expenses.
• Other Equity: Increased from 603.06cr to 837.46cr (Increase of 38.87%)

Working Capital Trends #

Working capital is calculated as Current Assets - Current Liabilities.

Asset Quality Metrics #

Debt Structure and Maturity Profile #

Off-Balance Sheet Items #

• Contingent Liabilities: ₹101.47 crores (primarily bank guarantees and claims not acknowledged as debt).
• Commitments: ₹45.87 crores for capital contracts and ₹85.90 crores for export obligations.

Overall Financial Analysis Summary #

• Growth: Gravita India Ltd. shows strong revenue and profit growth, indicating successful expansion.
• Liquidity: Working capital has improved, but the increase is driven by growth in receivables and inventory. The shift to short-term borrowing increases liquidity risk.
• Solvency: The gearing ratio has increased, indicating higher financial leverage.
• Asset Quality: The decrease in both the debtors and inventory turnover ratios are potential warning signs.
• Off balance sheet items: Both Contingent Liabilities and Commitments have increased significantly.

Recommendations #

• Investigate the increase in trade receivables and inventory.
• Monitor the shift to short-term debt.
• Analyze the details of the contingent liabilities and commitments.
• Benchmark Key Figures and ratios with other recycling industry.
• Regularly review the risk management framework.

Gravita India Ltd. Financial Analysis (FY2023-24) #

Revenue Breakdown #

Consolidated Revenue by Segment (FY2023-24) #

Consolidated Revenue by Geography (FY2023-24) #

Growth Rates #

• Total Revenue Growth (Consolidated): 12.85%

Cost Structure Analysis #

Consolidated Cost Structure (as % of Total Revenue) #

Key Observations: #

• Material Costs Dominate: The largest expense is the cost of materials consumed, representing around 71% of total revenue.
• Other expense: Other expenses have reduced from 9.1% to 7.0%.

Margin Analysis #

Consolidated Margins #

Non-Recurring Items #

• Gain on sale of treasury shares, net of liability of the Trust: Significant non-recurring gain (20.67 cr), shall be used for the welfare of employees.
• Loss by natural calamities: 1.27 crores.
• Exceptional Items: There were no exceptional items during 2023-24. In contrast, in 2022-23 there was an exceptional items of 22.68 cr.

EPS Analysis #

Financial Analysis of Gravita India Ltd. #

Cash Flow Analysis #

Operating Cash Flow (OCF) - Consolidated #

Key Observations (OCF): #

• Decreased OCF: OCF decreased significantly from Rs. 216.86 crores in FY23 to Rs. 67.70 crores in FY24. The Largest reason for this drop is increased cash outflow for working capital and investments.
• Working Capital Impact: The major driver of the OCF decrease is the significant increase in inventories and other assets. This means Gravita is tying up more cash in its working capital cycle. This negative impact needs to be considered.

Investing Cash Flow (ICF) - Consolidated #

Key Observations (ICF): #

• Increased Capital Expenditure: Gravita significantly increased its capital expenditure, indicating investment in growth and expansion.

Financing Cash Flow (FCF) - Consolidated #

Key Observations (FCF): #

• Net Cash inflow from financing: Gravita used FCF for repayment of debt, payment of lease liabilites and dividend to its shareholders.

Free Cash Flow (FCF) Calculation #

• Approximate FCF = OCF + ICF
• FY24 FCF: 67.70 - 120.19 = -52.49 Cr.
• FY23 FCF: 216.86 -75.49 = 141.37 Cr.

Key Takeaway: #

Gravita had a negative free cash flow in FY24, driven by increased investment and working capital needs. This means it required external financing (or existing cash reserves) to fund its operations and investments.

Working Capital Management Efficiency #

• Debtors Turnover Ratio:
  • FY24: 5.85 times
  • FY23: 8.11 times
  • Change: (27.92%) decrease
  • Interpretation: The decrease indicates a slower collection of receivables, which is negative for working capital efficiency.
• Inventory turnover days

• Creditors Turnover Ratio:

  • FY24: 5.87 times
  • FY23: 9.97 times
  • Change: (41.18%) decrease
  • Interpretation: The decrease indicates a faster payment of payable, which is negative for working capital efficiency.

• Creditors Turnover Days

• FY24 = 365/5.87 = 62.18 days

• FY23= 365/9.97= 36.61 days Interpretation: The increase in days indicate the payment of payables is slow, which is positive for working capital management.

• Cash Conversion Cycle (CCC):

  • CCC = Inventory Days + Receivable Days - Payable Days
  • FY24 CCC = 95.02 + 62.22 - 62.18= 95.06
  • FY23 CCC = 101.41+44.99 - 36.61= 109.80
  • Interpretation: The CCC improved slightly, due to major contribution of increased inventory turnover ratio, showing improved working capital management. However, other factors (lower debtor turnover, and faster creditor payments) worked against this.

Overall Working Capital Assessment: #

Gravita’s working capital management shows mixed signals. While the increased inventory indicates that they are not efficiently managing their inventory. The reduced debtor turnover and increased creditor turnover indicates that the company may face working capital crunch. The company is managing its payable better but they need to improve its collection policy for trade receivables.

Dividend and Share Buyback Trends #

• Dividends:
  • FY23: Final dividend of Rs. 4.35 per share (Rs. 30.03 crores total) was declared and paid.
  • FY24: Interim dividend of Rs. 5.20 per share (Rs. 35.90 crores) was declared but no final dividend for FY24 was recommended.
  • Trend: There is payment of dividend however, no final dividend has been declared for FY24.
• Share Buybacks: The report states that no shares have been bought back in the last five years.

Debt Service Coverage Ratio (DSCR) #

• FY24 (Standalone): 3.61
• FY23 (Standalone): 7.73
• Change: (53.28%) decrease

Approximate Consolidated DSCR: #

• Numerator:
  • FY24: 238.98 + 37.51 + 48.77 = 325.26
  • FY23: 201.15 + 23.96 + 41.68 = 266.79
• Denominator:
  • FY 24:48.77+2.32+198.28= 249.37
  • FY23: 41.68+2.73+46.25 = 90.66
• Approximate Consolidated DSCR:
  • FY24: 325.26/249.37= 1.30
  • FY23: 266.79/90.66 = 2.94

Liquidity Position and Cash Conversion Cycle #

• Liquidity Position:
  • Current Ratio (Standalone):
    • FY24: 1.34
    • FY23: 1.35
  • Cash and Cash Equivalents (Consolidated):
    • FY24: Rs. 57.13 crores
    • FY23: Rs. 42.20 crores
• Cash Conversion Cycle (CCC):
  • As discussed earlier the Cash Conversion Cycle (CCC) is 95.06 and 109.80 for FY24 and FY23 respectively.

Free Cash Flow Yield Trends #

• FY24 FCF: -52.49 Cr. (Negative)
• FY23 FCF: 141.37 Cr. (Positive)

Overall Assessment and Additional Points #

• Profitability: Gravita has shown consistent profitability, with increases in revenue, EBITDA, and net profit. However, the margin improvements are relatively small.
• Growth vs. Cash Flow: The company is clearly in a growth phase, with significant investments in capacity expansion. However, this growth is currently consuming cash, resulting in negative free cash flow. This isn’t necessarily bad, but it increases reliance on external financing and makes the company more sensitive to interest rate changes and economic downturns.
• Debt Levels: While the debt-to-equity ratio improved on a standalone basis, a consolidated perspective is important. The absolute level of debt has increased, and the DSCR has decreased.
• Working Capital: The mixed signals in working capital management (slower collections, faster supplier payments, but slightly improved CCC) warrant further scrutiny.
• Transparency: The report from Gravita India LTD. lacks many figures and tables needed for a thorough analysis.

Operational Metrics #

Key Performance Indicators #

1. Profitability Ratios (Consolidated) #

*Calculated

Calculations: ROA 22-23: (201/(.5*(1,408+959)))100=17.9% ROA 23-24: (239/(.5(2002+1408)))*100= 14.3%

2. Liquidity Metrics (Consolidated) #

Calculations: Current Ratio 22-23: (956/597)= 1.60 Current Ratio 23-24: (1,117/792)= 1.41

3. Efficiency Ratios (Consolidated, where available) #

Calculations: Asset Turnover Ratio 22-23: (2801/(.5*(2002+1408)))= 2.0 Asset Turnover Ratio 23-24: (3161/(.5*(959+1408)))= 1.70

4. Leverage Metrics (Consolidated) #

Calculations: Interest Coverage Ratio 22-23: (286/49)= 5.8 Interest coverage Ratio 23-24:(331/49)=6.7

Overall Analysis and Key Observations #

• Decreasing Profitability Ratios: ROE, ROA are decreasing, showing a decline, and indicating a decline in how efficiently the Group uses its equity, assets, and capital to generate profit.
• Decline in Liquidity: The Current Ratio decrease is a point of focus. The Group has less current asset coverage of its short-term liabilities. While still above 1, this trend needs to be monitored.
• Improving Leverage: The Debt-to-Equity ratio has improved significantly, indicating the Group is reducing its reliance on debt financing. This is generally a positive sign for financial stability.
• Decreasing Efficiency: Both the total asset turnover ratio and the fixed asset turnover ratio are decreasing, this needs to be addressed.

Significant Deviations and Concerns #

• The lack of granular data (e.g., Cost of Goods Sold, detailed inventory breakdowns, breakdown of current assets and current liabilities, and segment-wise capital employed) limits the depth of this analysis.
• The decreasing profitability and efficiency ratios are a point of focus, and may need to be further investigated.

Further Steps #

To get a complete picture, the following would be needed:

1. Full Consolidated Financial Statements: Including all notes and disclosures, for multiple years (at least 3-5) to establish clear trends.
2. Industry Average Data: Access to relevant industry average ratios (from reliable financial databases) to benchmark Gravita’s performance.
3. Segment-Level Data: Detailed segment financials to calculate ROIC and better understand segment-specific performance drivers.
4. Management Commentary: The “Management Discussion and Analysis” section of the full Annual Report would provide valuable context.
5. Additional Data for Calculations such as Inventory and Receivables.

This analysis provides a preliminary assessment based on the available information. A more comprehensive review would be possible with complete data.

Gravita India Ltd. Financial Analysis (FY23-24) #

Revenue and Profitability Metrics #

• Consolidated Revenue: ₹3,161 Crores (FY23-24), a 12.85% growth from ₹2,801 Crores (FY22-23).
• Standalone Revenue: ₹2,679 Crores, a 6.14% growth from ₹2,524 Crores.
• Consolidated Profit After Tax (PAT): ₹239 Crores (FY23-24), a 18.9% growth from ₹201 Crores (FY22-23).
• Standalone PAT ₹180 Crores, a 46.3% growth from prior year.
• Consolidated PAT Margin: 7.57% (FY23-24), improved from 7.18% (FY22-23).
• Standalone PAT Margin: 6.64%, a 66.66% increase compared to prior year.
• Consolidated EBITDA: ₹331 Crores (FY23-24, including other income), a 15.73% growth from ₹286 Crores (FY22-23).
• Standalone EBITDA: ₹234 Crores, a 49.68% growth from prior year.
• Consolidated EBITDA Margin: 10.47%, improved from 10.21%.
• Standalone EBITDA Margin: 8.73%, improved from 6.18%.
• Consolidated Return on Capital Employed (ROCE): 25% (FY23-24), a decrease from 29% (FY22-23).
• Standalone ROCE: 25%, a decrease from 29%
• Consolidated Return on Equity (ROE): 34% (FY23-24), decreased from 41% (FY22-23).
• Standalone ROE: 26.01%, a 20.02% increase compared to prior year.
• Consolidated Earnings Per Share (EPS): ₹34.88 (FY23-24), increased from ₹29.72 (FY22-23).
• Standalone EPS: ₹26.01, a 34.88% increase from prior year.
• Consolidated Debt : Equity Ratio: 0.53, a 35.19% decrease from prior year.

Market Share and Competitive Position #

• Position: Gravita India Limited is a “prominent player” and “one of the leading integrated recycling companies” in the global recycling industry (lead, aluminum, plastic, and rubber).
• Domestic Leadership: The premier recycler of lead, aluminium and plastic in India.
• Global Presence: Operations in over 32 countries.
• Barriers to Entry: Significant barriers to entry exist, including specialized industry knowledge, OEM approvals, multinational procurement and customer networks, and government licenses.

Key Products/Services Performance #

• Recycling Verticals: Lead, Aluminum, Plastic, and Rubber.
• Production Capacity: 302,859 MTPA across all products.
  • Lead Recycling Capacity: 236,559 MT
  • Aluminum Recycling Capacity: 30,000 MT
  • Plastic Recycling Capacity: 24,300 MT
  • Rubber Recycling Capacity: Not specified, but started in Tanzania with 3,000 MTPA.
• Production Volume (FY23-24): Approximately 169,000 MT of recycled products delivered.
  • Lead Recycled: 148,500MT.
  • Aluminium Recycled: 10,800 MT.
  • Plastic Recycled: 8,500 MT.
  • Tyre Oil Generated: 3,097 KL.
• Capacity Utilization: 58%.
• Value-Added Products: 45% of revenue is generated from value-added products (customized lead alloys, lead sheets, lead bricks, red lead, lead oxide, customized aluminum alloys, aluminum ingots, plastic granules, PET flakes, and rubber granules).
• Turnkey solutions: Over 70 turnkey projects executed.
• Order Book: 60,000 MT from various customers globally.

Geographic Distribution and Market Penetration #

• Global Presence: Operations in 11 state-of-the-art manufacturing facilities across 32 countries, and in 2 continents.
• Domestic vs. Overseas Sales: 62% domestic, 38% overseas (FY23-24 consolidated revenue).
• Key Plant Locations: India (Jaipur, Mundra, Chittoor, Kathua), Sri Lanka, Ghana, Senegal, Mozambique, Tanzania, and Togo.
• Scrap Sourcing: 31 own yards, 1,700+ touch points, and a scrap collection capacity exceeding 250,000 MT.
• Customer Base: Over 350 customers globally (240+ domestic, 125+ overseas).

Capex Investments #

• Capex (FY23-24):
  • Tanzania: ₹3.33 Crores (lead capacity expansion), ₹2.25 Crores (plastic recycling), ₹3.86 Crores (rubber recycling).
  • Togo: ₹3.61 Crores (lead recycling plant).
  • Mundra (India): Increased lead capacity, started Red Lead production, and plastic recycling.
  • Chittoor (India): ₹21 Crores (lead capacity expansion).

Operational Efficiency Metrics #

• Hedging: A module is developed for forex managment to monitor, measure and hedge currency risk liabilities.
• Energy Intensity: 4.3 GJ/MT of products, approximately 75% less than primary production.
• Renewable Energy Utilization: 1.69 MUs of solar power generated, abating 1,192 tonnes of CO2 emissions.
• Solar Panel Installation: 2,815 kW installed, with an additional 1,000 kWp in progress.
• Water Usage Intensity: 0.43 KL/MT of finished products.
• Average training per employee: 3 Hours.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Vision 2028: Includes establishing new recycling verticals (lithium, steel, rubber, paper), achieving volume and profitability CAGR targets, increasing renewable power usage, attaining ROCE targets, expanding the portfolio mix of value-added products, and reducing energy consumption.
  • Geographic Expansion: New battery recycling plant in the Middle East (MOU signed).
  • Product Diversification: Expanding beyond lead, aluminum, plastic, and rubber recycling.
  • Technology Upgrades: Pilot project for an electric refining furnace, oxygen trials for smelting efficiency.
• Challenges:
  • Industry Risk: Economic downturns in customer regions (battery manufacturers and galvanizers).
  • Competition Risk: Highly competitive markets in India and globally.
  • Currency Exchange Rate Fluctuation: Impact on revenue and import costs.
  • Commodity Price Volatility: Affecting earnings, cash flow, and reserves.
  • Sustainability Risk: Compliance with ESG regulations and standards.
  • Information Technology Risk: Security breaches and potential operational disruptions.
  • Technology Risk: Technological obsolescence.
  • Local Regulations Risk: Challenges in global expansion due to diverse regulations.

Risk Profile Analysis - Gravita India Ltd. (FY 2023-2024) #

This analysis categorizes risks faced by Gravita India Ltd. and assesses them based on severity, likelihood, trend, mitigation strategies, control effectiveness, and potential financial impact. It incorporates quantitative metrics where available and notes year-over-year changes.

Strategic Risks #

Industry Dependence & Competition Risk #

• Severity: High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Customer base diversification, expanding contracts, enhancing operational efficiency, quality control, and cost reduction initiatives. Entering new recycling verticals (“Vision 2028”).
• Control Effectiveness: Partially Effective.
• Potential Financial Impact: Significant revenue decline, margin pressure.
• Quantitative Risk Metric: Revenue from top 3 customers as a percentage of total revenue.
• Year-Over-Year Change: Likelihood and Severity are increased from last year.

Geopolitical and Local Regulations Risk #

• Severity: Medium to High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Strong compliance processes, engagement with industry experts, regular compliance certificates.
• Control Effectiveness: Partially Effective.
• Potential Financial Impact: Fines, operational disruptions, loss of licenses, increased compliance costs.
• Quantitative Risk Metric: Number of regulatory non-compliance incidents; Legal and consulting expenses related to regulatory compliance as a percentage of revenue.

Operational Risks #

Technology Obsolescence Risk #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation Strategies: Continuous evaluation of technology, investment in R&D, focus on in-house technical knowledge, and introduction of new products.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Reduced productivity, increased costs, loss of market share.
• Quantitative Risk Metric: R&D expenditure as a percentage of revenue.

Environmental and Sustainability Risk #

• Severity: High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Adherence to ESG regulations, regular audits, investments in renewable energy, and waste reduction initiatives.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Fines, penalties, operational shutdowns, reputational damage, and increased costs.
• Quantitative Risk Metric: Number and severity of environmental incidents; ESG-related investments as a percentage of total capital expenditure.
• Year-Over-Year Change: Likelihood and Severity are increased from last year.

Occupational Health and Safety Risk #

• Severity: High.
• Likelihood: Low to Medium.
• Trend: Stable.
• Mitigation Strategies: Compliance with safety standards, employee training, availability of medical facilities, and regular health check-ups.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Work stoppages, legal claims, compensation payments, reputational damage, and increased insurance premiums.
• Quantitative Risk Metric: Lost time injury frequency rate (LTIFR); Number of safety training hours per employee.

Financial Risks #

Commodity Price Volatility #

• Severity: High.
• Likelihood: High.
• Trend: Stable.
• Mitigation Strategies: Back-to-back hedging mechanisms, selling at monthly average prices, strategic hedging with management approval, and external consultant expertise.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Significant impact on earnings, cash flow, and reserves.
• Quantitative Risk Metric: Percentage of commodity exposure hedged; Value at Risk (VaR) for commodity price fluctuations.
• Year-Over-Year Change: Not significant.

Currency Exchange Rate Fluctuation #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation Strategies: Forex management module, periodic review by the treasury team, natural hedging through export revenue, and use of forward exchange contracts.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Impact on revenue, cost of imports, and cost of borrowings.
• Quantitative Risk Metric: Value of foreign currency-denominated assets and liabilities; Percentage of foreign currency exposure hedged.
• Year-Over-Year Change: Not significant.

Liquidity Risk #

• Severity: Medium.
• Likelihood: Low
• Trend: Decreasing.
• Mitigation Strategies: Current ratio of 1.62.
• Control Effectiveness: Effective.
• Potential Financial Impact: Inability to service debts or operating costs.
• Quantitative Risk Metric: Current Ratio.

Compliance/Regulatory Risks #

Local Regulations Risk #

• Severity: Medium to High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Implementation of strong processes with assistance from industry experts and consultants, regular compliance certificates.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Fines, penalties, operational disruptions, and increased compliance costs.
• Quantitative Risk Metric: Number of regulatory non-compliance incidents; Legal and consulting expenses related to regulatory compliance as a percentage of revenue.
• Year-Over-Year Change: Likelihood and Severity are increased from last year.

Information Technology Risk #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: IT Security framework that undergoes regular reviews.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Significant impact on operation, expenses, potential legal and reputational damage.
• Quantitative Risk Metric: IT Security Framework Review frequency

Emerging Risks #

Shift to lithium-ion battery #

• Severity: Medium to High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Expansion to other business verticals, such as lithium.
• Control Effectiveness: Moderately Effective.
• Potential Financial Impact: Loss of customers.
• Quantitative Risk Metric: Revenue from non-lead businesses, as percentage of total revenue.

Climate Change #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Electic refining furnace, biofuel trials, use of alternate fuels, 30% power shifted to Renewable Energy.
• Control Effectiveness: Moderate.
• Potential Financial Impact: Increased cost of operations.
• Quantitative Risk Metric: Renewable Energy as a percentage of total energy used.

Overall Risk Assessment #

Gravita India Ltd. faces a complex risk landscape, with significant exposure to strategic, operational, and financial risks. The company has implemented various mitigation strategies, with varying degrees of effectiveness. The increasing focus on ESG factors and global economic uncertainties add to the complexity. While the company demonstrates a proactive approach to risk management, continuous monitoring, adaptation, and investment in robust control mechanisms are crucial for sustained success.

Gravita India Ltd: Strategic Analysis #

Long-Term Strategic Goals and Progress #

Vision 2028: #

Gravita’s “Vision 2028” outlines ambitious long-term goals:

• New Recycling Verticals: Expansion into lithium, steel, rubber, and paper recycling.
• Volume Growth: Achieve 25%+ volume CAGR.
• Profitability Growth: Achieve 35%+ profitability growth.
• Renewable Energy: Achieve 30%+ renewable power usage.
• ROCE: Attain 25%+ Return on Capital Employed.
• Value-Added Products: Achieve a portfolio mix of 50%+ value-added products.
• Diversification: Transform the portfolio to achieve 30%+ non-lead business.
• Energy Consumption: Reduce energy consumption by 10%+.

Progress: #

Initiatives aligned with these goals include:

• Expansion of lead recycling capacity in Tanzania.
• Initiation of plastic and rubber recycling operations in Tanzania.
• Establishment of a rubber recycling capacity of 3,000 MTPA in Tanzania.
• Commencement of lead production in Togo.
• Increased lead recycling capacity and initiation of Red Lead and plastic recycling in Mundra, India.
• Expanded lead recycling capacity in Chittoor, India.
• MOU to establish a Battery Recycling Plant in the Middle East.
• Expansion of focus to lithium, steel, rubber and paper recycling.

Circular Economy Focus: #

The overarching strategic goal is to become a leader in the circular economy, emphasizing recycling and sustainability.

Competitive Advantages and Market Positioning #

• Integrated Recycling Model: Largest procurement network, scale of operations, cutting-edge technology, cost-efficiency and seamless integration of manufacturing capabilities in close proximity to the collection centres & consumer markets.
• Geographic Diversification: Operations in multiple countries provide access to diverse scrap sources and customer bases.
• Turnkey Solutions: Offering turnkey solutions for lead and aluminum recycling plants.
• Value-Added Products: Focus on manufacturing value-added products.
• Strong Reputation and Clientele: Reliable reputation and esteemed clientele.
• Back-to-back hedging arrangement.
• Barriers to Entry: Significant barriers to entry including specialized knowledge, OEM approvals, multinational networks, and government licenses.

Innovation Initiatives and R&D Effectiveness #

• In-House Recycling Technology: Highly efficient and cost-effective recycling technology.
• Pilot Project: Electric Refining Furnace: Integration of an electric refining furnace.
• Oxygen Trials: Conducting oxygen trials during smelting processes.
• Continuous Portfolio Innovation: Dedication to enhancing and strengthening its portfolio.
• R&D Expenditure: Focus on research and experimentation to develop Tyre Pyrolysis Plant.

Management’s Track Record in Execution #

• Consistent Financial Performance: Consistent growth in revenue, EBITDA, and net profit.
• Capacity Expansion: Consistently expanded manufacturing capacity.
• Market Penetration: Growing global reach and expanding customer base.
• Meeting Vision Targets: Actively pursuing long-term goals.

Capital Allocation Strategy #

• Growth Investments: Investments in capacity expansion, new recycling verticals, and technology upgrades.
• Debt Management: Declining Debt: Equity ratio.
• Dividend Payments: Consistent dividend payments.
• Cash Flow Management: Careful management of cash flow, working capital, and cost optimization.

Gravita India Ltd. ESG Analysis #

Environmental Metrics and Targets #

Metrics: #

• Renewable Energy Utilized: 1.69 MUs
• Greenhouse Gas Emission Reduction: 1,193 TCO₂e
• Water Usage Intensity: 0.43 KL/MT of products.
• Fresh Water Consumption Reduction (Indian Operations): 5% reduction.
• Lead Recycled: 148,500 MT
• Aluminum Recycled: 10,800 MT
• Plastics Recycled: 8,500 MT
• Tyre Oil Generated: 3,097 KL
• Alternative Fuels Use: 30%
• Solid Waste utilization: improve up to 10% over FY24 base
• Energy intensity: 4.3 GJ/MT of products
• Solar Power Generated: 1.68 MU.

Targets: #

• Vision 2028:
  • Achieve 30%+ renewable power usage.
  • Achieve 10%+ reduction in energy consumption.
  • Establishment of new recycling verticles: Lithium, steel, Rubber and Paper.
• Short Term (FY 24-27):
  • Improve solid waste utilization up to 10% over FY24 base.
  • Shift 30% power requirement to RE.
  • 10% reduction in water intensity.
  • 10% reduction in energy intensity.
• Medium Term (FY 28-34):
  • Water Neutrality for India Operations by 2034
  • 25% water reduction intensity.
  • 50% power requirement from RE.
• Long Term (FY 35-50):
  • Zero waste to landfill by 2040 (India) and 2050 (Gravita group).
  • Net Zero Emissions by 2050 (Gravita group) for scope 1 & 2 emissions.
  • Water neutrality for Gravita group by 2040

Social Responsibility Programs #

Programs: #

• Provides sanitation, educational, and other support to schools and colleges.
• Conducts general medical camps and provides medical facilities.
• Tree planting initiatives and environmental education.
• Rural development, healthcare facilities, and education.
• Local employment.

CSR Initiatives: #

• Focus on socio-economic development.
• Net zero emission.
• Resource efficiency and circular economy practices.
• Bio-diversity conservation projects.

CSR Spending: #

• Total CSR spent: ₹1.49 Crores.
• CSR obligation was 1.19 Crores. The company spent 1.49 Crores.

Governance Structure and Effectiveness #

Structure: #

• Lean board with 3 Independent and 3 Executive Directors.
• Committees: Audit, Nomination and Remuneration, Stakeholders Relationship, CSR, Investment, Finance, Risk Management.
• Complies with Secretarial Standards on Board and General Meetings
• Strong emphasis on internal controls, risk management, and regulatory compliance.

Effectiveness: #

• Adherence to high standards of corporate governance, transparency, and accountability.
• Regular board and committee meetings (6 Board meetings, 4 Audit Committee meetings, 3 Nomination and Remuneration Committee meetings, 4 Stakeholder Relationship Committee meeting, 1 Compensational Committee meeting, 2 CSR Committee meetings and 6 Finance Committee meetings during the year).
• Annual performance evaluation of the Board, Committees, and individual Directors.
• Declaration of independence by Independent Directors.
• Whistleblower policy and Vigil mechanism in place, communicated within the organization.
• Familiarization program for Independent Directors.

Sustainability Investments and ROI #

Investments: #

• Installation of solar energy generation systems (2,815 kW capacity).
• Investment in energy-efficient technologies and processes.
• Pilot project for electric refining furnace.
• Oxygen trials during smelting processes.
• Capital investment on energy conservation equipment: Rs. 96.63 Lacs.

ROI: #

• Low energy intensity of 4.3 GJ/MT of products.
• 1.68 MU of solar power generated
• 1,192 tonnes of CO₂ emissions abated.

ESG Ratings and Peer Comparison #

Ratings: #

• Stable credit rating by ICRA for long-term and short-term funds.

Peer Comparison: #

• Not explicitly provided, but the report positions Gravita as a leader in the recycling industry.

Awards and Recognition: #

• Awarded with the prestigious President Trophy in the best Employer 2023
• Best Investor and Employer award by the Sandiara Municipal and Investment Council, Senegal.

Regulatory Compliance and Future Preparations #

Compliance: #

• Adherence to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Compliance with the Companies Act, 2013, and relevant rules.
• ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 certifications.
• Compliance with Battery Waste Management Rules, 2022, including Extended Producer Responsibility (EPR).
• Compliance with relevant ESG regulations and standards.

Future Preparations: #

• Expanding into new recycling verticals (lithium, steel, rubber, paper) as part of ‘Vision 2028’.
• Continuous improvement in technology and processes to meet evolving environmental regulations.
• Strong risk management framework to address industry, competition, currency, commodity, sustainability, IT, technology, and local regulations risks.
• Forex management module to monitor, measure and hedge currency risk liabilites.

Gravita India Ltd. Outlook and Analysis #

Management Guidance and Assumptions #

• Circular Economy Focus: Recycling is imperative for sustainable resource management, economic resilience, and environmental preservation.
• Growth Appetite: Focus on growth, engaging the market with new products.
• Vision 2028:
  • Establishment of new recycling verticals: Lithium, Steel, Rubber, and Paper.
  • Achieve 25%+ volume CAGR.
  • Achieve 35%+ profitability growth.
  • Achieve 30%+ renewable power usage.
  • Achieve 25%+ ROCE.
  • Attain portfolio mix of 50%+ value-added products.
  • Transform portfolio to achieve 30%+ non-lead business.
  • Achieve 10%+ reduction in energy consumption.
• ESG Roadmap: Commitment to ESG roadmap.
• Value Creation: Enhancing competitive edge through talent, growing the business while protecting the environment, and enriching competencies.
• Stakeholder Engagement: Prioritizes open and inclusive communication with key stakeholders.
• Risk Management: Robust risk management framework integral to sustainable growth.
• Intellectual Capital: Crucial for adherence to environmental regulations and commitment to sustainable solutions.
• Operational Excellence and Global Presence: Capacity of over 300,000 metric tonnes.
• Sustainability as Core: Recycling operations offer environmental, economic and strategic benefits.

Market Growth Forecasts #

• Global Lead Market: Projected CAGR of 5.1% from 2024 to 2033, reaching USD 30 billion by 2033 (Source: Customer Market Insights).
• Global Refined Lead Metal Demand: Anticipated to increase by 1.9% in 2024 to 13.42 million tonnes (Source: ILZSG).
• Recycled Lead Market: Expected to grow from $17.39 billion in 2024 to $19.55 billion in 2028, a CAGR of 3.0% (Source: Research and Markets).
• Lead Acid Battery Recycling Market: Forecast to increase by USD 3.41 billion, growing at a CAGR of 8.3% between 2023 and 2028 (Source: Technavio).
• India Lead Acid Battery Market: Valued at USD 4.49 billion in 2023, with a projected CAGR of 6.80% (Source: Techschi Research).
• Global Aluminium Market: Projected to grow from $243.89 billion in 2024 to $393.70 billion by 2032 (Source: Fortune Business Insights).
• India Primary Aluminium Market: Valued at USD 11.28 billion in 2023, predicted to reach USD 19.76 billion by 2030, with a CAGR of 7.6% (Source: AlCircle).
• Global Secondary Aluminium Market: Predicted to reach USD 160.53 billion by 2030, with a CAGR of 6.8% (Source: NextMSC).
• India Waste Plastic Recycling Market: Expected to reach 23.7 Million Tons by 2032, with a CAGR of 9.86% (Source: Imarc).
• Global Plastics Market: Anticipated to reach US$ 829.7 billion by 2032, exhibiting a CAGR of 2.93% (Source: Imarc).
• India GDP Growth: Projection for FY2024 updated to 7%, and 7.2% for FY25 (Source: Asian Development Bank).
• Global Economy: Projected to grow around 3.2% in 2025, lower than historical average.

Planned Strategic Initiatives #

• Operational Framework Broadening: Expanding products, partnerships, and operational integration.
• Capacity Augmentation: Continual expansion, with 11 facilities and a capacity of 302,859 MTPA.
• Turnkey Projects: Providing recycling technology solutions, with over 70 projects executed globally.
• Value Addition: Focus on value-added products like customized lead alloys, lead sheets, lead oxide, and plastic granules.
• Geographic Expansion:
  • Tanzania: Expanded lead recycling, initiated plastic and rubber recycling.
  • Togo: Initiated commercial production of lead.
  • Mundra (India): Increased lead recycling, commenced Red Lead production, and started plastic recycling.
  • Chittoor (India): Expanded lead recycling capacity.
  • Middle East: MOU signed to establish a Battery Recycling Plant (joint venture).
• New Recycling Verticals: Expanding into lithium, steel, rubber, and paper recycling.
• Customer Base Diversification: Focused on diversifying customer base.

Capital Expenditure Plans #

• Tanzania: Capex of ’ 3.33 Crores for lead recycling expansion, ’ 2.25 Crores for plastic recycling, and ’ 3.86 Crores for rubber recycling.
• Togo: Capex of ’ 3.61 Crores for lead recycling plant.
• Chittoor, India: Capex of ’ 21 Crores for lead recycling expansion.
• Ongoing solar panel installations: Invested in 2,815 KW solar panel capacity, plans to install approximately 1,000 KWp more.

Efficiency Improvement Targets #

• Energy Conservation: Target of 10% reduction in energy intensity by FY27 and 20% reduction by FY34 (over FY24 base).
• Oxygen Trials: Conducting oxygen trials during smelting to enhance energy efficiency.
• Electric Refining Furnace: Pilot project to integrate an electric refining furnace.
• Waste Utilization: Improve solid waste utilization up to 10% over FY24 base by FY27. Achieve zero waste to landfill by 2040 for India and 2050 for Gravita group.
• Water management: Reduce water intensity by 10% by FY27 and 25% by FY34. Achieve water neutrality for India operations by 2034 and the whole Group by 2040.
• Renewable Energy: Target of 30% power requirement from RE by FY27 and 50% by FY34. Net Zero Emissions by 2050 for scope 1 and 2.

Potential Challenges and Opportunities #

• Challenges:
  • Industry and Competition Risk: Exposure to economic downturns, rapid changes, and high competition.
  • Currency Exchange Rate Fluctuation: Impact of currency fluctuations on revenue and costs.
  • Commodity Price Volatility: Fluctuations in prices of finished goods linked to LME and MCX.
  • Sustainability Risk: Compliance with ESG regulations and standards.
  • Information Technology: Risks of security breaches and misuse of funds and assets.
  • Technology Obsolescence: Need for continuous investment in technology.
  • Local Regulations Risk: Challenges with diverse regulations in global expansion.
• Opportunities:
  • Circular Economy Growth: Increasing global focus on sustainability.
  • Electric Vehicle (EV) Market: Growing demand for recycled lead batteries.
  • Metal Recycling Demand: Increasing demand for recycled aluminium.
  • Technological Advancements: Opportunities to enhance efficiency.
  • Government Initiatives: Support from government policies promoting recycling.
  • Geographic expansion
• Expanding Portfolio: into lithium, steel, rubber and paper.

Scenario Analysis and Sensitivity #

• Scenario 1: Commodity Price Volatility:
  • Assumption: Significant fluctuation in lead and aluminium prices.
  • Sensitivity: Earnings, cash flow, and reserves are highly sensitive.
  • Mitigation: Hedging and forward contracts on LME.
• Scenario 2: Currency Exchange Rate Fluctuations:
  • Assumption: Weakening of INR against major foreign currencies.
  • Sensitivity: Impact on revenue, import costs, and borrowing costs.
  • Mitigation: Forex management module and natural hedging due to exports.
• Scenario 3: Increased Competition:
  • Assumption: Intensified competition in the recycling industry.
  • Sensitivity: Potential impact on market share and margins.
  • Mitigation: Leveraging competitive advantages.
• Scenario 4: Regulatory Changes:
  • Assumption: Stricter environmental regulations and compliance requirements.
  • Sensitivity: Increased compliance costs and operational adjustments.
  • Mitigation: Continuous monitoring, compliance, regular audits, and investments in sustainable technologies.
• Scenario 5: Geopolitical Tensions:
  • Assumption: Geopolitical conflicts impacting supply chains.
  • Sensitivity: Potential impact on ability to obtain raw material and on operations, particularly in overseas markets.
  • Mitigation: Strong position as a leading recycler.

Audit and Regulatory Analysis of Gravita India Ltd. #

Auditor’s Opinion and Qualifications #

• Opinion: Qualified Opinion.
• Qualification: Walker Chandiok & Co LLP issued a qualified opinion on both the standalone and consolidated financial statements.
• Reason for Qualification: The qualification relates to the accounting treatment of employee benefit expenses related to the sale of treasury shares held by the Gravita Employee Welfare Trust under the terminated Gravita Stock Appreciation Rights Scheme, 2017 (the “Scheme”). The auditors believe the gain on the sale of these shares should be recognized under Other Equity and that the benefits to be provided to employees should be accounted for as employee benefit expenses, in accordance with Ind AS 32 and Ind AS 102. The company directly debited ‘Other Equity’.
• Impact of Qualification: Had the company followed the auditor’s recommended treatment, employee benefit expenses would have been Rs. 20.67 crores higher, and profit before tax and total comprehensive income would have been Rs. 20.67 crores lower for FY 2023-24. There would be no net impact on Other Equity.
• Cost Audit Report was filed during the review period and there were no qualifications.

Key Accounting Policies and Changes #

The company’s main accounting policies:

• Revenue Recognition: Revenue from the sale of products is recognized when control of the goods is transferred to the buyer, net of returns and rebates.
• Inventories: Valued at the lower of cost or net realizable value. Cost is determined using the moving weighted average method.
• Property, Plant, and Equipment (PP&E): Stated at cost less accumulated depreciation and impairment. Depreciation is provided on the straight-line method over the estimated useful lives prescribed under Schedule II of the Companies Act, 2013.
• Financial Instruments: Initially measured at fair value (adjusted for transaction costs, except for those at FVTPL). Subsequent measurement depends on the classification (amortized cost or fair value).
• Impairment of Non-Financial Assets: Assessed at each balance sheet date. If indicators of impairment exist, the recoverable amount is estimated.
• Foreign currency translation: Hyperinflationary economies, all amounts (i.e. assets, liabilities, equity items, income and expenses) of foreign operation, whose functional currency is the currency of a hyperinflationary economy, are translated into INR at the rate of exchange prevailing at the reporting date and the comparative figures shall be those that were presented as current year amounts in the relevant prior year financial statement.
• Employee Benefits: Defined contribution plans (e.g., provident fund) are expensed as incurred. Defined benefit plans (e.g., gratuity) are measured using the Projected Unit Credit Method.
• Leases: Right-of-use assets and lease liabilities are recognized at the commencement of the lease.
• Hedge accounting: For hedging of highly probable forecasted transactions.

Change in accounting policy: The Group’s subsidiary operating in Ghana considered inflation rate and restated it’s statements as per Ind AS 29.

Internal Control Effectiveness #

• Auditor’s Opinion: The auditors issued a modified opinion on the internal financial controls with reference to the financial statements.
• Material Weakness Identified: A material weakness was identified related to the accounting treatment of the employee benefit expenses and sale of treasury shares related to the terminated Scheme, as described above. The auditors stated that internal financial controls over this area were not operating effectively.
• Internal Audit System: The Company has an in-house Internal Audit department and engages external firm KPMG for internal audits. The Audit Committee reviews reports from both.

Regulatory Compliance Status #

• General Compliance: The company generally complied with applicable statutory provisions and Secretarial Standards (SS-1 and SS-2).
• Listing Regulations: The company complied with the corporate governance requirements of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Insider Trading: The company has a policy for prohibition of Insider Trading.
• Whistleblower Policy: A Whistle Blower Policy/Vigil Mechanism is in place.
• SEBI Fine: Fine paid in previous year. The company did have some delays in the past year of 2022-2023 for submissions that were required by Regulation 23(9) and 30.

Legal Proceedings and Their Potential Impact #

• Contingent Liabilities: The company disclosed contingent liabilities related to bank guarantees and claims not acknowledged as debts (primarily tax-related: Excise Duty, Customs Duty, Service Tax, and Goods and Services Tax).
• Customs Duty Demand: A significant issue is a demand order from the Office of the Commissioner of Customs (Preventive), Jodhpur, for Rs. 70.10 crores (excluding interest, fine, and penalty). The company is contesting this order, believing it has a strong case based on legal and tax opinions. Management does not expect a material impact on the financial statements.

Related Party Transactions #

• Transactions: The company entered into related party transactions that were conducted on an arm’s length basis and in the ordinary course of business. There were no materially significant transactions that raised conflict of interest concerns.
• Disclosure: Related party transactions and balances are disclosed in Note 45 (Standalone) and Note 47 (Consolidated).

Subsequent Events #

• Interim Dividend: The Board of Directors declared an interim dividend of Rs. 5.20 per share on April 30, 2024.
• No other material changes have been disclosed by the company which can effect the position of the company.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality Concerns: The qualified audit opinion and the identified material weakness in internal controls raise significant concerns about the quality of accounting practices, particularly regarding the treatment of employee benefits and share-based payments. This suggests a need for the company to strengthen its internal controls and potentially review its accounting policies and procedures.
• Regulatory Risk:
  • High: The ongoing dispute with the customs authorities represents a substantial regulatory risk. An adverse outcome could have a material financial impact, although management believes the risk is low.
  • Moderate: Past delays in regulatory filings, though seemingly resolved, indicate a potential area for improvement in compliance processes.
  • Low: The company generally appears to be compliant with most regulations, but the internal control weakness related to accounting for employee benefits raises a compliance risk. The internal financial controls are weak, showing that improvements can be made to the structure, policies and procedures, etc.