Financial Highlights:

Q3FY25 Result Highlights
Gravita India reported strong revenue and profitability growth driven by broad based growth across segments. The company reported healthy revenue growth of 31% YoY to Rs.996 cr, aided by total volume growth of 33% YoY. Consolidated sales volume rose 33% YoY to 53KMT. Lead/ aluminum/ plastic segment volume grew +27%/ +92%/ +33% YoY to 43.9/ 6.3/ 3.3 kmt. Value-added product contribution improved to 46%; domestic availability of scrap improved 50% YoY. Consolidated EBITDA stood flat at Rs.80 cr while margins declined to 8%. However, adj. EBITDA/kg declined 14% to Rs.19.1, due to higher sourcing of domestic scrap (44%) in Q3. Contribution of value-added products stood at 46% for Q3. Adjusted EBITDA margin contracted 160bp YoY to 10.3%, while adjusted EBITDA grew 14% YoY to Rs.100 cr. PAT grew 28% YoY to Rs.78 cr driven by healthy topline growth.

Lead business revenue grew 23% YoY to Rs.840 cr, led by volume growth of 27% YoY to 44KMT. EBITDA/kg stood at Rs.19 (down 19% YoY).

Aluminum business revenue grew 2.4x YoY to Rs.120 cr. Volumes jumped 1.9x YoY to 6.3KMT, while EBITDA/kg surged 2.3x YoY to Rs.20.1.

Plastic business revenue grew 44% YoY to Rs.25.5 cr and volumes rose 33% YoY to 3.3KMT. EBITDA/kg declined 7% YoY to Rs.10.

Key Conference call takeaways

Financial Highlights for Q3 FY25:

• A notable increase in consolidated revenue by 31% YoY and 7% QoQ, reaching Rs.996 crores.
• Adjusted EBITDA showed a healthy growth of 14% YoY, climbing to Rs.102 crores with margins standing at 10.3%.
• The company saw an uptick in PAT by 29% YoY, totaling Rs.78 crores, with margins at 7.8%.
• An impressive 46% of revenue was derived from value-added products.

Operational Insights:

• Volume growth reached 33% in Q3 FY25, with lead, aluminum, and plastic volumes advancing QoQ and YoY.
• Domestic scrap availability surged by 50% YoY, a result of government regulations like BWM Rules and EPR.
• Aluminum capacity utilization recorded at 46% for nine months and 48% for Q3 FY25.
• Scrap processing for Indian operations was split, with 44% domestically sourced and 56% imported. Globally, 35-36% was sourced overseas.

Strategic Vision:

• Aspiring for over 25% volume CAGR, more than 35% profitability growth, with a strategic ROIC target of above 25% over FY24-28. Gravita expects non-lead business/value-added products mix at 30%/50% in the next three to four years.
• Aiming for a capacity of over 5,00,000 MTPA and a capital expenditure (capex) of Rs.600+ crores by FY27.
• Planning to initiate an aluminum hedging mechanism by the first quarter of FY26.
• Forecasting significant growth in volumes: 18-20% for lead, 40% for aluminum, and 70% for plastic.
• Aiming to increase non-lead business share beyond 30%, usage of renewable energy above 30%, and reduce energy consumption by 10%.
• Expecting inflow of Rs.2,500 crores over the next three years, with Rs.1,500 crores from internal cash and Rs.1,000 crores from recent QIP.
• Allocating approximately Rs.1,500 crores for expansion, with an additional Rs.1,000 crores needed for working capital.
• Projected gross debt to substantially reduce by the end of March, anticipating new debt for further expansion and M&A.
• Guidance for EBITDA margins: Rs.18-19 per kg for lead, Rs.14-15 per kg for aluminum, and Rs.10 per kg for plastic.
• Planning for slight margin improvements over the next few years, driven by enhanced value-added content and better capacity utilization.
• Eyeing acquisitions worth Rs.800-900 crores over three years.
• Expect Gravita to maintain the current market share despite increase in capacity by OEM and competition. This will be driven by the industry getting organized. Expect 3x increase in battery scrap availability over the next 3-4 years on the back of regulatory tailwinds.

Debt: Expect to be zero gross debt by FY25 end.

Expansion

• Ghana: Ghana Recyclers Limited (a step down subsidiary) has commenced commercial production of 4 kmtpa capacity of recycled aluminum alloys in the first phase. In the second phase, the capacity will be increased to 8 kmtpa. Mundra: Pilot plant for lithium ion recycling and the first rubber recycling plant in India are on track to start commercial production by H1FY26. Oman (lead): Expansion on track. Additionally, evaluating opportunities for acquiring an existing recycling plant in the Gulf region. Dominican Republic (paper): Expect license to be received by 1HFY26.
• Industry scenario: The upcoming end-of-life vehicle (ELV) policy, effective 1stApr’25, will mandate the channeling of used vehicles to registered vehicle scrappage facilities (RVSFs), which will supply battery scrap to recyclers. While the majority of battery scrap currently comes from the replacement market (~70%), this share will decline after the regulation boosts inflows from ELVs

Additional Highlights

• Gravita Netherlands BV acquired complete ownership of Navam Lanka Limited, increasing its stake from 52% to 100%.
• Successfully raised Rs.1,000 crores through a Qualified Institutional Placement (QIP) for capacity expansion and diversification efforts.
• Progressing on a pilot project for recycling lithium-ion batteries and the inauguration of the first rubber recycling plant in Mundra, India, anticipated to start operations in H1FY26.
• Committed progress towards strategic ESG goals.
• Mundra lead capacity at 72,000 MT with projection plans to reach nearly 100,000 MT.
• Exploring strategic mergers and acquisitions to drive growth.
• Lithium-ion battery recycling is currently at the pilot stage with no immediate revenue expectations over the next 3-4 years.

Outlook

• Gravita India Limited aims for over 25% volume CAGR and 35% profitability growth, targeting a ROIC above 25%.
• By FY27, it plans to reach a capacity of over 5,00,000 MTPA with a capex of Rs.600+ crores.
• The company will initiate aluminum hedging by Q1 FY26 and expects significant volume growth 18-20% for lead, 40% for aluminum, and 70% for plastic.
• It plans to increase non-lead business share beyond 30% and renewable energy usage above 30%. Rs.2,500 crores inflow is expected over three years, with Rs.1,500 crores for expansion.
• Gravita is eyeing acquisitions worth Rs.800-900 crores over three years.

Outlook & valuation

Gravita India reported robust revenue and PAT growth for the quarter ended Q3FY25 driven by broad based growth across segments. Gravita is a play on regulatory tailwinds in India operations, capacity expansion, and long-term benefit of foray into new recycling verticals. The company has demonstrated a robust growth track record, and we expect the momentum to continue in the coming quarters. The government’s focus on a circular economy could provide a sustained growth opportunity, while it’s focus on increasing non-lead/value-added products business share to 25%+/50%+ would act as a key growth catalyst.

Gravita is well-positioned for growth due to its strategic focus on ambitious capex and capacity expansion, global operations, and an integrated supply chain. We believe that the company benefits from stringent regulatory compliance, operational excellence, and a focus on high-margin products. Proactive risk mitigation through hedging, an experienced management team, and strong stakeholder support will further bolster its growth prospects.

Gravita, being a key player in the burgeoning recycling industry in India, is expected to report robust earnings growth in the medium term on account of: 1) accelerated growth in the lead recycling segment fueled by favorable regulatory changes; 2) higher growth in new segments (aluminum and plastic) and the addition of the steel and paper segments; 3) robust capacity addition across segments; and 4) an improvement in the mix of value-added products. 5) Tapping into high-potential global markets like Europe and the US. At CMP of Rs.2065, the stock is trading at 34x FY26E. We maintain HOLD rating on the stock.