GRAVITA INDIA LTD.

July 10, 2021

December 28, 2020
a Company Background
GRAVITA INDIA LTD. Gravita India Limited (GIL) is one of India’s leading nonferrous metal recyclers and
India’s largest secondary lead metal producing company. It is in the business of
Industry Metal – Non Ferrous recycling lead acid batteries, lead scrap, aluminum scrap and plastic scrap at
various locations across the globe. It is not only present in India but also has a
No. of Shares (Crore) 6.90 significant presence outside India as well. The state-of-the-art recycling facilities
Face value (Rs) 2 are located in the established growth centres of Asia, Africa and Central America. It
enjoys patronage of its products in more than 59 countries. In addition, GIL also
Mkt. Cap (Rs. Crore) 1008.78 provides turnkey solutions to recycling industry and has supplied more than 60
Price (09/07/2021) 146.20 recycling projects across the world. It has a well-entrenched global scrap collection
network that helps it to secure scrap resources at globally competitive prices.
Book Value (Rs) 38.95 Investment Rationale
P/BV 3.75  AS of now, GIL has 13 strategically located recycling facilities in its kitty in Asia,
533282 Africa & America put together in close proximity to procure key raw material which
BSE Code
improves its accessibility and partially mitigates regulatory risk arising from
NSE Code GRAVITA environmental concerns of operating in a single location.
Bloomberg GRAV:IN  GIL has an aggregate production capacity of 160,000 plus Metric Tonne (MT) with a
healthy robust order book of over 60,000 MT with existing domestic capacity utilization
Reuters GRAI.NS of 65-70% holistically and 33% overseas capacity at work.
Avg. Weekly Volume 13,77,372  At Present, 87% of GIL’s topline comes from recycling of lead acid batteries and rest
(NSE) is from other segments e.g. aluminum and plastic recycling. Management is envisaging
52 W H/L (Rs) 148.50/42.00 of increase its offtake from aluminum & plastic recycling to about 25% from
contemporary 13%. In terms of sales mix 52% is domestic and rest is export sales.
Shareholding Pattern %  GIL is foraying into recycling of lithium-ion batteries used in electric vehicles. In an
Indian Promoters 73.00 endeavor to fructify the same GIL is carving out a recycling plant in Mundra, Gujarat
which is expected to become operational by August’2021. After the establishment of the
Institutions 0.25 said plant, imported raw material will be recycled in Mundra and will be exported back
Non- Instutions 26.75 from there.
 Given the fact that dependency on imported scrap is easing, the ratio of scrap from
Total 100 imports to domestically recycled material will be 30:70, from the current levels of 70:30.
(As on March 31, 2021) The reduction in scrap imports will improve the company’s working capital cycle.
Recommendation  GIL’s four African units in Ghana, Tanzania, Senegal and Mozambique are all set to
consume scrap from Africa resulting in further savings in logistic costs and reduction in
BUY working capital cycle.
 Prospective tie-ups with major battery makers like Amara Raja Batteries and HBL
Power would not only help in sourcing increased raw material domestically but would
also expand its operating margins.
 GIL’s capability to produce customized and Value Added Products (VAP) for
diversified customer segments provides them with better contributions and larger pie of
customer’s product mix.
 In Q4FY21 its net sales swelled 15.57% to Rs.438.31 crores and operating profit
jumped 28.20% to Rs.37 crores backed by strong operating leverage and leading up to a
invariable growth in consolidated net profit to Rs.21.35 crores and an EPS of Rs.3.09.
Recommendation
GIL with expanded, augmented capacity at the anvil besides robust VAP
portfolio combined with reduction in working capital. At the CMP Rs.146.20
the scrip is trading at ~13.29 times its FY23e earnings. Hence, we recommend
a buy on the stock with a target price of Rs.190/- which implies a prospective
and potential upside of ~29.96 with an investment horizon of 9-12 months.
Particulars (In
Q4FY21 Q4FY20 Var% FY21 FY20 FY19 FY18
Rs.Crs)
Net Sales 438.31 379.26 15.57 1409.75 1347.80 1241.73 1017.40
Operating Profit 36.99 28.85 28.19 119.09 101.73 67.32 93.20
Consolidated Net Profit 21.35 12.61 69.26 52.48 33.18 15.49 44.09
PBIDTM% 8.44 7.61 10.92 8.45 7.55 5.42 9.05
PATM% 5.35 3.55 50.58 4.03 2.71 1.56 4.63
EPS (Rs.)
Pr 3.09 1.83 69.26 7.60 4.81 2.25 6.42
*Source: Company, Ace Equity, AUM Research

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 GRAVITA INDIA LTD.
July 10, 2021
December 28, 2020

Segments Revenue Pie:

*Source: Company, Ace Equity, AUM Research

Key Operating Indicators:

 The operating margins of the company improved due to higher sale of lead alloys and Value Added Products (VAP).
The sales from Lead Alloys and VAP increased by 60% against the corresponding quarter of the previous year.

 The bottom line of the company improved significantly due to the stabilization of 100% hedging policy of the
company and economies of scale.

 The increase in production was due to higher capacity utilization at all the existing facilities and stabilization of
new facilities situated in Ghana and Tanzania.

 The increase in production at overseas facilities helped in increasing the bottom line due to higher margins at the
aforesaid locations. Further, the company has focused on improving its customer segmentation which has resulted
in better profit margins.

 Over the next few quarters, the company will majorly focus to improve its capacity utilization at existing facilities,
increasing the production and sales of high margin products like lead alloys and Value Added Products by
strengthening its global scrap collection network and also by venturing into new territories.

 The company is also focusing on developing the export market for its aluminum alloys which will result in reduced
working capital cycle coupled with improved profit margins.

Premiumization:

 The shift in focus to enhancing value-added products in its portfolio, particularly concentrating on alloys and VAP
wherein GIL commands better premiums aided with bolstering technology backbone and strong processes, will
result in higher margins & profitability. The ratio of VAP has increased to 44% and it will accelerate to 70-80% in
2-3 years.

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July 10, 2021
December 28, 2020

Shift – Informal to formal:

 With redefining of Battery Waste Management Rules (BWMR), Extended Producers Responsibility (EPR) and
stricter implementation of GST, the scrap availability for formal recycling sector has increased and is further
expected to grow. GIL having Pan India presence and association with OEM’s will benefit the most from his
shift.

 GIL is slated to reap and enjoy most of the benefit emanating out of the structural shift as the demand and price of
lead acid would only grow and is going to play an indispensable role which is an emerging tailwind for GIL.

Reinforcing specialist position in secondary lead – Poised to grow:

 GIL has a specialist position in secondary lead manufacturing, its core competencies includes deeply-embedded
global lead scarp collection network and plants that are located close to these scrap collection centres. R&D
expertise and sound knowledge around the science of lead has reinforced its turnkey services offering for third-
party clients in recycling infrastructure, thus opening up a growing revenue stream and enabling it to
continuously improve its technical services.

 Company has made good progress in establishing a new lead recycling facility in Accra, Ghana through technology
transfer to a location that offers with the benefits of a free zone. GIL has expanded and augmented the
production capacity of its Ghana plant from 12,000 MTPA to 16,200 MTPA and that too with the use of its
proprietary internal accruals.

 GIL has made a capital investment of about Rs.10 crores for the aforesaid expansion, and hitherto has deployed
approximately Rs.31 crores for establishing this recycling facility. Company has also commenced manufacturing
of customized products in Ghana wherein it enjoys premium margins. This facility alone is expected to
contribute about Rs.200 crores in topline in near future with gross margins of around 15%.

 Further, as part of key focus to enhance its footprint in Africa, GIL has also established Tanzania’s first
export-oriented recycling plant in Dar es Salaam, a major city and commercial port, with a capacity of
3,000 MTPA for lead and 6,000 MTPA for aluminum.

 A frugal yet conservative approach in establishing Mundra plant will help the company in saving the inward
and outward logistics cost as Mundra facility is much closer to the port which in turn will reduce the
working capital requirement of the company. Moreover, the above expansions will increase the share of
business from overseas market which will result in incremental margins.

Growth & efficiency – Key Focus area:

 Widening and strengthening of recycling platform is a natural extension, as it enables GIL to achieve synergies in
waste aggregation, while also lowering the costs associated with collection. This feature was most visible in new
6,000 MTPA aluminum recycling facility in Tanzania that witnessed high stabilization and reasonable favorable
performance since its establishment. With growing focus on value-addition, blended with lower resource costs GIL
achieved both topline and profitability acceleration at its aluminum recycling business.

 The company continues to focus on bolstering its business prospects, fundamentals and key potential in India and
Africa. It is also contemplating into tapping opportunities in Latin America, Europe and Australia. With a view to
further fueling its foundations company is in the process of developing new scrap collection centres in
Africa and Latin and North America, while also consolidating its pan-India scrap collection network.

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July 10, 2021
December 28, 2020

ROCE Key Drivers:

 On the GIL’s borrowings front, GIL repaid about Rs.17 crores last year and debt is expected to reduce further over
next couple of years. As a Part of its frugal and prudent approach the company’s short-term working capital loan to
the tune of of Rs.200 crores is hedged against client orders. As things percolate down to normalcy improving
industry dynamics would only underpin the underlying fundamental drivers of GIL to attain and command
reasonably better ROCE.

 Availability of cheap raw materials in India is going to provide GIL with a huge fillip and an impetus which in turn
would only result in further savings in logistic costs and would elicit desired outcome in bringing down its working
capital requirements and therefore ROCE would enhance invariably.

Sectoral Outlook:

 The automobile sector, the telecom sector and the power sector (solar, wind and invertors) will be the main
demand drivers for lead usage. Lead prices are influenced by the global economic conditions and the geopolitical
conditions of the major producing countries & major utilizing countries.

 Mine and metal demand-supply dynamics, inventory levels and currency fluctuations also play into determining
lead prices.

 According to the International Energy Agency (IEA), 100-120 Giga Watt Hour (GWH) of electric vehicle batteries
will become obsolete by 2030, a volume roughly equivalent to current annual battery production. Without effective
measures to address such volumes, this can become a massive environmental burden. Spent batteries can be
channeled to second-use or recycling with the aid of policies that help to steer these markets towards sustainable
end-of-life practices.

 Demand for recycling lithium batteries is expected to become viable in six to seven years, by when Gravita
India will be ready for the market. Lithium-ion battery pack prices, which were above $1,100 per kilowatt-hour
in 2010, fell by 89% in real terms to $137/kWh in 2020.

 The government’s focus and thrust on recycling has underpinned the availability of domestic raw material, which
was hard to obtain earlier. With the implementation of the Battery Waste Management Rules (BWMR), battery
companies have increased their share of recycling through authorized recyclers and this has significantly boosted
the availability of raw material in the domestic market.

 Reliability on imported scrap is easing and over the next few years, the ratio of scrap from imports to domestically
recycled material will be 30:70, from the current levels of 70:30.

 Going forward, organized players with strong sourcing ability with better operating efficiencies, geographically
diversified clientele and a conservative forex/working capital management policy are likely to exhibit relatively
better growth. Therefore, the demand for lead acid recycling batteries would remain strong and likely to bolster
further in the foreseeable future on the back of a demand from automotive, industrial, telecom and new emerging
segments like data centres.

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 GRAVITA INDIA LTD.
July 10, 2021
December 28, 2020

Financials

Quarterly Results (Value in Rs. Crs)

Particulars Q4FY21 Q4FY20 Var% FY21 FY20 Var%
Net Sales & Other Operating Income 438.31 379.26 15.57 1409.75 1347.80 4.60
Total Expenditure 396.03 350.27 13.07 1297.83 1247.07 4.07
PBIDT (Excl OI) 42.27 28.99 45.80 111.92 100.73 11.11
Other Income -5.28 -0.14 -3755.47 7.17 0.99 624.24
Operating Profit 36.99 28.85 28.19 119.09 101.73 17.06
Interest 6.94 6.83 1.61 27.87 31.43 -11.33
Exceptional Items 0.00 -5.23 -100.00 0.00 -5.23 -100.00
PBDT 30.05 16.79 78.92 91.22 70.30 29.76
Depreciation 5.00 4.50 11.25 20.30 18.13 11.97
Tax 1.59 -1.18 234.92 14.08 10.35 36.04
Consoidated Net Profit 21.35 12.61 69.26 52.48 33.18 58.17
EPS (Rs.) 3.09 1.83 69.26 7.60 4.81 58.00

Income Statement (Value in Rs. Crs)

Particulars FY21 FY20 FY19 FY18
Net Sales & Other Operating Income 1409.75 1347.80 1241.73 1029.48
Total Expenditure 1297.83 1,247.07 1,179.86 925.79
PBIDT (Excl OI) 111.92 100.73 61.87 91.61
Other Income 7.17 0.99 5.45 1.59
Operating Profit 119.09 101.73 67.32 93.20
Interest 27.87 31.43 26.16 20.32
PBDT 91.22 70.30 41.16 72.88
Depreciation 20.30 18.13 11.56 8.69
PBT 70.92 46.94 29.59 64.19
Provision for Tax 14.08 10.35 10.19 16.55
Consoidated Net Profit 52.48 33.18 15.49 44.09
EPS (Rs.) 7.60 4.81 2.25 6.42
*Source: Company, Ace Equity, AUM Research

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 GRAVITA INDIA LTD.
July 10, 2021
December 28, 2020

Balance Sheet (Value in Rs. Crs)

Particulars FY20 FY19 FY18 FY17
EQUITY AND LIABILITIES
Share Capital 13.81 13.75 13.74 13.69
Share Warrants & Outstandings 0.00 0.97 0.70 0.89
Total Reserves 211.37 184.61 175.24 135.56
Shareholder's Funds 225.18 199.32 189.68 150.14
Minority Interest 5.20 4.67 4.90 4.65
Secured Loans 42.90 28.46 14.82 19.82
Deferred Tax Assets / Liabilities 2.61 2.30 1.49 -1.55
Other Long Term Liabilities 4.54 0.00 0.00 0.00
Long Term Provisions 4.06 3.07 2.32 1.66
Total Non-Current Liabilities 54.12 33.83 18.62 19.93
Trade Payables 85.31 98.22 47.49 14.10
Other Current Liabilities 27.84 20.77 13.70 19.31
Short Term Borrowings 212.29 211.70 210.75 141.73
Short Term Provisions 4.02 4.02 6.65 5.10
Total Current Liabilities 329.46 334.71 278.59 180.24
Total Liabilities 613.96 572.53 491.80 354.97
ASSETS
Gross Block 221.50 159.25 120.95 73.60
Less: Accumulated Depreciation 39.86 22.74 12.04 5.51
Net Block 181.64 136.52 108.91 68.09
Capital Work in Progress 14.65 46.22 23.88 32.44
Non Current Investments 0.01 0.02 0.04 0.04
Long Term Loans & Advances 7.32 13.75 5.40 6.40
Other Non Current Assets 0.23 6.45 6.95 7.37
Total Non-Current Assets 203.85 202.96 145.18 114.34
Inventories 224.36 182.61 158.48 109.37
Sundry Debtors 67.53 96.46 113.15 60.27
Cash and Bank 20.32 21.87 16.58 17.76
Other Current Assets 15.75 6.54 3.22 0.75
Short Term Loans and Advances 82.16 62.09 55.18 52.48
Total Current Assets 410.11 369.57 346.62 240.64
Net Current Assets (Including Current Investments) 80.65 34.86 68.03 60.39
Total Current Assets Excluding Current Investments 410.11 369.57 346.62 240.64
Total Assets 613.96 572.53 491.80 354.97
*Source: Company, Ace Equity, AUM Research

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 GRAVITA INDIA LTD.
July 10, 2021
December 28, 2020

Aum Capital RESEARCH DESK

Rajesh Agarwal Head of Research 033-4057 21221 rajesh.agarwal@aumcap.com

TanyaKothary Manager – Equity Research 033-4057 21221 tanya.kothary@aumcap.com

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