Gravita up 38% in 4 days after Motilal initiates 'buy'; zooms 88% in 1 mth

The company said due to stringent government regulations under the Battery Waste Management Rules (BWMR) and Extended Producers Responsibility (EPR), the availability of domestic scrap is increasing

Shares of Gravita India hit a new high of Rs 2,463, as they surged 11 per cent on the BSE in Monday’s intra-day trade in an otherwise range-bound market. In comparison, the BSE Sensex was up 0.05 per cent at 80,476 at 10:25 am.

The stock of industrial minerals company is quoting higher for the fourth straight trading day, rallied 38 per cent during the period, after Motilal Oswal Financial Services (MOFSL) initiated coverage on the stock with a ‘Buy’ rating. However, the stock is currently trading over the brokerage firms’ target price of Rs 2,350 per share.

In the past one month, the market price of Gravita has zoomed 88 per cent. In the past one year, it skyrocketed 228 per cent, as compared to the 23.3 per cent rally in the BSE Sensex.

 

Gravita is one of the key players in the growing recycling industry in India. The company is primarily engaged in recycling lead (88 per cent of revenue in FY24), aluminium (~8 per cent), and plastics (2 per cent). Additionally, it offers turnkey solutions to its customers, assisting them in setting up recycling plants.

The Indian waste management market is witnessing a healthy growth rate, owing to the high population density and increased industrial activity, which is generating high amounts of wastes, both hazardous and non-hazardous.

Circular economy concept is relatively new to India. However, the concept is gaining prominence. The Indian waste management industry offers huge potential, as only 30 per cent of the 75 per cent recyclable waste is being recycled currently. Proper policies for collection, disposal, and recycling and slowly growing efficient infrastructure creation are few of the many reasons putting the country in a brighter spot of the global recycling industry, the company said.

Gravita witnessed remarkable growth in volumes; revenues, EBITDA, and profit after tax by 29 per cent, 29 per cent, 33 per cent, and 29 per cent respectively during June 2024 quarter (Q1FY25). Proportion of Value-added products and availability of domestic scrap continues to increase. Gravita is well-positioned for growth with its ambitious expansion plans, strong balance sheet and stringent Government Regulations.

Due to stringent government regulations under the Battery Waste Management Rules (BWMR) and Extended Producers Responsibility (EPR), the availability of domestic scrap is increasing. And consequently, the company’s sourcing of domestic scrap is also rising. Of the total scrap Gravita has sourced in India in Q1FY25, more than 40 per cent is domestic scrap, depicting a growth of more than 50 per cent in volume on a year-on-year basis; the company said in its Q1FY25 earnings conference call.

The Ministry of Finance has notified aluminium alloy under the Securities Contracts Regulation Act of 1956. The company anticipates the launch of the aluminium alloy commodity derivative on the MCX shortly.

“This development will play a crucial role in managing the risk associated with the price volatility. By effectively hedging against price fluctuations, we can ensure more stable and predictable financial outcomes,” the management said.

The management has set an ambitious growth plan called Vision 2028, to diversify into lithium-ion, steel and paper recycling; achieving revenue a compound annual growth rate (CAGR) and profit growth of 25 per cent, and 35 per cent along with increasing the contribution of value-added products, and non-lead business to 50 per cent,  and 30 per cent .

According to MOFSL, Gravita’s core business of lead recycling is expected to sustain the strong revenue growth momentum (at 21 per cent CAGR over FY24-27), fueled by favourable regulatory changes and the formalisation of the sector (BWMR, 2022). 

However, the other key business segments, such as Aluminum and Plastic, are expected to report a much higher revenue CAGR of ~49 per cent and 52 per cent, respectively, propelled by changing business scenario due to the introduction of new hedging mechanisms and stricter implementation of regulatory policies (such as the Plastic Waste Management Rule; PWMR).

The brokerage firm believes that with strong industry tailwinds, favourable regulatory policies, the availability of additional hedging mechanisms, and the absence of significant supply chain disruption, Gravita can ramp up the utilisation materially (driving ~30 per cent sales volume CAGR over FY24-27E).