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Recycling: a theme for the future – GPIL acquires Jammu Pigments Ltd

Earlier this month, Godawari Power & Ispat Ltd (GPIL) announced the acquisition of a 51% stake in Jammu Pigments Ltd (JPL) for a consideration of ~Rs.2,550 million. This strategic move marks GPIL's entry into the non-ferrous metal recycling sector, a market with significant growth potential driven by the increasing focus on sustainability and resource optimization. JPL, a prominent player in this industry, specializes in the recovery and processing of zinc, lead, copper, and other non-ferrous metals, leveraging advanced recycling techniques to deliver high-quality products. The acquisition underscores GPIL's commitment to diversifying its business portfolio while contributing to environmentally suitable industrial practices. Since its inception, JPL has focused primarily on manufacturing lead ingots and lead alloys. In 2015, the company expanded its capabilities into hydrometallurgical processes, extracting valuable metals from industrial residues, by-products, dross, and filter cakes generated by Hindustan Zinc Ltd (HZL).

Recycling business to help company diversify its business portfolio

The acquisition of JPL is a strategic move by GPIL to diversify its business portfolio and tap into the expanding potential of India’s metals recycling industry, a key focus area amid rising environmental and climate concerns. Given that India continues to be a net importer of non-ferrous metals, GPIL seeks to play a pivotal role in supporting the nation’s import substitution agenda. Post-acquisition, JPL plans to prioritize capacity expansion and targeted capital investments to alleviate production constraints, boost metal output, and implement cost reduction measures aimed at improving the EBITDA profile. In FY24, JPL recorded EBITDA margins of 6.3%. With these strategic initiatives underway, the management is optimistic about achieving a 10% EBITDA margin target over the next three years.

View and Valuation

Based on our preliminary analysis, we project a CAGR of 17%/25%/14% in Revenue/EBITDA/PAT for JPL during FY25E–27E period. These projections are underpinned by our assumption of EBITDA margins improving from 6.3% in FY24 to 7.5%, driven by debottlenecking initiatives to enhance product yield and ongoing capacity expansions. Additionally, we have assumed a steady utilization rate of 30% (vs ~27% in FY24) throughout the forecast period. On a consolidated basis, we anticipate GPIL to achieve a robust CAGR of 22%/48%/50% in Revenue/EBITDA/PAT over the same period. Our outlook on the company remains positive, with confidence that JPL’s growth initiatives will not disrupt the momentum of GPIL’s core business operations. The pellet plant expansion remains on track for completion by the end of Q1FY26E, while environmental clearance (EC) approvals for mining are expected by the end of FY25E. These developments are poised to bolster GPIL’s long-term growth trajectory, solidifying its position in the market. We rollover our estimates for GPIL to FY27E and continue to maintain a BUY rating on the stock. We value GPIL at 6x FY27E EV/EBITDA to arrive at our revised target price of Rs 284/sh (Earlier Rs 275/sh).

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