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For Q2, Gravita India (GRAV) reported consol. adj. revenue/EBITDA/PAT of Rs8.4bn/Rs798mn/Rs579mn, up 23%/24%/30% YoY, led by 25% YoY lead volume growth. Consol. vol. grew by 14% YoY, as AL was impacted by macros, while plastics are ex-Nicaragua now. Mgmt. has reiterated its growth targets, besides awaiting approvals to set up a Li-ion recycling plant in Mundra, while paper is on the cards in the next 1-2 years. GRAV’s balance sheet remains healthy with credible ESG funding being received. We revise FY25E EPS upwards by 10%, assuming better margin profile. We raise our TP to Rs1,300 from Rs915 due to rollover to Sep-25 (adding Rs214 incl. EPS hike) and building better target P/E of 23x (vs. 20x, adding Rs170) led by consistent performance. Our FY24E EPS is down 5% due to higher net finance cost. Retain BUY

Gravita India: Financial Snapshot ( Consolidated)

Key Result Highlights

Lead volumes rose 25% YoY to 38.8kt, while aluminum (AL)/plastics fell 21/27% YoY to 3.4/3.0kt. Overall EBITDA/kg was up 9% YoY/down 15% QoQ to Rs17.7. Reported lead EBITDA/kg was flat YoY/down 16% QoQ at Rs17.6. AL EBITDA/kg rose 26% YoY/2% QoQ to Rs14.8, while plastic EBITDA/kg was flat QoQ at Rs10.2, down 8% YoY. Opex/kg rose 4% YoY to Rs18.4, down 9% QoQ. Turnkey EBIT rose 2.5x YoY but was down 64% QoQ to Rs36mn. D/A rose 8% QoQ to Rs86mn, while finance cost fell 12% QoQ to Rs112mn. Net debt rose by 2% QoQ to Rs3.8bn. Net working capital cycle rose to 80 days in H1 vs. 72 days in FY23, which is reflective of a 26% increase in net debt HoH. Hence, H1 OCF was weak at Rs258mn in H1FY24 vs. Rs1.5bn YoY due to working capital impact, mainly receivables, which have, however, normalized in Oct-23.

Concall Key Takeaways

GRAV is working on hedging mechanism for AL and plastics, besides developing OEM relationships, and estimates steady-state AL EBITDA of Rs16-17/kg. VAP share stood at 44%/48% in Q2FY24/H1FY24. Domestic sourcing formed 20%/27% of the total in Q2FY24/H1FY24. It utilized arbitrage opportunities, in terms of favorable spreads resulting in sourcing in Africa and sale from India in Q2. GRAV expects stability in the AL market by FY24-end, while closure of Nicaragua facility resulted in ~1kt per quarter of lower plastic volumes. More details on the paper recycling plant in Central America will be shared by Q3-Q4FY24. The price of imported battery scrap is 50-55% of LME, while domestic sourcing is 58-60%. Every ton of lead recycled requires ~50 liters of FO, while pyrolysis oil from rubber recycling is also being used. GRAV’s share in the Indian organized lead recycling market is 15-17%.

Valuation

We value GRAV at Sep-25E P/E-based TP of Rs1,300, building a steady outlook and its position in the circular economy. We have trimmed FY24E EPS by 5% (EBITDA unchanged) to build higher finance costs and lower Other Income. Key risks: Highly adverse commodity prices, shutdowns/project delays, competition, & country risks.

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