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Strong run continues

Gravita India (GRAV) clocked consol. volume growth of 29% YoY in Q1FY25, led by lead vol. growth of 43% YoY (on a cyclone-impacted base albeit in line with overall guidance). Also, PAT (after MI) grew 29% YoY. The mgmt indicated FY25 consol. volume growth of >25% YoY, besides reiterating ‘Vision 2028’. The company highlighted progress on the regulatory framework (penalties for non-compliance of BWMR and EPR norms expected soon), with gradual stabilization of AL margins toward spurring volume growth. The mgmt has slightly upped its lead EBITDA/kg guidance to Rs18-19 from Rs17-18, on efficiencies and scale-related benefits. Efforts are under way in new verticals, with due diligence in paper and steel, and pilot in Li-ion. We retain BUY on GRAV, hoisting and rolling-over to Sep-25E TP of Rs1,650/sh (25x target P/E).

Result Highlights

GRAV reported Q1FY25 consol adj revenue/adj EBITDA/PAT (after MI) at Rs9.1bn/912mn/673mn, up 28%/19%/29% YoY and up 3%/down 2%/down 2% QoQ. Total volumes rose 29% YoY/were flat QoQ to 47.6kt, with lead growth strong at 43% YoY to 41.9kt. AL volumes saw a decline of 48% YoY to 2.5kt, whereas plastic volumes rose 18% YoY to 3.2kt, in Q1. Reported EBITDA/kg for lead/AL/plastic was Rs19.3/19.4/10.1, flat/up 27% (higher LME prices)/down 10% QoQ. Lead EBIT grew 79% YoY to Rs825mn, whereas AL grew 44% YoY to Rs47mn and plastics fell 16% YoY to Rs31mn. Turnkey project EBIT fell 34% QoQ to Rs24mn. D/A fell 48% QoQ to Rs65mn due to one-offs of Rs30-40mn in Q4FY24 relating to Ghana currency depreciation impact. Capex incurred in Q1 was Rs150-200mn in existing verticals. Gross/net debt was Rs5.5/4.7bn as of end Jun-24, while working capital days have lowered to 80 in Q1 from 85, QoQ. In Q1, lead/AL/plastic capacity utilization was 70%/45%/40%, respectively.

Management KTAs

The management expects AL hedging mechanism to be available from end-Q2FY25. The company plans capacity additions in Q2 at Ghana and Mundra. Steady-state AL EBITDA/kg can be expected at Rs14-16. BWMR and EPR norms are resulting in higher domestic scrap availability, with Q1 domestic sourcing at 42% for Indian plants (up 50% YoY, in volume terms). GRAV plans to commission a rubber recycling plant with capacity of 9ktpa and capex cost of Rs300mn at Mundra, in H1FY26. Paper and steel verticals are likely to be operational by FY27. Capex target for FY25 is Rs1.8bn – Rs1.4bn/400mn in existing/new verticals. Consol effective tax rate for 2-3 years is expected at 10-11%. GRAV’s peak utilization is 75-80% and it targets 70-75% to meet >25% volume CAGR.

Valuation

We value GRAV at Sep-26E (roll-over from Mar-26E) P/E-based TP of Rs1,650/sh (raising target multiple to 25x, from 23x earlier, led by implementation of BWMR and EPR norms and a strong outlook, including diversification into new verticals). Key risks: highly adverse commodity prices, shutdowns/project delays, competition, country-based risks.

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