Buy Gravita India Ltd for the Target Rs 2,400 by Emkay Global Financial Services Ltd
GRAV reported an in-line 1QFY27, with EBITDA of Rs1.4bn broadly matching our estimate. Lead EBITDA remained strong at Rs24.2/kg, well above guidance despite lower Middle East (ME) exports, supported by arbitrage gains. While Lead volumes declined 10.2% qoq due to West Asia-related supply disruptions, the management expects the impact to persist into 2QFY27 before normalizing. We therefore lower our FY27E lead volume estimate to 203kt (from 213kt), resulting in a 6% cut to FY27E EBITDA, while leaving FY28-29E unchanged. We believe the near-term volume weakness is temporary and should be offset by stronger profitability/t, with copper integration and easing geopolitical disruptions supporting earnings recovery. We maintain BUY and TP of Rs2,400
In-line quarter; EBITDA meets estimates, PAT beats
GRAV reported 1QFY27 EBITDA of Rs1,445mn (+28.0% qoq; +29.4% yoy), broadly in line with our estimate of Rs1,468mn and marginally ahead of consensus (Rs1,388mn). PAT came in stronger at Rs1,064mn, beating consensus by 5.7%, primarily aided by higher other income during the quarter. 1QFY27 EBITDA margin stood at 9.6%, broadly flat sequentially. Lead segment EBITDA remained robust at Rs24.2/kg, well above the company's guidance of Rs19-20/kg, achieved despite lower value-added exports to the ME; we believe the outperformance was largely driven by arbitrage gains. Revenue grew strongly to Rs15,099mn (+43.7% yoy), primarily supported by the consolidation of the recently acquired copper business. Total shipments remained flat sequentially, despite the recent Lead capacity expansion, as 10.2% qoq decline in lead volumes was largely offset by higher plastic and copper volumes.
Transient volume weakness
During the quarter, Lead volumes declined 10.2% qoq/5.0% yoy, primarily due to supply chain disruptions arising from the prolonged West Asia conflict, as 15-20% of the company's scrap imports are sourced from the region. With the disruption expected to persist, the management indicated that Lead volumes could remain under pressure in 2QFY27, potentially keeping both Lead segment and consolidated EBITDA optically weak in the near term. However, we believe these disruptions are temporary and largely anticipated by the market. Moreover, the impact of lower volumes is expected to be partly offset by higher profitability/t. Accordingly, we revise our FY27 Lead shipment estimate to 203kt (from 213kt), resulting in a 6% cut to our FY27E EBITDA, while FY28-29E remain unchanged.
Geopolitical headwinds to ease; maintain BUY
We view the quarter as operationally stable, with sequential EBITDA growth despite the continued impact of the West Asia conflict on the Lead business. The pressure from lower value-added exports to the Middle East was partly offset by contributions from the copper business and incremental volumes. We expect this headwind to ease as the geopolitical situation normalizes, providing scope for further improvement in lead profitability. We maintain BUY and TP of Rs2,400.
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