Gravita India Limited
7,851words
141turns
14analyst exchanges
4executives
Management on call
Sabri Hazarika
EMKAY GLOBAL FINANCIAL SERVICES
Yogesh Malhotra
CHIEF EXECUTIVE
Naveen Prakash Sharma
EXECUTIVE
Sunil Kansal
CHIEF FINANCIAL OFFICER
Key numbers — 40 extracted
Rs.630 Crore
strong start to new fiscal year with company delivering revenue from operations of approximately Rs.630 Crores in Q1 FY2023 registering a growth of 41% on year-to-year basis. The performance was driven by bo
41%
ing revenue from operations of approximately Rs.630 Crores in Q1 FY2023 registering a growth of 41% on year-to-year basis. The performance was driven by both volumes and improved realization. Our o
42%
erformance was driven by both volumes and improved realization. Our overseas business contributed 42% to the revenues where we enjoy better margins. We have witnessed growth in volumes of lead and al
7%
price mix, topline growth was supported by increase in both volume and prices. Volume growth was 7% on a year-on-year basis to 31,762 metric tonnes. Value added products continued to see healthy in
Rs.64.69 Crore
n its contribution and stood at 41% of total revenues. The company has delivered strong EBITDA of Rs.64.69 Crores, a growth of 73% on a year-on-year basis from Rs.37.40 Crores in same quarter last year. EBITD
73%
at 41% of total revenues. The company has delivered strong EBITDA of Rs.64.69 Crores, a growth of 73% on a year-on-year basis from Rs.37.40 Crores in same quarter last year. EBITDA margins increased
Rs.37.40 Crore
pany has delivered strong EBITDA of Rs.64.69 Crores, a growth of 73% on a year-on-year basis from Rs.37.40 Crores in same quarter last year. EBITDA margins increased by 90 basis points to 10.29% as compared to
90 basis point
a year-on-year basis from Rs.37.40 Crores in same quarter last year. EBITDA margins increased by 90 basis points to 10.29% as compared to 8.38% in Q1 last year. Margins also improved and was driven by strong c
10.29%
is from Rs.37.40 Crores in same quarter last year. EBITDA margins increased by 90 basis points to 10.29% as compared to 8.38% in Q1 last year. Margins also improved and was driven by strong contribution
8.38%
s in same quarter last year. EBITDA margins increased by 90 basis points to 10.29% as compared to 8.38% in Q1 last year. Margins also improved and was driven by strong contribution from the overseas
Rs.42.52 Crore
d products and economies of scale coming from increased capacity. Net profit for the period was Rs.42.52 Crores compared to Rs.21.78 Crores in the same quarter last year. On the profitability front overseas b
Rs.21.78 Crore
f scale coming from increased capacity. Net profit for the period was Rs.42.52 Crores compared to Rs.21.78 Crores in the same quarter last year. On the profitability front overseas business contributed 76% of t
Guidance — 20 items
“The reason I was asking this was Sir because the gross margins that we generally report is of the order of 21 to 22% that has been your average for the last few quarters but this quarter you are at 25% because it has moved up from 21 to 22% to 25%, I was just wondering if there is M2M number here for which the loses in the inventory have still not been realized which will be realized losses in the turnover have not been realized.”
“I mean a part of it is because of certain disruptions in the Sri Lanka plant and it was not running efficiently in the last quarter like the Mundra project as of now completely stabilized so hopefully in the next quarter we would compensate for lack of growth in this quarter itself, but overall we are going to achieve this 25% volume growth on annual basis so that is whatever we have planned so that we are going to achieve.”
“I mean on quarter to quarter basis there could be certain logistics issues also but overall our capacities have increased and some of the capacities came midway in the first quarter also, like the Ghana plant increase and then Togo plant is going to come up in the next quarter so the capacity increase are in line with the gross numbers.”
“So basically what we are seeing is so 25% volume growth is all three ticking together so lead may be approximately 20% but the other business plastic and aluminium will be slightly higher it can go up to 30% so considering all together the 25% volume growth will be achieved.”
“My first question is what is EBITDA margin guidance for FY2023 and can you please provide reasons why there is hit on EBITDA margins on Q-on-Q basis.”
“Going forward the EBITDA margins are going to be in line of 9 to 10% on consolidated basis.”
“in expansion of capacities in existing plant as well as putting up new plant in the same segment because we are entering into the new verticals also so we are going to spend some money for bringing this new verticals also so that capex will be additional capex of approximately to 200 to 250 Crores total in the next 3 to 4 years.”
“65 to 70% it is going to be in India and remaining outside India so this is line with the business ratio we have currently 65% and 35% on broadly basis India and overseas so the capex will be in the same ratio.”
“And Sir my last question is any revenue guidance for FY2023?”
“Volume guidance is similar as we mentioned already that we have a target.”
Risks & concerns — 2 flagged
They are not in the business of recycling lead they are in the business if and when these companies are going to come in this lead recycling would primarily be because of statutory compliances because they have to get that much lead recycle so if they do not find any solution in the organized sector probably they will go and do battery recycling themselves also but it is very difficult in the sense that the scrap is generated throughout India.
— Yogesh Malhotra
It is not at one point that the scrap gets generated and they have final battery factory in one location so for all the scrap to move to that location would be very difficult so that is why companies like which have pan India presence which has factories all across India are a better solution to this so what we can do is we can collect all the batteries from all across India.
— Yogesh Malhotra
Q&A — 14 exchanges
Q
Thank you for taking my question. Sir, three questions I had first one is the other income that you have just kind of given a breakup of 48 Crores came because of hedging gain that you run for your inventory. How much of this is realized and how much of this is M2M.
Yogesh Malhotra
So everything in the hedging contracts would be M2M only but the other part of losses as against this income is realized in the actual transaction so you see one leg of the total transaction is the physical purchases and sales and the other part is reflected in the other income. At the same time it is already realized in the current month, so of June 30 it was unrealized but now it is realized. The reason I was asking this was Sir because the gross margins that we generally report is of the order of 21 to 22% that has been your average for the last few quarters but this quarter you are at 25%
Q
Good evening Sir. First of all congratulations for great set of numbers. My first question is what is EBITDA margin guidance for FY2023 and can you please provide reasons why there is hit on EBITDA margins on Q-on-Q basis.
Yogesh Malhotra
So has we already mentioned that the EBITDA margins are higher in this quarter because of certain arbitrage opportunities that we got in domestic markets. Going forward the EBITDA margins are going to be in line of 9 to 10% on consolidated basis. Any capex plan for FY2023? Capex plan. Capex for the next three to years we have a capex plan of around 70 to 80 Crores each year. in expansion of capacities in existing plant as well as putting up new plant in the same segment because we are entering into the new verticals also so we are going to spend some money for bringing this new verticals also
Q
Ho good afternoon Sir. I wanted to understand the dipropionate difference between bottom line and revenues that come out of international business so what are the enablers is it the labor cost, the supply chain or the capacity utilization rates over there.
Yogesh Malhotra
So basically in recycling business or in scrap business it is basically the source of procurement of the scrap availability and cost of scrap is the key drivers and we get cheaper scrap as compared to India, even in India 50% of the total scrap that we process is coming from those overseas countries it includes all the logistics and everything else so therefore the landed cost of scrap in India is much higher than the landed cost of scrap in those countries that is number one. Other than that most of the economies wherever we have plant have closer access to European and US markets that gives
Q
We have increase in employee cost quarter to quarter as well as Y-o-Y.
Yogesh Malhotra
So basically as Sunil ji mentioned last time also we are gearing up for the future so employee generally come first and then the capacities later so as we are going at about 25% the set up is now for the capacity from next year also. We are adding also new verticals as we mention that we have already put a pilot project of rubber recycling in Africa which will be then putting up in other territories also. Similarly we are talking about copper recycling also. We are adding capacities also so employee cost is going up but it is line with our future plans. The next question is all vertical volume
Q
Yes thank you for the opportunity Sir. As we know that lead is used maximum in lead acid battery and majorly lead acid battery is used in passenger cars so going forward the demand of lead acid battery is going to increase at diminishing rate due to many factors so what are your views or thoughts on the future of lead and lead as a battery since majority of the company’s revenue comes from the processing of lead.
Yogesh Malhotra
First of all we believe that the lead acid battery market is going to grow at a CAGR of around 6 to 8% globally. There is not going to be any reduction in the growth that is number one and secondly we have already set up a plant where we are reducing our overall reliance on lead recycling from current around 85% to 70 to 75% in the next two and half years so we have already diversified into plastic and aluminium and we will increase our shares in these two segments and in addition we are also going into other verticals as I mentioned earlier like rubber and copper and future in steel, e waste,
Q
Hi thanks for providing the opportunity so can you give me breakup for the total capacity separately for smelting and refining in India and outside India it is like if you can give us the capacity for lead specifically.
Yogesh Malhotra
The total capacity for lead we have is 168,000 tonnes so this capacity includes wherever we operate it is for the finished goods but in some of the entities some of the location we are not making refined lead or lead alloy so for those locations we have considered only the remelted lead or crude lead as finished good for that capacity purpose but for the India the capacity is approximately 118,000 tonnes out of this 168,000 tonnes and approximately 70% of the capacity is the starting capacity for India out of this 118,000 tonnes. Okay so out of 118,000 you are saying 70% is your smelting capac
Q
I wanted to understand domestic demand supply scenario. How much competition will be there and what is the scrap availability.
Yogesh Malhotra
You are talking about lead right. Yes lead right. So domestic total demand or you can production is around million tonnes out of which 200,000 tonnes is done in terms of exports and primary production is hardly 1.8 lakh tonnes and is bigger by importing some refined lead and remelted lead or through domestic scrap or imported scrap so in domestic scrap scenario the current situation the batteries which are generated from post industrial they are coming to formal sector or institutional battery also coming through formal sector. The retail batteries mostly going to informal sector so this way w
Q
Hi Sir. Just previously you mentioned that you buy from LME and you are selling at LME plus premium so with lead prices coming down that would have a positive impact if I am not wrong.
Yogesh Malhotra
Not it will not have any positive or negative impact. Definitely if the LME goes down you are at a disadvantage and if LME goes up you tend to gain more because but as in our case we are held generally the margins remain similar because at lower LME generally the premiums are a little higher, at higher LME the premium tend to come down a little but in the end the overall margins in between remain similar. If lead prices let us say go further down would I realization will be impacted right. Because the impact on whatever we are doing or processing charges which will lead to LME that is the only
Q
Sir if you could just help us with your net debt numbers as of June.
Yogesh Malhotra
So net debt is approximately 330 Crores at this moment which is slightly reduced from March 22 number which was approximately 360 Crores. So 360 has come down to 330. Correct. Okay thank you so much.
Q
My first question is regarding the partnership like Indian government to scrape the commercial vehicle right and they are also planing for scrap centers across India so do you have any plan to make partnership with those scrap centers to collect the scrap from there various material like copper, steel, and plastic whatever in fact even the battery so just wanted to know on that part what is your approach. Yogesh Malhotra: This collection centers will collect mainly commercial vehicles so that they will generate battery, tire and so certainly we will get more battery from them via formal way yo
Sharan Nandikur
Do you have any timeframe by this year you will make zero debt. We are not going to have the zero debt at this moment up to next 3 to 4 years so what we are doing is the entire capex of the existing vertical we are going to fund from the internal accrual so we are not increasing the debt for the existing verticals so we have kept two three things in mind, one going for a debt so we have kept ourselves in the limit of net debt equity ratio should not be more than one and debt EBITDA should not be more than 1.5 so these are the things which we keep ourselves and the major part of the debt is wor
Q
Why have we not expanded more aggressively in the americas and Europe where there could be a huge opportunity for you because of the cost which will be inherently much lesser than you than the incumbent players and the volumes there are much more and how are we looking at the recycling opportunity also because lot of the companies themselves are themselves coming into this area so they can supply easily to their existing clients.
Yogesh Malhotra
To answer your first question I think the market in Europe and US is already saturated and it is basically done mostly by the battery company themselves because they have set up a system which is totally different in the systems that are in the developing nations so they control the battery flow in these countries and it is nearly mature market currently so we are looking at other evolving or developing economies where there are much better opportunities and which are also growing at a much faster pace than Europe and US and second thing is that slowly most of the manufacturing is moving away
Q
Thank you Sir. Great set of numbers. Sir my question is right now we have 42% of revenue from value added products so by 2024 what percentage you are looking for value added products.
Yogesh Malhotra
We are looking at 50% from value added products. As more and more new plants are coming up it takes some time for you to get it registered for value added products because you have to get OEM approvals so because we have put new plants in Ghana, putting up new plants in Senegal and Tanzania also from where we will be supplying value added products. It may take some time in the next 2 to 3 quarters where we will be settling at 40 to 42% but once approval for these plants should come from OEM it will jump and go to around more than 45% in this year itself. And what will be margins for value adde
Q
Hi good evening and thank you for opportunity. I just wanted to understand our volume charges for this year of 25% now that Q1 is behind us and in lead we have seen 9%, aluminum 7% and plastics negative 3% so to achieve this 25% target we will have to grow significantly higher in the forthcoming nine months so I would assume lead will have to grow 20% plus aluminum in the range of 35% to 40% and plastics in the range of 4o% to 45% so if you could just speak a little bit about the challenges which we say on a more granule level this quarter and what makes you confident of achieving these number
Yogesh Malhotra
I mean basically there are two things. First is the total capacity that we are going to put up like in aluminium there are no increasing capacity in the last two quarters but our Togo plant is coming up from there we will increase the capacities or increase the total growth going forward and we have also putting up capacities in Mundra for aluminum and our plastic capacity are also going to go up so from there we will get some increase in the next 2 to 3 quarters. As far as on quarter to quarter basis there are many issues or metal elements that sometimes contribute to these things for example
Q
Thank you everyone for joining us today for the earnings call. We remain optimistic of the strong trajectory and excited about the opportunities lie ahead of us. We hope that we have answered all your queries. Please feel free to reach us in case any of your queries remain unanswered. Thank you once again.
Opening remarks
Sabri Hazarika
Good afternoon, ladies and gentlemen. On behalf of Emkay Global, I welcome you all to Q1 FY2023 post-earnings conference call of Gravita India Limited. We have with us the senior management of the company Mr. Yogesh Malhotra, CEO and Whole Time Director Mr. Naveen Prakash Sharma, Executive Director and Mr. Sunil Kansal, Chief Financial Officer. So today’s session would be a brief on the company’s results and outlook by the management followed by the question and answer round so without any further delay I welcome Mr. Yogesh Malhotra for the opening comments. Over to you Sir!
Yogesh Malhotra
Thank you Mr. Hazarika. Good afternoon everyone. A very warm welcome to Gravita India Q1 FY2023 earnings call. We have already circulated our earnings presentation and I hope you have had the opportunity to go through the presentation and we would be happy to take any question afterwards. We would begin this call with a brief discussion on quarter’s performance. I am pleased to report strong start to new fiscal year with company delivering revenue from operations of approximately Rs.630 Crores in Q1 FY2023 registering a growth of 41% on year-to-year basis. The performance was driven by both volumes and improved realization. Our overseas business contributed 42% to the revenues where we enjoy better margins. We have witnessed growth in volumes of lead and aluminum while EBITDA per tonne realizations saw significant jump in lead and plastic segments on year- on-year basis. In terms of volume price mix, topline growth was supported by increase in both volume and prices. Volume growth was