GRAVITANSESeptember 30, 2022

Gravita India Limited

8,865words
138turns
19analyst exchanges
4executives
Management on call
Yogesh Malhotra
CHIEF EXECUTIVE
Vijay Kumar Pareek
EXECUTIVE DIRECTOR – GRAVITA INDIA LIMITED
Sunil Kansal
CHIEF FINANCIAL OFFICER – GRAVITA INDIA LIMITED
Sabri Hazarika
EMKAY GLOBAL FINANCIAL SERVICES
Key numbers — 40 extracted
INR 3.5 crore
recycling plant at Senegal, whose annual capacity is 4,000 metric ton per annum. An investment of INR 3.5 crores has been made for the same and this has been done through internal accruals. We are hopeful that
INR 60 crore
rnal accruals. We are hopeful that this project will lead to additional revenues of approximately INR 60 crores and gross margin of around 20%. Company step-down subsidiary at Ghana has also started plastic r
20%
roject will lead to additional revenues of approximately INR 60 crores and gross margin of around 20%. Company step-down subsidiary at Ghana has also started plastic recycling plant, whose annual c
INR 1.9 crore
s to take the capacity to 2,700 metric ton per annum in Phase II. For this project, investment of INR 1.9 crores has been done and the same has been done through internal accruals only. The company is already
INR 44 crore
vision of replicating the recycling business in different geographies. Gravita has done capex of INR 44 crores in H1 financial year 2022 and the capex for the rest of the year is expected to be around INR 30
INR 30 crore
crores in H1 financial year 2022 and the capex for the rest of the year is expected to be around INR 30 crores, INR 35 crores. Let's now discuss the operational performance. Gravita has increased its lead ca
INR 35 crore
inancial year 2022 and the capex for the rest of the year is expected to be around INR 30 crores, INR 35 crores. Let's now discuss the operational performance. Gravita has increased its lead capacity by about
6%
Let's now discuss the operational performance. Gravita has increased its lead capacity by about 6% in H1 FY '23 from around 159,000 metric tons to 168,000 metric tons. We are positive that we will
17%
g as well as new verticals. Volume growth, the company has witnessed the volume growth of about 17% in Q2 FY '23 on a year-on-year basis. Mostly, all these segments showed positive growth in volume
26%
all these segments showed positive growth in volumes. On a Q- on-Q basis, volumes of Lead grew by 26%, battery aluminum and plastic grew by 31% and 11%, respectively. EBITDA per ton
31%
in volumes. On a Q- on-Q basis, volumes of Lead grew by 26%, battery aluminum and plastic grew by 31% and 11%, respectively. EBITDA per ton for lead and plastic showed an increase o
11%
mes. On a Q- on-Q basis, volumes of Lead grew by 26%, battery aluminum and plastic grew by 31% and 11%, respectively. EBITDA per ton for lead and plastic showed an increase of around
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Guidance — 20 items
Yogesh Malhotra
opening
“Before starting with the results, first, let me share some strategic highlights and project updates.”
Yogesh Malhotra
opening
“We are hopeful that this project will lead to additional revenues of approximately INR 60 crores and gross margin of around 20%.”
Yogesh Malhotra
opening
“For this project, investment of INR 1.9 crores has been done and the same has been done through internal accruals only.”
Yogesh Malhotra
opening
“We are positive that we will reach a total capacity of 425,000 metric ton by 2026, including all the existing as well as new verticals.”
Yogesh Malhotra
opening
“This has happened because of our focus on reducing our working capital cycle and we have a target to reducing further to around 65 days from current 80 days.”
Rahul
qa
“We're still short on the 25% target that we have given out.”
Yogesh Malhotra
qa
“But going forward, we believe that we are in line with our targets of getting 25% volume growth year-on-year in 2026.”
Yogesh Malhotra
qa
“But on a three-year basis, 2026, definitely 25% volume growth on a CAGR basis.”
Yogesh Malhotra
qa
“That will be there every -- considering this capacity expansion at different locations.”
Yogesh Malhotra
qa
“So as soon as there will be more volumes on that.”
Risks & concerns — 8 flagged
EBITDA per ton for lead and plastic showed an increase of around 23% and 13% on a year-on-year basis, whereas we saw a slight decline of 6% in EBITDA per metric ton of aluminum.
— Yogesh Malhotra
EBITDA margin stood at 9.9% and company continues to maintain resilient margins, despite increasing cost pressure across major raw materials during the quarter.
— Yogesh Malhotra
So further 12%, 13% decline from current level you are expecting this, what you want to say?
— Mitul Shah
We buy and PP, and PP also are of different grades, which is very difficult to hedge that because it's not sold on or it's not available on exchanges.
— Yogesh Malhotra
So that 40% volume will be affected almost nil, and this rather 60% has another 50% from overseas business, and we had hardly very much percentage of our risk scrap coming from EU market.
— Yogesh Malhotra
Second related to that question is, I want to understand what is the impact of this rupee depreciation on your business?
— Tushar
So it does not impact us, because when we import scrap, we also export equivalent amount of lead -- so it's in volatile only.
— Yogesh Malhotra
So there is no impact of rupee depreciation.
— Yogesh Malhotra
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Q&A — 19 exchanges
Q
Thank you for taking my question. Sir first is by Q2, we have seen a 17% volume growth much better than Q1. We're still short on the 25% target that we have given out. So how do you see H2 panning out? And in general, FY '24, '25 are we still holding out that 25% volume growth story outlook?
Yogesh Malhotra
Yes. I mean actually, there are certain setbacks for us in this quarter. Number one is that our Sri Lanka plant was not working at full capacity because there were certain issues in the country itself. And apart from that, certain projects got delayed because of -- I mean like [inaudible 0:08:31] expansion, which were supposed to happen in Q2 this year, got delayed and would probably start functioning in Q3. So that has delayed some of the volumes that we were expecting in Q2. But going forward, we believe that we are in line with our targets of getting 25% volume growth year-on-year in 2026.
Q
Thank you for giving the opportunity and congratulations for strong performance. Sir, I have first question on average realization as volume growth is 17% revenue growth 25% to roughly 7% to 8% increase in realization per ton. So is it because of the product mix change as overall plastic contribution has come down and other, lead, aluminum has increased or because of the price increase? So how much would be because of the product mix, how much would be because of the price increase?
Yogesh Malhotra
Yes, mostly Middle is because of the metal prices. It is -- the lead prices came down in this quarter. So it came down from the – like realization of our lead came down from -- so in case of lead, it is slightly improved other, but in case of. My question is on Y-o-Y increase of 25% in revenue versus volume growth of 17%. So it indicates nearly 7% to 8% increase has come from realization per ton. So that is I'm trying to understand it is because of the price increase, how much and how much would it be because of the product mix? Yes, it is in terms of lead, it is mostly in case of product mix.
Q
So just a few questions. So, do you have any updates on the plastic recycling legislation?
Yogesh Malhotra
The legislation, EPR rules have been notified and people have started getting registration for under the regulations of EPR in case of plastics. And there is a particular penalty part where EPR is not done by the manufacturer or producers. That implementation is yet to be finalize. So, I hope in time to come, that will take place because they have created one portal at the central collision control board. So that portal is under collection of data, producers and recyclers. So it should take another three months in case of plastics. Okay. And in terms of just currency impact, especially by seei
Q
Thank you for giving the opportunity and congratulations on this...
Management
Q
All right. Sir, congratulations on strong results. My first question is on the part where you mentioned that we have successfully [inaudible 0:19:33] in Q1. So could you please share the strategy around it? And how would be reducing the debt further going forward?
Yogesh Malhotra
Yes. So Kinjal there was -- the strategy is that we are going to increase the volume from the domestic scrap, which a major part of scrap in domestic is coming from OEMs where we don't need to pay for that scrap through which we are getting from the OEM, which is coming from the retail automobile sector. So we are going to increase that share from our Indian business, Indian recycling business. So as soon as we have that more volumes coming in from that sector, the working capital requirement for the incremental business is going to be not that much. So it will overall improve and that is goin
Q
Yes, touching on the increasing domestic scrap from OEMs. Currently, how much percentage of this scrap that we are importing, what we are getting from the domestic OEMs? Or do we get everything from international OEMs tie-ups?
Yogesh Malhotra
Everything that we're getting in India is from domestic OEMs only. We're not importing anything from OEMs from outside India. So the 47% scrap that we are getting in India is mostly from OEMs in India. My next question would be, if you could please explain on how the changes in the government policies are we looking at how will it impact Gravita? And how will it impact the for the verticals that we are going to come up with like e-waste and lithium-ion batteries. If you could throw some light on that? The current policy of particularly battery waste management rules, which were a draft stage h
Q
Sir, firstly, are we keeping a tab on the new EU waste segment rules that might come in? And how it might affect the scrap movement going forward? And do we have an opinion on how we'll stand or might fare if they indeed go ahead with the proposals?
Yogesh Malhotra
Yes. As of now, that import from EU to India is very less, particularly in case of lag scrap. So our mostly volumes are coming from other than EU and US market. This is mainly coming from Africa, Middle East and other South Asian country. So that regulation won't affect us much. And our overseas plants are sourcing scrap locally. So that 40% volume will be affected almost nil, and this rather 60% has another 50% from overseas business, and we had hardly very much percentage of our risk scrap coming from EU market. And on the sales side also, I mean, although we sell into European Union, but th
Q
So I had three questions. Firstly, on the recent battery management regulations. So I understand the point that because of that, you have to rely less on imports, which would firstly reduce your freight costs on the import side. And also to reduce our working capital requirement. That is absolutely clear. What I wanted to understand was the certificate got from the regulations is that the battery OEMs are now had responsible to collect it via the region network and then send it to the organized channel and then use the process lead back into their production, and that is the percentage number
Yogesh Malhotra
Yes. Your understanding on Part one is correct, that they have to collect. But there is a part two also, which is even they don't collect, in that case, or even they don't buy recycled lead in that case, they can buy certificate from the recyclers. So if I buy battery in domestic market and sell lead to export or some other applications, that much volume of certificate I can sell to them. So that will be another parallel market. But certificate will have a value and that will be regulated on a portal. So both ways will go. Because if don't -- they do not have much collection center and tolling
Q
Thank you for the opportunity. Sir, you have an order book of about 60,000 metric tons. So can you give us a breakup of the order book? Or is it entirely lead only?
Yogesh Malhotra
Yes. So majorly, the order book consists of the orders for the lead vertical because we have some certain contracts with the OEMs also and certain contracts with that data traders like Trafigura Glencore and others. So the major part of 80% to 85% consists of lead and then some part of aluminium and plastic also. So basically, because we are not held in aluminium or plastic, we generally don't take orders beyond a particular period. Whereas in lead because we are hedged, we can take orders, we can have annual contracts with the customers. And sir, in your presentation, you have mentioned that
Q
Yes. I just wanted to understand your business model. I was looking at the presentation, and you seem to have a lot of turnover out of India, but profits you're showing is from overseas. So can you just explain how you do sourcing and how processing happens and where do you sell. Second related to that question is, I want to understand what is the impact of this rupee depreciation on your business? Is it beneficial? Or is it negative for you?
Yogesh Malhotra
To answer your first part, actually, it all depends on sourcing of raw material. In all the overseas territories, wherever we are we are using local domestic scrap, whereas the model in India was to import scrap into India and then process it. So a lot of value was getting diluted in logistic cost itself. Whereas what now we have started doing after this battery as management tools coming into picture is that we have started sourcing more local scrap and that will probably increase the profitability of Indian plants also. But at the same time, the scrap is cheaper per se overseas as compared t
Q
Yes. So what I wanted to understand, see, we are geographically very diversified, and it has always been a focus. But when I see some of the competitors, they are very consolidated in one geography, so could you explain why would that be the case? And why would they not go outside India to overseas similar to Ghana and Senegal?
Yogesh Malhotra
Sir, I think in scrap business, it's always better if you can be as close to the scrap generation as possible, because logistic costs mitigate the scope of increasing capacities, so it's a given case. But I think having numerous recycling plants across geographies is always going to be a better option. Sometimes, maybe getting management budget to run all those plants is not there in most of the companies in recycling, because we are not professionally managed. That can be one of the reasons why they don't go and expand in various geographies. So because of investment, because of similar reaso
Q
Sir, in order to launch the overall capacity of...
Management
Q
I just wanted to ask you, so in order to reach the overall capacity of 4,25,000 by FY ’26, what would be the capex guidance for the same?
Yogesh Malhotra
Yes. So the total capex for this capacity expansion by 2026 is going to be approximately INR 70 crores to INR 80 crores per year till 2026. And there will be certain new verticals also. So INR 70 crores to INR 80 crores for the existing verticals lead, aluminum, plastic and including the rubber also, which is also the current vertical. And then we have certain new verticals, which is -- which is also have a capex of approximately INR 200 crores, INR 250 crores in the next three year total. How are we looking to…
Q
Sir, how are we looking to fund the capex?
Yogesh Malhotra
Yes. So major part of this capex will be internally funded. So for this journey from 2022 to 2026. We need an incremental capital of approximately INR 1,300 crores, including the working capital requirement. So considering this capex also and so out of this INR 1,300 crores, INR 900 crores will be funded from internal works and INR 300 crores to INR 400 crores will be funded from taking off additional debt or we can raise some money from equity also at the right time. And sir, lastly, when the is almost 50% mix of the value-added quota and let's say, if you achieve that mark. So what could be
Q
Just one question on the EBITDA per ton side. We understand that more sustainable ranges in the INR 16 to INR 17 per kg or the -- between INR 16,000 to INR 17,000 per tonne. Can you help us understand, sir, right now with the numbers that you're sitting on, which is around INR 18 to INR 19, which a 20% delta. Once they’re fully hedged, what are the other factors that still move EBITDA per ton? Clearly, we are above, and I'm sure there will be cases where we've been probably a little bit below what we are targeting. But what are those factors that once you are fully hedged also still affect EBI
Yogesh Malhotra
There are two, three factors. One is more volume because there are certain costs which is fixed cost in nature. So that is also part of this that is also reduced from this EBITDA per ton. So if that was cost remaining same and we have more volumes. So that's the one factor. And another factor is the more value-added products. So because in case of value-added products, we get slightly better margins, better EBITDA margins, better realization of 2% to 3%. And the third factor is that the more volume, which is coming up, like we are adding some more verticals also. So that's also sharing certain
Q
Sir, in the rubber recycling value chain, you have mentioned that you're doing a little bit of pyrolysis for captive consumption. Indicatively, when we expand our business going forward, would we be focused only on more value-added business such as retained rubber, crumb rubber and the like instead of pyrolysis -- or would pyrolysis also be your focus?
Yogesh Malhotra
So we would be going in -- by the way, crumb rubber is not as -- it does not add value as much as pyrolysis oil does. But definitely, going forward, we would go into other usages of other rubber recycling, I mean other products coming out of rubber recycling, because pyrolysis oil has a limitation in the sense that we can only use as much as we can consume. Beyond a particular point, we'll have to go and look for other opportunities in rubber recycling. Part of it would be crumb rubber, but then maybe other usages also we are looking at like carbon black also. Sure sir. And lastly, sir, you me
Q
I just have one small question. While we are looking at expanding to other verticals, what would be the eventual product mix that we are looking at? And with these verticals are you also looking at increasing our value-added product space?
Yogesh Malhotra
Sorry, can you come up again? I mean, I can't hear you properly. So my question was, so if you are looking at the increasing the other verticals and adding onto the new verticals as well. What would be an eventual product mix once the capex is done, which is, I think, by 2026. And are we also looking at increasing the base for our value-added products pertaining to these verticals? Yes. So going forward, we believe that by 2026, 25% of our business -- at least 25% of the business would come from non-lead verticals. So that includes aluminum and plastic and also the new verticals that we would
Q
Is it better now?
Yogesh Malhotra
Yes, it is better. Yes. So just to clarify, currently, we have 80% of our portfolio in lead and you are saying that by 2026, it will reduce down to 75%? So it's currently at 83%, not 80% by 2025, it would be as per math, 75% stability, we target higher. But some of the vertical new verticals that would come in probably would not start giving revenue in 2025. So we believe that at the maximum level, lead would be 75%, and that too when lead is also growing at a healthy rate of 15% to 20%.
Q
Yes. Thank you very much for participating in the earnings conference call. It has been a pleasure interacting with you all. We expect better operational performance, coupled with volume growth in the upcoming quarters. We hope that we have answered all your queries. Please feel free to reach out to our Investor Relations team Go India Advisors in any of your queries remained unanswered. Thank you once again.
Management
Speaking time
Yogesh Malhotra
54
Moderator
21
Kinjal
11
Rahul
8
Mitul Shah
7
Manav Singh
5
Dhiral
5
Chirag
5
Sunil Kansal
4
Keshav
4
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Opening remarks
Sabri Hazarika
Yes. Good afternoon, ladies and gentlemen. So on behalf of Emkay Global, I welcome you all to the Q2 FY '23 Earnings Conference Call of Gravita India. We have the top management headed by; Mr. Yogesh Malhotra, CEO and Whole-Time Director; Mr. Vijay Kumar Pareek, Executive Director and Mr. Sunil Kansal, Chief Financial Officer. So now I would request management for their opening remarks, and then we can move over to the question and answer. Over to you, sir.
Yogesh Malhotra
Thank you, Mr. Hazarika. Good afternoon, ladies and gentlemen, and thank you for joining us on Q2 and H1 '23 earnings call today. I trust that you have had a look at the results and the earnings presentation uploaded on the exchanges. I will briefly discuss the results, and we can then have the Q&A. I'm very happy to share that Gravita India has shown strong results for Q2 and H1 FY '23. Before starting with the results, first, let me share some strategic highlights and project updates. Company's step-down subsidiary has started aluminum recycling plant at Senegal, whose annual capacity is 4,000 metric ton per annum. An investment of INR 3.5 crores has been made for the same and this has been done through internal accruals. We are hopeful that this project will lead to additional revenues of approximately INR 60 crores and gross margin of around 20%. Company step-down subsidiary at Ghana has also started plastic recycling plant, whose annual capacity is 1,200 metric can ton per annum i
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