Gravita India Astounding Stock Rise of 2013%; What Does Their Future Look Like?


Gravita India : Investors often seek out the potential for significant returns, sometimes investing in speculative “story stocks” that lack revenue, let alone profitability. However, the truth is that consistently losing money can eventually prompt investors to withdraw their investments. Loss-making companies can become a drain on capital, so investors should be wary of continuing to invest in such ventures.

Alternatively, those who prefer a more conservative approach may find interest in profitable and expanding companies like Gravita India (NSE: GRAVITA). While profitability alone doesn’t guarantee undervaluation, the fact that the business is making money and experiencing growth is noteworthy and deserving of recognition.

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In the dynamic realm of investing, discovering a multi-bagger stock capable of providing exceptional returns in a brief timeframe is the aspiration of every investor. This aspiration became a reality for shareholders of Gravita India as the company’s shares yielded remarkable returns. The shares, which were trading at ₹87.45 apiece two years ago, have seen a meteoric rise of 1,147.71 percent to trade at the current market price of ₹952. In addition, from their August 2020 lows of ₹45 apiece, the shares have seen an extraordinary rise of 2,013 percent to date.

Not only that, India’s most followed ace investor Ashish Kacholia has hit big on this stock. He had 1,4 percent shareholding in this company in December 2021. But this percentage raised to 2.2 percent as of December 2023.

Gravita India Limited

Corporate Overview

Based in Jaipur, India, Gravita India Limited has established itself as a prominent name and stands among Asia’s leading recycling companies today. With a committed team, a global presence through specialized infrastructure assets, and one of the most extensive waste collection networks, the company is dedicated to its mission of mitigating the impact of climate change.

The primary activities of the company and its subsidiaries encompass lead recycling, plastic recycling, aluminum processing, rubber recycling, and involvement in turn-key recycling projects. The company engages in the smelting of used lead battery scrap and lead concentrate to produce secondary lead metal. 

This secondary lead metal is further refined into pure lead, specific lead alloys, lead oxides (including lead suboxide, red lead, and litharge), as well as lead products like lead sheets, lead powder, and lead shot.

As of FY2023, the total production capacity of the company stands at approximately 2,34,000 MT, with lead recycling being the highest having a production capacity of 1,73,119 MT followed by Aluminium recycling with 30,000 MT. The plastic and rubber recycling production capacity stands at 24,600 MT and 6,000 MT respectively.

The various supply chain partners associated with the company include Reliance Industries Limited, Accenture, Asian Paints and many others. The company works with various battery manufacturers and other large corporations on a long-term basis and have forged contracts with them for supply of scrap. 

Gravita also believes that with redefining the Battery Waste Management Rules (BWMR), Extended Producers Responsibility (EPR) and stricter implementation of GST, the availability of scrap for the formal recycling sector has increased and is expected to grow in future.

Business Segments

The company operates four main business segments:

i) Lead processing: Lead processing includes smelting of lead battery scrap / Lead concentrate to produce secondary Lead metal, which is further transformed into Pure Lead, Specific Lead Alloy, Lead Oxides (Lead sub-oxide, Red Lead, and Litharge) and Lead products like Lead sheets, Lead powder, Lead shot etc. 

ii) Aluminium processing: Aluminium processing includes trading of Taint Tabor and Tense aluminium scraps manufacturing of alloy from melting of aluminium scrap. 

iii) Turn-key solutions: Turn key solution includes, complete supply of plant and machinery related to lead manufacturing plant.

iv) Plastic manufacturing: Gravita produces a wide range of HDPE and PP polymers. The products the company produces include recycled polypropylene granules, polycarbonate, HDPE, ABS granules, chips, and compounds, all crafted using high-grade plastic scrap and cutting-edge techniques.

When it comes to the revenue breakup, the Lead business contributes the most with a revenue contribution of 83.32 percent. One could say that it is pretty much concentrated. But when looked at the view of geography, revenue contribution outside India stands at 55 percent exhibiting the company’s diverse geographical presence.

Gravita India – Future Plans

Vision 2027

The company has set an ambitious growth plan called Vision 2027, aimed at achieving a compound annual growth rate (CAGR) of at least 25%. Gravita’s strategy is focused on value-added products and non-lead business, as the company aims to broaden its business scope. 

In order to do this, the company plans to invest Rs.600+ crores in capex to increase its manufacturing capacity to 4,25,000 MTPA by FY 2026. Gravita is confident that its pragmatic approach and commitment to a circular economy will support sustainable growth and generate value for all stakeholders in the long run.

The company has determined that recycling of lead, aluminium, and plastic presents growth prospects. Hence it is also looking for opportunities to foray into new verticals of recycling – Lithium, Steel and Paper.

Continued Capex Investments

The company has commenced commercial production of Recycled Polypropylene Granules at its recently inaugurated plastic recycling facility, which is operated by its subsidiary in Tanzania, East Africa, as per a filing to the stock exchanges.

The new plastic recycling plant, as mentioned, has an annual capacity of approximately 1,800 Million Tonnes Per Annum (MTPA). Gravita India has allocated an investment of around ₹2.25 crore for the procurement and commissioning of this new recycling plant, financed through the company’s internal accruals.

Gravita India, a prominent player in recycling, already operates similar plastic recycling facilities across Africa, including in Ghana, Senegal, and Mozambique.

Gravita IndiaFinancials

In the fiscal year 2023, Gravita India Limited saw a substantial increase in revenue, surging by 26.3% to reach ₹2800.6 crore as opposed to ₹2216 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a robust Compound Annual Growth Rate (CAGR) of 27.61% in revenue.

Simultaneously, there was a noteworthy upturn in net profit, experiencing a 37.5% increase from ₹148.45 crore in FY2022 to ₹204.09 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased an impressive 77.36% CAGR.

In FY23, Gravita maintained favorable financial metrics with a solid Return on Equity (ROE) of 41.83% and Return on Capital Employed (ROCE) of 31.03%. 

Robust EPS Growth

Over the past three years, Gravita India has experienced a significant surge in earnings per share (EPS), making it challenging to use these figures for long-term estimations.  Therefore, focusing on the growth in the last year provides a clearer perspective. Gravita India’s EPS surged from ₹20.6 to ₹29.72 within one year, marking a remarkable 44.3% increase, which undoubtedly pleases shareholders.

Examining revenue growth and earnings before interest and taxation (EBIT) margins can shed light on the sustainability of recent profit growth. While Gravita India maintained similar EBIT margins compared to the previous year, revenue saw a robust 26% increase to ₹2,800, signifying progress.

Conclusion

Gravita India’s impressive EPS growth rate is commendable, and the substantial ownership of shares by insiders reflects their confidence in the company. Considering these factors, including solid EPS growth and alignment of company insiders with shareholders, indicates a business worth further investigation. As for the company’s future growth prospects, feel free to share your thoughts in the comments below.

Written by Nalin Suriya

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