Shares of Gravita India hit a new high of Rs 1,967.20, as they rallied 9 per cent on the BSE in Wednesday’s intra-day trade after Motilal Oswal Financial Services (MOFSL) initiated coverage on the stock with a ‘Buy’ rating and target price of Rs 2,350 per share.
The stock of industrial minerals company surpassed its previous high of Rs 1,913.6 touched on August 8. In past three months, the stock price of this smallcap company has zoomed 117 per cent. In the past four years, it has skyrocketed 3,727 per cent from a level of Rs 51.40.
Gravita India is one of the key players in the growing recycling industry in India. The company is primarily engaged in recycling lead (~88 per cent of revenue in FY24), aluminum (~8 per cent), and plastics (~2 per cent). Additionally, it offers turnkey solutions to its customers, assisting them in setting up recycling plants.
Gravita witnessed a remarkable growth in volumes, revenues, EBITDA, and profit after tax by 29 per cent, 29 per cent, 33 per cent, and 29 per cent respectively during the June 2024 quarter (Q1FY25). Proportion of value-added products and availability of domestic scrap continues to increase. Gravita is well-positioned for growth with its ambitious expansion plans, strong balance sheet and stringent Government Regulations.
The management has set an ambitious growth plan called ‘Vision 2028’, to diversify into lithium-ion, steel and paper recycling; achieving revenue compound annual growth rate (CAGR) and profit growth of 25 per cent+ and 35 per cent+ along with increasing the contribution of value-added products and non-lead business to 50 per cent+ and 30 per cent+.
The increasing demand for batteries from electric vehicles and energy storage systems is anticipated to augment market growth. Lead is the only metal that can be recycled several times without having any diminishing impact on its quality. As a result, the production of secondary (recycled) lead is increasing over primary, which is anticipated to have a positive impact on market growth, the company said.
According to MOFSL, Gravita’s core business of lead recycling is expected to sustain the strong revenue growth momentum (at ~21 per cent CAGR over FY24-27), fueled by favorable regulatory changes and the formalization of the sector (BWMR, 2022).
However, the other key business segments, such as Aluminum and Plastic, are expected to report a much higher revenue CAGR of ~49 per cent and 52 per cent, respectively, propelled by changing business scenario due to the introduction of new hedging mechanisms and stricter implementation of regulatory policies (such as the Plastic Waste Management Rule; PWMR).
The brokerage firm believes that with strong industry tailwinds, favorable regulatory policies, the availability of additional hedging mechanisms, and the absence of significant supply chain disruption, Gravita can ramp up the utilization materially (driving ~30 per cent sales volume CAGR over FY24-27E).
Further, Gravita enjoys multiple competitive advantages, such as strategically located manufacturing units, a deep procurement network, a diverse global customer base, and lower costs for building new facilities (through the in-house turnkey division). These advantages provide long-term growth visibility, MOFSL said.
“Gravita currently trades at 31x/23x FY26E/FY27E EPS with an RoE/RoCE of 30 per cent/25 per cent in FY27E. We believe that the company will be a key beneficiary of the growing recycling industry in India and is poised to secure its share within the market led by multiple moats built around over the years. We initiate coverage on the stock with a ‘BUY’ rating and a target price of Rs 2,350 (based on 35x Sep’26E EPS),” MOFSL said.
First Published: Aug 14 2024 | 1:26 PM IST
