Gravita India: Lead Recycling Volumes Jump
Transcript
00:00Yogesh Malhotra, CEO and whole time director of Gravita, who joins us right now on the show.
00:03Yogesh, good having you. Thanks for taking the time out. I hope all is well.
00:06Just give us a sense, Yogesh, of what you do and has the scenario for your business
00:15changed from what the prospects might have been, say, maybe five, six, seven years ago?
00:23Yes, to some extent, it has changed. But I mean, primarily, I think that the investor
00:29community has just, I mean, they've just woken up to this huge potential of recycling industry per
00:34se. Consumers and companies all across the globe are now becoming more aware about the
00:40sustainability aspect of the products that they use. And they are focusing, they were always
00:45focusing, I mean, but it is growing over the years. But what has changed now in the past two,
00:50two, three years in India is that the government has now focused on the rules and regulation
00:55aspect of this business as well. So earlier they were loosely formed regulations, but now
01:03with extended producers responsibility, battery waste management rules, extend, I mean, end of
01:10life for vehicles, et cetera, all these policies and regulations are encouraging the recycling
01:14space overall. And not only are they encouraging recycling aspect of business, but they are also
01:23promoting use of recycled products in, use of recycled content in all the products and packaging
01:30by consumers. So it is a major change that has happened and we see a recycling business
01:38as a growth. I mean, there would be a lot of growth that is still to come in this business
01:45because it has only, the regulations have only come just a couple of years back.
01:49Hmm. So do tell us, I mean, if you're saying that investors have woken up to it, but maybe
01:56your business was anyways doing good. So have business parameters changed in that? What I mean
02:00to say is that, sure, more business is coming your way. Are you getting better pricing power? Maybe
02:06are return ratios improving and are they slated to move up higher if all of this is happening?
02:12And then I'll come to growth, of course. But first I want to get the internals. If the, if
02:17are the internals changing for you meaningfully? Yeah. So I'll just, I mean, so Gravita basically
02:24is a company that has pan-India presence. We have operations in India, but we are, we are also
02:30present in, I mean, globally in various countries where we have our recycling plants.
02:35So we were only always doing very well. We were doing well in overseas locations and we were
02:41also doing well in India because we were importing a lot of scrap in India. But because of these
02:45regulations, now more and more of this scrap is becoming available to, to recycling companies
02:53in India. And that is what has changed for us in the, in the past couple of years. And
02:58that is just the tip of the iceberg. The actual benefit of all these regulations is going to come
03:02in the next few years. Okay. So what, what is the, how will the benefit be? I mean,
03:09will this benefit be seen in internal numbers and metrics as well? And again,
03:15I'm not talking about growth. I'll come to growth, of course, but what does it do? Do the benefits
03:20help you improve your return ratios? Do margins go up or in this business about 10% circa is the
03:28margin that you would probably maintain? How does, how do these benefits get quantified in your
03:32numbers? Yeah. So the, the, the margins would probably remain in the same line. There would
03:37be some increase because we are also growing more in value-added content. So currently around 40%
03:44of our revenue comes from value-added content, but our target is to increase it to about 50%.
03:50But these regulations would help us in, I mean, accessing, assessing more and more of the,
03:57the products, I mean, the scrap from Indian market. And that is going to increase the
04:02capacity expansion. That is also going to help us in utilizing the capacities better,
04:07currently we have a capacity utilization is around 60 to 65%. And with these availability
04:14of domestic scrap, it is going to increase to around 70 to 75% in future. So that is another
04:19part that is going to help us. Apart from that, this business would reduce the working capital
04:24cycle for us. Currently we are importing a lot of material. The material domestically would have a
04:30smaller working capital cycle. So this, this will improve ROC for us in the future. Okay.
04:36So again, I'm deferring the growth question for a moment and I will come to that Yogesh,
04:41because that is what everybody thrives on, but I would love, I love these internals. So I would
04:45love to know when you're saying that ROCs could improve, could there be a material change in what
04:51your return ratios have been in the last two, three years? Because even last three years,
04:55you've seen growth, right? From 1400 crores to nearly 3000 crores, you've grown at over 25%
05:00CAGR. Have ROCs improved in that period? Excuse me for not having the number at hand. And where
05:05do you see these numbers moving to, let's say in the next three to five years on the return ratios?
05:11So, so, I mean, if you talk about two to three years back, our ROC was in the range of around
05:1519 to 20%. Currently it's upwards of 25% in each and every quarter that we've, I mean,
05:22for the past three to four years. And we believe that it will remain in the same range of more than
05:2825%. And that is partially because of, as I mentioned, availability of Indian domestic scrap
05:35and also because we are getting some economies of scale. Apart from that, there is also value
05:43addition from other commodities that we are dealing into now, because earlier we were only doing
05:48lead recycling. Now we are doing aluminium, plastic, rubber recycling also. And in the future,
05:55we have plans to go into some other verticals of lithium-ion battery recycling,
05:59paper recycling and steel recycling outside India. So all these, some of these
06:06verticals are more profitable than the existing lead business. So that has also
06:11helped us increase the ROC in the last few years. And going forward also, it is going to be
06:16in a similar way. So we would expect around 25% ROC at the minimum in any new business also that
06:25we go into. So the base is set at 25, you could probably inch higher, punch higher,
06:31but certainly return rate or return on capital would be about 25%, which is great. So okay,
06:35now let's talk about the core growth. You've grown at, I mean, the headline numbers over 25%
06:41in the last three years, CAGR performance. Estimates are that in the lead business,
06:46you'll probably do 21, 22% CAGR for the next three to five years. But aluminium, plastics,
06:51etc. grow faster. I heard you say that you're also thinking of battery recycling, paper recycling.
06:58So I would love to know your core business, which is 88%. If it grows at 20, 20 to 23%,
07:06is that predictable for the next few years? And does it remain at 88% or does that come down as
07:11the other businesses grow up? So yes, the lead business would grow, it will continue to grow
07:19at around 18 to 20%. Oops, I think we've just lost that. We'll try and repatch that line. But
07:26remember viewers, lead business has grown at, okay, whatever number it has grown at,
07:31the management says, or Yogesh says that it'll grow at 18 to 20%. Sorry, Yogesh, if I have you
07:36back, I'd love you to start from the beginning. I think you were saying that the lead business
07:39will grow at 18 to 20%. 18 to 20%, yes. The other business of aluminium, plastic and rubber is going
07:46to grow at a much faster pace because our base is very small in all these categories. And
07:52potentially they have the potential to go as big as lead business. So we are expecting around 35
07:58to 40% CAGR in all these new businesses. And that is a minimum CAGR growth that we are expecting.
08:06And going forward in the next three years, we estimate that the overall lead business would be
08:12around 70% of the total revenue that we get. And balance 30% would come from other three
08:18verticals of plastic, aluminium and rubber. And in addition to that, and this will contribute to
08:24around 25% CAGR volume growth in the next few years. And in addition to that, as I mentioned,
08:30that we are also planning to go into lithium-ion battery recycling into paper and steel recycling
08:38outside India. So that will contribute even further to this 25% CAGR growth that we are
08:43expecting from the existing verticals. So you are saying that your CAGR performance
08:49could be 25% for the next few, which I presume would be three to five-year period. At the bare
08:55minimum, if the other businesses come in, it could add to those numbers. When do the other businesses
08:59come in, let's say in the next couple of years or slightly beyond that? So we are expecting
09:04lithium-ion battery recycling business to come up next year. We are already in the process of
09:10setting up a plant at Mundra for lithium-ion battery recycling. The other businesses of paper
09:16and steel would probably take a couple of years. So you can expect it in the next two to three
09:21years, both these new verticals. Okay. And so Yogesh, help me decipher as we wrap up this
09:27conversation in the next couple of questions, but you would grow at, let's say 25% CAGR for the
09:33next three years, just play with me, just be with me for the time being, 25% for the next three years
09:39without your capacities having come on stream. And then a lot of your capacities come on stream
09:44over the period of the next three years, which means as one of the notes, one of the research
09:49notes is suggesting that you will double your capacity in the next three years. So are you
09:54setting yourself up for doubling? So let's say you grow at 25% CAGR for the next three years,
10:01which means you double your top line from 3,000 at the end of FY24 to circa 6,000
10:06at the end of FY27. And then your capacity doubles. And therefore, are you in a position
10:14to be able to grow further 25% from that double revenue post FY27?
10:21So the capacities would go up from 300,000 to 500,000 metric ton per annum in the next three
10:28years. And that will help us achieve the figure of doubling the total volumes because we would
10:35also increase the capacity utilization going forward, which is currently at around 60 to 65%,
10:40to around 75% in the next three years. So that will contribute some part. And yes, so we give
10:46a ruling vision of the next three, four years. And that is for the past three, four years has
10:53been consistently for around 25% CAGR. So we are very confident that there is enough steam left
11:02to increase capacities because it's still a totally barren, I mean, industry. There is still
11:12scope to increase capacities, both in India as well as in overseas locations. And there are
11:19opportunities for merger and acquisitions also which we are eager to go into. And as I mentioned
11:24that we are also planning to go into new verticals of lithium-ion battery recycling, rubber and,
11:30sorry, paper and steel recycling, that would also give you a momentum to take this 25% growth rate
11:38for quite some time to come. Okay. Yogesh, one very quick question before we wrap up.
11:41Would you need to do any equity fundraise to fund any of your CAPEX or acquisition costs?
11:47So the capacity that we are talking about from 300,000 to 500,000 tons would come from
11:52internal accruals only. And we would require around 600 crores in total, of which 400 crores
11:59will go into current verticals, the plastic, aluminium, rubber and lead. And around 200 to
12:05250 crores would go into new this thing. But all this would come from internal accrual.
12:12But we may raise equity in case we have to go for any merger and acquisition.
12:18Anything on the anvil, Yogesh? Very quickly, we need to wrap up. But anything on the anvil?
12:24So we are expecting the same 25% growth rate. No, no. What I mean is any acquisition that is
12:29slated to happen in the next six months for which you need to raise equity capital?
12:33So we are continuously looking for some opportunities and we have some opportunities
12:36in hand. But we can't say at this moment whether we are going to go and do some.
12:43Got it. Okay. Yogesh, lovely talking to you. All the best. Keep on doing the good work. And
12:47thanks so much. We'll look forward to talking to you post your Q2 numbers.
12:51Sure. Thanks a lot.
12:53That's Gravita India.