Gravita India, incredible share price rise of 2013%; What will their future look like?

Gravita India: Investors are often looking for the potential to earn significant returns. Sometimes, we invest in speculative “story stocks” that lack returns, let alone profitability. But the truth is that losing money consistently can eventually lead investors to withdraw their investments. Loss-making companies can be a drain on capital, so investors should be wary of continuing to invest in such ventures.

Alternatively, those who prefer a more conservative approach might be interested in profitable and expanding companies like Gravita India (NSE: GRAVITA). Profitability alone doesn’t guarantee undervaluation, but the fact that a business is making money and experiencing growth is noteworthy and worthy of recognition.

In the dynamic investment space, discovering multibagger stocks that can deliver exceptional returns in a short period of time is the aspiration of every investor. This aspiration has become a reality for Gravita India’s shareholders as the company’s stock has posted impressive returns. The stock, which was trading at ₹87.45 per share two years ago, has seen a sharp rise of 1,147.71% to trade at the current market price of ₹952. Additionally, from the low of ₹45 per share in August 2020, the stock has seen a remarkable rise of 2,013% till date.

Moreover, India’s most followed ace investor Ashish Kacholia has given this stock a huge hit. He held a 1.4% stake in the company in December 2021. However, this rate has increased to 2.2% as of December 2023.

Gravita India Limited

Company Overview

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

The main activities of the company and its subsidiaries include lead recycling, plastic recycling, aluminum processing, rubber recycling and participation in turnkey recycling projects. The company is engaged in the business of producing secondary lead metal by smelting spent lead battery scrap and lead concentrate.

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

As of 2023, the company’s total production capacity is around 2,34,000 MT, with lead recycling being the highest at 1,73,119 MT, followed by aluminum recycling at 30,000 MT. Plastic and rubber recycling production capacity is 24,600 MT and 6,000 MT respectively.

The various supply chain partners associated with the company include Reliance Industries Limited, Accenture, Asian Paints, etc. The company has entered into long-term cooperation and scrap supply agreements with various battery manufacturers and other large companies.

Gravita also expects that the availability of scrap from the formal recycling sector has increased and will continue to increase with the stringent implementation of the Battery Waste Management Regulations (BWMR), Extended Producer Responsibility (EPR) and GST.

business division

The company operates in four main business segments:

i) Lead processing: Lead processing involves smelting lead battery scrap/lead concentrate to produce secondary lead metal, which can additionally be pure lead, certain lead alloys, lead oxides (lead suboxide, red lead and litharge) and lead sheet and The same is converted to lead products. Lead powder, lead bullet, etc.

ii) Aluminum processing: Aluminum processing includes the Taint Tabor trade and the Tense aluminum scrap trade, which involves melting aluminum scrap to manufacture alloys.

iii) Turnkey solution: The turnkey solution includes complete supply of plant and machinery associated with the lead manufacturing plant.

iv) Plastic manufacturing: Gravita produces various HDPE and PP polymers. The products the company produces include recycled polypropylene granules, polycarbonate, HDPE, ABS granules, chips and compounds, all made using high-grade plastic scrap and cutting-edge technology.

In terms of revenue distribution, lead business is the largest contributor with a revenue contribution of 83.32%. It can be said to be quite concentrated. However, from a geographical perspective, the non-India revenue contribution is 55%, indicating the company’s diverse geographical presence.

Gravita India – Future Plans

Vision 2027

The company has set out an ambitious growth plan called Vision 2027, aiming to achieve a compound annual growth rate (CAGR) of at least 25%. Gravita’s strategy focuses on value-added products and non-lead businesses as it aims to expand its business scope.

For this, the company plans to increase its manufacturing capacity to 4,25,000 MTPA by FY 2026 by investing over Rs 600 crore in capital expenditure. Gravita’s pragmatic approach and commitment to the circular economy creates sustainable growth and long-term value for all stakeholders.

The company determined that recycling of lead, aluminum and plastics offered growth prospects. Therefore, we are also looking for opportunities to expand into new areas of recycling, such as lithium, steel, and paper.

Continued Capex Investment

According to a stock exchange filing, the company has started commercial production of recycled polypropylene granules from its recently opened plastic recycling facility. The facility is operated by a subsidiary in Tanzania, East Africa.

As mentioned, the new plastics recycling plant has a production capacity of approximately 1.8 billion tonnes per year (MTPA). Gravita India has earmarked an investment of around ₹22.5 billion for procurement and commissioning of this new recycling plant, funded through the company’s internal reserves.

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

gravita india – finance

In FY 2023, Gravita India Limited saw significant growth in its revenue, surging 26.3% to reach ₹2,800.6 crore compared to ₹2,216 crore in FY 2022. After analyzing four years from FY2020 to FY2023, the company recorded a solid Compound Annual Growth Rate (CAGR) of 27.61%.

At the same time, there was a notable increase in net profit, which increased by 37.5% from ₹148.45 crore in fiscal 2022 to ₹204.09 crore in fiscal 2023. Over the four years from fiscal 2020 to fiscal 2023, cumulative net profit recorded an impressive CAGR of 77.36%.

In FY23, Gravita maintained favorable financial metrics by achieving a solid return on equity (ROE) of 41.83% and return on equity (ROCE) of 31.03%.

Strong EPS growth

Over the last three years, Gravita India has seen a significant surge in earnings per share (EPS), making it difficult to use these numbers for long-term projections. So focusing on last year’s growth can give you a clearer outlook. Gravita India’s EPS surged from ₹20.6 to ₹29.72 in one year, registering an impressive increase of 44.3%, which no doubt pleases shareholders.

Examining revenue growth and earnings before interest and tax (EBIT) margins can shed light on the sustainability of recent earnings growth. Gravita India maintained its EBIT margins similar to the previous year, but showed progress by increasing revenue by 26% to ₹2,800.

conclusion

Gravita India’s impressive EPS growth rate is commendable, and the fact that insiders actually own shares reflects confidence in the company. Considering these factors, including solid EPS growth and alignment between company insiders and shareholders, this suggests that this is a business worth investigating further. Please feel free to share your thoughts about the company’s future growth prospects in the comments below.

Written by Nalin Surya

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