Gravita India Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

4
Anand Jain, Naveen Sharma, Sunil Kansal, Yogesh Malhotra

Analysts

10
Amit Dikshit (Goldman Sachs), Bharat Shah (BKS Capital Ideas), Devendra Kumar (Spark PMS), Dheeraj Ram (361 Capital), Kush Naha (Electrum PMS), Netra Deshpande (Mirae Asset Sharekhan), Pratham Kankariya (Quantum AMC), Sagar Shah (Spark PWM), Sumangal Nevatia (Kotak), Vikas Singh (ICICI)

Financials & KPIs

Geographic & Segment Commentary

• Lead: Volumes declined YoY as Middle East conflict disrupted 15–20% of scrap imports routed through Gulf. EBITDA/tonne at ₹24,181 benefited from domestic shortage-driven realizations. Achieved LME brand listing ("Gravita M") for Mundra plant, enabling delivery at LME warehouses globally and strengthening OEM credibility.
• Copper: Revenue of ₹376 crores at 50% capacity utilization; EBITDA/tonne of ₹55,151. Integration with acquired Rashtriya Metal Industries is progressing; 29,400 MTPA greenfield Gujarat facility (₹160 crores) on track for commissioning within 12 months. Debottlenecking investments to lift utilization by end of FY27.
• Aluminium: EBITDA/tonne of ₹25,175 included price gains; ADC12 deliverability on MCX awaits exchange decision — formalities complete, management expects inclusion within the year.
• Plastic: EBITDA/tonne of ₹10,197, within sustainable ₹10–12/kg band; incremental gains from disruption-driven local price upticks.
• Sourcing footprint: Domestic sourcing at ~35%; expanding own scrap yard network in developed economies (US, Europe) to reduce Gulf dependence and support copper procurement — yard count already raised from 33 to 39+.

Company-Specific & Strategic Commentary

• LME Brand Listing: Lead produced at Mundra listed under "Gravita M" — among select Indian secondary lead recyclers; enhances export opportunities, global OEM approvals and product liquidity without diluting MCX empanelment.
• Capacity Expansion: Commissioned additional 40,500 MTPA at Jaipur lead facility (total 75,819 MTPA) at ₹30 crores, fully funded through internal accruals; Mundra unit consolidated into Jaipur for operational efficiency.
• Copper Diversification: 29,400 MTPA Gujarat copper recycling facility at ₹160 crores from internal accruals; copper capacity to double to ~60,000 MTPA over 3 years. Rubber capacity expansion put on hold to reallocate capital to copper, given better near-term opportunity.
• Procurement Network: Setting up own scrap yards in the US and developed nations — now economically viable with copper scale — expected to reduce procurement costs and de-risk Gulf concentration; ~20% of scrap sourced from Gulf remains the key exposure.
• Lithium-Ion Entry: R&D underway for in-house black mass processing and refining unit; strategy is to extract all valuable materials from lithium batteries rather than sell plain-vanilla intermediate products.
• Capital Allocation: ₹1,680 crores CapEx earmarked through FY29 (₹850 crores for existing businesses, balance for new verticals including lithium-ion, copper and steel); credit rating upgraded to AA on prudent capital management.
• Vision 2030: Long-term framework targeting sustained volume and profitability growth on the back of capacity additions, diversified recycling verticals and rising value-added product mix.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Volume Decline & Supply Disruption

• Question: Why did volumes decline YoY in Q1, and how will growth recover? (Sumangal Nevatia, Kotak)
• Answer: Middle East war disrupted 15–20% of scrap imports from Gulf and rerouted material from other regions; volumes were sacrificed for profitability as domestic shortage lifted realizations. Q2 FY27 will still see some impact, but long-term growth under Vision 2030 remains intact. (Yogesh Malhotra)

Copper Ramp-Up & Margin Trajectory

• Question: When will copper reach 100% utilization and how will margins improve? (Amit Dikshit, Goldman Sachs)
• Answer: Debottlenecking will be complete by end of FY27 (external procurement); utilization will move to 50%+ by Q4 FY27. EBITDA/tonne of ₹55,000 is sustainable with slight increases; ₹70,000–75,000 requires backward integration over 2–2.5 years. Copper EBITDA margins appear diluted in percentage terms due to higher LME prices (~$13,500/tonne vs ~$9,000 last year). (Yogesh Malhotra)

Sustainable EBITDA/Tonne ex-Gains

• Question: What is steady-state EBITDA per tonne excluding inventory/price gains? (Vikas Singh, ICICI)
• Answer: Plastic ₹10–12/kg is sustainable; aluminium ₹15–17/kg with overseas-only operations, ₹30–40/kg when Indian plants also run; current quarter included disruption-driven gains. (Yogesh Malhotra)

US Procurement Network & Cost Impact

• Question: Will setting up new supply lines in developed economies increase near-term costs? (Vikas Singh, ICICI)
• Answer: No — own yards in the US reduce procurement costs even initially. Earlier unviable for lead alone, the model now works with copper scale; it will also improve lead sourcing diversification. (Yogesh Malhotra)

Lithium-Ion Value Chain

• Question: Is the lithium-ion strategy limited to black mass? (Vikas Singh, ICICI)
• Answer: No — Gravita targets value-added products; R&D is underway for an in-house refining unit to extract all valuable materials from lithium batteries; black mass availability in India is currently limited, and the refining unit is planned to coincide with supply growth. (Yogesh Malhotra)

Scrap Yards & Sourcing Diversification

• Question: Are scrap yards lead-focused, and can 20% Gulf dependence be replaced? (Dheeraj Ram, 361 Capital)
• Answer: Yards handle all metals; new developed-market yards will cover copper and other metals. Replacing 20% of scrap quickly is difficult, so management is compensating via higher realizations during the demand-supply mismatch; new yards should normalize sourcing by year end. (Yogesh Malhotra)

LME Listing Rationale

• Question: Was LME listing driven by customer pushback? (Dheeraj Ram, 361 Capital)
• Answer: No pushback; the listing aids new international OEM approvals and provides product liquidity globally, though Gravita is not currently selling on LME as it is less profitable. (Yogesh Malhotra)

Capacity Utilization – Mundra/Jaipur

• Question: What was utilization of the February Mundra expansion in Q1? (Sagar Shah, Spark PWM)
• Answer: Overall group utilization was ~45–50%; the new capacity was only partially used as scrap availability fluctuated — utilized when material was available, but supply disruption prevented linear ramp-up. (Sunil Kansal / Yogesh Malhotra)

Copper Hedging Mechanism

• Question: How is the copper alloy price exposure hedged given alloy composition? (Pratham Kankariya, Quantum AMC)
• Answer: All inputs are hedged proportionately — e.g., brass uses 70% copper and 30% zinc, so both are hedged based on metal input. Customer contracts use monthly/fortnightly LME averages; copper being buyable as cathode reduces scrap-linked hedging complexity. (Yogesh Malhotra)

Value-Added Mix Increase (45% → 63%)

• Question: What drove the VAP share increase? (Pratham Kankariya, Quantum AMC)
• Answer: Copper is 100% value-added, and ex-copper VAP also rose to ~50% as management prioritized bottom-line-oriented product mix amid lower volumes. (Yogesh Malhotra)

ROCE Dilution Risk

• Question: Will copper dilute company ROCE? (Kush Naha, Electrum PMS)
• Answer: ROCE is ~20% including copper; as copper ramps and lead utilization normalizes, group ROCE should reach ~25% over 2–2.5 years, with copper delivering ~25% ROIC. (Yogesh Malhotra)

Other Income Sustainability

• Question: How sustainable is the ₹47 crores other income? (Devendra Kumar, Spark PMS)
• Answer: ₹35 crores is operational (forex/hedging); if operational income is lower, business income is correspondingly higher — overall profitability is unaffected by the classification. (Yogesh Malhotra / Sunil Kansal)

Jaipur Expansion Contribution

• Question: What incremental value will the 40,500 MTPA Jaipur capacity add? (Netra Deshpande, Mirae Asset Sharekhan)
• Answer: At optimal 70% utilization, ~₹50 crores additional revenue per month; ramp-up is ready but tied to scrap availability normalization, likely by end of FY27. (Yogesh Malhotra)

Growth Recovery Confidence

• Question: Will all internal and external challenges be behind us and growth resume? (Bharat Shah, BKS Capital Ideas)
• Answer: Management is confident: US yard operations will be set up by year end, more than covering Gulf disruption. PAT has compounded at 24% over the past 3 years despite headwinds; 25–30% PAT CAGR is achievable going forward. (Yogesh Malhotra)

Key Takeaway

Gravita India delivered Q1 FY27 revenue of ₹1,475 crores (+42% YoY) and EBITDA of ₹145 crores (+29% YoY), with volumes constrained at 55,455 MT (+4% YoY) by Middle East conflict-driven scrap supply disruptions — partially offset by higher realizations as domestic shortages lifted lead and plastic margins. Strategic progress included the LME brand listing for Mundra lead ("Gravita M"), commissioning of 40,500 MTPA additional lead capacity at Jaipur, credit rating upgrade to AA, and copper ramp-up to 50% utilization with ₹376 crores revenue. Management maintains its Vision 2030 framework targeting 25–30% PAT CAGR, copper EBITDA/tonne progression from ₹55,000 to ₹70,000–75,000 over 2–2.5 years, and 8+ lakh MTPA capacity by FY29, backed by ₹1,680 crores CapEx. Key watch points remain Gulf supply chain normalization, copper debottlenecking execution, and elevated working capital at 95 days, with management guiding to improved sourcing resilience through US-based scrap yards by FY27 end.