Updated: Apr 14, 2022
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Do you know where the scraps from India and Africa go to be recycled? Lead, aluminum, rubber, steel and even lithium. Perhaps one of the correct answers is some plant of Gravita India. We might even be seeing entire EVs being recycled completely at one of these plants in about 5 years from now.
Gravita India Limited is India’s largest lead recyclers with 18% of the organized market under their control. They also have a significant presence in Sri Lanka and the African countries of Ghana, Tanzania, Senegal and Mozambique. Africa is key to the company, accounting for 60% of the profits, while only accounting for 30% of revenue. In India, the company has a capacity of 99 kilo tons per annum for lead recycling, which it plans to double alongside aluminum recycling. As for plastic recycling, Gravita India plans on increasing its capacity by 5 times in the next 5 years.
The key to the recycling business is sourcing and collection of scrap in bulk. The Company has been operating in Africa since 2007 and is expanding capacity with new plants in Ghana, Mozambique and Togo in both lead and non-lead recycling in the next few years. This distributed recycling plants model with capacity near the ports and user industries like battery manufacturers, helps the Company in managing sourcing from multiple countries and logistics costs effectively.
The lead industry is seeing very slow growth of around 3%, but the lead recycling industry in comparison is doing much better, with a growth rate of around 25% every year.
Gravita India promoters have nearly 30 years of recycling experience. The introduction of stricter safety and environment norms has formalized the already growing industry. Gravita India does not rely solely on lead, with faster growth in plastic and aluminum contributing towards diversification. There are hence a number of reasons why Gravita India should be evaluated.
So, what is our valuation on company valuation?
Company trades at a trailing twelve months’ Price to Earnings ratio of 18 times, which is reasonable in the current market. As ESG investments gain more steam, well-managed recycling businesses like Gravita India are likely to see much more institutional interest. The stock looks attractive for the long term and should be evaluated by investors.
As for the risks to this analysis, there’s volatility in volumes and margins as well as the low CFO to EBIDTA ratio in the fiscal years 2020 and 2021. There could also be delays in the expansion projects, or hurdles in executing them. Moreover, the changing safety regulations could affect profitability. So, would you invest in Gravita India?
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