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Gravita India Ltd
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Ladies and gentlemen, good day, and welcome to the Gravita India Limited Q1 FY '23 Earnings Conference Call hosted by Emkay Global Financial Services. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today's presentation. [Operator Instructions] Please note that this conference is being recorded.
I would now like to hand the conference over to Mr. Sabri Hazarika from Emkay Global Financial Services. Thank you, and over to you, sir.
Yes. Good afternoon, ladies and gentlemen. On behalf of Emkay Global, I welcome you all to the Q1 FY '23 Post Earnings Conference Call of Gravita India Limited. We have with us the senior management of the company, Mr. Yogesh Malhotra, CEO and Whole-Time Director; Mr. Naveen Prakash Sharma, Executive Director; and Mr. Sunil Kansal, Chief Financial Officer.
So today's session would be a brief on the company's results and outlook by the management, followed by the question-and-answer round. So without any further delay, now I'd like -- I'd welcome Mr. Yogesh Malhotra for the opening comments. Over to you, sir.
Thank you, Mr. Hazarika. Good afternoon, everyone. A very warm welcome to Gravita India's Q1 Financial Year 2023 Earnings Call. We have already circulated our earnings presentation, and I hope you have had the opportunity to go through the presentation and we will be happy to take any questions afterwards.
We will begin this call with a brief discussion on quarter's performance. I'm pleased to report strong start to new fiscal year with company delivering revenue from operations of approximately INR 630 crores in Q1 financial year '23, registering a growth of 41% on a year-to-year basis. The performance was driven by both volumes and improved realizations.
Our overseas business contributed 42% to the revenues, where we enjoy better margins. We have witnessed growth in volumes of lead and aluminum, while EBITDA per ton realizations saw a significant jump in lead and plastic segment on a year-on-year basis.
In terms of volume price mix, top line growth was supported by increase in both volumes and prices. Volume growth was 7% on a year-on-year basis to 31,762 metric tons. Value-added products continue to see healthy increase in its contribution and stood at 41% of total revenues. The company has delivered strong EBITDA of INR 64.69 crores, a growth of 73% on year-on-year basis from INR 37.40 crores in same quarter last year.
EBITDA margins increased by 190 basis points to 10.29% as compared to 8.3% -- to 8.38% in quarter 1 last year. Margins also improved and was driven by strong contributions from the overseas business, which has better margin realization and increased share of value-added products and economies of scale coming from increased capacities.
Net profit for the period was INR 42.52 crores compared to INR 21.78 crores in the same quarter last year. On the profitability front, overseas business contributed 76% of the total profits, leveraging its strength from closer proximities to procurement sites and higher operational efficiencies in the business.
Out of INR 50 crores of other income, INR 48 crores were related to gain from hedging, which is part of our operational income coming from hedging contracts. And the other part is reflected in the revenues.
During the quarter, company has incurred CapEx of INR 6 crores, which has -- was funded through internal accruals by installing solar systems, which is expected to generate nearly 20 lakh kilowatt hour of energy per year and reduce carbon emissions by around 15 tons per year. This is in line with our vision to create a sustainable tomorrow.
Thank you very much. And now I would like to open the floor for question and answers.
[Operator Instructions] We have the first question from the line of Rahul from Lucky Investment Managers.
Three questions I had. First one is the other income that you have just kind of given a breakup of INR 48 crores gain from -- because of the hedging gains that you run for your inventory. How much of this is realized and how much of this is M2M?
So everything in the hedging contracts would be M2M only. But the other part of realized is losses added in this income is realized in the actual transactions. So you see one part of -- one leg of the total transaction is the physical for purchasing phase and the other part is reflected in the other income. At the same time, it is already realized in the month of -- in the current month. Based on 30th June, it was unrealized, but now it is realized.
Okay. Okay. So the reason I was asking this was, sir, because the gross margins that we generally report either off the order of 21%, 22%. That's been your average for the last few quarters. But this quarter, you had -- you were at 25%. So because it has moved up from 21%, 22% to 25%, I was just wondering if there is a M2M number here for which the losses in the inventory has still not been realized, which would be realized -- losses in the turnover have not been realized, they will come in July, August, maybe. But you had to realize the M2M on derivative. So that bit has flown through into the gross margin, and that is why the gross margins are higher. That is what I'm trying to understand here.
So the higher gross margins are basically for 2 reasons. One is, as I've already mentioned that 72% of the total revenue -- profit has come from overseas businesses, which definitely gives us higher margin. At the same time, there were some arbitrage opportunities as Indian market was higher as compared to the global market. So we took advantage of that the front end increase, I mean, bought some international scrap and then sold it in India. So that also contributed to some additional gross margins for India business as well.
So what should we take as a normal steady state gross margins for your business?
So normal steady state gross margin has been around INR 18 -- INR 16 to INR 17 in lead. Yes, lead's EBITDA margin INR 16 to INR 17 per kg format. And around INR 18 to INR 19 for aluminum and similarly for INR 12 to INR 13 for plastic division. In terms of gross margin, it is approximately 22%.
So we should work with 22% as gross margins broadly.
Correct, correct, correct.
This 25% is an abnormality, which may not return -- which may not come back or whatever.
This is because of some orbital advantage we took in this quarter specifically.
Okay. So that was the first question, sir. Second is the volume growth seems to be far lower than what you would have yourself projected or kind of in discussion with investors what you would have told them. So what should we look forward to here in 7% is really almost anemic.
Yes. So I mean, part of it is because of certain disruptions in the Sri Lanka plant, which was not running efficiently in the last quarter. And then some of the projects probably like the Mundra project is not as of now completely stabilized. So hopefully, in the next quarters, we would compensate for this lack of growth in this quarter itself. But overall, we are going to achieve this 25% volume growth on an annual basis. So that's whatever we have planned so that we are going to achieve.
So last year, let's say, you had about 1 lakh tons of lead. So are we saying that at least 1.2 lakh to 1.25 lakh tons of lead you will do this year?
Correct.
In addition to 1.25 lakh tons.
You'll do more than 1.25 lakhs tons for this year. But in that run rate or that visibility, you are pretty clear about is it because the first -- and I'm asking repeatedly because the first quarter has been really slow, is that sir?
Yes. So I mean, on a quarter-to-quarter basis, there could be certain issues also, certain logistic issue also. But overall, our capacities have increased and some of the capacity came midway in the second quarter and in the first quarter also. The Ghana plant increase and then the whole plant is going to come up in the next quarter. So capacities increase are in line with the gross numbers.
Is that already visible, sir, July, first month of this quarter is already over. Some sense.
Already in line with the targets.
Okay. So are we kind of doing more than now 10,000 tons a month, which is what we will require to do more than 10,000 tons in a month.
Yes, we have, yes.
Okay. So that was the second. Third question, sir, on your P&L, other expenses. While your volume growth is of the order of 7%, your other expenses has grown much faster, more than 50%. So if you could give us a sense of what has happened there.
Yes. So basically, one thing is this is in line with the upcoming business. So we have started some new business also like we have started global also. So it's part of that all expenses are -- they have started, but their contribution has not yet started.
And second is the expenses, which is increased on account of slightly higher logistic costs. So that is on the outward logistics. So that is also part of that. So -- and also a part is higher fuel and power costs. So these are the 3 things which is noted, but we have coverage, we are going to cover these additional expenses via economies of scale and the value-added products.
Okay. I'll come back in the queue, sir. But just one final question. We talked about the lead volumes, but aluminum and plastic we didn't touch. There also, you are pretty confident of growing 25%, 30% because, again, this quarter has been bad for both of them.
Yes, yes. So basically, what we are saying is so 25% volume growth is on all 3 taking together. So lead may be approximately 20%, but the other business, plastic and aluminum will be slightly higher. It can go up to 30%. So considering all -- taking all together, the 25% volume growth will be achieved.
We have the next question from the line of Deepanshu Jain from HEM Securities Limited.
First of all, congratulations for great set of numbers. Sir, my first question is, what is your EBITDA margin guidance for FY '23? And can you please provide reasons why there is a hit on EBITDA margins on Q-on-Q basis?
So as we've already mentioned that the EBITDA margins are higher this -- in this quarter because of certain arbitrage opportunities that we got this quarter in domestic markets. So going forward, the EBITDA margins are going to be in the line of 9% to 10%...
On a consol basis.
On a consol basis.
Okay. Okay. And any CapEx plan for FY '23?
Sorry?
CapEx?
CapEx plan.
CapEx for the next 3 to 4 years, we have a CapEx spend of around INR 70 crore to INR 80 crore each year. Expansion of capacities in existing plants as well as putting up new plants in the same segment, right? But there are something -- because we are entering into the new verticals also. And so we are going to spend some money for bringing these new verticals also. So that CapEx will be additional CapEx of approximately INR 200 crores to INR 250 crores in next -- total in next 3 to 4 years.
Okay. Okay. So sir, can you please bifurcate this CapEx domestically as well as out of India?
So yes, so it is -- like 70% -- 65% to 70%, it is going to be in India and remaining outside India. So this is in line with the business ratio we have currently 65% and 35% on a broadly basis, India and overseas. So that CapEx will be in the same ratio.
Okay, okay.
For the upcoming new verticals, it is -- it should be approximately reverse, 40% in India and 60% outside India.
Okay, okay. And sir, my last question is any revenue guidance for FY '23?
So the volume guidance is similar, I mean, as we mentioned already that we have a target. We are very confident of achieving the target of around 25% growth in volume terms. Revenue targets will change. I mean, it will be broadly based on the volume numbers only.
We have the next question from the line of [ Keshav from Rafshan Investors ].
Sir, I wanted to understand the disproportionate difference between bottom line and revenues that come out of international business. So what are the enablers? Is it the labor cost, the supply chain or the capacity utilization rates over here?
So basically, I mean, in recycling business or in scrap business, I mean, it's basically the source of procurement or the scrap availability and the cost of scrap is the key drivers. And we get cheaper scrap overseas as compared to India. That is first part. Even in India, 50% of total scrap that we process is coming from those countries, those overseas countries.
So it includes all the logistics cost, everything else. So therefore, the landing cost of scrap in India is much higher than the landing cost of scrap in those countries. That is number one. Other than that, I mean, most of these economies, wherever we have -- plants have a closer access to European and U.S. markets that gives us additional benefits in terms of lower logistic costs also.
And then there are certain tax benefits also, custom duty benefits also when we export from these countries to the major markets, major European or American markets. So all this gives you a better EBITDA margins from our overseas business as compared to India.
And just in addition to this, that whenever we bring this scrap from overseas to India. So that also attracts the finance cost of bringing that scrap to India. So that also additional costs. So on a PAT basis, it is impacting that way also.
And the second is that tax in overseas is lower because we are mostly in some of the tax-free zones we have -- we are operating. So the tax is also lower in case of overseas. So these all things make more margins, more profitability in overseas.
Understood. Sir, and just a follow-up to that. So with EPR coming in, and we are also projecting that the organized share would go up. So probably a consequence of EPR. So does that mean that the similar efficiency we'll start seeing in India also maybe to not that level, but structurally, we -- even with the same business, we might have better margins going forward 2 to 3 years forward from now?
So yes, basically, we see a positive change going forward with this policy framework changes in India. More scrap being available to the organized sector, and it helps with infrastructure to our overseas businesses also because now our dependence on overseas scrap has gone down for the India business. We are increasing the capacities overseas and putting on new plants also overseas. So it has multiple impacts. So overall, we believe that going forward, profitability in India will also improve because of lower cycle and lower inventory requirements as local scrap would be utilized. And at the same time because the scrap that we will be holding in overseas locations also the profitability there will also increase.
Yes. Understood, sir. Sir, secondly, on the plastic side, quarter-on-quarter, we had a sharp drop in the plastic terms. And as far as I understand, the plastic processing return metrics vary drastically by the region and also the geography. So for this vertical, the externalities such as sourcing cost, processing technology lead, other cost like OpEx, as well as the consensus for getting right price on the demand side. Do all these create sufficient sustainable ROICs, even in a scenario where crude backs -- goes back to where it was a couple of years back or certainly much lower from where it is right now?
So basically, actually, unless lead, aluminum and plastic, currently, we are not 100% hedged. So if there is any sudden change in prices in these segments, your profitability increase or decrease. But at constant prices, as we mentioned earlier also, I mean INR 12 to INR 13 per kg margins are basically the right margins.
Before that, we got some increase -- in the last quarter we got -- the prices were -- pricing had gone up last quarter. So there were some abnormal, I mean, increase in the margins that we saw in aluminum also last year and in plastic also last quarter. But we have maintained at around INR 12 to INR 13 per ton margins are sustainable going forward also. And that is what we have projected in our Q, I mean, next year business plan also.
Sir, what I mean is that one thing is the logistics side of things. And the second thing is price you get those scrap at, right? And say, we look 3 to 5 years from now and crude set is back to where it was a couple of years back. So even on that basis, is the scrap also -- the scrap cost, the sourcing cost, everything, does that sustainably give us this kind of margin? Or we still have that vulnerability that $30 crude will not be available for us?
So there are 2 things here. Number one is basically, if, I mean, first of all, I mean, slowly the secondary market in plastic or the recycling market in plastic is going away from the virgin plastic market. It's especially in the markets that we are working in U.S. and Europe. What is happening there is that the price of secondary plastic is breaking away from the virgin plastic.
At current levels also, it is selling at a premium over primary markets because there is certain compliances that has been set there. And similar compliances are being set in India also because of EPR. So as and when the customer also is now becoming more aware and also the companies are becoming more aware about sustainability and have set internal targets of these sustainability levels, we believe that it will break away from the virgin plastic target altogether. So the plastic prices in recycled plastics will not go down with the virgin plastics beyond a point.
Understood, sir. Sir, in the OEM business...
This is the operator. I'm really sorry to interrupt, but [ Keshav ], we have participants waiting in the queue. Can you come back?
No issues. I will come back, yes, I will come back later.
[Operator Instructions] We have the next question from the line of [ Hemant Patel from Phoenix FinServ ].
We have increase in employee cost quarter-to-quarter as well as Y-o-Y ranges.
Yes. So basically, as Sunil-ji mentioned last time also that we are gearing up for the future. So employees generally come first and then the capacities later. So as we are growing at around 25%, the setup is now for the capacities for next year also. We are adding also new verticals, as we mentioned that we have already entered a -- we have already put up a final project of rubber recycling in Africa, which we'll be then putting up in other territories also. Similarly, we are talking about copper recycling also. We are adding capacities also. So employee cost is becoming, I mean, is going up, but I mean, it is in line with our future plans.
Okay. The next question is, our volume, all vertical volumes have decreased from Q4 to Q1.
So there is certain cyclicity in this segment also. If you see last year also, the first quarter was a little lower as compared to the next 3 quarters. That is part of it. But coming from second quarter onwards, I think it will pick up as it generally does on year-on-year basis.
Okay. So we are maintaining our earlier guidance of 25% in volume growth.
Absolutely.
We have the next question from the line of [ Mrinal Shah from Axiom Investment Management ].
As we know that lead is used maximum in lead acid batteries and majorly lead acid battery is used in passenger cars, right? So going forward, the demand of lead acid battery is going to increase at a remission rate due to many factors. So what are your views or thoughts on the future of lead and lead acid battery since majority of the company's revenue comes from the processing of lead.
So first of all, we believe that the lead acid battery market is going to grow at a CAGR of around 6% to 8% globally. There is not going to be any remission, any reduction in the growth. That is number one. And secondly, we have already set up a plant where we are reducing our overall reliance on less recycling from current around 85% to 70% to 75% in the next 2, 2.5 years.
So we are -- we have already diversified into plastic and aluminum and we will increase our share in these 2 segments. And we are -- in addition, we are also increasing -- we are also going into other verticals, as I mentioned earlier, like rubber and copper and in future in steel, e-waste, lithium-ion batteries and paper. So overall, we want not to kind of be associated only with one product, but we want to be known as a -- I mean, through and through recycling companies, company basically.
Okay. One more question. So what is the highest ending lead value-added product currently?
Lead sheet is the highest value-added product currently.
Sorry, sir?
Lead sheet.
We have the next question from the line of Vaibhav Badjatya from Honesty and Integrity Investment.
So can you give me a breakup for the total capacity separately for smelting and refining in India and outside India like 2x2 boxes if you can give us the capacity, sorry, lead specific.
So the total capacity for lead, we have is 168,000 tons. So this is -- this capacity includes wherever we operate, it's for the finished goods. But in some of the entities, some of the locations, we are not making the refined lead or lead alloy. So for those locations, we have considered only the remelted lead or the crude lead for -- as a finished goods for that capacity purpose.
So -- but for the India, the capacity is approximately 118,000 tons out of this 168,000 tons and approximately 70% of the capacity is the smelting capacity for India, out of this 118,000 tons.
Okay. So out of 118,000 tons, you're seeing 70% is your smelting capacity?
Smelting capability for India.
Right for India. And for outside India, then what would be the breakup?
Outside India approximately, out of the 200,000 tons capacity approximately 90%, you can say, is the smelting capacity.
Okay, okay. So is it -- would it be -- I mean, so given that we have -- so the -- so basically, we smelt lead outside and import for Indian operation or we don't do that?
Yes. So there is an opportunity sometimes when the lead prices -- like in the Q1, it was there. So the lead prices in India is better than even if we pay the logistic cost of bringing that scrap to India and even the finance cost considering -- the finance cost also for bringing that scrap to India -- metal to India. So then we bring that scrap to India and sell it in India after doing some value addition, of course. But sometimes, when the net prices are better in the industrial markets, we sell it in industrial market. So we have both opportunities. So we try to optimize both the things.
Okay. Got it. And in terms of the plastics business, so you said in U.S. and Europe, the situation is that the secondary plastic is now expensive than virgin plastic, that's what you said earlier, right?
Yes.
So in India, is it the same or it's different in India?
In India, it's different currently. But going forward, as the EPR will be -- I mean, the policy of EPR will be drafted, finalized. We believe that India will also follow on similar stretch.
So then given the fact that you expect the secondary plastic to be expensive emerging. So basically, there's no then for the end customer.
It may not be expensive than the primary market. I said it's not reached to the primary plastics. There will be a separate market for secondary plastics as compared to the primary market. So there will be no linking as -- which is currently there in India. So it is a different supply and demand for both the plastics.
And then that you're saying the deal linking will happen because of the responsibility that will be in terms of plastics.
There will be demand for recycled plastic because of EPR. So if the demand is higher than the supply, the prices will go up and so on and so forth. So it will not link to the primary, which is currently the case.
Okay. Okay. I understand that. But just slightly a longer term question in the sense that the end customers is always worried about the price, right, and the cost implication associated with the top tier and secondary plastic.
Now if the virgin plastic is going to -- suppose if the secondary plastics is always traded at a premium because of this artificial responsibilities on the consumers. So the increase in price of virgin plastic will increase the margins on secondary plastic, would it be right to this? That's because our cost of processing secondary plastic has nothing to do with the oil prices or something while virgin plastic price has everything to do with cost of oil, right?
During the times when the fuel prices are higher, probably during those times because the cost of procurement of scrap is the major cost center when you come to secondary market. So it is kind of constant. You cannot go beyond that particular price because it will stop procuring that scrap or collecting that scrap.
So there is a limit. So if the fuel prices go down during those times, secondary plastics would be higher than the primary plastics. And during the time that fuel prices are up probably during those times because it is going to be an efficient market as -- if there is too much margin, too many people will come into the secondary market also. So it will work like any other industry.
There would not be a hint needed. So it's not necessary that if the fuel prices go up, the secondary prices for plastic will also work. Similarly, the fuel prices go down beyond a point, the secondary prices may not follow the fuel prices on those primary prices -- primary plastic prices. That will be a separate industry, eating to a separate requirement of customers, which is more from the prices point of view, which is more on the sustainability point of view.
We have the next question from the line of [ Manav Singh from Oral List Capital ].
Yes, I wanted to understand the demand supply -- domestic demand supply scenario, how much competition will be there and what is the scrap related?
You're talking about net, right?
I'm talking on the scrap, domestic, yes, net, right.
So the domestic total demand or you can see production is around 1 million tons, out of which 200,000 tons is done in terms of exports and primary production is hardly 1.8 lakh tons. And this rest part is either by importing some refined lead and remelt lead or through domestic scrap or imported presentation. So in domestic scrap scenario, the current situation is that, that the batteries which are generated from auto, industrial, they are coming to formal sector or institutional that also coming to formal sectors. The retail batteries are mostly going to informal sectors.
So this way, we are finding that domestic collection from institutional or industrial sector is higher and retail sector it is lesser. And that scenario is going to change in time to come when we mentioned that this informal sector will reduce and formal sector will grow. As of now, informal is 65% and 35% is formal. And next 2, 3 years as the EPR regulation comes that will be reversed almost. So there, we see a steep growth of formal sector battery coming and the scrap sector will behave like that.
Okay, sir. So how much would we be doing? How much recycling of -- how much can do we take from domestic scrap?
So if you talk about our current capacities, we -- I mean, 50% of the capacities are through domestic scrap. And we only get it to less than 10% of the total scrap in the domestic market. So even if we go and utilize entire capacities in the domestic segment as will only require us to, I mean, probably double the overall capacity requirements. So we still have to increase our capacity if we want to get it to even a substantial part of this scrap capacity that is going to be available domestically.
Okay. Great. And my second question is related to this -- the same thing. Exide is also having lead recycling capacities of about 108,000 metric tons. So I want you to understand why is -- what set us apart from them? And what's stopping Amara Raja and other new players to take away market share from us?
So both -- actually, they are not in the business of recycling. They are in the business of battery if and when these companies are going to come in this lead recycling would primarily be because of statutory compliances because we have to get that much lead recycled. So if they don't find any solution in the organized sector, probably we will go and do battery recycling themselves also.
But it is very difficult in the time that the scrap is generated throughout India. It's not at one point that the scrap gets generated. So -- and they have their final -- I mean, that battery factory in one location. So for all the scrap to move to that location would be very difficult. So that is how companies like us, which have pan-India presence, which have factories all across India, are a better solution to this.
So what we can do is we can collect all the batteries from all across India, we have a very good network of collection centers ourselves in India. So we can help them doing that. So even if they do it. As I mentioned earlier also, it's only 35%, so nothing of the retail sector is going to come on organized sector. If we start collecting that sector, 1% would not be enough. We need them to put up factories also, we need to increase our capacities also and still there would be some sales left.
Okay, sir. And just last question. I wanted to understand what is the pricing mechanism in lead. We do back to back rating, so that locks in our margin. But what I wanted to understand is what happens to the absolute figures? Do they fluctuate in tandem with LME? Or like could you just explain to me what happened to the absolute figure?
So basically, what happens is that generally battery scrap or lead scraps sells at a percentage of LME. So if today, I want to buy battery scrap, lead scrap, either would know the LME prices, and there will be a set say, around 40% or 45% depending on which area you are buying the battery scrap from.
So suppose today's $2,000 is LME. So I would get that scrap at around $800. So tomorrow, if LME goes to $2,500, that will change to $1,000. So you can tell me the scrap. I mean, linking to LMEs. And similarly, when we go and sell that product to the customer, there is generally a premium over LME. So depending again on which customer you want to sell it to, whether it is to a trader or to an OEM and what product you are selling it. Generally, there is a premium over LME. So therefore, you lock the margins because we buy at LME prices and then you sell at a premium over LME.
We have the next question from the line of Rishikesh from RoboCapital.
Just previously, you mentioned that you buy from LME and you are selling at LME plus premium. So with lead prices coming down, that would have a positive impact, if I'm not wrong?
No, it will not have any positive or negative impact. I mean, generally, if you are not hedged, definitely, if the LME goes down, you are at a bigger profit. And if LME goes up, you tend to gain more because you are not hedged.
But as in our case, we're helped, generally, the margin remains similar because at lower LME the premiums are a little higher, at higher LME, the premiums tend to come down a little. But in the end, the overall margins in between remain similar.
Okay. So if lead prices, let's say, go further down, our realizations will be impacted, right?
Yes. But at a very -- because we have hedged, we will only have the effect on whatever we are -- I mean do you -- processing charges, which is not linked to LME. That is the only cost sense. So that may impact you, but it is a very small impact that is going to happen if the LME goes down further.
Yes, realization will go down, but at the same time, scrap cost will also go down. So the gross margin will remain same.
Okay. So in that case of revenue growth, would that be reserved as the volume growth that you said 25%.
No, no. So we are only targeting the volume growth, the revenue growth may go up or go down in terms of metal prices.
Okay. So if the metal prices are around revenue growth in numbers, some might go down, right?
Yes. Yes. Yes.
Okay. Okay. And sir, my second question was on value-added products, which is currently 40% around. So how are we looking at it in 2 to 3 years?
So the next 2 to 3 years, we want to go up to 50% on value-added products.
We have the next question from the line of Rahul from Lucky Investment Managers.
Sir, if you could just help us with your net debt number as of June.
Yes. So net debt is approximately INR 330 crores at this moment, which is slightly reduced from March '22 number, which was approximately INR 360 crores.
INR 360 crores has come down to INR 330 crores.
Yes. Correct.
We have the next question from the line of [ Sharan Nandikol ], an investor.
Hello. Are you able to hear me?
Yes, yes, please, please. Yes.
So my first question is regarding the partnership, like India is -- Indian government has a plan to scrap the commercial vehicle, right, and they are also planning for scrap centers across India. So do you have any plan to make partnership with those scrap centers to collect the scrap from there various material like copper, steel and plastic and whatever on being impacted on the battery. So I just wanted to move on that part, what is your approach?
So this collection centers will collect nearly commercial vehicles. So that -- they will generate battery, tire and other non-ferrous and ferrous scrap. So certainly, we will get more battery from them via formal way you can say, as of now. So we need not to go for our own scrapping center as of now. Whatever being generated in that policy, battery, they have to deliver it to authorized recycling only.
Okay. Sure. And about the debt, do you have any like time frame by this year, you will do 0 debt, you will make 0 debt or something?
So we are not going to have the 0 debt at this moment, up to next 3, 4 years. So what we are doing is the entire CapEx of the existing verticals, we are going to fund from their internal accruals. So we are not increasing the debt for the existing verticals.
But -- so we have kept 2, 3 things in mind while going for a debt. So we have kept ourself in the limits of like net debt equity ratio should not be more than 1 and debt to EBITDA should not be more than 1.5. And so these are the things which we keep ourselves. And the major part of the debt is working capital debt. So we -- and that is against inventory. So we don't consider better risky debt because debt inventory is already sold, and we don't have any risk. It's equivalent to cash.
So it's always sold and we just need to come out into the metal and sell it and get the money back. So we are not going to make it 0 because with a lower cost of debt. So -- but we are consciously taking a debt for the further extension. So we will take some more debt earlier we planned for a QIP but now considering the lower price. So we are not going for that. And we can increase slightly debt whenever we have new verticals coming up. So to fund that, we can cautiously, but that should be in the limits, what we mentioned.
Okay. And the QIP, I'm a new investor, sorry, if this is already done. But QIP, is it still pending?
Yes, QIP clearly, initially, we planned in the last year, but now it's postponed for another 1 year, we can wait.
Okay. And one last question, the India, you have only 1 listed company, which is your competitor that's Pondy Oxides or any other companies you have competition from?
There is Nile also and these are the 2. Nile Limited also is a competitor for us in lead space.
So Nile is listed and Nile and Pondy Oxides Limited are listed companies, and there is one more company, which is a sizable company, nonlisted, in North.
Sure. And by when the lithium ion recycling will start as already the passenger vehicles on the road. So you -- from when you will start the recycling?
I think we are still waiting for some substantial volumes to start coming in terms of lithium ion battery because the life of lithium ion battery is around 7 to 8 years. So even if tomorrow, I mean, you start getting lithium ion batteries in cars. I mean I'm talking about substantial, in a substantial manner because the CapEx requirement for a lithium ion battery recycling plant is huge.
So you need a particular volume of these batteries to be available to you for scrap. So it will take -- still take some time for lithium ion battery recycling to start in India. But we are very conscious and we are discussing with some technology partners to put up a pilot project. But currently, we have our hands full with our existing verticals that we have, that is lead, aluminum and plastic.
And we are also thinking of going forward in some other verticals also, as I mentioned, paper and copper overseas. So lithium ion battery is on the cards, but it's not going to happen immediately. It may take 2 to 3 years.
Sure. And sorry, one last question...
[Operator Instructions] We have the next question from the line of Faisal from Hawa and Company.
So why have we not expanded more aggressively in the Americas and Europe where there could be a huge opportunity for you because of the cost that which will be eminently much better for you than the incumbent players and the volumes there are much more. And how are we looking at the OPEC films and BOPP recycling and opportunity also because out of the OPEC and BOPP companies themselves like Uflex, Polytex are themself coming into this area of recycling so that they can supply easily to their existing clients.
To answer your first question, I think the market in Europe and U.S. is already saturated. And it's basically done by mostly by the battery companies themselves because they have set up a system, which is totally different with the systems that are in the developing nations. So they control the battery flow in these countries. And it's clearly mature markets currently. So we're looking at other evolving, developing economies, where we believe there are much lighter opportunities and which are also growing at a much faster pace than Europe and U.S.
And second thing is that slowly most of the manufacturing is moving away from Europe and U.S. So going forward, we believe that it is not the right areas to go and do. We are looking for opportunities where growth is going to come from. That is first part. What was your second part was about the company, OPEC companies, et cetera, correct?
Yes. We are also themselves getting into the recycling because they have 2 sales.
Earlier are also that generally, the quantum of change that is going to come once EPR comes into place, whatever capacities are here in India, the way people can expand, it is going to be difficult to keep up with the opportunities available. So it doesn't matter. And there would be enough opportunities for each and every person who want to come into recycling.
The second thing is it's not their core business, whereas recycling is our core business. And it's basically access to scrap that is more important or access to -- I mean, for us, scrap is the key factor here, which we have our strength in not only in India but outside India also, we have a huge yard from where we secure. So that is going to be the key factor. I don't know how much strength that they would have in this particular sector.
And then, of course, how to recycle, probably we are in a much better position than these companies who want to do backward integration. And as I mentioned earlier also, mostly, these companies would have single plant, going and securing from Pan India basis. Processing in different area because logistic cost is going to be a major factor also.
So I think it is good that most of these companies are realizing that recycling is going to be a key factor in future. But it does not affect us. Basically, we will only increase the awareness or it will also increase the market size.
And sir, what is causing you so much confidence at...
[Operator Instructions] We have the next question from the line of [ Deepak Mehta ], an investor.
Great set of numbers. Sir, my question is around right now, we have 42% of revenue from value-added products. So by 2024, what percentage you are looking for value-added products, in that 2 to 3 years?
So we have 50% from value-added products. Actually as more and more new plants are coming up, it takes some time for you to get it registered for delivering products because you have to get volume approvals also. So because we have put up new plants in Ghana, we're putting up new plants in Senegal and Tanzania also from where we will be supplying value-added products. It may take some time in the next 2 to 3 quarters, where we will be selling at around 40%, 42%. But once approval for these plants have come from owners, it will jump and go to around more than 45% in this year itself.
Okay. And what is the margin for value-added products, EBIT margin?
So generally, it gives you 2% to 3% more margin after cost for these products.
Net of additional cost.
We have the next question from the line of Karan Asli from Maximal Capital.
I just wanted to understand our volume charges from 25%. Now that Q1 is behind us. And in lead, we have seen 9%, aluminum 10% and plastic negative 3%. So to achieve this 25% target, we'll have to grow significantly higher in the forthcoming 9 months. So I would assume lead will have to grow 20% to 20% plus, aluminum in the range of 35%, 40% and plastics in the range of 40%, 45%. So if you could just speak a little bit about the challenges, which we saw on a more granular level this quarter? And what makes you confident of what is achieving these numbers over the next 9 months?
See, basically, there are 2 things, first is the total capacity that we're going to put up like in aluminum, there has been no increase in capacity in the last 2 quarters, but our solar plant is coming up from where we will increase the capacities or increase the total growth.
Going forward, we are also putting up capacities in Mundra for aluminum and our plastics capacities are also going to go up. So there, we will get some increase in the next 2 to 3 quarters. As far as -- on a quarter-to-quarter basis, there are many, I mean, issues or macro elements also that sometimes contribute to these things.
For example, whenever there is a sudden drop or increase in metal prices or plastic prices, generally, people stop buying and selling. That is one part. So there can be -- they want the network to stabilize first. So at those times, generally, there is a certain impact of procurement also and certain on sales also. So it is not reflective of the actual market trend that is available. So there is generally a default in these situations.
And also in India, because as I mentioned earlier, also, there were certain arbitrage opportunity, which means the imported scrap was much cheaper than the Indian scrap. So we kind of stopped buying in the Indian market, and that has reduced our total procurement in Indian plants also. So that also impacted the overall volumes. But going forward, we don't see any challenge in reaching this 25% growth numbers in the future on the annual basis.
Sure, that was helpful. And if you could just chart of as how much additional capacity is coming up in aluminum, including Togo and Mundra and the sale for plastics?
So in Togo, we are putting on capacity of around 5,000 tons per month or year. The current capacity is for....
So the current capacity for aluminum is 22,000 tons. And so other than Togo, which is coming up for 6,000 tons, we are coming up for Senegal also selling aluminum also, which should be close to, again, 3,000 tons -- another 3,000 tons. Then we are also coming up with the Mundra facility for aluminum, where it will be done for 2 phases of total approximately 24,000 tons for aluminum. So taking all this together, the capacity of aluminum will be more than double in the next 1 year.
All right. And the same for plastics?
Plastic will be around 50% more capacities will be put up in the plant in this year itself. So capacity of our plastic is approximately 23,000 tons with 50% capacity utilization. So for the volumes, we are increasing the capacity utilization also along with the additional capacities.
Ladies and gentlemen, due to time constraints, that was the last question and we will now close the question queue. I would now like to hand the conference over to the management for closing comments. Please go ahead.
Yes. Thank you, everyone, for joining us today for the earnings call. We remain optimistic of the strong growth trajectory and excited about the opportunities that lie ahead of us. We hope that we have answered all your queries. Please feel free to reach us in case any of your queries remain unanswered. Thank you once again.
Thanks.
Thank you, members of the management and Mr. Hazarika. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.