Gravita India Ltd
NSE:GRAVITA

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Gravita India Ltd
NSE:GRAVITA
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Earnings Call Transcript

Earnings Call Transcript
2024-Q1

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Operator

Ladies and gentlemen, good day, and welcome to Gravita India Limited Q1 FY '24 Earnings Conference Call hosted by Emkay Global Financial Services. We have with us today Mr. Yogesh Malhotra, whole-Time Director and CEO; and Mr. Sunil Kansal, Chief Financial Officer. [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.

S
Sabri Hazarika

Thank you. So good afternoon, ladies and gentlemen. On behalf of Emkay Global, I welcome you all to the Q1 FY '24 post Earnings Conference Call of Gravita India Limited. We have the senior management of the company, led by Mr. Yogesh Malhotra, Whole-Time Director and CEO; Mr. Vijay Kumar Pareekh, Executive Director; Mr. Naveen Prakash Sharma, Executive Director; and Mr. Sunil Kansal, Chief Financial Officer. So today's session would be a brief on the results by the management, and then we will follow with the question-and-answer now. So over to you, sir.

Y
Yogesh Malhotra
executive

Thank you, Mr. Sabri. Good afternoon, ladies and gentlemen, and welcome to our Q1 FY '24 earnings call. I believe you have had an opportunity to review the earnings presentation and financial results. that were uploaded on the stock exchanges. Before opening the floor for questions, I will provide a brief overview on the major highlights of the quarter.

I'm delighted to share that Gravita India has delivered strong performance in Q1 FY '24. Before we delve into the results, we would like to share some strategic highlights and project updates. I'm pleased to announce that pure Lead of 99.98% purity and above produced by our Phagi, Jaipur plant has been empaneled as an approved Lead brand deliverable against the MCX let futures contract.

Pure Lead manufactured by the Chittoor plant of the company is already at MCX empaneled product. This will provide Gravita with an additional platform for hedging, better inventory management and price transparency in the domestic market. I would also like to highlight the fact that MCX maintains a global and stringent quality approach, which is at par with the international exchanges.

This reaffirms the fact that the products manufactured at Gravita's plants adhere to global standards, thereby ensuring excellence in every aspect of production. Gravita has expanded its existing capacity of battery recycling unit security at Chittoor, Andhra Pradesh. The capacity has been increased by 26,440 metric tonne per annum to 64,640 metric tonne per annum.

The CapEx undertaken stands at around INR 21 crores. It is funded through internal accruals. Additionally, it's worth noting that this plant leverages the potential of domestic scrap, which is abundantly available from permanent telecom players, UPS, OEMs, IT, IPS as well as waste scrap from the automobile sector in their respective markets.

Gravita has also secured contracts to efficiently collect pan-India scrap enabling the company to serve OEM customers in South India and facilitate exports via the nearby Chennai port, thereby optimizing logistical costs. With this expanded capacity, the company aims to fortify its position in the South Indian market, including the Southeast Asian market as well.

Gravita Tanzania Limited a step-down subsidiary of Gravita Securities in Tanzania East Africa has started commercial production and recycling of waste rubber. It has an annual capacity of around 3,000 metric tonne per annum in Phase I, which is expected to go up to 6,000 metric tonne per annum in Phase 2.

The CapEx incurred for Phase 1 is INR 3.86 crores, again funded through internal accruals. This newly established recycling facility will not only result in cost reduction but also contribute to decrease the carbon footprint. The process of rubber recycling produces pyrolysis oil, which will be utilized by the company for in-house consumption as an alternative energy source in recycling battery and aluminum scrap.

This move aligns with the company's commitment to sustainable practices and environmentally friendly operations.

Let's now discuss the operational performance. Coming to capacity expansion. As of 24th July 2023, Gravita has grown by 22% from March 2023 and expanded its total capacity to 2.78 lakh metric tonne per annum. We are confident that we will reach 4.25 lakh metric tonne per annum capacity by financial year '26, which will include both existing as well as new verticals.

The company has witnessed a volume growth of 18% in Q1 FY '24 on a year-on-year basis. Lead volume increased by 18%, aluminum volumes grew by 63% on a year-on-year basis to 29,287 tonnes and 5,396 tonnes, respectively. We are maintaining a healthy order book of more than 60,000 metric tonnes per annum.

A reminder of our CapEx plans, Gravita is committed to expanding its capacity and hence is expecting to incur a CapEx of more than INR 650 crores by financial year '26 for its existing as well as new verticals. CapEx expected existing and new verticals is approximately INR 400 crores and INR 250 crores, respectively.

Moving on to Q1 financial year '24 financial results. At consolidated level, revenue for the quarter increased by 21% to INR 703 crores on a year-on-year basis and showed a drop of 6%. On a Q-on-Q basis, 49% of the revenue in Q1 FY '24 came from value-added products, aligning to have a vision of achieving 50% revenues from this category. On a year-on-year basis, adjusted EBITDA increased by 24% to INR 80 crores.

EBITDA margins improved 11.4% and the company continued to maintain strong margins. Delta reported a consolidated PAT of INR 52 crores with a 22% growth year-on-year. PAT margins remained steady at 7.4%. Overall, the company performed significantly well on a year-on-year basis, but faced a slight drop on Q-on-Q basis. This can be attributed to a drop in aluminum and plastic prices.

Additionally, the disruption caused by the Biparjoy cyclone had a significant impact on the operation of a major lead plant in Mundra leading to adverse effects on volume growth and margins. Furthermore, the recent launch of our 2 new aluminum plants has been in stabilization phase and is yet to operate at full capacity.

At stand-alone level, revenue stood at INR 654 crores, showing an increase of 6% on a year-on-year basis. EBITDA for this quarter stood at INR 60 crores, demonstrating a significant improvement from quarter 1 of last year. EBITDA margin stood strong at 9%. Similarly, PAT showed a significant increase of 136% on a year-on-year basis to INR 38.72 crores. PAT margin stood strong at 6%.

I would like to emphasize once again that we have steadfastly progressing towards our ambitious Vision 2027, which involves diversifying into new verticals, achieving robust financial growth and expanding our business in non-lead segments. Moreover, we have full confidence that by year financial year '26, we will successfully reduce our net working capital cycle from 83 days as of March 2023 to 65 days, thereby significantly enhancing our operational efficiency.

That's all from my end. I would now request to open the floor for questions and answers. Thank you, and over to you, Sabri.

Operator

[Operator Instructions] The first question is from the line of Rahul Bhangadia from Lucky Investment Managers. .

U
Unknown Analyst

Sir, first question is, could you give us a rough sense or your approximation of how much volume would you have lost because of disruption in the operations in Mundra?

Y
Yogesh Malhotra
executive

The volume, we loss is approximately 10 to 12 days, which is approximately 1,500 tonnes for this -- because of this Biparjoy impact.

U
Unknown Analyst

Okay. Okay. That is about 1,500 tonnes. Okay. Second question was you had a one-off in the form of piece of being kind of reversed or something like that, that have got into the other income, INR 11 crores?

Y
Yogesh Malhotra
executive

Yes. So basically, we made a provision earlier in the form of impact of this employee benefit scheme, which we brought. But later, we realized that we don't need this provision because we have already dismantled -- we are in the process of dismantling the trust and giving the benefits of this scheme slightly earlier to what it is planned. So -- but now we have taken a provision of giving that benefit in the employee benefits. So if you see the benefit -- employee benefit expenses is slightly higher on this side. So on the one side, it is a provision reversal, which is showing in the in other income. But on the other side, the impact is that we have taken a provision of incentives, which we are going to give to the employees so against that benefit, which we are losing.

So it is a compensation. So we are considering this reversal as a part of the operational because the other impact is coming in the employee benefit expenses. So for us, we have taken it in the adjusted EBITDA because it's operational part of the business.

U
Unknown Analyst

So this INR 11 crore income that you've accounted for in the other income part of it, how much would you have put in the employee benefit expenses or in any other expenses in this quarter itself?

Y
Yogesh Malhotra
executive

Yes. So approximately INR 8 crores we have already considered in the employee benefit of expenses of this quarter.

U
Unknown Analyst

Okay. INR 11 crore against INR 8 crore, net INR 3 crore is what you got in but benefited to that extent essentially.

Y
Yogesh Malhotra
executive

Yes. Correct. Correct. Correct.

U
Unknown Analyst

And that is why we have put it even this INR 11 crores in the operational part because corresponding cost you have also recognized there.

Y
Yogesh Malhotra
executive

Yes, yes, yes.

Operator

The next question is from the line of Gaurav Gandhi from Glorytail Capital.

G
Gaurav Sanjay Gandhi
analyst

Congratulations on the good set of numbers. My first question is, sir, how do you collect [ Tanzania ]? I mean do we have any contracts with the company handling municipal waste? And also, do we have any large symptoms in the cities for collection of household spreads? Do we have any kind of such centers collection for collecting scratches?

Y
Yogesh Malhotra
executive

In [ Gravita ] state of domestic collection, our collection plant is heavily increases. One is Gravita has signed the contract with Amara Raja Batteries from which we are collecting the batteries from on a pan-India basis. Secondly, we are also very closely working with some [indiscernible] who are collecting the battery, sewage, plastic and many other commodities as a rates. And out of those rates, we are collecting the plastics and lead and lead scrap from those companies like software. Some of our and other companies.

Certainly, that we are also having our contracts, which is IT companies like software TCS, like so accenture and other companies from which we are collecting the batteries on a selling basis, whether the offices are located in FES or in domestic tariff areas. Thirdly, we are also collecting the batteries from institutions like offer builder group [indiscernible] Aditya Birla Group, Adani Group. So from the different locations of refractory plants, call locations, we are correcting these bets.

G
Gaurav Sanjay Gandhi
analyst

Okay. And do you think this municipal waste management companies like [indiscernible] is handling and all. Can we benefit from these companies also for our connection?

Y
Yogesh Malhotra
executive

Because it's municipal waste where doesn't collect these batteries because these batteries will be largely it will be auctioned or it will be sold through different, different locations. No one will hand over these batteries to the mutual for municipal waste.

G
Gaurav Sanjay Gandhi
analyst

Okay. Okay. And my second question is to get more clarity on this EPR topic. Sir, as per EPR policy, the producer gets a response -- the production is responsible for recycling. Does it mean that, for example, if whatever Exide batteries or a number of other things, they are responsible to collect 10 -- recycle all the batteries. And if yes, what happens to, let's say, if the Exide batteries are collected by do we hand over that scrap to them? Or how will it work?

Y
Yogesh Malhotra
executive

Yes. You are correct that as per EPR policies, they have to either collect that or recycle themselves or taken by recycle lead or they have to take EPR certificate. Like even it is applied to the import of new batteries also. Yes, to collect the battery over a period of time. So that's how this will EPR process. And there will be penalty if the EPR is not done and they can even create recycling partner under EPR [indiscernible] in that partner to Amara Raja.

G
Gaurav Sanjay Gandhi
analyst

Sir, in that case, whether ability to impact our margins, if we partner with them in future on it impact on margin?

Y
Yogesh Malhotra
executive

So basically, this is going to work as a tolling arrangement, which is currently in place. So of course, if you talk about EBITDA margins, that will be lower, but there will be no working capital requirement in such a case. So therefore, the overall ROC will be better in this case, which we are already doing. So if you look at it, most of the domestic procurement that we are doing is through this arrangement only. So overall, even though the EBITDA margins would be a little lower, the overall profitability of the ROC would be much higher as compared to when we buy it from domestic market.

Operator

The next question is from the line of Gunjan Kabra from Niveshaay.

G
Gunjan Kabra
analyst

Sir, I wanted to understand how does the margin scenario work in plastic and aluminum segment because they remain quite volatile, like in this quarter, it was around 4% for aluminum, whereas it wasn't -- it was -- and previously, -- so how does that scenario work in aluminum and plastic, what kind of stable margins can we expect in this segment? And if I wanted to understand the mechanism effect.

Y
Yogesh Malhotra
executive

So margin in case of -- operational margin in case of plastic and aluminum is like in case of plastic, it is INR 10 per kg but EBITDA margin INR 10 per kg. And in case of aluminum, it is because in terms of aluminum, it is mostly business outside India, where we sold slightly cheaper. So margin is in the range of INR 17, INR 18 per kg EBITDA margin.

So -- but there is a slightly frustrating margin because of -- in case of plastic and aluminum, we are not hedged fully. So we work on a model where we keep on buying the scrap and we keep on selling any put against that. So this is the level inventory which -- but sometimes when the market prices are going down or going up. So that time, the margins are the inventory gain or inventory losses, the margin is going up or down. So that's the reason because we are not pretty helped in this model, and there is no mechanism also available of hedging this plastic and aluminum. But going forward, we are looking for a mechanism for aluminum specifically. We are entering into an arrangement where MCX is going to be available platform for because we are dealing into aluminum alloy.

So on MCX, maybe we platform for dealing or hedging or given the deliveries also for aluminum alloy in future. So we are working on that. So hopefully, that arrangement is going to be developed by the MCX with the Ministry of Finance. So we are arranging that. So after this, there will be stable margins on the aluminum side. But still we are finding for solution for plastic also similarly where we can hedge the margins for the future.

G
Gunjan Kabra
analyst

Okay. So second question I had is that you have already spoken about the total capacity expansion that you plan to do it over the years, but I wanted to know that from to date and what is the expansion that is happening in apart from lead and other metals, I mean, I wanted to understand rubber, plastic what's the expansion plan for FY '23 to '26. How much is the incremental capacity for rubber than plastic and aluminum? And if any other expansion also you plan into this segment -- in any other segment.

Y
Yogesh Malhotra
executive

So basically, the total capacity, which the expansion we are doing in case of less is approximately from [indiscernible]. So the capacity of [indiscernible] capacity of lead, which is currently only 25,000, we are taking around 300,000 tonnes. And in case of aluminum, it is currently 30,000 tonnes, which we are taking it to 48,000 tonnes. And in case of plastic, it is currently 22,000 tonnes, which we are taking to 65,000 tonnes. So these are the capacity expansions which we are planning for the existing verticals. And there is another vertical which we are talking about is rubber recycling-- so because I think we are not considering the capacity of robot in our overall capacity expansion because rubber is currently being consumed the output of rubber is being consumed for the recycling of the lead and aluminum. So there will be capacity expansion in the rubber also because within the replication mode, we started from Ghana now we are applicating the rubber inside in Ghana, Senegal, Megantic, Tanzania, all the African location. So there will be expansion of rubber, but considering that part of the capacity expansion.

Operator

[Operator Instructions] Next question is from the line of Satyendra Chakraborty from Chakraborty Family Office.

U
Unknown Analyst

Congratulations on a good set of numbers. My first question is really around the hedging mechanism. I think you briefly touched up certain aspects of it. If I sort of understand from your presentation, the back-to-back core inventory is fully hedged. But my question is really in the future, for instance, when you have rubber, plastics, paper, there is no forward contract that you can do in any other or any other exchange, for example, the Chicago Board of Trade. So these will be really OTC contracts that you do on a one-on-one basis. So any thoughts around how do you want to play this hedging mechanism gain going forward?

Y
Yogesh Malhotra
executive

Yes. So I think it's really clear that on lead, we're already hedged, which is around 80%. And we are already in discussions with MCX to start incorporating ADC, which is the major alloy that we make to incorporate in their delivery mechanism. So these 2 in future will be taken care of. Look, apart from that, I think in other verticals like plastics, et cetera, although there is no mechanism currently available where we can hedge it on exchanges.

But definitely, we have tie-ups with OEMs where we sell them forward contracts. So whatever deliveries I'm going to give to any OEMs in July, the prices would be M minus 1 basis. So whatever I'm collecting today. So more and more of that material would go in the next one. So that is where you are probably doing natural hedging, which we call it the mechanism for that is already in place. So going forward, wherever there is no possibility of hedging through exchanges, we would incorporate this mechanism more and more.

U
Unknown Analyst

Okay. And just one sort of follow-up on -- so is it fair to say that you mentioned aluminum that you will potentially start to add this more so it's fair to say that the EBITDA per metric ton will not be continuously dropping as we have seen for the last couple of quarters, right? Okay. The second question I had was really on the turnkey project piece. So I think this segment is performing brilliantly. .

I just wanted to hear from you what your outlook is on this, any margin revenue guidance you can give? And I also wanted to understand really very importantly, what is the market positioning that Gravita has? Is there like no other integrated player who can provide, let's say, integrated turnkey solutions? Or do you have other let's say, outside India peers who can do that because I'm not sure that I understand the market structure fully well for this kind of service.

Y
Yogesh Malhotra
executive

Yes. So basically, how we see our turnkey solution division is basically as a support to our overall expansion plan. So even though you may not see the overall revenues or gross margins coming from this because sometimes around 80% to 90% of the total revenue that we do is internal only.

In terms of where we are pleased, actually, if you look at it, I mean, there are either European companies that are into this who are providing these solutions globally. And then in lead and aluminum, generally, otherwise, there are no companies available, which can make or produce sustainable environmental-friendly equipments. So we are the only solution, solution provider in the developing countries who can provide the solution, which is viable even if you make a smaller plant. So generally, if you go for a bigger plant, we are around -- you are recycling, for example, for in lead around 5,000 to 10,000 tonnes per month, then there are various options available from European companies. But if you are anywhere in the range of 1,000 to 2,000 tonnes per month, there are very few options available and that is where Gravita is placed.

But we don't see it only through that lens. As I mentioned earlier that we -- for us, it's an in-house research center where we keep on improving our efficiencies, our yield in terms of making it more environmental friendly. So that is the major part we are in this.

U
Unknown Analyst

Understood. Sir, you don't suspect that you will provide the solution to any other competitor and then that sort of cannibalizes your sales. I was just trying to ask if it is real captively; consumed?

Y
Yogesh Malhotra
executive

We constantly do this. We supply material to anybody who wants to go into a lead or aluminum recycling. So far, we have sold more than 60 turnkey solutions across globe. And we have a handsome margin of around 25% to 30% in the volume that we do externally.

Operator

The next question is from the line of Khush from Electrum Portfolio Managers.

K
Khush Nahar
analyst

So I had 2 questions. One was why -- any reason for the tax rate being higher in this quarter at 14%? And second, the domestic stat collection this quarter has been around 30% as per presentation. While in the previous quarters, it has been in the range of 40% to 45%.

Y
Yogesh Malhotra
executive

Yes. So your first question related to tax because this quarter, it was -- Indian business are more profitable as compared to it was what it was earlier. So proportionately, the tax rate in India is slightly higher than the tax rate. Average tax rate in the overseas business. So because of this, the average tax of previous year is approximately 11% against which this quarter, we ended up at 14%. So because of the slightly proportionately higher profitability and higher PBT in India. So that's the reason for the tax. And your second question was about domestic but scrap availability, right?

K
Khush Nahar
analyst

Yes.

Y
Yogesh Malhotra
executive

So part of that is -- part of the reason is that -- and why we did better than India as compared to the other parts of the globe, is that Indian market was giving better premiums over overseas businesses. So we imported a lot of batteries because overseas scrap was cheaper as compared to Indian cap during these times. So we imported more overseas scraps to increase -- to increase the profitability and reduce the Indian scrap. So there are opportunities of arbitrage available time to time for us where there is a difference between Indian scrap. Sometimes Indian scrap is cheaper. In those months of those quarters, we buy more Indian scrap whereas when the overseas market overseas market is slower than we buy it from overseas market also. And in sales, it is vice versa because Indian markets were good. So therefore, if you look at our performance of Indian entities, they have shown better results.

We have sold more value-added products and we've done more revenue in India as compared to overseas. So we have shifted a lot of scrap even from our own entities into India, so that we can take advantage of that arbitrage. So we've taken an advantage of arbitrage both on the sales front as well as on the procurement front.

K
Khush Nahar
analyst

Okay. And just one last question. So we, as a company, remain on the guidance of 25% growth in volume terms for the next year. Just want to confirm that.

Y
Yogesh Malhotra
executive

Yes. So in terms of production, definitely, we will grow more than 20% to 25%. As I mentioned here also now is that sometimes there are -- there is arbitrage where it makes sense for you to not sell it to third party and bring it to India. So during those time in consolidation, you will not see the sales growth, whereas the production volume growth would be there, but it will not reflect in the revenue numbers. But in terms of profitability, our target of 35% profit -- PAT growth would always be there. Bottom line growth of 35%. We are very confident of achieving.

Operator

The next question is from the line of Hemant, an Individual Investor.

U
Unknown Analyst

As per one of our earlier calls, we are supposed to actually -- we have the target of doubling our revenue over the next 3 years. So I hope it doesn't include the revenue from the existing verticals, right -- sorry, from the new vertical. It only includes the revenue from the existing verticals and the revenue from the -- I mean, new verticals will be over and above the revenue of -- after doubling it, right?

Y
Yogesh Malhotra
executive

Our target -- I think the target that we have mentioned earlier also is that we will -- we are planning to grow at more than 25% in terms of volume on a year-on-year basis for the next 3 to 4 years and around 35% profitability growth CAGR in the next 3 to 4 years. So that remains our target even now. But as I mentioned earlier that sometimes the revenue growth will not reflect the volume growth in the company.

So the production will increase, but sometimes when you will consolidate if there are arbitrage opportunities and we bring our material from our overseas plant into India, it may not reflect in the revenue numbers, but definitely, it will reflect in the profitability numbers.

U
Unknown Analyst

But sir, just wanted to understand one thing. Like in this call also, we have told us that you will bring INR 650 crores of CapEx and INR 400 million for the existing verticals and [ INR 250 million ] from the new verticals, right? you had actually mentioned that the asset turn will be. So basically, it translates to nearly INR 2,000 crores of revenue, okay, from the new verticals, right? And in FY '23, I guess we did something around INR 2,800-odd crores, okay.

So I mean we are getting INR 2,000 crores of revenue from the new verticals only. So I think the profit should be more than 2x -- sorry, the revenue would be more than 2x by FY '26, right?

Y
Yogesh Malhotra
executive

So these are the basic numbers.

U
Unknown Analyst

What I'm trying to understand is like the revenue growth which we are talking about FY'26 -- it includes only the existing verticals. And the INR 2,000 crores of revenue will be over and above the revenue growth of existing verticals, right?

Y
Yogesh Malhotra
executive

Sorry, can you come again?

U
Unknown Analyst

Like INR 250 crores of CapEx, we have already planned for the new verticals, right? And the asset turn is 8x. So we'll be roughly doing around INR 2,000 crores of revenue from the new vertical itself, right?

Y
Yogesh Malhotra
executive

Yes. Yes.

U
Unknown Analyst

And we are planning for...

Y
Yogesh Malhotra
executive

Some of the CapEx would come in to third year. So revenue numbers from that CapEx may not reflect in that year itself. The CapEx, but CapEx plan is different in the revenue, which is coming from that CapEx, maybe 1 to 1.5 years later. So there is a last period of -- for the new vertical specifically, there is a more lag period because we are not making the equipment for the new verticals. We are dependent on the third party for the equipment for the new vertical.

In case of existing verticals, we are making our own equipment. So in that case, that lag period is very small. It turns to the 6 to 9 months, we start the revenue generation from that CapEx. But in case of new verticals, it is slightly later. So there is a reason that revenue generation will -- the effect of revenue generation will come slightly later in this case, in case of new verticals.

U
Unknown Analyst

Yes, sir. I got on this year, I think you have already mentioned previously, but just trying to understand, like 20%, 25% revenue growth is from the existing verticals only, right?

Y
Yogesh Malhotra
executive

Only existing verticals. Yes, yes, yes.

U
Unknown Analyst

And the additional revenue. The incremental revenue of INR 2,000 crores from the new articles will be there, over and odd 25% right?

This capacity expansion from 2.5 lakh metric tonne to [ 4.25 lakh metric tonne ]. It includes new as well as the existing, right?

Y
Yogesh Malhotra
executive

Only the existing verticals.

U
Unknown Analyst

Okay. So [ 4.25 lakh metric tonne ] includes only existing verticals.

Y
Yogesh Malhotra
executive

Yes.

Operator

The next question is from the line of Harshit Shah, an individual investor.

U
Unknown Analyst

In the last quarter, we have seen a promotive transferring shares but through some investors. So do we see any more such transactions in future Second thing, in last con call, we also said that we'll be doing some QIP. Can you share the time line of it?

Y
Yogesh Malhotra
executive

So basically, to answer the first question, not to be any more dilution of the safe by the owner promoter. So that is the first part. The second part is QIP will only happen when we see that -- I mean, so we have our internal debt-to-equity target. So basically, earlier we planned QIP to fund the expansion which we are planning for.

But later, we realized that the internal generation of the cash, which is sufficient enough to fund the future CapEx and the working capital needs because we are going forward, we are taking up the business, which is slightly better in terms of working capital cycle. So we are winning down the working capital cycle. So we don't see the requirement of the fund going forward. So we have recently got some funding from the ESG fund, which is reducing our debt cost also. We have funded from them. And there is no point of diluting at this moment, no further QIPs planned in the near future, except we get an opportunity of a significant sizable opportunity of M&A. So that will be the reason -- only reason to come up for the QIP future.

U
Unknown Analyst

And just one more question, sir. You have said that you have transferred some inventory from Indian market and we have processed here and sell at India. But we also have a plants at Africa and other markets. So why we haven't process it there and sell it to India. Would that be more cost effective?

Y
Yogesh Malhotra
executive

No. So as I mentioned earlier, there are certain times when there is an arbitrage in prices available in India, as compared to overseas markets. So during those times do we import that material into India because India is giving better realization for those products. Both in terms of value addition also and sometimes as the commodity prices are also different in both these geographies. So only during those times, we bring that material into India. Otherwise, we sell directly to third parties. So I think geographical diversification also gives us these benefits from time to time.

U
Unknown Analyst

I understood that. But my question is regarding if we have a good lower cost material from Africa, can we process it there and sell the finished product in India when the arbitrage is there? Not as effective.

Y
Yogesh Malhotra
executive

Yes. So generally, we do that. But in some cases, some of the value-added equipment required are not viable when the scale is smaller. So for example, Tanzania, we are only doing 700 to 800 tonnes per month. In those countries, it is not viable to put up all the value-added equipment for all the regulated products. So in those cases, we bring it to India. So the basic the basic process is done in those countries only, whereas the value -- some part of the value addition is done in India.

Operator

The next question is from the line of Rohit Bahirwani from Vijit Global Securities.

R
Rohit Bahirwani
analyst

My question is, if we see the interest cost, it has increased from INR 10 crores to INR 13 crores since last quarter. So I wanted to just know how much additional borrowings can we assume going forward, including both CapEx and working capital?

Y
Yogesh Malhotra
executive

Sure. On the debt side, we are very conscious on taking the debt in terms of we have made our own parameters to take the debt. So the best parameter we have taken is [ 0.75% ] of inventory. So it should be less [ 0.75% ] -- should be less than [ 0.75% ] in case of the debt equity -- net debt equity -- net debt to EBITDA. We have kept our own benchmark of [ 1.5% ]. So within this parameter, we are consciously taking the debt. But considering the cash flow coming in and the CapEx plan and the working capital requirement. So we are not seeing a significantly higher debt in future. We are expecting to be in the range of like from a current number of around INR 370 crores to maximum of INR 550 crores in the next 2 to 3 years.

U
Unknown Executive

First quarter was anomaly in the sense that we imported a lot of raw materials from overseas as compared to domestic material because that was cheaper for us. And also we diverted some of our products from overseas plants into India. So that is why you see a higher inventory carrying cost, which will reduce in the coming quarters.

R
Rohit Bahirwani
analyst

Okay. Okay. I had one more question. As per the investor presentation provided by the company. the company has signed MOU to establish battery recycling plant through joint venture in Oman. So by when can we expect this to be operational?

Y
Yogesh Malhotra
executive

So it will be operational in 1 year. Probably by the first quarter of next year, it will be operating.

R
Rohit Bahirwani
analyst

Okay. Okay. And also, there is 1 location, Dominican Republic, which is showing in your global pan-India operations. So I just wanted to know what our company's plan with respect to that?

Y
Yogesh Malhotra
executive

So we are in a place where we are planning to put up a paper recycling plant in the future. And also, we will start plastic recycling in that country.

R
Rohit Bahirwani
analyst

So any numbers that refer to capacity.

Y
Yogesh Malhotra
executive

So it is more than 1.5 years to 2 years to put up a paper recycling plant, but plus we can start and an early. So the Dominican Republic is part of our new vertical business, which we are expanding in different products. So one of them is paper recycling, which we are planning to start in Dominican Republic. So we are still under evaluation, second stage of evaluation, feasibility at the on Dominican Republic to -- so we have just -- because it's our business order to start that trading fast.

We start the trading of this scrap initially, and then we will establish plant for the recycling. So we are in the process of trading off that scrap at that location. Once it is successful, then we start the CapEx and the -- setting up the plant in that location. So it will take another 1 to 1.5 years from now.

Operator

[Operator Instructions] The next question is from the line of Dhaval Shah from AC Meta Investment.

U
Unknown Analyst

Congratulations for a good set of numbers. Sir, I have one question that there is some kind of deterioration as far as sequential performance of the company is concerned on all parameters, revenue, profitability and this volume growth, Y-o-Y basis we did extremely well. So any specific reason for that? That is my first question, sir.

Y
Yogesh Malhotra
executive

So there is a slight dip on a Q-on-Q basis, which you are talking about, right?

U
Unknown Analyst

Yes, sequential basis.

Y
Yogesh Malhotra
executive

Yes. So sequential basis, as we mentioned earlier that part of the revenue was lost because of Biparjoy it affected the Mundra plant operations to the extent of -- I mean, some of the plant operations was affected by around 10 to 12 days. And apart from that, we just recently started our aluminum plant and -- so it would take some time to stabilize those plants.

Probably, that is one of the reasons why the numbers were not as good as we had expected. And of course, there is a drop in aluminum and plastic prices also. So these were the 3 issues and all these 3 have temporary problems in our opinion. So probably by next quarter, some of these issues will be resolved at the next to next quarter, all these issues will be resolved.

U
Unknown Analyst

Okay. One more thing, sir, that we have seen also depend on our volume, especially a sequential basis. So that is -- any specific reason on all 3 verticals, lead, aluminum and this.

Y
Yogesh Malhotra
executive

So yes. So in aluminum and lead basically, as I mentioned earlier that what we have done is that we have imported a lot of our material from our own plants into India. So because of that, the revenue numbers does not show the total volume that we have done in production. So it gets eliminated when you consolidate the data. So that is why otherwise, in production, if you look at the production-wise data, we have done better than the last quarter, but it is not reflecting in the revenue numbers.

U
Unknown Analyst

So it is one kind of intra transfer -- intra transfer. That will not reflect in a number and revenue also, right, if I understood correctly.

Y
Yogesh Malhotra
executive

Absolutely.

U
Unknown Analyst

And last thing, sir, we have seen a sequential decline in a PAT that is a bit higher. So that is only due to a tax element or any kind of...

Y
Yogesh Malhotra
executive

So basically, in the last quarter, Q4, there was a additional onetime income of INR 10 crores, which was there in this Q4 of FY '23. So that is not there in this -- so that was the reason you see the higher numbers in the case of Q4 versus Q1 this year. So that's the only difference. Otherwise, as already mentioned, that there are 2, 3 things, which one is, of course, the Biparjoy impact on our Mundra facility.

So these are the 2, 3 things which has contributed of 2 new plants in overseas, we have just started and the expenses were there, but we could not operate. So it's under a stabilization period. So there is a reason we are lower on the expected numbers, as compared to the last quarter. But the INR 10 crore income, which was exceptionally there in Q4, that's the major difference in the PAT.

U
Unknown Analyst

And last question, sir. We will continue to have a margin that is something 8.5% to 7.5%. That will be a range somewhere we can expect PAT margin. And as you have mentioned, as far as tax is concerned, because Indian taxes are high. So what should we expect average tax rate going forward?

Y
Yogesh Malhotra
executive

Yes. So average tax rate should be 11% to 10% -- 11% to 12%. That's the average we expect considering there will be slightly more profits coming in from the overseas business. so which is slightly lower in this quarter. But going forward, it should be back to the normal. So we expect to be in the range of 11% to 12%.

On the PAT margin side, we expect to be -- so the percentage could be lower or higher, but we slightly focus on part on EBITDA and slightly 25% ROC minimum. So that's more relevant benchmark for us because we work in different geographies. So working capital cycle is also different in different cases like we discussed that there is a business which is lower-margin business and -- but there is no working capital in that business in case of India. So that contributes higher to -- margin could be lower. But yes, we will be better on the return on capital. So that benchmark per capita is 25%.

Operator

The next question is from the line of Shrinjana Mittal from RatnaTraya Capital.

S
Shrinjana Mittal
analyst

Just a follow-up on the earlier question asked. So on this scrap collection sum you mentioned that since we imported more scrap from the overseas scrap are cheaper the important one more and hence the overseas collection was it. Is that correct?

Y
Yogesh Malhotra
executive

Sorry. I can't -- can you come again?

S
Shrinjana Mittal
analyst

So on saying that domestic collection was less in this quarter, you mentioned because that was because overseas scrap is cheaper. So you imported more than moderate connected domestically. So I just wanted to and what is the difference between like the landed cost versus the domestic scrap like this in approximate percentage-wise, what would have been different?

Y
Yogesh Malhotra
executive

It is 5% to 7% difference would be there. I mean -- yes. But the thing is that it is a little difficult to compare both this because when you have to see where we are selling it and to do who the customers that we are selling it because Indian scrap mostly is a tolling business, where the margins are fixed, whereas when we import scrap and we sell it in India, then the margins increase because -- when you -- I mean the EBITDA margins are much higher in those cases. So it's not an apple-to-apple comparison.

S
Shrinjana Mittal
analyst

Okay. So if I'm understanding it right, because of value-add, the margin seem to be there between what we sold -- what is imported in [indiscernible] and versus -- what is -- but in terms of working capital, the working capital is lower in the tolling business. So when you made this decision, you look at it in terms of margins -- margins for the or you don't see? How? What to be the impact?

Y
Yogesh Malhotra
executive

So the basic idea is to get the highest ROC. So if we are getting higher ROC by importing that scrap, even though the working capital cycle is higher, but the profitability is higher in that case then we'll go for imported scrap, but if the ROC is higher in the tolling business and we grow for the tolling business. So that is one criteria that we have capped, but it's not that we will convert 100% of tolling business into -- so we can only play for 10% to 15% only here and there. More than that is not possible.

Operator

The next question is from the line of Rahul Vakharia from Lucky Investment Managers.

U
Unknown Analyst

There was a previous question on the interest expense going up is the highest in about 4 quarters now. If you could just give us a sense of your debt number right now? And what should we look forward to in that particular item?

Y
Yogesh Malhotra
executive

So current debt number is approximately INR 35 crores and earlier net debt I'm talking about. And the number, if you compare it with the March numbers, it is [ INR 314 crores ]. So it has increased by approximately INR 60-odd crores in this quarter. And so reasons we have discussed that there is a slightly there because we have recently started the new capacity in Mundra and Chittoor. So we imported certain scraps in anticipation of this capacity. So recently, we have started this capacity and the plants are under ramping up. So gradually, it will reduce to the normal.

U
Unknown Analyst

Okay. And sir, the other thing that you mentioned was this INR 10 crore exceptional income in Q4. Just wanted to understand how would that get reported in the segmental numbers last time there was a turnkey project top line of about INR 11 crores in March quarter. This quarter, you also have again a INR 15 crores, INR 14.6 crores number. So where does that exceptional INR 10 crores sit in this -- which was there in last quarter? And where we set in last quarter?

Y
Yogesh Malhotra
executive

So INR 10 crore income was related to the tax. It was basically a recognition of the math. So reflected in the tax itself.

U
Unknown Analyst

Sorry, last quarter, you were saying reflected in. Okay.

Y
Yogesh Malhotra
executive

Q4, it was at recognition. So that was reflected in the -- not in the EBITDA, it's only in the...

U
Unknown Analyst

It was only on the tax side, you are saying.

Y
Yogesh Malhotra
executive

On the tax side, yes. The tax number was lower, that improved.

Operator

The next question is from the line of Vikash from Acuity Group.

U
Unknown Analyst

One thing is our -- one of the customer is there Amara Raja. And they also one of the fully owned subsidiaries with the Amara Raja circular solution is there, which is also a recycling business sector are there any kind of impact has come in our recycling lead, lead recycling?

Y
Yogesh Malhotra
executive

Customer we are all dealing with Amara Raja in which we are having the direct contract for supplier for products as well as we are collecting the factory scrap from different owners of Amara Raja and recycling it and supplying back to them. There will be the possibility and Amara Raja also working on that. They are basically putting up some recycling facilities down the line after 3 years. So there is a recycling facility we are putting up. So let's be related to that. But the thing is that the overall opportunity in this case is pretty huge in the sense that currently around 30%, 35% of the total scrap available comes to the organized sector, whereas the balance 60%, 70% goes to the unorganized sector.

And with this new batteries management rules coming into picture, we expect that majority of the scrap will now start coming back to the organized sector. So there is a huge opportunity and there is a huge compliance pressure also on all these battery manufacturing companies. So just to fulfill that compliance commitment, they may plan to set up battery recycling plants. Exide has already done that. But Amara Raja had earlier plan to put up that plant much earlier, but now they have a little -- I mean, kind of postponed it a little bit. So I mean, basically, that will be only from the compliance point of view, if they can find partners who can do it for them, probably they will not come into recycling. And even if they do come into recycling, there is still enough opportunity available for all the battery manufacturing companies -- sorry, battery recycling companies in India to grow at a very healthy rate, keeping in mind the opportunity available.

Operator

We move on to the next question from the line of Vikash Mistry from Moon Shot Ventures.

U
Unknown Analyst

Sir, actually, our sourcing to remain more and how we're trying to build our moat in that regard? And from that perspective, what is the concentration of institutional clients, specifically Amara Raja in case if they're trying to set up their own battery collection. That's my first question.

Y
Yogesh Malhotra
executive

Amara Raja -- and for that matter, all the other battery manufacturer all that is across India on a pan-India basis. So the battery gets collected across pan-India basis. So even if Amara Raja puts up the plants, they will put up a plant in one location where they are kind of manufacturing of battery. So but what about the other reasons on where they have to collect those batteries strong. That is where we need partners.

So Gravita, fortunately has pan-India presence, we have plants, 1 in North, 1 in South 1, 1 in West, 1 in central region of India. So it gives us -- in terms of overall efficiencies and logistic costs, it gives us -- I mean, advantage over others.

So even if they bring that plant, the plant, first of all, will not cater to the entire capacities available for recycling in India then collecting that battery from north and bringing it back to south where there battery manufacturing plant is there would not be logistically economical for them. So we would need partners like that.

U
Unknown Analyst

That's great, sir. But my question is that what is the concentration of those 5 institutional players, which we were giving [indiscernible].

Y
Yogesh Malhotra
executive

So in terms of their plants at side, as plant, a major plant in Calcutta, Amara Raja in South.

U
Unknown Analyst

Sorry to interrupt. Let me put it this way that what are the top pipe institution clients percentage here in your core question from that.

Y
Yogesh Malhotra
executive

Okay. Yes. In fact, other than Amara Raja, we are collecting the export from various locations of [indiscernible] . When I conclude like TCS, Wipro, Accenture, those kind of clients and thirdly, from the industrial sources. So by and large, our scrap collection is more or less equal in volumes from all these institutional players.

U
Unknown Analyst

Sir, what was top 5, what was the percentage of it?

Y
Yogesh Malhotra
executive

Like if you consider top 5, 1 is the TCS, second is accenture.

U
Unknown Analyst

Can you place a percentage to that?

Y
Yogesh Malhotra
executive

So this is random because this because the battery cycle be close to 3 years. So sometimes TCS volumes will be higher, sometimes accenture volumes will be higher, sometimes Wipro volumes will be higher and sometimes SEZ business will be. So it normally varies on year-over-year basis.

U
Unknown Analyst

Any rough estimate, sir?

Y
Yogesh Malhotra
executive

Rough estimate [indiscernible] because these are companies are having different, different locations, more or less several kind of industries and similar kind of volumes to data centers are even similar kind. But if you be very specific, we are getting more batteries from Tata Group of the company because we are having a global contract with the Tata Group of the company and is the exclusive contracts. So if you say that close to 20,000 to 25,000 batteries we are getting from these resources from Tata Group. The rest will be distributed among 4 or 5.

Operator

The next question is from the line of Ashit Kothi, an individual investor.

U
Unknown Analyst

My question is, sir, with regards to recycling, if you are talking about sourcing of materials from industrial levers also and assuming that metrics, which you are procuring from secondary market that is 4-wheelers, 2-wheelers or passenger vehicles or commercial vehicles. Region wise, we have to consider major concentration is from which area, where do you procure more? And from there, [ that much instance ] you have a plant or a or else you have to transport it back to your plant in Jaipur?

Y
Yogesh Malhotra
executive

Around 80% to 90% of the total batteries, 85% of the batteries are sold in the these 3 regions South, West and North. And only 10% gets sold -- 10% to 15% gets sold in the Eastern region. And in all these 3 regions, whether it is South we have a plant in South at Chittoor we have plant in Mundra, which is invest, then we have a plant in Jaipur, which kind of covers the central region, and we have a plant in Gujarat and Jammu and Kashmir, which covers the North region. So region-wise, we are planning all of the regions where 85% of the battery gets sold.

Operator

The next question is from the line of Mohamad Hassan from Fadel. .

U
Unknown Analyst

Sir, since I'm new to the sector, I just want to know about the new government rules about the recycling this -- e-waste management thing.

Y
Yogesh Malhotra
executive

New rule on the battery waste management?

U
Unknown Analyst

e-waste management. Yes.

Y
Yogesh Malhotra
executive

Basically, all waste management rules, whether it's e-waste, battery waste, tire waste, the principal is same EPR base policy pace basis. So there is 1 policy wherein there is a responsibility on various stakeholders, including producers, dealers, institutions. And in different rules, you can visit details on MOEFCC website where the rules are already there. But in principle, every e-waste generated as to be taken a laptop producing company he has to take back the laptop which reduce in e-waste.

And with considering the life, they have to take back certain percentage of the electronic item, whatever they are selling it. Or they have to give it to a recycler who will recover various metals out of that by different processes. And if they are not able to recover, if they are an importer, they have to get a certificate of EPR from these recyclers. So all EPRs are based on the same principles. There are the fine lines which can be seen on the website of the Ministry of Environment and Forests.

Operator

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Over to you members of the management for any closing remarks.

Y
Yogesh Malhotra
executive

Thank you, everyone, for participating in this call. We are pleased to announce that we have begun the year on a positive note, and we firmly believe that we are making steady progress towards realizing our of becoming the most valuable company in the global recycling industry. We trust that we have addressed all your inquiries during this session. However, if there are any remaining questions, please feel free to reach out to our Investor Relations in at Go India Advisors. Once again, we extend our gratitude to all the participants for joining us and for your attentiveness to our updates. Thank you, and have a great day.

Operator

Thank you very much on behalf of Emkay Global Financial Services, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.

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