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Gravita India Ltd
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Ladies and gentlemen, good day, and welcome to Gravita India Limited Q4 and FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sabri Hazarika from Emkay Global Financial Service. Thank you, and over to you, sir.
Yes. Yes. Good afternoon, ladies and gentlemen. And on behalf of Emkay Global Financial Services, I welcome you all to the Q4 FY '23 post-earnings conference call of Gravita India Limited. We are pleased to have the senior management of Gravita India, led by Mr. Yogesh Malhotra, CEO and Whole Time Director; Mr. Sunil Kansal, Chief Financial Officer; and Mr. Vijay Pareekh, Executive Director. So today's session would be a brief on the company results and corporate developments by the management, and then we'll follow it up with the question and answer round. So now I request Mr. Yogesh Malhotra, for the opening comments. Over to you, sir.
Yes. Thank you, Mr. Sabri. Good afternoon, ladies and gentlemen, and welcome to our Q4 and FY '23 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 of the major highlights of FY '23. I'm delighted to share that Gravita India has delivered stellar results for Q4 and FY '23. Before we delve into the results, let's go over to some strategic highlights and project updates.
It gives me great pleasure to announce that Gravita's step-down subsidiary, Gravita Netherlands has been granted a EUR 34 million ESG loan by European development financial institutions. This facility was approved after detailed due diligence on environmental, social and governance aspects. This would enable Gravita's offshore businesses to gain financial independence in terms of their CapEx and working capital needs. The facility is guaranteed by the parent Gravita India Limited. This loan is a testament to the company's continued efforts to build a more sustainable future and commitment to its motto of We Recycle to Save Environment.
I'm also pleased to announce that the Board has approved a final dividend of INR 4.35 per share, making Gravita a consistent dividend payer with 12 years long track record of sustainable dividend payouts. Gravita has signed an MOU to develop a battery recycling plant via JV in Oman with an annual capacity of 6,000 metric tonne per annum in phase 1. With the establishment of this plant, Gravita would expand its entry into the Middle East. The company has also expanded the lead recycling capacity at the Mundra facility to 60,000 metric tonne per annum. In addition, value-added production of Red lead with a capacity of 4,800 metric tonne per annum and plastic recycling capacity of 7,500 metric tonne per annum has also begun at Mundra. The company also began recycling aluminum in Togo and Senegal and plastic in Ghana this year. Additionally, the company installed 1,300 kilowatt capacity of solar energy generation, which is anticipated to produce 2 million-kilowatt hour of energy annually. This will [indiscernible] goal to minimize its carbon footprint by lowering carbon emissions by 1,550 tonnes annually.
Let's now discuss the operational performance. In financial year '23, Gravita has shown a growth in capacity to 251,000 metric tonne per annum. We anticipate expanding each year and realizing our goal of reaching 425,000 metric tonne per annum plus capacity by financial year '26 for our existing verticals. The company has witnessed a volume growth of about 11% in Q4 financial year '23 on a year-on-year basis. Lead volume increased by 13% and aluminum volume grew by 31% on a Y-o-Y basis. Gravita has incurred a CapEx of INR 108 crores, up 50% from financial year '22. This company is committed to expanding its capacity and hence, is expecting to incur at a CapEx of more than INR 600 crores by financial year '26 for its existing as well as new verticals. [ Domestic scrap collection for Indian plants was 46% ] in Q4 financial year '23 compared to 40% in the last quarter. We believe that redefining battery-based management rules, extended producer's responsibility and sector implementation of GST have boosted the -- and will continue to enhance to have availability for the formal recycling industry. As a result of this, domestic scrap collection in this year grew by 23% to 13,100 metric tonne in Q4 from 10,700 tonnes in Q4 2022.
Moving to Q4 financial results. Consolidated revenue for the quarter is INR 749 crores, up by 12% on a year-on-year basis. This rise in revenue can be attributed to an 11% increase in sales volume. Revenue from value-added products stayed at [ 45% ]. On a year-on-year basis, adjusted EBITDA increased by 17% to INR 85 crores, EBITDA margins improved to 11% as the company continued to maintain strong margins. Gravita reported a strong consolidated PAT of INR 65 crores with a 40% growth year-on-year. PAT margins also improved to about 8.5% compared to 6.2% in the last quarter.
Going forward with the financial year '23 financial results. Consolidated revenue increased by 26% from INR 2,216 crores to INR 2,801 crores. The 5-year CAGR growth stood at 22% and the company is committed to achieve 25% sales volume CAGR by financial year '27. Adjusted EBITDA, including other income for financial year '23 stood at INR 286 crores, which is up 33% on a year-on-year basis. Consolidated PAT increased by over 44% to INR 201 crores. PAT margin for the year improved to 7.18% compared to 6.29% in the last financial year. The 5-year PAT CAGR stood at 35%, which is in line with the company's vision.
Additionally, I would like to inform you that the company has reduced its debt by INR 40 crores plus in financial year '23 and is committed to reducing it even further going forward. The company's ROCE stands strong at 29% compared to 12% in financial year '19. The company has managed to improve its net working capital cycle from 95 days in March '22 to 83 days in March '23. The company aims to reach the target of 65 days by financial year '26. Yes, over to you, Sabri. I am through with my opening remarks.
[Operator Instructions] The first question is from the line of Keshav from RakSan Investors.
Congrats for a really good quarter. Sir, our planned capacity expansion for next 2 years are pretty substantial? Do you think we should grow at a much higher clip through FY '25, so FY '24 and '25, 2 years?
So there are 2 portions of this growth in next 2 years. Basically, one is expansion of the capacities at our existing plants, in our existing verticals and then -- so which is expected at 25% year-on-year basis, volume growth of 25%. Then the second [ portion ] is coming from the new verticals. We have planned like rubber. We have already started on plant at Ghana but we are replicating that rubber recycling at other locations also shortly in the next 2 quarters, we will be replicating it to other locations. And then we are also adding new verticals of steel recycling, paper recycling and lithium-ion recycling next 2 to 3 years. So this will help us to grow faster than the growth earlier we did of 22% next -- last 5 years.
Sure. And sir, the INR 600 crore planned CapEx, how much of that would be India centric? And how much would be ex India roughly?
Yes. So basically, again, INR 600 crores includes the new verticals, CapEx of approximately INR 250 crores. So our remaining CapEx of around INR 350 crores, the CapEx will be in the similar ratio like 40% should be overseas and 60% in India. But for the new verticals, approximately 80% to 90% CapEx is outside India.
Okay. So sir, post this ESG loan facility, where do you see our consol cost of debt going forward?
Sorry? Cost of...?
Debt.
So cost of debt -- the existing cost of debt is approximately 8.5%. And with this new facility, we are going down to approximately 6.5%, saving of approximately 2%.
Okay, that's on a consol basis, right?
Sorry?
Yes, consol basis.
That's on consolidated basis, yes.
[Operator Instructions] Next question is from the line of [ Vikash from Akomtree ].
And sir, one thing is there. In the last 2, 4 presentation in FY '22, whatever the vision statement is there, it's the same there? And you mentioned this is a vision statement of 2026 but again, in this Q4, you mentioned the same line the vision 2027. Any specific reason is it repeated and the year is changed?
Yes, sure. So basically, what we are doing is that we are giving a visibility of next 4 years. So when we were in 2022, then they gave a 4-year visibility of the numbers next 4 years. So the visibility of next 4 years is similar to visibility of last 4 years. So numbers are same, but then it is 1 year extended for the similar numbers, like 25% growth will be continued till 2027 instead of 2026 earlier. So it's a rolling basis visibility of next 4 years.
Okay. So then is the visibility is the next 4 years? Is the same thing is there? And apart from that, sir, right now our value-added product is a 35% is there. And our target is a 50% is there. There is the same will be achieved in the FY '26, '27?
Yes. Same will be achieved in '27.
Current number is 43%. We targeted to 50%.
This is a 43 -- sorry, 43% and 50% we will achieve in FY '26 or '27?
Yes. Because in the coming 2 to 3 years, we are expanding the value-added production in our overseas facilities also. And also we are starting just like we have started red lead production in our Mundra facility. So we currently value-added production of red lead and red sheath was only to the extent of Jaipur plant. But now we are replicating this model to other locations also.
Okay. In which other location is apart from Jaipur?
Like Mundra, we have just started. So that will be -- that is added so Ghana, we are starting. And also, we are starting [indiscernible] starting in other locations like Senegal and Mozambique.
[Operator Instructions] The next question is from the line of Dhaval Shah from Girik Capital.
Yes. Am I audible?
Yes.
Sir, attending the call for the first time. A great set of numbers. Just 2 broad questions. So first is taking the lead of about the current profitability and the total capacity which you're guiding by FY '26. Is it safe to assume that at full utilization, we will do around INR 900 crores of EBITDA at the company level?
Yes. So EBITDA is growing by 35% every year. So we have -- other than the volume growth visibility we have also given the visibility of the bottom line, like EBITDA terms and the PAT terms. So it will be 35% growth on the profitability EBITDA side. But we are more focusing on the return on capital because there are certain businesses where the working capital cycle is lower. But at the same time, the margin is also lower. So rather than only focusing on the EBITDA per tonne or EBITDA percentage, so we focus on return on capital. So idea is to keep the return on capital minimum threshold of 25% plus so that is a more focus area for the company with the volume growth.
Yes. So in the -- for fourth quarter, our EBITDA per tonne has been around INR 20,500, so -- and by FY '26, we are going to do 434,000 tonnes, 434,300 tonnes. So between today and FY '26 full utilization, will our product mix be significantly different, which will lead to a change in this INR 20,500 EBITDA per tonne?
So INR 20,500 per tonne is only for the lead. So there are different per tonne EBITDA for different products. So INR 20,000 is for lead and INR 17,000 for aluminum and plastic is approximately INR 10 -- INR 10,000 per tonne. So the product mix in the next 2 to 3 years will be changing because we will be more doing -- the other products will be like aluminum and plastic will be growing faster, and there will be some more verticals coming in. So we see always the EBITDA per tonne of the different products individually. So we don't see on an average basis. But yes, going forward, with the more volumes coming in, there will be economy of scale benefit of -- also be there. And we will be on the EBITDA percentage terms, we will be better as compared to what it is today.
Okay. Sir, do we receive any sort of subsidy or any sort of grant from the government?
So we don't get the grant on a regular basis. But yes, there was only one grant we got it is for establishment of Chittoor plant in Andhra Pradesh. So that was there. But other than that, there is no specific grant for any product or business.
So it's not a grant for manufacturing or for processing. Basically, it's a grant to set up an industry in that state. So it's only a onetime subsidy that the government has given in establishing a manufacturing unit in that state. Apart from that, there is no grant on recycling or anything like that.
Okay. Okay. Okay. Understood. Understood. And sir, we are planning around INR 700 crores, INR 650 crores, INR 700 crores CapEx till FY '26. So how is this going to be financed?
Yes. So majorly, this will be financed from the internal accruals. But considering the upcoming requirement of the working capital also. So we will be taking consciously some debt also approximately INR 200 crores to INR 300 crores of debt -- additional debt in the next 2 to 3 years. But on the debt side, we are very comfortable and we are very consciously taking the debt in terms of like debt/EBITDA should be below 0.75%, that equity should be below 1.5%. So considering all these numbers, we are very comfortable debt-EBITDA we are 1.2% and that equity, we have a. So we are constantly taking that, but it will be more funded from the internal accruals, majorly funded from the internal accruals.
Okay. So maximum you will take is around INR 300 crores debt so by the time the CapEx cycle is over, our balance sheet in FY '27 might have a total debt of around INR 700 crores -- we are in INR 350 crores today, so around INR 650 crores.
So that is one way of looking at it. Then the second alternative for us is to dilute at the right time to -- by raising some equity from the capital market also. That again that is another option to...
Okay. Okay. And sir, could you give some examples of similar business model at the global scale, where the companies have grown big in size and to which you look forward to in terms of the business model and scale what they have achieved.
So basically, I think the model that we are in where we are doing across geographies and also into different verticals. There is no other company in our knowledge that is doing something similar. But if you talk about -- I mean, there are -- in different fields in aluminum, there are different companies who are recycling Similarly, in lead also, there are companies that are doing battery recycling, but mostly are only in one particular field and doing only one product category. You will not find companies that are into many other verticals -- I mean, they are -- which are doing recycling in different verticals.
Next question is from the line of Nikhil Rungta from Nippon India Mutual Fund.
Sir, a couple of questions from my side. To start with on the debt side itself, if you can just -- I mean, you highlighted that you might come to the market for raising either equity or debt as well. So if I have to put it this way, what's the maximum leverage that you will be comfortable with? That would be helpful.
Yes. So leverage -- current leverage, if you see that the current level is approximately 1, but we can go up to maximum of 1.2.
Okay. So beyond the 1.2 will go for equity raising only, right? 1.2.
Correct.
Right. Sir, second is on CapEx of the INR 650 crores over the next 3 years. So when is it that we'll start seeing the result of this CapEx in our numbers.
Yes. So CapEx, whatever CapEx we do in the year 1, so 8 to 9x of revenue generation happens in the next year. So it is a rolling CapEx. So every year, whatever, like this year, we have did -- we did CapEx of around INR 108 crores. So next year, we can see the tax revenue generation from that number.
Okay. Okay. And even from the new verticals which we are planning [ INR 4,500 crores and INR 105 crores ], so very next year, we'll get a or it would be up to 2 to 3 years...
Yes, new verticals may take slightly more time to be stable on the results coming in. So like we expect -- instead of 1 year, it may be 1.5 years to 2 years in case of paper recycling and [ see ] recycling, the new verticals.
But there also will get asset turn of 8 to 9x, right?
Yes, asset turn will retain.
Okay. Okay. Sir, last question from my side. We are also into aluminum recycling. I mean there are concerns that because of EV this lead recycling might come under pressure, but aluminum recycling would be a big opportunity going forward. So your plans, I mean if you can slightly elaborate on the aluminum recycling?
Yes. So basically, to answer your question, first of all, we have already I mean mentioned this many times that with the EV lead recycling would not -- I mean it is not a threat to lead recycling because even in an EV, you would require a lead acid battery because it's basically to do the starting, lighting and ignitions and axillary function. So with the EV also the lead acid battery would not go away. But of course, it will give you an opportunity to recycle lithium ion batteries also, which is replacing the IC engine. So that is the first part. The second part, of course, is the aluminum recycling, of course, I mean with now most of the car bodies, et cetera, are using more and more material, which is lighter earlier they were using steel, et cetera. Now aluminum frames are very common. Apart from engine other -- I mean, total capacity or your total requirement for aluminum is increasing every day. So we believe that there is a bigger opportunity for aluminum. Even at current levels, aluminum is around...
Once the IC engine is replaced, so -- but a lot of battery casings and other extrusions will come in the picture. So there is an existing aluminum consumption in a car will be going at least 1.2x, 1.3x.
Okay. Okay. And the current aluminum recycling, which we are into, that's primarily the car bodies itself or other aluminum?
Currently, we are into cost aluminum recycling. So those are mainly engine, piston any castings, which uses for the cast purpose. And alloy wheel also cast part. So these are the 2 parts. The body is mainly of steel that is mainly sheaths and extrusions. But in time to come, we can recycle that as well.
Okay. And currently, the scrap for aluminum would be coming from outside only, it would be import?
Currently, it is mostly imported in -- we talk about Indian recycling. But in overseas, we are recycling local scrap generated because India doesn't have any specific policy, the cars which we're using -- which are now redundant maybe 25 years old car, they are not having much of aluminum. But with this policy of old vehicle policy, officially scrap policy the trucks and buses will come commercial vehicle. They are mainly of iron, steel cast iron. But once the new age car comes for recycling, but that will take time in India. So then there will be more of aluminum availability there.
Got it. Sir, last question from my side. We have got this ESG funding, which you have just announced today morning. So this EUR 34 million ESG loan if you can give some I mean, not the exact numbers, but how is it compared to the existing borrowing for us? Will it benefit us significantly and cut down our cost of funding? Or how is it?
Yes. So there are 2 explanations to this. One is that it will be improving the liquidity for our overseas business and India business. So that is one. And second is the cost saving for our business because the current borrowing cost is approximately 8.5%, which will come down to 6.5% after this new borrowings. So -- and another part is that because they have done the detailed due diligence on the environmental and social and governance aspects in overseas business for the overseas business, especially Ghana and Senegal, so -- which is the bigger subsidiaries for us. So it is also basically certification for us to -- that we are following all the environmental standards at the IFC standards globally at our all overseas plants. So this way, it is going to help us on different terms.
[Operator Instructions] The next question is from the line of John Shepherd from Batteries International.
Yes. I also have a follow-up question about the loan that's been announced today. I understood what you just said about helping to reduce borrowing costs. But will any of these loans support the project in Oman, which, of course, Gravita Netherlands is was associated with?
We couldn't hear the question properly. Can you come again, please?
Yes, of course. I was going to say about the loan that's been announced today, can you hear me clearly?
Yes, we can hear you clearly now.
I appreciate you said it will help reduce overall borrowing costs and so on. But will it also be used to support the project in Oman with the Gravita Netherlands is associated with the recycling project there?
This new funding is only for the African business at this moment, and Oman will be majorly funded from the internal accruals for the group.
I see. So that means then will you be expanding lead recycling in Africa as a result of this loan?
Not only lead recycling, aluminum, plastic recycling also and probably in -- we will set up a steel recycling plant also in Africa. So it's not only for lead cycling. And as far as Oman is concerned, I think in Oman, we have option for cheaper fund availability also.
Okay. Perhaps a final question, if I may, cheekily. Who are your partners in Oman?
So they are local Omanis partners that we are working with who are already in the trade of scrap there.
Next question is from [ Vaibhav from Enam Holdings ].
Yogesh-ji, congratulations on great results.
Thank you.
I think 2 questions. One, if you could please just give us some more color on this new CapEx on the new vertical on the INR 200 crores that you all are spending just I know you guys obviously are very clear on capital allocation. And obviously, you must be seeing some strong opportunity there. So if you could just give us some color on what this is and how you all are thinking what you all are seeing.
So in the existing verticals, which is lead aluminum, plastic and rubber, we will be spending around INR 70 crores to INR 80 crores in the next 4 years, which will be approximately INR 300 crores in the existing verticals. And another INR 250 crores to INR 300 crores of -- I mean, of CapEx would be done for new verticals which is, as we mentioned, we are planning to have a steel recycling project in Africa. We are also planning to put up a paper recycling facility in Central America. And apart from that, pilot projects for lithium recycling in India. So these are the 3 major projects which we are considering right now. But apart from that, we have enough surplus money available to look for some mergers and acquisition opportunities if it may come across or maybe a smaller project for any other vertical also?
Okay. And my second question, yes, on plastics, that what is sort of happening over there in terms of the CapEx, the growth, the opportunity and especially the regulations that we were expecting to kind of help formalize the sector?
See, plastic EPR is not -- we are not in world much because we are into the plastic recycling, which is mostly of our own recycling of batteries. But when it comes to other areas, the similar grade of polypropylene, we can certainly see that we can fulfill the EPR targets from the paint industry.
So this EPR policy is still not -- plastic has come but the registration is currently going up for the recycling industry. So once that finishes off, then probably that push that is required for the EPR to start happening in India would happen. So that is where we are focusing on. And then also the scrappage policy probably will be a source for raw plastic that is going to be available for us going forward. So these are the 2 areas which will give you the push going forward in plastic recycling in India. So it is still to take off like lead recycling has taken off. But we are expecting -- because right now, because if you talk about lead recycling, it is directly affecting the companies that buy lead, whereas in plastic receding, what is happening is that most of the companies that are affected are companies that use plastic as a packaging material. So for them to understand it completely, is taking a little longer. But once that starts happening, probably we'll see a lot of opportunity in the plastic recycling also.
Next question is from the line of Abhijit Sinha from Pi Square Investments.
Could you just take us through how you plan to add these different verticals that we have in mind in the next 3 to 4 years in our vision for '27? And what would be the different yields between these segments?
So I mean, generally, the major factor for us to put up any recycling a new recycling vertical is to see whether there is enough availability of raw material at the right price for us. So because we are present in many locations, we have our own procurement yards in many locations across the globe. We can see some opportunity -- we are currently seeing some opportunities in steel recycling in Africa and paper recycling in Central America. So what we do initially is we just try to, first of all, understand the whole market scenario of any particular vertical, wherever we want to go into. And then in the second phase, we just try to trade some material to see whether what is the depth of the total available material in that geography and what price we would be able to sell and all those things. So in steel and in plastic, we are in the -- sorry, in steel and in paper recycling, we are in the second phase, where we are now understanding the whole business mechanism of this recycling in those regions, specific regions, basically. Probably it will take us 6 more months to understand it completely. And once we are through with our feasibility, then we will set up a plant in both these locations for steel and paper, if that is what you're asking. And in terms of -- I mean, we have our targets of EBITDA margins and ROCE to see whether it matches with our philosophy of going forward with 25% ROCE or not?
No, sir, makes sense. So what I actually meant was let's say, we're talking about lithium recycling e-waste recycling. All these kind of segments that we're even thinking about of adding into our portfolio, right? So in what stages are we actually looking maybe in '25, we might start with e-waste or lithium...?
So lithium, lithium ion is a little different because we believe that the raw material for lithium ion will not be available for recycling in India for the next 6, 7 years. So what we are doing is -- but at the same time, even in lithium ion right now, there is no proven technology also. So we are putting up a pilot project to understand how the lithium recycling would work. So it's just a pilot project. It's not a full-scale project, which will give you a -- it's more of a strategic business unit that we will be putting in where probably profitability will not be that important. But what we want to understand is to set up a technology that is -- that will suit lithium ion recycling in India. So it's in a very nascent stage currently. It's not something that we have done a complete homework on in terms of profitability and all. But for the other 2 steel and paper, it's basically a simple project because the technology is proven. I mean, it's not of a rocket science. And it's very similar to what we are doing in lead or aluminum or plastic recycling.
Is it difficult to do the steel and paper over here in India as well?
So as I mentioned, that it basically depends on the raw material pricing available and the opportunities available from which you can make more money. So even in India, if you look at steel recycling or paper recycling, most of the raw material comes from overseas. So a lot of value get wasted in the logistic cost. So if you put up the plant, overseas itself from where we are importing those materials you save on those logistic costs also. And at the same time, all these countries, wherever we put up those plants also require finished products. So for example, a country in Central America would be exporting a lot of scrapped paper out of that country. But at the same time, they will be importing a lot of finished products -- I mean, corrugating paper also into the country. So by putting up the plant itself in that country itself, you will save on a lot of logistic costs. So that is the idea behind having those operations overseas rather than having it in India.
Understood. Sir, there are a lot of e-waste come recycling companies here in India and I think 85% is unorganized. So how does that look for India segment that you are interested in?
So again, I mean, until the time India can find out a solution to separate these things in an organized -- I mean, take this recycling into the organized sector, probably it will be very difficult to compete with the unorganized sector because what is happening in the e-waste mostly is that people are refurbishing rather than recycling it so you cannot compete with the -- I mean, the unorganized sector because, again, then paying GST, et cetera, everything else so you don't become competitive enough to compete with this unorganized sector. So till the time e-waste starts happening in the organized sector, probably it will be very difficult to compete.
Is it difficult for us to lead the change as per se.
Yes, it is for any one company, it would be very difficult.
Okay. So then we would require the other...
It needs to be supported by the policy. So we are not asking for any subsidy or anything else. What we are asking is basically a level playing field where all the companies, whether they are organized or unorganized, go through the same -- I mean, in the same manner. I mean, they're treated in the same manner. So unless and until it is there, probably it will be very difficult.
So at the moment, the government is supporting primarily the lead recycling if I'm not wrong?
No, it's not -- government is trying to support recycling in an organized manner for all the sectors. So they are bringing in policy, changing policies because there are loopholes in some of the policies. So government is trying to fill those loopholes. But it will probably take some time for the E-waste policy also to -- I mean, so that people cannot take -- cannot misuse that policy currently. Currently, most of the people who are doing that E-waste recycling are generally, it's basically refurbished. So it's only a eyewash. They are actually not recycling it.
Understood. And sir, due to this recycling that we are doing, it would require a lot of power consumption, right? So then I was just checking the financials, this accounts to only about 1% of our top line. So how does that -- how do we do the accounting for the power cost?
So in metal recycling, generally, it's not the power cost. It's basically the fuel cost that is I mean, the biggest component of process. So in Power, actually, it's a very small cost, but fuel cost is a little higher than power cost for us.
And fuel cost is accounted for in the material cost, basically.
[Operator Instructions] The next question is from the line of [ Kush Nahar from Electric PMS ].
Am I audible?
Yes, you are.
Yes. So I had 2 questions. One was how is the progress on the shift that is going on from the unorganized to organized segment? And second is, any particular reason for our volume growth year-on-year to be 12%, which seems a bit lower than our other quarters. And the next expected volume growth in the next 2 to 3 years.
For the shift from the informal to formal sector, the new regulation, which is known as BWMR, that has come. And under that BWMR, there will be EPR on battery, [indiscernible] battery lever all battery will come under repair, which were not there in earlier rule, which was known as BMHR. So this EPR process, all registration from the manufactured side are done, means battery manufacture and importer. And next stage, it is with the recycler will be registered on this. And stage 3 the manufacturer has to fulfill the EPR targets. And if they don't fulfill, then there will be some penalty. So this entire process will shift the existing informal volumes, which is almost 65%. So we foresee that from this 65%, 30%, 35% volume should shift to formal sector. So there is a huge growth potential in the formal sector.
What was your next question,sir?
My next question is regarding your growth expectations over the next 2 years?
Sir, growth expectation for us in volume terms is around 25% year-on-year for the next 2 years, for the next 4 years, actually. So there may be a slight -- I mean change on a quarter-to-quarter basis or sometimes even in a year-to-year basis. And also what we do because we have our own capacities in India as well as overseas. So sometimes what we do is we bring that material into India. So you don't see the volume growth as such because then we process it in India and then it gets eliminated in the consolidated figures. Whenever there is an opportunity where we can, I mean, take advantage of the arbitrage in Indian prices and overseas prices. So for us, what is more important is the profitability growth. So in volume terms, also, we have grown more than 12%, but only 12% gets reflected in the consolidated figures.
[Operator Instructions] The next question is from the line of Abhijeet Bora from Sharekhan by BNP Paribas.
Yes, sir I have a couple of questions on the financials. When I go to the segmental breakup there is a item called turnkey projects where the segmental profits have increased very sharply to around INR 9.6 crores in this quarter. So any specific reason why the other segments are largely stable or declining on a sequential basis?
Yes. Sorry, I could not get your question, please. Can you repeat, please?
Sir, in the segmental thing, there's an item called turnkey projects. Earnings in that I don't know [indiscernible] earning is reasonably higher in this quarter at around INR 9.6 crores, historically run rate has been...
Yes. So basically, what was happening is because of the COVID in the past 2 years, there was not many new projects coming up in the lead recycling across the globe. But now that has started, so this year, we have sold some projects outside, and that is why we've got in our -- this fifth vertical of projects around INR 9 crores. Going forward also, you can expect something like this because we have an order book of around INR 25 crores to INR 30 crores. And generally, it gives you a 40% gross margin. So going forward also, you can expect something similar in numbers from the projects department also.
Okay. And second is on the other income part, like is there any one-off in that [indiscernible] do we need to exclude something from that to arrive at the existed PAT number?
Yes. So there is other income part, there is majorly a hedging income, which is part of the operational income. So we consider it as part of EBITDA because it's a hedging strategy for the company like whatever metal prices -- metal price risk, we cover from the hedging so that is reflected here. So that is -- other than that, there is no significant one-off item, which is there in this so which can be only to the extent of some interest on the fixed deposits and all, that's the only -- and which is recurring in nature. So there is no one-off case of in other income.
Okay. What is that hedging amount [indiscernible]?
So in this year FY '23, out of INR 93 crores of other income, INR 88 crores was related to the hedging part. So remaining only INR 5 crores was related to the interest on the other fixed deposits and et cetera. So this INR 88 crores is considered in the EBITDA calculation because it's a part of the operational income.
Okay. And sir, a couple of more questions. Any guidance on the tax rate for the full year.
Yes. Tax rate currently is 11% for the group. But going forward, it should be in the same range, 11% to 12%.
Okay. And lastly, sir, last quarter, it was mentioned that the CapEx would be around INR 500 crores but I think that actually revised upward by INR 100 crores so is there any change in like cost structure at any of the plants?
Yes. So there's no significant change, but other than that the CapEx -- or CapEx opportunity for the existing vertical and new verticals. So like new verticals, we have considered there is more visibility on the new vertical. So that's why we have kept this target of INR 600 crores of CapEx in the next 4 years. So that's the...
[indiscernible].
So -- but there has been no corresponding change in the like capacity expansion in guidance in [indiscernible] I was wondering like INR 100 crores [indiscernible] than the CapEx.
Yes. But there will be no significant change in the next 4 years at least.
The next question is from the line of Chirag from RatnaTraya Capital Partners.
Just I wanted to just clarify the volume growth again a little bit this quarter has been a little slower than average. Are there any sort of one-offs or any particular reason here? And also on an ongoing basis, I understand that pricing can change the profitability at least the headline number a little bit, but can the volume growth also be a lot more volatile? And if that is the case, why would that be?
Yes. So volume growth target is 25% for next -- on a year-on-year basis, next 3 to 4 years. So this volume growth, like this year, it was 17% as compared to FY '22. This volume growth is slightly changing because there are certain times when we get some additional margins by selling the books of the overseas units in the Indian market because Indian market gives -- sometimes Indian market gives a better realization because of the Indian demand of the metal in India. So at those times, the volume gets reduced but because we import that overseas materials to India and utilize the Indian capacity is -- to process that goods to get that additional margin. But overall, if we compromise on the volume growth, definitely, we are focused to have more growth on the bottom line side. So bottom line growth of more than 35% is more important than the volume growth like this. So we compromise sometimes on the volume growth to get the more bottom line growth. So that is our idea. And with the more bottom and good, we get more ROCE. So overall, the focus comes on the return on capital.
Understood. Okay. So this quarter was something like that then that where a lot...
Yes. If you see the per tonne of lead normally, it should be in the range of INR 16 to INR 17 per kg. But this time, it is INR 20 per kg. So we got this additional -- and EBITDA margin is also 11%, which is not -- in general, it is not there. So -- but at those times, we compromise on the volumes.
Understood. Understand by compromising on volumes, what you mean is that both plants, our overseas plants and the Indian plants could have processed goods. But instead of that, what you're doing is you have directed materials from outside, scrap from outside and to the Indian plant where the processing is happening in the Indian plant, and that offsetting is reducing the volume. Is that the right understanding?
Correct. Correct. Yes.
One more question. Sir, just on a Page 26 of the investor presentation, this time we have started to give a quarterly breakup of the domestic scrap collected. Is this inclusive of the tolling business also? Or is this just the outright scrap business as it is?
Yes. So this is including the total scrap collection in India. So this is including both tolling also and other corporates also.
Okay. Understood. So this comes to be around 43,000 tonnes, if my math is broadly correct. What was the similar number for last year, what has been number for last year?
[indiscernible].
It was approximately a number -- so number of 41,000 approximately, yes.
Which is currently 43-odd approximately.
Yes. Yes.
Understood. If I can squeeze in one more question. Otherwise, I'll get back in queue.
Sure.
The Nicaragua divestment could you just give us a little bit more brief on that? What is the thinking there? And is there any learning from that sort of [indiscernible] the Nicaragua plant that was got divested, if you can just get a few comments on that.
Yes. Basically, Nicaragua plant was where we were processing this PET recycling we were doing in Nicaragua. That was exclusive plan for this type of recycling. We started Nicaragua plant with the -- more potential we saw that we can get the volumes more in those geographies and we can expand to other verticals also. But later on, when we realized that there are no such potential and the volumes are not coming up to that extent because of certain geography reasons. And there was some management bandwidth also consuming this was also consuming the bottom line target of return of -- return on capital target of 25% was also not -- we were not able to achieve that. So then we decided to exit from Nicaragua and invest that money which we realized to other geographies where like their nearest geography is Dominican Republic, where we can plan for a bigger facility for similar kind of plastic recycling and along with the paper recycling and there is another potential of lead recycling in those geographies. So we are very focused on the return on capital target of 25%. So wherever we see that there is no such potential to grow that to that number to that extent, we brutally exit from that location. So Nicaragua was amongst that 1 of the investments .
Next question is from the line of Gunjan Kabra from Niveshaay.
Sir, I wanted to understand that how much capacity are we expecting to -- in the rubber recycling, how much are we planning to install by FY '26 also? And what kind of EBITDA per tonne do we see in this segment in rubber recycling? And also in the new segments that we are targeting, which is steel, paper and lithium is, of course, a newer side, but steel and paper also, how much are we targeting EBITDA per tonne?
So EBITDA per tonne for different verticals is like lead is approximately INR 16 to INR 17 per kg, INR 16,000 per tonne and aluminum because this overseas business, 90% overseas business, so it is INR 18 to INR 19 per kg. And plastic case, it is approximately in a normal case, it is INR 10 per kg. So the capacity expansion for plastics, we are expecting to reach to approximately 80,000 tonnes next 4 years. So that's the target for plastics. And also for rubber, we are currently at 6,000 tonnes and then we reached to approximately 16,000 tonnes in next 4 years. So currently, in case of rubber, we are just focusing on the internal use of this outcome of the rubber but there may be a different opportunity which can be additional number to this where we can process the rubber get the other...
Sir, your voice is not audible. I'm really sorry, but your voice is not audible.
So basically, in rubber, the current capacity is around 6,000 metric ton per annum, which we are expecting to increase it to 15,000 metric tonne to 16,000 metric tonne in the next 4 years. But that is basically for captive consumption only. In addition to this, also planning to put up other stand-alone rubber recycling projects, which will be in addition to this capacity of 15,000 metric tonne per annum.
Okay. So sir, rubber is basically for captive consumption. So where is it used in our products?
So out of rubber we get pyrolysis oil, we also get steel and carbon. All these 3 things are used for our smelting processes in lead and aluminum. So I mean the pyrolysis oil replaces fossil fuel, similarly carbon replaces wood charcoal. So all these things basically is also a major component in creating sustainability for our operations.
Okay. Sir. And for steel and paper, what is the EBITDA per tonne are we targeting?
Steel and paper?
Steel and paper where we plan to expand. So we will be thinking of some EBITDA per tonne, right? So what will be that will we start the recycling for steel and paper?
So I will tell you so EBITDA per tonne would be different for different verticals based on different geographies and it is very, very dynamic thing. So eventually, which geographies are we going to put in because you must understand that, for example, paper is a very small -- so I mean, per tonne paper would be around I mean $50 to $80 per tonne as compared to lead being $2,000 per tonne. So there's a huge difference in terms of that. But at the same time, the total CapEx cost is very high in these things. So based on these 2 things, the EBITDA margins would be different. But if we talk about on a benchmark figure for, say, for example, in future around 18% to 20% EBITDA margins would be there for steel and around 30% to 35% EBITDA margins would be there for paper. But it will be in terms of percentages. In terms of absolute number, it would be much lower because the price of the commodity is very less compared to the steel or -- sorry I mean, compared to the lead or aluminum prices that we hear.
[Operator Instructions] The next question is from the line of Rohit from Vijit Global.
First of all, congrats for a good set of numbers. My question was major overseas operations are from African countries like Ghana, Senegal, Mozambique and Tanzania. Are there any specific reasons to it? And what are your plans for expansion in these locations?
Yes. So basically, there are 2 key options to expand in these geographies. One is like wherever we are in these existing verticals. So we are already at the 60% to 70% market share of those verticals in those geographies. So another opportunity is to expand into other verticals like we are already replicating the new verticals like earlier, we added aluminum. So now we are in the process of replicating aluminum recycling at all the locations. Like Senegal this year, we have started Senegal. And we are also adding new vertical rubber recycling at all the locations, plastic recycling at all the locations. So whatever we start new that we replicate at the existing locations. But in the -- it is very difficult to -- from 60%, 70% to reach to 90%, but it is very easy compared to -- that is to add new verticals instead of going in that. So this gets us more economies of scale. So we are going back 2 things. One is existing locations with the new verticals and new location with a new vertical and that existing vertical also.
The next question is from the line of Abhijit Sinha from Pi Square Investments.
I just wanted to understand what is the demand for our -- these value-added products that we are currently having? And also, how do we sustain this 25% to 30% growth for the next 3 years because it's quite a substantial growth rate.
Yes. In fact, if you see the value-added products, we're diversifying not only to the battery industry, [indiscernible] in industry, but also, we are targeting to power cable industry, chemicals and pigment industry and radiation production industry. So in each and every location like in India earlier, we were having the value added capacity in [indiscernible]. We have added the capacity in Mundra and also expanding this capacity to -- at the Mundra location. Till date, we were not having value added capacity in African center. So we are putting up value added capacity in Ghana center also so that European and nearby Turkish market can be covered. So we are pretty sure that whatever we are targeting for the 50% of our volume should go to the value added industry. It will be reached. Moreover like the cost of production, if you see Europe vis-a-vis Indian, it's a much difference. So it will be a good opportunity for supplies from India to meet the increased demand of the European market.
The next question is from the line of Sabri Hazarika from Emkay Global.
And this is the last question. So thank you so much for this call and for the insight. Sir, just wanted to know that this new debt facility, you have already drawn it or it is right now -- it's a facility now?
Yes. So currently, we have just signed the document, loan document from this European development financial institutions. But in the next 1 or 2 months, we will be drawing this money and using this money to release the liquidity for our Indian facilities.
Right now, this money will replace some debt, right? So that will be like -- or it will be like on fresh CapEx only?
Yes, partly, approximately EUR 4 million to EUR 5 million is for the fresh CapEx and remaining is going to replace our working capital requirement of the overseas business. So it will be used in overseas business, but it will release the working capital use, currently Indian money is used for the overseas working capital. So that will be released from that overseas market. So overseas, business will be self-dependent on this money.
Right, sir got it sir. Got it sir and thank you once again, sir, for this call and congratulations on a good set of numbers. And so with this, we come to the end of this call and I request you for the closing comments, sir. Thank you.
Yes. Thank you, Sabri.
Yes, thank you Sabri. Financial year '23 was a tremendous year for our company across all fronts, and we are confident that by pursuing new opportunities, we'll continue to grow and fulfill our clear vision for 2027. We hope that we have addressed all of your questions. If you have any unanswered inquiries, please do not hesitate to contact our Investor Relations team at Go India Advisors. I would like to express my gratitude to all of the participants for joining us on this call and listening to our updates. Thank you all once again. Thanks.
Thank you very much. On behalf of Gravita India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.