scorecardresearchGravita India skyrocketed over 1550% in 3 years; what lies ahead?

Gravita India skyrocketed over 1550% in 3 years; what lies ahead?

Updated: 24 Aug 2023, 01:43 PM IST

Gravita India, a recycling company specialising in metals and paper, is experiencing a significant rise in its stock price and is expected to double its net profit in the next three years, according to brokerage firm Cholamandalam Securities.

The brokerage expects the company's net profit to double in the next three years, from  <span class='webrupee'>₹</span>204 crore in FY23 to  <span class='webrupee'>₹</span>435 crore by FY26E.

The brokerage expects the company's net profit to double in the next three years, from 204 crore in FY23 to 435 crore by FY26E.

In the fast-paced world of investing, finding a multi-bagger stock that can deliver extraordinary returns within a short period of time is the dream of every investor. Such dreams turned into reality for investors of Gravita India as shares delivered a phenomenal return.

The shares, which were trading at 193 apiece two years ago, have seen a meteoric rise of 286% to trade at the current market price of 746.50. In addition, from their August 2020 lows of 45 apiece, the shares have seen an extraordinary rise of 1558% to date.

Impressively, the stock has consistently delivered over 50% returns annually for the past three years. In CY20, it posted a return of 60%, followed by a phenomenal 280% in the subsequent year. The trend continued with a return of 53% in CY22, while in the current year so far, the shares are up by 66.26%. Over the last ten calendar years, the stock finished six in the green.

Founded in 1992 in Jaipur, Gravita India specialises in lead, aluminium, plastics, and rubber recycling, serving both domestic and global markets. With a widespread international presence, the company's robust clientele spans over 375 customers across Asia, the Middle East, Europe, and the Americas, encompassing 38 countries. Simultaneously, their operations within India cater to more than 230 customers in 22 states.

In their most recent note, brokerage firm Cholamandalam Securities has initiated coverage on the stock with a 'buy' rating, setting a target price of 1,008 apiece, citing strong growth opportunities. This target price implies an upside of 35% for the stock. 

Stock price chart of Gravita India

The brokerage said the company is aggressively expanding its capacity from the present installed capacity of 2.33 lakh MT per annum to 4.34 lakh MT per annum by FY26E, which is almost an 85% increase, and notably, this capacity expansion will be primarily funded through internal accruals.

Recycling is poised to emerge as a dominant theme in the metals industry. Not only is this approach cost-effective, but it also significantly contributes to ecological equilibrium. With metal resources dwindling and demand steadily escalating, recycling presents itself as the only sustainable option, it said.

According to the brokerage, the company's foray into steel recycling and paper is margin accretive. Steel recyclers enjoy around 18–20% EBITDA margins, while paper recyclers enjoy a much higher EBITDA margin of 30–35%. Further, it said, the company is working on a pilot project on lithium recycling feasibility. If successful, it will add to another vertical of revenue and profit stream.

Further, a recent game-changing government policy stipulates that Original Equipment Manufacturers (OEMs) are mandated to retrieve their products after a certain period from manufacturing. These recycled metals are then to be integrated into new product manufacturing processes. This policy is expected to catalyse substantial growth for recyclers, such as Gravita India, as highlighted by the brokerage.

Additionally, stringent and necessary new environmental norms will create a level playing field for organised recyclers. Presently, 65% of lead recyclers in India are from unorganised segment which will have to migrate to organised segment, driven by law enforcement by various government agencies. The brokerage said that around 30% of the market will be captured by existing recyclers from the organised segment.

The pivotal role of energy storage, particularly in batteries, cannot be overstated. Lead and recycled lead remain integral components in this arena, with electric vehicles themselves relying on lead batteries for various functions, including lighting, ignition, and power support systems, the brokerage added.

The brokerage expects the company's net profit to double in the next three years, from 204 crore in FY23 to 435 crore by FY26E.

01 analysts polled by MintGenie on average have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.


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First Published: 24 Aug 2023, 01:43 PM IST