Gravita India surges 8% to hit record high after strong Q3 results

Analysts at ICRA believe that the company's credit profile is likely to improve in the near term, supported by higher share of value-added products and healthy volumetric growth

Shares of Gravita India rallied 8 per cent to hit a record high of Rs 496.55 in Tuesday’s intra-day trade, after the company reported 28 per cent year-on-year (YoY) jump in profit after tax at Rs 50.20 crore for the quarter ended December (Q3FY23), on the back of healthy topline growth.

The company’s revenue, meanwhile, grew 42 per cent YoY to Rs 789 crore during the quarter. Earnings before interest, taxes, depreciation, and amortization (ebitda), too, rose 31 per cent to Rs 70.91 crore from Rs 54.21 crore in Q3FY22. However, margin contracted 70 bps to 6.36 per cent from 7.06 per cent, in a year ago quarter.

Meanwhile, in the past one month, Gravita India outperformed market as shares surged 24 per cent. In comparison, the S&P BSE Sensex gained 2 per cent, during the period. In the past six months, it zoomed 85 per cent, as against 9 per cent rise in the benchmark index.

Gravita India is in the business of recycling lead acid batteries, lead scrap, aluminium scrap, plastic scrap and rubber scrap. The company carries out smelting of lead battery scrap/ lead concentrate to produce secondary lead metal, which is further transformed into pure lead, specific lead alloy, lead oxides (lead sub oxide, red lead and litharge) and value-added products like lead sheets, lead powder, lead shot etc.

The 'positive' outlook assigned to the long-term rating to Gravita India reflects ICRA’s expectation that the company’s credit profile is expected to improve in the near term, supported by higher share of value-added products and healthy volumetric growth, which would enhance the operating profits and cash flows, thereby further supporting the credit metrics, the rating agency said.

While assigning the ratings, ICRA also took cognisance of the ongoing capacity expansion plans at an estimated outlay of around Rs 250 crore over the next three years, which will increase the company’s total capacity by ~2,15,700 tpa.

"Given that the operating cash flows would largely be deployed to fund a substantial portion of the capex, the long-term debt requirement is expected to be low. Consequently, the company’s capital structure and debt coverage indicators are expected to remain comfortable. Post the expansion, the company will benefit from the increased scale and other operational synergies, which would further strengthen its overall operating profile," the ratings agency added.