Motilal Oswal Sees 37% Upside for Gravita India on Robust Growth in Recycling

Strategic Insights -

Motilal Oswal, a leading brokerage firm, has turned bullish on Gravita India and maintained a 'Buy' rating with a target price of Rs 2,300 per share. The company believes Gravita India is entering a new phase of growth driven by factors such as expansion into non-lead businesses like rubber and lithium battery recycling. This move is expected to lead to a significant increase in revenue, with Motilal Oswal projecting a 30% revenue CAGR between FY25-FY27. The brokerage firm also expects Gravita India to benefit from regulatory actions such as the Environmental Compensation (EC) penalty for EPR non-compliance, leading to an increase in domestic scrap availability.

Key Takeaways:

  • Motilal Oswal has maintained a 'Buy' rating on Gravita India with a target price of Rs 2,300 per share, implying a potential upside of 37% from current levels.
  • Gravita India is entering a new phase of growth driven by expansion into non-lead businesses like rubber and lithium battery recycling.
  • Domestic sourcing is changing the game for Gravita India, with regulatory actions leading to an increase in domestic scrap availability.
  • Gravita India has seen a 60% increase in domestic scrap sourcing in FY25, reducing working capital days from 85 to 76.
  • The company is preparing to enter the rubber and lithium-ion recycling segments, with its first plant expected to go live in Mundra by the first half of FY26.
  • Motilal Oswal projects revenue CAGR of ~70% from the rubber segment over the next 3-4 years.
  • Gravita India aims to increase non-lead business contribution from 12% in FY25 to 30% by FY29, making its revenue model more balanced.
  • Lead recycling still contributes 88% of Gravita India's revenues, but the company is working on adding more value to its product mix.
  • Value-added lead products will be a key growth driver, with the company planning to increase their share to 50% of lead segment sales.
  • The Battery Waste Management Rules (BWMR) and Extended Producer Responsibility (EPR) norms are pushing the sector towards formalisation, favoring organized players like Gravita India.
  • Motilal Oswal projects 29% EBITDA CAGR and 32% PAT CAGR between FY25-FY27.

Statistics:

  • Gravita India's domestic scrap sourcing has increased by 60% in FY25.
  • The company aims to reduce working capital days from 85 in FY25 to 76 in FY27.
  • Revenue CAGR of ~70% is expected from the rubber segment over the next 3-4 years.
  • Non-lead business contribution is expected to increase from 12% in FY25 to 30% by FY29.
  • Value-added lead products are expected to contribute 50% of lead segment sales by FY27.
  • EBITDA CAGR of 29% and PAT CAGR of 32% are projected between FY25-FY27.
  • Motilal Oswal values the stock at 31x FY27 EPS.

Sources:

  • Motilal Oswal report on Gravita India
  • IE Online Media Services Pvt. Ltd.
  • Contify.com