GRAVITA INDIA LTD (NSE:GRAVITA) Q2 FY23 Earnings Concall dated Nov. 03, 2022
Corporate Participants:
Sabri Hazarika — Global Financial Services
Anish Baluta — Chief Executive Officer
Analysts:
Rahul — Lucky Investment Managers — Analyst
Mitul Shah — Reliance Securities — Analyst
Web Chokhani — Enam Holdings — Analyst
Kinjal — Quantum AMC — Analyst
Keshav — Rexon Investors — Analyst
Granero Strategy — BCMP — Analyst
Hardik Gori — Alpha Plus Capital Advisors — Analyst
Roshan — Athena Investments — Analyst
Manav Singh — Orals Capital — Analyst
Viral — Philip Capital — Analyst
Chirag — Ratnatraya Capital — Analyst
Engul — Quantum AMC — Analyst
Presentation:
Operator
Ladies and gentlemen, welcome to the Q2 FY ’23 Results Conference Call of Gravita India Limited hosted by Emkay Global Financial Services. [Operator Instructions]
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.
Sabri Hazarika — Global Financial Services
Yes. Good afternoon, ladies and gentlemen. So on behalf of MT Global, I welcome you all to the Q2 FY ’23 Earnings Conference Call of Gravita India, we have to manage headed by Mr. Anish Baluta, CEO and Whole Time Director; Mr. Vijay Kumar Bari, Executive Director; and Mr. Sunil Kansal, Chief Financial Officer.
So now I would request the management for their opening remarks, and then we can move over to the question and answer now. Over to you, sir.
Anish Baluta — Chief Executive Officer
Thank you, Mr. Hazarika. Good afternoon, ladies and gentlemen. And thank you for joining us on Q2 and H1 ’23 Earnings Call today. I trust that you have had a look at the results and the earnings presentation uploaded on the exchanges. I will briefly discuss the results, and we can then have the Q&A. I’m very happy to share that Gravita has shown strong results for Q2 and H1 FY ’23. Before starting with the results, first, let me share some strategic highlights and project companies. Company’s step-down subsidiary has started aluminum recycling plant at Senegal, whose annual capacity is 4,000 metric tons per annum. An investment of INR3.5 crores has been made for the same, and this has been done through internal accruals. We are hopeful that this project will lead to additional revenues of approximately INR60 crores and gross margin of around 20%.
Company step-down subsidiary at Ghana has also started plastic recycling plant whose annual capacity is 200 metric camper annum in Phase 1. Plan is to take the capacity to 2,700 metric tons per annum as for this project investment of INR1.9 crores has been done and the same has been done through internal accruals only. The company is already having similar plastic resegment facilities in Senegal, Mozambique and Indian plants. Further, this is in line with the company’s vision of replicating the recycling business in different geographies. EBITDA has done capex of INR44 crores in financial year 2022, and the capex for the rest of the year is expected to be around INR3 or INR35 crores. Let’s now discuss the operational performance. Gravita has increased its net capacity by about 6% in H1 FY ’23 from around 159 metric tons to 18,000 metric tons.
We are positive that we will reach a total capacity of 425,000 metric tons by 2026, including all the existing as well as new verticals. Volume growth, the company has written the volume growth of about 17% in Q2 FY ’23 on a year-on-year basis. Mostly, all the segments showed positive growth in volumes. On Q-on-Q basis, volumes of led grew by 26%, that of aluminum and plastic grew by 31% and 11%, respectively. EBITDA per tones for lead and plastic showed an increase of around 23% and 13% on a year-on-year basis, whereas we saw a slight decline of 6% in EBITDA per metric ton of aluminum. Domestic scrap collection for Indian plants has increased to 47% in Q2 FY ’23 compared to 39% in Q1 FY ’23. We believe that with redefining of battery-based management rules extended positions responsibility and stricter implementation of GST, the scrap availability performance the segment sector will increase and further growth. I’m happy to share that we have managed to bring down our networking capital cycle from 95 days in March 2022 at 80 days in September 2022.
Our aim is to bring it further down to 65 days by March 2026. This improvement has been possible due to more availability of domestic scrap and lower imports which reduces stronger inventory and due to retail scrap collection through OEMs, which has been working capital. Consolidated revenue for the quarter is INR683 crores, which is up 25% on a year-on-year basis. This increase in the revenue is supported by increase of 17% sales volume. Revenues from value-added products stayed at around 42%. Adjusted EBITDA has grown by 29% to INR65 crores on a year-on-year basis. EBITDA margin stood at 95% and company continues to maintain resilient margins despite increasing cost pressure across major raw materials during the quarter. Delta reported a strong consolidated PAT of INR45 crores, up 21% on Y-o-Y basis. Out of this, about 62% profit is from overseas business. PAT margins also stood strong at around 6.5%. Consolidated revenue increased to INR1 to INR993 crores, which is an increase of about 27%.
Adjusted EBITDA for the first half stood at INR130 crores up 48% on a Y-o-Y basis. Consolidated PAT for the half year showed a tremendous increase of 48% to INR87 crores. Gravita has achieved and ROCE of 30% in H1 FY ’23, and it is strongly in line with our vision of 2026. I would also like to inform that we have reduced our debt by around INR90 crores in H1 financial year ’23. This has happened because of our focus on reducing our working capital cycle, and we have a target to reduce it further to around 60 days from current 80 days. Thank you everyone for joining us for this call. As you all know, we have a clear vision for 2026 and are optimistic of growing in the future by exploring new opportunities.
So I would now like to open the floor for question and answers.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Rahul [Phonetic] from Lucky Investment Managers. Please go ahead.
Rahul — Lucky Investment Managers — Analyst
Thank you for taking my question. First is, while Q2, we have seen a 17% volume growth much better than Q1, you’re still short on the 25% target that we have given out. So how do you see H2 panning out? And in general, FY ’24, ’25, are we still holding out that 25% volume growth [Indecipherable]?
Anish Baluta — Chief Executive Officer
Yes. I mean actually, there are certain setbacks for us in this quarter. Number one is that our Seneca plant was not working at full capacity because there were certain issues in the country itself. And apart from that, certain projects got delayed because of, I mean like two expansion and tower expansion, which was supposed to happen in Q2 this year got delayed and will probably start functioning in Q3. So that has delayed some of the volumes that we were expecting in Q2. But going forward, we believe that we are in in line with our targets of getting 25% volume growth year-on-year basis.
Rahul — Lucky Investment Managers — Analyst
So sir, within the three segments, if you could just give us a sense like lead first half, we have done about roughly INR56,000 crores, then your target was about INR120,000 Will we be kind of 20,000 [Indecipherable] target since time?
Anish Baluta — Chief Executive Officer
Yes. The volume growth of 25% over may not be on a year-to-year basis, it may be 20% and 20% to 30% on year-on-year basis. But — on a three-year basis, 2026, definitely 25% volume growth on a CAGR basis, that will be there every considering this capacity expansion at different locations.
Rahul — Lucky Investment Managers — Analyst
Great. Sir, next question was on the gross margins. While Q1 was very high gross margin, and you had clearly mentioned that those were not sustainable. Should we take this 20%, 21% kind of range as the going range going ahead?
Anish Baluta — Chief Executive Officer
Correct. Q2 gross margin is a sustainable one.
Rahul — Lucky Investment Managers — Analyst
So that’s around the 20% marked?
Anish Baluta — Chief Executive Officer
Correct.
Rahul — Lucky Investment Managers — Analyst
So even if — as you go around — as you go along and add more products to your portfolio, this number is not likely to change.
Anish Baluta — Chief Executive Officer
No. It may be slightly positive because of more volumes, more value-added products, and more contribution coming from like aluminum and the plastic one. So as soon as there will be more volumes on that. There may be some upside, but not the account.
Rahul — Lucky Investment Managers — Analyst
Okay, okay. And sir, third before I join the queue back again. In the cost structure side, we saw both the employee expenses going down Q-on-Q and the [Indecipherable] also going down Q2. Anything one-off out there? Or this is just normal?
Anish Baluta — Chief Executive Officer
So employee costs in Q1 also reflected some incentives given based on the performance to employees for extraordinary performance of last year. So that was an exceptional part in Q1 but Q2 is normal one. Q2 is normal.
Rahul — Lucky Investment Managers — Analyst
And on the mysterious expenses side, that also seems to have gone down from INR57 crores to INR40 crores?
Anish Baluta — Chief Executive Officer
Yes. So miles expenses include sometimes some part of like hedging losses also sometimes. But this time, because it is on the other income side, whenever it is on the expense side, that is shown under the magnetic. And but this time, it is on the income side, so business expenses in Q2 is an actual one.
Rahul — Lucky Investment Managers — Analyst
Is the actual one. So this is the normal run rate that we are talking about, both power — sorry, both the employee cost and the [Indecipherable] ones.
Anish Baluta — Chief Executive Officer
Correct, correct, correct.
Rahul — Lucky Investment Managers — Analyst
Great. Thank you very much. I’ll come back for more.
Anish Baluta — Chief Executive Officer
Thank you.
Operator
Thank you. The next question is from the line of Mitul Shah from Reliance Securities. Please go ahead.
Mitul Shah — Reliance Securities — Analyst
Thank you for giving opportunity and congratulations for strong performance. I have first question on average realization as volume growth is 17% revenue growth, 25% to roughly 7% to 8% increase in realization per tone. So is it because of the product mix change as overall plastic contribution has come down and other late aluminum has increased or because of the price increase. So how much would be because of the product mix, how much would be because of the price increase?
Anish Baluta — Chief Executive Officer
Yes. Mostly side is because of the less metal prices. It is the less prices came down in this quarter. So it came down from the like realization of net came down from [Indecipherable] so in case of lag, it is slightly the end.
Mitul Shah — Reliance Securities — Analyst
My question is on Y-o-Y increase of 25% in revenue versus volume growth of 13%, so it indicates nearly 7% to 8% increase has come from realization per tonne. So that is I’m trying to understand it is because of the price increase, how much and how much would it be because of the product mix?
Anish Baluta — Chief Executive Officer
It is in case of lead, it is mostly in case of product mix. But in case of aluminum, it is more on the price side.
Mitul Shah — Reliance Securities — Analyst
Okay. Second question is on EBITDA margin as you are highlighting that Q2 would be considered as a stable margin. So are you indicating in terms of percentage margin? Or in terms of EBITDA per tonne, which is given on slide number six.
Anish Baluta — Chief Executive Officer
So in terms of our EBITDA per ton margins is, we are very clear that in that we are expecting around INR16,000 to INR17,000 per ton EBITDA margins from that, [Indecipherable]. As for aluminum, this figure is around INR8,000 per tonne this was lower in this quarter for aluminum, specifically because the prices went down, and we don’t have a very robust mechanism to hedge these changes in prices in aluminum and plastic. So some of the effect has been on aluminum business this quarter.
Mitul Shah — Reliance Securities — Analyst
So your biggest segment is led wherein you are indicating that the —
Anish Baluta — Chief Executive Officer
Sustainable margins, one forward also.
Mitul Shah — Reliance Securities — Analyst
So current margin of INR19,000 crore is also still too high even after correcting level.
Anish Baluta — Chief Executive Officer
19,000 is basically because of where we had certain arbitrage opportunities in India. Therefore, we diverted some of the goods from overseas markets into Indian market, which was giving us higher realizations. So that was specifically because of the first quarter, whereas INR17,000 that we got in Q2 is the sustainable realization reliable volumes.
Mitul Shah — Reliance Securities — Analyst
But sir, as per your presentation, Q2 year margins are 19,000 and Q1 margins are 21,000 or almost 22,000, so that is why I’m asking that given Q2 margins are INR19,000 you indicated in your prepaid deal in a call, you are indicating 17,000 no further 12%, 13% decline from current level you are expecting is what you want to say?
Anish Baluta — Chief Executive Officer
21,000 is for actual. So 21,000 is for H1 and 17,000 for Q2. I think there must be some mistakes. I mean let us see if we’ll answer it later on specifically.
Mitul Shah — Reliance Securities — Analyst
Okay. Presentation price [Indecipherable] margin is INR17,000?
Anish Baluta — Chief Executive Officer
Q1 margin was 21,000.
Mitul Shah — Reliance Securities — Analyst
Okay. Thank you.
Operator
Thank you. The next question is from the line of Web Chokhani from Enam Holdings. Please go ahead.
Web Chokhani — Enam Holdings — Analyst
Hi. Just a few questions. So do you have any updates on the plastic recycling legislation?
Anish Baluta — Chief Executive Officer
The registration and EPR rules have been notified and people have started getting registration for under regulations of EPR in case of plastics. And there is a particular penalty part where EPR is not done by the manufacturer or producer that implementation is yet to be finalized. So I hope in time to come, that will take place because they have created one portal at the Central Collision Control Board. So that total is under collection data, producers and recyclers. So it should take another three months in case of plastics.
Web Chokhani — Enam Holdings — Analyst
Okay, thank you. And in terms of just currency impact, especially by seeing from the African country, how has that been in this past quarter? And do you see any major hiccups going forward?
Anish Baluta — Chief Executive Officer
Sir, we had very little or no impact on changes in currency in the African market. Simply because whatever we are buying in that country, is bought in dollar terms only. So we price it at dollar terms, all the inventory that we buy in that country. And we don’t consume any inventory locally. We export everything. And that, again, is sold in dollar terms only. So any increase or decrease in the currency will not impact us and Local expenses or local basis that will give the [Indecipherable].
Web Chokhani — Enam Holdings — Analyst
Right. And with regards to the Indian OEM business, have you seen any changes in margins over it?
Anish Baluta — Chief Executive Officer
No one quarter-on-quarter basis that it will take time for these changes to happen. On a quarter-to-quarter basis, it’s still in the same line, actually.
Web Chokhani — Enam Holdings — Analyst
Okay. Thank you.
Anish Baluta — Chief Executive Officer
Thank you very much.
Operator
Thank you. The next question is from the line of Kinjal [Phonetic] from Quantum AMC. Please go ahead.
Kinjal — Quantum AMC — Analyst
Hello. Hi. Thank you for the opportunity, and congratulations on the strong —
Operator
Sorry to interrupt you, Mr. Kinjal, the audio is not clear from your line. Please increase the volume of your device.
Kinjal — Quantum AMC — Analyst
Is it better now?
Operator
Yes.
Kinjal — Quantum AMC — Analyst
Yes. All right. Sir, congratulations on strong results. My first question is on the part where you mentioned that we have successfully reduced the debt by [Indecipherable], so could you please share the strategy around it? And how would be reducing the debt further going forward?
Anish Baluta — Chief Executive Officer
Yes. So Kinjal, there was the strategy is that we are going to increase the volume from the domestic craft, which a major part of scrap in domestic is coming from OEMs where we don’t need to pay for that scrap through which we are getting from the OEM, which is coming from the retail automobile sector. So we are going to increase that share from our Indian business, Indian recycling business. So as soon as we have that more volumes coming in from that the working capital requirement for the incremental business is going to be not that much. So it will overall improve and that is going to replace the import scrap in India and imported class bites coming to India is going to be used in overseas plants for us.
So — and then we have established recently established a moveability where the earlier the scrap was moving to Jarand that was causing the higher working capital cycle of seven days coming in, seven days going out for exports. So all these efforts have draw down this working capital requirement for us, and we came down from 95 days to 80 days. closely. And it is going to be further down by another 15 days in the next two to three years. So this is the strategy and that is causing the lower requirement of funds and lower that is calling. So we are going to reduce the requirement of debt, short-term debt further by reducing the working
Kinjal — Quantum AMC — Analyst
All right. a follow-up question should we use about the increase in —
Operator
Sorry to interrupt you again, the audio is not clear. Please use the handset mode.
Kinjal — Quantum AMC — Analyst
Yes. Is it better now?
Operator
Yes.
Kinjal — Quantum AMC — Analyst
Sorry. Yes, touching on the increasing domestic scrap from OEMs. Currently, how much percentage of the scrap that we are importing, what we are getting from the domestic OEMs? Or do we get everything from international OEMs buyers?
Anish Baluta — Chief Executive Officer
Everything that we’re getting in India is from domestic OEMs only. We’re not importing anything from OEMs from out in India. So the 47% scrap that we are getting in India is mostly from OEMs in India.
Kinjal — Quantum AMC — Analyst
Okay. My next question would be, if you could please explain on how the changes in the government policies really looking at how will it impact Gravita, and how will it impact the for the verticals that we are going to come up with like e-waste and lithium-ion batteries. If you could throw some light on that.
Anish Baluta — Chief Executive Officer
The current policy of particularly battery waste management rules, which were a draft stage has been notified by the government in the month of August 2022, so the new rule has notified all types of betting out. So lithium-ion also will become part of those batteries earlier rules are having only lightsaber. And the well Part B, which is called EPR. So the committee for EPR has been constituted, and this committee has to make their reports or finding and put up the value of EPR within six months of time, and there will be a portal under CPCB in case of battery waste also.
So rules are in place in case of battery which we talk about. And the EPR will be in process in another six months time. So to answer your question further, all these rules basically are to I mean whether it is EPR or tractors management rules or, I mean, kind of life of vehicles, all these rules are basically to bring all the recycling in a proper manner in organized sector in India. So if we bring — because most of these scrap generally is processed in the unorganized sector in India. And if we can ship this from unorganized to organized that we’re going to help companies like Revit.
Kinjal — Quantum AMC — Analyst
Understood. And just last question from my side would be, if you could share your views on pricing of lead anemia and plastics in the second half. And are we looking at hedging opportunities for materials other than led?
Anish Baluta — Chief Executive Officer
So basically, let it is very simple to help because it’s available on commodity exchanges whether it is L&A Exchange or MX in India. So it’s very easy to kind of hedge that metal, whereas plastic is coming in various forms. It’s not one standard plastic that we buy, we buy and also have different gas which is very difficult to hedge that because it’s not sold on or it’s not available on exchanges. Similarly, for aluminum also, we are not doing pure aluminum, we basically are into aluminum alloys. And that is also not currently available to be exchanged. But we are putting in an effort to register and oil of aluminum in MCX also. It may take probably six to nine months going forward. But once that happens, then it would be very simple for us to hedge alliance also in India.
Kinjal — Quantum AMC — Analyst
Understood, Sir. Thaknk you so much.
Operator
Thank you. The next question is from the line of Keshav [Phonetic] from Raxone Investors. Please go ahead.
Keshav — Rexon Investors — Analyst
Good morning, Sir. Thanks for taking up my question. Firstly, are we keeping a tab on the new EU waste segment rules that might come in? And how it might affect the scrap movement going forward? Do we have an opinion on how we’ll stand or might fare if they indeed go ahead with the proposals?
Anish Baluta — Chief Executive Officer
Yes. As of now, that import from EU to India is very particularly in case of lag scrap — so our mostly volumes are coming from other than EU and U.S. market. This is mainly coming from Africa, Middle East and other South East country. So that regulation won’t affect us much and our overseas bands are sourcing scrap locally. So that 40% volume will be affected almost May and has another 60% and has another 50% from overseas business, and we had hardly very much percentage of our risk scrap coming from the EU market.
And on the sales side also, I mean, although we sell into European Union, but the thing is that we are only looking at from the demand point of view, but also in the supply side also, as you must have seen that there are quite a few smelters that are closing down because of energy issues. So there will be disruptions on the supply side also. So we believe that this will give us opportunity to supply to EU, I mean better up supply in EU going forward.
Keshav — Rexon Investors — Analyst
Understood, sir. Sir, secondly, could you talk about what kind of opportunities we are working on in the rubber recycling space and what geographies?
Anish Baluta — Chief Executive Officer
So again a is a very new vertical. In the first phase, what we are doing is we are only doing it for our own captive consumption because all the three products that we are getting out of rubber basically carbon, iron and paralysis oil. All these three are used in our own smelting processes. So we are only increasing capacities to the extent where we can use all this for our captive consumption in future as and when we have additional capacities from rubber recycling in various locations, we would look at other avenues of sales of some value-added products from rubber also.
Keshav — Rexon Investors — Analyst
Sure. Sir, in the last call, you had mentioned that the EU and U.S. battery market is managed by the battery manufacturers. So post EPR, is it not a possibility that a similar trend might happen in India as well?
Anish Baluta — Chief Executive Officer
Absolutely. That is going to happen in India. But all these battery companies do not recycle the batteries in U.S. or Europe. They have partners like recyclers like us in those countries also who recycle on behalf of those battery companies. So that is what India is going towards in all the recycling verticals, especially in battery-based management roots where it’s environmentally, I mean, very critical. So if that happens, we believe that is going to happen. And if that happens, then the scrap availability for recyclers like us in partnership with battery manufacturing companies will give us great opportunities going forward.
Keshav — Rexon Investors — Analyst
Great [Indecipherable]. Thank you.
Operator
Thank you. The next question is from the line of Granero Strategy from BCMP. Please go ahead.
Granero Strategy — BCMP — Analyst
Hi. Good afternoon, everyone.
Anish Baluta — Chief Executive Officer
Yes, please.
Sabri Hazarika — Global Financial Services
Yes.
Granero Strategy — BCMP — Analyst
So I have three questions. Firstly, on the recent battery management regulations. So I understand the point that because of that, you have to rely less on imports, which would possibly reduce your freight costs on the import side, and also to reduce our working capital requirement. That is absolutely clear. What I wanted to understand was the sense I got from the evolution is that the battery OEMs are now responsible to collect it via the dealer network and then send it to the organized channel and then use the process led back into their production.
And that is the percentage number that is basically given, so if my understanding is correct, and let’s say, the regulations are successfully implemented. In three to five years from now, would this regulation only increase the tolling portion of your revenue? Is that the case? Or is it that generally sourcing would improve and you can use the OEM-sourced batteries and then use the process led for exports as well. So my question is whether you would benefit from a sourcing perspective for both domestic and exports? Or is it just a one-to-one contract with either of the OEMs where we have to supply it back to them?
Anish Baluta — Chief Executive Officer
Yes, you’re understanding on Part one correct that they have to collect. But then the part two also, we say even they don’t collect in that case or even they don’t buy recycle led in that case, they can buy certificate from the recyclers. So if I buy battery in domestic market and sell led to export or some other application, that much volume of certificate I can side to them. So that will be another carrier market. The certificate will have a value, and that will be regulated on a total.
So both ways will go because they do not have much collection center and tolling mechanism. They can buy even — so to answer as only bigger players would be able to have a partnership with recyclers and have their tolling arrangements, but smaller players would have to rely on certificates from recyclers to do it. And that will create an opportunity for recyclers to buy from the market and either sell it to those recyclers or sorry, to the battery manufacture, or export it and give the certificates to the manufacturing company, the smaller metal manufacturing companies.
Granero Strategy — BCMP — Analyst
Got it. That is absolute figure. My next question is on the growth potential in this market. Again, assuming that the regulations have successfully implemented over the next five years. Do you see a case where the organized volumes can actually exponentially increase like to the agent of two to three times, probably in the next five years. Number one and given the fact that this technology for cementing is not extremely complicated, and there are hundreds of recyclers actually present but who don’t have any utilization at all because of raw material sourcing. Those can would also come in. And do you see, hence, we will see that the gravitas share, Ramita would also grow, but do you see the share slowly reducing as the market sort of becomes two to three times. So two parts of the question —
Anish Baluta — Chief Executive Officer
So basically, we believe there is going to be consolidation in the cell because if you want to do it in a proper manner, the number of players that are there currently will reduce dramatically. Most of the unorganized plan will be out of question because currently, there are only advantages that they’re not doing it in a proper manner, and also, there is a text benefit to the normal factor currently that goes away and that benefit is not there.
We believe there will be consolidation and only maybe around 20-odd players on India would be there. And there would be enough opportunity for all of these recyclers to grow at the same rate of two to three times. So it will not go down in fact — I mean if the overall capacity in the organized sector grow by two to three years, players who are there already who are I mean, like debit who has pan-India presence will grow much faster than the two or three years that the market would grow by.
Granero Strategy — BCMP — Analyst
Gordon the second part of my question, on the first part, do you at all see the market becoming two to three in the five years — and this basically ingest from the fact that this regulation was already present for the last 20 years, right, and recently some additional parts have been added. But what do you see is different this time and you think that dose is possible this time because it’s been a
Anish Baluta — Chief Executive Officer
So different this time is that the owners has been put on the banners now — so it is now the owner — earlier, it was on everybody. The retailers also were to find the returns and all those things, and it was not implementable. Now the owners of implementation is on the brand owners. So their health is multiple if we are not able to buy back the batteries or get it recycled through organized recyclers. They are the one who would be put responsible.
Similarly for TTR also — so once you do that, then it becomes more incremental and we are looking at enemies only in the last month has been notified on the rules. But we have seen the impact happening much before that. All the big players have started looking at ways to start collecting the batteries, and it has started to — so we are in no doubt that the volumes will go whatever the number is. If the organized sector is able to increase their capacities in the same manner.
Sabri Hazarika — Global Financial Services
So the only problem would come in whether the organized player can increase those capacities in time to do the recycling or not.
Granero Strategy — BCMP — Analyst
Got it. Got it. All clear. Do I have time to slip in one more question, just a sure. Last question for me, and this is more a strategic question. So whenever starting the business, I understand and recognition I’m wrong, broader lead products, aluminum products, plastic products, the overall global industry growth would not be very high, right? It would be less probably in single digits itself.
So when you are expanding our capacity from currently less than 200,000 to around 25,000, could you please spend some time talking about the demand side of the equation in land, aluminum plastic. Are there any trends? Or do we have any material advantage over other competitors that we’ll be able to grow that fast basis share gains because the overall industry is not going there first. So the difficult to spend time and give confidence on the demand side of the
Anish Baluta — Chief Executive Officer
So basically, I mean, I would go back again on the supply side. As I mentioned that there are — although — even if we consider that there is going to be no growth in the sector, for example, in battery segment. but the shift from unorganized to organized itself will give you a two to three times growth. So even if nothing happens in the sector, all the Indian automobile sector is growing, and we believe that going forward, it will have impact on the battery manufacturing also.
But even if we agree to you that there is no growth like in the Western country, the shift itself will give us growth itself. And the same is happening — that is why if you look at all our expansions, all our, I mean, geographical wherever we are we are in developing countries where we see there is a gap, there is no recycler available, the trap is not getting passed in the right manner. Those are the countries that we are focusing geographically also and third party that currently, we are very small. So gaining market share is not a problem. We are early 1% of the total global market. Even if we go to 2% or 3%, it will hardly affect anybody. And at the same time, we will go two to three times very easily.
Operator
Thank you. [Operator Instructions] We’ll take the next question from the line of Hardik Gori from Alpha Plus Capital Advisors. Please go ahead.
Hardik Gori — Alpha Plus Capital Advisors — Analyst
Thank you for the opportunity. Sir, you have an order book of about 60,000 metric tons. So can you give us a breakup of the order book? Or is it entirely led only?
Anish Baluta — Chief Executive Officer
Yes. So majorly, the order book consists of the orders for the net vertical because we have some certain contracts with the OEMs also and certain contracts with that better traders like Taura, Bancorp and others. So the major part of 80% to 85% consists of led and then some part of aluminum and plastic also. So basically, because we are not healthy in aluminum or plastic, we generally don’t take orders beyond a particular period. whereas it left because we are helped, we can take orders, we can have annual contracts with customers.
Hardik Gori — Alpha Plus Capital Advisors — Analyst
All right. All right. And sir, in your presentation, you have mentioned that you’ll expand the capacity to 425,000 metric tons per annum by 2026. So can you share the break-out of between the segment as in how much will be led, how much will be aluminum and how much will be passed would be helpful?
Anish Baluta — Chief Executive Officer
This capacity of 425,000 tonnes, so we target approximately lead should not be more than 70% to 75%. So that’s our target. We are growing faster than the last for aluminum and plastics.
Hardik Gori — Alpha Plus Capital Advisors — Analyst
All right. That’s from my side.
Operator
Thank you. The next question is from the line of Roshan [Phonetic] from Athena Investments. Please go ahead.
Roshan — Athena Investments — Analyst
Yeah, thank you for the opportunity. Is my voice clear?
Anish Baluta — Chief Executive Officer
Yes, please.
Roshan — Athena Investments — Analyst
Yes. I just wanted to understand your business model. I mean, I was looking at the presentation, and you seem to have a lot of turnover out of India, but profits you’re showing is from overseas. So can you just explain how you do sourcing and our processing happens and where do you sell? Second related to that question is, I want to understand what is the impact of this rupee depreciation on your business? Is it beneficial? Or is it negative for you?
Anish Baluta — Chief Executive Officer
To answer your first part, actually, it all depends on sourcing of raw material. In all the overseas territories, wherever we are we are using local domestic scrap, whereas the model in India was to import track into India and then process it. So a lot of value was getting diluted in logistic cost itself, whereas what now we have started doing after this battery waste management tools coming into picture is that we have started sourcing more local scrap, and that will probably increase the profitability of Indian plants also but at the same time, the scrap is cheaper per se overseas as compared to India. So the profitability of overseas centers would always going to be higher than Indian plants.
So that is the first part, and also, wherever we are geographically present have they enjoy certain benefits like, for example, on inclinical plants have certain tiers with European market where they are exempt of import duties. So that also gives you additional benefit if you sell your material from these countries to Europe or U.S. So all in all, these things make overseas territories more profitable. Also, there is no tax because most of these are feed companies, and we have 0% tax in most of the overseas companies. So that also gives you additional delta. That is the first part. What was the second part, sir?
Roshan — Athena Investments — Analyst
Is the rupee depreciation beneficial for you? Or is it since you’re importing scrap?
Anish Baluta — Chief Executive Officer
So it does not impact us because when we import scrap, we also export equivalent amount of lead — so it’s in dollar terms only. But there are times when we see that Indian mastitis better during those times, if there is an additional delta pickup by selling into Indian market, we make use of that and collect some margin to over it. But Otherwise, we can always sell it back in dollar terms. So there is no impact of rupee depreciation.
Roshan — Athena Investments — Analyst
So you source scrap internationally bring it to India process it and then sell it, right?
Anish Baluta — Chief Executive Officer
Yes.
Roshan — Athena Investments — Analyst
I also saw that you set up now processing plants abroad and the investment doesn’t seem to be much, so I mean, is that the model going forward that you would set up processing plants there only and then because it’s a recycled material. It can be sold anywhere, right?
Anish Baluta — Chief Executive Officer
So no, no, we have our own plants in other countries also, and we are increasing the capacities also. And we keep on putting new plants on. So for example, we are putting up a new aluminum deciding plant in Togo in this quarter also. So we are increasing our capacities overseas also. But to answer your question, we can’t put up all the plants in all the countries because certain countries, there is not enough scrap available. So from those countries, we would like to bring it to India. And another company, we have to scrap availability is there and we get some advantage in processing the material in those countries. We put up our own plant. So
Roshan — Athena Investments — Analyst
But you could pull up a larger plant in Africa, for example,
Anish Baluta — Chief Executive Officer
We have done the plan currently is one of our biggest part because we can source scrap from adjoining countries in Hana. So that is why we’ve increased the capacity in Cana, and it’s currently around 16,000 tonnes per annum as for lead. And we are also putting our capacity of aluminum in that plant.
Operator
Thank you. The next question is from the line of Manav Singh from Orals Capital.
Manav Singh — Orals Capital — Analyst
Hi. Good evening to everyone.
Anish Baluta — Chief Executive Officer
Yes.
Manav Singh — Orals Capital — Analyst
So what I wanted to understand, see, we are geographically very diversified, and it has always been a focus. But when I see some of the competitors, they are very consolidated in one geography. So could you explain why would that be the case? And why would they not go outside India versus similar to Janani?
Anish Baluta — Chief Executive Officer
So I think in scrap business, it’s always better if you can be as close to the scrap generation as possible because logistic costs kind of mitigates the scope of increasing capacities. So it’s a given that I think having numerous recycling plants across geographies is always going to be a better option. Sometimes, maybe getting management bandwidth to run all those plants is not there in most of the companies in recycling because we are not professionally managed that can be one of the reasons why they don’t go and expand in various geographies.
Manav Singh — Orals Capital — Analyst
Sir, so because of similar reason, our inventory would also be higher, right?
Anish Baluta — Chief Executive Officer
No, it’s basically not higher because of that. It’s only high if you import that scrap from all across the world to one location, that then it will be higher. If you are putting up various parts in mall locations, then you can — I mean, there is no project period where we are inventories are lying in project. So in fact, having many plants will reduce our inventory levels. and not increase the inventory levels.
Manav Singh — Orals Capital — Analyst
Yes. But that is the case. That’s not the case with them. They are consented and they carry a lower inventory as well compared to the [Indecipherable], so I don’t understand what am I missing? Why do we carry so much inventory?
Anish Baluta — Chief Executive Officer
So I’ll give you an example. There are two things. I mean if you look at our overseas plants, the inventory levels are lower as compared to adamant in Indian plants and inventory levels are higher because we are importing that stack from overseas markets. And it generally takes around 1.5 to two months for that staff to reach the Indian funds. So whatever amount of inventory is in target increases the overall inventory levels. So consolidating will always increase the inventory levels because you are bringing in inventories from all across the globe. I don’t think there are many people who are doing this. Most of the people are only — they are not consolidating. They’re just using the local scrap and they’re not going beyond the point. If you want to grow, you want to it in one geographic location, beyond the point, it will be counterproductive.
Manav Singh — Orals Capital — Analyst
Okay. Okay. Understood. Understood. And earlier, you mentioned that a battery OEMs in Western nations in the U.S. developed these locations are partnering with as recycled as in. So do we import scrap from U.S. as well?
Anish Baluta — Chief Executive Officer
No, we don’t. We import other kind of scrap from U.S., let’s scrap on the U.S. We also import aluminum staff, but we don’t import battery scrap from U.S.
Manav Singh — Orals Capital — Analyst
And we do import?
Anish Baluta — Chief Executive Officer
Yes, we do import less there.
Manav Singh — Orals Capital — Analyst
Okay. Okay. Okay. That’s it from the pace.
Anish Baluta — Chief Executive Officer
Thank you.
Operator
Thank you. [Operator Instructions] Next question is from the line of Viral [Phonetic] from Philip Capital. Please go ahead.
Viral — Philip Capital — Analyst
Good afternoon. Thank you for the opportunity. Sir, in order to launch the overall pop
Anish Baluta — Chief Executive Officer
Sorry to interrupt you. Please use the handset [Indecipherable].
Viral — Philip Capital — Analyst
What could be the capex guidance today?
Anish Baluta — Chief Executive Officer
Yes. So the total capex for this capacity expansion by 2026 is going to be approximately INR70 crores to INR80 crores per year until 2026, and there will be certain new verticals also. So INR70 crores to INR80 crores for the existing verticals led aluminum plastic and including the rubber also, which is also the current vertical, and then we have certain new verticals, which will also have a capex of approximately INR200 crores, INR250 crores in next three years total.
Operator
Or disrupt you, Mr. Philip, the audio is not clear from your line.
Manav Singh — Orals Capital — Analyst
How are we looking to fund the capex?
Anish Baluta — Chief Executive Officer
Yes. So major part of this capex will be internally funded. So for this journey from 2022 to 2026, we need incremental capital of approximately INR1,300 crores, including the working capital requirement. So considering this capex also. And so out of this INR1,300 crores, INR900 crores will be funded from Internet work and INR300 crores to INR400 crores will be funded from taking off additional debt or we can raise some money from equity also at the right time.
Viral — Philip Capital — Analyst
And sir, lastly, when we are targeting almost 3% of the value-added? And let’s say, if we achieve that marked. So what would be the improvement in the EBITDA margin?
Anish Baluta — Chief Executive Officer
Yes. So EBITDA margin, as we can see that more volumes and more valuated product is improving the margins from 8% to 9%. We have already reached to 9%, close to 9% now. And with the more volumes again and more value-added products in future, we can improve this from 9% to 10% in the range of around 10&, so tht and we are also improving the certain other operational efficiencies, the recovery part also, so which is taking us to this 10% on a sustainable basis.
Operator
Thank you. [Operator Instructions] We’ll take the next question from the line of Chirag [Phonetic] from Ratnatraya Capital. Plese go head.
Chirag — Ratnatraya Capital — Analyst
Good afternoon. Thank you for taking my question. Just one question on the EBITDA per tonne side. We understand that more sustainable ranges in the to INR17 per PEG or the between 1,000 to INR17,000 per ton. Can you help us understand so right now with the numbers that we are sitting on, which is around 18 to 19, it’s a 20% delta. On a fully hedged, what are the other factors that still move EBITDA per ton? Clearly, we are above, and I’m sure there will be cases that will be probably a little bit below what we are targeting. So what are those factors as once you’re fully hedged also that will sort of affect EBITDA per tonne in that range?
Anish Baluta — Chief Executive Officer
There are two, three factors. One is more volume because there are certain costs which is fixed cost in nature. So that is also part of this — that is also reduced from this EBITDA per ton. So if that costs remain same and we have more volumes. So that’s the one factor. And another factor is the more value-added products. So because in case of value-added trust, we get slightly better margins, whether our EBITDA margins, better relation of 2% to 2%, 3%. And the third factor is that the more volume which is coming up like we are adding some more verticals also. So that’s also sharing certain fixed cost fixed cost for us in case of the different verticals is sharing the fixed cost. So that’s also improving the overall EBITDA per tonne. So these are the factors.
Chirag — Ratnatraya Capital — Analyst
Understood, and very clear. And when you say INR160 crores to INR70 which is what we think is sustainable as of now. What kind of percentage of value addition are you assuming when you say then? Is it around 30%, 45% value-added product? Is that what you’re assuming to compare the 16, 17 number?
Anish Baluta — Chief Executive Officer
So generally, it’s around 42% is our value-added products currently.
Chirag — Ratnatraya Capital — Analyst
Understood. And when you say 15% to 17% is sustainable in the current environment, that means that if 42 were to remain, 16, 17 would be sustainable at 42 goes up, then probably some part of that will slow down again to EBITDA per tonne, right?
Anish Baluta — Chief Executive Officer
Right. Right. So what happens is that whenever we are creating a new center or we are increasing capacity overseas, then it does not translate to value product immediately because in value product, you have to get that plant also certified from the — so it generally takes some time for you to register a new plant — I mean, same product from a new plant also. So generally, there is a lag between setting up the capacity and then getting approval for value products for that plant, so it will take some time for us to reach 50% value-added products because we have increased quite a few capacities in the last year. So therefore, — although the volume of coated product has grown, but the percentage wise is still at around 40%, 45%.
Chirag — Ratnatraya Capital — Analyst
Understood, sir. I understand that. Thank you so much.
Operator
Thank you. The next question is from the line of Keshav [Phonetic] from Rexon Investors. Please go ahead.
Keshav — Rexon Investors — Analyst
Sir, in the rubber recycling value chain, you have mentioned that you’re doing a little bit of pyrolysis for captive consumption. But indicatively, when we expand our business going forward, would we be focused only on more value-added business such as retain rubber, crore and the like instead of pyrolysis or would pyrolysis or also the focus?
Anish Baluta — Chief Executive Officer
So we would be going into comes not as — I mean, it does not add value as much as [Indecipherable]. But definitely, going forward, we would go into other usages of rebricking. I mean other products coming out of revenue segment because final meters oil has a limitation in the sense that we can only use as much as we can consume. Beyond a particular fine, we’ll have to go and look for other opportunities in segment part of it would be come river, but there may be other usages also we are looking at like carbon black also.
Keshav — Rexon Investors — Analyst
Sure, sir. And lastly, sir, you mentioned some time back about having incentives, say, when you export to you from Ghana due to the duty structures. But would that not come under tight with EU was shipment rules? Or would the demand side be fairly insulated in the point of scrap origin point of region is not as I think you’re talking about demand from EU, right?
Anish Baluta — Chief Executive Officer
Yes, yes. So as I mentioned earlier also that from the supply side also, the production of metals in EU have come down because quite a few smelting units have shut down in the past few months because of lack of fuel. So overall, if you look at the demand supply gap, there is still higher demand and supply in those regions. And going forward also, we believe that — and because there is no entry test from countries like Hana Senegal, so we can be quite competitive in supplying to these markets.
Keshav — Rexon Investors — Analyst
Sure, sir.
Anish Baluta — Chief Executive Officer
Thank you.
Operator
Thank you. We’ll take the next question from the line of Engul [Phonetic] from Quantum AMC. Please go ahead.
Engul — Quantum AMC — Analyst
I just have one small question. While we are looking at expanding to other verticals, what would be the eventual product mix that we are looking at? And with these verticals where we’re also looking at increasing our value-added product base?
Anish Baluta — Chief Executive Officer
Sorry, can you come up again? I mean, I can’t hear you properly.
Engul — Quantum AMC — Analyst
So my question was, since we are looking at increasing the other verticals and adding on to the new verticals as well. What would be our eventual product mix once the capex is done, which is, I think, by 2026? And are we also looking at increasing the base for our value-added products pertaining to these verticals.
Anish Baluta — Chief Executive Officer
Yes. So going forward, we believe that by 2026, 25% of our business — at least 25% of the business would come from non-level so that includes aluminum and plastic and also the new verticals that we would bring in that includes Es, lithium, copper, paper, sso by 25, 26, 75% after math would come from a balance 25% would come from Atibaia — that is first part. And definitely, in all these products, we keep on focusing on regulated end products, and we are not only doing basically siting. We are going and doing value-added products. For example, in plastic also, we make food a grade plastic, which gives you better margins than compared to normal plastics. So definitely, value-added products is for all the verticals, not only for it.
Engul — Quantum AMC — Analyst
Understood. So just to currently, 80% of our revenues or you have 80% of the portfolio in was the capex age?
Operator
The audio is breaking from your line.
Anish Baluta — Chief Executive Officer
I would request if I have to repeat your last question, please?
Engul — Quantum AMC — Analyst
Is it better now?
Anish Baluta — Chief Executive Officer
Yes, it is better.
Engul — Quantum AMC — Analyst
Yes. So just to clarify, currency, we have 80% of our portfolio in dead and you are saying that by 2026, it will reduce down to 75%?
Anish Baluta — Chief Executive Officer
So it’s currently at 83% and not 80%. And by 2025, it would be to at 75%. Definitely, we target higher but some of the new verticals that would come in probably would not start giving you revenue in 2025. So we believe that at the maximum level, that would be and that to let is also growing at a healthy rate of the three to 20%.
Engul — Quantum AMC — Analyst
Understood. All right, thank you so much.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Anish Baluta — Chief Executive Officer
Yes. Thank you very much for participating in the earnings conference call. It has been a pleasure of interesting with you all. We expect better operational performance coupled with volume growth in the upcoming quarters. We hope that we have answered all your queries. Please feel free to reach out to our Investor Relations team going a veteran case any of your queries remain unanswered. Thank you once again.
Operator
[Operator Closing Remarks]