GRAVITA INDIA LTD (GRAVITA) Q3 FY23 Earnings Concall Transcript

GRAVITA INDIA LTD (NSE: GRAVITA) Q3 FY23 Earnings Concall dated Jan. 24, 2023

Corporate Participants:

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Sunil Kansal — Chief Financial Officer

Vijay Kumar Pareek — Executive Director

Analysts:

Sabri Hazarika — Emkay Global Financial Services — Analyst

Keshav Kumar — Raksan Investors — Analyst

Rahul Bhangadia — Lucky Investment Managers — Analyst

Romil Jain — Electrum Capital — Analyst

Abhijit Sinha — Pi Square Investments — Analyst

Deepanshu Jain — Hem Securities Limited — Analyst

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Piyush Mehta — Caprize Investments — Analyst

Tushar Sarda — Athena Investment — Analyst

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

Tushar Agardade — Kamakhya Wealth Management Private Limited — Analyst

Bhavin Chheda — Enam Holdings — Analyst

Gunjan Kabra — Niveshaay Investment Advisory — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to the Q3 FY ’23 Earnings Conference Call of Gravita India Limited hosted by Emkay Global Financial Services. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions] Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Sabri Hazarika from Emkay Global. Thank you and over to you, sir.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Yeah. Thanks, Divyan. So good afternoon, ladies and gentlemen. On behalf of Emkay Global, I invite — I welcome you all to the Q3 FY ’23 post earnings conference call of Gravita India Limited. We are pleased to have the senior management led by Mr. Yogesh Malhotra, CEO; Mr. Vijay Pareek, Executive Director; Mr. Naveen Sharma, Executive Director; and Mr. Sunil Kansal, CFO. So, today’s session would be a brief on the company results and outlook by the management and then we’ll move to the question-and-answer round.

So without any further delay, now I request Mr. Malhotra for the opening comments. Over to you, sir.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Thank you, Mr. Sabri. Good afternoon, ladies and gentlemen, and welcome to our Q3 earnings call. I believe you have read the earnings presentation and press release that was uploaded on the exchanges. I will now briefly discuss the results before opening the floor for questions. I’m delighted to report that Gravita India delivered outstanding results for Q3 and nine month financial year ’23. Before we continue with the results, let’s discuss some strategic highlights and project updates. Our step-down subsidiary of the company located in Togo, West Africa began commercial production of aluminum cast alloys from a recycling plant having an annual capacity of about 4,000 metric tons per annum during Phase 1. The company anticipates that the expanded capacity would provide an additional revenue of about INR60 crores per annum with a gross margin of approximately 26%.

The Group has invested around INR11 crores on the procurement and commissioning of the new recycling plant, which is funded by the company’s internal accruals. Gravita spent INR88 crore on capex in the nine months for financial year ’23. Capex is anticipated to be about INR20 crores for the remainder of the year. Capex is being done to expand the existing as well as established new capacities. Let’s now discuss the operational performance. In nine months financial year ’23, Gravita boosted its capacity to 228,000 metric ton per annum. We are certain that by 2026, we will obtain a total capacity of 425,000 metric ton per annum and compassing all our existing and future verticals. The company has witnessed a volume growth of about 34% in Q3 financial year ’23 on a year-on-year basis. Net volume increased by 33% and aluminum grew by 83% on a year-on year basis.

In Q3 financial year ’23, EBITDA per metric ton for lead and aluminum stood at INR17,000 per ton and for plastic at approximately INR9,500 per ton. Domestic scrap collection for Indian plant witnessed a jump of 12% in Q3 financial year ’23 versus Q2 financial year ’23. We believe that redefining of battery waste management rules extended producers’ responsibility and stricter implementation of GST have boosted the — and will continue to enhance scrap availability for the formal recycling industry in India. Coming to Q3 financial year ’23 financial results. Consolidated revenue for the quarter was reported at INR789 crores, which was up by 42% on a year-on-year basis. This rise in revenue can be attributed to a 34% plus increase in sales volume. Revenue from value-added products stayed strong at 45%. On a year-on year basis, adjusted EBITDA stood — sorry, increased by 31% to INR71 crores.

EBITDA margins stood at 9% and the company continued to maintain strong margins despite rising cost in major raw materials throughout the quarter. Gravita reported a strong consolidated PAT of INR50 crore with a 28% growth year-on-year. Out of this, around 65% of profit is from overseas business. PAT margins also stood strong at about 6.4%. Coming to nine-month financial year ’23 financial results. Consolidated revenue increased by 32% from INR1,549 crores to INR2,052 crores. Adjusted EBITDA for nine months financial year ’23 stood at INR201 crore, up 41% on a year-on year basis. And consolidated PAT increased by over 40% to INR137 crores.

Thank you very much and now I would like to open the floor for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Keshav from RakSan Investors. Please go ahead, sir.

Keshav Kumar — Raksan Investors — Analyst

Hi, good afternoon. Congrats for a great quarter, sir. Sir, recently I was reading that a US-based recycling technology company, which claims to have an efficient and emission-free process, is setting up huge lead and lithium-ion capacities in India and they have a very large facility plant in Mundra itself that will come up in 2024, ’25. So, do you see a raw material sourcing risk going forward?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Actually as we have mentioned that in India, there is a shift taking place from informal to formal sector and the overall capacites available for organized players is much more than the total capacities available currently. So, we don’t believe that there is going to be any shortage of raw material even if all the stakeholders currently who are in this business increase their capacities, but it will take time for anybody to start building capacities. This is one factor. The other factor is existing relationship with the OEMs that we enjoy currently and our pan-India presence because you cannot setup one plant in one location and then — we’ve been saying is that in this scrap business, you need to have multiple location — plant at multiple locations and operations at multiple locations if you want to enjoy benefits in terms of reduced logistic cost and service to the customer. So, of course I mean there would be competitors coming in for — I mean it’s an open market and we have so far stayed relevant because of our model and we will continue to stay relevant. Thank you.

Keshav Kumar — Raksan Investors — Analyst

Great, sir. And sir, secondly lastly. So of the two businesses, India and ex-India business, would it be possible to give the ROCs [Phonetic] which we enjoy in the ex-India bit?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yes. Actually the current ROCs, we’ve been saying that the current EBITDA margins as well as ROC is sustainable. If anything because the model of Indian business is shifting towards tooling business where working capital requirement is either zero or very less. So, that ROC from Indian business would continue to be better from the current levels. In any case, we have a target of — I mean wherever we are going in new businesses, we have a target of at least 25% ROC. So, we don’t think that the ROC would come down to anything less than 25% anytime in the near future.

Keshav Kumar — Raksan Investors — Analyst

Sure sir. That’s all from my side. Thank you.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Thank you very much.

Operator

Thank you. We have the next question from Fidelity Ventures. Please go ahead, sir.

Unidentified Participant — — Analyst

Good afternoon sir.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Good afternoon.

Unidentified Participant — — Analyst

Outstanding performance, sir, Q3 performance.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Thank you.

Unidentified Participant — — Analyst

I have three question, sir. First question is what are the steps have been taken to grab the EV trend and lithium recycling market? And second one is what is the total quantum of amount that is proposed in rubber, copper, paper, e-waste, and lithium and aluminum recycling; that is capex for next two to three years, total quantum I’m just talking. And third one is five years saving this topline and bottom line that you have already mentioned in your annual report that is the revenue CAGR would be 25% and profitability would be 35% and ROCE would be 25%. Could you please reconfirm the three with the updated numbers? Thank you, sir. That’s all.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. Thank you very much. So I mean for lithium-ion batteries recycling we believe that for the volume of scrap to start coming to the market, it will take around five to seven years from now. Whatever products are coming today, the scraps on those whether it is EVs or scooters etc. — EV scooters, etc; the scrap from those would start coming into the market around five to seven years from now. So, we are already tying up with some technology company to setup a pilot project of lithium-ion batteries in India at our Mundra location and we’ll see how things work out from there on. In terms of total capex, we are planning to do a capex of around INR80 crores year-on-year for our existing verticals for the next three years and around INR200 crores to INR250 crores for the new verticals, which include lithium-ion, copper, steel, paper, etc. that again in the next three years. So, that is the capacity expansion. And yes, our target is to grow at around 35% in volume terms not in revenue number, but in volume terms on a year-on-year basis in the next three years — 25%, sorry, and the profitability would increase to around 35% on a year-on-year basis. Is that okay?

Unidentified Participant — — Analyst

Okay, sir Thank you. Nothing, sir. Thank you.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Rahul Bhangadia from Lucky Investment Managers. Please go ahead, sir.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Thank you for taking my question, sir. Congratulations on a great set of numbers.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Thank you.

Rahul Bhangadia — Lucky Investment Managers — Analyst

See two, three things here, sir. In this quarter we had gross margin of about 18%, generally our range has been of the order of anywhere between 20% to 22%. Anything that we should read into this or there’s specific things out here in the quarter?

Sunil Kansal — Chief Financial Officer

Yeah. So Rahul, the gross margin is dependent on the sale price also so some time when the metal prices are higher so then the gross margin is reduced. So we — on profitability terms, we focus on the EBITDA, which is very stable in our case like we focus on lead in the range of INR16 to INR17 per ton and in case of aluminum because it’s more business outside India so it is approximately INR18 per kilogram and in case of plastic it is INR10 per kilogram. So, we are very close to these numbers so we focus on this numbers. The percentage in gross margin is also dependent on the business from overseas or business from India. So slightly when the Indian business is higher so then this number is also lower. But overall basis, we focus on this EBITDA per ton numbers.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Yes, yes. So, you have always emphasized that it’s an EBITDA per ton that you focus on. So I just wanted to confirm that it’s about just basically the pricing at the revenue level that makes the gross margin go up or down in this case.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Correct, correct, correct.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Okay. So, the second question I had is now this year on overall basis including the three verticals that we report right now; lead, aluminum, plastic; you’ll probably do about 1.5 lakh tons, 1.6 lakh tons of volumes this year. We’ve already done about 1.15 lakh tons, we’ll probably close 1.6 lakh tons. What do you think will be the volumes next year? You have given a 25% guidance, but I just wanted to understand what will lead it. Would it be lead driven again or will it be kind of driven by aluminum, plastic, and maybe some of the other new verticals that we are doing?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So, lead would continue to grow because we have added some capacities in lead and we are also in process of adding certain more capacities in Mundra and Chittoor for lead. So, it will continue to grow. But of course as you’ve seen that aluminum has started growing much faster than the lead and going forward we believe that the plastic would also grow at a similar numbers. So the overall if you see, the growth from lead would be around 15% to 20%, but the overall growth would be around 25% so which means that the overall contribution from lead will come down to around 75% in the next year.

Rahul Bhangadia — Lucky Investment Managers — Analyst

In FY ’24 that is?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

In ’24, yes.

Rahul Bhangadia — Lucky Investment Managers — Analyst

So when do we expect the new verticals like let’s say copper, rubber? How — when do we expect that to contribute meaningfully to either volumes or the numbers?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So in lithium, as I mentioned that we are not in a hurry. We want to first have good technical partner — technology partner with us because we still believe there is still time. So it will probably take some time, maybe in the later half next year or maybe a year later also.

Rahul Bhangadia — Lucky Investment Managers — Analyst

No, sir. I was talking about the other — maybe you were talking about rubber, copper, that side I was talking about.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So rubber in any case, we have started I mean putting up plants, but that is mainly for our internal requirements initially. Once we’ve done that, in the second phase we would start selling it externally also the products. And we are doing our feasibility study for paper plant and it’s almost final now so probably we’ll start the process in the first quarter of next year, but it will take — because it’s a huge plant so it will take around one, 1.5 year to establish that plant — the first plant. So, again it will come in probably ’24-’25 financial year. In case of copper also, we have decided to start a pilot project in Senegal to start with and once it is successful, then we start replicating. So, the Senegal plant should start somewhere around seven to eight months from now. So after that, we’ll start replicating that to other locations also.

Rahul Bhangadia — Lucky Investment Managers — Analyst

So, essentially FY ’24 will still be led by the three existing verticals with aluminum and plastic growing faster than lead essentially?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

And to some extent maybe rubber would start.

Rahul Bhangadia — Lucky Investment Managers — Analyst

To some extent. So, 25% would roughly mean about 2 lakh tons of volumes next year ’24.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yes.

Rahul Bhangadia — Lucky Investment Managers — Analyst

All put together I’m saying

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yes.

Rahul Bhangadia — Lucky Investment Managers — Analyst

And sir, the final question before I come back. You have mentioned your target of getting the working capital down to 65 days by March ’26. There is the working capital and the balance sheet situation keeps fluctuating every quarter. So, are we on track for that or do you still think 65 days is what you — where do you think we’ll start seeing this trend moving towards 65?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So, current working capital cycle is approximately 80 days. Definitely we look for bring it down to 65 days in next two years. The major driver is more sourcing from domestic market so we are continuously driving the growth. In this quarter also we have grown domestic sourcing by 12%. So we are focused on, but there are certain times when the Indian market is more favorable and we source it from international market and bring it to India so that time the working capital cycle is more. But it is also dependent on — working capital also dependent on the metal prices. So this time it was higher — metal prices were higher so the working capital requirement was more. But on an average basis, we focus it to be around 65 days in two years definitely.

Rahul Bhangadia — Lucky Investment Managers — Analyst

Sure, sir. Thank you very much for answering those questions. Thank you.

Operator

Thank you. The next question is from the line of Romil Jain from Electrum PMS. Please go ahead.

Romil Jain — Electrum Capital — Analyst

Hello. Sir, you can hear me, sir?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah, please go ahead.

Romil Jain — Electrum Capital — Analyst

Yeah. Sir, first of all, congrats good set of numbers and I wish Happy New Year to the whole team. Sir, first question is the incremental capacity that will come out in the next two, three years about 2 lakh tons. Can you just give some more information and color about where will maximum capacity come? Is it lead or is it aluminum or plastic? That is one question. And maybe bifurcation of the capex cost as well?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, some of the capacities have already been installed. If you look at the Senegal aluminum and Togo aluminum has just come up in December itself, we will start giving full results from this quarter onwards. And some of the capacity that we are planning to bring is Chittoor and Ghana lead and also aluminum Ghana. So for the overall capacity in the next three years from current 228,000 metric ton, we are planning to reach to around 425,000 metric ton. This include capacities for paper recycling also.

Romil Jain — Electrum Capital — Analyst

Okay. Paper is also included?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah, paper is also included in this 425,000 metric ton.

Romil Jain — Electrum Capital — Analyst

Sir, what would be the capex for paper because as you mentioned, it takes a little bit longer time to establish the plant? So, is the capex cost also a bit more higher there?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

It’s around INR75 crores to INR85 crores of capex would be required for that plant.

Romil Jain — Electrum Capital — Analyst

Okay. Got it. And sir, next question is on the operating cash flows, if you can just give some number of how much operating cash flow you generated in the first nine months and the capex for the next two years, how that will be funded?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, majorly all the capex is being funded from the internal accruals because we are generating enough cash now from the business to fund the entire capex. So, only thing is that in case of increased requirement of the working capital so that is being slightly funded from the debt. Otherwise all the capex is being funded from the internal accruals. So whatever capex we are doing for the existing verticals INR70 crores to INR80 crores per year and the capex in the new verticals, which is approximately INR250 — INR200 crores to INR250 crores in next three years. So, all this we are planning to — so we are not increasing any debt because of this capex so we are doing it internally.

Romil Jain — Electrum Capital — Analyst

Okay, sir. And lastly on the procurement of the raw — of the scrap that you mentioned has increased by 12% this quarter. So, can you give a number how much proportion is the total domestic scrap right now in the overall scheme?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, domestic scrap is currently 42% — 43% of the total scrap requirement in India so that is being sourced from India at this moment. But this is because whenever we increase the capacity also in India so that is also slightly percentage proportionately it will sometime reduce. But on an absolute basis, it is continuously increasing.

Romil Jain — Electrum Capital — Analyst

So, that will increase to how much in next two years, sir?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So like we are just 5% of the total Indian scrap which is available in India so which should be close to 3 times from now. In next two to three years, it should be close to 3 times whatever we are sourcing approximately 60,000 tons per year. So, that should be approximately 180,000 tons in next three years.

Romil Jain — Electrum Capital — Analyst

Okay. Got it, sir. I’ll come back-in the queue for anything else. Thanks a lot and all the best.

Operator

Thank you. Before we go ahead, ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, we request you to please limit your questions to two per participant. The next question is from the line of Abhijit Sinha from Pi Square Investments. Please go ahead.

Abhijit Sinha — Pi Square Investments — Analyst

Hello sir. I was just wanted to understand about the plastic division. It’s been…

Operator

Sorry to interrupt, Mr. Sinha. Your volume is a little low. If you could please speak closer to the mic.

Abhijit Sinha — Pi Square Investments — Analyst

Am I audible?

Operator

Yes, this is much better, sir.

Abhijit Sinha — Pi Square Investments — Analyst

Yes, perfect. So, our plastic segment has come down in this quarter. Are we expecting it to be one of our growing ones or it’s just a supplementary segment for us?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, actually the plastic has faced certain — I mean the American market or the US market is currently not performing up to the mark and most of our capacities are there in the Central America. So because of that, we have faced certain problems in getting enough raw material for our plastic plants in that region. But we believe this is a temporary phase and eventually as US market is recovering, we will start performing better in plastic in that market. And also the effect of EPR has yet to take place in India, which has already taken place in lead recycling, but it has yet to start in the Indian market for the plastic recycling. Once that starts happening, probably the volumes will increase much faster in the future.

Abhijit Sinha — Pi Square Investments — Analyst

Perfect, sir. So ideally as a percentage of revenues, do we look at it to be 5%, 6% normally?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Sorry.

Abhijit Sinha — Pi Square Investments — Analyst

Going forward do we expect this to be about 5%, 6% of our net revenues?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

No. In the near quarters, probably next two quarters, yes, around 7% to 8%. But I mean going forward probably if you ask me one year from now, it will grow at double-digit numbers minimum.

Abhijit Sinha — Pi Square Investments — Analyst

Perfect. And sir, over here the margins have also increased substantially, right. So though we have got INR10 crores less, but our EBIT if I can say revenue that has come from the segment have been higher. So, is there any particular reason for the margin increasing?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Margin…

Abhijit Sinha — Pi Square Investments — Analyst

Margin increases in those — in the plastic segment.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yes, it is still same. I mean the margins have not increased, it is the same as previous margins.

Abhijit Sinha — Pi Square Investments — Analyst

Okay. Because it’s showing about INR5 crore we’ve got it in the EBIT segment. In the EBIT level, we have got plastics INR5 crore versus last quarter was about INR2 crore. That’s the reason I’m asking. Perfect, sir. And so now with the aluminum prices going down further, what kind of margins are you expecting in the next quarter and going forward?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So aluminum with — I mean in the last year there were exceptional margins because of higher price and because we are not held in aluminum so we reaped some benefits out of that. But aluminum would keep on giving INR18,000 to INR19,000 per ton of margins going forward also. That is sustainable margins. So, we stick by that number and we will continue to get that number because most of the volumes in aluminum comes from overseas markets, which gives us higher EBITDA margins.

Abhijit Sinha — Pi Square Investments — Analyst

Perfect, sir. So now if the prices further correct in aluminum so where it will show? It will show in the other income segment, right, going forward.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, other income shows the profit that we get or profit or loss that we get from hedging metal. So, most of that is for the lead segment because we are hedging most in lead segment and only partially in aluminum segment. Most of that is — so around INR66 crores from other income is on account of gain from hedging, which is mostly in the lead segment.

Abhijit Sinha — Pi Square Investments — Analyst

Okay, sir. Perfect. Thank you.

Operator

Thank you. Ladies and gentlemen, we request you to restrict your questions to two per participant. The next question is from the line of Deepanshu Jain from Hem Securities Limited. Please go ahead.

Deepanshu Jain — Hem Securities Limited — Analyst

Good afternoon, sir. First of all, congratulations for a great set of number. My first question is it is expected that government may announce a policy of INR3,500 crores for recycling the lithium-ion battery in the Union Budget. So, what are our expectations from Union Budget that will be beneficial for the company?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Okay. So, this lithium-ion battery manufacturing PLI has been announced at this stage. In our country as of now there is no manufacture of lithium-ion cell. The government has announced manufacturing of cell. As of now whosoever claims to be manufacturer, they are basically assemblers and collecting lithium-ion cells and then assembling them and converting into battery. So battery, complete manufacturing from cell to battery that is part of PLI. So, recycling has not been given any incentive as of now though the industry is asking.

Deepanshu Jain — Hem Securities Limited — Analyst

Okay, sir. And sir, my second question what are our debt reduction plans?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, currently the debt is approximately INR315 crores. But going forward as we already told that there is — there will be no increase in debt because of the capex. So there’ll may be some increase of debt because of the increased requirement of the working capital, but we are consciously taking the debt within the parameters of debt-equity of 0.75 and debt-EBITDA of 1.5. So within this parameters, whatever we have been very comfortable on taking some short-term debt for the increased requirement of the working capital due to the increase in business. But going forward we are open to take some additional capital by way of QIB also and — but in case of debt also, the short-term debt is 100% hedged because it is against the inventory and inventory is 100% hedged in our case. So, it is not — we don’t consider it as a risk of taking any additional debt, but we are very cautious on taking incremental debt within these parameters.

Deepanshu Jain — Hem Securities Limited — Analyst

Okay. And sir, my last question is can you share your view on lead, aluminum, and plastic prices for near term?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Can you repeat the question, please?

Deepanshu Jain — Hem Securities Limited — Analyst

Yeah. Sure, sir. Sir, can you share your view on lead, aluminum, and plastic prices for near term?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

It’s a very difficult question actually. It depends on a lot of issues and I think if the China opens up, there are chances of the prices increasing. But in any case we try to remain neutral in terms of metal prices so it will not impact us that much.

Deepanshu Jain — Hem Securities Limited — Analyst

Thank you so much, sir.

Operator

The next question is from the line of Astha Sundarka from Niveshaay. Please go ahead.

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Hello. Am I audible? Yes, you’re audible. Good afternoon, sir, and congratulations on good set of numbers. Sir, my first question is that the scrap procured outside is much cheaper than the domestic scrap, right? So what is the reason behind it and if you could also tell me the price difference for the same?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So actually what happens in India is that there is a tax GST on scrap. So most of the scrap goes to the unorganized sector and therefore the prices of scrap has gone up because this informal sector does not pay those taxes. So, that is why they are much more competitive than the formal sector. That is one reason of price going up in the Indian market. But with this new policy of battery waste management rules, now the government has put the onus on the brand owners to start collecting the scrap. So, this will make it easier for formal companies to set up their own yards in India and then collect on behalf of those battery manufacturers, which will reduce the prices of scrap to the formal sector in India going forward.

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Got it, sir. And next question is that Amara Raja setting up its own recycling facility, Exide also has its own plant, and likewise other battery manufacturers can also backward integrate. So, how this is going to affect your business?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, basically Exide always had these recycling plants for the past so many years. And as I had mentioned that if you look at the gap between the capacities available in the organized sector and the total potential for the organized sector, there is a huge gap. So even if they bring up their own factories, it will still be — there still will be huge opportunities for organized recyclers like Gravita. That is one part. And the second part is that you still cannot manage the entire Indian continent — subcontinent by putting up just a single plant. So you need to have plants across India on pan-India basis because taking scrap from one place to another has huge logistic cost. So, it may be very difficult for any company to backward integrate these plants because eventually they have a battery plant at one location. So for example for Amara Raja to source batteries in the north and then bring it back to their own plant would be very difficult. So they would need recyclers who have plants in north where we can source on their behalf, process it in the factory in north, and then supply it to some other customer. And similarly we can have a plant in south where we collect that battery in south and give it to Amara Raja. So, that equation will always help recyclers build pan-India presence.

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Okay. Got it, sir. And one last question. Sir, you said that paper recycling that is going to come up later so how much asset turnover can we expect from that?

Vijay Kumar Pareek — Executive Director

Asset turnover is approximately 7x to 8x in case of paper.

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Okay. That’s it, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Piyush Mehta from Caprize Investments. Please go ahead.

Piyush Mehta — Caprize Investments — Analyst

Hi. Am I audible?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yes, Piyush.

Piyush Mehta — Caprize Investments — Analyst

Congratulations Sunilji, Yogeshji, and the team for again a very steady set of numbers. Glad to see that the team has been walking the talk over the last six to eight quarters. So, quickly on the questions. So of course I know discussed aluminum EBITDA per ton, etc. and you mentioned that lead contribution would be falling to 75% [Phonetic] and I believe since we’ve expanded capacity on the aluminum side in international business, that portion will go higher. And the EBITDA per ton for aluminum is far more volatile than it is for lead. So, how do we keep that volatility in check?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, what we are doing is that actually there are two parts to the aluminum business that we do. One part is where we are trading in pure aluminum derivatives like aluminum can scrap, etc. So, there the hedging can be done and we are doing hedging on that part. The other business is for alloys for aluminum — alloys of aluminum where currently there is no system in place or process in place where we can hedge that. But we have already applied for a derivative of those alloys to be registered in MCX and it is still under process at the SEBI level. So hopefully in future probably in a couple of quarters, we would start trading those derivatives also. That will then kind of touch the risk of volatility in aluminum also.

Piyush Mehta — Caprize Investments — Analyst

Understood. And on the Mundra plant side, how is the capacity expansion or utilization shaping up because I believe there was some delay in terms of setting up in terms of our execution timeline because of rains or whatever the issues we had? So, how is the Mundra part shaping up?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yes. So, Mundra capacity is almost 96% utilization we are doing at this moment and we have just expanded the capacities in Mundra where we are waiting for the license to start from the relevant authority and after that, we’ll start using that capacities which we have expanded in Mundra. So, there is two parts of expansion. One is the expansion, which we have shifted from Gandhidham to Mundra so that is one. And in addition to that, we have also expanded our capacities in Mundra where we are waiting for the license for both the things,

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Post this entire getting new licenses plus current, what will be the total capacity for Mundra?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So, the total capacity at Mundra will be 60,000 tons per annum. This includes the capacities that would be shifted from — so 19,000 tons capacity will be shifted from Gandhidham to Mundra and then additional 20,000 tons.

Piyush Mehta — Caprize Investments — Analyst

Completely exports?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So basically it is import of scrap and export.

Piyush Mehta — Caprize Investments — Analyst

Understood. And last question. On the competitive landscape side within India on the organized side, I’m sure everybody is trying — I think what you guys have cracked is sourcing of the scrap at ease and I’m sure everybody is trying to do the same. So within the Indian organized lead recycling space, who are the top two, three players or how has the competition shaped up over the last couple of years or how do you see it shaping up over the next two years as well?

Vijay Kumar Pareek — Executive Director

In fact in informal sector, Gravita is the only company who has a pan-India base across India. But there are three, four other companies are there, those are operating into the regional basis. That is one, Pondy Oxide, second is Nile, and third is Pilot industries. So, these are the regional companies those are having the manufacturing base in south and north and two small companies in eastern part of India.

Piyush Mehta — Caprize Investments — Analyst

But when we look at organized, are we one of the largest or Top 3 because not all will be listed though?

Vijay Kumar Pareek — Executive Director

Like among other than Gravita, Nile and Pondy Oxide is a listed company and Pilot Industries is not a listed company. But there are only five, six companies those are operating in fully — in full sense of operations.

Piyush Mehta — Caprize Investments — Analyst

Both of them have also announced capex capacity expansions, right?

Vijay Kumar Pareek — Executive Director

Not yet. Like Pondy and Nile, they are the listed companies so they have not done any kind of capex in case of lead recycling. Nile has not done any kind of capex since last five to six years, it is stagnant on that particular phase.

Piyush Mehta — Caprize Investments — Analyst

Do you have any view on…?

Operator

Sorry to interrupt, sir. May we ask you to rejoin the queue for further questions. Thank you. We have the next question from the line of Tushar Sarda from Athena Investments. Please go ahead.

Tushar Sarda — Athena Investment — Analyst

Yeah. Thank you for the opportunity. I just needed a small clarification. Your EBITDA per ton which you have mentioned in this quarter’s presentation for the previous quarter doesn’t match with the EBITDA per ton which was given in the previous quarter. For example on lead, last quarter we reported INR19,214 and this quarter you are saying INR17,213 is Q2. So, if you can just clarify why this difference in the number?

Sunil Kansal — Chief Financial Officer

Yeah. So, there was — this was clarified in the last call also. So, there was some printing mistake of Q2 EBITDA per ton number. So, that was printed erroneously. But that was — the Q2 number for lead, it was INR17,200 instead of INR19,000.

Tushar Sarda — Athena Investment — Analyst

So, I should take what you reported this quarter as the correct number, right?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah, definitely.

Sunil Kansal — Chief Financial Officer

So, in last quarter also we have clarified this mistake.

Tushar Sarda — Athena Investment — Analyst

Okay. Maybe I missed it. Thank you.

Operator

Thank you. The next question is from the line of Mohammed Sufiyan Lakdawala from Lalkar Securities. Please go ahead, sir.

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

Hello. Thank you for the opportunity. I just wanted to ask at the capacity…

Operator

Sorry to interrupt, sir. You are inaudible. If you could please speak closer to the mic. Please go ahead, sir.

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

So what capacity you’re expanding for 25,000 metric tons by 2026 so what would be the peak revenue you can do from this capacity?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So the peak level utilization, we can go up to 75% to 80% — close to 80% so it’s on a consistent level. So maybe in a quarter probably even achieve a higher capacity utilization of say 90% also sometimes. But on a sustainable level, around 75% to 80%.

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

But revenue potential from the same?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Revenue will be 9x of the total capex that we do. So like we are planning to do a capex of approximately INR500 crores in next two to three years so which can generate revenue of 8x to 9x out of this capex, additional revenue.

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

Okay. And right now you have the capacity of around 28,000 metric tons, right? So, what is the…?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

228,000 tons.

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

So I guess what the volume growth guidance you have given of 35% — 25% so I guess for FY ’24, you won’t require the new capacity.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

25% volume growth is for the existing verticals and then there is additional growth in terms of new verticals like paper recycling, steel recycling, copper recycling, rubber recycling. So, all these new verticals will add add to this 25% growth.

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

Okay. And is this margin sustainable?

Sunil Kansal — Chief Financial Officer

Yes, margins are sustainable..

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah, margin is currently 9% so although we are focused on per ton EBITDA basis, but yes, it should be close to 9%.

Mohammed Sufiyan Lakdawala — Lalkar Securities — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Tushar Agardade [Phonetic] from Kamakhya Wealth Management Private Limited. Please go ahead, sir.

Tushar Agardade — Kamakhya Wealth Management Private Limited — Analyst

Good afternoon, sir, and congratulations for your great set of numbers. Sir, my question is on the three divisions of yours. So, what will be the capacity utilization of all the three divisions? And you’re doing capex on all the three people, what would be the payback period for the same?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So, payback period for us is dependent on the geography where we are doing the capacity expansion. So like in case of overseas, we focus it to be less than two years. But in case of India, we focus it to be less than three years. And the capacity utilization on a global basis for the nine months, it is approximately 65%. But if we see on a division basis; it is 70% in case of lead, approximately 45% in case of aluminum, and 45% in case of plastics.

Tushar Agardade — Kamakhya Wealth Management Private Limited — Analyst

Fair enough, sir. Sir, on the lithium-ion so basically I understand it will take time for the lithium-ion batteries to come for recycling. So, are we looking for any technical collaboration for the same in future?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yes, yes. We’ve already mentioned that we are looking for a technical collaboration because currently there is no technology. In India nobody is recycling lithium-ion batteries as it should be recycled. So they are only making — partially doing some process and making black mass out of that. But a consolidated complete technology is still not there in India so we are in discussion with certain technology providers from Europe, from Japan, and from Israel; and we will try to finalize one of these in near future.

Tushar Agardade — Kamakhya Wealth Management Private Limited — Analyst

Fair enough, sir. Thank you. All the best, sir.

Operator

Thank you. [Operator Instructions] We will take the next question from the line of Keshav from RakSan Investors. Please go ahead, sir.

Keshav Kumar — Raksan Investors — Analyst

Sir, thanks for the follow-up. So sir, as we are projecting 25% kind of ROCs, I guess a big part is because we have 10x kind of asset turn and our overall working capital cycle also should come down with more organized shift. But when I look at a peer of ours, which is a PET bottle recycler, their ROCs can be volatile because of a sizable fixed asset contribution. So I can understand that lead is asset-light for us and even if there are corrections in lead prices, we are hedged and decent ROCs should be there even at lower prices as our inventory cost also comes down. But directionally when we scale and lead contributions go down, do we still believe that the ex-lead business would have as sustainable ROCs as the lead business?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So basically if you look at our ROC — our ROC is coming from different verticals like lead, aluminum, and plastic; it’s on the similar lines. So all three of them are asset light partially because we also provide turnkey solutions so we have project divisions where we develop design and fabricate these recycling plants. So for these verticals and also for rubber, we have seen that it’s on similar lines. But of course when we go into other technologies like lithium-ion and paper, there it would be a little different. But there again we are looking at probably higher revenues coming from per ton or higher margins coming on per ton basis to cover for the lower I mean revenues coming from per INR1 crore of capex. So for example for paper although the revenue would not be 8x or 9x, it would be lower, but the margins would be higher.

Keshav Kumar — Raksan Investors — Analyst

Okay, sir. So basically, sir, we are choosing the asset light subsection of a particular vertical so wherever in say plastics, we would not go into PET flakes, but we’ll choose something that can have very asset turns.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

No. So, PET flakes will go wherever there is an opportunity of going in volume terms. So wherever we have certainly in terms of availability of raw material, we could go in for PET flakes also. And we are in PET flakes business for the past three, four years so it’s also on similar lines.

Keshav Kumar — Raksan Investors — Analyst

Understood. That’s all from my side. Thank you.

Operator

Thank you. The next question is from the line of Bhavin Chheda from Enam Holdings. Please go ahead.

Bhavin Chheda — Enam Holdings — Analyst

Yeah. Good afternoon, sir. Congrats on a good set of numbers. This INR500 crores capex you mentioned would be from ’24 to ’26, right, over and above the current year capex?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah, over and above.

Sunil Kansal — Chief Financial Officer

So current year capex is around INR80 crores so far and we expected to spend around INR25 crores more in the next three months.

Bhavin Chheda — Enam Holdings — Analyst

Okay. And INR500 crores will be from next year onwards till ’26 to reach capacity of 4,25,000, right?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Correct, correct. Out of which, around INR250 crore would be for existing verticals and another INR200 crores to INR250 crores will be for new verticals.

Bhavin Chheda — Enam Holdings — Analyst

Okay. And so for new and existing, both will start simultaneously or the new verticals is back-ended and existing verticals which is more simpler for you is front ended?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Existing verticals will happen in a phased manner throughout the three years whereas for new verticals of course it will be dependent on when we put up a new plant. So for example as I mentioned that for lithium-ion, probably it will be after we tie-up for a pilot project and then we want to scale it up, it would probably come at the end of the second year or third year whereas if we talk about paper, it will probably come next year itself. So, it will be — it will not be in a phased manner. It will be dependent on the project that we take undertake whereas the existing would be in a phased manner throughout these three years almost consistently across these three years.

Bhavin Chheda — Enam Holdings — Analyst

Okay. Thank you, sir.

Operator

Thank you. The next question is from the line of Gunjan Kabra from Niveshaay. Please go ahead. Mr. Kabra, the line for you has been unmuted. Please check if the line has been unmuted from your end as well.

Gunjan Kabra — Niveshaay Investment Advisory — Analyst

Am I audible now?

Operator

Yes, you’re audible. Please go ahead.

Gunjan Kabra — Niveshaay Investment Advisory — Analyst

Sir, thank you for the [Indecipherable] and congratulations for the steady state of numbers. Sir, wanted to understand the industry working. How does it work from the point of view that we are expanding into a lot of products in recycling so like copper, steel, paper apart from the core business which is lead and plastics? Are we like trying — what is our outlook for next three to four years or five years because recycling as a theme pretty interesting? Sir, do we get any synergy benefit because we have a large sourcing network? Because technicalities and working capital requirements for different orders would be different. So, how does that work? Are we trying to become a one-stop [Indecipherable] recycling unit or how is it is what I wanted to understand?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

So what we are looking at is either there should be synergies in the supply chain or probably at the customer end, consumer end. When we look at our current three, four verticals like plastic, aluminum, and lead and in future we are planning to go into copper; so there are synergies in terms of operations also and also from the supply chain point of view there are synergies, which we have started tapping since we started going into verticals other than lead and we believe that that will help us in putting up other sectors also. Because again it’s a capex light model and we are into this project divisions where we design and develop these products. So, there is not much difference when you go into different verticals. And then there are synergies in terms of the geographies that we are present in. So for example we are present in Africa where we are sourcing scrap and plus countries which are landlocked where there’s a lot of scrap and all that scrap goes out of those countries and so they import a lot of finished capacity to those countries.

So when we are getting there, we see these opportunities and strategically we work on those strategies. So, both steel and paper come come out of that synergy because we are present in those geographies and we see the opportunities there. So all in all, it’s not something that it’s just out of — I mean out of this group that we are talking about. We work on — so what essentially we do is we search for [Indecipherable], we start procuring those materials, we start looking at the market and whether we will be able to market those products and would it be profitable in the longer term. Only after we realize that trends and we can procure as much material as we want to take up and we have a market for that, we definitely go into that segment. So we started like this for the plastic also and like this for aluminum also and currently we are working on paper and steel in the same manner. So, we see huge opportunities in this segment.

Operator

Thank you. Sir, the line for the current participant in the queue seems to have disconnected. We will move on with the next question, sir. [Operator Instructions] The next question is from the line of Astha Sundarka from Niveshaay. Please go ahead.

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Good afternoon, again. My question to you is that increasing demand in EVs would lead to increase in the usage of lithium-ion batteries. Although lead-acid batteries would also be used, but they will be in smaller sizes. So, don’t you think that this will reduce the demand for recycled lead in future because more than 60% of the demand comes from the automotive industry?

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Yeah. So actually as I mentioned especially in India, I mean so first of all it will take some time for this demand to go down especially in the developing world that we are working in. If you look at the areas where our operation is mostly in Africa and to some extent in India. Even India I mean as I mentioned that around 75% of the market is currently in the unorganized sector. If you talk about that shift from unorganized to organized sector, that itself gives you a huge impetus to start recycling. I mean so there is enough market size available for us even if in future the lead-acid battery requirements will go down if we assume that everything will be converted into EVs, which is probably a little difficult and that is why we are going into other verticals like aluminum and plastic so to reduce our reliance on recycling of lead-acid batteries only. The third part is that currently the ecosystem for lithium-ion batteries would be similar to the ecosystem that is there for lead-acid batteries. So what will happen is that this will give us opportunity to go to lithium-ion batteries also because the collection system would be similar, the OEMs would be similar. So it’s just an extension of what we are doing, only the technology is different. So once we acquire the technology, we would in fact enjoy growth from lithium-ion battery recycling also.

Vijay Kumar Pareek — Executive Director

And further to add this, there will be shift in applications means if auto sector use more of EV battery and less of lead-acid battery. The purchasing power of people is increasing in the country and as of now we have very less penetration of you can say inverter or UPS in each household. So as of now we have all gadgets where we need uninterrupted power, let’s say WiFi and all, so everybody will be having one battery backup at all homes. If you see that number, that shift will be going from automotive to such applications.

Astha Sundarka — Niveshaay Investment Advisory — Analyst

But you see that automotive — in automotive demand can decrease in future if EVs are adopted comparatively.

Vijay Kumar Pareek — Executive Director

Okay. In every automotive, there is already a battery is there so it is not going to make it zero. But as soon as — as of now there is a shortage so the other applications are not affordable. See, as of now each household doesn’t have power backup. But in time to come when we have everything dependent on Internet of Things so there has to be uninterrupted power to each home down the villages. As of now even in cities also, nobody uses these backup power. So, shift will be there on industrial or backup power usage. They won’t be shifted by lithium-ion batteries.

Astha Sundarka — Niveshaay Investment Advisory — Analyst

Okay, 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 of Emkay Global for the closing comments.

Yogesh Malhotra — WholeTime Director & Chief Executive Officer

Thank you everyone for participating in this call. We are certain that by pursuing new opportunities, we will continue to expand in the future and achieve our clear vision for 2026. We hope that we have answered all your queries. In case of any unanswered queries, please feel free to reach out to our Investor Relations team. Thank you all once again.

Operator

[Operator Closing Remarks]