Gravita India Limited (GRAVITA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '20 Conference Call of Gravita India Limited hosted by Valorem Advisors. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal, CEO at Valorem Advisors. Thank you, and over to you, Mr. Sonpal.

Thank you. Good morning, everyone. A warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Gravita India Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the quarter ended -- fourth quarter ended of financial year 2020 as well as the complete financial year 2020. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decision. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management participating with us in today's earnings call. We have with us Mr. Yogesh Malhotra, CEO and Whole-time Director; Mr. Vijay Kumar Pareek, Executive Director; and Mr. Sunil Kansal, Chief Financial Officer. Without much delay, I request Mr. Yogesh Malhotra to give his opening remarks. Thank you, and over to you, sir.

Good morning, everyone. I thank you all for participating for the company's FY '20/Q4 FY '20 earnings conference call. As you may already know, Gravita India Limited is a leading global nonferrous secondary metal and one of India's largest secondary lead metal producing company. The company is engaged in recycling of used lead acid batteries, cable scrap and other lead scrap, aluminum scrap and plastic scrap. Gravita has 13 strategically located recycling facilities in Asia, Africa and Central America with a capacity of 121,000 metric tons per annum for lead, 19,000 metric tons per annum for aluminum and 26,000 metric tons per annum for plastic as of Q4 financial year '20. Gravita sells recycled products such as pure lead, lead alloys, lead powder, oxides, aluminum alloys, PP granules, PET flakes both domestically as well as to international customers. Further, the company has entered into back-to-back buying of scrap from battery recycling companies like Amara Raja Batteries, HBL Power Systems and selling of recycled goods to them. Gravita has a unique deep-rooted scrap collection network, which helps it to collect scrap globally at competitive prices, which is the biggest entry barrier in this business. Now I would like to summarize the key financials for the fourth quarter of financial year 2020. On consolidated basis, our revenue from operations for the quarter stood at INR 379 crores, which grew by 11.9% in a year-on-year basis. Our EBITDA in absolute terms for the quarter grew by 249% to INR 29 crores and EBITDA margins of 7.62% as against 3.42% in the same period last year. The net profit of the company stood at INR 13.5 crores with PAT margins of 3.56%. In Q4 financial year 2020, consolidated net profit increased year-on-year due to the efficient working of manufacturing facilities based in Africa. Additionally, sales volume also increased by 48% in lead and 34% in aluminum division. Our sales volume for Q4 financial year '20 in lead were 22,397 metric ton; in aluminum, it's 2,534 metric ton; and in plastics, 3,104 metric tons. For financial year 2020, on consolidated basis, our revenue from operations stood at INR 1,348 crores, up by 8.5% on a year-on-year basis. Absolute EBITDA reported a year-on-year growth of 65.9% to INR 97 crores, and EBITDA margins stood at 7.23% as against 4.73% in the same period last year. The net profit of the company stood at INR 37 crores with PAT earnings of 2.72%. During financial year 2020, operational efficiency, product and market mix and capacity optimization led to improved profit margins. The company also started lead recycling facility in Ghana and lead and aluminum recycling facilities in Tanzania during the year. For the financial year, the sales volume of lead division has increased by 19%, coupled with 18% increase in lead production. Additionally, there were 71% increase in sales volume of lead alloys and 77% increase in sales volume of value-added products, which resulted in better margins. Now coming to the COVID-19 impact and updates. In compliance with the directions issued by the government of India, the company had suspended operations at all the offices and manufacturing locations in India with effect from 21st March 2020 to ensure the safety of our employees and their families and to contain the spread of coronavirus. The company has granted permission to partially run our plants located at Jaipur, Rajasthan, Gandhidham, Gujarat and Chittoor. In view of the same, the company had resumed partial operations at its above-mentioned manufacturing units from 21st April 2020 and subsequently resumed its operations at all the manufacturing units situated in India from 4th of May, in accordance with the formal permission from concerned government authorities. The company has put in place requisite safety measures for employees, workers at all its plants, locations, in line with the guidelines, instructions, advisories already issued by central and state governments to prevent spread of COVID-19. It will simply -- it will comply with all the guidelines, instructions, advisories, which may be issued by the government from time to time to help fight the spread of coronavirus pandemic. The company is fully prepared to cater to the needs of the customer and to manage its production in an effective manner. The operations of the company are running smoothly, but it is very early to assess the future impact of COVID-19 with reasonable certainty. There is some impact on the company's performance in terms of volume due to the hindrance in the supply chain that has impacted the operations and execution of the business. With the opening of the domestic market, we expect business to improve gradually. Now in conclusion, the company plans to focus on strengthening its procurement network globally to avail increased volumes of local scrap at cheaper prices. Additionally, company is focusing on improving its profitability by increasing the percentage of value-added products in its sales mix, wherein the company enjoys higher margins. With this, I would like to open up the floor for questions. Thank you.

[Operator Instructions] First question comes from the line of Anurag Patil from Roha Asset Managers.

So sir, basically, there is a significant margin drop on Q-o-Q in Q4. So can you just explain what is the reason for it? And the margin outlook for this year, a ballpark figure, if you can provide. And the second question would be, in this COVID-related disruption has impacted our scrap collection from different geographies. So how these are impacted? Yes, these are my 2 questions.

From Q2 to Q4?

Q3 to Q4, sir.

Q3 to Q4, yes.

Basically, this reason of -- because we do some value-added products also, which -- where we enjoy better margins. So -- and this supply of the value-added products depend on orders or -- because this is part of the manufacturing -- same manufacturing process, same manufacturing process we can produce the alloys also and same manufacturing process we can produce the refiner. So whenever we have the better -- more orders for the value-added products, so then we supply. So then, in case -- in that case, we enjoy a better margin. So that happened in Q3 as compared to Q4, where slightly lesser number of value-added products were sold out. So -- but overall, we have increased -- for the year, we have increased the value-added products up to approximately 71%, which is a better margin for the full year in this year. So…

Also LME has gone down. So...

Yes. And just the second point for reduction in the margin as compared to the quarter 3 is because it depends on the selling prices, where it is linked with the LME of the lead. So whenever the market price is lower, because of some fixed cost which is not related to the LME, like logistic cost and the processing cost, so slightly, margins are lower in case of lower LME, lower lead prices. So that happened in Q4 because the lead prices got down by approximately 10% as compared to the previous quarter. So these are the 2 factors, which is -- because we are hedging fully, so we are not exposed to the metal price risk. But definitely, because of the fixed loss on account of logistics and processing cost, it is slightly lower margin.

And just to answer your question about the scrap collection systems. All our overseas scrap production yards were working throughout the pandemic, although the -- I mean, some of them were not fully operational. But the strength of Gravita is that we have our own yards in so many locations, and there is very minimal impact of COVID-19 on the scrap collection processes we had.

Okay. And sir, in terms of long term, what can be our sustainable margins?

Sustainable margin is in the range of 7% to 8%, blended of all the business.

Okay. And sir, one final question. I understand it will be difficult, but if you can provide a revenue trajection, a ballpark number, if possible.

So for the current year, we are expecting a minimum of 0% to 5% growth in the coming year. But of course, having said that, we believe that the impact of COVID-19 is yet to be fully assessed. So if in the future, there are other implications, we are not very sure about those things. But sitting now, we see 0% to 5% growth in the coming year.

0% to 5% volume growth.

Volume growth.

So price, we don't know. But definitely 0% to 5% volume growth should be the -- that is the minimum that we expect this year.

[Operator Instructions] We have a question from the line of [ Vikram Raina ] from -- he's an individual investor.

Sir, my question was basically to understand the impact of COVID on India as well as the rest of the world. And we know that has significantly impacted our volumes as well. So if could you just quantify the loss in volume terms, what we'd be looking at?

See, there are 2 aspects of this COVID-19 impact. One is the internal impact on our operational efficiencies and operational capacities. We are pretty confident that sitting where we are now and having facilities in so many countries, we are very minimally impacted by this COVID-19. In fact, we are currently also operational at almost full capacity in all of our facilities. The second impact is basically the demand impact. We cannot give you any ballpark figure on how the demand would happen. But mostly, our material is also going to diversified industries. So we are not dependent on one particular industry. So we believe that we'll be able to come out of this pandemic with very minimal impact. Not only this, we are also preferred customer -- or preferred vendor to a lot our customers, whether it is lead industry or aluminum industry or plastic industry. So even if there is an impact on those industries, we believe that it will not impact Gravita to certain extent.

Okay. And sir, I just have one more small bookkeeping question, if you can help me out with that. So if you look at the balance sheet, the long-term debt has kind of increased. So if you can just state the reason, like what is the increase behind that? And also what is the plan of bringing down the debt level? And what is the current cost of debt also?

So basically, there is a slightly increase in the long-term debt because of our 2 new plants being started in this year. Debt -- and the average cost of debt is approximately 10%.

Okay. And sir, are we having any plans to bring down the debt levels for the next 2 years or so?

Yes. Because this year, we are not doing any significant CapEx. So whatever cash will be generated in this year, that will 100% go to...

The reduction of debt.

The reduction of the debt. And further, we have just started 2 new plants in Africa. So the idea was to -- earlier, the material of those locations were earlier moving to India, which was consuming higher amount of working capital. So that is also reduced now that the scrap is being processed over there itself, which is a lower working capital cycle for us. So as soon as we have the lower working capital cycle and we reduce the import of scrap in India and we get the domestic scrap from India itself, so that will reduce the working capital cycle -- overall working capital cycle for the group. And we will be able to reduce this short-term debt also, which is mainly on account of this transit inventory, which is coming from various countries to India.

Next question comes from the line of Gokul Maheshwari from Awriga Capital.

Sir, you mentioned about the scrap collection in overseas markets, but if you could just give us color in terms of what's happening in India, especially in your industry. There is a lot unorganized competition. So can you give a sort of a sense of what's the situation on the ground with respect to your competition and whether actual scope for batteries and lead is there, so the unorganized trade and it is moving more towards the organized trade or vice versa, if that's the case?

As of now, Indian scenario or scrap collection, our source of domestic scrap is mainly from the institutional, which is mainly through auctions or directly through the institutions. So they are working perfectly and it has not impacted us. But when it comes to unorganized sector, this sector will change its shape and the policies which are coming in. That flow will also take place in future. So there are some policy called battery waste rules. So there was earlier policy of battery management and handling rules year 2010 amended. And now a new rule has been framed. The draft rule was placed for the public comments, and these were called BWR 2020 in month of February. So these new rules are covering all sort of batteries, and we foresee that this will bring a lot of unorganized scrap into the formal sector. So we foresee a silver lining in this area. But as of now, what we were collecting from institutions, that is not impacted.

So, in your case, you were actually taking it from, let's say, Amara Raja. Amara Raja then takes the ownership collecting it from the dealers and then passing it on to you. Is my understanding correct?

No. That is one area wherein we are collecting on behalf of Amara Raja from their dealers. But other than this, the institutional collection, let's say, banks, government bodies, which is being given auction from, IT companies, so a lot of, let's say, telecom sector, telecom towers, they do auction. And that is a formal way of scrap disposal.

Okay. In the past, we have seen during demonetization and initial period of GST, that the unorganized gets impacted more and then they come back quite soon. So in this scenario, are you seeing any changes where you are able to collect from the dealers or directly from these institutions but the unorganized is actually not able to?

Yes. So that -- we were also quite optimistic about that, that post-demonetization, post-GST, this will shift. But you would have seen a lot of people still involved in these sort of fake invoice transaction or still that channel is running parallelly. Rather, we would pay earlier the incentive was to the extent of VAT, which used to be 5%. Now it's GST, which is 18%. That incentive is even higher. So while government level, nothing is being done much to curb all those activities. So that is not coming until, as I mentioned that the new policy of BWR, wherein they are putting a lot of linkage from the scrap generation between board -- pollution board to GST authorities, so that may help if executed properly.

Okay. Can you please repeat the regulation which is just formed? Exact name of the regulation?

This is called the Battery Waste Rule 2020. So these draft rules were framed, and they were put for public comment and 60 days were extended another 30 days. And that date was over on 19th of May 2020. Now this draft rule will be planned to make further final rule by Ministry of Environment and Forest.

Next question comes from the line of Sreemant Dudhoria from UNIFI Capital.

Hello, can you hear me?

Yes, sir.

Yes. So first, a few questions on the quarter 4 numbers. The other income is a negative number in quarter 4 and the stand-alone number is a positive number. So what has led to this negative other income?

Okay. There is slightly -- out of the total interest cost, there is an exchange loss which is offsetting this interest income, which is coming from the SDR. So net is slightly negative on that. So we have a very small amount loss on account of exchange loss.

What is the quantum of the loss?

Approximately INR 50 lakhs.

INR 50 lakhs?

Yes.

Okay. So…

That is basically whatever liabilities and assets we have in the foreign currency. So we reset that. That difference is INR 50 lakhs for this quarter.

Yes. But we don't hedge, right? Because our kind of import of raw material and export is kind of naturally hedging. So on what account has this exchange loss come?

Because we buy the imported scrap in India and we export the finished lead. So there is a timing gap between this -- so due to this timing gap, there is always some foreign currency liabilities and assets in the books of accounts, which is resetted on a particular date. So that restatement is this amount. So this is not actual amount, but it will be just restatement of -- so which is setoff whenever there is an inventory which will be sold off and then -- so there is slightly a timing gap. Due to the timing gap, it is -- every time, there is a slightly minus or plus every quarter.

Okay. Okay. So isn't this accounted in the OCI? Because in OCI, also, there is a kind of -- there is accounting for the exchange of…

OCI is the restatement of the investments which we have done in the international market, so like we have subsidiaries. So OCI is the restatement of those assets and liabilities in the subsidiary. But the business part is coming in the other income or other expense, respectively.

Okay. Okay. Got it. And I just wanted to understand about this other expenses part. If I look at sequentially, our other expenses was quite low in quarter 3. And then it has come to the normalized level, what we report usually about 29 -- or INR 28 crores, INR 29 crores in quarter 4. So what really happened in quarter 3 on the other expenses where we reported just INR 9 crores of other expenses?

Yes. Because we are hedging the metal, and there is always a setoff of the operational profit from the hedging. Like if we have operational loss, so there is a gain from the LME, so where we do hedging contracts against that business transaction. So that hedging gain or loss, which is the setoff of the business transaction, it is coming under the other income or other expense. So in the quarter 3, it was a big gain, approximately INR 13 crores, on account of -- so which reduced the other expense. And in quarter 4, it is approximately INR 7 crores that we have to pay for the -- as a setoff of the operational profit. So the operational profit was in the revenue part, and the setoff was in the other expense. This is the accounting. So this is just -- there was impact of heavy fluctuation in the other expense. But when you see the EBITDA margin, it is quite stable.

Okay. Okay. Got it. So if I also look at the depreciation number this quarter, there is a decline sequentially. So is there any change in the depreciation policy as such? Because there's a decline of as much as from INR 49 crores to INR 45 crores, about INR 4 crores sequential kind of decline. Any change in the policy of depreciation?

It has approximately declined from previous quarter from INR 4.9 crores to INR 4.5 crores, right?

Yes. Sorry, 4 point -- I was saying in million, sorry.

Okay. Okay. So this is because of maybe in quarter 3, there will be some asset -- discarding of some old assets, which we're not able to use. So that will be there, but there is nothing -- no change in the -- so I think the Cameroon -- Cameroon where we have some assets which was discarded in quarter 3. So that was part of the depreciation and amortization expense, so which is not there in the quarter 4. Otherwise, there is no change in terms of depreciation. Other than normal depreciation, there is whatever -- there is a discarding of assets, old assets, which is not being used or not able to use. So that is part of the depreciation.

Okay. Got it. So we have not opted the revised tax rate. We are continuing with the older one. And there is a kind of a write-back of tax this quarter. So just wanted to know what has led to this tax reversal, deferred tax credit? And what is the sustainable tax rate going forward?

So basically, first question is related to the -- why we have not shifted to the new regime. Because of the -- we are into the MAT system, so approximately INR 12 crores is the MAT asset we have. So whenever we shift to the new regime, this INR 12 crores is to be -- it cannot be claimed back. So till the time we are in MAT, so we should not be -- economically, we should not be shifting to the new regime. So we should be continuing, at least 4 to 5 years should be the period where we should be in the MAT because of some incentives. Like we are also -- the second question is related to the lower or 0 tax in this quarter. So that is because of we have taken certain tax exemptions in quarter 4, where our Chittoor unit is -- we have taken some legal opinion on this. So Chittoor is eligible for ATI reduction for having the infrastructure development for waste management and recycling. So we have -- we are eligible to that. And we have claimed that entire amount of approximately INR 4 crores in quarter 4.

Sorry. So this INR 4 crores is just from the Chittoor plant, the incentive that you're getting?

Yes. In terms of Chittoor plant, which is not taxable. So earlier, we were just making that tax provision. But we have -- when we have got the entire clearance of all these eligibility criteria for ATI reduction, so we are not -- we have considered that in Q4.

Okay. So the -- so this INR 4 crores is specifically for the entire FY '20? Or it's for some time period?

It's for entire FY '20, yes.

For entire FY '20. And going forward because you will keep getting the incentive at the Chittoor plant, right?

Yes. up to 10 years, next 10 years.

Up to 10 years. So on a blended basis, what would be the -- your tax rate?

So blended basis, we should be close to 23%, which we have calculated for the upcoming years.

About 23%, okay. So now after you -- coming up to the business part, after the plant got commissioned, as we are trying to ramp up the production level, where are we on the utilization level in Jaipur and Chittoor in India? And how is the situation in Ghana and Tanzania?

Okay. So Ghana, we did approximately 70% capital utilization in lead in FY '19 -- FY '19-'20 against -- and quarter 4 was approximately 98%. And if we talk about Tanzania, Tanzania lead is close to -- for the full year, it is 92%, whereas quarter 4 was approximately 110%. And our Tanzania aluminum is also approximately -- for the full year, it was approximately 50%, and for quarter 4, it was approximately 70%.

As against the exit run rate in quarter 4, where are the utilizations currently?

So total capacity utilization for the year?

No, no. As we speak, in the month of, say, May and June, what is the utilization level?

For this year, you are talking about? For the current year?

Yes, for the current period, now, as we speak.

Okay. So for the current year, it is approximately, you can say, Ghana is approximately 60%, 65%. And Tanzania is approximately 70% to 80%.

So is Ghana right now running at 55%, 60%, 65%?

65%, yes.

65%. Right now, it's 65%?

Yes.

And Tanzania, you said current…

We have increased some capacity also in Ghana in the last quarter only. So considering that, it is 65%, that capacity has slightly increased.

So you had kind of 2 phases of Ghana expansion, right, when it got commissioned?

So earlier, there were 2 furnaces of 6,000 each. So now 100 -- third furnace is also implemented with capacity of 3,000 tonnes?

Yes.

3,000 tonnes. It's total capacity is now 15,000 tonnes.

15,000 tonnes. So you're seeing 65% on the 15,000-tonne capacity?

15,000 tonnes, yes.

Okay. How is the situation in Jaipur and Chittoor?

Jaipur is, I think, approximately 50%. So earlier, it used to be 65%, 70%, Jaipur and Chittoor. But currently, it is 50%, 55%.

So both at 50%?

55%, approximately.

55%, both at 55%.

80% from the earlier levels.

80% of the earlier levels, yes. So this is just because of some labor issues which is -- which we expect to be resolved shortly considering the situation presently. So we should be getting some more labors, and so the situation will be better in upcoming quarters.

Okay. Okay. So supply is not an -- demand is not an issue.

It is not an issue. Demand is not an issue. So we have just started all the supplies to all the customers in India also. Luminous has also started and the Amara Raja has also started. So supplies -- there is no issues in demand and orders.

Okay. Got it. Now if I look at the segmental performance in quarter 4, the plastic is back in green this quarter.

Yes, slightly.

Yes, yes. It's slightly, just breaking even. And also the aluminum has posted -- division has posted good EBIT profitability. So how sustainable is the performance of both these divisions?

So aluminum will be posting -- it will maintain these margins because now we have reduced our production in India. We have started processing there itself overseas, mainly in Tanzania, partially in Mozambique, too. So -- and we are exporting those goods directly to Chinese market and other Far East markets. So this additional saving of bringing this scrap to India and then exporting, so that is sustainable, and this is carrying in the current year as well.

The aluminum division EBIT margin is roughly about 15%, 1-5. So should I assume there is an element of mismatch between the scrap and the realization also, which is contributing to this kind of a high margin, 15%?

So there's a logistic cost gain over there, and it will maintain to that 10% to 12% numbers.

10% to 12%?

Yes.

Okay. And how about the plastic division?

So plastics, in fact, is going through a very turbulent phase right now. The overall prices of polymers have gone down drastically. But fortunately, the plastic, the recycling space is not totally dependent on the primary market. But at the same time, our major customer in plastic is the U.S., where we are seeing some slowdown in demand overall. But we'll probably, for the next quarter -- next 2 quarters, we're thinking the same numbers, which will probably slowly increase or improve in the coming quarters. I mean for the next 2 quarters, we don't see any dramatic change in the numbers. But after that, we seen them up.

So it will just continue to be kind of breaking even. Should that be the number? Or it can get back?

Yes, maybe earlier. For the next 2 quarters at least, unless something -- the demand improves there. The overall demand for plastic has gone down drastically in the U.S. So -- but we are still keeping it at a breakeven level, and we are -- we believe that in the next few quarters also, the same number will continue, and which will improve slightly in the next 2 quarters after that.

Quarter 3 and quarter 4.

Quarter 3 and quarter 4.

Okay. Okay. Now when you compare -- across your business segments, when you supply the finished goods, recycled goods to your customers, that is more organized. But the collection of scrap is a bit kind of unorganized. So how the current pandemic situation is impacting on the scrap collection and on the scrap prices for aluminum and for lead and plastics?

I think the demand has, to some extent, gone down. But at the same time, the supply has also gone down. So there is some correlation. And we cannot say that the supply side is adversely affected because the demand side is also equally adversely affected. But we -- if we see this quarter -- and because the scrap collection for Gravita is happening in geographically diverse locations, so we are compensating from one -- if there is some problem in one location, then we are getting it compensated from the other locations because we are diversified in our procurement. So overall, there is no impact on Gravita in terms of procurement, so far, even though it's unorganized sector. Because in Africa, there is hardly any shutdown that has taken place. In India, as already mentioned, that we are, in any case, not into the unorganized sector. We are in the organized sector only in terms of scrap procurement. So overall, it has not impacted us as adversely as it has affected probably others.

All right. So that's on the supply. But on the pricing, given that the production level, not just for you but for other players in India and also globally, are at a lower level, the availability of scrap should be more. So is that kind of impacting the scrap prices?

No. As I mentioned, that it has impacted both the supply side as well as the demand side. So there is not adverse or favorable impact in terms of the prices because the demand has also gone down, whereas even the supply has gone down in the same proportion. So we don't see any favorable impact on pricing also. There are a few buyers, so the prices have not gone up for the scrap is not available because people have not started operations of recycling facilities. Although we have started, most of our peers, competitors, have not yet started operations to the, I mean, full extent. So there is a balance in supply and demand right now.

Okay. Right. Okay. Okay. So a couple of more questions on the financials. If I look at the employee cost, there is a volatility every quarter. If I start from the quarter 1 of '20, on a consol basis, it was about INR 14.5 crores, then INR 15.5 crores, then INR 19 crores. Then about INR 17.8 crores this quarter. So what leads to this kind of volatility in the employee expenses?

I think it probably has to do with the variable pay package that we offer our employees. So there is incentives for all the employees from operations, sales, marketing, procurement. So if they achieve their targets, they get some variable pay. So that impacts the change in every quarter in terms of employee benefits.

Okay. The variable payout happens every quarter?

Yes, every quarter.

For the operational part, it is every quarter. For the management, it is on a yearly basis.

But we take provisions every quarter for those based on the numbers that we do.

[Operator Instructions] Next question comes from the line of [ Harsh Nair ], he's an individual investor.

Sir, primarily my questions were pertaining to the value-added products. So what is our share of the total sales of lead? And if you could help me how that number has moved on from quarter-on-quarter and year-on-year?

Yes. If you see the value-added products and alloys, we have grown on a year-to-year basis by 71% in lead alloys and 77% to the value-added products. And out of our total production as compared to last year, the contribution of value-added products and alloys were 25%, which has increased to 36% this year. And the growth of this particular segment on a quarter-to-quarter basis, if you see in quarter 4 was that has been 25% -- 35% this year vis-à-vis versus 26% of the last year.

Okay. Okay. Sure, fine. And sir, just a follow-up question on bookkeeping side. We have an exceptional item of INR 5.2 crores received. So can you please explain that thing? Is it onetime adjustment or will that be recurring?

Yes. it is one time, as we have already circulated to the exchanges. It is -- basically, we have discarded one of the capacity which was lying idle from last 2 years in Jammu. So that -- the investment is discarded, and we got some liquidity on account of that. And the differential of the book value and the amount we got, so we have booked as extraordinary item -- exceptional item in the books of accounts. So that's the onetime loss we have there.

Next question comes from the line of Vaibhav from HNI Investment.

Sir, on the hedging gain and loss, just leaving the accounting aside, just want to understand the basic thing. So if we remove the hedging income and loss, which either goes in other income or in other expenses, if we remove that line from the financials, what financials will show is that what profits and losses you would have made if there was no hedging at all. Is that correct?

Okay. Yes, definitely because whatever hedging setoff is there, so that is a setoff of the operational gain or loss. So if we remove that part, it is sometimes gain. So it is -- whatever expense, like quarter 4, we have incurred approximately INR 7 crores on account of hedging loss. So definitely, that would have been -- if you remove -- if we are not doing hedging, that would have been additional gain on account of hedging -- on account of the operational business. So it is always a setoff. So sometimes we lose, sometimes we gain. But hedging is a setoff of that gain or loss. So we are neutral -- now we are neutral to the gain or loss on account of the metal prices.

And what is the hedging cost generally? And where it gets accounted for hedging cost?

Hedging cost is accounted for in the same like hedging loss, whatever gain or loss. So it is setoff from that only. So it is approximately very minimal, approximately $3 per tonne, approximately -- total for the year, it is approximately INR 40 lakhs, INR 45 lakhs.

Sir, as a percentage of the LME, what is generally the hedging cost?

The percentage of LME is approximately $3 on an LME of around 2,000, approximately 1,900…

0.03%.

0.03%, right.

0.03% only. And that's for the whole year? Or that's for a quarter or for a month? What -- how is the….

For a quarter, for a quarter.

For a quarter, it's just 0.03%. That's it.

Yes.

Okay. Okay. Got it. That's it from my side. Yes.

$3 on 19...

$1,700.

$1,700. $3 on $1,700.

0.15%.

0.15% per quarter. So approximately, you can say, 0.6% for the year.

Next question comes from the line of [ Pallavi Jain ], she's an individual investor.

Sir, I wanted to know the status of the expansion at the Mundra facility? And what are we going to manufacture over there?

So Mundra, we are planning to start the refining and alloying along wit some value-added products. So we have established the machineries and all. But we were waiting for the license to come from the Ministry of Environment and Forest. Because of this pandemic, it is slightly delayed, and we are expecting by July end, we could be -- next 6 months, we should be starting the Mundra. But by that time, we are fully operational at Gandhidham location. Whatever we are -- so it was just shifting from Gandhidham location to Mundra, it was not additional manufacturing. So that we'll be starting next 6 months.

Okay. And sir, I just had another question. And what utilization levels are we operating in each of the business segments across all the plants in India versus overseas on an average?

So on an average, for the year, if we talk, it is approximately 76% in lead, 30% in aluminum and 30% in plastics. So lead has increased from last 2, 3 years. Lead has increased from 50% to 75% gradually last 2, 3 years. And because aluminum and plastic are a bit new, plastic is very new, so we are still improving the capital utilization in plastic and aluminum in coming years.

Next question comes from the line of Sreemant Dudhoria from UNIFI Capital.

If I look at the gross margin this quarter and compare it with the previous sequential previous quarter, that has improved quite well from about 300 basis points. And what has actually led to this improvement in gross margin?

Increasing value-added products and investment…

So you're talking about only aluminum or only lead or you're talking about the total?

So the total has increased by -- from 16.3% to 20%. And even if I look at the segmental EBIT margin, that has also kind of improved for aluminum and plastic.

So basically, 2 reasons. One is, of course, because we have fully optimized the Tanzania plant, which is contributing very good margins. So overall, this is the main factor for improvement in the margin. And the second is, again, Tanzania but aluminum division, where we have improved the margins as against the India business, as Naveen Ji told, that we have reduced the India business in aluminum, and which is replaced by the better margin business in Tanzania. And so -- and the volume in Mozambique also increased. So that overall aluminum business has shown a very good margin. So that is improving the overall gross margin for the company.

So this is in spite of the lead margin falling? Because last quarter, your lead margin -- EBIT margin on the lead, which was quite strong, was 11% EBIT margin. And this quarter, it has come down to 7%.

So the quarter 3 was approximately -- because quarter 3 was -- there were some more value-added products, as we discussed. So that was the reason for additional margin in quarter 3. And another reason we discussed is that LME was also higher in quarter 3. Quarter 3, it was approximately 2,028, the average of quarter 3, whereas quarter 4 was 1,847. So this 10% fall in the LME -- lead LME, it has also slightly reduced the margin.

As there are no further questions from the participants, I would like to hand the conference back to Mr. Naveen. Over to you, sir.

Thank you, everyone, for joining today's call. In case you have any query, you can call us any time. And we are sure this company is fully prepared to meet the new normal situation across all its operation, and we wish you all to stay healthy and stay safe. Thanking you once again.

Thank you. On behalf of Gravita India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you all.