Gravita India Limited (GRAVITA) Earnings Call Transcript & Summary

So I think -- sorry for this inconvenience and this unprofessional thing from Mr. [ Devi ], and also some thing from our side. But nonetheless good evening to all. On behalf of Motilal Oswal and all the investor fraternity, I'm very much thankful for the time of the top management of Gravita. From the Gravita, we have Sunil bhai from the finance function. We have Yogesh Malhotra. We have Naveen, and we have Mr. Vijay from the business side. I think the company is almost 30 years into the business. For the quarter, the business has grown by 16%. Absolute EBITDA has grown by 45%, and PAT has grown at a far higher number. I think -- my team is just -- so I think the company as a market leader in this lead recycling, and -- the company has a very strong dominance in this business and is way ahead of others. I think the way the company has built a building block and the team is entirely ready to deliver a very strong growth for next 2 to 3 years. So with this as a backdrop, what I will do is that I will request Yogesh bhai, Yogesh Malhotra, to spend some time and share the perspective on the quarterly trends, how the business environment looks and how the team is positioned to deliver and -- for next 2 to 3 years. So over to you. Sunil bhai, I would also request when and where your inputs are required, you can share and then we will throw the floor open for Q&A. [ Gaurav ] and [ Rajesh ], can you just touch base with [ Juhi ]. They will just make you the host, and you can remove Mr. Devi.

You want to wait for 1 minute, just make you the host, wait for 1 minute and then remove Mr. Devi.

Yes, yes. I'll do that. I'll do that.

Mr. Devi. Hello. Hello.

[ Kenan ], can I suggest something? If you can't remove Mr. Devi, can we all just log off and then log in again?

Kenan?

Yes. Yes.

You can take over the host, but you've to enter the password. Go to more, and you've to -- you can claim host, but they're asking for the password. You know what is the host key? I think he's out now. We can start.

Yes. So I think at the cost of repetition, I'm extremely sorry for this thing. I'm extremely sorry. From Gravita, we have Yogesh bhai; we have Naveen, we have Vijay from the business side. We have Sunil from the finance function. I think they are in the business from last 3 decades, have a pan-India recycling plants, understand the subject matter far ahead of others, lots of people on the unorganized side with a weaker balance sheet. I think for the 4Q, they have done a headline business growth of 16%, EBITDA growth of 45%, PAT growth of 60%. With this as a backdrop, Yogesh ji, can you give us a 5, 10-minute preface as to how the business trajectory is keeping March '21 as a base year behind us, how you foresee the next 2 to 3 years business outlook. Over to you, Yogesh bhai.

Yes, thank you, Kenan. Thanks a lot. So am I audible?

Yes, yes, perfectly, yes.

So just -- I mean, because there are quite a few people here, let me just give you a brief about what Gravita is. I will just touch base on what we are, what has the journey been? And then I'll probably touch upon where we are currently. And eventually, where the next few years' plan is. Is that okay?

Yes, perfect, perfect.

Yes. So Gravita, as Kenan also mentioned, that it is incorporated in 1992 in Jaipur. It's one of India's leading nonferrous metal recyclers and India's largest secondary lead metal producing company. We recycle lead acid batteries, lead scrap, aluminum scrap and plastic scrap at various locations across globe. So it's not present only in India, but it is also present outside India as well. In addition, we also give turnkey solutions to recycling industry and have supplied more than 60 recycling projects across globe. So after setting up the first plant in India in Jaipur in 1992, we set up our first overseas plant in 2001 in Sri Lanka in 2,000 -- I mean in 2001. After the success of this plant, we -- because -- as probably some of you know that battery movement, lead acid battery movement is restricted. So we decided to expand our operation base outside India and outside Asia as well by setting up our first lead recycling plant in Africa in Ghana in the year 2006. Followed by this, we set up our various other plants in Africa, in Senegal, Mozambique the following year. We went public in 2010 when we got listed both in BSE and NSE. Looking at the synergies in scrap metals sourcing, which we believe is the biggest barrier in the recycling industry, we diversified business operations and started aluminum and plastic recycling also in year 2015 and 2016, respectively by setting up recycling plant in Nicaragua and aluminum plant in India. So this is what we have done. I mean, if you talk about today, we have 13 strategically located recycling facilities in Asia, Africa and Central America with a total combined installed capacity of more than 160,000 metric ton. Our global operations enable us to cater to all major markets in U.S., Europe, Asia and our pan-India operations gives us an edge in servicing the industry efficiently in India. Not only this, Gravita has a unique, deep rooted, extensive global scrap collection network spread across 4 continents and over 20 countries, which help us collect scrap globally at very competitive prices. We have back-to-back hedging mechanism in place because of which our margins remain intact even in fluctuating commodity markets. So that basically is where we are now. If we talk about going to the future, we have a -- we are -- we believe that we are in a -- we are just sitting at an opportunity where we can grow, I mean, give this growth a boost in the coming 3, 4 years. And we have a vision for 2025, where we believe that we can grow at more than 35% bottom line growth, more than 25% growth in the top line year-on-year for the next 4, 5 years. We believe that the lead business, which currently contributes to around 90% of the total business would continue to grow. But at the same time, we would have more than 25% revenue coming from businesses other than the lead business. And why we believe that where we are currently and how can we go further? I think there are 3, 4 major factors that will help us reach those numbers. Number one is, as I mentioned, that we started lead and plastic recycling 3, 4 years back. Now we have established those businesses pretty well, and we believe that there is a huge scope of expansion in these 2, 3 businesses. We have had a very good year last year in aluminum, and we believe that we can grow multifolds in these businesses in coming 3, 4 years. Not only this, we also are looking at other opportunities, new verticals, lithium-ion batteries, e-waste, rubber recycling, copper recycling. These are the other areas which can give us boost in the coming few years because we are not a one-product company. We are multilocational, multisegment company, which can grow in all recycling segments. Apart from that, we started increasing -- I mean, till few years back, we were only a metal recycling company where we were giving the base metal products to our buyers. But now what we have done is we have started giving value-added products. So this ratio of value-added products has increased and come to around 40% currently. And we believe that we can increase this to around 70% to 80% in the coming few years. So this will give us a boost in the bottom line going forward. But one of the major boosts that is going to come is going to come from change in the way recycling framework -- policy framework has changed in India. What has happened is that the government is focusing too much on the recycling frameworks, and they have put the onus of collecting the scrap from the market on the OEMs. So what is happening is all the battery manufacturers are now forced to take back the battery that goes into the market. Earlier, these were taken by the unorganized sector. But more and more, these products are now coming to the organized sector. And these OEMs are looking for partners who can help them -- who can help collect the scrap from the market, recycle it and give them the finished products in lieu of those batteries. And because we are available pan-India, we have our own operational plants in North, South, West. So our pan-India operations makes us -- I mean, our experience in recycling, organized -- we are organized people. We have a very big and very competitive management team. Not only that, we -- even the middle management is huge. We have around 150 professionals working for us. So all these things gives us a benefit in servicing this industry. So with this happening, I'll just give you a brief. Earlier we were importing scrap into India and servicing the industry in India. But now with this scrap available in India itself, we will reduce a lot of logistics costs as well as a lot of working capital, which takes a lot of time from -- for importing this scrap into India. So this will give us a bottom line boost. Not only this, the scrap that we used to collect outside will now get processed outside India itself. So there also, the volume growth will be there. So all these 4, 5 factors, as I mentioned, that expansion in other segments, taking up new segments, exploiting the new scrap policies of India and focusing on the value-added products kind of gives us a boost going forward. And these results were very clear last year also when we grew by around 55% at the bottom line level, even after the COVID effects. So most of this growth came in the last 3 quarters. I think the final quarter, fourth quarter, we did phenomenally well where we did around INR 438 crores in revenues and around INR 23 crores in profit. So that is basically what Gravita is and where we want to grow. I have with me Mr. Naveen, Mr. Sunil Kansal and Vijay Pareekh, and we are ready to take any questions that you might have for us. Thank you.

Thanks a lot for your preface. [Operator Instructions] Over to others for questions.

Sir, one question from my side sir. Since -- [ Rajeev ] here sir. Sir you said with respect to your 90% of revenues from currently from lead, and you want to grow total revenue collection. So you want to -- by next 3, 4 years down the line, you wanted to reduce dependency on it and diversify into, which gives around 25% from the other segments. So just can you have some granularity with respect to what would be the different new sectors like aluminum and segments of your business? Sorry. And at the same time, can you pass on the -- give us the breakup with respect to EBITDA and the PAT also, if you have some kind of working back of your mind? And second would be, sir, what will be the CapEx required to achieve these things. Next, I will follow-up once if there's no other participants. Just 2 questions from my side right now.

Sunil ji, can you share the numbers with him?

Yes, sure. Yes. So basically, if we talk about the 2 -- other 2 segments, which we have is, other than lead is aluminum and the plastic division. So plastic is relatively new. So we have approximately 7% to 8% kind of EBITDA margins for plastics. And -- but because we have recently started aluminum business in overseas also, there we enjoy better margins. So aluminum, we enjoy approximately 11% to 12% kind of EBITDA margins, which is also growing with the more volumes, along with more business outside India where we collect the scrap at very grassroot level and process that scrap there itself and export it from those countries to different countries. So we are growing in the existing segment also. That is one part of strategy to reduce the dependency on the lead business. And in addition to that, there will be some new verticals also, like this year, we are going to start some rubber recycling. And we also are working on copper recycling and e-waste recycling and lithium-ion recycling. So these 3 products will be -- we will bring some business in these 3 segments also in future. You talked about the CapEx part also. So for the existing business, we have approximately CapEx plan of approximately INR 50 crores to INR 60 crores every year, almost for next 2 to 3 years. And if we are bringing some new vertical like copper recycling or lithium-ion, then it depends on the size of business. So it is -- for the new segments, the CapEx will be slightly higher. It should be in the range of, say, INR 100 crores, INR 100 crores to INR 110 crores.

Okay. Okay. And sir, how the CapEx will be funded, it will be mostly through internal accrual only or how?

Both internal accrual and...

Yes. CapEx will be funded from -- mainly from the internal accruals as this year onwards, we are more on the cash positive as Yogesh explained that we are -- we have reduced the imported scraps in India, and we are more dependent on the domestic scrap, which consumes lower working capital cycle. So the short-term debt is going to reduce by reduced working capital cycle. And so we will be having slightly debt on the long-term part, where we can have more business verticals in future. So partly, it will be funded from the -- majorly it will be funded from the internal accruals. But yes, some debt will be here.

Sir, just one more question from my side, sir. Just on the same part. You said with respect to your INR 100 crore CapEx would be, that's for your copper or either lithium-ion, that's the new vertical. So that is mostly with respect to greenfield entirely? Or you have existing land bank you've have identified near to the source area? And secondly, are these assets more fungible with respect to your other base metals? Or is this purely entirely the assets has to be dedicated ones? Just can you throw light on that side?

So basically, no greenfield projects in the sense that wherever we will put up these new segments, we would have an existing facility, which -- where we will be recycling either lead or aluminum or plastics. So generally, we would increase the segment in the same facilities itself. So probably, in all probability, we would be doing copper or lithium-ion battery recycling in one of our existing units either -- in India first. That is how we do it. And all the scrap, the same collection pattern is there. So you don't have to be closer to the scrap because scrap comes from various areas. So you have to have a hub, especially in terms of lithium-ion or copper recycling where the scale of the CapEx is going to be higher.

So we have next question from [ Vaibhav ] and then from [ Ramila ].

Can you hear me?

Yes, yes. Perfectly.

Yes. So just 2 questions on my side. So first one is that during the introductory remarks, you mentioned that there has been a change in the government policy and now the OEMs are basically responsible for scrap collection. So maybe if you can highlight when did this change actually happen? And is it like -- is there a tactical implementation on ground of this change? Or it is -- or there are execution challenges in implementing this law. This is my first question. And secondly, on the basics of our business -- so you -- again, you have mentioned earlier that there is a movement restriction on the battery. And that's why we have international location of the plants. So is at the moment, is this a restriction also applies to smelter lead and that's why we are -- or is it that it is just on the battery and we can smelt it outside and then bring it here and then recycle it here in India. So that would be both of these questions, if you can answer them.

Yes. So to answer your second question, as you mentioned, that smelted lead is not a problem. Only battery scrap is a problem. So you cannot import battery scrap, but you can import secondary lead.

You don't require license for importing. Okay.

Lead, no. And to answer your first question, I think Naveen Sharma, our SBU Head aluminum and our commercial head, will answer your question for that. Naveen over to you.

Yes. So when this part of collection policy, earlier rule was BMHR. Now the new rule is being framed under BWMR, battery waste management rule , wherein they will add other types of battery, mainly E7 batteries too with that part. And this will -- there is some EPR restrictions are also being put into that. And government is also planning to put penalties to the manufacturers, if they do not comply to the EPR norms specified in the new rule. So since in the old rule, there was no such penalty, it was more of a regulation, execution part was poor. So we foresee that there will be certainly improvement, and this improvement has started coming in last 1 year. And in time to come, this will be implemented faster.

So we have seen the impact of this. And the local scrap collection has improved, I mean, multiple folds for us in the past year.

We have next question from [ Yasmin ] and then maybe Ramila. Yasmin, over to you.

Yes. I have a couple of questions. One is, you mentioned that, I mean, you're switching into lithium-ion and other kinds of products, but your starting comment goes within the same segment, that is lead itself, you're going to see growth opportunities, like 15%, 20%. So can you throw more light in terms of where these opportunities lie? And who are your competitors? And first question is that. And second question is, in terms of, if you are seeing a lot of opportunities on batteries itself, why would you want to get into other segments? And what are the capabilities required, who will be your competitors?

So to answer your first question, I think in lead itself, there is huge opportunities. As Naveen also mentioned earlier, I also mentioned that earlier, the local lead scrap was not available to the organic sector because it was going to the unorganized sector mostly. Now with this enforcement of battery management rules on the OEMs, this scrap is being made available to recyclers like us. So that is where we -- because in this case, mostly scrap is an issue to grow. So once we have this local scrap available to us, I think we can expand in India. We can increase our capacities in India because around 30% scrap is only available to the organized sector so far. Now we believe that slowly in the coming 4, 5 years, it will go up to around 70% -- 70%, 80%. So that scrap itself is going to make a huge difference to our capacities in India. And because now the Indian capacities will utilize more and more Indian scrap, the scrap which we were importing earlier to India will be consumed outside India, where we will increase the capacities as well. So lead itself is going to grow. And your question -- second question was about?

Lithium-ion. Should I take up this?

Yes, please take it.

So on lithium-ion part, see, as we have expansion scope in lead, as Yogesh told, the local scrap will be available. Similarly, as soon the e-vehicles will start coming, so that is, the battery life is even higher, around 6 to 7 years. So we foresee in year 2026 or '27, there will be enough availability of lithium-ion battery scrap. As of now, only the mobile or your laptop batteries are available. So on that part, we have started working because this is again the similar line, where we are processing auto batteries. So in terms of technology, some part is already, when you talk about the collection system and dismantling, which is similar to our existing line. And when it comes to processing, that process there is a bit different. And we are already in talk with some of the technology providers in that side. So that also gives synergy to our existing recycling network and process.

And to add on to that, I mean, if you look at the buying side or the procurement side, there are synergies because the scrap is going to come from the same kind of system. So we already have our own procurement network. So the scrap is going to come from same sector. At the same time, we have long-term relationship with the OEMs who are manufacturing batteries. So on the sales side, also, the material is going to go to the same kind of OEMs. So there also, we have synergies. And we are one of the very few people who are in the organized sector in recycling business. So we believe -- and we've been working with them, making value-added products with making customized products for these customers. So we have very good relationship with them also. So as and when this opportunity will come, we definitely have advantage over others.

Sir, could you name which OEMs you've already started to work with or you're working? And post this new rule, where you're seeing traction?

So Vijay, can you answer these questions about lead?

Yes. Yes, we are working with Amara Raja Batteries since last more than 3 years on the same concept. And as rightly said by Naveen and Yogesh, the compliance is become the need of hour. Government of India is also forcing a lot of focus on environment compliances. And all the battery companies, even those are the good companies which were not following these guidelines, have been told very strictly to follow these guidelines. So we are already working with Amara Raja Batteries. We are also working with HBL Batteries, which is based in Hyderabad. And very soon, we are going to conclude the contract with one of the North Indian battery manufacturing company.

And that is only on the supplier side. On the procurement side also, Vijay, can you just brief about people with whom we have tie-ups like Tata and all.

These are the companies where we are going to battery scrap. But as far as OEM, our association with OEMs, we are having long-term contracts with Tata Batteries, then HBL Batteries, Amara Raja Batteries, Luminous. And discussions are going on with Exide also for getting their scrap on pan-India basis as well as establishing a contract for supply of the lead. But one more thing I would like to add into the space, what Yogesh has explained, is that Gravita is the company who has the widest product range among the whole lead manufacturing companies globally. I'm using the word globally because we are catering the market of the lead-acid batteries, we are catering the market of chemicals and pigments. We are catering the market of revision shading, we are catering the market of the stable manufacturing companies. So Gravita is the only company who has entire product range in their fold. The only thing is that we are expanding in India, we are expanding in Africa. So automatically, it gives a great sense of sustainability into the entire process.

We have next question from [ Akash Mittal ].

So I have a couple of questions. So first of all, as I was going through the -- I'm a new investor to your company, and I am an individual investor. So as I was going through some of the reports, I found you have a very high focus towards the auto industry, auto. But I see an equal opportunity in the solar storage as well because there are -- solar storages batteries typically have a life cycle of 3 to 4 years. And given the solar ramp-up we had over the last 2, 3 years, I believe next year and if not next year then 2023, you will have a significant amount of solar battery coming into the market for recycling. So have you figured out or have you thought of those plans? Or is it predominantly going to be only lead -- sorry, auto batteries?

No, no. We, in fact, currently, also we are recycling both solar batteries also as well as automotive batteries also. So these have been coming into the market for the past 4, 5 years also. So I mean -- and we are regularly recycling both these kind of batteries automotive as well as -- yes, please.

In fact, all these battery companies are making auto batteries as well as solar batteries. If you take the example of Amara Raja, they are making the auto batteries and solar batteries. If you take the example of [Audio Gap], they are making solar batteries. If you take the [Audio Gap], they are also [Audio Gap] and industrial batteries.

Okay, sir. So that means you are catering to both. So what is the capacity utilization you have, if I understand, sorry.

So the current capacity utilization is around 65% to 70%.

In India or globally?

Globally, globally.

And in India, India units?

I think it will be a little higher.

Yes, India was approximately 75%.

75%. So you don't need a significant CapEx coming up for that in that case.

In India, yes, we have. No, see, I'll explain it to you. In our case, because we -- as I mentioned, that we also manufacture and design recycling equipments. We give turnkey solutions also. So for us, cost of equipment is not as high. Generally, it's the scrap that dictates where we put up capacities and how much capacity we put up in those places. So we are restricted by scrap procurement and not by capacities. We can increase capacities at very little cost. But scrap collection is an issue. So generally, we are -- especially in overseas locations, we go for a higher capacity so that we do not lose out on opportunity cost because those benefits are higher than the CapEx itself.

Am I audible?

Yes.

I have -- a couple of my questions have been already answered. I have just a couple of more to go. What is the outlook for the sales and EBITDA growth in FY '22 and '23?

So as we mentioned that we are planning to grow at around more than 25% year-on-year for the next 2, 3 years, that is the top line growth. And on a profitability level, we want -- we believe that we would grow at more than that, around 35% growth.

So year-on-year, you're expecting 25% and 35%.

Plus. I mean, more than 35% and 25%.

Okay. And what degree of operating leverage we can see in the next couple of years?

So -- yes, Sunil ji.

Yes. So operating leverage, because as Yogesh mentioned that we are having more scrap from Indian market as compared to what it was earlier, so there the working capital cycle is lower as compared to and -- as compared to the imported scrap. So -- and also the business now we are looking for is like tie-ups with the OEMs, so where we get the scrap from them, and we need to supply them the lead. So there is no cash outflow for the -- so it is always like trade payables for us. And their inventory is lying with us. So we just need to convert into the metal and supply to them. So there is no risk on the metal price also, and there is no working capital involved also. So definitely, the working capital cycle will be lower, and we will be more cash positive -- cash flow positive for the business we are having in India -- additional business for the domestic market in India.

Okay. Just 1 question, if I could push in. How much market share do we have in India and globally?

Yes. India market share, we have close to 10%.

Okay. And globally?

Globally, it will be very less, maybe 1% or so. Because China is a very big market, and we don't have much presence in China.

[ Hardik ], you had some question, Hardik?

So if you can tell us what were the EBITDA per tonne for different segments like lead, aluminum, plastic for this quarter?

Yes. So basically, we are running at an EBITDA per tonne of approximately INR 12.5 per kg for lead and approximately -- so this quarter, aluminum was slightly higher, which was around INR 18 a kg for aluminum. And plastic was -- so plastic was approximately INR 1,600 a tonne, like INR 1.6 a kg. So plastic and aluminum was slightly better for this quarter. But yes, plastic will be sustainable. And going forward, it will be -- it will do slightly better than this. But aluminum, yes, because we did more business in the international market and there was some temporary enhancement of the sales realization also. So we should be getting approximately INR 15 to INR 16 a kg for aluminum in the future. But lead will be sustainable, and there will be some enhancement in EBITDA because of the more value-added products and slightly addition on account of the economy of scale.

Okay. Okay. And sir, as you were mentioning in your speech that because of some policy changes, the availability of local scrap has increased because earlier, we used to import and then process and supply to the battery makers. So -- although working capital requirement will be lesser, but now since the scrap availability is made available to us by, say, battery maker itself, then in that case, EBITDA per tonne will be lesser? Although working capital is better, but the margin will be lesser?

So to some extent, yes, the margins would be a little less compared to when we are importing the batteries. But we would be keeping that scrap in the overseas market itself. I mean, we would be using the scrap by expanding our operations overseas. So what will happen is that the EBITDA from those operations will increase. So overall, probably there will be no effect or some increase in the total EBITDA of the company, percentage-wise. But definitely, return on capital employed will be far better than -- far better as compared to the current situation.

And all the inventory is completely hedged, right? We don't keep anything because earlier we used to keep some core inventory open, but I just want to reconfirm we hedge completely everything.

Yes. Now currently, we have a hedging policy in place where we're covering everything. So earlier, as you mentioned correctly that, around 2 years back, when we -- 2.5 years back when we started -- starting our hedging policy because before that, we were totally exposed. So at that point in time, we were hedging only the sales and purchase side and thinking that this is the inherent inventory that is always lying with us. But when the markets go down or go up in a quick succession, then generally, what we do is we lose or gain something out of it. So to eliminate that from the business model, we started hedging the complete inventory also.

Okay. And sir, in the last call, you updated us that we got a INR 305 crore contract from Sorin Corp and Luminous. So any further update, any new order that we received from any client that you want to mention?

See in terms of our order book, so I think we are sufficiently -- we have sufficient order books, which covers more than 6 months to a year. And at any point in time, that is the same case. So it's not much of an issue for us. Even currently, our order book would be more than 6 months. Vijay, would you like to add on to this?

Yes. In fact, since you are asking a specific question on the contract, recently, we have been -- we have concluded a contract with one of our Middle East buyer. And the discussions are also in process for Amara Raja also. So this is a normal process where we are having the long-term contracts. And as rightly, Yogesh has said that we're always covered with at least for 6 to 7 months of order. So flow is on the same stream.

Are there any additional further questions from anyone?

Can I add a couple of questions. Okay. Sorry.

Yes, please, Yasmin.

Sir, I wanted to ask you, who would be your main competitors? And I mean, is this like a really difficult industry to be in?

Yes. So I'll give you an answer to this. I mean, first of all, we are a very unique company in the sense that we are multilocational, both in India as well as overseas. So even in India, we have multiple plants in all the 3 regions, mostly -- I mean, except for East, we have our plants. We have in North -- I mean, top North. Then we have in Rajasthan 1 plant, which covers partially west, partially middle India. Then we have 1 in west, in Mundra and 1 in Chittoor, which covers the south part. So we are the only company in India, which has multiple plants in India. So it gives us a logistical advantage. So what happens, as we are having tie-ups with, say, any of these companies, say, for example, Amara Raja. So what will we do is we will take the scrap from pan-India and send it to our nearest plant there and then give the finished goods to them from a plant that is nearest to them. So with such kind of arrangement, we save a lot in terms of logistic cost also. That is one part. Similarly, the same thing applies to supply to our global customers. We can supply to the plant that is nearest to them, saving logistic costs also. That is one part. Then we've been working with so many OEMs that we can give tailor-made products to them. We can give them value-added products. As Vijay also mentioned, that we have the highest range of products that we can provide to anybody. That is one. Then there are other restrictions. It's a hazardous waste. I mean, I think we forgot to mention that we are the only company in Asia that has been accredited by International Lead Association. So our plants have been accredited by the highest quality. So we -- so most of these companies, the OEMs, they also -- they don't only have these commercial terms, they also want to tie up with people who have sustainable operations who can -- whose operations are environmental friendly. So we -- as we also manufacture our own plants and products, so that also gives us an advantage. Then there is a restriction of importing batteries into India. We are one of the very few people who have got import license to import these hazardous waste in India. So that way, we are very unique. And that is only for battery. Now we are also doing aluminum recycling and plastic recycling. So there would be very few people who would be doing multiple, I mean, segments. We also want to increase it to other segments like, as I mentioned, copper, rubber and other segments. So that kind of gives us a different edge as compared to our competitors. And as such, we don't have a single competitor because in lead, we have a different competitor for South, for North, there is no competitor which is available pan-India, globally and in different segments.

Just in addition to what Yogesh said, so establishing or putting up a unit for recycling, lead recycling is not a big thing. But the point is that establishment with the multiproduct, multi-location, with the procurement network of more than 15 years network is created, so that gives us a uniqueness for this business.

Sir, just to understand, in plastic recycling, what -- I mean, exactly what products will you be doing?

So currently, there are 2 segments to plastic. One is PET and other is article plastic, PPCP, RPP. So our plants in Central America, in Nicaragua are making bottle-grade plastic flakes, which we supply to all the bottle manufacturers like Indorama, even the bottlers for Pepsi, even -- so all these people, OCTAL, which makes the sheets. So we make food-grade, bottle-grade plastic in Central America. In India, we make PPCP granules which is going into the battery industry, which makes the battery cases, also goes to Asian Paints for their bucket manufacturing and all those things.

And the scrappage for them, that will be sourced from where?

So the scrap, we buy from the market from the -- for PET, again, it's the same thing. We buy from the market as we buy other scrap from the market. For PP, some of the scrap is generated by us from the battery base itself and other we buy from the market, from industries and also from retail. And we also have tie-up with companies like Asian Paints, where we take all their factory base also and recycle it.

My last question is on working capital. What will be your working capital for FY '21? And how do you see that going ahead?

Sunil ji?

Yes. So basically, the working capital cycle is approximately 80, 85 days for FY '21. But considering the more scrap from Indian market and tie-ups with the OEMs where the scrap they are providing us, and we just need to process it and supply it to them without involving our working capital, so the blended working capital for the overall business in India and overseas, so we are expecting approximately 60, 65 days in next 2 years.

Sir, I had a couple of questions. So after just listening to your presentation, it is safe to assume, so we are -- as a company, we are not at all concerned with the fluctuation in the metal prices globally, tomorrow if they go up or they go down, like since we have proper hedging policy, our P&L is very well much protected, right?

Correct.

Okay. And so my point is that, see, you've given your guidance, like where you told like you have 25% revenue growth for next 2 years, 35% PAT growth. So right now this year, we have ended the year with a revenue of INR 1,400 crores, more or less, INR 50 crores profit. So if -- and you just told like your working capital days will come down. So it is safe to assume, whatever is the incremental growth, that will be led by -- from the same internal accruals and your operating cash flow will only fund that growth?

So yes, definitely. So the growth will be for next 2 years, at least, considering that this growth is coming from the existing business. So the existing business growth is definitely funded from our internal accruals only. We won't need to have additional debt for that. So that will come only if we are going for an additional business or additional business line for -- where we need some higher CapEx. In that case only, we need to go for additional debt. Otherwise also, the cash flow for the company will be improving. So we are going to reduce the working capital debt gradually because the working capital cycle will be shortened in next 2 years.

So just to add to this, a couple of questions. See, you've been in this business for more than 20 years. So suddenly, in the last 2 years or maybe when you're giving such an optimistic outlook, and it is reflected in your numbers also this year, so what has changed Yogesh by like, what is the reason for the -- what is the reason for this change? What do you see right now for next 2 years compared to last 20 years?

So first of all, let me just give you a little correction. I mean, this growth is not the last 2 years only. We've been doing this for the last 4 years. But unfortunately, because of our hedging policy, you see a dip in the profits. But that was not -- not anything to do with the actual operational profit. That is one part. So we've been growing regularly for the past 4 years. But what has happened is that, as I mentioned, that we've diversified into other segments also. So it took some time for us to kind of stabilize those segments like aluminum is now totally stabilized, and we want to grow into the aluminum segment also now. So it gives us synergies because already, there is an established -- I mean, wherever -- like in Ghana, we have a lead recycling unit. If we put up an aluminum recycling unit just next to it, the overall cost doesn't change that much. But at the same time, we take benefit out of it. So those benefits will start coming in. As I mentioned that from the India operations, we see a huge growth coming in because of the change in policy of -- which came last year itself, we could get -- secure a lot of local scrap, which we see increasing every month. And that will bring us to growth -- that brought us the growth last year, and it will continue to bring us growth in the future. And because now the scrap is available in India, the overseas scrap, as I mentioned, again, can be utilized overseas itself. So these are the few areas that can bring us the growth. And then, of course, plastic recycling. We see huge growth in plastic going forward. I mean, it's -- it is going to be much, much bigger than any of the other segments that are there because there is a huge scope. I mean, plastic is used everywhere compared to lead. So lead was probably the smallest segment where we started. But now when we see these other opportunities coming up, we think that the growth from these segment is going to be much, much more than what currently we're getting from lead itself.

And just last one question on balance sheet, Sunil bhai. So just more or less, if I'm not mistaken, our net worth is around INR 260 crores, and we make an ROE of 20% to 25% post-tax. Now these are really attractive ratios. Now for a new player to come in, okay, like if he wants to set up the entire ecosystem, do you think he can do it in 2, 3 years? Or it takes years to build up the supply chain?

Yes. Definitely. So supply chain is the biggest thing, which took us -- which makes us unique and difficult to create again. So anybody who is entering, as I explained that, entering into this business is easier and establishing -- maybe establishing 2, 3 plants in India is also -- can be done with investing some capital, but creating an environment-friendly recycling with the scrap collection network in so many -- so we are touching upon approximately 1,400 touch points on a daily basis. So that network gives us a strength for any new entrant to restrict to this business.

We have one last question from [ Dharmendra ] before we give it a pause. I think we have almost reached 5:30. Dharmendra, over to you unless your question -- yes, Dharmendra.

So while we mentioned about the working capital cycle getting reduced because of the production arrangements that we're doing local, is there -- are we also changing our production model, business model, per se, also, which will reduce the working capital because logistics is a big cost in our business.

So absolutely, yes. I mean the working model is changing in the sense that whatever Indian scrap that we got, as Sunil also mentioned earlier, is basically kind of a job work arrangement where we will collect the scrap and in lieu we will give them lead. So there is no working capital involved in that particular arrangement. So it will reduce the working capital. I mean, if we have 100% of that scrap available, so ideally, the working capital for India should be 0. I mean that is the ideal situation. Of course, it will take some time for that to happen. And at the same time, earlier, what we were doing was, we were importing the lead into India. So the general cycle for import of such a material into India is -- and from cash-to-cash cycle is around 90 to 100 days. So that will stop because we will now utilize that scrap outside India itself. So it will reduce the working capital cycle to around 60% in the -- for the material that we were importing earlier. So both of these combined will reduce the working capital load on us. And of course, the logistic cost will reduce a lot also. And we believe that, that will take the EBITDA to double digits in the next 3, 4 years from currently 8%.

So will that be the biggest driver for margin expansion in the coming 2 years?

Yes. Yes. And of course, if we add on to this, the drive to, I mean, value-added products that we are doing. I mean we are regularly focusing on the value-added products where we get better margins. So that also is another area from where we can extract value. If you see, generally, refined lead would sell at around -- LME prices are, say, around $25, $30 over the LME prices. But if we go into value-added products, we can expect another $70, $80 from that. I mean, after taking off the costs. So that huge benefit is also available to us when we improve. So we are targeting to take value-added products, which is currently at 40% -- value-added and tailor-made products, which is currently at 40% to around 70% in the next 2, 3 years. So that is also where we will kind of extract some value, some profits.

One last question from [ Pratik ]. Pratik, over to you.

Sir, on this margins, on the OEM business that we have spoken about, since it involves lower -- application of lower working capital, does it -- what sort of -- to what extent does it lower our margins?

So as Sunil mentioned, that probably the EBITDA would be lower, but overall, ROCE is going to be better. And we are focusing on ROCE, generally. And we expect the ROCE in the coming 3, 4 years to be around 25% from all of our businesses, which is currently at around 18% this year. So we expect to improve the ROCE from the businesses in the future. And the overall EBITDA margins will also -- as I mentioned, will go to double-digit figures. So it will also improve overall. Probably a particular business will not give you that much EBITDA, but overall business, EBITDA will improve. Yes, Sunil ji, you were saying something?

Yes. So basically, as Yogesh mentioned, that we will be saving the logistic cost also because that scrap is traveling from overseas to India. So we are not going to lose that scrap, which has a better margin. So we are utilizing that scrap in overseas plant itself, where the logistic cost saving will be additional savings. So overall, if we blended margin, we see that will be improving.

Okay. And sir, another question on -- in terms of difference of our -- I mean, the per kg margin that we earn for our normal products and our value-added products. What would be that difference?

Vijay? I think it depends -- sorry.

Vijay's line is on mute, maybe.

Okay. Vijay, please unmute. I think he's not there. So basically, it depends from product to product. In some cases, we earn around $200 more than our refined products. In some cases, it is $50 to $60. So on a combined basis, it is around anywhere between $70 to $100 per tonne extra margins that we get after covering the cost for that.

Could you indicate that on a percentage basis? What -- how much higher percentage margins do we have?

Around 4%, 3% to 4% higher.

Okay. That's it, not more than that?

Not more than that. Our PAT, in fact, is around 3% to 4%. So if a 3% to 4% increase is there, so it directly...

No, I was trying to understand, you said around $70 to $100 per tonne. Is that what you said?

Yes. And at an LME of $2,000, it is around, say, 4% to 5%.

Okay. Okay. Got it. And where do you see your gross margins settling? Right now, they are about 20%-odd. Where do you see them in the years to come?

So the gross margins would probably remain -- to some extent remain at the same level. In certain cases, it will improve because of the logistic costs only, but overall, we believe that -- but because of economies of scale, the EBITDA would improve.

Okay. And no -- and the fact that we said that 40% coming from value-added products would go to 70% over the next 3 to 4 years, so would that not increase our gross margins?

Yes. To some extent, it would increase. But at the same time, as I mentioned, that there would be some amount of local procurement where the gross margins would not be that high because it is a 0 inventory game. So overall, gross margins may change, may not change. Some logistic advantage would be there. Some advantage we will get from the -- but overall, the volumes will increase. From the same plants, the capacity utilization will improve, so that will affect the EBITDA. Gross margins may increase. I mean -- but -- say, by 1% or 2% probably.

And sir, last question. Our inventory has increased materially in the just concluded quarter. It has come about INR 350-odd crores versus -- I mean, last year, it used to be much almost half of that number. What is the reason for that?

So basically, mainly the inventory increase because of the more scraps from the OEMs. So on the one part, it is inventories increase. And the second part is there is increase in the trade payable also. So we are holding that inventory on behalf of OEMs. So that's not impacting and that's not involving our money because that trade payable is lying against that. So we just need to -- so we are expanding the capacities in our existing plant and trying to increase -- increasing the volumes of processing in our existing plants. So as soon as that processing volume will increase, that inventory will be diluted. And so there is practically no impact on our balance sheet.

And sir, last question. Was there any one-off impact in our profitability or sales turnover in the -- in Q4 FY '21 versus the last quarter?

Q4? Nothing. No material or one-off impact.

And do we expect to sustain this level of more than INR 420 crores of turnover in these coming quarters?

So -- yes, so this is a running rate now you see we've been improving. We don't see any reason for reducing the overall revenue, but revenues will depend on the LME also. If the LME goes down, probably the revenue will be impacted.

Volumes will be same.

Volumes would be the same.

What was the volume increase this time in this quarter?

So this time, it was around 6% volume increase last year -- from last year. So volume increase was higher. Sunil ji, what was the volume increase last year?

Volume increase was approximately -- so volume increase for this quarter was 9%.

9% was the volume increase.

For this quarter, Y-o-Y.

I think Yogesh bhai and Sunil ji and the rest of the team members, you people gave a very good holistic perspective, and this was quite helpful. So with this, I think you people have given a lot of time. If there are any follow-ups, we'll come back. So on behalf of everyone and from Motilal Oswal, we are very much thankful, and we wish you a very good luck for next 2 to 3 years. I think the company has built all the building blocks and is poised for a healthy growth. So Sunil ji, once again, thanks. Yogesh bhai, thanks. Vijay and Naveen, thanks. Thanks all from our side. Yes.

Thank you. Bye-bye.