Gravita India Limited (GRAVITA) Earnings Call Transcript & Summary

Good evening, everyone. And on behalf of Motilal Oswal and all the investor, we thank the management of Gravitas for their time. We have Yogesh bhai and Sunil bhai and other team members from Gravitas. We will use this opportunity to get a holistic perspective on Q1 numbers. I think they have done a very strong volume growth of 51%. Again, the quarterly top line of INR 446 crore, a quarterly PAT rate of -- a PAT of INR 21 crore, INR 22 crore. With economy opening up, it would be very useful Yogesh bhai and Sunil bhai, if you can help us as to what are the 2, 3 unique highlight of this quarter? Also secondly, we are -- almost the August month have started and economy is opening up. So what kind of level of activity are we seeing for our business and across the key parameters? And how is the outlook for second half because by Q3, absolutely everything will be on track. So with this, I would request you to give a initial preface, keeping this quarter into the mind and then how the outlook looks for second half of the year? So over to you.

Thanks, [ Kenan ]. Welcome, everyone, for the Gravitas earnings webinar. So what I'll do is I'll just briefly go through the quarter 1 numbers and what we have achieved so far. And then we'll take on to the second half or maybe the rest of the year on what we plan to do. So I think you've all gone through our earnings presentation. So basically, despite challenging market conditions, we continue to deliver strong performance. Our revenue from operations stood at INR 446 crores, and it's a growth of 73% on a year-on-year basis. And on a quarter-to-quarter basis, it's a 2% growth even in the current circumstances. Domestic business continues to lead revenue with a growth of -- I mean 65% share, whereas overall overseas business contributed 35%. All our segments lead, aluminum plastic had a strong recovery from the same quarter of last year and a stable demand was present on quarter-to-quarter basis also. If we look at volume, price mix, top line growth was supported by increase in volumes, which grew by -- which grew by around 51% on a year-on-year basis to 29,700 metric ton. And also, there was an increase in contribution from value-added products, which stood at 47%, which is the highest so far we have had achieved. Our company delivered an EBITDA of INR 37 crores, a growth of 110% on a year-on-year basis and INR 18 crores in the same quarter last year. EBITDA margins also increased by 150 basis points to 8.4% compared to 6.9% on a Q1 last year. Margins improved -- was driven by higher sales of lead, coupled with better realizations also. Net profit for the period was INR 21.8 crore compared to INR 3.88 crore only last quarter -- last year same quarter. So [ 460% ] growth over the last year. On the profitability front, overseas business contributed 70% of our total profits, leveraging it's strength from closer proximity to procurement sites as well as clients and higher operational efficiencies in the business. I mean to just summarize, Gravita has delivered a robust growth even in a challenging time. And looking ahead, growth outlook over long-term also remains very strong. We are expecting further improvements in the performance of the company due to various factors. First, increasing domestic scrap volume because of new policies of battery waste management, extended producers responsibilities, GST compliances, shifting from unorganized sector to organized sector. I mean, recycling business. So we -- there is a huge savings in logistics costs as well as working capital cycle has also reduced because of these things. Also, there is more focus on value-added products and customized products, where company enjoys better margins which, as I mentioned earlier, also is around 47% currently, and we want to take it to around 60%. Expansion in our existing facilities in India as well as overseas also is a better mix now. I mean we are increasing the capacities, which will increase both the revenue numbers also and the bottom line also. So overall, we are in a well-positioned place now to address the market requirement and we move forward improving our product mix, enhancing operational efficiencies in our plants and expanding scrap collections. So that is what has been so far. Going forward, I think for the balance part of the year, we are very confident of achieving the growth targets that we set ourselves, which is around 25% growth year-on-year going forward for the next 2, 3 years and on a bottom line growth of 35% plus again going forward on the coming couple of years. So that is what currently is. Now if there is any questions you might have, any queries people might have, then we are ready to answer that. Thank you.

Sir, the first thing on this percentage of raw material, which is domestically collected. We have gradually inched this percentage very well for Q1, it was at 53%. So how is the trend out here? And do you think a further efficiency from this can be rated in for our business? So any thought on this basically? And this is one of the most critical factor in our company, which is very difficult to replicate, right?

Yes. Yes. So basically, I mean, as now we are getting more domestic scrap, the availability has increased. We are into tie-ups with OEMs where we are processing their scrap for them. So what is happening is that, number one: the reliance on imported material has gone down. So what we are doing is that we are keeping the imported material in the places where we have factories. We are reducing the imports. So this, in turn, is reducing the logistic cost, the working capital cycle, which we used to earlier incur when we bring the material to India. That is number one. And second thing because now there is no uncertainty in the -- I mean, scrap coming to the factories because earlier whenever there is a huge gap between when you buy the material and when it reaches your factory premises, you generally are sometimes overstocked or other times you were -- I mean, you don't have stocks also. So the capacity utilizations are becoming more consistent now. And the capacity utilization have also started increasing. So it's a multiple -- we are gaining from multiple benefits now. First of all, logistics cost is going down, local scrap, your working cycle is reduced to quite an extent. Then again, the capacity utilizations are improving. The outer material -- I mean, the material imported material, which we were earlier bringing it to India, now we are processing it outside India itself. Again, that is also contributing to the bottom line of the company. So it's definitely a very good move. And we believe that the organized recycling sector is going to benefit a lot out of these policies going forward also.

Interesting, sir. Sir, what is the sense on the working capital. We, as a team, have genuinely worked towards optimizing the working capital. But what's the sense? Any 2, 3 important factor which you would like to highlight on the net working capital cycle?

Sunilji, please.

Yes. So working capital cycle is mainly which was earlier close to 90 days, 90 to 100 days. So that came down approximately 70, 75 days at this moment, mainly because of reduction in the transit goods, which was because we were importing significantly in India. India was -- Indian plants were dependent on imported scrap. So that was the reason we were having the higher working capital cycle, which is significantly improving now, and we hope to further get it down to approximately 60, 65 days in the next 1.5 years. So we are saving significant interest cost also and the proportionate working capital for the incremental business is not significant because whatever scraps we are getting from the OEMs, that's a zero working capital business, practically a zero working capital business for us because they are supplying the batteries to us, rather we are going to their dealers and getting the scrap from their dealers. And we just need to convert into the metal and supply back to them. So that's the model for us. So that will reduce, further reduce the working capital cycle for us.

Because there is another thing I want to add here is that because we are changing ourselves. We are increasing capacities overseas also to cater to the -- to the increase in the scrap there because we are not importing the scrap to India anymore. So that capacity utilization will also increase slowly. So that will also increase the -- I mean, reduce the working capital cycle going forward.

Perfect. One more question is that with respect to the mix of the value-added products, and the way we are enhancing the percentage of value-added products, whether it is lead oxide, bricks or red lead, say, for next year or so, what kind of a impact on margins we see? So this really enhances the profitability mix of our these things. So do you foresee that a large part of a margin kicker is yet to come, which in, say, FY '22 rest of the year or for next year, if there is a 20% top line growth with a higher focus on value-added products, we can see a better margin. Any thoughts on that?

Yes, definitely because generally, the refined lead or the basic vanilla option that, as we call it, sells at around $30 on premium over the LME. But when we -- in our current product mix, we are getting anywhere around $100 -- $100 to $110 combined mixed premium over LME. So definitely, the balance $70, $80 is coming from the -- these value-added products and customized products. As we go on increasing the total percentage of value-added products, it will add on to the bottom line. That is one part. The second part is, as we are increasing the capacity utilizations, as we are increasing the total volume also, fixed cost remains almost constant. So that will also add on to the bottom line. So these 2 things combined will add the overall EBITDA margins.

In addition to what Yogeshji said is that we have other verticals other than lead like plastic and aluminum so -- which are more profitable than lead. So of course, we are trying to increase the more contribution from plastic and aluminum, which will also help us the -- improving the overall margin for the company.

Perfect. We have a question from Sudhir. Sudhir, can you go ahead with your question, and then I'll request any other participants for their questions. Over to you, Sudhir.

Yes, sir. Good afternoon, and congratulations for the super set of numbers, sir.

Thank you, sir.

Sir, I have some 2, 3 questions. First, there is some -- can you explain -- I think you have a little bit explain your model. But can you explain that, is it a metal company, is to analyze, your company has to be analyzed -- is it a metal company? Or is it a recycle -- pure recycle company? Or any way the fluctuation in the metal price affect our margin. So if you can throw some light on that?

Yes. Thank you, Sudhirji. I mean, I think a very relevant question here also because, we are basically a recycling company. And we don't -- any -- I mean we don't speculate on metal prices. So what we do is we are 100% hedged in terms of lead if we talk about. What we do is, we buy and we sell on the same time, generally to the customers itself. But whatever quantity, if sometimes is unsold or unmoved, we sell or buy it on exchanges. So we have almost 0% dependence on the LME prices. So even if you look at the last year also, the LME prices were probably one of the lowest prices ever. And there was COVID and still we grew at around 50% in the bottom line. So there is very little effect of metal prices going up or down in our case because most of the prices are hedged. So what we do is because our scrap is also priced based on the metal content in the scrap and we sell also based on the metal content to the customers. So there is hardly any delta that we get out of metal price fluctuations. We are a recycling company. As Sunilji mentioned that we are not one metal company, we are diversifying into lead to aluminum, plastics. But that is not enough. We are now going into other verticals also, we are starting a rubber recycling vertical, we are starting a copper-recycling vertical. Going forward, we would do paper recycling, lithium-ion batteries recycling, EVs recycling. So it's not a metal company. We are basically into any commodities. We are just a recycling company. And with the current focus on environment, I mean, if you even talk about the consumers, the OEMs, the governments, everybody is focusing on the environment, we believe that, that is the right space to be.

Yes. Understood, sir. And my last question, second question is, see, we are expanding into the Chittoor plant also. And we are just -- we'll start the Mundra plant in the next couple of months or so. So whether we will get the enough scrap for those kind of expansion. We are also expanding in Ghana also. So how do you see that our -- we will get the enough scrap to feed all our these expansion?

Yes, thank you.

[indiscernible] if you can throw light on? So how will it work?

Yes. So basically, as I mentioned earlier also, there is -- I mean, If we talk about 2 years back, there was not enough local scrap or Indian scrap available to the organized sector because there was a difference between the unorganized sector is willing to pay for the scrap -- the organized sector, evasion of GST or taxes, as we call it. But now with the government becoming very strict on GST implementation. Similarly, government is also bringing in regulations like battery waste management rules, extended producer responsibility. They are also forcing the OEMs or the brand owners to start getting the -- getting the waste back into organized sector or right way of recycling. So this has given us a huge push in terms of the scrap availability in the market. We are having tie-ups with many OEMs where we are processing their material. In fact, we are just lagging behind in terms of the overall capacities that we have and the amount of scrap we are getting. That is why you see that the working capital is higher because what we receive and what we are able to process, there is a huge difference. That is why the capacity increase are there. So the moment -- I mean we are lagging behind. At the moment, a new rotary or a new production capacity comes up, it's -- the scrap is already there for that capacity.

Just to give you, Sudhirji some numbers that this market size is approximately INR 11,500 crores of market for lead recycling in India. So we're just doing 5% to 6% of this volume, and we are the largest. So -- and only 30% of this number is being done in the pharma sector. So -- and still 70% yet to come. So what kind of opportunity we are sitting on.

It is a huge opportunity, huge opportunity.

We have next question from Mayank and then followed by Rajiv. [Operator Instructions]

Congratulations on a good set of numbers. Yes, sir, generally, your Q1 is a lean quarter and Q3 and Q4 are strong quarters, but you have delivered similar numbers as Q4. So what is changed in the business? And do we expect better quarters ahead?

Yes. So generally, Q1 definitely is not as good as Q4. And at the same time, this year, because of the COVID also, situation was not the same. But fortunately for us, our operations were running as usual. But at the same time, we could not do as much as we would want to because there was certain indirect impact on our business because of maybe shipping irregularities because the supplier side was not ready to take on as much material, otherwise, we definitely would have done even much better. It's a simple thing is that, I mean, we are growing quarter-on-quarter for the past 2, 3 years because we are a growing company. We are investing in capacities. We are regularly improving the capacity utilizations. We are putting up new capacities. So you will see a growth on quarter-to-quarter basis. I mean, we've been doing it for the past 2 years, and you will keep on seeing this quarter-on-quarter improvement going forward also. So it's not an issue because we are putting in new verticals also, we are growing in the new verticals also. The plastic and aluminum capacities are also increasing. And the -- I mean, so overall, it's a growing concern. We are increasing capacity. We are utilizing more. So it doesn't matter whether the Q1 is lower market-wise or higher. Our quarter-on-quarter, you will see growth because of these things only.

Sir, my next question is that various penalties have been leveled on Pepsi, Coke, Bisleri in the range of around INR 10 crore to INR [ 50 ] crore. So -- for not following the EPR rules. So what kind of traction you are seeing in those plastic recycling industries?

So actually, basically, as it is -- I mean, most of the OEMs are very -- I mean, clear about the environmental impact of the things that the scrap is producing in the market. So what is happening is that they themselves are very aware and they want to go into areas where they are more environmental friendly. They are more sustainable. Everybody is trying on their -- I mean, most of the multinationals you're talking about are aware of these things. At the same time, there is some pressure also from the consumers. I mean, consumer is now more aware. They are environmentally aware and they want the brands that they are using also to be sustainable, especially the young generation. So even pressure is coming to these companies, these OEMs, these brands from the consumers also. At this point in time, if there is also some policy from the government, which encourages recycling, definitely is going to have a huge impact. Financial impact is just a very small impact for these companies. The major impact is how their brand is being perceived by because of these news. So definitely, there is going to be huge traction. We have seen this in battery recycling where, as we've already mentioned that we are getting more scrap from the OEMs. We are seeing similar impact in plastics also, in aluminum recycling also. So all in all, I think it is going to be a great going forward for recycling industry.

Right, sir. Right. And sir, can I know our Mundra capacity and what will be -- and when will it work on full capacity? And do we have any strategic location out there?

So yes, Mundra, the capacity in the first phase would be around 24,000 metric ton of lead per annum. This is the first phase. We want to make it larger in the second phase going forward as we start getting more and more domestic scrap and also as we will divert all of our imported scrap to Mundra. So this will increase in the first phase. We are expecting some -- I mean, it's already -- the plant is ready. We are waiting for some approvals to start this plant. Probably it will come in this month or the next month. So in the second half, we'll see the Mundra plant working. The first year itself, I think it will work on, say, 50% of the capacities. But next year onwards, it will start working at optimal capacities, which is around 70%, 75%. So -- but Mundra is a specific -- I mean, it's a very strategic location for us because it is at port. It's around 15 kilometers from the port itself, which is the largest coast port in India. So what we are planning to do is making it an export hub. So whatever imports or battery we were doing earlier, we are bringing it to inland plants like Jaipur, Kathua, et cetera. Now we will keep those scrap at Mundra itself. And the inland plants will run on domestic batteries. That is first part. Second part is Mundra, we are trying to make it a overall recycling hub. We will introduce plastic recycling also there. We will introduce aluminum recycling. We will introduce copper recycling going forward. So we are trying to make it a recycling hub in Mundra, where we will import materials, recycle it and sell it to the markets in Europe and Americas.

Pritesh, you can go ahead with your question, followed by Akash.

My question is in lead a lot of these [indiscernible] institutional scraping in India. So even if we put INR 11,000 crore as, let's say, the market, my guess is it is unlikely to take a big piece of the market because it's the battery manufacturer who will be probably supplying the scrap. So they would be largely doing. Is this assessment correct? Or there is some error in my assessment?

Can you just again rephrase your question, I couldn't get it properly, sorry.

Is it audible, first of all?

Yes. Yes, it's audible. It's audible.

So I said in India, a lot of the scrapping lead is institutional in nature -- there's less retail scrap because the batteries are being rebought by the battery manufacturers. In that case, is there an opportunity for a stand-alone recycler or the opportunity though on a overall looks INR 11,000 crore, but opportunity for a recycler is limited in case of lead?

So I think your question is whether these big OEMs can do backward integration start recycling batteries, right?

Yes.

Is that right?

Yes. So today, what they do. Do they sell out entire scrap to recyclers like us or do they recycle it in house?

So yes, it's a combination in the sense that, first of all, they were not -- they were not collecting the scrap earlier. They were just buying finished goods from Indian companies. They were importing finished goods. And I mean, the batteries were going to the unorganized sector mainly. But now when the government has forced them, they have started collecting these batteries back. So the government is forcing them to now start collecting and start getting it recycled. I mean, to the extent of around 99% of the batteries that they sell in the market. So first of all, creating such a huge capacity in itself is a big, big issue. So what these OEMs are doing is that they are looking for partners who can do it for them. They are not interested in recycling. They have not done it so far. But at the same time, they would also start putting up their own plants. But even those plants will not be able to solve the entire problem. They need recyclers like us because their plant would be in one location, whereas the collection of batteries would be from all around India. So they need people -- regional people who can do it. Fortunately, Gravita is the only company that has plant India operations. We have plant in North. We have plant in West. We have plant in Central India. We have planted in South India. We are looking for opportunity to set a plant in East India also. So what this does is that we can collect scrap batteries and bring it to the nearest plant, saving logistics costs and then serve these OEMs to the -- from the plant that is nearest to them. So saving them also logistics costs. So overall, they would not be able to process even if they want to, they would not be able to process the entire scrap by themselves. They need partners like us. But as it is, I don't think that, that is their strength because recycling is a total different ball game. And even if they set up plants, I think that will be mostly to abide by the law -- if partners, they can't find partners like us. As Sunilji mentioned, we are only processing 5% of the total scrap. I mean, they have to collect 100% of the scrap. So in addition to capacity increase by players like us, they would also need to set up capacities themselves.

What is the capacity for lead, aluminum and -- polymer that we have today? And what is the incremental capacity that we are adding in lead, polymer and aluminium?

So we have a total capacity of around 160,000 metric ton per annum combined, out of which around 80% is for lead. And we -- as I mentioned that we are planning to increase 24,000 metric ton per annum of lead in Mundra. Similarly, we would be adding another capacities regularly as and when we get scrap. I think I probably did not mention that, but we are also in the business of giving turnkey solutions to battery recycling companies. What we do is we have the capabilities to set up plants and run those plants. We give turnkey solutions to others also and we make our own plants. So capacity, if you have to increase the capacities, we do it ourselves, so it's easier, cheaper and much faster for us to set up new capacities than for people who just recycle.

So we have 160,000 tonne, in which led is 80%. And incrementally, as of now in FY '22, we are adding Mundra at about [ 24,000 ].

Yes.

And how about the other plant, Ghana, when it will come and Chittoor, when it will come?

Ghana is already there. Ghana is already there, but we will be increasing the capacities in Ghana also in the next year. I mean, partly in this year, partly in next year, but it will be giving us results in next year only. Chittoor also, we are adding capacities of refining this year itself by October, November. So small brownfield projects or increasing capacities we are regularly doing in all of our plants, mostly all of our plants. But apart from Mundra, there is no greenfield project that we are putting up this year.

And this 160,000 tonne, what was the utilization in FY '21? And what is the expected volumes in FY '22?

Sunilji, you?

FY '21 was approximately 65% capacity utilization. But at this moment, we are running approximately 77% capacity utilization.

On this 160?

On this 160 , yes.

And sir, just 2 more additional questions. So we usually do business at about INR 10 to INR 12, INR 10 EBITDA per kg -- across these 3, 4 items that we do in metal or polymers. Is there any downside risks to that? And when I'm listening to you today as well -- If you're operating at, let's say, a 7% or 8% margin, and we have our 75-day working capital. But incremental sales will always be a negative working -- negative cash flow. So I'm still unable to comprehend how -- so what will happen as you keep on growing, you need a form of capital, whether it is debt or whether it's equity?

So yes, partially, if we grow, we would need to increase the working capital. That is true. But as we mentioned earlier, that there is a slight shift in the model that we have done. Earlier, we were importing all our materials into India -- that needs more working capital because all the scrap, it takes around 40, 45 days until it reaches India. So now that, that model has changed. Now what we are doing is we are more and more now are reliant on the domestic scrap itself. So which is probably zero-working capital cycle model because we buy it from OEMs, and then we give them the material. So till the time we give them the material, there is no money involved in that. So that model will reduce the working capital overall. So we think that going forward, even with the increased capacities, the working capital will not increase. It will not go down immediately, but it will not increase. So with the same working capital, we will be able to achieve higher volumes.

So with the same absolute working capital today in the business, one should comprehend -- the total absolute working capital today in the business, you will grow higher volumes, higher business with the same working capital?

Yes.

Because if I have to then do the math, which you were mentioning just some time back of 75-day, 90-day net working capital coming down to 75 days even...

It will go down to 60 days.

So even if it goes down to 60 days -- at INR 10 kg, it still is a negative cash flow..

And one more thing I can add is that this INR 10 calculation is also improving on account of more volumes and more value-added products and change in the product mix also. Like aluminum is giving us approximately INR 15 to INR 16 a kg, which is higher than the lead or plastics.

That must be because of better realization is in aluminum, right? It cannot be because of the business. It must be because of the cycle, right?

It is because of business because we are doing it in the overseas. We are collecting the scrap from the last mine in aluminum business. Earlier, we were just doing the -- we were just importing the scrap in India. We were just processing it in India and export -- selling in India. So that model, we have changed now. We have already set up 2 units outside India for aluminum recycling, and we are collecting it over there, getting the scrap cheaper over there, processing it and exporting to different countries. So where earlier we used to get only INR 7, INR 8 a kg for aluminum, now we're getting approximately INR 16 a kg. So that's further improving the volumes in aluminum business will give us more -- that average will be higher than this INR 10.

But you mentioned that you're saying that it is a negative cash flow business. Why are you saying that?

Because every INR 100 sale that you do, your margin is about 7%, 8% and your working capital need for 7 -- 90 days. So then you need almost INR 25 of working capital, but your EBITDA is INR 8. And that was visible for the last 5 years in the cash flow. So what cash flow is to come out of the -- what EBITDA was generated and what cash flow was generated, the EBITDA is used to not generate cash flows.

So FY '21 was the year -- first year when definitely you're saying right because at that time, we were importing the scrap in India. But FY '21, we started differently the change in the model, we're getting more scrap from domestic, that is zero-working capital business. So with the working capital coming down, working capital cycle is also coming down as we've discussed from -- currently, it has came down from 90 to 75 and it is further coming down to 60, 65 days. So that will help us in improving the cash flow -- overall cash flow for the business.

And how much portion of the business is the India business?

65%.

Yes. India business [ 60% ] to 65%.

So the 65% of the business now, which was import fed will be completely domestic fed?

Not immediately, but slowly, it will be converted into domestic business.

Okay. And that will be at what credit -- what, what networking will it be operating at?

Ideally, it should give zero-working capital because it's a barter kind of an arrangement.

Okay. So one is idle and what would be a realistic one?

Maybe 10 to 15 days.

Okay. So [ 16% ] of your business goes to 15-day working capital, which is today at about 70 days?

Yeah. 75 days. So that is 75 days is the combined working capital cycle.

So what is the India business today at working capital today?

India is approximately 85 days, 85 to 90 days.

So 85, 90 days has to come down to 15 days.

Eventually, yes. Eventually, yes. And that is not all because as I mentioned that we are putting up a export-oriented unit in Mundra. So it will still be based off -- based on imported scrap to some extent. So it will not 100% to be a domestic scrap versus -- I mean, Indian, all Indian plants would not run on domestic plant, there would still be some imports happening at Mundra plant. But because earlier -- I mean, in this 90 days, but we about 85 days, what we are doing is we are bringing them inland also, which takes around 20 days, 15 days coming in and then 5, 6 days going out. So that 20 days would be saved if we set up that export into Mundra.

So what would be Mundra's working capital cycle than if it is import fed and export out of the country?

Around 60, 65 days.

It will be 60 days?

Yes.

Okay. And the international business, which still operates at, let's say, so if you're complete level is 75 and India was 90, then international business will be operating at 60, 65 days, right?

Yes. 50-60, 50-55 days.

50, 55 day. Even there, there is a downside chance because even at 55 days, every incremental sale that you make will be a negative [indiscernible]?

No there the margins are much higher. The margins are much higher.

In our overseas plants, the margins are much higher. The gross margin would be around 18% to 20%.

And EBITDA?

EBITDA is close to 12%, 12% to 13%.

Perfect. I think next question, Akash, you can go ahead and [indiscernible].

Okay, sure. So sir, Akash here. I think a lot of my questions have already been asked by Pritesh. A couple of questions that I still have. So when is like the inventory turnover is pretty low. And it has decreased year-on-year for the last couple of years. So just wanted to understand why is that happening? Because if we are doing it in India, we are moving raw material sourcing from India, like the scrap sourcing from India. Why should it be going down rather than going up?

So there are 2 answers. I mean, first of all, is we are building up inventories because we are increasing capacities. So any new plants that come up would -- any new plants that come up, we build up capacities for them and that new plant doesn't work at 100% capacity utilization or optimal capacity utilization. So that is creating some mismatches. And also the Indian plants are still -- as I mentioned that it's a 90-day cycle. To reduce it immediately is not possible. You have to first of all, set up plants overseas to take up that capacity only then you can use the Indian plants for domestic scraps. So we've been doing this for the past 2, 2.5 years. And last year onwards, it has started showing results. And this year, probably it will show you better results. Because still this time we were in a transition. We were also getting imported stuff, and we were getting scrap from India also. And we wanted to see whether this scrap that we were generating in India is sustainable or not. Only then we can stop importing the material. And you have to also put up new capacities overseas so that whatever scrap you are bringing to India, you can keep it at those locations itself.

And in addition to what Yogeshji said, in recycling business, there is no credit actually. So we were having only zero trade payables, if you can see last 10-year history. So this is only last 2 years, when we started the business with the OEMs, we started the contract with the OEMs that they will give us the scrap, and we will give them the metal back. So that's why the inventory is increasing along with the increase in the trade payable also. So it's not impacting our cash flows.

Sir, if I know -- that's actually not true because if I look at working capital to sales, it has, for the last '19, '20 and '21, it has stayed in the range of 0.21, 0.22, but the delta working capital to delta sales, that has been going up. And that is what something I track very closely that. For every incremental sales, what is the incremental working capital getting pushed into the business. So either it could be due to inventory, it could be due to receivables, but you have that number going up. If you look at the numbers in detail, I can share my excel sheet separately with you.

So partly what Yogeshji explained that definitely, we were having the higher inventory because of the more scrap from the domestic market. So we were just waiting to for the right time to expand the capacities and immediately seeing the higher scraps coming in. We started putting up the Mundra plant for absorbing that additional inventory, additional scrap and consuming that scrap in Mundra and import will be coming to Mundra and domestic Jaipur will be free from the imported scrap and consuming the more domestic scrap. So that now whatever you see in March '21, that is already -- that inventories are already consumed.

Okay. That is consumed. So going forward [indiscernible]?

There is one more thing I would want to add here is that, as I mentioned earlier also that we are playing a catching up game in the sense that, the inventories or the scrap that we are collecting and the capacities that we are building up, there was a gap. We were always doing catching up. So that is probably why the inventories have gone up. But at the same time, I would like to add here that all these inventories whatever inventories we have, is already sold inventories. So there is very little risk of anything going wrong in these inventories. It's not something that can go obsolete. It's not something that will change if the metal prices go up or down. So these are all sold inventories, which is as good as cash in our hands.

Okay. Basically, it is -- like you said barter. You get in and then you process it at same time, right?

Yes. Yes. Yes. So even if it goes up, it doesn't matter.

Okay. Got it. So I mean, it just blocks your working capital through some way or other.

Yes. Yes. Yes.

When I look at it, sir, what I'm -- I'm playing back what you said. So suppose 2, 3 years down the line, our overall working capital cycle reduces, right? So the company at that point, hopefully generate enough cash, right? So what's -- where do you plan to put that cash to use, will it be CapEx? Will it be going back to shareholders? What's the plan?

So it will be a mix of both. I think till the time we will keep on finding avenues for growth, we will definitely want to grow. But at the same time, we have a policy of dividend in place where we give certain part of the back -- back to the shareholders, that will keep on happening. But at the same time, we will not stop growing because we see huge opportunities in recycling business in India as well as outside India. As I mentioned, Sunilji mentioned we are only doing 5% of the total scrap in India for lead. There are other verticals also. There is lithium and batteries also, there is e-waste, paper. So we don't see that any time in near future, we would not be growing. But at the same time, yes, part of the cash flows would go to the shareholders also.

So I'm more than happy if you do not give dividends and but you flow it back into the business at higher returns. Just one thought -- the last question from my side. Now since you are venturing into non-lead scrap business, right, paper, nylon, EV, sorry, lithium-ion. So the working capital cycle will be different for each, right, because paper has a different cycle all together, as compared to lead. Lead is consumed, produced, and processed the same way back. So what sort of working capital do you see changing because that is something you have not mentioned. Going into different business is fine. But what will it impact have overall on the inventory on the working capital receivables, payables? Just want to...

So in some of the verticals like copper recycling, aluminum and plastic as we are already doing, it's a --it's a similar system. It's a similar setup. For e-waste and for lithium-ion also, I think it's going to be more or less same. But paper would be different. Paper definitely would be different. They are, because it's more of a local system in place where probably we would go. But that is not something we are setting up today. We are still planning on going into those spaces. So we don't know exactly how the working capital cycle would work till the time we -- we get details of that. So -- but otherwise, the immediate things that we are doing is copper and rubber recycling in those 2 things. It's fairly similar.

Perfect. We can take last 2 more questions from the participants. Sarthak and Rajiv, you may start.

Congratulations for the good set of numbers. I want to ask you one question since you mentioned earlier, all the facilities or factories is profitable. All of your factories are profitable. How do you get the payouts from African country or some other country back in India?

Sorry for this. Sorry for this. Sorry for this.

Yes. Can I go ahead?

Yes, please, do.

Yes. So how do you get the payout from an African country or any other country, say -- Is there any regulatory or government issues you face in bringing back money in India? I mean how is the structure like? [indiscernible] back in India.

Definitely. So the structure is that we have a subsidiary in Netherlands, which owns the overseas business, including Africa business, and Central America and Srilanka also. So all these subsidiaries, each country is owned by 100% owned by it, other than Srilanka, 100% owned by Netherland entity. So the money which is earned by each of the subsidiary is flowing back to the Netherlands. And Netherlands is using that money for investing in the new geographies, new business or expansions, whatever all these subsidiaries do. So we -- till the time we don't need the money, which is to be needed in India because as soon as the money will be in India as a dividend, it will be attracting the tax in India. So we don't want that tax to be brought in just for bringing that money without use in India. So we are just waiting for the right time. Whenever we have some expansion or some merger or acquisitions opportunity in India, and we need the money flowing from Netherlands to India. It can easily flow to India with tax just implication of tax. So we never had any issue in flowing money from African entities to Netherlands. It is continuously flowing. And till the time we not -- we have not brought any money to India for use in India. So we're building it for the overseas expansion itself.

And most of our plants are export-oriented units or they are in free trade zones in all the countries that we are present. So expectation of money is not an issue.

Okay. From start till -- till today, no money has come to India as of now?

No, it has come. It has come.

Okay. Okay. And second question is, is there any update on the contract between Exide?

No, there is no contract with Exide as of now.

Any final questions from any of the participants before we give it -- Rajiv, do you have any questions or Rajiv or Sarthak or any of the participant has any final question? So good Yogesh bhai and Sunilji, thanks a lot for the holistic perspective, which you have impacted. I think on behalf of everyone, I wish you all the good luck. And if there are any further follow-ups from any of them, we will come back. But certainly, the trajectory of the business side looks very good. And I think over a 2 to 3 years down the line, our diversification into other product category will only give us a strong operating leverage, and that can further reinforce the entry barrier for our company. So wish you good luck for the trajectory and maybe we will touch base once again after the Q2 earnings, definitely.

Thank you.

Thanks a lot, everyone, for their time. And thanks, Sunilji and Yogesh once again. Thank you very much.

Thank you, [ Kanen ]. Thank you, all.

Perfect.