Gravita India Limited (GRAVITA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Results Conference Call of Gravita India Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sabri Hazarika from Emkay Global Services. Thank you, and over to you, sir.

Yes. Good afternoon, everyone. On behalf of Emkay Global Financial Services Limited, I am pleased to invite you all to the Q3 FY '22 post-earnings conference call of Gravita India Limited. We have with us the senior management of Gravita, Mr. Yogesh Malhotra, Whole Time Director and CEO; Mr. Sunil Kansal, Chief Financial Officer; Mr. Naveen Prakash Sharma, Executive Director; and Mr. Vijay Pareekh, Executive Director. So today's session would be a brief on the results by the management and then we'll move over to the question-and-answer round. So without any further delay, I will request management for their opening comments. Over to you, sir.

Yes. Thank you, Sabri. Good afternoon, everyone. I'm Yogesh Malhotra, whole-time Director and CEO. Thank you for joining our earnings call for Q3 financial year 2022 results. I hope you and your families are staying safe and healthy. We have already circulated our earnings presentation, and I hope you have had the opportunity to go through the presentation. And we would be happy to take any questions afterwards. We would begin this call with a brief discussion on quarter's performance and financial results. The third quarter of the financial year saw improvement on overall basis, increasing production volumes and better realizations across business segments. I am pleased to report that Gravita India has delivered another quarter with a very strong financial performance. Our revenue from operations stood at INR 557 crores, registering a growth of 49% from INR 374 crores in the same quarter last year. India business continues to lead a revenue growth with 63% share, while overseas business contributed 37%. All of our segments have posted good growth on a year-on-year basis. Net revenues were up 43%. Aluminium revenues were up 112% and plastic revenues were up by 51%. In terms of volume price mix, revenue growth was supported by both increase in volume and prices. Volume growth was 14% on a year-on-year basis to 32,000 metric tons with EBITDA per metric ton improving in all 3 segments. Value-added products, which are generally high margin in nature, continue to have a healthy outlook and their contribution stood at 44% of total revenues. Company has delivered an adjusted EBITDA of INR 54 crores, a growth of 69% on a year-on-year basis from INR 32 crores in the same quarter last year. EBITDA margins increased 110 basis points to 9.7% compared to 8.6% in Q3 financial year '21. Margins improvement was driven by increasing volumes supported by higher contribution from overseas business. Net profit for the period was INR 39 crores compared to INR 16 crores in the same quarter last year. In light of the company's recent performance, Board of Directors have declared an interim dividend of INR 3 per share, a payout of 20% on EPS of 9 months. I would now like to update you on some important developments of the quarter. In December, we have announced operationalization of new battery recycling unit at Mundra Port, Gujarat. This will be a 48,000 metric ton per annum plant, of which 19,500 metric tons per annum have been made operational in Phase 1. We have incurred capital expenditure of INR 32 crores so far and an additional INR 30 crore has been outlined for further capacity increase in the next phase of expansion. The Mundra plant is acute with state-of-art facilities and security at a very strategic location. We are expecting to increase share of business from the overseas market, which is higher margin and value accretive. We are also planning pilot projects for rubber and copper recycling at overseas location. After the successful completion, we will be utilizing our learnings from it to expand and replicate similar projects at other locations over the next couple of years. To enable strategic investments for expansion and to strengthen company's operations, Board of Directors has approved a plan to raise funds of up to INR 300 crores. This will be subject to necessary regulatory and shareholders' approval. I would like to highlight that as a company, we continue to maintain our leadership position in the recycling industry through superior product mix, improving operational efficiency, efficiencies in our plants and expanding business operations. With increasing focus on creating circular economies in society, management remains committed to create value for all shareholders and stakeholders. Thank you very much. And now I would like to open the floor for question and answer. Over to you.

[Operator Instructions] The first question is from the line of Rahul Bhangadia from Lucky Investment Managers.

First question would be on the EBITDA margin. We've generally guided for about 8% to 9%. We are reasonably above that right now. So if you could just give us a sense of how you think that will move on. Should we still stick to 8% to 9%? Or how does that go from here?

So yes, I mean, the margins would be around 8% to 9% going forward also. So this year -- I mean, this quarter, probably, there was an increase in EBITDA margins in aluminium, which has increased the overall EBITDA margin to 9.7%. But going forward, we can expect EBITDA margin of around 9%.

Okay. So we should take this quarter as 9.7% slightly above what general trend should be?

Slightly above, yes.

Yes. Okay. The second question was, sir, if you could just give us a sense of how the volumes would move in each of the respective sectors you besides the pilot projects, of course, lead is now about 25,000, 26,000 tons a quarter. Aluminium is stuck around 3,000 tons a quarter for 4, 5 quarters now, and plastic is also around 3,500 to 4,500. So -- how do you see these 3 volume metric is moving?

So lead would move because now the Mundra plant is operational. It has only come into operations in fag end of December. So we will start seeing some business volumes from Mundra plant. So that will increase the capacity by around, say, 1,500 to 2,000 tons per month. As far as aluminium is concerned, it was at around 2,500 tons, which had gone up to 3,000 tons this quarter. Going forward also, we can expect a 3,000 to 3,500 level capacity utilization.

And for plastic, sir?

Plastic again, would be around 3,000, 3,500 tons.

So sir this -- with this -- what kind of volume growth overall should we expect then? In the sense that if you see the math, then what, we should expect 10%, 15% of volume growth? Or should we be high?

In the recent quarter, it is around 15%. But if you talk about the whole next year, you can expect a volume growth of around 25% to 30%.

Because there are certain other capacities, which are also planned, which are all upcoming in various locations, including Mundra, we are expanding. We are also expanding at [indiscernible], Chittoor. We are also expanding in Ghana. So those capacities, if we consider from -- 1 year from now, so that will be 30%, 35% volume growth overall in all the segments together.

Okay. So in the next year, we are looking at these kind of numbers and -- and sir, I'll come back to the queue, but just one final question. We've announced a plan to raise INR 300 crores -- up to INR 300 crores for our future expansion and strategic plans. And at the same time, we have also declared an interim dividend. What's the thought process here, sir? It seems to be counter intuitive to kind of first plan to raise money somewhere and then distribute to the shareholders. What's the thinking here? We would really like to get a hang of it.

So to answer your question, I mean dividend policy, we have already, I mean, kind of declared. We have been giving a dividend of around 15% of our overall PAT year-on-year for the past -- I mean 10, 12 years already. So that is the legacy that is there. So we keep on giving that. As far as INR 300 crores of QIP is concerned, it's not 100% that we could go ahead. So we have just given us -- given ourselves basically a option going forward because we see many other opportunities coming up for us in terms of mergers and acquisitions also. We are also going into other verticals as well. So at the same time, we want to keep the debt at a particular level. We don't want to increase the debt also. So based on that, we are keeping our options open that in future, if required, we may go for a QIP.

Sir you just talked about that. If you could just give us the gross debt number right now as of the quarter.

The gross debt is approximately INR 375 crores at this moment, including the long-term debt and the short-term debt.

The next question is from the line of Sudhir Beda from Right Time Consultants.

And congratulations on this number with the good expansion in the margin. So congrats to your entire team. Sir, my questions are like with the commencement of Mundra plant, what kind of inventory did we expect that it will come down? And overall, what kind of impact it will have on working capital cycle?

So on an immediate level, I think we would be able to reduce the total working capital cycle by around 10 days with the -- I mean, when we start the Mudra plant because as it is, we have increased some inventories to fuel the Munda plant. So overall, the inventories and also because it is in a strategic location, the overall inventory requirement would reduce. So we believe that in the next couple of quarters, we can reduce the inventory by 10 working days.

Great, great. And sir, can you give a number on what kind of operational cash flow we have in Q3?

So Q3 was -- operationally cash flow was negative because we have just done the CapEx for Mundra, and we are also doing some expansion in different locations, including India and overseas. So -- and the working capital requirement is also increasing at this moment. So in Q3, specifically, if we talked, we were in cash negative. So going forward as we reduce...

I'm talking about the cash flow from operations without CapEx.

Okay. Cash flow from operations is approximately -- INR 45 crores is the cash flow from operations.

Great, great, great. Great, sir. And just the last question. As you were talking with the previous answer to the question, what kind of incremental growth do you expect in the next year? Because your capacity and other all capacity will come in the second half. So overall...

Yes. So overall, we are expecting a 30% to 35% volume growth next year also.

Okay. year-to-year?

Year-on-year, yes.

The next question is the from the line of Sanjay Shah, KSA Securities.

Congratulations on excellent numbers, sir. My question was regarding since we have adopted a policy since the last 2 years of hedging the core inventory also, so in that regard, will it be wise to understand that predominantly, there was a big volatility in our margin and more towards lower side and now we have achieved around 8%, 9%, so will it be prudent to understand or take it that even in volatile commodity market, we'll be able to maintain this 8%, 9% margin because of this hedging policy?

Yes, sir, definitely. As I mentioned earlier also, the overall EBITDA margins of 9% are very much sustainable. At this time, because majority of our business that is left is 100% hedged, although no such policy is currently in place for aluminium and plastics, so therefore, there has been a little higher EBITDA this quarter in aluminium because of prices of -- because of the volatility in the aluminium prices. But overall EBITDA margins are very much sustainable.

Great. Sir, can you bit highlight about all our plans at America -- that is a global presence at Americas, Africa and Asia. Can you bit highlight upon what we are doing in America, what is Africa, Ghana and Mozambique, what we're doing there? And what are the scope of growth on that geography?

Yes. Yes, definitely. So in Americas, currently, we have on plastic recycling plant with a capacity of around 10,000 tons per year. And we are planning to increase 1 more plant in the next financial year in Americas that again would be of plastic recycling.

The same size?

Not the same size. It's a different country. Currently, within Nicaragua, there is another country we are planning to put up a plastic recycling plant in Americas. That is our plan.

What is the capacity?

The capacities would be similar, around 10,000 tons per year.

And in Africa?

And in Africa, we are planning to increase capacities in Ghana and Senegal, which will be operational by Q1 next year. Both the capacities would be operational in Q1 next year. And we are putting up an aluminium recycling plant in another location in Africa. And we would also be putting up aluminium recycling plant in Senegal itself where currently, we are only doing lead recycling. Mozambique, we have recently started aluminium capacities, which has started giving us results in last quarter. And probably in the next couple of quarters, we will the regularize of production capacities of aluminium also from Mozambique. So this is the plan for Americas and Africa currently. In India, as Sunil ji already mentioned, we have recently started Mundra projects. We are to increase the capacities in Chittoor -- 38,000 tons increase in capacities in Chittoor. And we are also planning to put up a plant in East India, which may be operational by next financial year, not in this coming financial year.

Right. In Africa, we have been doing aluminium recycling. Is there any specific reason of that? Is the availability is better than other locations?

Yes. First of all, we have started doing aluminium recycling in all the places where we are doing lead recycling already. So there is synergies in terms of procurement, number one. And then yes, definitely, there is overall, because scrap collection -- because we are collecting the same scrap, it's coming from the same route where they are dismantling the vehicles, so dirty scrap also comes from the same route and aluminium scrap is also coming through the same route. So yes, definitely, there is procurement happening in all those places where we are putting up other plants.

Great. Sir, my last question was regarding our new recycling verticals, like e-waste, lithium, rubber, copper, everything what you can recycle. So basically, can you highlight upon what our expertise in that and what ROI you see in that all business?

So when we talk about different recycling verticals, like aluminium, lead, even rubber recycling or we are talking about copper recycling in the near future, they have similar ecosystems. So operational -- at operational level, although equipments are different, but operations are very much similar. So there is not -- so non-ferrous or ferrous metal recycling is not much. So metal recycling is more or less similar. But when it comes to e-waste recycling or lithium ion recycling, the technology is different. So it's not planned in the near future. We are planning to put up a pilot project in lithium recycling in the next 2 to 3 years. So there definitely, we will have to acquire technology also. We will have to acquire operational knowledge also for those products. But for the short-term basis, if we talk about rubber recycling or copper recycling or any other nonferrous recycling vertical, it has the same technology. So there is not much difference in the technology that we are using.

The next question is from the line of Dhiral from PhilipCapital.

Sir, what is giving you so confidence that we are looking to add capacities across the location?

See, it's availability of raw material that is there, first of all, because we already have plants in those locations, and now we are getting more and more because we are expanding our overall collection centers. We are expanding our reach in different countries. So the overall procurement that we can get now, the overall scrap that is available to us is increasing. At the same time, in India, also the scrap is increasing because now more and more scrap is -- because of the various government policies now the scrap is being available to organized recyclers like us. So there are -- the whole ecosystem is now supporting recycling a lot in the organized manner. So in India, if we talk about, there are various policies like extended producer's responsibility, battery waste management rules. All this is enabling organized players like Gravita's put access to more and more scrap. So what we'll do is that the Indian plants are now running more and more on Indian scrap. So if you talk about in the last 2 years, the total Indian scrap used in Indian plants by Gravita has gone up from around 10%, 12% to around 50% currently. So all of our Indian plants are now running more and more on Indian plants. So if we talk about this financial year, the total Indian scrap available to us is 55%. And if we talk about, say, 3 years back in financial year '19, it was around 25% only. So that scrap is getting available to us. So earlier what we were doing was around 75% of our scrap was imported from these countries in Africa. So now we can keep those scrap in those countries itself. So therefore, we are increasing capacity both in India as well as outside India. We are having tie-ups with companies like Amara Raja, Reliance, [indiscernible], Asian Paints where we collect their scrap on their behalf in India.

Okay. So it's just that the availability of scrap is increasing and that's why we are looking to increase our capacity or on the other side, demand is also very strong for the recycled product?

Both in terms -- in metals, generally, it is the procurement. But when you talk about plastics, generally, it is -- also the demand side is also having a positive effect on -- but in metals, there was always demand for recycled material also. There is no difference between recycled and -- but there is hardly -- I mean, because it's a different -- so the overall requirement for recycled material as far as metal is concerned, was always there. In plastic, definitely, the demand is also increasing.

Sir what is the ratio of, let's say, recycled metal used and maybe primary metal used?

It depends on metal to metal. If we talk about lead, particularly 70% to 80% is used as recycled and 20% only for the virgin because the raw material is battery. So battery, you will always get whatever was used 3 years back. So you will get recycling after 3 years. But the applications where it go for a longer period like lead cable and all, so that 20% quantity will be available for recycling after 15, 20 years. Similarly, other metals -- aluminium. So it is mostly used in vehicles or building, so that recycling availability will be longer. So here, it is reverse. 70% is through primary 30% from recycling.

And sir, in plastic?

Pardon?

In plastic, sir, plastic?

Plastics, it is basically more of virgin issues and of late when the environment concerns are there, now governments are asking that there should be some recycled content. So there, the collection of proper plastic collection is a challenge. So if it is being collected in a proper way, then now food to food grade plastic is also used a recycled material, but it is increasing. Earlier, it was only being left over. So post-pandemic and after that, that trend is increasing. Now governments are asking that there should be some recycled content in particularly different type of projects.

Okay. Okay. And sir, when we are targeting a 25% kind of a ROCE, so what is our roadmap to achieve that mark?

Sorry?

Sir, when we are targeting 25% ROCE by 2025, so what is our roadmap to achieve that mark?

So currently, we have an ROCE of around 20%. So there are various things as we increase the volumes, the ROCE will increase, number one. Number two, as we mentioned that we are reducing our working capital cycle, we have a target of reducing the working capital cycle by around 10 days in the next 2, 3 quarters, so that will also increase the ROCE. At the same time, we are increasing our total capacity overseas, which is a higher-margin product. That will increase the ROCE. The third thing that we are talking about higher value-added products, which gives us higher margins, that will increase the ROCE. The fourth is, as we mentioned that Indian scrap now is being used for our Indian plants whereas earlier we were importing all the materials into India. So that will also reduce working capital cycle also. And the Indian business is generally zero working capital cycle because it's kind of a barter arrangements where we buy material from them, but we don't pay them in -- we just give them a -- change could be in return on the materials that we buy from these companies. So that is generally zero working capital cycle business. So that will also add on to the increase in ROCE.

Okay. Sir, lastly just one...

Mr. Dhiral, may we request that you return to the question queue. There are participants waiting for their turn. The next question is from the line of Pranav Gala from I-Wealth Management.

Sir, just two things that I wanted to understand. First on, sir, this line item in our results, which is the unallocated expenses, which has first of all, gone down from INR 12 crores last quarter to INR 3 crores in the current quarter. Sir, what is that particular line item? And why has it come down drastically?

Yes. So basically, there are certain expenses, which like some consultancy projects, which we have undertaken in that particular period, so which cannot be allocated to specific projects, specific segment, so that was a onetime one-off case in that quarter. But otherwise, this is the normal unlockable expenses of approximately INR 3 crores to INR 4 crores.

Okay. Okay. And sir, secondly, if I'm currently seeing on our volume side for lead. So Q-on-Q, our volume has come down from 26,000 -- 26,600 tons to around 25,300 tons, and our EBITDA has increased. So on an absolute basis, our EBITDA has come down. So what is the reason because we are seeing realization growth as well. The new capacity has also come online. So what was the reason for it?

So basically, the new capacity that has come ahead is yet to give us results. Probably, it will start giving a result in the first quarter only. As far as the total volumes have come down, that is when the absolute EBITDA has come down to some extent, and that is because of some shipping issues that we saw this quarter.

Okay. So are we continuing...

The production has not gone down, but the dispatches have reduced in this quarter.

Yes. At the quarter end, specifically in the December month, there was some logistic issues where the shipments of some export goods was not -- we were not able to make it and the goods was lying under finished goods in the time in terms of inventory only. So that was the reason the volume slightly came down and which is also impacting the...

And also the stand-alone EBITDA has come down because of additional expenses incurred during Mundra project because it has not started getting a result so far. The revenue has not started coming from that plant. So that additional expenses have also reduced the overall EBITDA.

Okay. So the dispatch, which we have been facing has been resolved now? The dispatch issues which we saw for the month of December?

It is only a temporary issue. All those things will be reflected in the next quarter numbers.

Okay. So the December dispatch, which was supposed to happen will happen in the current quarter?

Yes, correct.

The next question is from the line of Piyush Mehta from Capris Investments.

Just 2 quick questions. So when we're talking about capacity, you mentioned that for the 48,000 number capacity, we'll be incurring close to INR 30 to INR 32 crores of CapEx. What is the kind of CapEx that will incur for the Chittoor plant?

So Chittoor plant, we are expanding the capacity for refining and alloying at this -- so we'll be spending approximately INR 20-odd crores for expanding the capacity in Chittoor.

And the East India CapEx that you mentioned, how much would that be?

Sorry?

The new capacity that you said you will look at in FY '23, in the East.

East India, we are planning to start by approximately 12,000 tons per year. And then we will make it -- in the next phase, we will make it 24,000 tons per annum.

Okay. So this would also incur close to INR 20 crores of CapEx?

So initially, we want to start -- yes, you can say that, yes, correct. It will start with approximately INR 20 crores, INR 25 crores and then gradually grow.

So when I look at FY '23, we'll have 48,000 from Mundra, 38,000 from Chittoor, another 12,000 from East India and an additional capacity from the overseas operations.

We will not be operational in this year. East India will be operational in the next year. So we can start doing some CapEx in this year, but it will be operational in the next year.

Okay. No, I mean, will it come in FY '23 or will it -- or FY '24?

FY '24. It will be operational in FY '24.

So considering 38,000 from Mundra -- 48,000 from Mundra and 38,000 from Chittoor and additional capacity from international, so from current 2 lakh plus in FY '23, what is the kind of capacity that we could see for the company?

So Mundra is around 20,000 currently. So the less capacity expansion would probably happen by the end of this year, financial -- this calendar year. So the entire amount of expansion, revenue will not be coming from the total capacity.

So total capacity enhancements, including Mundra expansion, Chittoor expansion and some expansion in overseas, so we can expect approximately, in next 2 years, we can expand it by 1.2 lakh tons from here.

So over the next 2 years from 2 lakh, we will add another 1.2 lakh, so close to more than 50% capacity that is more behind us.

Correct, correct, correct.

I understood. And for the additional Chittoor and Mundra, what are the kind of ROCE that we are seeing for this incremental capacity?

So ROCE, the minimum target for ROCE is 25%. So we are not going anything below 25%, but considering the working capital cycle for Chittoor and working capital cycle for Mundra, it should be slightly higher, we can consider it above 30 -- 30% to 35%.

Okay. And lastly, what is the kind of cash flow from operations that we expect from FY '23?

Cash flow from operations FY '23. So basically, we are growing the cash flow from operations about 35% to 40% every year, considering that volume expansion, considering the slightly improvement in the margins by more volumes, more value-added products. So considering all these things, we can expect approximately 40% growth from [indiscernible].

You said considering we had operational cash flow of INR 45 crores in Q3, try to assume that we'll have for full year in FY '23, INR 250 crores to INR 300 crores of operating cash flows?

That's correct. Correct.

Okay. And this rise in EBITDA per ton for aluminium, is this because this is a segment that we do not hedge? And we get the realizations based on the increase in lead prices that we've seen?

So there are 2 aspects to this. Number one, as you mentioned that we don't hedge this product. So partly the increase in EBITDA has come from that volatility in the prices in the market. The second is because our -- this Mozambique plant was not operational until last month. It started in last quarter. It started operations this quarter itself. So the margins there are higher, so we could do higher quantities from Mozambique plant or our overseas business increased. So that also increased the overall EBITDA margins. So part of it will be -- going forward also, we will be able to achieve. But -- so we are expecting an EBITDA margin of around INR 20 -- INR 20 to INR 22 going forward on an average basis for the longer period.

The next question is from the line of Nitin Khankar and investor.

Yes. I have a question about your international operations. So you have a plant in Nicaragua and you'll be setting up another plant in the Americas. Now the -- if you look at the data, the recycling of plastic has got tremendous scope, particularly in North America. The numbers are like a couple of million tons of plastic is being recycled successfully. So don't you think these numbers that you're targeting in terms of say 20,000 tons capacity are just kind of scratching the surface. So would it at all make sense for you to consider entering the Mainland North America market with some small CapEx? Or what is your take on that?

Yes, definitely, sir. Definitely, we believe that we are going a little slow in terms of expansion, and that is why we have kept an option of QIP going forward because we see certain opportunities, which we can -- I mean, as and when required, we can access those markets or access those overall opportunities. So that is why we are keeping our -- because funds is our major -- because we can't grow beyond a particular point with the existing resources, so we would have to increase the resources among debt. We have our internal targets of not going beyond 1:1. So the only option that is left for us if we get any opportunity in plastic or in other segments is to dilute the equity to some extent.

So keeping -- that is keeping these -- such opportunities in mind of plastic expansion, of expansion into rubber and copper recycling, all these things. And we are also looking at certain options for paper recycling in Central America and also iron and steel expansion in Africa. So there are quite a few opportunities that we are looking at, but it will all depend on the total funds available to us.

Okay. My next question is about the regulatory environment. So in India, we already are seeing strong regulatory tailwinds for the business. But in the overseas market, which account for a major portion of your profit, are there any kind of regulatory tailwinds or headwinds which could go with us or against us?

So there are all tailwinds, sir, because recycling as it is, is -- I mean, probably every government, every community is now talking about recycling. So as far as plastic or aluminium recycling is concerned, there are tailwinds into it. When we talk about lead also, definitely because of it being hazardous in nature, dirty scrap movement is restricted. So overall, governments are encouraging companies like Gravita, which can come and solve their waste problems. So definitely, there are certain regulatory restrictions, but Gravita is into this for the past more than 25 years now, so we have the capacities, capabilities. We also make our own plant and machinery equipment, which we supply to other recyclers also and which is operationally in many countries, including in Saudi Arabia, in Europe. So we are the people who can manage this in a sustainable level. So any regulatory strictness would only benefit companies like us. That is happening in India currently.

Yes. So a couple of quick questions, and I will possibly get back in the queue. But just a quick question about the turnkey projects segment. The revenue has been kind of muted over the current financial year. So I believe you as a company are fairly bullish on the turnkey project segment. So do you expect a major bump on that produce segment going ahead?

Yes, definitely. After 2 years of literally very -- I mean, because it was COVID affected, so the travel was restricted and certain projects were also not -- were in the pipeline only but were not realizing. But going forward, we believe that the turnkey projects also give us -- start giving us results. There are certain projects in the pipeline currently, which we are looking at. But that is only a small part of our turnkey solutions business because currently it is helping Gravita because all of our expansion is happening through these turnkey solutions division only. So I mean, although it's not showing in the revenues were in the profits, but overall the growth journey is being done through this in-house production only.

Sorry, Mr. Nitin, may we request that you return to the question queue. There are participants waiting for their turn. The next question is from the line of Akash Jain from Ajcon Global Services Limited.

Congratulations on a good set of numbers, especially on Y-on-Y basis. Most of the questions you have answered. But I had a question on this Indian business. As you said that it is like you have zero working capital in the India business as it's like having a barter arrangement. So what kind of accounting statement do we have as we have barter arrangement in this?

So it's not exactly barter arrangement. It's basically buying and selling only. So we buy the product, we buy the scrap from the OEM. And then we process that raw material and sell them the product. But till the time we sell them the product, we don't pay for the scrap. So on one hand, it is lying in the inventory. On the other hand, it's lying in the tables. So overall, the working capital cycle is no.

Okay. And what bottlenecks do you see to achieve this ROE of, say, 25% by 2025?

So considering the lower working capital cycle for us and considering the volume growth we are expecting. So it's not -- we can reach this number very easily in the next 2 years.

Why I'm asking this question is because in this quarter, we have faced logistics issue. So as you said earlier that it's a temporary issue. But going forward, can we expect such issues recurring?

We talked about shipping issues and not logistics issue because inland logistics is not a big problem. But because currently, even at current level, our dependence on overseas scrap and we are selling to the overseas businesses also has increased, that is why this is there. Once 100% of business is dependent on barter arrangements where we do job for OEMs, then these issues will reduce going forward.

Okay. And sir, my question was on this plastic recycling segment. As we -- there was an earlier question, if there is a big opportunity in the North American market for this plastic recycling, so who are your potential competitors seen across the globe?

Sir, basically, plastic recycling is a very localized, I mean, operations. So every country has different ecosystems in place different -- because it all depends on the scrap generation where the scrap is getting generated, where you're getting the scrap from. So for example, in Nicaragua, we may have different competition. And say, for example, we are putting up our own plant in Costa Rica or Dominican Republic where there would be different competition. If -- there is no one single competition for plastic recycling globally.

So what is the scenario in India for plastic recycling?

See there are 2 kinds of plastics we talk about. One is the food to food grade that is more prominent in the countries in Americas that we are doing. So majorly, we are doing PET recycling in those countries. Currently in India, food to -- I mean, food grade recycling is not permitted in PET recycling. So mostly recycling that is happening in plastics is basically nonfood grade, whereas our expertise is in food grade recycling.

Okay. I had a basic query in my mind that since we have recycled many commodities. So any plans to [indiscernible] electronic waste recycling.

Yes, we are looking at those opportunities also. As we mentioned, as we are looking at various verticals, including e-waste, lithium ion, copper recycling, paper recycling, so -- but currently, if we talk about expansion, we have our own vertical where we can see that in the next 2 to 3 years, we have options to expand in the current verticals itself.

Sorry to interrupt, Mr. Jain. Sir, may we request that you return to the question queue? There are participants waiting for their turn. The next question is from the line of Vaibhav Badjatya from (sic) [ Honesty and ] Integrity Investments.

Vaibhav from Honesty and Integrity Investments. So just one question on plastic recycling. I understand that there is a push from the government to use recycled plastic. But if keeping the regulations aside, how is the economics for the and for the -- for our clients work out? I mean is it cheaper than the virgin material that is used in plastic? And if it is not, then at what level of oil prices, do you think that recycled plastic might become cheaper than the virgin material?

So basically, if you talk about -- so it again depends on which country we are talking about. As far as India is concerned, definitely, the recycled plastic sells at discount over virgin plastic. So people are buying it only to reduce cost to some extent and not to comply by the rules and regulation. Whereas, if you talk about food-grade plastics in Europe and U.S., in the last year, 1.5 years, the prices of recycled PET flakes or PET resins have gone at -- are selling at a premium over virgin plastics. That is simply because there are regulations in place where they have -- now have to use around 20% to 25% recycled plastic. And so the demand is huge, where the supply is limited. So these prices have already gone beyond the virgin's raise in prices already. In those cases, we see, I mean every month, the prices are going up. So the margins have increased, the volumes have increased because there is huge demand in those countries. We foresee that in the future, India would also follow those norms and start using -- or the government will probably put in place certain policies where they would ask the OEMs to start using recycled plastic also. So then in India also, the prices of recycled material would -- plastics would go on increasing. Whereas currently in India, you sell at a discounted price, our virgin plastic.

Correct. And in the value chain of recycled plastic -- in terms of cost, I think most of our cost -- costs would reside in the basically process to collect the plastic or it is in the processing of the collected material. Where is the most of the cost reside?

So it's both, basically, both in collection also, it is there. And in processing also, if you want to go into food grade, definitely the processing cost is also higher. Whereas, if you just make a normal flake, probably the processing cost is not as much. But if you go into food grade recycling, then the process cost is also higher. [indiscernible] processing is also higher in that case.

The next question is from the line of Rahul Bhangadia from Lucky Investment Managers.

You have said you're planning expansion in Chittoor, then a new plant in East India. This raw material sourcing for this would majorly now be coming from your back-to-back arrangements in the corporates? Or you are seeing that trend of unorganized to organized gaining momentum and that's why you have the confidence of putting up these plants addition capacities?

So it's, again, both because there is a shift from unorganized to organized, we see that we will -- we'll start getting more and more scrap, and also because there is constant pressure on the OEMs to start using recycled material in India, to start collecting the scrap that is generated in India in the market, so again, there also, we see that both these areas, we will study. We are already getting more and more scrap in India, and that is why we have increased the capacities in Mundra. Currently, if you ask our Chittoor plant and [indiscernible] plant, both in next 2 quarters would be running 100% on the domestic scrap only. And most of the imported scrap be recycled at our Mundra plant itself.

So your capacities would pretty much be in the sense, prebooked in that sense? As soon as you put it up, you'll be able to source your raw material?

See, sales is not at all a problem. It's a commodity. -- sales is not at all a problem. We can sell as much as we can produce.

So basically, sourcing is the thing, right? That's your gain...

Yes.

Okay. Sir, next question was you have given a broad sense of what to expect in aluminium in terms of EBITDA per ton, INR 20, INR 22 is what you said. A similar sense on plastics?

Plastic also, the EBITDA would keep on improving. Currently, the EBITDA is...

Last quarter, we were about INR 12 a ton.

Yes, yes, yes. So it's INR 12. So you can expect similar numbers, in fact, a little higher from INR 12, around, say, INR 13 to INR 14 EBITDA in the next 2 to 3 quarters. It will be similar numbers. The EBITDA per ton would increase in plastics also.

And just a final question is, sir, except for some opportunities that you have mentioned in the sense that if you get an opportunity of doing...

No, that is not in this -- I mean, that is a separate issue.

Right. sir. And one last question. Your CapEx plans, they still remain about INR 60 crores to INR 80 crores per annum except for some big opportunity, as you mentioned, for which you may have to do a QIP or something like that. INR 60 crores to INR 80 crores a broad CapEx number per annum for the next 3, 4 years?

Yes. For the existing verticals, INR 70 crores to INR 80 crores is the CapEx for the expanding in next 2 years, excluding the new verticals which we plan.

The next question is from the line of Anish Goel from Goel Financial Services.

I was just thinking about the company name, Attero India. Hello, can you hear me, sir?

Yes, yes, we can.

There's a company name, Attero India. They are into recycling of electrical vehicle and gadgets. And you have a plan of entering the segment into, say, 3 to 4 years. Don't you think you can lose an edge over if you start to this [indiscernible]?

Attero India is currently into e-waste recycling.

No, sir. Actually they are now -- I think they are entering into electric vehicle recycling also.

Electric vehicle recycling is basically -- lithium ion battery are being used in electric vehicle. And there are other type of batteries like, Reliance is now looking after sodium batteries. So in case of electric vehicle, there is no clarity what type of chemistry will be final. As of now, there is hardly any material available. The life cycle of a lithium ion battery 6 to 7 years. So whatever vehicles are being sold in this year, they will be available for recycling only on 2027, 2028. So things are not based on the exact raw material availability until countries start importing those battery into the country. So the practical things are not happening. Though a lot of companies like Attero have shown interest that they will recycle lithium-ion batteries. So as we mentioned also that in time to come, we also plan to put some pilot projects to bring that technology. As of now, nobody is into this business.

Okay, okay. Sir, I was actually reading the 2021 year annual report. If you come across the subsidiary in Noble build Estate Private Limited, and you are incurring a loss of INR 28 lakhs. So what are the operations about 3 or 4 years just incurring a loss of INR 28,000, no turnover over there.

Which company? So which company you're talking about?

Sir, Noble build Estate Private Limited.

Okay. Noble build Estate is a company, which where -- we have our land only. That's a subsidiary company of Delta India Limited, where we have some land for the corporate office, future corporate office. So there is no business in that company at this moment.

Okay. And sir, you have recently told you have debt of INR 370 crores. How do you plan on to dealing with that debt in order to close the debt?

Sir, couldn't hear you properly, sir?

Sir, I'm asking that you have recently told you have debt of INR 370 crores at the end of this quarter. So how you plan on to dealing with that debt, like paying off?

This debt is majorly because of the working capital cycle. So as soon as we have the lower working capital cycle, so the proportionate debt will be reduced. So overall, absolute debt may increase because of the working capital requirement for the future business, as we're growing by 30%, 35%. But the requirement of -- the proportion requirement will reduce. We are increasing the domestic business, where the working capital cycle will be lower. So that will -- and long-term debt is only for the CapEx, which we do, and it will be repaid in the next 3 to 4 years. But the working capital part will be continued.

The next question is from the line of Sandeep [indiscernible], an investor.

I just wanted to understand the profile of our customers in the overseas geography, say, for your African operations and for your Nicaragua operations.

So yes. So basically, from Nicaragua -- so from Nicaragua, we are selling directly into the U.S. or Europe to all the resin manufacturers that make raisings for food grade bottle-to-bottle plants. So if you talk about -- we sell to Octal, which is -- we sell to Indorama. So these are major customers that we have in U.S.

And what about African operations? Who do they cater to?

So in -- from Africa, we are selling either to OEMs directly or to major traders like Glencore, Trafigura, [indiscernible]. So either we sell to them and they sell to the OEMs or we sell directly to the OEMs also.

These OEMs are based in Africa?

I think it is outside Africa. Nothing it -- gets sold into Africa. Most of these products are sold into Europe or Asia or Americas, U.S.

So for lead and aluminium, mostly our international customers are same for India and Africa. So like Trafigura, they are supplying from India also, and we are supplying from Africa also even from Sri Lanka also. So set of customers is same. Corporates are same, but we are supplying it from the different locations globally.

See, the ecosystem is like we collect the scrap locally, we process it and sell it off internationally to the battery manufacturers, either directly or through major traders like Trafigura and Glencore.

Thank you. Ladies and gentlemen, we'll be taking the last question that is from the line of Nitin Khankar, an investor.

Sunilji, this is a question for you. The line item tax -- current tax, I see a decline in the first 9 months of the current fiscal in terms of rate. So is it because of the CapEx that you're planning? Or could you please throw some light on that?

Yes. So basically, the tax is reducing because of our -- some of the overseas locations like the Ghana and Tanzania. So we have a tax assumption up to 10 years in those geographies, and they are the new plants recently started 1 or 2 years. And we will be keep on enjoying up to next 7, 8 years more. And so -- the major contribution -- significant contribution is coming from those geographies, where the tax is practically zero for at this moment. So this is the reason of reduced tax rate globally, overall.

Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.

Yes. Thank you all very much for participating in the earnings conference call. It has been a pleasure interacting with all of you. We expect to continue delivering better operational performance coupled with volume growth in the upcoming quarters also. As I mentioned earlier, the company is focused on optimizing its overseas manufacturing facilities, along with improving its scrap collection network in India and abroad, to help improve its profitability and also reducing working capital collections. Additionally, the company continues to focus on improving product and market mix to get better margins. We value your continued interest and support to Gravita. We have tried to address all your questions. If you have any further queries, please connect with us, and we would be happy to address the same. Thank you. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.