Ladies and gentlemen, good day, and welcome to the Gravita India Limited Q1 FY 2025 conference call, hosted by Antique Stock Broking. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I'll hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, sir.
Thank you, Neha. On behalf of Antique Stock Broking, I would like to welcome all the participants on the 1Q FY 2024 earnings call of Gravita India. From the management, we have Mr. Yogesh Malhotra, Whole-Time Director and CEO, Mr. Vijay Pareek, Executive Director, Mr. Naveen Sharma, Executive Director, and Mr. Sunil Kansal, CFO, on the call. Without further ado, I would like to hand over the call to Mr. Malhotra for opening remarks, post which we'll open the floor for Q&A. Thank you. Over to you, Mr. Malhotra.
Thank you, Mr. Manish. Good afternoon, ladies and gentlemen, and welcome to our Q1 FY 2025 earnings call. I trust you have had the chance to go through the earnings presentation and financial results that were uploaded on the stock exchanges. I'm pleased to announce that Gravita has begun the year on a positive note, achieving a strong performance in the first quarter of FY 2025. Before we delve into the results, I would like to share some strategic highlights and project updates. Due to stringent government regulations under BWMR and EPR, the availability of domestic scrap is increasing, and consequently, our sourcing of domestic scrap is also rising. Of the total scrap Gravita sourced in India in Q1 FY 2025, more than 40% is domestic scrap, depicting a growth of more than 50% in volume on year-on-year basis.
As you're already aware, Gravita engages in back-to-back hedging of lead to mitigate risk and is also working on a hedging mechanism for aluminum. The Ministry of Finance has notified aluminum alloy under the Securities Contracts (Regulation) Act of 1956. We anticipate the launch of the aluminum alloy commodity derivative on the MCX shortly. This development will play a crucial role in managing the risk associated with the price volatility. By effectively hedging against price fluctuations, we can ensure more stable and predictable financial outcomes. This stability will ensure that we allocate resources more efficiently, make informed strategic decisions, and ultimately scale and expand our aluminum business with resilience. We are setting up a pilot project for lithium-ion recycling and our first Indian tire recycling plant at Mundra, both of which are expected to be operational in H1 FY 2026.
The paper recycling plant and steel recycling plants are anticipated to be operational by financial year FY 2027. We are currently in the due diligence phase for both the projects. Gravita is also advancing strategically to meet its short-term, midterm, and long-term goals by FY 2027, FY 2034, and FY 2050, respectively, as outlined in its ESG roadmap. By amending ESG principle, Gravita demonstrates its dedication to long-term sustainability and value creation. Coming to operational performance, we saw a substantial increase in volumes in Q1 FY 2025. Overall, we saw a growth of 29% in volumes. Volume of lead, aluminum, and plastics stood at 41,900 tons, 2,460 tons, and 3,190 tons, respectively.
Coming to quarterly EBITDA per ton performance, EBITDA per ton of lead, aluminum, and plastics stood at INR 19,321 per ton, INR 19,414 per ton, and INR 10,077 per ton, respectively. Moving to financial results for Q1 FY 2025. Revenue for Q1 FY 2025 increased by 29% to INR 908 crore. Forty-seven percent of revenue in Q1 FY 2025 came from value-added products, which is in line with our vision of achieving 50% revenues from this category. Adjusted EBITDA for Q1 FY 2025 increased to INR 91.24 crore, up by 33% on year-on-year basis. EBITDA margin stood at 10.05%. PAT showed significant increase of 29% to INR 67.33 crore on year-on-year basis in Q1 FY 2025.
PAT margin increased to 7.42%. In conclusion, Gravita is making impressive strides toward its Clear Vision 2028. Our strategic focus is on expanding existing verticals, aiming CAGR growth for our volume above 25%, profitability growth over 35%, and ROC exceeding 25%. We are also committed to raising our non-land business share to over 30%, using more than 30% renewable energy and reducing energy consumption by over 10%. These efforts underscore our commitment to sustainable development. Our successful strategies, including capacity expansion, increasing the proportion of value-added products, and managing risk through back-to-back hedging, have resulted in robust and sustainable margins.
With our 31 years of recycling expertise, 12 advanced eco-friendly facilities globally, global footprint in over 70 countries, an integrated supply chain, stringent BWMR and EPR regulations, and strong support from stakeholders, we are poised to achieve our Clear Vision 2028, as well as diversifying into new businesses... new areas like BPMI, steel, and paper recycling. That's all from my end. I would now request to open the floor for questions and answers. Thank you, and over to you, Mr. Manish.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Yeah, hi, good afternoon, everyone. Thanks for taking, thanks for taking my question, and congratulations for a great performance. I have two questions, sir. The first one is on aluminum. If I look at EBITDA per ton, that has increased materially, while production is, of course, you know, little bit subdued, maybe because so far we have not got that hedging clearance. So, just wanted to understand the key driver behind this EBITDA per ton improvement. Is it purely LME driven or LME scrap spreads were little bit more benign, and how do we see it going ahead? So that is the first question.
Yeah, Amit ji, so basically, this improvement in EBITDA definitely came from, partly came from, the LME, which is, the metal prices which improved in this quarter. So, as we already discussed that this, aluminum, because we are not fully hedged on this metal, so always when the prices are higher, we get slightly better on the margins, and definitely, on the other side, when the prices are lower, we get lower margins. So, but as Yogesh mentioned that we are going to, you know, in future we are going to hedge this metal also, as we do in, lead. So, we are discussing this matter with the MCX and they are coming up with the product.
So, in future, this will be in the range of INR 15-16, which is a stable kind of a margin, per ton, 15, per ton, per kg, per kg, so INR 15,000 per, INR 15-16,000 per ton. So that can be a stable margin for future, we, we can assume. Yeah. I would also like to add here that we've got some contracts in India, price contracts in India, and therefore we are shipping some material from our overseas locations into India. Most of these price contracts are on the basis of M-1 or M-2 pricing. So, kind of giving a natural hedge to our positions, inventory positions overseas.
Because of this, you will see even if the MCX is not there, you will see some stable margins coming in in the next quarters.
Okay, got it. The second question is on the we have closed some subsidiaries, I mean, quite recently, Jamaica, Ghana, et cetera. Now, we were expecting while these, I mean, two of them were non-operational at the moment, but, can you just clarify the reason behind closing these subsidiaries? Does it change our business case in any way? Just wanted to understand that.
So, yes, Amit ji, you're right. We have closed two subsidiaries, and one in Costa Rica and one in Jamaica. But these were... Earlier we were into plastic PET recycling business in Central America. So at that point of time, we were having one plant in Jamaica and one scrapyard in Costa Rica. So, we were doing some processing of PET recycling in Nicaragua also, which the subsidiary we sold few years back. While in COVID, there were some scrap shortages because of COVID, so we exited from those countries.
So these were some operational, company and non-operational companies which we were, trying to close this, and, and there is no impact on the business that, we were, we sold this equity of Nicaragua entity, and, we were in the process of selling these, closing these subsidiaries in Nic- in Costa Rica and Jamaica also. So, because we exited into, from this PET recycling business fully, but now we also plan to have, PET recycling business in India, where we, we are, putting the... We are planning to put a, independent PET recycling facility for food grade plastics, for food grade PET, in India. So that is a upcoming business because we have that experience in Nicaragua.
Okay. So it, I mean, the closure of the subsidiary doesn't mean that, you know, our future plans that we have in other geographies of expansion into other verticals also, maybe steel and rubber.
Yeah, no.
There is no impact?
So there is no impact because we are coming out of those geographies. We have already come out of those geographies, so but we have plans in Central America, but in some different geographies. So it will not impact any future plans, any expansion plans in the future.
Okay, great. Thanks for the clarification. All the best.
Thank you. Thank you, Amit ji.
Thank you. The next question is from the line of Bharat Shah from ASK Investment Managers LLP. Please go ahead.
Yeah, hi. You mentioned certain targets. I couldn't fully catch all of them. What I understood was that ROC, 25%, which we have talked about many a times, growth rate of 25%. Did you mention profit growth of 35%? Or at least that's what I understood.
Yes, sir. So we've always been saying that, although the volume will grow at 25%, but because of various initiatives, the bottom line would grow by more than 35%, because there we are trying to increase the value added products content. There will be certain economies of scale, and also the new verticals of plastic and rubber are a little more profitable as compared to lead and aluminum. So definitely the bottom line target to the target to increase bottom line growth by around 35% in the next three to four years.
Other reasons are like, sir, the fixed cost is remaining same, like the interest cost is also, we are trying to bring it down by having a more cash flow, better cash flows, because of the more business coming in from the domestic part. So, the improvement in bottom line, like profitability, will be better than the growth in the-
Volume.
-the volumes.
Okay. Now, that was, that was good to know, because all along, in many discussions that we have had, my impression, on, on top line growth of about 20-25%, I, was well captured, but this is an interesting new addition. Thank you.
Thank you, sir.
Thank you. The next question is from the line of Sumangal from Kotak Securities. Please go ahead.
Yeah, good afternoon, sir, and congratulations on a very strong set of numbers. My first question is with regards to the new businesses or new categories which we are entering. Are we looking for any technology tie-ups or do you think we are self-sufficient, especially for lithium ion recycling, lithium battery recycling? Number one. Number two, have you started collecting scrap for these businesses? And once these recycling plants set up, what sort of margin should we expect, given the initial phase, do we expect the initial few quarters to be loss-making or some sort of normalized level of margin one can expect, given the visibility on the scrap side for these businesses?
So in lithium-ion battery, it's going to be a pilot project. So in lithium-ion, the first part of the technologies of creating a black mass is basically over-the-counter technology that we are buying. And the second phase, where we will be refining metals or extracting metals out of it, that technology we'll be building in-house. So that is why it's a pilot project. Right now, although we have certain interest to import scrap from other countries also, but all of this has to wait till the time we have set up our own plant. And battery scrap in India is not currently to the tune that you can buy it currently. So the scrap will start coming, probably in a matter of two to three years.
But there is some scrap availability in some of the developed countries, from where we have already seen some interest. As far as memory is concerned, it will be a profitable business right from the day one. Of course, there will be some time to set it up, but it's going to be a profitable business. But lithium-ion battery recycling is just a pilot project. We want to be there to understand the technology better, to understand the flow of material, to tie up with battery and car manufacturing companies. So that is why this is more of a strategic business country.
Understood, sir. Understood that.
Thank you.
Sir, my second question is on the aluminum business. We were talking about also a very strong growth this year. Do we expect that to now start reflecting from the second quarter onwards, or there is some bit of kind of...
Yes, sir. What I mentioned earlier also is that we have now got some contracts in India, which are stable in nature in the sense that they are based on, the pricing is based on M-1 and M-2, that means one or two months prior. So based on this, we can now start production at our overseas plants and start shipping it to India. So we've already done that, and currently around 2,500 tons of material is already shipping towards India, for which we have a pricing offer already. So you will start seeing these results from Q2 onwards.
Okay.
Additionally, there is another plant we are starting in Ghana, which is upcoming shortly. So that will also add up some volumes for aluminum business in the market.
Understood. And when, from when do we expect the hedging instrument to be available?
We are expecting it in this Q2.
Okay. Okay. Understood. Understood. My next question is on, on the penalties on OEMs, for the recycling obligation, because we were expecting this to be somewhere around June this year. I mean, what's the latest, timeline, and from our interaction with the ministries and with the regulators, when do we expect this to be implemented?
Yes, the regulation CPCB and manufacturers and producers of batteries, and with consultation with the recyclers. So I think this should be finalized within this Q2. Lead-acid battery almost finalized between both of them, while in case of lithium-ion batteries, it is still under some discussions, but it will be released together by this quarter itself.
Understood. That's all from my side. Thank you, and all the best to the team. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address the questions from all the participants, please limit your questions to two per participant. Thank you. The next question is from the line of Preet Bharatbhai Rajas from Anugraha Advisors. Please go ahead.
Yeah, hi, thanks for the opportunity, and congrats on very good numbers. My first question is to Sunil sir. So that in this quarter, other income is reduced materially, QOQ and YOY basis. So can you give us the bridge or breakup between the Forex gain or loss, the commodity forward contracts gain or loss, and the treasury income?
Yeah, you're right. This quarter, other income is showing slightly lower. So there are two components of other income. One is operational other income, and another is the non-operational other income. So operational other income, we consider whatever contribution is coming from the commodity contracts or currency contracts, so that we consider as the operational part. And whatever is coming from other sources like interest or bank interest or something like that, so that is non-operational part of other income. So this quarter, approximately INR 3.57 crore is the operational part, and rest is the INR 3.3 crore is the non-operational part.
So historically, whatever hedging income is coming from the commodity contract, so that also fluctuates because whenever we are getting better from the operational side, we lose something on the, on the con- on the-
Exchange.
exchange, exchange, contract. So there is a compensation of a physical contract. So this quarter, it is from the exchange part, it is a negative slightly INR 0.86 crore. So that is shown in the other expense part. So that is the reason. And in the previous quarter, it was on the positive from the exchange part, and we were losing on the physical part. So it's a compensation, so that is the reason we consider it as the operational income. So this is the reason in this quarter it is lower.
Okay. So INR 3.3 crore, which is non-operational. Sorry, INR 3.57 crore which is operational, out of that, INR 0.86 crore is charged to other expenses, right?
0.86 is the negative, which is already covered in the other expense part.
Okay.
So there is no impact on the other income. So other income part, INR 3.3 crore is the non-operational part, which is-
Okay.
-which we have not considered in the Adjusted EBITDA.
Okay. Okay, only 3.57 is considered.
Yeah.
Understood. Understood. The second question is on employee cost. So YOY, the increase is only 9%, but if you look at QOQ, it is a material increase of close to 60%. So just wanted to understand whether we have any annual incentive payout in Q1?
Yeah, you are right. So, basically, we are expecting a larger growth in this year, as we were lower in the volume growth in the previous year.
Okay.
So we are targeting it to cover, we are trying to cover up part of that also in this current year. So we have announced some incentives also, which is close to INR 9 crore additional incentive. We have, we have make a provision for this, in this Q1. And, there is some part of, annual increment also, which is 9%-10%, annual increment we do. So that is also, some provision is taken on that account also.
Q2 would likely witness a dip in employee cost, right?
So slightly, maybe, so I think it should be in the range only.
Okay. Okay, so you are expecting another provision of incentive in Q2 as well?
Because we have whatever incentive we have taken in this quarter one, that is, that is in the proportion of in this quarter, for this quarter only. So whatever will be for the full year, so one-fourth we have taken in this. So that way, we have, we have... So if, so if we meet our targets, if we keep on meeting the targets, then definitely the, the salary component would be similar. So you can expect similar numbers in this.
Understood. Understood. Okay, thank you.
Thank you. The next question is from the line of Keshav from RakSan Investors. Please go ahead. Mr. Keshav, your line has been unmuted. Please go ahead. Due to no response, we move to the next question, which is from the line of Manas Wandel from Wallfort PMS. Please go ahead.
... Hello, am I audible?
Yes, sir.
Yeah, yes, please.
Thank you so much for the opportunity, and congratulations on the good set of numbers. Sir, I had three questions. I just wanted to understand, when will the rubber plant be operational?
The plant for rubber recycling in India, although we already have plants outside India, but most of those are used for captive consumption. The rubber plant would be operational by H1 FY 2025.
FY 2027.
FY 2026, sorry, FY 2026.
2026. Okay. And, sir, the next question is on the CapEx side of it. In our presentation, it's written around INR 600+ crores of CapEx till FY 2027. So will it be debt-funded or internal accruals, and how will it be?
Yeah. So, this INR 600 crore CapEx, it will be majorly from the self-funded. We are not taking any incremental debt except small debt for working capital for the future. So, we have enough cash flow for funding this incremental CapEx also, and part of working capital also. So we are not going for the debt for this CapEx.
Okay, understood. And can you give the CapEx numbers for currently your FY 2025?
Sorry, FY?
FY 2025 CapEx numbers, can you give, sir?
So, it is estimated at approximately INR 108 crores, which includes INR 140 crores for the existing verticals and INR 40 crores for new verticals.
Okay, sir. The last question, sir, about the profitability side of it. As you know, the presentation mentioned around 35% growth YOY, CAGR till FY 2028. So is it safe to assume that the PAT would be around INR 800 crore in FY 2028?
So, we have not calculated that number but yes, 35% volume growth, sorry, PAT growth of 35% on PAT basis, on CAGR basis. So it would be around INR 750-800 crore. Yes, you're right. If we achieve our target.
Okay. Thank you so much, sir. That's it from my side. Congratulations.
Thank you.
Thank you. The next question is from the line of Bhuvan, from Tiger Assets. Please go ahead.
Hello, am I audible?
Yes, sir.
I just wanted to know, what is your sourcing strategy, like, how much percentage comes from OEM, how much from other dealers, and how reliable and how stable are the prices? Yeah.
So in India, most of the procurement that we are doing currently, around 80% is through OEMs, where we have a tooling kind of arrangement, where we get a fixed margin. So it doesn't matter how much variability there is in the prices of those material is, because eventually you only get the processing charges from the OEMs. So it's pretty stable in as far as the profitability is concerned for us in that business.
Okay, thank you. I wanted to know, in lithium and recycling, which technology you would be using, Hydrometallurgy or Pyrometallurgy?
So hydrometallurgy, definitely, but we would have to develop that technologies on our own. So it's a little premature to talk about what kind of tech... So it's gonna be in hydrometallurgy only, but it will take some time to develop that technology. So maybe next year we can talk about that technology also.
Okay. Like, presently, like, what is the progress in your R&D?
Sorry?
What is the progress regarding this technology which you are developing?
So see, we are, we have already decided to set up a plant. As I mentioned that there are two phases. The second phase would be where we would do hydrometallurgy, and we've already earmarked the CapEx and the equipment that has to be bought. So we'll be buying that equipment, and then we'll do the R&D of refining in those machines or pilot machines itself.
Okay.
So once the equipment is installed, only after that we will be able to know the development on that phase.
Okay, any idea how much you would be incurring CapEx for this segment?
In this year it will be around INR 40 crore, this year. But overall, around INR 70 crore-INR 100 crore would be on lithium-ion battery in the next three years.
Okay. That was helpful. Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Siddharth Malhotra from Kotak Institutional Equities. Please go ahead.
Hi, sir. Congrats on a great set of numbers. Just a quick question. Sir, can you tell me what our net debt level is as of one year FY 2025?
Yeah. So, our gross debt is around INR 550 crores, and net debt is around INR 470 crores.
INR 470 crore. So this was around INR 450 crore last quarter. So am I given to understand that our working capital days has remained at a similar level as last quarter? Because if I recall correctly, that number was slightly elevated at around 99 days. So, has the working capital come down?
Yes, working capital, because as Yogesh mentioned in his opening remarks, that we have sourced more cars from the domestic market, so that brings-
Mm-hmm.
the lower working capital for us. Yes, definitely proportional to the business, the working capital base is lower.
And any chance you could just break it down into inventories, receivables, and payables for me, or perhaps give me some number on the working capital days versus, say, Q4 of FY 2024?
So, working capital days was close to 85 days, which came down to around 80 days, in this quarter.
We are talking QOQ, right?
Yes. So, I'm talking about Q4 to Q1.
Okay. Understood. This is helpful, sir. Thank you. That was it, sir. Bye.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking. Please go ahead.
Yes, thank you for the opportunity. So out of the FY 2025 CapEx target, how much has been incurred till date in first quarter?
Actually, it's very difficult to give you an update on CapEx on a year-on-year basis, but probably it's around INR 15-20 crores so far.
Towards the existing quarter.
Sorry?
This INR 15-20 crores will be incurred towards the existing vertical?
Yes. Yes.
Okay. And, like we see that, there is no significant capacity addition or sequential changes, the capacity remains at 291,000 tons. And, so when will the new capacities be added during FY 2025? So around 50,000 tons is the target. So when can we expect it?
So you can expect in this quarter itself, as we speak now, our aluminum capacity in Ghana is being installed. So hopefully in a couple of days, we'll get the news about that new capacity also. And then we have various new capacities lined up. We have increasing capacity at Mundra and other plants also. So it's in line with the total CapEx plan.
Okay.
Hopefully next quarter you'll hear some capacity increases.
Okay. Sir, next is that, our capacity guidance for the next three years, the capacity is growing at a 19% CAGR. However, we are guiding for a 25% volume CAGR. So, if I assume, the guidance to be achieved, our capacity utilization at that level would be around 72%-75%. So, is it possible for us to operate our plants at that, peak utilization levels? Or, what is the peak utilization level that we'll be comfortable with?
Yeah, peak utilization level should be close to 75%-80%. So even, we should be close to 70%-75%, between 70%-75% even after this growth of 25%.
Yeah, okay. I guess you have answered my next question earlier, but if you could just repeat, if the aluminum EBITDA per ton, which is around 19 rupees per k- 19,000 rupees in this quarter, is that sustainable for the year?
So actually, the sustainable number for aluminum recycling is around INR 14-INR 16 per kg. So you will have some variation till the time that the hedging mechanism is in place. So you will see some quarters where you'll get more EBITDA numbers, I mean, higher EBITDA quarter numbers, and you will have some quarters where you will have some lower EBITDA per ton numbers. But hopefully, in this quarter itself, we'll have this mechanism in place. On the other hand, we also, as I mentioned, we also have this agreements in India now, which will work as a natural hedging mechanism for us. So you can see some stability in these numbers going forward.
Okay, sure. And just last one question on the lead, margins. So lead, we have always been saying that INR 17-18 per kg is the sustainable EBITDA for the lead segment. However, if I see the last 3-4 quarters, we have been delivering around INR 19-20 per kg. So is that a sustainable change, or, is it just the hedging gains which are playing out and the cycle can reverse and we can go back to INR 17-18 per kg?
So basically, yes, you are right. Earlier, we used to have INR 17-18 kind of a EBITDA margin for lead, but which we have improved because of the more volumes coming in, and we have improved from INR 18 to INR 19. So now we can say that the stable margins for lead is in the range of INR 18-19 instead of INR 17-18 earlier. So there is no, so no impact of metal pricing in this lead case.
Perfect. That's very helpful, sir. Thank you and all the best.
Thank you. The next question is from the line of Khush Nahar from Electrum PMS. Please go ahead.
Yeah. Hello, am I audible?
Yes.
Yeah, thank you for the opportunity, sir. I just wanted the percentages for domestic scrap collection that you have done for the Indian plants for this quarter.
Sorry, can you come again, please?
Which percentage of domestic scrap collections are Indian plants for this quarter?
Around 42% of the total procurement that we did was domestic scrap.
Okay. Thank you.
In terms of volume, it's around 50% year-over-year basis, increase of more than 50% year-over-year basis.
Okay. Thank you.
Absolute numbers.
Yeah.
Thank you. The next question is from the line of Chetan Thacker from ASK Investment Managers LLP. Please go ahead.
Good afternoon, sir.
Good afternoon.
Yeah. Sir, just two questions. One, primarily was on what is the underlying volume driver for lead in this quarter, and how should we see that going forward for the remaining of FY 2025?
...So basically, the basic underlying factor is the overall procurement of scrap, availability of Indian scrap in India. So that is the basic underlying factor. And as I mentioned, that our overall scrap availability has increased, and it continues to increase because of Battery Waste Management Rules. So you can expect the similar growth numbers going forward also.
This number is primarily from our anchor clients, that is driving this volume growth?
In India, yes.
In India.
There is a growth in overseas numbers also. So as there is a, I mean, organic growth in each of the territories we are available. And some part of it in India is coming from these new Battery Waste Management Rules, regulations also.
Possible, sir, to break out what would be, the difference between the two in terms of contribution to growth, or difficult to do that? In terms of-
So you can expect around 8%-10% growth coming from organic increase.
Mm-hmm.
Balance is coming from increasing domestic scrap availability.
Got it. And, sir, in terms of the situation from volumes moving from Africa to Europe, where we are facing the Red Sea issue, how should we look at that from an FY 2025 perspective? Is that resolved and we should now assume volumes will start to inch up?
So we've already mentioned earlier also that these remain some temporary issues. Generally, what happens is that either you shift to a new customer, that we've done, and in some cases the price of scrap in those geographies come down. So it's a combination of both of these, and now there is no problem for us going forward as far as Red Sea issue is concerned.
Understood. The second question was on the depreciation line item. That has been a little volatile, so it moved up from INR 7 crore quarterly to INR 12 crore last quarter, and it's back to INR 7 crore. So what is the factor that drives this volatility, and how should we look at this?
So, yes, in this year, last year, in quarter four, there was some additional depreciation on account of some. We have a plant in Ghana where the currency was moving-
Mm-hmm.
significantly. So because of that, there was an additional interest which was applicable on this. So it, you know, it, it, it increase the value of the assets of the company and also consequently increase the value of depreciation also. So that was the reason of higher depreciation in that Q4 of last year. So, but there is sustainably, if you see, now, whatever depreciation is there in this quarter, so that, at the current level of assets, it is going to be similar. So that future, we will not see any significant volatility in case of depreciation.
In case that inflation persists, then probably Q4 end will be generally the revisiting period in terms of what would be the asset value and hence consequent impact on depreciation. That will be a fair understanding?
So, there was one-off case of approximately INR 3 crore-INR 4 crore that came in, Q4 of last year. So I don't think anything coming in this year because... But, yes, you are right. Definitely we review it every end of last two, quarter four of every year, but, we don't see anything now coming up.
Got it. And the last question on the, rubber plant. What will be the capacity in terms of TPD, that we are setting up and the CapEx for that? In Mundra.
Rubber plant, we are expecting to start with for this first plant, we are expecting a capacity of 9,000 tons in India.
This is annual 9,000 tons?
Yes.
And, the CapEx for this?
CapEx for this is approximately, I can give you the number. Approximately INR 30 crore.
30 crore. Great, sir. Thank you so much for this. All the very best. Thank you.
Thank you. The next question is from the line of Keshav from RakSan Investors. Please go ahead.
Hi, sir. What should be the volume growth this year?
Yes, so volume growth should be this year, we are targeting, again, we cannot say exactly growth for this year, but yes, on a three-year basis, we are targeting 25% on three-year basis.
Okay, but this year should be better than FY 2024?
This year should be better.
Okay. Sir, lastly, what should be the tax rate for the year, if you could give a range?
Tax rate should be close to, again, 10%-11%, which we normally we have certain exemptions in overseas and India also. So, for next 2-3 years, it is going to be in this range.
Thank you, sir. All the best for the quarter. Thanks.
Thank you. The next question is from the line of Astha from Tech Day Advisors. Please go ahead.
Hello. Good afternoon, everyone. I just wanted to ask the management one question. So, from which quarter can we see the volumes to start rising for plastic and aluminum segments?
So in aluminum we can see the rising volumes coming from Q2, at the max from Q3.
Okay, Q2 to Q3. For plastic, sir?
Volume from next quarter itself. Plastic is going-
Okay.
Going to take a little longer because it's a little different in the sense that still the implementation of EPR is going to take some time, as far as consumption of recycled plastic is concerned. So, and development of plastic product also in the organized sector is going to take some time, because it's not like metals, where you can just produce it and you can use it as a recycled product. Plastic is going to take some time longer. Probably, by the end of this year, you will see the growth coming in plastics also.
Okay. Got it. Thank you. That's all from my end.
Thank you. The next question is from the line of Rishabh Gang from Sacheti Family Office. Please go ahead.
Hello, sir. Thank you for the opportunity. I like, your capacity utilization rates hover between 55%-67%, and this quarter it was very good. So I wanted to understand first, how much of that was because of the pent-up demand which was not executed, maybe the next, previous quarter because of the geopolitical reason? Also, on long-term vision, you mentioned around 70%-75%. So, like, do we face any constraints in achieving 100% capacity utilization because of any bottleneck in that process? Like, what do you think about that?
No, actually, it all depends on where the scrap... Because scrap is not something that comes in a constant manner, in a linear manner. So there are some problems in achieving more than 70, 80%, operational, this thing. But with more Indian scrap availability, the total capacity utilization in India is definitely going to go up. So that is what is going to be the factor in the long term, where we expect the domestic scrap to be to the tune of around 70%-80% of the total Indian business. That is one area where we would get higher capacity utilization. And then in other verticals like plastic and aluminum, the capacity utilization is still at a very low percentage. It will also increase going forward.
When, for example, in aluminum, we, we are not going in for 100% capacity utilization because of no mechanism for hedging for that product. So it will take some time. But as and when these things, the hedging mechanism comes up, you will see increase in capacity utilization of aluminum also. So in the longer run, definitely 75%-80% capacity utilization is something that is very achievable.
So the supply of enough scrap is a constraint, right? For us, achieving a higher capacity utilization and not the demand from the manufacturers, right?
No, see, so what happens is that because ours is not a very CapEx intensive business model, so we keep higher capacities, because as I mentioned that it's not a linear flow of material. So generally, to make sure that if there is additional quantities of scrap available, we can process that also. So we keep a higher capacity always there. But with domestic scrap and with long-term agreements with the OEMs, we can increase the—we don't have to increase the capacities in the same ratio as we used to do earlier.
Okay, got it. Also, how do you calculate this utilization rate? Because I understand it's a blended utilization rate. So can you give some idea on how is the utilization rate across lead, aluminum, plastic, and other commodities?
Yeah, just one second. So-
Yeah.
Lead is close to 70% at this moment, for this quarter. And aluminum is close to 45%. Plastic is, again, 40%. So blended comes to around 65%- 66%.
And copper?
We don't do copper.
Alright. Sorry. Also, you know, I wanted to understand what is the lead capacity utilization of the Chittoor plant, if any idea on that front, because, you know, OEMs are also coming up with the capacity. So, what are you seeing on that front?
Sixty-seven.
Yeah. Chittoor plant capacity utilization is close to 67%-68%.
It has always been like that in the past as well, and do you expect the same in the future?
Yeah. On average, it is in the range of 65%-70% for lead.
Okay. So also on the lithium ion front, right? So what is the typical scrap rate per battery from EVs and what is the latest in battery? And what is the kind of regulation on lithium ion battery recycling and the kind of recycling which is happening in terms of tonnage for lithium ion across India and globally right now and maybe five years down the line?
Actually, the prices of these battery depends on the what type of batteries are the lithium-ion battery. They, though, there are one thing called LFP batteries and another is nickel, manganese cobalt battery. So the price varies. So as low as from INR 90/kg to INR 250/kg. As of now, in India, the battery generated is mostly from the mobile battery or laptop batteries, which are still not able to collected, they're lying with the consumers only. So once the EV batteries start coming up, then we will have certain price. As I mentioned, LFP should be somewhere around 100, and NMC should be somewhere around INR 250/kg.
Also, like, what is the kind of recycling happening, right, in terms of tonnage across India and globally for lithium ion at the moment?
Indian recycling happening mostly in terms of black mass conversion, and this black mass is being exported to the countries where they are converting to metal.
... for hydrometallurgy process after. Because India, nobody is producing cells. We are importing cells in India, and the batteries are being assembled through cells. So as of now, China, Korea or other European consumers are there who are making cells. So the volumes are at pilot stage, not big commercial level. Maybe, maybe you can say, maybe few thousand tons per month-
In India.
3,000-4,000 tons per month maximum.
In India, right?
In India, in India.
Globally, what do you think is the number, like the number of tons, lithium ion recycling?
See, you must understand that the actual volume of lithium-ion battery, even globally, would start coming in the next three to four years.
Correct.
It's still too early to, because the actual usage of these EVs have started only taking place two years back.
Mm-hmm.
Before that, it was only probably Tesla and some country companies in China that have started. So even if those capacities are there currently, in future, those capacities will fall short. By, I mean, just looking at the numbers of the overall growth that has taken place in EVs in the past three, four years.
Also, what is the recycling demand across commodities? Like, you mentioned you have lead, aluminum and plastic. So the recycling demand across commodities in India, and how much recycling needs to happen in organized sector as per the regulations, for each commodity? I want to understand what is the market, especially for the aluminum and plastic.
Yeah. If we talk about aluminum, India is net import dependent because Indian generation is hardly 5% of our total requirement of aluminum scrap. Country imports around 1.7 million tons of aluminum scrap-
Mm.
and the rest is being met through domestic. So you can say import dependent industry, so it's quite fragmented, where a lot of people are importing and converting them into alloy and other, material for second industry. When it comes to battery, particular acid battery, so the recycling happening because it's generated from the post-consumer, so most of the recycling is happening through informal sector or when we say formal, informal sector, so that is around 55%-60%. And slowly, with this regulation, it will shift to formal and organized recycling. That is happening in case of lead. And when it comes to plastic, so the post-consumer plastic, like MLP or which is going to dump for single-use plastic, that is not for the recycling purpose.
But other plastic, like, higher grade plastic or PET, that is being collected, that is being converted into PET flakes. Their rate is quite better as compared to other part of the country, because we are able to collect good amount of plastic in India.
Thank you. The next question is from the line of Shivam Dave, from Prajakt Investments. Please go ahead.
Yeah, hello, am I audible?
Yes, please.
Yeah, congrats on the great set of numbers. I just wanted one clarity on the aluminum volumes. I think in Q4 call, you were telling about a 60%-70% utilization for FY 2025. Is that something that we can achieve this year?
Yes, we are targeting around that only. So the capacity utilization will improve if the hedging mechanism is there. So we are expecting that hedging mechanism to happen in this quarter. After that, we can probably take it to the optimal level of capacity utilization also.
Okay. And on the depreciation front, can we expect the current run rate for the whole year, or is there going to be some fluctuations in it?
No, no, it is going to be constant from here on. Of course, the more you put in CapEx, you will see a higher depreciation in absolute numbers, but you can expect similar numbers going forward.
Okay. That's it from my end. Thank you.
Thank you. The next follow-up question is from the line of Preet Bharatbhai Rajas, from Anugraha Advisors. Please go ahead.
Yeah, thanks for the opportunity again. So my question is in terms of working capital cycle. So basically, currently, bulk of the working capital goes to inventory, and the current working capital days is around 80-85, and our medium-term target is 65 to maybe 70 days. So just wanted to understand the roadmap of maybe a reduction in inventory days in next 2-3 years. How are we going to achieve that?
So exactly in the next three years, we want to bring it down to around 65-70 days. And this is going to happen because of more domestic scrap availability, which is kind of rolling. Although the inventory, you would see, the number of days of inventory would be same, but on the other hand, you'll see payables also. So the more rolling business we'll do, the less overall working capital requirement would be there. So it will... It has already started happening, and in the next three years, we'll bring it down to around 65 days.
Okay.
So the bulk of the improvement would come from higher availability of scrap domestically, right? Absolutely, yes. Because currently a lot of our material comes from overseas, so there is in-transit inventory, proportional, proportionally, which is very high. And then when we, we keep on increasing the domestic scrap, that, that percentage-wise, that will come down. So overall, the number of days would reduce.
Sorry, sorry, sorry. Please go ahead.
... So out of this 80 days of inventory, how much would be in from in-transit inventory?
So in-transit inventory takes approximately 65-60 days. Whatever goods are coming from overseas to India, that takes 45-60 days. So that's the portion of the in-transit inventory will go down. And here also, you have, you have to understand that in some cases you keep that inventory. If you're buying from your own yards, you will be keeping that inventory for around 15-20 days in those yards also. And then also, if you buy from some aggregator sometimes, then you'll have to give them in advance some money. So the overall period would be around 60-90 days. I mean, from advance is given to the time it reaches your factory.
Okay. Okay. Understood. Yeah. Thank you.
One more thing, I'd like to mention here is that, because we're into scrap recycling business, so, one more theory we have is that we don't say no to the scrap. Because we, even if we don't have the enough capacity, we will keep on, you know, sourcing the scrap, because that will not come back if we lose that. So we will keep on increasing the capacity wherever required. But yes, on the other side, if we have the more inventory also, we would be happy to increase the capacity. So that is one more concept we have for the group.
Understood, sir. Thank you.
Thank you. The next question is from the line of Omkar Mistry from AUM Advisors. Please go ahead.
Hi, good afternoon. Sir am I audible?
Yes, please.
Yeah, so my question, can you please explain me about the tire or the rubber business model? I mean, what would be the byproducts and whom we are gonna sell, and the basic care of the model?
In rubber or tyre, we are also currently doing recycling in our overseas plant, where we are making pyrolysis oil out of it primarily.
Mm-hmm.
And using it for our own captive consumptions in our smelting and aluminum refining processes. So that is one part. So we also have a plant of rubber recycling, which produces pyrolysis oil based on new technology of continuous pyrolysis in India. But we are also putting up a plant to make crumb rubber initially, and we'll go into value addition in that segment also in future, where we'll try to find out a solution to use the same material in tires in future. So it's both. So in rubber recycling, we'll be going into tire to tire or circular economy also, and we'll also be going into the pyrolysis oil production simultaneously.
Okay, and what's the scenario about the availability of the tire in India?
So availability of tire in India is there, but we are also targeting import of tires from various locations across the globe for our operations in India. Now, the EPR concept is also working well for India, where they are coming up with a credit mechanism, where we can buy the local tires, and there will be some credit generation by the recycler. And the manufacturer, tire manufacturer, have to buy those credits. So that is also working well for giving us more value for the scrap.
Yeah, got it. Yeah. Thank you so much.
Thank you. Ladies and gentlemen, we'll take this as the last question, and I'll hand the conference over to the management for closing comments.
Yeah. Thank you everyone for participating in this call. We trust that we've addressed all your queries during the session. However, if there are any remaining questions, please feel free to reach out to our investor relations team. Once again, we extend our gratitude to all the participants for joining us today. Thank you, and have a great day.
Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.