Kotak Securities initiates coverage on Gravita; sees 30% upside on favourable govt policies

Government policies reflect a strong intent to scale up and formalise the recycling industry, said Kotak Securities.

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Kotak Securities initiated coverage on Gravita India with a buy rating as the brokerage sees the company benefitting from a series of government policies. The brokerage issued a target price of Rs 1,200 per share, implying an upside of around 29.75 percent from the previous session’s closing price.

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The prospects of the industry are different across various commodities, with the prospects for lead top the chart.

The Battery Waste Management Rules, 2022, is one such landmark policy that will benefit Gravita India, as the company is an organised lead recycler. The brokerage added that the prospects for plastic and e-waste recycling also appear promising but require further policy support.

Kotak Securities expects the revenue and PAT to grow 20 percent and 22 percent CAGR, respectively, over the next three years. The brokerage sees an RoCE of more than 20 percent and potential for multi-year compounding growth.

The financials

Gravita India clocked lead production growth of 17 percent YoY in Q3FY24, but sales volume growth was lower at 2 percent due to logistics disruptions on account of the Red Sea issues. Exports from Mundra were impacted, besides sales to Europe from Africa.

For the quarter ended December 2023, Gravita India’s net sales slipped 4 percent to Rs 757.77 crore, down from Rs 789.28 crore from the same quarter in the previous year. The net profit clocked in at Rs 60.27 crore, higher by 20.06 percent, up from Rs 50.20 crore in December 2022.

Over the past six months, shares of Gravita have traded sideways. However, over the past five days they have jumped 15 percent.

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