Buy Gravita India Ltd for the Target Rs. 2,100 by Emkay Global Financial Services Ltd
GRAV delivered a steady quarterly show yet again with a modest beat, reporting EBITDA of Rs1.1bn (up 8.2% vs Emkay; up 8.4% vs Consensus; up 22.5% YoY). Notably, the business achieved Lead EBITDA/kg of Rs21.8, which is well ahead of the management guidance of Rs18-19. Consol EBITDA margin at 10.7% is on a revenue base of Rs10.4bn, which compares with Emkay estimate of Rs10.2bn and Consensus estimate of Rs10.1bn. Q1 EPS of Rs12.8 is in line with estimates, while seeing 31.4% YoY growth. At the earnings call scheduled for tomorrow, we expect the market to focus on project commissioning and capex timelines, reverse charge mechanism on battery scrap, and MCX listing for aluminium alloys – we see these as key catalysts for growth ahead. The stock is trading at attractive valuations of 31x/25x FY27/28 earnings, on our estimates. We reiterate BUY and TP of Rs2,100.
Q1FY26 earnings – Another steady quarter
GRAV delivered another quarter of steady growth with a modest beat, reporting EBITDA of Rs1.1bn (up 8.2% vs Emkay; up 8.4% vs Consensus; up 22.5% YoY). Notably, the business achieved Lead EBITDA/kg of Rs21.8, which is well ahead of the management guidance range of Rs18-19. Also, Aluminium segment margins were ahead of guidance, while Plastic profitability is within the guided range. Consol EBITDA margin at 10.7% is on a revenue base of Rs10.4bn, which compares with Emkay estimate of Rs10.2bn and Consensus estimate of Rs10.1bn. Q1 EPS of Rs12.8 is in line with estimates, while seeing 31.4% YoY growth. Other income included hedging gains of Rs111mn which are essentially part of the core business, as the company hedges commodity exposure on the same day it procures scrap and is, therefore, included in EBITDA.
Key focus areas on the earnings call
Q1 earnings call is scheduled tomorrow at 12PM. We expect the market to focus on five aspects: 1) Timelines of new capacities at the Mundra and Oman projects, which were guided for commissioning in H1FY26. 2) The company is looking to spend Rs15bn over the next three years which would enable it to hit 25% revenue CAGR – expect the market to focus on timelines and quantum of annual capex. 3) Update on reverse charge mechanism on battery scrap, for which the proposal is slated to be taken up in the next GST council meeting. 4) Share of domestic and imported scrap procurement. 5) MCX listing update for aluminium alloy.
Implications
We see Q1FY26 being a steady quarter, with the next leg of earnings step-up to come from project commissioning, which we see as the next key catalyst. We estimate FY25- 28E revenue CAGR logging above 20%, with a return on invested capital at 23% – broadly in line with mgmt guidance. The stock is trading at attractive valuations of 31x/25x FY27/28 earnings, on our estimates. We reiterate BUY with TP of Rs2,100.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
