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Sustained Momentum in Revenue and Profitability; Maintain BUY

Est. Vs. Actual for Q1FY26: Revenue: INLINE; EBITDA (Adj.): BEAT; PAT: BEAT

Changes in Estimates Q1FY26 Result

FY26E/FY27E: Revenue: -3%/1%; EBITDA (Adj.): 0%/0%; PAT (Abs.): 2%/0%

Recommendation Rationale

• Volume Growth in Lead and Aluminium: The company delivered a strong operational performance, with overall volumes rising 12% YoY and revenue increasing by 15% YoY. This was primarily led by a substantial 96% YoY jump in aluminium volumes and a 10% YoY increase in lead volumes. Value-added products contributed 47% of the revenue mix for the quarter. EBITDA (including hedging gains) stood at Rs 112 Cr, supported by a higher contribution from value-added products (~47% of total revenue).

• Capacity Ramp-up is on Track: The current operational capacity of 3.4 Lc MTPA is set to increase by 1 Lc MTPA by year-end, with a roadmap to reach 7 Lc MTPA by FY28. The lithium-ion battery recycling pilot facility in Mundra is progressing well and is likely to become operational in Q2FY26. Similarly, the new rubber recycling plant in Mundra is on schedule and is expected to contribute from the end of FY26. The recently acquired rubber recycling unit in Romania is currently delivering an EBITDA of Rs 7–8 per kg, with expectations of improved performance in H2

• Growth to Accelerate from H2FY26: In line with its long-term growth roadmap, the company is targeting a 25% CAGR in volumes and a 35% CAGR in profitability, while maintaining ROIC above 25%. Management has guided similar volume growth for FY26, the majority (~15–16%) of which would be coming from existing capacities and the remaining (8–10%) expected from upcoming capacity additions. The contribution from new capacities is expected to pick up from Q3 onwards as new capacities start being commercialised.

Sector Outlook: Positive

Company Outlook & Guidance: The outlook remains strong, driven by higher scrap availability, growing non-lead contributions, and an increasing mix of value-added products. Capacity is projected to scale from 3.34 Lc MTPA to over 7 Lc MTPA by FY28. To support this, a capex plan of Rs 1,500 Cr has been laid out till FY28—comprising Rs 1,000 Cr for capacity enhancement in existing verticals and Rs 500 Cr for diversification into lithium-ion batteries, paper, rubber, and steel recycling. Geographic expansion is also a key focus under this strategy, with meaningful progress expected by FY26. The effective tax rate is expected to remain at 15–16% in FY26.

Current Valuation: 32x FY27EPS (Uchanged)

Current TP: Rs 2,600/share (Unchanged) Recommendation:

We maintain our BUY recommendation on the stock.

Financial Performance

Gravita’s Q1FY25 revenue came in at Rs 1,040 Cr, up 15% YoY and flat QoQ, broadly aligning with the estimate of Rs 1,020 Cr. Adjusted EBITDA beat estimates at Rs 112 Cr, marking a growth of 22% YoY and 3% QoQ. EBITDA margin stood at 10.7%, slightly above the estimated 10.3%, improving by 69 bps YoY and 28 bps QoQ. PAT stood at Rs 93 Cr, registering a growth of 37% YoY, surpassing expectations by 23%, aided by higher other income. The other income has been higher temporarily for the last two quarters due to increased contribution from treasury income

Outlook The recycling industry presents significant growth potential, and Gravita is strategically positioned to capitalise on these emerging opportunities. The company is actively expanding its capacity through planned greenfield and brownfield projects. Backed by a strong balance sheet, Gravita is well-equipped to pursue both organic and inorganic growth avenues. Revenue growth will be driven by expansion across existing and new recycling verticals, while profit growth is expected to outpace revenue growth, supported by an improving product mix and enhanced operating leverage.

Valuation & Recommendation

Our estimates remain broadly unchanged for FY26 and FY27 as the company continues on the expected growth and margin trajectory. We continue to value the company at 32x of FY27E. We maintain our BUY rating on the stock, with a target price of Rs 2,600/share, implying an upside of 39% from the CMP.

Key Highlights from Concall

• Company Performance: Gravita delivered a 12% YoY increase in overall volumes during Q1FY26. Lead volumes grew by 10% YoY to 46,215 tons, with EBITDA per ton rising 13% YoY to Rs 21,790. Aluminium volumes witnessed a sharp 96% YoY growth to 4,812 tons, although EBITDA per ton declined by 12% YoY to Rs 17,140. Plastic volumes contracted 24% YoY, with EBITDA per ton largely flat at Rs 10,213 (down 1% YoY). Revenue rose 15% YoY and remained stable sequentially. Adjusted EBITDA, inclusive of hedging gains, grew 22% YoY and 3% QoQ, while EBITDA margins improved to 10.7% from 10.1% in Q1FY25. The marginally softer volume growth was attributed to a shift in material processing from African units to Indian facilities.

• Capacity Expansion/Capex: Gravita’s installed capacity reached 3.34 Lc MTPA in FY25, with an ambitious plan to scale this to 7 Lc MTPA by FY28. To support this growth, Gravita has outlined a capex plan of Rs 1,500 Cr to be deployed by FY28, aimed at both scaling existing operations and investing in new verticals, including lithium-ion, paper, rubber, and steel recycling. For FY26, the company plans to spend approximately Rs 375 Cr towards these capex initiatives (Rs 60 Cr capex spend during the quarter).

• Aluminium Hedging: The management mentioned that aluminium contracts are likely to be listed on MCX during Q2FY26. Once active, these contracts shall allow the company to hedge its exposure to varying aluminium prices, which in turn lead to inconsistent margins.

• Outlook: The company continues to benefit from sectoral tailwinds such as enhanced scrap availability and supportive regulatory developments, including the potential extension of the Reverse Charge Mechanism to battery recycling, which could strengthen the formal recycling ecosystem. Gravita aims to raise the share of value-added products to over 50% and is confident of surpassing this benchmark. It has reiterated its target of achieving a 25% volume CAGR over the next three years. The company also intends to diversify further by expanding the non-lead business contribution to over 30%. As part of its ESG initiatives, Gravita is working towards meeting 30% of its energy requirements via renewables and reducing total energy consumption by over 10%.

• Profitability Outlook: Management has guided for sustainable EBITDA per kg in the range of Rs 19–20 for lead, Rs 14–15 for aluminium, and Rs 10–11 for plastic. The rubber vertical is expected to generate Rs 300–400 Cr in revenue by FY27–28, with a sustainable EBITDA per kg of Rs 7–8 (~30% margins).

• Other Updates: The company reported Rs 19 Cr in treasury income during the quarter, driven by temporary surplus cash. This income is expected to taper down as capex deployment progresses, leading to a reduction in surplus cash. While the reported tax rate was higher due to treasury income, the effective tax rate for operational business is expected to remain in the 13–14% range. For FY26, the company has guided for a 15–16% tax rate, factoring in higher treasury earnings.

Key Risks to Our Estimates and TP

• Delays in capacity expansion.

• Price fluctuation in key raw materials and key products

• The advent of newer technologies is reducing demand for lead-based batteries.

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