Circular Economy And EV Adoption Will Drive Recycling Expansion

Key Takeaways

• Rapid capacity expansion, business diversification, and aggressive investment in high-value recycling segments could drive growth far above current market expectations.
  
• Regulatory changes and global trends position Gravita to capture market share, improve margins, and secure long-term earnings via scale and early-mover advantages.
  
• Heavy reliance on the declining lead-acid battery market, large capital expenditure risks, greater ESG-driven compliance costs, and rising competitive pressures threaten long-term growth and profitability.

Catalysts

Manufactures and recycles aluminum, plastic, lead, and lead products in India, the United Arab Emirates, South Korea, and internationally.

• While analyst consensus recognizes revenue upside from capacity expansion and business diversification, it likely understates the upside from Gravita's ambitious target to reach over 700,000 metric tons of capacity by FY 2028 and a 35%+ CAGR in profitability, which combined with a proven track record of exceeding past guidance, could drive exponential growth in both revenue and net profit well ahead of current forecasts.
  
• Analysts broadly believe new verticals such as lithium-ion, rubber, and steel recycling will diversify and support margins, but Gravita's aggressive ₹500 crore CapEx into high-value, tech-enabled recycling segments-coupled with rapid execution (including turnkey/R&D know-how and global M&A activity)-positions the company to accelerate its transition to a higher-margin, less cyclical, multi-metal recycler, with potential for sustained margin expansion beyond consensus expectations.
  
• As formalization accelerates in India's recycling sector through regulatory measures like EPR and reverse charge mechanisms on scrap, Gravita stands to rapidly capture market share from informal players, unlocking operating leverage, supporting higher plant utilization rates, and structurally lifting both revenues and EBITDA margins.
  
• The global transition to electric vehicles, renewables, and energy storage is likely to trigger an explosion in recyclable battery volumes and new materials (including lithium, cobalt, and nickel), giving Gravita an early-mover advantage to capitalize as a preferred processor for OEMs, potentially leading to long-dated contracts and high-visibility earnings growth across emerging recycling streams.
  
• Gravita's integrated, international footprint and increased domestic scrap sourcing not only insulate the company from regional shocks and input volatility but create opportunities for global price arbitrage, risk-hedged sourcing, and value-added product exports-which can structurally enhance net profit margins and provide multiple levers for outsized ROIC beyond consensus projections.

Gravita India Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Gravita India compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Gravita India's revenue will grow by 27.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 8.1% today to 7.7% in 3 years time.
• The bullish analysts expect earnings to reach ₹6.2 billion (and earnings per share of ₹77.77) by about July 2028, up from ₹3.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 61.9x on those 2028 earnings, up from 42.3x today. This future PE is greater than the current PE for the IN Metals and Mining industry at 22.5x.
• Analysts expect the number of shares outstanding to grow by 6.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.6%, as per the Simply Wall St company report.

Gravita India Future Earnings Per Share Growth

Risks

• Gravita India's growth remains heavily reliant on the traditional lead-acid battery market, which faces a secular long-term decline due to the rapid global adoption of lithium-ion batteries and green energy technologies, threatening future revenue growth and pricing power as lead demand plateaus or falls.
  
• The company's aggressive ₹1,500 crore capital expenditure expansion plans, particularly with new ventures in steel, paper, and greenfield projects overseas, expose it to significant capital intensity and execution risks, potentially increasing financial leverage and putting pressure on net margins and long-term earnings if asset returns do not match expectations.
  
• Strengthening global and local ESG regulations, particularly in developed economies, could drive up compliance costs related to hazardous waste handling and restrict market access for recycled lead and other secondary metals, eroding profit margins and reducing revenue from exports.
  
• Gravita's core business is vulnerable to volatility in raw material (scrap) prices and supply chain disruptions, as seen with the impact from political unrest in Mozambique and logistics cost fluctuations, which could compress operating margins and lead to more unpredictable earnings.
  
• Intensifying competition, both from new entrants and large established players adopting advanced recycling technologies and automation, heightens the risk of overcapacity and price wars in metals recycling, putting recurring downward pressure on average realizations and threatening future revenue and profit growth across its business lines.

Valuation

• The assumed bullish price target for Gravita India is ₹3000.82, which represents two standard deviations above the consensus price target of ₹2413.5. This valuation is based on what can be assumed as the expectations of Gravita India's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹3067.0, and the most bearish reporting a price target of just ₹2100.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₹80.0 billion, earnings will come to ₹6.2 billion, and it would be trading on a PE ratio of 61.9x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹1815.0, the bullish analyst price target of ₹3000.82 is 39.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.