Gravita India Limited is tapping the capital markets with an IPO which opens on Monday and closes on Wednesday. The issue is for 36 lakh shares and is in a price band of Rs 120-125.
| Price Band | Rs 120-125 |
| Issue size in Rs | Rs 43.20 crs at Rs 120 to Rs 45 crs at Rs 125 |
| Offer size in shares | 36,00,000 Equity shares |
| Employee Reservation | 50,000 Equity Shares |
| QIB’s | 17,75,000 Equity Shares |
| Non Institutional Investors | 5,32,500 Equity Shares |
| Retail Investors | 12,42,500 Equity Shares |
| Marketcap post issue | Rs 163.44 crs to 170.25 crs |
| Book Running Lead Manager | Keynote Corporate Services Limited |
| Syndicate Member | Keynote Capitals Limited |
| Hem Securities Limited | |
| Isssue Opening Date | Monday 1st November |
| Isssue closing date | Wednesday 3rd November |
| IPO Grade | 3/5 by BRICKWORK Ratings India Pvt Limited indicating average fundamentals |
| Bidding Lot | 50 shares |
| Maximum Retail Bid in shares and amount | 800 shares at Rs 125 Rs 1,00,000 |
Business
Gravita India Limited is in the business of manufacturing Lead Metal by recycling and smelting process and also other products from lead. Gravita India Limited has a subsidiary company known as Gravita Exim Limited, which specialises in providing turnkey solutions and consultancy services on engineering and design for secondary lead companies. The two companies together are able to provide a complete solution right from setting up plants to providing value added lead products.
Gravita India Limited has its manufacturing facility in Jaipur and has through its subsidiaries set up facilities overseas in countries like Ghana, Senegal, Mozambique, Zambia, Ethiopia, Georgia, Sri Lanka and Honduras. The presence in so many countries gives the company access to raw material which is battery scrap and other lead metal scrap as well. It is interesting to note that disposal of lead acid batteries is an environment concern but if the same is recycled it is 100% recyclable and there is virtually no scrap as the entire content of a battery can be reused. There are stringent norms for recycling and it is only because there is presence of a large number of unorganised players who do not follow environment norms that this business of recycling becomes a risk and a health hazard. Lead on being reclaimed or recycled does not lose any of its properties and can be recycled any number of times.
Almost 80% of the lead consumed is in the manufacture of lead acid batteries which are used for purposes of automobiles whether it is cars, or two wheelers, three wheelers or trucks and buses. There are industrial applications like telecom, railways, and equipments and in UPS and inverters. It is also used in Solar, wind, hybrid vehicles and E-bikes. The beauty of this product is that the life of the battery is limited and needs to be replaced periodically. This happens continuously and each time the battery is replaced it is recycled and then the new battery is replaced and then again recycled and so on and so forth.
Currently the company produces Grey Oxide, Red lead and Litharge and proposes to add to its manufacturing capability products like Lead wool, Lead Wire, Lead Sheets and Lead Powder. These products are currently being procured from others or getting made on job work basis. Post IPO when in-house facilities are added this will improve the margins of the company and help in improving the quality and assured timely supply of products to customers as this would become a one stop shop for all lead related products for the customer.
Objects of the issue
| 1 | Set up additional manufacturing facilities at Jaipur and Maharashtra | Rs 13.02 crs |
| 2 | Invest in overseas ventures at Sri Lanka, Senegal and Honduras | Rs 5.85 crs |
| 3 | Invest in setting up manufacturing facilities in Australia, Belarus,
Chile and Mexico |
Rs 18.60 crs |
| 4 | Margin money for working capital | Rs 10.00 crs |
| 5 | General Corporate Purposes | XX |
| 6 | Expenses of the Issue | XX |
Financials
The company on a standalone basis reported revenues of Rs 59.25 crs for the financial year ended March 2009 and Rs 111.67 crs for the year ended March 2010. Revenues for the first quarter of the current year ended June 2010 were Rs 41.13 crs. The net profit after tax and extraordinary items was Rs 2.25 crs in March 2009, Rs 5.76 crs in March 2010 and Rs 2.08 crs in the first quarter June 2010.
On a consolidated basis where the activities of the overseas ventures are also included, the revenues for the year ended March 2009 were Rs 109.01 crs, and Rs 166.97 crs for the year ended March 2010. Revenues for the first quarter ended June 2010 were Rs 57.89 crs. Net profit after tax was Rs 5.42 crs for the year ended March 2009; Rs 13.98 crs for the year ended March 2010 and Rs 5.22 crs for the quarter ended June 2010.
The company has pre-IPO equity of Rs 10.02 crs and based on this equity the EPS would be Rs 5.41 for March 2009, Rs 13.95 for March 2010 and Rs 5.22 for the quarter ended June 2010. If one were to annualise the same the EPS for the current year would be Rs 20.84.
Comparisons
There is hardly anybody who is in the same line of business of Gravita India Limited. The company has compared itself with three players namely Hindustan Zinc, Nile Limited and Pondy Oxides and Chemicals Limited. Hindustan Zinc is a primary producer of metal and mines Lead and Zinc and should therefore not be compared with the company. Nile and Pondy are both in the business of recycling lead and then making various products from it. In this limited business they are comparable but neither of them has any overseas units or offers turnkey solutions for recycling lead. Nile India based on March 2010 EPS quotes at a PE multiple of 10.88 times while Pondy Oxides quotes at a PE multiple of 6.95 times based on March 2010 numbers.
Growth drivers
The opportunity in this business lies in recycling lead and the environment concern is an opportunity in itself. Gravita has been selected and is partnering the United Nations in eco-friendly collection and disposal of used batteries in Senegal and Ghana. This is testimony to the fact that Gravita is environment friendly and is a responsible corporate helping in preserving the fragile environment. In doing so it is able to make money for its shareholders and also help in preserving the natural resources of the world.
The need for lead acid storage batteries is set to grow and the demand for the same can only be met from recycling of used batteries. The need for recycling used batteries therefore becomes not only an ecological need but also a compelling business opportunity which Gravita is all set to exploit not only in India but also abroad.
Valuations
On a fully diluted basis the share is being offered at a PE of between 11.68 times to 12.17 times based on March 2010 numbers and a much more respectable 7.82 times to 8.15 times based on June quarter annualised numbers. Revenues from two new units overseas namely Senegal and Honduras would be available for the fourth quarter of the current year, while Sri Lanka would be available from the beginning of the next financial year. All the four new units as well as the unit in Maharashtra are a year away from commissioning and would generate revenue only in the last quarter of the next financial year.
Conclusion
The opportunity is in plenty and Gravita India has reached the inflexion point. The growth in numbers should now happen and it would with these four new plants have a presence in all the continents giving it a global footprint. The eco-friendly nature of its technology and the importance of the product in daily life make its growth imperative. The price at which the share is being offered makes the IPO attractive and offers scope for appreciation in the short term as well as medium and long term. I recommend investors apply for the IPO for reasonable gains on listing and for growth thereafter.
SEBI Disclaimer: – I intend to apply to the above issue.
