58% upside! Can Africa biz give this latest Ashish Kacholia pick a lift?

NEW DELHI: Notwithstanding the recent fall, Gravita India, Ashish Kacholia's portfolio stock, has risen some 130 per cent in the last one year. Emkay, which visited the company's Africa unit recently, has maintained its target of Rs 430 on the stock, hinting at a potential 58 per cent upside.

Gravita India is among India's largest secondary lead metal producing companies. It is engaged in the recycling of used lead acid batteries, cable scrap, aluminum scrap and plastic Scrap. Its recycling facilities are located in Asia, Africa and Central America. It also provides turnkey solutions to the recycling industry.

While Africa accounts for 25 per cent of the company's revenues, its share in the company's earnings stands at 65 per cent. On the other hand, Africa plants account for the company's 20 per cent total capacity, with Ghana and Senegal contributing half of it.

"Gravita’s Africa business is a major profit center, generating about two-third of the group’s earnings currently. Our recent visit to the company’s Senegal and Ghana facilities reaffirmed the growth outlook. We estimate 35 per cent-plus each of volume and Ebitda CAGR over FY21-25E in Africa," Emkay Global said in a note.

Ashish Kacholia bought 1.4 per cent stake, or 9,33,304 shares in this company in March quarter, which are worth Rs 25.4 crore today.

Emkay said Africa production volumes contribute 30 per cent of consolidated volumes, driven by significant automotive scrap availability in the region at a cheap rate that are usually 35-45 per cent of LME price.

Gravita has an extensive scrap collection network of small suppliers, Emkay said, adding that the ongoing relocation of the Senegal plant from Sebikotane to Sandiara is expected to enhance the overall capacity contribution of Senegal by more than 2 times over FY25.

Ghana, it said, houses Gravita’s largest overseas plant, with 16.2ktpa of lead capacity (40 per cent of FY22 Africa capacities), with 14ktpa of expansion planned by FY23. This is besides the addition of 6 ktpa of aluminum and 3.6 ktpa of plastics.

"We estimate Gravita to record 24 per cent revenue/25 per cent PAT CAGRs in FY22-26E on the back of 27 per cent growth in volume. We value the company using DCF with a Mar 2023 target of Rs430," the brokerage said.

To be sure, the stock is thinly tracked. Hem Securities had initiated coverage on this stock on March 21 this year with a target of Rs 600. The stock hit a 52-week high of Rs 398.20 on February 2 and is, for now, falling.

On Monday, the stock fell 5 per cent to Rs 272.10 on BSE. Emkay's target suggests a 58 per cent upside over this price.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)