Gravita Expects Reverse Charge to Speed Scrap Formalisation

Gravita expects the reverse-charge mechanism to speed the move of battery scrap into organised recycling because it removes the unorganised sector’s stated 18% goods and services tax (GST) advantage. Management also said Extended Producer Responsibility (EPR) credit demand could rise when a seven-year compliance window closes in financial year 2029 (FY29), with credits currently banded at Rs 5.40 to Rs 18 per kg.

How could reverse charge change battery-scrap sourcing?

Gravita said reverse charge could put organised recyclers and unorganised operators on an even footing by eliminating the latter’s 18% GST advantage. Management said this advantage had made it difficult for organised players, including battery manufacturers, to procure domestic scrap during the last two quarters, when restrictions on scrap imports increased pressure on local supply.

Management expects the shift to begin in the current year rather than only at the end of the seven-year compliance period. It said Gravita should then be able to match prices paid by unorganised buyers to scrap dealers and use its operating efficiency and sales mix to compete for material. This is an expectation, not a disclosed volume target, and management did not quantify how much domestic scrap may move to organised channels.

Gravita had previously expected the recycling sector to take about three to five years to convert from unorganised to organised operations. Management described that earlier timeline as potentially optimistic but said the reverse-charge mechanism could accelerate the transition because the tax-related pricing difference would no longer apply.

Why does Gravita see EPR-credit demand rising in FY29?

Gravita said demand for EPR credits could surge when the seven-year window for completing targets closes in FY29. Management’s explanation was that while many producers buy credits regularly, some may defer purchases while expecting EPR credit prices to fall; the deadline would require completion of targets within the stated window.

Gravita placed the current EPR-credit band at Rs 5.40 to Rs 18 per kg and said the market would determine realised prices within that range. It did not forecast a specific FY29 price, credit volume or revenue contribution. The disclosed catalyst is therefore a compliance deadline and possible purchasing catch-up, rather than a committed financial projection from Gravita.

Management also said the Central Pollution Control Board plans an electronic credit platform. It said credit generation would be audited and that the future EPR portal would monitor purchases, GST records, e-way bills and sales. Those controls, if implemented as described, would provide a more auditable mechanism for credit creation and transactions.

What supports Gravita’s expectation of faster formalisation?

Gravita pointed to changes already visible in its India procurement operations, even though management said the relevant notification had not yet arrived. It said scrap suppliers had started offering Gravita material that they had previously not offered, and it also cited new overseas geographies that had begun supplying material for India, partly from the current quarter.

The policy discussion sits alongside a sourcing constraint rather than a shortage of planned capacity. Management said Gravita would keep increasing recycling capacity when scrap is available, profitable and meets internal return on capital employed (ROCE) requirements. It added that it sees enough scrap availability in India and overseas for the next three to four years and therefore does not intend to slow capital expenditure on that basis.

For lead, management projected volume growth of about 18% to 20% for the next three years, despite describing the preceding two quarters as not good. It qualified that individual quarters may not reach 18% growth, but said the three-year compound annual growth rate (CAGR) should be about 18%. The expectation depends on available scrap and procurement economics rather than solely on the reverse-charge mechanism.

How does scrap sourcing affect the policy opportunity?

Gravita’s formalisation argument is tied to its ability to obtain scrap directly rather than through aggregators. Management said its plan in developed markets is to establish consolidating yards in major cities, collect from Tier 3 and Tier 4 yards, enter long-term contracts and offer financial support to those suppliers. It estimated that own yards can add about 2% to 3% to margins after operating costs versus buying from aggregators.

In the United States, management said copper volumes now make own yards economically viable alongside lead and aluminium. It plans to consolidate copper, aluminium and battery scrap, with the stated aim of securing greater control over raw material and meeting ROCE requirements even if battery sourcing costs more than in Africa. This overseas plan is distinct from the Indian reverse-charge change, but both initiatives address access to recyclable feedstock.

Management described imports as a recent source of domestic pressure, saying restrictions linked to the Gulf war limited scrap inflows and intensified competition for Indian material. It said India’s policy direction is to encourage scrap imports for domestic processing because the country has deficits in many metals. Gravita nevertheless said its key future constraint would be scrap availability, which makes effective collection and formal-sector access central to its capacity plans.

What remains uncertain about the regulatory impact?

Gravita’s comments establish a management view that reverse charge removes a specific 18% tax-related advantage, but they do not provide the mechanism’s implementation date, a formalisation percentage or a forecast of incremental scrap volumes. The company also said the notification was still awaited even as it observed more scrap offers in India, leaving the scale and pace of change unresolved.

EPR-credit demand in FY29 is also conditional on how producers buy credits before the end of the seven-year window and where market prices settle within the Rs 5.40-to-Rs-18-per-kg band. Management’s reference to planned Central Pollution Control Board monitoring, audits and an electronic platform indicates that the rules and market infrastructure were still being formed rather than fully operational.

Conclusion

Gravita’s central case is that reverse charge can change the economics of battery-scrap procurement immediately by removing the unorganised sector’s stated 18% GST advantage. A separate FY29 catalyst could emerge from the end of the seven-year EPR compliance window, when producers that deferred purchases may need credits, although neither credit pricing nor volumes were forecast.

The next items to watch are the notification management said was awaited, the rollout of the proposed electronic EPR-credit platform and Gravita’s ability to secure scrap for planned capacity expansion. Gravita said it sees sufficient domestic and overseas availability for the next three to four years and expects lead volumes to grow about 18% to 20% over the next three years, subject to sourcing and ROCE conditions.