Gravita says worst scrap disruption is over, lead volumes to rise

Gravita India Limited said restricted scrap availability, rather than weaker demand, drove an 11% decline in lead volumes in Q2 FY27. Management said the worst of the disruption was over after it booked material from new geographies, with some shipments expected from Q3 FY27 and domestic battery-scrap procurement also showing early improvement.

What caused Gravita’s lead-volume decline in Q2 FY27?

Gravita said lead volumes declined because geopolitical developments and logistics disruptions abruptly constrained raw-material availability. An analyst said Q2 FY27 lead volumes were down 11% both year on year and quarter on quarter, and management replied that demand was not the issue. It said the company used available material to maximise value-added output and profitability.

The timing of replacement supply is limited by lead’s 80-to-90-day working-capital cycle, according to management. Material booked in a new sourcing territory can take about 90 days to reach Indian factories, so procurement diversification cannot immediately restore production. Management described Q2 FY27 as probably a one-off quarter for the lead-volume decline and said volumes should improve as booked cargoes arrive.

The supply issue was concentrated in lead rather than reflected in a groupwide revenue fall. Consolidated revenue increased 38% year on year to Rs 1,427 crore in Q2 FY27, while adjusted earnings before interest, tax, depreciation and amortisation, or EBITDA, rose 28% to Rs 143.37 crore. Profit after tax increased 6% to Rs 102 crore, and value-added products contributed 64% of consolidated revenue.

How is Gravita rebuilding its scrap supply?

Gravita is rebuilding supply through new overseas procurement territories and a larger domestic collection base. Management said it had begun booking material from geographies where it had not previously sourced scrap, although those routes can initially cost more than its earlier supply territories. Some of the shipments were expected to start reaching factories in Q3 FY27, with a more substantial improvement anticipated over the following couple of quarters.

Domestic battery scrap is the second part of the plan. Management said the reverse charge mechanism for battery scrap had produced a positive market response, although notification was still pending at the time of the call. It expects the mechanism to narrow the advantage previously available to the unorganised sector and increase formal domestic procurement in Q3 FY27, Q4 FY27 and the following year.

Management’s expected sourcing mix represents a material shift from the prior quarter. Indian battery scrap accounted for 26% of supply in the last quarter, against 74% from imported scrap. Going forward, management expects domestic procurement to account for 40% to 50% of supply and overseas procurement for the remaining 50% to 60%.

What will Gravita’s US yard model change?

Gravita plans to establish its own scrap-procurement yards in the United States rather than depend primarily on aggregators. The board approved a wholly owned subsidiary proposed as Gravita Recyclers USA, Inc., with initial capital of US$50,000. Management said the US operation would source copper, lead and battery scrap for Indian plants rather than generate direct US revenue.

The proposed operating model is to lease consolidation yards in major US cities, collect from smaller Tier 3 and Tier 4 yards, and establish long-term supply arrangements. Management said it may provide financial support to smaller suppliers. The aim is not household-level collection but bypassing aggregators by consolidating material closer to its original collection points.

Management estimated that proprietary yards could add about 2% to 3% to margins after operating expenses compared with buying from aggregators. It said this potential applies to both lead and copper. Capital expenditure for the US yards is not expected to be substantial because management intends to use leases, although working capital will be needed to purchase and ship scrap to India.

The US strategy became more viable after Gravita entered copper through Rashtriya Metal Industries Limited, or RMIL. Management said much of copper scrap generation occurs in developed markets, while Gravita had been buying most US-origin copper scrap through aggregators. Combining copper, aluminium and battery-scrap volumes is intended to support the fixed cost of US yards and reduce collection costs.

How do copper operations support the sourcing plan?

Gravita expects copper to reinforce the economics of its new procurement network while lead supply recovers. RMIL contributed Rs 420 crore of consolidated revenue in Q2 FY27 and recorded an EBITDA margin of 8.5%. The copper segment operated at 50% capacity utilisation in H1 FY27, while sales increased 12%, indicating that RMIL still has scope to raise output through debottlenecking.

Copper EBITDA per ton was Rs 84,671 in Q2 FY27, compared with Rs 22,620 for lead, Rs 22,664 for aluminium and Rs 10,334 for plastics. Management attributed the copper result to changes in raw-material and sales mix, higher utilisation and some high-value product orders. It said copper EBITDA of about Rs 65 to Rs 70 per kilogram was sustainable over the next few quarters, excluding the benefit of specific high-value orders.

Management expects RMIL utilisation to increase to about 65% to 70% over the next two to three quarters after additional machinery is installed. It said higher utilisation requires debottlenecking because certain manufacturing stages constrain output even though overall finished-goods capacity is higher. Beyond that level, management said further capacity expansion would require capital expenditure and could take about three years.

The sourcing programme runs alongside an announced Rs 1,680 crore capital-expenditure plan through FY29. Of that total, Rs 815 crore is allocated to existing businesses, with the balance for newer recycling verticals including copper and lithium-ion batteries. Gravita plans 59,200 metric tons per annum of copper recycling capacity at Mundra for about Rs 64 crore by March 2029, while its 29,400 metric tons-per-annum Mandvi facility, estimated at Rs 160 crore, is targeted for commissioning within 12 months.

What is Gravita’s outlook for lead supply and volumes?

Gravita expects lead volumes to begin improving from Q3 FY27 as new overseas bookings arrive and domestic procurement expands. Management said it was already seeing more scrap offers in India despite the pending notification of the reverse charge mechanism. It also said material from newly developed international territories would start arriving partially during Q3 FY27.

For the next three years, management maintained its expectation that lead volumes could grow about 18% to 20% annually. It cautioned that individual quarters may not achieve that rate because shipment timing and scrap availability can affect production. Management said it would continue expanding capacity as long as scrap remains available and investments meet its internal return-on-capital-employed requirements.

Conclusion

Gravita’s account of the Q2 FY27 lead-volume decline is that it was a supply-chain interruption rather than a demand problem. Its response combines new import territories, a targeted increase in domestic battery-scrap procurement and planned US consolidation yards designed to reduce dependence on aggregators. Copper broadens the case for that yard network because developed markets are a major source of copper scrap and RMIL adds demand for that material.

The next indicators are the arrival of booked material from new geographies in Q3 FY27, the domestic market response to the pending reverse charge notification, and the establishment of US sourcing operations. Management also plans to lift RMIL utilisation to about 65% to 70% over the next two to three quarters, while Mandvi remains targeted for commissioning within 12 months and Mundra capacity is planned in phases through March 2029.