Stock to Buy: Recycling Stock with 28% Upside Potential

Synopsis: A recycling-focused mid-cap beats revenue estimates, acquires a copper business, and raises its capex target by Rs 500 crore, yet PAT misses expectations. Axis Securities maintains its Buy rating with a target of Rs 2,200, implying 28% upside from current levels.

India’s push toward a circular economy has placed organized recycling firms at the center of a structural shift, as tightening regulations increasingly redirect scrap flows away from the unorganized sector. One such mid-cap recycling company is attempting to ride this wave while simultaneously transforming its business profile through an ambitious capacity expansion and a bold new entry into copper recycling.

Shares of Gravita India Ltd. traded at Rs.1,720, valuing the company with a Market Capitalization Rs.12,700 crore. The stock touched a 52-week high of Rs. 2,170 and a low of Rs. 1,267. Trading at a P/E of 33.5x, the valuation reflects strong investor confidence in its growth and profitability outlook.

Axis Securities Maintains Buy: Here Is Why

Axis Securities has maintained its Buy rating on Gravita India with an unchanged target price of Rs 2,200 per share, implying 28% upside from current levels, valuing the company at 27x FY28E EPS. The brokerage’s conviction rests on two central pillars.

The first is Gravita’s aggressive and revised capital expenditure plan. Management has bumped total capex guidance from Rs 1,200 crore to Rs 1,700 crore through FY29, with approximately Rs 700 crore dedicated to the newly entered copper recycling business. This includes the acquisition of a 99.44% stake in Rashtriya Metal Industries Limited for Rs 560 crore, a move Axis views as highly accretive, providing access to high-barrier segments such as electrical and defense components. 

The brokerage notes that a backward-integrated copper recycling facility being set up in Mandvi, Gujarat, is expected to push consolidated ROCE in the copper division to 20% or above.

The second pillar is volume growth visibility. Axis highlights management’s reaffirmed guidance of a 20–25% volume CAGR over the next three years, underpinned by a capacity scale-up plan that targets over 8 lakh MTPA by FY29 from the current 4.57 lakh MTPA. The brokerage also points to a broader structural tailwind, increased regulatory focus shifting scrap flows from unorganized to organized players as a durable demand driver for Gravita’s core recycling verticals.

That said, Axis has trimmed its FY27 and FY28 PAT estimates by 8% and 11%, respectively, reflecting near-term margin pressure and higher capex-related costs. Revenue estimates have been nudged up by 1% for both years.

Q4 FY26: Revenue Beat, PAT Miss

Gravita reported consolidated revenue of Rs 1,173 crore in Q4 FY26, up 13% YoY from Rs 1,037 crore and up 15% QoQ from Rs 1,017 crore, beating Axis Securities’ estimate of Rs 1,104 crore by 6%. Adjusted EBITDA came in at Rs 113 crore, up 4% YoY and marginally ahead of the brokerage’s estimate of Rs 111 crore. However, EBITDA margin contracted 84 basis points YoY and 178 basis points QoQ to 9.6%, falling short of the estimated 10.1%. Net profit stood at Rs 92 crore, declining 3% YoY and 5% QoQ, missing estimates by 6%.

Full Year FY26: Steady Revenue, Margin Pressure

For the full year FY26, Gravita reported revenue of Rs 4,265 crore, up 10% from Rs 3,869 crore in FY25. Adjusted EBITDA rose to Rs 453 crore from Rs 402 crore, with EBITDA margin broadly stable at 10.6%. Net profit for FY26 grew nearly 21% to Rs 378 crore from Rs 313 crore in FY25.

Volume Trends: Lead Strong, Aluminium a Drag

Overall volumes grew 5% YoY in Q4 FY26. Lead volumes rose 7% YoY to 48,889 tonnes, though EBITDA per tonne remained nearly flat at Rs 20,300. Aluminum volumes fell sharply by 30% YoY to 3,696 tonnes due to limited hedging options, with the company awaiting MCX approval to scale the segment. Plastic volumes improved 9% YoY to 2,879 tonnes, with EBITDA per tonne surging 79% YoY to Rs 17,714, the standout performer in the quarter. Value-added products contributed 42% to overall revenue, keeping the company on track for its Vision 2029 target of 50%.

Capacity Additions and Emerging Verticals

A 45,000 MTPA lead capacity addition at Phagi is expected to come online in Q1 FY27, alongside an 80,300 MTPA lead expansion already commissioned at Mundra. The company has also launched a 6,000 MTPA pilot lithium-ion battery recycling plant, a segment management sees as a long-term upside not yet factored into FY29 guidance. A 30,000 MTPA rubber recycling facility at Mundra is targeted for commissioning in H1 FY27.

Verdict

Gravita’s Q4 FY26 was a mixed quarter, a revenue beat overshadowed by a PAT miss and margin compression. The copper acquisition and revised capex plan represent a significant long-term structural bet, but execution risk remains, and working capital debt is expected to peak at Rs 800–900 crore next year to fund the new business. 

For investors with a three-year horizon, the volume growth guidance, improving product mix, and entry into high-margin segments like copper and lithium-ion recycling offer a compelling case. Near-term earnings disappointments, however, may limit sharp price re-rating until new capacities begin contributing meaningfully to the top line.

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