5 Stocks to Benefit from the Expanding Recycling Industry

The recycling sector in India is undergoing a significant transformation, as the country continues to focus on sustainability and renewable practices to reduce its lower carbon footprint.

With India aiming to become the world's third-largest economy by 2030, the recycling economy presents a path for balanced growth and substantial environmental benefits.

India's urban population produces about 55 million tonnes (MT) of municipal solid waste (MSW) annually, projected to reach 125 m MT by 2031. However, only 75-80% of this waste is collected, with merely 22-28% processed; the remainder is discarded.

The potential for MSW generation to rise to 165 m tons by 2031 and 436 m tons by 2050 highlights the urgency of effective recycling practices.

These promising growth prospects present investors with an excellent opportunity. In light of this, we highlight 5 stocks poised to capitalise on the expanding recycling sector.

#1 Gravita India

At the top of our list, we have Gravita India.

Gravitas India is one of the largest lead producers in India. The company produces leads, zinc, and copper alloys and has recently introduced the plastic recycling division, widely used across industrial sectors. It enjoys expertise in the recycling of used batteries, cable scrap/other lead scrap and aluminium scrap.

The company maintains a deep-routed procurement network with over 1,500 touchpoints in tandem with a well-diversified customer network of over 375 customers across 38 countries. This wide base sets it apart from its peers, giving it an enviable edge.

Gravita India Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	20.62%	8.54%	4.74%	57.47%	26.00%
Operating Profit Margin (%)	5.42%	7.55%	8.65%	10.04%	7.00%
Net Profit Margin (%)	1.56%	2.71%	4.02%	6.68%	7.28%
Return on Capital Employed(%)	12.79%	16.55%	19.92%	31.19%	31.00%
Return on Equity(%)	10.02%	17.28%	23.00%	45.27%	41.20%

Source: Equitymaster

Gravita's business has performed admirably in the past few years on the back of growing demand and the company's capacity additions.

While the sales have expanded at a 5-year CAGR of 22.2%, the net profits have grown at 33.8%. The 5-year average return on equity (RoE) and return on capital employed (RoCE) stand at 27.4% and 22.9%, respectively.

This growth has been facilitated through significant borrowings. The company has incurred a debt of approximately Rs x, as reflected in its fiscal 2023 debt-to-equity ratio of 1.53x.

Over the previous year, it has successfully executed a qualified institutional placement (QIP), raising Rs 3 bn in funds. These funds were utilized to retire a portion of the existing debt burden.

Going forward, the company has set ambitious expansion plans to address the growing demand in the recycling industry, most of which will be met via internal accruals. It aims to double its capacity from 233,000 MT in fiscal 2023, to 434,000 MT in 2026 spending over Rs 6 bn.

While increasing its capacity, Gravita India will also broaden its offering to include additional materials like rubber, lithium, steel, and paper, in addition to its existing lead recycling operations.

This diversification will play a crucial role in decentralizing business operations and fostering consistent growth.

#2 Antony Waste

Next on our list is Antony Waste.

Antony Waste is a leading player in the waste handling sector.

With over 19% market share, the company has carved out a niche for itself. It operates one of the largest waste processing units in the country, offering complete waste handling solutions.

The unique business model and leadership status have allowed the business to grow its sales and profits by three times in the past five years. This growth has propelled the return ratios, reporting a 5-year average return on equity of 20%.

Antony Waste Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	4.61%	58.80%	3.23%	39.43%	32.01%
Operating Profit Margin (%)	31.41%	31.00%	28.01%	25.68%	20.00%
Net Profit Margin (%)	11.11%	10.47%	13.78%	13.94%	9.93%
Return on Capital Employed(%)	21.80%	24.41%	21.29%	24.57%	18.00%
Return on Equity(%)	65.10%	31.60%	22.41%	23.65%	15.10%

Source: Equitymaster

The company's debt to equity stands at 0.73, despite incurring a large capex of Rs 2.5 bn towards a large integrated waste-to-energy project in Maharashtra.

Antony Waste continues to invest in its core business and aims to grow it substantially in the coming years. It is bidding several large projects over the next few months.

The company is confident of emerging opportunities across various municipalities in India in both waste processing and the municipal solid waste collection and transportation segments. This will act as a major growth catalyst for growth.

To know more about the company, check out its financial factsheet and latest financial results.

#3 Pondy Oxides & Chemicals

Third on our list is Pondy Oxides & Chemicals.

Pondy Oxides & Chemicals is India's leading nonferrous recycling company and the largest secondary lead metal manufacturing company. The company recycles lead acid batteries and other forms of lead scrap, copper scrap, zinc scrap, and plastic scrap into secondary lead metal. This metal is then transformed into pure lead and specific lead alloys.

The company is present in the domestic and international markets, with 60% of its products exported to over 20 countries.

Pondy Oxide caters to the lead acidic batteries, electrical and electronics, chemicals and paints, plastic moulders and extruders, and pharma and cosmetics sectors.

Its three-decade-long existence in the metal recycling industry, and its long-term contracts with most of the leading and premium original equipment manufacturers (OEMs), give the company an advantage. The company also has a well-diversified supplier and procurement base, with over 270 suppliers and procurement from over 90 countries.

Pondy Oxides & Chemicals Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	9.76%	16.30%	-17.67%	44.86%	1.46%
Operating Profit Margin (%)	6.55%	3.25%	2.75%	5.64%	5.00%
Net Profit Margin (%)	3.22%	1.34%	1.07%	3.32%	5.15%
Return on Capital Employed(%)	24.57%	13.26%	7.47%	23.48%	NA
Return on Equity (%)	29.45%	11.64%	6.91%	26.12%	NA

Source: Equitymaster

The business has also grown well, with the company achieving its highest turnover in fiscal 2022. On a 5-year CAGR basis, the revenues and net profits have grown by 9.1% and 21.1%, respectively.

The returns have also been strong, with the RoE and RoCE at a 5-year average of 18.5% and 17.1%, respectively. The debt to equity in fiscal 2023 was at 0.56x.

Procuring recycled raw material is both, more cost-effective and energy efficient, than sourcing it from mining for the manufacturers.

All these factors are contributing to the growth of metal scrap market's in the world. Though the Asia-Pacific region is the most significant growth region for the market, Indian metal scrap market growth is relatively less, when compared globally, which gives POCL room for substantial growth

Pondy Oxide plans to introduce new recycling verticals in lithium-ion and e-waste, to keep contributing to the recycling industry. Additionally, they plan to introduce new segments, organically or inorganically, such as plastics (in-house and industrial), e-waste, lithium-ion recycling, rubber, oil, glass, paper, and value-added products.

To know more about the company, check out its financial factsheet and latest financial results.

#4 Tinna Rubber and Infrastructure

Fourth on our list is Tinna Rubber and Infrastructure.

Tinna Rubber and Infrastructure is a recycling company that converts End of life tyres (ELT) into crumb rubber and steel wires obtained in the process.

It is the largest integrated waste tyre recycler in India and among the global leaders in manufacturing recycled rubber materials. It has manufacturing facilities across India and one in Oman. The final products find application in new tyres/conveyor belts, other rubber moulded products and roadways.

Global tyre companies target to meet sustainable development goals by increasing sustainable materials in new tyres by up to 30% in 2030 and up to 100% by 2050 which will subsequently boost demand for recycled rubber.

Moreover, crumb rubber-modified bitumen has significantly lower greenhouse gas emissions and embodied energy compared to virgin bitumen. Incorporating rubber into bitumen also reduces carbon emissions by over 750 times.

Tinna Rubber and Infrastructure is well-poised to bite off a sizeable chunk of the growing demand for recycled rubber.

To address the growing demand, the company recently commissioned a new manufacturing unit, enhancing its capacity by 50%. It is also venturing into recycling passenger car radial (PCR) tyres and thermo plastic elastomer (TPE).

Apart from this, the company has recently invested in and acquired a tyre recycling company in Oman. It is a pilot project to recycle 6,000 tonnes of waste tyres annually.

Once the operations are stabilised, the company plans to scale it up by increasing its capacity three-fold to handle waste tyres and waste plastic.

Tinna Rubber And Infrastructure Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	26.96%	-5.15%	5.72%	76.25%	28.88%
Operating Profit Margin (%)	14.10%	9.77%	14.96%	17.75%	14.66%
Net Profit Margin (%)	-0.12%	-3.16%	0.86%	7.37%	7.38%
Return on Capital Employed(%)	7.26%	3.09%	8.49%	23.06%	24.45%
Return on Equity(%)	-0.22%	-5.64%	1.67%	23.45%	25.16%

Source: Equitymaster

The business has done well in the past 5 years, with the sales and operating profit expanding at a CAGR of 23.6% and 30.6%, respectively. Consequently, the returns have also improved with a 5-year average RoE and RoCE of 13.3% and 8.9%, respectively.

To know more about the company, check out its financial factsheet and latest financial results.

#5 Ganesha Ecosphere

Last on our list is Ganesha Ecosphere.

Ganesha Ecosphere is a leading PET waste recycling company in India. It manufactures recycled polyester staple fibre (RPSF), spun yarn, and dyed texturised yarn in India, aggregated through a pan-India network.

The end product is used to manufacture textiles (T-shirts and body warmers etc), functional textiles (non-woven air filter fabric, geotextiles, carpets, and car upholstery) and fillings (pillows, duvets, and toys).

Ganesha operates at a combined capacity of 106,800 TPA; 96,600 TPA of rPET fibre, 7,200 TPA of rPET yarn, and 3,000 TPA of dyed and texturised/twisted filament yarn.

The global recycled PET market was valued at US$ 9,362 m in 2022 and is anticipated to reach US$ 11,665 m by 2026, growing at a CAGR of 6% from 2022 to 2026. The increased trend of collection, recovery of PET, domestic recycling, implementation of regulations and PET export are major market drivers.

In June 2022, the government of India issued a mandate to use at least 30% recycled content in new PET bottles from 2025 and this percentage is likely to increase, widening industry opportunities. And Ganesha Ecosphere is positioning itself to benefit from this.

Ganesha Ecosphere is investing in greenfield capacity expansion, investing more than Rs 6 bn. The company intends to manufacture more value-added recycled products going ahead, aiming to carve away a fourth of the Indian PET bottle recycling market.

Ganesha Ecosphere Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	34.76%	-12.90%	-15.37%	36.06%	15.29%
Operating Profit Margin (%)	13.09%	13.42%	12.69%	12.59%	11.00%
Net Profit Margin (%)	6.07%	7.19%	6.01%	6.80%	6.10%
Return on Capital Employed(%)	21.91%	16.71%	11.24%	14.69%	10.79%
Return on Equity (%)	18.17%	14.25%	9.07%	12.61%	11.50%

Source: Equitymaster

The business growth has been erratic. First due to the pandemic and then due to some assets in fire at a unit of the company. The sales and net profit have grown modestly at a 5-year CAGR of 9.3% and 15.4%, respectively. The 5-year average RoE and RoCE stand at 13.1% and 15%, respectively.

To know more about the company, check out its financial factsheet and latest financial results.

Conclusion

India's recycling industry continues to evolve and contribute to the country's sustainable development goals.

It offers investors to benefit not only financially, but also by supporting a more environmentally conscious future. However, it's important to exercise caution when considering these stocks.

While they might seem like a good opportunity for profits, investing your hard-earned money requires a careful approach.

Market conditions contribute significantly to a company's performance and must not be ignored. Industry trends and other economic factors can impact a company's performance, especially during an expansion phase.

That's why it's crucial to look closely at the fundamentals of each company and make sure they match your comfort with risk and your investment goals. Simply put, do your homework before investing to make sure it's the right fit for you.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...