4 Recycling Industry Stocks that had a Blockbuster Q1. What Next?

The Indian recycling industry is experiencing a meteoric rise, with companies delivering exceptional performance in the recent quarter.

A perfect storm of factors is driving this growth: the nation's unwavering commitment to sustainability, coupled with the escalating waste management crisis, has created a lucrative opportunity for forward-thinking businesses.

In addition, the government's increased focus on sustainability and infrastructure development, as outlined in the budget, has created a fertile ground for the recycling sector.

Initiatives promoting circular economy principles and waste management are to drive substantial investments and technological advancements.

Coupled with the nation's burgeoning economy and urbanisation, which continue to generate massive waste volumes, the recycling industry is poised for exponential growth.

Here are 4 stocks that have reported blockbuster results in Q1FY25.

#1 Gravita India

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

Gravita 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 delivered a robust Q1 performance, driven by strong growth in lead and plastic segments and improved profitability in aluminium.

The company reported a stellar 29.1% year on year (YoY) jump in revenues followed by a 50.2% and 29.3% jump in operating profit and net profit, respectively.

The company's focus on volume growth in the lead segment, coupled with improved profitability in the aluminium business due to higher LME prices, was instrumental in driving this exceptional performance.

Increased domestic scrap sourcing and operational efficiency further contributed to the positive results.

Gravita India Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	8.85%	4.45%	57.47%	26.32%	12.57%
Net Profit Margin (%)	2.71%	4.02%	6.68%	7.27%	7.66%
Return on Capital Employed(%)	16.54%	19.92%	31.19%	31.76%	27.60%
Return on Equity (%)	17.27%	23.00%	45.27%	41.83%	33.50%

Data Source: Equitymaster

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

Between 2020-2024, the sales have expanded at a 5-year CAGR of 20.5%, the net profits have grown at 65.8%. The 5-year average return on equity (RoE) and return on capital employed (RoCE) stand at 25.4% and 32.2%, respectively.

Looking ahead, Gravita is investing heavily in future growth avenues. The company's foray into lithium-ion battery recycling and tyre recycling is a strategic move to tap into emerging opportunities.

Additionally, expansion plans in rubber, paper and steel recycling demonstrate a clear intent to diversify revenue streams and reduce reliance on traditional materials.

While the company's financial health remains sound, with manageable debt levels, the management's optimistic outlook on volume growth and profitability bodes well for future performance.

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

#2 Pondy Oxides & Chemicals

Next 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.

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

Pondy Oxides' 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.

he company also has a well-diversified supplier and procurement base, with over 270 suppliers and procurement from over 90 countries.

The company has reported a stellar performance in Q1 FY25, marked by significant growth across key financial metrics.

The revenue from operations surged by 37% year-on-year, driven by increased production, sales and higher realisations in both lead and plastics segments.

This strong top-line growth translated into a robust 76% increase in EBITDA, with EBITDA margins expanding to a healthy 5% from 4% in the previous year.

A noteworthy achievement was the 216% jump in net profit, driven by improved operational efficiency and reduced finance costs.

Pondy Oxides & Chemicals Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	16.30%	-17.67%	44.86%	1.16%	4.78%
Net Profit Margin (%)	1.34%	1.07%	3.32%	3.34%	2.59%
Return on Capital Employed(%)	13.26%	7.47%	23.48%	20.80%	16.10%
Return on Equity (%)	11.64%	6.91%	26.12%	21.29%	13.00%

Data Source: Equitymaster

Between 2020-2024, the business has also grown well. On a 5-year CAGR basis, the revenues and net profits have grown by 8.1% and 3.5%, respectively.

The returns have also been strong, with the RoE and RoCE at a 5-year average of 15.8% and 16.2%, respectively.

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

Though the Asia-Pacific region is the most significant growth region for the market, Indian metal scrap market growth is relatively low, 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.

The company's focus on capacity expansion is evident in the ongoing construction of a new facility in Thervoykandigai, Tamil Nadu.

This will increase lead capacity from 132,000 MTPA to 204,000 MTPA in two phases. This strategic investment will be funded through internal accruals and proceeds from preferential issue.

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

#3 Tinna Rubber and Infrastructure

Third 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's 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.

Tinna Rubber has delivered a solid financial performance in Q1 FY25, marked by robust growth across key metrics.

The company's revenue surged by 69% year-on-year, driven by strong performance across all segments. This growth was accompanied by a 40% increase in EBITDA, resulting in improved EBITDA margins of 18.2%.

The company's profitability has also witnessed substantial growth, with net profit soaring 130% YoY.

On the operational front, Tinna Rubber demonstrated strong execution with a 75% year-on-year growth in tyre recycling volumes. The company's focus on expanding its export business yielded impressive results, with a 51% YoY growth in exports.

The infrastructure segment emerged as a key growth driver, contributing 45% to total revenue and registering a 48% YoY growth.

The industrial and consumer segments also showcased robust growth, driven by increasing demand for finer grade MRP and the ramp-up of the Varle plant, respectively.

Despite challenges such as higher freight rates and one-time expenses, the company managed to improve margins.

Tinna Rubber And Infrastructure Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	-5.15%	5.72%	76.25%	28.88%	22.88%
Net Profit Margin (%)	9.77%	14.96%	17.75%	14.66%	17.77%
Return on Capital Employed(%)	-3.16%	0.86%	7.37%	7.38%	11.10%
Return on Equity (%)	3.09%	8.49%	23.06%	24.45%	32.83%
Return on Equity (%)	-5.64%	1.67%	23.45%	25.16%	36.02%

Data Source: Equitymaster

The business has done exceedingly well in the past 5 years, with the sales and operating profit expanding at a CAGR of 22.9% and 28.7%, respectively. The company achieved profitability in FY21 and has maintained this positive trajectory since.

Consequently, the returns have also improved with a 5-year average RoCE and RoE of 18.4% and 16.1%, respectively.

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.

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). Tinna Rubber has earmarked Rs 5 m for capital expenditure in FY25 to support its growth initiatives.

Apart from this, the company has recently acquired a tyre recycling company in Oman. It is a pilot project to recycle 6,000 tonnes of waste tyres annually. It is also exploring a joint venture in South Africa.

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.

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

#4 Nile

Fourth on our list is Nile.

Nile is a significant player in the lead recycling industry, specialising in producing pure lead and lead alloys.

The company caters to a diverse clientele, including lead acid battery manufacturers, PVC stabilisers and lead-oxide producers. Beyond its core business, Nile also generates power through wind farms.

The company operates two primary lead recycling plants, in Choutuppal and Tirupati, with a combined capacity of 107,000 tons per annum.

A substantial portion of Nile's revenue is derived from supplying Amara Raja Batteries (ARBL), accounting for approximately 91% of total sales.

The strong relationship with ARBL is further solidified by a long-term contract with a minimum offtake clause, ensuring a steady demand for Nile's products.

NILE reported a fairly impressive set of numbers for the June 2024 quarter. The company witnessed a robust 41% quarter-over-quarter and 52% year-over-year increase in revenue. This strong top-line growth translated into a 42% quarter-over-quarter and 75% year-over-year surge in net profits.

Nile Ltd. Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	NA	-9.49%	30.96%	14.78%	3.93%
Net Profit Margin (%)	1.84%	2.57%	3.39%	2.80%	3.70%
Return on Capital Employed(%)	11.09%	11.69%	16.80%	15.08%	18.90%
Return on Equity (%)	7.77%	9.34%	14.38%	11.97%	14.50%

Data Source: Equitymaster

Between 2020-2024, the business has also grown well. On a 5-year CAGR basis, the revenues and net profits have grown by 9.1% and 29.8%, respectively.

The returns have also been strong, with the RoE and RoCE at a 5-year average of 14.7% and 11.6%, respectively.

To support future growth, Nile's subsidiary, NLCPL, is undergoing a capacity expansion. The company plans to invest around Rs 600 m over the next two years, primarily funded through debt and internal accruals.

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

Conclusion

India's recycling industry presents a compelling investment opportunity, aligned with the nation's sustainability goals.

As the sector matures, it offers potential for both financial growth and positive environmental impact.

However, investors should approach this space with a discerning eye. While the long-term prospects may be promising, short-term market fluctuations and company-specific risks can impact returns.

It is crucial to conduct thorough due diligence, considering factors such as market trends, regulatory landscape and the financial health of individual companies before making investment decisions.

By adopting a prudent and informed approach, investors can potentially capitalise on the growth of this vital industry while contributing to a sustainable future.

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...