Retail Research

Sector: Metal
29 October 2010

Gravita India Ltd.

IPO Note View: Subscribe Price Band (Rs.): 120 - 125

Gravita India Ltd. (GIL) is the flagship company of the Gravita ISSUE DETAILS:

Group whic h was established in the year 1992 and has Date of Opening 01st November 2010
manufacturing set up at Jaipur. It is engaged in the business of Date of Closing 03rd November 2010
manufacturing of lead metal by recycling & smelting process & Issue Size @ Rs. 120 - 125 Rs. 43.20 cr. - 45.00 cr.
other lead products.
No. of Shares Offered 36,00,000 ( 36.00 lac)
The company has a subsidiary Gravita Exim Ltd. that specialises Face Value Rs. 10
in providing turnkey solutions and consultancy services on BRLM Keynote Corporate Services Ltd.
engineering and design for the secondary lead companies. GIL and Registrar Karvy Computershare Pvt. Ltd.
Gravita Exim Ltd. together are able to provide a complete solution Brickworth Rating 3/5 (Average fundamentals)
right from setting up plants to providing value added lead products
Bid Lot 50
in the lead metal market.
Post Issue Share Capital Rs. 13.62 cr.
GIL specialises in producing high quality pure lead ingots with
minimum purity level of 99.97% by weight. They have a quality
control laboratory consisting of Optical Emission Spectrometer (OES)
of Spectro Germany make & Atomic Absorption Spectrometer (AAS)
to monitor the purity levels of the product. Their manufacturing
OBJECTS OF ISSUE (Rs. cr.)
operations to produce Pure Lead / Lead Alloys, Lead Oxides (Litharge,
Red Lead & Lead Sub-Oxide), are controlled round the clock by Set up additional manufacturing facilities 13.02
Invest in overseas ventures 5.85
experienced Chemists & Quality Control supervisors.
Invest in setting up manufacturing facilities at
The company is an ISO 9001:2000 and 14001:2004 certified company Australia, Belarus, Chile and Mexico 18.60
and a certified Star Export house under Ministry of Commerce and Margin money for working capital requirement 10.00
General corporate purposes [•]
Industry. They are also affiliated as a member with Federation of
Expenses of the issue [•]
Indian Export Organisation, Institute of Scrap Recycling Industries
Total [•]
Inc., FICCI, to name a few. The company has shown consistent
growth in past 3 years which proves its market credibility.

GIL's products include:

• Pure Lead Ingot • Lead Alloying • Litharge
• Red Lead • Lead Sub-Oxide SHAREHOLDING PATTERN
The company's products find application is mainly in following PRE ISSUE No. of Shares %
industries: Promoter & Promoter Group 10,014,000 99.94
Non Institutions 6,000 0.06
• Battery industry
Public - -
• Glass industry
Total 10,020,000 100.00
• Ceramic industry
• Pharmaceutical industry POST ISSUE No. of Shares %

• Paint industry Promoter & Promoter Group 10,014,000 73.52

Non Institutions 6,000 0.04
• Heat Exchanger and Plumbing Engineering Industries Public 3,600,000 26.43
• Electronic Industries Total 13,620,000 100.00
• Chemical Industries/PVC Stabilizer Source: RHP

SBICAP Securities Limited, Corporate Office: 191, Maker Towers 'F', Cuffe Parade, Mumbai 400 005
Tel.: (Board) +91 22 30273300/01 • Fax: (022) 30273420.
For a list of our branches refer to our website: www.sbicapsec.com
Gravita India Ltd. Metal

Key Strengths
Presence in global market:
Besides having manufacturing facility in India, the company has successfully ~ Presence in global market
established subsidiaries namely Gravita Ghana Limited - Ghana, Gravita Senegal
SAU - Senegal, Gravita Mozambique LDA - Mozambique, Gravita Zambia
Limited - Zambia, Pagrik Ethiopia PLC - Ethiopia & Gravita Georgia Limited -
Georgia. The Company has also made investment in Navam Lanka Limited -
Sri Lanka and Gravita Honduras SA - Honduras. Its global presence helps to
cater multi location demand and creates brand awareness in different countries.

Access to raw material world wide:

The global presence with an established base in different parts of the world ~ Access to raw material world wide
gives the company access to the local raw materials in the respective countries
at competitive freight cost.

Versatile product mix:

GIL has a wide spectrum of products in the lead metal industry starting from
the basic product as remelted lead ingot from battery recycling to high end
value products such as pure lead, lead alloys, litharge, red lead, lead sub oxides,
powder, sheets etc. Their manufacturing operations conform to ISO 9001:2000.

Strong brand name:

The company has built a strong brand name of quality products through ~ Strong brand name
manufacturing and marketing presence in different parts of the world. Their
products are widely accepted and conform to all technical specifications
prevailing in the international market.

Source: RHP

SBICAP Securities Limited 29 October, 2010 • 2

Gravita India Ltd. Metal

Business Strategies

The Business Strategies

The company intends to improve its market position in Lead Metal sector in
which it operates, by pursuing the following business strategies:
n Establishing state of the art environment friendly new manufacturing
facility at Maharashtra to export the products and cater Indian customers
of south west region.

n Manufacturing of new value added products of Lead viz. Lead Sheets, ~ Manufacturing of new value added products
Lead Wire, Lead Powder and Lead Wool etc.

n Establishing new overseas plant to produce Lead Ingots by fetching cost-

effective benefits of locally available cheap raw materials. Major emphasis
will be given to establishing facilities for Lead Processing with proven
process technology, which is developed in-house.

n Adopt environment friendly technologies: The company is committed to ~ Adopt environment friendly technologies
provide a safe, clean and healthy environment. They continuously strive
to minimize the generation of waste water, air emissions & solid waste,
thereby preventing pollution at source and that can be achieved by
adopting cleaner technologies, reducing the use of natural resources and
reusing & recycling wastes. They will continue complying with all national
& international environmental laws and regulations, at all the times.

n More focus on Research & Development: The company intends to continue ~ More focus on Research & Development
its focus on R & D, which it believes to be the threshold of discovery of
processes & efficient control of Pollution. This will help the company in
the development of new Lead Alloys and more efficient Refining Processes
etc.

Source: RHP

SBICAP Securities Limited 29 October, 2010 • 3

Gravita India Ltd. Metal

Risk Factors

The company has experienced negative cash flow from operations and
from financing activities
For the financial years March 31, 2007, 2008 and 2010, the company had a ~ Negative cash flow from operations and from
negative cash flow from operations to the tune of Rs.51.77 lacs, Rs. 35.82 Lacs financing activities
and Rs. 1,811.95 Lacs respectively and for the financial year March 31, 2006
and 2009 the company had negative cash flow from financing activities to
the tune of Rs. 35.92 lacs and Rs. 419.06 lacs respectively. Any negative cash
flows in future could affect the results of operations and financial conditions.

GIL proposes to invest Rs.235.00 lacs in joint venture namely, Gravita

Honduras SA
The company has proposed to invest Rs.235.00 lacs in Gravita Honduras SA
a joint venture company incorporated under the law of Honduras to set up
new project at Honduras. Though the company has acquired land for this
purpose, implementation of the project depends on other joint venture
partners. Any delay in receiving the committed funds from them may affect
the implementation of the project. The company is yet to enter a formal
agreement in respect of the said joint venture.

Restrictive covenants
There are certain restrictive covenants in the agreements entered into by GIL ~ Restrictive covenants
with the banks/ institutions from whom it has borrowed. Such restrictive
covenants among other things require the company to obtain prior permission
from them for change in management, declaring dividend and undertaking
of new project etc. which may limit company's discretion in these matters.

Lead industry is one of the health hazardous industries and is governed

by strict environmental laws
The scope and extent of new environment regulations including their effect ~ Strict environmental laws
on operations of the company cannot be predicted with certainty. The
company may require incurring of significant expenses to comply with things
like environment monitoring, emission norms etc. Any non compliance of
norms and regulations or delay in compliance of the same may affect the
future expansion plans. The company may even be imposed penalty by the
approved authority which would have adverse impact on the balance sheet.

Source: RHP

SBICAP Securities Limited 29 October, 2010 • 4

Gravita India Ltd. Metal

Financials & Valuations Snap Shot: Relative Valuations:

Gravita India Ltd. (Rs. cr.) Particulars. Hindustan Pondy Gravita

Pre Issue Post Issue Zinc Oxides India Ltd.

FY10 FY10 CMP (Rs) 1,256 40 120 125

Particulars Price Bnd TTM Sales (Rs Cr) 8,828.9 183.2 158.8 158.8

Particulars 120 125 M.cap (Rs Cr) 53,057.1 40.3 163.4 170.3

Net Sales 158.8 158.8 158.8 P / E (x) 12.5 6.5 11.7 12.2
Total Income 167.0 167.0 167.0 EV / Sales (x) 5.9 0.4 1.1 1.2
EBIDTA 10.4 10.4 10.4 EV / EBIDTA (x) 10.3 5.7 17.5 18.1
PAT 14.0 14.0 14.0
M.cap / Sales (x) 6.0 0.2 1.0 1.1
Equity Share Capital 10.0 13.6 13.6
OPM (%) 57.3 7.6 6.6 6.6
No of Equity Shares 1.0 1.4 1.4
NPM (%) 48.1 3.4 8.8 8.8
Face Value 10.0 10.0 10.0
EPS 13.9 10.3 10.3 Source: Capitaline

CMP 125 120 125

Cash and Bank 3.0 3.0 3.0
Debt 21.2 21.2 21.2
Market Cap 125.3 163.4 170.3
PE (x) 9.0 11.7 12.2
Enterprise Value 143.4 181.6 188.4
Mcap/Sales (x) 0.8 1.0 1.1
EV/Sales (x) 0.9 1.1 1.2
EV/EBIDTA (x) 13.8 17.5 18.1
EBIDTA/Sales (%) 6.6 6.6 6.6

Source: RHP

Financials & Valuations:

Gravita India Ltd. is currently valued at 11.7x and 12.2x of its FY10 earnings at lower and upper price band respectively. While
comparing the company with its peers based on their trailing twelve months earnings multiples, Gravita India seems reasonably
priced based on most valuation parameters. Hence we recommend investors to 'SUBSCRIBE' to the IPO for listing gains.

SBICAP Securities Limited 29 October, 2010 • 5

Gravita India Ltd. Metal

Corporate Office: SBICAP Securities Limited,191, Maker Towers 'F', Cuffe Parade, Mumbai 400 005
Tel.: 91-22-30273300 (Board) • Fax: (022) 30273420
For any information contact us:
Toll free: 1-800-223345 • Tel.: (022) 2436 4059 / (022) 2436 8629 Or E-mail: helpdesk@sbicapsec.com

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SBICAP Securities Limited 29 October, 2010 • 6