Dolly Khanna Invests in Lead Supplier to Amara Raja: A Low PE Stock with a Foray into Lithium-Ion Recycling

The company trades at a PE of 17.7x and it can be considered as a proxy player in the lead industry.

On Friday, the NSE benchmark Nifty50 index ended flat for the second consecutive trading session. However, the Nifty50 index recovered over 150 points from the day’s low to settle above the 24,300 mark. Although the recovery from the lower levels was the talk of the town, one stock that stood out during the Friday session was Nile Ltd.

The stock opened at Rs 1,666, hit an intraday high of Rs 1,970, which was also its fresh 52-week high, and finally settled at Rs 1,864.30. Shares of Nile rose by 13.16 per cent on Friday. Before delving into what sparked this rally in Nile Ltd's stock, let us first understand the company.

Nile was incorporated in 1987 as a manufacturer of glass-lined equipment. Later, in 1999, Nile ventured into lead recycling and set up a plant with a 3000 TPA non-ferrous division for the secondary manufacture of lead and lead alloys from used batteries and other lead-bearing scrap. Nile has two secondary lead recycling plants located at Choutuppal (60 km from Hyderabad) and Tirupati (120 km from Chennai). The combined capacity of these two plants is 107,000 tons of lead and lead alloys per annum.

Nile has established a quality-conscious clientele consisting of manufacturers of lead-acid batteries, PVC stabilizers, and lead oxide. In 1995, it installed a 2MW wind farm in Ramagiri, Andhra Pradesh. The glass-lined equipment division was later transferred to De Dietrich Process Systems India Private Limited on 21 June 2012. Nile has two lead recycling plants, one each in Choutuppal (capacity: 32,000 tonnes per annum) in Telangana and Tirupati (75,000 tonnes per annum) in Andhra Pradesh.

Nile has annual supply agreements with its key customer, Amara Raja Batteries Limited (ARBL), for job works, sale of material, and collection of batteries. Nile’s total operating income has been on an increasing trend over the past four years, from Rs 536.41 crore in FY21 to Rs 837.62 crore in FY24, with a compounded annual growth rate (CAGR) of 11.79 per cent. This growth was aided by an increase in sales volume due to higher orders from ARBL and stable raw material prices, which improved profitability. The company usually enters into annual contracts with ARBL. Nile’s growth is expected to be supported by a tightening regulatory environment aiding organized and end-to-end recyclers and its foray into lithium-ion recycling. In FY25, Nile's total operating income is expected to reach Rs 975 crore (a 16.52 per cent year-on-year increase) due to the additional income from Nile Li-cycle Private Limited recycling lithium-ion batteries.

Companies engaged in the lead manufacturing process must adhere to rigorous pollution control norms as the industry is extremely polluting and has hazardous effects on the environment. Any deviation from the prescribed waste handling procedure could result in stringent regulatory action. Nile complies with all the requirements of the new rules, given that it is one of the few companies providing end-to-end recycling solutions. The new rule in action is expected to eliminate unorganized players, thus limiting competitors and improving margins.

Now, the reason for the sharp surge in Nile's stock price on Friday: according to the shareholding pattern for the quarter ended June 2024, ace investor Dolly Khanna holds a 1.10 per cent stake in the stock, which translates to 32,923 shares of the company. The company trades at a PE of 17.7x and it can be considered as a proxy player in the lead industry.

The stock has delivered multibagger returns in the last year, with Nile's stock price rising by 135.26 per cent. Over the last three years, the stock has jumped by 276.44 per cent.

Disclaimer: The article is for informational purposes only and not investment advice.