ganeshpolytex-managementmeetnote

8/8/2019 GaneshPolytex-ManagementMeetNote

1/11

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.Email: [email protected]

LONG TERM INVESTMENT CALL

BUY29 March 2010

Industry Waste Management

CMP (INR) 42

Target 64

(Upside / Downside) 52%

52 week High/Low (INR) 45 / 5

Market Cap (INR MN) 421

3M Avg. Daily Volumes 103,834

Reuters Code GNSP.BO

Bloomberg Code GNPL IN

GPL P/E (FY11E) 4.8x

Shareholding Pattern (%)

Stock Performance (Last one year)

0

5

10

15

20

25

30

35

40

45

50

Mar May Jul Sep Nov Jan

Ganesh Polytex Ltd Nifty

Performance (%)1 Month 3 Months 1 Year

GPL 4.3 51.3 602.0

Sensex 7.3 2.0 77.4

* Source: Bloomberg, Unicon Research

AnalystRahul Dholam | [email protected]

Company Report | Management Meet

Recycling waste into wealth

We spoke to the CFO Mr Gopal Agarwal of Ganesh Polytex Ltd (GPL)

for an outlook on the Business and Strategy of the company. Following

are the key takeaways from the meet.

Investment Highlights

Commissioning of new RPSF facility

GPL is set to become the largest player in RPSF in the country with the

commissioning of its 18,000 TPA plant by the end of this month at its

Rudrapur facility at an estimated cost of INR 250 mn. This will take the

total RPSF capacity of GPL to 57,600 TPA beyond the current market

leader Reliance Industries capacity of 42,000 TPA.

The commissioning of this facility is expected to improve the operating

margins by around 250 basis points making.

Expansion plan to drive growth

The companys ambitious growth targets include enhancing the

recycling capacity to over 100,000 TPA in stages over the next 3-4

years, building up of yarn spinning capacity to integrate its operations

forward, foraying into manufacturing of downstream products andentering into horizontal integration through producing more value added

products like Partially Oriented Yarn (POY), packaging sheets, etc. from

pet bottle waste.

These growth plans would help the topline and bottomline to grow at a

healthy CAGR of 35-40% over the next few years.

Valuation & Outlook

At the CMP of INR 42, the stock trades at 4.8x its FY11e EPS of INR 8.8

(on weighted average capital). The companys FY10e sales are 5x the

current market capitalisation and the price to cash EPS is 3.1x. The

stock looks attractive considering the expansion in capacity and the

growth of the user industry. We applied a multiple of 4x on FY12e EPS

to arrive at our target price of INR 64. We feel investors can buy the

stock at current levels for a good upside within a year.


2/11


Recycled Polyester Staple Fibre Dyed Texturised / Twisted Filament Yarn

Current Installed

Capacity

21600 TPA at Rudrapur

18000 TPA at Kanpur

2400 TPA at Kanpur

Raw Material Post Consumer PET bottle waste (non-biodegradable in nature) and other kinds of

industrial waste of polyester

POY/FDY and Grey Texturised Yarn

End Use Textile Sector

Spun Yarn

Hosiery Yarn

Blended Woolen Yarn

Industrial Sector

Stuffing in Toys, Furniture, Pillows,

Quilts, Mattresses, and other comfort

products Nonwoven carpets and Fabrics

Filter Fabrics

Medical and packaging textile

Geo Textile

Paper & Construction Industry

Technical textiles

Garments (Sarees, Dress Materials),

Upholstery and furnishing fabrics,

Sewing Threads,

Cords, etc

Products Range Textile Grade Fibre (1.5-3 Denier)

Trilobal Fibre

Coarse Denier (5-30 Dn)

Silicon Fibre

Hollow Fibre

Hollow Silicon Fibre

Conjugated Fibre

Hollow Conjugated Fibre

Fire Retardant Fibre

Anti-microbil Fibre

Dope Dyed Fibre

Short Cut Fibre (3-4 mm)

Grey Texturized

Grey Twisted / Doubled

Dyed Texturized

Dyed Twisted

Dyed Doubled / Multifold

Dyed Flat Yarn

Dyed Fancy Yarn

Colours / Shades over 800

Company Description

Established in 1988, Ganesh Polytex Ltd is one of the leading

manufacturers of Recycled/Specialty polyester staple fibre (RPSF, also

known as Fiberfil) and polyester yarn (dyed texturised/twisted yarn, and

grey texturised/twisted yarn).


3/11


Industry Overview

Waste Recycling

As per the estimates, India produces 500,000 tons of pet waste every year and due to increasing use of pet bottles in daily

consumption, the amount of waste is going to grow by leap and bounds. The waste of pet bottle takes over 1,000 years to

decompose and is hazardous for the environment and affects the fertility of the soil. The piling waste of pet bottles is posing a

serious threat to soil, rivers, ecological balance and thus to human being and animals.

It is very difficult to limit the use of pet bottles and thus, safe recycling of these wastes is the only available solution. Recycling

not only reduces the quantum of waste but also saves the invaluable crude oil, sources of which are limited. At present, the

total recycling capacity in India is around 145,000 TPA, out of which Reliance Industries Ltd. has a capacity of 42,000 TPA,

GPL has a capacity of around 39,600 TPA and rest is with other small local players.

Recycling post consumer PET Bottles waste to Clean Flakes

The recycling process of PET waste starts with the collection of PET waste. To ensure the regular supply of post consumer

PET waste, the company has set up its own purchase depots in many urban and metro cities. Presently Company is recycling

about 1.4 bn pet bottles annually. After collection, the process of compressing the bottles and containers is performed to make

it suitable for transportation to the company works site.

At work site bottles are sorted as per quality and bottles which are not PET bottles are separated. Bottles are then separated

as per color and all foreign particles such as paper, label, metal and other plastics parts are removed. Bottles are then sent to

shredders and grinders to reduce them to flakes. The flakes are forwarded to the cleaning section for a series of sorting and

washing process of the flakes, performed with chemicals to remove the remains of foods and drinks. The flakes are then dried

up and pass through a process called electrostatic separator which produces magnetic field to separate PET flakes from metal,

different kind of plastic particles and other contaminations. The cleaned flakes of reclaimed PET are then forwarded to

production section for the final product to produce fibre.

Sorting and processing of raw material is a key factor for maintaining uniform quality of f inished product on constant basis as

raw material is not having uniform characteristics and quality of finished goods may have significant degree of variations.


4/11


User Industry

The major user industry of Recycled PSF is

Non-woven/technical textile;

Yarn spinning; and

Stuffing / Fiberfill Applications

Non-woven/Technical Textile Industry

Non-woven textiles are flat structured fabrics, such as sheets or webs, not made by weaving but by bonding and entangling

fibers by means of mechanical, thermal or chemical processes, offering cost effective solutions for an increasing wide variety of

applications such as hygiene, medical, packaging, automotive, filtration, construction and geotextiles, furniture, components of

apparels, insulation and cleaning.

In India, there is significantly large market for feminine hygiene products, consumer wipes, infant diapers and other disposable

non-woven products. Although the present market penetration in these applications is very small, it is expected to grow at very

high rates with rising income levels and enhanced purchasing power.

Consumption of non-woven in geo-textiles is expected to have exponential growth as over the 11th Plan; the aggregate

spending on infrastructure is estimated at USD 500 bn and nearly 25% of this spending is planned in the road sector. This

market is expected to consume huge quantity of non-woven every year.

Other areas of non-woven applications like automotive textiles, carpets, interlinings and wading, furnishings and beddings,

agricultural textiles, medical textiles, sports textiles etc are already seeing a lot of activity and are bound to grow at rapid rate in

order to catch up with the developed world.

Yarn spinning

Recycled PSF is used in yarn spinning in replacement of virgin grade PSF, which is about 15% costlier that recycled PSF. Due

to cost & sale price equation as well as growing demand for non-apparels fabric, use of virgin grade PSF is being replaced by

Recycled PSF.

Stuffing/ Fiberfill Apllications

With improvement in life style and urbanization coupled with increasing disposable income, use of home furnishing products like

quilts, comforters, mattresses, pillows, furniture etc. is increasing and growth in their market size is in double digit. Traditionally

these products were stuffed with cotton, foam, coir etc. with increasing prices and decreasing availability, cotton is almost out for

such uses. Recycled PSF is now being preferred over other traditional products like foam and coir because of its inherent

qualities like hygiene, wash-ability, light-weight and user friendly characteristics.


5/11


Investment Highlights

Commissioning of new RPSF facility

GPL is set to become the largest player in RPSF in the country with the

commissioning of its 18,000 TPA plant by the end of this month at its

Rudrapur facility at an estimated cost of INR 250 mn. This will take the

total RPSF capacity of GPL to 57,600 TPA beyond the current market

leader Reliance Industries capacity of 42,000 TPA. The commissioning

of this facility is expected to improve the operating margins by around

250 basis points.

Future Expansion to drive growth

GPL is planning to set up a recycled POY yarn manufacturing facility

with a capacity of 18000 TPA at an investment of INR 350 million. The

new unit would start manufacturing in FY12. It is further planning to

expand its RPSF Capacity by 14400 TPA with an estimated project cost

of INR 250 mn.

Value chain of Regenerated PSF

Non-

woven/Technical

textiles

Yarn Spinning

Stuffing/ Fibrefill

Products


6/11


Capacity Expansion

Particulars FY08 FY09 FY10E FY11E FY12E

Installed Capacity (M.T.)

Dyed Yarn 2400 2400 2400 2400 2400

Regenerated PSF 18000 27600 39600 57600 72000

Regenerated POY 18000

Capacity Utilisation (%)

Dyed Yarn 85.00% 89.00% 90.00% 90.00% 90.00%

Regenerated PSF 94.00% 79.00% 80.00% 70.00% 80.00%

Regenerated POY 70.00%

Production (M.T.)

Dyed Yarn 2045 2125 2160 2160 2160

Regenerated PSF 17005 21741 31680 42480 56160Regenerated POY 12600

Total 19050 23866 33840 44640 70920

The companys ambitious growth targets include enhancing the recycling capacity

to over 100,000 TPA in stages over the next 3-4 years, building up of yarn

spinning capacity to integrate its operations forward, foraying into manufacturing

of downstream products and entering into horizontal integration through

producing more value added products like Partially Oriented Yarn (POY),

packaging sheets, etc. from pet bottle waste. These growth plans would help the

topline and bottomline to grow at a healthy CAGR of 35-40% over the next few

years.


7/11


Strong growth from Technical Textiles

The current market size of technical textile in India is estimated to be

~INR 400 bn. The overall technical textile industry in India is expected to

grow at the rate of 11% year on year and reach a market size of INR

665 bn by the year 2012-13.

The domestic consumption of technical textiles under Hometech is

expected to increase from ~INR 32 crore in 2007-08 to ~INR 53 bn by

2012-13, an annual growth rate of 11%. The stuffed toys segment is

expected to grow at ~20% y-o-y over the next 5 years. This will drive the

demand for fiberfil.

With the sustainable growth of user industry, there is huge market for

Recycled PSF, consumption of which is set to grow at double digit

growth due to lower prices and introduction of versatile products for

increasing number of applications.

Financial Analysis

GPL has been on an expansion mode since the last few years and its

capacity has increased from 10800 TPA to 39600 TPA over the last

three years, the entire expansion plan being funded through internal

accruals. The Company's sales and net profits have increased at a

compounded annual growth rate (CAGR) of 28% and 30% respectively

between 2006-09. EBIDTA increased at a CAGR of 32% during the

same period on the back of improved product mix. Company is

moderately leveraged with a debt equity ratio of 1.4:1.

The expansion plan would help the company to grow at a CAGR of 35-

40% over the next 4-5 years with improving margins due to economies

of scale and tax incentives at its Rudrapur Unit.


8/11


Peer Analysis

Reliance Industries Limited is the largest competitor to GPL in the

domestic market. Some other major manufacturers engaged in

manufacture of virgin PSF and regenerated PSF are Shiva Tex (P)

Ltd, Arora Fibres limited, Alliance Fibres, Nirmal fibres Private

limited. However none of them are comparable to GPL. Reliance is

too big and diversified to be compared while Arora is too small with

a capacity of 6000 TPA, the others being non listed entities.

GPLs strengths over its peers are

Largest range of products to cater to both industrial and

textile sector.

Strong diversified network of agents, dealers and

customers both in domestic and overseas markets.

Strong network in place for procurement of raw material

Sizeable capacity for economies of scale

Tax incentives for its Rudrapur unit

We checked the valuations of peers in the global markets and

compared 85 companies involved in the business of waste

management and disposal services across the world. Global waste

management companies generally trade at ~21-22x trailing

earnings.

Valuation & Outlook

At the CMP of INR 42, the stock trades at 4.8x its FY11e EPS of

INR 8.8 (on weighted average capital). The companys FY10e

sales are 5x the current market capitalisation and the price to cash

EPS is 3.1x. The stock looks attractive considering the expansion

in capacity and the growth of the user industry. We applied a

multiple of 4x on FY12e EPS to arrive at our target price of INR 64.

We feel investors can buy the stock at current levels for a good

upside within a year.

Major Players in the Sector Location Capacity

(Tonnes p.a.)

Reliance Industries Ltd Hazira 42,000

Ganesh Polytex Ltd Kanpur 39,600

Shiva Tex (P) Ltd Ludhiana 18,000

Arora Fibres Ltd Silvassa 6,000

Allianz Fibres Ltd Gujarat 6,000

Other Small Players 33600

Total Industry 145,200


9/11


Income Statement(INR mn.) FY08 FY09 FY10E FY11E FY12E

Income

Gross Sales 1,054.3 1,353.7 1,929.6 2,430.5 4,012.7

Less: Excise Duty & Sales Tax 0.1 - - - 77.9

Net Sales 1,054.2 1,353.7 1,929.6 2,430.5 3,934.8

Expenditure

Raw Material Consumption 692.3 881.3 1,222.4 1,572.6 2,452.2

Stores/Consumables 28.6 36.7 54.2 71.0 112.2

Power & Fuel 71.9 120.0 149.4 183.5 281.0

Packing Cost 21.2 22.6 30.8 38.9 112.1

Wages & Salaries 45.4 57.8 62.1 80.3 113.3

Repairs/Maintenance 5.8 11.6 15.0 15.7 21.5Administrative & Selling expenses 70.9 120.7 121.9 159.9 238.1

Increase / (Decrease) in Stocks (1.6) (67.1) 14.0 (46.6) (120.8)

Total Expenditure 934.5 1,183.6 1,669.8 2,075.3 3,209.6

EBIDTA 119.7 170.1 259.8 355.2 725.2

EBIDTA (%) 11.4% 12.6% 13.5% 14.6% 18.4%

Interest Expenses 37.9 64.0 84.2 91.5 133.6

Depreciation 36.0 56.6 67.8 101.4 169.9

Miscellaneous Income 3.8 0.9 - - -

PBT 49.6 50.4 107.8 162.3 421.7

Tax 12.1 7.0 18.3 27.6 113.9

PAT 37.5 43.4 89.5 134.7 307.8

PAT (%) 3.6% 3.2% 4.6% 5.5% 7.8%

Dividend - on Equity Share Capital - - 4.9 19.4 29.1

- on Preference Share Capital 2.4 4.5 4.5 4.5 4.5

Dividend Tax 0.4 0.8 1.3 3.3 4.7

Earnings per Share 3.8 4.4 8.4 8.8* 15.9

P/E Ratio 11.1 9.6 5.0 4.8 2.6

*calculated on weighted average capital


10/11


Balance SheetMar 31,

2008

Mar 31,

2009

Mar 31,

2010E

Mar 31,

2011E

Mar31,

2012E

Assets

Fixed Assets

Gross Block 669.7 858.3 1,113.7 1,763.7 1,763.7

Less: Depreciation 185.6 238.6 306.4 407.8 577.6

Net Block 484.1 619.7 807.3 1,355.9 1,186.1

Current Assets

Inventories 230.6 297.9 299.0 384.7 602.8

Receivables 71.9 134.3 135.7 169.0 274.5

Cash & Bank Balance 17.6 11.0 22.5 31.3 72.5Loans and Advances & Other Current Assets 27.5 39.0 40.0 45.0 50.0

Current Liabilities

Bank Finance 190.0 287.0 309.5 337.0 437.0

Trade Creditors 70.5 107.6 101.9 131.0 153.3

Other Current Liabilities and Provisions 12.7 12.5 12.5 15.0 20.0

Net Working Capital 74.4 75.1 73.3 147.0 389.5

Total Assets 558.5 694.8 880.6 1,502.9 1,575.6

Liabilities

Equity Capital

Paid up Equity Share Capital 98.6 98.6 123.7 193.7 193.7

Reserves and Surplus 28.7 28.7 49.2 299.2 299.2

Profit and Loss Account 74.8 112.6 191.3 298.8 568.4

Preference Share Capital 45.0 45.0 45.0 45.0 45.0

Net Worth 247.1 284.9 409.2 836.7 1106.3

Debt 276.0 368.5 430.0 624.8 427.9

Deferred Tax liability 35.4 41.4 41.4 41.4 41.4

Total Liabilities 558.5 694.8 880.6 1,502.9 1,575.6


11/11

Wealth Research Unicon Financial Intermediaries Pvt Ltd

Address:Wealth Management

Unicon Financial Intermediaries. Pvt. Ltd.

Ground Floor, Jhawar House,

285, Princess Street, Mumbai-400002

Ph: 022-66181200 / 100Email: [email protected]

Visit us at www.uniconindia.in

Disclaimer

This document has been issued by Unicon Securities Private Limited (UNICON) for the information of its customers only. UNICON is

governed by the Securities and Exchange Board of India. This document is not for public distribution and has been furnished to you solely for

your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come

are required to observe these restrictions. The information and opinions contained herein have been compiled or arrived at based upon

information obtained in good faith from public sources believed to be reliable. Such information has not been independently verified and no

guarantee, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and

opinions are subject to change without notice. This document has been produced independently of any company or companies mentionedherein, and forward looking statements; opinions and expectations contained herein are subject to change without notice. This document is

for information purposes only and is provided on an as is basis. Descriptions of any company or companies or their securities mentioned

herein are not intended to be complete and this document is not, and should not be construed as an offer, or solicitation of an offer, to buy or

sell or subscribe to any securities or other financial instruments. We are not soliciting any action based on this document. UNICON, its

associate and group companies its directors or employees do not take any responsibility, financial or otherwise, of the losses or the damages

sustained due to the investments made or any action taken on basis of this document, including but not restricted to, fluctuation in the prices

of the shares and bonds, reduction in the dividend or income, etc. This document is not directed to or intended for display, downloading,

printing, reproducing or for distribution to or use by any person or entity who is a citizen or resident or located in any locality, state, country or

other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or would subject

UNICON or its associates or group companies to any registration or licensing requirement within such jurisdiction. If this document is

inadvertently sent or has reached any individual in such country, the same may be ignored and brought to the attention of the sender. This

document may not be reproduced, distributed or published for any purpose without prior written approval of UNICON. This document is for

the general information and does not take into account the particular investment objectives, financial situation or needs of any individual

customer, and it does not constitute a personalised recommendation of any particular security or investment strategy. Before acting on any

advice or recommendation in this document, a customer should consider whether it is suitable given the customers particular circumstances

and, if necessary, seek professional advice. Certain transactions, including those involving futures, options, and high yield securities, give

rise to substantial risk and are not suitable for all investors. UNICON, its associates or group companies do not represent or endorse the

accuracy or reliability of any of the information or content of the document and reliance upon it is at your own risk.

UNICON, its associates or group companies, expressly disclaims any and all warranties, express or implied, including without limitation

warranties of merchantability and fitness for a particular purpose with respect to the document and any information in it. UNICON, its

associates or group companies, shall not be liable for any direct, indirect, incidental, punitive or consequential damages of any kind with

respect to the document. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Unicon Securities Private

Limited.

Unicon Investment Ranking Methodology

Rating Buy Accumulate Hold Reduce Sell

Return Range >= 20% 10% to 20% -10% to 10% -10% to -20%

ganeshpolytex-managementmeetnote

Documents