Ganesha Ecosphere - Green Earth play

Company Introduction (Taken from their site)

Company has emerged as one of the leading PET- recycled RPSF manufacturers in India. We pioneered the manufacture of Recycled Polyester Staple Fibre (RPSF) and Recycled Polyester Spun Yarn (RPSY) from pre and post consumer PET Bottle scrap.

Having its manufacturing units at Kanpur (Uttar Pradesh), Rudrapur (Uttarakhand), and Bilaspur (Uttar Pradesh) Ganesha has a cumulative capacity of 97800 Tonnes per annum(87,600 TPA of RPSF and 7200 TPA of RPSY and 3000 TPA of Dyed and Texturised/ Twisted Filament Yarn) of RPSF and yarn.

Our products find application in the manufacture of textiles (T-Shirts, body warmers etc.), functional textiles (non-woven air filter fabric, geo textiles, carpets, car upholstery) and fillings (for pillows, duvets, toys).

Company Annual report and Research Report highlights

The growth of our topline and bottomline by 4.15% and 20.43% . EBITDA rose by 8.27% on account of improved capacity utilisation, PAT margin improved by 60 bps. Long-term debt-equity ratio of 0.32 and recorded a ROCE of 16.05%.

27% CAGR growth in revenue in last 10 years.Revenues, EBITDA, PAT grew at an average 17%, 16% 6%, respectively, in 2011-16

Financials

Below are links to Latest Annual report and ICICI direct research report

Annual Report of 2016-17

ICICI Direct report of 2016 Dec

Reason of my interest

  • Recycling will get more importance in days to come from Government and is need of time. So company will not have issues with Raw material.

  • The products created by company Textile and Non Textile are evergreen segments. The increasing use of Synthetic materials is on rise.So no issues on end product market

  • It has major presence in North India and have scope of growth in other parts of country

  • Only listed player in this Niche (as per my finding but I may be wrong). The input raw material collection needs channel so new entrant will face problems competing with this company

  • SBI Mutual Fund has stake in it. It is still a small cap company so have room to grow.

Key Risks

Promoters have pledged 26.20% of their holding. The Promoter stake has decreased also with time. These two points have hold me to go forward with this company.

The end product of company is used in Textile Industry mainly. So the fortune of company is tied with growth in Textile Industry . Also there are many providers of Synthetic fabrics (yarn) to textile industry.

The Synthetic yarn has market share of around 50% but is very competitive as well (refer the research report for market share). This may hamper or make growth of company difficult in future.

Inviting VP friends to have a look and find loop holes in this one so that we can weigh in pros and cons of this company.

Disclosure - Tracking it and not invested. Planning to buy stakes in small size

1 Like

The story seems too good to be true…tacking it since 2014 and in this time price has moved from 150 to 350+ levels given the Bull Run in market. I feel promoters credibility needs to be validated and physical inspection of plants could give more insight as to why no one else has tried doing the same…(considering this is 10+ years old company…

Disclaimer: I have a tracking position in the company

Recently govt cut down the import duty on PTA (Purified Terepathlic Acid) , which is used to make PET resins in turn PET bottles.Since Virgin PSF is made from PTA and MEG and RPSF prices are highly dependent on Virgin PSA , I believe Virgin PSA will be sold in much less price and companies will concentrating on the volumes. This in turn might affect realizations of RPSF.

In regards with the pledge shares, I believe its important to understand from management about the root cause of it.

Ganesha Ecosphere

Muted quarter, south facility to propel the earnings growth trajectory

Ganesha Ecosphere (Ganesha) reported EBITDA loss of INR32mn in 1QFY21 was on expected lines led by revenue dip of 71% YoY.

Key highlights are:

(1)volume declined 61% YoY with inferior product mix

(2) Plants were completely
shut in April, C.U in May/June/1Q stood at 30%/50%/37%

(3) July operated
at 80% and expecting recovery to 100% C.U by Sep’20

(4) BS continues to be
net cash positive.

Ganesha has acquired a under construction PET washing line of 12KMT for consideration of INR100mn in Nepal. South plant -phase1
and phase 2 (30K MT each) are likely to operational in FY22 and end FY23,
respectively.

We believe that south facility (phase 1&2) is expected to double FY20 EPS at optimal utilization with superior return ratios which will drive the re-rating in the stock. We broadly maintain our FY21/22 EPS. Retain BUY
with TP of INR360 (earlier INR340) based on 12x FY22E EPS (unchanged).

Current valuations of 7x FY22E EPS are discount of 30% to its historic average.37% utilization levels in 1Q impacts the revenue and profitability
Ganesha’s revenue declined 71% YoY at INR0.7bn on account of a) volume decline due to
lower utilization, b) realization dip due to pass on lower RM prices and inferior mix. The
installed capacity is running at 80% utilization for Jul and should improve to 100% by Sep.
EBITDA margin stood at -4.9% in 1Q (vs. 13.3% YoY). Lower staff costs were on account of
lower remuneration to KMPs and senior employees which should come to normal levels from 2HFY21. Gross debt as of Jun’20 is INR950mn and cash equivalents are at INR920mn.

We have factored EBITDA of 0.8bn/1.2bn for FY21/22E which is growth of -31%/+57% and
EBITDA margin of 10.9%/13.4% South facility can potentially double FY20 EPS at optimum utilization

Ganesha’s new manufacturing facility in Warangal, Telangana with 60,000MT RPSF capacity is on track to commercialize in FY22. This plant will help the company to seize the southern warket and reduce transportation costs. The set up and commissioning of the new plant will be in two phases: a) Phase 1 - 30,000MT at INR1.5bn by FY22 b) Phase 2 - 30,000MT at Rs1bn by FY23. The capex of INR2.5bn for south plant will be funded through mix of equity and internal accrual. The company has already raised INR1bn through QIP in FY19 at price of INR377/Share. The South facility is expected to garner profitability 500-600bps higher than the existing plant due to superior products, reduced transport cost, and advance
technology. We believe that South plant has potential to double FY20 EPS at optimal utilization.

Acquisition of a facility in Nepal to mitigate the shortfall created from commissioning of South
facility

Ganesha has acquired an under construction PET washing unit in Nepal for consideration of
INR100mn. The facility will be completed by FY21 end with capacity of 12000TPA. This
facility is located ~500km from Ganesha’s North India facility. Currently 18KMT feedstock is
being sourced from South India to the North facility. This will be shifted to new capacity in
South once operational from FY22. To mitigate the shortfall, company has acquired the unit in
Nepal which also provides access to a different geography.

Team

Hope you all are doing good. Anybody tracking the company now? I love the business and see a lot of positives:

  1. Capacity uitlization of 100% in 2019-2020
  2. Constantly growing PAT and Sales
  3. New capacity coming up in 2022 which will increase the capacity by 40%
  4. Focus on premium products to increase margins.
  5. Constant promoter buying from Market

But I am concerned about the below points:

  1. One thing that I hate about textile business is low margins. Ganesha ecosphere though being in niche business is also suffering from the same. 12% OPM and just 6-7% of PAT margins which according to me is quite low and hence the company is only dependent on revenue increase.
  2. Promoters have been talking about increasing the revenue share of premium products from 25% to 50% to increase margins. But as per the last 5 year data there has been no increase in revenue share which makes me quite skeptical about the ambitions,
  3. Competitors are using crude oil as to manufacture virgin yarn. Can low crude price are at low and can affect the margins for Ganesha?

Would be great if somebody can throw light on the above concerns.

Disclosure: Tracking but no holding

1 Like

Only one input here, the end product prices are affected by the price of virgin yarn, the price of which is affected by the Crude price. But their raw material’s price does not move with crude, it is mostly demand & supply, as it is a waste product sold in Kgs.

So, your costs are not linked to end product, while the end product prices are volatile. So from a longer term perspective, i think it would be a volatile business.

Ganesha Ecosphere
Revenue contributions
Spun yarn 18.5%
Polyester staple fibre 73.5%
Cotton, linen ratio/percentage to Viscose, rayon, terylene in sales
PET plastic share constitutes 60% towards synthetic fibre and remaining is majorly used for bottle production.

Upside for the company
Water tis not an input in the recycling process. Mainly used to clean the shredded pieces of plastic and to remove the dirt and debris
Revenue from products launched in the past three years reported strong growth 2020 A.R
High demand for 100% recycled yarn made from 100% post consumer PET waste is high
Energy used to make the RPET is less than what was needed to make the virgin polyester.
Water used recycled polyester production is only a fraction of what is required to grow cotton…
The other income is 32% of growth, largely driven by govt grants
900,000 tons of polyethylene terephthalene (pet) is produced annually in India. 65% off which is recycled at registered facilities 15% of recycling activity takes place within the countries and organised sector,while approximately 10% of PET is reused at homes.

Manufacturing units in
Kanpur (UP)
Rudrapur (UP)
Bilaspur (UP
Largest procurement of raw materials and largest production in India
200+ vendors to supply raw material across the country
Sources through rag picker.Cushions, crushed and baled by suppliers/vendors and shipped to factories.
Factors depending on these prices or is it fixed contract for a tenure?
Why should polyester be favoured to cotton
Designs ( should be the same for all)
Product advantage - good moisture barrier
Prices - relatively low prices than the others
Availability throughout the year without major fluctuations

under the age of 35 are the ones of fashionable dressing sense they could be buying textiles made of RPSF
Ban of PET scrap by India would push production in India
End products usage
Manufacture of textiles ( tshirts, body warmers etc) functional textiles ( non woven, air filter fabric, geo textiles, car upholstery, carpets) and filings ( for pillows, duvets, and toys) giving waste a useful meaning
Govt grants keep increasing with sales
Product development.

•Created a complete range of products from fiber to yarn - a one-stop for customers, among a handful of such players in the world
•
Leading recycling company to offer sewing thread: one of the key value-added products offered by the company.
The Company Introduced hollow Conjugated fiber

Introduced flame-retardant fiber

Introduced 0.9-1 denier microfibers in the recycling space

Downside risks associated
Independent director resignation in 2020
Borrowings increase along with trade payables
Tax disputes with
UP
West Bengal
Uttarakhand and Haryana
Central excise department
And
Income tax department too
Company going into an escrow agreement to keep up with the insurances and taxes every year
So that it can be paid monthly
Company has been successfully passing on any adverse movements in price to raw material suppliers as price fluctuations of finished products and of raw materials are in tandem

Indebtedness increased during the year from unsecured loans. From 2019AR
Commissions are higher than salaries, on few personal it is five times the salaries.
Balancing the salary with commissions and at par with the other directors and managers and justifying it by the normal which is above the pay and commissions.
Norm is 10% of NP.
With more than 200 products in the portfolio the company the OPM is not in Concord with it.

On being the largest manufacturer in India of RPSF and increased scale strengthened the bargain power with suppliers/ vendors and customers, the OPM does not justify for the above statement.

Does the company need to keep re investing in the existing machinery for their operations thereby suggesting a lower shelf life of the machinery in the sector.
Salary of the chairman has decreased owing to decrease in sales thereby decrease in commission but increase in salaries of all other board members.
Raw material procurement network- strength to performance
Easily disrupted if the raw material is mobilised
Assets increased during 2017-2018 period and issued QIP of 100crores to reduce debt
Unsecured loans from the directors and the company paying interests at irregular intervals.

Questions to be answered
What % of the overall market is recycled plastic and manufactured for the first time?
Is the end product recyclable again
Peer pressure
Collection networks
Input raw material quantity to output quantity
what are the value added products where the demand was lesser erratic and product enjoyed a superior returns for the company
What if the 15% of the organised recycling goes up pushing prices of raw materials for the company
OPM would be decreasing
how does the company see this as
is it a threat or is it negligible
In view of the expansions in the various geographies across the nation. Is it a move to manufacture all products in the portfolio in all units or is it to divide the products in view of convenience, advantages, cost saving,etcetra

In The global nonwoven segment company increased their market share to 25% in 2019-2020 from 24% in 2018-2019. Seems to be very tight knit market for the non woven segment.

Expansion to reduce R.M prices- to cut down transportation on R.M by vendors.
Plastic raw material cost/kg - depends on crude oil prices
Higher crude oil higher prices of Virgin polyester fibre.
In 2019AR the cost of raw material increased( higher input prices), it is due to competitiveness or crude oil ( being low )

4 Likes

Good set of results :slight_smile:

ICRA RATING UPDATES

1…ICRA has placed the ratings outstanding on the bank facilities of Ganesha Ecosphere Limited (GEL) on watch with developing
implications. This follows a fire incident at the company’s Polyester Staple Fibre unit located at Kanpur, Uttar Pradesh in June
2021, which resulted in a major damage to its building, machinery, raw material and finished goods. ICRA notes that this has
affected ~10-15% of GEL’s operational capacity, with production likely to stay disrupted in H1 FY2022, till the conclusion of the
re-development process. Together with the ongoing impact of the pandemic, this is expected to affect the company’s volumes
and revenues in FY2022 to some extent. While it has adequate insurance cover to take care of the major losses resulting from
the incident, clearances for the same are awaited. ICRA will continue to monitor the developments in this regard and evaluate
the impact of the fire accident on GEL’s credit profile once the exact implications are known

2…Increased scale of greenfield project resulting in higher-than-envisaged leverage – Post the ~Rs. 100-crore fund infusion via
qualified institutional placement (QIP) issuance in May 2018, GEL had announced a sizeable capex of ~Rs. 250 crore for a
greenfield capacity expansion. With multiple changes in the scope of the project over the past two years, the estimated project
cost was initially revised to Rs. 380 crore, and now stands revised to ~Rs. 453 crore. Correspondingly, the debt component
increased to ~Rs. 325 crore, compared to the original plan of Rs. 75 crore and the last estimate of ~Rs. 280 crore. This is
resulting in higher-than-envisaged leverage metrics. Nevertheless, given the conservative capital structure, ICRA expects the
company’s gearing to remain comfortable at less than 0.75 times. Further, Debt/ OPBDITA is likely to start improving from
FY2023 onwards with the commissioning of the project, after touching an estimated peak of ~3.5-4 times in FY2022.

Disc…invested

Ganesha eco

MOATS

Can someone throw light on the recent fire in their Kanpur plant? What is the damage, and the recovery from insurance? Thanks

Reliance Industries | The company is doubling its PET recycling capacity by setting up a recycled polyester staple fiber (PSF) manufacturing facility in Andhra Pradesh. The move is part of RIL’s commitment to lead the industry on circular economy, enhance its sustainability quotient and bolster the entire polyester and polymer value chain.

Disc…invested in Ganesha eco

2 Likes

NEW BUSINESS

HDPE/PP RECYCLING
(UPTIL NOW ONLY PET RECYCLING)

=(29.10.21)
Pursuant to Regulation 30 of Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015, we wish to inform that the Board of Directors at their meeting held on
October 28, 2021, inter alia, considered and approved the reinstatement of Kanpur PSF unit by installing
an HDPE/PP Recycling Plant, subject to the approval of the shareholders and appropriate statutory
authorities.

=Recycling industry of these products are currently unstructured and down-cycling the scrap
instead of adding value. Good demand is going to be created for recycled thermoplastic with
regulatory compulsions in the form of extended producer responsibility as well as pledge for
sustainability by brands and corporates

=We are exploring this segment. Much light cannot be thrown for the margins etc, but of course
the market is much larger than the PET market. The total segment of plastic is around 100
million tonne in the country and PTE is only one million tonne out of that, so 90% is the other
plastic and what is happening is that, their recycler industry is completely unorganized and they
are down-cycling and it is eroding the value instead of adding the value, because of the
technology, because of the capital constraints and because of the unorganized sector.

Disc…invested

1 Like

In screener, data for PNL & BS show up from March 2020 onwards. Annual reports are available from 2010 onwards. Screener chart shows price vol data from 2006 onwards. Why PNL & BS data from 2010-2020 not showing in screener. Maybe I am missing some developments wrt to the company or the data. Would request senior boarders to expand if they can. @ayushmit

See standalone statement

1 Like

Ganesha employee trust and promoter buying from open market from dec 2020 till today .