Ganesha eco concall may 2022
1…PERFORMANCE
A…Export
=The slow-down in China has unfolded good opportunity for us to penetrate in export market and we made an export sale of Rs. 128.32 crore during FY 2022 (Rs. 35.84 crore Q4FY22) which is a growth of 112% over Rs. 60.53 crore export sale during FY2021.
= Contribution of export sale to total sale reached to 12.5% form earlier level of 7.5 -8%.
=We could grab the new set of overseas customers on the back of getting approved vendor status of some international brands like Target
and Inditex.
B…Though the EBITDA improved in absolute terms, margins were declined in comparison to last year because of increase in input costs as well as manufacturing cost
particularly power and fuel cost.
C… During Q1FY22, company had provided an exceptional loss of Rs 25.13 crore due to fire in
Kanpur Plant, which has been reversed in Q4FY22 in view of the reasonable certainty in getting the said loss compensated from insurance company.
D…Working capital days
=.Company also brought down its cash cycle from 105 days to 75 days during the year.
=We have got a lot of improvement in the current financial year, the working capital cycle has come down to 75 days because of so large project basket as well as the holding period for the raw material there is not much room available for bringing down the working capital cycle further
though 5% to 10% is always possible
2…WARANGAL PLANT
=. At Warangal, we have started the commissioning of the Recycled
Chips plant and it will start the production by July, 2022.
=Fibre and FDY plants are progressing well and expected to start by September.
=We faced a lot of hindrances in implementation of Warangal project due to COVID related frequent lock-downs and disruptions in supply chain of critical equipment specifically electrical and electronic parts. We are still facing big issues in
terms of timely availability of electrical and electronics parts not only from China and overseas suppliers but also from domestic suppliers as they are pushing their delivery schedules several times. Travel of Chinese Engineers for plant erection is also an issue and the Fibre plant is being
erected by us under guidance from Chinese engineers over online platforms which is taking
unusual time and delays. All these factors made the implementation of project somewhat
challenging and caused some delays to scheduled implementation.
3…NEPAL PLANT
=At Nepal, we have started the Wash line and commenced the production. We are hopeful in
getting this project to operate at full capacity by August-September, 2022.
=In Nepal facility , we plan to use
the Nepal capacity for captive consumption unless we have a better opportunity in the export market .
=we are getting the raw material cheaper by about 15% in Nepal
=tax is also lower in case in Nepal
4…HDPE PILOT PLANT
=We are going to start in the next one or two months for Recycling rigid plastics
=To seize the upcoming opportunity where demand would be emanating for quality products in
recycled rigid plastic (HDPE, PP etc.) segment to fulfil EPR liability of brand owners and manufacturers consuming plastic packaging for their products, we, at Kanpur unit, are working
on a pilot recycling line for rigid plastic which would be operational by July end.
= The capacity of this pilot plant is 300 tons per month. Post successful implementation, we would ramp up the capacity to 1,000 tons per month during current financial year itself.
=The estimated project cost
would be around Rs 30 crore which would be funded through proceeds from insurance claim
expected to be received by July, 2022.
5… SPINNING UNIT FOR YARN
@bilaspur@greenfield project@230cr capex @next 18 months
A… Medium tenacity fibre
=Between our Rudrapur facility and Bilaspur facility, later is commanding superior margins in the
market because of better quality and value added products while cost of production is almost the
same between the two plants. From market point of view, RPSF manufactured in Rudrapur plant
is categorized as medium tenacity fibre and those manufactured in Bilaspur facility (and also to
be manufactured in Warangal plant) is called high tenacity fibre.
= Given the price and cost matrix,
medium tenacity fibres may not sustain the margins in future while selling in the market.
However, with our vast experience, we are successfully running our spinning unit consuming 100% of our medium tenacity fibre and this unit is making good margins.
B… Job work agreement ends
=Further, we were running a yarn spinning unit on job work which was contributing a production of 1500-1800 annually to us.
=The agreement for job work has come to an end during March, 2022. So we are also short in market by that much quantity running a yarn spinning unit on job work which was contributing a production of 1500-1800 annually to us. The agreement for job work has come to an end during March, 2022. So we are
also short in market by that much quantity
=So sensing the future course of industry as well as to increase our margins from medium tenacity
fibre segment, we have consciously decided to put up a spinning unit with a capacity of 34,000
spindles at Temra (Bilaspur), adjacent to our existing unit. It would be a green field project with
an estimated project cost of Rs 230 crore and it would be implemented over a period of next 18
months. At optimum capacity utilization, unit would be producing around 12,000 tons of yarn
valuing about Rs. 250 crore.
= We would be manufacturing mélange and doubled/ fancy yarn,
using our medium tenacity fibre, with an estimated EBITDA margins in the range of 25-30% with target ROE of 18%.
6…RECYCLING IS FOCUS
=We would like to clarify that due to market dynamics turning adverse on medium tenacity fibres
in future, we are moving on strategically for yarn spinning unit in sustaining the margins.
=However Recycling is and will remain our core focus area and all of our future expansions would primarily
be in that direction only. It is pertinent to mention that we are very bullish about the future of recycling industry not only in India but globally.
7…BLENDING
=New regulations are being implemented globally mandating the blending of recycled products
with virgin products and responsible organizations are pledging themselves for making their products environmental friendly. In India also, regulations have been introduced whereby all the brand owners and manufacturers are required to have 30% recycled contents in their plastic packaging from FY 2025-26 and this limit would be extended by 10% every year till it reaches to 60%, i.e., by FY 2028-29.
8…SUSTAINABILITY
=As we expand our operations, we aim to move towards sustainable efficiency. To that direction,
in our Warangal facility we have equipped ourselves to recycle 90% of water required in our
operations and only 10% fresh water would be needed.
=We are also setting up an ETP plant
which would be on Zero liquid discharge principle. All of our future projects would be working
on the same set of values as well.
= Our existing operations are already meeting 17% of their
energy requirements through roof-top solar panels and we have also set up group captive power
arrangements with Amplus RG Solar in Uttar Pradesh for 17 MW. Additionally, another deal for
14MW solar is in making as we speak which will take the organization’s renewable energy mix
to more than 50% and make our power costs escalation free for a fairly long period of time
9…GO REWISE BRAND
=For capturing the demand for premium recycled products, we are launching a brand “Go
Rewise”, which symbolizes recycling wisely. The brand is being launched with the vision to
close the sustainable loop. Go Rewise is dedicated to conserving resources and establishing
sustainability supremacy by efficiently recycling waste products into premium quality products.
=The brand has been patented and we wish to make this brand a symbol of pride among all our
customers. We are in the process of being onboarded by global brands after clearing their social
audits
10…MARGIN WILL IMPROVE
=Basically pet bottles can be
converted into three products roughly
-number one is the recycled polyester staple fiber,
- number two recycled POY, FDY (recycle poly yarn)and
-number three recycled rPET which is used for making the bottle-to bottle.
So presently we are into RPSF which is the lowest margin among all the three products
A…So in Warangal facilities we are going to make all the three products, so the margins are higher in
case of recycled FDY and the bottle-to-bottle chips that is how the margins are higher there,number one.
B…Number two we are sourcing the raw material from South where the freight element is higher in case we are transporting it from south to north. So for the Warangal plant we would
be sourcing from south itself, we will be getting some benefit in terms of logistics cost over raw
materials
C…For Nepal also we are making the washed flakes and chips there, so the margins are higher because of the lower raw material prices there because there is no recycling facility in Nepal and there is no use of the recycled material itself in Nepal, so all the material is coming to
India through illegal way, so we are making this loop formal and legal, so we will be getting the
better prices here.
11…BILASPUR V/S RUDHRAPUR PLANT.
=As far as the quality is concerned you see the Bilaspur facility is having the better technology than what we are having in Rudrapur this is we called third generation recycling plant, the
Rudrapur one is the second generation recycling plant, so the quality what we are making in
=Bilaspur plant is almost equivalent to virgin fiber, so we are fetching good margins or a better pricing from market though the cost of production remains almost similar what we are having in Rudrapur, but with the improved margin from market and all the big spinners like Arvind,
Trident and Vardhman we are very well serving those big brands with our recycled products
from our Bilaspur unit.
=we are getting Rs.3 to Rs.4 higher realizations in case of our Bilaspur facility that is about
13% to 14% of EBITDA margins in that facility as against that 10% to 11% EBITDA margins in our Rudrapur facility
12…ONLY PREMIUM YARN
=What we are doing in our spinning units we are making only premium quality of yarns we are not
working on any commodity products.
=Even in our existing facility in Bilaspur with 28000
spindles we are making only colored dyed yarns, melange yarns and fancy yarns such as slub,injection slub, etc., so these yarns are having a very good margin as compared to the commodity product of white and black yarn
=Already in existing unit we are getting a very good margin for those with specialized yarns and in the
coming facility also we will go only for these kind of premium products.
13…LOSS FROM KANPUR PLANT FIRE
=Basically the Kanpur plant was the least among all the three plants though we have lost the turnover of over 90 to 100 Crores, but on profitability front we have not lost
much.
= Now we are looking to the market dynamics and scenario we are now not going to reinstate that production lines which have lost instead we are going for putting up another
production line which is suitable for making the recycled rigid plastic chips.
=So it will be a higher realization product than the current
14…RPSF REALIZATION
=Rpsf getting Rs. 97-98/Kg which is against 110 to 115 of virgin PSF.
=The realizations have improved by about 25% in the last one year though the cotton prices have
increased multifold.
=So cotton dynamics is different and the policy dynamics is different, but one thing is that after the cotton has become so much costlier the demand of polyester has increased
15…EXPECTED REVENUE AND MARGIN AFTER COMPLETION OF CAPEX
A…Warangal we are expecting 600 Crores topline from there.
B…Nepal is about 75 Crores.
C…New spinning unit: 250 Crores from this new unit.
D…HDPE…around 90 Crores to 100 Crores.
=so close to 1000 Crores additional in topline for all these new projects and
margins you say for
=Warangal still we are maintaining this 25% margin and
=Nepal at 18% and
= yarn you have also said 15% to 18%
= HDPE@ above 20
16…MOAT
=What is stopping big companies like arvind ,vardhaman etc from doing backward integration?
A…Different products
=I would like to highlight that we are having about 500 kind of products in our basket which are available for every kind of application to the end consumer number one.
=Whenever you are coming with the different products you need to have a number of lines to be installed. So yes of course anybody is open to go for a backward integration but it would be
better to tell you that still many of the spinning units who have came up with their one or two facility for recycled fiber they are buying a lot of premium products from our company,
=So yes anybody can come with
backward integration but still they need many number of products which would not be possible in one or two lines.
B…R n D and 30yrs experience
It is a R&D over the period of last 30 years what we have done
and the products which we are making on our different lines in different plants, so it is the expertise where you are getting a good number of buyers
C…Preffered vendors
=We are on the preferred vendor list of some brands for which we are making their product, so it is also a compulsion for them to buy from us.
17…CRUDE EFFECT
=Our end product is benchmark against the virgin PSF which is a derivative of crude
and the prices of crude make some impact on the prices of virgin PSF, so indirectly we are also
impacted by the prices of crude.
18…COTTON PRICE EFFECT
=Basically there is a switch from cotton to polyester always happens, when the cotton prices are
higher and polyester prices are lower the people are looking for a better opportunity by spinning
mills especially in South of India, so now the demand is growing for polyester in most of the
cotton units where either they are shifting to polyester or they are blending polyester with cotton
to make their product sustainable, so this happens every time when the cotton prices goes high, of
course the polyester always get a benefit whenever there is an increase in cotton prices
=Fluctuation in price of crude and spinning cotton
has always been there.
19…BOTTLE TO BOTTLE
=Going forward we are sensing that our B2B chips business would be the most accelerated kind of
product in the market out of all new and old products
=In terms of these bottle-to-bottles , the regulatory approvals we need to take
=Actually there are three types of approvals are required; for the US market it is the US FDA
approval and for the European market it is the EFSA approval and for India it is a food safety and
FSSAI approval, so we are already working on the approvals from these bodies
=We have imported USFDA approved machinery for this use of recycle in plastic pet packaging so that is why we went to Europe for this particular
thing
=Bottle-to-bottle grade chips will be used by mixing this in the virgin pet chips for making again the bottles.
=It is mandated by the government also that from 2024-2025 everybody has to consume 30% of recycled material in their packaging. So yes we are in discussion with big
brands also because they want to start this from the current fiscal itself.
20…BILASPUR YARN FACILLITY
Q# Currently in the Bilaspur the spun yarn capacity is 7200 tons with an
EBITDA margin of 16% to 18% and now we are adding another 12000 tons capacity with an
EBITDA margin of 25% to 30%, so just wanted to understand that if it is the same spun yarn that
we are expanding then how would the additional 12000 tons give a higher margin of 25% to 30%?
Ans#In the existing facility we are confined to source yarn only and in the new facility we are
coming up with a capacity to produce finer counts where we would get a better realization as
well as better margins also. So the current production capacity is in the range of average 18
counts to 19 counts while in the new facility we can produce some finer counts and the average
capacity would be around 24 counts to 25 counts so that leads to a better realization as well as a
better product portfolio for getting a good margin
21…RIGID PLASTIC OPPORTUNITY
=There are several different products one is PET and one is rigid plastic
from polyethylene, polypropylene
= In Kanpur and warangal we are coming up with other rigid plastics than PET, so all HDPE, PP polypropylene
=This is a very vast field you see the rigid plastic consumption in India is about 10 times of what we are having of PET, so you can just imagine
the opportunity there in the recycling of rigid plastic, but yes we have to work harder for different
R&Ds and making a intact supply chain of each type of plastic that is coming to the facility so you can make a better product.
=There are several sort of recycling facilities where you can mix all
the plastic and make a very poor quality of product where you would not get margin more than 3%, 4%, 5% and that too they are being done in an unorganized sector across India, already there are thousands of units who are recycling those plastics but those are all unorganized sector units
so yes you have to work harder for the supply chain so that you can get a specific type of plastic
coming to your facility where you can convert that plastic into a premium product which can be
supplied back to the big brand so we are working on that because we want to create a premium
quality product out of that plastic also.
=Of course it will fetch a good margin over the period of time but yes it will need a big asset to be done in this field.
=Bottle to Bottle market in India is a developing market. In our discussion 5 years ago, I used to
highlight that whenever food grade Bottle to Bottle will be allowed in India, there will be huge shortage of Raw Materials as same plastic is used for consumption. That situation can be
witnessed today. In future when plastic bottles will be used for making Bottle to bottle, there will be scarcity of Pet bottles for fiber and spinning.
Whatever bottles will be available, will be used for premium quality only.
= The fire loss at Kanpur plant gave us an opportunity to think and enter
in other plastics. We currently sell other plastics as waste. Going forward, we plan to use it as
raw material and converting the same in value added products
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