The capacity expansion of 18,000 tpa expected to be operational in March 2010 will take the total capacity of Ganesh Polytex to 57,600 tpa making it the largest player in recycled Polyester Staple Fibre (Fibrefill) in the country.

Kanpur, Uttar Pradesh, February 2, 2010 / IndiaPRLine / — GPL is one of the leading manufacturers of Recycled/ Speciality Polyester Staple Fibre (Fibrefill) in India through recycling of post-consumer pet bottle waste. The company has a capacity to produce 39,600 tonnes per annum (tpa) of Recycled Polyester Stale fibre, which is next only to Reliance Industries limited’s annual production capacity of 42000 tpa. The company is having two manufacturing units at Kanpur and Rudrapur (Uttrakhand). GPL is riding on high growth path and it reported impressive growth in the December’09 quarter both in turnover and profitability.

The Company’s business model is interesting as it is transforming post-consumer pet bottle waste (which is otherwise hazardous for environment being non bio-degradable in nature) back again into environmental friendly, hygiene, and comfortable fibres helping industrial users to manage quality nice and meanwhile save better. Besides procuring the Waste from vendors, the company has set up its own procurement centres in different cities to insulate itself from raw material shortage as well as price fluctuations. Finished product finds application for spinning of yarn, stuffing in toys and other life style products like pillows, quilts, mattresses and furniture, non-woven carpets and fabrics, medical & packaging textile, geo textile, fur fabrics, construction and paper industry and other technical textile. Recycled PSF replaces 100% virgin PSF in textile sector due to its most distinctive advantage of cost-effectiveness and it replaces Foam, Cotton, P.P. fibre etc. in other industrial sectors due to its durability, comforts and hygienic characteristics besides cost-effectiveness. GPL product range includes low-end basic segment to mid and high-end premium segment.

Polyester has now become common man’s fabrics in terms of prices, durability and comforts in comparison to cotton and other fibres. With growth in the economy and growing middle class, the per capita consumption of polyester fabric is also set to increase both for clothing and non-clothing applications. In fact, with growing per capita income consumption of non-clothing fabric will grow at much faster rate than clothing fabric. As Recycled Polyester Fibre is suitable both for clothing and non-clothing applications, its demand is improving both in textile and industrial sector. This bodes well for GPL as it has strong presence in both the sectors.

Foreseeing the coming uptrend in the user industry and to capitalize upon the available growth opportunities, company is expanding capacity of its Rudrapur plant by 18000 tpa at an estimated cost of Rs. 30 crore to be funded through a moderate mix of debt and equity. Expansion in capacity is expected to improve the operating margins by around 250 basis points making it more profitable.

Its ambitious growth plans include enhancing the recycling capacity to over 100,000 tpa in stages over the next 2-3 years, building up of yarn spinning capacity to integrate its operations forward and to improve margins, foraying into manufacturing of down stream products and entering into horizontal integration through producing more value added products like Partially Oriented Yarn (POY), packaging sheets, etc. from Waste.

These growth plans are likely to propel CAGR of 35-40% in its top and bottom lines during next five years.

The Company’s sales and net profits have grown up at healthy compound annual growth rate (CAGR) of 28% and 30% respectively in the past four years. Its EBIDTA (earnings before interest, depreciation, tax and amortisation) improved to Rs. 17.10 crore in FY08-09 from Rs. 5.77 crore in FY06 on the back of improved product mix.

In the December’09 quarter, sales grew by 39% to Rs.52.56 crore. EBIDTA rose by 33% to Rs.6.16 crore. Net profit grew by 169% to Rs.2.85 crore. The company is likely to close this fiscal reporting 40% growth in revenues along with 52% rise in EBIDTA and 105% rise in net profits. Company is moderately leveraged. It is not paying any dividend in the past mainly to fund the capacity building exercise during last four years. However, with improved financials, it has decided to reward the shareholders by declaring interim dividend of 5% for F.Y. 2009-10.

At the current price level of Rs. 40, the stock is attractively priced at around 4 times its 2010 earnings. For FY09, it has a book value over Rs. 24 per share on modest equity capital of Rs. 9.86 crore. On a conservative basis, the company can expect to generate net profit of Rs. 9 crore in FY09-10, which translates into an EPS of over Rs. 9. Further once its capacity expansion at Rudrapur unit becomes operational from FY10-11 onwards, the company’s growth will get a boost. Infact, the capacity expansion of 18,000 tpa expected to be operational in March 2010 will take the total capacity of Ganesh Polytex to 57,600 tpa making it the largest player in recycled Polyester Staple Fibre (Fibrefill), overtaking Reliance which has a capacity of 42,000 tpa. The company which earns revenues nearly 5 times its market cap and generates cash profits nearly half of its market cap looks a multi bagger investment pick. Good business, sound financials and future growth prospectus make it a dark horse from the small-cap segment, which offers significant upside potential in the medium term.