Management Meet Note
November 25, 2016
Ganesha Ecosphere (GANECO)
Rating Matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Unrated
NA
NA
NA
| 179
Market leader in recycled polyester fibre…
Key Financials
(| Crore)
Net Sales
EBITDA
Net Profit
EPS (|)
FY12
385.5
41.7
20.7
13.6
FY13
435.3
47.1
24.1
15.9
FY14
499.5
53.2
24.5
16.2
FY15
623.3
63.0
23.1
14.2
FY16
647.3
73.8
24.9
13.0
FY13
11.1
10.3
2.7
NA
12.8
FY14
11.0
9.1
1.9
13.0
11.7
FY15
12.4
7.7
1.7
12.4
11.9
FY16
13.7
6.6
1.8
5.9
15.0
Valuation Summary
(x)
P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)
FY12
13.0
11.7
3.3
23.8
17.4
Stock Data
Particular
Market Capitalization (in crs)
Total Debt (FY16) (in crs)
Cash (FY16) (in crs)
EV (in crs)
52 week H/L (|)
Equity capital (in crs)
Face value
FII Holding (%)
DII Holding (%)
Amount
339.5
150.5
3.8
493.7
240 / 112
19.2
10
0.0
7.2
Price Performance
Return (%)
Ganesha Ecosphe.
Zenith Fibres
Sarla Performanc
1M
(21.0)
(22.5)
(11.7)
3M
(17.5)
(2.8)
5.4
6M
(0.6)
21.6
(6.9)
12M
31.5
21.5
13.2
Price Movement
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
250
200
150
100
50
Aug-15
Apr-16
Price (R.H.S)
0
Nov-16
Nifty (L.H.S)
Research Analyst
Bharat chhoda
[email protected]
Ankit Panchmatia
[email protected]
Cheragh Sidhwa
[email protected]
ICICI Securities Ltd | Retail Equity Research
We recently met the management of Ganesha Ecosphere (GEL) to
understand its business model and outlook, going forward. With
production capacity of 87600 tonnes per annum (TPA) of recycled
polyester staple fibre (RPSF), GEL commands ~25% market share in the
organised recycled fibre market. Furthermore, GEL has an annual
production capacity of 3000 TPA of dyed texturised/twisted filament yarn
and 7200 TPA of recycled spun yarn (RSY). Cumulatively, total capacity is
97800 TPA. GEL, over the years, has continuously added capacity,
impacting PAT growth. However, it has managed to maintain ~85% of
utilisation level, which has enabled EBITDA growth. Subsequently,
revenues, EBITDA, PAT grew at an average 17%, 16% 6%, respectively,
in 2011-16. Given the demand and raw material procurement scenario,
GEL is expected to add capacity in south India (higher availability of PET
waste) which could derive higher realisations and drive future earnings.
Thrust to eco-friendly products to keep business model unique…
According to a TechSci report, the Indian food services industry in FY15
was at $13.8 billion (bn). It is expected to grow at 17% CAGR in 2015-20.
A subset of it, India beverage services market, at $2.6 bn in 2015, is
expected to grow faster at 20.6% CAGR to $4.5 bn. Subsequently, scrap
of ~800000 tonnes of PET bottles per annum is generated, which requires
appropriate disposal mechanism or recycling. GEL aiming to collect
maximum PET waste through its 20+ collection centres across India, has
collected ~79000 tonnes of PET wastes, equivalent to 4.4 billion PET
bottles (up 17% YoY) for FY16. This collected waste acts as raw material
for GEL products that find application in manufacture of eco-friendly manmade fibre/yarn, which are utilised for manufacturing textiles (T-shirts,
body warmers, etc), functional textiles (non-woven air filter fabric, geo
textiles, carpets, car upholstery) and fillings (for pillows, duvets, toys).
Geographical diversification; capacity expansion - key for future growth
GEL, since FY08, has increased its manufacturing capacity for RPSF from
38000 TPA to 87600 TPA in FY16. Given the utilisation levels maintained
at ~85%, revenue for the same period increased at 25% CAGR. Following
the ramp up in utilisation levels, GEL intends to further increase its RPSF
capacity with additional 21000 TPA by FY17. Furthermore, with the
installed capacity of 26000 spindles, ~10% of this fibre is converted to
eco-friendly yarn, which derives realisations equivalent to spun dyed
polyester yarn. For the near term, the company expects healthy earnings
growth visibility in the next three years on account of commissioning of
new capacity and moving up the value chain.
Exhibit 1: Financial Performance
(| Crore)
Net Sales (| crore)
EBITDA (| crore)
Net Profit (| crore)
EPS (|)
P/E (x)
Price / Book (x)
EV/EBITDA (x)
RoCE (%)
RoE (%)
RoIC (%)
FY11
291.5
34.9
18.0
13.2
13.4
5.5
13.9
17.4
29.4
21.6
Source: Company, ICICIdirect.com Research
FY12
385.5
41.7
20.7
13.6
13.0
4.0
11.7
17.4
24.6
20.7
FY13
435.3
47.1
24.1
15.9
11.1
3.3
10.3
12.8
23.8
21.9
FY14
499.5
53.2
24.5
16.2
11.0
2.7
9.1
11.7
19.7
15.6
FY15
623.3
63.0
23.1
14.2
12.4
1.9
7.7
11.9
13.0
14.5
FY16
647.3
73.8
24.9
13.0
13.7
1.7
6.6
15.0
12.4
15.7
Company Snapshot
Ganesha Ecosphere (GEL), incorporated in 1987, is India’s largest
polyethylene terephthalate (PET) bottle scrap recycling company with
~25% market share, primarily engaged in the production of regenerated
polyester staple fibre (RPSF) from waste PET bottles. GEL currently has a
cumulative capacity of 97800 TPA (87600 - RPSF (fibre), 7200 TPA - RPSY
(yarn) and 3000 TPA - dyed and texturised/twisted filament yarn).
Currently, all manufacturing units are located in North India viz. Kanpur UP, Rudrapur (Uttarakhand) and Bilaspur (UP). GEL recycles ~79000
tonnes of waster PET, equivalent to 4.4 billion bottles annually. GEL
collects maximum PET waste through 20+ collection centres across India.
Furthermore, GEL has dedicated contractors, which contribute to
additional supplies. GEL has also established arrangements with hotels,
airports, campuses and primary users for collection of discarded PET
waste (bottles, cans, containers, etc). These tie-ups enable daily collection
of ~225 tonnes of PET waste, thereby ensuring availability of raw material
(PET bottles) throughout the year.
Exhibit 2: Manufacturing capability (FY16)
Capacity (MTPA)
Kanpur (UttarPradesh)
2015
30000
Twisted Filament Yarn
2016
30000
3000
3000
RPSF
Rudrapur(Uttarakhand)
27000
39600
27000
39600
RPSF
Bilaspur(UttarPradesh)
39600
14200
39600
28200
RPSF
Recycled Spun Yarn
7000
7200
21000
7200
83800
83%
97800
87%
Total capacity
Average Capacity Utilisation
Source: Company, ICICIdirect.com Research
Exhibit 3: Process to eco-friendly fibre/yarn…
Source: Company, ICICIdirect.com Research
The collected waste PET bottles are compressed and packed into bales
that are shipped to manufacturing facilities. These bales are sorted to
remove non PET stuffs, which are further cleaned, chipped to small flakes
and converted into RPSF through high speed extruders in a non-chemical
process. The products (fibre/yarn) manufactured by GEL find application
in some or the other form to manufacture textile (T-Shirts, body warmers
etc), functional textiles (non-woven air filter fabric, geo textiles, carpets,
car upholstery) and fillings (for pillows, duvets, toys).
Exhibit 5: Production of RPSF grows at CAGR of 18% (FY11-16)
100000
4.5
90000
4.0
80000
70000
40000
10000
FY11
FY12
FY13
FY14
FY15
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
FY16
53695
20000
0.5
49423
30000
FY11
FY12
FY13
FY14
71841
50000
86493
60000
43654
2.4
1.0
2.3
1.5
3.4
2.0
3.76
2.5
4.43
3.0
37848
3.5
(tonned per annum)
5.0
2.3
(in number billions)
Exhibit 4: Recycled PET bottles grow at CAGR of 14% (FY11-16)
0
FY15
FY16
Source: Company, ICICIdirect.com Research
Page 2
Key financials
Exhibit 6: Segment-wise revenue contribution (FY16)
5%
20%
75%
Revenue growth – Supportive of capacity expansion
Revenues for GEL grew at a CAGR of 17% in FY11-16 to | 647 crore in
FY16 (| 291 crore in FY11). Growth was primarily on the back of higher
capacity expansion, which grew from ~38000 TPA in FY11 to 87600 TPA
in FY16. The revenue contribution from RPSF was at 75% in FY16
compared to 70% in FY15. The increased contribution from RPSF
indicates commencement of a capacity of 14000 TPA at Bilaspur unit.
Approximately 10% of the fibre is utilised for converting fibre into yarn,
which are further supplied to GEL’s dedicated textile vendors.
Exhibit 7: Revenue growth trend FY11-16
RPSF
Recycled Spun Yarn
Dyed Texturised / Twisted filament yarn
Source: Company, ICICIdirect.com Research
623
647
FY15
FY16
700
600
499
500
| crore
400
300
435
386
291
200
100
FY11
FY12
FY13
FY14
Source: Company, ICICIdirect.com Research
Revenues for H1FY17 remained flattish at | 325 crore compared to
H1FY16. Following the capacity constraints (85% utilisation), growth
remains sluggish. However, for H2FY17, addition of new capacity of
21000 TPA is expected to contribute to growth.
Profitability largely driven by topline growth; margins remain sticky
Growth in EBITDA for GEL was at 16% CAGR in FY11-16 to | 74 crore
compared to | 35 crore in FY11. However, EBITDA margins over the same
period, remained range bound between 11% and 12%.
Exhibit 8: Trend in EBITDA and margins…
70
13
12.0
11.4
60
10.8
10.8
40
10.6
30
12
11
11
10.1
74
-
63
10
53
10
47
10
42
20
35
| crore
50
12
FY11
FY12
FY13
FY14
FY15
FY16
EBITDA (| crore)
%
80
9
EBITDA Margin (%)
Source: Company, ICICIdirect.com Research
EBITDA for H1FY17 grew 5% YoY to | 38 crore compared to | 36.5 crore
in H1FY16. Margins expanded 50 bps over the same period. The new
capacity is expected to generate higher EBITDA margins, going ahead.
ICICI Securities Ltd | Retail Equity Research
Page 3
PAT impacted by higher interest expenses & depreciation…
GEL continued to add new capacity, which resulted in higher depreciation
and interest costs. Subsequently, PAT recorded growth of 7% CAGR
(much lower than sales/EBITDA) in FY11-16 to | 25 crore compared to
| 18 crore in FY11. Interest, depreciation expenses grew at a CAGR of
22%, 19%, respectively, over the same period.
Exhibit 9: EBITDA & EBITDA margins trend
30
25
24
25
FY13
FY14
25
23
21
18
| crore
20
15
10
5
-
FY11
FY12
FY15
FY16
Source: Company, ICICIdirect.com Research
However, due to reduction of debt in FY16, PAT for H1FY17 grew 20% to
| 13.8 crore compared to | 11.6 crore in H1FY16.
Exhibit 10: Debt trend
250
224
194
200
150
150
| crore
Debt levels as on September 2016 were at | 110 crore
reflecting a D/E ratio of ~0.5x
177
100
93
80
50
FY11
FY12
FY13
FY14
FY15
FY16
Source: Company, ICICIdirect.com Research
Exhibit 11: Trend in return ratios
35
30
25
20
%
The decline in return ratios can be attributed to sluggish
PAT growth. However, over same period, equity capital
grew at 7% CAGR. This includes conversion of preferential
shares and warrants of promoter. It also includes
conversion of preference share (CCPS) at | 114/- earlier
held by MCap fund
29.4
21.6
17.4
15
21.9
20.7
24.6
17.4
23.8
15.6
19.7
12.8
10
15.7
14.5
15.0
11.7
13.0
11.9
12.4
5
FY11
FY12
FY13
RoCE (%)
FY14
RoE (%)
FY15
FY16
RoIC (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 4
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]
ICICI Securities Ltd | Retail Equity Research
Page 5
Disclaimer
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