Ganesh Polytex: K. R. Choksey Research Report

Ganesh Polytex (Incorporated in 1987) is the largest player in india in Regenerated Polyster Staple Fibre( RPSF) with total installed capacity of 57600 TPA .

Investment Summary:

• PET recycling has got tremendous growth potential: With changing lifestyle and higher disposable income, Indian PET demand is expected to grow at 7.5% pa from current level of 3.40 lac TPA. Current PET recycling capacity in India is 1.57lac TPA, thus by Y 2012, India will have 2.00Lac TPA excess PET waste (130% more than installed recycling capacity). Ganesh Polytex Ltd, with largest PET recycling capacity will be natural beneficiary of this untapped emerging growth opportunity.

• Capacity expansion will lead to growth in turnover: By FY12E Ganesh Polytex will be expanding recycling capacity by another 14400 TPA .This will take RPSF capacity to 72000 TPA by FY12E. It will also set up a recycled POY yarn manufacturing facility with a capacity of 15000TPA . Because of enhanced capacity, Turnover in FY12E will grow to Rs 351 cr from Rs 199 cr in FY 10.

• Entry into value added segment will lead to margin expansion: Ganesh polytex is consciously undertaking forward integration to enter into value added segment. Ganesh Polytex will be foraying into spinning of yarn and also they are setting up recycled POY( Partially oriented yarn) unit. Entry into value added segment will help Ganesh Polytex enhance EBITDA margin from 12.7% in FY09 to 17% in FY12e.

• Tax Break: Icing on the cake: Ganesh Polytex enjoys significant tax break for its Rudrapur RPSF plant.The tax incentive availed for Rudrapur plant includes Nil Excise duty, Full exemption from income Tax for first 5 years and 30% exemption for subsequent 5 years, Sec 80I© and Concessional CST (1%) vis-à-vis normal rate of 2%.Thus effectively Ganesh Polytex is paying MAT which further strengthens bottomline.

Valuations: At the current market price of Rs 63, Ganesh Polytex is trading at 7.58x FY11E PE and 4.14x FY12E PE. As Ganesh Polytex is in a very promising space of waste recycling and is expected to register very high growth rate going ahead, we are giving 10 x forward PE multiple to Ganesh Polytex, which gives price target of Rs 83, upside of 32% from current level.