Stock Review: Ganesh Polytex

This is a company which has been a beneficiary of higher cotton and crude prices mainly because of two reasons. There has not been any significant increase in the cost of raw material for the company, which is pet bottle waste, and also there has been a significant increase in the prices of its finished product, which is recycled polyester staple fibre. The prices have moved in tandem with PSF made from virgin material.

Ganesh Polytex is into waste management. The company recycles pet bottle waste and converts into polyester staple fibre. This company is the largest recycler of pet bottle waste in the country. It has got a capacity of close to 58,000 tonne per annum. The company has got two plants: one is located in Kanpur and other one is in Rudrapur. If you look at the financials of the company, for FY10, the sales were about Rs 200 crore. It was up by 45% over FY09, while profit after tax was about Rs 9 crore up by about 100%.

In the first nine months of the current financial year the company has achieved 30% increase in sales to about Rs 185 crore. The PAT has almost doubled from Rs 5.5 crore to Rs 11.5 crore. The full year PAT is expected to be about Rs 17 crore, which mean an EPS of close to Rs 12 on the current equity of about 13.4. At the current price of about Rs 60-62 the stock is trading at a PE multiple of about 5-5.5.

This company has undertaken expansion projects. It is increasing its capacity further by about 12,000 tonne per annum which will become operational in the next one to one-and-a-half years. Also, the company besides employing the traditional methods for collection of pet bottle waste, is taking a number of new initiatives for collecting pet bottle waste. This includes tying up with various shopping malls and multiplexes to collect pet bottle waste from those multiplexes. The company is also toying with the idea of setting up a collection and washing unit somewhere in the Middle East or South Asia. These measures would lead to long-term raw material security for the company.

Now, you have a company which is the largest recycler of pet bottle waste in the country and the capacity of 18000 tonnes per annum which went into operation a couple of months back could not have come in at a more appropriate time since prices of recycled polyester staple fibres are on a high. Also cotton yarn prices are buoyant, which may lead to customer shifting from cotton yarn to recycled polyester staple fibre. The company is thinking about raw material security and using non conventional method for pet bottle waste. The future for the company looks bright.

So at the current price of about Rs 60-62-63, this stock warrants a buy. Since the markets are volatile, I would suggest to make a staggered purchase in the stock and not buy everything in one go because it is possible in case the market comes down the stock can also drop to about Rs 55-58 levels.

Long-term investors can choose to do a staggered buying of the stock. The long-term potential of the stock and the price competitiveness vis-à-vis the cotton yarn and virgin PSF looks to be in favour of the company. So at the current valuation the stock looks attractive for investment.