Wealth from waste !!

Ganesh Polytex ltd. (BSE Code 514167) is India's Largest PET Waste Recycling company with dynamic and investor friendly management. The Company has achieved prestigious ICAI Award from Institute of Chartered accountants for transpiracy in financial reporting. Recycling a need of hour Governments across the globe are spending much to save the environment. Recycling is a buzz word these days. Recycling is the only solution to reduce the growing garbage and the industry is bound to grow many folds going forward. Business model GPL has a very unique and interesting business model. It has a number of waste collection centres to collect the PET bottle waste from the rag pickers and convert it into Polyester Staple Fibre which has multiple uses in stuffing in pillows, quilts, mattresses, furniture, etc., Yarn Spinning for fabric, Medical Textiles, Geo textiles, Automative Textile and other technical and non-woven textile. GPL recycles around five million pet bottles daily. Performance GPL is a consistent performer and is a dividend paying company, growing at 30%+ CAGR since last 5 years. The company has achieved a turnover of Rs 291 cr in 2011 with EBITDA of Rs 26 Cr and PAT of Rs 17 Cr. Future Plans GPL has multifold its recycling capacity during last five years and is having ambitious expansion cum consolidation program with capex of around Rs.125 cr to be operational by Sept.,2012. The company has planned to expand its capacity of waste recycling from 57k TPA to 70k TPA and convert around 10% of its production into value added spun yarn. New capex will help the company to increase the EBIDITA margins from 12.5% to around 16%. GPL has alloted 15lakh OCDs to be converted at Rs.90 to raise Rs. 13.5 Cr from IFCI Green venture fund. We expect the company to achieve a turnover of Rs.350 Cr and Rs. 450 cr. in FY12 & FY13 respectively with EBITDA of Rs. 45 cr & Rs.75 Cr. GPL has set its target to achieve A turnover of Rs. 500cr in next 2-3 years. Valuations GPL is a low beta stock and has stood firm during the meltdown of other small cap stocks. With an EPS of Rs.13.5, scrip is currently trading at the multiple of around 5x, whereas other companies related to waste management and recycling are enjoying a PE of around 25x. Targets The market has behaved brutel towards small cap companies since last one year, but once the market atracts the investments for smallcap companies and the Investor community with long term vision and

fancy towards this growing recycling sector come to know about this less noticed company, the fortunes of the scrip is bound to change. As depict by its name, currently GPL is termed as a textile company and not as a waste recycling company by BSE and other portals, which seems to be the major reason of its under visibility. The company has started its visibility campaign to get proper valuations. The re-rating of the stock seems to be inevitable. The company is all set to enjoy higher multiples. With improving performance and extended PE, we recommend to buy the scrip for a 18 months target of Rs. 162. Risks and Concerns The PET recycling business doesn't require niche technology or huge capex, which results in the absence of an entry barrier, to avoid competitors from entering this field. To counter this, the company is focused on building the raw material procurement network which would provide a major competitive advantage to the company. GPL is a small cap company and has the normal execution risks associated with any small cap. Even though the company has a significant depth in its business, scalability is a risk nevertheless.