by Anandh Sundar

Ganesh Ecosphere

Ganesh Ecosphere formerly Ganesh Polytex Ltd.  is a 57600MT PSF fiber company, valued at just Rs 67 crores equity (with debt nearly Rs 100 crores, cash Rs 10crores, total enterprise value Rs 160 odd crores).  Reasonable dividend yield, low price to earnings ratio are good financial indicators, while sustainable eco-friendly business model of recycling waste, makes this a responsible company as well. Let us understand the business model:

http://www.ganeshaecosphere.com/manufacturing_process_flowchart.html

Interesting points are

1. Input Cost – Presently, they incur costs to collect the PET bottles from rag pickers. But if they imported the bottles from abroad, freight costs would be largely offset by the collection premium/incentives given by local bodies there. If they get Indian civic solid waste management contracts also, they could get a tipping fee (per ton basis) for their help in disposing the plastic waste. This is an interesting possibility and hence to watch the government policies to detect this upside.

2. Business Model – They argue that they should be rated as a green company (not textiles as)

a. They are making recycled polyester fiber from recycling of pet bottle waste while virgin fiber is made from petro chemicals.

b. Collection and use of pet bottle waste is much cumbersome process than the PTA/MEG which is purely commodity and are available on demand.

c. Recycling of pet waste and making fiber out of it is environmental friendly activity as waste bottles are threat for environment.

d. Further, waste recycling always results into producing some commodity, which is substitute of similar commodity made from virgin material. Waste recycling results into lower carbon footprints by turning the waste into resource which in turn saves the exploitation of finite natural resources.

Also Read on GWI about Electronic Waste Management Companies in India.

3. Output – Recycled Polyester Staple fiber – Apart from pure textile applications, recycled fiber finds application in insulation, filters, geo textile, furniture, soft toys, pillows, mattresses, construction, paper etc. They sell products to different segments like yarn spinners, non woven and technical textile, Stuffing in toys and comfort products. Well diversified.

4. Dubious Vertical Integration rationale – The company argues that expanding into Yarn spinning has complete synergy with our existing operations. Raw material would be available in house. We are already having presence and network for yarn marketing. So we need not to build sourcing and marketing network. We would be getting the saving in transport and marketing expenses besides having online product development facilities. We would also be getting more realization of our down grade products by processing in our own spinning unit. Still, getting into a capital intensive industry with over capacity and low valuations reeks of hubris.

5. Carbon Credits Potential – Company estimates that for one time recycling of PET bottle waste, we are they save 1.5 tonnes carbon dioxide emission. Hence, depending on capacity utilization and carbon credits price, this is a potential for Rs 7-10crores/year, despite the slack carbon credits market-but only if they get accreditation.

6. Investor Relations Savvy:-They have stopped their quarterly conference calls but the annual reports preparation is outsourced to expert agencies. For example:

a. http://www.ganeshaecosphere.com/pdf/gesl-annual-report-2011-2012.pdf (a TRISYS product)

b. http://www.ganeshaecosphere.com/pdf/annual_report_2011.pdf (designed by adit.torch@gmail.com)

As the company puts it, Basically, we are a pet waste recycler and any product made out of waste is always commodity, maybe it’s power, maybe it’s fiber or maybe some other thing. So for finished goods you may say it is Textile Company, but truly it is waste management company, because we are handling about 50,000 ton wastes annually. Interesting argument, but as long as revenues are linked to output textiles and not to input PET waste, it is difficult to rate the company as such.

But even on a textiles basis (or any basis), the company has dedicated management, clean annual accounts etc, and good growth prospects. The vertical integration rationale is fuzzy, but intentions are good. The name change may not lead to rerating, but still interesting company.

(Anandh Sundar is a Chartered Accountant and MBA from IIM Ahmedabad. He writes on financial and investing matters at http://financeandcapitalmarkets.blogspot.com/ and http://specialsituationsindia.blogspot.com/