[T.S.R:14267] Ganesh Polytex

 

Ganesh Polytex: Potential wealth creating stock

 

HBJ Capital

01 June 2010

Aggressive Capex Plans Over The Next Three Years

- Ganesh Polytex has charted out expansion plan with a capital outlay of Rs.850 mn over the next three years. The company shall invest Rs250 mn for ramping up of Recycled PSF capacities by 14,400 MT/pa. The project shall be operational in FY11.

- The company has expanded additional capacity of Recycled Polyester Staple Fiber (RPSF) by 18,000 TPA at Rudapur with an estimated cost of Rs250 mn.

- The company has also firmed up plans to set up a facility for manufacturing Recycled Partially Oriented Yarn (POY) as a part of forward integration for value added product. The plant will have a capacity of 18000MT

Quarterly results

- In FY 2008-09 the company recorded revenue of Rs 136 cr, while the company has already recorded revenue in excess of Rs 136 cr for 9 months ending Dec'09.

- The net profit for the Nine months ending Dec'09 stands at about Rs5.89 cr which is already higher than Rs4.35 cr for the entire previous fiscal.

- In the December'09 quarter, sales grew by 39% to Rs52.56 cr. EBIDTA rose by 33% to Rs6.16 cr. Net profit grew by 169% to Rs2.85 cr.

- The company is likely to close this fiscal reporting 40% growth in revenues along with 52% rise in EBIDTA and 105% rise in net profits.

Investment Rationale:
- The company is the leader in its area of operations and recently surpassed the annual production capacity of Reliance Industries Ltd.

- The investors lack the understanding of the Business Model of the company. Once the investors realize the true potential and the main area of operation i.e. Waste Recycling, the stock will command very high multiples.

- The company is contemplating a change in the name of the company to reflect the true operations. A change in name will lead to better visibility and a change in perception, which will result in Re-rating.

- The company has chalked out an aggressive expansion for the next two years, which will not only increase the profitability and sales but also result in margin expansion.

- Based on the Projected income and sales, the company is available at low valuations thereby ensuring safety of margin.

- The company should be able to record a net EPS of Rs 7, while at CMP range of Rs 48 - 52, it is available extremely cheap at a P/E multiple of approx. 6-7.

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