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Multi Baggers

Aashish Tater

12.00 AM Aug 11th 2016

Ganesha Ecosph

BSE ID : 514167     NSE ID : GANECOS

RECOMMENDED PRICE 164.85

PEAK FROM RECO 425.00 157.81%

CURRENT PRICE 407.55 147.22%

Ganesha Ecosphere is doing capacity expansion by 21000 tonnes at its Rampur factory. We recommend this stock to BUY at Rs 164.85 with a target price of Rs 222.

Ganesha Ecosphere

Capacity expansion to boost profitability and expansion on low margin outsourcing basis a win win asset light model

Ganesha Ecosphere is doing capacity expansion by 21000 tonnes at its Rampur factory . This is approximately 25% of current capacity across its factories and company is on expansion phase with plans to tie up with Textile Majors for Recycled Polyester Staple fibre. Ganesha ecosphere upped the value chain when it started manufacturing Tees from RPSF and now it has become a concept stock.

A Rerating Story coupled with earning expansion 

HCCB and Ganesha Ecosphere tie up was the key trigger in the life of Ganesha that made the stock rerate though the tie up change impression of being a Rich Man’s friend. The interesting aspect is since than many Polyester Yarn producers are actively taking part in recycled PSF and that gives assured business because its next to impossible to differentiate the yarn quality and the green initiative by PET waste generating firms do good for the environment

Raw Material Availability: How the company works it collects PET bottles recycle them to save environment and produce the staple fibre that cost the polyester yarn producers little less. Consumption of COKE,PEPSI,PACKAGED DRINKING WATER etc is going up only and highly unlikely that waste will come down so being into the business of waste processing this will ensure the availability of raw material and access for the same for Ganesha has been planned and executed well over the years.

Finished Products: Last time we saw a finished product  a T Shirt that used to be a PET bottle and was completely surprised. The Green initiative and one of its kind had made Hindustan Coca Cola Beverage a subsidiary of COCA COLA to tie up with Ganesha and that actually augurs well for stock and its upping the value chain both backward and forward integration to help ensure consumption.
  
Large Interest of Institutions: Post our initial coverage we have seen large domestic players which has time horizon of 3-5-10 years entering the stock.

Growth not visible on topline: Is it a concern the answer is no? Market understands the value of raw material is derived vis a vis crude cost,  if crude falls from 100 to 40 the recycled products price adjust accordingly so technically all it comes to volume and volume growth has been significant for ganesha . Infact the company can double its profit with additional capacity as soon as crude crosses 70 + because Raw material waste wont change much but the input price of original Polyester goes up. 

Realization can improve going forward: China and India the cotton prices determinants has seen surge in the price per bale of Cotton. However still the price of polyester yarn has not been rising . Industry players will soon find it easier if there is further 6-7% jump in cotton bale prices

Valuation matrix: The company is going to expand capacities and not increase fixed interest cost as it plans expansion from accruals will make topline jump in terms of volume by 20% and PAT growth to tune of 16-22% depending on delta realized.

What are next triggers for the company?

From RPSF producer to Finished Product a full fledged value chain can rerate stock further. We sensed the company might have some interest when we read on COCA COLA subsidiary tie up.
 
Company actively working on cost cutting measures: Waste treatment is a cost that can be controlled and the swatch bharat abhyan of collecting pet in a Separate bin is going to reduce cost significantly.

The company is available at a PE multiple of 13 times forward with crude near to bottom any increase in Cotton price or crude can up the PAT significantly. With new capacity we working with PAT of over 33 crore for FY 18E and giving FV target of 222 from one year time horizon.

Key things to monitor: Govt taking initiative and making some rules impacting PET bottle consumers and waste points and Extended Producers Responsibility can further rerate stock.

Coca Cola history of tying up and than absorbing the stock similar observation can be taken for reference from Thailand etc. that can rerate the JV and/or unlock value for Ganesha Ecosphere.

We recommend this stock to BUY at Rs 164.85 with a target price of Rs 222.

Disclosure (SEBI Registration Number for Aashish Tater:  INA300001206)

Stock Ownership - No

Stock traded in Last 30 days ( No trading or investment activities done) - No

Stock Recommended to Clients - Yes

Remuneration/Benefits received from company in 12 months - No

Merchant Banking Market Making activities / projects - No

Any arrangement with co. to affect the report write up - No

 

Disclaimer: Aashish Tater is an investment adviser based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at query@fortunewizard.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

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