Fundamental Analysis

GANESH POLYTEX LTD. (GPL) was promoted by Mr. Shyam S. Sharma during 1987. It commenced operations during 1988 with a plant at Kanpur to produce Dyed & Doubled Yarn with an installed capacity of the plant at 391 tpa and 360 tpa respectively During 1995. it diversified into the business of manufacturing Recycled Polyester Staple Fibre (RPSF) through recycling of pet bottle waste. During 2006 company set up another unit at Rudrapur (Uttarkhand) for Recycled PSF. Company has taken over, for forward integration, a spinning mill of 25000 spindles at Bahedi (near Bareilly) on job work for producing spun yarn from its Polyester Staple Fibre (PSF). GPL recycles about 140 crores pet bottles annually into the environment friendly and user friendly polyester staple fibre. The current paid up capital of the company is US$ 2.3 million and the turnover of the company is US$ 50 million per annum. There are around 850 employees in the company.
Products:

GPL is one of the leading manufacturers of Recycled/specialty staple fibre (RPSF). Company is having two manufacturing units in Kanpur and Rudrapur with total installed capacity to produce 39600 TPA of RPSF and another 18000 TPA capacity is under implementation at Rudrapur unit. After implementation of this capacity, the company would be largest recycler of Polyester waste in India. GPL is producing widest range of Recycled / speciality fibre to cater both industrial and textile sector. RPSF has number of Industrial and Textile applications like yarn spinning, stuffing applications in soft toys, quilts, pillows, mattresses, furniture etc., geo textiles for roads, bridges, dams, etc., non woven fabrics and carpets, paper and construction industries. Besides all these applications, RPSF is also a major constituent in various life style products like sanitary napkins, medical kits etc.
Besides, PSF, the company is also engaged in the dyeing and tax rising /twisting of Filament yarn at Kanpur having yarn processing capacity of 2400 TPA.

Shareholding Pattern

Financial Analysis:

(In Rs.cr) N. Sales PAT NPM% EPS (Rs.) BV/Share P/E P/BV RONW %

2009 135.37 4.34 3.20 4.40 24.33 9.20 1.66 16.26

2010 192.48 7.90 4.10 8.01 31.84 5.05 1.27 25.15

2011 223.86 11.42 5.10 11.58 35.92 3.50 1.13 32.23

The companys growth is sustained as its revenues are growing at compounded annual growth rate (CAGR) of 28% during last four years. Year to date sales grew to Rs.144.36 crores and profitability increased to Rs.5.90 crore. At current market price of Rs.40.50 Ganesh Polytex is trading at P/E of 5.05x and 3.50x for FY10E and FY11E with expected EPS of Rs.8.01 and Rs.11.58 respectively. Therefore, we recommend BUY on this stock around Rs.39- 42 with a target of Rs.58 for next one year.

Positives:

Currently,

the total recycling capacity of RPSF in India is around 145K tpa, out of

which Reliance Industries Ltd. has a capacity of 42K tpa, GPL has a capacity of around 40K tpa and rest is with other small local players. After implementation of another capacity expansion of 18000 TPA at Rudrapur, GPL would become the largest recycler of pet bottle waste in country.

Companys future growth plans include increasing the PSF capacity, manufacturing of
partially oriented yarn through pet bottle waste, forward integration into yarn spinning as well as downstream products and non woven / technical textiles.

It has sizable capacity for cost economies and to ward off the competition. It has strong diversified network of agents, dealers and consumers both in domestic and
overseas market due to quality products, timely delivery, customer service and wide product range.

Negatives: Economic slowdown may affect the demand from industrial and textile sector.

Expanding capacity of Regenerated PSF by another 18000 tpa requires estimated cost
of Rs.25 crore. So fund raising may be constraint in the expansion plans of the company.

Capacity expansion plans may be delayed or behind scheduled,

Conclusion:
This company looks like a real good bet for long term. The recycling business segment it is in is not valued well in india. So the company has not performed very well but might give really good returns once the true potential is realized. Company has chalked out an aggressive expansion plan which might reflect positively on their earning over the next few years. It is definitely a company that we should keep a watch on.

SWOT Analysis
Strengths: Indian Textile Industry is an Independent & Self-Reliant industry.

Abundant Raw Material availability that helps industry to control costs and reduces the lead-time across the operation. Availability of Low Cost and Skilled Manpower provides competitive advantage to industry. Availability of large varieties of cotton fiber and has a fast growing synthetic fiber industry. India has great advantage in Spinning Sector and has a presence in all process of operation and value chain. India is one of the largest exporters of Yarn in international market and contributes around 25% share of the global trade in Cotton Yarn. The Apparel Industry is one of largest foreign revenue contributor and holds 12% of the countrys total export. Industry has large and diversified segments that provide wide variety of products. Growing Economy and Potential Domestic and International Market. Industry has Manufacturing Flexibility that helps to increase the productivity.

Weaknesses: Indian Textile Industry is highly Fragmented Industry. Industry is highly dependent on Cotton. Lower Productivity in various segments. There is Declining in Mill Segment. Lack of Technological Development that affect the productivity and other activities in whole value chain. Infrastructural Bottlenecks and Efficiency such as, Transaction Time at Ports and transportation Time. Unfavourable labour Laws. Lack of Trade Membership, which restrict to tap other potential market. Lacking to generate Economies of Scale.

Higher Indirect Taxes, Power and Interest Rates.

Opportunities:
Growth rate of Domestic Textile Industry is 6-8% per annum. Large, Potential Domestic and International Market. Product development and Diversification to cater global needs. Elimination of Quota Restriction leads to greater Market Development. Market is gradually shifting towards Branded Readymade Garment. Increased Disposable Income and Purchasing Power of Indian Customer opens New Market Development. Emerging Retail Industry and Malls provide huge opportunities for the Apparel, Handicraft and other segments of the industry. Greater Investment and FDI opportunities are available.

Threats:
Competition from other developing countries, especially China. Continuous Quality Improvement is need of the hour as there are different demand patterns all over the world. Elimination of Quota system will lead to fluctuations in Export Demand. Threat for Traditional Market for Power loom and Handloom Products and forcing them for product diversification. Geographical Disadvantages. International labour and Environmental Laws. To balance the demand and supply. To make balance between price and quality.

Overview of textile industries: Indian Textile and Clothing (T&C) industry is currently one of the largest and most important industries in the Indian economy in terms of output, foreign exchange earnings and employment. The industry contributes 4% to the countrys GDP and 14% to the countrys industrial production. Indian T&C market is estimated at Rs. 2,00,000 crore (US $ 40 billion) in 2007-08. The textiles industry accounts for around 14% of total exports from India. The textile exports during 2007-08 amounted to US $ 20 billion. The textile imports during the same period stood at Rs 13,400 crore. Indian T&C industry is also the second largest employment generating industry, after agriculture with direct employment of 33.17 million people (as of March 2006)1. The value chain comprises of spinning, weaving, knitting and garmenting. Also, it uses different materials such as cotton, jute, and wool, silk, man-made and synthetic fibres.

Industry Size and Growth:

The size of the textile industry is estimated by means of private final consumption on clothing and export value of textile products from India .The Private Final Consumption Expenditure (PFCE) on clothing was in excess of Rs 99,000 crore in 2007-08. The Compound Annual Growth Rate (CAGR) of PFCE on clothing for the last five years was 6.85%.