28 September 2024

By Majid Ahamed

About the Company

The company specializes in the manufacturing of Recycled Polyester Staple Fibre (PSF) and Recycled Pellets. In 2012-13, the current promoters took over from the previous management, and in 2015-16, they acquired a distressed asset from Axis Bank under the SARFAESI Act, 2002. This acquisition came with significant operational hurdles, as it took nearly two years to obtain approvals and sanctions from various regulatory bodies, including the pollution control board, electricity department, and fire and water authorities. After overcoming these challenges, the company finally commenced production in 2018-19.

The currently is primarily in two segments:

• Recycled Polyester Staple Fibre 
• Recycled Pellets

Recycled Polyester Staple Fibre 

This segment currently contributes the majority of the revenue, around 94% of the total revenue in FY24. It manufactures Recycled Polyester Staple Fiber from PET bottles, including post-consumer and post-industrial  waste. The process involves collecting, sorting and cleaning the bottles, melting them into pellets and extruding these into thin filaments. These filaments are then spun into yarns or fibers, which can be woven into fabrics or used as filling material in pillows, mattresses and insulation.

Recycled Pellets/Chips

The company also manufactures Recycled Pellets, sourced from the same raw material as Recycled Polyester Staple Fiber. The manufacturing process of recycled fibers, involving collecting , sorting, cleaning and melting PET bottles into pellets. These pellets are then used to produce new plastic products, such as storage and packaging bottles. This process started in February 2024, and is expected to contribute significantly in FY25.

Process for Recycled Pellets

Manufacturing Location which is located at Baddi, Himachal Pradesh

The Offer & Proceeds of the Issue

The company is looking to raise capital of around 24.17 Crores in total in the IPO, of all of them 24.17 Cr is the fresh issue where this amount would go inside the company’s reserve, in which 1.28 Cr is allotted for the market makers or dealers, and the remaining 22.89 Crores is giving for the public and institution to subscribe.

The fresh issue money will be allocated as follows:

• The company plans to spend ₹17.03 crore on capital expenditure, which involves investing in long-term assets with benefits extending beyond one year, by purchasing various plants and machinery. These plants and machinery will be set up at the manufacturing facility located at Baddi, Himachal Pradesh.
• The remaining funds around ₹ 4.14 crore will be used for general corporate purposes, including but not limited to operating expenses, initial development costs for projects other than the identified ones, strengthening business development and marketing capabilities, and addressing contingencies.

Valuation

The company is targeting a market capitalization of ₹91.56 crore with a P/E ratio of 38.5. In comparison, peers like Ganesha Ecosphere trade at a TTM P/E of 78.7. The company’s revenue from operations has grown by 2% year-on-year, while profits have increased by over 10% YoY.

The Polyester Staple Fiber (PSF) industry is expected to see strong growth, with the global market projected to reach US$52.4 billion by 2034, growing at an annualized rate of 4.7%. Additionally, the Polyester Filament Yarn (PFY) segment is expected to grow at a CAGR of 15-16%, with a projected market size of US$1.6 billion.

However, competition in this large market is intense. A key risk for the company is its heavy reliance on a single customer, “PV Fibers LLP”, which accounts for 88% of its total revenue. Losing this customer could severely impact the company’s financials. Moreover, the company is a price-taker in the industry with limited competitive advantages.

On the positive side, the company is leveraging its location and focusing on expanding into other states. It is also working on improving its capacity utilization for pellets, which is currently at just 17%. This is expected to significantly contribute to future growth. Overall, the company appears reasonably valued considering its growth prospects in the coming years.