Ganesha Ecosphere Limited (514167) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ganesha Ecosphere Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar. Thank you, and over to you, sir.

Thank you, Athar. I'm pleased to host today's earnings call of Ganesha Ecosphere. From the management, we have Mr. Gopal Agarwal, CFO; Mr. Prashant Khandelwal, Senior Vice President; and Mr. Yash Sharma, Director, Ganesha Ecopet, on the call. Without any delay, I would like to invite Mr. Yash Sharma to start the opening comment, post which we will move to Q&A. Thank you, and over to you, Yash.

Thanks a lot, Manish, and good afternoon to everyone, and we welcome you to our earnings conference call for the first quarter of FY '27. We would like to take you through our Q1 FY '27 numbers, along with the key developments of our company. The first quarter of FY '27 has been marked by a complex and rapidly evolving market environment. The global geopolitical developments, particularly the tensions in the Middle East resulted in a heightened volatility in the crude oil prices as well as the downstream polymer markets. This has had a significant impact on the broader polyester value chain, affecting the demand patterns, the pricing dynamics as well as the customer procurement decisions across several end use industries. Despite continued volatility in the external environment, I am pleased to say that the company has achieved another strong quarter of very strong operational and financial results, and we are hopeful in maintaining the momentum going forward as well. At the consolidated level, the production reached 42,826 tonnes, up 3.8% quarter-on-quarter, driven by a strong performance from the subsidiary businesses. However, a 11.2% drop in the sales volume has offset some of the gains, resulting in a flatter top line. Despite this, the EBITDA we have achieved is INR 59.8 crores and the bottom line of INR 29.03 crores and have registered a sequential growth of 14.2% and 25.1%, respectively. EBITDA margins have improved consequentially to 14.1% from 12.4% and the PAT margins have improved by 138 basis points. This is a tremendous improvement across all our financial matrices over the corresponding last quarter. In the standalone business, there is a slight impact on production volume with the sales volume down by 13.4% from Q4 FY '26, which we also highlighted in the last con call. This was primarily due to the normalization of the elevated demand experienced in the previous quarter, softer demand from the textile sector. Higher fiber prices prompted downstream customers to defer purchases, which adversely impacted the volumes. Nevertheless, the improved realizations and the margins have more than offset the decline in volume, resulting in a stronger financial outcome. EBITDA has increased by 13.7% sequentially to INR 23.8 crores. Other income has declined to INR 3.52 crores from INR 9.86 crores due to the discontinuation of the interest income followed by the conversion of subsidiary loans into equity at the end of the last quarter. The decline in interest income resulting from the conversion of loans in the subsidiaries into equity weighed on the PAT despite higher stand-alone EBITDA. On Y-o-Y basis, revenue has increased by 18.4% and EBITDA has increased by 155.9%. Net profits are up by 79.4%. We are pending the FSSAI approval for the food-grade latest line that we have installed, which is 22,500 tonnes facility at Warangal. It has already commenced production and is currently catering to the export markets as well as the domestic nonfood applications. Another production line of 22,500 metric tons is underway. With these expansions, company's operating leverage is going to improve substantially and thereby enhancing our ability to sustain and even potentially improve the operating margins. Global uncertainty seems to have absorbed by the broader market and the demand of fiber is also now reviving quite well. Going forward, we think both the standalone, which is textile business as well as the subsidiary businesses are going to go well and are quite well on track. This reinforces our confidence in achieving the targets and guidance shared during our previous calls. Alongside the ongoing brownfield expansions, the company is actively evaluating and planning the future expansion opportunities to sustain our long-term growth trajectory as well. With this, I open the floor for the questions which you may have. Thank you.

[Operator Instructions] The first question is from the line of Dheeraj Ram from 360 ONE Capital.

Congratulation for a great results. So a series of questions, sir, do you expect this subsidiary business, which has significantly...

Your voice is not clear. It is very, very low.

Can you hear me, sir? Can you hear me now?

Yes, yes, we can hear, yes.

So a series of questions, sir, do you feel this EBITDA per kg improvement that you have seen in 1Q is going to sustain for FY '27? Can we expect an EBITDA per kg around 22 plus?

Yes. So Dheeraj, as we already commented with the expansion of brownfield capacity in Warangal, our operating leverage are going to improve substantially. And so we are quite hopeful to maintain the EBITDA margins which we have achieved going forward also.

Okay. And since we are putting up a capacity of 1 lakh tonnes, which is an additional 60,000-odd tonnes. So do you see any demand softening? Or do you expect any softer demand post-commissioning? Or do you feel that the capacities are already booked? How is the customer response to this?

Yes. So see, as of today, we don't see any demand issues as such. To be honest, we have a very good optimism in the market regarding offtake of our rPET material. Since the mandate of the government is now there, more and more adoption of rPET is constantly increasing. I would say there's still a very high room for the demand to grow from here. And as of today, we don't see any -- to be honest, any challenges in the demand of the rPET because even today, the demand of rPET is much higher than the supply.

Got it. And on the standalone side, sir, there is a slight volume degrowth, but that has been offset greatly by improved realization and then EBITDA per kg has improved to INR 9. Do you see this INR 9 to INR 10 EBITDA per kg sustaining for the standalone segment for the entire year?

So basically, Dheeraj, we have given the guidance of about INR 70 crores to INR 80 crores EBITDA for the full year. So it is around INR 7 to INR 8 a kg.

Got it. And do you feel any normalization going forward for the next quarters?

So Dheeraj, actually the price volatility are much in case of the raw materials as well as the finished good prices in our industry. So giving any short-term guidance is actually not feasible or practical. But going forward, we are quite hopeful to achieve whatever the guidance we have given last quarter for the full FY '27. So we are quite hopeful to achieve that.

Got it. Understood. Okay. Just last question, sir. If we have not got FSSAI approval notification, so for the additional 22,500 tonnes line also, is the FSSAI approval done, and I mean, have we started commercial production?

So hi, Prashant this side. So for this, the application has already been submitted with FSSAI long back once we have done the trial production and all documentary audits has been completed by FSSAI. Now only the physical audit is pending, which we are expecting to be completed in this month. So by the end of the month, we will certainly get the approval of FSSAI. And for the time being, the line is running for export market where FSSAI approval is not required. EFSA and USFDA approvals already we have for that line. So for export and non-food grade, those material are being utilized.

Understood. And just a follow-up question on this. Do we see any similar FSSAI approval delays? Or can there be any potential delay for the upcoming lines?

No, no. So it is a procedural way to complete this. And during last month, there was a substantial change in FSSAI official, including CEO. So that has delayed a little bit of the files moving. But now I don't think that there is any issue in approval of this. A procedural work of 1 to 1.5 months would be there for every line.

We have the next question from the line of [ Disha ] from Sapphire Capital.

Couple of questions. So sir, I think the previous caller had given a guidance of around 20% plus CAGR. If you could just break this down into how much of volume growth will we be expecting this year versus the realization growth?

So I couldn't get -- can you please come again?

So, this 20%, I think 20% plus growth that we guided for in terms of the revenue, how much of this are we expecting for volume and how much of this will be driven by realization for this entire year?

So we are expecting it in volume terms.

Okay. So this 20% growth is entirely volume?

Yes, yes. Because the business -- the sales prices are actually quite volatile. So we measure, we gauge the growth in terms of the volumes.

Okay. And how should we look at the price growth, sir, for this year? Any -- if you could provide any sort of broad range?

See, I think it's very difficult to comment on that because, you see, our prices are determined by the petrochemical prices, the polymer prices, the feedstock prices, there is a volatility of about 20-odd percent in the last 3 to 6 months time frame itself. So it's very difficult to predict anything on that. It doesn't make any sense.

Okay, sir. But in terms of demand, you're not seeing any problem?

No, no. Demand -- so obviously, in first quarter, we faced a little bit of demand challenges from the textile industry. But now I think that has again come back to good trajectory and textile industry since the pipeline was very, very low and empty, but now the textile industry is going quite decently well. So again, demand is back on track.

And the next thing, sir, on the sourcing, what sort of -- are you seeing any challenges currently? What should be the current scrap price, if you could just give me that number?

The current scrap price in the range of INR 48 to INR 50.

Sorry, INR 48 to INR 50, correct?

Yes.

And we don't see any challenges in sourcing now?

So basically, we are looking for delta. So the prices are going up and going down in case of RM as well as finished goods, but we are looking for our delta. So that's quite decent.

Okay, okay. And sir, what will be the -- what is the total CapEx that is planned for this year and what is the CapEx that you are targeting for the next year?

So this year, we are going to install another line of 22,500, so there is around INR 150 crore CapEx outlay is there planned for that, out of which most of the CapEx has been done. The CapEx will be done over next 2 to 3 months.

It is done, sir? Hello?

Yes. So most of the CapEx has been done till now for that line and some of the CapEx -- the remaining CapEx will be done in next 2, 3 months when the line will come through.

Yes, I was just asking if you could give me a number as to how much we've already spent?

So almost 60% we have already done.

Okay, okay. And for the next year, sir?

Next year, we are finalizing the next year expansion plans, and we will come back on that.

The next question comes from the line of Navneet Saluja D'Souza from Complete Circle Wealth PMS.

Congratulations to you all for a good operating performance during this quarter. I just wanted to know, are we looking to revisit the guidance that we had given for FY '27 in terms of EBITDA of INR 225 crores to INR 250 crores? And also if you could give us a mix of it, how much of this would come from legacy and how much would come from subsidiaries?

So our guidance is intact. We have guided for the INR 225 crores to INR 250 crores EBITDA for FY '27 that we intend. And out of which INR 70 crores, INR 80 crores will come from our legacy business and the remaining will come from our subsidiary business.

Okay. So the larger chunk and will this trend continue in the coming years as well?

Yes. So going forward, the mix will be tilted in favor of our subsidiary business. So because we are increasing the capacity of our subsidiaries, the EBITDA margins will be improving for our business.

Sure. One follow-up question. I think in the previous answer, you all had mentioned that textile demand is getting back on track. On back of that, will quarter 2 see better volume numbers coming from the legacy business?

Certainly, we are expecting that there's a better volume in the current quarter.

So are you seeing the trends of that already?

Yes, it has started already, yes.

We have the next question from the line of Dolly Choudhary from Niveshaay.

Congratulations on good set of numbers also. So I had a few questions. First of all, I was trying to understand one thing that I was just seeing that we generally keep 2, 3 months of inventory, please correct me if I'm wrong. So did we saw any kind of inventory gain also this quarter because like the prices went up from January to maybe May, June for this quarter. So for Warangal numbers specifically, did we saw any inventory gain?

Yes, Dolly. So basically, there is a very high price volatility during last few months. So certainly, we got some inventory gain also in these numbers. But the prices are very volatile, and so working out any exact number is not possible.

So like to mitigate this, are we like -- are we still maintaining 2, 3 months of inventory or are we still following the same procedure? I mean, we may get benefit for this quarter...

Yes. So when we are talking about the inventory 2, 3 months, so basically it is a finished goods as well as the raw material both. Both are there. So yes, so it is need of our business, we have to maintain about 2 to 2.5 months inventory anytime.

And sir, any update on approved FSSAI capacity as you have mentioned in your presentation also, 15 lakh demand is there and 40% to 50% recycling demand is coming due to the mandate. So 2 things I wanted to understand on the, first of all, customer side, how much penetration did we saw? Like I don't think it must have reached like 40% yet. So any number on, like, if you can quantify, like, in terms of industry, like, maybe 2.5 lakh, 3 lakh demand is coming and what are the approved capacities, if you can highlight that number?

Yes. So see, according to our basic data collection, obviously, it's not verified or exact data, but the tentative numbers that we have from the market intelligence is that currently, we are running at about 20% to 25% adoption currently. And that is because, obviously, the global brands, the global buyers, they are trying to follow the compliances, whereas still the regional players, they are still catching up, start using more and more rPET. This just started very slow. So I think today, the average we are at about as a country is between 20% to 25%. So -- but still what is happening is that the supply -- demand and supply today are almost, I would say, kind of at par because the supply is today is at about -- the capacity is at about 4.2 lakh tonnes. But obviously, because what happens is that people are not able to run the -- everyone is not able to run the plant so efficiently that we are able to. And so the actual output doesn't end to be the same number, right? So because of that, today, the demand and supply almost kind of matched up.

Got it. Got it, sir. So like if I just kind of try to get an overview like past 1 year, 2 year as, like, Ganesha as a company has a mode of that side also that there was a demand supply gap huge. So like current CapEx we did for this year. But for, like, next year, in our evaluation stage of CapEx for maybe financial year '28, '29, are we still going to expand in rPET only, or are we seeing new categories of recycling or other sectors as CapEx also as a company?

No, for the time being, we are focusing on rPET business, but certainly, we are looking for other recycling revenues after 3, 4 years time frame.

We have the next question from the line of Bharat Gulati from Dalal & Broacha.

I just had a question regarding the sequential degrowth we've seen in our subsidiary volumes. What is that -- is that purely to do with seasonality? Or is there some other element behind that?

There's a very slight decline in volume of subsidiary business. The decline in volume is basically in our legacy business.

I see there's a 7% decline Q-o-Q on the subsidiary business and the standalone has grown -- degrown 13%. So understandable that the degrowth is not significant, but just trying to understand the reason behind it. Is it purely to do with seasonality? And should we -- what should we expect the run rate going forward on a sequential basis? Do we expect similar sort of volume growth flattish or should we see sequential...

That is because of our fiber business. And then because of our fiber business, the prices has gone up really very, very high. So some -- so the downstream buyers choose to defer the purchases. And so that is the one-off. I think it is not persistent. So in the current quarter, the sales have been revived.

Okay. Got it. And just can you give a sense of what sort of realization should we continue to see within our subsidiary business going forward? Should these be similar sort of realizations that we should continue to bake in? Or do you see them sort of settling down as the supply-demand situation has sort of neutralized now?

So see, in this, you should actually not really look at the realization number because, again, reiterating what I said before, the industry is in a very volatile situation right now because of the oil prices moving so radically up and down, the polymer prices are also moving radically up and down, which includes our rPET prices, our fiber prices, and there's a huge volatility that is happening on a month-on-month or week-on-week basis. So we would rather -- I would rather like to reiterate that what we are aiming for is to maintain healthy EBITDA numbers in our both legacy as well as subsidiary businesses. In the subsidiary businesses, we are looking at a much better improved combined EBITDA margin range as we have guided before. So we'll be able to meet that or maybe slightly better. But that's what we are aiming for rather than for the exact realization number. It can go up, it can go down.

So you believe that this sort of EBITDA per kg of INR 24 on the sub business is something we should continue to maintain going forward?

So see, not exactly. We have guided that at combined EBITDA level, we are aiming for EBITDA between 16 to 20 at a combined level in the subsidiary business. That's what we are aiming for in the long term.

Got it. Got it. And just can you help understand what sort of utilization levels are we targeting to hit in the Warangal facility by the end of this year? If we are currently at 72%, so where do we see that -- obviously, I understand that new capacities will come. I'm trying to understand on the 64,500 MTPA capacity, where do we see that...

See, on overall basis, we are looking at about 85% capacity utilization by the end of this year.

So this would be at a 1 lakh tonne capacity we are looking at about 85%?

No, no, no. So basically, currently, we are having the 64,500 tonne capacity and our next capacity will come in December, January only. So we are talking about the current capacity.

Got it. So about 55,000 tonnes is where we are hoping to be at in terms of production level. So that'd be fair to say?

Correct, correct. Correct.

We have the next question from the line of Avnish Burman from Vaikarya Investment.

Yash, a couple of questions. One is a follow-up on the previous participant. You mentioned that the current capacity is 4.2 lakh metric ton. I'm assuming it's the nameplate capacity, is that right?

Right, right, Avnish.

Okay. And by FY '27 end, let's say, what is your estimate of how much this nameplate capacity can grow up to?

By FY '27, we are roughly -- by end of this year, it would ramp up to 250,000 tonne.

So total nameplate capacity, Avnish, of rPET between around 5.2 lakh tons to 5.5 lakh tons.

5.5 lakh metric ton. Okay. And when you say that in today's scenario, the supply and the capacity are matched, this is at a 20% to 25% adoption, right?

Yes, against the government mandate of 40%, yes.

That's right. So by again, FY '27, I'm just trying to get an idea about what will be -- will there be a supply-demand mismatch or this will again be kind of matched by FY '27 end? So from your...

I think now the industry has started maturing quite a bit and the supply and demand is going to grow quite well hand-in-hand. At the end of the year, we will see how is the industry really looking to increase the usage of rPET. So -- and we are increasingly hearing that from our current customers as well as new customers regarding the expanding demand on a daily basis. So I think that now the rPET capacity is coming in and the demand expansion will go hand-in-hand quite a bit, yes.

Understood. That is clear. One more question about the new line. When you get the FSSAI approval because it's a new line, I'm assuming that the stability batches would be needed, right?

So the line is already running for export market. So I don't think there would be any issue. The material is well established on the line. And as soon as we get the approvals, it is ready for the Indian market as well.

Okay. Okay. So as soon as you get the approval, you can start commercializing for the domestic market? This is what I'm...

And it has already commercialized for export market.

So the stability has also happened parallelly, Avnish, like along with the FSSAI approvals coming in, the stability has also happened already parallelly. And they are already -- in fact, they are all already complete. So we are just awaiting.

Understood. And you have no idea about the time line of FSSAI approval or did you mention it in the call, I might have missed it?

So it must be done in this month only because initial stage of documentary audit has been done as per FSSAI. So I think the final physical audit has to happen for that line, which should be planned in this current month and after post that, we should get the final approval. So we are expecting this month.

Understood. And last question, Gopal ji, this subsidiary sales volume of 14,800, can you just break it down into B2B and filament yarn. I'm just trying to see whether a major ramp-up in filament yarn volumes has taken place or not?

So Avnish, basically, we don't give the breakup of the volume because of specific reasons.

Okay. Okay. That's fine. So fair to assume that this improvement in EBITDA of INR 22 to INR 24 is not really driven by filament yarn ramp-up, but more driven by inventory gains?

It is because of both.

The next question comes from the line of Harsh Vidhani from India Capital.

Congratulations on good set of results. I just wanted to get your perspective on long-term goals for rPET. What are the long-term aspirations in terms of rPET and how much -- what is your 3-year outlook on rPET, and what is the possible market share that we can corner?

So see, in long-term planning perspective, what we are foreseeing is that the industry of rPET capacity, the industrial market, is going to grow to about 10 lakh tons by 2030 and we are targeting to capture around 25% market share of that capacity of that market.

Understood, sir. And sir, how has been the off-take for the other subsidiary businesses that is rPET, filament yarn, and RPSF?

So see, RPSF business, we are already quite mature in that. We already have a capacity, a very high capacity of about 10,000 metric tons in RPSF. So currently, we are not planning to grow that capacity as such. I think it's quite good today in the mature market that would probably grow at about a very standard 3%, 4% to 5% growth according to the industry demand dynamics. What we are doing in rather is we are investing and we are building a more wider basket and value-added functional fibers portfolio increasingly in our product basket to improve the value addition and the realization and the net margins of the product that we are selling today out there in the market today. So that's what we are working on in the RPSF as well as the filament segment.