Ganesha Ecosphere

Ganesha Ecosphere Limited Instrument Amount (Rs. crore) Rating Action

Long Term: Fund Based Limits^ 196.70^ [ICRA]BBB+ (Stable)/ [ICRA]A2 /assigned

Long Term: Non-Fund Based Limits 1.30 [ICRA]BBB+ (Stable)/ assigned

Short Term: Fund Based Limits 5.00 [ICRA]A2/ assigned

Short Term: Non-Fund Based Limits 10.00 [ICRA]A2/ assigned ^Long Term Fund Based limits are interchangeable with Short Term Fund Based limits to the extent of Rs. 23.00 crore and in case the limits are availed as short term facilities, the short term rating will be applicable. The overall utilisation by way of long term and short term fund based limits cannot exceed Rs. 196.70 crore. ICRA has assigned the long term rating of [ICRA]BBB+ (pronounced ICRA triple B plus) to Rs. 196.70 crore

* fund based and Rs. 1.30 crore non-fund based bank limits of Ganesha Ecosphere Limited

(GEL). The outlook on the long term rating is Stable. ICRA has also assigned the short term rating of

[ICRA]A2 (pronounced ICRA A two) to Rs. 5.00 crore fund based and Rs. 10.00 crore non-fund based bank limits of GEL. The long term fund based limits can also be availed as short term fund based limits to the extent of Rs. 23.00 crore for which the short term rating will be applicable. The assigned rating takes into account GELs leading position in the domestic Recycled Polyester Staple Fiber (RPSF) industry and its comfortable financial profile. GEL is the largest domestic manufacturer of RPSF with an installed capacity of 87,600 MTPA which results in operational efficiencies on account of economies of scale. Moreover, GELs wide product range and forward integration into yarn spinning increases the value addition, which has resulted in steady profitability over the years. Despite the regular expansion of RPSF capacity, GEL has been able to maintain satisfactory capacity utilization on account of an established clientele and sourcing network for PET waste which has been developed over the last two decades and has been able to support the companys increasing scale of operations. While GEL has incurred a large debt funded capital expenditure of ~Rs. 175 crore over the last two years towards capacity expansion and forward integration into spinning, the financial profile has remained comfortable on account of regular equity infusion, satisfactory capacity utilization and steady profitability which has kept the profits and accruals adequate in relation to the debt servicing obligations. Moreover, with completion of the capital expenditure program, no major capital expenditure proposed over the medium term and ongoing debt repayments, the term loans are expected to decline. The rating is however constrained by the susceptibility of GELs profitability to the volatility in the virgin PSF prices, particularly in a declining price scenario, as while the RPSF realizations are at a discount to the virgin PSF prices, which are in-turn driven by crude oil and cotton prices, whereas GELs raw material (PET waste) cost is driven by its own demand supply dynamics. With the recent decline in crude oil prices and hence virgin PSF prices, the prices of RPSF have also seen significant decline; ability of GEL to secure reduction in raw material procurement costs will remain critical for its profitability margins. Moreover, the demand and profitability of the RPSF manufacturers is also vulnerable to change in the excise duty structure on RPSF as increase in the concessional rate of excise duty currently levied on RPSF (2% without CENVAT) to the levels similar to that on virgin PSF (12%) will adversely impact the price competitiveness of RPSF.

* 100 lakh = 1 crore = 10 million

For complete rating scale and definitions, please refer to ICRAs website www.icra.in or other ICRA Rating

Publications.

Given the recent increase in GELs RPSF capacity by 21,000 MT in December 2014 and large scheduled debt repayments on account of the large debt funded capital expenditure incurred over the last two years, ability to sustain the utilization levels by ensuring regular availability of PET waste bottle at competitive prices in the backdrop of increasing domestic recycling capacity and maintain the contribution margin will be critical to generate adequate accruals to maintain the financial profile. In addition, timing, scale and funding mix of any new capital expenditure program or deterioration in the working capital cycle will be drivers of the debt levels and thereby GELs financial profile; and thus will be key rating sensitivities. Recent Results In 9M FY 2015, GEL reported an operating income of Rs. 458.59 crore and operating profit margin of 10.1% as against an operating income of Rs. 340.79 crore and operating profit margin of 10.6% in 9M FY 2014. The operating income has increased on account of increase in the capacity of recycled PSF by 9,000 MT and commissioning of the in-house spinning unit with an installed capacity of 25,920 spindles in November 2013. Company Profile GEL was incorporated in October 1987 as Ganesh Polytex Limited and the name of the company was changed to GEL w.e.f. October 2011. GEL commenced production in FY 1988 with texturizing and dyeing of polyester filament yarn at its manufacturing unit in Kanpur (Uttar Pradesh) with an installed capacity of 391 MT per annum (MTPA). In FY 1995, GEL diversified into manufacturing of recycled polyester staple fibre (RPSF) from PET waste bottle with an initial capacity of 6,000 MTPA in Kanpur. Over the years, the company has expanded its texturizing and RPSF manufacturing capacities and has also forward integrated into manufacturing of spun yarn from RPSF. As on December 31, 2014, GEL had a total installed capacity of 2,400 MTPA of texturizing in Kanpur, 87,600 MTPA of RPSF in Kanpur, Bilaspur (Uttar Pradesh) and Rudrapur (Uttrakhand) and 7,200 MTPA of spun yarn (25,920 spindles) in Bilaspur.

March 2015 For further details please contact: Analyst Contacts: Mr. Rohit Inamdar (Tel. No. +91-124-4545847) [email protected] Relationship Contacts: Mr. Vivek Mathur (Tel. No. +91-124-4545310) [email protected]

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Ganesha Ecosphere

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