Ganesh Poly looks undervalued: Ashish Chugh

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Ganesh Poly looks undervalued: Ashish Chugh

Ganesh Poly is looking undervalued at the current market cap, says Ashish Chugh, Investment Analyst & Author of Hidden Gems.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by Ashish Chugh See what other Experts & Brokerages are saying about Ganesh Ecospher See messages about Ganesh Ecospher BSE | NSE 01/01/70 Are Mutual Funds betting on ?

Ganesh Poly is looking undervalued at the current market cap, says Ashish Chugh , Investment Analyst & Author of Hidden Gems.

Chugh told CNBC-TV18, "Ganesh Poly is a micro cap stock. I would not even call it as smallcap stock. This is a company which is involved in manufacture of recycled polyester staple fibre which is also called fiberfill. The raw material for this fibre is pet bottle waste. This company has got two plants in Kanpur and Rudrapur with a combined capacity of 39,600 tonne per annum."

He further added, "This company is the second largest company in the country after Reliance making fiberfill. Reliance has got a capacity of about 42,000 tonne per annum for fiberfill. This company has got a capacity expansion going on of 18,000 tonne per annum, which will take it total capacity to 57,600 tonne per annum by March 2010 which would make it the biggest player in the industry in recycled polyester staple fibre (PSF)."

"The raw material for this stock is pet waste, which is available in plenty and which comes out to be much cheaper than the other raw material, which are used for the manufacturer of alternate fibre. Second thing is that fabric like cotton and wool have become rich man's fabric now because of the fact that the commodity prices are going up, so lot of manufacturers have started using PSF for manufacture of fabric. Lot of the companies where you got discount stores where you can get a readymade suite for close to Rs 3000 these people do not use wool or they do blend cotton with the fabric but they generally use PSF or acrylic fabric which comes out to be cheaper, so the product has got great applications going forward."

"This company has been on an expansion mode for the last 5 years. The capacity which was about 7.8 lakh tonne per annum in 2006 will go to 57,000 tonne per annum in March 2010. Company has been making profits for the past 5-6 years. They have not paid any dividend in the last 5-6 years mainly because of the fact that all the cash flows were used for expansion of capacity."

"In the recent communication to the Bombay Stock Exchange this company has mentioned that, this year they expect to do revenue of about Rs 190 crore, operating profit of about Rs 25 crore and profit after tax of about Rs 8 crore. The equity of this company is about Rs 10 crore which means an EPS of close to Rs 8 for FY10. Operating profit of Rs 25 crore for a company which has a market cap of about Rs 30 crore. Cash profit for this year can be anyway between Rs 14-15 crore, which means that you have a business which is available at roughly 2 - 2.5 years of its yearly cash flow. With the expanded capacity going on stream in March 2010, the financial year 2010-2011 is going to be even more better for this company. So at the current price you are getting this company at about 2 years of its annual cash flows and it looks undervalued at the current market cap."

Disclosure: Me and my family have investments in Ganesh Poly.