Shares of a plastic recycling firm look set for turning multibagger this year. As of November 24 closing, the stock has surged 80% this year against a 7% rise in the benchmark Sensex.
In intraday trade on November 25, the stock hit its all-time high level of ₹924.5.
We are talking about the stock of Ganesha Ecosphere. According to its website, the company is one of India's leading rPET (recycled polyethylene terephthalate) fibre manufacturers. It claims to have pioneered the manufacture of rPET fibre and rPET yarn from pre and post-consumer PET bottle scrap.
For the September quarter of FY23, the company registered total consolidated revenue from operations to the tune of ₹312.94 crore against ₹247.89 crore in the corresponding quarter last year.
Consolidated profit for Q2FY23 stood at ₹19.70 crore against 14.26 crore in the same quarter last year.
Even though the stock has jumped stupendously this year, analysts and brokerage firms expect a further rise in the stock in the medium to long term due to its healthy fundamentals.
Brokerage firm Antique Stock Broking, in its report on November 24, maintained a buy call on the stock and raised the target price to ₹1,180 from ₹910 earlier. The new target price implies a 29% upside in the stock price from its November 24 closing of ₹912.55 on BSE.
Antique met the management of Ganesha Ecosphere and visited its plant in Warangal, Telangana.
As per the brokerage firm, the key highlights of the visit were:
(1) The facility is expected to be commercialized during the second half of FY23.
(2) Received key approval of EFSA and USFDA for food grade B2B chips; other approvals are in progress.
(3) Global brand owner audits and assessments are in progress and are expected to be completed by Jan 2023.
(4) India's PET consumption is expected to grow at a 6% CAGR over FY21-30.
(5) PET use for food-grade packaging is expected to grow exponentially to 1 million MT by FY30 (currently nil) led by new Extended Producer Responsibility (EPR) regulations. Ganesha is eyeing lion's share in the category, said the brokerage firm.
The brokerage firm expects the company's south plant facility to be margin accretive as 50% of the products manufactured in the facility will have a superior margin than existing products, and due to the benefits from reduced logistical cost on account of sourcing raw materials from the south.
However, Antique has cut FY23 and FY24 earnings per share (EPS) estimates by 27% and 19%, respectively, citing a delay in the commissioning of the south plant.
Nevertheless, it believes that Ganesha is on the cusp of high profitable growth, after the south plant and expects FY23 EPS to be more than double by FY25.
"We strongly believe the successful ramp-up of the south plant will lead to continued re-rating of the stock. We raise target multiple to 18 times from 14 times, considering the sharp uptick in growth and RoE/pre-tax RoCE (11%/12% in FY22 to 21%/20% in FY25)," Antique said.
RoE stands for return on equity and RoCE stands for return on capital employed.
"We maintain a 'buy' with a revised target price of ₹1,180 (earlier ₹910) based on 18 times Sept'24 EPS (earlier 14 times FY24 EPS). Presently, the stock is trading at 11 times FY25E EPS (five-year low/high/average of 7/20/13 times)," said the brokerage firm.
Technical indicators show signs of fatigue
For the short term, however, some profit-booking is advisable considering the sharp run of the stock and signs of technical indicators.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers pointed out that Since Jan 2022, this counter has been witnessing a whopping return. It also has broken a swing high of ₹786 which was made on April 11, 2022.
"One thing which we can't ignore is that volume is not synced with rising prices which is an early sign of caution for traders and investors. (refer to the chart given below). On the indicator front, the weekly MACD is overstretched while the weekly ROC is facing resistance near 55-60 levels which is a sign of caution," said Patel.
"Fresh buying at the counter is not advisable at the current market price. One can book partial profits between ₹915-940," said Patel.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.
