Ganesha Ecosphere Limited , a leading PET recycling company, reported a challenging first quarter, primarily due to unprecedented events that led to a spike in raw material prices. The company's management discussed the performance and outlook during their Q1 earnings conference call.

Raw Material Cost Surge and Production Impact

The company faced significant headwinds as raw material costs rose to 70.00% of revenue, up from 64.00% in the previous quarter. This surge was attributed to a sudden increase in demand for flakes, especially in overseas markets, leading to a substantial volume of flake exports from India in the last quarter.

The spike in raw material prices had a cascading effect on the company's operations:

• Production capacity utilization dropped to 95.00% from 99.00% in the previous quarter.
• The rPET granules business experienced a 25.00% decline in production and sales volume.
• The legacy Recycled Polyester Staple Fiber (RPSF) and yarn business recorded its lowest performance in several quarters.

Price Pressures and Market Dynamics

PET bottle scrap prices, a key feedstock for Ganesha Ecosphere's products, reached unprecedented levels of INR 55.00-56.00 per kg during April and May. The company was unable to fully pass on these cost increases to customers due to several factors:

• Overcapacity in the industry
• Suppressed demand from the user industry (yarn spinning and non-woven textile sectors)
• Cheaper fabric imports
• Uncertainty over U.S. tariffs on Indian imports

rPET Granules Business Performance

The rPET granules business, which is primarily regulation-driven, faced its own set of challenges:

• The mandatory use of rPET granules was implemented as scheduled from April.
• However, production and sales volume dropped by about 25.00% from the last quarter.
• Early onset of monsoon during mid-summer affected beverage sales, a key consumer of rPET granules.
• High PET bottle scrap prices resulted in a 35.00% to 40.00% premium in rPET granule pricing compared to virgin PET.

Regulatory Environment and Industry Response

The Ministry of Environment, Forest and Climate Change (MoEF) issued a draft notification on June 3, proposing that any shortfall in the mandatory usage of rPET can be made up over the next three years. This led to some brands slightly lowering their purchases of rPET granules.

Positive Developments and Outlook

Despite the challenges, the company reported some positive developments:

• Exports increased to 12.00% of revenue from 9.00% in the previous year.
• The company received good export orders for RPSF from the European market, benefiting from the depreciating rupee against the euro.
• Sale visibility for rPET granules until December has been finalized with existing customers, showing improved uptake by brand owners.

Financial Guidance and Future Plans

Ganesha Ecosphere maintains its revenue guidance of INR 1,500.00 crores and expects to surpass the previous fiscal year's financial numbers. The company has realigned its business strategy to address the new challenges and realities in the market.

Key future plans include:

• A brownfield expansion of 22,500 tons at Warangal, which will be operational as per schedule.
• Targeting a total capacity addition of 90,000 tons.
• Promoters have infused INR 104.00 crores by conversion of their equity warrants in July, reinforcing their commitment to the company's growth.

Conclusion

While Ganesha Ecosphere faced significant challenges in Q1 due to raw material price spikes and market dynamics, the company's management remains optimistic about future prospects. With strategic expansions planned and a focus on both domestic and export markets, the company aims to navigate through the current headwinds and capitalize on the growing demand for recycled PET products.

Ganesha Ecosphere , a leading recycled polyester staple fiber manufacturer, recently underwent a GST inspection at its Rampur facility in Uttar Pradesh. The company has reported that the inspection, which took place on July 17, concluded without any significant findings or disruptions to its operations.

Inspection Details

According to a disclosure made by the company under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the inspection was initiated by the Office of Additional Commissioner, Central Tax and GST, Commissionerate Meerut, Uttar Pradesh. The search operation was conducted at the company's factory unit located at GATA No. 112, Village Temra, Bilaspur, District Rampur, Uttar Pradesh.

Key Points from the Inspection

• The inspection was carried out based on a Search Authorization dated July 16.
• The search concluded on July 18.
• As per the search panchnama, no untoward incidents or behavioral issues were reported.
• No original documents were seized during the inspection.
• No official document was issued regarding any adverse findings.

Company's Statement

Ganesha Ecosphere has stated that they do not expect any impact on the company's financial position, operations, or other activities as a result of this inspection. The company's management has emphasized that normal business operations continued throughout the inspection process.

Additional Corporate Update

In a separate disclosure, it was reported that GPL Finance Limited, a promoter entity of Ganesha Ecosphere, has created a pledge on 10,25,000 equity shares of the company. This pledge, representing approximately 4.03% of the total share capital, was created on July 16, in favor of Axis Trustee Services Limited. The reason cited for the encumbrance was to provide collateral for loans taken to fund the conversion of equity warrants.

Conclusion

The swift conclusion of the GST inspection without any reported issues or document seizures is likely to be viewed positively by investors and stakeholders. Ganesha Ecosphere continues to operate normally, with no anticipated negative consequences from this regulatory visit. The company's proactive disclosure of both the GST inspection and the share pledge by a promoter entity demonstrates its commitment to transparency in its dealings with regulatory authorities and shareholders.