Ganesha Ecosphe.

Ganesha Ecosphere reported a challenging Q2 FY26, with EBITDA margins compressing to 6.1% and net profits turning slightly negative. This underperformance was primarily driven by significant inventory losses of INR10-11 crores, resulting from sharp fluctuations in raw material (PET waste) prices. Prices surged from INR43-45/kg to INR55-56/kg before retreating to INR43-44/kg, while the company's average carrying cost remained around INR50/kg. Additionally, a MOEF draft notification proposing a carryover for mandatory recycled plastic usage shortfalls led to reduced purchases by the F&B industry, limiting rPET granule deliveries to only 70% of production and causing a 4% drop in selling prices across businesses.

The company's legacy business, comprising 65% of total revenue, is showing signs of recovery with strong order flows and resilient PSF market demand. Management anticipates an improvement in EBITDA margins for the legacy business to the 7-9% range during the December and March quarters of FY26, potentially exceeding 10% by Q4 FY26. In contrast, the B2B segment (35% of revenue) is expected to see sales and deliveries remain below expectations in Q3 FY26 due to ongoing uncertainty surrounding the final MOEF notification and seasonal slowdowns. However, a recovery in demand and deliveries is projected from January 2026, driven by increasing regulatory mandates for recycled content usage in FY27.

Ganesha Ecosphere's brownfield expansion at Warangal, adding 22,500 metric tons per annum (TPA) of rPET capacity, is on track to be commercially operational by end-March 2026. This expansion, which involved a capex of approximately INR130 crores, is expected to generate an annual revenue potential of INR225-250 crores. The greenfield expansion project, with an estimated capex of INR500 crores, has been slightly delayed due to the market conditions and is now expected to be operational by the end of FY27. The company reported an average capacity utilization of about 80% on a console basis in Q2 FY26 and expects rPET business capacity utilization to reach over 90% from March 2026 onwards.

The MOEF's draft notification, issued in June 2025, allows for the carryover of any shortfall in mandatory recycled plastic usage for FY26 over the next three years. This was a response to the user industry's concerns about insufficient available capacity (70,000 tons approved capacity vs. >200,000 tons demand in April 2025). While the final notification is still pending, expected within the next month, the existing 30% mandate for FY26 remains in effect if no new notification is issued. Industry-wide FSSAI approved rPET capacity has increased from 70,000 tons six months ago to about 210,000 tons currently, with Ganesha's own approved rPET food-grade capacity at 42,000 tons.

Currently, Ganesha Ecosphere's product mix is 65% from PSF, 20% from chips, and the rest from yarn. Following the completion of both brownfield and greenfield expansions, the product mix is projected to shift significantly, with chips contributing 65% and the remaining 35% from other businesses. The company is also developing premium fibers, such as flame retardant and antibacterial fibers, which are gaining traction quarter-to-quarter and are expected to yield good margins. These specialty fibers are primarily targeted for high-end industrial applications, including automotive, rather than mass-market consumption.