Executive Summary / Key Takeaways

• Technology Validation Meets Commercialization Inflection: After five years of operating its Terrebonne facility, Loop has proven its depolymerization technology at pilot scale, but the investment thesis now hinges entirely on executing its first commercial facility in India—a project that management claims could generate $8 per share in value per plant.

• Asset-Light Licensing Model De-Risks Global Expansion: The December 2024 deal with Société Générale (€20M upfront, 10% equity stake) demonstrates a capital-efficient path to scaling in high-cost regions, while the India JV (50% ownership, 5% royalty) targets 35% unlevered IRRs by leveraging low-cost manufacturing, creating a two-tiered global rollout strategy.

• Exceptional Unit Economics vs. Brutal Funding Reality: The India facility's projected $70M EBITDA on $176M total investment translates to approximately 2.5x EBITDA multiple and approximately 2.5-year payback, but Loop faces a $15M funding gap for its equity contribution with only $9.8M in liquidity and a $15M ATM program that management explicitly calls "the last thing we want to do at this stage."

• Modularization as Potential Game-Changer: Building plant modules in India for global assembly could cut capex by 50% versus stick-build construction, addressing the primary barrier to scaling chemical recycling, but this remains an unproven strategy with no revenue contribution yet.

• Execution on India Facility is the Binary Variable: With groundbreaking now pushed to end of FY2026 and commercial operations not expected until calendar 2027, the next 24 months will determine whether Loop captures a meaningful share of the $20B+ monomer market or remains a pre-commercial science project burning $1M+ per month.

Setting the Scene: From Pilot Plant to Global Licensing Play

Loop Industries, founded in 2010 and headquartered in Terrebonne, Canada, spent its first decade proving a simple but powerful concept: waste PET plastic and polyester fiber could be depolymerized into virgin-quality monomers (DMT and MEG) at low temperature and pressure, then repolymerized into food-grade packaging and textile fiber without quality degradation. The Terrebonne facility, operational since 2020, served as both a demonstration plant and R&D lab, validating the technology but generating minimal revenue—just $153,000 in fiscal 2024.

The company operated in a classic pre-commercialization purgatory: burning cash, raising equity, and promising scale that never materialized. Previous attempts at commercialization, including a canceled joint venture with SK Geo Centric (SKINY) in South Korea, ended in failure. Management's explanation reveals a strategic pivot that defines the current investment case: "Korea is a very high-cost manufacturing country. We do not want to deploy significant amounts of capital into those regions. We would prefer licensing the technology in those regions." This wasn't just a post-mortem; it was the birth of a new capital allocation philosophy.

The PET recycling industry sits at a critical juncture. Mechanical recycling, which dominates 90% of the market, faces deteriorating feedstock quality and limited cycles before downcycling. Virgin PET production remains tied to fossil fuels. Meanwhile, regulatory mandates for recycled content are tightening globally, and major brands face mounting pressure to deliver textile-to-textile recycling solutions. Loop's chemical depolymerization technology addresses these pain points directly, but the company must now prove it can deliver at commercial scale profitably.

Technology, Products, and Strategic Differentiation

The Core Technology: Low-Energy Depolymerization

Loop's Infinite Loop process uses glycolysis to break down waste PET into DMT and MEG monomers at temperatures below 85°C without added pressure. This matters because it enables processing of highly contaminated feedstock—colored bottles, textile waste with dyes and additives—that mechanical recycling cannot handle. The output is chemically identical to virgin petroleum-based monomers, creating drop-in replacements that require no customer facility modifications.

The technology's simplicity is its moat. As CEO Daniel Solomita notes, "It's basically reactors, filters and distillation columns. The technology lends itself very well to scale." Unlike competitors' processes that require high temperature and pressure, Loop's method consumes less energy and avoids unwanted side reactions, improving yield and purity. This translates to a cost advantage: the core technology component for a 70,000-ton facility is $95 million, or $0.61 per pound of capacity—what management claims is "by far the lowest cost of the industry."

Product Portfolio: From Monomers to Branded Resins

Loop's product strategy has evolved from selling commoditized PET resin to branded, premium solutions. The Twist brand, launched in Q2 FY2026, positions Loop's circular polyester resin specifically for the textile-to-textile recycling market—a segment representing 66% of the 90-million-ton global PET market. This matters because it moves Loop up the value chain from intermediate chemical supplier to branded material provider, supporting pricing power.

The monomer business model itself is a strategic differentiator. By selling DMT and MEG directly rather than polymerizing them into PET, Loop eliminates 40% of capex (the polymerization section) while addressing a $20B+ market for intermediate chemicals. Management estimates a 15% sustainability premium is applicable, with virgin DMT at $1,950/ton and MEG at $835/ton. The India JV will produce 70,000 tons of DMT and 23,000 tons of MEG annually, generating an estimated $8 million per year in royalty revenue for Loop plus its 50% share of profits.

Modularization: The Potential Scale Accelerator

Loop's modular construction strategy—building plant modules in India for global assembly—could reduce capex by 50% versus traditional stick-build construction. This addresses the single biggest barrier to scaling chemical recycling: capital intensity. If successful, modularization would enable rapid facility rollout in Europe and North America while maintaining cost competitiveness. However, this remains conceptual; no modular facilities have been built, and the strategy introduces execution risk around logistics, quality control, and local assembly.

Financial Performance & Segment Dynamics

Pre-Commercial Reality: Minimal Revenue, Controlled Burn

Loop's financials reflect its development-stage status. For the six months ended August 31, 2025, total revenue was just $252,000—up 769% from $29,000 in the prior year, but entirely driven by $244,000 in engineering fees rather than product sales. Sales of PET resin collapsed to $8,000, down 72% year-over-year. This is not a growth story; it's a company transitioning from R&D to commercialization.

The income statement shows disciplined cost control. Research and development expense fell 47% to $2.2 million for the six-month period, while general and administrative expenses dropped 36% to $3.5 million. Management has guided full-year head office spend down to $10 million from the previous $12 million run rate, with the engineering function becoming a "cost recovery/profit center." This demonstrates capital discipline, indicating Loop is not burning cash indiscriminately while awaiting commercialization.

Net loss narrowed to $6.7 million for the six-month period from $10.0 million prior year, but the company remains deeply unprofitable. Interest expense of $658,000 from the Series B Convertible Preferred Stock (issued to Reed Management) adds to the cash burn, which totaled $5.6 million in operating cash outflow for the period.

Liquidity: Tight but Sufficient for Near Term

As of August 31, 2025, Loop had $7.3 million in cash and $2.5 million in undrawn credit facility, totaling $9.8 million in liquidity. Management asserts this is sufficient for twelve months, but the math is tight. Quarterly cash burn has been running at $2.8-3.1 million, implying the company reaches a funding wall by mid-2026—just as the India facility requires equity contributions.

The $15 million ATM program, initiated in July 2025, has $14.8 million remaining capacity, but management explicitly states issuing equity at current prices is "the last thing we want to do at this stage" because "this is the financing that's going to affect our future valuations." This creates a clear tension: Loop needs capital but is reluctant to dilute shareholders, putting pressure on accelerating engineering and licensing revenue to fill the gap.

Segment Performance: Licensing as Near-Term Lifeline

The Technology Licensing segment generated $10.4 million in Q4 FY2025 from the Reed Management deal, representing the first meaningful revenue in company history. This upfront payment, plus expected €10 million in milestone payments and ongoing royalties, provides a template for future deals. The Engineering Services segment contributed $244,000 in H1 FY2026, with a $1.5 million contract signed with the India JV in June 2025. Management anticipates engineering services could cover "back-office expenses for several years" once the European project finalizes.

The Joint Venture segment currently shows losses—$345,000 in H1 FY2026—as the India JV incurs preliminary project costs. This is expected; the value creation begins when operations commence in 2027.

Outlook, Management Guidance, and Execution Risk

India JV: The Make-or-Break Project

The Infinite Loop India facility represents the central pillar of Loop's commercialization strategy. The 50/50 joint venture with Ester Industries targets production of 70,000 tons of PET resin and polyester fiber annually, with groundbreaking now expected by end of FY2026 and commercial operations in calendar 2027. The total investment is estimated at $176 million, with Loop's equity contribution in the $25-30 million range.

Management's economic model is compelling: $70 million in annual EBITDA, of which Loop's 50% share is $35 million. After $11 million in interest, $8 million in depreciation, and 25% taxes, Loop's net income from the JV would be approximately $12 million. Adding the $8 million royalty ($6 million after-tax) and subtracting $3 million in financing costs for Loop's equity raise yields $15 million in net income per plant. On 50 million shares, this implies $0.30 EPS per plant. Applying a 16-17x P/E multiple (appropriate for a cyclical chemical business) suggests $4.80-$5.10 per share in value per plant. Management's $8/share estimate is aggressive.

The funding gap remains problematic. Loop has secured commitments from Reed Management and a Quebec government entity, but faces a $15 million shortfall. The company is banking on accelerating engineering revenue from the European project and potential Indian bank debt syndication by KPMG to bridge this gap. If successful, Loop avoids dilutive equity issuance; if not, the ATM program becomes the fallback.

European Licensing: The Asset-Light Template

The Reed Management partnership provides a blueprint for expansion in high-cost regions. Loop received $10.4 million upfront from the Reed Management partnership, part of a deal valued at €20 million that also includes additional milestone payments and a 10% equity stake in Infinite Loop Europe, with the facility to be built using modular construction. This model limits Loop's capital exposure while retaining upside through royalties and equity participation. Management sees "a lot more potential projects" for licensing, particularly as modularization reduces plant costs for Western markets.

The risk is that European projects move slowly. Management notes "signing off on contracts is taking sometimes a little bit longer" due to inflation and internal approval processes. The European facility is still in site selection and government subsidy negotiation phases, with engineering revenue not expected until late 2025 or early 2026.

Strategic Alliances: Building the Ecosystem

Loop's partnerships with Shinkong Synthetic Fibers and Hyosung TNC expand distribution for the Twist brand in Asia's textile markets. These tolling agreements, where Loop supplies resin and partners convert it to fiber, create a capital-light path to market penetration. The multi-year offtake agreement with a leading sports apparel company for Twist resin, signed in September 2025, provides customer validation but is contingent on the India facility becoming operational.

Risks and Asymmetries

Execution Risk: The First Commercial Plant Problem

The single greatest risk is Loop's inability to deliver the India facility on time and on budget. This is a company that has never operated a commercial-scale facility. The India project involves complex coordination: land acquisition in Gujarat, equipment procurement (with 8-month lead times), construction in a new geography, and commissioning of a continuous polymerization line. Any delay pushes cash flow generation further into the future, potentially forcing dilutive equity raises at depressed prices.

The modularization strategy, while promising, is unproven. Building modules in India for European assembly introduces logistics, quality control, and regulatory approval risks that could erode the projected 50% capex savings.

Funding Risk: The Liquidity Tightrope

Loop's $9.8 million in liquidity covers approximately one year of operations at current burn rates, but the India JV requires $25-30 million in equity contributions. Management's reluctance to use the ATM program is prudent but constrains options. If engineering revenue or European milestone payments are delayed, Loop faces a binary outcome: secure alternative funding (government grants, strategic investors) or dilute shareholders significantly.

The Series B Convertible Preferred Stock issued to Reed Management carries an 11.90% PIK dividend, adding $681,000 in annual interest expense and creating a future overhang if converted to equity at $4.75 per share.

Customer Concentration and Market Risk

Loop's revenue model depends on a limited number of offtake agreements. While the sports apparel company and Taro Plast S.p.A. provide some customer diversification, the company remains dependent on securing additional long-term contracts to ensure plant utilization. The 15% sustainability premium is theoretical; actual pricing will be determined by market conditions at startup in 2027.

The global DMT shortage, caused by European plant shutdowns, supports near-term pricing, but new capacity from competitors (Eastman Chemical 's methanolysis expansion, Indorama Ventures 's mechanical recycling scale) could erode margins. Loop's technology advantage in handling contaminated feedstock is defensible, but not insurmountable.

Competitive Positioning: First-Mover in Niche

Loop's chemical recycling technology competes with Eastman Chemical 's methanolysis (more energy-intensive), Carbios (CRBO)' enzymatic process (slower commercialization), and Indorama Ventures 's mechanical recycling (lower quality). Loop's advantage lies in its ability to process textile waste and colored PET at lower energy intensity. However, Eastman Chemical (EMN)'s $2.2 billion quarterly revenue and established customer relationships dwarf Loop's capabilities. Indorama Ventures (IVL)'s $15 billion revenue and integrated supply chain provide cost advantages that Loop cannot match at small scale.

The moat is technological, not financial. Loop must scale quickly to maintain its first-mover advantage in textile-to-textile recycling before larger competitors develop comparable capabilities.

Valuation Context

At $1.04 per share, Loop Industries trades at a $50 million market capitalization and $45.8 million enterprise value. With TTM revenue of $10.9 million (inflated by the one-time licensing payment), the EV/Revenue multiple is 4.2x. This compares to Eastman Chemical (EMN) at 1.4x sales and Indorama Ventures (IVL) at 6.2x sales, though both are mature, profitable companies.

Loop's financial ratios reflect its development stage: -13.4% operating margin, negative book value of -$0.11 per share, and ROA of -6.6%. The current ratio of 2.3x and quick ratio of 2.1x indicate adequate near-term liquidity, but the balance sheet shows a net capital deficiency.

The more relevant valuation framework is management's per-plant economics. If the India facility delivers as projected, one plant could generate $15 million in net income, implying $0.30 EPS. At a 16-17x multiple, this supports $4.80-$5.10 per share in value. Two plants would imply $9.60-$10.20 per share. However, this assumes flawless execution, no cost overruns, and stable pricing—assumptions that have not been tested.

Peer comparisons highlight the valuation challenge. Eastman Chemical (EMN) trades at 11x earnings with 5.2% dividend yield and generates $1.5 billion in annual free cash flow. Indorama Ventures (IVL) trades at 161x free cash flow due to recent losses but maintains $1.8 billion in liquidity. Loop has no earnings, no dividend, and minimal cash flow. The valuation is entirely option-based: option on technology execution, option on market demand, option on funding.

Conclusion

Loop Industries stands at the intersection of compelling technology and brutal execution reality. The India joint venture offers unit economics rarely seen in heavy industry—35% IRRs, two-year paybacks, and $4.80-$5.10 per share in potential value per plant—but the company has yet to prove it can build and operate a commercial facility. The asset-light licensing model with Société Générale (SCGLY) provides a capital-efficient path for European expansion, but revenue from that partnership remains months away.

The investment thesis is binary. Success in India by end of 2027 would validate the technology, unlock a $20 billion addressable market, and provide a template for global rollout via modularization. Failure or significant delay would exhaust liquidity, force dilutive equity raises, and likely render the company a perpetual science project.

The critical variables are clear: (1) securing the remaining $15 million for India's equity contribution without meaningful dilution, and (2) executing the India facility on time and on budget. Management's capital discipline and technology validation provide reasons for optimism, but the track record of canceled projects and pre-commercial losses demands skepticism.

At $1.04 per share, the market is pricing Loop as a high-risk option. The potential reward is asymmetric—$4.80-$5.10 per share per plant suggests approximately 4.5-5x upside if India succeeds—but the probability of success is unknowable and likely lower than management projects. For investors, this is not a story about discounted cash flows or peer multiples; it's a story about whether a decade-old technology can finally cross the commercialization chasm before the cash runs out.