Executive Summary / Key Takeaways

• Loop Industries is pioneering a truly circular economy for PET plastics and polyester fibers through its proprietary depolymerization technology, which transforms low-value waste into virgin-quality monomers and resins, enabling infinite recycling without degradation.
• The company is executing a dual commercialization strategy: direct investment in high-return, low-cost manufacturing regions like India, and an asset-light licensing model for higher-cost markets such as Europe, significantly de-risking capital deployment.
• The Infinite Loop India facility, a 50/50 joint venture with Ester Industries, presents compelling economics with an estimated $70 million annual EBITDA (JV level) and a 35% unlevered IRR, driven by a high-margin monomer business model addressing a $20 billion underserved market.
• A new modular construction strategy, with modules built in India, is projected to reduce CapEx by 50% for future facilities globally, accelerating deployment and enhancing returns, positioning Loop for rapid, cost-effective expansion.
• Despite being in a pre-commercialization stage with recurring losses, Loop demonstrates disciplined expense management, with cash operating expenses down 46% in Q1 fiscal 2026, and is securing critical financing and offtake agreements to fund its strategic growth.

The Dawn of Infinite Recyclability: Loop's Core Technology and Strategic Pivot

Loop Industries, Inc. (NASDAQ:LOOP) stands at the forefront of the global movement towards a circular economy, armed with a patented and proprietary depolymerization technology designed to revolutionize the recycling of polyethylene terephthalate (PET) plastics and polyester fibers. Founded in 2010, Loop has evolved from a pre-commercialization entity, primarily funded by equity and debt, into a company on the cusp of global commercialization. Its core mission is to break the linear "take-make-dispose" model by transforming no and low-value waste PET plastic and polyester fiber—including bottles, packaging, carpets, and clothing—into their fundamental building blocks: dimethyl terephthalate (DMT) and monoethylene glycol (MEG). These monomers are then meticulously purified and repolymerized to create virgin-quality Loop branded PET resin and polyester fiber, suitable for demanding applications like food-grade packaging and high-performance textiles. This process enables infinite recycling without any degradation in material quality, a critical differentiator in the industry.

The industry landscape underscores the urgency of Loop's mission. The global PET market, valued at approximately 90 million tons per year, sees over 66% dedicated to the textile and fiber industry. Despite growing regulatory and consumer pressure for sustainable alternatives, the vast majority of PET and polyester fiber still relies on fossil fuels. Mechanical recycling, the most common method, faces significant limitations: it struggles with impurities, colored or multi-layered packaging, and leads to material degradation over successive cycles, often resulting in downcycling. This progressive decline in quality means PET can only be mechanically recycled a limited number of times before it becomes unusable for valuable applications. Loop's technology directly addresses these shortcomings.

Loop's depolymerization process operates at low temperatures and without added pressure, allowing it to handle a significantly wider range of waste PET and polyester fiber, including highly contaminated feedstocks, mixed textiles, and materials with dyes and additives that mechanical recycling cannot process. This technological advantage ensures a consistently virgin-quality output, regardless of the incoming waste material. The Terrebonne, Québec facility, operational for five years, has served as a crucial proving ground, validating the technology's effectiveness and consistently producing high-quality monomers. This operational track record provides a strong foundation for the company's ambitious global expansion.

Strategic Commercialization: A Dual Approach to Global Scale

Loop's commercialization strategy is a carefully calibrated dual approach: direct investments in joint ventures within low-cost manufacturing regions and an asset-light licensing model for higher-cost markets. This strategy is designed to optimize capital deployment, accelerate market penetration, and maximize shareholder returns.

The India Joint Venture: A High-Return Growth Engine

The cornerstone of Loop's direct investment strategy is its 50/50 joint venture with Ester Industries Ltd. (ESTERIND) in India, forming Ester Loop Infinite Technologies Private Limited (ELITe). This partnership aims to build and operate an Infinite Loop manufacturing facility in Gujarat, India, a region strategically chosen for its abundant polyester textile waste feedstock, skilled petrochemical workforce, streamlined permitting, and proximity to a deep-water seaport for exports. The planned facility boasts a production capacity of 70,000 tons per year of Loop branded PET resin and polyester fiber, or alternatively, 70,000 metric tons of DMT and 23,000 tons of MEG.

The economics of the India JV are particularly compelling. The estimated total investment cost for the facility is approximately $176 million, including polymerization, land acquisition, and financing costs. Crucially, the total installed cost of Loop's core depolymerization technology, excluding polymerization, land, and financing, is a highly competitive $95 million. Loop's equity contribution is projected to be around $25 million, with approximately $5 million covered by existing polymerization equipment and a portion committed by a Quebec government entity. Management anticipates an impressive $70 million in annual EBITDA at the joint venture level, with Loop's 50% share amounting to $35 million. This translates to an unlevered Internal Rate of Return (IRR) of 35% and an estimated payback on equity of under two years. Loop's CFO, Fady Mansour, estimates that each such plant could add approximately $8 to Loop's stock price, based on both price-to-earnings and enterprise value metrics.

A key driver of these attractive returns is the facility's focus on the monomer business model. Loop is addressing a "huge underserved market" for sustainably produced DMT and MEG, with a global market opportunity exceeding $20 billion annually. These monomers are critical intermediate chemicals for industries ranging from automotive and cosmetics to packaging. Virgin petroleum-based DMT was recently selling at $1,950 per metric ton and MEG at $835 per metric ton, and Loop anticipates a 15% premium for its sustainably produced products. Loop retains exclusive responsibility for all sales and marketing of the India JV's products, including specialty polymers like PBT, PTT, and PETG, which currently lack sustainable monomer sources. The company has already secured multi-year offtake agreements for its new Twist™ circular polyester resin (from textile waste) with a leading sports apparel company and for Loop DMT with Taro Plast S.p.A., expanding its reach into the specialty polymers market.

European Expansion and Modular Innovation

Complementing its direct investment in India, Loop is pursuing an asset-light licensing model in higher-cost manufacturing regions. This strategy is exemplified by the partnership with Reed Management SAS (Reed Societe Generale Group) for Europe. In December 2024, Loop finalized a transaction that included a €20 million financing package for Loop and the sale of the first technology license for an Infinite Loop manufacturing facility in Europe, with an initial €10 million upfront payment. Additional milestone payments are expected as the project advances, likely in late 2025 or early 2026. A Securityholders Agreement for Infinite Loop Europe SAS was established in September 2025, with Reed Circular Economy holding a 90% interest and Loop 10%, though Loop retains options to increase its ownership up to 50% in individual projects.

A significant innovation underpinning Loop's global expansion is its modular construction strategy. This involves manufacturing plant modules in low-cost countries, such as India, for transport and assembly at global locations. This approach is expected to "significantly decrease CapEx for these projects" by an initial estimate of a "50% reduction versus if we would be doing it as a stick build," according to CEO Daniel Solomita. This modularization is a "differentiating factor" that will accelerate the rollout of future facilities, improve project timelines, and ensure standardized design and quality, providing a scalable solution for global expansion. Loop also generates revenue by providing engineering services throughout project development, construction, and startup. For instance, engineering services for a European project are estimated to be approximately $10 million, recognized over the 24-month construction period.

Financial Performance and Liquidity: Building for the Future

Loop Industries is currently in a pre-commercialization stage, characterized by limited revenues, recurring net losses, and negative cash flow from operating activities. For the six months ended August 31, 2025, the company reported revenues of $252 thousand, primarily driven by $244 thousand in engineering fees, a notable increase from $29 thousand in the prior year. The net loss for the same period decreased to $6.65 million, down from $10.03 million in the prior year, reflecting disciplined cost management.

The company has demonstrated a strong focus on expense control. Cash operating expenses for Q1 fiscal 2026 were $2.6 million, representing a 46% reduction compared to the prior year. Similarly, research and development expenses for the three months ended August 31, 2025, decreased by $1.1 million to $843 thousand, largely due to reduced external engineering and employee compensation. General and administrative expenses also saw a $724 thousand decrease to $1.87 million in the same period.

As of August 31, 2025, Loop's available liquidity stood at $9.86 million, comprising $7.31 million in cash and cash equivalents and an undrawn $2.55 million senior loan facility. Management has assessed this liquidity as sufficient to meet obligations for at least twelve months from the 10-Q filing date of October 15, 2025. The $20.8 million financing from Reed (GLE) (Societe Generale), finalized in December 2024, will significantly bolster liquidity for the India JV's equity contribution and ongoing operational needs. While a funding gap of approximately $15 million remains for the India facility's equity, management is actively pursuing options, including government funding and engineering revenues. The company also utilizes an At-The-Market (ATM) Equity Offering program, which generated $187 thousand in net proceeds from the sale of 116,358 shares at an average price of $1.66, with $14.8 million capacity remaining.

Competitive Positioning and Technological Edge

Loop's competitive advantage stems from its differentiated depolymerization technology, which addresses critical shortcomings of conventional recycling methods. Unlike mechanical recycling, which degrades material quality and struggles with contaminated or mixed feedstocks, Loop's process consistently produces virgin-quality PET and polyester fiber. This is particularly crucial for the textile industry, where 66% of the global PET market resides, and "fiber to fiber is really the holy grail" for apparel brands seeking circular solutions. Loop's ability to recycle textile waste, removing dyes and impurities, provides a unique offering for white clothing and other high-quality textile applications that mechanical recycling cannot achieve.

In the broader chemical recycling landscape, Loop's low-temperature, no-pressure process differentiates it from other depolymerization technologies that often require high temperatures and pressures, leading to substantial energy consumption and potential unwanted chemical reactions. This qualitative advantage in process efficiency and feedstock flexibility positions Loop favorably. While larger chemical companies like Eastman Chemical (EMN) and DuPont de Nemours (DD) operate in sustainable materials, and PureCycle Technologies (PCT) focuses on polypropylene, Loop maintains a specialized niche in PET depolymerization. Its focused innovation in waste-to-virgin resin conversion, particularly for textiles, allows it to potentially lead in specific technological performance and resource efficiency. However, larger competitors benefit from greater scale, diversified revenue streams, and stronger financial health, which can translate to more stable growth rates and margins. Loop aims to counter these scale advantages through its modular construction strategy and strategic partnerships that leverage local expertise and capital.

The monomer business model further enhances Loop's competitive standing by addressing a global shortage in DMT and MEG. By providing sustainably produced, drop-in replacements for petroleum-based monomers, Loop taps into an underserved market, offering fixed-price, long-term contracts that provide predictability for customers, a significant advantage in volatile commodity markets.

Outlook and Risks

Loop's outlook is centered on the successful commercialization of its Infinite Loop facilities. Groundbreaking for the India facility is expected by the end of fiscal year 2026, with commercial operations projected to commence in calendar 2027, following an 18-month construction and 6-month startup period. The company plans to acquire enough land in India to accommodate a second facility, aiming for a 50% increase in capacity (to 100,000 tons) after a year of operation of the first plant. In Europe, the focus is on site selection and advancing engineering, with modular construction expected to accelerate deployment. Management guides for a cash burn rate of $1 million to $1.2 million per month for fiscal year 2025, reflecting continued cost discipline. Zacks Equity Research projects an EPS of -$0.22 for fiscal year 2026, with estimates showing an upward trend.

However, investors must consider several risks. The company's pre-commercialization status means it has recurring net losses and negative cash flow, necessitating ongoing financing. While the Reed financing and other sources are being secured, the ability to attract additional funding on favorable terms remains crucial. The ATM Equity Offering, while providing liquidity, could lead to dilution. Contract negotiations, particularly for long-term agreements, can be protracted due to market conditions and internal customer processes. Furthermore, the SEC investigation, though not alleging wrongdoing by the company or its CEO, introduces an element of uncertainty regarding its resolution. Potential CapEx escalation, as seen in past projects like Ulsan (which was ultimately canceled due to high costs and a strategic shift), is a concern, though Loop's current strategy of low-cost manufacturing in India and modularization aims to mitigate this. Labor pool tightness, as observed near the Ulsan project due to other large industrial developments, could also pose challenges.

Conclusion

Loop Industries is at a pivotal juncture, transitioning from technological validation to global commercialization. Its proprietary depolymerization technology offers a compelling solution to the escalating plastic waste crisis, particularly in the vast and underserved textile recycling market. The strategic pivot towards high-return direct investments in low-cost regions like India, coupled with an asset-light licensing model for Europe, demonstrates a pragmatic approach to scaling its innovative technology. The robust economics projected for the India JV, driven by the high-margin monomer business and enhanced by the transformative modular construction strategy, underscore the significant value creation potential.

While the company faces inherent risks associated with its pre-commercialization stage, including funding requirements and operational execution, its disciplined financial management, strategic partnerships, and proven technological differentiation position it strongly. The ability to deliver virgin-quality, infinitely recyclable PET and polyester from diverse waste streams, particularly for the burgeoning circular fashion industry, represents a powerful competitive moat. As Loop progresses towards groundbreaking in India and expands its modular solutions globally, its technological leadership and strategic foresight could unlock substantial long-term shareholder value, making it a compelling consideration for discerning investors focused on sustainable innovation.