Astral polytechnik ltd

(Donald Francis) #21


I rest the Bear Case from my side. (as updated in stock story)

Bearish Viewpoints

  • Over-dependence on a few suppliers to meet raw material requirements. APLlargely depends on a few suppliers to meet its raw material requirements. CPVC is the primaryraw material for manufacturing operations. 60-65% of raw materials are sourced from Lubrizol, USA. Any disruptions or changes in supply terms may adversely affect itsoperations and profitability of business.
  • Foreign currency fluctuations - APLimports raw materials, finished products and machinery. It also has FCNR loans. Both these involve risks associated with foreign exchange fluctuations, and in extreme situations as in FY09 have drastically affected the revenues and profitability of operations. Despite an excellent 42% sales growth, APL had registered degrowth in profitability for FY09.The US$ had increased from Rs. 40 to Rs. 52level which resulted in a loss to the tune of Rs.7.34 Cr in foreign currency loan liability and Rs. 6.10 Cr on account of cost of import of raw material. In aggregate, APL had incurred a loss of Rs.13.44 Cr due to foreign exchange fluctuation. In FY10, the FCNR loan stood at 23.5 Cr and RM imports at 104 Cr.
  • Aggressive expansion plans carry execution risks - The only way APL can keep growing is continuous expansion. So far APL has managed this judiciously. However any slippages in execution or reversal in demand situation, can pose serious risks.
  • Stronger Competition - Its a matter of time before the growing Indian market for plumbing & fittings solutions attract the attention of other global players. Other CPVC compound suppliers could start focusing on India and license bigger players/suitors from PVC or GI segments. Even Lubrizol could license other new players setting up huge capacities.
  • Recent performance on margins front needs watching - Operating profit margins have been coming down sequentially since last 4 Qrs. APL had registered OPM of 16.19% in Q4 FY10. Since then OPMs have sequentially been 14.49%, 12.40%, and down to 11% in Q3 FY11. Thats a significant drop of over 5% in the last 4 quarters. RM as a percentage of Sales meanwhile has gone up but only by 2.5% or so. This may need watching over next few quarters to see if things revert to normalised levels.

I think we have done a good job so far. I rest the bear case for now. Q4 results will be good to watch. Meanwhile thanks everyone for a another big collaborative effort!

I have requested many veterans to help us pick more holes in the story. Lets see:)

Meanwhile my call is taken. I am slowly entering and looking to accummulate at every dip.



(Ayush Mittal) #22


Regarding the forex losses earlier, my understanding is:

1). Exporters were having a tough time when the rupee appreciated from 45 to 40 levels and everybody was saying that rupee would appreciate to say 35 levels.

2). When the rupee weakened to 42-43 levels…most of the industry people took derivate contracts for value more than their near term requirement. For eg: If a co had 100 Cr turnover they took contracts worth 200 Cr. This was greed to safeguard exchange rate as rupee will keep appreciating in long run.

3). Add to it, the banks sold complex derivative instruments. They were long term options.

4). Now the rupee went totally the other way…contrary toanybody’sexpectation. Also, as there was recession, liquidity was dried up.

5). Many cos had indulged into these contracts just for short term profits also.

In the abovescenariothe huge losses came up simply because of greed and lack of understanding of the product. Like Warren Buffet says - Derivatives are weapons of mass destruction.

I’m sure sensible promoters must have got their lesson and would hesitate in repeating a mistake like this. But talking about such kind of risks - something or the other keeps coming up every 4-5 years, wherin greedy people get traped. This is where management quality comes into play.



(Ayush Mittal) #23

I agree with Donald. It would be better for a reputed global player like Lubrizol to partner with a sincere company like Astral and lay a solid foundation.

The way Astral has performed and grown over last few years is commendable. It would be in the interest of Lubrizol to maintain exclusivity and continue growing at 30-40%.

Regarding forex policy and contraction in margins, we should try raising the query to mgmt.



(Ayush Mittal) #24


Do explore more on the competitor Ashirvad. They seem to be 30 year experienced and have a big capacity of 50,000 MT. They also hold patents for some of the equipments/designs.

If we can get some contacts in this company, we can get some fantastic understanding on the industry and Astral.



(Abhishek Basumallick) #25

Ayush, Donald…I agree with both of you…just wanted to get some understanding on the contractual situation. This looks to be a good story in the making. I am inclined to take a position in this. (just some time back i had put it on my watchlist…it was at 121 at that time. …today I see its at 160…missed a good 30% in a few months!!)

(Arindam) #26

While I am tempted to agree on the lines of Donald & Ayush’s argument, let me put forward why other players may be able to compete on getting a comparable, or better scale

1). There are big PVC players

2). there are big GI players too

Since they address more or less the same customer set and may even have deeper relationship, they can offer Scale to lubrizol for sure.

So what is preventing them from setting up CPVC piping plants. Not the capex size, not the licensor, is it then the certification lead time. if it is really 2 years, then every year that they don’t get into the CPVC game, Astral is running away from catch-up zone!

How big are Ajay Corp and Ashirvad ops by the way?

Also can anyone compile some data on pipe capacity - GI, PVC or whatever of existing players??

(Newbie) #27

Many Thanks Ayush & Abhishek,

it is becoming more clear now, thanks a lot.

but those who made huge losses -what was the reason for the size of the losses -when you say greed was the reason - were these leveraged contracts? So are you saying what happened was because of over-leveraging and because people took long-term contracts.

In the abovescenariothe

(Ayush Mittal) #28


Yes, the losses occurred due to the following reasons:

1). The positions were much bigger than the normal hedging requirement. For eg: A company with annual turnover of say 100 Cr entered into long term contract worth 2-3 times the size. (probably trying to hedge 2-3 yrs of turnover)

2). The crisis came at the same time. So all those having leveraged positions got caught on the wrong foot. They wouldn’t had been able to meet the margin calls also and hence the positions would had been squared off.

Like WB says - Its only when the tide goes off, you know who was swimming naked.

I hope your query has been answered.



(Newbie) #29

Thank you Ayush. I think I understand the basic nature of the problem form your answers.

So, in the context of Astral Poly Technik would you say the Management having been bitten once, will probably be twice shy! And therefore the forex fluctuation risk management from here on is/will be more prudent & conservative. One need not place too much of weight to that risk.


(Donald Francis) #30

Yes, Ayush. Ashirvad Pipes seems a competent player in the market for many many years.

This is a good opportunity to check out the CPVC potential/challenges from another senior player in the market. Will have to get some contacts in the company and see if they will share opinion on the industry, potential and competition.

This company is in Bangalore! Am travelling from Saturday and back only on May 7th. Will request Nagabrahma and others to start contacting.


(YSB) #31


One more company which claims Lubrizol licnese:

Ajay Industrial Corporation Limited

Since its inception in 1961, Ajay Industrial Corporation Ltd. is one of the leaders in manufacturing pipes and fittings with the most modern machinery and infrastructure. With over 5 decades of experience in plumbing system, AICL is amongst the best in providing plumbing solutions.

The company is a licensee in India of LUBRIZOL INC. of USA(Formerly BF Goodrich) forthe production of the world renowned Brand Flowguard. Company has now gained the Brand Value by manufacturing the CPVC pipes&fittings marketed as Ajay FlowGuard and UPVC pipes and fittings marketed as Ajay GreenLine.



(TCX) #32

A simple google search for “CPVC Pipes & fittings” gives us many more names. CPVC is not such a holy cow as made out maybe:) Please check these out!

Dutron India - also makes CPVC pipes!

Shree Nideeshwaram Impex

Thiram exports Pvt Ltd -cpvc fiitings

Spears, USA - Flameguard CPVC Fire Sprinkler system

(YSB) #33

I have started doubting whether CPVC resin is actually an entry barrier in this Industry. There are so many players who claim CPVC pipes.

For Astral, i think, new products introduction is more important. I also noticed that Asset turnover has been increasing in last 4 years. Incremental rupee spent is resutling in higher sales. Is it because of moving up in the value chain of products?



(YSB) #34

**Finolex Industries **)- Brief overview

)- Business segments: PVC resin + PVC pipe

)- Revenue share 50 % each segment

PVC resins

)- 2.6 lakh MT capacity for PVC resins â backward integrated. PVC resin has many uses like in pipes, cables, door and window profiles.

)- Globally real estate market is the biggest driver for PVC resin market.

)- RIL is the market leader in PVC resin with 50 % plus market share, followed by FIL with 25 % market share

)- In FY09 India was net importer of PVC resin as the demand was in excess of 1.4 mn MT as compared to capacity of 1.1 mn MT. 0.4 mn tonne of imports in FY09. It increased considerably in FY10 (donât have the exact data)

)- In 2005 China used to import PVC resin. Then it added a lot of capacity. Japan and Korea PVC manufacturers suffered because of it.

)- Middle East has also added substantial capacity in PVC in last 5-6 years.

)- Operating margin of PVC business for FIL have been highly volatile because of crude price fluctuation.

)- Other PVC resin manufacturers â DCM Shriram, Chemplast, DCW

PVC pipes

)- 1.6 lakh MT capacity for PVC pipes â Should have better margins because of backward integrations. Have not compared with other players. Most of other players are not backward integrated.

)- Largest integrated PVC pipe manufacturer in India

)- Suffered Rs 180 cr in derivative losses in FY09

)- On an average operating margin for PVC pipe business has been in single digit - 8 % ish though last year it was a bit higher.

)- Irrigation market is the major market for FIL â more than 70 % of pipe sales

)- Some estimates put more than 60 % of PVC pipe market under unorganized market

)- Hardly any entry barrier to setup new plant

)- Organzed market Competitors in PVC pipes: Jain Irrigation 28 % market share, FIL 18 %, Kriti Industries, Kisan Industries, Astral Poly 6 % each

(Ayush Mittal) #35

Of all the interactions above, my feeling about the CPVC is:

1). The CPVC was a new and restricted thing a few years back…when Lubrizol gave licences and Astral started this business.

2). In last couple of years, existing PVC players must haverealizedthat CPVC is a better product and they also need to have their presence in the same.

3). Now lot of players are entering CPVC thing.

Impact on Astral:

1). They andinitiallicencees of Lubrizol will continue to benefit of proven technology and first mover advantage.

2). Margins will fall going forward

The competitive edge for Astral could be the following:

1). New and wider range of products.

2). As per the co - they have highest certifications and each certification is a long term process which acts as a entry barrier.

Views Invited




This is same company Looks like subsidiaries under Ajay group. Link:


I just checked Ashirwad and Deutron website. Basically they have CPVC pipes for regular plumbing, casing and for submersible pumps.

Astral has more no. of products as on date.


2). haverealizedthat


1). They andinitiallicencees



(Donald Francis) #38

From what I have read and assimilated so far, my hunch is CPVC resin there are many manufacturers. and that’s not patented. What is patented is the CPVC compound, and thats where 85% of the market is controlled by Noveon (as per some reports).

Its the compound formulation that ensures that the pipes/products manufactured have particular tensile strengths, and/or anti inflammatory, or other properties with the right reliabilities for particular applications, and that is what is certified by NSF - the compound (again not the resin).

Different Products like Flowguard, Corzan, or Blazemaster have different compounds - the same CPVC resin + a different mix of ingredients,. for a different set of properties appropriate for a different application - e.g. corzan for high anti-corrosive resistance, etc.

So while many can claim CPVC Pipes - those without NSF certification for particular applications may not be acceptable to builders/contractors in the organised sector because the CPVC pipe properties cannot be guaranteed in uncertified products.

And again there is compound certification as well as the manufacturing process or plant certification by NSF. Both are important. You may have noticed that Ajay And Ashirvad claim the CPVC compund certification - because they source it from Noveon/Lubrizol, but they cant claim the NSF plant certification that Astral can and does!

These need bearing out in the questioning of Astral, dutron poly, ashirvad and some CPVC dealers that we will meet in due course. may be useful to keep this is mind while asking open-ended questions.

(TCX) #39

Chemical maker DCW in pact with French co Arkema

New Delhi, Dec 2

DCW, maker of basic chemicals, said on Wednesday that it has entered into a technical license agreement with Arkema of France, producer of Vinyl Products. In a statement to the BSE, the Mumbai-based company said, aDCW intends to set up a Chlorinated Polyvinyl Chloride Resin (CPVC Resin) plant with Arkema’s licensed technology to manufacture 10,000 tonnes per annum (TPA) of CPVC Resin ans 12,000 TPA of CPVC Compound at its Sahupuram Complex in Tamil Nadu.a It will make the company the first Indian producer of CPVC Resin and compound, it said. CPVC is a specialised polymer used for hot and cold water plumbing and industrial applications . a Our Bureau

(This article was published in the Business Line print edition dated December 3, 2010)

(rajeev shah) #40

Finolex Inds seems to be entering this segment in a big way