Hi
Is there any change or proposed change possible in the laws regarding transportation of chlorine by pipes which could rejuvenate their JV with Lubrizol, or is that chapter dead?
Hi Donald,
Great to know that we have yet another management meet with Astral.
Usual data on distributor/dealer expansion and product wise capacity, sales contribution and future plans.
Blazemaster - Supreme has announced its foray into CPVC fire sprinkler system. It would be good to confirm the market size, lead time for Astral and product differentiation.
New product pipeline.
Confirmation on availability of CPVC compound for other players - has anything changed?
How does company view increasing competition from a strong player like Supreme?
Cheers
Vinod
In addition to aspects covered in posts by Nikhil, Ashwin and Vinod, we can check with management on following aspects
- In the last interaction in FY 11, company had aspirations to record turn over of around 1000 crores by FY 14 and it seems to be well on its course to achieve the same. What are the aspirational goals from Astral management in terms of topline and margins in next 3-5 years?
- In the past, company has largely been able to maintain EBIDTA margin in the range of 13-15%. Considering the changing competitive landscape in CPVC market, new product launches planned by the company and new normals on currency rates, is company planning to maintain similar margin profile?
- Apparently, company has consistently increased its Asset turnover in last few years and helped maintain company ROCE even when margins were under pressure. Is this trend of “asset light” business sustainable? If so, what factors will help company sustain this trend of increased asset turn over, going forward?
- Company seems to be focusing on building CPVC cement business in coming years. According to some estimates, potential addition to topline from CPVC cement business is around 250 crores in next few years? Is this estimate accurate? What is the potential market size for CPVC cement? What is the current production capacity? What are expansion plan on this front?
- We understand that CPVC cement business may just have entered “growth” phase hence current margins may not accurately reflect “steady state” margins. What is management’s expectation on margins from CPVC cement business?
- What is the potential market size for CPVC column pipes ? in FY 13, what was approximate sales for column pipe? AS we understand, after new product launch, it takes 3-4 years for product to cater pan-India market. Is this time frame of 3-4 years to achieve pan-India reach is still valid or has it reduced due to increased distribution reach and higher awareness about the brand?
- As indicated by the company, large portion of demand for column pipes will come from rural markets. How is company planning to cater to this market? Does it have distributor/dealer reach in this market? Is company planning specific strategy to tap this market?
- What is the market potential for bendable pipes in India and abroad? What is the initial production capacity planned for bendable pipes? How much of this capacity will cater to export markets? Is there any arrangement in place with Lubrizol/other large players to market these products outside India?
- Company has been very active in building “brand”. It’s ad expense has increased from around 1% of sales to 2% sales (even though sales increased by 40%). Do you plan to maintain ad spend as certain % of sales (as many FMCG companies do)? How critical is “brand” for Astral in terms of realizing tangible sales? As CPVC market is witnessing increased competition, isn’t it likely to be “commoditized” business in next few years where “value for money” will be key driver rather than “brand”?
- In latest AR, it was mentioned that company has got BIS approval for Blaze master product. It took a lot of time and perseverance from the company to get this approval. Our understanding is that one of the contributing factor for this prolonged time for approval was “newness” of the product and limited ability of BIS in terms of skills/infrastructure to conduct test and grant approval. However, having done this “leg work”, will it be easier for other players to get similar products approved from BIS? What is the demand build up seen for Blaze master in next 3 years? Is company planning to offer this product through regular sales channel or it has planned a different approach to market Blazemaster?
- What is typical cost of transportation for CPVC products INR/ton/Km? Commissioning of Hosur plant is likely to reduce the transportation cost. Will the cost saving be material? Any likely impact on margins?
- What is the spread of distribution/dealer network geography wise? Also if possible, provide break up of dealer/distributor network spread in Metro/tier 1/ tier 2/ tier 3& rural areas.
- What are 2-3 potential “show stoppers” for the company in realizing its long term goals?
In addition, some of the questions related to competitive landscape, product mix, relationship with Lubrizol and exclusivity for products, pricing strategy etc as covered in earlier interaction shall also be considered.
Hi Donald,
Can you please discuss with the management on the following point:-
Rumours on cancellation of Lubrizol’s license with Ajay Industrial Corporation
Lubrizol has given license to supply its compound (for making CPVC pipes) to three companies in India a Astral, Ashirvad and Ajay. Currently there are rumours being heard of Lubrizol having cancelled Ajayas license on account of some issues.
To get a clarity on this issue, we had discussions with the industry participants including Lubrizol, Ajay, Astral, Ashirvad as well as trade.
As far as the interested parties are concerned:
no cancellation of Ajayas license so far; and
some dispute between the top management of Lubrizol and Ajay, the clarity on the issue is expected in next couple of months.
As far as the trade (distribution) is concerned:
Ajay is still selling Lubrizolas Flowguard material and that there has been no communication from the management to the trade to that effect
As far as the other two licensees are concerned:
Astral as well as Ashirvad have highlighted the possibility of Ajayas exit from Lubrizol but there has been no official confirmation of the move.
And Also,
On the approval process of the “blazemaster”.
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From what I have learned, Aashirwad has also got the license for blazemaster, which astral denies off.
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how much of the estimated market size of Rs.1500 crore for fire sprinkler pipes can astral capture in first 2 years of launching.
REgards,
Thank you very much
Thanks guys. keep pouring in the questions.
Will start collation and structuring by 4th/5th.
Feel free to keep adding. Additional queries can keep coming in till 6th late night :).
My queries both old n new amalgam
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with rupee depreciation a local Ashirwad dealer was despondent on FlowGuard sale due to price increase recently done n differential with Chinese RM made pipes. Are Supreme n Prince pipes really cheaper than Astral n now even GI is cheaper. How is company coping with it? In Delhi some big builders as per him like Supertech have stopped using Astral n JP may be the only builder still using Astral or Ashirwad exclusively.
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how is company coping with real estate slowdown n how is it impacting sale?
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How is blazemaster performance going on n expected to be ? Similarly how is the performance of exports of Bendable going on ?
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Any plans of increasing exports to balance little bit of massive imports?
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Has O & M tie up for ads resulted in much benefit so far n any new catchy ads being planned n what other steps are being taken for strengthening the brand? Can O& M create another Pidilite & Fevicol ie hugely successful brands from otherwise commodity business worldwide of adhesives n paints for Astral?
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How is the hedging strategy of the company ?
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any more plants coming up in North n east? How is the distribution muscle strengthening going on?
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which are the new products now being launched n Whats the scalability n opp size for adhesive cement business?
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Ajay your 3 rd competitors has gone slack n how is Ashirwad performing under new Belgian owners? The Belgian co is the leading plumbing co of the world n how will it impact Astral?
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Is Ajay tie up over on 31 Dec? if so whats the impact can it have on Astral?
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Any plan of manufacturing the CPVC compound in India thus obviating FX fluctuations? Is there a shortage of CPVC compound n is it impacting Astral?
12)Any plan of launching new products in India?
- Any more tie ups in offing with other MNCs like Lubrizol as now the distribution infrastructure catering to huge indian market is in place?
14)Any new institutional & FII interest in the company?
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Is the Astral story akin to that of page & Jubilant foodworks ie quality American product catering to huge Indian market?As such can we expect the same success n have we only scratched the surface?
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How long the growth is expected to continue specially for CPVC in india?
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Any data on replacement market for Astral & any steps being taken for popularising the brand with plumbers community?
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has the distribution infrastructure been beefed up & how does its stand now ? is scope still there for penetration of distribution reach in India or we have reached saturation level already?
Couple of questions:
-For how long the current sales growth of 40+% is sustainable…?
-Companay is planning to double the capacity in JOint venture company in kenya. What are expectations are targets for African markets…?
-mgmt has maintained their plants to be NSF certified. Any plans to capitalize on that, any plans/targets for export markets.
-What are the expectations/targets for the retail market as the company has mentioned opening up of retail market in india.
Link: http://www.youtube.com/watch?v=MD1-OPCdqaw http://www.youtube.com/watch?v=MD1-OPCdqaw Link: http://www.youtube.com/watch?v=MD1-OPCdqaw
Thanks for sharing the link Rudra.Feels like putting all my funds to Astral…
Hi Donald,
Did you manage to get any inputs to share from Astral Management Q&A which was scheduled for 7th of Jan? Thanks!
Astral wins the prestigious Star SME award constituted by Business Standard for 2013.
6 member jury comprised of luminaries
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KV Kamath Ex Icici bank
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Noshir Kaka MD.Mckinsey India
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Cyril Shroff,Managing Partner Amarchand Mangaldas
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Sanjay Nayar,MD KKR India
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Harsh Mariwala,CMD,Marico
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Kishore Biyani,MD Pantaloon
The initial shortlisting, by the Business Standard Research Bureau, was done by choosing firms that had posted topline growth of over 20 per cent and bottomline growth of over 10 per cent, compounded in each of the three years between 2010-11 and 2012-13.
Other financial criteria, including returns on net worth and capital employed, were also applied. While KKR India CEOSanjay Nayaradded two more criteria - innovation and successful globalisation - Marico CMDHarsh Mariwalapitched for a close look at governance standards. Quite expectedly, entrepreneurial instincts were on top of the priority list for Future Group CEOKishore Biyani
The Star SME of the Year was Ahmedabad-based Astral Poly Technik, led by managing director and founder, Sandeep Engineer, India’s largest plumbing and drainage pipe maker, with revenues of Rs 821 crore in 2012-13. Its revenue has grown nine times since its initial public offering in early 2007 (a CAGR of more than 40 per cent). Its net profit expanded at the rate of 47 per cent during this period. The growth in its financial success is reflected in its share price. An investment of Rs 1 lakh in its initial public offering would have grown to Rs 8.6 lakh currently.
The jury was impressed by the story of a company that has been continuously expanding and building its production capacity. Support from its technology partner, Lubrizol, which controls nearly 70 per cent of the global chlorinated polyvinyl chloride market, has also been an important success factor.that still exists for CPVC .
The other winners in different categories included star cos like TCS,Sun Pharma,HUL,.
Winning in proximity to such luminaries of Indian corporate world augurs well for the future of Astral Poly n big potential of CPVC Pipes in India.
No wonder Astral story continues strong.
Astral has received invaluable support from its technology partner Lubrizol, USA, which controls nearly 70 per cent of the global CPVC market. A combination of better product and marketing acumen has helped the company grab a growing share of the demand for pipes from the construction and the industrial sectors. Continuous expansion in production capacity is reflected in its fixed assets, which have risen from Rs 98 crore in FY09 to Rs 281 crore currently.
To scale up further is a huge challenge. But Engineer believes that India’s infrastructure growth will be a continuing source of demand. “We will continue to focus on infrastructure by bringing in products that are affordable and meant for the masses,” he says.
WHILE DECLARING WINNERS OF BUSINESS STANDARD 2013 KV KAMATH CHAIRMAN EMPHASIZED
The ICICI Bank chairman said: “The success of the winners that we select should endure.” He wanted his jury colleagues to focus on companies of the future and those that had contributed and would contribute to a “new India”.
Everyone also agreed withCyril Shroff, managing partner at law firm Amarchand & Mangaldas, that what should matter more than their performance in the stock market was entrepreneurship and a sustainable business model. McKinsey India Managing DirectorNoshir Kakaadded: “We should look at individuals who built real institutions at a time when the challenges in the external environment were severe.”
SIZE OF OPPORTUNITY, EXECUTION SKILLS N RETURN RATIOS REMAINS BRIGHT FOR ASTRAL POLY.
VIEWS INVITED
No wonder Astral story continues strong.
Astral has received invaluable support from its technology partner Lubrizol, USA, which controls nearly 70 per cent of the global CPVC market. A combination of better product and marketing acumen has helped the company grab a growing share of the demand for pipes from the construction and the industrial sectors. Continuous expansion in production capacity is reflected in its fixed assets, which have risen from Rs 98 crore in FY09 to Rs 281 crore currently.
To scale up further is a huge challenge. But Engineer believes that India’s infrastructure growth will be a continuing source of demand. “We will continue to focus on infrastructure by bringing in products that are affordable and meant for the masses,” he says.
WHILE DECLARING WINNERS OF BUSINESS STANDARD 2013 KV KAMATH CHAIRMAN EMPHASIZED
The ICICI Bank chairman said: “The success of the winners that we select should endure.” He wanted his jury colleagues to focus on companies of the future and those that had contributed and would contribute to a “new India”.
Everyone also agreed withCyril Shroff, managing partner at law firm Amarchand & Mangaldas, that what should matter more than their performance in the stock market was entrepreneurship and a sustainable business model. McKinsey India Managing DirectorNoshir Kakaadded: “We should look at individuals who built real institutions at a time when the challenges in the external environment were severe.”
SIZE OF OPPORTUNITY, EXECUTION SKILLS N RETURN RATIOS REMAINS BRIGHT FOR ASTRAL POLY.
VIEWS INVITED
Q3 Results:
Sales up from 206 Cr to 264 Cr - YoY ( 28% )
Net profit up from 10.6 Cr to 21.3 Cr YoY ( 100% )
More importantly, the accumulated forex losses for last 9 months get reduced by 10 crores and stand at 8 crores only. Also, last year 50% of the profit came in the last quarter. If the same ratio sustains, stock should show roughly 17 Rs. as EPS for current year. It would mean that the stock is trading at 21 times one quarter forward.
Company paid very low taxes this quarter, here are the forex gain/loss trends from past quarter. All figures in Rs Crores.
| Forex Adj On | Forex Adj. | Forex Adj. | ||||||||
| Fin Year | Jun (Q1) | Sep (Q2) | Dec (Q3) | Mar (Q4) | Borrowing | Total | PBT | PBT | Sales | PBT/Sales |
| FY12 | -0.11 | -7.88 | -3.6 | -3.84 | -15.43 | 50 | 65.43 | 584.55 | 11.2% | |
| FY13 | -12.35 | 12.16 | -5.79 | -0.56 | -4.41 | -10.95 | 79.46 | 90.41 | 825.48 | 11.0% |
| 9MFY14 | -15.85 | -2.5 | 10.02 | -8.33 | 60.44 | 68.77 | 736.93 | 9.3% |
Assuming the company doing an overall 30% sales growth (24% volume, 6% price) may close FY14 with ~1073 Cr in sales, with 11% forex adjusted PBT will be 118 Cr. This will result in 90 Cr full year profits and 16 Rs EPS.
However, the actual numbers will vary depending on the forex situation and price realizations in Jan-Mar '14.
Hi Donald,
Update on Astral’s Management Q&A is eagerly awaited.
Sorry guys. I am horribly behind with this one. Will be sharing key growth drivers summary in next post.
Meanwhile as valuations kept getting stretched in last 2 months there was less and less incentive to prioritise this .
Trailing PE of 28? Does this business deserve a valuation that is reserved for Cash throwing free cash flow businesses. What’s a fair PE band for this business. Giving it a consistent 20x is also difficult. Even when it attains 2000 Cr revenues will you/market give it 25x on a sustainable basis? Given the current euphoria it is hard to drive an objective discussion on Astral’s business characteristics. Look at its Capital Turns and Margin trends - the 2 key drivers of business valuation.
Yes it is a business with large opportunity size and has great execution skills on the ground as we have been seeing. But it’s a business that keeps requiring Capex to grow. Every year they need more Capex increase production to stay ahead. The Economic characteristics of the business is not that great.
Folks invested from lower levels should Hold. But also book profits on a regular basis. Margin of safety just not there. Huge expectations built in the stock price. Any disappointment in business performance can cause damage.
Management sounded (as usual) extremely confident.
For the first time detected a trace of smugness - perhaps. (unwarranted slight emphasis on market valuations - how this is nothing - 330 odd levels)
Next Growth Drivers - from Management Q&A Jan 2014
1). Column Pipes - growing well - 100 Cr business in next 2-3 years
2). Bendable - again will be a 100 Cr business in next 2-3 years
3). Blazemaster - at nascent stages - a 1000 Cr market - monopoly
4). Solvent Cement - 100 Cr business in 4-5 years
5). Selected Agri product Pipes - Borewell pipes
6). South plant - Strategically located
7). Also introducing new products - will be informed at appropriate time
Dhwanil - Request you to share likewise some of the key aspects of the discussion from your notes, when you can.
Hi,
Is it worth buying Astral now ?