Yes, the foreign currency risk + working capital requirements may come down.
CONFERENCE CALL - from Capital Markets
Lubrizol has started manufacturing CPVC polymers from Dahej from Jan’16 onwards
The company held its conference call on 10th February 2016 and was addressed by Mr. Hiranand Savlani CFO
Key Highlights
There was a reduction of 8% in PVC polymer prices on QoQ basis in Dec’15 quarter. During Dec’15, the company reduced its PVC pipe prices by around 5-7% and CPVC pipe prices were also reduced to some extent. Thus the sales value was up by only around 5.4% despite a double digit volume growth during the Dec’15 quarter.
During the Dec’15 quarter and nine months ended Dec’15, company has maintained its CPVC: PVC Ratio to 56%:44% and 55%:45% respectively.
During Dec’15 quarter, the Baddi unit was closed down due to safety issues as many surrounding units were also evacuating. This resulted in a loss of around Rs 1 crore during the quarter. Further the company did some additional branding and promotional expenses of Rs 2 crore on Resinova brand during Dec’15 quarter. There was some write offs of old packaging material, some restructuring of products at Resinova and in some Advance Adhesive business. All these resulted in around Rs 9 crore of one off expenditure and thus lower operating margin during Dec’15 quarter.
Management is confident of a long term sustainable consolidated margin of around 13-14% going forward.
As per the management, the challenges in terms of business execution, payment cycle and uncertainty in trend and outlook continued during the quarter. Business months are lumpy with one month showing double digit growth and subsequent month, more of flattish kind. Dealers are thus hesitant to build inventory at the current level.
Jan’16 so far is a good month, were the sales of PVC and CPVC are up by 15% in value terms. Also prices of PVC are firming up and are in upward direction.
Lubrizol has started manufacturing CPVC polymers from Dahej from Jan’16 end onwards. For FY’17, the plant will meet around 50-60% of total Astral’s requirements. In subsequent years, the plant will reach a capacity to fulfill the entire requirements of Astral. The entire billing is done in Rupee terms and the prices are cheaper by around 3% compared to imports.
The company also did capacity addition in Hosur plant which is now ready to manufacture the CPVC pipes. Capacities were also built in Ahmedabad plant and further capacity will be operational from FY’17 onwards.
This is the 4th year of operation of column pipes. The company has reorganized market structure of this product and its given good response and demand has increased.
In Adhesives and Sealants business, capacities were re-organized, lot of changes were made in plants, atomization was initiated in the plant and the 2nd plant manufacturing in Ahmedabad is under way.
The company received the permission of merger between the Advance Adhesives and Resinova Chemie, UK and by Mar’16 quarter the merger will be given full impact. The Resinova is carrying accumulated losses and the merger will benefit in terms of lower tax for the company as a whole at consolidated level for couple of quarters.
Replacement demand was around 25% of total sales during Dec’15 quarter.
The company has plans to launch new products in Mar’16 quarter. Not much update on Blaze master, as one or 2 orders keep on coming from this segment and the company continuously is receiving State government permissions, but Central permission is yet awaited.
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Astral has executed Lease Agreement with Rajasthan State Industrial Development & Investment Corporation Limited (RIICO) for lease of land admeasuring 32,500 Sq. metres in Alwar, Rajathan.
The Company intends to set up a unit for manufacturing of PVC/CPVC pipes/fittings to cater the demand of North India.
Some updates on Astral relating to their tie-up with Japanese Sekisui Chemical, for backward integration through the manufacture of thier own CPVC compound. The launch of their new brand and the commencement of work on their 4th plant in Rajasthan.
http://www.thehindubusinessline.com/companies/astral-ties-up-with-sekisui/article8937622.ece
http://news.webindia123.com/news/Articles/India/20160803/2911377.html
Lubrizol terminates process agreements with Astral Poly
With termination of this partnership, starting from October 9, 2016, Astral will no longer have access to Lubrizol’s compound or manufacturing assistance, and will no longer be permitted to sell FlowGuard, BlazeMaster or Corzan branded pipes and fittings," Lubrizol Advanced Material said in a statement here.
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I think this was already part of the plan for Astral and that is why they have already announced their tie up with Sekisui Chemical for manufacturing CPVC compound.
So at last, the inevitable, which kept me away and made me commit an error of omission, happened, though took quite long to materialize.
So, is this a good development or bad? Under what circumstances would it be good?
Under what circumstances, bad? What clues about future performance should we look for to answer these questions?
My own view is that it’s too early to tell and one should not be too judgmental about these matters in a hurry. Time will tell if this is a good development, a bad one or neutral, although it seems to me that the stock market has, so far, treated this as a non event.
What do you think?
Disclosure: No Investment.
Concall transcript: http://astralpipes.com/systemupload/investorrelationpdf/183_l.pdf
Summary:
A new plant of Resinova Chemie Ltd at Ahmedabad will start production from October 2016. The management said that it expects incremental benefits from backward integration in CPVC business and has ruled out any significant impact from its decision to discontinue raw material sourcing tie-up and processor/license agreements with Lubrizol effective from October 9, 2016. The company has entered into a strategic tie-up with Japanese manufacturer, Sekisui Chemicals, to source CPVC resin and has also initiated manufacturing of CPVC compound at its Santej plant. Astral has already commissioned compound capacity of 35,000 tons at a cost of Rs 50 crore, which will cover 70% of its requirements. The company will be buying resin and will make its own compound. It will get resin from Japan or Thailand plant of Sekisui Chemicals. It will sale only finish products and not compound.
The company has also launched its own brand, Astral CPVC PRO, while securing the necessary approvals/certifications
The management said that ground breaking done for Jaipur new facility. It will be pipe and fitting plant. Will start construction work in month from now and plant expects to run from Q3 FY18. It will have 20000 MT capacity. The plant have lot of space and if required can increase the capacity.
South plant – certain constraint of power resolved. Going for expansion - adding capacity for PVC pipe and CPVC pipe in next 2-3 month. 14000 MT p.a. is current capacity in South which will be taken to 20-22 MT p.a.
PVC – started importing PVC raw material from various sources which helped improving margin.
Started pressure pipes sales. It got good business in Govt sector.
The company continues to add dealer points and distribution points.Kenya operation is growing and expected to grow faster.
Adhesive business – Ahmedabad plant is almost ready. In next 1-2 months it will have complete range of all products from Kanpur plants plus additional new products. Dealer networks points has been increased. The mgmt sees good growth going forward.
Adhesive business – Seen price hike from April which was well accepted by market and did helped margin growth in Q1.
UK Company– did expansion. Market there is good and growing. The company has shown good growth.
The mgmt said that it is committed to PVC and CPVC piping business and growth of it.
Price trend in CPVC resin and compound – Its in downward trend. Last year Lubrizol has cut down price by 17%. Now don’t expect any bigger drop in price. Slight drop in price may happen.
PVC raw material – slightly improvement in prices in market.35000 MT current capacity of compounding plant. The company can expand the capacity.
Blazemaster product – hardly selling as approval not there in India.
The mgmt said that increasing reach, branding initiatives, increase in product line will help it to continue its growth trend.
Guidance for piping business for FY17 - 20% sales growth and 20% tonnage growth.
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The results for Astral haven’t been great since last few quarters. I was going through the concalls and its interesting to see that the management seems pretty confident on decent volume growth in coming times.
On the new tie-up, it seems to be a step to bring down the cost of production and become more competitive given the increased competition in the market (lots of new players have entered). Good thing is that they have taken all the approvals they already had for CPVC pro too and would again be the first company to have such approvals. Given the branding activities and good brand recall they enjoy, It may actually work out well for them. We will have a better picture in a couple of quarters.
Regards,
Ayush
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Recently I was buying PVC Pipes for my home improvement work. Plumber suggested We go for Supreme. The top of the mind recall for Plumber Community is still ’ Supreme’. I am not invested
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in our society campus i saw white pipes looking like Astral. but when looked at it closely, i found them to be Supreme.
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Yes in the market many me too have entired like ashirvad in bangalore .Looks like market is going the way plastic water tank introduced by sintex was overgrown by local brands with near market plants and competative pricing with higher dealer margins.It may repeat in CPVC pipes also.
ASTRAL POLYTECHNIK has formed a head & shoulders pattern on daily charts and has completed the pattern formation with its Right shoulder taking support at the crucial neckline of the H&S pattern at 415 levels . As on 11th November 2016 it has closed on 418.1 . The support level 415 becomes all the more important as it is also a 23.6 % fibonacci retracement level from its all time high of 524. The fibonacci retracement is calculated taking into account a far distant low of 31 created at the fag end of 2011 on daily charts. Below 415 levels there is another support at 341 which is 38.2 % fibonacci retracement level taking into account the same high & low. This 341 levels has provided a crucial support during the savage correction of Feb 2016 when the stock made an intraday low of 333 on 29/02/16 before making a close of 341.9. As of now the neckline of H&S Pattern here merges with 23.6 % retracement levels.
Disclosure: Not yet invested. On my watchlist.
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Q3 Results:
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The competitive nature of the business is coming to the fore. And today CPVC and FlowGuard is becoming easily available products that nearly all the major players are making. Makes one wonder if the elevated valuation is merited even now.
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I think Supreme ind. is a better bet in this space due to their diversification.
One trick ponies like Astral are too risky, their new adhesive business isn’t great shakes either, the field is too crowded.