Astral Ltd. (Earlier: Astral Poly Technik Ltd.) ~ Leading Pipes & Adhesives company

Stock Opportunities Not-so-Hidden Gems
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Hi Guys,

Have been looking into this in some detail over the last couple of days. I will be attending the Analyst meet in Mumbai. BTW, any clarity on which Trident is being discussed, the Nariman Point one or the one in BKC?

My key concerns (and I will be adding to this are)

**1,2.**What is the underlying industry to whom you are supplying ? Since demand for pipes is a derived demand, I would like to know what is the underlying sector risk? Also what is thesales split between the various products?

3). Since sales are through distributors, what is the concentration of sales? The top 10 distributors would constitute how much of sales?

4). Finolex alone has added 100,000TPA of capacity of PVC pipes this quarter. And unlike Ajay etc, Finolex has significant distribution and brand muscle. How will this impact sales?

Thanks
Aditya

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Analyst meet at Trident BKC.

The distributor mix is a good question, atleast to know the geographical spread better. Their biggest distributor is from Bangalore, btw, Ashirvadā€™s territory.

Not sure if you have followed the Stock story and the Management Q&A in detail -you can find links from the home page - your other concerns should be addressed to a large extent.

-Donald

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Hi All,

Spoke to two civil engineers, visited two dealers for CPVC:

1). PPR: The main problem with PPR is the fixing of fitting. The plumber uses a gun/metallic rod to heat. The fitting has a male and female part. The metallic rod is inserted into teh female section and heated. As soon as the desired heating is done, the rod is pulled out and the male section inserted. The heating makes the resin melt, the male section when inserted fits into it and after the melted resin has cooled the joint is complete/fixed

The problem is with the heating:

a) If the plumber is new, he may heat the fitting too much or too less. If it is too much, then when the rod is pulled out the resin sticks to the rod and comes out with the rod. This may create a small gap when the male part is fixed. And this causes leakage.

b) A friend who built a high rise in noida, actually experienced this problem. I also visted two dealers in our local hardware market. Both of them acknowledged this problem.

2). a) CPVC overcomes this problem. The male female joint is fixed with a solution/adhesive. I saw a few fittings of ASTRAL. The plastic is hard and resembles something like the plastic in lego toys for kids.

b) The dealer also showed a trade magazine with a full page advertisement from lubrizol. The three manufacturers - Astral, Ashirvad and Ajay were mentioned in the ad, as companies manufacturing pipes etc from lubrizol raw material.

c) The dealers said that PPR still sells but CPVC is certainly an improvement and would sell more int the near future.

d) People do not demand ASTRAL by name. All three names are eually good and rule the market.

e) The second dealer had cpvc fitting from Supreme. Where do they get there raw material fromā€¦??? Since te lubrizol ad in the trade magazine did not mention supreme, i guess they are sourcing it from somewhere else.

Negative for CPVC

a) Since the plastc is hard, it may break if something heavy falls on it. Normally pipes are concealed, but on the terrace they lie open.

b) When drilling in the wall, one needs to know if the cpvc pipe is cncealed in the particular area, bcoz the bit would drill the pipe without a warning (as compared to GI pipe). This was brought to my notice by a dealer.

Hope this helpsā€¦

Rgds

Bobby

1 Like
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Please check the location with the company. I have written down it as Nariman Point.

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I had an opportunity to meet Sr.Management of Dutron during my visit to Ahmedabad.

The discussions was mainly on the Pipe Industry in general and CPVC market in particular. They are also of the view that CPVC is here to stay and that is the future. As of now, they are mainly in Plumbing segment which in future may get applications in other segments of the pipe industry. They mentioned that if the current major pipe players have to stay in the market, then they have to enter CPVC market, earlier the better.

With the more no. of players entering, usage increases and the market grows. They are of the view that margins will also get hit but that would get compensated with the increase in volume.

There are four players who make CPVC resins and that would be constraint for the new players to enter. Currently they are buying from Sekisui of Japan. With the arrival of Arakme to manufacture CPVC resin/compound with a JV at Chennai, they feel that more players will enter into CPVC segment.

They donĆ¢t buy the argument that Lubrizol technology to manufacture CPVC compound/resin is the best. They feel that all are equally good.

They accepted that Astral is a market leader in this segment and they are aggressive and good at introducing new products. Inspite of increase in sales, they feel that it will be difficult for them to maintain earlier margins.

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Thanks Naga for the update on Dutron. Want you to elaborate a little more on the interaction. You must have asked them allied questions, as below.

http://www.dutronindia.com/cpvc_pipes_fittings.html

1). Did you not query them about current capacities? Plans for expansion,etcā€¦ What did they have to say on that?

2). They make HDPE, uPVC Pipes, Plastic sheets. Where is their focus? Did they say CPVC is a focus area for them? Did you quiz them about sustainability of supplies from Sekisui, cost competitiveness with Lubrizol compound? Are they getting the resin only and making the compound themselves, or?

Dutron is a much smaller company with about 50 Cr in Sales in FY10, 9m growth/profitability is nothing to write home about, but seems to enjoy a PE of 13x ā€¦better than Astralā€™s!

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Since that was my first meeting with him, I did not want to ask too many questions about their company and Sekisui.

He was feeling that I am from one of their competitor company and trying to get the information.

After initial half an hour, he started sharing the information. Infact he has agreed for the factory visit also.

May be I could try during my next meeting.

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Hi,

Good results.Q4 Sales up by 39 per and EBITA up by 30 per.YOY sales up by 41 per and EBITA up by 30 per.Exceptional items this year 24 lakh compared to last years 2.99 cr.Full year eps 14.95.Capacity enhanced from 30867 mt to 48432 mt.Dividend enhanced from 20 per to 25 per.

Overall great work done by you all.This results reinforces the company growth story.

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Ventura Securities report on Astral Polytechnik.

https://ventura1.acesphere.com/Pdf/Equity/StockIdeas/Initiating%20coverage-%20Astral%20Poly.pdf

I think the aggregated information on Valuepickr thread is far better than the information in the report. However, you can have a look at the margins, financials and some neat graphs :slight_smile:

As is the case with every Analyst report nowadays, the target price is somehow always 20-30% more than the current price and the time period is always 15-18 months. Not to say everything is a buy. The same is the case in this report too.

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Astralā€™s Analyst Meet is scheduled to be held tomm. at 4 pm. You guys who are stationed in mumbai canattend the meet and have great insight on the future of the co.

Rgds.

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  • The analyst meet was TEEMING with people. At least a 100 analysts, and not all of them for the free food I am sure. For a stock with such sparse research, that was an aweful lot of analysts. But at the end of the ppt, I somehow just did not get a sense on the underlying demand. The demand is of course there, since they are able to consistently grow volumes. Management appeared very convinced about the large market opportunity.

While I pressed, and they attempted; I could not pin down the demand areas / demand drivers> Is it replacement demand, is itresidentialhousing, what will they do given the slowing retail growth? I just feelto grow a business with a second order demand at historic high ratescontinuouslyfor the next couple of years on a higher base seems difficult. But then I have been wrong on Prestige as well.

Overall: Great vibes from management. But I personally dont understand the industry. Congratulation to present investors.

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Key Takeaways from the Meet :

(1) Every FY company increases capacity in last qrtr. and this time too it has done so with the capacity increased to around 48,000 mt.

(2) For FY11 it has produced around 28,000 mt.

(3) In FY12 it will increase the capacity to 70,000 mt.

(4) For FY12 company is projecting a growth of 40 % in topline.

(5) It is having more than 5000 dealers at present but management was not sure for the figure and claimed it will be much higher as the marketing head which was there in the meet communicated at that time to the management that as on date they have crossed 2500 dealer figure in mumbai alone !! Overall, management indicated that company is now having presence in all the states of India.

(6) The future growth driver as per the management is blazemaster for which at present 10 installation-projects are going on the prominent one being at Nehru Centre, Worli. For use of this product actually BIS certification is required which uptill now company has not got but on the personal guarantee of some fire-protection-key-person the projects have been initiated.

(7) Co. is likely to get BIS certification within 3 months. the certification was not received uptill now because in India no lab had the capability to test product at 1500 degree C and now the company itself alongwith lubrizol hasforked out money to bringthis technology to India to a lab and so BIS personnel will now monitor the capability of the product and give their approval.

(8) This product is expected to replace existing products in the fire-protection systems (including fire brigades) and the new installation in projects for fire protection are going to be with this product only as per the management.

(9) The company has launched many products like ductile cpvc pipe which can be bended as also allkind ofchambers which has made the company the complete one-stop-shop for all plumbing installation requirements.

(10) Co. is focussing on pushing its products with end-users, architects, consultants and not on plumbers as co. says the plumbers donā€™t have much say in choosing of products. However, co. has embarked on an educational drive (much similar to that adopted by agrochemical and agri-input cos. for farmers) to educate plumbers regarding its products and use of its products and is doing this by having stalls at various Nakas where plumbers meet for search of work.

(11) Co. feels that slowdown in construction sector will not affect it much because the replacement market in India is huge as well as almost all the new installations are going for pvc/cpvc products because of saving of time and labour.

(12) Citing on global scenario, co. has said, in US CPVC products occupy 50 % market share while in Europe CPVC products are not much in use because there the water is not purified using chlorine.

(13) Rgdg. raw material use and price scenario, first, the company says it doesnā€™t have to do much as theraw materialcomes customised readymade in different colour drums from lubrizol and it just has to make pipes out of them. Second, on price increase, the co. said cpvc is much immune and lubrizol has increased price only twice in last six years and that too by only 3 % each time.

(14) With lubrizol, co. is having an exclusive relationship for corzan but non-exclusive for other products.Rgdg. flowguard, lubrizol has established relationship with other indian company recently.

(15) Co. is planning to start solvent cement plant within six months in tie-up with its foreign partner (from whom it procures cement at present). The company said this is the least risk business as even if it doesnā€™t consume entire produce of the plant internally, its competitors will procure this cement from it because they are importing it atpresent.

(16) Co. is having a capex of around 50-60 cr. for FY12.

(17) Co. borrows loans at LIBOR+3 % but said this should not be a concern to shareholders as company is having low d/e as also is keeping high roe.

Rgds.

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Mahesh Shah has covered most of the details.

Go through the following link to get info on capex and other details:http://www.indiainfoline.com/Markets/News/Astral-polytechnic/3733395512

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Hi Mahesh,

Thanks a lot for the notes. So were you present at the meetā€¦if yes, how was your feeling about the management?

Aditya, Thanks for the notes. The demand for their product is driven due to conversion from GI pipes in plumbing system to CPVC pipes. Please go through the nores in the above threadā€¦there is an actual shift taking place in this plumbing industry. I made inquiries in the market and their product is actually selling and people prefer it to traditional GI Pipes.

Thanks & Regards,

Ayush

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@Aditya - Thanks for your comments, the buzz and the feedback on Management. Many PMS arms of funds have reportedly taken positions in Astral, a couple I know myself.

@Mahesh - Thanks for the detailed notes, as always. Yours was a probably a better job than Capital Markets.

Like some more subjective feedback. Questions to both of you, as your individual subjective opinions will carry weight:

a) Did you get a feeling that Management came across as forthcoming and transparent, did try to answer all kinds of questions raised to the best of their ability, and did not gloss over contentious issues (e.g. blazemaster instals w/o approvals in place). Or was it different?

b) Did you get a sense that these guys know their market deeply, know what and why something will work, and know exactly how to go about it . That they are taking calculated risks, not throwing caution to the winds and making over-aggressive plans. Or, did you read it otherwise?

c) any space/time devoted to querying on Competition or its absence. Other CPVC (Non-Lubrizol) licenses from Akrema, Sekisui and their ability to compete with Lubrizol on price and RM availability

c) Astral was supposed to make announcement about a new product line, at this meet?

d) anything else that you may like to share, how do they support the distribution network for example, as 100% of sales are driven through the dealer network.

Itā€™s good to learn that Lubrizol-Astral is funding the Blazemaster test lab for BIS. Was this in response to a question, or came upfront from Management. It shows that licensee-licensor relationship is strong, and are jointly working to develop the market. The 2-3 month timeframe for approval looks difficult, unless the lab is already funded and is up. UL certification needed testing for 18 months!

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Hi Ayush,

Management seemed pretty confident and knowledgable rgdg. the business they are in but the coordination seemed lacking between key personnel of the management. I feel its the lubrizol relationship as well as lack of formidable competition that is making them so confidentā€¦in my previous posti forgot to mention one thing that management mentionedā€¦ they said inspite of repeated attempts, Reliance was unable to produce CPVC which ensures that Astralā€™s relationship with Lubrizol will continue to let it remain in forefront in India.

Other things I have covered in my next post in reply to Donald.

Rgds.

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Hi Donald,

Find my replies in boldā€¦

Yesā€¦ the management seemed reasonably transparent and forthcoming (much better than Cera Sanitaryware) and tried to answer all the questions to its best (except some like dealer discounts and all)ā€¦ one thing I will mention here that not many difficult questions came across thoughā€¦ also, they had brought about almost all their products for display and kept dedicated people for explanations rgdg. the productsā€¦ it was a meet-cum-exhibition and this thing I really likedā€¦however i noticed that not only analysts were present but also some dealers were present which i realised very late.

Noā€¦ I felt that it was first-mover advantage as well lubrizol relationship which is keeping them intact and in case of a formidable competition I donā€™t think they are capable enough to sustainā€¦ although some moves like keeping stalls at nakas and educating plumbersare good moves but there is no specialniche capability and products (except blazemaster) that the company hasā€¦ here i will like to particularly mention one thing that management mentioned , they said they donā€™t have to do any complicated things and even the CPVC for manufacturing different kinds of products comes in different colour drums from lubrizol so they just have to select a particular colour drum and manufacture pipe out of itā€¦ so where is the expertise that i canā€™e understandā€¦ in case lubrizol does tie-up with somebody else (as they have done in case of flowguard) or some formidable competition emerges in the form of Reliance to Lubrizol itself (at present there are only two competitors worldwide to lubrizol as said by the management of astral) then what will happen ? These are the questions that cropup in my mind after the meet and so I feel although astral has a great market share and presence in india but its not because promoters know the market deeply but its because theywere shrewd enough to tie-up with lubrizol first before anybody elseā€¦ agreed they anticipated the huge market potential of cpvc but still except tie-up there is no niche thing in the business itself which can prevent anybody to grab market share.

_Noā€¦ there was not much time devoted to discussing on competition as most of the time was spent on forecasting the growth ahead and productsā€¦ in fact there was no one to question hard enough rgdg. this matter as frankly speaking, even i didnā€™t do a deep study of the company and went to just have a feel of the company as it was discussed actively on this forumā€¦ _

No announcement was made except ductile pipes, solvent cement plant and expansion of capacity.

Management skipped the dealer discount question and they mentioned rgdg. presence in almost all states of India with dealers numbering more than 5000 (this thing I have covered in my first post)

It was from the management side only and if i recollect collectly, the lab is already up and running now and they said the approval will be received within 3 months and the projects that are going on w/o approval are on personal guarantee of some key fire protection personnel.

__

All and all, I feel management is transparent and forthcoming and is very friendly with financial community.

Hope I have replied to all queries to satisfaction.

Rgds.

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As per our interation with one of the Reliance person, Reliance is not interested in getting into CPVC segment since the market (as per them) is not so big.

During our interation with the management, one thing we also felt was that they are sure that Lubrizol will not have tie up with any one except them for any new product.

Regarding Flowguard, company themselves said that they suggested Lubrizol to give license to few more players so that product gets more advertisement & increase usage.

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Mahesh,

Thanks very much for the detailed answers. If I knew you will be attending, I would have surely equipped you to quiz more on competition, about competition licensed capacities, about the DCW-Akrema manufacturing plant, any threats from there, etc.

Next time yr invite for folks in Mumbai to attend should also say, ā€œI am attending see you thereā€. With your attention to detail, we could have got out more:). Anyways, next time. I knew Aditya was attending and again it slipped my mind to check with him whether he is looking to quiz on this aspect - my fault, I have to get better at co-ordinating our efforts!

I am convinced and comfortable about the big market size, and Astralā€™s current competitive positioning to address this effectively. There are only 2 questions in my mind

a) Lubrizol relationship strength. Emergence of someone bigger, better, faster whom Lubrizol also licenses or starts preferring

This we have got enough indications from management that this is not happening. They have 5yr exclusivity at the least on any new product. Joint funding of Blazemaster lab is another indication. Lubrizols record worldwide on licensee friendly,etc. So I am reasonably comfortable on this front.

b) Effective competition from non-Lubrizol CPVC licensees emerging

This is a bit distant as can be seen from no noticable capacities. The first one is DCW-Akrema is talking of only 10000 MTPA (vs combined Lubrizol capacity of over 10x most probably), but could suddenly surface.

This requires a bit more probing on our side.

Can you try and set up a meeting with Lubrizol guys in Mumbai? They have an office there.

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It was not a planned meet donald otherwise definetly told in advanceā€¦ actually i had a meet with a franchisee of a companyā€™s peer firm that Ihave recently startedtracking whichwas just near the venue of the meet of Astralā€¦ at the last moment the meet got cancelled so i thought of attending astralā€™s meet. I had even not referred to all the discussions on this forum rgdg. the company so was ill preparedā€¦ but overall the company seemed decent from a short to medium term perspective but not for long termā€¦

Rgds.