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

Stock Opportunities Not-so-Hidden Gems
102

http://www.moneycontrol.com/news/stocks-views/astral-poly-technik-may-rally-upto-rs-240-sharma_571482.html

VK Sharma, Head Private Broking & Wealth Management, HDFC Securities feelsAstral Poly Technikmay rally upto Rs 240 in next 6-9 months.

Sharma told CNBC-TV18, aWhat you have to look for is growth and the growth is very hard to come by when the overall weakness could be there in the overall economy with higher interest rates. So here you have to find pockets, which can grow consistently despite the rise in interest. So one of the stocks that we like from this sector is a smallcap stock called Astral Poly, it makes chlorinated PVC pipes, which the life of these pipes is larger or longer than the building, which will house them. So if you are putting up a very 5 star property where the renovation will take some years down the line you donat want a leaking pipe to spoil all that.a

He further added, aSo all these companies a the companies, which put a lot of value in their real assets whether itas hotel or other buildings use these kind of pipes and this is the only large manufacturer here, although there are two other companies. Now chlorinated PVC pipes are a itas a property of a company called Lubrizol in the US, which Hathaway has bought over now and they are going to take it private a itas a USD 8 billion companies, the Hathaway will take it private and at USD 135. There is a clear cut case that company, which has a current turnover of around Rs 400 crore and is addressing a market where there is a Rs 7000 crore of GI pipes, which is a I am talking about the replacement market and Rs 17000 crore of the fresh market. So as against that this company has registered a turnover of Rs 400 crore and the growth rate a we continue to believe that this company can grow at a rate of 30-35% and based upon that my own sense is that you could look forward to Rs 240 price, which is the current price is around Rs 200, in the next 6-9 months itself.a

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Astral Poly Technik
Capital Market / 15:25 , Aug 05, 2011

Strong topline-led growth continues

As usual, the company has registered growth of near about 40% for Q1 FY12. The net sales has increased by 41% toRs.100.35 crore. The company has utilized its capacity to the tune of 7576 M.T. as against the last year's same quarter of 4853 M.T. The OPM has declined by 37 basis points to 12.4% due to rise in the raw material cost. The net profit increased by 28% toRs.6.89 crore due to top line growth.

Standalone performance for the quarterly ended June 2011

The net sales has increased by 41% toRs.100.35 crore. The company has utilize its capacity to the tune of 7576 M.T. as against the last year's same quarter of 4853 M.T.

The OPM has declined by 37 basis points to 12.4% due to rise in the raw material cost by 670 basis points to 71.8% of adjusted net sales. However, there was fall in purchase of traded goods down by 490 basis points to 2.1% of adjusted net sales. The operating profit has increased by 37% toRs.12.45 crore.

The interest cost decreased by 10% toRs.1.04 crore. The depreciation has increased by 24% toRs.3.09 crore due to capacity expansion. Despite it, the profit before tax before forex grew by 52% toRs.8.81 crore.

There was a forex loss due to changes in foreign exchange rates ofRs.0.2 crore. The tax outgo has increased by 7% toRs.1.72 crore. The net profit increased by 28% toRs.6.89 crore due to top line growth.

Standalone performance for FY11

The net sales has increased by 41% toRs.411.47 crore. The OPM has decreased by 158 basis points to 13.1% due to rise in raw material cost by 300 basis points to 68.1% of adjusted net sales. As a result, the operating profit has increased by 26% toRs.53.94 crore.

Other income has inclined by 132% toRs.3.33 crore because of writing back of provision of earlier year and income on investments. The interest cost decreased by 5% toRs.4.59 crore while the depreciation increased by 25% toRs.10.72 crore. The PBT before forex inclined by 36% toRs.41.95 crore.

There was a forex gain due to changes in foreign exchange rates ofRs.0.24 crore. The tax outgo has increased by 51% toRs.8.6 crore. The net profit increased by 20% toRs.33.59 crore due to rise in top line and other income.

Other Developments

The company's expansion work at Dholka is going on with full swing and first phase of expansion will be ready by October 2011.

Valuation

The stock is trading at aroundRs.190 at BSE.

The promoter holding in the company is at 63.82%.

Astral Poly Technik: Standalone Results

1106(03) 1006(03) Var. (%) 1103(12) 1003(12) Var. (%)
Sales 100.35 71.15 41 411.47 290.99 41
OPM (%) 12.4 12.8 13.1 14.7
OP 12.45 9.09 37 53.94 42.75 26
Other income 0.49 0.34 43 3.33 1.43 132
PBIDT 12.93 9.43 37 57.26 44.18 30
Interest 1.04 1.16 -10 4.59 4.84 -5
PBDT 11.89 8.27 44 52.67 39.34 34
Depreciation 3.09 2.49 24 10.72 8.60 25
PBT before forex loss/gain 8.81 5.78 52 41.95 30.74 36
Forex loss/gain -0.20 1.20 PL 0.24 2.99 -92
PBT after forex loss/gain 8.61 6.98 23 42.20 33.73 25
Tax 1.72 1.61 7 8.60 5.70 51
Net Profit 6.89 5.37 28 33.59 28.03 20
EPS (Rs)* 12.3 9.6 14.9 12.5
* Annualized on current equity ofRs.11.24 crore. Face Value:Rs.5 each
Var. (%) exceeding 999 has been truncated to 999
LP: Loss to Profit PL: Profit to Loss
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New Astral Polytechnik report from Networth Capital

105

Wanted to clarify two things, not sure, if i am reading this right.

1. capacity additions without capacity util of over 80% - The company has added capacity without actually utilizing all of its exisitng capacity (source 2011 AR). Any reason why?

2. To get the company target of 1000 cr in the next 3 years, it only needs to add additional 18000 mt of capacity for about 25 cr.

Segment Information Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Unit realization 189.63 196.97 173.11 149.49 145.22
Capacity 9074 11800 25968 30864 48432
Utilization 5090 6895 11164 19411 28289
% 56% 58% 43% 63% 58%
Capex 27
per MT capex 15.37
With current installed capacity, max revenues 703.34
So to get to 1000 cr
installed capacity should be 33% higher 64414.56
incremental capex 24.56
106

Hi Donald,

Rupee is depreciating day-to-day and reached today Rs 48.25 per dollar.If we remember 2008-09 this company lost approx 8 cr due to forex.I think this year too this situation might get repeated and this may be risk to current market price.The short term situation is alarming.Please share your views on this situation.

107

Hi Om,

FY09 forex loss was due to Forex derivative contracts.

With prospects of Rupee appreciating drastically against the US Dollar, many companies had given in to the temptation of Forexderivative contracts (pegged aggressively by Banks), instead of simple 1 year forward contracts. That was pure & simple greed to make some extra bucks. The expectation was Rupee-US$ rate is going to go to 35. As we all know the Rupee reversed direction and went up to 50 to the dollar!

If you refer to the last Management Q&A, we asked them about this and the company categorically stated it has no outstanding derivative contracts. Companies have learnt their lessons (hopefully) and are back to simple 1 yr forward contracts.

So damage cannot be extreme like in 2009. And simple hedging will ensure margins are intact. As far as I understand this (I am no expert), all this talk of **rupee depreciation **helping exporters or impacting importers holds good only for those companies **who do not hedge a substantial portion **of their forex in/outgo. The IT companies for example, would hedge most of their earnings anyways!

Having said that, we should compile something on Forex outgo for FY12, on the lines of what I did for Mayur Uniquoters ( see that thread). Can you help prepare that?

-Donald

108

Hi Donald,

I agree that this time the effect may be not such like in 2009.As on 31 March, 2011 outstanding forward exchange contracts entered by the company amounts to only 21 cr.Foreign currency exposure not hedged by by derivatives amounting to 112 cr.

Value of Imported and Indigenous Raw Material and components Consumed :-

Sr.No. 2010-11 2009-2010

Total sales 410 cr 290 cr

Per of R.M/sales 70% 70%

TOTAL R.M 281 100.00 203 100.00

1 Imported 146 51.87 114 56.27

2 Indigenous 135 48.13 88 43.73

FY 2010 FY 11 FY 12 E

Sales 290 410 550

R.M 203 281 400

R.M/Sales per 70% 70% 72%

Imported R.M 114 146 205

exports 5.5 6.5 10

In a nutshell as Rupee depreciated by 10 per ,margins will impact by 2-3 Bps.My guess is 550 cr sales and 39-41 cr net profit (16-17 EPS)for FY2012.

Views invited.

109

LUBRIJOL CORP along with Astral going to develop 1100 cr Cpvc manufacturing unit in Gujarat.This project starts in 2013 and going to complete by 2014.

110

Hi Folks,

Not sure if the question has already been addressed and if so my apologies.

The way i see it, Astral’s CPVC business is -ve working capital (as lubrizol provides 120 days credit) therefore the current working capital requirments are mainly for the PVC business.

Given that CPVC already contributes 64% of revenues and is expected to be the growth driver, would the future w.c requirements be substantially lower (as % of sales) and give additional boost to RoE to take it above 30% maybe?

I know this is an optimistic projection and in valuation should not be used; I am just trying to get a sense of the upside from a w.c perspective (given that growth prospects have been extremely well-defined earlier in the forum).

Ofcourse, all this is assuming that Lubrizol will reduce the credit period; but on all accounts that relationship is extremely strong and becoming larger.

111

I think this happens when the Co is on a continuous expansion mode. The entire capacity will not be available for the entire year and hence the avg utilization for the year would be lower. What you should look for is the quarterly production which will show a much higher utilization

1).

112

Following Q&A sent in by Nagabrahma who recently visted Astral for a follow-up. Thanks a lot Naga.

Donald-Questions

1). Slowdown in real-estate/construction sector - any effect on their sales/margins:He says no effect. He feels if at all it would be after six to twelve months. But with the replacement market plus the new product launch (column pipe for the borewells), he feels 20 to 25% growth should not be a problem. The local dealer whom we had met last time has infact grown by 51%.

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2). Deepening relationship with Lubrizol - it might take till 2013,but is that JV/factory a certainty. Astral share in the JV/factory. Such huge investment should be aimed at supplying the compound for a global market from here?Management does not want to comment anything on this issue. But as per the dealer, this will come at their land at Dahej which is under Astral Biochem Pvt Ltd which is a subsidiary under Astral. Already they have started identifying staff for this project. He is not aware about the capacity or share of holding and so on. But one thing for sure, it is ON

3). In that case they will have much more advantageous RM terms/controlShould be and their working capital requirement would still come down as RM would reach them within a day unlike more than 15/30 days from US

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4). Competitors with Lubrizol technology will certainly be left behind??Yes. Not only that future any new product launches in India would happen only through Astral

5). New products, progress on the approval for Flameguard? whgat was it calledBlaze master: Looks like he has also got fed up with answering this question as the approval is not coming through. He says in all possibilities, the sales may happen only from FY13. But good news is that they are approaching state govts. and he said that he has got a confirmation that TN State Chief Fire Officer has approved their product. So it may only matter of time.

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They have launched Column Pipe for borewells for which Ashirwad claims that they have the patent. As per the dealer, he says qualitywise, Astral is better than Ashirwad and by the end of next year, he would get more than 60% of North Gujarat Business.

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6). Hottest selling product -SWR?Flow Guard & next is Aquarius

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Ayush Qns:

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Impact of depreciation of Re: He said that they had cover till September and thereafter they are buying Dollar at the market place. They have not found how much effect would be there on them. Lubrizol had raised their prices in July to which Astral have raised their prices. Due to the dollar appreciation, they have again increased 2.5% in September and 3.5% in October to cover the costs.

Second question about the impact on sales due to slow down in Real Estate which I have mentioned above.

Solvent Cement Plant: The work is already started and they are expecting around 5% revenues from this product.

Fourth question is about Blaze Master approval which I have explained above.

Trust this clarifies all your doubts. Let me know in case if there are any more.

113

Hi Donald,

Thx for the updates. Request you to also comment on my query on better w.c cycle going forward as CPVC continues to accelerate. Is that a reasonably correct assumption?

114

Hi Madyam

Interesting Question. It may be good to check this aspect with Management at next interaction. Sorry I missed answering this before.

Astral is equally aggressive in growing the PVC based products. SWR one of the fastest new products is PVC based as are many others.

Astral created a name for itself through the CPVC route and is now trying to muscle in onto existing huge PVC segment as well, where they are newcomers compared to the PVC old-timers.

I don’t think this 65:35 balance is going to get altered anytime soon. It may post 2013 if the Lubrizol JV/factory comes up.

115

oh ok…thx a lot donald

116

Very good results from Astral…net profit rises 29.77%…Sales rise 36.36%

OPM has reduced from 13.77% to 12.06% though…

117

Forexderivative **rupee depreciation helping ** who of

118

There is a loss of almost 8cr this quarter because of foreign exchange flucatuation. This will be accounted at the end of the financial year.

This is similar to the situation in 2008.

119

Networth downgrades Astral Polytechnik to Hold

Networth Capitalhas downgradedAstral Polytechnikto**Hold**with a price target of Rs 196 as against thecurrent market price(CMP) of Rs 189 in its report dated Nov. 9, 2011. Thebroking housegave the following rationale:

120

I was reading a note on Astral in another forum post its q2 results conference.

The new plant in Dholka is be completed by dec with capacity of 70000MT. with this plant running in full capacity, the sales will reach 1000cr!

Other salient points mentioned in the note:

1). Astral is entering into production of Aluminium PVC in FY13. Production of 1800 MT will get revenue of 70cr. High margin product.

Astral has obtained exlusive rights in india for 10 years. In other countries Lubrizol will market it and astral will manufacture.

Need to study the market size of Aluminium PVC ? It is supposedly used in oil industry.

2). start marketing of blazemaster this year - Market size 1000cr.

3). Hosur plant will start next year. what is the capacity ?

4). started selling column pipes Market - size 2000cr.

5). selling 1000 manhole inspection chambers.

6). solvent cement production started.

7). Lubrizol has increased raw material price by 5.8%

8). Astral to increase price in Nov by 4%.

9). capex for the year at 55cr

121

Read the Annual reports for Supreme Industries and currently going through Texmo Pipes. Both have started CPVC pipe manufacturing. Looking at the dominant status of Supreme in pipes and their distribution strength, I am pretty sure they will be scaling up pretty fast. Texmo is a small company and has also started CPVC manufacturing.