I will use this chance to add some more. This looks good for some more time (2-3 years). The stock will have a forex overhang till Apr’12 (till the company announces the annual results). If they can handle the forex situation, there is likely to be a bounce back.
But as Hitesh has pointed out before, the margins are unlikely to regain, so long term, the PE is unlikely to be higher than 8-10, I think, and we need to be cognizant of that while we value this company.
While i agree that margins probably will not recover to the previous highs, some recovery is possible if the new products (blazemaster, solvent cement and maybe even Al CPVC which are all supposed to be higher margin products) garner customers.
Meanwhile on a steady state basis, the asset turnover should increase quite a bit (given co is adding capacity at around 40% pa) which should prop up the RoCE atleast at the same levels.
All that said, this is a great business run by capable and honest management but not a great franchise. If it can be like Supreme Industries (great RoCE in an extremely competitive market) i would be quite happy
For it to be like Supreme Industries would take a lot of ongoing effort from the management. Supreme has a very conservative management, strong distributor network, factories all over the country to reduce transportation costs and very deep penetration in the marketplace. In this year’s Motilal Oswal (MOSL) Wealth Creator survey, Supreme was mentioned as one of the finalists who did not qualify justbecauseit was not owned by more than 80 institutional investors!!!
The filter criteria used by MOSL is very instructive:-
Screen #1: 20 years of uninterrupted dividend payouts
Screen #2: Dividends raised in at least 5 out of last 12 years
Screen #3: Earnings growth in at least 7 out of last 12 years
Screen #4: Average RoE of at least 15% for the last 12 years
Screen #5: At least 5 million shares
Screen #6: Should be owned by at least 80 institutional investors
Last couple of discussion arise a question on why would it trade at premium to sector leader Supreme Industries [which itself is trading at low P/E] ? Given that we are bullish on sector, why would we not buy sector leader almost at 3% yield rather than Astral which has forex overhang on it and may have more pain left in stock. Reason is that if leader crash, it’ll get more attractive from yield and hence it’ll protect downside while we dont have downside protection as such in Astral.
I just compared some statistics and from 2009 low, at CMP Supreme became 9 bagger and Astral is around 4+ bagger!
PS: I didnt study this business well but this thoughts are completely based on all discussion and Q/As posted here.
I am buying Astral because of their focus and marketshare on CPVC, flow guard and other specialized plastics that they are into. The expected growth is large.
Supreme is more like a big brother in the plastics industry and I think it will continue to do well in the future, although the growth will be more in the 10-15% range and not over 25% that I am expecting in Astral in the next 3 years.
Note: I have significant percentage positions of my portfolio in both Supreme and Astral so my views are definitely biased. I may be seeing beauty when actually the mirror is showing an ugly face!!
Astral in tie up with Alcaplast (sanitary ware manufacturer in Europe)
http://www.astralcpvc.com/images/Alca%20Plast%20Book-16.pdf?kid=10
My thoughts on Astral vs. Supreme
Astral is a pure plumbing products company vs. Supreme which has exposure to various segments in the plastic industry (plumbing products contribute only about 20% per my analysis with the remaining coming from packaging, furniture, industrial/consumer products etc). So in terms of size in the plumbing industry both are of similar size.
This does not mean that plastic industry is not attractive or that Supreme is not a good stock. Indeed plastic industry is also growing (albeit at a slower pace than CPVC) and Supreme is a wonderful company with great return matrics in an industry which generally has destroyed value!
Ultimately both are fantastic companies with great return ratio’s. Supreme is slower growing (revenues increased to 2x in the past 4 years) but with good dividend support while Astral is growing much faster (4x in the past 4 years). So i guess it boils down to individual risk preferences etc.
Also for Astral d/e was about .3x while that for Supreme it was about 1x (though it will come down if they sell the real estate development).
Fire broke out in one block of Astral Poly Factory Premises of the Company at Santej, Ahmedabad
http://www.bseindia.com/stockinfo/anndet.aspx?newsid=561e41d5-a94e-4f07-a1e2-d4da5b562f7f¶m1=1
Seems like this will have some effect on Q1 results, similar to that of Gujarat Reclaim’s fire.
Any comments on the results?
http://www.bseindia.com/stockinfo/AnnPdfOpen.aspx?Pname=Astral_Poly_Technik_Ltd_220512_Rst.pdf
)- Q4 topline increasesby29%toRs.182.84 Crore as againstRs. 141.69 CroreQ4 FY11
)- PAThas increased to Rs.19.28 Crore as againstRs. 13.02 Crorein Q4 FY11
)- Capacity utilization at38,824 M.T.as against the last year28,289 M.T.
)- Totalproduction capacity increased to65,496 M.T. from 48,432 M.T.
Astral results are good. Operationally Q4 turned out to be the best quarter.
At first glance, things are back on track. OPMs are back at 16% plus. The first 3 quarters were significantly lower from earlier year levels - and were a cause for concern, especially with Q3 performance.
If you look at FY11 and FY10, the results were more or less even, between the quarters. What I would look to understand more on
a) is Q4 sustainable, why and why not
b) what were the reasons for this big spread between the Quarters
Significantly, Working Capital/Sales is down to under 13% for FY12. This is a big improvement from 20% and 18% of Sales in FY10, FY11. And points to the company becoming more efficient as it is growing in size
Astral is a long term bet. The size of the opportunity before it is huge. It is our bet that it is best placed among the platics/piping companies to harness the opportunities before it - don’t forget the Lubrizol JV in the offing. Would be good to get some clarity on the progress on that.
There is a Analyst meet in a couple of days. Can someone attend?
Astral Analyst meet
Thursday 24 May, 2012 at 3.45 pm
Lotus Room, Trident Hotel, Nariman Point
RSVP: Sunil Mudgal, Concept PR, 9869275849
Lubrizol’s Gujarat Project hangs in Balance
This quotes unnamed Astral sources as saying Lubrizol has not got back for signing the JV agreement (supposed to have been by Mar 2012) - post the feasibility study in 2011.
My colleague attended analyst meet of Astral… Key takeaways that I was able to pick from him :
Key highlights :
(1) Q4FY12 was a one-off because of straight one time 6 % rise in product prices and margins will come-off to traditional levels in coming qrtrs.
(2) 25-30 % topline growth can be expected in FY13.
(3) Capacities are increased again to ~64,000 mt and with these capacities there is capability to generate 1000 cr. turnover.
(4) Like everytime, capacities are increased only in Q4 and CAPEX plans are drawn on similar lines.
(5) Div. distribution is low because company wants to conserve cash by seeing prevalent tough market conditions.
(6) Competiton in CPVC in increasing considerably with many, particularly Aashirwad tying up with Lubrizol like Astral. However, market is very huge atpresent which is not affecting sales.
(7) Astral has exclusive rights for manufactu. bendable pipes in India for 17 years production of which is started in Q1FY13. Annual turnover of 80 cr. can get generated from existing capacities but market is still untested.
(8) Blazemaster is still not picked up because of pending print-regulatory-approval which is expected within few months.
(9) Lubrizol JV is not expected to commence because of regulatory clearances, Only if 100 % clearances are received Lubrizol will go ahead for same.
(10) Astral has become the first manufacturer of CPVC cement solution.
(11) Astral has entered African market and is the first to introduce CPVC tech. there. African market is at a stage where Indian market was at 5 years before.
Just one addition, company has revised its hedge policy from 45 to 90 days to cover all risks as Lubrizol is giving 60 days credit with 30 days required for delivery.
Thanks a lot for your inputs!
Its not easy going for Astral - that’s the overall takeway I get. Lack of Progress on Lubrizol is a dampner on long term view. There is faith in the Management of the company though, that they know exactly what they are doing.
Can you probe your colleague/friend - what was the noise of Ashirwad tieing up with Lubrizol. Ashirvad was one of the 3 licensees in India for Flowguard technology from Lubrizol. Everything else that Astral has - like Bendable or Blkazemaster is supposed to be exclusiove to Astral for 5-10 years minimum. Can you ask him if there is any other new/existing product licensed by Ashirwad.
Asked him…
he said the name came up from the management’s mouth only at the time ofquery rgdg. rising competition and source of raw material for competition… Management replied that most of the competitors, including many unknown names have now tied up with Lubrizol and so there is no competitive edge on that front… While speaking rgdg. the main competitive tie-ups Aashirwad’s name was prominently mentioned alongwith others in general.
His overall perception was that body language seemed relatively muted however confidence was intact…Lubrizol tie-up was held up because MNCs don’t prefer to work unless 100 % clearances are received and regulatory authorities are taking lot of time for clearances…
Rgds.
Anyone can now tie up with Lubrizol. This is a significant piece of information.
a) The earlier info was Lubrizol is very very cagey about expanding base of licensees in any country. In the US in 42 years they had only 4 licensees. It told us that Lubrizol is unlikely to expand licensee base in India for basic CPVC compund
b) This may mean that Supreme and other players who were earlier rebuffed by Lubrizol and had to go to the french or Japanes maker with much lower volumes - no longer have those limitations. And a significant entry barrier is lost
c) Someone with bigger resources can set up 100000 MT in one go and queer the market for Astral and others
Time for another Management Q&A update with Astral I guess. Folks please start sending in your update questions - we can collate and do something by mid June?
Rgds
Donald
Donald… if its this much significant info for this company then I would like to cross-check again in detail with the guy who attended the meet since I have not personally attended the said meet…will get back again after detailed interaction on this aspect…
Rgds.
Hi Mahesh, can you also check the long term debt position. It seems to have doubled since last year. Also, since the company has not capitalized their long term forex debt losses, so what might be the long term impact.
