Management Meet Note Rating matrix Rating : Unrated Target : NA Target Period : NA Key Financials ( Crore) FY13 FY14 FY15 FY16 Net Sales 825.4 1,79.6 1,429.9 1,719. EBITDA 115.3 155.1 168.3 25.2 Net Profit 6.6 78.9 75.9 1.6 EPS ( ) 5.1 6.6 6.3 8.4 Valuation Summary FY13 FY14 FY15 FY16 P/E 11.6 85. 88.4 66.7 EV / EBITDA 58.7 43.9 4.6 33.1 P/BV 27.8 21.3 1.8 8.6 RoNW (%) 25.1 25. 12.3 13. RoCE (%) 31.4 31.8 17. 17.3 Stock Data Particular Amount Market Capitalization ( crore) 676. Total Debt (FY16) ( crore) 132.7 Cash (FY16) ( crore) 54.2 EV ( crore) 6784.6 52 week H/L ( ) 591 / 367 Equity capital ( crore) 12. Face value 1 Price movement 6 5 4 3 2 1 Apr-14 Aug-14 Research Analyst Sanjay Manyal Dec-14 Apr-15 Aug-15 ASTPOL (LHS) Dec-15 sanjay.manyal@icicisecurities.com Hitesh Taunk hitesh.taunk@icicisecurities.com Apr-16 Aug-16 Dec-16 Nifty (RHS) Apr-17 1 8 6 4 2 April 25, 217 565 Capacity addition to drive future growth We recently met the management of Astral Poly Technik (APTL) to understand the business model and outlook, going forward. APTL is operating mainly in two business segments viz. 1) Pipe and fittings & 2) adhesive and sealant segment. APTL was the first company to receive a license for manufacturing CPVC piping system in India. It is a market leader in the segment. Currently, pipe and fittings contributes ~74% to the topline while 26% is contributed by adhesive segment. The company operates three pipe manufacturing plants (capacity of 1,27, MTPA) and over 25, dealers network across India. As a part of diversification, APTL entered the adhesives & sealants segments with acquisition of Resinova Chemie (India) and Seal IT services (UK). With this acquisition, ATPL now has a presence in construction chemicals, sealants, industrial maintenance products, hardware and sanitary adhesives, electrical insulators and automobile adhesives, etc. APTL recorded a strong performance in FY11-16 with revenue, earning CAGR of 33% and 25%, respectively. This was largely led by strong demand in the plumbing & drainage segment (resulted in capacity addition at 21% CAGR in FY11-16) and acquisition of adhesive business. Leader in CPVC piping segment, expanding in agri segment APTL was pioneer in the CPVC piping industry. Over the years, the company launched various new products in the CPVC piping segment and gradually added PVC products in the portfolio as part of diversification. Demand for plastic piping products was supported by replacement of metal/cement pipes and pent up demand from housing, agriculture, industrial segments. In the last six years, APTL has expanded pipe manufacturing capacity by ~3x to 1,27,762 MT by FY16 mainly to serve rising demand of plastic piping/plumbing products from housing and agriculture This, coupled with addition of new capacity, helped APL to drive piping division revenue CAGR of 33% in FY11-16. Diversification through acquisition of adhesive business Addition of the adhesive business to the kitty with two back-to-back acquisitions in UK (Seal IT) and India (Resinova Chemie) in FY15 was a step to de-risk the business from concentration of a product. Acquisitions to foray into adhesive coupled with global partnership helped APL achieve 1) scalability, 2) strong R&D, 3) launch of quality/premium products, 4) opportunity to cross-sell various products and 5) Addition of dealer network (adhesive division: ~5,, touch points) helping the company to increase its retail contribution in sales to 5% from 3%. Exhibit 1: Financial Performance ( crore) Q3FY15 Q4FY15 FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 FY16 Q1FY17 Q2FY17 Q3FY17 Revenue Piping 293.3 361. 126. 261.8 326.7 338.5 412.9 1285.5 339.7 357.6 383.8 Adhesive 71.4 11.1 223.4 98.4 114.7 11.5 119.1 432.8 131.7 131.4 123.3 EBIT Piping 16.7 36.7 13.7 28.8 32.3 19.4 4.6 119.6 28. 28.6 36.8 Adhesive 8.5 1.7 29.7 12.2 11.9 1.2 13.8 47.9 15. 15.8 14.2 EBIT Margin (%) Piping 5.5 1.3 8.5 11.1 1. 5.7 9.8 9.4 8.2 7.7 9.5 Adhesive 11.2 1.3 13. 12.7 1.7 9.2 11.4 11.4 11.2 11.2 11.3 Astral Poly Technik (ASTPOL) ICICI Securities Ltd Retail Equity Research
Other management meet highlights: The plastic piping industry (largely PVC) is pegged at 215 crore, growing at a CAGR of ~12-15%. The industry is dominated by organised players with ~65% market share (in value terms) while unorganised market is ~35%. Under the plastic piping industry, the CPVC piping industry is highly regulated (due to use of chlorine) and technology driven industry. Hence, 85% market share is held by organised players. Astral enjoys first mover advantage largely among CPVC player in India with 25% market share The company has gradually entered the PVC piping segment (contributes ~48% of piping revenue) mainly 1) to de-risk the business (from single product portfolio) and 2) to focus on the agriculture segment (current opportunity size is ~ 6 crore) The demand of the plastic piping industry is likely to follow historical growth trend (of ~12-15%) mainly due to 1) huge replacement demand from traditional GI pipes to CPVC pipes, 2) high life cycle of CPVC (of over 25 years vs. 15 years of GI pipes), 3) flexible to transportation and easy to install, 4) government s social schemes such as Housing for all, Swachh Bharat Mission and focus on increasing irrigated land area APTL operates four piping plants (three in India and one in Kenya) with overall capacity of ~127 MT by FY16. As part of the extension in the building material category, APTL has entered the adhesive and sealant segment by acquiring three companies viz. Resinova Chemie (India), Seal It (UK) and Row Industries silicon tape business, respectively Under the piping segment, APTL has access to over 75 distributors and 25 dealers across India while for the adhesive segment the company has 25 distributors and over 4,5, dealers in India. Seal-It has over 18 customer base (dealing with Seal IT products) in the UK. The company s strong dealer network in the piping and adhesive segment helped APTL to increase its retail contribution to 5% from 3% The company plans to increase its piping capacity gradually by adding another ~4, MT by FY19. APTL s new CPVC/PVC pipe and fittings plant in Rajasthan is likely to commence by FY18. The company has also doubled its adhesive and sealant capacity by adding new plant in Gujarat. It has also modernised the adhesive and sealant plant in Kanpur (UP). The major capex for this capacity is already over The company entered into technical tie-ups with various multinational companies globally. The technical collaboration has helped APTL improve the quality (by adopting new technology) thereby producing international standard products at minimal operating costs After the end of the tie up with Lubrizol, APTL has launched its own brand of CPVC pro, Chemp Pro and Fire Pro (substitute of Flowguard, Corzan and Blazemaster, respectively) After discontinuance of raw material sourcing tie-up with Lubrizol, APTL joined hands with Japan s Sekisui Chemical Co to outsource CPVC resins. The company has also started its CPVC compounding plant at Santej (Gujarat), which is the main raw material for manufacturing CPVC pipes and fittings. The company has spent 5 crore for commencement of the plant. Backward integration would help APTL improve EBITDA margin by ~1-2 bps ICICI Securities Ltd Retail Equity Research Page 2
Exhibit 2: Astral product range under plumbing material Since major capex is already over (doubling adhesive and sealant capacity & addition of new CPVC/PVC fitting plant in Rajasthan), the company is now focusing on increasing the asset turnover of the plant. APTL s utilisation was at 61% in FY16. We believe a recovery in EBITDA margin and increase in asset turnover would help in improving return ratios, going forward The company plans to launch various products in the adhesive and sealant segments (like epoxy, solvent cement & Silicon) in the near future Hot and Cold Water Plumbing System Multilayer Composite Pipes Lead Free upvc Piping System Conventional Drainage System Leak-proof Drain Waste and Vent System Lead Free upvc Column Pipes for Submersible Pumps Superior Push-Fit Drainage System Strong and Light Weight Drainage System Ultra-Modern Underground Drainage System upvc Pipes for Protection of Concealed Wiring upvc Pipes For Agriculture and Water Transportation CPVC Fire Sprinkler System Support System for Pipes and Fittings :Clamps & Hangers Industrial Piping System Exhibit 3: Plant location and product specification Plant Location Piping plant Products Santej (Gujarat) CPVC Piping System for Plumbing, industrial & Fire Protection, UPVC Piping System for Plumbing, UPVC Column Pipes,Manholes / Chambers Dholka (Gujarat) Hosur (Tamil Nadu) Nairobi (Kenya) Adhesive manfucturing facilities Rania(Kanpur, Uttar Pradesh) Unnao (Kanpur, Uttar Pradesh) Santej (Gujarat) Seal IT Services Ltd U.K. U.S. Silicone Tapes PVC Piping System for Drainage, UPVC Agriculture Pressure Pipes, Electrical Conduit Pipes CPVC Piping System for Plumbing, PVC Piping System for Drainage, UPVC Agriculture Pressure Pipes Plumbing & Drainage systems Cyanoacrylate, Solvent Cements,Tile Adhesives, Silicone Sealant,Tapes, Putty Epoxy, PVA, Construction Chemicals Solvent Cement, Cyno, Putty, Silicone Sealants, Epoxy, PVA, Construction Chemicals, Tile Adhesive Bitumen, Hybrid MS Polymer, Polyurethane, Acrylics, Silicone Sealants, PVA, Tile Adhesives, Waterproofing Solutions ICICI Securities Ltd Retail Equity Research Page 3
Exhibit 4: Adhesive and sealant product range of Resinova Chemie (India) Exhibit 5: Adhesive and sealant product range of Seal IT (UK) ICICI Securities Ltd Retail Equity Research Page 4
Financials Exhibit 6: Revenue mix Exhibit 7: Capacity addition at 21% CAGR in last six years PVC 33% CPVC 41% Adhesive 26% (MT) 14 12 1 8 6 4 2 127762 97164 12371 65496 77212 48432 Capacity Utilisation 7 68 66 64 62 6 58 56 54 52 (%) Exhibit 8: Strong revenue CAGR of 33% in FY11-16 Exhibit 9: Gross and EBITDA margin trend ( crore) 2 15 1 5 1719. CAGR 33% 1429.9 179.6 825.4 582.7 411.3 (%) 35 3 25 2 15 1 5 28 29 29 28 32 27 13 14 14 14 12 12 EBITDA margin Gross Margin Exhibit 1: Strong PAT CAGR of 25% during FY11-16 Exhibit 11: Return ratio trend ( crore) 12 1 8 6 4 2 CAGR 25% 11 79 76 61 33 39 (%) 35 3 25 2 15 1 5 31.2 32.4 28.8 24.3 25.1 25. 22.2 21.4 16.2 12.3 14.9 13. RoE RoCE ICICI Securities Ltd Retail Equity Research Page 5
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