Astral Poly Technik Stock Analysis

Astral Poly Technik Limited (“Astral Poly” or the “Company”) is the domestic market leader in the niche CPVC pipes & fittings market. The Company manufactures plumbing, drainage, agriculture, industrial, electrical conduit and fire sprinkler pipes

Astral Poly has ventured in to the adhesives business via acquisition of Resinova Chemie and Seal IT Services in FY 2015.

The Company has 7 manufacturing plants producing pipes and fittings and 4 adhesives manufacturing units. Total installed capacity of Astral is 176,641 Mn tonnes per annum.

The Company has purchased land approx. 100,000 Sq. yard to establish manufacturing facility in Bhubaneswar, Odisha (East India). Plant will be ready by September 2020.

Plastic pipes & fittings contribute ~74% to revenue & the rest comes from the adhesive business.

Distribution Network:

[1] Pipes – the Company has 800 distributors and 30,000 dealers across India and

[2] Adhesives – 1800 Distributors and approx. 4 lac dealers. The Company has strong reach in West and South India—cumulatively contributes ~56% to sales.

Financial Performance

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

1,429.38

1,677.81

1,894.67

2,106.01

2,507.29

Growth

17.38%

12.93%

11.15%

19.05%

EBITDA (In Rs. Cr.)

167.76

207.58

263.81

316.80

384.93

EBITDA Margin

11.74%

12.37%

13.92%

15.04%

15.35%

EBIT (In Rs. Cr.)

131.34

165.79

213.61

259.67

303.50

EBIT Margin

9.19%

9.88%

11.27%

12.33%

12.10%

PBT (In Rs. Cr.)

109.52

137.05

203.35

250.77

286.99

PAT (In Rs. Cr.)

75.89

100.95

144.68

175.09

195.81

PAT Margin

5.31%

6.02%

7.64%

8.31%

7.81%

EPS (In Rs.)

6.41

8.43

12.08

14.62

16.34

EPS Growth Rate

31%

43%

21%

11.8%

Historic P/E (Closing Price of 31st March)

69.11

49.76

45.32

61.27

69.80

CURRENT P/E (based on price of Rs. 1275.55)

78.04

RATIOS

D/E

0.22

0.18

0.19

0.12

0.15

Interest Coverage

6.59

6.86

14.34

14.68

12.05

ROCE

16.97%

19.45%

20.91%

22.49%

20.42%

ROE

12.26%

14.25%

17.08%

17.20%

15.33%

Astral Poly – Peer ComparisonAstral PolyWHAT’s DRIVING THE STOCK?

Diversified Business

Astral Poly has successfully diversified from being a pipes and fitting manufacturer to a plumbing products player by entering the adhesives business via acquisition of Resinova Chemie and Seal IT Services (FY15). Currently, the pipes & fittings business accounts for ~76% of its sales; this share is estimated to dip to ~68% by FY21E with increase in share of adhesive and corrugated sewage pipes business.

Market Leadership

The Company is the domestic market leader in the niche CPVC pipes with 25% market share. The Company is also the fifth-largest player in plastic pipes, with 6% market share.

Investment in Brand & Promotional Activities – The Company has continuously invested in brand & promotional activities (branding through Bollywood movies, associate sponsor of Indian Premier League teams, etc.).

Astral PolyFocus on Adhesive Business

The Company has gained a sizeable size in the adhesive segment led by the acquisition of Resinova and Seal IT (FY15). Astral expects the business to grow led by:

  • Expansion of product portfolio by 20-22 (from 7-8 currently)
  • Increased Advertisement & Promotions spends to create higher visibility for products
  • Rise in utilisation of domestic capacity by increasing distribution network.

Capacity Expansion

The Company is expanding its pipes capacity by building a 22,700 MT manufacturing facility at Giloth (Rajasthan), which commenced production in Q2FY19. Astral is also planning additional 22,000MT plus capacity at Hosur in South India by FY20. Further, it is eyeing 20,000 MT capacity expansion in East India as well. Astral’s capacity is estimated to reach 2,50,000 MT by March-2020, which will lead to volume growth and market share gains.

Entry into Corrugated Pipes

The Company has ventured in to the business of manufacturing and supplying  double-walled corrugated pipes (DWC) space through the acquisition of  Rex Polyextrusion in July 2018. This has helped Astral in diversifying into high growth segments of the pipe industry like urban infrastructure (sewage, drainage, rainwater) and cable ducting in telecom.

WHAT’S DRAGGING THE STOCK?

Volatility in Crude Oil Prices

Upward trend in crude oil price pose a threat on margins for Astral. The raw material required for adhesives are also crude derivative products.

Competition in both Pipe and Adhesive Segment

Major Players in the Adhesive Segment

Adhesives & Sealants

Water based Glue

Rubber Adhesives

Acrylics

Epoxy Sealants

Epoxy  Adhesives

Major Players

·   Pidilite (Fevicol)

·   Huntsman( Karpenter)

·   Resinova (Zesta)

·   Fevibond

·   Dendtrite

·  Resinova (Hexon)

 

·   Pidilite (Fevikwik)

·   Resinova (Resiquick)

·   Pidilite (M-Seal)

·   Resinova (Bondset)

·   Huntsman (Araseal)

·   Huntsman (Araldite)

·   Resinova(Bondtite)

·   Asian Paints (Loctite)

Expensive Valuation

The stock is trading at price-to-earnings multiple of 78x, which is higher compared to its peers.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.