Astral Polytechnik Ltd. (BSE: 532830)Astral Polytechnik Limited is the first licensee of Lubrizol of USA and has equity jointventure with Specialty Process LLC of USA (manufacturing CPVC plumbing system since 25years) to manufacture and market the most advanced CPVC plumbing system for the firsttime in India. “10in3" – Small Cap Multibagger for April 2011 HBJ Capital, India Web: www.hbjcapital.com Mail: Info@hbjcapital.com Call: +91 98867 36791
Best Buying Price… Multi - Phase Buying Strategies Suggested [Always buy with SIP] 1st Phase : Buy at the price range Rs 160 - 170 [40% of investment] Subsequent Phase : Buy at the price range of Rs 135-150 [60% of investment] >>>Expect at least 7/8 times returns in next 3-4 years time frame!!!
HBJ Cap is growing faster than ever.HBJ Capital can be your 50x in 3years investment. Ask how?
Table of Contents From the desk of CEO, HBJ Capital Plastic Industry – Page# 06 Astral Polytechnik Ltd (Snapshot) – Page# 19 Advantages CPVC – Page# 25 Product Range – Page# 30 Growth Drivers – Page# 34 Financial Statements – Page# 35 Management – Page# 38 Best Buy Strategy - Page# 41 Challenges / Risks involved - Page# 43
From the desk of CEO, HBJ Capital Dear Investors,While making investment It is time to explain rational behind our bullishness on plastic-look for companies being ignored by everyone else because you may end up “per capita plastic consumption in India is among the lowest in world, and ~30% of worldfinding a hidden gem and average. This comparison alone doesn’t lead us to predict high growth in per capita once you find one, invest consumption. It is the inflexion in per capita income achieved during FY11, which leads us to in it and relax. You have this stance. Other economies (like China) also grew at a sustained-higher rate beyond this done your job and justfollow the performance of inflexion point.” the company. Wealth creation will happen Indian Plastics Industry is expanding at a phenomenal pace. Major international companies automatically. from various sectors such as automobiles, electronics, telecommunications, food processing, packing, healthcare etc. have set-up large manufacturing bases in India. Therefore, demand for plastics is rapidly increasing and soon India will emerge as one of the fastest growing markets in the world. The next two decades are expected to offer unprecedented opportunities for the plastic industry in India. This would necessitate industry initiatives to foster investments, grow the market, upgrade quality standards, enhance global participation, encourage Indian industry, to adopt and adapt to world class technology and manufacturing practices. Happy Investing! Kumar Harendra, CEO, HBJ Capital Services Pvt. Ltd www.hbjcapital.com , www.multibaggerpennystocks.com #912, 1st F Main Road, Girinagar 2nd Phase, BSK 3rd Stage, Bangalore 85; Call : 098867 36791 or 080 65681134, E-Mail : Info@hbjcapital.com
Indian Plastic Industry - Structure Low Capital Intensity Largely Unorganized Upto 30000 of Players End User Industry Polymer Agriculture Manufacturers Infrastructure Plastic Processors Packaging Automobiles ElectronicsHigh Capital Intensity Organized 10-15 Major Players Equipment Manufacturers Recycling Industry Medium Capital Intensity Organized 150-200 Major Players Low Capital Intensity Primarily Unorganized Upto 10000 Players
Polymer Sector – Key ObservationsIndia has a strong base in polymer manufacturing with the presence of large organized players. And large amountof imports despite self sufficiency, keeps domestic polymer prices under check and thus an advantage for PlasticProcessors.Polymer capacities on rise, would keep abreast with rising plastic demandThere exists an inverted import duty structure between crude oil and napthaFeedstock prices have risen significantly which has resulted in polymer prices increasing consistently.Some of the major players are – RIL, IOCL, HPCL.
Plastic ProcessingIndia does not enjoy economies of scale.Small Scale Industries (SSI) Policy has resulted in fragmentation and small capacities in processing segment. The policy has reserved~16% of plastic value added products for SSI.Unorganized sector accounts for 70% of industry turnover.India has among the lowest per capita consumption of polymers at 8kg, whereas, global average is 27kg and Chinese at 24kg.Negligible share in world processed plastic trade, at 1%.There is tremendous scope for innovative technological up gradations, cost rationalization, and economies of scale.Organized players with established brands command a premium for their products.
Polymer Usage Scenario in IndiaIndia holds immense potential for use of plastic in Agriculture and Infrastructure
Polymer Usage – Vision 2012 All Figures in MMT Status Quo Vision 2012The excess 6% CAGR growth in polymer usage is coming from higher application growth rate inPackaging (22%), Plasticulture (59%), and Plastic in Infrastructure (19%).Our focus here is Plasticulture, and Infrastructure – Plastic pipes, and Irrigation
PlasticulturePlasticulture is the use of plastics in agriculture, horticulture, water-management, food grains storage and related areas. Avariety of plastics materials and end products are deployed in plasticulture applications - for water conservation, irrigationefficiency, crop and environment protection, as well as end product storage and transportation.Plasticulture applications are one of the most useful indirect agricultural inputs which, hold the promise to transform Indianagriculture and bring in the “Second Green Revolution”.Applications (relevant ones highlighted) –Pond & Reservoir LiningDrip IrrigationPlastic pipes in water distribution networkPolyethylene Greenhouse & Low tunnelsPolyethylene farm mulchingSub - surface drainage using plastics corrugated pipesPlasticulture in packagingOther applications Green House, Shade HousePressurized IrrigationGrowth DriversIndia has an ambitious growth target of 4.1% in Agriculture, which translates to 1,50,000 crore increase in Agriculture GDP.It requires both demand and supply side interventions. And Plasticulture alone can provide 50% of the indentedincrease.
Plasticulture – IrrigationInitial cost of establishing a Micro Irrigation Systemis high, hence out of reach of resource poor farmer– Task Force on Micro Irrigation
Plasticulture This will directly impact Agri-GDP by increased farm income. All Figures in crores
Infrastructure – Plastic PipesChemical Degradation is not observed in PVC pipes – offer a projected life span of > 100 years without any loss instrength.PVC pipes are lighter and therefore easier and cheaper to install – • Light weight reduces transportation cost • Heavy machinery requirements and onsite handling requirements are reduced
Plastic a Preferred Material for Pipes London and Shanghai are modifying their existing water distribution system with Plastic pipes.Pipe breakage is the biggest cost for waterdistribution utilities.As per estimates, US would need to invest $138billion to repair water infrastructure.China has encouraged use of plastic pipes.
Plastic Pipes – Growth DriversDespite the successful implementation of plastics in piping internationally, there is low usageof plastic pipes in India.The government has targeted to provide access to piped water to 87% India’s urbanpopulation by 2017 – • This will involve investment of 87000 crore • Use of plastics in achieving this target can reduce the upfront investment requirement by 20%
Housing – Growth DriversIt has been estimated that the Indian middle class population would increase from 50 million in 2007 to 583 million by2025.One estimate places the current short fall in dwelling units in the country at 25 million underlining a huge demand forhousing in India.Investment in residential and commercial construction in the country has increased phenomenally from US $ 12 Billion in2005 to US $ 60 Billion in 2010. It is further expected to increase to US $ 90 Billion in 2015. These figures clearly reflectthe market potential available in the Housing and Commercial segments.As Indias growth story unfolds with the GDP growth hovering between 8.5 – 9 % during the next 2 to 3 years(the GDP growth for 2010-2011 is estimated at 8.5%), the plumbing segment is expected to grow at 20% p.a.during this period.The market is catered primarily by GI pipes. But growing awareness about better products, and their availability in India isshifting the demand in favor of Plastic Pipes.Of the total market share of plumbing in India, CPVC share stood at 5.35% (12000 tons of the total 168000tons market). Galvanized (GI) pipes stood at 52% while steel is expected to be around 47%. So the potentialto tap the markets of GI and steel is huge.According to the management (of APL), CPVC industry will grow from 12000 tons to 25000 tons marketwithin 3 years.
Astral Poly Technik – Snapshot (April 29th 2011)CMP – Rs. 165 (The stock is trading at 11.5 times its Promoter’s holding – 63.82%TTM EPS, which is not expensive, compared to itspeers in plastic pipe business.) Book Value – Rs 104 (FY10)MCap – 371 crore (The company trades at attractive Debt to Equity Ratio – 0.3 (The company has alwaysP/S ratio ~1. Given, that its products are value added kept low debt, and is consistent with their business risk –and command a premium in market.) dependency on imports, and licensees for global brands)EPS – Rs. 14.37 (TTM Basis, adjusted for stock split) Total # of shares – 2.2476 crore shares52 Week High / Low – 194 / 95 Liquidity – Low Face Value – Rs. 5 FII Holdings: 1.09% Foreign Promoter: 25.62% Website: http://www.astralcpvc.com/home.aspx
Astral Polytechnik Ltd.Astral Polytechnik Limited is the first licensee of Lubrizol of USA (Now a Berkshire Hathaway Company, pickedrecently by legendary investor Warren Buffet) and has an equity joint venture with Specialty Process LLC of USA(manufacturing CPVC plumbing system since 25 years, and hold 14% equity in the company) to manufactureand market the most advanced CPVC plumbing system for the first time in India.Astral Polytechnik Limited was established in 1999 with a single minded purpose to manufacture absolutely the bestplumbing system in India.Astral today manufactures CPVC plumbing systems for both residential and industrial applications, and also ASTM solventweld lead free PVC plumbing system. And is a leader in this segment of business.Currently, APL manufactures 50-60 varieties of pipes and about 250-300 kinds of fittings. Broadly the sales of the companycan be divided as 70% from CPVC pipes, 29% from PVC pipes and 1% from others.It enjoys monopoly status in higher end products Corzan & Blazemaster in Indian markets as of now.
Astral Polytechnik Ltd.APL grew its sales at 41% CAGR for the last 4 years.The trend continues this year also. For the nine months ended December 2010, net sales increased 43% to Rs 269.56 crore. Thecapacity utilization was at 18,328 MT (capacity of ~30000 MT), a growth of 39%.PBT before forex effect increased by 40% to Rs 26.94 crore. There was a forex loss due to changes in foreign exchange rates of Rs 1.07crore against gain of Rs 36 lakh. Thus PBT after forex loss grew 32% to Rs 25.87 crore. Tax outgo has increased by 59% to Rs 5.30crore. Finally, net profit increased 26% to Rs 20.57 crore.The strong top line growth for Astral Polytechnik is coming due to new products, strong distribution and dealershipmodel that the company follows.Almost all the products of the company are doing well. Astral Sewerage and Waste water pipes, Underground pipes, Chambers inparticular are doing great.Various products launched by the Company in the recent past, such as SWR Pipes, Underground Drainage Pipes, Foam Core Pipes etc.are getting very good response from the local markets. The company is planning to launch these products on PAN INDIA. Further thecompany also launched Manholes and Inspection Chambers in the Indian Market. APL expects a good market for these new products.As of now, Astral is the only Company in the Indian market whose CPVC products are approved by the NationalSanitation Foundation (NSF, USA), signifying the commitment of the company to maintain the superior quality of itsproducts and its unique brand image.Till date, the company has dealer network of about 5500. There are still about 10000 dealers, which are untapped by the companyand who do not sell company’s products. During next couple of years, the company plans to add about 3000 dealers. The growth iscoming from all geographies and predominately from the retail segment. Southern market however is so far the bestperforming market during FY’11 and the response is very strong. Sales in Kenya to get a boost from commercial productionstarted this fiscal.In FY’12, the company plans to spend Rs 25 crore for green field expansion at new locations namely Dolka in Gujarat and Hosur inSouth India with total capacity of about 15000 tons. The land in Dolka is already acquired and that part of capex is done. Hosur willinitially be on lease facility.
Product RangeAstral FlowGuard PVC - is the right choice for todays hot and cold water distribution systems. Stringent product quality testing inindependent laboratories ensures that Astral CPVC products are of the highest international standards. Combining performance,durability, reliability, safety and cost savings, Astral pipe is the logical choice over copper, galvanized and alternative plastic systems.Astral Corzan CPVC - is a high heat, corrosion resistant chlorinated polyvinyl chloride (CPVC) material. Because of its excellentcorrosion resistance at elevated temperatures, it is ideally suited for self-supporting constructions where high temperatures area concern. It can be used (depending on chemistry) up to 180º F. Corzan CPVC is manufactured without fillers or plasticizers. Itexhibits excellent fire properties UL-94V-0 and flame spread less than 20 per ASTM E-84. It is primarily used in transportation of highlycorrosive industrial chemicals.Astral Aquarius – PVC plumbing system for outer loop lines. PVCs abrasion resistance, light weight, good mechanical strength andtoughness are key technical advantages for its use in building and construction applications.Astral BlazeMaster® - pipe and fittings are designed specifically for fire sprinklers systems. They are made from a specialtythermoplastic known chemically as CPVC. The pipe and fittings provide unique advantages in sprinkler installations including superiorhydraulics, ease of joining, increased hanger spacing in comparison to other thermoplastics, and ease of assembly. They are alsobased on a technology with a continuous and proven service history, of more than 40 years. ASTRALs BlazeMaster®ssmooth interior surface offers lower friction loss than metal systems, enables to use smaller pipe diameters and save on material costs.Astral ULTRADRAIN uPVC - pipes and fittings are cost effective, easy to install and are made for life time trouble free service. AstralULTRADRAIN pipes and fittings are available in range of 75 mm and 110 mm. The entire range is manufactured as per internationallyaccepted quality standards and specifications.Astral FlowGuard® Bendable - composite pipe combines the corrosion-resistant benefits of CPVC with the flexibility and strength ofaluminum in this one-of-a-kind, multi-layer pipe. Assembly of the pipe incorporates an internal bushing and the standard AstralCPVC fitting, along with the use of one step solvent cement. This kink-resistant system allows for long runs of potable waterpipe to be bent and protrude through concrete with all joints made above grade. Its excellent combination of flexibility andrigidity keeps the pipe workable, yet it stays in place. This unique combination results in reduced installation time which translates intoa lower installed cost compared to other piping options.
Product RangeAstral “Foamcore” uPVC pipes are suitable for residential and commercial drain, waste & vent piping systems for both undergroundand above ground applications with top quality raw materials and state-of-the art processing technology, Astral Foamcore pipes meetall industrial standards in addition to our own rigorous quality control standards.Foamcore pipes are basically multilayer pipes having outer and inner layers of conventional PVC and middle layer of foamed PVC.Outer and inner layers are designed to take the load and middle layer of foamed PVC gives rigidity and maintains the shape of thepipe under load. It reduces total weight of pipe and makes it light when compared to solid wall PVC pipes.Astral Foamcore pipes are manufactured as per European and International standards published under structure wall pipes for drainageand sewerage and are mainly based on stiffness classes. These specifications are very well adopted at global levels and are in used formore than 25 years.
Growth DriversHuge shortages in housing persist in the economy and government is supporting in a big way affordable housing. There is alsoconsiderable emphasis on infrastructure spending. The growth in commercial construction, malls and SEZ throughout the country offergreat opportunity for development of ASL’s business.The increased awareness of CPVC products both within and outside the country gives a boost to the replacement demandfor various products of your Company. In many old constructions where metallic pipes need to be replaced because of theproblems of corrosion, scaling and rusting, CPVC pipes and fittings are used.The increasing brand consciousness amongst the builders, architects, plumbers and consumers will help the Company toperform better in the years ahead supported by its concerted and continued efforts in brand promotional activities.The company is enjoying its presence in different segments of construction and infrastructure industry such as housing, commercialconstruction, airports, hotels, malls, hospitals etc. With a diversified demand base the company expects to turn out robust results in thecoming years when the economy is expected to grow at the rate of 9 – 10 % p.a.Roughly the company’s sales can be divided into rural and urban (Tier 1, 2 & 3 cities) in range of 25% and 75% respectively. Goingforward, one of the growth drivers will be supplies to rural projects specially the municipality supplies. Astral today hasportfolio of higher and lower range of pipes and fittings which is suitable for value markets and premium markets as well.The company continues its endeavors to increase its operational efficiency and its innovativeness by bringing out new value addedproducts in the market thereby building sustainable competitive edge over others.The main thrust is on product innovation and diversification. All efforts are made to reduce cost of production, to make theproducts more competitive in the market.Its strategic alliance with Speciality Process LLC, USA, continues to play a significant role in its growth.Exports to the neighboring countries such as Nepal, Bangladesh and Sri Lanka and to the JV partner in Kenya are steadily increasing.
Income Statement – 9M ResultsUnique and Niche products – CPVC, have enabled the company to maintain its growth rate. And it is continuingunabated due to low market penetration of CPVC pipes in India, and increasing awareness.Company enjoys low effective tax, having established manufacturing in priority area – HP.Extra-ordinary items arise on back of forex gain/loss. And would be a regular feature going forward – import ofCPVC compounds, and consolidation of subsidiary in Kenya.
Balance Sheet The company has attained very good momentum without high leverage. It is operating at low leverage despite very good credit rating from CRISIL, and is thus in a position to raise funds for aggressive growth opportunities – the company has land in Gujarat and is contemplating Greenfield expansion. It is in a strong position to absorb any adverse movement in crude price and economy as a whole – high provisions. And is better able to pass on increase in raw material to customer because of niche product profile. The company gets around 120 days credit from the supplier i.e. Lubrizol for the raw materials. It gives around 45 days credit to its distributors. The conversion time from raw material to pipes/fitting is just around an hour so the inventory days are mainly a function of transit period. Whatsoever working capital the company requires is mainly to fund its PVC business. The company doesn’t indulge in any spurious related party transactions or investments. No equity dilution since listing. Stable dividend policy.
ManagementMr. K. R. Shenoy – Chairman (Independent Director)Aged 67 years, is an M.Sc. (Statistics) from Mumbai University. He possesses experience of37 years in the banking sector. He was the Chairman and CEO of the Lakshmi Vilas BankLimited, Karur, Tamil Nadu till 2002. He has also served in various positions and retiredas an Executive Director of Corporation Bank in 1997. He has also served in the RBIduring the period 1965-1973 as a Statistical Assistant (3 Years) andStaff Officer Grade-A (5 Years). Presently he is a Director of an NGO in Bangalore and amember of Executive Committee of Bhartiya Vidya Bhavan, Mangalore.Sandeep P. Engineer – Managing DirectorHas been Managing Director of Astral Poly Technik Limited since April 1, 2006. Mr.Engineer started his career as Project Engineer in Cadila Laboratories Limited. After gainingan experience for around a year, he decided to promote M/s Shree Chemicals, aproprietorship concern, in the year 1986, which was operational for about 10 years.Thereafter, in the year 1992, Mr. Engineer promoted Kairav Chemicals Private Limited, apharmaceutical venture for the manufacture of bulk drugs. Inspired by the successachieved in this venture, he diversified into the business of plastic-pipe industry bycollaborating with Specialty Process LLC, for further growth and development of AstralPoly Technik Limited, for introduction of CPVC in the Indian markets, therebyrevolutionizing the Indian plastic-pipe industry by replacing the conventionalmetallic system with polymer products. Mr. Engineer has been an Executive Directorof Astral Poly Technik Limited since September 29, 2006. He is the member ofExecutive Committee of the Indian Plumbing Association, and Chairman of theGujarat Chapter of the association, and also a member of the World PlumbingCouncil. He is a Chemical Engineer by qualification.
Share Holding patternPromoters have been holding their stakes at this level since listing.Absence of Institutional Investors, is made up by 14% holding of Specialty Process LLC. Also there doesn’t seem to be any agencyproblem with the company.The stock was split in 2QFY11 from 10/- to 5/-. To improve liquidity in market.The company doesn’t need any equity dilution as per present expansion plans. They can easily be funded through internal accruals anddebt.
Buy Strategy Crude price movements affect the sector to a large extent. And it is therefore, advisable to follow crude price movement while taking exposure in the company in a SIP manner. The stock reacted sharply at peak of Middle East - African crisis. And may react again in future. So, good strategy would be to add it whenever crude spikes. But this doesn’t mean that we don’t take initial exposure, it is a must because stock is not expensive at the moment.
Challenges / Risks involved Following are some of the key risks that could derail our estimates and expectations - The increasing imports of CPVC raw material a derivative of crude and the fluctuations in the exchange rate of foreign currency could affect the profitability of the Company. Volatility in crude prices will also affect the raw material cost of PVC/CPVC resin. Termination (or extension to other players) of Licenses for CPVC and other brands - FlowGuard pipes, may adversely affect its product offering. Rising Inflation and housing cost may affect growth rate in medium term. The demand for plastic products is very price sensitive. The implementation of GST in the range of 12-20 per cent could affect demand in the medium term.
DisclaimerThis document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient only.The recommendation made herein does not constitute an offer to sell or solicitation to buy any of the securities mentioned. No representation can be made that recommendation contained herein will be profitable or that they will not result in loss. Information obtained is deemed to be reliable but do not guarantee its accuracy and completeness. Readers using the information contained herein are solely responsible for their action.HBJ Capital, or its representative will not be liable for the recipient’s investment decision based on this report. HBJ Capital, officers, directors, employees or its affiliates may or may not hold positions in the companies /stocks mentioned herein.