ASTRAL LIMITED

ASTRAL LIMITED

CASE STUDY

7-Oct-2021

ABOUT THE COMPANY CASE STUDY

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ABOUT THE COMPANY Case Study

Astral Ltd., erstwhile Astral Poly Technik, was established in 1996. The company and its subsidiaries are engaged in the business ofmanufacturing and trading of pipes, fittings, adhesive solutions and infrastructure products.

Its subsidiaries are: Resinova Chemie Ltd., Seal IT Services Ltd. and Seal IT Services Inc.

The group is one of the market leaders in the domestic niche market of CPVC pipes and fittings and enjoys the advantage of being apioneer in introducing such products in the Indian market.

The company has a wide range of piping products and includes plumbing, sewerage, agriculture, industrial and fire sprinklers pipesand fittings.

Its product portfolio also includes water tanks, adhesives, cleaning & protectants, instant hand sanitisers, surface drainage system,insulation tube, cable protection, urban infrastructure and ancillary products.

It has 3 strategically located plants in India with a capacity of 64,348 MTPA (million tonne per annum) and internationally at 2 locationsat USA and UK with a combined capacity of 27,828 MTPA. It also has a strong distribution network with 1,300+ distributors in thepiping segment and 130000+ distributors in the adhesive segment.


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ABOUT THE COMPANY Case Study

Revenue Mix (FY21)


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Case StudyGROWTH

SALES GROWTH

5 Year CAGR: 11.1%

In FY21, net sales was ₹3,176.3 cr, a growth of23.2%YoY. The management has guided ~15% revenueCAGR over the next five years.

In Q1 FY22, net sales was ₹700.1 cr, a growth of73.3% YoY. This was mainly due to base effect.However, on sequential basis revenue declined by38%. Demand scenario of pipe as well as adhesiveswas affected heavily in May and first half of June.

Going forward, topline growth will be aided by a pick-up in construction and infrastructural activities,market share gain and streamlining of its distributionnetworks.

New product launches and geographical expansionare also likely to contribute to revenue growth.


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Case StudyGROWTH

EBITDA GROWTH

5 Year CAGR: 27.4%

In FY21, EBITDA was ₹643 cr, a growth of 51.4% YoY.

In Q1 FY22, EBITDA was ₹129.4 cr, a growth of143.2% YoY. However, sequentially, there was adecline of 34.6%.

In Q1 FY22, it took a price hike of ~5%-7%, and willcontinue to pass on any increase in input cost to themarket, keeping in view the prevailing robustdemand environment.

PVC (polyvinyl chloride) prices dropped by 15%,however, supply constraints are pushing the pricesupwards.


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Case StudyGROWTH

PAT GROWTH

5 Year CAGR: 31.1%

In FY21, PAT was at ₹415.2 cr, growth of 76.2% YoYdespite an increase in tax cost.

In Q1 FY22, PAT was ₹75.10 cr, a growth of 252.6% YoY.However, sequentially PAT declined by 57.5%.

Going forward, improving demand sentiment,improved performance of its US and UK subsidiaries,along with foray into newer segments is likely toimprove the bottom line.

GROWTH EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since

judgement on equity is subjective because different people will have different expectation from their investments, it is better to study each aspect and give an individual grading to arrive at the final evaluation of a stock.


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Case StudyPROFITABILITY

EBITDA MARGINIn FY21, the EBITDA margin was 21.08%, anexpansion of 338 bps YoY.

In Q1 FY22, EBITDA margin was 19.1%, an expansionof 496 bps YoY.

Management expects margins to remain in higherteens despite an uptick in raw material costs andpromotional expenses.

For the pipes segment, management expectsmargins to be in the range of 15%-16% while for theadhesive segment margins to be in the range of 16%-17%.

It is also focusing on launching high margin productsin both pipes and adhesive segments to maintain themargin growth.


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PAT MARGINIn FY21, the PAT margin was 13.07%, an expansion of333 bps YoY.

In Q1 FY22, PAT margin was 10.73%, an expansion of546 bps YoY.


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ROCEFor FY21, the ROCE was at 30.32%.

The metric saw an improvement on the back higheroperating profitability.


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ROEIn FY21, the ROE was 24.46%.

The metric saw an improvement on the back ofhigher profitability despite an increase in the averagenet worth of the company.

PROFITABILITY EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyEFFICIENCY

CASH FLOWSIn FY21, the company generated ₹664 cr from itscash from operations on the back of higher operatingprofits and working capital adjustments.

Cash from investing saw an outflow of ₹454 cr onaccount of purchase of PP&E (property, plant &equipment)

Cash from financing saw an outflow of ₹153 crmainly due to repayment of long term borrowings.


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WORKING CAPITAL CYCLEThe working capital cycle continues to remain atelevated levels. One of the core focus of themanagement is to improve the working capital cycle.

During FY21, the company was able to reduce itsworking capital cycle significantly.


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FREE CASH FLOWIn FY21, the free cash flow was ₹23.59 per share.

The company is targeting capex of ~₹130-150 crduring FY22 and ~₹100 cr for the next year.

Its fourth plastic storage tank plant at Hosur, is likelyto be operational by November, 2021. It will also beadding three new plants for pipes.


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ASSET TURNOVER RATIOIn FY21, the metric saw an improvement on the backof higher sales despite an increase in average assets.

EFFICIENCY EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudySOLVENCY

DEBT TO EQUITYFor FY21, the long term borrowings was ₹43.7 cr andthe short term borrowings was ₹22.9 cr.

The company is consistently focusing on repaymentof the debt as one of its core strategies is to have alean balance sheet.


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Case StudySOLVENCY

INTEREST COVERAGE RATIOIn FY21, steady operating profit coupled withnegligible interest payment obligations has led tosignificant improvement in the metric.


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Case StudySOLVENCY

CURRENT RATIOIn FY21, the current ratio was at 1.84x.

Inventories, trade receivables and cash & cashequivalents are the major drivers of current assets.On the other hand, trade payables is the keycontributor to current liabilities.

As on 31st March, 2021, cash and bank balance stoodat ₹476 cr. Thus, providing stable liquidity profile.

SOLVENCY EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyVALUATION

PE RATIOAstral Poly Technik is currently trading at a rich TTMPE multiple of 98.43x.

The company has been growing at a brisk pace overthe last few years and has established itself as one ofthe leading player in the segment.


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Case StudyVALUATION

DIVIDEND YIELDFor the fiscal FY21, the company paid dividend of ₹2per share. The payout ratio for the fiscal was 9.94%.

It also issued 5,02,26,942 bonus equity shares in theproportion of ₹1 each in the ratio of 1:3.


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Case StudyVALUATION

TECHNICAL ANALYSIS.After consolidating in a broad range of ₹750 to₹1200 for over two years, the stock recently gave abreakout on the upside in Nov 2020.

Since then, the stock has exhibited tremendousstrength and has been making new lifetime highs.

Immediate support for the stock is near the ₹2000mark, and a breach of the same might provide anopportunity to accumulate the stock in the ₹1500-₹1575 zone. On the upside, a move beyond ₹2500would be required for further bullish momentum.

VALUATION EDGE METER: 2An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyQUALITY

MANAGEMENTSandeep P Engineer, Chairman & Managing Director,is the founder and key management personnel.

Girish Joshi, has been appointed as the Whole TimeDirector of the company for a period of 4 years and 9Months w.e.f 1st July, 2021.

The management’s endeavor is to constantlyinnovate to add to their diverse portfolio ofproducts.

Their focus remains on new product launches, newtechnologies, and new market opportunities.

Additionally, the focus also remains on improving thebalance sheet and working capital cycle.


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Case StudyQUALITY

SHAREHOLDING PATTERNPromoters’ stake continues to remain the same forthe last eight quarters at 55.74%.

FIIs have marginally decreased their stake from22.80% in Q4 FY21 to 22.75% in Q1 FY22.

DIIs have increased their stake from 7.77% in Q4FY21 to 8.03% in Q1 FY22.

Top Public Shareholding:-

Steadview Capital Mauritius Ltd. 6.68%

Axis Mutual Fund Trustee Ltd. 3.38%

UTI Flexi Cap Fund 2.27%

Tree Line Asia Master Fund 1.98%


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Case StudyQUALITY

SECTOR POTENTIAL• The Indian plastic pipe and fittings industry is estimated to reach ₹50,000-₹55,000 cr by 2025. The growth is likely to be aided by

increased awareness, adoption and substitution of metal pipes by plastic pipes due to their lower price, higher longevity, relativeresistance to leakage, and easy installation.

• The major growth drivers for the industry are Government’s infrastructural spending, increasing constructions, industrialproduction, irrigation sector, replacement of aging pipelines, among others.

• Government’s initiatives like Pradhan Mantri Awas Yojana, Smart Cities Mission, Pradhan Mantri Krishi Sinchayee Yojana Housingfor All, Nal se Jal augurs well for the Indian plastic pipe industry.

• In order to boost the Indian pipe industry, the Government has curbed cheap import of four eleven types of pipes till September,2021. This will help pipe manufacturers to improve and boost their exports.

• The unorganized share in the plastic pipe industry is very high (~35-40%). Post Covid-19 lockdown many such players will havetrouble in sustaining their operations. This will give a good opportunity to organized players to grow their market share.

• The sector remains exposed to volatility in raw material prices, as the major raw materials, PVC and CPVC resins, are dictated byglobal crude oil prices.

• The plastic pipes industry may face short-term challenges owing to the economic downturn caused by the pandemic.


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Case StudyQUALITY

COMPETITIVE LANDSCAPEThe company continues to maintain its marketleadership position in the domestic niche market ofCPVC pipes and fittings.

It enjoys the advantage of being a pioneer inintroducing CPVC pipes and fittings in the Indianmarket.

Its established and longstanding presence with adiversified product basket helps create a strongbrand recall with a strong market presence.

The shift in from unorganized to organized sector,high focus on quality, and new product launches,provides decent growth opportunity for a brandedplayer like Astral.


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Case StudyQUALITY

FUTURE OUTLOOK• The upcoming growth on the infrastructure segment along with various government initiatives are encouraging in the coming

quarters for the company.

• Recently, the company has proposed a merger between its subsidiaries Resinova and Astral Biochem, and is expected to becompleted by Q4 FY22. This is part of the company’s long term strategy to synergize the businesses, create cross-sellingopportunities and achieve economies of scale.

• It is also planning to launch another product line by December, 2021. As per the management, the product line will be volumedriven and will share common distributors.

• In Resinova segment, it will be launching more new products and chemistries, in the coming years. It also plans to launch newproducts in the pipes segment which can generate additional revenue of ₹300 cr over next 5 years time.

• It continues to expand its business in Tier I, II, III & IV and rural market, which are witnessing continued strong demand.

• As per the management, they are open for both, organic and inorganic growth opportunities, keeping in view the sizeable cashposition and the company’s ability to sizable cash flow over the next few years.

• Going forward, new and innovative product launches, focus on branding, extensive distribution network, as well as capacityexpansion, will help the company to maintain its growth trajectory leading to better overall performance.

• Key concerns: (I) functions in a highly competitive and a price-sensitive industry, (II) volatility in raw material prices and (III) anysignificant fluctuation in forex rates.

QUALITY EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyFINAL EDGE MATRIX

Edge Meter Aspects Grade

Growth 4

Profitability 4

Efficiency 4

Solvency 4

Valuation 2

Quality 4

TOTAL 22

The maximum grade for a company could be 30. Any company above grade 20 is worth considering. A grade below 15 is considered to be poor.


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Case Study

THANK YOUThis document and the process of identifying the potential of a company has been produced only for learning purposes. Since

equity involves individual judgements, this analysis should be used for only learning enhancements and cannot be considered to be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and

science behind this.

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Case Study

DISCLOSURESNeither Kredent Infoedge P Ltd. nor any of its associates have any financial interest in the subject company.

Neither Kredent Infoedge P Ltd. nor any of its associates have actual/beneficial ownership of one percent or more securities of the subject company, at the end of the monthimmediately preceding the date of publication of the research report or date of the public appearance.

Neither Kredent Infoedge P Ltd. nor any of its associates has, any other material conflict of interest at the time of publication of the research report or at the time of publicappearance.

Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation from the subject company in the past twelve months.

Neither Kredent Infoedge P Ltd. nor any of its associates have managed or co-managed public offering of securities for the subject company in the past twelve months.

Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for investment banking or merchant banking or brokerage services from the subjectcompany in the past twelve months.

Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for products or services other than investment banking or merchant banking orbrokerage services from the subject company in the past twelve months.

Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation or other benefits from the subject company or third party in connection with theresearch report.

Neither Kredent Infoedge P Ltd. nor any of its associates was a client during twelve months preceding the date of distribution of the research report.

Neither Kredent Infoedge P Ltd. nor any of its associates has served as an officer, director or employee of the subject company.

Neither Kredent Infoedge P Ltd. nor any of its associates has been engaged in Market making for the subject company.

Kredent Infoedge P Ltd. shall provide all other disclosures in research report and public appearance as specified by the Board under any other regulations.

ASTRAL LIMITED

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