EQUITY RESEARCH Astral Poly Technik Ltdbreport.myiris.com/ENAMSDPL/ASTPOLTE_20110728.pdf ·...

Astral Poly Technik Ltd

ENAM Securities Direct 28th July 2011

ENAM DIRECT EQUITY RESEARCH

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For private circulation only

Revolutionising India’s Plumbing Industry! Astral Poly Technik Ltd. (Astral) is a pioneer & market leader of CPVC pipes & fittings in India. Astral is a licensee of Lubrizol, USA, (global specialty chemical behemoth; 70% of global CPVC market) to manufacture & market its world class plumbing products in India. Company has a techno-equity venture with Specialty Process LLC, USA (Global distributor of reengineered polymers) for providing technology required to manufacture CPVC products. Investment Rationale:

Play on domestic housing & infrastructure growth story: Astral with a ~65:35 product mix (CPVC: PVC pipes and fittings & others) derives its demand from over Rs 17,000 Cr (G.I,PVC,CPVC&others) plumbing industry growing over 15% CAGR. According to the Ministry of Urban Development, India has a shortage of ~2.65 cr housing units - market of over Rs 34,450 cr (XIth five year plan).

Huge potential in unexploited replacement market: India has remained aGalvanized pipe dominated market (Rs 7,000 Cr). Consumer preferenceshifting towards CPVC due to cost advantage (25% cheaper than G.I & ~15%expensive than PVC), non-corrosive nature, resistant to high pressure &temperature etc. Huge replacement demand seen especially from housing &infrastructure sector.

Astral’s products on high growth trajectory: Deep market penetration and brand recognition helped Astral tap 50%+ domestic market share of CPVC pipe industry (Capex 12x in 5 years signifies huge demand).

Efficient working capital management: Significant improvement - 75 days in FY 08 to 48 days in FY 11, to improve further as strategically located new capacities (H.P & Gujarat) will reduce the lead distance. As a prudent policy Astral has been expanding its capacity in Q4 to avail taxation benefits.

High Entry Barrier: Technology to manufacture CPVC pipes is only with Noveon (Lubrizol) & Astral benefits from over a decade relationship with the global major; thus advantage of getting licenses of Lubrizol’s new products first in India. In addition, a CPVC pipe plant takes 3-4 years (set up & approvals) keeps competition at bay.

New Products to boost profitability: Astral has an exclusive license to manufacture Lubrizol’s global top-seller Blazemaster FireSprinkler Systems, based on CPVC platform. The company has also picked up 85% stake in Advance Adhesives Pvt. Ltd. to produce Cement Solvent (solution for joining pipes) via technology developed by global Adhesives major, IPS, USA; could be a huge potential for Astral.

Valuations We expect Astral to grow at 37% CAGR for next 2 years & maintain its leadership in CPVC pipes & fittings, moreover we feel the company is undervalued & deserves better valuations for key aspects : a) Robust business model – market penetration & branding strategy; new facility being one quarter old only - 36% (17,565 MT) of total capacity (48,432 MT) b) Quality return ratio profile – ROCE>26% & ROE>25%,) c) High entry barriers - Raw material source, project time, technology. We have valued Astral at 9x FY13E EPS and arrived at a target price of Rs 244 (potential upside 22%) with a horizon of 12-15 months

CMP (Rs) 200 Target price (Rs) 244 Potential upside 22%

Stock data

No. of shares (Cr) 2.25

FV (Rs) 5

Market cap (Rs Cr) 450

52 Wk Hi/low (Rs) 208/117

Avg. daily vol.* (Shrs) 28,998

BSE Code 532830

NSE Code ASTRAL

Bloomberg code ASTRA IN

Reuters Code ASPT.BA

* 6 monthly average

Shareholding (%)

June-11 QoQ Chg

Promoter 63.82 0.00

FII 1.74 0.65

Bodies Corp 6.82 0.46

Others 27.62 1.11

Price performance

0

5000

10000

15000

20000

25000

Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11

0

50

100

150

200

250

BSE_SENSEX Astral Poly Technik Source: Cline, ENAM Direct Research

Vinay Bhandari [email protected]

Financial summary (Consolidated) Y/E Mar

Sales (Rs Cr)

PAT (Rs Cr)

Consensus (EPS - Rs)

EPS (Rs)

Change (YoY %)

P/E (x)

RoE (%)

RoCE (%)

EV/EBITDA (x)

DPS (Rs)

2010 290 28 - 12.4 92 16.2 26.3 26.2 11.7 1.0 2011 411 34 - 14.9 20 13.6 25.1 26.5 9.0 1.1 2012E 571 45 19.0 20.1 35 10.1 26.8 28.8 6.4 1.8 2013E 771 61 25.9 27.1 35 7.4 28.3 30.4 4.7 2.4

Source: Company, ENAM Direct Research

BUY

28th July 2011 ENAM Securities Direct 2


COMPANY OVERVIEW Astral Poly Technik is an Ahmedabad based company set up by Mr. Sandeep Engineer and Mr. Nimish Dalal in 1999, with a focus towards promoting use of CPVC pipes and fittings in the country. The company is an equity venture with Specialty Process, USA, for providing technical support in manufacturing CPVC pipes and a licensee of Lubrizol for manufacturing its world class plumbing products Flowguard, Corzan, Aquatek and Blazemaster in India.

Astral Poly Technik – A Journey So Far

1999 2004-07 2008-09

Incorporated in 1999 asAstral Poly teknic Pvt Ltd

Setting up of CPVC Pipes and fittingsProduction facilityAt Kalol, Gujarat.Positioned CPVC asa premium productIn the Galvanized IronPipe dominated market

2010-11

Introduced Lead Free PVC pipes in IndiaSetting up of 2nd plant inHimachal Pradesh.

Initial Public offering in 2007 of Rs 34 Cr at Rs115/shareObjectives :

Expansion of Existing LinesFinance for manuf. FacilitiesFor new products.

Working Capital for existing& new capacities.

New Products launched Astral UltradrainAstral Drain Waste & Vent System.Astral Foamcore PipesAstral AquasafeAstral Column Pipes

Modernization andexpansion of the textile unitCommenced structuredyarn dyed business

Kenya J.V to manufactureFlowguard pipes

Technical Collaboration withIPS, USA, to manufacture SolventCement.Production in Kenya commenced.




BUSINESS OVERVIEW Astral – Journey So Far


Revenue – Rs Cr (CAGR - 50%) Revenue mix: (FY 11)

5497

136193

290

411

0

100

200

300

400

500

FY06 FY07 FY08 FY09 FY10 FY11

64%

34%

2%

CPVC PVC Other

EBITDA (CAGR - 49%) PAT (CAGR - 53%)


14% 14%

17%

12% 14%

13%

14 24 23

42 54

7 0% 4% 8%

12%

16%

20%

FY06 FY07 FY08 FY09 FY10 FY11

0 10 20 30 40 50 60

EBITDA Margins EBITDA (Rs Cr)

9

17144

28

34

8%9%

13%

7%10%

8.2%

0

10

20

30

40

FY2006 FY2007 FY2008 FY2009 FY2010 FY20110%

4%

8%

12%

16%

Adj. PAT (Rs Cr) PAT margin

Cement Solvents & Others

Hot and Cold Water: Dist. Flow & Bendable

Fire Sprinkles system : Blazement

Industrial: Corzan

Cold Water DistAquarius

Sewerage Waste RainUltradrainAquasafe, DWV, Wavin

Underground:Foam Core, Underground

HVAC: Heat ventilation& Air conditionerAstral Aquatek


AdheseivesCement SolventSolvent Chemicals

PVC

Agriculture Column

CPVC



PLUMBING INDUSTRY Indian plumbing industry is estimated at Rs 17,000 cr + market and growing over 15% CAGR. India is predominantly a G.I pipe market facing tough competition from PVC and CPVC pipe manufacturers. PVC consumption in India is estimated to be 2 MMT in FY11, which represents a growth of 6% over the previous year. India imported about 65k tons of PVC during FY11 of which 72% were consumed by pipe and fitting market, catering mainly to real estate, agriculture, oil and gas and industrial piping market.

Types of piping systems:

Galvanized Iron Pipes (GI): G.I pipe is widely used in the plumbing industry for distribution of raw water; it is mild steel pipe coated with zinc to prevent from corrosion. However, in the longer run they are prone to rust and hence leakage problems etc.

PVC Pipes: are made from combination of plastic + vinyl material which is durable, hard to damage, and long lasting being non-metallic in nature. A PVC pipe does not rust, rot, or wear over time. For that reason, PVC piping is now days used for water transportation, underground wiring, sewer line etc. A drawback of PVC pipes is that it contains metal Lead (Pb) which is harmful in the longer run and when fitted in exteriors the ultraviolet rays of sun affects the quality of water.

CPVC pipes: Chlorinated Polyvinyl Chlorine is a patented technology by Noveon, USA, used for producing CPVC resins from PVC through the process called chlorination, which enhances the chlorine content of PVC and form an altogether new range of polymer called CPVC. Characteristics like tensile strength, capability to withstand high-pressure, temperature, impact strength, capability to withstand high temperature; anti-flaming characteristics etc. make CPVC distinct from other plastics.

Market Size (Rs Cr)


4002% 600

4%

9,00053%

7,00041%

G.I PVC CPVC Others



Opportunities in Plumbing Industry According to the ministry of urban development department, shortage of housing units in the beginning of XIth Five year plan India was reported to be 2.47 cr. During the plan, total new construction of pucca houses is estimated to be of the order of 0.6 cr units and upgradation requirement of semi-pucca houses and kutcha houses to pucca houses is of the order of 0.09 cr and 0.04 cr units respectively. Therefore, the total new additions to the housing stock during the 11th plan period are estimated to be 0.73 cr units. Combining the housing shortage at the beginning of the XIth plan period and the additional requirements during plan, the total requirement of urban housing works out to be ~3.2 cr units and taking consideration into the Therefore housing shortage during the plan period (2007-2012) including the backlog has been estimated to be 2.65 cr units (adjusted to Katcha houses + addition to households + addition to housing units). We have tried to derive the potential size of plumbing industry: Particulars Demand

Total Unit No. 1 Total Unit No. in Cr 2.65*

Assumed avg. carpet area Sq. ft. 500 Avg. carpet area (sq. ft.) Sq. ft. 500

Assumed (bath.+toilet) No. 1 Assumed (bath.+toilet) No. in Cr 2.65

Avg. cost of plumbing Rs 13,000 Avg. cost of plumbing Rs 13,000

Total cost per (bath.+toilet) Rs 13,000 Opportunity size Rs Cr 34,450

Source – Ministry of urban development dept., Distributors, Plumbers, ENAM Direct



BUSINESS MODEL Astral’s venture is to become a one stop shop for innovative world-class plumbing products in India, and adopt a market penetration strategy through unique approach like training activities for plumbers and strong distribution network. Prior to starting full scale manufacturing of products Astral prefers to import and test the market Eg : Blaze master, Astral Flowguard Bendable, Cement Solvent etc. & this strategy has helped company to know the exact demand in the market and save from any kind of risks. Going forward the company plans to introduce new products catering to various high growth sectors that would help diversify risk.

I CPVC Pipes and Fittings

CPVC pipes and fittings is the core business of the company from which Astral derives ~64% of the revenues. Two of the highest selling products in the CPVC market are Astral Flowguard and Astral Corzan. These two products are global best-sellers of Lubrizol, for which Astral has been the first licensee in the country, although recently two other players Ajay and Ashirwad were given licenses to manufacture and market Lubrizol’s Flowguard. Astral is the only company in the country to have licenses to manufacture/market four products from Lubrizol’s stable, namely – Astral Flowguard, Astral Corzan, Astral Blazemaster and Astral Flowguard Bendable.

CPVC Product Profile

Product Features Application

Astral Flowguard

Non-Corrosive, Tough Rigid Material , Chemical Resistance, Leakage free, Fire Resistant, Approved World Wide, No Scale , pit or leach formation, Lower Bacterial growth

Hot & Cold Water Distribution – Residential, Commercial, Hospitals, Homes, for pure and hygienic water supply

Astral Flowguard Bendable

Inner layer of Aluminium provides solid strength, Cost effective plumbing system under-slab, layers bonded with Adhesives – helps withstand high temperatures, Kink, resistant, Long term pressure not affected by chlorine or other disinfectants.

Potable/Drinking Water Distribution

Astral Corzan

Solid mechanical strength for operations up to 93˚C, pressure bearing capabilities for 50 years and beyond, Fire & chemical resistant, low friction loss,

Industrial process piping, Transportation of chemicals,

Astral Blazemaster

Successfully exposed to temperature of 760˚C and Continuous pressure of 400 psi, Low friction loss, easily repairable, resistant to rust, scale and foreign contaminant build up

High rise buildings, Schools & institutions, 1 & 2 family dwellings.

Astral Column Pipes

Strong rigid material , high temperature, Submersible Pumps



II PVC Astral’s wide array of innovative PVC products fetch 34% revenues with a growth of 30%+ backed by massive demand coming from replacement market in real estate, new projects in housing, municipal corporations and irrigation projects. These products have gained immense popularity amongst builders and architects through continuous brand awareness activities organized by Astral through out the country. In 2005, Astral introduced Lead Free PVC pipes, an innovation by the company’s research and development team; this is unique as PVC pipes are made of lead based compounds which are harmful in the longer run. World Health Organization recommends lead free systems for transportation of potable water.

PVC Product Profile

Product Features Application

PVC

Astral DWV (Drain Waste & Vent)

Strong & Resistance to impact, Easy to install, Cost effective, Light in Weight, Easy to handle,

Drain waste and Vent System

Astral FoamCore

Multilayer pipe - outer & inner layer of pvc middle layer of foamed pvc, helps maintain shape, less weight on walls compared to

Underground system

Astral-WAVIN Underground drainage system

Noise Free, Light, Strong, Chemical & Anti Corrosive, Non- Conductor, Non Flammable & Environmental Friendly

Drain & Sewer Systems in Residences, Commercial Complexes, Resorts, Hospitals, etc.

UPVC

Astral Aquarius

Lead Free, high strength to weight ratio,good impact resistance, durable, light weight, UV stabilized,

Outer Loop Lines

Astral Ultradrain

No choking, High chemical resistance, Cost effective, Groove and pasting type available, UV stabilized,

For Soil Waste and Rain Water

ABS

Astral Aquaktek

Fire and chemical resistant, non toxic and taint free, high impact and strength capability.

General Plumbing Solutions, replacement to failed piping system



III Cement Solvent

Astral has entered in to a technical collaboration with IPS, USA, to manufacture Cement

Solvents (PVC pipes and CPVC pipes), that are used in joining pipes. Management expects the

commercial production shall commence from Sept 2012 FY12. Astral’s strategic move to acquire

85% stake in Advance Adhesives Pvt Ltd signifies need for backward integration for cost

reduction and to tap the huge potential in the solvent space.

Management expects this venture to contribute a topline of over Rs 150 Cr to the group by

FY15, mainly attributable to the growing consumption of PVC and CPVC pipes and fittings in

the plumbing industry. According to the company, cement solvent business is 20-22% EBITDA

margin business.

Astral – International Tie-ups

Relationship Product

Specialty Process, USA CPVC Pipes and Fittings

IPS, USA Cement Solvent & Solvent Chemicals

Hunter, UK Underground Specialty Fittings

Harvell Inc., USA PVC Plastic Pipes (Larger Diameter)

Spears,USA CPVC and PVC fittings, flanges and valves



CPVC – AN ADVANTAGE OVER G.I AND PVC

Properties GI CPVC PVC

Life (years) 15-20 30-35 20-25

Cost Costlier to CPVC 25% cheaper v/s GI

15% costlier v/s PVC

Cheaper than G.I & CPVC

Corrosion Corrodes faster and

deteriorates Anti Corrosive

properties No effect due to

chemical resistence

Fire Resistant Easily catches fire and

sustains burning Does not catch fire or

sustain burning, resistance upto 95°C

Less resistance (45°C) v/s CPVC

Leakage Vulnerable to leakage Leakage free for

lifetime Leakage free

Special Tools Heavy tools to cut Simple cutter or Hex

Saw Blade Hex Saw Blade

Bacterial Growth Higher than Copper &

CPVC Extremely Low Relatively Low

Scaling , Pitting and Leaching , Full flow

Can occur reducing the flow

Absence of scaling, pitting and leaching leads to full bore flow.

Maintains the flow due to absence in scaling, pitting.

Installation Requires more time &

energy No electric/heat source

required, done through cold welding.

Done through cold welding

Thermal Conductivity & Insulation

Very High thermal conductivity increases heat loss & requires high insulation levels

Low thermal conductivity reduces heat loss & requires reduced insulation levels.

Low thermal conductivity



ABOUT LUBRIZOL Lubrizol Corporation is a USD 5.4 bn, Fortune 500, global specialty chemicals behemoth

catering to transportation, industrial and consumer markets. With an impressive history

extending back to the 1870s (formerly BFGoodrich Performance Materials), Lubrizol Advanced

Materials is a leading global producer of advanced specialty polymers, polymer-based

additives and chemical additives. Used in everyday consumer and industrial applications,

additives and ingredients can be found in everything you touch, from personal care products

to pharmaceuticals, plastics technology to performance coatings. Businesses include: Estane®

Engineered Polymers; Noveon® Consumer Specialties; Performance Coatings; and TempRite®

Engineered Polymers.

CPVC Resin technology (water based) is patented by Noveon (Lubrizol). This technology

facilitates enhancement of the chlorine content in PVC by chlorination. This modifies some of

the root characteristics of the polymer and results in an altogether new range of polymer called

CPVC. The characteristics like tensile strength, capability to withstand high-pressure,

temperature, impact strength, anti-flaming characteristics etc. make CPVC very different from

other plastics. The density and viscosity of the material is increased substantially making it

capable of extruding and moulding like PVC.

Warren Buffett's Berkshire Hathaway Inc. has acquired Lubrizol Corp. for $9 billion in a bet on

industrial growth in emerging economies. Lubrizol is a global leader in producing TempRite

(type of CPVC) and makes CPVC pipes through it. After observing the robust demand arising

out of Emerging markets for CPVC products, Lubrizol has projected the growth rate of

TempRite which eventually be the guiding force behind the CPVC piping industry.

TempRite CPVC: To Meet Infrastructure Needs in Indian Market

Source: Lubrizol



INVESTMENT RATIONALE

A) Play on domestic housing & infrastructure: Astral has a successful track record of introducing innovative plastic pipes and generating demand for such world class products in India. Company with a ~65:35 product mix (CPVC: PVC pipes and fittings) derives its demand from over Rs 17,000 cr (G.I+PVC+CPVC+ others) domestic plumbing industry growing over 15% CAGR. According to the Urban Development Ministry, India has a shortage of ~ 2.65 cr housing units, a market of over Rs 34,450 over the next 5 years, which suggests an annual addition of Rs 6,890 Cr to existing Rs 17k cr industry.

B) Massive potential in untapped replacement market: India has remained a Galvanized pipe (G.I) dominated market (over Rs 7,000 cr) since the past 3 decades but there has been a shift taking place over a period of time towards CPVC pipes due to its advantages compared to conventional pipe systems.

Huge replacement demand has picked up mainly from housing & infrastructure sector, which is expected to bolster the topline going forward. Majority of the demand is coming from TIER 1 cities, where the consumers are quality conscious; however as per the company the traction is seen from Tier2 & 3 cities also.

C) Astral’s products on a high growth trajectory: Astral’s constant effort to increase awareness of CPVC pipes concept through branding has fructified. Today the company is a market leader with its presence in metros like TIER 1 cities (Mumbai, Bangalore, Calcutta, etc) having strong consumer awareness and distribution channel. The Company has gained a PAN India presence with 300 distributors and 7000+ dealers across the country; doubling the number in the past 3 years. Moreover, continuous branding activity has helped the company to have a direct contact with not only dealers and distributors but with plumbers as well; this model of branding has immensely helped Astral to build a robust image in the plumbing industry. With growing significance of CPVC products Astral’s domestic market share is reported to be over 50% despite healthy competition that it faces from not only other small CPVC pipe manufacturers but from PVC, Cement, GI pipe manufacturers as well.

D) Efforts to improve margins: Astral enjoys multiple tax exemptions & other benefits for its Himachal plant which would improve the quality of earnings going forward:

a) Excise holiday; b) CST of 1% instead of 2%; c) Power cheaper by 25%; d) Lower tax (3-4%) for next 5 years & e) From the current financial year, the company moved its high margin products

manufacturing to this plant in order to save taxes.



E) New facilities to reduce transit time leading to efficient working capital management: Astral’s efforts toward better working capital management has led to an improved working capital cycle - from 75 in FY 08 to 48 days in FY 11. Going further new capacities (Dholka, Hosur) to improve the cycle as it will reduce the transit time.

F) High entry barrier: Setting up plant and getting certificates take 3-4 years; strong distribution network similar to Astral would further take 5 years, making it less lucrative for new players. Additionally raw material sourcing is the key to enter the industry, Lubrizol controls the global market of CPVC resin. New players will find it challenging to tie up with Lubrizol, due to its decade old relation with Astral. Other global CPVC players like Arkema (France), possess solvent based technology, which is not advisable to utilize in manufacturing of CPVC pipes and fittings.

G) National Science Foundation certified: Astral is the only company in the country to get a certificate from National Sanitation Foundation (NSF), USA, a world leader in standard development, product certification and risk management for public health and safety for 65 years.

H) Launch of new products (Blazemaster, Cement Solvent) to boost profitability: Astral has an exclusive license to manufacture Lubrizol’s global top-seller Blazemaster Fire Sprinkler Systems, based on CPVC platform. The company has a sound strategy of importing top-selling global products and creating a demand for the same before going for full scale manufacturing. The company has picked up 85% stake in Advance Adhesives Pvt Ltd to manufacture Cement Solvent (solution for joining pipes & fittings) using technology developed by global Adhesives major, IPS, USA which could generate revenue of over Rs 150 crs by FY15. Other products include Manholes/Inspection Chambers, Flowguard Bendable.

I) Future Innovations by Lubrizol: Lubrizol has a track record of introducing innovative plumbing solutions in the global markets, the company has wide range of products that are still not launched in the country ; any such plans of introducing products shall benefit Astral going forward.

J) J.V in Kenya to Explore the African Continent: Astral holds 32%(hiked from 26%) stake in the Joint Venture ,Astral Technologies Ltd, to manufacture and market pipes and fittings(CPVC,PVC) in Kenya. Production in the 2,000 MT facility has commenced in November 2010 with phenomenal response. Foray into African continent shows Lubrizol’s confidence in the company’s ability to explore and create demand in new markets for its products. Astral has plans to further explore new regions like MENA(Middle East & North Africa) with products like Flowguard, Corzan and Blazemaster.



GROUND REALITY Distributor Visit Note

We met one of the oldest and largest distributor’s of G.I, PVC, CPVC pipe & fittings of large

players like Astral, Finolex, Neco etc. According to the distributor, the market is evolving from

G.I to CPVC and brand recognition of Astral among builders, architects, plumbers is immense.

From the wide array of products (Astral & Competitors) that the distributor offers, Astral’s

products have the highest demand, as they clearly are demand pullers in the plumbing

industry. Demand in Mumbai alone is so massive that Astral has appointed 4 large distributors

to cater to the growing requirement of the city. Astral’s execution capabilities provide an edge

over competitors – a huge order was passed on to Astral from its competitor as the delivery

time quoted was one month ; the same order was executed by Astral in merely 10 days.

Plumber Survey Note

Astral has a strong bond with the plumbing community; the company has been frequently

organizing training and branding programs over the past couple of years, which has made

Astral a preferred brand amongst plumbers. In addition, despite CPVC being slightly

expensive than PVC, it is preferred by the end user and highly recommended by the plumbing

community due to its distinct characteristics compared to other piping systems.

Astral - Pan India Existence

Manufacturing Facility

Ware House

Distributor Point

Consists of more than 300 distributors and more than 7000+ dealers/sub dealers across India. All these are serviced by company’s two factories and 6 depots

Depots at Santej, Chandigarh,

Delhi, Bangalore, Coimbatore,

Vijayawada

Source: ENAM Direct.



RISKS Dependence on Lubrizol for CPVC: Astral fulfils its entire raw material requirement

from Lubrizol, hence has no bargaining power and complete dependence on a single supplier.

Volatility in crude prices: CPVC resin cost forms substantial chunk of sales of CPVC pipes and fittings, hence volatility in the international crude prices could affect the CPVC resin prices in the future thus affecting the margins

Foreign exchange risk: Astral imports 100% CPVC resin from Lubrizol. Also, some of the products for which the manufacturing has not yet begun are being imported in large quantities. Any major fluctuation in dollar could impact the earnings.

VALUATIONS Peer group comparison

Price M-cap Sales EBITDA

Margin (%) PAT EPS (Rs) P/E (x) P/BV (x) RoE (%) ROCE

(%) Company

(Rs) (Rs Cr) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12E FY11

Astral Poly 200 455 411 541 14 14 33 43 14.6 19.1 13.8 10.6 3.1 2.5 25 25 26

Supreme Inds 211 2680 2436 2460 15 14 196 178 15.4 13.6 13.7 15.5 5.1 3.8 36 37 27

Finolex Ind 77 953 1975 2134 12 12 76 121 6.1 9.8 12.5 7.8 1.5 1.4 13 19 9

Source: Bloomberg, ENAM Direct; Note - Figures for FY 12 are estimates

We expect Astral’s revenue to grow at 37%, EBITDA at 36% & profits to grow at 35% CAGR

(FY11-FY13). Realizing the huge growth potential of Indian plumbing industry and more

importantly a shift from G.I + PVC pipes to CPVC (new + replacement demand); we consider

that Astral is undervalued and deserves to get better valuations vs its peers for key aspects :

a) Robust business model – market penetration & branding strategy; New facility being one

quarter old only - 36% (17,565 MT) of total capacity (48,432 MT) b) Quality return ratio profile

– ROCE>26% & ROE>25%,) c) High entry barriers - Raw material source, project time,

technology, market penetration.

We believe Astral shall continue to maintain its leadership in CPVC piping and fittings. We

have valued Astral at 9x FY13E EPS and arrived at a target price of Rs 244 per share (an upside

of 22%) with a horizon of 12-15 months



FINANCIALS Profit & Loss Statement (Rs Cr)

Y/E Mar 2010 2011 2012E 2013E

Net sales 290 411 572 771 Other operating income 0 1 1 2 Total income 291 412 573 773 Material Cost 200 295 411 556 Employee Cost 9 11 15 21 Other Manufacturing Cost 15 21 29 38 Contribution (%) 23 21 21 20 Advt/Sales/Distrn O/H 25 31 43 58 Operating Profit 42 54 76 100 Other income 5 3 1 2 PBIDT 47 57 77 102 Depreciation 9 11 14 17 Interest 5 5 7 9 Pre-tax profit 33 42 57 77 Tax provision 5 9 12 16 Adjusted PAT 28 33 45 61 E/o income / (Expense) 3 0 0 0 Reported PAT 31 34 45 61

Balance sheet (Rs Cr)


Y/E Mar 2010 2011 2012E 2013E

Total assets 161 193 245 317

Gross block 116 143 187 231

Net fixed assets 92 109 141 165

CWIP 6 17 15 15

Investments 0 0 0 0

Wkg. cap. (excl cash) 58 57 62 79

Cash / Bank balance 4 10 27 57

Others/Def tax assets 0 0 0 0

Capital employed 161 193 245 317

Equity capital 11 11 11 11

Reserves 107 136 177 230

Borrowings 41 44 56 74

Others 2 2 2 2



Key ratios (%)

Y/E Mar 2010 2011 2012E 2013E

Sales growth 50.7 41.6 39.0 34.8

OPM 14.5 13.2 13.2 13.0

Op. profit growth 83.6 28.6 39.6 32.8

COGS / Net sales 77.1 79.4 79.4 79.6

PAT Margin 10% 8% 8% 8%

Net profit growth 99% 20% 35% 35%

Effective tax rate 16.4 20.4 20.4 21.0

Net sales / Gr block (x) 2.7 3.2 3.5 3.7

RoCE 26.2 26.5 28.8 30.4

Debt / equity (x) 0.3 0.3 0.3 0.3

RoE 26.3 25.1 26.8 28.3

Payout ratio (Div/NP) 7.3 7.5 9.0 9.0

EPS (Rs) 12.4 14.9 20.1 27.1

EPS Growth 91.7 19.5 35.1 34.9

CEPS (Rs) 16.3 19.6 26.2 34.5

DPS (Rs) 1.0 1.1 1.8 2.4

Cash flow (Rs Cr)

Y/E Mar 2010 2011 2012E 2013E Sources 33 48 74 88 Cash profit 41 54 65 86 (-) Dividends 2 3 4 5 Retained earnings 39 51 61 81 Issue of equity 0 0 0 0 Borrowings 3 3 15 15 Others (9) (5) (2) (8) Applications 33 48 74 88 Capital expenditure 18 33 42 44 Investments 0 0 0 0 Net current assets 13 9 16 14 Change in cash 2 6 16 31 Source: Company, ENAM Direct Research



CONFLICT OF INTEREST DISCLOSURE

We, at ENAM, are committed to providing the most honest and transparent advice to our clients. However, given thenature of the capital markets, from time to time we are faced with situations that could give rise to potential conflict ofinterest. In order to provide complete transparency to our clients, before we make any recommendations, we arecommitted to making a disclosure of our interest and any potential conflict IN ADVANCE so that the interests of ourclients are safe- guarded at all times. In light of this policy, we have instituted what we believe to be the mostcomprehensive disclosure policy among leading investment Banks/brokerages in the world so that our clients may make an informed judgment about our recommendations. Thefollowing disclosures are intended to keep you informed before you make any decision- in addition, we will be happyto provide information in response to specific queries that our clients may seek from us. Disclosure of interest statement (As of 26th July, 2011) 1. Analyst ownership of the stock No 2. Firm ownership of the stock No 3. Directors ownership of the stock Yes 4. MBD Relationship No 5. Broking relationship No We are committed to providing completely independent and transparent recommendations to help our clients reach a better decision.

This document has been prepared by Enam Securities Direct Private Limited – Privileged Client Group. Affiliates of Enam Securities Direct Private Limited focused on Institutional Equities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Affiliates research report. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgement by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options and other derivatives as well as non investment grade securities - involve substantial risk and are not suitable for all investors. Enam Securities Direct Private Limited has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. Enam Securities Direct Private Limited, its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of ENAM Securities Direct Private Limited. The views expressed are those of the analyst and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Enam Securities Direct Private Limited to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

Copyright in this document vests exclusively with ENAM Securities Direct Private Limited.

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