By Ketan SonalkarAstral is a pioneer in the CPVC (chlorinated polyvinyl chloride) pipes segment in India. CPVC pipes are one of those products you find everywhere, with a broad range of applications - across housing for plumbing solutions in buildings, in agriculture for irrigation pipes, and infrastructure piping like drains.
Astral began as a PVC (polyvinyl chloride) and CPVC pipe manufacturer supplying to the building industry, slowly expanding into infrastructure piping, adhesives and in Q4FY21 acquired a plastic storage tank company. A factor driving the growth of the company is the rising adoption of PVC and CPVC piping for plumbing systems. As opposed to the traditional G.I (galvanised iron) plumbing systems, CPVCs are lighter, easier to install and more durable.
Astral is a market leader in CPVC pipes and delivered stellar, 6X returns to investors over the last five years. The stock hit its all-time high of Rs 2300 per share days before the Q1FY22 results were announced.
Quick Takes
Revenues grew YoY by 57% at Rs 704.4 crore and net profits grew by 3X at Rs 73.9 crore
The second wave of Covid-19 impacted demand in May and part of June 2021.
Expansion of plastic storage tanks business acquired from Shree Prabhu Petrochemicals Pvt Ltd (SPPL) for Rs 51 crore in Q4FY21.
Delayed projects are expected to pick up momentum and be completed in coming quarters
Second wave of Covid-19 impacts Q1FY22 performance
Astral Poly Technik rebranded itself as Astral in April 2021. Apart from the name change in Q1FY22, the quarter was also affected due to the second wave of Covid-19, which had an impact on the performance of the company. However, the company was able to manage much better in Q1FY22 compared to Q1FY21.
Astral’s revenues and net profits have seen a decline in Q1FY22 after continuously rising over the previous three quarters. This is due to the second wave of Covid-19 which had most of the country either in partial or complete lockdown for most of the quarter. Demand for both the company’s verticals, pipes as well as adhesives was affected in May as well as the first half of June, but picked up in the second half of June for both the verticals. The company presented the July sales number for comparison, where pipe sales grew by 65% and adhesives by 36% in comparison to July 2020.
The EBITDA (earnings before interest, taxes, depreciation and amortization) has also shown a YoY increase, more than doubling to Rs 129 crore. The company took strategic decisions in the past that have worked to its advantage. After ending its tie up with Lubrizol in 2016 due to higher CPVC resin prices, the company started sourcing resin from Japanese supplier Sekisui. This helped source raw material at a better price, leading to better margins. Another favourable event was the anti-dumping duties imposed by the Indian Government on CPVC from China and Korea in 2019. This impacted smaller unorganised players but worked in favour of larger players like Astral, which is sourcing from Japan.
Astral’s volumes of CPVC pipes are slightly higher than those of PVC pipes. Most of the margins are derived from CPVC pipes and products as these are higher priced than PVC pipes and have better margins per product. Astral differs itself from its peers by introducing newer products in CPVC plumbing, such as lead-free column pipes and more recently, multilayer composite pipes with aluminium and CPVC, as well as CPVC sprinkler pipes for fire protection in buildings.
Diversifications aiding growth of the company
The decision to diversify into adhesives has worked well for Astral. Initially it started manufacturing under a technical collaboration with US based IPS Corp in 2012. Later it acquired Resinova in India and British company Seal It, and is introducing newer products in this vertical as well. The proposed merger of subsidiaries Astral Biochem Private Limited and Resinova Chemie Limited with Astral Limited is pending with regulatory authorities for approval. The management expects it to be completed by Q4FY22.
The other product where Astral has made an entry in Q1FY22 is plastic storage tanks. The company acquired the plastic tanks business of Shree Prabhu Petrochemicals Pvt Ltd (SPPL) for Rs 51 crore. Besides acquiring a ready production facility for storage tanks, the company will be able to expand its dealer network via existing dealers of SPPL. According to the management, the plastic storage tank received an encouraging response from distributors (850+) and dealers (33,000+) community. Pan India availability is expected by Q4FY22 which will lead to revenue contribution from this segment.
Delayed expansion projects to be complete in FY22
Over the last decade, Astral has been consistently adding to its production facilities across the country. The company planned these with the purpose of better logistics for their products. Due to the pandemic situation in FY21, most of the expansion and greenfield projects were delayed. The company is optimistic that these would be completed and commence production in coming quarters.
An additional plant for plastic storage tanks at Ghiloth has commenced production in July 2021. The construction of the plastic storage plant at Hosur is in full swing and the management expects to start production by November 2021. One of the more ambitious projects, the greenfield project at Odisha earlier slated to be complete by September 2021 is now scheduled for completion in November 2021. The Odisha plant assumes significance as this plant will be the feeder plant for all depots and dealers in the east and north east of India, where the company is building up its presence.
Astral is the leading player within CPVC pipes. Its peers, who were primarily PVC pipe manufacturers, have over the last few years also forayed into CPVC piping. The competition in the listed space includes Supreme Industries, Finolex Industries and Prince Pipes & Fittings.
While Astral had the highest YoY revenue growth at 73.3%, Finolex Industries was not far behind at 71.8%. In terms of net profit growth, Supreme Industries leads the pack with a YoY growth of 319.8% followed by Astral at 271.4%.
The piping industry is slated for growth with the government focus on housing, infrastructure and the agriculture sector driving the demand for pipes. The piping industry consists of a number of fragmented players which have about 50% of the market share and organised players the other 50%. There is scope for Astral in growing its market share in the overall industry pie.
With Q1FY22 impacted due to the second wave of Covid-19, the next few quarters will be keenly watched for recovery of demand. With a strong product pipeline in both pipes and adhesives as well as the addition of storage tanks, the next few quarters may deliver strong returns for investors.