Astral Polytechnik Ltd by hssaroja4


									 Astral Polytechnik Ltd. (BSE: 532830)
Astral Polytechnik Limited is the first licensee of Lubrizol of USA and has equity joint
venture with Specialty Process LLC of USA (manufacturing CPVC plumbing system since 25
years) to manufacture and market the most advanced CPVC plumbing system for the first
time in India.

            “10in3" – Small Cap Multibagger for April 2011
                                            HBJ Capital, India
                                            Call: +91 98867 36791
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                       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 world
finding 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 just
follow 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
                             #912, 1st F Main Road, Girinagar 2nd Phase, BSK 3rd Stage, Bangalore 85;
                             Call : 098867 36791 or 080 65681134, E-Mail :
               Indian Plastic Industry - Structure

                         Low Capital Intensity
                         Largely Unorganized
                         Upto 30000 of Players       End User Industry

    Polymer                                              Agriculture
  Manufacturers                                        Infrastructure
                          Plastic Processors             Packaging

High Capital Intensity
  Organized 10-15
   Major Players


                                                      Recycling Industry

                         Medium Capital Intensity
                           Organized 150-200
                              Major Players         Low Capital Intensity
                                                    Primarily Unorganized
                                                     Upto 10000 Players
                        Polymer Sector – Key Observations

India has a strong base in polymer manufacturing with the presence of large organized players. And large amount
of imports despite self sufficiency, keeps domestic polymer prices under check and thus an advantage for Plastic

Polymer capacities on rise, would keep abreast with rising plastic demand

There exists an inverted import duty structure between crude oil and naptha

Feedstock prices have risen significantly which has resulted in polymer prices increasing consistently.

Some of the major players are – RIL, IOCL, HPCL.
                                               Plastic Processing

India 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 India

India holds immense potential for use of plastic in Agriculture and Infrastructure
                         Polymer Usage – Vision 2012

                                                                                      All Figures in MMT

                  Status Quo                                        Vision 2012

The excess 6% CAGR growth in polymer usage is coming from higher application growth rate in
Packaging (22%), Plasticulture (59%), and Plastic in Infrastructure (19%).

Our focus here is Plasticulture, and Infrastructure – Plastic pipes, and Irrigation
Plasticulture is the use of plastics in agriculture, horticulture, water-management, food grains storage and related areas. A
variety of plastics materials and end products are deployed in plasticulture applications - for water conservation, irrigation
efficiency, 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 Indian
agriculture and bring in the “Second Green Revolution”.

Applications (relevant ones highlighted) –

Pond & Reservoir Lining
Drip Irrigation
Plastic pipes in water distribution network
Polyethylene Greenhouse & Low tunnels
Polyethylene farm mulching
Sub - surface drainage using plastics corrugated pipes
Plasticulture in packaging
Other applications Green House, Shade House
Pressurized Irrigation

Growth Drivers

India 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 indented
Plasticulture Can Overcome These Obstacles
                                 Plasticulture – Irrigation

Initial cost of establishing a Micro Irrigation System
is high, hence out of reach of resource poor farmer
– Task Force on Micro Irrigation

        This will directly impact Agri-GDP by
               increased farm income.
                                                All Figures in crores
                           Infrastructure – Plastic Pipes

Chemical Degradation is not observed in PVC pipes – offer a projected life span of > 100 years without any loss in

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 water
distribution utilities.

As per estimates, US would need to invest $138
billion to repair water infrastructure.

China has encouraged use of plastic pipes.
                      Plastic Pipes – Growth Drivers

Despite the successful implementation of plastics in piping internationally, there is low usage
of plastic pipes in India.

The government has targeted to provide access to piped water to 87% India’s urban
population 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 Drivers

It has been estimated that the Indian middle class population would increase from 50 million in 2007 to 583 million by

One estimate places the current short fall in dwelling units in the country at 25 million underlining a huge demand for
housing in India.

Investment in residential and commercial construction in the country has increased phenomenally from US $ 12 Billion in
2005 to US $ 60 Billion in 2010. It is further expected to increase to US $ 90 Billion in 2015. These figures clearly reflect
the market potential available in the Housing and Commercial segments.

As India's 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 is
shifting 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 168000
tons market). Galvanized (GI) pipes stood at 52% while steel is expected to be around 47%. So the potential
to 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 market
within 3 years.
Astral Polytechnik Ltd. - Overview
           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 its
peers 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 always
P/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 shares

52 Week High / Low – 194 / 95                            Liquidity – Low

                                                         Face Value – Rs. 5

                                                         FII Holdings: 1.09%

                                                         Foreign Promoter: 25.62%

                                   Astral Polytechnik Ltd.

Astral Polytechnik Limited is the first licensee of Lubrizol of USA (Now a Berkshire Hathaway Company, picked
recently 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 manufacture
and 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 best
plumbing system in India.

Astral today manufactures CPVC plumbing systems for both residential and industrial applications, and also ASTM solvent
weld 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 company
can 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. The
capacity 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 1.07
crore 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 5.30
crore. 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 dealership
model that the company follows.

Almost all the products of the company are doing well. Astral Sewerage and Waste water pipes, Underground pipes, Chambers in
particular 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 the
company 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 National
Sanitation Foundation (NSF, USA), signifying the commitment of the company to maintain the superior quality of its
products 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 company
and who do not sell company’s products. During next couple of years, the company plans to add about 3000 dealers. The growth is
coming from all geographies and predominately from the retail segment. Southern market however is so far the best
performing market during FY’11 and the response is very strong. Sales in Kenya to get a boost from commercial production
started 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 in
South India with total capacity of about 15000 tons. The land in Dolka is already acquired and that part of capex is done. Hosur will
initially be on lease facility.
Credit Rating – Stands Good as on Date
Advantages CPVC
Advantages CPVC
Advantages CPVC
Advantages CPVC
Advantages CPVC
                                                   Product Range
Astral FlowGuard PVC - is the right choice for today's hot and cold water distribution systems. Stringent product quality testing in
independent 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 excellent
corrosion resistance at elevated temperatures, it is ideally suited for self-supporting constructions where high temperatures are
a concern. It can be used (depending on chemistry) up to 180º F. Corzan CPVC is manufactured without fillers or plasticizers. It
exhibits excellent fire properties UL-94V-0 and flame spread less than 20 per ASTM E-84. It is primarily used in transportation of highly
corrosive industrial chemicals.

Astral Aquarius – PVC plumbing system for outer loop lines. PVC's abrasion resistance, light weight, good mechanical strength and
toughness 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 specialty
thermoplastic known chemically as CPVC. The pipe and fittings provide unique advantages in sprinkler installations including superior
hydraulics, ease of joining, increased hanger spacing in comparison to other thermoplastics, and ease of assembly. They are also
based on a technology with a continuous and proven service history, of more than 40 years. ASTRAL's BlazeMaster®'s
smooth 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. Astral
ULTRADRAIN pipes and fittings are available in range of 75 mm and 110 mm. The entire range is manufactured as per internationally
accepted quality standards and specifications.

Astral FlowGuard® Bendable - composite pipe combines the corrosion-resistant benefits of CPVC with the flexibility and strength of
aluminum in this one-of-a-kind, multi-layer pipe. Assembly of the pipe incorporates an internal bushing and the standard Astral
CPVC fitting, along with the use of one step solvent cement. This kink-resistant system allows for long runs of potable water
pipe to be bent and protrude through concrete with all joints made above grade. Its excellent combination of flexibility and
rigidity keeps the pipe workable, yet it stays in place. This unique combination results in reduced installation time which translates into
a lower installed cost compared to other piping options.
Product - Applications
Corzan CPVC - Applications
                                                Product Range

Astral “Foamcore” uPVC pipes are suitable for residential and commercial drain, waste & vent piping systems for both underground
and above ground applications with top quality raw materials and state-of-the art processing technology, Astral Foamcore pipes meet
all 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 the
pipe 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 drainage
and sewerage and are mainly based on stiffness classes. These specifications are very well adopted at global levels and are in used for
more than 25 years.
                                                Growth Drivers
Huge shortages in housing persist in the economy and government is supporting in a big way affordable housing. There is also
considerable emphasis on infrastructure spending. The growth in commercial construction, malls and SEZ throughout the country offer
great 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 demand
for various products of your Company. In many old constructions where metallic pipes need to be replaced because of the
problems 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 to
perform 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, commercial
construction, airports, hotels, malls, hospitals etc. With a diversified demand base the company expects to turn out robust results in the
coming 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. Going
forward, one of the growth drivers will be supplies to rural projects specially the municipality supplies. Astral today has
portfolio 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 added
products 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 the
products 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.
Financial Statements
                  Income Statement – 9M Results

Unique and Niche products – CPVC, have enabled the company to maintain its growth rate. And it is continuing
unabated 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 of
CPVC 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
Mr. K. R. Shenoy – Chairman (Independent Director)

Aged 67 years, is an M.Sc. (Statistics) from Mumbai University. He possesses experience of
37 years in the banking sector. He was the Chairman and CEO of the Lakshmi Vilas Bank
Limited, Karur, Tamil Nadu till 2002. He has also served in various positions and retired
as an Executive Director of Corporation Bank in 1997. He has also served in the RBI
during the period 1965-1973 as a Statistical Assistant (3 Years) and
Staff Officer Grade-A (5 Years). Presently he is a Director of an NGO in Bangalore and a
member of Executive Committee of Bhartiya Vidya Bhavan, Mangalore.

Sandeep P. Engineer – Managing Director

Has 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 gaining
an experience for around a year, he decided to promote M/s Shree Chemicals, a
proprietorship concern, in the year 1986, which was operational for about 10 years.

Thereafter, in the year 1992, Mr. Engineer promoted Kairav Chemicals Private Limited, a
pharmaceutical venture for the manufacture of bulk drugs. Inspired by the success
achieved in this venture, he diversified into the business of plastic-pipe industry by
collaborating with Specialty Process LLC, for further growth and development of Astral
Poly Technik Limited, for introduction of CPVC in the Indian markets, thereby
revolutionizing the Indian plastic-pipe industry by replacing the conventional
metallic system with polymer products. Mr. Engineer has been an Executive Director
of Astral Poly Technik Limited since September 29, 2006. He is the member of
Executive Committee of the Indian Plumbing Association, and Chairman of the
Gujarat Chapter of the association, and also a member of the World Plumbing
Council. He is a Chemical Engineer by qualification.
                                    Share Holding pattern

Promoters 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 agency
problem 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 and
Buy Strategy
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

               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
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.
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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

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

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