Astral Poly Technik Management Q&A: Dec, 2011

Management Q&A

Questions emailed to Astral Poly Technik CFO Hiranand Savlani. Telephonic Update

1. FOREX FLUCTUATION IMPACT ON OUTSTANDING ECB BALANCES. AS ON SEP 30, TOTAL DEBT IS 53 CR.

How much of this is ECB? And what are the interest costs and repayment terms. 

5 years with quarterly repayment instalments at roughly Libor +3%.

And what is the quantum of this ECB?

Majority of the debt is ECB.

That’s more like close to 50 Cr?

Yes

2. YOU HAVE MENTIONED A M2M LOSS OF ~8 CR FOR 1HFY12 – LOSS ARISING ON FOREIGN EXCHANGE RATE FLUCTUATION ON OUTSTANDING BALANCES, WHICH WILL BE ACCOUNTED FOR AT THE END OF THE FINANCIAL YEAR.

This can at best account for 4-5 Cr of loss on ECB loan outstanding balances. Does this mean the 8 Cr loss includes losses from the Payables as well, how much?

Yes, this is on account of M2M accounting for both ECB loans outstanding as well as on the Payables front, because of the steep Rupee depreciation. Together the M2M loss has been put at 8 Cr.

So is it right to say ECB Loans would have accounted ~5 Cr and the balance would be on account of Payables?

Roughly, it should be around that.

3. AS PER AS-30 ACCOUNTING NORMS, ASTRAL WOULD ALSO HAVE THE FLEXIBILITY TO CAPITALISE THIS (INCLUDING INTEREST OUTGO). MANY COMPANIES SPENDING ON CAPEX EXPANSION HAVE DECIDED TO CAPITALISE THIS – BALKRISHNA INDUSTRIES, PI INDUSTRIES, FOR EXAMPLE.

Why is Astral not considering capitalising this part – Is that not an option at all?

We are also thinking considering on those lines as majority of the expenses is related to Capital Expenditure. The options are open. We will take a call at the year end.

Is partial hedging also an option? Why, or why not?

We do take near term hedge. So 1 year equivalent of installments are hedged. So till March 2012, we are safe. Beyond March 2012, we will have to see what measures to take.

If that is the case that you are hedged on installment repayments, why was there exceptional items (1.22 Cr) loss due to changes in Forex rates on repayment of borrowings accounted for in Q2FY12?

That was on account of payments due…Buyers Credit dues. You see the Buyers Credit rollover is in 6 months.

We thought your credit terms with Lubrizol was 120 days, not 6 months?

Lubrizol credit terms are 120 days. But we had switched to 6m Buyers Credit. Current borrowing costs are 13-14% to take advantage of that.

Why the shift from 120 days Lubrizol credit to 6m Bank Buyers credit? What’s the advantage?

Well we get another 2 months extra credit isn’t it? Isn’t it better to extend the payment for 2 more months and have more funds available for Working Capital requirements. We need to pay 2.5%-3% for the buyers credit in lieu of the current 13-14% interest norms. We end up saving a flat 10%!

So, why don’t we hear more of the 6M Buyers Credit facility? Why is it not that common?

It is very popular. Out of 100, 95% of the companies will be taking this route.  In a Rupee stable situation, the flat 10% gain works to everyone’s advantage. And everyone is prepared for temporary spikes. Not for steep hikes.

But now the Rupee has depreciated by 16% meanwhile?

Yes, it doesn’t look so good now. Look, this is an extreme situation that has happened. You do business planning based on normal business forecasting. Normal forecasting or what anyone was prepared for was 4-5% moves. No one could have been prepared for a 10% plus or 16% plus depreciation, and that too in so short a duration!

We do business planning based on normalised situations. We can’t plan for extreme situations, can we?

Even from here if the Rupee remains stable at 52 to a US$, it will work out very well.

4. Q2 CONCALL MENTIONED RAISING ANOTHER 15-20 CR ECB AT LIBOR +3%.

What further tranches has the company drawn in Oct, Nov and so far in Dec? and at what rates respectively?

We raised $2 Mn in Dec and maybe we will raise another $2 Mn in Jan 2012.

And you did not draw any money earlier? In October, November?

$1 Mn in November

So totally some $5mn more has been drawn since September 2011?

Yes.

5. THE RUPEE HAS SINCE APPRECIATED TO 52 TO US$.

Is it correct to surmise that if the Rupee remains at ~52 to US$ till the year end, there will be additional liability of another ~4cr that will need to be accounted for by 31st Mar 2012, on the loans till Sep 30 alone?

See the situation is very dynamic. Everyday the positions change. Payments need to be made in between. We made some payments $1-2 Mn at 51.70 a couple of days back, and today when I check it has changed to 52.40.

Instead of trying to take a call on the direction, we try to participate at every level. So we participated at 51.40, 51.70, and we had participated at 51.20 levels too.

Now that the Rupee is at 52 to US$ and assuming that it remains there till Mar end 2012, is it fair to say that another 4-5 Cr liability will acoount both on payables and ECB loan outstandings?

Its very difficult to give exact figures, situation is too dynamic.

But given that $ has moved from 50-52 since Sep, i.e  a Rs 2 difference, and in September there was a Rs 4-5 differential, isn’t an additional 4-5 Cr a fair ball park estimate?

That is correct.

6. FOREX FLUCTUATION IMPACT ON PAYABLES. LIABILITIES AS ON 30 SEP 2011 – 136.88 CR

Forex paybles were at what levels on 30 Sep? 50-60 Crs?

Don’t have exact figures, right now.

But is it roughly in the 50-60 Cr range, or higher?

No, it will probably be higher.

7. 120 DAYS CREDIT TERMS WITH LUBRIZOL. THIS NORMALLY WOULD WORK TO ASTRAL’S ADVANTAGE. BUT IN THE FACE OF THE RAPIDLY DEPRECIATING RUPEE THIS MIGHT BE POSING A CHALLENGING SITUATION.

Kindly explain the hedging policies followed by Astral on Payables. Do you hedge fully your net outflows, or partially? How much?

(missed this totally, TBD)

8. RUPEE HAS DEPRECIATED ONLY STARTING SEP 2011. IMPLICATIONS ON FOREX LOSSES IN FY12 ON ACCOUNT OF UNHEDGED PAYABLES.

Since 120 days credit terms are in place, is it right to say that in Oct-Dec FY11, you will be paying for payables of Jun-Aug FY11? And since rupee had not depreciated till August, there is no impact on this front? Does this mean there will be a big impact in Q4 as the full impact of rupee depreciation from Sep till date will need to be accounted for?

Already covered above.

9. ACCOUNTING NORMS

As per accounting norms, aren’t you required to account upfront -even if the payables are due months later? If so, what is the likely impact respectively in Q3 and Q4 FY12?

As discussed Payables that become due need to be paid as and when they become due. But M2M accounting for the same has to be done on a regular basis. We have taken the decision that we will take a final call at the end of the year how to account for the same, depending on the situation prevailing then.

10. THE RUPEE HAS SINCE APPRECIATED TO 52 TO US$

Is it correct to surmise that if the Rupee remains at ~52 to US$ till the year end, there will likely be another hit of ~6-8 Cr on the payables front (if fully unhedged)?

(TBD)

11. MARGIN PRESSURES FROM RUPEE DEPRECIATION. RAW MATERIAL IMPORTS FY11 146 CR. THIS IS ~50% OF RM AND ~36% OF SALES. RUPEE HAS DEPRECIATED BY MORE THAN 16% SINCE SEP 2011.  ASTRAL HAD TAKEN A 3.5%-4% PRICE HIKE IN Q2. IN OCT YOU HAD TAKEN A 2.5% HIKE AND EXPECTED 3-3.5% IN NOV.

What is the cumulative price hike effected by the company in FY12 till date? Is it already at ~10% price hike levels!

Actually we have taken another 5% price hike in December.

So cumulatively is that a 15% hike effected so far in FY12?

Whatever that adds up to. See we are very clear that ultimately input price hikes have to passed on. Maybe with some time lag, but we have to pass that on, else our survival will be at stake.

But how do you take the price hike decisions? Do you wait to see what the market is doing, competitors like Ashirvad what steps they are taking?

Well we take our own decisions based on our business situation. We dont look for cues from others.

Can’t that be used by the competitors to gain/wrest away market share from you in certain markets, say where they are not dominant?

Well if someone wants to pick up business at a loss, that is their call.

If Astral made sale of 100, Its RM import would be 36. Depreciated 16% (~42) would mean your margins reduce by 6%.  Since you have affected a 10-15% price hike spread over Q2 & Q3, does this mean you are more or less protected on the margins front from the rupee depreciation effect so far? (Margins may well slide for other operational issues)

Given the current situation, we feel we will be more or less covered on that front.

Should the Rupee depreciate further, is there room for more hikes, how much can you really pass on? Have you taken any more hikes beyond the 10% already?

Like we discussed before a 5% hike is taken in December. This is a business reality – we got to pass on the hikes, there are no two ways about it.

12. STABLE MARGINS IN FORESEEABLE FUTURE. MARGINS HAVE BEEN ON A DECLINING TREND OVER THE LAST FEW YEARS. FROM 18%  IN 2008 TO 13-14% IN FY11. AND FY DOES NOT LOOK TO DELIVER MORE THAN 12%

Where do you see margins stabilizing in the near to medium term?

18% days were in those days when we were not growing this fast. Growing at 40% in these times is not an easy task. In recent times, we have been prepared to shed a couple of percentage points in pursuit of higher growth. But we hope to see uptrend in margins as we start producing at full capacity utilisation. Operational efficiencies will go up as economy of scale effects kick in.

So in the medium term, where do you see margins stabilising at?

It will probably be in the 12-14% range.

13. COMPETITION. SUPREME TIE UP WITH KANEKA. MEGHAMANI JV/FACTORY WIH KANEKA FOR 20000 MT

Please give us your sense of market developments. Who do you see as your most significant competition, and why? How’s it on the pricing front with Kaneka sourced products? Do you see any margin pressures developing due to heightened competition?

Well the Kaneka plant is not coming up before 2014, probably 2015. By year-end we will be at 65-70000 MT levels. And we will not be staying still till then. We will be making our own plans. We will also be somewhere else.

See there is a problem with the sourcing of CPVC compound from non-Lubrizol sources. Otherwise things would have changed long back. Competion plans, our business plans are never static. Everybody assesses the situation and takes measures appropriate to ensure survival and growth.

We read somewhere, Kaneka’s global production of CPVC is 46000 MT is that correct?

Well I don’t have those details. But this is for sure, Kaneka’s commitments in other markets will not allow it to significantly change the dynamics in India atleast in the next 2-3 years. 

Nothing remains static, right. By that time ….Lubrizol will also take some steps, isn’t that likely.

So you don’t see any significant competition in the next 2-3 years?

I didn’t say that. Competition is a part and parcel of life. There is no monopoly, right. But everybody is growing, there is enough room for everyone to grow…the market is big enough for more. Forget CPVC, look at the PVC market. In every small nook and corner they are making PVC. Despite that everybody is growing.

By 2013-2014 we will also be a certain size. We will be much stronger. You can put your own numbers if we continue to grow at current rates.… We will be able to dictate certain terms.

14. REALTY/INFRASTRUCTURE SLOWDOWN

Have you seen any impact on the ground so far? 

Look we are getting our Orders regularly and without any interruption. Supplies are being made. Uptil now we have seen no discernible effect on the ground.

So, how confident are you of delivering 30-35% growth in the coming 2 years?

We are certainly hopeful of maintaining the growth trends. The interest rate and credit availability cycle reversal may start sooner than later. If we go by the recent statements from RBI, these is coming soon.

And when that happens, demand will start groing faster. Because the main hindrance to this sector, is the finance rates. 

15. PROMOTER SHARES CHANGING HANDS. MR NIMISH DALAL SELLING HIS STAKE TO MR ENGINEER IN OPEN MARKET TRANSACTION.

Mr Nimish Dalal had also earlier tendered his resignation as a director of the company. Is this a fallout of the Lubrizol relationship? Kindly explain the reasons behind the transaction and the timing of these transactions.

Not at all. Why should Lubrizol be in the picture? Se they are family members. They have a family understanding within which the stakes have changed hands within the family. See Mr Dalal is Mr Engineer’s Uncle. The family will be together for a lifetime.

But Mr Nimish Dalal is employed with Lubrizol, right?

No, Mr Nimish Dalal is not with Lubrizol. He is a Doctor!
Mr Girish Dalal, who is Nimish’s father was with Lubrizol. Kabka retire ho chuke!
In the market people will talk all sorts of things without verifying back with the Management!

But Mr Nimish Dalal also resigned as a Director from the Board? Why did he need to do that?

Well these are not related. Mr Nimish Dalal is a US resident and was not very active.

16. Lubrizol relationship

Do you have anything to report on developments on this front? When can we expect a formal announcement of progress on this front?

The relationship is strong and progressing well. What do we have to report on that

We meant, the proposed investment from Lubrizol taking the relationship to the next level?

That’s and ongoing thing. Negotiations going on…studies going on from Lubrizol side…there is no formal agreement.

Moreover, we have already said that we signed an NDA with them on project confidentiality. It’s not that we don’t want to share any progress, we can’t. Till there is any formal agreement signed, there can be no clarification form Astral. This is to protect the interests of the company.

Things may or may not happen. That is why we had to issue a formal clarification that look these things are very far away. There is nothing material at the moment. If investors took a call on the basis of that Lubrizol announcement that would have been sort of misleading. In order to protect the interests of the investors in our company, we issued that clarification – that don’t make an investment call based on any announcement like that, it will be entirely misleading to do that.

So, do we take it that no news is good news?

We would like the long-term investors in the company to take conservative calls on the company. As and when things happen we will come up with appropriate announcements, at the right time. If something does not happen, then also we have to make the appropriate announcement!

One appeal to long-term investors in Astral. Don’t listen to market rumours. People will say all kinds of things. If you have any questions or want to understand anything about the company, please approach us directly. Talk to us, we will be happy to provide you all the details that we can share.


Disclosure(s)

Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 6 months;
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Astral Poly Technik Management Q&A: Aug, 2012

Management Q&A

  1. TOTAL MARKET OPPORTUNITY

While there are no industry published figures, several estimates by analysts have pegged the annual market for Plumbing Pipes in India anywhere between 20000-30000 Crs. Of these 6000-7000 Cr is still GI use. Another 1000 Cr is for specialty solutions like Fire-Sprinklers, etc. About 30% is Replacement market.

  1. EXISTING PRODUCTS COMPETITIVE LANDSCAPE

In the CPVC Lubrizol segment as you are aware Ahshirwad, Astral and Ajay are the only Players. Ashirwad is a big well-established player. Ajay is yet to show any significant volumes.

In CPVC Generic segment there are several players. But they still are facing issues on the RM (compounding) stage. Kaneka is supposed to set up a manufacturing plant by 2014 end.

There is a 6-7% price differential with the generic players. But if you look at it, pipes constitute only about 1-1.5% of overall cost of the plumbing solution. We haven’t seen any impact, our volumes are not dropping. There is room for everyone to grow.

Doesn’t Kaneka supply the CPVC Compound too?

Well they do. But in India everyone wants to be able to do the “jugaad”; people try to make their own compounds; that can save them some 5-7%. But that has not been working out.

And the PVC Segment?

PVC is a huge market by itself. But there is high competition. We are not present in the Agri segment which sees cut-throat competition, with very low margins. Players like Finolex dominate this segment. Then there are players like Supreme who are present in both Agri & Plumbing.

With the Hosur Plant in South India, we will be able to compete more effectively, as transportation costs are high; adds up another 7-8%.

  1. BUSINESS GROWTH DRIVERS – PLUMBING SOLTION BASKET

Last time we understood …..End customer is really the Plumber, serviced by Large Distributors. The Plumber usually buys the entire solution basket -from one Brand. So large distributors can be attracted and retained – if you are able to offer a) complete solution basket, b) More number of solutions

We have about 300-350 distributors. All the states put together, no of dealers will be 9000-10000. Distributors keep 3-4% and the Retailer retains on an average 7-8% margins.

Project Sales are handled by Distributors with some 8-10% margins. Support is provided by the company for Project Sales..

We continuously try to interact & educate Focus groups. Consultants, Architects and Builders for Project Sales and Plumber Groups for Retail Sales. In the Southern Market we have seen Plumbers are more educated. The West market requires huge training. We conduct almost 3 trainings every week there.

Our product basket is widening and we are able to provide solutions for most requirements from the Astral brand umbrella. This helps our distributors and dealers as builders or retail customers usually like to source from one place.

CPVC

As you know we have 4 products licensed from Lubrizol. Flowguard, CORZAN, Blazemaster and Bendable. Ashirwad & Ajay have only the Flowguard license.

PVC

We have Aquarius (lead free PVC) brand. SWR. Column Pipes is what we have recently launched and expect to be able to do about 40-50 Cr from this segment. In 3 years we are looking to do 300 Crs from this segment. Ashirwad has a virtual monopoly and derives 300 Cr from this segment of the ~500 Cr Column Pipes annual market.

Ashirwad claims some patent for Column Pipes?

These are Marketing tactics everyone employs! In terms of technology/design barriers there is no impact or value derived from these. You might be aware some other CPVC player also claims patent-pending Alignment technology!

SOLVENT CEMENT

As you are aware this is handled through a 100% subsidiary. We have plans to supply for the Generic players needs; also open to White-Labelling.

We have launched this for PVC segment. This is slow-moving, we are doing 8-10 Cr from this segment. Margins are better than existing products. In Q3, we will also be launching Solvent Cement for CPVC segment. There should be some positive impact on the bottomline, as this will be an import substitute.

  1. NEW PRODUCTS

BENDABLE

This is a patented product from the Lubrizol stable. 3-4 years have gone in the R&D and commercialisation phase. So another 16 years of patented life exists. Astral is the only licensee of this product currently. Exclusivity for Indian market. We may be able to export some.

These products are good for Solar Applications. Because of thermal expansion properties of water, you may have seen the pipes become zig-zag and eventually break. So Bendable pipes come with a metal support, so the thermal expansion does not happen. Gas application is another market.

Limited market size. Currently metal pipes are used, only Copper, plastics are of no use. So Bendable offers a much cheaper solution. This will have better realisations, but initially market development efforts may require offering lower.

We have set up capacity of 11000 MT and are perhaps looking at 60-70 Cr turnover. Currently wen have tooling for 1/2”, 3/4” and 1”. We have ordered tooling for 1/4”, 1 1/2” and 2” that will complete the solution basket.

BLAZEMASTER

This is a CPVC solution for Fire Sprinkler system. Fire Sprinklers have the additional complexity of having continuous water, so there is heavy corrosion. So GI solutions are not very good here. Every 5-6 years you will have to paint/repair; there is replacement headache, besides all the transportation & handling. GI has been also banned in developed countries.

This is a very promising product line. Fire Sprinkler systems are becoming mandatory for commercial buildings, malls, hospitals. This is projected as a 700-1000 Cr annual market.

Astral is the exclusive licensee of Lubrizol in India.

  1. LUBRRIZOL RELATIONSHIP

Nothing to add really. The relationship is going strong. We are the only Licensee in the world to have 4 products form the Lubrizol stable. Bendable, their patent-protected technology – Astral is the first and only licensee globally.

  1. MEDIUM TERM OPERATIONAL OUTLOOK

We have always tried to communicate, ours is a Growth-led strategy. Consistent Margin expansion is NOT our focus. We are happy to achieve a 25-30% growth rate consistently and at 12-14% sustainable EBITDA margins.

FOREX MANAGEMENT

There are no easy solutions here. You must have seen everyone struggling to manage the extraordinary volatility. In Astral’s history, this is the first time we have seen 20-25% depreciation of the Rupee (versus the US $) in 6 months and a 10% appreciation back in 1 month.

We need to weigh the Forex Loan (2%) versus the domestic Interest cost (13%). So there is an 11% interest cost arbitrage available which needs to be weighed against the liability size of possible Forex loss.

We had taken a Forex currency loan of 15 Cr in 2003. We have been taking Forex currency loans. For the next 6-7 years this has worked hugely to our advantage, as the currency movement was only of the order of 5%. But this is obviously not working in the current environment of extreme movement.

Despite the 20% depreciation in currency and the M2M loss, the cost of Forex Loan over its full tenure will work out cheaper than our domestic rupee loans.

And the forex payable to Lubrizol for the 120 days credit terms? Why don’t you hedge this?

In a stable environment the 120 credit period from Lubrizol has been a great advantage to us – leading to negative working capital for the CPVC side of the business. If we were to hedge the payable, we would have to pay a 4-5-7% premium and this will take away the credit period benefit and impact our margins.

As a corporate we make long term strategies and work on it…when such extreme currency movements happens which are beyond anyones imagination, its obviously tough to handle. We need to understand what’s going on and revise strategies, and tweak them to see what works. Everybody faces the same choices – including the Generics. Strategy can’t be based on Abnormal conditions.

M2M ACCOUNTING

If you look at it properly, there is undue focus on the 1 to 1.5% drop in EBITDA margins. We can actually take a 60-90 day cover and there will be no change in EBITDA level, will you be happy with that?

From our perspective, it is also not correct to look at it from a Quarterly basis,either. In Q1 there was some M2M, in Q2 there was Zero M2M. And in Q4 everyone was hugely surprised to see the 18% EBITDA margin – no one had expected this. This was because of the price hikes we had taken, the lag effect and the effect of currency appreciation. In Q2 we had taken a 6-7% price hike, overall for the year 13% price hike.

We have tried to explain this to everyone. 18% EBITDA levels are not sustainable, 12-14% is. No need to be happy about the 18% EBITDA margin in Q4. No need to be PANICKY either. Better be prepared for reasonable margins of 12-14%.

Overall we don’t think all this is such a problem. Quarterly adjustments do not provide the right picture. So we have opted to adjust on a yearly basis at the year-end due to reasons mentioned above.

CAPACITY

We are at 65000 MTPA today in Gujarat. We are incurring 40-50 Cr Capex for putting up another 15000-20000 MTPA capacity at Hosur. This will be available by the year end.

  1. LONGER TERM OUTLOOK

Ours is a simple Pipes business. The Indian plumbing market is growing at 12-15% annually. We are capable of growing at 25-30% rate consistently, which we should be happy for. The growth drivers are Capex and Working Capital. One part of the business CPVC (60%) is Working Capital negative. And another part PVC (40%) has huge working capital requirements. For a couple of more years we will need to keep borrowing to finance this growth.

Do not jump to conclusions based on Q1 results. Our business is slightly seasonal. 1st half delivers 40% and the 2nd half 60%.

This is a very simple business. Any player can grow in this market. It’s a Capacity game. It’s a New Products game. It’s an Asset Turnover game. What goes to our advantage is Asset Turns of 5x. Supreme Industries is a live example in front of you.

In 2007, we were preparing for an addressable market (ours) of 1000 Cr. We are now preparing the plants for addressing a market of 2000Cr.

8. BRAND BUILDING. PROMOTIONS

We have been building up the Astral brand with our target customer base – Plumbers, Architects, Consultants, Builders/Project segment.

We will next attempt on educating the CONSUMER directly. There are some mass media events planned in October/November timeframes.

Astral products have typically been behind the Wall. There is no aesthetic appeal per se. We are trying to formulate plans for future products which will come in Front of the Wall. Since the customer segment and typical distribution network is the same, it may make sense for us!


Disclosure(s)

Vinod Ms: No Holdings in the Company; ;
Gaurav Sud: No Holdings in the Company; ;
Ayush Mittal: Less than 5% of Portfolio in the Company; Holding for more than 1 year;
Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 2 years;

Astral Poly Technik

Company Background

 

Astral Poly Technik (APL) has its production facilities at Gujarat and Himachal Pradesh to manufacture plumbing systems from ½” to 8” diameter. Main products include Chlorinated PVC (CPVC) pipes and fittings for hot and cold water plumbing systems, CPVC industrial piping system for transportation of hazardous and highly corrosive chemicals, and lead free PVC systems for cold water application.

APL was the first licensee of Lubrizol (formerly B. F. Goodrich), USA to manufacture and market CPVC (patent protected) piping and plumbing system in India in 1999. APL entered into a techno-financial joint venture with Specialty Process LLC of USA, which provided the required technical expertise for manufacturing CPVC pipes and fittings for home and industrial applications. Specialty Process LLC, USA has 15.xx% ownership in APL. APL claims to be the only Licensee of Lubrizol in India and neighbouring countries for the use of the trademarks ‘‘BlazeMaster” (since 2006), “FlowGuard” (1998) and “Corzan” (1998).

APL introduced a new product range in lead free PVC pressure pipes and fittings in 2004, again a first in india. With the concept of providing a one-stop source for all plastic piping systems, APL also began trading in products such as CPVC and PVC fittings, flanges and valves from Spears (USA), solvent cements (adhesive solutions) for joining pipes and fittings from IPSC (USA), underground specialty fittings from Hunter (U.K) and CPVC and PVC plastic pipes of a larger diameter from Harvell Inc. (USA).

APL has ISO 9001:2000 certification for manufacture and supply of CPVC and PVC pipes and fittings for plumbing systems and industrial piping system. Astral is the only company in India whose CPVC products are approved by Nations Sanitary foundation (NSF) USA. Astral recently received ISI approval for its CPVC products in the country.

APL’s manufacturing facility at Barotiwal-Solan District (H.P) enjoys tax benefits/ concessions, relating to duties of Sales Tax, Excise and Income Tax. Overall tax rate for the company in FY2010 was 16.90%. These benefits are expected to continue till FY15.

 


Growth Snapshot

We can’t just look at a series of past growth rates and assume that they will predict the future – if investing were that easy, money managers would be paid much less, and this stock analysis would be much shorter. It’s critical to investigate the Sources of a company’s growth.
Variable FY06 FY07 FY08 FY09 FY10
Sales Turnover (Rs. Cr.) 58.19 101.70 144.53 205.25 304.52
Sales Growth Year on Year 79.47 40.71 42.30 50.15
3yr Average Sales Growth 54.16 44.39
3yr Sales CAGR 58.91 41.50 46.17
5yr Average Sales growth 53.16
5yr Sales CAGR 52.41
Profit After Tax (PAT) (Rs. Cr.) 4.02 9.11 17.07 14.19 28.03
Adjusted EPS 1.79 4.05 7.59 6.31 12.47
EPS Growth Year on Year 126.62 87.38 -16.87 97.53
3yr Average EPS growth 65.71 56.01
3yr EPS CAGR 106.06 24.81 28.14
5yr Average EPS growth 73.66
5yr EPS CAGR 62.50

Edit This Section.


Profitability Snapshot

Profitability is the second, and in many ways, the most crucial, part of our Analysis framework. How much profit is the company generating relative to the amount of money invested in the business – the returns? This is the real key to separating a great company from average ones -the higher that return, the more attractive that business. Net profit Margins and comparing cash flow from operations to reported earnings per share are good ways to get a rough idea of the company’s profitability (because cash flow from Operations represents real profits!). But neither account for the amount of capital that’s tied up in the business, and that’s something we cant ignore. We need to know how much economic profit the company is able to generate per dollar/rupee of capital employed because it will have more excess profits to re-invest which will give it an advantage over less-efficient competitors.
Variable FY06 FY07 FY08 FY09 FY10
Operating Profit Margin 13.76 14.10 15.23 11.54 14.45
Net Profit Margin 7.47 9.44 12.57 7.34 9.66
Fixed Asset Turnover 2.35 3.13 3.30 2.45 3.30
Asset Turnover 1.70 1.05 1.21 1.47 1.83
Return on Assets 12.68 9.90 15.24 10.77 17.68
Financial Leverage 2.29 1.36 1.40 1.42 1.34
Return on Equity 29.03 13.48 21.37 15.30 23.73
Return on Capital Employed 20.60 13.75 19.74 16.36 24.33
Debtor Days 64.54 76.92 88.42 77.96 84.82
Inventory Days 115.01 96.49 99.96 117.11 112.53
Cash from Operating Activities (Rs. Cr.)
Operating Cash Flow to Sales
Capital Expenditure 11.85 28.91 32.74 17.73
Free Cash Flow
Free Cash Flow to Sales
Equity Dividend (Rs. Cr.) 0.00 0.00 1.13 1.12 2.25
Dividend per share 0.00 0.00 0.50 0.50 1.00
Adjusted DPS 0.00 0.00 0.50 0.50 1.00
Dividend Growth Year on Year -0.88 100.89
3yr DPS CAGR 41.11
5yr DPS CAGR
Dividend Payout 0.00 0.00 6.62 7.89 8.03

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Common size P&L Statement

Can we dig deeper to see what else we can understand about how this company makes money? A good way is to look at the common size profit and loss statement. Common size statements are great tools for evaluating companies because they put every line item in context by looking at each of them as a percentage of Sales.
Variable FY06 FY07 FY08 FY09 FY10
Common Size Sales 100.00 100.00 100.00 100.00 100.00
Common Size Raw Material 58.70 72.79 67.41 75.46 73.34
Common Size Power & Fuel 1.92 1.97 2.04 2.41 2.44
Common Size Employee Cost 4.28 3.54 3.69 3.18 2.84
Common Size COGS 62.50 76.11 71.22 79.89 77.94
Gross Profit Margin 37.50 23.89 28.78 20.11 22.06
Common Size Depreciation 2.55 2.28 2.40 3.20 2.96
Common Size Interest Cost 2.34 1.95 1.98 2.75 1.67
Common Size SG&A 28.21 15.62 16.71 15.80 12.09
Operating Profit Margin 13.76 14.10 15.23 11.54 14.45

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Financial Health Snapshot

Once we have figured out how fast (and why) a company has grown and how profitable it is, we need to look at its financial health. Even the most beautiful home needs a solid foundation, after all.
Variable FY06 FY07 FY08 FY09 FY10
Financial Leverage 2.29 1.36 1.40 1.42 1.34
Debt to Assets 0.51 0.27 0.29 0.30 0.25
Debt to Equity 1.18 0.36 0.40 0.42 0.34
Interest Coverage 4.93 6.73 8.22 4.06 7.97
Interest Cost to Total Debt 7.73 7.68 8.37 13.60 11.98
Current Ratio 2.11 3.42 3.74 2.09 1.96
Quick Ratio 1.15 2.59 2.63 1.16 1.14
Cash to Assets 3.91 39.86 23.11 1.66 2.38

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