June 5, 2017 Rating Matrix Astral Poly Technik Ltd...

June 5, 2017

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Gearing up for future...

Astral Poly Technik (APTL), a leader in CPVC piping, has 25% market share

with total pipe manufacturing capacity of ~1.4 lakh tonnes. Over the years,

APTL created a strong brand in Indian plumbing market registering healthy

piping volume CAGR of 32% in FY09-16. We believe it will continue

recording strong piping volume CAGR of 17% in FY17-19E supported by

demand staying intact from various government social schemes &

implementation of GST. Further, addition of adhesive business in the kitty is

a step to de-risk business from concentration of one product. We expect

doubling of capacity of adhesive business to drive segment revenue CAGR

of 22% in FY17-19E. Strong volume growth, saving in raw material cost and

higher credit limit from new outsourcing partner (Sekesui) would translate

to higher EBITDA margin and efficient working capital management. We

expect consolidated sales, earnings CAGR of ~21%, ~28%, respectively, in

FY17-19E. We initiate coverage on APTL with BUY rating.

Aggressive capacity addition to drive piping and adhesive revenue

APTL has expanded pipe manufacturing capacity by ~3x in FY09-16 mainly

to serve rising demand for plastic piping/plumbing products from housing

and agriculture. The plants at Gujarat and Tamil Nadu are strategically

located near its selling markets. Looking at the upcoming demand, APTL

plans to increase its piping capacity to 1.7 Lakh tonnes by FY19E. This

would lead strong piping revenue CAGR of 21% (led by volume CAGR of

17%) in FY17-19E while doubling the capacity of adhesive segment would

lead to strong segment revenue CAGR of 22% in FY17-19E.

Backward integration to drive profitability and cashflow

APTL has set up a CPVC compounding plant in Gujarat with an investment

of | 50 crore. It has signed an agreement with Japan’s Sekisui for supply of

CPVC resin. This move helped Astral launch its own CPVC brand with an

EBITDA margin expansion to tune of 100 bps. We model EBITDA margin

expansion of 100 bps in FY17-19E, which would drive PAT CAGR of 28% in

FY17-19E. Further, extended credit days from outsourcing partner would

translate into lower working capital requirement. Going forward, that would

help bring back the return ratios to elevated level.

Strong fundamentals justify premium valuations

We reckon that a revival of the plastic piping industry is on the cards. Major

government infrastructure push, implementation of GST as well as

continued replacement demand from tier II and tier III cities will be key

catalysts. Moreover, strong PAT CAGR (~28% FY17-19E) and improving

return ratios would lead to a further re-rating of the stock. We value the

company on a PE basis by ascribing PE multiple of 35x FY19E earnings with

a target price of | 685 and BUY recommendation.

Exhibit 1: Financial summery

(| Crore) FY15 FY16 FY17 FY18E FY19E

Net Sales 1,429.9 1,677.8 1,888.8 2,301.2 2,785.5

EBITDA 168.3 207.6 263.8 326.7 415.0

Net Profit 75.9 101.9 144.6 172.9 235.3

P/E (x) 96.2 71.7 50.5 42.2 31.0

Price / Book (x) 11.8 10.3 8.6 6.8 5.6

EPS (|) 6.3 8.5 12.1 14.4 19.7

EV/EBITDA (x) 44.2 35.6 28.2 22.6 17.6

RoCE (%) 17.0 19.2 21.3 21.7 23.8

RoE (%) 12.3 14.5 17.2 16.0 18.0

Source: Company, ICICIdirect.com Research

Astral Poly Technik Ltd (ASTPOL)

| 606

Rating Matrix

Rating : Buy

Target : | 685

Target Period : 12 months

Potential Upside : 13%

YoY Growth (%)

FY16 FY17 FY18E FY19E

Net Sales 17.3 12.6 21.8 21.0

EBITDA 23.3 27.1 23.8 27.0

EBIT 25.7 28.9 22.8 28.5

Net Profit 34.3 41.8 19.6 36.1

Current & target multiple

FY16 FY17 FY18E FY19E

P/E 71.7 50.5 42.2 31.0

Target P/E 80.9 57.1 47.7 35.1

EV / EBITDA 35.6 28.2 22.6 17.6

P/BV 10.3 8.6 6.8 5.6

RoNW 14.5 17.2 16.0 18.0

RoCE 19.2 21.3 21.7 23.8

Stock Data

Particulars

Bloomberg/Reuters code ASTRA:IN/ASPT.NS

Nifty 9661.2

Average Volume (Year) 48715

Market Capitalization | 7305 Crore

Total Debt (FY17) | 156.9 Crore

Cash and Investments (FY17) | 16.4 Crore

EV | 7445 Crore

52 week H/L (|) 625/367

Equity capital | 12.0 Crore

Face value | 1

MF Holding (%) 6.2

FII Holding (%) 17.2

Comparative return matrix (%)

Return % 1M 3M 6M 12M

Supreme Ind 6.5 17.0 30.1 24.7

Astral Polytec 12.0 38.7 56.8 37.4

Finolex Ind 9.6 15.9 43.7 59.9

Price movement

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ASTPOL Nifty

Research Analyst

Sanjay Manyal

[email protected]

Hitesh Taunk

[email protected]


Company background

Astral Poly Technik (APTL) was established in 1996 to manufacture

plumbing and drainage systems in India. It was the first company to receive

a license for manufacturing a chlorinated polyvinyl chloride (CPVC) piping

system in India. APTL’s plumbing & drainage systems include both

residential and commercial applications, CPVC piping systems for industrial

applications, column and pressure piping system for agriculture

applications and also conduit pipes for residential and commercial

applications. The company has a presence in both CPVC (compatible with

both hot & cold water) and PVC (used for cold water flow) product

segments with topline contribution of 41% and 33%, respectively.

APTL operates with three pipe manufacturing plants (total capacity of

1,37,000 TPA) and over 25,000 strong dealer network across India. As part

of diversification, APTL also entered the adhesives and sealants segments

(~26% of topline) with the acquisition of Resinova Chemie (India) and Seal

IT Services (UK). With this acquisition, APTL now has a presence in

construction chemicals, sealants, industrial maintenance products,

hardware & sanitary adhesives, electrical insulators, automobile adhesives

etc. It also formed a subsidiary in the US and acquired the silicone tape

business of Rowe Industries Inc during FY16. The company’s adhesive

products are available at 4.5 lakh outlets in India. APTL’s piping division

recorded strong sales CAGR of ~32% in FY09-16 entirely driven by volume

growth. This was led by addition of piping capacity (~1,00,000 TPA during

FY09-16) to serve rising demand from housing segments. Despite

substantial capex (average annual capex of ~| 100 crore in last seven

years), debt/equity ratio has improved from 0.7x to 0.2x in FY09-16 as APTL

generated strong cash flow from operations during the same period.

Exhibit 2: Corporate Structure

ASTRAL POLY

TECHNIK

ABPL (100%)

RESINOVA

(97.45%)

SEAL IT - UK

(80%)

APL - KENYA

(37.5%)

SEAL IT - USA

(100%)


Exhibit 3: Revenue break-up of Astral Poly Technik

CPVC

41%

PVC

33%

Adhesive

26%

Source: Company, ICICIdirect.com Research, FY16

Exhibit 4: Global partnership to build competent products for global market under piping and adhesive segment

Commencing business in 1947, Sekisui group is one of the largest chemical groups based in Japan. As on March 31, 2016 Sekisui group has a

turnover of over US$ 10 billion with global presence in Europe, Asia and America. Astral Poly joined hands with Sekisui to source Cholinated Poly

Vinyl Chloride (CPVC) resin for hot and cold water plumbing system

US based 'Spears’ product line inlcudes selection of 1/8” through 12” injection molded fittings and fabricated fittings through 48”, specialty

products, and manual and mechanically actuated thermoplastic valves in a variety of types, sizes and configurations

Established in 1954 as the original inventor of solvent cement for PVC pipe applications, IPS® Corporation has operations throughout the US,

Europe, and Asia. Astral Poly entered into a JV with IPS® Corporation to manufacture solvent cement, which is used as glue in PVC/CPVC pipes in

FY12

Italy based 'First Plast' is skilled in manufacturing building plastics and produces drainage systems such as drainage channels, ground accessories,

rainwater gutter and solvent cement fittings made of PVC

AlcaPlast is one of the largest manufacturers of sanitary ware in Central and Eastern Europe. Besides its traditional product range of fill and flush

valves, it also produces concealed WC installation systems, plastic cisterns, bath siphons and shower-basin siphons


Shareholding pattern (Q4FY17)

Shareholding Pattern Holdings (%)

Promoters 59.3

Institutional investors 24.3

Others 16.4

Institutional holding trend (%)

17.5 17.818.6

18

5.65.0 5.3

6.2

0.0

5.0

10.0

15.0

20.0

Q1FY17 Q2FY17 Q3FY17 Q4FY17

(%

)

FII DII


Exhibit 5: Company’s milestone

1996 1999

Established with aim of

manufacturing plumbing

and drainage system

First to receive license for

CPVC piping system

for India

2008

Enters into Kenya plumbing

market by forming a JV with

Kenya based group

3. Commences operations at

Hosur (Tamil Nadu) with initial

capacity of 7000 TPA

2014

1. Acquired 80% stake in UK based

Seal It Services Ltd

2. Acquired 76% Stake in Resinova

Chemie Ltd (India)

2015

Acquired balance 24% stake

in Resinova Chemie Limited

2016

1. Purchases land in Rajasthan to start

manufacturing of pipe

2. Enters US market by acquiring Silicone

Tape business of Row Industries

3.Discontinues raw material sourcing tie up

agreement with Lubrizol and joins hands

with Skisui Chemical Co Ltd. Launches its

own brand Astral CPVC PRO

2007

Enters into secondary market

and raises | 34 crore

through IPO route

2011

Signs agreement with IPS (US)

for manufacturing Solvent

Cement in India

Source: ICICIdirect.com Research

Exhibit 6: Presence across plumbing and drainage system through various product categories

Category Product Specification Target Customer Segment

Plumbing System

Astral CPVC Pro

(Plumbing for Hot and cold water)

Compatible with both hot and cold water, corrosion resistant, lower bacterial

growth, tough, rigid material, unaffected by chlorine in water, chemical

resistance, low thermal expansion

Residential, Hotels, Hospitals

Plumbing System Astral Aquarius (PVC)

Manufactured using un-plasticised PVC (uPVC), which is non-toxic and,

hence, favoured for applications including potable water (cold/normal) pipes.

The product is light weight and very strong for use in building and

construction property

Residential, Hotels, Hospitals

Sewerage, Waste & Rain

water (SWR)

Astral Drainmaster, Ultradrain, DMV

Recommended for use in ventilation and rain water, soil and waste discharge

applicationsResidential, industrials

Low noise SWR (Sewerage,

waste & rain water)

Astral Silencio

Astral Silencio is low noise piping system with temparature resistance from -

20 °C to 90° C. Multistorey apartment, commercial,

hotel, sport stadium, education

institutes, hospitals, entertainments

Underground Application

Astral Foamcore, Underground,

Drain Hulk

Multiplayer pipes with outer and inner layers of conventional PVC and middle

layer of foamed PVC. Used primarily for underground applications

Residential complexes,

commercial/office space, resorts,

hospitals

Agriculture pressure pipe Astral Aquasafe (PVC)

Chemical and corrosion resistant, odourless & hygienic with a smooth bore

giving a high flow rate, light welded & economical, with low maintenance

requirements

Use in agriculture for water supply,

drip irrigation and sprinkler lines

Industrial Application Astral Chem Pro

Use in chemical manufacturing plants, pulp and paper plants, waste water

treatment plants, metal treating/electroplating plants, water purification

plants, and food processing plants where excellent resistance to corrosion

from a wide range of chemical

Industrial

Submersible Pump Astral Bore-well (Column Pipe)

Piping systems for submersible pumps with fast and easy installation, Heavy

metal & lead free and hence, absolutely safe for drinking water

Residential, agriculture, commercial,

industrial

Electrical Pipes

Astral Wire guard (Conduit pipes &

Fittings) (PVC)

Smooth interior walls helping in easy wiring, Fire resistance, Light weight &

high mechanical strength, Corrosion resistance, No maintenance & last for a

lifetime

Residential, commercial, industrial

Accessories Alcaplast Channel drains used for indoor and outdoor bathroom fittings Residential, commercial, industrial

Adhesive & Sealants Weld-On, BONDSET

Solvent cements, ceramic tile adhesives, construction adhesives, tapes,

super glues, silicone, automobile adhesives, brushmaking industry, hardware

& sanitary adhesives, rust removers, etc

Retail and institutional clients



Exhibit 7: Geographical spreads - Pipes

Source: Company, ICICIdirect.com, Research

Exhibit 8: Geographical spreads - Adhesives


Exhibit 9: Plant location & product specifications

Plant Location Products

Piping plant

Santej (Gujarat)

CPVC piping system for plumbing, industrial & fire protection, UPVC

piping system for plumbing, UPVC column pipes, manholes/chambers

Dholka (Gujarat)

PVC piping system for drainage, UPVC agriculture pressure pipes,

electrical conduit pipes

Hosur (Tamil Nadu)

CPVC piping system for plumbing, PVC piping system for drainage,

UPVC agriculture pressure pipes

Nairobi (Kenya)* Plumbing & drainage systems

Adhesive manfucturing facilities

Rania(Kanpur, Uttar Pradesh)

Cyanoacrylate, solvent cements, tile adhesives, silicone sealant, tapes,

putty

Unnao (Kanpur, Uttar Pradesh) Epoxy, PVA, construction chemicals

Santej (Gujarat)

Solvent cement, cyno, putty, silicone sealants, Epoxy, PVA,

construction chemicals, tile adhesive

Seal IT Services Ltd

U.K.

Bitumen, hybrid MS polymer, Polyurethane, acrylics, silicone sealants,

PVA, tile adhesives, waterproofing solutions

U.S. Silicone tapes


*APTL has a stake of 37.5% in the JV Company while 37.5% is held by the local partners RAMCO Group and balance

25% is held by Allied Plumbers Ltd

Overseas manufacturing facilities



Investment Rationale

Strengthening presence in building material category

APTL, a pioneer in CPVC piping industry, had put up a strong historical

performance with revenue, earnings CAGR of 37%, 33%, respectively, in

FY09-16. Over the years, it has launched various new products in the CPVC

piping segment and gradually added PVC products in the portfolio, as part

of diversification. Strong demand for plastic piping products was driven by

replacement of metal/cement pipes and pent up demand from housing,

agriculture and industrial segments. This coupled with addition of new

capacity helped APTL drive piping division revenue CAGR of 32% in FY09-

16. Further, addition of adhesive business in the kitty with two back-to-back

acquisitions in UK (Seal IT) and India (Resinova Chemie) in FY15 was a step

to de-risk business from concentration of one product.

Acquisitions to foray into the adhesive business coupled with global

partnership helped APL achieve 1) scalability, 2) strong R&D, 3) launch of

quality/premium products, 4) opportunity of cross-selling various products

and 5) addition of a dealer network. We believe APL’s strong branding

(~4% of sales) coupled with deep rooted dealer networks (piping division:

~25,000 touch points, adhesive division: ~5,00,000 touch points) helped

APTL increase its retail contribution in sales to 50% from 30% a few years

back. This, in turn, helped the company improve its EBITDA margin. We

believe APTL will post revenue earning CAGR of 21%, 28%, respectively, in

FY17-19E supported by 1) capacity addition (in both piping and adhesive

and sealant) 2) replacement demand (of metal pipe), 3) implementation of

GST to increase the pie of organised players and 4) rising government

expenditure towards industrial, agriculture and housing segment.

Exhibit 10: Revenue growth largely to be driven by volume growth

411.3

582.7

825.4

1079.6

1429.9

1677.8

1888.8

2301.2 2785.5

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

(|

crore)

CAGR 37%

CAGR 21%


Exhibit 11: Strong PAT growth supported by higher margin and sales

32.8

39.5

60.6 78.9

75.9 101.9

144.6 172.9

235.3

0.0

50.0

100.0

150.0

200.0

250.0

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

(|

crore)

CAGR 32.5%

CAGR 28%


Exhibit 12: Concentration on single product: Revenue break-up FY14

99%

1%

Piping Adhesive & Sealants


Exhibit 13: De-risk business by diversifying: Revenue break-up FY16

74%

26%

Piping Adhesive & Sealants

Source: Company, ICICIdirect.com, Research,

Pioneer in product launches

Year Pioneered

1999 First to receive license for CPVC piping system

2004 First to launch lead free uPVC piping system

2012 First to launch lead free uPVC column pipes

2013 First to launch CPVC - AL - CPVC bendable pipes



Aggressive capacity addition to drive piping revenue FY17-19E

In the last six years, the company has expanded its pipe manufacturing

capacity by ~3x to 1.4 lakh MT mainly to serve the rising demand for plastic

piping/plumbing products from housing and agriculture. The plants at

Gujarat (Santej, Dholka) and Tamil Nadu (Hosur) are strategically located

near its selling markets. According to Ficci, strong pent up demand from

the housing and agriculture segment would drive demand for plastic piping

and plumbing products the industry at a CAGR of 12-15% in FY17-19E.

Eyeing the upcoming demand, APTL plans to increase its Hosur plant

capacity by 57% in the next two years (largely to serve agriculture product).

In addition to this, the company’s new pipe and fittings plant at Rajasthan is

also expected to commence production by H2FY18. We believe the

company’s pipe manufacturing capacity will record a CAGR of 12% in FY17-

19E, which will drive the volume CAGR by 17% in FY17-19E.

Exhibit 14: Addition of new capacity to drive piping revenue at CAGR of 21% in FY17-19E

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

MT

0

10

20

30

40

50

60

70

80

(%

)

Capacity Utilisation


Exhibit 15: Range of products introduced by APTL in piping & fitting segments

Hot and Cold Water

Plumbing System

Multilayer Composite

Pipes

Lead Free uPVC Piping

System

Conventional Drainage

System

Leak-proof Drain Waste

and Vent System

Superior Push-Fit Drainage

System

Strong and Light Weight

Drainage System

Ultra-Modern Underground

Drainage System

uPVC Pipes for Protection of

Concealed Wiring

CPVC Fire Sprinkler System

Lead Free uPVC Column Pipes for

Submersible Pumps

uPVC Pipes For Agriculture and

Water Transportation

Support System for Pipes and

Fittings :Clamps & Hangers

Industrial Piping System


New pipe and fittings plant at Rajasthan is expected to

commence production by H2FY18. We believe the

company’s pipe manufacturing capacity will record a CAGR

of 12% in FY17-19E, which will drive the volume CAGR by

17% during FY17-19E


Global PVC Industry: Developing nations to drive growth

Globally, PVC resins are generally the main raw material to manufacture

PVC pipes and fittings. Fundamentally, PVC is a synthetic resin derived from

the polymerisation of vinyl chloride. The key feature of PVC is that it can be

combined with various additives to form a variety of products such as pipes

and fittings, profiles and tubes, windows and doors, sidings, wire and

cables, film and sheets, toys and other moulded products and floorings.

This coupled with features such as durability, self extinguishing property,

resistance to most chemicals and oils, mechanical strength and ease of

processing made PVC an attractive option for many end uses (for

construction and infrastructure, agriculture, electrical products and

healthcare). As a result, global PVC demand recorded notable growth with

an increase in production capacity from a few thousand tonnes in the 1930s

to ~50 million tonne today. Today, the global PVC industry is pegged at

US$56 billion (bn) and is expected to cross US$65 bn by 2019 at a CAGR of

3.9% supported by continuous demand from developing nations.

Exhibit 16: Global PVC capacity break-up

NE Asia

54%

SE Asia

4%

North America

16%

South America

3%

Western

Europe

12%

Central Europe

4%

Africa

1%

Middle East

2%

India

subcontinent

4%

Source: Ficci, Industry report, ICICIdirect.com, Research

Exhibit 17: Global PVC demand break-up

OthersNE Asia

46%

SE Asia

5%North America

13%

South America

5%

Western

Europe

10%

Central Europe

2%

Africa

3%

Middle East

6%

India

subcontinent

7%

Source: Ficci, Industry report, ICICIdirect.com, Research, global PVC in 2014 was

estimated at 40 mn tones.

According to Ficci, growth in demand for PVC is expected to be

concentrated in developing countries in Asia, Africa and Latin America

mainly due to rising expenditure in construction, agriculture and healthcare

industries. In the last 10 years, the use of PVC has increased notably in

various industries due to its unique and diverse blending properties.

Despite PVC increasingly becoming a material of choice of widespread

consumption, the current per capita consumption in India (in kg/person) is

still relatively low (2 kg) vs. other nations like the US, China and Brazil.

Exhibit 18: India per capita consumption of PVC much lower than global peers

2

5.6

7.6

8.8

10.3

12.7

0

2

4

6

8

10

12

14

India Brazil Malaysia Thailand China USA

(kg/person)

Source: Ficci, Industry report, ICICIdirect.com Research

Global PVC industry is pegged at US$56 billion (bn) and is

expected to cross US$65 bn by 2019 at a CAGR of 3.9%

supported by continuous demand from developing nations

In the last 10 years, the use of PVC has increased notably

in various industries due to its unique and diverse blending

properties


India: Rising infrastructure expenditure to drive future demand

The PVC industry in India (valued at | 20,000 crore) has historically been

driven by the agriculture sector. However, post 2000, heavy infra spending

pushed demand for PVC to a new high. According to Ficci, total demand for

PVC in India recorded a CAGR of 8.7% in 2002-15. However, lack of PVC

manufacturing capacity pushed India’s dependency more towards import.

As a result, import of PVC that was less than 5% of the country’s demand

10 year ago, is now ~50%. During 2002-15, domestic PVC production

recorded a CAGR of 3.7% whereas import grew at a CAGR of 32.5%.

Housing and agriculture remained key drivers of PVC consumption in India.

Currently in India, nearly 73% of PVC is consumed by the pipes & fittings

industries while other sectors comprise only 27%. Globally, the

consumption pattern appears to be the same with a larger pie of PVC

consumption driven by pipes & fittings industries (account for 43% of PVC).

According to an estimate, India’s PVC demand is likely to record 13% CAGR

in FY15-21 to give rise to whopping demand of over 5 MT of PVC from the

current 2.5 MT. Demand for PVC will be largely supported by rising

investment in construction, changing life style and rising urbanisation.

Exhibit 19: Global: break-up of PVC application

Others

10%Floorings

3%

Wires &

Cables

8%

Films & Sheets

17%

Profiles

19%

Pipes &

Fittings

43%


Exhibit 20: India: break-up of PVC application

Pipes &

Fittings

73%

Profiles

3%

Films & Sheets

5%

Wires &

Cables

5%

Floorings

8%

Others

6%


Exhibit 21: India’s PVC supply-demand mismatch

0

500000

1000000

1500000

2000000

2500000

3000000

PVC demand PVC supply PVC import

(tpa)

2002 2015

CAGR

8.7%

CAGR

3.7%CAGR

32.3%


Exhibit 22: PVC demand to record 13% CAGR in FY15-21E

2563000

2896000

3272000

3698000

4178000

4722000

5335000

0

1000000

2000000

3000000

4000000

5000000

6000000

2014-

15

2015-

16E

2016-

17E

2017-

18E

2018-

19E

2019-

20E

2020-

21E

(tpa)

CAGR 13%


India’s PVC demand is likely to record a CAGR of 13% in

2015-20 to post a whopping demand of over 5 MT of PVC

from the current 2.5 MT


Plastic piping industry: Structural reform to drive demand

The plastic piping industry (largely PVC), growing at ~12-15% CAGR in

2009-14 in India, has been passing through a volatile phase in pricing terms

due to heavy crude price fluctuations. However, in volume terms, industry

recorded growth of over 10% in FY14-16 (top three players) largely due to

growth in construction activity in tier-II, tier-III cities, replacement of

conventional piping systems like galvanised iron & cast iron piping systems

and rise in demand for branded agriculture & plumbing piping. Agriculture

accounts for the largest share in terms of application of PVC pipes and

fittings industry in India with share of ~74% of total revenue in India.

The piping industry consists of two segments viz. 1) plastic piping and

2) metal piping. The size of the total piping industry in India is ~| 27,500

crore largely dominated by the plastic piping industry, which is considered

to be ~| 21,500 crore while the metal piping industry is about | 6000 crore.

Since replacement of metal by plastic has been happening rapidly, the

plastic piping industry is expected to grow at an accelerated pace in the

coming years (we believe at the same historical rate of ~12%). Of this, the

organised category would record ~14% CAGR led by market share gain

from the unorganised category (due to implementation of GST) and gradual

replacement of metal pipes, in the construction and agriculture segment,

going forward.

Exhibit 23: Structure of Indian piping industry

Metal pipe

Capacity

Finolex

Astral

Total

Sales Volume

Finolex

Astral

Total

Domestic piping industry

Value: | 27500 crore

Plastic piping


Metal piping

Value | 6000 crore

Organised segment (65%-70%)


Unorganised segment (30-35%)

Value: | 7500 crore


Exhibit 24: PVC piping industry (market share of organised players FY16)

PVC piping industry

Cap: ~18,00,000 MT

Organised market

(60%)

~10,80,000 MT

Unorganised market

(40%)

~7,20,000 MT

Finolex Industries

Cap: 280000 MT

Supreme Industries

Cap: 336000MT

Astral Poly

Cap: 127760 MT

Others

Cap: 336240 MT

Source: Company, ICICIdirect.com Research,

Rising popularity of CPVC pipes

CPVC pipes are expected to register fastest CAGR in terms of production

capacity in FY15-19. The share of CPVC pipes in the market is estimated at

6% (of total volume), which is expected to increase up to 9.7% by FY19.

Rising acceptance of CPVC pipes over galvanised or PVC pipes is expected

The total piping industry size in India is ~| 27,500 crore

largely dominated by the plastic piping industry, which is

considered to be ~| 21,500 crore while the metal piping

industry is at about | 6000 crore


Growing brand and quality consciousness – share of

organised players to rise further


to lead to the growth going ahead. Installing CPVC pipes through large

structures is easy and does not require advanced equipments, thus

facilitating their usage in the plumbing and other industries.

In addition to this, cumulative residential demand in India will be largely

driven by government’s flagship housing programmes such as: 1) “Housing

for All” 2) “Real Estate Act” (to protect consumer interest, ensure efficiency

in all property related transactions, improve accountability of developers,

boost transparency and attract more investments to the sector), 3) Smart

Cities, and 4) Atal Mission for Rejuvenation and Urban Transformation

Mission (AMRUT).

Thus, swift growth in the construction sector will eventually create constant

and growing demand for plumbing products like CPVC, PVC, bendable and

other products, thus supporting overall market growth. In the past few

years, a shifting trend towards CPVC pipes has been witnessed in India.

CPVC is obtained by chlorination of polyvinyl chloride. It has better physical

and mechanical properties than PVC, which make it ideal for making pipes

and pipe fittings. CPVC gives pipes unbeatable strength and high corrosive

water and heat resistance. They are widely used in the industries for

transportation of hazardous and highly corrosive chemicals. The CPVC

pipes business has high entry barriers on account of limited number of

quality raw material suppliers like Lubrizol, Sekisui and Kaneka. In India,

after completion of CPVC compounding plant at Gujarat, APTL is a leading

manufacturer of CPVC pipes with integrated facility. It will outsource CPVC

resins from Japan’s Sekisui. APTL has three product lines (one is under

development) in India, which is for CPVC plumbing pipes and fittings, i.e.

CPVC Pro (domestic plumbing for hot & cold water), Chem pro (industrial

pipes), fire pro (sprinkler system). Since CPVC manufacturing requires

quality raw material (that is largely imported), strong R&D and requirement

of high technology, it is difficult for new entrants in the CPVC pipes market

to garner significant market share in the presence of existing players.

Exhibit 25: CPVC/PVC possesses better quality than conventional GI pipes

Properties Galvanized Iron (GI) CPVC PVC

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

Cost Costlier than CPVC

25% cheaper than GI and 15% costlier

than PVC

Cheaper than galvanized iron

and CPVC

Corrosion

Corrodes faster and

deterioratesHave Anti Corrosive properties

No effect due to

chemical resistance

Fire Resistant

Easily catches fire and

sustains burning

Does not catch fire or sustain

burning, resistance up to 95°C

Less resistance (45°C)

than CPVC

Leakage Vulnerable to leakage Leakage free for lifetime Leakage free

Special Tools Heavy tools to cut Simple cutter Hex Saw Blade

Bacterial Growth

Higher than Copper and

CPVCExtremely Low Relatively Low

Installation

Requires more time and

energy

No electric or heat source required,

done through cold welding

Done through cold

welding

Thermal

Conductivity and

Insulation

Very High thermal

conductivity

increases heat loss and

requires high

insulation levels

Low thermal conductivity reduces

heat loss and requires reduced

insulation levels

Low thermal

conductivity


We believe future demand for piping products would largely be driven by

various factors such as:

1. Government’s flagship programme of ‘Housing for all by 2022’

According to Census 2011, India had a population of ~121 crore, out of

which ~38 crore (~31.2%) lived in urban areas. During 2001-11, the urban

population of India grew at a CAGR of 3.1%, resulting in an increase in the

level of urbanisation from 27.8% to 31.2%. This growing urbanisation has

Rising acceptance of CPVC pipes over galvanised or PVC

pipes will lead to the growth in the future. Installing CPVC

pipes through large structures is easy and does not require

advanced equipment, thus facilitating their usage in the

plumbing and other industries

CPVC gives pipes an unbeatable strength and high

corrosive water and heat resistance

Government’s focus on increasing irrigation and housing

will help to keep the industry growth strong over the next

three to five years


led to problems of land shortage, housing shortfall and congested transit

and also severely stressed existing basic amenities like water, power and

open spaces of the towns and cities. According to Census 2011, the

housing stock in urban India is ~7.8 crore for ~7.9 crore urban households.

Though the gap between household and housing stock is narrowing, the

Technical Group on Urban & Rural Housing Shortage came out with a report

in 2012 saying there was an overall shortage of ~6 crore houses in India

(certain portion of housing stock in Census was not in living condition). It

includes a shortage of 1.9 crore houses in urban areas and ~4 crore houses

in rural areas. To overcome the housing shortage, the government aims to

build 6 crore houses under its twin schemes:-‘Pradhan Mantri Gram Awas

Yojana’ for rural areas – 4 crore houses & ‘Pradhan Mantri Awas Yojana’ for

urban areas – 2 crore houses. According to KPMG, a demographic trend

suggests India is on the verge of large scale urbanisation over the next few

decades. With more than 1 crore people getting added to urban areas,

India’s urban population is expected to reach about 81 crore by 2050.

Exhibit 26: Technical group estimates show housing shortage of 1.9 crore

in 2012

Rest of

states/Uts,

4.47

Gujarat, 0.99

Karnataka, 1.02

MP, 1.1

Rajasthan, 1.15Bihar, 1.19

Tamilnadu, 1.25

AP, 1.27

West Bengal,

1.33

Maharashtra,

1.94

UP, 3.07


Exhibit 27: Increment in housing stocks

15.1

19.2

24.7

14.7

18.7

24.5

0

5

10

15

20

25

30

1991 2001 2011

( c

rore)

Households Housing Stocks


Furthermore, a KPMG Naredco study points out shortage even beyond 6

crore houses. As per the study, “Housing for all” vision would require

development of ~11 crore houses and outlay of over US$2 trillion (or about

US$250-260 billion annual investment until 2022). Most housing

development would be expected for the economically weak section/low

income group households (in both rural and urban areas) whose income is

less than | 2 lakh per annum. This also indicates there could be another

phase of Housing for all, which can take this scheme beyond 2022.

Exhibit 28: Number of housing units required under ‘Housing for all by 2022’ programme

Particulars Urban (crore unit) Rural (crore unit) Total (crore unit)

Current housing shortage 1.9 4 5.9

Required housing units by 2022 2.6-2.9 2.3-2.5 4.9-5.4

Total Need 4.4-4.8 6.3-6.5 10.7-11.3

Source: KPMG, ICICIdirect.com Research

We believe the housing shortage coupled with lack of proper water

management system (sewage/drainage) in slums creates ample opportunity

for the piping industry in India. The major application of PVC pipes is in

water management for the housing and agriculture sectors. Since APTL

earns nearly 76% of its piping revenue from the housing segment, we

believe the company would be a direct beneficiary of various government

initiatives such as ‘Housing for All by 2022’, 100 smart cities, etc, where

PVC pipes & fittings are used for supply of water in households, removal of

waste water, linking of drainage systems, pipes for micro irrigations, etc.

As per KPMG estimate, the vision would require development

of ~11 crore houses with investment of over US$ 2 trillion (or

about US$ 250 to 260 billion annual investment until 2022)



2. Swachh Bharat Mission: Boost for plastic products

Swachh Bharat Mission (SBM) is another flagship programme of the

government aimed to stop open defecation through construction of

individual household latrines (IHHL), cluster toilets and community toilets

(especially via PPP mode). Solid and liquid waste management is also an

important component of the programme. According to Census 2011, there

were 16.8 crore household in rural areas, among which ~11 crore (~65%)

rural households do not have access to a toilet. The government’s budget

allocation to SBM recorded a CAGR of 48% in the last three years. Under

the scheme, the government has mandated to provide sanitation and

household (urban) toilet facilities in all 4041 towns with total population of

~38 crore. The estimated cost is | 62,009 crore over five years. Further,

SBM Gramin (rural mission) aims to make village Panchayats free of open

defecation by 2019. Under the scheme, the government plans to build ~11

crore toilets at a cost of ~| 1,34,000 crore. We believe lack of sanitation and

drinking water facility at rural and urban households creates a huge

opportunity for PVC pipe manufacturers like Supreme Industries, Astral

Poly, Ashirvad and Finolex Pipes.

Exhibit 29: Central government Swachh Bharat Mission budget allocation

7469

12800

16248

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2015-16 2016-17 2017-18E

(|

crore)

CAGR ~48%

Source: Budget document, ICICIdirect.com Research

Exhibit 30: Households without sanitation and drinking water facility (in crore)

Total Households 25

Households sources water outside the premises 13

Households have to fetch water from a source located within 500 m in rural areas/100 m in urban areas 9

Fetch drinking water from a source located more than 500 m away in rural areas or 100 m in urban areas 4

Households have no drainage facility (rural + urban) 12

Household without toilets (rural + urban) 12

Source: Census 2011, ICICIdirect.com Research

Exhibit 31: Number of toilets constructed each year for individual rural households

88.045.6 49.8 40.1 57.2

1113

0

200

400

600

800

1000

1200

2011-12 2012-13 2013-14 2014-15* 4 yr avg Target by 2019

(Lakhs)

Source: Census 2011, ICICIdirect.com Research

According to Census 2011, over 67% of rural households in

India lack access to toilets. In other words, more than 11

crore rural households do not have access to a toilet

We believe lack of sanitation and drinking water facility at

rural and urban households creates a huge opportunity for

PVC pipe manufacturers like Supreme industries, Astral

Poly, Ashirvad and Finolex Pipes

http://164.100.47.132/Annexture_New/lsq16/3/as168.htm


3. AMRUT: Targets 500 cities to raise water supply, sewerage, urban

transport system

The government has also launched its programme Atal Mission for

Rejuvenation and Urban Transformation (AMRUT) to provide basic services

to household and build amenities in cities. Under the scheme, ~500 cities

and towns have been selected on the basis of population i.e. one lakh and

above. The project would help improve existing basic infrastructure

services like extending clean drinking water supply, improve sewerage

networks, develop seepage management, lay storm water drains, improve

public transport services and create green public spaces like parks, etc. The

total project outlay of funds for five years (FY16-20) will be | 50,000 crore

which will be provided by the central government in instalments of

20:40:40. AMRUT, a flagship programme to improve the infrastructure of

the country would be the future growth driver of the plastic piping industry.

Agriculture: Focus to increase irrigated land to piping industry growth

The Government of India has launched various programmes in the

agriculture sector focusing on increasing irrigation, farmer’s income and

production. These schemes and programmes will give an impetus to

demand for pipes & fittings. The Union Budget 17-18 was focused on

boosting the rural economy, by announcing higher spend on the agri sector

to support farmers. In a bid to double farmers’ income in the next five

years, the government has made a total allocation of | 1,87,233 crore. The

government has increased the allocation for irrigation corpus to | 40,000

crore coupled with dedicated micro irrigation fund worth | 5000 crore (to be

set up by Nabard). ‘Pradhan Mantri Krishi Sinchayee Yojana’ will be

implemented in mission mode and 28.5 lakh hectares of land will be

brought under irrigation. This will boost the growth of pipe and fittings for

the next few years.

Exhibit 32: Low irrigation coverage to be bigger opportunity for PVC piping industry

Gross Cropped area (198 mn ha)

Net Cropped area (142 mn ha)

Net irrigated area (65.3

mn ha)

*Uneven distribution of rain

makes irrigation paramount

*Only 46% of net cropped area is

under irrigation


Agriculture constitutes a significant ~70% of total PVC pipe demand in

India. It is pegged at | 7000 crore. Finolex Industries, Jain Irrigation and

Supreme Industries are major players in the agriculture piping segment.

Rising government expenditure towards irrigation (only 46% of net cropped

area is under irrigation) opens up a huge opportunity for PVC pipe

manufacturer in India. APTL, earlier being the largest supplier to CPVC

piping to housing industry, has gradually been increasing its focus towards

the agriculture PVC pipe business. This is clearly evident from the

company’s revenue mix wherein contribution of PVC pipe in the revenue

increased from 37.5% in 2012 to ~48% currently. Focusing on the

agriculture segment would not only benefit the company in terms of

AMRUT can be considered a remodelled version of

JNNURM wherein the government has worked on many

flaws present in the earlier programme


Of the 1.8 mn piping industry, operating @65% utilisation

1.2 volume we assume 90% represents PVC pipes (which

is 1.1 MT). Of this 1.1 MT agriculture contributes 70% of

total demand (comes ~0.7 MT). The agri opportunity is

pegged at | 7000 crore (realisation is | 100000/tonne)


diversifying business, it would also help APTL to achieve notable volume

growth (17% CAGR in FY17-19E).

Backward integration: Step forward to be more competitive in CPVC

APTL was the first company in India to receive a license for outsourcing

CPVC compound from Lubrizol Corp (US) for manufacturing CPVC pipes.

Later on, APTL leveraged its tie-up with Lubrizol by launching various

plumbing products such as Flowguard, Bendable Flowguard, Corzen,

BlazeMaster, etc, which was well accepted by the plumber community.

However, APTL discontinued its tie-up with Lubrizol Corp mainly due to

issues pertaining to raw material prices. Meanwhile, APTL has also set up a

CPVC compounding plant in Gujarat at an investment of | 50 crore and

signed an agreement with Japan’s Sekisui Chemical Company (Sekisui) for

supply of CPVC resin (raw material for CPVC compound).

Benefits of APTL with new supply agreements

1. Launching own brand: New tie-up (with Sekisui) has helped APTL to

replace Astral Flowguard brand (Flowguard associated with Lubrizol)

with its own brand Astral CPVC PRO

2. Higher credit days: Lubrizol Corp reduced the credit limit for its clients

(from 120 days to 60 days) once the company started its new CPVC

compounding plant at Dahej (Gujarat) in January 2016. It has

negatively impacted APTL in terms of higher working capital

requirements. However, APTL has again received credit of 120 days

after signing outsourcing deal with Sekisui (outsourcing of CPVC

resin). We believe higher credit days (from supplier) would translate

into lower working capital requirements and interest outgo

3. To turn EBITDA accretive: Starting its own CPVC compounding unit

reduced APTL’s dependency on the supplier by 70%. Backward

integration would also help the company increase its EBITDA margin

up to 100 bps over the long term by reducing the bargaining power of

limited suppliers of CPVC compound

4. Opportunity for export: APTL can now export its CPVC products to

other countries unlike when it had a tie-up with Lubrizol wherein APTL

was not allowed to export CPVC products to other countries

Exhibit 33: Lower working capital requirement, going forward

6.76.4

4.54.9

4.2

2.4

3.23.0

2.5

0

1

2

3

4

5

6

7

8

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

(%

)

Net working capital % sales


Exhibit 34: Better EBITDA margin supported by backward integration

13.414.2 14.0 14.4

11.812.4

14.0 14.214.9

0

2

4

6

8

10

12

14

16

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

(%

)

EBITDA margin




Diversification to adhesive segments for future growth

In 2011, APTL signed a technical collaboration agreement with US based

IPS Corp to form a company Advanced Adhesive (AAL). AAL is engaged in

the cement solvent business (Weld-on), which is mainly used for joining

pipes for residential and industrial applications. We believe it was a start

when APTL decided to venture into the adhesive and sealant segment

through the inorganic route. Later, APTL acquired a majority stake in two

companies viz. Resinova Chemie Ltd (India) and Seal It Services Ltd (UK) in

FY15. APTL acquired Resinova Chemie Ltd (Resinova) in two trenches at a

total consideration of ~| 286 crore. In the same year, APTL marked its entry

into the international market by acquiring an 80% stake in Seal IT Services

at a consideration of | 44 crore. APTL diluted equity by 6.6% in FY15-16 to

fund the two acquisitions. In Q4FY16, the company merged its two

subsidiaries AAL and Resinova Chemie with the approval of the high court.

This amalgamation resulted in consolidation of the business operations of

the two subsidiary companies, enhancing the scale of operations, reducing

its overhead and administrative expenditures resulting in better EBITDA

margin and lowering the tax incidences. Further, as part of the extension

Seal IT Services (UK), acquired the US based Silicone tape business of

Rowe Industries Inc at a consideration of US$3.25 million.

Exhibit 35: Historical performance of Resinova (includes AAL)

152.4

195.3 2

34.5

8.4

10

14.1

8.7 8.7

10.2

0

50

100

150

200

250

FY13 FY14 FY15

(|

crore)

7.5

8.0

8.5

9.0

9.5

10.0

10.5

(%

)

Revenue PAT EBITDA margin


Exhibit 36: Historical performance of Seal IT

117.1

132.9

150.1

4.8

4.6

6.6

6.5

5.9

7.4

0

20

40

60

80

100

120

140

160

FY13 FY14 FY15

(|

crore)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

(%

)

Revenue PAT EBITDA margin


Exhibit 37: Adhesive business performance

269.4

328.3

384.7 394.0

454.5

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

FY13 FY14 FY15 FY16 FY17

(|

crore)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

(%

)

Revenue EBITDA margin


Resinova manufactures adhesives, sealants, construction chemicals and

industrial maintenance products under several brand names with a wide

marketing network across India. RCL covers various industry segments for

its products including the automobile sector, sanitation, paints, plywood,

hardware and building materials. Its product range includes a broad range

APTL acquired Resinova Chemie Ltd (Resinova) in two

trenches at a total consideration of ~| 286 crore. In the

same year, APTL marked its entry into the international

market by acquiring an 80% stake in Seal IT Services Ltd at

a consideration of | 44 crore. APTL diluted equity by 6.6%

during FY15-16 to fund the two acquisitions

Resinova manufactures adhesives, sealants, construction

chemicals and industrial maintenance products under

several brand names


of chemical products including epoxy, silicones, cyanoacrylate, solvent

cements, PU sealants, anaerobic, UV care, MS polymers, acrylic, etc. The

company has three manufacturing capacity (two in UP and one in Gujarat)

in India. Resinova sells its products with around 50 brands and 600 SKUs.

Some of the key brands of the company are Bondtite, Resibond, Bondset,

Solvobond, Vetra, Brushbond, Zesta, etc.

UK based Seal It manufactures a range of sealants and adhesives under the

brand name Bond-it, as well as a comprehensive range of silicones,

sealants, cleaning agents, tile adhesives, waterproofing chemicals bitumen,

polyurethane foams, building & construction chemicals, and silicon tape

business. The plant is operating with a capacity of 20895 metric tonnes. Its

primary markets include the UK, Europe and Middle East. Further, APTL

also plans to launch new products and leverage dealer networks (in India

and abroad) for cross-selling higher margin products.

Exhibit 38: Product range of Resinova


Exhibit 39: Seal-IT product range


Seal It manufactures a range of sealants and adhesives

under the brand name “Bond-it” as well as a

comprehensive range of silicones, sealants, cleaning

agents, tile adhesives, waterproofing chemicals bitumen,

polyurethane foams, building & construction chemicals


Adhesive: India exhibits high growth potential

The Indian adhesive, sealants and building chemical industry is pegged at

| 10,000 crore and is growing at a CAGR of 15%. Adhesives can be

classified into four major segments, including water-based adhesives,

solvent-based adhesives, hot-melt adhesives and reactive adhesives.

Among these, water-based adhesives dominated the Indian adhesives

market with about 38% share in volume terms in 2013. Water-based

adhesives in India are largely dependent on wood and paper for packaging

and furniture. As water-based adhesives provide maximum adhesion on

porous substances made up of wood, they find major application in the

retail market for non-industrial applications. Solvent-based adhesives are

also being widely used in the country despite their high volatile organic

compound (VOC) emissions. The reason can be the absence of stringent

regulations. However, with growing awareness, manufacturers are

switching to less costly and environment-friendly water-based adhesives.

Another advantage is that the same machinery can be used for water-based

adhesives manufacturing, which was initially used for solvent-based

adhesives production. As a result, the share of the solvent based adhesives

market is forecast to grow at a moderate rate and account for around 20%

share in the Indian adhesives market by FY19. Hot-melt and reactive

adhesives technologies are generally the high-priced adhesives available in

the Indian market. The market share of these technologies is expected to be

driven by their use in emerging applications and research efforts in various

fields like automotive, construction, product assembly, etc.

Exhibit 40: India adhesive market share by technology 2013

Hot-melt

19%

Reactive

16%

Solvent based

27%

water based

38%


Exhibit 41: India adhesive market share by technology 2019E

water based

42%

Solvent based

20%

Reactive

18%

Hot-melt

20%


Low per capita consumption: depicts promising future of industry

The per capita consumption of adhesives is 9.4 kg in Germany and 9.1 kg in

US compared to 1.5 kg in China and just 0.20 kg in India. Similarly, while

the value of per capita consumption of adhesives is | 750 for developed

countries it is just | 50 for India. This shows that India offers good potential

for growth in consumption of adhesives, which is a positive feature of this

industry. As adhesives offer strength and versatility for bonding two or

more components, the product has developed a unique position in the

Indian market in both the retail and industrial segment. The adhesive market

in India is diverse in terms of end-use applications, as almost every

manufacturing sector requires some sort of adhesive.

Major end use industries that utilise adhesives are furniture and

woodworking, paperboard & packaging and building & construction.

According to the company, the Indian adhesive, sealant and building

material chemical industry is likely to grow at a CAGR of 15%, going ahead,

supported by dynamic economic development with expanding middle class

population, urbanisation and strengthening of industries like construction

and transpiration (including metro rail and railways).

The Indian adhesive, sealants and building chemical

industry is pegged at | 10,000 crore growing at a CAGR of

15%. Adhesives can be classified into four major

segments, including water-based adhesives, solvent-based

adhesives, hot-melt adhesives and reactive adhesives

Per capita consumption of adhesives is 9.4 kg in Germany,

9.1 kg in US compared to 1.5 kg in China and just 0.20 kg

in India


Exhibit 42: Per capita consumption lowest in India among other developing countries

9.49.1

6.4

2.9

1.5

1

0.2

0

1

2

3

4

5

6

7

8

9

10

Germany US Japan Russia China Brazil India

(kg p

er c

apit

a)


Modernisation, doubling adhesive capacity for scalability

The recent acquisition of the adhesive and sealant business would

synergise APTL in terms of deepening and widening its product offerings.

We believe the combined brand development, product innovation skills and

distribution reach of Astral, Seal IT and Resinova will enable building a

robust and valuable adhesive business. Post acquisition, APTL has

continuously focused on improving the performance and launch of new

products under the adhesive & sealant division. APTL has doubled the

manufacturing capacity of adhesive and sealant in India to 31739 metric

tonnes by opening a new manufacturing plant at Ahmedabad (Gujarat). It

has also modernised its Kanpur facility (UP) to increase the production with

saving in cost. Commencement of the new plant in Ahmedabad will not

only help the company scale up the adhesive business, it will also help the

company to capture newer markets with lower logistic cost.

Initial focus on niche categories to strengthen present

The Indian adhesive industry is pegged at | 6000 crore. It is largely

dominated by organised players with a market share of ~60%. Pidilite

Industries, being the largest adhesive player in India, dominates the

industry with ~70% market share followed by Henkel and Sika India. Other

major players operating in the market include Atul, 3M, HB Fuller, Bostik,

Huntsman India, etc. APTL has largely focused on the Industrial segment

with product categories including acrylic, epoxy adhesives/sealant and

solvent cements. APTL is focusing on niche product categories of epoxy

adhesive (used in laminates, glass, tiles, etc), solvent cement (for joining

pipes) and silicon (used in glass to glass and glass to metal bond) unlike

Pidilite, which is a market leader in retail like poly vinyl acetate, rubber

adhesive, acrylics and construction chemicals (includes Fevicol, Fevibond,

Fevikwik, M-Seal).

Despite mere 26% contribution to topline, APTL is now focusing on

improving the performance of the adhesive and sealant business. The effort

has been yielding good results. This is evident from the strong performance

of the business wherein business recorded sales CAGR of 14% during

FY12-17, with EBITDA margin improving from 6.5% to ~13% during the

same period. We believe that currently APTL is a small player in this

category and would leverage its strong brand image (of pipe business) to

push up the sales of adhesive and sealant business. Doubling the capacity

and strong brand image would help the company achieve segment sales

CAGR of 22% in FY17-19E. We also believe, at initial level, APTL has to

compromise at lower EBITDA margin of ~12-13% (unlike ~22% EBITDA

margin of Pidilite Industries) mainly due to higher sales & promotion activity

and discount to new dealers. However, APTL has guided that it will increase

APTL has continuously focused on improving the

performance and launching new products under the

adhesive & sealant division. It has doubled the

manufacturing capacity of this division and also

modernised the old capacity at UP

APTL is focusing towards niche products categories of

Epoxy adhesive (used in laminates, glass, tiles, etc) solvent

cement (for joining pipes) and silicon (used in glass to

glass and glass to metal bond


EBITDA margin (by 100 bps every year) with the launch of premium

products and lowering the discounts of dealers, going forwards.

Exhibit 43: Strong revenue growth for APTL due to capacity expansion

4706.5

6967.1

410.3674.8

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

8000.0

FY16 FY19E

(|

crore)

Pidilite Ind Astral

Source: Company, ICICIdirect.com, Research, Pidilite (standalone revenue)

Exhibit 44: Scope of margin expansion …

16.9

23.2

6.5

10.2

0.0

5.0

10.0

15.0

20.0

25.0

FY12 FY16

(%

)

Pidilite Ind Astral

Source: Company, ICICIdirect.com, Research, Pidilite (standalone margin)

APTL to leverage strong dealer network of acquired companies

Over the last few years, the company has ventured into other segments

such as PVC and adhesive segment, which reduced its dependence on the

core CPVC business. Acquisitions of Resinova and Seal It have not only

added a new product portfolio to its kitty but have given APTL access to a

strong dealer network across India and UK, respectively. Under the piping

segment, APTL has access to over 750 distributors and 25000 dealers

across India. For the adhesive segment, the company has 2500 distributors

and over 4,50,000 dealers in India. Seal-It has an over 1800 customer base

(dealing with Seal IT products) in the UK. We believe the company will

utilise the extensive dealer network for cross-selling international products

(higher margin products like silicon tape) to Indian markets. APTL’s

relentless focus on building a strong consumer brand through various ad

campaigns (Introduction of Salman Khan as brand ambassador) makes it

different from other piping players. We believe APTL has established a

strong brand name in the building materials industry in India over the last

15 years, particularly for CPVC and PVC piping and plumbing systems and

allied products (last four year average of discounts and promotion

expenses as percentage of sales remained at 3.5%).

Exhibit 45: Higher advertisement and discounts expenses due to diversification

4.2

3.9

4.4

4.7

3.6

3.6

4.1

2.9

3.83.5

3.7

2.11.9 2.0

2.1 2.2

0.7 0.6 0.7 0.8

1.11.4

3.4

4.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

FY11 FY12 FY13 FY14 FY15 FY16

(%

)

Pidilite Astral Poly Supreme Ind Finolex ind


We believe, at initial level APTL has to compromise at

lower EBITDA margin of ~12%-13% (unlike ~22% EBITDA

margin of Pidilite Industries) mainly due to higher sales and

promotion activity and discount to new dealers

Under the piping segment, APTL has access to over 750

distributors and 25000 dealers across India, while for

adhesive segment company has 2500 distributors and over

4,50,000 dealers in India


Exhibit 46: Strong branding activity with introduction of Bollywood celebrity


Continuous investment in increasing capacity, a strengthening dealer

network and maintaining high product quality helped APTL maintain its

leadership position in the CPVC pipe industries. We believe continuous

capacity expansion along with regular addition to the dealer network would

result in overall volume CAGR of ~17% for FY17-19E vs. ~32% during

FY09-16 (capacity addition recorded a CAGR of 26% in FY09-16 while the

company is likely to record a CAGR of 12% in FY17-19E).

Exhibit 47: Leveraging dealer network to help company to increase turnover

Company Distribution Networks

Supreme Industries 2469

Astral Poly technik Ltd 1700

Ashirvad Pipes 1800

Jain Irrigation 3071

Finolex Industries 600


Collaboration with global players to support new product launch

APTL has a proven record of launching new products in the market backed

by strong R&D and tie-ups with global players. Being a market leader, APTL

is concerned about the relevance and quality of the products. The company

has entered into technical tie-ups with various multinational companies

across the world. The technical collaboration has helped APTL improve the

quality (by adopting new technology) thereby producing international

standard products at minimal operating costs. This has also helped APTL

create strong brand value for its products and helped increase the

contribution of value added products in sales.

Exhibit 48: Global partners to build competent products for global market under piping and adhesive segment

Commencing business in 1947, Sekisui group is one of the largest chemical groups based in Japan. As on March 31, 2016 Sekisui group has a

turnover of over US$ 10 billion with global presence in Europe, Asia and America. Astral Poly joined hands with Sekisui to source Cholinated Poly

Vinyl Chloride (CPVC) resin for hot and cold water plumbing system

US based 'Spears’ product line inlcudes selection of 1/8” through 12” injection molded fittings and fabricated fittings through 48”, specialty

products, and manual and mechanically actuated thermoplastic valves in a variety of types, sizes and configurations

Established in 1954 as the original inventor of solvent cement for PVC pipe applications, IPS® Corporation has operations throughout the US,

Europe, and Asia. Astral Poly entered into a JV with IPS® Corporation to manufacture solvent cement, which is used as glue in PVC/CPVC pipes in

FY12

Italy based 'First Plast' is skilled in manufacturing building plastics and produces drainage systems such as drainage channels, ground accessories,

rainwater gutter and solvent cement fittings made of PVC

AlcaPlast is one of the largest manufacturers of sanitary ware in Central and Eastern Europe. Besides its traditional product range of fill and flush

valves, it also produces concealed WC installation systems, plastic cisterns, bath siphons and shower-basin siphons


APTL has a proven record of launching new products in the

the market backed by strong R&D and tie-ups with global

players


Key Financials

Consolidated sales CAGR of 21% in FY17-19E

APTL has recorded sales CAGR of ~37% during FY09-16, driven by the

company’s core business i.e. piping division, which recorded a sales CAGR

of 32% during the same period. Piping division sales were entirely led by

volume growth whereas realisation was muted due to a change in the

product mix (rising proportion of PVC products in the topline). Volume

growth of the piping segment came on the back of replacement demand

from the housing segment in both rural and urban India (translated into

regular capacity addition). We have modelled consolidated revenue CAGR

of 21% in FY17-19E to | 2786 crore led by capacity expansion and strong

demand in the piping segment. We believe the piping and drainage

segments will record a strong revenue CAGR of 21% in FY17-19E led by

volume CAGR of 17% supported by continuous demand from various

government schemes and replacement demand (share of metal piping in

the housing segment to reduce gradually). On the other hand, doubling the

capacity coupled with strong branding of adhesive & sealant segment

would lead strong segment revenue CAGR of 22% in FY17-19E.

Exhibit 49: Capacity expansion on the cards ….

127762

137708

155208

172708

25968

0

50000

100000

150000

200000

FY09 FY16 FY17 FY18E FY19E

(tonnes)

CAGR 26%

CAGR 12%


Exhibit 50: … to drive future volume growth

77909

89992

102049

123054

11164

0

20000

40000

60000

80000

100000

120000

140000


(tonnes)

CAGR 32%

CAGR 17%


Exhibit 51: Revenue growth backed by strong volume growth

1318

1506 1786

2205

193

0

500

1000

1500

2000

2500


(|

crore) CAGR 32%

CAGR 21%


Exhibit 52: Doubling capacity to drive adhesive & sealant revenue

223

410

451

587

675

0

100

200

300

400

500

600

700

800


(|

crore)

CAGR 22%


The topline is expected to grow at a CAGR of ~21%

during FY17-19E to | 2786 crore in FY19E from | 1889

crore during FY17E led by strong volume growth of 17% in

the piping segment


Backward integration coupled with stabilisation of new units to drive margin

The major raw material for piping and adhesive & sealant are derivatives of

crude oil and APTL had CPVC compound outsourcing tie-up with Lubrizol

Corp. Despite a decline in raw material prices (PVC prices declined ~6%

YoY and ~11% YoY in FY15 and FY16, respectively) APTL suffered a loss in

gross margin to the tune of ~300 bps and ~200 bps YoY in FY15 and FY16

respectively. This was mainly due to inventory loss on account of no benefit

being passed on by Lubrizol Corp. However, the company has discontinued

its tie up with Lubrizol and commenced its own CPVC compounding plant at

Santej (Gujarat) in FY17. It entered into a joint agreement with Japan’s

Sekesui for outsourcing CPVC resins.

This move resulted in expansion in gross margin by 260 bps YoY during

FY17. Further, addition of new capacity in newer geographies (near selling

markets) would help save freight cost (~50 bps). Further, though we believe

raw material prices (CPVC/PVC resins) will remain benign in the near future,

Astral being a strong brand in the piping business is in a strong position to

pass on adverse price movements of raw material to end customers. In

addition, a gradual improvement in profitability of adhesive and sealant

segment due to better product mix (launch of new products like silicon tape

in the domestic market that has ~40% of EBITDA margin), rising proportion

of retail segments, continuous addition to dealer network would help drive

profitability of the business, going forward. As a result, we believe the

EBITDA margin will increase 100 bps in FY17-19E to ~15%. However,

higher branding and promotional expenses of new products under the

adhesive and sealant categories would keep margins under check.

Exhibit 53: PVC prices

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

(|

/tonne)


Exhibit 54: Saving from lower material cost to drive EBITDA margin

31.7

31.1

28.3

29.4

29.5

28.4

26.6

28.4 31.0

32.4

33.1

11.3 14.4

13.4

14.2

14.0

14.4

11.8

12.4

14.0

14.2

14.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

(%

)

Gross Margin EBITDA margin


We believe raw material (largely derivative of crude oil

like PVC) prices will remain subdued in the near term. The

commencement of its own CPVC compounding unit in

Gujarat would translate into a margin improvement to the

tune of ~100 bps


Strong sales growth to drive PAT at CAGR 28% in FY17-19E

APTL has recorded strong PAT CAGR of ~33% during FY09-16 led by

piping & drainage systems and disciplined approach towards capital

expenditure (debt to equity ratio declined from 0.7x in FY09 to 0.2x in

FY16). We believe a reduction in debt level by 18% would lead to a

significant reduction in interest outgo by ~48% (by FY19E). Despite rising

non-cash expenditure (higher depreciation charges due to recent capex),

the company is expected to record strong PAT CAGR of 28% in FY17-19E

led by sales growth and expansion in EBITDA margin.

Exhibit 55: Net profit to grow at ~27% CAGR in FY17-19E

14

2833

39

61

79 76

102

145

173

235

0

50

100

150

200

250

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

CAGR 33%

CAGR 28%


Exhibit 56: Asset turnover to improve gradually with stabilisation of new plants

2.0

2.5

2.92.8

2.92.9

3.0

2.7

2.6

2.72.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

(x)


The company recorded a net profit CAGR of 33% during

FY09-16 led by an increase in sales and EBITDA margin.

We believe the company would continue to record strong

sales growth (backed by capacity addition) with increase

in EBITDA margin that would drive PAT at 28% CAGR in

FY17-19E

Fixed assets turnover of APTL has been strong barring

FY15-16 wherein the company have done significant capex

for both addition of new business and capacity. We believe

the turnover will increase gradually with the stabilisation of

new units, going forward


Better earnings growth to lead to expansion in return ratios

APTL has maintained a disciplined approach for capital expenditure to add

new capacity or new business by using internal accrual. This has translated

into decline in debt/equity mix 0.4x in FY12 to 0.2x in FY16. However, the

company’s cash conversion cycle was stretched due to significant cut in

credit days by Lubrizol Corp (from 120 days to 60 days after starting new

capacity in Gujarat). After joining hands with Sekesui, APTL was assured of

getting extended credit days (of 120 days), which would translate to lower

working capital requirement, going forward. Historically, the company has

recorded strong RoCE, RoE led by a strong performance. We believe

stabilisation of new capacity, improvement in margin and lower working

capital requirement would bring back return ratios to elevated levels.

Exhibit 57: Debt/equity mix at comfort zone despite regular capex

0.7

0.4

0.3

0.4

0.30.3

0.20.2 0.2

0.10.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

(x)


Exhibit 58: Return ratios to improve with increase in profitability

13.6

23.9 23.7

28.7

31.4 31.8

17.019.2

21.3 21.723.8

15.1

23.622.2 21.4

25.1 25.0

12.314.5

17.216.0

18.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

(%

)

RoCE RoE


Exhibit 59: Higher credit days to translate into lower cash conversion cycle

52

59

41

61

69 69

0

10

20

30

40

50

60

70

80

FY13 FY14 FY15 FY16 FY17E FY18E

(D

ays)


We believe stabilisation of new capacity, improvement in

margin and lower working capital requirement would

translate into strong operating cash flow and bring back

the return ratios to elevated levels


Risk & concerns

Volatility in raw material prices

Major raw materials consumed by APTL are poly vinyl chloride (PVC)

resins, Chlorinated polyvinyl chloride (CPVC) resins, which are linked to

crude prices. APTL imports 50% of raw materials. Since a significant part of

the raw material is imported, any increase in import price or fluctuations in

foreign currency rates may affect the margins of the company.

Exhibit 60: EBITDA margin movement with respect to PVC price

55244 53631

5808462385

70050

79265

74640

66081

73641

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

(|

/tonnes)

0

2

4

6

8

10

12

14

16

(%

)

Price PVC per tonne EBITDA margin

Source: Company, ICICIdirect.com Research, FY17E EBITDA margin is i-direct estimate

Risks arising from foreign exchange rate fluctuations

Depreciation of the rupee against foreign currencies may adversely affect

operations by increasing the cost of financing (debt denominated in foreign

currency) and any proposed capex in foreign currencies.

Delay in capacity expansion and government expenditure

Being a capital intensive business, it is necessary for APTL to continuously

invest in the business to sustain growth. Sales of APTL may get negatively

affected if there is any hurdle (regulatory, environmental) in the expansion

plan. Further, government programmes like Housing for All, Swachh Bharat

and AMRUT would be a strong boost to the plastic piping industry in India,

going forward. However, any delay in execution of such projects could hurt

the demand for plastic products in India.

Limited experience in adhesive and sealant business

APTL is relatively new in the adhesive and sealant business and has limited

experience. The strategy of diversifying its business and expanding product

range into the adhesives and sealants business through the acquisition of

Seal It and RCL may be unsuccessful. This may be possible due to the

aggressive capital expenditure by established strong domestic and

international players.

Entry of other organised players in CPVC segment

The CPVC piping system is increasingly becoming popular in the Indian

housing sector. Hence, established PVC players (such as Finolex Industries,

Supreme Industries) have also decided to move toward CPVC pipe

manufacturing. Competition is, therefore, expected to remain intense in the

foreseeable future. It may hit the margin of APTL.

Systematic risk associated with international business

The company’s international operations (Seal It and Silicon tape) are subject

to political, economic, regulatory and other risks of doing business in those

jurisdictions.


Valuation

Astral is the pioneer in the CPVC piping business with a market share of

~25%, with revenue, earning CAGR of 37%, 33% in FY09-16. In the last six

years, APTL’s pipe manufacturing capacity expended to ~3x to 1.4 Lakh MT

by FY17 mainly to serve rising demand of plastic piping/plumbing products

from housing and agriculture. It also plans to increase the pipe

manufacturing capacity by 25% by FY19E on the back of strong

replacement demand and different government schemes. This would yield

strong piping sales CAGR of 21% backed by volume CAGR of ~17% in

FY17-19E. Further, the strategy to extend the business towards adhesive &

sealant segment through inorganic route, was a step towards de-risking the

business from a single product company (of the piping business).

Doubling the capacity coupled with strong branding of adhesive & sealant

segment would lead strong segment revenue CAGR of 22% in FY17E-19E.

As a result, consolidated revenue would record sales CAGR of 21% in FY17-

19E. Backward integration (of raw material sourcing) coupled with

stabilisation of new capacity would help drive the EBITDA margin from

~14% in FY17 to ~15% in FY19E. Strong sales and EBITDA margin in FY17-

19E would help the company record PAT CAGR of 28% (against Supreme

Industries: CAGR 14%, Finolex Industries: CAGR of 6%). We believe since

there is no major capex in the piping and adhesive & sealant segment the

company would largely focus to leverage its strong brand to increase the

asset turnover, going forward. Higher credit days (as per negotiation with

Sekesui), with strong earning growth would help in the company’s free cash

flow accumulation of | 100 crore in FY18E-19E supported by strong

operating cash flow (expected to record strong CAGR of 38% in FY17-19E).

As a result, return ratios RoCE, RoE would start improving gradually from

17%, 12.3% in FY15 to 24%, 18% by FY19E, respectively.

We reckon a revival of the plastic piping industry is on the cards with a

major government infrastructure push, implementation of GST as well as

continued replacement demand from tier II and tier III cities. Moreover, a

better economic scenario would lead to a further re-rating of the stock. We

have valued the company on a PE basis by ascribing PE multiple of 35x

FY19E earnings. We are initiating coverage on the stock with a BUY rating

and a target price of | 685/share.

Exhibit 61: Historically, APTL has traded at average P/E multiple of 37x

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Avg P/E 37x


Exhibit 62: One year forward P/E (x)

0

100

200

300

400

500

600

700

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

40x

35x

30x

25x


Exhibit 63: Competitor’s valuation matrix (in | crore)

FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18EFY19E FY16 FY17E FY18E FY19E

Supreme Ind 14545 2947 4462 5451 6173 446 762 849 994 222 428 465 555 65 34 31 26 33 19 17 15 17 25 27 28

Finolex Ind 8028 2843 2988 3058 3352 400 571 528 540 258 355 345 366 31 23 23 22 20 14 15 15 16 15 22 22

Astral Polytec 7305 1678 1889 2301 2785 208 264 327 415 102 145 173 235 72 51 42 31 36 28 23 18 14 17 16 18

Peer group

Mcap

(Cr)

Sales ROEEBITDA Net Profit PE EV/EBITDA

Source: Bloomberg, ICICIdirect.com Research


Exhibit 64: Income statement (| crore)

Year end March FY15 FY16 FY17 FY18E FY19E

Net Sales 1429.9 1677.8 1888.8 2301.2 2785.5

Other income 3.1 2.3 9.1 10.2 11.0

Total Revenue 1433.0 1680.1 1898.0 2311.4 2796.5

Expenditure

Cons of raw material 1011.5 1152.5 1263.2 1521.9 1835.7

Pur of traded goods 38.0 48.8 40.3 34.2 28.3

Employee cost 48.1 75.0 88.7 107.7 130.5

Other expenses 164.1 194.0 232.9 310.7 376.0

Total expenses 1261.6 1470.2 1625.0 1974.4 2370.5

EBITDA 168.3 207.6 263.8 326.7 415.0

Interest 25.5 30.2 18.4 19.5 14.0

PBDT 145.9 179.7 254.5 317.4 412.0

Depreciation 36.4 41.8 50.2 64.4 78.0

Profit before tax 109.5 137.9 204.3 252.9 334.0

Total Tax 31.3 29.6 56.2 77.4 96.0

PAT before MI 78.2 107.5 147.2 175.5 238.0

Minority Interest 2.3 0.0 0.0 0.0 0.0

PAT after MI 75.9 107.5 147.2 175.5 238.0

Profit from Associates 0.0 -5.6 -2.6 -2.6 -2.6

PAT 75.9 101.9 144.6 172.9 235.3


Exhibit 65: Balance sheet

X


Equity Capital 11.8 12.0 12.0 12.0 12.0

Reserve and Surplus 606.9 696.4 834.9 1068.1 1291.9

Total Shareholders funds 618.8 708.4 846.8 1080.1 1303.9

Total Debt 139.1 130.6 156.9 136.9 116.9

Other Non Current Liabilities 68.4 72.9 80.5 83.1 85.1

Total Liability 792.0 875.7 1044.0 1258.5 1463.3

Fixed Assets

Gross Block 482.6 610.9 738.8 838.8 968.8

Accumulated Depreciation 140.2 179.5 229.7 294.1 372.1

Net Block 342.4 431.4 509.1 544.7 596.7

Capital WIP 26.8 15.0 25.0 25.0 25.0

Total Fixed Assets 369.3 446.4 534.1 569.7 621.7

Goodwill on Consolidation 214.4 213.7 232.2 232.2 232.2

Sub Total 214.4 213.9 232.3 232.3 232.3

Current Assets

Inventory 265.6 277.3 272.1 353.1 427.4

Debtors 232.7 227.1 338.6 441.3 534.2

Loans and Advances 70.2 4.5 1.7 2.1 2.5

Other Current Assets 1.7 58.8 42.9 52.3 63.3

Cash 11.5 49.8 16.4 58.9 105.1

Total Current Assets 581.6 617.6 671.7 907.7 1132.5

Current Liabilities

Creditors 265.7 316.3 293.1 357.1 432.2

Provisions 9.0 1.8 2.1 2.5 3.1

Other current liabilities 98.6 110.1 122.5 115.1 111.4

Total Current Liabilities 373.3 428.1 417.7 474.7 546.7

Net Current Assets 208.3 189.5 254.0 433.0 585.8

Deferred Tax Assets 0.0 2.3 1.6 1.6 1.6

Total Asset 792.0 875.7 1044.0 1258.5 1463.3


The consolidated topline of the company is expected to

grow at a CAGR of ~21% during FY17-19E to led by

strong piping and adhesive & sealant segment

performance

APTL has maintained a disciplined approach towards

capital expenditure to add new capacity or new business

by using internal accrual. This has translated into decline

in debt/equity mix 0.4x in FY12 to 0.2x in FY16


Exhibit 66: Cash flow statement


Profit/(Loss) after taxation 75.9 101.9 144.6 172.9 235.3

Add: Depreciation & Amortization 36.4 41.8 50.2 64.4 78.0

Add: Interest Paid 25.5 30.2 18.4 19.5 14.0

C/F bef working capital chg. 137.8 174.0 213.2 256.9 327.3

Net Increase in Current Assets -174.2 2.3 -87.6 -193.4 -178.6

Net Increase in Current Liabilities 105.1 54.8 -10.4 57.0 72.1

Net CF from operating act 68.7 231.1 115.2 120.5 220.7

(Inc)/Dec in Goodwill on Cons -213.9 0.7 -18.4 0.0 0.0

(Purchase)/Sale of Fixed Assets -108.7 -118.9 -138.0 -100.0 -130.0

Others 21.6 2.0 4.0 1.3 1.0

Net Cf from Investing Act -300.9 -141.8 -150.4 -98.7 -129.0

Pro/(Rept) of/from Loan 40.7 -8.4 26.3 -20.0 -20.0

(Payment) of Div & Div Tax -5.2 -5.8 -4.3 -7.9 -11.5

Others 207.3 -36.8 -20.1 48.7 -14.0

Net Cf from Financing Act 242.8 -51.0 1.8 20.8 -45.5

Net Cash flow 10.5 38.3 -33.5 42.6 46.2

Cash and Cash Equi at the beg 1.0 11.5 49.8 16.4 58.9

Cash and Cash Equi at the end 11.5 49.8 16.4 58.9 105.1


Exhibit 67: Ratio analysis


Per share Data

EPS 6.3 8.5 12.1 14.4 19.7

Cash EPS 9.4 12.0 16.3 19.8 26.2

Dividend per share 0.4 0.5 0.4 0.7 1.0

BV per share 51.7 59.2 70.7 90.2 108.9

Profitability Ratio

EBITDA margin 11.8 12.4 14.0 14.2 14.9

PAT margin 5.3 6.1 7.7 7.5 8.4

Return Ratios

RoCE 17.0 19.2 21.3 21.7 23.8

RoNW 12.3 14.5 17.2 16.0 18.0

RoIC 20.7 24.3 24.6 25.4 28.3

Valuation Ratios

P/E 96.2 71.7 50.5 42.2 31.0

EV / EBITDA 44.2 35.6 28.2 22.6 17.6

Market Cap / Sales 5.1 4.4 3.9 3.2 2.6

Price to Book Value 11.8 10.3 8.6 6.8 5.6

Activity Ratios

Inventory Days 67.8 60.3 52.6 56.0 56.0

Debtor Days 59.4 49.4 65.4 70.0 70.0

Creditor Days 67.8 68.8 56.6 56.6 56.6

Gross Block Turnover 3.0 2.7 2.6 2.7 2.9

Solvency Ratio

Debt / Equity 0.2 0.2 0.2 0.1 0.1

Debt / EBITDA 0.8 0.6 0.6 0.4 0.3

Current Ratio 2.1 1.8 2.2 2.4 2.4

Quick Ratio 1.1 0.9 1.3 1.4 1.4


APTL to record strong operating cashflow in FY17E-19E

supported by healthy profitability and efficient working

capital management

We expect the company to maintain high RoE and RoCE

considering 1) Healthy topline growth backed by capacity

expansion plan 2) recovery in operating margin 3)

Efficient working capital management turning lower

debt/equity ratio


ANALYST CERTIFICATION

We /I, Abhishek Shindadkar, MBA and Hardik Varma, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report

accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or

view(s) in this report.

Terms & conditions and other disclosures:

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insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking

and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts

and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. 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 of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis is under no obligation to update or keep the information

current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended

temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this

company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This

report and information herein is solely for informational purpose and shall 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. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

receiving this report. 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 judgment by any recipient. The recipient should independently evaluate

the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any

loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the

risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment

in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in

respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned

in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation

or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any

material conflict of interest at the time of publication of this report.

It is confirmed that Abhishek Shindadkar, MBA and Hardik Varma, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding

twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the

publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject

company/companies mentioned in this report.

It is confirmed that Abhishek Shindadkar, MBA and Hardik Varma, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

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 ICICI Securities and affiliates 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.

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


ANALYST CERTIFICATION

We /I, Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance); Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research

report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)

or view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities

Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has

its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which

are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking

and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts

and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. 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 of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.

Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended

temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this

company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This

report and information herein is solely for informational purpose and shall 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. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

receiving this report. 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 judgment by any recipient. The recipient should independently evaluate

the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any

loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the

risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment

in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in

respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned

in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any

compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts

and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance); Research Analysts of this report have not received any compensation from the companies mentioned in the report in

the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month

preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject

company/companies mentioned in this report.

It is confirmed that Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance); Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

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 ICICI Securities and affiliates 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.

June 5, 2017 Rating Matrix Astral Poly Technik Ltd...

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