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Astral Poly Technik Ltd is in the business of manufacturing of CPVC and PVC pipes
and fittings. It is the first licensee of Noveon, USA (now part of Lubrizol) to
manufacture and market CPVC piping and plumbing system in India. It is one of the
fastest and consistently growing pipe companies in India with revenue CAGR of
51.5% and PAT CAGR of 52.9% in FY06‐11 respectively. The company has maintained
decent ROE and ROCE of around 20% in the period. The growth in the financials was
supported by continuous capacity expansion on the back of increasing demand of
CPVC and PVC pipes. We believe the trend to continue for the next three years and
expect net revenue and PAT to grow at a CAGR of 26.4% and 23.9% respectively in
FY11‐14E.
Key Highlights
Largest player in CPVC with 60% market share: Astral is the largest manufacturer of
CPVC pipes in India with 60% market share. The company sells its products in India
through a strong distribution channel of over 10000 dealers and 300 distributors
spread across the country.
High entry barrier: CPVC pipes has relatively high entry barrier on account of single
supplier of raw material which is Lubrizol. Lubrizol has sole patent of manufacturing
CPVC resin in the world. Currently it is supplying the raw material to 3 players in
India including Astral. Lubrizol is not giving any new license to any new player for
many years. Hence for any new player it would be difficult to enter into this business.
JV with Lubrizol: Lubrizol Corporation, a Warren Buffet led company is planning to
set up CPVC pipes manufacturing unit in Gujarat in JV with Astral. As per media
reports the investment in the JV is estimated at USD 245 million and it would be
operational by Oct 2014. We believe that JV with Lubrizol would further strengthen
Astral’s tie up with licensee.
Capacity expansion to drive growth: Astral is ramping up its capacity to meet rising
demand of CPVC pipes. In the past five years Astral increased its capacity from 9074
tonnes to 48432 tonnes at the end of FY11, a CAGR of 52%. Further it is enhancing its
capacity from 48432 tonnes to 70000 tonnes.
Trading at attractive valuation: On the basis of FY12E and FY13E consolidated EPS of
Rs 16.8 and Rs 22.2, the stock is currently trading at an attractive P/E of 8.8x and 6.7x
respectively. We assign BUY rating on the stock with one year forward target price of
Rs 182.
Valuation
On the basis of FY12E and FY13E consolidated EPS of Rs 16.8 and Rs 22.2,
the stock is currently trading at P/E of 8.8x and 6.7x respectively. In addition
it is trading at FY12E and FY13E P/BV of 1.8x and 1.4x and EV/EBITDA of
5.9x and 4.7x respectively which looks attractive.
In the past five years, PIL has traded at an average P/E of 8.2x, P/BV of 1.6x
and EV/EBITDA of 5.4x. Looking at the strong outlook on revenue and
earnings growth and high entry barrier in the product, the company is
expected to outperform its peers in the longer run. The stock is currently
trading at a discount to its historical P/E. In addition it is also trading at a
discount to its peers in terms of valuation. We assign BUY rating on the
stock with the target price of Rs 182. At our target price the stock trades at a
FY12E and FY13E P/E of 10.8x and 8.2x respectively.
