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PRICE TARGET Rs 222/- (15-18 Months) Capacity expansion and robust demand to foster long term growth
Index Details The plumbing market is growing at 15-20% on the back of robust demand
Sensex 18,534 for housing and commercial construction. Bulk of this demand is expected
Nifty 5,565 to come from the PVC and CPVC segments due to significant advantage
BSE 500 7,203
Plastic over the use of traditional GI pipes. In order to capitalize on this
Industry opportunity, ASPL is investing over Rs 35-40 crore to expand capacities
Products
Scrip Details from the current 45000 MTPA to 60000 MTPA by FY12. We forecast
Mkt Cap (Rs in crore) 382.0 revenues to grow at CAGR of 30.0% to Rs 639.2 crore by FY13.
Book Value (Rs) 52.3
Eq Shares O/s (Cr) 0.1
Avg Vol (Lakhs) 0.1 Dominance in the CPVC space with exclusive licensing from Lubrizol
52 Week H/L 194.0 Exclusive license for manufacturing CPVC products from Lubrizol has
Dividend Yield (%) 0.6 helped ASPL emerge as a market leader (60% market share) in Rs 400
Face Value (Rs) 5.0 crore domestic CPVC pipes and fittings market. While there are two other
BSE Code 532830 players in the market, ASPLs size, reach and brand visibility have helped it
NSE Code ASTRAL emerge as a dominant force in this market. Currently the company holds
exclusive manufacturing license for 3 products ('Corzan', 'Blazemaster',
Shareholding Pattern (31st March, 2011) 'Bendable), while ‘Flowguard’ license is shared with 2 other players.
Shareholders % holding Revenue from this segment are expected to grow at a CAGR of 32.7% to
Promoters 63.8 Rs 428.2 crore form ~ Rs 180 crore in FY10.
Indian Institutions -
FII’s 1.1
Non Promoter Corporate 6.4
New product innovation, new geographies and network expansion to
Public 28.7 spur growth in the medium term
Total 100.0 In order to provide best plumbing solutions, ASPL has continuously
introduced new innovative products at regular intervals having wide
ASPL vs. Sensex applications. Going forward ASPL intends to add 2 more products
(Flowguard Bendable and Blazemaster) to its existing portfolio which
should help diversify revenue streams. As part its expansion drive, the
company has set up shop in Nairobi in JV with local promoters which
should open up new opportunities in East Africa. Locally too the company is
beefing up its distribution with a thrust on the southern markets where
CPVC / PVC have greater compared to the rest of the country. We are
positive on all the initiatives undertaken and should translate into higher
revenue growth in the medium term.
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Company Background
In addition, ASPL has a joint venture (86:14) with Speciality Process LLC of
USA (28 years plumbing experience) to manufacture and market advanced
plumbing solution in India.
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Foundation (world renowned organization of USA for certification of
plumbing system) for both its facilities
• Along with low power cost and concessional sales tax rate (1%),
HP facility is exempt from excise duty and income tax for 5 years till
FY2015.
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CPVC products are far superior to PVC products
Chlorinated polyvinyl chloride (CPVC) is PVC (polyvinyl chloride) that has
been chlorinated via a free radical chlorination reaction. Because of its
excellent corrosion resistance at elevated temperatures, CPVC is ideally
suited for self-supporting constructions where temperatures up to 200 °F
(90 °C) are present. The ability to bend, shapes, and weld CPVC enables
its use in a wide variety of processes and applications. It also exhibits fire-
retardant properties. Aided by its inherent properties CPVC is emerging as
preferable product in global plumbing industry. At present Lubrizol is the
key global supplier of CPVC products and resins and commands ~70% of
global market share. And with an exclusive license to manufacture these
products in India, ASPL is an enviable position to dominate this market.
Over 44% of the Indian plastic market (Rs 850 bn) is consumed in the
construction industry for pipes and fittings. The fast growing Rs 400 crore
CPVC domestic market is expected to grow at CAGR of 30% over the
medium term while the Rs 10000 crore PVC market is expected to continue
to grow at 15-20%.
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mixture of debt and internal accruals.
Future expansions are likely to come up at Hosur Tamil Nadu, which will
aid ASPL to strengthen its presence in the fast growing Southern market.
The company has already procured the land for the same.
70000 80%
75%
60000
70%
50000 65%
40000 60%
MTPA
55%
30000 50%
20000 45%
40%
10000
35%
0 30%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Capacity MT (LHS) Utilisation Rate (RHS)
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Dominant player in the CPVC space with exclusive licensing from
Lubrizol and technical collaboration provided by Speciality Process
LLC
Taking forward the same kind of initiatives the company is intends to add 2
more products (Flowguard Bendable and Blazemaster) to its existing
portfolio. Flowguard Bendable offers an easier and more economical
alternative to conventional piping system. Excellent combination of flexibility
and rigidity allows the pipe to be workable in most of the conditions. At
present the product is manufactured by Lubrizol and the company invloved
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in distribution of product only. Going forward the company intends to
manufacture and distribute the Flowguard Bendable brand on its own.
With 7000 retailers and 350 distributors the company has a well-diversified
nationwide distribution network. The company is strengthening its presence
in Southern markets which has higher acceptance for CPVC / PVC
products. Along with regular participation in exhibitions (Plastindia,
Plumbex and Ace), the company is arranging training sessions for
plumbers to increase its brand recognition among plumbing community.
Key Concerns
Competition risk
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Financial Performance
Net sales for 9MFY11 grew by 43.2% yoy to Rs 269.6 crore due to
increased capacity utilizations. EBITDA margins for 9MFY11 declined by
230 bps to 12.8% while Net margin stood at 7.6%.
Financial Outlook
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ASPL’s operational outlook
Valuation
At CMP of Rs 170 the stock is trading at 9.7x and 7.7x its estimated
earnings for FY2012E & FY2013E , respectively.We initiate coverage on
ASPL as a BUY with a 15-18 month Price Objective of Rs 222 ( Mean PE
9.4x FY13E EPS). We recommend a STRONG BUY on the stock with an
upside potential of ~31% over a period of 15-18 months.
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P/E bands
P/BV bands
EV EBITDA bands
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Exhibit 01: Financials and Projections
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