Astral Poly Technik Limited - Fired up: New avenues to add to existing growth momentum - Antique

Astral Poly Technik has grown at an astounding CAGR of ~44% over FY08-13 backed by strong growth in CPVC pipes (pioneer in this segment) and increasing penetration in the PVC pipes segment. While demand continues to show traction in its existing product portfolio, introduction of new products over the last few quarters like CPVC bendable pipes, CPVC fire sprinkler systems, and column pipes would result in sustainability of the growth momentum over the next three-to-four years. Also, increased and innovative branding measures over the last 12 months are likely to increase retail penetration, which augurs well for the company. At the current market price, the stock trades at 25.9x FY13 earnings of INR12.7 (adjusted for forex losses). Though near-term valuations looks stretched, likely growth momentum, improving return ratios, strong balance sheet, and sound management may act as a positive catalyst for the stock over the medium- to long-term.

Pioneer and strong player in the fastest growing CPVC pipe segment

ATPL has been the pioneer in launching chlorinated polyvinyl chloride pipes in 2000 in India through a licensing agreement with Lubrizol supplying CPVC compound to the former. Over the last decade, the company has remained the market leader, growing at five-year CAGR of 37% in CPVC pipes segment. With the company increasing its distribution network (particularly in the South, where Ashirvad Pipes is the leader) along with initiating niche brand-building measures, we expect growth momentum and leadership position to sustain over the next few years.

New product launches to drive further growth and visibility

The company has, over the years, added niche products to its CPVC pipes portfolio, namely CPVC industrial pipes, CPVC bendable pipes, and CPVC Blaze Master fire sprinkler systems, thereby enabling it to grow at the fastest pace in the segment. Over the last three years, it has been increasing its product portfolio even in the PVC pipes segment by introducing SWR system, underground drainage, and column pipes to offer a complete bouquet of piping products to the end consumer. These product launches CPVC bendable, CPVC Blaze Master, and PVC column pipes are likely to drive further growth momentum over the next three-to-four years.

Strong balance sheet, improving return ratios to support high valuations

Its balance sheet has remained strong and under-leveraged despite aggressively increasing capacities over the last decade. Sound working capital management, with increasing focus on the retail segment, has been the key to improving returns over the last few years. We expect working capital management to improve further on increasing distribution reach, particularly in the southern and eastern region, and further penetration into the retail segment. This is likely to further enhance RoE and RoCE going forward.

Source : Equity Bulls

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