Industry Structure and Developments (Pipes):

Piping Industry in India has been passing through a volatile phase in pricing due to heavy fluctuations in the price of crude. Crude price touched a bottom of $ 27 per Barrel and started recovering. Presently, it is trading around $ 50 per Barrel. This has resulted in inventory losses in the system. CPVC pricing was comparatively stable in the first half of 2015-2016 but in the second half it started south wards which resulted in large fluctuations in demand and pricing. But now industry is settling down and pricing of polymer has bottomed out. PVC has already started it's upward movement. CPVC also appears to be bottoming out. We are of the view that financial year 2016-17 will be comparatively better in terms of pricing and demand than the financial year 2015-16.

Government of India has taken various initiatives in the budget for facilitating faster growth of Real Estate, Agriculture and Infrastructure which have now started showing the results. During the last year, the demand for plumbing accessories was subdued due to the huge unsold inventory lying with developers. Now the developers see a pick up in demand for residential and commercial space, and the inventory is gradually reducing. New construction activity will also push demand for plumbing business. As forecast by the MET department, it is expected that monsoon will be good after two years of drought which will further boost construction activity and demand. Further it will also help your Company to grow in agriculture sector in which your Company has recently entered.

As per the report of Ken Research, the Piping Industry in India is set to grow between 15%-20% CAGR for next 5 years (Estimated to be '32,700 Crores) which indicates a robust growth in demand in the Piping Industry in the coming years in our country.

There are many positive factors which are going to drive the growth of Piping Industry in the coming years. Important among them are:

• Demand from Tier II/III cities and rural segment is expected to pick up if the rainfall is normal.

• Implementation of GST will support the organized sector.

• Replacement of metal with plastic is still continuing in pipes and various other applications.

• After drop in polymer price, the gap between branded and unbranded pipes has narrowed down substantially which is going to benefit the organized players.

• With the support from Government in taxation and other benefits in the Budget to developers, the demand for low cost housing is picking up.

• Proposal of the Government to develop 100 "Smart Cities" out of which names of 30 cities have already been announced.

• Prime Minister Mr. Narendra Modi's Vision of "House to each by 2022" is definitely going to boost the construction activities and the Government is also expected to support the sector directly or indirectly.

Your Company has always believed in creating the capacity to meet the anticipated demand from different parts of the country. Your Company has incurred a capex of '110 Crores this year and increased the capacity from 102,371 M.T. to 127,762 M.T. (approximately 25% rise). Your Company has purchased land in Rajasthan Industrial Park and is planning to build a new manufacturing unit during the current financial year.

We are quite confident that your Company will grow at a decent pace in the years ahead, considering the opportunities available in the sector.

Industry Structure and Developments (Adhesive & Sealants):

Adhesive, Sealants and Building Chemicals is the fastest growing Industry segment in India since many years and as per the Industry reports,it will grow at 20% CAGR in the next 5 years. Considering the opportunity for growth and the size of your Company, we are confident of growing at a rapid pace.

A good thing that is happening in India is that, till now the sector was controlled by only a few companies; but now several organized players are entering the sector which will help the market grow in size and create awareness of the products by different means of marketing and branding. Not only that, the market share of organized players having quality products and reach will also grow.

As you are aware, RESINOVA was merged with Advanced Adhesives last year.The market reach of RESINOVA is growing rapidly with more than 2,000 distributors and 4,50,000 dealers across the country. These counters are going to help the Company to grow faster by introducing new products in the years ahead. Company has already started the work of doubling the capacity of RESINVOA by erecting a plant in Ahmedabad, targeting to commence sales in the second half of 2016-17.

As communicated last year, the size of adhesive industry is very huge while per capita consumption of adhesives in India is very low compared to that in the developed part of the globe.

The Parliament has passed the Real Estate Bill which cast scertain responsibilities on the developers including payment of penalty to the buyers on late delivery of possession. Every developer is legally bound to complete construction and deliver possession of the building as per the agreed time schedule. Therefore, they have to come up with newer, innovative and faster construction techniques which in turn give a further boost to the growth prospects of adhesives, sealants and building chemicals segment.

Opportunities and Threats:

India's GDP is growing at 7% to 8% which is expected to increase to 9% to 10% in the medium term. We, therefore, fore see a very good opportunity for growth in the Construction & Adhesives sectors of the Indian economy which is commensurate with and supportive of our country's over all GDP growth.

• Having regard to the recent developments on the political front, possibility of passing of GST legislation shortly by the Parliament and its implementation thereafter by the Government, appears to be strong. This will bring significant benefits to the organized sector including your Company. Leakage of tax revenue through the unorganized sector will be plugged with this new law coming into force and a level playing field will be opened for all the players. Your Company is planning to introduce a number of new products based on MRP pricing to take advantage of the proposed GST regime.

• You company has launched various new products in the last few years,It is planning to launch many new products in the Pipe and Adhesive sector in the coming years which is expected to add considerable growth momentum in the operations of your Company. Our present capacity utilization stands at 61% after taking into account the new capacity addition of 25% made during the last year. Once this utilization improves to 75% to 80%, it will result in a significant operational improvement in the days ahead. The South Indian plant of your Company located at Hosur in Tamil Nadu has already improved its capacity utilization and the Company proposes to increase the capacity of that plant which will go a long way in reducing our logistic cost.

• As per the Vision 2022 document released by KPMG, India has at present a shortage of 59 million houses and it needs additional 51 million houses by 2022 which is a very huge opportunity not only for the housing sector but also indirectly for the piping industry.

• Besides the above, India needs large areas of commercial space for Modern Retailing. This will give further fillip to the construction activity in this area.

• Multiple PE fund investment expected in Indian Real Estate sector, favorable demographics, higher disposable income leading to better lifestyle, concept of nuclear families and a rising middle class will also drive the growth in the demand for housing.

• Recent announcement and allocation in the Budget by Government of India is going to support the Housing Sector & Agriculture Sector. Government is promoting low cost housing by giving lot of benefits to purchaser and developer and also supporting irrigation to increase agricultural output which implies higher demand for pipes from the agricultural sector. From last year onwards, your Company has started manufacturing agriculture pipes for Government projects which will contribute further to the growth of your Company.

• The vision of our Prime Minister Mr. Narendra Modi to build 100 "Smart Cities" and the 30 cities whose names have already been announced have attracted many global investors to India. These investors are looking to participate in the growth story of India and many countries have come forward and started dialogue with Indian Government. This in turn, will open up new opportunities for growth in the Piping and Adhesive industry. Your Company is poised to utilize the opportunity quickly as it is ready with the required manufacturing capacity and infrastructure.

Outlook:

Historically, the piping segment has been the main growth driver of your Company. Last year, though polymer prices were fluctuating to the extent of about 20%, accompanied by a huge slowdown in the real estate sector, your Company was able to record notice able growth. Now that Adhesives & Sealants are added to the basket, we are rather bullish on the growth outlook of your Company.

Following are the main growth drivers for your company in the coming years for Pipes, Adhesive & Sealants segments.

• GDP of the country is going to grow at 8% to 10% in the coming years which will boost the demand in both segments.

• Schemes announced by Government of India for low cost housing.

• Government has allocated sizeable budget for irrigation projects in the next 5 years ('86,500 Crores)

• Government is proposing to bring 28.5 lacs hectares of land under PM's Krishi Sinchai Yojana.

• 89 Projects of irrigation will be on fast track.

• State Government has already started spending on irrigation which we can see from recent pick up in the demand from this sector.

• Concept of Smart Cities is getting popular and out of 100 proposed cities, government has already announced the names of 30 cities.

• Government is promoting Tourism Industry which will give boost to hotel industry and indirectly to pipes & adhesive consumption.

• Implementation of GST will be the game changer for the organized sector of industry and will be reducing the share of unorganized players.

• Crude prices have started improving which is not expected to exert excessive pressure on the margins.

• Company is increasing its reach in Adhesive Industry by increasing dealer network and is going to introduce various new products in the coming years.

• Company is also planning to launch a few products of UK subsidiary and US step-down subsidiary in the Indian Market.

• Company has recently launched Manholes up to 1000 mm in Indian Market with German technology.

• Company is also planning to launch few more products in piping with state of art technology.

• Replacement of conventional piping systems like galvanized iron and cast iron piping systems with plastic is on the rise and the trend is expected to continue in the near term.

• Growth in construction, particularly in rural & Tier-II and III cities is picking up and will continue in near term.

• Increase in the demand for branded agriculture and plumbing pipes because of increase in income levels.

As far as your Company is concerned, an important advantage it enjoys is, it is the only Company which can offer to the developers all their piping requirements for various projects. Your Company offers one-stop solution for various piping requirements such as Plumbing (Hot & Cold), Drainage, Underground, Rain Water Harvesting, Sewage, Industrial, Fire Sprinklers, Agri Pipes etc. Your Company is the only NSF approved Company in the plumbing industry, giving it an edge over its competitors.

With the association of Mr. Salman Khan as Brand Ambassador, your Company's Brand strength is steadily going up. Recently, your Company was awarded India's Most Trusted Brand Award in PVC pipes category by The Brand Trust Report - India Study 2016, which shows the strength of the Brand in the Indian Market. The distribution network of your Company is continuously expanding. Your Company has, at present, 750+ distributors and 22,000+ dealers.

Foreign Exchange Risk:

Hitherto your Company had a significant exposure to the forex risk because of foreign currency loans and import of material from Lubrizol, USA. Since Lubrizol has put up a plant in India and started supplying partially our raw material requirements, we foresee our forex risk exposure will come down in the ensuing years. Appropriate decisions are taken for hedging the exposure from time to time based on the market scenario. However, the volatility is increasing day by day which has elevated the risk. During the financial year 201617 your Company is planning to avail rupee loans as the pricing of rupee loans has come down which will reduce the risk due to your Company's exposure to forex volatility.

Raw Material Prices:

Since a significant part of the raw material is imported, any increase in the import price or fluctuations in the foreign currency rates may affect the margins of your Company. Further, the price of raw material is to some extent, linked to the International crude price, which may affect the price of raw material. But your Company has been successfully managing this risk for the past several years. Whenever the revision in raw material prices is on the higher side, it is passed on to the customers. Now Lubrizol has put up CPVC compound facility in Dahej which will reduce this risk for your Company to almost negligible level because your Company will be sourcing CPVC in local currency.

Internal Control and their adequacy:

Your Company has adequate Internal Control Systems and Procedures commensurate with the size of the Company and its nature of business. The independent Internal Auditors continuously review the adequacy and effectiveness of the internal control systems vis-a-vis ongoing operations of the Company, which provides reasonable assurance of adequacy and effectiveness of controls, governance and risk management procedures to the Audit Committee. The recommendations of Internal Auditors and the Audit Committee are followed up effectively for implementation.

Financial Performance:

An overview of the financial performance is given in the Directors' Report. The Audit Committee constituted by the Board of Directors periodically reviews the financial performance and reporting systems.

Human Resources:

Your Company continues to maintain constructive relationship with its employees with a positive environment so as to improve efficiency. Your Company places great value on the commitment, competence and vigor shown by its employees in all aspects of business. Your Company confirms its commitment to take initiative to further align its HR policies in order to meet the growing needs of the business.

Your Company has employee focus in the sense that it provides fulfillment, stretch and opportunity for development of its employees at all levels. It is because of the considerable skill and motivation of the employees, that your Company is able to deliver performance satisfaction. Your Board would like to express its sincere appreciation and gratitude to all employees on behalf of the stakeholders of your Company, who benefit from their hard work.

Cautionary Statement:

Some of the statements in this Management Discussion and Analysis, describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable Laws and Regulations.

Actual results might differ substantially from those expressed or implied. Important developments that could affect the Company's operations include changes in economic conditions affecting demand, supply and price movements in the domestic and overseas markets in which your Company operates, changes in the Government regulations, Tax Laws and other Statutes or other incidental factors.

The Company assumes no responsibility in respect of forward looking statements which may be amended or modified in future.

For, Astral Poly Technik Limited For, Astral Poly Technik Limited
Sandeep P. Engineer Jagruti S. Engineer
Managing Director Whole Time Director

Date : 27th May, 2016 Place : Ahmedabad