Today's Top Gainer
Note:Top Gainer - Nifty 50 More
I. Economic Scenario
Indias growth (GDP) for the year was 6.6%, considerably below the expectations, on account of the challenges of GST implementation and Demonetisation. However, as per the Asian Development Bank, the GDP forecast for the year 2018 is 7.30% and for 2019 is 7.6%, which is a very healthy estimate. The Government of India is forecasting even higher figures than these.
Overall, the economic environment looks good. However, many challenges in the form of Crude Price, Inflation, Currency war and Global Trade Wars, are envisaged. Inspite of these challenges, the underlying sentiment foresees that the Indian Macros may do well and the country will more likely grow by more than 7%, which can be termed as a healthy growth for the country by any standard.
Construction activity within the country has started growing slowly and it will pickup pace in the coming years, which will be the real positive factor for the county as many industries are associated with the construction activity. Now problems related to RERA are almost resolved and things have started moving in the right direction. Govt. is spending sizeable amount on the infrastructure activities, which is going to help to grow the economy in the coming years.
MET department has also forecasted a normal monsoon which will help to augment the farmers income and the rural economy is expected to do better in the year 2018-19. GST collection is likely to improve and the shift from unorganised to organised sector is going to help improve the tax collection figures which in turn will not only help the Government but also the economy in the years ahead.
II. Industry Scenario - Plastic Piping & Adhesives Industry
Plastic Pipes :
From the year 2012 to 2017, the piping industry in India has grown by 10%-12% CAGR and attained the size of Rs 250 Billion (Crisil Report). The main reason for the growth in the demand was increased construction and irrigation activities and replacement of metal by plastic.
Several Govt. schemes such as Pradhan Mantri Krishi Sinchayee Yojana (PMKSY), Accelerated Irrigation Benefits Programme (AIBP), Command Area Development and Water Management Programme, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) etc. are helping to accelerate the demand for pipes for drinking water, sewerage water, waste and rain water etc. As per the CRISIL forecast for 2017-2022, Plastic Pipes & Fitting Industry will post a CAGR of 12-14% reaching market size of Rs 460 Billion in India. The main contributors to the growth are:
01) Low Per Capita Plastic Consumption :
Indias per capita consumption is just 11 Kg compared to global average of 30 kgs.
02) Substitution and Replacement Demand and increase in CPVC market :
Due to inherent advantages of plastic v/s metal, the usage of plastic pipes is increasing and recently due to lower crude price the shift is getting faster from metal to plastic. Also within the polymer, the usage of CPVC is increasing continuously. As per the CRISIL estimate, CPVC is expected to grow at a CAGR of 24-25% by 2021-22. The overall share of CPVC pipes which was 12% within the Pipe Industry in 2016-17, would go up to 20% by 2022. Also, the demand is coming from replacement of older plastic pipes with the new polymer pipes.
03) Announcement of Various Govt. Schemes :
Central Government has put increased thrust on several schemes to augment irrigation, urban infrastructure and real estate etc. as already mentioned above.
04) Real Estate Demand
a) Growth in Population: Countrys population is expected to grow at 1.6% CAGR, by 2020-21, which will be about 1.4 billion, resulting in increased housing demand.
b) Urbanisation: Urbanisation which was 31% till 2011 is expected to be 36% by 2020, driving the demand for housing.
c) Traction in Tier II and III Cities: There is continuous pick up in demand for plastic pipes in Tier II and Tier III cities mainly because of increase in per capita income.
d) Surging demand from Rural Sector: Due to various government schemes, the disposable income of farmers is increasing. Sustained marketing efforts and implementation of GST will help the branded players to increase the rural penetration.
e) Higher affordability led by increase in disposable income: Increase in Disposable income has a positive correlation with demand for housing units.
f) Tax Incentive by Govt.: Incentives like interest subvention, interest deduction from tax income, tax exemption on principal repayment, exemption from capital gains etc., will help the housing sector and in turn the piping industry.
g) Increase in Availability of Finance: Finance penetration to urban area which was 42.3% in FY 2016-2017,is likely to be 44.8% by FY 2018-2019, which will help to increase real estate demand.
III. Piping Business Developments:
Year 2017-18 was full of challenges. On one hand, GST regime was implemented and on the other hand there was significant slowdown in the real-estate sector. In spite of these challenges, your company was able to generate a volume growth of 16%, which was the highest in the last 3 years though the Industry growth of piping segment was very low. Company not only focussed on the volume growth but also improved the Gross Margin from 28.78 % to 32.60% and EBIDTA margin also improved from 14.58% to 15.39%. Due to lower price of crude in International markets and appreciation of currency, the price of polymer was low during the year. Hence your company was able to deliver a value growth of 9%. The backward integration of CPVC polymer helped the company to grow the volume and improve the Gross Margin.
Ghiloth Plant: Your company has successfully completed the construction of the plant and installed the machineries. The total production capacity of the plant is 22,700 M.T. The plant will be operational in the July 2018 once all the regulatory approvals are obtained. The company will be able to save on logistics cost in the North and North-East region and will be able to expand its footprints in the region where the presence of the company is low or nearly absent.
Hosur Plant: Expansion of the facility at Hosur (Tamil Nadu) is in advanced stage. Construction will be completed before September and the company is planning to add Approx. 20,000 M.T. capacity. With this expanded capacity, company will be able to take care of most of its requirement of the southern region and the company will add many new distributors in the region as it will be able to take advantage of reduced logistic costs.
Your company has continuously invested money in its R & D activities and as a result, the company has been able to add new products to its basket. Consistent innovation is the key to the growth of any organization. We always believe that with a strong R & D team, experienced professionals and visionaries at the top, the company will always be ready for the next level of products and growth.
After the successful implementation of backward integration of CPVC compound at Gujarat plant and then the southern plant, your company is planning to add few more products to its basket. Your company has recently launched "RECYFIX" for comprehensive range of surface drainage system, "PEX-A-PRO" for advanced, next generation plumbing system for hot and cold water, "INSUPRO" for XLPE insulation for hot and cold water piping as well as for HVAC etc. the company is shortly going to launch "DOUBLE WALL CORRUAGTED" (DWC) pipes for sewage and drainage application. These products have a very bright future.
3) Distribution Network
Your company is consistently adding new distributors to its portfolio. As of today, the company has 750+ distributors and 28,000+ dealers across the country. This year, the focus was on increasing the dealers network.
Further, the company is going to start the Rajasthan Plant whereafter, it is planning to add more distributors and dealers in North India. The company is also increasing the capacity of the Southern plant where the company is planning to add new Distributors and dealers.
The launch of new products will attract new distributors for the new product range. In a nutshell, the company is planning to significantly enlarge the Distribution Network in the coming years.
4) Branding Initiatives
Your company is consistently investing in Brand creation on a year on year basis. Your companys branding activities involve national television advertisement, in-film branding, train/bus/auto banners, advertisement hoardings, sports sponsorship, shop hoarding boards; plumber/architects/distributors meet etc. Your company believes in brand building and creating awareness about the importance of good quality pipes in the construction of a building. We are also conducting meets for plumbers and consultants for creating the awareness. During FY 2017-18, in-film branding was carried out in the film "Toilet Ek Prem Katha" with Bollywood star Akshaykumar. Participation in the various national and international exhibitions is being carried out aggressively to promote new products. For sports branding, your company has become associate sponsor of "Sunrisers Hyderabad" and "Rajasthan Royal" teams in Indian Premier League (IPL) 2018.
5) Goods and Service Tax (GST)
GST is considered to be the biggest tax reform in the country post independence with an intention to increase tax compliance and widen the tax base. GST is considered to be positive for organized players like your Company and to create an opportunity for organized players to replace the market share of unorganized players. Under GST, price of unorganized players will decreased drastically and hence, eventually the level of competition will be determined by quality, brand and market reach. Share of unorganized sectors in the Indian Plastic Piping industry is estimated at around 40%, which we expect, will gradually move to the organized sector sizeably.
Your company has successfully implemented the GST related changes and connected with all the Distributors across the country and the systems are working very effectively. We foresee that this reform is going to help the company in the long run and sizeable business shift will take place from unorganised to the organised sector in the coming 5 to 7 years.
IV. Adhesives Business Developments:
Adhesive business of the company is growing steadily at the domestic level and delivering good margins. Last year domestic business has grew by 20.3% in value terms and EBDITA margin also improved as compared to the previous year from 16.0% to 19.1%. Though the margins are very robust, it has to be seen how the high margins can be sustained in a rising raw material price scenario.
Overall, the contribution from the existing products is statisfactory and steady growth is registered. Inspite of the fact that the economic scenario is not very encouraging, your company has been able to maintain a reasonably good growth and going forward we foresee that the growth momentum will continue. The company is also continuously introducing a range of new adhesives & sealants.
The Recent Launch of "RESIQUICK" the instant joint glue Cynoacrylic has been very well received in the market.
The overseas adhesive sales has grown by 6.2% . The EBDITA was 5.7% mainly because of the lower performance of US subsidiary. However, we are forseeing that in the year 2018-19, the growth will be better and there will be improvement in the margins.
The Company is also planning to introduce the US product in India in the second half of the FY 2018-19.
The Company is continuously upgrading the packaging facilities at all the locations and a result company has incurred sizeable capex for the same. Company has also incurred sizeable capex for new products such as RESIQUICK", which has already been introduced in the market, and other products in building chemicals segment.
Last year the company has spent Rs 5,632 Lacs by way of Capex and invested sizeable amount in the state of the art R & D facility at its Santej Plant, which is now operational. Company is hiring rich talent for its R&D facility and planning to develop many new products in different chemical segment.
In the US entity, the company has incurred capex to replace the old machines and in UK, the company has purchased the new adjacent premises which will facilitate its future growth and committed total capex of Rs 1,384 Lacs.
The company has done sizeable expansion and has enough capacity to double its business without any further capex.
2) New products
Your company believes in continuously adding to the product range in the adhesive basket and as a part of that strategy, the company is investing in R&D facilities.In this context, the launch of "RESIQUICK" and few others products in building chemical space are noteworthy.
Your company has aggressively commenced branding activity, which includes shop-branding, exhibitions, sports branding and distributors meet. Resinova has initiated shop branding in all major cities for extensive brand presence. For sports branding, Resinova has become associate sponsor of "Sunrisers Hyderabad" team in Indian Premier League (IPL) 2018.
Your company is also now planning to do major branding activity on Social Media and TVC in the near future.
4) Distribution Network
Your company has changed its policy and now it targets to appoint big-ticket distributors for its various products. The company has already appointed sizeable number of large distributors in all the four zones of the country, which is likely to yield good results in coming years.
Similarly, with the launch of "REISQUICK", the company will be adding many retail counters and touch points, which will increase the brand image and reach of the company products within the country. The company is also planning to engage in social media branding activity increasing the reach of the product to every nook and corner of the country.
V. Finance, Accounts & IT Environment
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.
During the year, your company did not accept any public deposits under Chapter V of Companies Act, 2013. In terms of the provisions of Investor Education and Protection Fund (Accounting, Audit, Transfer and Refund) Rules, 2016 / Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001, Rs 0.65 lacs of unclaimed dividends were transferred during the year to Investor Education and Protection Fund.
Your company believes that Information Technology continues to be increasingly embedded in every aspect of business activity that any modern enterprise carries out. Your company believes in automation and flow of information, which can be analysed in a meaningful way for appropriate decision-making. Your company uses Business Intelligence tools for various auto reports and analysis. Your company is working on the Customer Relationship Management (CRM) tool, which will help the marketing team to make better assessments. CRM has helped in improving sales teams efficiency and in capturing meaningful information for management review.
Your company has successfully implemented the GST in both business (Pipe & Adhesive) without any trouble and has connected all its Distributors with the SAP and CRM software.
VI. Risk Management, Internal control and their adequacy
Your company has an elaborate Risk Management procedure in place, which covers Business Risk and Operational Risks, duly supported by policy framework. Major business and operational risks identified, are addressed through mitigating, controls and action plans. The company is addressing all key business risks on an ongoing basis.
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 control, governance and risk management procedures to the Audit Committee. The recommendations of Internal Auditors and the Audit Committee are followed up effectively for implementation.
VII. Human resources
Your company continues to maintain constructive relationship with its employees with a positive environment to improve efficiency. Your company places great value on the commitment, competence and vigour 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 fulfilment 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.
Some of the statements in this Management Discussion and Analysis, describing the companys 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 companys 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 : 23rd May, 2018|
|Place : Ahmedabad|