Astral Poly Technik Ltd Management Discussions.

I. Economic Scenario

Despite the fact that global economies continue to remain under slow growth territory, Indian economy reflected robust growth of 7.1% during FY 16-17. The demonetization has impacted the India growth story which reduces India’s GDP growth to 6.1% during last quarter of FY 16-17. However, as per World Bank, Indian economy is showing good recovery from the temporary adverse effect of demonetization and in its latest Global Economic Prospects, projects India’s growth at 7.5% in 2018 and 7.75% in 2019. Last year’s growth was based on favorable monsoons that supported agriculture and rural consumption, an increase in infrastructure spending and robust government consumption. Domestic demand is expected to remain strong, supported by ongoing policy reforms, especially the introduction of the nationwide Goods and Services Tax (GST). Affordable Housing boom will play a key role in the growth of Indian economy in the coming years because of government’s thrust on ‘Housing for All’. Indian Meteorological Department has forecast that monsoon will remain normal during FY 17-18, which will boost agriculture and rural consumption demand.

The oil price has remained range bound with lower volatility compared to earlier year and it is expected to remain range bound in the coming year as well because of lower global demand and higher production. During FY 16-17, PVC price was on an increasing trend which stabilized during the last quarter and it is expected to remain low in the coming year.

II. Industry scenario - Plastic Piping & Adhesives Industry

Indian plastic piping and adhesives industry is set to witness robust growth because of various initiatives of the central government along with overall expansion of the Indian economy. Though the growth of the real estate sector has remained stagnant during the last two years, your Company has been able to achieve double digit growth with improvement in it’s margin. During the last two years, the central government has announced several schemes and incentives in the budget which will have a positive impact on the real estate, infrastructure and agriculture sectors. Central government’s vision and thrust on various schemes is now visible and has started gaining momentum. The major schemes / incentives which will directly impact the plastic piping industry are:

1) Housing for All (Urban) Mission

Under the scheme of Pradhan Mantri Awas Yojana (PMAY), the Prime Minister has set an ambitious target of housing for all by 2022. Under PMAY, it is proposed to build 20 million houses in urban areas and 40 million houses in rural areas during 2015-22. The government will use subsidies and cheaper loans to achieve its ambitious social-housing scheme. As per research by CLSA, it is expected that India will require close to 60 million new houses between 2018-24 because of population growth, urbanization and rising income considering per capital GDP growth. Demand for housing will increase substantially in the next five years because of stable property prices during the last 3 years, reduction in the housing loan rate by 150 bps during the last two years, interest subsidy extended by the government and tax incentives for construction of affordable houses. The ramp up in the construction activity, boost in job creation, increased labour productivity, will create a huge demand for building material and revival of capex cycle.

In the Union Budget 2017, the government has announced various incentives for the affordable housing schemes which will have positive impact on the development of the real estate sector. One of the key incentives which were provided for boosting real estate sector was to provide ‘Infrastructure Status’ to ‘Affordable Housing’ which will help developer in getting finance at a cheaper rate from banks instead of private sources or NBFCs. In addition to infrastructure status, carpet area of 30 and 60 sq meters will be applicable for "Affordable Housing" status instead of built up area, and this will help to extend the benefit of "Affordable Housing" status to more and more projects.

2) Sanitation – Swachh Bharat Mission

On October 2, 2014, the Prime Minister launched the Swachh Bharat Mission (SBM) to reduce or eliminate open defecation through the construction of individual, cluster and community toilets. The SBM will also initiate the establishment of an accountable mechanism of monitoring latrine use and waste management. The government is aiming to be Open Defecation Free India by October 2, 2019, the 150th anniversary of the birth of Mahatama Gandhi, by constructing 12 million toilets in rural India, at a projected cost of INR 1.96 lakh crore.Considering the amount of new construction involved, requirement for pipes is going to increase considerably.

3) Focus on agriculture

In the Union Budget 2017, the government announced a slew of measures focusing on boosting farmers’ income by promising to double it in the next five years and speeding up rural development.The Government has set up Long Term Irrigation Fund in

NABARD and the Prime Minister has announced an addition of INR 20,000 crores to its corpus which will take the fund to INR 40,000 crores. Target for agriculture credit to be available to the farmers is set at record high of INR 10 lakh crores in FY 17-18. The total allocation for the rural, agriculture and allied sectors in FY 17-18 is INR 187,223 Crores which is 24% higher than in the previous year.

Government of India is committed to accord high priority to water conservation and its management at an estimated cost of INR 50,000 crore over a period of five years. To this effect Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) has been formulated in 2015 with the vision of extending the coverage of irrigation ‘Har Khet ko pani’ and improving water use efficiency ‘More crop per drop’ in a focused manner with end to end solution on source creation, distribution, management, field application and extension activities.

Improvement in the rural income and thrust on irrigation will create huge demand for agriculture pipes which will be highly beneficial for your Company as we have recently entered the agriculture piping segment.

4) Goods and Service Tax (GST)

Government has clearly shown its intent to implement Goods and Service Tax (GST) from July 1, 2017, which is considered to be the biggest tax reform, post-independence. GST will have multi-dimensional impacts on the Indian economy. It will help in creating efficient indirect tax regime by removing cascading effect of tax, nullifying non-credible taxes, similar tax structure across the states and reducing compliance costs. It is expected that because of transparent tax structure, share of unorganized players will reduce over a period of time.

Presently, it is estimated that the share of unorganized players is approximately 35-40% in the plastic piping and adhesives industry, which will be eventually taken over by the organized players. It is believed that considering the mechanism developed under GST regime, it would be difficult for the unorganized players to sustain themselves and ultimately they will be required to convert into organized players and when that happens, the competition will be based on the quality aspect.

Considering various government initiatives and push for infrastructure, agriculture, irrigation, sanitation and housing, industries like, cement, steel, paints, plastic pipes, adhesives and building materials, suppliers are poised for double digit growth in the coming years. Looking at the recent state election results, Indian political scenario looks positive, bringing about long term stability which will create a positive economic environment for the growth of Indian industries.

III. Piping Business Developments:

FY 16-17 is considered as a remarkable year for your Company. Your Company crossed several milestones during the year. During FY 16-17, piping business of your Company registered a healthy revenue growth of 12 % and volume growth of 15% whereas industry level growth was low because of slowdown in the real estate business.Your Company has achieved double digit growth during the last 5 months of the year, despite the impact of demonetization which adversely impacted the purchasing power of the consumers, considering around 86% of the currency in circulation was withdrawn by the government. Your Company achieved highest ever EBDITA of INR 215 Cr. with a margin improvement of close to 2% compared to last year. Margin improvement is on account of efficient procurement planning of PVC at lower cost, logistic advantage because of scale up of operations at the South facility, launch of high margin products and backward integration of CPVC compounding.

1) Plants

Your Company is in the process of completing construction of Ghiloth (Rajasthan) facility by the end of December 2017. Once Ghiloth facility commences production, your 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. Expansion of South facility at Hosur (Tamil Nadu) is in full swing and it is expected that construction will be completed before end of FY 17-18. Your Company is planning to double the capacity at its South facility, which will help in reducing logistics cost.

2) Products

Consistent innovation is the key to the growth of any organization. With strong R & D team, experienced professionals and visionaries at the top, your Company ensures action in line with its tag line "Where Innovation Flows". During the FY 16-17, your Company worked hard to develop backward integration in CPVC compounding facility. With the development of CPVC compounding in-house, your Company will be no more dependent on one particular supplier for its CPVC business. Your Company’s CPVC compound has NSF approval in place which is one of the best certifications. CPVC-PRO Pipes and Fittings manufactured from in-house developed compounding facility is more advanced and has been well accepted by the market.

From the in-house developed compound facility, your Company has started manufacturing CPVC pipes and fittings for industrial use in the brand name of "CHEM-PRO" and fire sprinkler system in the name of "FIRE-PRO". During FY 16-17, your Company developed low noise drainage system which is a state of the art product and once again, this has been well accepted in the market. R & D department is working tirelessly for the development of new products for the Indian market for the growth of your Company.

3) Agriculture – Next Big Thing

Government of India has given big thrust to the development and growth of farmer’s income. Through various initiatives, government is pushing hard for the improvement in the irrigation and sanitation facility. With the increase in farm income and government’s support, agriculture piping business is set to grow steadily over the next 5 years. Your Company is a new entrant in the agriculture pipe segment but still, it has been well accepted by the market. Last year agriculture pipe business grew at a good pace and we expect healthy growth in coming years which will help in the overall growth of the piping business.

As the agriculture pipe market is huge, it will be a good opportunity to capture market share because of Astral Brand strength and PAN India distribution and dealer network.

4) Distribution Network

Your Company has initiated a process of evaluating effectiveness of distribution network by performing assessment of market potential, distributor’s reach, your Company’s presence in the market and potential opportunity available. Considering various aspects, it is assessed whether there is a need to appoint new distributor or need to enhance distribution reach of the existing distributor. If appointment of new distributor is required, it is appointed through stringent selection process and if there is a need to enhance the distribution reach of an existing distributor, appropriate action with knowledge sharing is ensured.Your Company has more than 750 distributors and more than 25,000 dealers spread across India.

5) Branding Initiatives

Your Company believes in brand building and creating awareness about the importance of good quality pipes in the construction of a building. Your Company is consistently investing in brand creation on a year on year basis.Your Company’s branding activities involve national television advertisement, in-film branding, sports sponsorship, train / bus / auto banners, advertisement hoardings, shop hoarding boards, plumber / architects / distributors meet and exhibitions. We are also conducting plumber meets and meets for consultants for creating awareness about the importance of good quality pipes in the construction of building and are demonstrating the installation of pipes of different types. During FY 16-17, in-film branding was carried out in the film "Sultan" of our brand ambassador Mr. Salman Khan. 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 Gujarat Lions and King’s XI Punjab’s team in Indian Premier League (IPL).

6) 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 snatch the market share of unorganized players as under GST, price gap between organized and unorganized players will decrease drastically and hence, eventually the competition will ne between quality, brand and market reach. Share of unorganized sectors in the Indian Plastic Piping industry is considered to be around 40% which we expect will gradually convert to organized sector. Your Company has increased capacities considerably in the past and is continuously adding capacities to ensure that all possible opportunities are captured.

IV. Adhesives Business Developments:

Piping business of your Company is traditionally considered to be a growth driver but now adhesives business has shown good momentum and is growing consistently with higher EBDITA margin. Indian subsidiary Company – Resinova Chemie Limited (Resinova) has shown healthy growth of 22% in revenue with improvement in margin from 11% to 16% compared to last year. Subsequent to acquisition of Resinova in 2014, we have carried out various structural changes and invested in packaging capacities which has started yielding results and it is expected that this momentum will continue in the coming years. FY 16-17 was challenging year for UK operations – Seal IT Services because of Brexit vote in June 2016. In constant currency terms, UK operations have grown by 15% but because of currency depreciation, in INR terms, the growth is 2%. EBDITA margin has reduced from 9.68% to 5.53% because of currency impact on the raw materials and because of shifting of USA plant from Miami to North Carolina. However, the effect of

Brexit is diminishing gradually and USA plant will be in operation for full year hence and from FY 17-18 we expect good growth with healthy EBDITA margin.

1) Plants

Subsequent to acquisition of Resinova, your Company has invested in increasing of packaging capacities and process automation in the existing plants which were a bottleneck for growth. Process automation will help in improving productivity and assuring quality. During FY 16-17, capacity expansion at Santej plant (Gujarat) was carried out with an intention to be prepared for next phase of growth and save on logistics cost in supplying material in the West and South regions. To the Santej plant, we have added the capacity for production of Epoxy Resin, Hardener, Solvent Cement, Col, Silicon Sealant and Construction Chemicals. Manufactue of most of these products has already started at the Santej plant. Consequent to increase in capacity at Santej plant, Resinova has potential to achieve revenue of more than INR 600 Cr.

Seal IT Services Inc., USA is in the business of Silicone tape manufacturing. USA operations have commenced production from the new site in North Carolina from the last quarter of FY 16-17. We are further expanding the capacity in the 3rdquarter of FY 17-18 which will further boost revenue and margins. Once capacity expansion is in place, the said products will be introduced in the UK and Indian markets.

2) New products

Your Company through its Indian and UK subsidiaries is continuously adding new products to its product basket. Resinova has launched new products – Tanking Slurry, Leveling Compound and Epoxy Grout under the "TRUBUILD" category. Seal IT, UK has launched new packaging in the new, handy sized plastic tubes under Squeezies range like Saves Nails, SF Adhesives, Door and Window Sealant, Bathroom & Kitchen Sealant and Flexible Filler Decorators Caulk.

3) Branding

After introducing Mr. Salman Khan as brand ambassador of Resinova in FY 15-16, the Company has started repackaging activity for all the products. Resinova 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). Resinova has also carried out sports branding during India Vs Australia test match in perimeter board, which is highly appreciated by the distributors for its visibility. Seal It, UK is main sponsor of Huddersfield Giants Rugby Super League team since the last four years.

4) Distribution Network

Subsequent to acquisition of Resinova in 2014, your Company has to expand its distribution network across India. As a result, presently, Resinova has strong distribution network of more than 2,000 distributors and more than 4,50,000 dealers spread across India. Resinova has started supplying some of the products in the Astral’s distribution channel which is helping in the growth of the Company.

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.

Your Company is covered in the 1st phase of Ind AS implementation; hence your Company, its subsidiaries and joint venture adopted Ind AS with effect from April 1, 2016 pursuant to Ministry of Corporate Affairs notification dated February 16, 2015 notifying the Companies (Indian Accounting Standard) Rules, 2015. Your Company has published Ind AS financials for the year ended March 31, 2017 along with comparables as on March 31, 2016 and opening statement of Assets and Liabilities as on April 1, 2015. Your Company has also shared all four quarter re-stated Ind AS Profit and Loss Statement with investors along with quarterly results.

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, INR 0.41 lac 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 analyzed in a meaningful way for appropriate decision making. Your Company uses Business Intelligence tool 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 team’s efficiency and in capturing meaningful information for management review.

Resinova Chemie has successfully implemented SAP system from April, 2017 which will provide robust IT environment and will increase the overall efficiency. Your Company’s IT team is gearing up the system for smooth GST implementation.

VI. Risk Management, Internal control and their adequacy

Your Company has an elaborate Risk Management procedure in place which describes Business Risk and Operational Risks which are 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 on – going 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 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.

VIII. 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 : 30th May, 2017
Place : Ahmedabad