Detailed Rationale

CRISIL Ratings rating’s on the bank facilities of Astral Limited (Astral; erstwhile Astral Poly Technik Ltd, Astral; part of the Astral group) continue to reflect Astral group’s leadership position in the CPVC pipes and fittings segment, supported by established brands and an entrenched market presence, and the experience of the promoter. The ratings also factor in a strong financial risk profile. These strengths are partially offset by exposure to intense competition and to supplier concentration risk, and susceptibility of the operating margin to volatility in raw material prices and foreign exchange (forex) rates.

 

Earlier, on September 14, 2021, CRISIL Ratings had upgraded its long term bank facilities of Astral to ‘CRISIL AA/Stable’ from ‘CRISIL AA-/Positive’.

 

The rating upgrade reflects CRISIL expectations of sustenance of Astrals’ improved business profile supported by improved capacity utilization levels, wider geographic presence and product portfolio. The Astral group is a market leader in the CPVC (chlorinated polyvinyl chloride) segment and among the leading players in the PVC (polyvinyl chloride) segment (which together contribute around three fourth of revenue) with an installed capacity of 2.58 lakh tonne per annum across seven locations in India as on March 31, 2021. Over the years, the group has sequentially expanded its production capacity, set up plants at geographies closer to customers and added newer products. These enabled the group to clock a healthy (20% plus) revenue growth in fiscal 2021 despite pandemic and lockdown impact through the fiscal.

 

With the operationalization of plant in Orissa, set up of tank manufacturing capacities in West, South, and adequate available production capacities, the group is well poised to sustain a double digit growth rate, over near to medium term. The Indian pipe market is expected to register compounded annual growth rate of 10% till 2024-25 with CPVC clocking even better growth rate. Astral group’s capacity utilisation is expected to rise to around 65% over the medium term (57% in fiscal 2020) backed by increasing adoption of plastics pipes/fittings, consolidation in pipes industry and a significant share of CPVC pipes in its revenues. The adhesives segment (around a quarter of revenue) is also likely to grow at a similar pace supported by renewed and extensive distribution network, extensive advertisement and branding campaigns.  Further, the newly added tank business is also growing and is expected to contribute around 5% to the topline over medium term.

 

The geographically distributed plants (leading to saving in logistics cost) and enlarging the addressable market, continued benefits from backward integration into CPVC, and better spread of cost on higher scale are likely to help sustain improvement in the operating margin at the improved levels around 17%.

 

The Astral group’s financial risk profile remains strong, backed by healthy capital structure indicated by networth and gearing of Rs 1917 crore and 0.1 time, respectively, as on March 31, 2021. Debt protection measures were comfortable. While the group has continuously undertaken capex and acquired entities in the past few years, these were appropriately funded through internal accrual and fresh capital, thus sustaining the financial health.

 

The improving business risk profile is likely to strengthen the group’s financial risk profile with sharp increase in accrual and likely sustenance in gearing to below 0.25 time. Liquidity should remain strong with healthy cash flow and controlled working capital cycle. Also, the expected moderation in capex will help consolidate the financial risk profile.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Astral and its subsidiaries, Resinova Chemie Ltd (Resinova; 97.45% stake), Astral Biochem Pvt Ltd (ABPL; wholly owned), and UK-based Seal It Services Ltd (Seal It; 80% stake). All the companies are collectively referred to as the Astral group. CRISIL has also taken note of Astral’s announcement regarding meger of Resinova and ABPL with Astral.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established market position: The group is the market leader in the domestic niche market of CPVC pipes and fittings. It enjoys the advantage of being a pioneer in introducing such products in the Indian market. The group complements its CPVC products with PVC products. It has diversified the product basket through Resinova and Seal It and through the acquisition of Rex Polyextrusion Pvt Ltd (RPPL; now merged with Astral) and addition of water tanks business. The established and longstanding presence has paved the way for strong brand recall and an entrenched market presence.

 

Strong financial risk profile: The networth and gearing were healthy at Rs 1917 crore and 0.1 time, respectively, as on March 31, 2021. Interest coverage and net cash accrual to total debt ratios were also comfortable at over 50 times and 2.5 times, respectively, in fiscal 2021.

 

Weakness:

Exposure to intense competition and to supplier concentration risk: The pipes and fittings industry is highly competitive, especially in the commoditised products segment, which has low differentiation. The segment is highly price sensitive, which prevents prompt pass-through of any increase in input cost to customers. The group procures CPVC resin mostly from Seikisui Chemical Co Ltd (Seikisui). For PVC too, it relies on a few suppliers.

 

Susceptibility to fluctuations in raw material prices and forex rates: The group imports around a quarter of its raw material requirement. Any significant fluctuation in forex rates may impact profitability, which is also vulnerable to inherent volatility in the prices of raw materials (PVC and CPVC resins), which are dictated by global crude oil prices. Over the five fiscals through 2021, the operating margin was 14-21%. In fiscal 2021, the volatility in raw material prices has provided a marginal fillip to group’s margin.

Liquidity: Strong

Liquidity is backed by healthy cash accrual against repayment obligations, moderate bank limit utilisation, a controlled working capital cycle, and a healthy cash and bank balance. The company had accruals of over Rs. 500 cr in fiscal 2021 against the total outstanding debt around Rs. 200 cr. The group is likely to maintain annual accruals of Rs.400-500 cr over medium term. The working capital cycle is well managed with gross current assets at around three months. Average utilisation of secured, unsecured bank limits stood around 30% through 12 months to June 2021. Further, the group has cash and equivalents of around Rs.320 crore as on July 31, 2021. Healthy cash accrual, financial flexibility, and moderate capex cycle should ensure strong liquidity over the medium term.

Outlook Stable

CRISIL Ratings believes the Astral group will continue to benefit from its established market presence and strong financial risk profile.

Rating Sensitivity factors

Upward factors

• Improved business profile with sustained revenue growth of 20% coupled with well diversified product revenue contribution and increased capacity utilization levels.
• Improved financial profile with healthy capital structure and debt protection measures.

 

Downward factors

• Sharp decline in gearing to around 1 times
• Significant decline in revenue or deterioration in profitability resulting in stretched working capital cycle or impacting financial risk profile.

About the Group

Astral was incorporated in 1996 as a private limited company, promoted by Mr Sandeep Engineer (managing director), and was reconstituted as a public limited company in 2007, with the launch of its initial public offering. The company manufactures and trades in CPVC and lead-free PVC plumbing systems for residential, commercial, and industrial applications.

 

In November 2020, Astral acquired the assets of Shree Prabhu Petrochemicals Pvt Ltd for a consideration of Rs. 51 cr and forayed in tanks manufacturing.

 

In July 2018, Astral acquired 51% stake in RPPL for a cash consideration of Rs 75.225 crore. The balance stake was subsequently acquired through issuance of Astral’s shares, and RPPL was merged into Astral. This acquisition added a portfolio of high-density polyethylene (HDPE) and PVC pipes. It now has six plants: two in Gujarat, one in Tamil Nadu, one in Maharashtra, one in Uttarakhand and one in Rajasthan.

 

Resinova manufactures adhesives for construction, engineering, automobile, insulation, household, and stationery applications. The company sells its products under 50 brands, including Bondtite, Bondset, Bondfit, Resigrip, Resicast, Zesta, Solvobond, Resibond, and Vetra. In November 2014, Astral acquired 76% stake in Resinova for Rs 212.8 crore. In November 2015, it acquired the balance 24% for Rs 73 crore. Subsequently, Resinova was amalgamated with Advanced Adhesives Ltd (AAL) with effect from November 21, 2014. As per the scheme of amalgamation, AAL was renamed Resinova. The merger added cement-solvent solutions for joining pipes to Resinova’s product basket.

 

ABPL has no operations at present.

 

On June 7, 2021, Astral made announcement regarding merger of Resinova and ABPL with Astral. The transaction is expected to be completed by Q4FY22 and is subject to approvals from shareholders, exchanges and various regulatory bodies.

 

Formed in 2002, Seal It offers sealants, adhesives, and other products under the Bond-it brand. Astral acquired 80% stake in this company in August 2014.

Key Financial Indicators

As on / for the period ended March 31		2021	2020
Operating income	Rs crore	3201	2578
Reported profit after tax	Rs crore	408	250
PAT margins	%	12.7	9.7
Adjusted Debt/Adjusted Net worth	Times	0.1	0.28
Interest coverage	Times	50.6	11.5

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity Level	Rating assigned with outlook
NA	Bank Guarantee	NA	NA	NA	1.5	NA	CRISIL A1+
NA	Letter of Credit	NA	NA	NA	10	NA	CRISIL A1+
NA	Working Capital Facility	NA	NA	NA	368.5	NA	CRISIL AA/Stable
NA	Commercial Paper	NA	NA	7-365 Days	50	Simple	CRISIL A1+

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Astral Limited	Full Consolidation	Companies are subsidiaries of Astral Ltd
Resinova Chemie Limited
Seal IT Services Limited
Rex Polyextrusion Private Limited