Plastic Pipe Industry - IC - Systematix - Mar19 PDF

Plastic Pipe Industry
Rivers
Dams &
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Ocean
Desalination
Treatment plant
plant
Bulk supply
mains
Bulk water
supply
Reservoirs
Reservoirs
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Distribution
water supply
Council water Council water
business business
Council water
business
Agriculture & Irrigation Residential & Projects Industries

March 2019
Investors are advised to refer through disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares & Stocks (I) Ltd. 1
20 March, 2019 Plastic Pipe Industry
Contents
Peer comparison ................................................................................................................................................. 4
Coverage universe snapshot ............................................................................................................................... 4
Competitive landscape ..................................................................................................................................... 21
Correlation of gross margins with crude oil ......................................................................................................... 27
Key takeaways from our interactions with plumbers, contractors and distributors ............................................. 29
Annexure ........................................................................................................................................................... 31
Companies section
Supreme Industries ............................................................................................................................................ 38
Astral Poly Technik ............................................................................................................................................. 70
Finolex Industries ............................................................................................................................................. 100
Prince Pipes and Fittings................................................................................................................................... 124
Systematix
Plastic Pipe Industry
20 March, 2019
Institutional Equities
Plastic Pipe Industry 20 March, 2019
Organised players geared for the next leg of growth

SECTOR REPORT Plastic pipes are rapidly replacing the conventional GI (galvanised iron)/DI (ductile iron) pipes in
many applications primarily due to their long-life, low-cost and faster installation properties. The
size of India’s plastic pipes industry is ~Rs 260bn; it is growing at ~9% annually. The industry is
Industry Plastic Pipe
dominated by PVC (polyvinyl chloride) pipes for agriculture and plumbing and CPVC (chlorinated
polyvinyl chlorine) pipes for plumbing, followed by high-density polyethylene (HDPE) pipes for
Pipes Index v/s BSE Sensex micro irrigation and industrial purposes. Organised players (~65%) like Astral, Supreme, Prince,
120
Finolex and Ashirvad have grown at a faster clip (average volume CAGR of 10% over the last five
115 years) than industry due to (1) easy availability of raw material (PVC resin) and backward
110 integration (Finolex for PVC resin), (2) aggression to capture a bigger market pie (Astral for CPVC
105
100 pipes), (3) rising construction activities beyond metro cities and (4) government’s thrust on
95 affordable housing/smart cities and the launch of agri-related schemes. We estimate the plastic
90
85
pipes industry to register a CAGR of 11% over FY18-22E and organised players to continue to
80 outperform the industry led by wide SKU (stock keeping unit) ranges, timely capacity expansions,
Jul-18
Jun-18
Mar-18
Apr-18
Aug-18
Sep-18
Nov-18
Jan-19
Feb-19
Mar-19
May-18
Oct-18
Dec-18
branding initiatives, multi-location plants and wide distribution network. In this report, we
initiate coverage on -- Astral Poly Technik: Largest CPVC pipe company, diversifying into adhesive
Pipe Industry Sensex for the next leg of growth; Finolex: Largest PVC/agri pipe company, focus on CPVC to improve
Source: Bloomberg, Systematix Institutional Research margins; Supreme Industries: Most diversified, focus on value-added products.
Organised players are outpacing industry growth: The size of the organised plastic pipe market in
India is 2.6mntn, of which PVC/CPVC pipes account for ~2/0.15mntn and are growing at ~10/15%.
Since PVC resin (raw material for PVC pipes) is easily available, many unorganised players (35%
market share) are also present in PVC pipes. The relative scarcity of CPVC resin (RM for CPVC pipes,
five players have ~80% global share) has helped organised players maintain their >80% market
Sector recommendations share. Organised players have increased their share of the plastic pipe market (volume-wise) to
CMP TP Upside Reco. 65% from 50% five years ago. Over the last five years, organised players have grown in-line with the
(Rs) (Rs) (%) plastic pipe industry (volume-wise) at 10% and are expected to generate volume CAGR of 12% over
Supreme Ind 1,086 1,416 30 BUY FY18-22E, driven by (1) strong initiatives to create brands by accelerating A&P spend, (2) capacity
Astral Poly 1,114 1,111 0 HOLD expansion to further increase market share and (3) increasing reach by setting up plants,
warehouses and dealership network at multiple locations.
Finolex Industries 516 685 33 BUY
Source: Systematix Institutional Research Diversification offers improvement in margins and expansion of addressable market size: To
reduce product concentration, plastic pipe companies have diversified into other plastic products.
Unlike metal pipes, plastic pipe companies have the room to expand their product portfolio since
applications are increasing and production processes are multiple (extrusion, blow/injection/roto
moulding) with the easy availability of RM (PP/PE/PVC/CPVC). Along the same lines, (1) Supreme
diversified into plastic furniture and packaging products to improve margin/profitability and
expand the size of its addressable market, (2) Astral forayed into adhesives to enlarge its
addressable market and (3) Finolex backward integrated to manufacture PVC resin to secure RM
and improve margins.
Game of scale, brand and reach - winner gets better operating matrix, strong demand pull and
wide presence: Since plastic pipe manufacturing is not capital intensive, it is vital for the companies
to (1) expand capacities at regular intervals to achieve scale, (2) increase spending on A&P,
exhibitions and incentivise channels (from the plumber community to dealers) and (3) expand the
entire chain (plant, warehouse and dealer) to become pan-India players. These measures will result
in better operating efficiencies (OPM, working capital, RoE/RoCE), increased product awareness
(example Astral’s marketing strategy for CPVC pipes in India), strong balance sheet and better cash
Ankit Gor flow (can be used to expand scale, brand and reach). The three rated companies mentioned in this
[email protected] report have a pan-India presence and pass the muster of scale, brand and reach.
+91 22 6704 8028
Initiate coverage with a BUY on Supreme and Finolex and a HOLD on Astral: We initiate with BUY
Kumar Saumya on Supreme for better capital allocation and superior operating matrix and Finolex for capacity
[email protected] expansion (40,000tn every year), OPM expansion (focus on CPVC, non-agri pipes). We assign a
+91 22 6704 8025 HOLD rating to Astral because it is fairly valued.
Peer comparison
Exhibit 1: Peer comparison across plastic pipe companies
FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E
M Cap.
Company CMP TP EV/EBITD EV/EBITD
(Rs mn) EPS EPS Rev Rev ROE ROE P/E P/E
A A
(mn) (mn) (%) (%) (x) (x) (x) (x)
Supreme 1,086 137,976 1,416 41 51 65,202 75,614 22 24 27 21 15 12
Astral 1,114 133,420 1,111 22 27 30,868 35,617 20 20 50 41 28 24
Finolex 516 64,033 685 33 36 32,493 36,403 13 13 16 15 9 8
Source: Company, Systematix Institutional Research
Coverage universe snapshot

Exhibit 2: Coverage universe snapshot
Supreme Astral Finolex
FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E
Mcap (Rs mn) 137,976 133,420 64,033
Mcap (US$ mn) 1,971 1,906 915
3-m Avg traded value (US$ mn) 1.7 1.7 0.3
CMP (Rs) 1,086 1,114 516
TP (Rs) 1,416 1,111 685
Upside(%) 30% 0% 33%
P/E (x) 37 27 21 67 50 41 17 16 15
EV/EBITDA (x) 18 15 12 35 28 24 11 9 8
P/B (x) 6 6 5 11 9 8 2 2 2
ROE (%) 19% 22% 24% 18% 20% 20% 14% 13% 13%
ROCE (%) 24% 28% 30% 23% 25% 27% 17% 17% 18%
EBITDA Margin (%) 13.8% 14.8% 15.2% 15.1% 15.5% 15.5% 20.7% 20.1% 19.4%
PAT Margin (%) 6.7% 7.9% 8.6% 7.9% 8.7% 9.2% 13.5% 12.6% 12.1%
D/E (x) 0.2 0.1 0.1 0.1 0.1 0.0 0.1 0.0 0.0
NWC cycle (days) 41 40 40 55 55 55 61 64 67
Sales (Rs bn) 56.0 65.2 75.6 25.2 30.9 35.6 29.5 32.5 36.4
EBITDA (Rs bn) 7.7 9.6 11.5 3.8 4.8 5.5 6.1 6.5 7.1
PAT (Rs bn) 4.3 5.1 6.5 2.0 2.7 3.3 4.0 4.1 4.4
EPS (Rs) 29.5 40.5 50.9 16.7 22.3 27.1 29.8 32.9 35.5
OCF (Rs bn) 5.3 6.0 7.4 2.1 2.9 3.6 3.7 3.9 3.2
FCF (Rs bn) 1.3 2.0 3.4 0.0 1.6 3.1 2.7 2.9 2.2
Exhibit 3: India’s plastic pipe market is Industry to grow at a faster clip, organised players to have a bigger share
dominated by PVC (agri) pipes
The size of India’s plastic pipes industry is ~Rs 260bn and growing at ~9% annually. It
5% is dominated by PVC and CPVC pipes, followed by HDPE pipes/others. The growth is
12%
driven by (1) increasing usage of PVC and CPVC pipes in construction/plumbing
6%
PVC activities, (2) shift from conventional GI/DI pipes (lower life: ~10-15 years) to plastic
CPVC
pipes (higher life: >25 years), (3) replacement demand (~35% of market, mainly in
HDPE
CPVC), (4) ease of transport vs GI/traditional pipes (due to light weight), (5)
PPR
government’s focus on irrigation and (6) real estate growth in Tier 2/3 cities.
77%
Exhibit 4: Plastic pipes offer widespread benefits and are replacing GI pipes rapidly
Properties
GI Pipes CPVC PVC HDPE PPR

Water transportation,
Irrigation, water
electric poles, structural Water transportation, Irrigation, water
transportation, Hot water supply and
Applications purposes, automotive sanitation, hot water transportation, sanitation,
sanitation, hot water industrial applications
purposes and oil & gas supply, industrial industrial usage
supply, industrial
transmissions
Life (years) 10-15 30-35 20-25 50 50
Cheaper than GI and Cheaper than GI and Cheaper than GI and Cheaper than GI and
Cost Costlier than CPVC
costlier than PVC CPVC costlier than PVC costlier than PVC
Corrosion High None Anti-corrosive Least Good resistance
Temperature
tolerance 200-250 90-100 60-70 90-100 90-100
(cel)
Leakages Vulnerable Leakage free Leakage free Leakage free Relatively free
Bacterial
High Extremely low Relatively low Extremely low Relatively low
growth
Hot weld Fusion weld
Installation Cold weld Cold weld Cold weld
(cumbersome) (cumbersome)
Thermal
High Low Low Low High
Conductivity
Insulation
High Low Low Low Medium
requirement
Rs 13-30/ft (Rs 30/ft for
Price Rs 35/ft Rs 18/ft Rs 30/ft Rs 45/ft
SWR UPVC)
Gross margin 10-15% 30-35% 12-15% 18-20% 40-50%
Source: Astral Poly & Prince Pipe DRHP document, Market research, Company, Systematix Institutional Research
Organised players to continue to outperform industry
During FY13-18, plastic pipe industry registered a CAGR of ~9% to Rs 260bn, while
volume growth in the same period was ~10%. Going ahead, industry is expected to
grow at a 10.5% CAGR on the back of faster growth of Astral, Supreme, Finolex and
Prince, cumulatively 45% of the industry capacity. Going forward, organised players1
are estimated to continue to outpace industry growth (to grow at 12% over FY18-
21e) on the back of:
 Scale: (1) Capacity expansion, CAGR of 13% during FY18-21E, (2) new product
launches and (3) wide range of SKUs.
 Brand: Increasing A&P spend (average 2.3% of sales).
 Reach: Multi-location plants with wider reach of distributors, dealers,
warehouses and touch points.
 GST across value chain (RM to finished products).
 Government’s thrust on infrastructure, irrigation and housing.
 Buyers’ preference for branded products led by improved purchasing power.
Exhibit 5: Share of installed capacity of organised pipe companies – total 2.6mn tpa
(%)
18 16
16 14
14 12
11
12
10 8
8 6 6
6 4
4 2 2 2 2 2 2
2 2 1 1 1 1 1
2 1 0
0
Finolex
Jain
Oriplast
Texmo
Vectas
Kitec
HIL
Prince
Dutron
Supreme
Ajay pipes
Skipper
Kisan Pipes
HSIL
Jindal Tubes
Nandi
Other
Astral pipe
Miraj
Ashirvad
Time Technoplast
Apollo Pipes
Kriti
Source: Market research, websites of respective companies and articles, company, Systematix Institutional
Research
Exhibit 6: Plastic pipe industry to grow faster going forward Exhibit 7: Rise in share of organised plastic pipe companies
(Rs. bn) 100%
450
388 35% 30%
400 80% 40%
351 50%
350 318
287 60%
300
260
239
250 219 40%
201 65% 70%
200 184 60%
169 50%
20%
150
100 0%
50 FY08 FY13 FY18 FY21
FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY22e
Org Unorg
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
1
Hereon, organised players = Astral Poly Technik, Supreme Industries, Finolex Industries and Prince Pipes. Cumulatively, these four companies represent
45% of the overall plastic pipe industry
Scale: (1) Market share gain supported by regular capacity expansion: Organised
players increased the capacity at a CAGR of 10% during FY14-18 which enabled them
to grab market share from unorganised players. Astral was the most aggressive
(CAGR 12%), followed by Finolex (9%), Prince Pipes (9%) and Supreme (CAGR 8%).
During FY18-21E, these players are estimated to expand the capacity at a CAGR of
14%, led by Prince Pipes (CAGR 19%), followed by Astral (18%), Finolex (11%) and
Supreme (8%).
Exhibit 8: Market share gain supported by capacity expansion
511,280
(MT)
450,000
550000
402,000
335,779
330,000
450000
295000
270,700
242,916
350000
230000
174,800
150000
250000
97164
150000
50000
FY14 FY18 FY21e
Supreme Astral Finolex Prince
Scale: (2) Wide range of SKUs: This includes SKUs of pipes and fittings both. Fittings
are typically high margin products. After attaining a reasonable scale, the companies
focus on increasing the variety of SKUs. The range of SKUs compliments the
distribution network; our channel checks suggest that this is a key reason why
distributors stick to a single brand of pipe.
Exhibit 9: Supreme and Prince have a wide range of SKUs
(Nos.)
7,830
8,000 7,500
A wide range of SKUs is complementary

to the large distribution chain as it helps 6,000
serve wider demand needs.
Supreme has the highest number of
SKUs which include plastic faucets, water 4,000
tanks and other products.
2,000 1,500 1,500
-
Astral SI FNXP Prince
Scale: (3) New product lauches: This loads the channel with new and improved
products. New product launches and A&P spend go hand-in-hand. Astral and
Supreme are leaders in new product launches.
Exhibit 10: New piping product launches…
Player Product details
Focus on new and advanced product launches for infrastructure and
domestic sector. New launches:
 PEX-A-PRO- Next-gen plumbing system for hot and cold water
 INSUPRO- XLPE (cross linked poly ethylene) insulation for plumbing
Astral Poly
systems
 DWC- Double wall corrugated pipes for underground drainage
(Capacity 27KT)
 Low noise Silencio pipes
Focus on ramping up CPVC line which will add on to the existing product
Finolex Industries basket (1500 SKU). New launches:
 Launched FlowGuard Plus pipes and fitting range (~120-150 SKUs)
Focus on SKU expansion through capacity expansion. New launches:
 DWC- Double wall corrugated pipes for underground drainage
(capacity 27KT)
Supreme Industries
 Chrome plated bath fittings under brand Aquakraft
 CPVC range for residential/commercial buildings
 Eco Drain pipes
 New products under the brand Trubore
Prince
 DWC pipes
Exhibit 11: …with image of few products launched by organised players

PEX Piping XLPE DWC
Silencio Eco-drain
Brand: Increase in A&P spend: Astral took the lead and roped in Salman Khan to
market a pipe which had no aesthetic value. Other players like Finolex and Prince
followed suit. The branding and promotional activities included incentivising the
entire chain from participating in exhibitions to rewarding plumber community. This
activity creates a pull for the product and Astral set an excellent example of
benefiting from this strategy when it comes to CPVC pipes.
Exhibit 12: A&P spend as % of pipe sales - Astral is the most aggressive
6%
5%
5%
4%
3%
3%
Astral leads brand building investments 3%
2%
by incurring highest A&P spend.
2%
2%
2%
2%
2%
2%
2%
2%
1%
1%
1%
1%
1%
1%
0%
FY15 FY16 FY17 FY18
Finolex Inds. Astral Poly Supreme Inds. Prince
Source: Company, Systematix Institutional Research; Note: Supreme % of overall sales
Exhibit 13: Advertisements, exhibitions and other branding activities by organised players
Astral
Cricket advertising Exhibition @ Goa
Exhibition @ Mumbai, Ace-Tech Celebrity endorsement
Finolex
Kumbh Mela
Movie Radio
Supreme
Exhibition @ Mumbai, Ace-Tech Cover story
Prince
Smart Urbanation Expo Celebrity endorsement
Reach: Multi-location plants, wide distribution network and touch points to
enhance growth: With stronger balance sheets and access to financial assitance,
organised players are able to increase their presence via multi-location plants, wide
distribution network and warehouses.
Exhibit 14: Multi-location plants reduce logistic cost (~5% of the revenues)
Diesel rate/Liter
Haridwar
Ghiloth Kanpur
Malanpur
Santej
Kharagpur
Dholka
Masar
Athal Jalgaon
Dadra
Urse
Gadegaon
Jadcharela
Ratnagiri
Kolhapur Sangli Astral

Finolex
Supreme
Prince
Chennai
Hosur
Exhibit 15: Multi-location warehouses smoothen overall supply chain
Diesel rate/Liter
Delhi
Ghaziabad
Jaipur Siliguri
Lucknow
Howrah
Indore
Cuttack
Bhubaneshwar
Mumbai
Chinchwad
Hyderabad
Vijaywada
Hubli
Astral depots
Finolex
Prince
Bengaluru
Chennai
Tiruchirapalli
Palakkad
Kochi
Exhibit 16: Supreme has the largest distribution chain for its wide product portfolio
(No.)
1,100
984
1,000
Our interactions with dealers and 900 850 843

distributors indicate that a strong 800 750
distribution chain is key for the success
of a piping company. The new pipe 700
manufacturing companies are struggling
600
due to the absence of a strong
distribution chain. 500
400
300
200
Exhibit 17: Astral has the highest point of sales followed by Supreme
(No.)
30,000
28,000
26,000 25,000
22,000
18,000
18,000
14,000
10,000
Astral SI FNXP
Exhibit 18: South is a major revenue generator for organised players
48%
40% 40%
40%
35%
33% 33% 33%
32%
25% 25% 26% 25% 25% 25%
24% 20%
16%
9%
8% 5%
1%
0%
North South West East
GST to give impetus to overall business eco-system: The plastic pipe sector has
benefited the most in the building material space due to GST implementation as RM
(PVC resin) is also covered under GST @ 18% (same as PVC pipes). We believe that
the increase in resin tax (12.5-18%) coupled with similar tax rate on finished goods
(18%) has led to the shrinking of the unorganised sector. This is not seen in products
like plywood or tiles where the RM tax and FG tax have a wider spread; the exception
is cement which is highly capital intensive and key RM limestone (75%) is secured
through bids of mine.
Exhibit 19: Impact of GST on building material products
Share of organised players
GST has helped organised sectors where Raw material FG GST RM GST FY13 FY18
the input-output rate differential is low.
Tiles Clay 18% 5% 50% 50%
Plastic Pipe Resin 18% 18% 60% 65%
Cement Limestone 28% 5% 100% 100%
Plywood Wooden pulp 18% 12% 20% 20%
Source: GST council, Systematix Institutional Research
Government thrust on infra, irrigation and housing to aid pipe demand

Government of India (GoI) is focused on doubling farm income by 2022. It intends to
invest Rs 14tn for creating a better infrastructure and sustainable livelihood for the
rural population through farm credit schemes, MSP hikes and dedicated agriculture
infra fund. The central sponsored schemes like PMKSY (Pradhan Mantri Krishi Sichai
Yojana) and AMRUT (Atal Mission for Rejuvenation and Urban Transformation) focus
on efficient water handling at farms and cities while PMAY (Pradhan Mantri Awas
Yojana) aims to reduce the residential shortage (~60mn) for EWS (Economically
Weaker Section) and LIG (Low Income Group) in the country.
PMKSY: This scheme organises already running schemes like AIBP (Accelerated
Irrigation Benefit Program), IWMP (Integrated Watershed Management Program),
and OFWM (On Farm Water Management) into one single scheme which is
supervised by Inter-Ministerial NSC (National Steering Committee) chaired by the
Prime Minister. The focus areas of the scheme are creation, repair and restoration of
water sources, developing distribution networks, promoting efficient water
conveyance through underground piping system and drip irrigation and promoting
farmer-oriented activities.
AMRUT: Smart city development, AMRUT and HRIDAY (Heritage City Development
and Augmentation Yojana) are three complementary schemes implemented with a
focus on improving urban living standards. A total of 482 cities with population
above one lakh has been identified under the scheme. The focus area includes
availability of tap with assured water supply and sewerage connection in every
house, develop greenery and promote public transport to reduce pollution. The total
outlay for AMRUT is Rs 500bn from FY16-20.
PMAY: This scheme focuses on availability of pucca houses to urban and rural
(restructured Indira Awas Yojana) dwellers by 2022. Government is incentivising EWS
(annual household income upto Rs 3lakh) and LIG (annual household income
between Rs 3-6lakh) to purchase houses through interest subvention schemes. This
subsidy is channelised through HUDCO (Housing and Urban Development
Corporation), NHB (National Housing Bank) and CNAs (Central Nodal Agency).
The share of sanctioned houses among states show that about 50% of houses
sanctioned are in areas which are the key markets for Finolex, Supreme and Astral
and as these projects ramp up, it should positively impact their volume off-take.
Exhibit 20: Government allocation is rising Exhibit 21: Government investment through ministries
311,640
(Rs.Mn.)
1,295,852
1,176,472
(Rs.Mn.)
1,124,039
1,085,596
264,050
350,000
258,530
1,400,000
950,694
300,000
209,517
1,200,000
773,692
250,000
678,000
1,000,000
139,000
125,690
116,035
200,000 800,000
411,050
95,160
94,630
373,967
369,125
92,767
82,510
77,810
150,000
66,130
600,000
51,340
41,856
100,000 400,000
80,413
76,125
68,621
53,135
47,141
50,000 200,000
- -
2015-16 2016-17 2017-18 RE2018-19 BE2019-20 2015-16 2016-17 2017-18 RE2018-19 BE2019-20
PMKSY PMAY AMRUT & Smart city Department of Agriculture Ministry of Rural development MoWR
Source: Budget, Systematix Institutional Research Source: Budget, Systematix Institutional Research
Exhibit 22: Urban housing investment approvals have risen Exhibit 23: Urban housing shows traction
(Rs bn) (Rs mn)
4,500 8
3,874 6.9
4,000 7
3,500
6
3,000
5
2,500 2,037
4 3.7
2,000
1,500 3
1,000 2 1.4
500 1 0.3
- 0
Jan-18 Jan-19 Jan-18 Jan-19
Investment approved (Rs.Bn) Sanctioned (mn) Completed (mn)
Source: MoHUA, Systematix Institutional Research Source: MoHUA, Systematix Institutional Research
Exhibit 24: Rural housing progress has improved

('000)
3,500 3,304
3,000
2,500 2,226
2,000 1,652
1,500
1,000
500 143 260
-
FY15 FY16 FY17 FY18 FY19YTD
Completed ('000)
Source: MoRD, Systematix Institutional Research
The key markets of Supreme, Finolex and Astral are Maharashtra, Andhra Pradesh,
Karnataka, Madhya Pradesh and Gujarat which together accounted for 50% of
sanctioned houses as on Jan’19. We believe this will boost piping demand in the
regions as these sanctioned houses go under construction over the next two years.
Exhibit 25: Urban housing traction-Jan 2018 Exhibit 26: Urban housing traction-Jan 2019
Andhra Pradesh
0% 1% Bihar 0% 2% Andhra Pradesh
Chattisgarh Bihar
6% Chattisgarh
Gujarat 3%
4% 5% 15% 3% Gujarat
18% 3% Haryana
Haryana
8% Jharkhand
3% Jharkhand
Karnataka 13% Karnataka
5% Kerala Kerala
2% Madhya Pradesh Madhya Pradesh
Maharashtra 3% 6% Maharashtra
5% Orissa
11% Orissa
Rajasthan 8% 4%
1% Rajasthan
4% Tamilnadu Tamilnadu
Telangana Telangana
1% 2% 8% 2%
9% UP UP
2% West Bengal 2% West Bengal
NE states 1% NE states
4% 11%
12% 2% UT states UT states
Rest of states 9%
Rest of states
Plastic pipe companies have diversified to expand addressable market, improve
margins and profitability and secure RM
More than 75% of the plastic pipes are PVC pipes which are used largely for
agricultural applications. In order to reduce the dependency on agriculture/rain, the
companies have diversified to other plastic or parallel products. There is scope for
the plastic pipe companies to expand their product portfolios since applications are
increasing and production processes are multiple (extrusion, blow and injection
moulding) with easy availability of RM (PP/PE/PVC). On the similar lines (1) Supreme
expanded to plastic furniture and packaging products to expand margin and
addressable market, (2) Astral forayed into adhesives to expand addressable market
and (3) Finolex backward integrated to manufacture PVC resin to improve margins
and secure RM.
Exhibit 27: Revenue mix of leading plastic pipe companies
SUPREME FINOLEX ASTRAL
1%
3%
26%
7%
- Plastic pipe
PVC Resin
21% - Industrial 42% Plastic Pipe
- Packaging Plastic Pipe
55% Adhesive
55% - Consumer 74%
Power
- Other
16%
Astral’s foray into adhesives primarily to expand addressable market, support

margins: Astral diversified into adhesive business in FY15 after Resinova and Seal IT
acquisitions. This has helped it stabilise/expand EBITDA margin. While pipe margins
are declining, adhesive margins are pulling overall margins up. The foray has also
increased its overall addressable market size to Rs 400bn from Rs 260bn. EBITDA
margin of the adhesive business can track the margin of Pidilite after capacity ramps
up, aggressive A&P spend and roll-out of the entire range of products.
Exhibit 28: Astral’s addressable market grew 1.5x with foray into adhesives
(Rsbn)
500
400
300
200
100
Before adthsives After adthsives
Before adthsives After adthsives
Source: Company, Systematix Institutional Research; Note: SA=Standalone (pipe operation)
Exhibit 29: RoCE improved post foray into adhesive business (SA = pipe operations)
40%
34%
35% 32%
31%
30% 33%
27% 27% 31%
29%
Astral’s RoCE declined in FY15 on 25%
account of QIP (5.98mn shares issued at 19%
25% 20% 18%
Rs 402.5 and raised Rs 2.4bn) to acquire 23% 16%
20%
Resinova.
20% 21% 22%
15% 19%
10%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Standalone (pipe) RoCE Consol. RoCE
Exhibit 30: In the longer run, Astral can track the OPM of Pidilite
25% 24%
20%
Astral is guiding ~15% OPM in the 15%

adhesive division in the medium-term as 15%
it plans to accelerate A&P spend on
adhesive business.
10%
5%
ASTRAL adhesive Pidilite
ASTRAL adhesive Pidilite
Supreme is the most diversified with efficient capital allocation: Supreme has
presence across plastic pipe, industrial, consumer and packaging products. In its
segment expansion process, it ensures that best capital allocation practices are in
place. Internally, it ensures atleast 25% RoCE (over 2-3 years) for any new venture.
It’s last 5/10 years average RoCE is 28/30%.
Exhibit 31: Healthy return ratios (highest amongst peers) due to vast product portfolio
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
1HFY19
RoCE
Source: Company, Systematix Institutional Research; FY16 – 9 month
Finolex’s backward integration to secure RM leads to volatility in margins: Finolex

backward integrated to PVC resin in 1994 to secure RM and avoid import duty on
Finolex is backward integrated with resin PVC resin. It’s agri pipe business accounts for ~15% of the gross margin, while
plant which helps it secure quality resins.
consolidated EBITDA margin stood at 18% in FY18. Since PVC resin’s raw material
cost is based on crude price movements, margins have also become volatile.
Exhibit 32: Improved OPM with high volatility
25.0%
20.0%
15.0%
Backward integration elevated overall
OPM, but also made it volatile.
Generally, any standalone PVC pipe 10.0%
company generates OPM of ~8-11%.
5.0%
0.0%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
1HFY19
Ebitda
Competitive landscape
(1) Scale, addressable market, utilisation and exposure
Exhibit 33: Pipe capacity of Supreme, Astral, Finolex and Prince Pipe Exhibit 34: Revenue share in Rs 260bn plastic pipe industry
(MMT)
500,000
11% 9%
402,000 Supreme
400,000
Finolex
330,000
Ashirvad
300,000 8% Jain Irrigation
242,916
56% Astral Polytechnik
6%
200,000 174,800 Prince
6%
Others
5%
100,000
Exhibit 35: Sufficient headroom to grow

(Rsbn)
600
After the foray into adhesive business,
Astral has the highest addressable
500
500
market, which includes adhesives,
construction chemicals and plastic pipes.
410
400
Supreme Industries is present in 330
businesses including plastic pipe, plastic 300 260
furniture, packaging products, protective
films, plastic crates and pallets.
200
Finolex is present in PVC resin and plastic
pipes. The company is not expected to 100 49
41 22
increase capacity in PVC resin. 13
Prince Pipe is only present in plastic -
pipes. Finolex Astral Supreme Prince
Current Revenues Addressable market
Exhibit 36: Finolex’s utilisation has always been above 70%
(%)
80%
Since, Finolex is the leader in agri pipes, 70%

it’s utilisation has always remained
above 70% vs utilisation of ~60-65% for
other major players. 60%
50%
40%
FY14 FY15 FY16 FY17 FY18
Finolex Supreme Astral Prince
Exhibit 37: Prince Pipe’s user base (revenues) is the most diversified
(%)
80% 76%
70%
60%
60%
Finolex leads in agri market exposure 42%
while Astral has the highest exposure to 35% 36%
40%
housing segment. Prince is the most 30%
diversified of all in pipes.
22%
20% 15%
9%
5%
0%
0%
Housing Agri Industrial+Other
Exhibit 38: Astral strikes a balance between PVC and CPVC pipes
(%)
100% 95%
Finolex is the market leader in PVC pipes 75%

80% 74%
while Astral is the leader in CPVC pipes.
CPVC pipes offer highest OPM.
60% 55%
PVC pipes include UPVC pipes, column
pipes and SWR pipes amongst others. 45%
40%
19%
20% 15%
10% 7%
5%
0% 0%
0%
PVC CPVC Other
(2) Profitability
Margins have scaled up over the last five years led by gross margin expansions.
This was due to the fall in raw material prices after crude prices declined. Finolex
was impacted the most in FY15 when it had inventory write offs due to the
backward integration where it had stocked raw materials just prior to the decline.
Subsequently, Finolex’s resin margins expanded (in FY18), adding to its overall
margin improvement led by higher PVC-EDC spread.
Exhibit 39: Backward integration drives OPM for Finolex Exhibit 40: OPM benefits from resin reflects in PAT margin for Finolex
20% (Ebitda average-5Y) 10% (PAT margin average-5Y)
9%
16% 16%
8% 8%
15% 7%
13%
11% 6%
10%
4%
4%
5%
2%
0% 0%
Supreme Astral Finolex Prince Supreme Astral Finolex Prince
All four companies (Supreme, Finolex, Astral and Prince) are generating strong
operating cash flows with Astral investing aggressively on acquisitions and
capacity expansion, resulting in its weak FCF generation over the last five years.
However, Astral’s capex cycle is expected to slow down after the on-going
expansions. Favourable EDC-PVC spread has helped Finolex to generate the
strongest FCF average over the last five years.
Exhibit 41: Supreme and Finolex are the highest FCF generators
(Rs Mn)
(FCF average - 5Y)
2119
1986
1950
1150
350
-15
-450
-343
(3) Branding and distribution network

Astral’s A&P spends have risen substantially over the last five years, up from 2%
in FY13 to 4% in FY18. This can be attributed to above-peer average brand
building approach undertaken by the management; this includes roping in
celebrity Salman Khan as the brand ambassador to sponsoring IPL teams.
Exhibit 42: Ad spend as % of overall sales: Astral is the most aggressive
(%)
(Adv Spend)
5.0%
4.2%
4.0%
3.0%
2.0%
2.0%
1.5%
1.2%
1.0%
0.0%
Finolex Inds. Astral Poly Supreme Inds. Prince
Distribution
The distribution strength is at par across the group, except for Supreme which has
higher number of plastic product offerings across applications.
Exhibit 43: Equal distribution strength
(No.)
1,200
984
1,000
850 843
800 750
600
400
200
-
(4) Business efficiencies

Supreme generates highest return ratios while Finolex is the lowest amongst the
four companies under our review due to capital tied up in investments (in Finolex
cables and land) and low asset turn due to backward integrated resin plant.
In terms of working capital, Supreme leads again with fastest cash conversion
cycle. Finolex has the lowest receivable days at 6 compared to 28 days and 53
days for Supreme and Astral respectively.
Exhibit 44: 5-year average: Supreme is the best capital allocator Exhibit 45: Supreme is the fastest cash convertor (Wcap day-5Y avg)
(%)
(Day)
30% 28% 100
25% 90
25% 23%
20% 21% 80
20% 17% 18%
15%
15% 60 54 53
45
10% 40
5%
20
0%
0
RoE RoCE Supreme Astral Finolex Prince
Exhibit 46: Astral has the highest asset turn followed by Prince (ATR-5-year avg)
(x)
5.0
4.0 3.6
3.1
3.0
2.1
2.0
1.3
1.0
-
Correlation of gross margins with crude oil

Our study of correlation between crude prices and gross margins for our coverage
universe suggests that over the long-term (FY03-18), Supreme’s operating margins
have weathered the crude volatility through value added product offerings, a diverse
product basket, and consumer products which provide pricing power.
Over the short-term (FY13-18), Finolex and Astral have shown improvement and the
impact of crude volatility has waned gradually. Astral has benefitted from backward
integration which has insulated it from crude volatility while Finolex has benefitted
from the widening of EDC-PVC spreads.
Going ahead we expect the correlations to stay low due to:
 Astral’s focus on new product launches (SWR, Silencio) and adhesive business
ramping up
 Supreme’s focus on value added product and
 Finolex’s focus on non-agri market and ramp up of CPVC business
Supreme Industries: Company has benefitted from crude price decline in FY13-18
but over the long term (FY03-18) it has been able to contain the impact of crude
price fluctuations.
Exhibit 47: Supreme is winner over the last 15 years
15 years 10 years 5 years
Correlation -0.47 -0.55 -0.88
Exhibit 48: Crude oil price correlation with Supreme’s GM

(USD/bbl)
40% 120
100
30% 80
60
20% 40
20
10% 0
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Crude GPM
Astral Poly: Company is sensitive to crude price fluctuations (high correlation over
FY03-18) but in the mid to near-term the sensitivity reduced due to back-ward
integration to CPVC compound.
Exhibit 49: improvement in last 10/5 years due to better product mix and backward
integration
Correlation -0.72 -0.30 -0.42
Exhibit 50: Crude oil price correlation with Astral’s GM
(USD/bbl)
60% 120
50% 100
80
40%
60
30%
40
20% 20
10% 0
FY09
FY16
FY03
FY04
FY05
FY06
FY07
FY08
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
Crude GPM
Finolex Industries: Company has high sensitivity to crude due to its backward
integration where the feed-stocks as well as the finished good (PVC resin) are
sensitive to crude prices.
Exhibit 51: Improvement in last 5 years due to favourable EDC-PVC spread
Correlation -0.79 -0.53 -0.53
Exhibit 52: Crude oil price correlation with Finolex’s GM

(USD/bbl)
60% 120
50% 100
80
40%
60
30%
40
20% 20
10% 0
FY05
FY16
FY03
FY04
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
Crude GPM
Key takeaways from our interactions with plumbers,

contractors and distributors
Pipe and Fitting (P&F) overall cost in constructing bathroom
 Pipes are a small component of overall construction cost (10-15%). Decision is
mainly taken by a plumber in case of an individual house and
architects/contractors in the case of projects.
 Overall cost of making a 7X6 bathroom in urban area stands at about Rs 50,000,
of which only 2% (Rs 1,000) is the cost of pipes and 8% (Rs 4,000) is the cost of
fittings. Remaining is faucets, tiles and others.
 Astral’s one foot CPVC pipe costs Rs 18, while Prince and Ashirvad are cheaper
by 7-10%. Since, pipes and fittings cost is just 10% of the overall cost, plumbers
prefer to stick to experienced/preferred brand of pipe.
Astral wins the confidence of plumber/architect community
 Astral has won the trust of the plumber community. Plumber feels more
confident to use Astral’s pipe than any other brand. Majority of them cannot
even think beyond Astral.
 Quality-wise, Astral and Ashirvad are similar, though the availability of Ashirvad
P&F is irregular. Astral’s products are readily available in major metro cities.
 The quality of prince pipes is average, while Prince offers share fittings largely in
northern India. Supreme products are not easily available in the Mumbai areas.
 The availability of Supreme’s CPVC pipe in many areas is less compared to Astral.
Entry barriers for new players
 New players have to go through a long gestation period. Finding a distributor
who can store their products is also a challenge.
 New players are focusing on dealers and sub-dealers of established brands and
giving them distributorship.
 Hindware, Skipper, Birla Aircon (HIL) are the recent entrants in the CPVC pipe
market. They are facing difficulties in finding distributors even after paying a
margin of >15% against a general practice of 7-8%.
 Western and Southern India is dominated by established players; it is a daunting
task for new players to become pan-India players.
Distributor angle
 The two key areas for dealers are quality and the range of SKU. The ability to
bear high pressure, temperature (for hot water line) and long life are the primary
quality characteristics.
 The pipes are a low margin product for dealers (PVC pipe dealer margin is 2-3%
vs 7-8% for CPVC pipe). Dealers are dependent on higher asset turn to generate
better RoE.
 To generate Rs 500mn revenues, the dealers have to stock inventory of Rs 80-
100mn.
 In small towns (like Pune), Astral has adopted a policy of having a single
distributor.
Replacement to plastic pipes from GI pipes
 GI pipes have shorter life span (15-20 year vs. 25+ years for CPVC pipes), are
high cost (2x CPVC pipes) and demand a tedious installation process, which leads
to their replacement by plastic pipes.
 CPVC pipes are being used even for overhead storage tanks in the high-rise
buildings because of better pressure tolerance.
 However, some projects (e.g. The Capital, BKC) have adopted a ‘green policy’
and prefer GI pipes.
 PPR pipes require additional welding machine. For laying the PPR pipes, a
plumber has to be trained for operating the welding machine.
Exhibit 53: We have visited few new projects to see process behind lying plastic pipes and also visted few old properties having GI pipes
CPVC and SWR pipes @ toilet CPVC pipes before conceal @ bathroom UPVC and SWR pipes
Corrosion and leakage issues with GI pipes
Annexure
Exhibit 54: Usage of PVC pipes
PVC pipes industry
The PVC pipes market size is currently ~Rs 176bn. Over the last five years, the PVC
pipe market has grown at a CAGR of ~8%. The growth was mainly on the back of (1)
government’s thrust on irrigation/agriculture and (2) rise of construction activities in
the rural areas. We estimate a CAGR of 10.5% over FY18-22E. These pipes are mainly
used in agriculture (45%) followed by construction, plumbing (38%), sewage (12%)
and others (5%). Since the manufacturing set-up is less capital intensive and given
easy availability of RM (PVC resin), unorganised players are present in this market
and EBITDA margins are thin (7-10%). Companies with scale, brand and reach are
Source: Systematix Institutional Research better placed to capture a larger pie of the market.
PVC resin: Globally, ~45% of PVC resin (RM for plastic pipe) is consumed for pipe
manufacturing while in India, ~73% resins are consumed by pipes in volume terms.
This is mainly due to the agrarian nature of the Indian economy where water
transportation is predominant as the rain is not evenly distributed. The affordability
and the basic utility nature of PVC pipes results in their higher consumption.
Exhibit 55: About 70% of PVC resin is used to make plastic pipes
6%
8%
Pipes and fiting
5%
Profiles
5%
Films and Sheets
3%
Wires and cables
73% Flooring
Other
Exhibit 56: PVC resin making process
Chlorine/Sodium Sodium
Hydroxide Hydroxide 26%
Salt
66%
Chlorine
PVC
EDC VCM
68%
Ethylene
Petroleum
Cracker
Petroleum gas
34%
India imports ~55% of its PVC resin demand
Domestic resin manufacturing capacity stands at 1.5mn tpa (2.2% CAGR CY10-17) as
against the consumption requirements of 3.2mn tpa (8.5% CAGR CY10-17). The
domestic PVC resin capacity is mainly spread between five manufacturers -- Reliance
Industries, Finolex Industries, Chemplast, DCW and DCM. The import demand is met
from Taiwan, Japan, South Korea and China. In value terms, the PVC and compound
imports stood at Rs 106bn in 2017.
Exhibit 57: Reliance Industries is India’s largest PVC resin maker Exhibit 58: Import of PVC resin is increasing in India
(MT) Capacity (MT) ('000 MT)
800,000
700,000 2,000
1,738
700,000 1,800
1,564
1,600
600,000 1,350
1,400 1,261
1,191
500,000 1,200
1,000 907
400,000
300,000 800 725
300,000 272,000
600
200,000 400
90,000 70,000 200
100,000
-
0 2011 2012 2013 2014 2015 2016 2017
Reliance Finolex Chemplast DCW DCM Shriram
Industries PVC Net Import
Source: Company AR, Systematix Institutional Research Source: www.chemicals.nic.in, Systematix Institutional Research
Exhibit 59: Slow capacity addition leading to high imports

('000 MT)
1,550
1,493
1,500
1,450 1,423 1,423 1,423
1,400
1,350
1,300 1,279 1,279 1,279
1,250
1,200
1,150
2011 2012 2013 2014 2015 2016 2017
PVC Capacity
Source: www.chemicals.nic.in, Systematix Institutional Research
India accounts for 3% of the global PVC resin capacity

Global PVC resin capacity in CY16 stood at 52mn tpa (India’s share was 3%) with 1%
CAGR over CY12-17 and utilisation at ~82% over the same period. The top five global
players Formosa Plastics, Shintech, Inovyn, Oxyvinyl and Xinjiang contribute ~22% to
total global capacity. In value terms, the global PVC market size stands at US$ 46bn
and is estimated to generate a CAGR of ~3% over CY17-20E led by global demand
growth.
Exhibit 60: Capacities of major global players
(MMT)
3.5
3.1 3.0
3.0
2.5
2.0
2.0 1.7 1.6
1.5
1.0
0.5
-
Formosa Shintech Inovyn OxyVinyls Xinjiang
Plastics Corp Zhongtai
Chemical
Source: Bloomberg, Systematix Institutional Research
Exhibit 61: Pipe manufacturing process
Step 1: Compounding
Resin is mixed with plasticisers (DOP, DIOP, DBP etc), stabilisers (lead,
barium, cadmium etc), lubricants (oleic acid, stearic acid) and fillers
(calcined clay)
The process improves the processability of resin and improves its

endurance to heat/chemicals. It is then fed into extruders.
Compounding machine (right) (source:alibaba.com)
Step 2: Extrusion
The compound resin is fed to the extruder with the die body for the
required pipe diameter. The PVC compounds are passed through a heated
chamber and they get melted under the compression of the screw and the
temperature of the barrel.
Extrusion machine (right) (source:indiamart.com)
Step 3: Labelling
Extruded pipes are labelled for sizes, pressure tolerance and brand name.
Labelling machine (right) (Pannier Corporation)
Step 4: Cutting
Labelled pipes are cut according to required sizes.
Cutting machine (right) (source:indiamart.com)
CPVC Pipes: Small but noteworthy, about 17% of India’s pipe capacity
CPVC pipes have a market size of Rs 38bn in India. Over the last five years, the CPVC
pipe market has generated a CAGR of 15%+. The growth was driven by (1) faster
adoption of CPVC pipes by replacing traditional GI pipes, (2) increase in replacement
demand, (~50%), (3) unique characteristics like non-rusty & non-corrosive, (4)
increased awareness via brand promotion, TVC and incentivising distribution
channels and (5) increase in construction activities in urban and tier 1 cities.
Overall, India’s CPVC market is ~150,000tpa and the leading players are Astral Poly
(~23% market share), Ashirvad Pipes (~20%), Supreme Industries and Ajay Pipes.
Presently, CPVC resin (RM) is imported and converted to CPVC compound by most
CPVC pipe manufactures. The easy availability of RM has increased competitive
intensity as many new players have entered (like HSIL, Dutron, HIL and Skipper).
Astral was an early mover in 1999 by signing semi-exclusive contract with Lubrizol to
supply CPVC compound. Going ahead, we expect CPVC pipe volumes to continue to
deliver a CAGR of 15% on the back of reasons mentioned above as well as increase in
competition, which will lead to capacity addition and price reduction.
Exhibit 62: CPVC manufacturing process flow
Chlorine/Sodium
Hydroxide
Salt
66%
Chlorine
PVC
EDC VCM
68%
Ethylene
Petroleum Chlorine
CPVC resin
Cracker (from rock salt)
Petroleum gas
34% HCL
CPVC Compound Compounding

100% additives 14%
Exhibit 63: Astral is the leader followed by Ashirvad

Company Volume share% Revenue contribution
Astral Poly 23% ~Rs8.5bn
Ashirvad 20% ~Rs7.0bn
Supreme Industries 12% ~Rs3.5bn
Prince 11% ~Rs2.5bn
Finolex 5% ~Rs1.5bn
Exhibit 64: Astral and Ashirvad dominate India’s CPVC pipe market
7%
16% 32% Astral Poly

Ashirvad Pipe
Supreme Industries
Prince
17%
Finolex
28%
COMPANIES SECTION
Systematix
Supreme Industries 20 March, 2019
Diversified company with best capital efficiencies

INITIATING COVERAGE Supreme Industries (SI) is India’s largest plastic processor with an installed capacity
of 568,000tpa and 26 production facilities across the country. It is a leader in the
Sector: Plastic Pipe Rating: BUY
piping segment with 11% value and 10% volume market share. About 65% of its
CMP: Rs 1,086 Target Price: Rs 1,416 pipe volumes cater to the residential plumbing demand. Its RoCE has averaged 30%
Stock Info
and cash conversion has remained under 50 days over the last ten years, reflecting
Sensex/Nifty 38,187/ 11,521 its operating agility and capital allocation efficiency. Management’s mandate to
Bloomberg SI IN invest in products that deliver 25%+ RoCE provides confidence in SI’s future growth
Equity shares (mn) 127.0 prospects. Its products can be broadly classified into five verticals - Plastic pipes
52-wk High/Low 1,434/ 936 (55% of sales), industrials (16%), packaging (21%), consumer (7%) and composite
Face value Rs 2 and other products (1%). We estimate revenues/PAT CAGR of 15% over FY18-21E
M-Cap Rs 138bn/ USD 2bn led by >15% revenue growth in pipe, industrial and consumer division. Given the
3-m Avg volume 1.7mn company’s strong focus on Value added products (VAP), we estimate VAP to
continue account for 35%+ of revenues until FY21E. We initiate coverage on SI with
Financial Snapshot (Rs mn) a BUY rating and a target price of Rs1,416 based on 31x on 1HFY21E, in-line with
Y/E Mar FY19e FY20e FY21e the PE average of last five years.
Net sales 55,964 65,202 75,614 Growing capex intensity supported by strong cash flows: Being the most diversified
EBITDA 7,742 9,627 11,525 pipes player helps SI beat the cyclicality issues in a particular segment. Its consistent
PAT 4,308 5,149 6,465 RoCE of 30%+ is a result of a strong pricing/bargaining power that it enjoys driven by
EPS (Rs) 29.5 40.5 50.9
its leading position in several products along with patented technologies under the
PE (x) 36.8 26.8 21.3
global partnerships. It plans to invest Rs 4bn annually (up from Rs 2bn-3bn in FY18)
EV/EBITDA (x) 18.2 14.6 12.2
P/B (x) 6.4 5.6 4.8 to diversify its product basket, supported by strong operating cash generation
RoE (%) 18.5 22.3 24.3 (OCF/EBITDA 5-year average ~61%). This in turn should drive its revenues (average 5-
RoCE (%) 24.3 27.5 29.8 year fixed asset turnover 2.1x). With multiple brownfield capacities (at Malanpur,
D/E (x) 0.2 0.1 0.1 Kanpur, Hosur, Kharagpur) operational in 1HFY19 and two greenfield plants (Assam
OPM (%) 13.8 14.8 15.2 and Telangana) coming up in FY20, we expect revenue CAGR of 15% over FY18-21E;
we estimate a CAGR of 16% for the plastic pipes division driven by industry growth
Shareholding pattern (%) and better realisations, CAGR of 17% for industrials due to better realisations, CAGR
Dec'18 Sep'18 June'18 of 17% for consumer driven by the new product launches and CAGR of 6% for
Promoter 49.7 49.7 49.7 packaging given the heightened competition in cross laminated films (CLF).
–Pledged - - - Focus on increasing revenues from VAP: Supreme is focusing on increasing revenues
FII 7.6 7.7 7.8
of VAP (products with 17%+ OPM). During FY12-18, overall revenues grew at a CAGR
DII 22.8 22.0 21.2
Others 20.0 20.6 21.3
of 9% while VAP revenues grew at a CAGR of 14%. The overall share of VAP in
revenues has risen to 36% in FY18 from 28% in FY11 driven by the piping segment
Stock Performance (1-year) where the VAP share has increased to 32% in FY18 from 23% in FY11 with a ramp up
1520 of CPVC and high margin products like manhole chambers and drainage systems.
1420 Products like CLF, moulded furniture and protective packaging are also witnessing
1320
new investments in Hosur and Jadcherla plants. VAP have elevated the company’s
1220
1120
OPM level (13.3% in FY11 to 15.8% in FY18) and offered better pricing power. We
1020 expect VAP revenue CAGR of 15% over FY18-21E to Rs 27bn, and the segment to
920 continue to account for 36% of the overall revenues until FY21E.
Oct-18
Mar-18
Apr-18
Jul-18
Nov-18
Jan-19
Aug-18
Sep-18
Feb-19
Mar-19
Dec-18
May-18
Jun-18
One the most capital efficient company in the manufacturing space: SI has set strict
Supreme Sensex standards to achieve the highest level of capital efficiencies. It ensures every division
generates 25% RoCE. Every plant is also under this capital efficiency ambit. The
Ankit Gor
average RoE/RoCE over the last ten years stood at 32/30%, leading to a strong
[email protected] cumulative OCF/FCF generation of Rs 31bn/13bn. During the same period,
+91 22 6704 8028 cumulative capex was Rs 17bn which was largely funded by internal accruals. ST/LT
Kumar Saumya debt as on 1HFY19 stood at Rs 0.1bn/2.3bn.
[email protected]
+91 22 6704 8025
20 March, 2019 Supreme Industries
Company background
SI was incorporated in 1942 by Mr. Kantilal Mody and taken over by the Taparia family in
1966. It started as a manufacturer of moulded plastic products and gradually added
multiple categories like pipes, tanks, packaging products, industrial products and
furniture to its portfolio. The company has 26 plants and 3,300 distributors across India.
Exhibit 1: Timeline of main events
Year Event
1942 Incorporated
1966 Taparia family took over
 Largest supplier of bottle crates
1999
 Launched PVC plumbing system
2002 Merger of Supreme Oriented Films and Supreme Vinyl Films into SI
2003 Siltap Chemicals merged with SI
2006 Set up Supreme Industries in Sharjah, UAE to improve exports
2009 First company to launch injection moulded pallets in India
2010 Introduced gas injection moulded chairs
2012 Shut down PP MAT division
 Acquired world-wide selling rights to manufacture and sell cross laminated
2015 films from Rasmussen
 Commenced commercial production of composite cylinders
2016 Abandoned composite pipe project
 Land allotted in Telangana
 Started Ghiloth plant project
2018
 Entered a JV (20.67%) with Kumi Kasei after sale of its injection moulded
plastic component facility at Khushkhera for auto components
Key management personnel

Mr. M.P. Taparia (81 years) is the managing director and associated with SI since
acquisition in 1966. He also holds key positions in Supreme Petrochem (MD),
Supreme Capital Management, West Coast Paper Mills, Kabra Extrusion Technik,
Jovial Investment and Trading and Polystyrene Producers Association (Ind).
Mr. P.C. Somani is the CFO of SI and succeeded Mr. O.P. Roongta in 2012.
Exhibit 2: Business verticals
BUSINESS VERTICALS
Plastic Piping
Consumer Products Packaging Products Industrial Products Composite Products
Division
• Specialty Films • Industrial Components • LPG Cylinders
• Protective Packaging • Material Handling Division

Products
• Cross Laminated Film
Products
Plastic Piping Plastic Piping

Division Division

Exhibit 3: Business verticals
Revenue Ebitda
Business Verticals Product Portfolio Targeted Customer Segment OPM%
contribution contribution
uPVC Pipes, Injection Moulded fittings,
• Potable Water Supply
Handmade fittings, Polypropylene Random,
• Irrigation
Co-polymer Pipes & Fittings, HDPE Pipe
Plastic Piping • Sewage & Drainage
Systems, CPVC Pipes Systems, Inspection 55% 50% 14%
System • Plumbing & Sanitation
Chambers, Water Tanks, Septic Tanks,
• Industrial Pipe System
Toilets, DWC HDPE PIPE System, Bath
• Fire Sprinkler System
Fittings, Solvents
• House Hold
Consumer Products Furniture • Office Establishments 7% 9% 21%
• Institutions
• Auto Sector
• Electronic Household Appliances
Industrial ComponentsMaterial Handling
Industrial Products • Water Purification – filters 16% 14% 14%
Products ( Crates, Pallets, Bins & Dustbins)
• Soft Drink Companies
• Agriculture & Fisheries
• Consumer Appliances
• Food Industry
• Sports Goods
• Insulation
• Construction
Specialty FilmsProtective Packaging • Automobiles
Packaging Products products Cross Laminated film • Mattresses 21% 27% 20%
productsCross Line Bonded Film Products • Agriculture
• Floriculture
• Horticulture
• Grain Storage
• Tarpaulin
• Pond lining
Composite Products LPG Cylinders • Retail / Household 1% - -
Exhibit 4: Business snapshot
Plastic Piping (55% Consumer (7%
Particulars Industrial (16% revenues) Packaging (21% revenues)
revenues) revenues)
PVC and CPVC plumbing
pipes, overhead tanks,
underground tanks, roof
gutter pipe, PE, casing pipes, Auto cockpits, appliance body, Protective packaging,
Products Plastic furniture
SWR and DWV pipes, column crates, pallets, dustbins XF films, performance films
pipes, inspection chambers,
septic tanks, manholes, wall
pipes, DWC pipes.
EPE Foam- Rs 8bn
Rs 260bn pipes and Rs 55bn Air bubble film- Rs 4bn
Industry size Rs 20bn Rs 32bn
tanks, manholes etc CLF- Rs 5bn
CLF Roll- Rs 1bn
EPE Foam- 30%
Air bubble film-18%
Market share 9% (overall) 13% 11%
CLF- 20%
CLF Roll-55%
Revenue (FY18) Rs 27bn Rs 8bn Rs 10bn Rs 8bn
Revenue share (FY18) 55% 16% 21% 7%
EBITDA margin (FY18) 14% 14% 20% 21%
EBIT contribution (FY18) 50% 12% 28% 9%
Capacity-FY18 402,000 mt 65,000 mt 69,000 mt 29,000 mt
Utilisation 64% 72% 68% 70%
Realisation Rs 109/Kg Rs 185/Kg Rs 210/Kg Rs 177/Kg
Raw materials CPVC, PVC, HDPE, PPR HDPE, PP, PVC PE, PP, PVC PVC, PP
Raw material sourcing Domestic suppliers like Reliance. CPVC from Kaneka.
Channel 984 distributors 2,319 distributors
Protective packaging 44%
Val-add share (FY17) 32% NA 52%
CLF 100%
Facilities 8 9 13 7
Companies in consumer Electronic manufacturer,
Customers (via distributors) Civil contractors, farmers appliances, Tier-1 Auto ancillary medical device Retail buyers
etc manufacturer
Time Technoplast, Gold
Astral, Prince, Finolex and Nilkamal, Wimplast and Time Star Group, Internex Poly Nilkamal, Wimplast,
Competition
Ashirvad, amongst others Technoplast, amongst others and Shivam Plastics, Prima Plastics
amongst others
Auditors M/s. Lodha and Company
Promoter remuneration 6% of PAT in FY18
Exhibit 5: Study of annual reports over the last 10 years
Demand scenario Acquisitions/JV/plant Product launches Plans/initiatives Others Outlook
 Fluctuation in raw
 Plans to launch HDPE
material prices results  Supreme Petrochem adds  Plans to expand value  Cut in excise duties
sprinkler, inspection
in slower expandable polystyrene add products. bridged price  Cut in excise duty from 14%
FY09 chambers and LLDPE
consumption. plastics to its product  Plans to add trading difference between to 8% to boost demand.
lateral pipes in FY10.
 Exports down due to portfolio. items from partners. organised and
 Launches CPVC ‘Lifeline’.
recessionary trends. unorganised.
 BIS received for irrigation  Focus to increase value
 Plastic consumption lateral tubes, HDPE added share with  FV split to Rs 2 from Rs
 Government focus on
grows 16% yoy  Enhancing furniture sewage pipe, sprinkler increase in top-line. 10.
FY10 infrastructure improvement
 New capacities to keep capacity. pipe and PPRC pipe.  Cross line bonded films  Excise duty hiked to
opens up new opportunities.
prices under check.  Plans to launch complete developed with patent 10%.
range of CPVC pipes. to 2023.
 Raw material prices may
 Aim to diversify
remain high despite new
 Plastic consumption.  Plant at Halol for composite packaging business to
capacities due to high crude
 Extended monsoon cylinder and at Hosur for  Manufacture NBR foam lower dependency on oil  Customer related issue
prices.
FY11 impacts agri sales but protective packaging. under Taiwanese packaging. impacts consumer
 Government move to
residential market  New site in Gujarat for cross technology.  Focus on institutional segment off-take.
allocate higher capital
grew 30% yoy laminated film. customer for foam
towards agriculture to boost
business.
demand.
 Plans to commence
composite cylinders at
Halol with 500K capacity.
 Halol to begin cylinder  Investment plan for  Polymer volume growth in
 PP MAT business
 High RM cost due to  Malanpur facility being production. furniture business. the country expected to
discontinued.
FY12 depreciated rupee used for plastic pipe  Plans to launch more  Plans to enter new grow at 10-12% while SI
 Aim to invest Rs 11bn
impacts demand. products. composite products in export market for cross expects to grow its volumes
over FY12-16.
future. laminates. by 16%.
 Enters into technical tie
up with NBL, Japan, for
composite pipes.
 Plans to enter the fire
sprinkler segment for
 Technical agreement
CPVC.
with Lomold, SA, for  Resin cost is expected to
 Sets up depot in Gadegaon.  Plans to introduce Hi-
composite pipes and  Renews agreement remain high due to
 Plans to put up Tech low-noise SWR and
 Plastic raw material light weight pallets. with Wavin for plastic increasing consumption in
manufacturing unit in 100+ fitting products.
FY13 consumption grows by  Technical agreement pipes. the US.
eastern India.  Introduced new models
12% during FY13. with Kumi Kasei, JP, for  Discontinues furniture  SI expects good growth on
 Plans for plastic complex in of designer chairs.
auto components. trading business. the back of new product and
Kharagpur.  Shift in demand results in
 Plans to begin export of capacities.
manufacturing of less
furniture.
than 70 GSM laminated
films.
 Introduction of 189
 SI puts up a plastic complex injection molding  Expect growth in  Recessionary trend in real
 PVC consumption grew  Projects undertaken to
at Kharagpur on 53 acres of products. exports of CLF (Cross estate to impact plumbing
by only 2%. upgrade the productivity
land with an initial capacity  Introduced bath fittings. Laminated Film). demand.
 Unfavourable business of extruders.
FY14 of 25KT.  Develops XLPE sheet  Company does not  Opportunity from shifting
condition results in  Focus on automation.
 Installed a facility to used as acoustic associate with consumer demand towards
purchase deferral from  Plans to tap Canadian
manufacture solvent at insulation. businesses that involve branded products.
clients. and African markets.
Gadegaon.  Cross line bonded film government subsidy.
patented till 2023.
 Executes largest ever
 Develops solvent cement  Tie-up with a SA
order of EVM  ‘Swachh Bharat’, affordable
SILBOND which got company for septic
 Green field capacity for machines. housing and smart city
FY15 approval. tanks.
furniture at Kaharagpur.  Approval from Korea initiatives to create demand
 Introduces blue sealant  Negotiating technology
Gas Safety Corporation across verticals.
for metal pipes. for DWC pipes.
(KGS).
 New submersible and  Tie-up with Spears for  Kharagpur furniture
FY16
casing pipes. CPVC fire sprinkler pipe. project delayed.
 Focus on industrial
 New products like
applications of CPVC
 Sites under construction: storage cabinets, two
pipes.  MOU with Bangladesh
FY17 Ghiloth, Jadchaela and seater sofa, centre table
 Plan to introduce fire for 250K cylinders.
Assam. etc under consumer
retardant and corrosion
sector.
resistant films.
 Investment into new plant
 Khushkhera auto unit
at Telangana.
FY18 sold on slump sale
 Manufacture of blow mould
basis into a JV.
furniture at Kharagpur.
The most diversified company amongst peers
SI has the most diversified product offering amongst peers – Astral Poly, Finolex
Industries, Prince Pipes, Nilkamal and Wimplast. Products are diversified across five
categories - plastic piping (PV & CPVC pipes), industrials (components & material
handling), packaging (specialty films, protective packaging products, cross laminated
films), consumer (plastic furniture) and others (composite cylinder) with total
capacity of 568,000tpa and total revenues of Rs 50bn.
Exhibit 6: Capacity of 568,000tpa shared across segments Exhibit 7: 55% revenues come from the plastic pipe segment
1% 1%
7%
5%
12%
Plastic pipe 16% Plastic pipe
Packaging Packaging
11%
Industrial Industrial
Consumer 55% Consumer
Other Other
71%
21%
Asset turn remained >2x led by capex at regular intervals…

The utilisation threshold of ~70% results in continuous capacity addition to grow the
revenues. Over the last five years, the company added capacity at a CAGR of 7% and
we expect it to continue growing at a similar pace. At the same time, last ten years’
Asset Turnover Ratio (ATR) stood at 2.2x against industry average of 3x. We expect
ATR to remain above 2x on the back of 17% CAGR in value-added products and
capacity addition at a CAGR of 8% over FY18-21E.
Exhibit 8: Asset turnover to remain stable Exhibit 9: Capacity CAGR of 8% to support revenue growth
(x) (tn)
2.6 800,000
2.2 600,000
1.8 400,000
1.4 200,000
1.0 -
FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
ATR Capacity
Source: Company, Systematix Institutional Research *Note FY16 – 9 months Source: Company, Systematix Institutional Research
…supported by strong cash flows
The capacity addition was supported by strong cash flow generation. Over the last
five years, the company has incurred a capex of Rs 10bn while generating cumulative
OCF/FCF of Rs 20bn/Rs 10 bn. The company has planned a capex of ~Rs 12bn over
FY18-21, revised from Rs 7.5bn, as demand scenario is improving across the
segments. We expect it to generate OCF/FCF of Rs 19bn/Rs 7bn over FY18- 21E on
better demand outlook across the segments and increase in revenues from value-
added products (VAP).
Exhibit 10: Cash generation to remain strong
(Rsmn)
8,000
6,000
4,000
2,000
-
FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
OCF Capex
Source: Company, Systematix Institutional Research *Note: FY16 – 9 months
Exhibit 11: Return ratios to remain healthy

(%)
40%
30%
20%
10%
0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
RoE RoCE
Source: Company, Systematix Institutional Research; Note: FY16 – 9 months
Plastic pipe division to lead growth

Exhibit 12: Pipe revenue contribution Capacity: 402,000tpa, Sales contribution: 55%, OPM: 14%
SI is one of the leading pipe players with market share of 10% (volume-wise) and 11%
(value-wise) in the organised piping market. Current capacity of 402,000tpa (15%
share) is spread across Maharashtra, UP, MP, WB, Telangana. This segment includes
plastic pipes and other products like overhead/underground water tanks, inspection
chambers and septic tanks. About 75% of the plastic pipe revenues come from
PVC/other pipes, followed by 15% share from CPVC pipes and the rest from other
products. Due to seasonality, large SKUs (7,830) and regular capacity expansion in
plastic pipe segment, last five years’ average capacity utilisation remained under
65%. During FY14-18, VAP revenues in the plastic pipe segment grew at a CAGR of
Source: Systematix Institutional Research 19% and we expect them to grow at a CAGR of 15% over FY18-21E on the back of
new product launches, large distribution network and capacity addition. Currently,
32% of the VAP revenues come from plastic pipe segment and the contribution is
expected at ~30% by FY21E.
Exhibit 13: Pipe capacity utilisation to remain above 65% Exhibit 14: Value, volume and capacity share
(Mt) 16%
600000 80.0%
14%
70.0%
500000
60.0% 12%
400000
50.0% 10%
300000 40.0%
8%
30.0%
200000
6%
20.0%
100000 4%
10.0%
0 0.0% 2%
0%
Pipe capacity Utilization (RHS) Value share Volume share Capacity share
Source: Company, Systematix Institutional Research ; Note: FY16 – 9 months Source: Company, Systematix Institutional Research
Exhibit 15: Pipe VAP revenue to grow at a CAGR of 15% CAGR

(Mn)
14000
12000
10000
8000
6000
4000
2000
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
Pipe VAP
Plastic pipe revenue growth estimated at 16% during FY18-21E
During FY14-18, plastic pipe volumes grew at 8% while revenues grew at a CAGR of
5%. Lower revenue growth can be attributed to demonetisation in FY17 and a
slowdown in construction activities due to RERA in FY17-18. We estimate plastic pipe
segment to deliver a value/volume growth of 16/10% over FY18-21E led by the new
capacities planned in Assam and Telangana for FY20, expansion carried out in FY19 at
Malanpur & Kharagpur and traction in DWC pipes which is currently at only 10%
utilisation levels.
Exhibit 16: Pipe revenue to grow at a CAGR of 16% Exhibit 17: Pipe volume to grow in-line with industry
(Rs mn) (Mt)
50,000 400000
40,000
300000
30,000
200000
20,000
100000
10,000
- 0
FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
Pipe gross revenue Pipe volume
Exhibit 18: OPM to remain above 13%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Pipe OPM
With about 13% volume share SI is the third largest CPVC pipe player
SI is present in the CPVC pipe segment for more than ten years now. The company
has its own compounding facility for which it sources CPVC resin from Kaneka, Japan.
SI has 12% market volume share with 15% revenue contribution in the piping
segment from CPVC products. We expect organised players like SI to continue to
benefit from the consolidation happening in the CPVC pipe space.
Exhibit 19: Supreme holds 17% CPVC pipe volume share
7%
16% 32% Astral Poly

Ashirvad Pipe
Supreme Industries
Prince
17%
Finolex
28%
DWC pipe offers huge growth opportunities

In CY17, SI entered the DWC pipe market with a capacity of ~25KT in West Bengal
and Maharashtra with product diameters ranging from 75mm to 800mm. Currently,
the capacity is under a ramp-up phase and the utilisation is expected to pick up from
FY20 aided by government and commercial projects sourcing these products. The
DWC market is expected to benefit from the government’s focus on the shift from
RCC pipes to DWC pipes due to the cost and longevity benefits. Industry expects Rs
80bn-100bn order flow over the next 4-5 years.
Exhibit 20: Prince has the highest DWC capacity among peers
(MT)
40,000 36,624
35,000
30,000 26,900
25,000
25,000
20,000
15,000
15,000
10,000
5,000
-
Supreme Prince Alom Poly Astral (Rex)
There are ~7,730 piping product SKUs supplied by 984 distributors present across the
country which enables SI to address a wide range of demand.
Exhibit 21: Cater to pan-India demand with wide distribution network and large SKUs
(No) (No)
1200 9000
8000
1000
7000
800 6000
5000
600
4000
400 3000
2000
200
1000
0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY13 FY14 FY15 FY16 FY17 FY18
Pipe Distributors SKU
Exhibit 22: Product images
PVC CPVC PPR
DWC PE SWR
Casing Borewell Solvent
Overhead tank Underground tank Manholes
Industrial segment: Promising growth prospects

Exhibit 23: Industrial segment sales break-up
Capacity: 69,000tpa, Sales contribution: 16%, OPM: 14%
Industrial division is further classified into plastic crates, auto components and
consumer appliances. This segment contributes 16% to the net revenue and has
grown at 7% CAGR in value terms and 7% CAGR in volume terms over FY14-18. The
segment’s utilisation level stands at 72% with nine facilities at Punjab, West Bengal,
Maharashtra (2), Rajasthan, UP, Tamil Nadu, Telangana and Puducherry (Union
territory). It caters to the automotive, consumer electronics, home appliances and
special industrial applications segments. Products include: Electronic voting
machines (EVM), ATMs, water purifier, washing machines, air condition, plastic
Source: Systematix Institutional Research
crates and pallets. The products are processed through injection moulding machines,
with capabilities ranging from 75 to 3,300 tonnes.
It is one of the largest plastic crate and material handling components manufacturer.
It covers 250 models ranging from small bins with 50ml capacity to 166 ltr super
jumbo crates. The segment posted strong volume growth in FY18 with auto and
appliance division, crates, pallets and material handling division delivering 31%, 18%,
12% and 20% volume growth respectively. We estimate the industrial segment to
deliver a value/volume growth of 17%/8% over FY18-21E on the back of new
capacities in Ghiloth and the upcoming capacity in Telangana.
Exhibit 24: Revenue to grow on the back of new capacities
(Mn)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
Industrial gross revenue
Material handling products now sold through distributors: Material handling, a B2C
segment for crates and pallets, has 245 distributors and has grown at 6% CAGR over
FY14-18. The high cost crate products have been discontinued for retail sales and are
sold to institutional clients like Pepsi and Coca Cola through distributors.
Exhibit 25: Material handling distributors for pallets and crates
300
240
180
120
60
0
Distributors
OPM to remain stable: The industrial segment margin has risen since FY14 aided by
lower crude oil prices. The 9MFY19 margin at 11% reflects the impact of rising crude
and volatility in key industrial plastic materials. We believe the divestment of
Khushkhera (due to lower RoCE) which has lifted the segment RoCE to ~20-22% will
help contain the margin impact from crude price rise.
Exhibit 26: OPM to remain in the 12-14% range
14.0%
13.0%
12.0%
11.0%
10.0%
Industrial ebitdaM
Exhibit 27: Marquee clientele
Material Handling
Pepsi Coke Election Commission of India
Auto component
Bajaj Auto Tata motors Piaggio
Consumer appliances
Samsung Whirlpool Tata
Pallets Crates EVM
Dashboard Fridge
Washing machine Tata swach AC
Packaging segment: Under the weather

Exhibit 29: Capacity share of packaging segment
SI’s packaging segment is broadly classified under three categories - Protective
packaging, cross laminated films (CLF) and performance films with 32,000tpa,
27,000tpa and 10,000tpa capacity, respectively. This segment contributes 21% to
revenue and has grown at a CAGR of 6% CAGR in value terms and 7% in volume
terms over FY14-18. The segment’s utilisation level stands at about 68% with
thirteen facilities covering nine-states/UT. The key products in the segment are
expanded polyethylene (EPE) foam sheets (protective packaging), air bubble film
(protective packaging), cross-linked foams and rolls (cross laminates). The
Source: Systematix Institutional Research
performance film includes multilayered films which are used for packing oil, milk etc.
The industries which manufacture fragile items like electronics hardware or medical
devices find the use of EPE foam or air bubble wrap during the transportation of their
products while insulation sheets find use in construction works. The segment
delivered 18% volume growth in FY18.
Expiration of the patent allowed other players to enter the CLF market: SI was one
Exhibit 30: 50% sales comes from protective
packaging
of the few companies in the world (till last year) to manufacture and sell cross
laminated films (Tarpaulin under the brand name Silpaulin). The patent of this
product expired last fiscal and the product has witnessed adoption by new players
like Time Technolplast’s MOX film (capacity: 12,000tpa). This has created a pricing
pressure and reduced OPM for SI by ~500bps. Alongside, SI with its technical partner
(Rasmussen Polymer, Switzerland) has developed and launched a new patented
product called Silpaulin Star. This product has clientele in the rural as well as urban
markets for civil works and grain protection purposes.
Exhibit 31: Market leader in packaging films
Source: Systematix Institutional Research Product Market share
EPE foam 30%
Air bubble film 18%
Cross linked foam 20%
Cross linked roll 55%
We estimate the packaging segment to deliver a value/volume growth of 6%/7%

over FY18-21E driven by the upcoming capacities in Assam and Telangana and
expansions in Derabassi, Hosur and Khopoli units. SI continues to focus on innovative
products with niche utility.
Exhibit 32: Revenues to grow at a CAGR of 6% Exhibit 33: Volumes to grow at a CAGR of 7%
(Rsmn)
(Mt)
15000 60000
12000 45000
9000
30000
6000
15000
3000
0 0
Packaging gross revenue Packaging vol
Exhibit 34: Capacity expansion at slower pace
New entrants in CLF (Mt)

1. Time Technoplast 100000
2. Hi-tech
3. Gold Star Group
4. Internex Poly
70000
5. Shivam Plastic
6. Bag Poly International
7. Shalimar Bagh
8. Taneja enterprises 40000
10000
Packaging cap
Exhibit 35: OPM to be under pressure due to competition
25.0%
22.0%
19.0%
16.0%
13.0%
Packaging ebitdaM
EPE foam EPE EVA foam ABF
Nitrile foam cover Dura floor membrane Silpaulin - CLF
PE Foam net Consumer Application

Yoga Mats Kids Toys
Consumer segment: To benefit from the shift to light weight

SI is the second-largest player (11% market share) in the plastic moulded furniture
segment with current processing capacity of 30,000tpa, first being Nilkamal (70%
market share). The key products in the segment include indoor and outdoor high
quality furniture tested for ergonomic comforts, resilience and environmental
resistance. This segment contributes 7% to the net revenue and has grown at a CAGR
of 6% in value terms and 8% in volume terms over FY14-18. The segment’s utilisation
level stands at about 70% with seven facilities covering six states/UT. This is the
company’s value-add segment where it plans to replace wooden and metal furniture
with plastic. It recently launched the blow moulded furniture (first in the industry)
which is supplied from its greenfield capacity at Kharagpur plant.
We estimate the consumer segment to deliver a value/volume growth of 17%/9%
over FY18-21E led by the new capacity at Telangana and expansion at Malanpur and
Kanpur units. This segment will benefit from the shift of demand from metal to light
weight and low-cost yet premium appeal chairs.
Exhibit 37: Volume and revenues together pace
(Rsmn) (Mt)
24000
6000
18000
4500
12000
3000
1500 6000
0 0
Consumer gross revenue Consumer vol
Exhibit 38: Capacity addition at a CAGR of 7%

(Mt)
40000
30000
20000
10000
Consumer cap
Growth supported by a strong distribution network: It has 900 channel partners,
11,000 retailers and 350 exclusive showrooms for its consumer products. In FY18,
the industry grew by 4% on a value basis while SI reported a value growth of 11% and
volume growth of 8% for the segment, reflecting the strong product traction in the
market.
Exhibit 39: Consumer distributors grew at 7% CAGR
(Mt)
1000
800
600
400
200
0
Distributors
Composite cylinder
Capacity: 3,000 MT, Sales contribution: Rs 700mn
SI has a capacity of 450,000 units annually at its Halol (GJ) plant. This segment has
been a drag and volumes have failed to pick up since the last few years. SI has the
second largest composite cylinder capacity after Time Technoplast which has a
capacity of 1.4 mn units. It continues to focus on exports and supplies to Bangladesh
and Korea are underway with African countries in the pipeline.
The domestic market size stands at about 170-180 million metal cylinders (mostly for
household use) which offers ample room to scale up the business. However,
regulatory and high price points are two big hurdles. Government has expressed its
interest for composite cylinders and HPCL had placed orders with manufacturers
including SI for product samples, though nothing noteworthy has come out of this
yet. SI has approvals from TUV (Germany), PESO (India) and KGS (Korea).
Exhibit 41: Product specs, Brand name: Kavach
Kgs 5 7.5 8.2 10 12 14
Propane capacity 5 Kg 7.5 Kg 8.2 Kg 10 Kg 12 Kg 14.2 Kg
Butane Capacity 6 Kg 9 Kg 10 Kg 12 Kg 14.4 Kg 16.5 Kg
Watar Capacity 12.5 L 18.2 L 20.6 L 24.5 L 30.5 L 33.3 L
Ovaral Length 384 mm 460 mm 500 mm 571 mm 675 mm 650 mm
Overall Diameter 307 mm 307 mm 307 mm 307 mm 307 mm 330 mm
Service Pressure 20 Bar 20 Bar 20 Bar 20 Bar 20 Bar 20 Bar
Test Pressure 30 Bar 30 Bar 30 Bar 30 Bar 30 Bar 30 Bar
Burst Pressure > 100 Bar
Exhibit 42: Licenses and certifications

Certifying authority
1. Emirates Authority for Standardization & Metrology
2. TUVRheinland, Germany
3. Korea Gas Safety Corporation
4. Kenya Bureau of Standards
5. Petroleum and Explosives safety Organization, India
Exhibit 43: Product image

Cylinder Internal HDPE chamber with brass nozzle
Spotlight on revenue share from value added products (VAP)

For SI, value added products generate OPM in excess of 17%. VAP revenue stood at
Rs 18bn in FY18 (36% of the overall revenues). VAP revenues have grown at a CAGR
of 12% over FY13-18. Management continues to focus on VAP and maintain its 35%+
revenue share with the launch of new products like CPVC for residential, tanks,
manholes, blow moulded furniture, new patented CLF amongst other products. We
expect VAP’s revenue share to sustain at 35% levels going forward.
Exhibit 44: Overall VAP revenue and share
(Rs bn)
40% 20
17
36%
14
32%
11
28% 8
FY13 FY14 FY15 FY16 FY17 FY18
VA Revenue (Rs.Bn) (RHS) VA share (%)
Within the VAP basket, plastic pipe segment is a major contributor (49%) with
product offerings like CPVC pipes and fittings, manholes, inspection chamber and
HDPE DWC pipes. The share of VAP in plastic piping segment has improved from 27%
in FY13 to 32% in FY18 with revenue CAGR of 14% over this period.
Exhibit 45: Pipe VAP revenue chart + VAP share
(Rs bn)
34% 10
8
31%
28%
4
25% 2
Furniture under the consumer segment had 52% share of VAP. Products like
moulded furniture are sold through distributors and EBOs. The furniture VAP
revenue stood at Rs 1.6bn in FY17 and delivered a 12% CAGR over FY13-17.
Exhibit 46: Furniture VAP revenue chart + VAP share
(Rs bn)
57% 2.0
49% 1.5
41% 1.0
33% 0.5
25% -
The protective packaging segment (~36% revenues of packaging segment) is the

second highest VAP revenue generator. Driven by product launches like nitrile rubber
(NBR), insulation foams (dura-membrane) and yoga mats.
Exhibit 47: Protective packaging VAP revenue chart and VAP share
(Rs bn)
2.0
49%
1.5
41%
1.0
33%
0.5
25% -
Cross laminated film (CLF) Silpaulin was SI’s patented product under this segment
but its patent expired in FY17. SI, with its partner, has developed a new product
called Silpaulin Star. CLF accounts for 50% of the packaging segment but offers 100%
value add. CLF reported Rs 4.5bn revenues in FY17; revenues grew at a 6% CAGR
over FY13-17.
Exhibit 48: CLF share chart of VAP
(Rs bn)
5.0
100%
80% 4.0
60%
3.0
40%
20% 2.0
Overall VAP revenues to grow at a CAGR of 15%

Through technical collaborations with global innovators, SIL has consistently
improved all its product segments. As a result, sales contribution from VAP increased
from 32% in FY14 to 36% in FY18. The company posted VAP sales CAGR of 11% over
FY14-18. We expect contribution of VAP (OPM: >17%) to total sales to remain at
35%+ till FY21E, allowing SIL to maintain OPM of 14%+ over the next three years.
Exhibit 49: VAP revenues CAGR at 15%
(Mn)
30,000
25,000
20,000
15,000
10,000
5,000
-
VAP
Exhibit 50: Technical collaborations
Partner Product
Rasmussen Polymer Development, Switzerland Cross – Laminated Films
Foam Partner, Switzerland Reticulated PE Foam
Sanwa Kako, Japan 2 Stage Foam
PE Tech, Korea Cross Linked Foam
Kautex, GMBH Composite LPG Cylinder
Spears Mfg. Co., Los Angeles Fire sprinkler fire system from CPVC
Calcamite Sanitary Services (PTY) Septic Tanks
One the most capital efficient company in the manufacturing

space
SI has set strict standards to achieve the highest level of capital efficiencies. It
ensures every division generates 25% RoCE. Every plant is also under this capital
efficiency ambit. The average RoE/RoCE over the last ten years was 32/30% which
led to a strong cumulative OCF/FCF generation of Rs 31bn/13bn. During the same
period, cumulative capex was Rs 17bn largely funded by internal accruals. ST/LT debt
as on 1HFY19 stood at Rs 0.1bn/2.3bn.
Over FY14-18, SI generated cumulative OCF of Rs 20bn at an average EBITDA
conversion rate of 61%, which was used for the capex of Rs 10bn to add a capacity of
127,000 mt, dividend pay outs of Rs 6.5bn and debt reduction of Rs 2bn. Operating
cash flows (Rs 5bn in FY18) CAGR was 18% over FY14-18 led by an 11% CAGR in
profitability and prudent working capital management. We expect OCF/FCF to grow
at a 12%/12% CAGR over FY18-21E with 14% profit CAGR due to the increasing capex
intensity (Rs 400mn vs. avg Rs 250mn) at new plants.
Exhibit 51: Capex intensity to increase Exhibit 52: OCF and FCF to improve
(Mn) (Mn)
4,500 8,000
4,000 7,000
3,500
6,000
3,000
5,000
2,500
4,000
2,000
1,500 3,000
1,000 2,000
500 1,000
- -
Capex OCF FCF
Exhibit 53: D/E to remain under check Exhibit 54: Return ratio to remain healthy
(Mn) (x) 35%
5600 0.6
30%
4800 0.5
25%
4000 0.4
20%
3200 0.3
2400 0.2 15%
1600 0.2 10%
800 0.1 5%
0 0.0 0%
Total debt D/E (RHS) RoE RoCE
Exhibit 55: OFC/EBITDA to remain above 60% Exhibit 56: Lower FCF/PAT ratio due to aggressive capex plans
80% 100%
70% 90%
80%
60%
70%
50%
60%
40% 50%
30% 40%
30%
20%
20%
10% 10%
0% 0%
OCF % of ebitda FCF % of pat
Multi-location plants and pan-India distribution to support overall growth

The pan-India presence helps SI generate better returns and profitability and beat
competition.
Exhibit 57: Plants spread across India
Derabassi
Noida
Ghiloth Guwahati
Kanpur
Malanpur
Durgapur
Halol
Kharagpur
Jalgaon
Silvassa
Urse
Kanhe
Khopoli
Jadcharela
Gadegaon
Sriperumbudur
Hosur Puducherry
Exhibit 58: Plants
Gadegaon, Maharashtra
Financial overview
Exhibit 59: Pipe to remain highest revenue contributor Exhibit 60: Overall sales to grow at a faster rate
100% 0% 1% 0% (Rsmn)
7% 7% 8%
80,000
22% 21% 16%
75%
18% 60,000
16% 16%
50%
40,000
55% 55% 58%

25% 20,000
0% -
FY14 FY18 FY21e FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
Plastic pipe ndustrial Packaging Consumer Composite Net Revenue
Exhibit 61: Demand-led capacity addition Exhibit 62: Margins improved with value-added products
(tn) (Rsmn) (%)
800,000
15,000 24%
600,000 12,000
16%
9,000
400,000
6,000
8%
200,000
3,000
- - 0%
Capacity Operating profit Operating margin (RHS)
Exhibit 63: PAT growing in-line with EBITDA Exhibit 64: Debt/equity ratio has remained under 1x
(Rsmn) (x)
6,000 10% 0.6
4,500 8% 0.5
3,000 6% 0.3
1,500 4% 0.2
- 2% -
Net profit NPM D/E
Exhibit 65: Contingent liabilities, related party transactions and other monitorables (Rsmn)
Contingent liabilities and commitments FY16 FY17 FY18
Bills discounted 164 328 149
Tax 504 319 312
Other 760 27 57
Capital contracts commitments 467 589 1,338
Other Key Monitorables FY16 FY17 FY18

Remuneration to Promoter/Directors/KMP 168 266 282
% of PBT 5% 5% 5%
Auditor's Remuneration - - -
% of PBT 0% 0% 0%
Tax rate 37% 35% 34%
Pledge share (%) 0% 0% 0%
Related Party transactions Name/Relation FY16 FY17 FY18

Purchase of good Supreme Petrochem 141 251 295
Sale of Good Devvrat Impex Pvt Limited 219 370 328
Dividend received Supreme Petrochem 87 29 130
Managerial remuneration 163 261 277
Key risks
 Sluggish demand: We are building in 10% volume growth over FY18-21E.
However, operational performance of the company could get adversely
impacted if the business scenario across verticals weakens, especially when an
aggressive capex is underway.
 Raw material price volatility: Over FY09-18, SI reported stable EBITDA margins
(Avg: 15%; Min: 13%) driven by efficient cost control. However, gross margins
during FY10-14 witnessed a 300bps impact when crude prices were rising.
FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY18 FY19e FY20e FY21e FY22e YE: Mar (Rs mn) FY18 FY19e FY20e FY21e FY22e
Net revenues 49,663 55,964 65,202 75,614 87,746 Share capital 254 254 254 254 254
Revenue growth (%) 11.3 12.7 16.5 16.0 16.0 Reserves & Surplus 18,695 21,280 24,369 28,248 32,871
- Op. expenses 41,792 48,222 55,575 64,089 74,172 Networth 18,949 21,534 24,623 28,502 33,126
EBITDA (Excl. OI) 7,871 7,742 9,627 11,525 13,574 Minority interest
EBITDA margins (%) 15.8 13.8 14.8 15.2 15.5 Total Debt 2,487 3,262 3,475 3,227 2,762
- Interest expenses 219 260 277 257 220 Def. tax liab. (net) 1,134 1,134 1,134 1,134 1,134
- Depreciation 1,672 1,846 2,038 2,264 2,507 Capital employed 22,570 25,930 29,233 32,864 37,021
+ Other income 47 168 98 113 132 Net Fixed assets 14,284 16,388 18,339 20,074 21,567
+Share of JV 347 46 185 357 349 Goodwill - - - - -
+ Exceptional - 559 - - - Investments 1,937 2,231 2,365 2,658 3,017
- Tax 2,057 2,099 2,445 3,009 3,623 Net Working capital 5,986 6,882 8,073 9,415 10,978
Effective tax rate (%) 32 33 32 32 32 Cash and bank balance 363 429 457 717 1,459
Reported PAT 4,317 4,308 5,149 6,465 7,705 Capital deployed 22,570 25,930 29,233 32,864 37,021
+/- Extraordinary items Net debt 2,124 2,833 3,019 2,511 1,303
+/- Minority interest WC (days) 43 41 40 40 40
Adjusted PAT 4,317 4,308 5,149 6,465 7,705 Book value (Rs/sh) 149.1 169.5 193.8 224.3 260.7
EPS (Rs/share) 34.0 29.5 40.5 50.9 60.6 Source: Company, Systematix Institutional Research
Cash Flow Ratios

YE: Mar (Rs mn) FY18 FY19e FY20e FY21e FY22e YE: Mar FY18 FY19e FY20e FY21e FY22e
PAT 4,317 4,308 5,149 6,465 7,705 P/E (x) 32.0 36.8 26.8 21.3 17.9
+ Non cash items 1,643 1,846 2,038 2,264 2,507 P/BV (x) 7.3 6.4 5.6 4.8 4.2
Cash profit 5,960 6,155 7,187 8,729 10,212 EV/EBITDA (x) 17.8 18.2 14.6 12.2 10.3
- Incr/(Decr) in WC 713 896 1,191 1,342 1,564 RoE (%) 24.0 18.5 22.3 24.3 25.0
Operating cash flow 5,248 5,259 5,997 7,388 8,649 RoCE (%) 28.5 24.3 27.5 29.8 31.7
- Capex 2,855 3,950 3,989 4,000 4,000 Fixed Asset turnover (x) 2.1 2.1 2.1 2.1 2.2
Free cash flow 2,392 1,309 2,007 3,388 4,649 Dividend (%) 600 600 600 600 600
- Dividend 1,520 1,723 2,060 2,586 3,082 Dividend yield (%) 1.1 1.2 1.5 1.9 2.2
+ Equity raised - - - - - Dividend payout (%) 35 40 40 40 40
+ Debt raised -312 776 213 -248 -465 Debtors days 28 28 28 28 28
- Investments 190 295 134 293 359 Creditor days 36 36 36 36 36
- Misc. items 806 - - - - Inventory days 51 49 48 48 48
Net cash flow -435 66 27 260 742 Revenue growth (%) 11.3 12.7 16.5 16.0 16.0
+ Opening cash 798 363 429 457 717 EBITDA growth (%) 3.3 -1.6 24.3 19.7 17.8
Closing cash 363 429 457 717 1,459 PAT growth (%) 0.3 -13.2 37.3 25.6 19.2
Systematix
Astral Poly Technik 20 March, 2019
Focus on adhesives to propel growth

INITIATING COVERAGE Astral Poly Technik (ASTRAL) is a leading manufacturer of CPVC pipes in India and an evolving
player in the adhesive marketplace. With a total CPVC/PVC pipe capacity of 174,801mtpa, it
Sector: Plastic Pipe Rating: HOLD competes with Supreme and Ashirvad in the CPVC space and with Finolex, Supreme and Prince in
CMP: Rs 1,114 Target Price: Rs 1,111 the PVC space. ASTRA has backward integrated to manufacture CPVC compounds and ensure
consistent raw material supply and cost savings. It has also formed a notable presence in acrylics,
Stock Info epoxy and sealant adhesives in a short span of time. It will now concentrate on significant
Sensex/Nifty 38,387/ 11,521 innovations in the adhesives space where it competes with Pidilite and Huntsman among others.
Bloomberg ASTRA IN ASTRAL’s pipe/adhesive divisions generated revenue CAGRs of 9/36% over FY15-18. We estimate
the company’s growth to accelerate going forward on the back of aggressive branding initiatives
Equity shares (mn) 119.8
(~5% of sales), emphasis on covering the white areas (Tier 2/3 towns, East & North India), new
52-wk High/Low 1,291/815
product launches, roll-out of products across the network and the focus on adhesives. We
Face value Rs1 estimate ASTRA’s overall revenue/PAT CAGRs at 19/23% over FY18-21E. The stock trades at
M-Cap Rs 133bn/USD1.9bn 50/41x FY20/21E earnings. While we like the business prospects and strong growth levers,
3-m Avg volume 1.7mn current valuations appears high especially in the light of rising competition in the CPVC space and
the challenges in taking on established players like Pidilite and Huntsman in the adhesives space.
Financial Snapshot (Rs mn) We initiate coverage on ASTRA with a HOLD rating and a target price of Rs 1,111, assigning 45x to
its 1HFY21E earnings (In-line with last 5-year average).
Y/E Mar FY19e FY20e FY21e
Net sales 25,240 30,868 35,617 Expect 15% pipes volume growth over FY18-21E led by new products and capacity expansion: The
EBITDA 3,811 4,769 5,514 plastic pipes industry size stands at ~Rs 260bn (value-wise) and ~26 lakh tpa (volume-wise), of
PAT 395 610 793 which CPVC’s share is estimated at ~15% and ~6%, respectively. With ~23% market share in CPVC
EPS (Rs) 16.7 22.3 27.1 pipes, ~55% of ASTRA’s piping revenue comes from CPVC pipes/fittings; PVC/other pipes account
for 45%. Over FY14-18, its pipe capacity/production generated a CAGR of 12/15% on the back of (1)
PE (x) 66.8 50.1 41.0
rapid market share gain led by the strong focus on branding, (2) greater product (CPVC) awareness
EV/EBITDA (x) 35.4 28.2 23.9
resulting in increased market size, (3) JVs with global majors – Lubrizol (CPVC compound), Spears
P/B (x) 11.0 9.2 7.7 (thermoplastic valves) - which amplified its pipes/fittings offerings and (4) a wide network of 750
RoE (%) 17.9 20.1 20.4 distributors and 28,000 dealers. We expect 15% volume growth over FY18-21E on the back of (1)
RoCE (%) 22.9 25.3 26.7 new product launches like RECYFIX, PEX-A PRO, INSUPRO and DWC along with a further market
D/E (x) 0.1 0.1 0.0 share gain in CPVC pipes, (2) capacity expansion at Jaipur (22,700tpa, started in 3QFY19) and Hosur
OPM (%) 15.1 15.5 15.5 (20,000tpa to start in 1QFY20) plants and (3) GST-led market share gain for organised players.
Adhesives to drive the next leg of growth: ASTRA entered the adhesives space in 2011 by
Shareholding pattern (%)
launching cement solvents under Advance Adhesives (Astral acquired 85% stake in Advanced
Dec'18 Sep'18 June'18 Adhesives which entered into an agreement with IPS corporation, USA, for manufacture of solvent
Promoter 58.5 58.5 58.5 cements). In FY15, it acquired a majority stake in Resinova (India) and Seal IT (UK) for Rs 2.9bn and
–Pledged - - - Rs 0.5bn, respectively. Some of Resinova’s key brands are Bondtite, Resibond, Bondset, Solvobond,
FII 21.7 21.4 21.0 Vetra, Brushbond and Zesta while Seal IT’s products are sold under the brand name Bond-it. The
DII 6.1 6.6 6.7 size of the Indian construction chemical industry is estimated at Rs 150bn (of which adhesive is Rs
Others 13.7 13.6 13.8 55bn) and is largely dominated by organised players (>70%). Pidilite is the leader followed by
Henkel, Sika India, Atul, Bostik and Huntsman. Currently, ASTRA is focusing on the acrylic, epoxy
Stock Performance (1-year) adhesives and sealant product categories. The company reported a revenue of Rs 5.7bn in FY18
from this business while EBIDTA margins were healthy at 15.3%. The huge market share gap
1320
1220
between the top three players - Pidilite (~35%), Henkel (~18%) and 3M (~6%) - offers adequate
1120 scope for Astral (~3%) to become a sizable player in the coming years. We expect its adhesive
1020 revenues to record a CAGR of 23% over FY18-21E on the back of (1) better customer connect
920
through aggressive ad campaigns, (2) roll-out of new products and (3) a change in the distribution
820
720
strategy (plans to bring the existing 1,800 dealers under 200 master-dealers).
620 Acumen to build brands and scale up businesses: In the past, the management has acquired and
Oct-18
Mar-18
Apr-18
Jul-18
Aug-18
Sep-18
Nov-18
Jan-19
Feb-19
Mar-19
Dec-18
May-18
Jun-18
successfully turned around businesses that met succession/leadership issues and challenges in
scaling up. Similarly: (1) In FY15, ASTRA acquired adhesive company Resinova (scale-up issues) at an
Astral Sensex
EV/EBITDA of 12x and scaled up its overall profile by roping in actors Salman Khan and Varun
Dhavan as brand ambassadors – revenue rose from Rs 2.3bn in FY15 to Rs 3.8bn in FY18. (2) In
Ankit Gor FY18, ASTRA acquired Rex Pipes (regional presence, scale issues) at an EV/EBITDA of 7x. ASTRA is in
[email protected] the process of streamlining Rex’s operations with synergies expected by June 2019. The CPVC
+91 22 6704 8028 segment-led growth has helped ASTRA scale up its pipe business to Rs 21bn in FY18 from Rs 220mn
in FY04. We estimate a similar ramp-up in the company’s adhesive business over the next five to
Kumar Saumya
eight years.
[email protected]
+91 22 6704 8025
20 March, 2019 Astral Poly Technik
Company backgrund
Exhibit 1: Subsidiaries ASTRAL was incorporated in the year 1996 with registered office in Ahmedabad,
Company % holding
Gujarat. Company is involved in manufacture of PVC pipes, CPVC pipes and
Astral Biochem 100%
Adhesives. It received its license, first in India, for CPVC from Noveon, USA, currently
Resinova Chemie 97.5%
^Seal IT, UK 80% known as Lubrizol Corporation, in 1999. It is promoted by Mr. Sandeep Engineer
APL, Kenya 50% (MD). ASTRAL has a manufacturing capacity of 174,800tpa spread across Gujarat and
Source: Company; Note: ^ Seal IT, UK holds 100% in Rajasthan. The third facility with capacity of 22,700tpa is coming up in Hosur, Tamil
Seal IT, USA Nadu. Company’s adhesive capacity at 85,000tpa is split between its domestic facility
Resinova (merged with its 85% subsidiary Advanced Adhesives Limited post
acquisition) and foreign facility of Seal IT (UK and US). ASTRAL, over FY09-18, has
posted a revenue/pat CAGR of 21/32%. It has a panIndia reach with more than 750
dealer for its piping products and 1,800 dealer for its adhesive products.
Exhibit 2: Timeline of events
1996 Incorporation
1999 Technical license agreement with Lubrizol Corporation
2004 Launched lead free PVC pipes
2005 Started export of products
2007 IPO raises Rs340 mn
2008 JV in Kenya with 25% stake
2009 Board declares first dividend
2010 Stock splits with FV Rs 10 to Rs 5
 Ramco group enters the JV as new partner after local partner exits
2013
 Stock splits with FV Rs 5 to Rs 2
 Acquires 80% stake in Seal IT, UK
2014  Acquires 76% stake in Resinova Chemie Ltd.
 Stock splits with FV Rs 2 to Rs 1
 Acquires land in Ghiloth, Rajasthan for new facility
 Acquisition of Silicon Tape business of Row Industries
2016
 Discontinues CPVC sourcing from Lubrizol
 Agreement with Sekisui, Japan for supply of CPVC Resin
2017 Backward integration by own compounding facility
2018 Ghiloth facility commences operation

Mr. K.R. Shenoy is the non-executive chairman of ASTRAL. He holds M.Sc. degree in
statistics from the Mumbai University. He has 37 years of experience in the banking
sector. He was earlier associated with RBI, Corporation Bank and Lakshmi Vilas Bank.
Mr. Sandeep P. Engineer is the managing director of ASTRA since 2006. He is a
chemical engineer from the University of Gujarat. He started his career as a project
engineer in Cadila Laboratories and ventured into business as a promoter of M/s
Shree Chemicals in 1986. He holds 31.6% shares of the company.
Mr. Hiranand Savlani is the CFO of the company. He holds an LL.B. degree from the
University of Gujarat.
Exhibit 3: Business Snapshot
Plastic Pipes (74% of FY18 revenue) Adhesives (26% of FY18 revenue)
Products PVC, CPVC, DWC Acrylic, Epoxy, Sealant and Tape

Construction chemical: Rs 95bn
Industry size Rs 260bn
Adhesives and sealants: Rs 55bn
CPVC pipe: Rs 7.1bn Resinova: Rs 3.8bn
Revenues (FY18)
PVC/other pipes: Rs 8.7bn Seal IT: Rs 1.5bn
Capital employed (FY18) Rs 7.4bn Rs 5.1bn
EBIDTA margin (FY18) 15% 15%

Plumbing (hot and cold), insulation, SWR, waste pipes,
underground pipes and drainage systems, fire sprinkler Maintenance, woodwork and construction, amongst
Type of product and applications
pipes, agri casing pipes, column pipes and DWC drainage others
pies.
SKUs 1,500+ 642
Channels 750 distributors 1,800 distributors
Capacity (tpa) 174,801 85,000
Utilisation (FY18) 70% 35%
Plant locations Rajasthan, Gujarat, Maharashtra and Tamil Nadu Gujarat, Uttar Pradesh, UK and US
PVC resin (domestically -- mainly from Reliance Industries) Vinyl Acetate Monomers (VAM), epoxy resins,
Raw materials CPVC resin (mainly from Sekisui, Japan) polyurethane, solvents, primers and other
Fillers (domestic and import) chemicals (mostly imported)
A&P spend (FY18) 5% of piping revenues 2% of adhesive sales
Rajasthan (capacity of 22,700mt) and TN (capacity of
Operating at 35% utilisation. Current capacity has
Expansion plans 20,000mt) with capex of Rs 500mn and Rs 400mn
revenue potential up to Rs 12bn.
respectively.
Monica Kanuga - Secretarial Audit
Auditors V H Savaliya & Associates - Cost Auditor
S R B C & Co LLP - Statutory Current
Promoter remuneration 3% of the PAT
Exhibit 4: Pipes across categories
Aquarius UPVC Drain, Waste, Vent (DMV) XLPE Insupro
Chem Pro Silencio Foam Core
Hauraton PEX-a-Pro Wire guard
Fire Pro Case Well Bore-well pipes
Exhibit 5: Adhesives across categories
Polyvinyl Acetate Rubber Adhesive Epoxy
Acrylics Sealants Construction chemicals
Exhibit 6: Study of last 10 years’ annual report
Demand scenario Acquisitions/JV/Plant Product launches Plans/Initiatives Others Outlook
 Expanding market to
 JV in Kenya with 26% stake  Launched products like Nepal, Bangladesh and  Approval of NSF
for trading activities. Future underground pipes fittings, Sri Lanka via local (National Sanitation
 Rural market showing
 Worst year for plan to set up factory. ABS pipes, SWR pipes, foam distributors. Foundation) and UL
signs of revival.
FY09 construction and infra  Acquired 100% stake in core pipe and Blazemaster  Focus on distribution (Underwriting
 GoI focus on housing and
industry. Astral Biochem Pvt Ltd, this fire sprinkler system network expansion, Laboratory) for
infra to drive growth.
includes 67,796 sqm land @ launched. operational efficiency Flowguard and
GIDC. and brand building Blazemaster respectively.
activities.
 Increased stake in Kenya JV  Focus on product  GDP growth expected
 Trials of new product like
 The new products to 32% and started innovation and around 9-10% for next 2-3
manholes, inspection  BIS approval for
FY10 receiving good manufacturing facility. diversification across year which will result in
chambers have begun and Blazemaster awaited.
response.  Land purchased at Dholka different construction plumbing growth of 20%
will be launched soon.
for new site. segments. p.a.
 Acquired 85% stake in the  Campaign called
 Demand growth Advanced Adhesives. ‘Astral Badle Bahav
 Housing shortage and
faster than  Entered into an agreement  Launched column pipes for Zindagi Ka’ launched.
FY11 replacement of metal
company’s capacity with IPS Corp., USA for borewell applications.  Campaign called ‘Fly
pipes to drive demand.
addition. manufacturing solvent Drive and Shop’
cement in India. launched for dealers.
 Expected launch of fire
 Advanced Adhesives
application Blazemaster
 Plastic consumption begins production of  Housing shortage and
pipes.  Focus on ‘Strong
FY12 growing at 10-12% solvent cement. replacement of metal
 Introduced bendable pvc Branding’ activities.
p.a.  Dholka units begins pipes to drive demand.
pipes (1st in the world) with
operation.
support from Lubrizol.
 Purchase of land in
 Improvement in IT
 Agreement for Gujarat and Tamilnadu.
sector post 2008-10  Kenyan JV stake at 37.5%.
promotion in  MD shall be entitled to
resulting in stability in  A new partner, Ramco  Government formalities  The share of unorganized
Dabangg2. an incentive @ 1% of
FY13 housing demand. Group, inducted in Astral still overhang for sector expected to come
 Focus on being the first profits in compensation if
 Plastic consumption Tech, Kenya JV. Blazemaster pipes. down.
mover for innovative Company registers an
in the country
products. increase in profits by
growing at 15% p.a.
>15% yoy.
 Hosur unit begins
 Company engaged Mr.  Housing and infra
 In last five year the production with PVC
Salman Khan as its focused schemes by the
industry has grown at  Hosur unit begins  BIS approval received for product and aims to
FY14 brand ambassador. new government
15% CAGR in volume commercial production. Blazemaster. bring in all other
 Launched Agri Pipe encouraging for pipe
terms. products over next 12-18
Products in the market. demand.
months.
 Industry growth low  Acquired 80% equity in Seal
due to poor economic IT services, UK at Rs.451Mn  New acquisitions  QIP of ~6Mn shares at
 Smart city and GST
conditions. consideration. opened up adhesive Rs.402.5.
FY15 initiative positive for pipe
 Indian adhesive  Acquired 76% equity stake and sealant market for  Stock split from Rs.2 to
and adhesive demand.
industry at Rs. 100Bn in Resinova Chemie Ltd. at the company. Rs.1.
is growing at 15% p.a. Rs.2146Mn.
 Acquired balance equity  Pipe and Adhesive
 Volatile polymer stake of 24% in Resinova at  Push fit drainage system  Doubling Resinova Industry expected to grow
prices and slowdown a consideration of under brand Drainmaster capacity through new at 15-20%, 20%
in Real Estate Rs.730Mn. launched. plant in Ahmedabad. respectively for next five
FY16
impacted pipe  Seal IT enters USA market  Underground drainage  New design and years led by government
demand in the by acquiring silicone tape system under brand packaging of adhesive initiatives like GST, Real
country. business of Rowe Drainhulk launched. business. Estate bill and various Agri
Industries. schemes.
 Mr. Salman Khan
introduced as brand
 Launched CPVC products ambassador for  Demand expected to by
 Company did backward
under its own brand name Resinova. strong supported by
integration and started
 Demand sluggish due after fallout with Lubrizol.  Astral becomes policy reforms.
 Additional 20,000 sqm land its own CPVC
FY17 to Real Estate slow  Resinova launches - Tanking associate sponsor of  Affordable housing
purchased at Ghiloth. compounding facility.
down. Slurry, Leveling Compound Gujarat Lions and Kings Scheme, long term
 Himachal unit held under
and Epoxy Grout under XI Punjab. irrigation fund, PKSY, GST
sale.
TRUBUILD brand.  Resinova becomes etc. to boost demand.
associate sponsor for
Sunrisers Hyderabad.
 In-Film advertising in
 Construction activity ‘Toilet Ek Prem Katha’.  Ghiloth plant
picking up slowly as  Company became construction finished. It is  Good monsoon forecast
 Company entered DWC  Launched instant adhesive
RERA related issues associate sponsor of expected to begin coupled with recovering
pipe segment via ResiQuick.
FY18 resolve. Sunrisers Hyderabad operation in FY19. construction activity
acquisition of Rex Poly.  Launched RECYFIX, Pex-A
 Last five years and Rajasthan Royals.  Hosur expansion on affirms strong demand
 Kenya JV stake rises to 50%. Pro, Insupro.
industry has grown at  Planning major track. It is expected to outlook.
10-12% CAGR. branding activity for complete in 2HFY19.
Adhesive products.
Scale + wide reach + branding initiatives + innovation = 15%

volume CAGR in pipes during FY14-18
In early 2000, ASTRA introduced chlorinated polyvinyl chloride (CPVC) pipes in India
as a substitute for mild steel (MS) pipes in many industries. Due to the lukewarm
response, it was compelled to focus on the plumbing industry. After the initial snags
to replace galvanised iron (GI) pipes in the plumbing industry, the company received
remarkable responses from the plumber community and dealer/distribution
network. During the process, it aggressively expanded capacity to cater to the
demand that was created by conducting strong advertisement and brand campaigns,
which eventually increased product awareness. At the same time, it kept the channel
loaded with new products.
Exhibit 7: Plastic pipe capacity CAGR of 22% over the last 10 years; capacity
expansion estimated at a CAGR of 13% over the next three years
(TPA)
250000 80%
200000 70%
Capacity expansion to further increase CPVC
pipes’ market share from the current ~23%.
The focus is to improve utilisation going 150000 60%
forward.
100000 50%
50000 40%
0 30%
FY13
FY18
FY09
FY10
FY11
FY12
FY14
FY15
FY16
FY17
FY19e
FY20e
FY21e
FY22e
Installed P&F capacity (TPA) Capacity utilisation (%) (RHS)
Exhibit 8: Revenue from CPVC pipes has remained higher than PVC/other pipes
(Rs mn)
16,000
14,000
12,000
10,000
Capacity expansion to increase the share of 8,000
relatively high-margin CPVC pipes revenue
going forward. 6,000
4,000
2,000
-
FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY22e
PVC CPVC
Multi-location plants and wide distribution reach to increase ASTRA’s presence in
the plastic pipe industry
Multi-location plants, warehouses, a wide distribution network and touch points
ensure sustainability and offer ample scope to expand business operations. Since it is
logistically unviable to transport pipes beyond a certain geographical distance, an
extensive distribution network is essential for companies to cater to the pan-India
demand.
Exhibit 9: Plants across India
In tpa Capacity Expansion Expansion in year
Santej, GJ 72,417
ASTRA’s plants in Rajasthan and Assam to Dholka, GJ 56,978
increase its presence in North and East India,
respectively. Hosur, TN 22,706 20,000 FY20
Ghiloth, RJ 22,700
While Rex’s capacity will offer new avenues
(substitute for concrete/RCC pipes) to Assam 25,000 FY20
increase the company’s overall sales. Rex Poly, Sangli, MH 26,900 24,000 FY20
Kenya 5,000
Exhibit 10: Plant locations
Ghiloth
Assam
Santej
Dholka
Sangli
Existing Plants
Hosur
Upcoming plant in Assam
Exhibit 11: Plants
Santej, GJ
Dholka, GJ
Hosur, TN
Extrusion Lines
Exhibit 12: Steady increase in distributors
(No)
30,000
25,000
The distributor network is one of the key
factors for the success of piping operations. 20,000
ASTRAL has increased its distributor count at a
CAGR of 12% over the last four years. 15,000
10,000
20,000
22,000
25,000
28,000
5,000
-
FY15 FY16 FY17 FY18
Distributors
Exhibit 13: While dealers’ count remains constant

(No)
750 750 750

750
700
700
650
600
FY15 FY16 FY17 FY18
Dealers
Aggressive A&P spends improve brand visibility
The company has set a benchmark by advertising commodity products like pipes that
had relatively low/no aesthetic value in the past. This eventually created a demand
pool for CPVC pipes and enabled the company to expand its dealership and touch
point network. On an average, ASTRA spends ~5% of its pipes revenue on A&P and
targets to sustain this rate going forward.
Exhibit 14: Pipe A&P spend increased after backward integration Exhibit 15: Highest A&P spend helped it to gain market share
6.0% 6%
4.9%
5.0% 5%
5%
4.0%
4%
3.0%
3.0% 2.5%
2.2% 3%
2.0%
2.0% 1.7%
1.4% 2% 1.8%
1.1% 2%
1.0% 1%
0.1% 1%
0.0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 0%
A&P spend share% Finolex Inds. Astral Poly Supreme Inds. Prince Pipe
Unwavering focus on innovation offers a competitive edge

Innovation is the company’s core strength and this has helped it stay ahead of peers
and the industry as a whole. Additionally, it keeps ASTRA ahead of the curve and
improve its product visibility. We believe the company’s focus on growth will further
improve its brand visibility and sustain its revenue momentum going forward. ASTRA
has the distinction of being the first in many instances.
Exhibit 16: A first in many cases
1999 First to introduce CPVC pipes
2004 First to launch lead-free uPVC pipes
2007 First to get NSF certification for CPVC piping system
2012 First to launch lead-free uPVC column pipes
2013 First to launch CPVC (AL) bendable pipes
2014 First to get BIS Certification for BlazeMaster (CPVC Fire Sprinkler Pipes IS 16088)
2018 First to introduce PEX pipes in India
Advantage of technical collaborations: ASTRA has consistently outpaced its peers
mainly due to product and process JVs with the world majors.
Exhibit 17: Global partnerships keeping it ahead of the curve
JV Products
Specialty Chemical Know-how for CPVC
Wavin Low noise pipes
FIRST Bathroom pipes
SPEARS Fitting and valves
Lubrizol CPVC resin
Established a niche position by creating entry barriers for new players

ASTRA was first to receive an exclusive license in 1999 for CPVC piping systems from
Lubrizol for India. Currently there are limited CPVC resin suppliers globally and the
leader is Lubrizol (USA), followed by Kaneka (Japan) and Sekisui (Japan). Unless a
pipe company has a tie-up with one of these RM suppliers, it not possible to enter
the CPVC market. By leveraging its strong relationship with Lubrizol, ASTRA co-
branded many products such as Flowguard, Blazemaster and Corzan. In 2014, ASTRA
discontinued supplies (pricing issues) from Lubrizol and started buying CPVC resin
from Sekisui (>50% of the requirement) and others.
Exhibit 18: Change of brand names after termination of tie-up with Lubrizol
CPVC pipe Fire sprinkler system For industrial usage
Brands while
it was with
Lubrizol
Own brands
post
termination
of Lubrizol
tie-up
India is the largest consumer of CPVC resin
The annual consumption of CPVC resin globally is estimated to be ~350,000tons of
which India is the largest consumer at ~125,000tons (all imported), followed by
China. CPVC pipes are banned in many developed nations since they are chlorinated
twice (making them carcinogenic). PPR pipes can be used in the place of CPVC pipes.
Sekisui (26%) has the largest market share in India for CPVC, followed by Lubrizol
(24.5%) and Kaneka (17%). Since the CPVC resin market is dominated by a few
players, price volatility is less unlike in the case of PVC resin.
Exhibit 19: CPVC imports by volume
0.5%
3% 2% 0.3%
Lubrizol
24% Kaneka
Astral
29%
China
Sekisui
Hanwha
17% Arkema
Other
24%
Source: Industry sources and articles, Systematix Institutional Research
Exhibit 20: List of CPVC resin suppliers with the country of origin Exhibit 21: Players and their resin suppliers
Resin suppliers Country Players Suppliers

Supreme Kaneka
Sekisui Japan Astral Sekisui
Kaneka Japan Finolex Lubrizol
Prince Kaneka
Arkema France Ashirvad Lubrizol
Lubrizol USA Dutron Sekisui
HSIL Sekisui
Hanwha Korea Skipper Sekisui
Competition rises with the increase in RM availability: The niche barrier created by
ASTRA is gradually fading as CPVC resin suppliers have not only undertaken capacity
expansions but also increased their focus on India amid the slowdown in different
parts of the world. Further, (1) Indian companies like DCW have begun the
manufacturing of CPVC resin and (2) Lubrizol has commissioned its compounding
plant in Dahej with a capacity of 55,000tpa. Though this provides an opportunity for
new players to enter the CPVC pipes space, we expect ASTRA to maintain its market
share (as it is now backward integrated). We estimate the CPVC pipes market to
expand from ~140,000tpa to ~270,000 over CY18-22e led by the increasing
affordability and awareness.
Backward integration to CPVC compound-making aids margins and improves
overall positioning
The recent entry of new players has begun impacting the CPVC realisations of all pipe
companies. ASTRA’s strategic move to backward integrate into CPVC compound-
making (in 2014 with a capex of ~Rs 500mn) has helped it gain market share (by
passing on a part of the benefit to buyers) and improve the margins of its pipes
division. The company’s margins further improved on the back of CPVC resin supplies
from Sekisui which were of the same quality but significantly cheaper than Lubrizol’s
expensive CPVC (has a brand premium of 10-15%).
Exhibit 22: Benefits of backward integration passed on to customers Exhibit 23: GM improved after backward integration
(Rs./Tn) 40%
200,000
35% 33%
28% 29%
180,000 30% 27%
25%
25%
160,000 20%
14% 14% 15%
15% 12% 13%
140,000
10%
120,000 5%
FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
Astral pipe realizations GM% EbitM%
Exhibit 24: Value-addition from CPVC resin to CPVC compound to CPVC pipes
Chlorine PVC (57% Chlorine)
CPVC Resin (67% Chlorine)
Additive (15%) CPVC Resin (85%)
CPVC Compound
Sold to Customers
Extruded to form Pipes and fittings

PVC+CPVC pipes volume/revenue CAGR estimated at 10/12% over FY18-21E
We expect the company’s growth trajectory to continue and estimate a pipe revenue
and volume CAGR of 10% and 12% during FY18-21E on the back of (1) its dominant
position in the CPVC market, (2) capacity enhancement, (3) strong brand recall
among customers and the plumber community, (4) aggressive ad campaigns and (5)
backward integration.
Exhibit 25: Volume growth to remain strong Exhibit 26: Revenue to generate a CAGR of 12% during FY18-21E
(MT) (MN)
160,000.0 25,000
140,000.0
120,000.0 20,000
100,000.0
15,000
80,000.0
60,000.0 10,000
40,000.0
5,000
20,000.0
- -
Pipe volume (MT) Pipes and fitting Revenue
Venture into DWC pipes supplementing the portfolio

The acquisition of Rex Poly 1QFY19 in a cash plus stock deal (Rs 1.47bn, EV of Rs
1.9bn) has enabled ASTRA to foray into the 600mm-1200mm diameter Double Wall
Corrugated (DWC) pipes which can replace the bigger diameter reinforced cement
concrete (RCC) pipes. It complements ASTRA’s portfolio while helping it improve its
presence in North and Central India. There is a strong demand for DWC pipes from
the infra sector. Developed markets have gradually shifted from cement pipes to
DWC and India is expected to follow suit. The product portfolio of Rex also includes
underground drainage systems used on highways and flyovers and cable ducts. The
evolution of drainage systems from generic underground/cement structures to
plastic drainage systems has already taken place globally and the management
believes that these products will create a niche market in the infrastructure and
residential segments going forward.
Exhibit 27: Rex Product images
SWR DWC pipes Sub-surface drainage pipes
Cable protection pipes Urban Infra pipes
Applications and benefits of DWC pipes

DWC pipes are largely used for sewage and drainage purposes. There are also
telecom pipes and specialty flyover tensioning pipes in Rex’s portfolio. Peers in DWC
are Supreme, Prince and Alom Poly. Rex caters to the retail market through its
distributor network and supplies for government projects too.
DWC pipes are low cost, easy to install, have a longer lifecycle and logistic
advantages as compared to RCC/concrete pipes. The government has begun
directing contractors to use DWC pipes for AMRUT projects based on their
advantages and suppliers believe that a market of ~Rs 80bn-90bn can be created
over the next three to five years.
Exhibit 28: Prince has largest capacity of DWC pipes
(MT)
40,000 36,624
35,000
30,000 26,900
25,000
25,000
20,000
15,000
15,000
10,000
5,000
-
Supreme Prince Alom Poly Astral (Rex)
Exhibit 29: We estimate ASTRA’s pipe segment (PVC+CPVC+DWC) volume/value CAGR of 15%/17% over FY18-21.
(Mn) (MT)
30,000 180,000
25,000 160,000
140,000
20,000 120,000
100,000
15,000
80,000
10,000 60,000
40,000
5,000
20,000
- -
FY14
FY17
FY15
FY16
FY18
FY19e
FY20e
FY21e
FY14
FY15
FY16
FY19e
FY20e
FY21e
FY17
Pipe Value Pipe Volume FY18
Poised to be a larger franchise, adhesive entry to provide a

bigger arena
ASTRA forayed into the adhesive business in 2011 by acquiring an 85% stake in
Advance Adhesives, a solvent cement company (for joining pipes). A noteworthy
development was the acquisition of a 76% stake in the Kanpur-based Resinova
Chemie for Rs 2.15bn in FY15; ASTRA bought the remaining 24% stake for Rs 730mn
in FY16. In FY15, it acquired the UK-based adhesive company Seal IT. The objective of
entering the adhesive business was to diversify away from pipes and foray into a less
competitive and a R&D-oriented business.
Exhibit 30: Adhesive foray via acquisitions
Advance
Resinova Seal IT
Adhesives
Year FY11 FY15 FY15
Cost - 76% at Rs 2.1bn. Balance 24% for Rs 730mn. 88% at Rs 440mn
Valuation - EV/sale 1.3x FY15; EV/EBITDA 12x FY15 EV/sale 0.4x FY15; EV/EBITDA 5x FY15
Plant locations Gujarat Uttar Pradesh (2), Gujarat (1) UK, US
Solvent cement Construction, Furniture, Glue, Tape, PU,
Major product category Construction, Auto, Hardware, Stationary
for pipes PVA, Silicones
Bondtite, Resibond, Zesta, Bondset, Bondfit,
Major brands Weld On Bond It
Resigrip, Solvobond, Vetra
Revenue at the time of acquisition Rs 26mn Rs 2.3bn Rs 1.5bn
Revenue in 9MFY19 - Rs 3bn Rs 1.5bn
EBITDA margin at the time of acquisition - 7.2% 7.3%
EBITDA margin in 9MFY19 - 15.3% 9.4%
After Resinova’s initial push, ASTRAL is scaling up its capabilities

Promoted by Vijay Parikh, Resinova was founded in 1987. Over the years, it has
evolved as a manufacturer of adhesives, sealants and construction chemicals which
have applications in the industrial, wooden, construction and automobile sectors. Its
Bondtite and Vetra brands are well accepted within the Epoxy adhesive and Acrylics
categories and these categories now account for more than half of its revenues. The
overall adhesives space in India is dominated by Pidilite and MNCs. After the
acquisition of Resinova, ASTRA improved the overall eco system by modernising the
facility, eliminating product-related bottlenecks, rebranding/repackaging products
with celebrity endorsements and rationalising the distribution network (still on).
These initiatives have helped Resinova improve its margins to 19% in FY18 from 10%
in FY15.
Exhibit 31: Steady improvement in revenues and OPM, post-acquisition by ASTRAL
(Mn)
21%
4,500
19%
4,000
3,500 17%
3,000 15%
2,500 13%
2,000
11%
1,500
9%
1,000
500 7%
- 5%
FY14 FY15 FY16 FY17 FY18 9MFY19 FY14 FY15 FY16 FY17 FY18 9MFY19
Sales Resinova EbitdaM%
Exhibit 32: Increasing A&P spend to improve visibility Exhibit 33: Focus on rationalizing supply chain
(Mn) (Number)
450,000
120 4% 460,000
410,000
100 360,000
3% 300,000
80 310,000
260,000
60 2% 210,000
40 160,000
1% 110,000
20 60,000
2,000 1,800
- 0% 10,000
FY15 FY16 FY17 FY18 (40,000) FY15 FY18
A&P Adhesive A&P Adhesive % of sale (RHS) Distributors Dealers
Exhibit 34: Seal IT acquired primarily for technological support; it currently contributes
28% to the overall adhesive revenues
28%
Resinova
Seal IT
72%
Exhibit 35: Rebranded/repackaged old brands/products through celebrity
endorsements
Before celebrity branding After celebrity (Salman Khan) branding
Competitive landscape – huge opportunity for serious players like Astral

The size of India’s adhesives, sealants and building chemical industry is ~Rs 150bn
(adhesives & sealants at Rs 55bn) and is expected to grow at 15% over FY18-22E
(Source: Company). The industry is characterised by low competitive intensity and
high entry barriers led by technological and R&D expertise. The unorganised
segment’s share stands at ~25%. Additionally, the industry has registered a CAGR of
15% over FY13-18 and is expected to continue growing at this rate. The packaging
(~30%) and furniture (~20%) segments which are the major end-users of adhesives
and sealants are growing at more than 10%.
Exhibit 36: Organised players have dominant share Exhibit 37: Packaging and furniture segments - key end users (~50%)
25% 12%
Packaging
5% 30% Furniture
9% Construction
Organised
Auto
Unorganised
Transport
11%
Footwear
75%
Rest
15%
18%
Oligopolistic nature of the industry: Pidilite dominates
The industry consists of players like Pidilite, Huntsman, Chandra Chemicals and
Henkel among others. They operate in six categories namely -- polyvinyl acetate
(PVA), rubber adhesives, acrylics, epoxy sealant, epoxy adhesives and construction
chemicals. Pidilite is the leader in PVA (Fevicol), rubber adhesives (Fevibond), acrylics
(Fevi Kwik) and construction chemicals (Dr. Fixit) while ASTRA is relatively stronger in
categories like acrylics (Resi Quick) and epoxy adhesives (Bond Tite) and sealants.
Exhibit 38: Resinova holds a notable presence in epoxy, acrylics and sealant space
Adhesive types Share Size (Rs bn) Leaders Leader share
1. Pidilite
Polyvinyl Acetate 44% 24 2. Huntsman 70%
3. Jubilant Industries
1. Pidilite
Rubber Adhesive 20% 11 2. Bostik 45%
3. Dendrite
1. Huntsman
Epoxy Adhesive 15% 8 2. Resinova 7%
3. Atul Industries
1. Pidilite
Acrylics 9% 5 2. Resinova 60%
3. Henkel
1. Pidilite
Sealant 5% 3 2. Huntsman 60%
3. Resinova
Exhibit 39: Competitive landscape

Adhesive category Nature of product Competitive nature
 Pidilite is an undisputed leader with its brand Fevicol having
 Prepared from VAM (Vinyl Acetate Monomer)
70% market share.
Polyvinyl Acetate  Used in emulsion form
 Zesta from Resinova and Karpenter from Huntsman are other
 Used on porous surfaces like cloth and wood
brands in the category.
 Pidilite’s Fevibond is the leader in the category.
 Natural rubber based or synthetic rubber based.  Hexon from Resinova is ASTRA’s product in this category.
Rubber Adhesive
 Used in auto, packaging, footwear etc.  The segment has high to low price point products from
unorganised players.
 Huntsman's Araldite and Resinova's Bondtite are the top two
 Combines resins with hardening agents.
brands in the category.
Epoxy Adhesive  Offers excellent resistance to heat and chemicals.
 Henkel's Loctite is distributed by Asian Paint and has raised the
 Used for flooring or lamination purposes.
competitive intensity in this segment.
 Commonly known as super glues or instant glues.  Pidilite's Fevikwik is the leader in the segment with 60% market
 Commonly used for DIY (do-it-yourself) activities or share.
Acrylics
footwear.  Resinova has relaunched Vetra under the brand name
 Usually imported. Resiquick with Varun Dhawan as its brand ambassador.
 Pidilite’s M-seal is the leader in the segment with 60% market
 Combines resins with hardening agents.
Sealant share.
 Used in construction for plugging leakages.
 Resinova’s Bondset comes under this segment.
Source: Company, Systematix Institutional Research, Market research
Exhibit 40: Resinova’s products versus Pidilite & Huntsman’s products
Astral’ Product Pidilite’s products Huntsman’s Product
Polyvinyl Acetate
Rubber Adhesive
Epoxy
Acrylics
Sealants
Construction chemicals
Adhesive revenue CAGR estimated at 23% during FY18-21
The positive results of ASTRA’s debottlenecking exercise are evident in its numbers
(FY16-18 revenue CAGR of 11%). We estimate its adhesives revenue to grow at a
faster rate (23% CAGR) over FY18-21E driven by:
(1) Aggressive A&P spend by ASTRA (3-4% of adhesives revenue). This increased to
~3% in FY18 from 1% in FY16.
(2) Low capacity utilisation (~35%) which should provide further potential for
growth. At full utilisation, the plant can generate ~Rs 12bn of sales.
(3) Restructuring of the entire dealer network (~1,800 dealers) to a much leaner
structure (~200 master dealers that will handle the others).
(4) Rebranding of a few product categories (for example, Resi Quick used to be
Vetra). ASTRA has also roped in Bollywood celebrity Varun Dhawan to market
Resi Quick.
Exhibit 41: Revenue growth momentum to continue Exhibit 42: Profitability to remain strong
(Mn)
17%
12,000
16%
10,000 15%
8,000 14%
6,000 13%
12%
4,000
11%
2,000
10%
-
9%
FY15 FY16 FY17 FY18 FY19e FY20e FY21e
FY16 FY17 FY18 FY19e FY20e FY21e
Adhesive sales Adhesive EbitdaM%
Financial overview
Exhibit 43: Adhesives diversifying the revenue mix Exhibit 44: Sales growth stabilising at a sustainable rate
(Rs Mn)
100%
16% 40,000.0
90%
26% 30%
80% 35,000.0
70% 30,000.0
60% 25,000.0
50% 100% 20,000.0
40% 84% 15,000.0
74% 70%
30% 10,000.0
20% 5,000.0
10% -
FY14
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19e
FY20e
FY21e
0%
FY09 FY15 FY18 FY21e
Pipe Adhesive Net Sales (Rs.Mn)
Exhibit 45: Demand-led capacity addition Exhibit 46: Improving margins after backward integration in FY16
(MT) (Rs. MN)
250,000 6,000.0 18.0%
16.0%
5,000.0
200,000 14.0%
4,000.0 12.0%
150,000 10.0%
3,000.0
8.0%
100,000 2,000.0 6.0%
4.0%
50,000 1,000.0
2.0%
- 0.0%
0
FY09
FY10
FY13
FY14
FY15
FY16
FY11
FY12
FY17
FY18
FY19e
FY20e
FY21e
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19e
FY20e
FY21e
Pipe Capacity (MT) Ebitda (Rs. Mn) EbitdaM% (RHS)
Exhibit 47: PAT growing in-line with EBITDA Exhibit 48: Debt/Equity ratio has remained low
(Rs. MN) (MN)
3500 0.6
3000
0.5
2500
0.4
2000
0.3
1500
0.2
1000
500 0.1
0 -
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY18
FY16
FY17
FY19e
FY20e
FY21e
FY12
FY09
FY10
FY11
FY13
FY14
FY15
FY16
FY17
FY18
FY19e
FY20e
FY21e
PAT (Rs. Mn) D/E (RHS)
Exhibit 49: Healthy return ratios (dip in FY15 due to QIP) Exhibit 50: Strong OCF/FCF generation to continue
35.0% (Rs Mn)
4,000
30.0% 3,200
2,400
25.0% 1,600
800
20.0%
0
-800
15.0%
-1,600
10.0% -2,400
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY10
FY18
FY19e
FY20e
FY21e
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
ROCE ROE Operating cash flow (Rs. Mn) Free cash flow
Cash Flow analysis

Over FY14-18, Astral has generated cumulative operating cash flow of Rs 6bn at an
average EBITDA to OCF conversion rate of 55% (cumulative EBITDA of Rs 11bn).
Astral has used it to add pipe capacity (77,212 MT in FY13 to 152,100 MT in FY18
with a total capex of Rs 4.6bn), acquire businesses to diversify its market (adhesive
businesses Seal IT and Resinova acquired over FY15-16 with a payout of Rs 3.3bn)
and invest in its Kenya plant (Rs 46mn). The shortfall in cash was supported by the
funds from QIP in FY15 where the company placed 59.8mn shares at Rs 402.5/share
to raise Rs 2.4bn. It also paid out Rs 261mn in dividends to its shareholders during
FY14-18.
Exhibit 51: FCF Vs FCF ex-acquisitions
4,000
3,200
2,400
1,600
800
-
-800
-1,600
-2,400
FCF FCF ex-Acquistions
In 1QFY19, Astral acquired Rex Poly in a cash (51%) plus stock (49%) deal at an EV of
Rs 1.9bn and equity value of Rs 1.5bn.
Over FY19-21E, we expect operating cash flows to grow at an 11% CAGR to Rs
3,610mn and the free cash flow to grow at ~70% CAGR to Rs 3,110mn as the
company enters its last leg of capacity expansion and becomes debt free by FY21E.
The Ghiloth plant is already operational, Hosur plant will be online in 1QFY20, a plant
in east India (Assam) and doubling Rex’s capacity are in the pipeline. The adhesive
business is currently operating at 35% and has sufficient headroom (at least three
years) to scale before the new capacity is added. We see a strong cash generation
going forward.
Exhibit 52: Contingent liabilities, related party transactions and other monitorables (Rsmn)
Contingent liabilities and commitments FY16 FY17 FY18
Guarantees Undertaken 368 477 475
Letter of Credit 85 657 299
Disputed income tax 12 8 19
Other disputed claims 19 16 19
Capital contracts commitments 400 764 578
Other Key Monitorables FY16 FY17 FY18

% of PBT 3% 3% 3%
Auditor's Remuneration 2 2 2
% of PBT 0% 0% 0%
Tax rate 23% 28% 30%
Pledge share (%) - - -
Related Party transactions Name/Relation FY16 FY17 FY18

Advance for purchase of investment Astral pipes/JV 59 - 16
Sale of goods Astral pipes/JV 17 37 18
Purchase of good KMP’s enterprises - - 13
KMP remuneration KMP + Relatives 36 53 65
Rent KMP’s enterprises 13 13 16
Guarantee Astral pipes/JV 165 113 -
CSR Expense KMP’s enterprises 18 20 24
Investment Astral pipes/JV 22 - -
Key concerns
Crude price volatility: PVC prices are sensitive to crude price movements. Given that
PVC products account for ~33% of ASTRA’s revenues, volatility in crude prices could
affect consolidated revenues and earnings.
Currency volatility: ASTRA imports most of its requirement of resins from Sekisui
while the remaining is sourced locally. Sekisui offers 30-days credit to ASTRA and
these payments are in USD terms. Hence, any sharp fluctuations in the USD versus
INR could impact ASTRA’s margins.
Company will be paying off its ECB loan of Rs 207 mn which is outstanding to HSBC.
Demand slowdown: ASTRA is a plumbing product supplier to the residential and
commercial markets. A slowdown in these markets impacts its volume off-take which
hurts its return ratios.
Competitive intensity: Volumes in the pipe market, which has recently witnessed a
surge of new brands, could get affected as the new players tend to underprice their
products to gain traction.
FINANCIALS
YE: Mar (Rs mn) FY17 FY18 FY19e FY20e FY21e YE: Mar (Rs mn) FY17 FY18 FY19e FY20e FY21e
EBITDA (Excl. OI) 2,638 3,168 3,811 4,769 5,514 Minority interest 123 135 135 135 135
EBITDA margins (%) 13.9 15.0 15.1 15.5 15.5 Total Debt 2,290 1,891 1,809 741 178
- Interest expenses 184 216 347 133 27 Def. tax liab. (net) 263 330 330 330 330
- Depreciation 502 571 761 993 1,030 Capital employed 11,144 12,538 14,359 15,749 18,153
+Share of JV -26 -27 - - - Goodwill 2,321 2,347 2,347 2,347 2,347
+ Exceptional -10 - - - - Investments - - - - -
- Tax 562 724 856 1,149 1,401 Net Working capital 3,300 2,946 3,617 4,424 5,103
Effective tax rate (%) 28 29 30 30 30 Cash and bank balance 182 437 287 563 2,818
+/- Extraordinary items - - - - - Net debt 2,108 1,454 1,523 177 -2,640
+/- Minority interest -1 6 7 9 11 WC (days) 62 55 55 55 55
Cash Flow Ratios

YE: Mar (Rs mn) FY17 FY18 FY19e FY20e FY21e YE: Mar FY17 FY18 FY19e FY20e FY21e
PAT 1,447 1,751 1,992 2,672 3,259 P/E (x) 92.3 75.9 66.8 50.1 41.0
+ Non cash items 558 638 761 993 1,030 P/BV (x) 15.8 13.1 11.0 9.2 7.7
- Incr/(Decr) in WC 1,007 -355 672 806 679 RoE (%) 18.6 18.8 17.9 20.1 20.4
Operating cash flow 998 2,744 2,081 2,858 3,610 RoCE (%) 21.1 22.2 22.9 25.3 26.7
- Capex 1,419 2,028 2,060 1,300 500 Fixed Asset turnover (x) 3.6 3.1 2.8 2.8 3.0
Free cash flow -421 716 21 1,558 3,110 Dividend (%) 50 55 75 177 243
- Dividend 60 72 90 214 293 Dividend yield (%) 0.0 0.0 0.1 0.2 0.2
+ Equity raised 0 - - 1 - Dividend payout (%) 4.1 4.1 4.5 8.0 9.0
+ Debt raised 319 -399 -82 -1,069 -562 Debtors days 65 53 53 53 53
- Investments - - - - - Creditor days 55 60 60 60 60
- Misc. items 156 -9 -0 - - Inventory days 52 62 62 62 62
Net cash flow -317 255 -150 277 2,254 Revenue growth (%) 12.9 11.2 19.8 22.3 15.4
+ Opening cash 499 182 436 287 563 EBITDA growth (%) 27.1 20.1 20.3 25.1 15.6
Closing cash 182 436 287 563 2,818 PAT growth (%) 41.8 21.5 13.7 34.2 22.0
Systematix
Finolex Industries 20 March, 2019
Biggest beneficiary of agri and real-estate growth

INITIATING COVERAGE Finolex Industries (FNXP) is a leading manufacturer of plastic pipes primarily suited for
the agricultural sector. With a resin manufacturing plant at Ratnagiri, it is also a
Sector: Plastic Pipe Rating: BUY
producer of PVC resins which are used as a raw material for pipes and fittings. It has a
CMP: Rs 516 Target Price: Rs 685 pan-India presence, a strong brand recall and a track record of successfully operating
the cash-and-carry model over the years. With a volume market share of 10% and PVC
Stock Info
pipe/resin capacity of 330,000/270,000tpa, FNXP is India’s largest producer of PVC
Sensex/Nifty 38,387/ 11,521
plastic pipes. It recorded a total turnover of Rs 28bn in FY18, of this, pipes and PVC
Bloomberg FNXP IN
resin accounted for 82% and 18% respectively. FNXP plans to leverage the Finolex
Equity shares (mn) 152.9
brand and extend its product offerings to residential and sanitation categories in the
52-wk High/Low Rs 713/ 440
rural and urban markets. Additionally, in 2017, it entered a joint venture with Lubrizol
Face value Rs 2
for raw material (RM) to manufacture CPVC pipes (20,000tpa capacity). FNXP targets to
M-Cap Rs 64bn/ US$ 915mn
improve its margins by (1) increasing the non-agricultural revenue share from 30%
3-m Avg volume $0.3mn
currently, (2) ramping-up the CPVC pipe capacity (75% utilisation by FY21E) and (3)
raising the internal consumption of PVC resin to 84% from 74% currently. As
Financial Snapshot (Rs mn)
incremental capacities are coming only in the stable pipes business, overall margin and
Y/E Mar FY19e FY20e FY21e return profile is expected to stabilise/improve. We estimate revenues/PAT CAGR of
Net sales 29,452 32,493 36,403 10/13% over FY18-21E. FNXP is currently trading at 16/15x FY20/21E earnings. We
EBITDA 6,088 6,527 7,059 value the stock at 20x 1HFY21E, a 35% discount to peer Supreme Industries and in-line
PAT 3,979 4,088 4,410 with last 5-year average. We initiates coverage with BUY rating and target price of Rs
EPS (Rs) 29.8 32.9 35.5 685.
PE (x) 17.3 15.7 14.5
EV/EBITDA (x) 10.5 9.4 8.1 Set to outperform industry growth: We expect FNXP to outperform industry growth
P/B (x) 2.1 2.0 1.9 driven by (1) its foray into CPVC pipes with a capacity of 20,000tpa (from 30% utilisation
RoE (%) 13.7 13.1 13.3 in 1HFY19 to 75% by FY21E), (2) annual capacity expansion of 40,000tn in PVC pipe –
RoCE (%) 16.9 17.2 17.7 FY18-21E CAGR of 11% and (3) government’s thrust on irrigation, affordable housing,
D/E (x) 0.05 0.03 0.03 smart cities and increase in farm income. With 850 dealers, 18,000 touch points and four
OPM (%) 20.7 20.1 19.4 warehouses across India, FNXP is best placed to grab a bigger share of the opportunities
arising from the fresh industry trends.
Shareholding pattern (%)
Dec'18 Sep'18 June'18 Higher internal consumption of PVC resin, focus on non-agri pipes to enhance margins:
Normally, a standalone PVC pipe company achieves EBITDA margin of 8.5-10%, while
Promoter 52.5 52.5 52.5
FNXP’s 9MFY19 EBITDA margin was 22% mainly due to the backward integration to PVC
–Pledged - - -
resin. However, backward integration can negatively impact margins during unfavourable
FII 4.1 4.6 3.7
DII 9.9 9.5 9.6
cycles (like in FY15). To mitigate this volatility in margins, FNXP is increasing its pipe
Others 33.5 33.4 34.2 capacity, thereby reducing external sale of the resin it produces (from 52% in FY15 to
26% in FY18 to 16% in FY21E). The company also aims to (1) increase revenue share from
Stock Performance (1-year) non-agricultural pipes to 50% by FY22E from 30% currently and (2) grow CPVC pipe
820 revenues to 11% in FY21E from 7% in 9MFY19. These measures should improve margins
720 and generate an OPM of 19% in FY21E from 18% in FY18. EBITDA margins over the last
620 three quarters were exceptionally high (average 22%) led by a favourable EDC-PVC
520 spread. Since spreads are trending lower, we expect FY19E EBITDA margins at 21%.
420 Return ratios to improve; FCF to remain healthy: Return ratios are likely to improve
320 (from RoE/RoCE of 12/15% in FY18 to 13/18% in FY21E) as incremental capex is towards a
Jul-18
Mar-18
Apr-18
Nov-18
Jan-19
Aug-18
Sep-18
Feb-19
Mar-19
May-18
Jun-18
Oct-18
Dec-18
more stable pipes business with higher Asset turn (>6x), which should generate higher
Finolex Sensex
FCF. In the last ten years, FNXP has generated a cumulative OCF/FCF of Rs 21bn/13bn.
We estimate its OCF/FCF at Rs 11bn/8bn over FY18-21E. Since it there is no long-term
debt liability, excess cash will used to fund working capital, capex and higher dividend.
Ankit Gor
[email protected] Average dividend payout over the last five years was 41% and we expect it to be 50% for
+91 22 6704 8028 the next three years.
Kumar Saumya
[email protected]
+91 22 6704 8025
20 March, 2019 Finolex Industries
Company background
Finolex Industries (FNXP) was incorporated in 1981 for manufacturing PVC (poly-vinyl
chloride) pipes and fittings. It was founded by Mr. Prahlad Chhabria and Mr. Kishan
Chhabria who served on the board of the company till FY12 as non-executive
chairman and executive vice president, respectively. They are succeeded by Mr.
Prakash Chhabria, son of Mr. Prahlad Chhabria, as the current executive chairman.
The company has a capacity of 272,000 MT for PVC resin, 330,000 MT for PVC pipes
and fittings, 20,000 MT for CPVC (chlorinated poly-vinyl chloride) pipes and fittings
and a captive coal-based power plant with a capacity of 43 MW. FNXP entered the
CPVC pipe segment with a renewed focus in FY17 with capacity 20,000tpa at existing
facility.
Exhibit 1: Timeline of events
Year Events
1981 Year of incorporation. Acquired a plant in Chichwad, Pune.
1985 Launched Ringfit pressure pipes
1988 Became a public limited company
Entered a technical collaboration with Uhde (Thyssenkrupp) AG under a license from
1993
Hoechst AG for PVC resin
1994 Commissioned the PVC resin plant
1999 Introduced ASTM pipes
2007 Introduced underground sewerage pipes
Introduced lead-free plumbing pipes, commissioned 43 MW captive coal-based power
2008
plant
2017 Partnered with Lubrizol Corp for CPVC compound under the Flowguard brand

Mr. Prakash Chhabria (55 years) is an executive chairman of the company since
August 2012. He is associated with the company since 1992 and was appointed as a
whole-time director in 2006. He holds a B.Sc. degree in international business from
the University of Evansville, USA and has completed an advanced management
program from Wharton Business School, USA.
Mr. Anil Whabi (58 years) is the director of finance since 2016 and serves as the chief
financial officer (CFO) of the company. He is associated with the company since 2014.
ASTM PVC plumbing pipes Flowguard CPVC SWR pipes
Column pipe Agri PVC selfit pipes Agri PVC ringfit pipes
Underground sewerage Casing Solvent
Particulars PVC resin (42% of revenues) Pipes and fitting (55% of revenues) Power (3% of revenues)
PVC pipes, CPVC pipes, UPVC pipes,
PVC resin: Raw material to make PVC/other
Products casing pipe, column pipes, SWR pipes Electricity
pipes.
and fittings.
India consumes about 3mn tn of PVC resin
annually which is valued at Rs 230bn. India consumes 2.6 mn tpa pipes India has total installed capacity
Industry size
India’s capacity stands at 1.5mn tn and the annually valued at Rs 260bn of 349MW
remaining is imported.
Revenues (FY18) Rs 17.8bn Rs 23.3bn Rs 1.4bn
EBIT contribution (FY18) 70% 28% 2%
EBIT margin (FY18) 19% 6% 6%
Capital employed Rs 5.2bn Rs 6.7bn Rs 2.2bn
Capacity (FY18) 272,000MT 330,000MT 43MW
Utilisation (FY18) 96% 79% 56%
Stock keeping units (SKUs) N/A ~1,500 N/A

850 dealers and 18,000+ retail touch
Channel - -
points
Ethylene, ethylene di-chloride (EDC), vinyl
Raw materials (RM) PVC resin and CPVC compound Coal
chloride monomer (VCM)
About 87% internal and remaining
RM sourcing Imported mostly from South East Asia Local market
from local market
Plant location Ratnagiri Ratnagiri, Urse, Masar Ratnagiri
Capex plan - Rs 600mn-800mn (annual) None

Reliance, Chemplast, DCW and DCM Supreme, Astral, Ashirwad, Prince
Peers -
Shriram amongst others
Captive (76%) and remaining for outside Agri (70%) and remaining Residential &
Customer Captive
sale Commercial
A&P spend (FY18) - 1.8% of the pipe revenues N/A
Auditors M/S P. G. Bhagwat
Promoter Remuneration 3.2% of PAT in FY18

Product
Demand scenario Acquisitions/JV/Plant Plans/Initiatives Others Outlook
launches
 Rural market least  Adverse currency
affected by  Proposal to set up movement
 Domestic Resin capacity
FY09 recessionary trend and 30MW gas power plant impacts
shortage to persist.
demand was supported at Chinchwad. profitability in the
by government boost. year.
 Rural market is growing
strong despite sub-  Power plant with 43MW
FY10 normal monsoon. capacity commissioned.
 Domestic resin demand Total capex of Rs.3Bn
grows by 25% YoY
 Enters MoU with Government
 Year of stable growth  Government focus on
of Gujarat for PVC capacity at
and consolidation.  Focus to de-bottle rural development and
FY11 Masar, Vadodara with capacity
 Domestic resin demand capacities. rural investments to help
of 50KT. Total expected capex
grows by 7% YoY demand growth.
at Rs.1Bn
 Challenging demand  Mr. Prakash
scenario. Chbaria elevated  Government allocated
FY12
 Domestic resin demand as Executive higher share of funds
grows by 3% YoY Chairman
 Masar plant commissioned with
 Domestic resin demand
capacity of 30KT. To scale up to  GoI focus on rural water
grows by 12% YoY.  Focus on increasing pipe
FY13 50KT in FY14 management will give
Global market grew by capacity.
 Emulsion PVC resin capacity boot to pipe demand.
2%
doubled to 22KT
 Focus to increase reach  Increasing rural income
 Set up 130,000 sft warehouse
with spread of  Reduces foreign and consistent GoI effort
 Column
operations in East and exposure by on irrigation coverage to
 Extended monsoon at Chinchwad, Pune pipes
North India. curtailing buyers’ help demand of PVC
FY14 season impacted pipe  A new warehouse at Cuttack. added to
 Branding activity credit from 360 pipes.
demand.  Capacity at Masar increased to the
involves farmer meets, days to 90-120  There is shift of demand
50KT portfolio.
participation in village days. from metal pipes to PVC
fairs, exhibitions etc. pipes
 GoI schemes like Har
khet ko paani, Pradhan
 Sharp drop in PVC Mantri Aawas yojana and
 Demand impacted by  Focus on expanding prices led by crude Smart Cities to help
 Three new depots at Cuttack,
FY15 unseasonal rains and reach and product in Q3FY15 increase pipe demand.
Indore and Noida
hailstorms basket. impacted business  Demand in coming years
performance to be driven by
requirement of pipeline
for irrigation.
 GoI schemes like PMKSY,
 Focus on increasing
Jalayukt Shivar, Sardar
presence in new  It pays off all
 Plan to add 30,000MT pipe Sorovar Narmada Nigam
FY16 markets like north-east. debentures and LT
capacity annually. and Organic farming etc
 Company added 100 debt.
to help pipe demand in
new dealers.
future.
 .Smart cities and housing
 Enters into agreement with  Focus to expand dealer plans of GoI to offer
 Flowguard
 Demand impacted by Lubrizol to procure CPVC network with focus on unprecedented demand.
FY17 pipes and
demonetization. compound and brand name North and Eastern  GoI focus on rural credit
fittings
Flowguard. region. and financing schemes to
drive future growth.
 Digital initiative via SAP
 Pipe and fitting market
S/4 HANA.
expected to grow at
 Focus on new product  Company focused  PVC pipe and fitting
12% CAGr by 2020 and
and gain market share. on volume growth market is expected to
FY18 reach Rs.330Bn.
 Brand partner for at the cost of grow at 11.7% over FY15-
 Demand for PVC has
‘Golmaal Again’, NDTV profitability. 20e to Rs.330bn.
grown at7.3% over
Property Awards and
FY12-17.
Arijit Singh Concert.
Multiple growth levers at play

Being a leading PVC plastic pipe company (13% market share), FNXP is the biggest
beneficiary of an improving industry trend. Over the last five years, the plastic pipe
industry volume grew at a CAGR of 9% and FNXP’s volume also grew at a similar
pace, led by (1) a strong brand recall, (2) consistent quality, (3) wide dealer network
and warehouse at key places and (4) higher utilisation (10 years average >80% vs
61/63% for Astral/Supreme) despite regular capacity expansion (at 9% CAGR). We
expect FNXP to deliver volume growth of 10% over FY18-21E based on (1) capacity
expansion (target to add 40,000tn every year), (2) entry into CPVC pipe (20,000tpa
capacity) in partnership with Lubrizol for RM and Flowguard brand, (3) government
thrust on infra and housing along with allocation for related schemes (like PMKSY
and AMRUT).
Exhibit 5: Growth momentum to continue
(MMT)
400000
320000
240000
160000
80000
FNXP Vol
Exhibit 6: Frequent capacity expansion with better utilization Exhibit 7: Astral & Supreme capacity and utilisation
(MMT)
500,000 80% 70%
425,000
75%
350,000 60%
275,000 70%
200,000 50%
65%
125,000
50,000 60% 40%

FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
Capacity Utilization (RHS) ASTRA-Util. SI-Util.
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research Note: SI’s FY16 is of 9 months
Exhibit 9: Consistent expansion in dealer network and touch points
(No)
(No)
900 20,000
800
15,000
700
10,000
600
500 5,000
400
FY15 FY16 FY17 FY18 -
FY15 FY16 FY17 FY18
Dealers Touch points
Exhibit 10: Plants and warehouses across the country

Diesel rate/Liter
Delhi
Masar Indore
Bhubaneswar
Urse
Chinchwad
Ratnagiri
Plant
Warehouse
Exhibit 11: Plant photos
Ratnagiri resin and pipe unit
Storage tanks at Pawas Port Pipe extrusion lines at Urse
Better late than never: The foray into CPVC pipes
As the overall size of the CPVC pipes segment is small compared to PVC/agri pipes,
the company delayed its entry into the high margin CPVC pipes space. In 2016, after
the termination of a joint venture between Lubrizol and Astral, Finolex entered an
agreement with Lubrizol for brand (Flowguard) sharing and CPVC compound. Finolex
has set up a capacity of 20,000tpa for CPVC pipes. It currently offers plumbing pipes
and fittings under the brand name Flowguard which comes under a royalty
agreement with Lubrizol.
Exhibit 12: CPVC details
Particulars CPVC
Raw material CPVC compound
RM supplier Lubrizol
Product Plumbing pipe and fittings
Brand Flowguard
Rs 180-190/kg for pipe
NSR
>Rs 400 for fittings
Capacity 20,000mt
Volume (9MFY19) 6,000tn
Revenues (9MFY19) Rs 1,570mn
FNXP to be a key beneficiary of government’s focus on agriculture market

FNXP, an agri-focused company with an aim to expand into the residential market,
can leverage its brand equity through government projects under the PMKSY and
PMAY schemes. We believe the company will be one of the key beneficiaries of farm
credit schemes and government’s focus on raising rural income.
Exhibit 13: Government investment through ministries Exhibit 14: Allocation under various schemes
1,295,852
1,176,472
(Rs.Mn.)
1,124,039
311,640
(Rs.Mn.)
1,085,596
264,050
1,400,000 350,000
258,530
950,694
1,200,000 300,000
209,517
773,692
678,000
1,000,000 250,000
139,000
125,690
116,035
800,000 200,000
411,050
373,967
369,125
95,160
94,630
92,767
82,510
77,810
600,000 150,000
66,130
51,340
41,856
400,000 100,000
80,413
76,125
68,621
53,135
47,141
200,000 50,000
- -
2015-16 2016-17 2017-18 RE2018-19 BE2019-20 2015-16 2016-17 2017-18 RE2018-19 BE2019-20
Department of Agriculture Ministry of Rural development MoWR PMKSY PMAY AMRUT & Smart city
PMKSY is an umbrella irrigation plan under the combined efforts of Department of

Agriculture, Ministry of Rural Development and Ministry of Water Resources. The
cumulative allocations to these three ministries/departments have grown at a 20%
CAGR over the last four years mainly due to farmer income support allocation of Rs
950bn over FY19-20E (Rs 200bn in FY19 and Rs 750bn in FY20) -- CAGR of 10%
excluding income support allocation.
Increase in resin’s captive consumption + revenue share of non-agri

pipes + foray into CPVC pipes = margin improvement
Backward integration to PVC resin
In 1994, FNXP backward integrated to manufacture PVC resin to secure resin supplies
and avoid heavy (60%) custom duty. This has elevated the EBITDA margin range to
10-15% (from 7-10%). However, since the prices of raw material (EDC & VCM) to
make PVC resin are linked to crude price movements, margins can be volatile
(witnessed in FY15). To mitigate the volatility, the company is not expanding PVC
resin capacity (last expanded by 121,000tpa in FY07 and de-bottlenecked by
12,000tpa in FY13) and reducing external sales of PVC resin (from 49% in FY14 to
26% in FY18) to manufacture pipes. FY18 resin EBIT margin was 19%.
Exhibit 15: No major expansion in PVC resin Exhibit 16: Pipe expansion to decrease outside sale of resin
(MT) 105%
300,000
90%
250,000 75%
200,000 60%
150,000 45%
100,000 30%
15%
50,000
0%
-
FY10
FY15
FY06
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19e
FY20e
FY21e
FY09
FY14
FY06
FY07
FY08
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19e
FY20e
FY21e
Resin capacity External sale %
Exhibit 17: PVC resin revenue CAGR in low single-digit Exhibit 18: Volatile realisation/tn due to unstable crude prices
(Mn) (Rs/t)
25,000 100,000
20,000 80,000
15,000 60,000
10,000 40,000
5,000 20,000
- -
Resin sales (ext+int) Realization
Exhibit 19: EBIT/tn to remain stable
(Mn/tn) (Rs/tn)
5,000 20,000
4,000 16,000
3,000 12,000
2,000 8,000
1,000 4,000
- -
Resin ebit Resin ebit/tn (RHS)
PVC resin manufacturing process

FNXP imports EDC, VCM and ethylene for resin manufacturing. The final product
(PVC resin) and the raw materials EDC and VCM are not direct derivatives of crude
but in the short run, the volatility in crude impacts their prices.
Exhibit 20: PVC resin manufacturing process
Chlorine/Sodium Sodium
Hydroxide Hydroxide 26%
Salt
66%
Chlorine
PVC
EDC VCM
68%
Ethylene
Petroleum
Cracker
Petroleum gas
34%
Focus on fittings and non-agri pipes with CPVC pipes
Being already deeply penetrated in agri/PVC pipes, there was limited scope to
increase revenues from the high-margin fittings. Over the last five years, the share of
non-agri pipes (plumbing pipes for cold water) has largely remained at ~30% of pipe
revenues, while revenue share from fittings increased at a gradual pace to 9.5% in
1HFY19 from 7% in FY14. In FY17, FNXP partnered with Lubrizol for CPVC compound
under the Flowguard brand name. The partnership was aimed at renewing the focus
on CPVC pipes. CPVC pipes enjoy EBITDA margin of 16-20% compared to 7-11% for
PVC pipes with realisation difference of ~40% (higher delta for FNXP as it is supplying
to agri pipes currently). Fitting revenues are estimated to increase going forward as
installation of CPVC pipes (plumbing pipe for hot water) requires relatively more
fittings (brass fittings are high value). Going forward, we expect OPMs to improve as
revenue share from non-agri pipes, CPVC pipes and fittings rises.
Exhibit 21: Rising fitting share is improving EBIT margin
(%)
9.0%
The FY18 pipe EBIT margin decline was

due to the pricing cut taken to push
volumes higher. 7.0%
5.0%
3.0%
FY15 FY16 FY17 FY18 9MFY19
Pipe ebit% Fitting share
Entry into CPVC pipe to improve margins
FNXP tied-up with Lubrizol in FY17 and increased its existing CPVC capacity to
20,000MT from 6,000MT to increase its market share in the residential high-margin
CPVC product. The tie-up was made to secure raw material (CPVC compound) under
the brand name Flowguard. The utilisation for the CPVC capacity stood at 29% in
FY18 and the management is focusing on increasing the utilisations to 75% over the
next three years.
Exhibit 22: Volume and revenues to gather pace
(Mt) (Mn)
16000 4800
13000 4000
3200
10000
2400
7000
1600
4000 800
1000 0
FY15 FY16 FY17 FY18 FY19e FY20e FY21e
Volume (Mt) Sales (Rs.Mn)
Exhibit 23: CPVC P&F have higher realisations compared to PVC P&F
(Rs/Kg)
500
450
400
350
300
250
200
150
100
50
0
PVC pipe PVC fitting CPVC pipe CPVC fittings
Exhibit 24: Gross margins are also better in CPVC pipes
40%
30%
20%
10%
0%
PVC pipe CPVC pipe
Exhibit 25: Overall pipe and resin’s profitability to improve on the back focus on non-agri
(Rs/tn) (Rs/tn)
9,000.0 17,000
7,500.0 13,000
6,000.0 9,000
4,500.0 5,000
3,000.0 1,000
Pipe ebit/tn Resin ebit/tn
Going forward, we expect OPM of the piping segment to improve led by the rising
utilisation of CPVC, operating leverage in the piping segment from volume off-take
and margin recovery after a price hike (already evident in 9MFY18).
Exhibit 26: EBIT margins to remain stable
12.0%
9.0%
6.0%
3.0%
0.0%
Q3FY16
Q4FY18
Q1FY16
Q2FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q1FY19
Q2FY19
Q3FY19
Pipe ebit%
What went wrong in FY15
The captive jetty at Ratnagiri is used for the import of raw materials but during the
monsoon season, the first half of the financial year, the jetty is closed. The raw
materials are stocked up at the end of fourth quarter, before monsoon, and at the
end of second quarter, after monsoon. In FY15, FNXP stocked up raw materials (at
higher cost) after which the PVC prices dropped led by the crude price fall. This
resulted in inventory loss for the company during FY15.
Exhibit 27: Steep fall in crude price in Jun’14… Exhibit 28: …led to a fall in ethylene price
120.0 1600
1400
100.0
1200
80.0 1000
60.0 800
600
40.0
400
20.0 200
0
-
Apr-16
Apr-14
Oct-14
Apr-15
Apr-17
Oct-17
Apr-18
Oct-15
Oct-16
Jan-15
Jan-16
Jan-17
Jan-18
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Apr-14
Jan-17
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Jan-15
Jan-16
Jan-18
Jul-14
Jul-15
Jul-16
Jul-17
Crude PVC EDC Ethylene VCM
Source: Bloomberg; Company, Systematix Institutional Research Source: Bloomberg; Company, Systematix Institutional Research
Exhibit 29: Resin Project 1994-95 Reason for backward integration of PVC resin
Location Ratnagiri, Maharashtra
India has remained dependant on the import of PVC resin (currently ~50% is
Initial capacity 130,000mt
Capital budgeted Rs 6.4bn
imported) and in the early 90’s, the customs duty on PVC resin was high at 60%. In
Current capacity 272,000mt 1994, FNXP decided to put up a PVC resin capacity of 100,000mt with a capex of Rs
Import duty 3.5bn. The subsequent currency depreciation and increase in capacity to 130,000 mt
1. 1995 60% led to a higher project cost of ~Rs 6.4bn. The import duty was later reduced to 35%
2. 2000 35% in 2000 and 10% in 2005 which reduced the expected profitability from the business.
3. 2005 10%
Source: Company, Systematix Institutional Research Exhibit 30: About half of the India’s requirement is imported
(MT)
4,000
3,000
2,000
1,000
-
2010 2011 2012 2013 2014 2015 2016 2017
PVC-Cap PVC-Consumption
Source: www.chemicals.nic.in
In FY06, FNXP doubled its resin capacity by adding a new line of resin production
Exhibit 31: Global capacities through the VCM route with a capital outlay of Rs 1.8bn. Currently, FNXP’s total PVC
‘000mt As on Jan-17 resin capacity stands at 270,000mt with 160,000mt under the EDC route and
Caustic Soda 97,359 110,000mt under the VCM route.
EDC 63,371
Chlorine 90,611 The backward integration results in margin volatility as the feed-stock prices are
PVC resin 51,589 volatile. To overcome this volatility, the management has decided that it will not add
Ethylene 168,673 more resin capacity and the pipe capacity will be increased at an annual rate of
VCM 51,276 30,000-40,000tpa which will increase the share of piping business in the overall pie
Source: Bloomberg
and provide profit stability.
PVC resin dynamics
The profitability of PVC resin business is determined by the price spread between the
feed stocks (EDC & VCM) and the final product (PVC resin). Prices of these products
depend up on the demand-supply (operating rates) as well as crude oil price.
Exhibit 32: PVC resin production and capacity
(000MT) (%)
60,000 95
50,000 90
40,000 85
30,000 80
20,000 75
10,000 70
0 65
2005
2013
2001
2002
2003
2004
2006
2007
2008
2009
2010
2011
2012
2014
2015
2016
2017
PVC Production (000MT) PVC Capacity (000MT) PVC Operating Rate
Source: Bloomberg; Company, Systematix Institutional Research
The global PVC market stands at 45MMT against the capacity of 52MMT. The current
operating rate at ~85% is marginally higher than the historical average of 83%. No
capacity addition over the last four years has led to an up-move in the operating
rates after they had declined due to sub-prime led global recessionary period (2008-
09). Given sustained nine years of demand growth, as reflected in the production
data, we expect new capacities to come online.
Exhibit 33: Net capacity addition of PVC resin
(Mt) (%)
5,000 95
4,000
90
3,000
85
2,000
1,000 80
0
75
-1,000
70
-2,000
-3,000 65
2005
2007
2001
2002
2003
2004
2006
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Capacity addn PVC Operating Rate
Global outlook for PVC resin
Over FY09-17, the demand for PVC has grown at a CAGR of 3%. Assuming this growth
will continue, in-line with global GDP, the demand will lead to an addition of about
1.5MMT per year. As per IHS estimates , PVC capacity of ~4.5MMT is expected over
FY18-21E, resulting in 1.5MMT capacity addition per year which should keep the
operating rates and prices around the current levels of USD900/mt over FY18-21E.
EDC dynamics
EDC is 70% chlorine and 30% ethylene. Since chlorine is a negative margin product
(by-product of caustic soda) and difficult to transport, it is mostly converted into EDC
on-site.
Exhibit 34: EDC capacity and production
(MT) (%)
70,000 88
60,000 86
50,000
84
40,000
82
30,000
80
20,000
10,000 78
0 76
2013
2015
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2014
2016
2017
2018
EDC Production (000MT) EDC Capacity (000MT) EDC Operating Rate
The global production stands at 52MMT against the capacity of 63MMT operating
near the historical average operating rate of 82%. The chlorine is procured from
caustic plants and the ethylene is either procured from naphtha cracking or from the
decomposition of acetylene. The operating rates have started uptrend due to lower
capacity addition (CAGR 1% for 2009-18) as compared to demand growth (CAGR 2%
for 2009-18).
Exhibit 35: Net capacity addition of EDC
(Mt) (%)
4,000 88
3,200 84
2,400
80
1,600
76
800
0 72
-800 68
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Capacity added EDC Operating Rate
Global outlook for EDC
Over the last nine months, EDC prices have swung to US$ 375/mt as of 3QFY19 from
the lows of US$ 190/mt as the operating rates have risen to pre-2007 levels.
The ethylene demand (~152MMT) has grown at 4% over CY09-17 and assuming this
rate will continue, capacity addition will be ~6MMT annually. As per reports
(researchandmarkets.com), capacity of 10MMT is expected to be added over the
next 9-10 years which should keep a downward pressure on ethylene prices and
operating rates.
The chlorine demand has grown at a CAGR of 3.0% over CY09-17 and assuming this
rate will continue, capacity addition of ~2.2MMT is required annually. However, the
chlor-alkali capacity addition is expected at ~2MMT which should lead to a rise in
chlorine prices. IHS Markit predicts demand growth of ~2.5% over FY18-20E for
caustic and chlorine globally with plant operating rates to peak over the next two
years due to lack of new capacity additions. The downward pressure on Ethylene
prices is expected to keep EDC prices under check.
Exhibit 36: PVC-EDC spread historical
(USD/Mt)
800
700
600
500
400
300
200
100
0
2009
2015
2001
2002
2003
2004
2005
2006
2007
2008
2010
2011
2012
2013
2014
2016
2017
2018
PVC-EDC
Source: Bloomberg, CY data
Conclusion
The spreads have declined sharply from US$ 693/mt in Apr’18 to US$ 489/mt in
Feb’18 due to the rise in EDC prices. We are building in US$ 621/mt for FY19 and
believe the spreads will stabilise as chlorine prices become stable. The impact on
Finolex due to the fluctuation in PVC-EDC prices can be inferred from the table
below:
Exhibit 37: Expected gross margin on EDC and PVC price, Red: Current price based vs 9MFY19 gross margin for FNXP 40%
EDC Prices
38.3% 250 280 310 340 370 400 430 460 490 510
650 45% 45% 44% 43% 42% 41% 40% 39% 38% 38%
700 45% 44% 43% 42% 41% 40% 39% 38% 37% 37%
PVC Prices
750 44% 43% 42% 41% 40% 39% 38% 38% 37% 36%
800 43% 42% 41% 40% 39% 39% 38% 37% 36% 35%
850 42% 41% 40% 40% 39% 38% 37% 36% 35% 34%
900 42% 41% 40% 39% 38% 37% 36% 35% 34% 34%
950 41% 40% 39% 38% 37% 36% 35% 34% 33% 33%
1,000 40% 39% 38% 37% 36% 35% 35% 34% 33% 32%
1,050 39% 38% 37% 36% 36% 35% 34% 33% 32% 31%
Financial Overview
Exhibit 38: Pipe to remain highest revenue generator Exhibit 39: Sales to grow at a CAGR of 10% during FY18-21e
(%) (Mn)
100% 40000
80%
30000
60%
20000
40%
10000
20%
0
0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
FY11 FY18 FY21e
Resin Pipes Power Sales
Exhibit 40: Demand led capacity expansion Exhibit 41: OPM to remain stable
(Mt) (Mn)
450000 9000 25.0%
380000 20.0%
7000
310000 15.0%
5000
240000 10.0%
3000
170000 5.0%
100000 1000 0.0%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
Pipe capacity Ebitda Ebitda% (RHS)
Exhibit 42: PAT to grow at a CAGR of 13% during FY18-21e Exhibit 43: D/E ratio to remain under 0.5x
(Mn)
(x)
5,000
2.0
4,000
1.5
3,000
1.0
2,000
0.5
1,000
- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
PAT D/E
Exhibit 44: Return ratio to remain healthy Exhibit 45: OCF and FCF generation to remain strong
(Mn)
25%
7,000
20%
5,500
15%
4,000
10%
2,500
5%
1,000
0%
(500) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e
RoCE RoE OCF FCF
Cash flow analysis

Finolex reported FY18 operating cash flow (OCF) of Rs 3.25bn, a CAGR of 8%. We
expect it to sustain at current levels despite 10% profit growth as the volatility in
VCM and EDC prices could impact the OCF of the business. The capex is estimated at
~Rs 1bn p.a. going forward as the company aims to add pipe capacity of 40,000tpa
annually.
Over FY14-18, FNXP generated a total OCF of Rs 14bn at an average EBITDA to OCF
conversion rate of 68%. This cash has been prudently utilised for pipe capacity
expansion over the period. The company added capacities of 100,000 mt with a
capex of Rs 3.4bn, paid dividends worth Rs 5bn and retired debts worth Rs 5.5bn.
Exhibit 46: OCF to EBITDA conversion
(Rs mn)
6,000 140%
5,000 120%
100%
4,000
80%
3,000
60%
2,000
40%
1,000 20%
- 0%
OCF OCF% of ebitda (RHS)
Exhibit 47: Contingent liabilities, related party transactions and other monitorables
Contingent liabilities and commitments (Rs mn) FY16 FY17 FY18
Tax matters 716 554 714
Derivative claims by banks 1,380 1,350 1,350
Capital contracts commitments 589 379
Other key monitorables FY16 FY17 FY18

% of PBT 4% 4% 3%
Auditor's Remuneration 4 4 4
% of PBT 0% 0% 0%
Tax rate 33% 32% 33%
Pledge share (%) 0% 0% 0%
Related party transactions Name/relation FY16 FY17 FY18

Sale of goods Finolex Plasson 277 378 339
Dividend Received Finolex Cable, Finolex Plasson 49 67 76
KMP remuneration 137 177 138
Dividend Paid Finolex Cable 80 402 462
CSR Expense Mukul Madhav Foundation - 6 80
Key risks
Crude price volatility: Since the prices of raw material (EDC & VCM) to make PVC
resin are linked to crude price movements, margins can be volatile.
Currency volatility: The Company uses buyer’s credit for its raw material imports.
The currency volatility earlier impacted the profitability severely due to its poor
hedging methods.
Measures: The company has curtailed the buyer’s credit availed to 90 days from 360
days which has reduced its forex exposure.
Agriculture market slowdown: The single-digit volume growth in FY14, FY15 and
FY17 reflects that FNXP is totally dependent on agriculture market since it consumes
~70% of its volumes. Measures: Management has begun to focus on residential
market through CPVC products which will alleviate the agriculture dependency.
Valuation
Despite being a leader in PVC pipes with a strong brand recall in agriculture market,
FNXP has traded at lower earnings multiple (5-year avg 16x) compared to its peer
(Supreme Industries: 5-year avg 30x) because of two main reasons:
a) Earnings volatility due to backward integration to PVC resin
b) The company has ~Rs 14,727mn tied up in non-current investments out of total
capital of ~Rs 31,022mn due to cross holding with Finolex Cables. The total
investments of Rs 16,067mn by the company are generating a 2% return.
Cross Holding: Finolex Cable holds 32.39% stake in Finolex Industries while
Finolex Industries holds 14.51% in Finolex Cables.
At CMP of Rs 540, FNXP trades at 16x 1HFY21E, 20% below its last 5-year average of
20x. We believe a growing pipe capacity and increased internal consumption of resin,
foray into CPVC, brand leverage in residential market, government thrust on rural
income and improving return ratios due to operating leverage are the key positives
for the company. We initiate coverage on the stock with a BUY rating with a target
price of Rs 685.
Exhibit 48: FWD PE chart
(x)
45.0
36.0
27.0
18.0
9.0
-
Apr-17
Oct-15
Oct-18
Apr-14
Apr-15
Jan-16
Apr-16
Apr-18
Oct-14
Oct-16
Oct-17
Jan-15
Jan-17
Jan-18
Jul-18
Jul-14
Jul-15
Jul-16
Jul-17
FWDPE Mean M+1 M-1
FINANCIALS (CONSOLIDATED)
YE: Mar (Rs mn) FY17 FY18 FY19e FY20e FY21e YE: Mar (Rs mn) FY17 FY18 FY19e FY20e FY21e
Net revenues 26,024 27,378 29,452 32,493 36,403 Share capital 1,241 1,241 1,241 1,241 1,241
EBITDA (Excl. OI) 5,630 4,839 6,088 6,527 7,059 Minority interest
EBITDA margins (%) 21.6 17.7 20.7 20.1 19.4 Total Debt 1,559 1,655 1,590 942 1,056
- Interest expenses 153 98 177 24 27 Def. tax liab. (net) 1,496 1,416 1,416 1,416 1,416
- Depreciation 550 606 664 701 735 Capital employed 26,203 31,022 33,087 34,483 36,802
+Share of JV 93 163 118 100 100 Goodwill
+ Exceptional - - -279 - - Investments 12,636 16,068 16,068 16,068 16,068
- Tax 1,703 1,479 1,586 2,014 2,172 Net Working capital 4,635 4,975 5,963 6,845 8,814
Effective tax rate (%) 32 33 30 33 33 Cash and bank balance 164 234 976 1,190 1,274
+/- Extraordinary items - - -279 - - Net debt 1,395 1,420 615 -248 -219
+/- Minority interest - - - - - WC (days) 54 54 61 64 67
Cash Flow Ratios

YE: Mar (Rs mn) FY17 FY18 FY19e FY20e FY21e YE: Mar FY17 FY18 FY19e FY20e FY21e
PAT 3,548 3,063 3,979 4,088 4,410 P/E (x) 18.0 20.9 17.3 15.7 14.5
+ Non cash items 611 526 664 701 735 P/BV (x) 2.8 2.3 2.1 2.0 1.9
- Incr/(Decr) in WC 1,852 340 988 883 1,969 RoE (%) 18.2 12.0 13.7 13.1 13.3
Operating cash flow 2,307 3,249 3,656 3,907 3,176 RoCE (%) 22.0 14.8 16.9 17.2 17.7
- Capex 763 1,525 1,000 1,000 1,000 Fixed Asset turnover (x) 1.3 1.4 1.4 1.4 1.5
Free cash flow 1,544 1,725 2,656 2,907 2,176 Dividend (%) 115 100 149 165 178
- Dividend 1,427 1,241 1,850 2,044 2,205 Dividend yield (%) 2.2 1.9 2.9 3.2 3.4
+ Equity raised - - - - - Dividend payout (%) 40 41 50 50 50
+ Debt raised -1,088 96 -64 -648 113 Debtors days 7 6 10 12 14
- Investments 4,097 3,432 - - - Creditor days 32 33 33 33 33
- Misc. items -5,128 -2,923 - - - Inventory days 78 82 84 85 86
Net cash flow 59 71 741 215 84 Revenue growth (%) 4.9 5.2 7.6 10.3 12.0
+ Opening cash 104 163 234 976 1,190 EBITDA growth (%) 39.2 -14.0 25.8 7.2 8.2
Closing cash 163 234 976 1,190 1,274 PAT growth (%) 37.7 -13.7 20.8 10.5 7.9
Systematix
Prince Pipes and Fittings 20 March, 2019
Aggressively expanding capacities and footprint

COMPANY UPDATE Prince Pipes and Fittings (PPL) is one of the leading plastic pipes and fittings
Sector: Plastic Pipe Rating: NR manufacturers in India with the highest number of distributors. It markets the
products under two brand names Prince Piping Systems and Trubore. It has five
CMP: NA Target Price: NA
strategically located manufacturing plants which enabled it to develop a strong
Stock Info presence in North, West and South India. It distributes products from the plants
Sensex/Nifty 38,387/ 11,521 and 10 warehouses. The total installed capacity of the five existing plants was
Bloomberg UMP IN 242,916tpa as at 31 July 2018. It has 843 distributors in India and it sells Trubore
Equity shares (mn) 90.0 products directly to wholesalers and retailers. Trubore has 212 wholesalers and
52-wk High/Low NA retailers. It plans to set up two new plants, one in Jobner (Rajasthan) with an
Face value NA installed capacity of 40,621tpa and the other in Sangareddy (Telangana) with an
M-Cap NA installed capacity of 52,242tpa. It plans to commence production at the Rajasthan
3-m Avg volume NA plant in 1QFY20 and at the Telangana plant in FY20. Of the Rs 13bn revenues in
FY18, 80% was from PVC pipes and 20% from CPVC pipes.
Financial Snapshot (Rs mn)
Core focus on quality: As pipes are logistically difficult to transport, multi-location
Y/E Mar FY16 FY17 FY18
plants help in reducing logistic cost (~5%). It has established five manufacturing
Net sales 10,090 12,465 13,150
facilities in: Athal (UT of Dadra and Nagar Haveli), Dadra (union territory), Haridwar
EBITDA 978 1,610 1,615
PAT (adj.) 295 752 741
(Uttarakhand), Chennai (Tamil Nadu) and Kolhapur (Maharashtra). It also uses two
EPS (adj.) (Rs) 3.3 8.4 8.2 contract manufacturers in Aurangabad (Maharashtra) and in Hajipur (Bihar). Multi-
PE (x) 0.7 0.3 0.3 location facilities have assisted in market penetration and developing a strong
P/B (x) 0.1 0.1 0.1 presence in North, West and South India. In FY18, North/ South/West/East India
EV/EBITDA (x) 3.1 2.0 2.1 represented 40%/27%/23%/10% of the total sales.
RoE (%) 17.5 35.2 26.4 To increase plastic pipe capacity by 40%: It plans to set up two new manufacturing
RoCE (%) 14.5 25.1 21.3
plants in Jobner (Rajasthan) and Sangareddy (Telangana) with an installed capacity of
D/E (x) 1.6 1.3 1.0
40,621tpa and 52,242tpa, respectively. Rajasthan plant will enable it to maintain and
OPM (%) 9.7 12.9 12.3
improve order to delivery time to markets in north India. Increased government
spending in drinking water and sewerage in northern India will increase demand for
its products. Currently, the South Indian market is catered by the Athal and Haridwar
plants. Telangana plant will help it compete in these markets more effectively.
Jobner and Sangareddy plants are expected to come on stream by 1QFY20 and FY20,
respectively. Post commercialisation of these plants, total capacity will be
335,779tpa.
Expand the Trubore brand to new geographies: PPL acquired the Trubore brand in
October 2012 and it is now a premium brand. Trubore products are currently sold in
South India, primarily in Tamil Nadu. It plans to increase the sales of Trubore brand
products by increasing marketing efforts and the number of wholesalers and
retailers. PPL plans to expand the presence of this brand initially in all the states in
South India and gradually to North, East and West India, thereby making it a pan-
India brand in the next three to four years.
Brand building through major marketing initiatives: In November 2016, it launched
a loyalty program called ‘Prince Udaan’ to connect with and reward distributors,
Ankit Gor retailers, wholesalers, and plumbers. Under this loyalty program, buyers of Prince
[email protected]
Piping Systems products receive reward points on every purchase and they can then
+91 22 6704 8028
redeem the points against a number of gifts available. This loyalty program is
Kumar Saumya currently operational in North India (except MP), South India, Bihar and Jharkhand. It
[email protected]
+91 22 6704 8025
is in the process of rolling it out to other areas across India. In FY18, it spent 2% of
the sales on A&P activities.
20 March, 2019 Prince Pipes and Fittings
Exhibit 1: Last 6years’ average utilisation remained above 60% Exhibit 2: Revenue grew at 10% CAGR during FY13-18
(Mt) (Mn)
250,000 68% 14,000
12,000
200,000 66%
10,000
150,000 64%
8,000
100,000 62% 6,000
4,000
50,000 60%
2,000
- 58% -
Prince Capacity Utiliz (RHS) Sales
Exhibit 3: OPM improvement led by higher utilisation Exhibit 4: PAT improved led by better performance at EBITDA
(Mn) (Mn)
1,800 14% 800 8%
1,600 12% 700
1,400
10% 600 6%
1,200
500
1,000 8%
400 4%
800 6%
300
600
4%
400 200 2%
200 2% 100
- 0% - 0%
Ebitda Ebitda% (RHS) PAT PAT% (RHS)
Exhibit 5: WC cycle has improved Exhibit 6: Asset turnover is at peak

(Days)
(x)
120 4.6
100 4.1
3.6
80
3.1
60
2.6
40
2.1
20 1.6
- 1.1
Wcap days Asset T.O
Exhibit 7: Last five years’ avg. RoE/RoCE remained at 21/18% Exhibit 8: OCF remained strong
40.0% 1,000
35.0% 800
30.0% 600
25.0% 400
200
20.0%
-
15.0%
-200
10.0%
-400
5.0% -600
0.0% -800
FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
RoE RoCE OCF FCF
Exhibit 9: D/E ratio improved but remained above 1x Exhibit 10: North is the highest revenue contributor
(x)
3.0
2.5
2.0
1.5
1.0
0.5
-
D/E
Exhibit 11: Has 11% volume share in CPVC pipes Exhibit 12: A&P spend stood at 1.5% of the revenues
1.8%
7% 1.6%
1.4%
16% 32% Astral Poly 1.2%
Ashirvad Pipe 1.0%
Supreme Industries 0.8%
Prince 0.6%
17%
Finolex 0.4%
0.2%
28% Ad %
Exhibit 13: Has eight warehouses… Exhibit 14: …and 843 Distributors pan India
10 1,200
9
9 984
8
8 1,000
850 843
7 750
800
6
5 600
4
4
3 400
2
200
1
- -
Astral FNXP Prince Astral SI FNXP Prince
No. of Warehouses Distributors
Exhibit 15: Housing and agri accounts for >75% of the sales Exhibit 16: 74% of the revenues comes from PVC pipes
7%
22% 19%
42% Housing PVC

Agri CPVC
Industrial+Other Other
74%
36%
FINANCIALS
YE: Mar (Rs mn) FY14 FY15 FY16 FY17 FY18 YE: Mar (Rs mn) FY14 FY15 FY16 FY17 FY18
Revenue growth (%) 25.5 -4.9 5.4 23.5 5.5 Reserves & Surplus 911 1,064 1,358 1,980 2,278
EBITDA (Excl. OI) 1,024 817 978 1,610 1,615 Minority interest - - - - -
EBITDA margins (%) 10.2 8.5 9.7 12.9 12.3 Total Debt 3,676 3,133 2,893 3,100 3,327
- Interest expenses 481 374 333 358 354 Def. tax liab. (net) 136 116 108 117 127
- Depreciation 265 286 285 317 369 Capital employed 5,203 4,794 4,839 5,647 6,633
- Tax 73 22 72 213 218 Investments 4 2 13 7 7
Effective tax rate (%) 22 12 20 22 23 Net Working capital 2,874 2,447 2,245 2,661 3,014
Reported PAT 251 157 294 748 735 Cash and bank balance 56 60 86 124 96
+/- Extraordinary items - - -2 -4 -6 Capital deployed 5,203 4,794 4,839 5,647 6,633
+/- Minority interest - - - - - Net debt 3,620 3,073 2,808 2,976 3,231
Adjusted PAT 251 157 295 752 741 WC (days) 107 95 86 92 78
EPS (Rs/share) 2.8 1.7 3.3 8.4 8.2 DE(x) 2.6 2.0 1.6 1.3 1.0
Cash Flow Ratios

YE: Mar (Rs mn) FY14 FY15 FY16 FY17 FY18 YE: Mar FY14 FY15 FY16 FY17 FY18
PAT 251 157 295 752 741 P/E (x) 0.8 1.3 0.7 0.3 0.3
+ Non cash items 268 266 277 326 380 P/BV (x) 0.1 0.1 0.1 0.1 0.1
Cash profit 518 423 572 1,078 1,120 EV/EBITDA (x) 3.7 4.0 3.1 2.0 2.1
- Incr/(Decr) in WC 787 -427 -201 416 353 RoE (%) 19.8 10.7 17.5 35.2 26.4
Operating cash flow -269 850 773 662 767 RoCE (%) 16.8 11.0 14.5 25.1 21.3
- Capex 358 302 495 677 1,029 Fixed Asset turnover (x) 3.0 2.6 2.5 4.0 3.3
Free cash flow -627 548 279 -15 -262 Dividend (%) - - - - -
- Dividend - - - - - Dividend yield (%) - - - - -
+ Equity raised 240 - - -30 450 Dividend payout (%) - - - - -
+ Debt raised 610 -543 -240 207 228 Debtors days 74 81 86 69 66
- Investments -5 -2 12 -6 0 Creditor days 19 33 41 36 65
- Misc. items 240 3 2 129 443 Inventory days 52 47 40 59 76
Net cash flow -12 5 25 38 -27 Revenue growth (%) 26 -5 5 24 5
+ Opening cash 68 56 61 86 124 EBITDA growth (%) 6 -20 20 65 0
Closing cash 56 61 86 124 97 PAT growth (%) -34 -38 87 155 -2
Institutional Equities Team
Nikhil Khandelwal Managing Director +91-22-6704 8001 [email protected]

Navin Roy Vallabhaneni President & Head – IE & ECM +91-22-6704 8065 [email protected]
Equity Research
Analysts Industry Sectors Desk-Phone E-mail
Jaspreet Singh Arora - Head of Research Cement, Building Material, Construction +91-22-6704 8062 [email protected]
Varatharajan Sivasankaran Oil & Gas, Telecom, Strategy +91-22-6704 8039 [email protected]
Rahul Jain Metals & Mining +91-22-6704 8066 [email protected]
Himanshu Nayyar Consumer, Retail, Agri, Logistics +91-22-6704 8064 [email protected]
Ronak Sarda Auto, Auto Anc +91-22-6704 8059 [email protected]
Ankit Gor Mid Caps +91-22-6704 8028 [email protected]
Poorvi Khandelwal Consumer +91-22-6704 8046 [email protected]
Naushad Chaudhary Mid Caps +91-22-6704 8036 [email protected]
Kumar Saumya Mid Caps +91-22-6704 8025 [email protected]
Kunal Jagda Consumer +91-22-6704 8068 [email protected]
Rahul Mishra Construction, Infra +91-22-6704 8034 [email protected]
Kishan Mundhra Oil & Gas, Telecom, Strategy +91-22-6704 8074 [email protected]
Harsh Mittal Cement, Building Material +91-22-6704 8098 [email protected]
Saral Seth Auto, Auto Anc +91-22-6704 8063 [email protected]
Pragnesh Jain Technical Research +91-22-6704 8024 [email protected]
Equity Sales & Trading
Name Desk-Phone E-mail
Pankaj Karde Head - Sales +91-22-6704 8061 [email protected]
Ankit Pande Sales +91-22-6704 8085 [email protected]
Jigar Kamdar Sales +91-22-6704 8060 [email protected]
Venkat Ramesh Babu Sales +91-22-6704 8090 [email protected]
Sandesh Sawant Sales +91-22-6704 8045 [email protected]
Pawan Sharma Head - Sales Trading +91-22-6704 8067 [email protected]
Vinod Bhuwad Sales Trading +91-22-6704 8051 [email protected]
Amar Margaje Sales Trading +91-22-6704 8097 [email protected]
Alefiya Alotwala Sales Trading +91-22-6704 8058 [email protected]
Vipul Chheda Dealer +91-22-6704 8050 [email protected]
Rahul Thakar Dealer +91-22-6704 8073 [email protected]
Amit Sawant Dealer +91-22-6704 8054 [email protected]
Paras Shah Dealer +91-22-6704 8047 [email protected]
Corporate Access
Jyoti Mishra Assistant Vice President +91-22-6704 8091 [email protected]
Mehek Talreja Sr. Manager +91-22-6704 8078 [email protected]
Production
Yukti Vidyarthi Editor +91-22-6704 8071 [email protected]
Mrunali Pagdhare Production +91-22-6704 8057 [email protected]
Operations
Sachin Malusare Sr. Manager +91-22-6704 8055 [email protected]
Sugandha Rane Assistant Manager +91-22-6704 8056 [email protected]
Pramod Gauda Assistant Manager +91-22-6704 8049 [email protected]
DISCLOSURES/ APPENDIX
I. ANALYST CERTIFICATION
I, Ankit Gor, Kumar Saumya; hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers
referred to in this research report, (2) No part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report by Systematix Shares and Stocks (India) Limited or its Group/associates companies. (3) has taken reasonable care to achieve and maintain independence and objectivity in
making any recommendations.
Disclosure of Interest Statement Update

Analyst holding in the stock No
Served as an officer, director or employee No
II. ISSUER SPECIFIC REGULATORY DISCLOSURES, Unless specifically mentioned in Point No. 9 below:
1. The Research Analyst(s), Systematix Shares and Stocks (India) Limited (SSSIL), Associate of Analyst or his relative does not have any financial interest in the company(ies)
covered in this report.
2. The Research Analyst, SSSIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the company (ies) covered in
this report as of the end of the month immediately preceding the distribution of the research report.
3. The Research Analyst, his associate, his relative and SSSIL do not have any other material conflict of interest at the time of publication of this research report.
4. The Research Analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or for any other products or
services from the company(ies) covered in this report, in the past twelve months.
5. The Research Analyst, SSSIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for the company (ies)
covered in this report.
6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection with the research
report.
7. The Research Analyst has not served as an Officer, Director or employee of the company (ies) covered in the Research report.
8. The Research Analyst and SSSIL has not been engaged in market making activity for the company(ies) covered in the Research report.
9. Details SSSIL, Research Analyst and its associates pertaining to the companies covered in the Research report:
Sr. Yes /
Particulars
No. No.
Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by
1 No
SSSIL
Whether Research Analyst, SSSIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the
2 No
Research report
3 Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the Research report No
SSSIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the
4 Research report No
Research Analyst, his associate, SSSIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any
5 No
other products or services from the company(ies) covered in the Research report, in the last twelve month
10. There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities.
STOCK RATINGS
BUY (B): The stock's total return is expected to exceed 20% over the next 12 months.
ACCUMULATE (A): The stock's total return is expected to be within 10-20% over the next 12 months.
HOLD (H): The stock's total return is expected to be within 0-10% over the next 12 months.
SELL (S): The stock's total return is expected to give negative returns over the next 12 months.
NOT RATED (NR): The analyst has no recommendation on the stock under review.
INDUSTRY VIEWS
ATTRACTIVE (AT): Fundamentals/Valuations of the sector are expected to be attractive over the next 12-18 months.
NEUTRAL (NL): Fundamentals/Valuations of the sector are expected to neither improve nor deteriorate over the next 12-18 months.
CAUTIOUS (CS): Fundamentals/Valuations of the sector are expected to deteriorate over the next 12-18 months.
III. DISCLAIMER
The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information
has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.
This document is for information purposes only. This report is based on information that we consider reliable, but we do not represent that it is accurate or complete, and one should
exercise due caution while acting on it. Descriptions of any company or companies or their securities mentioned herein are not complete and this document is not, and should not be
construed as an offer or solicitation of an offer to buy or sell any securities or other financial instruments. Past performance is not a guide for future performance, future returns are not
guaranteed and a loss of original capital may occur. All opinions, projections and estimates constitute the judgment of the author as on the date of the report and these, plus any other
information contained in the report, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. This report is
intended for distribution to institutional investors.
This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity that is a citizen or resident or located in any
locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject to SSSIL or
its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the
same may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or
Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. Any unauthorized use, duplication,
redistribution or disclosure of this report including, but not limited to, redistribution by electronic mail, posting of the report on a website or page, and/or providing to a third party a link,
is prohibited by law and will result in prosecution. The information contained in the Report is intended solely for the recipient and may not be further distributed by the recipient to any
third party.
SSSIL generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any
companies that the analysts cover. Additionally, SSSIL generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of
any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients
that reflect opinions that are contrary to the opinions expressed herein. Our proprietary trading and investing businesses may make investment decisions that are inconsistent with the
recommendations expressed herein. The views expressed in this research report reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The
compensation of the analyst who prepared this document is determined exclusively by SSSIL however, compensation may relate to the revenues of the Systematix Group as a whole, of
which investment banking, sales and trading are a part. Research analysts and sales persons of SSSIL may provide important inputs to its affiliated company(ies).
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income
derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. SSSIL, its directors, analysts
or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report
including but not restricted to fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc
SSSIL and its affiliates, officers, directors, and employees subject to the information given in the disclosures may: (a) from time to time, have long or short positions in, and buy or sell the
securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation (financial interest)
or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential material
conflict of interest with respect to any recommendation and related information and opinions. The views expressed are those of the analyst and the Company may or may not subscribe
to the views expressed therein.
SSSIL, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall SSSIL, any of its affiliates or any third
party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The Company accepts no liability whatsoever for the actions of
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Company has not reviewed the linked site. Accessing such website or following such link through the report or the website of the Company shall be at your own risk and the Company
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SSSIL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any technical glitch to present the data. In no event shall the SSSIL be liable
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Neither SSSIL, nor any of its other group companies or associates, shall be responsible for any decisions taken on the basis of this report. Investors are advised to consult their
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Systematix Shares and Stocks (India) Limited:

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Agriculture & Irrigation Residential & Projects Industries

Plastic Pipe Industry 20 March, 2019

Organised players geared for the next leg of growth

Coverage universe snapshot

Source: Company, Systematix Institutional Research

GI Pipes CPVC PVC HDPE PPR

Supreme Astral Finolex Prince

Source: Company, Systematix Institutional Research

A wide range of SKUs is complementary

2,000 1,500 1,500

Astral SI FNXP Prince

Source: Company, Systematix Institutional Research

Exhibit 11: …with image of few products launched by organised players

Source: Company, Systematix Institutional Research

Source: Company, Systematix Institutional Research; Note: Supreme % of overall sales

Exhibition @ Mumbai, Ace-Tech Celebrity endorsement

Source: Company, Systematix Institutional Research

Kolhapur Sangli Astral

Source: Company, Systematix Institutional Research

Source: Company, Systematix Institutional Research

Our interactions with dealers and 900 850 843

Source: Company, Systematix Institutional Research

Exhibit 18: South is a major revenue generator for organised players

Astral SI FNXP Prince

Source: Company, Systematix Institutional Research

Government thrust on infra, irrigation and housing to aid pipe demand

Investment approved (Rs.Bn) Sanctioned (mn) Completed (mn)

Exhibit 24: Rural housing progress has improved

500 143 260

Source: MoRD, Systematix Institutional Research

Source: Company, Systematix Institutional Research

Astral’s foray into adhesives primarily to expand addressable market, support

Before adthsives After adthsives

Source: Company, Systematix Institutional Research; Note: SA=Standalone (pipe operation)

Standalone (pipe) RoCE Consol. RoCE

Source: Company, Systematix Institutional Research

Astral is guiding ~15% OPM in the 15%

ASTRAL adhesive Pidilite

Source: Company, Systematix Institutional Research

Source: Company, Systematix Institutional Research; FY16 – 9 month

Finolex’s backward integration to secure RM leads to volatility in margins: Finolex

Source: Company, Systematix Institutional Research

Exhibit 35: Sufficient headroom to grow

Current Revenues Addressable market

Source: Company, Systematix Institutional Research

Since, Finolex is the leader in agri pipes, 70%

Finolex Supreme Astral Prince

Source: Company, Systematix Institutional Research

Housing Agri Industrial+Other

Source: Company, Systematix Institutional Research

Finolex is the market leader in PVC pipes 75%

PVC CPVC Other

Source: Company, Systematix Institutional Research

Source: Company, Systematix Institutional Research

(3) Branding and distribution network

Source: Company, Systematix Institutional Research

Source: Company, Systematix Institutional Research

(4) Business efficiencies

Correlation of gross margins with crude oil