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Informist, Thursday, Mar. 27, 2025

 

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--Astral CFO: May take breather from organic capacity growth for 2-3 yrs
--Astral CFO: Pause on capacity growth as expansion goals met, utilisation low
--Astral CFO: Current pipe manufacturing capacity near 370,000 tn/yr
--Astral CFO: Current pipe-making capacity utilisation at 57% vs 65% in FY24
--Astral CFO: May also cut advertising, marketing spends for FY26
--Astral CFO: Have INR 4 bln in cash, open to buying pipe units for growth
--Astral CFO: Pipe volume sales growth in FY25 likely to be in single digits
--Astral CFO: Won't resort to discounting, selling on credit to boost volumes
--Astral CFO: Trade channel inventory cut to 2 weeks on falling PVC costs 
--Astral CFO: Expect market to improve post June, sooner if PVC taxed higher
--Astral CFO: Maintaining FY25 EBITDA margin growth guidance at 16-18%
 

 

By Sunil Raghu

 

AHMEDABAD – Pipes, paints and adhesives maker Astral Ltd. is likely to press a temporary pause on the organic expansion of its pipe-manufacturing capacity for at least the next two-three years, Chief Financial Officer Hiranand Savlani, said. It is also likely to apply brakes on its advertising and marketing expenses from the next financial year starting April, as it feels the brand is fairly well established, he added.

 

"Following the completion and commercial operations at our greenfield 60,000-tonne-per-annum Kanpur plant, we could push a temporary pause button on newer plants or any expansions for at least 2-3 years. By then, our geographical expansion goals would largely be met, allowing us to focus on optimising existing capacities," Savlani told Informist.

 

What has further prompted the management to press pause on expansion of its pipe-manufacturing capacity beyond the current nearly 370,000-tonne-per annum is its low capacity utilisation. The operational capacity utilisation of all its plants in 2023-24 (Apr-Mar) stood at an average of 65%. However, with the addition of new plants in Guwahati, Cuttack and Hyderabad, the current operational capacity utilisation has dropped to around 57%.

 

Astral may also reduce its marketing expenditure for FY26. For FY24, it allocated around 6% of sales for advertising, promotions and loyalty programs for plumbers, dealers and distributors. "With our brand now well-established, we anticipate optimising marketing costs while continuing our association with Indian Premier League teams from Mumbai, Chennai and Gujarat," Savlani said.

 

Astral defines its business in two verticals – plumbing and paints, and adhesives. Plumbing includes pipes, fittings, water tanks, faucets and sanitaryware. 

 

INORGANIC GROWTH

 

While Astral may pause organic growth, it remain open to acquisition if the company is right. For now, it is waiting patiently with nearly INR 4 billion as cash reserves in its kitty. "We have been approached by several companies in the pipe business for potential acquisitions, which we continue to evaluate. As these companies are valued at very attractive valuations, nothing can be ruled out," Savlani said. This also indicates a likely high level of consolidation in the industry.

 

Astral CFO hinted that overheads were negatively affecting liquidity and growth of many small and medium enterprises in the industry. However, Astral is optimistic about improvement in market conditions post-June, he said. "Maybe even sooner if government decides to impose anti-dumping on imports of PVC (polyvinyl chloride)," the Astral CFO said.

 

VOLUME GROWTH

 

Despite optimism, Astral does not see more than a single-digit volume growth in FY25, marking the first significant year post-COVID which could see a decline in demand. The company, in an analyst call post Apr-Jun earnings announcement, had said it had achieved a 16% rise in volumes in the quarter, even as July volumes continued to be slow on falling prices of key raw material PVC. The retailers of Astral products generally desist from buying new inventory when PVC prices fall, waiting for them to fall further, thereby leading to an inventory loss.

 

Normally, the distributors and dealers kept trade channel inventory levels of four weeks each, covering eight weeks of demand. However, as prices of PVC continued to fall consistently over the last two to three quarters, dealers and distributors of Astral's PVC pipes, have reduced their inventory levels to just one week each. This has effectively removed six weeks' worth of inventory from the trade channel, accounting for nearly 13% of its annual demand.

 

"We have the capacity to drive higher volume growth but the company does not want to resort to the two options -- discounting or selling on credit – for the sake of higher sales volumes," Savlani said.

 

While the volume growth may be in single digits, the Astral CFO expects profitability to remain relatively high, led by higher sales of chlorinated polyvinyl chloride, or CPVC, pipes and value-added products. The CPVC pipe business and its application in fire safety equipment is also expected to contribute significantly to the growth of pipe-making companies like Astral.

 

Astral is of view that while PVC prices have reached their lowest point, a recovery in demand will depend on a rise in PVC prices.

 

On the impact of current sluggishness in demand, volatile economic situation, and liquidity crunch on employment opportunities within the company, Astral CFO said they employ nearly 8,000 people and have no plans to let any one of them go. Instead, they are still looking to hire people for certain roles as they continue to believe that the growth is expected to recover in the next financial year.

 

On earnings before interest, tax, depreciation and amortisation, or EBITDA, margins guidance for FY25, Savlani said the company maintains it at 16-18%. For Jan-Mar, Savlani anticipates growth to be higher than the EBITDA growth of 16.5% in Apr-Dec. The revenue is projected to grow in single digits, while the industry may see a low single-digit or flat growth in FY25.

 

Other than pipe business, Savlani said the company's paints business remains stable, with projected growth of 8-10%. The adhesives segment too is expected to grow 15-20% overall.

 

The company has also begun exports of its products to key international markets, including Dubai, Vietnam, Mexico, and Saudi Arabia and expects its exports revenue to triple over next two-three years, from INR 50 million annually this year.

 

On Thursday, shares of Astral ended 1.23% higher at INR 1,294.55 on the National Stock Exchange.  End

 

 

Edited by Tanima Banerjee

 

 

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