Astral Limited (ASTRAL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Astral Limited Q1 FY '27 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pranav Mehta from Equirus Securities. Thank you, and over to you, sir.

Yes. Thank you, Palak. Good evening, everyone. Thank you for joining this call. Today from the management side, we have Mr. Sandeep Engineer, Chairman and Managing Director; Mr. Hiranand Savlani, ED and CFO; Mr. Kairav Engineer, Executive Director; and Mr. Saumya Engineer, CEO, Adhesives & Paints Division. I'll now hand over the call to Sandeep sir for his opening remarks. Over to you, sir.

Thank you. I welcome you all for the earnings call Q1 FY '27. As you all are aware, the polymer industry is passing through a volatile time. Prices are highly volatile and fluctuating, and it was on the negative side in Q1, due to that the industry degrowth by approximately negative 10%. But I'm very happy to share that in spite of that, as usual, Astral is a company which always focuses on growth and at the same time on profitability and which, once again, we have demonstrated in this quarter with a flat volume growth against market reporting almost 10% negative. And also we have delivered a 10% value growth with an 18.9% EBITDA, which is one of the highest in the industry. This clearly suggests that Astral is continuously gaining market share for many years -- from many years and the journey is still continuing. Now let me take you through all our verticals. Plumbing. Demand was overall weak in the industry, but because of decentralization of plants, our demand was very good and we are taking market share in new geography where we have started our new plants. As you are aware, Astral has spent almost INR 1,500 crores in CapEx in last 4 to 5 years in all the verticals. And now it's the time to utilize the same and generate the cash flow from there. As communicated in the past, we have increased our product basket in last 3 to 4 years. And this product basket is not only adding a good performance, but also is adding to our value performance. New product basket includes water tank, valves, fire sprinklers, OPVC, PTMT, low-noise and other products. This has given Astral growth and healthy margins. Our Kanpur and Hyderabad plants have geared up and are giving good growth in their respective geographies. Our CPVC resin plant construction is going on as per the schedule, and we are expecting to complete it by December end. And we will take the trial runs and finish the settlement and the product stabilization in Q4. Our state-of-art new value production facility is up and fully running. We are also adding PEX-Aluminum-PEX machines, which are under installation, and we are going to complete the same in mid-September. And by end of September, all trials will be over and the commercial production of the same will be made. Bathware business is also slowly picking up, and more and more new projects developers are getting added to the Astral brand. During the quarter, we have given a healthy growth in our Bathware business by 18.1%. Our adhesive business, the quarter was once again an excellent quarter for Adhesive India business. We have delivered a robust growth of 24.9%. We are getting good response in rural and online business. At the same time, overseas business is also picking up well. I'm sure you must have seen that this vertical, which was continuously growing market share by entering to new geographies, new product introduction and focus is on both rural and overseas market as well as even the urban market. During the quarter, the margins were under pressure due to high cost of inventories and previous quarter, inventories which we had with previous quarters. But we are confident that by the year-end, not only we will achieve our targeted revenue, but also deliver the guided margins. The U.K. adhesive business. This business was passing through a tough time last year, but we took a quick, bold decision and we are happy to see that growth is coming back and EBITDA margins are also showing signs of pickup and improvement. You can see the numbers that this quarter, it has delivered a robust growth of 26% with an EBITDA of 4.9%. Paint business. First time after acquisition of Gem, we are seeing a history high growth of 48.7% in this vertical. And not only that, we are at EBITDA breakeven point -- we are at EBITDA breakeven. Paint business has delivered robust growth with all the 6 operating states and also new launches have given good response across the geographies. DSS, the newly acquired specialty chemical company. We are happy to share that from the very first quarter, the newly acquired company not only is giving quick start of revenue, but also an excellent EBITDA of 12.9%, and we are expecting that to come to grow in coming times, and the vertical will be delivering good value, growth and excellent margins. With this, I'm closing my initial remarks and let Mr. Hiranand Savlani take you through the finance performance of Q1.

Good afternoon everyone. Welcome all for our earnings call for Q1 FY '27. Results and press release are in front of you. I just want to highlight the key numbers. The vertical wise numbers. Last year Q1, plumbing business was INR 953 crores. Again that this year, it is INR 1,050 crores, so registering a growth of 10.1%. Adhesive business India, last year, it was INR 261 crores. This year, it is INR 326 crores, so registering a growth of 24.8%. Adhesive business U.K., last year was INR 96 crores. This year, it is INR 121 crores, registered a growth of 26%. Paint business, last year, it was INR 50 crores. Now this year is INR 74.5 crores, registering a growth of 48.7%. DSS, we already, Sandeep bhai has given the number, it is INR 6.7 crores, with EBITDA of INR 90 lakh. So overall, if you see that the numbers are in line what we have projected. And EBITDA percentage also I am giving you. Q1 plumbing business, last year was 16.4%, now it is 18.9%. Adhesive business India, it was 14% last year, now it is 12.2%. Adhesive business U.K., last year it was flat 0.2%, now it is 4.9%. And paint business, last year was 1%, now it is 0.1%. So consolidated basis last year it was 14.3%, which is now 15.5%, so roughly about 1.2% kind of improvement into the EBITDA. As you all know, we are always believing in consistency in numbers and the profitable growth for the organization. I'm very happy to share that this quarter also we have delivered a very healthy 10.1% value growth in pipe and flat volume growth in pipe, and again the negative growth of industry by roughly 9% to 10%. In the adhesive and paint also, we have registered a very robust consolidated growth of 29.5% in which adhesive was 25.2% and the paint was 48.7%. The overall Q1 value growth is 15.9% and with the EBITDA margin of 15.5%. The key points to note here is that in the history we have first time delivered a highest 48.7% growth in paint after acquisition of Gem. As we guided in last call that we will be closing full year with 20%, 25% kind of growth. But with this kind of number in Q1, we are confident that we will be definitely crossing the guided number. Further, you will be also noticed that in all the verticals, whether it is a paint, whether it is adhesive or whether it is a plumbing, we are continuously gaining market share, which is always a good sign for any company and so it is for the Astral. In pipe, one of the good things has come up for the industry, which is implementation of MIP, which will make our life a little easy because we are continuously seeing the volatility. Since last few years, a huge volatility in polymer prices, particularly into the PVC. Now with this implementation of MIP, this will reduce that sizably, and which is very good for the company as well as all of you to forecast the number. Demand scenario in pipe industry is very robust from July onwards. Till yesterday, I can say for 4.5 months, we are into the double-digit growth. So you can understand the kind of extraordinary growth we have achieved in the month of July and the first 12 days of the -- 11 days of the current month, which gives us the confidence that what we have given the guidance of double-digit growth, so we will be definitely going to achieve on a full year basis. Since realizations are very high, which will give value growth of more than that, that is right now realization and the volume gap is 10%. And with this implementation of MIP, we are of the view that the value gap will continue. And if that is the case, our value growth for the full year will be more than 20%, in top line. As communicated by Sandeep bhai, we are slowly coming back to our U.K. business growth path as guided in the last con call, which you can see in the number, and we are confident that by year-end we will be coming to the normalcy what we have guided. We have guided the double-digit growth in top line. Now in the first quarter itself, we have delivered the 26% kind of growth. So we are confident that the U.K. will definitely going to surpass the double-digit mark. From Q3 onwards, I think PEX-Aluminum-PEX, which Sandeep bhai already discussed, is going to start contributing to the top line and the bottom line. This product is very well accepted in the Indian market, and it is a very high-value product and the high-margin product. A few more products we are planning to launch in Q3, which we will communicate to you in our next earnings call when they will be at the advanced stage of launch. Overall, industry environment is positive in all vertical, and we are confident that we will be delivering a healthy growth in the coming quarters also. With this, I want to thank everyone and open the floor for the Q&A.

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital.

First of all, congratulations on gaining the market share, both in plumbing and adhesives. You have highlighted many, many things, just to get more confidence on that front. So particularly on the guidance front. So first, on the plumbing, we have mentioned that in 4.5 months, we have seen a double-digit growth. So in Q1, when we have a flat growth, does that mean that only the April was where we have seen a significant maybe a degrowth and then the May and June must be a growth? And July, does that mean that we are seeing a kind of 20% plus kind of a growth?

So your understanding is right, but little I can do the correction. The April number was not good for the entire industry. And particularly for Astral because we implemented our new SAP HANA. So our business operation was not -- practically shut for the dispatch for 10 days. So definitely, April was not good. But then May onward, we started growing very fast. And in the month of July, we have registered a growth of 40% in volume, not 20%. So because of that, we are on a 4, 4.5 month basis, we are into the double-digit.

Okay. So then does this growth is just because in Q1 because of whatever the volatility was there and now in last -- since the mid of the July INR 12, INR 13 PVC prices have gone up and which is supporting. So this quarter and maybe then the full year, can we see a mid kind of a 15% kind of a growth that is more likely kind of achievable? And at the same time, in terms of the margin, because we in plumbing used to guide 16% to 18%, but this quarter also 18.9%. So what's the possibility that we should be doing more than -- or maybe close to a 19% kind of margin given that the now PVC prices are kind of up and plus MIP would be supporting though? I'm trying to understand the upside risk.

So I think the way July and August has picked up, it looks that the demand has come up very sharply from the markets. One of the reason was that dealers and distributors were destocked because prices were going down. So because of that, nobody was in a mood to keep the inventory. But now everyone is rushing to fill up the inventory. Secondly, because of MIP, now the dealer and distributor also have a confidence that from this price, polymer price is not going to go down at least. So downside is protected. So they are getting confidence that they are filling their stock also. So that giving us the confidence that the scenario will improve. Thirdly, normally, whenever there is a first quarter, if so weak, flat kind of number, then naturally, the second quarter should be better. Last year, if you see, the pattern was similar that first quarter was weak and then the second quarter was we delivered close to about 20% kind of growth, volume growth. So similar pattern is getting repeated. So I don't want to jump in at this stage and tell you that full year basis, we are going to deliver 15%, 20% volume or something. Let us wait for some more time. Let us -- we finish the Q2 number. And then I think we will be hosting the call somewhere maybe in the month of November or so. So by that time, we'll be having more clarity, so we will be in a position to upgrade our guidance. But at this stage, we don't want to unnecessary jump. As far as your second question was relating to the margin. I think margins are pretty stable. And because of polymer volatility, 1% or 2% kind of plus/minus will keep happening. So we will be definitely going to be in the range of 16% to 18%. And if the market condition will be better like what is right now because now polymer prices are going up. If these kind of scenario continue for a longer period, then there are probability that we may increase the margin. But right now, our guidance will remain to 16% to 18%. We will change our guidance if needed post Q2.

And similarly on the adhesive also, the significant growth, India, 25% kind of a growth and U.K. also 26%. And both we were having a kind of a 15%, 20% guidance for India and more than 10%. So there -- is there -- are we revising right now or still there also the similar guidance and maybe Q2 -- post Q2, we will upgrade the guidance?

So the chances are bright to revise upward. But at this stage, we don't want to do that thing because still we want to wait for some time, because we don't want to unnecessarily misguide the street based on the 1 quarter number or maybe 4 months number. So better we wait for the completion of Q2. And post that, if required, we will definitely change our guidance.

And the India margin will be there. Obviously, this quarter was low at 12.2%, but it will come back to 15%, 17%, what we are...

Yes, yes. I think we have already disclosed also in the press release also that it will be back.

[Operator Instructions] The next question is from the line of Praveen from PL Capital.

Many congratulations for a good set of numbers. My first question is related to adhesive -- domestic adhesive business. As you had already highlighted that the price hikes has been implemented. So how much has been absorbed in the market? And is there any further commodity inflation is there to take a further price hike?

So I think -- Saumya here. So I think overall, the RM prices were upward of overall, I would say, more than 15%, 16% rise was there. Exact figure I'll have to say, but I can give you that, it was -- so we did a price increase of half of that, so around 6% to 7%, 8% price hike we had done across our boards, average. So I think a few things we had to absorb as a raw material expense as a higher price. So we had to absorb in Q1. But I think with the RM softening and overall cost coming down in Q2, I think there will be definitely a positive impact going forward for the Adhesive India business.

Okay. Secondly, on the adhesive only, the international, out of your 26% of growth, how much is the currency led?

I think close to about 10% is related -- 8% to 10% related to currency, rest is on the constant currency.

And in the adhesive DSS number is consolidated, 67 million?

That is consolidated in paint because it is a subsidiary of the paint business.

Got it. Lastly, on the pipe and fitting, because you in the starting commentary, you also mentioned about the Kanpur and Hyderabad, which is ramping up very good for you. So at what level of utilization these 2 plants running at? And what are the -- because you have taken some capacity expansion in this quarter as well, somewhere around 3,000-odd. So how has been the capacity for this? And at what level of utilization these are running at?

Kanpur has gotten a very good response in the market, local market. So the Kanpur plant is majority sold out. So very high utilization. But again, the Kanpur capacity is very small. We are planning to expand the Kanpur facility in the coming year to take care of the growing demand. And Hyderabad, I think, will be operating at around utilization of around 50%. But there also, we are slowly and gradually getting a foothold in the local domestic market. So we have enough land and space there to expand also, but the capacity is obviously higher than Kanpur. So that is why utilization point of view, you are seeing a slightly lower number. And capacity addition, whatever we have done is basically we have added -- we've just done some debottlenecking at the existing facilities, added some molds and some fitting machines and PEX machine and some other new product lines that we are developing. So substantially no new facility work has happened.

Okay. Good to hear that. Last question, sir, related to the paint because that's 48% of the growth. Can you give more color on the -- how has been the volume growth or the geographical expansion, which led the growth for you? If more color on that will help out.

So as our last guidance, we are not expanding into more states. So the South states, we will finish. We have finished 3 states in South. We have 2 more states in South, which we will finish when the time is right and when we feel it's right. And in the West, we have opened the Gujarat, Rajasthan and Maharashtra markets, 3 states. So now we are taking very conscious call in terms of understanding that how our bottom line is also going with our top line. And accordingly, we will invest more in states and more in manpower. But now it is getting the state stable and growing within the states. So we are consolidating in the state. So that is a very positive sign that we are seeing around 48% growth from the existing states where we have opened. So the acceptability is good. And the volume growth, I think, would be around 35% to 40%, I could put it. Rest would be, I think, the value growth due to the increase of the pricing of the products which we have taken.

[Operator Instructions] The next question is from the line of Tejas Pradhan from Citigroup.

In terms of volumes in the plumbing business, obviously, we have done much better compared to the other players, right? So just to get some additional color on this thing, how much of this was a function of product mix or geo mix? And how much have you been probably more aggressive on pricing in terms of -- versus competition? I mean considering in April also, you have 10 days you mentioned you had lost because of the transition as well, right? So despite that, the very strong performance on volumes.

I think product mix has not changed much because we are more focused company on the plumbing side of the business. So I don't think product mix will change. And that is why you see that the margins are also pretty stable. Normally within the 16% to 18% we deliver, this time little more. So product side, I don't think any big changes there.

Right. And on pricing, I mean, was there any probably more aggression in the quarter to achieve the volumes or no change versus the historical?

No, no much aggression.

Actually, we are very blessed that we are taking the -- getting a good set of distributors from the competitors who are willing to join us. And so a lot of network expansion has happened. So without sacrificing on the margin, we are able to deliver these numbers.

Understood. And secondly, in the Adhesive segment, last quarter you had some one-off branding expense. There is nothing of that sort in this quarter, right?

No, not much this quarter. Maybe routine branding cost will be there definitely, but not one-off kind of.

No one-off. Okay. Understood. And lastly on the paints assets, roughly what would be your capacity utilization right now?

Paint, we will be somewhere around 60% kind of utilization,60% to 65%.

After the volume -- after the growth that you have seen in the quarter, right?

Yes. Yes, 30%, 35% kind of growth.

The next question is from the line of Indrajit Agarwal from CLSA.

My first question is on ground end user demand. While we have seen a strong uptick in the month of, let's say, June and July, how much of it do you think is driven mostly by destocking? And how is the end-use demand and which segments are actually contributing to this demand growth?

End-use demand is robust. That is why you see that in the paint business, the adhesive business, pipe business, bathware business, all business we have delivered robust numbers this quarter. And Q2 also this demand is continuing. So end user level demand, I don't see there is a major -- any sort of a major problem.

So is it both from rural or urban or anything to call out that urban is growing stronger than rural and that is why probably you have outperformed the industry?

No, no. Across the board, only in the piping side, the agri demand was a bit muted. Otherwise, overall, all products are doing very well.

Sure. Lastly, any change in inventory number that has contributed to the margin in this quarter, whether inventory gain or loss?

Not really.

[Operator Instructions] The next question is from the line of [ Neha ] from Nuvama.

Congratulations on super strong numbers. Just a couple of questions from my end. While you already said there is no inventory gain element, while the product mix has not -- largely remained same. What would have led to the margin improvement? Because if I look at it from Y-o-Y perspective, probably from last 2 to 3 years, if I look at current margins, they are at the most highest level, especially in Q1 attaining like a 19% sort of margins. What would have led to that? That's the first one.

So mainly, if you see, Neha, that all our new plants, our overheads were very high because utilizations were very poor. Now with this kind of growth what Kairav said about both the new plants, that has supported us to improve our margin, mainly because of economy of scale of that particular 2 plants. Because all labor-related costs, operator-related costs, plant head-related costs, all your fixed labor costs, all are going to be there whether you produce or not. So with this extra production, that has supported us to improve our margin.

Sir, but our volumes were actually flat Y-o-Y, right? That's the -- I mean, I would have got the operating leverage part of it, but with volumes being flat Y-o-Y, how does it work out? Or is it any plant specific?

So basically, I would like to add that in the first quarter, the agri demand was muted. So lesser sale of the agri product happened. But rest of the products which are plumbing products for us and value-added products for us, the sale was good. So when you sell less of the agri type products, automatically, the margin profile will improve because agri is having a much lower margin than the plumbing product.

Understood. So that's precisely the product improvement change that we are talking about. And what would be the growth of CPVC this particular quarter in this entire PVC...

It's in the double -- it's in high single-digit type.

During the quarter?

Yes.

That's helpful. Secondly, bathware revenues, just a bookkeeping one, for this particular quarter?

Bathware, I think last year, it was INR 24 crores. This year, it is INR 28.7 crores.

The next question is from the line of Anoop Parakh from Anand Rathi.

Just one question from my end. What was the CapEx amount spent in Q1 FY '27 and what are we budgeting for FY '27?

So I think this quarter, we have spent INR 137 crores in CapEx in all the vertical put together because even the CPVC plant work is in full swing. So if you break, I want breakup, I can say close to about INR 87 crores we have spent in plumbing. Adhesive, we spent around INR 29 crores, sorry, INR 29 crore plus INR 3 crores, so INR 32 crores. U.K., roughly about INR 2 crores. And then INR 16 crores on CPVC resin plant.

And for the budget for FY '27?

I think we have said, 300 kind of level, 300 to 350 level kind of level will be there.

[Operator Instructions] The next question is from the line of Shravan Shah from Dolat Capital.

Sir, in bathware now are we -- for this quarter, is it kind of EBITDA positive because till last quarter, we were kind of a breakeven?

Still we are at a breakeven.

Okay. And in the U.K. for full year in terms of the margin, now we can see 8% to 10% kind of margin we can build in?

Yes, yes. We are targeting that only.

And for paint, how we can now see because the growth is there? So from Q2 itself, can we start seeing EBITDA positive? And what number one can look at kind of a 6%, 7% kind of a number for full year EBITDA margin?

Last call, we have guided that we will be delivering lower single-digit EBITDA growth.

The next question is from the line of Durgesh Shukla from InCred Capital.

I just want -- can you reconfirm your volume and EBITDA guidance?

Volume and EBITDA guidance for plumbing?

Yes.

So we have given the guidance of minimum double-digit growth for volume. And EBITDA, we have given 16% to 18%.

Okay, sir. And what about the paint sector? Paint and adhesive?

Paint?

Yes.

Paint, we have given guidance of 20% to 25% kind of top line growth. And adhesive we have given 15% to 20% kind of growth.

Okay. And any margin guidance for the same which you would like to give?

Paint, we have given lower single-digit guidance. And adhesive, we have given 15% kind of guidance.