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Matter of Choice ( Astral Poly Technik vs Technofab Engineering)

with 19 comments

One is in a convenient position when a choice has to be made amongst two fine alternatives. I am in a similar bind between two such alternatives from infra space. Although in theory the companies are not comparable as one is into services and another into primarily manufacturing.

But they both carry an Infrastructure label, and I know that from experience that it is an area that will continue to be a painful for investors for coming decades simply due to the roller coaster nature of crowd psychology.

Astral Poly Technik vs Technofab Engineering.

Both are nice mid / small (depends on your context) cap companies. It becomes a matter of choice since I don’t want to buy both of them. With that line of thought I would end up with 100 stocks.

Technofab Engineering has a relatively more polished workforce, it ranks way higher. However, in Indian context EPC companies are generally cash flow negative.

I’d liken Astral Poly  to a “value migration” leader in Indian context from metal pipes to CPVC and plastic pipes, remember cellphones in 2002 ?

One aspect that did put me off regarding Astral was Lubrizol tie up with Ajay Group (http://www.ajaycorp.com/cpvc-pipes.html) and Ashirwad Group (http://www.ashirvad.com). Vaguely recall having read Buffett talk about mountain of riches for a single company that controls a single pipeline in a state/region, antithetical view is misery for all companies if there are four overlapping pipelines in same region.

There are other companies too in CPVC overseas which are as strong and big as Lubrizol which have not yet entered India as yet in any major way except through distributorship. If the scale of opportunity was not that big (tens of thousands of crores) I would have dismissed Astral Poly right away. So a 40% grower at 5 PE or 12 PE ?

More thoughts…

The compound is hard to make, is the secret sauce and proprietary, therefore no other compounder is able to match the price point, as yet not even Reliance is thinking of it although they have other polymer businesses, therefore Chinese cannot be a threat.

In 10-20 Years we will see very little or no GI pipe, the sand is shifting

As per my research Lubrizol has 50%+ market share not just in India but globally in CPVC segment, Chinese imports do not match in price point as per management ( need to be checked  from market sources ). Astral is educating over 30,000 plumbers per year, its their mind they have to get into, not in minds of end users.

Written by amitdipsite

July 17, 2011 at 10:56 pm

Posted in Uncategorized

19 Responses

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  1. Hi Amit,
    The trigger for Astral will be “Blazemaster” which is licensed only to Astral. If the scope of blazemaster can be 1/10 of flowguard, Astral will move ahead provided Lubrizol does not license it to another company in near future.
    Regards,

    Amar

    July 18, 2011 at 4:39 am

  2. Hmm I'm leaning on that. As per my knowledge Astral may have exclusivity for initial 5-6 years and then it may be given to another couple distributors too.

    However Lubrizol only appoint handful of key licencees, they have given licence to less than 5 organisations in USA in last 40 years.

    Amit Arora

    July 18, 2011 at 5:41 am

  3. Hi Amit,

    Interesting post. I have been tracking both the stocks and Astral does stands out qualitatively. Apart from being the licence of Lubrizol, the mgmt of Astral has been the first to introduce the products in the CPVC sector. For eg: As in the case of Blazemaster, Astral has been trying to get approvals etc for last 2-3 years so it will be a big beneficiary when they get the approvals.

    Yes, compeition will surely catch up but Astral has been 2-3 years ahead of the competition.

    As per HDFC report, Lubrizol owns about 85% of the market share in CPVC. If this is right, then then there is enought market for these 3 licencees as of now.

    Technofab looks cheap on the valuations front but don't know much about the poeople and quality. I aalso think that there must be major slow down in order flow (they haven't announced any new order for quite sometime)

    Regards,

    Ayush

    July 18, 2011 at 8:17 am

  4. Hi Amit,

    After going through your writing…It seems that Potential is high but again it depends on How far can the management be able to utilize LUBRIZOL's Licence. Would be glad if you can throw some light on Astral's Pedigree, management skills,transparency etc..

    sandeep maddali

    July 18, 2011 at 12:45 pm

  5. Thanks Ayush and Sandeep for your comments.

    I am not too hung up on Astral's pedigree and transparency but they have skills and can scale up.

    I am also leaning more towards Astral and have not been able to pull the trigger since 2009 in any major way. I got some yesterday between 202-204. I can also understand this industry better than EPC-BOP industry of Technofab.

    I think I am a bit relieved as Lubrizol does not issue unlimited licences but a handful and they are licencee friendly and want to see them win. Secondly, Astral also has tieups with TYCO and WAVIN, those are both billion $ plus companies ,if that relationship gets any deeper it would be icing.

    I think that market is so big and metal pipes have a lot to lose in this game.

    It was actually just a chance that Astral got this licence as big brothers refused to cannibalise their GI business and take up risk in India and actually refused Lubrizol offer. Another Google Yahoo playing out🙂

    Amit Arora

    July 18, 2011 at 3:26 pm

  6. From AR 11 of ASTRAL:

    – Your Company strongly believes in the creation of “Strong Branding” as it believes that only the brand can carry the organization to greater heights. Your Company therefore invests on brand creation. During the last
    year your Company carried out a brand building campaign called ”ASTRAL BADLE BAHAV JINDAGI KA” in consultation with MUDRA COMMUNICATION.

    – Recently your Company has entered into an agreement with IPS Corporation (http://www.ipscorp.com) of USA for manufacturing Solvent Cement in India.Your Company has already put up a facility for
    manufacturing the Solvent Cement by its Subsidiary Company “Advanced Adhesives Ltd”. The unit is expected to commence commercial production by the end of the third quarter of the current year.

    – Your Company is planning to further increase the manufacturing capacity from 48,000 M.T. to 70,000 M.T.The new capacity will come at the Company's new factory premises at Dholka – 40 km. away from Ahmedabad.

    – Our joint venture company at Kenya has already started production recently and will slowly pickup the sales in
    East Africa and in turn Astral India will also increase its sales of fittings in coming days. This will add to our present export revenues from the neighboring countries. Your Company has appointed a new head for its export division which is expected to give further fillip to your Company's efforts to increase its export
    revenues.

    – During the current year, your Company has introduced a new Product Viz. “Column Pipe” for
    borewell application. Your Company expects reasonable revenue from this Product in the coming years. Similarly, the sales of Manholes, which the Company launched last year, is slowly and gradually getting acceptance in the market and will contribute a reasonable revenue in the coming years.

    Watch out for:

    – Deterioration in profit margins

    – Alternatives to CPVC for pipes

    – New licensees of Lubrizol in India

    Amit Arora

    July 18, 2011 at 5:18 pm

  7. Could you please tell me where I can find the latest annual report for Technofab Engineering? Any idea about the order book size for Technofab Engineering? Thanks!

    JB

    July 18, 2011 at 6:20 pm

  8. Unable to find Technofab's report in public domain even on paid sites, you'll have to drop them a line
    info@technofabengineering.com, Order Book should be 600 odd crores

    Amit Arora

    July 18, 2011 at 6:36 pm

  9. Good to see TTK Healthcare finally catching up after a long hiatus. Amit, any news other than dividend and AGM?

    Amar

    July 19, 2011 at 4:42 am

  10. Hi Amit,

    Was reading you post on Photoquip. Are you still bullish on it?
    If yes, The stock has gone nowhere in past 10 yrs. Basically comp hasn't done anything… Why will it go up now?

    JK

    July 19, 2011 at 6:20 am

  11. Amit..

    I just got to know that Astral has got BLAZEMASTER licence somewhere around 2008 but they are still under process of getting some approvals and couldn't launch its product in the market. Any thoughts on this… I mean this Projects that the management is lacking the skills to get the approvals and even loosing the first mover advantage to others. Pls correct me if i am wrong…

    sandeep maddali

    July 19, 2011 at 1:25 pm

  12. Just briefly met Mohamed El Erian in NYC by accident.

    http://en.wikipedia.org/wiki/Mohamed_A._El-Erian

    Astral: Give it some time, their hands are pretty full with existing work, not as if its showing de growth. Approvals take time. If companies try too hard they end up being Money Matters FS Ltd. Even I have not been able to open partnership in the model I exactly wanted, I don't particularly consider myself lazy or not desirous.

    Photoquip: Its value for me is only because of association with Elinchrom. There are fewer studio lighting brands in world than cooker brands in India. Elinchrom's position is stronger than strongest cooker brand in India. You lose out on opportunity cost due to uncertain time when the stock goes up 10-20 times. Even Relaxo was for 50 Rs for 8 years from 2001-2008, Same with TTK a 100 Rs Stock for nearly 8 years. I can't predict price.

    Regards

    Amit Arora

    July 19, 2011 at 9:02 pm

  13. hi sir

    recently weizmann forex got listed with about 80-100 cr market cap….
    it has 30000 agents including abt 500 branches…principal agent of western union…market cap in excess of 12 billon….moneygram its competitor with market cap of less than 500 million(just somewhere there or below)…

    india being biggest remmitance market …and weizmann in tie up with most of psu banks….it would be quite hard for anyone to replace them…

    what do u see about the prospects of the company…earning 20 cr ebitda..with not much investments in plant machinery….

    vivek bha

    July 19, 2011 at 10:28 pm

  14. regarding photoquip—

    i am just concrned about the growth of digital photography…that may kill its business over a long term as it is doing for fuji films etc etc…

    is that not a concern…as photography will shift to digital mode at the end…..

    or do i need to study more about the products of the company…which i have not done in depth.

    vivek bha

    July 19, 2011 at 10:32 pm

  15. Astral story is excellent one of monopolistic American product catering to huge indian markt whose pie is big enough for all 3 licensees.

    hv been tracking the co since its IPO & they walked their talk.lets remain invested n keep on buying on dips.Its amuch beter co than technofab where the silverlining is the 15% stake held by Gammon which id free now n the stock shud see some fireworks

    Do u track puneett resin? can it become anither astral n mayur uniqoters?

    Vivek Gautam

    July 20, 2011 at 7:19 pm

  16. Hii Amit
    Have been a regular reader of your blog. What do you think about Tokyo plast??. They are into tableware and plastic tiffins and all. Recently they have started selling these on Home shop 18 apart from exporting it to other countries. So right now there is no brand except for Milton in this sector and some , but after some effort it can also become a brand play in this unorganized sector. milton's operations as well as financials are not too good, which can lead to the possibility of Tokyo plast trying to gain market share by giving more incentives to its distribution channels.. Your views please.

    NightShade

    July 20, 2011 at 7:31 pm

  17. Hi Amit,

    Whats your comment about V-Guard Industries?

    Rgds,
    Rahul

    Rahul

    July 21, 2011 at 1:00 am

  18. Hi Amit,

    I spoke to My bro and would dig more with his help, Ashirvad is undisputed leader in Column Pipe in MP and have very strong brand recall and dearer n/w…

    Hey how was your meeting with Mohamed El Erian..After you mentioning him, I came across his coined concept “New Normal”..I think we are all also agree that World would be quite different from any and investment perspective after few years..And yes the way Peter Drucker says I too feel “we are completely unprepared for that”..

    Let me quote Mohamed El Erian here:

    “Once the immediate dislocation associated with the deleveraging, de-globalization and re-regulation is over, investors and policymakers will “find themselves in a landscape that only partially resembles that which dominated the 2003-2007 period”..

    And he adds:
    “Long-term investors can use that to their advantage as many other market participants are looking to the short term.”

    Anyway…
    So did he spoke about India and its prospects?

    So you had a great trip!!

    Rahul Kumar Paliwal

    July 22, 2011 at 6:46 pm

  19. Hi Sir,
    Gone through the post.. Studied the result of techno fab,Which looks good with almost 12-13% operating margin & order book of almost 900 Cr. Sir.. Do you think Techno fab as part of any ones model portfolio at current price..

    yogesh

    July 30, 2011 at 10:17 am


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