Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Positive/Crisil A1+’ ratings on the bank facilities of Astral Limited (Astral; part of the Astral group).

 

The outlook remains ‘Positive’ as the Astral group’s credit risk profile may improve on account of continued healthy operating performance, along with sustenance of net cash positive status (cash and equivalent net of borrowings) as demonstrated in the first half of fiscal 2025. It also reflects the expectation of sustained improvement in the business profile, supported by improved capacity utilisation, wider geographical presence and product portfolio.

 

The group’s operating income grew at a compound annual growth rate (CAGR) of 21% for the three fiscal through 2024 and 9% on-year to Rs 5,646.30 crore, led by volume growth over 20% over the previous fiscal. In the first nine months of fiscal 2025, revenue grew 3% on-year to Rs 4,151 crore supported by aggregate volume growth in plumbing business of ~4%, despite moderation in realisation. The lower realisation was because of polymer price volatility, weak construction and agricultural demand due to an extended monsoon, and slowdown in government infrastructure spending. Higher employee costs and expansion-related expenses, along with margin pressures in the UK and in the paint segments impacted profitability. Despite these challenges, the operating margin remained ~15.5% in the first nine months of fiscal 2025 and is expected at 15-16% for the full fiscal, backed by healthy share of value-added products and diversified product profile, leading to strong annual cash generation.

 

Given the group’s focus on volume growth, inventory optimisation, operational efficiency though new plants, and expansion in the adhesives, bathware and paints segments, its credit profile should improve. Additionally, new product launches with geographic expansion and capacity enhancements will drive growth and support margin stability in the coming quarters, which will remain a key rating sensitivity factor. The financial risk profile will remain strong, supported by healthy capital structure with large networth, healthy cash position and strong debt protection metrics despite continuing capital expenditure (capex).

 

The ratings continue to reflect the leadership position of the Astral group in the chlorinated polyvinyl chloride (CPVC) pipes and fittings segment, supported by established brands and entrenched market presence, and the extensive experience of the promoters. The ratings also factor in the group’s robust financial risk profile. These strengths are partially offset by exposure to intense competition and supplier concentration risk, and susceptibility to volatility in raw material prices and foreign exchange (forex) rates.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Astral and its subsidiaries, Seal IT Services Ltd, UK (Seal IT), Seal It Services INC, USA (Seal It), SISL (Bond It) Ireland Ltd, Ireland (SISL), Astral Coatings Pvt Ltd (ACPL; formerly known Gem Paints Pvt Ltd), and Astral’s joint venture, Astral Pipes Ltd, Kenya. These companies are collectively referred to as the Astral group. In September 2022, Astral Biochem Pvt Ltd (ABPL) and Resinova Chemie Ltd (Resinova) were amalgamated with Astral.

 

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

Key Rating Drivers & Detailed Description

Strengths:

• Established market position with diversified product portfolio: The Astral group registered revenue with a cumulative annual growth rate of 21% for last three years ended in fiscal 2024 to Rs 5,646.30 crore, driven by strong demand with volume growing. The group is the market leader in the domestic niche market of CPVC and among the leading players in the PVC (polyvinyl chloride) segment (which together account for three-fourths of revenue) with total installed capacity of 5.12 lakh tonne for the plumbing and non-plumbing segments per annum across all locations in India, the US and the UK as on March 31, 2024. The group complements its CPVC products with PVC products. It has diversified the product basket by adding adhesives and sealants, infrastructure, water-tank, bathware, and paint. Established and longstanding presence has resulted in strong brand recall and entrenched market presence.

 

The adhesives and paint segment (around a quarter of revenue) is likely to grow aided by incremental revenue from the paints segment backed by a vast distribution network, and extensive advertisement and branding campaigns. Geographically distributed plants (leading to savings in logistics cost) which increase the addressable market, continued benefits from backward integration into CPVC, and better spread of cost on an increasing scale will help sustain improvement in the operating margin.

 

• Robust financial risk profile: The financial risk profile is supported by large networth, healthy liquidity and strong debt protection metrics. Networth was at Rs 3,368 crore as on September 30, 2024, with steady growth in cash accrual while gearing remained at ~0.03 time. Debt protection metrics were comfortable, reflected in net cash accrual to debt ratio and interest coverage of 3.21 times and 24 times, respectively, as of September 30, 2024. Astral is likely to undertake capex of Rs 200-300 crore this fiscal. Expected annual net cash accrual of more than Rs 640 crore should suffice to fund the capex and working capital with no reliance on any long-term debt.

 

Weaknesses:

• Susceptibility to fluctuations in raw material prices and forex rates: Astral imports around a quarter of its raw material requirement. Any significant fluctuations in forex rates may impact profitability, which is also vulnerable to inherent volatility in the prices of raw materials (PVC and CPVC resins) that are dictated by global crude oil prices. With raw material accounting for 60-65% of revenue, the company remains exposed to volatility in input prices, as particularly seen in fiscal 2023, when the company saw inventory losses leading to operating margin moderating to 16%, as well as fall in PVC prices seen in the first half of fiscal 2025. However, Astral has the ability to pass on any price fluctuations to consumers, which led to operating margin of 15.5% in the first nine months of fiscal 2025. The margin is expected at 15.5-16.0% for the full fiscal owing to stability in PVC prices due to increase in freight costs and imposition of anti-dumping duty by the Government of India on PVC imports. While Astral has been able to pass on fluctuations in raw material prices to end consumers, the maintenance of volume and operating performance will be monitorable.

 

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

Liquidity: Strong

Liquidity is backed by healthy cash accrual against debt obligation, moderate bank limit utilisation, controlled working capital cycle, and healthy cash and bank balance. The company had accrual of over Rs 343 crore in the first half of fiscal 2025 against debt (including short-term and long-term debt) of around Rs 106.80 crore. The group is likely to maintain annual accrual of over Rs 640 crore over the medium term. The working capital cycle is well managed with gross current assets at around four months. Average utilisation of secured and unsecured bank limits was 42% during the 12 months through January 2025. Consolidated cash (including cash equivalent) and bank balance stood at Rs 356.9 crore as on September 30, 2024. Healthy cash accrual, financial flexibility and moderate capex should ensure strong liquidity over the medium term.

Outlook: Positive

Crisil Ratings believes the Astral group’s credit risk profile may improve, backed by strengthening financial risk profile along with maintenance of strong market position and sustenance of healthy operating efficiency over the medium term.

Rating sensitivity factors

Upward factors

• Improvement in the business risk profile, driven by geographical as well as product diversification, aiding revenue growth and increasing market share in the CPVC and PVC pipes segments
• Sustainable improvement in the operating performance, driven by stable operating margin leading to Rs 1,000 crore of earnings before depreciation, tax and amortisation, while maintaining the financial risk profile and working capital cycle

 

Downward factors

• Steep decline in revenue with operating margin falling below 12%, resulting in stretched working capital cycle or weakening financial risk profile
• Weakening of the capital structure because of large, debt-funded capex or acquisition
• Sizeable reduction in cash surplus owing to higher-than-expected shareholder payout or buyback

About the Group

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

 

In April 2022, Astral acquired 51% controlling stake in Gem Paints Pvt Ltd (GPPL) for Rs 194 crore and entered the paint business. The National Company Law Tribunal (NCLT), in its order dated July 17, 2023, approved a scheme wherein GPPL transferred its operating paints business to a newly incorporated subsidiary, Esha Paints Pvt Ltd. Following the scheme, Esha Paints Pvt Ltd was renamed GPPL and subsequently as Astral Coatings Pvt Ltd (ACPL). To take control of the board of ACPL, Astral completed acquisition of 80% stake in the company in fiscal 2024. The non-paints business of GPPL, including subsidiaries and associates representing non-operating business, has been demerged and is no longer a subsidiary of Astral.

 

In November 2020, Astral acquired the assets of Shree Prabhu Petrochemicals Pvt Ltd for Rs 51 crore and ventured into tank manufacturing.

 

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

 

In November 2014, Astral acquired 76% stake in Resinova for Rs 212.8 crore. Resinova manufactures adhesives for construction, engineering, automobile, insulation, household and stationery applications and sells its products under 50 brands, including Bondtite, Bondset, Bondfit, Resigrip, Resicast, Zesta, Solvobond, Resibond and Vetra. In November 2015, Astral acquired the balance 24% stake in Resinova for Rs 73 crore. Subsequently, Resinova was amalgamated with Advanced Adhesives Ltd (AAL) with effect from November 21, 2014, and AAL was renamed Resinova. The merger added cement-solvent solutions to Resinova’s product basket. In September 2022, Resinova and ABPL were amalgamated with Astral.

 

In August 2014, Astral acquired 80% stake in Seal It, which was formed in 2002 and offers sealants, adhesives and other products under the Bond-it brand. In September 2022, Astral acquired an additional 15% equity shares in Seal IT Services Ltd, UK, a subsidiary of Seal It, for Rs 48.1 crore, taking its equity ownership in Seal It to 95%.

Any other information: Not Applicable