MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry Structure and Developments (Pipes):

Piping Industry in India has been growing at CAGR of 15% plus since last many years barring the last year when the growth was low due to poor economic conditions. In spite of that your Company has done quite well by delivering 20% volume growth, highest in the Industry.

Looking to the announcements made by the new Government regarding the housing and construction sectors and the different new products launched by Astral during the last 3 years, we are sure that the coming years will offer good growth prospects for our industry in general and for Astral in particular. Plastic Piping Industry in India has a market size of appx. Rs.21,500 Crores and Metal Industry is about Rs.6000 Crores. Since replacement of metal by plastic has been taking place rapidly, Plastic Industry is expected to grow at an accelerated pace in the coming years. Further analysis shows that the Plumbing Industry is largely dominated by organized players accounting for 65% of the market. Your Company has a significant volume of its sales from the Plumbing segment.

There are many positive factors which are going to drive the growth of Piping Industry in the coming years. Important among them are:

• Implementation of GST from 2016 will support the organized sector.

• Replacement of metal by plastic.

• With the growth in the demand for quality construction, builders are increasingly moving towards the branded pipes (Pricing gap between branded & unbranded pipes is very low).

• Demand from Tier I/II cities and rural segment is expected to pickup as no big unsold inventory of houses is left in these areas as compared to metros, if the rainfall will be in order.

• Low cost housing is picking up as the Govt. is supporting the concept.

• Proposal of the Govt. to develop 100 Smart Cities.

• PM Mr. Narendra Modi's vision of "House to Each by 2022".

Your Company has extended its reach to all the four zones of the country by setting up manufacturing facilities in the North /South /West and a Depo in the East.

In short, we are confident about the growth of your Company in the years ahead and your Company is ready with the required capacity, infrastructure, distribution network, product range etc.

Industry Structure and Developments (Adhesive & Sealants):

The size of Adhesives, Sealants and Building Chemicals market is appx. Rs.10,000/- Crores which is very large and is brdominantly controlled by very few well established manufactures. Hence, the growth for your Company in these areas is imminent.

The per capita consumption of adhesives is 9.4 Kg in Germany, 9.1 Kg in US compared to 1.5 Kg in China and just 0.20 Kg in India. This shows that India offers good potential for growth in the consumption of adhesives which is a positive feature of this industry.

Similarly, while the value of per capita consumption of adhesives is Rs.750 for developed countries it is just Rs.50/- for India.

Indian and Chinese adhesive industry is growing at 15% CAGR. With the newer innovative and faster construction techniques, the growth of the adhesive industry will go up in the future, With steady increase in urbanization and modern constructions, the demand for adhesives and building construction chemicals is expected to grow much faster.

Opportunities and Threats:

We see good opportunity for growth in the construction sector of the Indian economy. India's GDP is expected to grow at 8 to 9%. Therefore, growth of the construction sector should also be commensurate with and supportive of the overall GDP growth.

As per the Vision 2022 document released by KPMG, India has at brsent a shortage of 59 million houses and it needs additional 51 million houses by 2022 which is a very huge opportunity not only for the housing sector but also indirectly for the piping industry.

Besides the above, India needs large areas of commercial space for modern Retailing. This will give further illip to the construction activity in this area.

Favorable demographics, higher disposable income leading to better lifestyle, concept of nuclear families and a rising middle class will also drive the growth in the demand for housing.

Government of India is supporting irrigation to increase agricultural output which implies higher demand for pipes from the agricultural sector. Your Company has recently started manufacturing Agri Pipes which will contribute significantly to the growth of your Company. 

Many countries are likely to come forward to support the vision of our Prime Minister Mr. Narendra Modi to build "Smart Cities". This in turn will open up new opportunities for growth to the Piping and Adhesive industry. Your Company is poised to utilize the opportunity quickly as it is ready with the required manufacturing capacity and infrastructure.

Implementation of GST is going to be beneficial to the organized sector and your Company will be no exception. Leakage of tax revenue in the unorganized sector will be plugged with this new law coming into force and a level playing field will be opened for all players. Your Company's new products are picking up and contribution of these new products is going up. With the introduction of Blaze Master, a new avenue will open up in the piping segment. Your Company is expecting a reasonably good amount of revenue from Blaze Master.

Outlook:

The history of piping Industry in India has witnessed higher growth and will continue to be so because of the following reasons.

• Replacement of conventional piping systems like galvanized Iron and Cast Iron piping systems with plastic is going on and will continue in the near term.

• Growth in construction, particularly in rural & Tier-II and III cities is going to supported by demographic change, aspirations of better lifestyle, nuclear family concept and continuous rise of the middle class.

• Increase in the demand for branded agriculture and plumbing pipes because of increase in income levels.

While the Piping Industry has been growing at 12-15% CAGR during the last 10 years ,your Company's growth has been much higher than that of the Industry (CAGR 30% +)

New Government is committed to rapid economic growth of the country. Some of the initiatives taken by the government like "SMART CITIES", "REIT", "FDI - in real-estate" etc will have a favorable impact on the demand for the products of piping and adhesive industries.

As far as your Company is concerned, a single most important advantage it enjoys is that it is the only Company which can offer to the developers all their piping requirements for various projects. Astral offers one-stop solution for various piping requirements such as Plumbing (Hot & Cold), Drainage, Underground, Rain water harvesting, Sewage, Industrial, Fire Sprinklers, Agri Pipes etc.

Your Company is the only NSF approved Company in the plumbing industry, giving it an edge over its competitors.

With the association of Mr. Salman Khan as Brand Ambassador, your Company's Brand strength is steadily going up. The distribution network of your Company is continuously expanding. Your Company has, at brsent, 700+ distributors and 20000+ dealers.

With recent two acquisitions Viz. Resinova (Kanpur, India) and Seal it (Bond It - UK), your Company supplies full range of products in the Adhesives, Sealants and Building Chemicals segment. As already mentioned earlier, market opportunities are many in this segment and therefore, we see a very positive out look for growth in the years ahead.

Looking to the size of the Piping Industry of more than 275 (INR bn) and plastic piping of 215 (INR bn) and 100 (INR bn) for Adhesives, Sealants & Building Chemicals we see a very bright future for your Company. In both size and scale this industry is growing significantly and with the new demand in housing, infra, hotels, airports, malls, 100 Smart Cities and lot of commercial construction, your Company will have a very good growth opportunity in the years ahead.

Your Company has recently entered the agri piping sector which also has a very good market in India and future potential. We are just beginning a journey in the segment where the existing market size is placed around Rs.7000 crores. Which is further growing. Looking to the Astral's strong brand awareness in India and its coming branding events with Mr. Salman Khan, your Company is quite confident that it will be able to muster a reasonable market share from this segment in the days ahead. The initial response for these products is very encouraging and we are confident of growth in coming years in this segment also.

Your Company has recently commenced the production and sales from its South-based plant (Hosur- Tamil Nadu) which will help the Company to expand its Southern market in India. Last year, we started with PVC products and now we have installed machines for CPVC products. With the availability of additional power, we will be able to start manufacturing CPVC pipes in the coming months which will enable your Company to capture higher market share because of the logistic advantage of the new plant.

Business of the Kenya joint venture of your Company has started picking up. Last year sales have grown by 67%. In the current year it is expected to further grow at a rapid pace especially with the introduction of local manufacturing of fittings. We foresee a sizeable growth in Kenyan market because of duty saving.

Foreign Exchange Risk:

Being significantly dependent on imports and loans in foreign currency, your Company is exposed to the risk of fluctuations in exchange rate of foreign currency. Appropriate decisions are taken for hedging the exposure from time to time based on the market scenario. However, the volatility is increasing day by day which has elevated the risk. But after Mr. Raghuram Rajan took over as the RBI Governor, the risk due to Exchange rate fluctuations has decreased substantially. 

Raw Material Prices:

Since a signifi cant part of the raw material is imported, any increase in the import price or fl uctuations in the foreign currency rate may affect the margins of your Company. Further, the price of raw material is to some extent, linked to the International crude price, which may affect the price of raw material. But your Company has been successfully managing this risk for the past several years. Whenever the revision in raw material prices is on the higher side, it is passed on to the customers. Lubrizol is putting up CPVC compound facility in Dahej which will reduce this risk for your Company to almost negligible level because your Company will be sourcing CPVC in local currency. We expect that Lubrizol will start supplying products to us from local manufacturing plant from the next financial year.

Internal Control and their adequacy:

Your Company has adequate Internal Control Systems and Procedures commensurate with the size of the Company and its nature of business. The independent Internal Auditors continuously review the adequacy and effectiveness of the internal control systems vis-a-vis on - going operations of the Company, which provides reasonable assurance of adequacy and effectiveness of control, governance and risk management procedures to the Audit Committee. The recommendations of Internal Auditors and the Audit Committee are followed up effectively for implementation.

Financial Performance:

An overview of the financial performance is given in the Directors' Report. The Audit Committee constituted by the Board of Directors periodically reviews the financial performance and reporting systems.

Human Resources:

Your Company continues to maintain constructive relationship with its employees with a positive environment so as to improve efficiency. Your Company places great value on the commitment, competence and vigor shown by its employees in all aspects of business. Your Company confirms its commitment to take initiative to further align its HR policies in order to meet the growing needs of the business.

Your Company has employee focus in the sense that it provides fulillment, stretch and opportunity for development of its employees at all levels. It is because of the considerable skill and motivation of the employees, that your Company is able to deliver performance satisfaction. Your Board would like to exbrss its sincere apbrciation and gratitude to all employees on behalf of the stakeholders of your Company, who benefit from their hard work.

Cautionary Statement:

Some of the statements in this Management Discussion and Analysis, describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable Laws and Regulations.

Actual results might difer substantially from those exbrssed or implied. Important developments that could afect the Company's operations include changes in economic conditions afecting demand, supply and price movements in the domestic and overseas markets in which your Company operates, changes in the Government regulations, Tax Laws and other Statutes or other incidental factors.

The Company assumes no responsibility in respect of forward looking statements which may be amended or modified in future. 

For, Astral Poly Technik Limited

(Sandeep P. Engineer)

Managing Director

 (Jagruti S. Engineer)

Whole Time Director 

Date : 28th May, 2015

Place : Ahmedabad