Sandeep Engineer likes to narrate anecdotes from his own life to explain his belief that big stories have their origins in very small ideas. One such instance goes back to 2002 when the Brihanmumbai Licensed Plumbers’ Association was holding its annual meeting. On an impulse, his company, Astral Poly Technik, decided to become a sponsor for the event. The attendees at the day-long function were largely plumbers, accompanied in smaller numbers by architects and contractors. As a sponsor, Engineer was asked to address the 300-strong audience and over the next few minutes, he spoke about his company and the benefits of installing his CPVC (chlorinated polyvinyl chloride) pipes. “It was apparent nobody had ever taken the effort to speak to the plumbers,” he recalls. As he stepped off the dais, Engineer was inundated with requests from plumbers to visit their sites and offer advice. The next day, he visited the Hiranandani Gardens site at Powai, a north-east Mumbai neighbourhood, with snacks and complimentary T-shirts branded with the Astral logo. “It became an event of sorts and it was really the first time the plumbers were interacting with a company,” he says.
The key learning from the experience: the plumber is the influencer and decision maker, a fact that is often overlooked by others in the pipes business. Engineer put in place a formal plumber training programme, which currently imparts skills to over 40,000 plumbers across India. “There is a module taking place in some part of India all the time. Right now, for instance, we are having one in Kerala,” he says. Most importantly, his CPVC pipes — plumbing material that is used in many parts of the world on account of its durability, ability to resist corrosion and, most importantly, high temperatures — has been accepted by large parts of the community as a viable alternative to the more archaic galvanised iron (GI). As a result, it is the plumbers themselves who are recommending CPVC pipes to apartment owners and builders. “The ease of working with the product and the advantages that it offers is well understood by them,” feels Engineer.
It is not surprising, then, that today developers of repute, such as Hiranandanis, Lodhas, DLF and Unitech, are clients of Astral. That’s showing in Astral’s numbers. The company has grown four-fold to over ₹821 crore in FY13 in the past five years, thanks also to a diverse portfolio that cuts across the spectrum of plumbing and drainage solutions using both CPVC and the relatively inexpensive PVC (polyvinyl chloride) pipes. Within this, the firm covers segments such as water plumbing systems, multi-layer composite pipes, fire sprinkler systems, column pipes, heavy metals and soil and waste systems. Now, Engineer is eyeing a three-fold jump in turnover to ₹2,500 crore in three years (FY18). While that appears to be a tall order, for Engineer, who came back from the brink of bankruptcy a few years ago, impossible is nothing.
The early years
When Engineer started his entrepreneurial journey, CPVC figured nowhere on the roadmap. He began as a manufacturer of bulk drugs following a stint with the Ahmedabad-based Zydus Cadila. Then, a delayed pollution clearance changed everything and Engineer, a chemical engineer by qualification, was introduced to CPVC by his uncle, who was then working for Noveon International, a specialty chemical company in the US. “Plastics seemed like a good idea since it does not face issues related to pollution. I knew CPVC was a good polymer for pipes and I went for it,” says the 52-year-old.
But the initial phase, starting early 1999, was anything but easy and none of the people he met were convinced that plastics could replace metal. “They laughed at the idea and said plastic was incapable of handling something as strong as sulphuric acid,” he recalls. His early stumbles wiped out his entire ₹80 lakh savings from the pharmaceutical business that he had invested in the new venture. The foray into plumbing started later that year, but Engineer’s run of bad luck wasn’t over yet. In almost no time, his lender, Madhavpura Mercantile Co-operative Bank, collapsed. “In one stroke, we lost all access to capital. There was anyway no profit in the business nor was there any product range to speak of,” says Engineer with a wry smile.
That changed in a couple of years, thanks to Astral’s tie-up with Lubrizol (then known as BF Goodrich), a Fortune 500 company. With access to technology ensured, Engineer took a bold decision to advertise. In 2004, when Astral had a topline of a modest ₹25 crore, it brought Mudra on board as its advertising agency. “That year, we ploughed our profit of ₹2.5 crore into branding. I was certain there was a huge replacement market in GI and we needed a pan-India brand if we had to matter,” Engineer explains. The gamble paid off and it became possible to get good distributors. The progression from a small firm to something bigger got underway. Today, the company has 380 distributors and over 20,000 retailers stocking its products.
Astral leads the high-margin chlorinated polyvinyl chloride pipe market, with a strong brand portfolio
The emphasis on product portfolio has paid back in spades. Lubrizol, of which Astral was already a licensee, was taken over by Berkshire Hathaway in March 2011. Astral leveraged its tie-up with Lubrizol by launching its quality plumbing products such as Corzan, FlowGuard,FlowGuard Bendable and most recently, BlazeMaster, a fire sprinkler system. The plus for Astral is that it has access to four Lubrizol products, unlike its competitors, including Ashirvad and Ajay, who have access to just one or two products. “As such, the CPVC market is highly organised, with Astral, Ashirvad and Supreme being the three largest players given the constraints in the availability of the patented CPVC compound, which is at present manufactured by only three companies globally, with Lubrizol enjoying 70% market share,” points out Arun Gopalan, director of HBJ Capital Services .
Since 1997, Astral also had a tie-up with the US-based Specialty Process, tapping into its manufacturing expertise. To ensure the US firm remains more than just a partner, Astral made it a 7% stakeholder. And in 2011, it also forayed into manufacture of solvent chemical by setting up an 85%-owned subsidiary, Advanced Adhesives (100% owned by Astral now). Solvent chemical is used to join pipes and the American firm is the market leader in its manufacture. Capacity, too, has kept pace. From 4,037 mtpa in 2006, Astral’s capacity has grown to 95,000 mtpa now. The expansion has been funded through internal accruals, evident in the company’s debt-equity ratio of 0.37.
Not surprisingly, Astral’s growth caught the eye of the investing fraternity. California-based PE fund WestBridge Capital was quick to spot the potential and invested $10 million between 2012 and 2013, translating into a 11% holding. “We are sitting on 5X return on our investment even as we speak,” informs Sumir Chadha, co-founder and MD, WestBridge Capital, whose fund has also invested in another PVC major, Supreme Industries. What caught Chadha’s fancy was the large and highly unorganised pipes market that Astral is targeting. “There is a shift from GI to plastic pipes owing to no corrosion and a longer life, in addition to a shift from unorganised (estimated to account for 50% market share) to organised players as customers and plumbers appreciate quality over price,” explains Chadha.
Currently, CPVC pipes bring in 60% of Astral’s revenue. Besides being the market leader in the CPVC space, it is also a competitive player in the PVC pipes business. “This has resulted in Astral growing at over 40% for eight years in a row. And this, in an environment where 20% growth is considered extremely good,” points out Chadha.
Getting growth right
The question now is, can Astral continue to grow at a faster rate on a larger base? Engineer remains confident that his company will sustain this growth momentum without much ado. “There are houses to be built. New airports will come up and we will address every segment with our diversified product portfolio,” he says. The pipes at Delhi’s T3 airport terminal as well as Mumbai’s T2 were supplied by Astral, he points out. “It is not obvious to people how much work we actually do.”
Going forward, too, Engineer is counting on getting similar large projects, although routine business will continue to grow at around 25% a year, he predicts. The huge opportunity coming up is from underground drainage systems. “This will involve replacing the existing sewer lines of the municipal corporations. At this stage, we are trying to understand what opportunities exist and are making presentations to the municipal corporations,” he says. There is an export foray as well, with Kenya and some neighbouring countries being key markets. “We will make some progress here, though India will keep us occupied for a long time,” Engineer opines.
It will also work to Astral’s advantage, say analysts, that the company did not play the pricing game: its products are priced 7-8% higher than its competitors. “Offering a specialist and high-quality product was a very effective strategy to deploy. Launching lead-free pipes was also a good innovation,” says Nitin Bhasin, analyst, Ambit Capital. He expects the fire sprinkler system, BlazeMaster, especially to be a ₹200-crore business in the next three to four years. Engineer, for his part, is very optimistic about the segment. “It is a big market and we need to ensure that we get it right on areas like installations,” he says. Astral received the approvals for this product in early April 2014 after an almost five-year wait.
Astral has proactively adopted new technology to create new products
The next big opportunity for Astral will be agriculture. “There is a huge market for column pipes, commonly used in agriculture and made using only PVC right now,” says Ambit’s Bhasin. Consider this. In agriculture alone, there is a market worth ₹6,000 crore waiting to be tapped; column pipes for borewells is a ₹3,000-crore opportunity and within CPVC-based pipes, fire safety pipes is a market worth ₹1,500 crore. There’s another very good reason to continue in the CPVC business: margins in some categories can go as high as 25%, while PVC pipes bring in as little as 5%. That’s reflected in Astral’s operating margins, which have been around 14%.
For now, the housing sector remains Astral’s primary market, accounting for nearly 65-70% of its business, with the rest coming from the industrial side. “Both sectors are growing by at least 35% each year, though the margins are higher in the industrial vertical. However, industrial takes time to adapt, especially in the chemical industry, where they still use polypropylene,” explains Engineer. Geographically, the bulk of its business, about 60%, comes from the west and south. “The northern market is very price-conscious, so it took a while for the market to adopt CPVC. Also, with prices of GI pipes going up, the difference between CPVC proved to be negligible. Besides, GI pipes take 7-8 days to instal, while CPVC takes 1-2 days,” says Engineer. Today, the north accounts for 25% of overall revenues.
In keeping with the geographic spread, Astral has also established a pan-India manufacturing footprint spread across four locations — two in Gujarat, one at Baddi in Himachal Pradesh and the most recent one at Hosur in February this year. The east is currently serviced by the Gujarat plants but Engineer’s team has, in the past, scouted locations in Odisha and West Bengal to set up a new facility. “At some point, we expect incentives to come from the states in this region. That is when we will probably open a plant there,” he thinks. Before the Hosur plant, the south, too, was serviced by Gujarat. “This was at a freight cost of 7-8% of the total cost. It will now be possible for Astral to quickly gain market share in the south by passing on savings in freight costs to retail customers,” thinks Bhasin of Ambit.
One expense that will continue is advertising. Astral will continue to invest 1.5-2% of revenue in branding, especially as it expands into more retail products such as agri and borewell pipes. When Salman Khan’s Dabangg 2 was released in December 2012, Astral struck an in-film branding deal, where the star was seen using the company’s pipes. To get his partners enthused, Engineer distributed 70,000 tickets for the night show on the first day.
Inviting stakeholders to movie shows is not the only way Engineer shows his appreciation for his customer base. Astral has moved up to become the Brihanmumbai Licensed Plumbers’ Association’s main sponsor and continues to use the platform to interact with key partners. “We have not forgotten that our story really took off from there,” says Engineer with a smile.