Astral Limited (ASTRAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Astral Limited Management Conference Call hosted by Investec India. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Ritesh Shah joined Head of Research and analysts, MidCap, Materials and ESG at Investec India. Thank you, and over to you, sir.

Thank you, Swapnali. Thank you all for joining on a Saturday afternoon. Idea to host this call on a short notice was to have a brief on the approved merger straight from the management. Please note there won't be any questions with respect to the quarter, which will be taken up. Today, we have with us Mr. Sandeep Engineer, Mr. Kairav Engineer, Ms. Saumya Engineer; and Mr. Hiranand Savlani. I request Hiranand and Sandeep to first run past the rationale why the event right now and the structuring of this transaction to start with on their initial remarks post which we'll have a Q&A for all the investors. Thank you, and over to you, Sandeep.

Thank you. Thank you. Good afternoon, everyone, and thank you for joining us on a short notice. First, let me brief you about why we have proposed to have the 2 businesses and 2 verticals to be merged. There are a lot of initiatives happening in both the businesses and we would like to go through everything. Firstly, the adhesive business has been on a continuous growth path. Many chemistries have been added in last 1.5 years. We have almost completed our expansion at the Dahej plant. The fully automized solvent cement plant is under trial and will be operational in a short time. So the CapEx cycle, which was going through at the Dahej has almost been completed. We are also pleased to let you know that a lot of pool is coming from the construction chemicals and construction chemicals is equally growing. We have also put in many new products like the white glue also has been growing at a good pace. We have also made our own certain products like we have the electric tapes now made in India and many such products which we were actually importing and repacking and selling have also come into production in last couple of -- last year and a couple of months. Going through the paint also paint has been giving us a good growth. The capacities are already there. So there is a minimum CapEx cycle, which is going to happen, except some small CapEx cycle on putting up the corrected in the Western region. Already the southern region has its plant and we have taken ample of land to suffice the growth of the complete chemical adhesive Paints division for coming 2, 3 years and even 5 years. So there is no going CapEx cycle going to happen on that front also. Recently, we have acquired a very state of our facility and a very huge R&D setup for DSS Limited. DSS has many products in its basket which have been researched, some of them have recently gone into commercial production. And these are all the products used in the adhesive business in making epoxies and many products, many other products and even some of the research keys on the paint business. And the DSS is giving us the products which actually India does not make. We have to import them from outside and use them. So when they have a commercial setup and we have already started the commercial production at DSS, and at some stage, you would also like to scale up the production facilities at DSS as well as put a state-of-art chemical facility. Actually, the CapEx cycles are not so heavy here, but there are a lot of benefits which come from using the product in-house, and there is a huge potential of exports. So when we are continuously coming and meeting our respected investors, there was always a confusion between the businesses, which we got into. One was a purely chemical and chemical based business, which also had a good cycle and growth. And similarly, we had a piping business, which was growing at a pace and [indiscernible]. So this gives everyone a clear picture on both the verticals, how they are performing, growing and how the future stands. Now, in adhesive, I would like to even bring it to the notice without numbers that as we have communicated, the U.K., the U.S. businesses have been doing excellently well, we will be shortly putting numbers for you, but they have been growing. They have been converted into good EBIT margins as well as there are a lot of opportunities in U.K. which have started striking our doors and which will help us to even use the facility at a higher scale and there are a few customers, big customers and big DIY stores who want and who are now in the process of tying up to buy the product from BOND IT or Seal IT and similar things are happening in U.S. U.S. now, apart from the silicon tests, the other products which we made there have also started going to the market. But more perspective, we would like to give you when we have the question-and-answer or even Hiranand will share. And 1 more thing is that this whole process is a longer process. By the time it ends, we'll be finishing the fiscal year. And by the end of the fiscal year, there is a substantial number of the chemical business as well as the pipe business. And it was a process where there was plus and minus that what time we should make it happen. But going through the whole process and going through the time cycle, we are sure that by the end this process kicks up, the number will be at a level where everyone would feel that this is the number where this is the right moment, things have helped. Coming to the pipe business. The CPVC plant is going ahead of cycle, ahead of the decision which we -- or the time line we have communicated. So we would be ready with production of CPVC by the fiscal end and the CPVC will help us in our piping business, not only for growth but also to improve margins. In the piping business, our pet aluminum packs, the state-of-art product is starting in a couple of months. Certain products are growing at a good pace. Again, we'll communicate when we connect to you in next 1.5 months, and certain new products in Drainage are already there. The OPVC is in a full-scale. We are ready and we have launched PPR also. We have launched STPP pipes for certain gas applications. We have already started getting some good traction on certain products which we have added. And the -- all of this is also now getting on a full track and growth plan. The second thing is the faucet has been a growing phenomena for us. and it will continue to grow. And it's also growing at a better pace. So there also, we would like to take more initiatives for its growth, take steps to see the growth continues. And at the same time, we have put facilities for pipes at different places. So the CapEx cycle is already at a level where it is not going to be there -- high, but using these capacities and adding a few machines at this location will be also generating good amount of growth in revenue in the piping business. But when we come to the question and answer, I'll be ready to answer whatever queries you have on both the business as well as Saumya is also here. And Kairav is here and Hiranand is also here. So we'll be extensively clearing all your questions, all your doubts and making it transparently clear on the steps which we have taken consciously and in the betterment of both the business for the transparency growth and the future prospects which we see of both the verticals in the coming years in 1 or 2 years, and we are very sure that this will help us to keep the growth path. Secondly, the CapEx cycles are not heavy. The manpower cycle also in adhesive is coming under great control. And that also will keep talking in these 3 quarters as we unfold the numbers. And at the same time, we are getting good traction, and we have covered a good manpower scales reduction in piping and fast division. I'll hand over now to Hiranand to go -- take you through the other aspects and then we will be getting through you with the question and answer. Thank you very much.

Good afternoon, everyone. And sorry to trouble all of you on Saturday holiday, but this was the need of our and we thought that it is better that we clarify rather than sort of grapevine going on in the market, whether we clarified from our side so that there should not be any doubt in anybody's mind. Let us first understand the structure of the company. What was there earlier and what is now. So a lot of confusions are going on in that structure also. So I think we have clearly given the structure or the very clear message on our press release that how we are going to divide the 2 businesses. The message is very clear, but still any doubt, we will clear here. Whatever the business is related to the chemical, they will be forming part of this Astral coating or now it is Astral Chemi. And whatever the business is related to pipe, they all will be combined in the pipe entity. So there will be a 2 entity in future. One is the Astral Chemi, which will be the part of the chemical related businesses and then the Astral Limited, which will be related to pipe and the pathway. Now let us discuss the individual company so that you have more clarity. Like today, we are having [indiscernible]. [indiscernible] is completely into the manufacturing of the electrofusion fitting. So it is completely related with the pipe. So it is going to be merged with the pipe. Then we have a second entity Nexelon, where Astral has 80% stake, which is going to manufacture CPVC raging. So CPVC region is also connected with the pipe. So that is going to be under the umbrella of the pipe. Thirdly, Astral Foundation, that is mainly for the CSR activity that will be common and then -- but it will be the part of the Astral Limited. And then there is an entity called Seal IT U.K. So Seal IT U.K. will be the adhesive related business, so that will be the in-future the part of the chemical business. And then similarly, paint business. So paint will also be the part of the chemical. So that will be in the Astral Chemi. And then Seal IT U.S. is also a subsidiary or today the step-down subsidiary of Astral. Again, it's related to the adhesive, which is under the Seal IT U.K. So that will also be moving to the chemical business. Similarly, Seal IT Ireland, that is a small subsidiary, which is step down subsidiary we opened them just to take the advantage of the tax structure of U.K. and U.S. So that will also be the part of the adhesive division, so that will also fall into the Chemicals division. And then the recently acquired the specialty chemical business of DSS, LLP, where Astral has a 60% stake and that will also be related to the chemical. So that will also fall under the Astral Limited. So in future, Astral Pipe will be having only 2 businesses, 2 company that is the Nexelon and the Astral Foundation. This Kemia venture is shut down. Only the land is lying over there. So whenever that will be sold at that time, whatever money will be coming, that we will receive at that time. And that time, we will shut down that company. But until that time, we ought to operationally keep this company on our books. So that's why Kemia will also be forming part of the pipe division. Now in Chemical division, this paint business will be there, that is a Astral Coating and whatever the adhesive division is there in pipe that will demerge from pipe and will go to the Chemicals division. And then the Seal IT U.K. will be there and then Seal IT Ireland will be there and Seal IT U.S. will be there. And now recently acquired DSS that is a specialty company that will be forming part of the chemical. Now if you have still any concern, you can wait the question during this concall. I think Sandeep has explained you in detail. The objective of demerger is very clear that we want to grow very high in the both vertical. And at the same time, we want to have a capital discipline also that every business should generate that cash flow, and that should be deployed in the growth of that respective business so that there should not be any interlink between the 2 companies. And that is the reason we are doing. Secondly, I think high synergy between the paint and the DS business is there are a lot of dealer distributors are formed Similarly, warehouses will be common. And at the same time, plant will also be sizably helping each other. So because of that, I think the synergy is perfectly fitted to that, and that is going to help us to save a lot of costing saving, and that is why we have decided that these businesses should merged. Otherwise, it will be having a lot of issue on the operational fund, related party transaction will be there. Then a lot of transfer pricing-related issues will be there. So all these challenges will have to care. So because of that to come out from this operational discomfort, if this entity will be combined, then it is going to help a lot. The overlapping between 2 business will be only to the extent of solvent cement. Astral is selling only 1 brand that is the Weld-On, which is roughly about INR 100 crores brand. And total out of total business of INR 225 crores to INR 250 crores of our adhesive, 40% is with Astral because Astral is selling only this brand. Now as far as the our ADC business is concerned, they are having multiple brands into the solvent and they are directly selling to the dealer, which had no relevant with the pipe business. They are directly selling to the dealer and distributors, and they are taking care of into the other piping companies with this. It is not related to the Astral pipe, which can be a solar bone brand in there, Rugs there and MRO is there. So all 3 brands are already independent and they are selling independently to the different categories of dealer, which is not having any relevant to the 5 million. So overlapping of 2 businesses only to the tune of only INR 100 crores. So in future, this adhesive division will sell Kemi will be manufacturing and Astral will be buying from them or adhesive can directly also sell to the aseptically also. So otherwise, there is no overlapping of 2 businesses. Now coming to the number point of view, I think last completed year, we have closed the Chemical division to the tune of INR 1,861 crores and with the EBITDA of INR 192 crores. This was low in terms of EBITDA because we have already clarified earlier that because paint business is new, we are expanding very fast because we are expecting this business to grow very fast. So because of that, we have added a lot of overhead. So now I think this year, it is going to get over. And this year, we already communicated that we will into the EBITDA positive. So we don't see any dragging of profit from that division. Secondly, Sandeep has already clarified that whatever CapEx that division is dead, whether it is into the adhesive or whether it is paint that all will be completed this year. For the next 3 years, we are not seeing any big ticket CapEx. Maybe small CapEx may come INR 20 crores, INR 30 crores or maybe INR 40 crores, INR 50 crores CapEx may come. But that business is self-sufficient to take care of that CapEx from their internal approval because you can understand that this year it's INR 192 crores of EBITDA. Next year will be sizably high. So close to about INR 250 crores kind of -- I am putting a hypothetical number, it can be a little bit plus better. But even if INR 250 crore of EBITDA will be generated. I don't think that business will be having any shortage of cash because it don't need additional CapEx. Whatever the additional money they will be requiring that will be required for the growth of the business, and that is in the form of working capital. So that unit will also be self-sufficient and will not be requiring any big-ticket cash flow for its growth. Now coming to the recent acquisition, which we have done, that is the DSS, which we disclosed in our press release also, when we have acquired, this is a very beautiful business and very, very high growth business and not only high growth, but high margin. We already communicated that our margin profile will be 25 to -- sorry, 20% to 25% EBITDA. So that business is also going to generate a lot of cash flow in the next 3 to 5 years' time. And today, they don't need too much of -- with a minimal CapEx, maybe INR 10 crore, INR 15 crore max to max CapEx, they are going to generate INR 150 crores of revenue. So now with INR 150 crores of revenue, 20%, 25% kind of EBITDA. So that business is also going to generate INR 30 crores, INR 35 crores, INR 40 crores of EBITDA from the next year onwards. So that business is also going to generate the cash flow. And for the future growth, whatever CapEx will be needed, first of all, the low CapEx indeed in that business because it's a high margin bites. And that also will be taken care from the internal accrual because that much of cash flow will be generated from that business. So from here on, we don't see any big ticket CapEx requirement is there in the additive business or chemical business because every businesses are going to generate cash flow from this year onward whether it is a pain, whether it's U.K., whatever challenges were there, Sandeep has very categorically clarified that we are already into the positive trajectory. Even last full year, if you see the number, there also, we have generated a positive EBITDA of INR 15 crores. So it is not any problem now. It is going to be a sizable improvement, maybe more than 100% improvement into the EBITDA this year. So that business is also going to generate a lot of cash flow. Now team has taken chart, and now team has already settled out. New CEO is also settled out over there. We have already started getting a big ticket inquiries from the big stores. They are ready to join with Bond It. So I think going forward, that business is also going to generate lot of cash flow. So as far as the cash flow is concerned, we are not seeing any challenges to any of the business. Pipe is anyway generating a high cash flow. But with this, backward integration of CPVC, we are highly confident that this business is going to take place a new shape and we will be very, very aggressive into the market, and we are going to continuously gain the market share into the CPVC market, which you can see in the piping results also that continuously last 10 years. I'm not talking you 1 year or 2 years, last 10 years, every year, Astral has taken the market share and that run rate will accelerate in the coming time with this help of the backward integration. We already complicated that by December, our plant will be ready. And January, February, March, we are going to do a lot of trials, and we'll be ready with that. And from next year full, you will be getting the full advantage of this vertical. So cash flow for that vertical is not going to be a big challenge. So I think it's the right move at this stage because anyway at a later stage, we can do this demerger, that scale, it is going to be a bit challenge. Rather it is better than an early stage, we can segregate and we can settle down so that growth trajectory, we should not be facing the problem. If we do at a INR 4,000 crores or INR 5,000 crore level, then the different kind of operational challenges will be there. So it is better that now we can settle down now. And you will see by year-end itself, this adhesive business will be close to about INR 2,300 crore, INR 2,400 crores. So almost, you can say we have reached at a stage that why we will take up this decision. Now with this, I want to open up the floor for the question and answer. Thank you.

[Operator Instructions] We have the first question from the line of Keshav Lahoti from HDFC Securities.

Sir, firstly, I just want to understand what is the total of the demerged entity. The reason I'm asking because the press release mentioned the amount as 12.7 million, combined chemical and train the number is still a larger one.

I think in my initial remarks, I have already given the number. The adhesive in the Chemical division last year number is INR 1,861 crores and the EBITDA of that business is INR 192 crores. And these numbers are already we have published in our last presentation during Analyst week. So you can verify that number from that presentation also. And shortly, we are going to give you the separate P&L for both the vertical, chemical vertical and pipe vertical at the same time, a separate balance sheet also. So give us some time, maybe we will be ready by Q1 number. But the Q1 number call will be that by the time we are going to give you the separate balance sheet of 2 and separate P&L also. so investor have a very much clarity.

Understood. Got it. That would be helpful. Just to highlight because the press are you mentioned for the amount -- so that's why it was creating a confusion. Secondly, because...

Press release because the coating business in paid business is separate and U.K. business is separate. That's why we can give only the Indian number. But otherwise, I hope you -- and even if it is a mistake, we are sorry for that. But now onwards, you will be getting all the consolidated number.

Understood. Got it. Whether by demerging this business, possibly the growth of the company could further accelerate what we are expecting earlier because we highlighted the focus for patient? And secondly, how would be the management team structure for both of the company?

So I think we already clearly said that with this demerger, we are going to go into the higher growth trajectory rather than I can say higher growth, it's a fast trend growth strategy. And that is why we are doing. So because decentralization of power is always going to help the organization and that is the reason why we have done this thing. So we are very confident that with this demerger, we are going to grow at a very, very high speed. And that will be reflected to you in the coming time. Today, we are just on a paper we are saying, but once you will be waiting for some time, you will see on the ground that we are going to grow at a very fast pace in both the businesses.

Yes, I'd like to clear 1 basic thing that we held, it is myself going to remain for both the companies and the -- all of us together, whether Kairav also plays the role in both and Saumya places the role and Hiranand-ji plays the role. But myself, as I created the business or from a scratch from CPVC bringing a new polymer creating a new vertical, creating new products, still innovating new products, going backward in CPVC, getting our own faucet ceramic web plants and putting a plant to make those in-house with new designs. Similarly, there is a great opportunity, which we see here in the growth trajectories with the new chemistries, which are there, the new products which are there, the epoxy where we are 1 of the leading players, the cyanoacrylates, which is growing. We have also come on the platforms where the products are taken to the home also by the buyers. And also we are equally bringing new products for waterproofing and the construction chemicals. At the same time, in paints also a lot of innovations are happening there are a lot of new paint technologies, which we are working on. So the whole concentration to grow both the verticals, both in the product line, the adhesive is a completely B2C business. And even the paint is B2C business. The backward integration is happening in the pipe is also helping Pipe is also major B2C and also B2 projects. At the same time, in some of the good product lines we are also growing with some of the great infrastructure projects of India. And at the same time in adhesives, we are also going backward with these acquisitions. So the strategy and the theory is that both the babies have to grow and both the babies are at the help, I will be there. And we will be seeing that as we grow the pipe business from a scratch, we'll grow this business to a next level.

Congratulations to the whole team. .

We have the next question from the line of Praveen Sahay from PL Capital.

Thank you, first of all, for hosting this call. My first question is related to the cost. So post demerger chemical business, how they are going to reallocate the cost related to technology or corporate head how that's going to be there? Is that the cost burden expected to increase looking at the size of the chemical business right now and where you will see this margin in medium term to be done?

So I think cost side, we don't see any much increment will be there may be few positioning at the administrative side or maybe an accounting side or maybe finance that can be added. But that amount wise, it's not going to be substantial. But at the same time, a lot of cost savings aspect is there because a lot of operational yields will be there at the plant level, at the warehousing level, at the market level. So synergy is very high between the paint and the adhesive division. So that is going to help us in a big way. So whatever little bit cost increase will be there on the administrative side or maybe a compliance side, that will be sizably offsetted. And rather than I can on the contrary, will be savings side will be more rather than the cost side. Because the synergy-wise, whatever operational we are seeing there, we are going to save a lot of money. I don't personally see any cost inflation will be there because of the project. A little bit increase will be only the compliance side or maybe to some extent, other administrative side. But otherwise, saving will be more rather than the cost will be there.

And where you will see the margin at this 10% of margin there to move in?

I think 10%, you are seeing the consolidated margin. That is mainly because 2 businesses were not generating the margin that is U.K. business and paint bidder. Now from this year onwards, both are going to generate the positive EBITDA. So with that, we are of the view that we can easily reach in to the 14%, 15% kind of trajectory maybe by next year. We are confident that we will be there in this 14%, 15% trajectory next year.

Right. Second thing you had highlighted about the growth, the way forward, the growth for this business would be quite a high almost done. So can you give some color, like next 4 to 5 years where you wanted to see this chemical business, this INR 18 crore, INR 1,900 crore business to grow at? And if possible, which segment would be on the higher side of the contribution in the next 4 to 5 years?

So I personally feel that the old vertical will be growing fast. I am putting this question to Saumya. Let Saumya to answer because he's already day-to-day basis involved I also know, but I want that the Saumya should come in now onward, he is going to interact with all of you. So let him to answer this question. And if anything is left out, I will add on to that.

So next -- Saumya here. So I think, as Hiranand said, this year, we closed our figures around 18 months the chemical business. And next 4 to 5 years, I think internally, we are aiming at a number between INR 4,400 crores to INR 5,000 crores for the chemicals business. And majority will be coming from the India additive business with, I think, mostly equal contribution from the U.K. U.S. as well as a little bit higher contribution than now from the paint business because it will be growing at a much faster pace for us. So I think overall, the bigger chunk will always be the India adhesive business and -- which is our main adhesive sealant and construction chemicals business for us, which we have been running from 2014 since the acquisition. And Specialty Chemicals will also -- so in this, the DSS chunk will also be added. I think DSS, as Hiranand said, that we are gearing up for around INR 150 crores for the DSS business next year. And I think we are adding capacities with not that much CapEx infusion in the business. And already, there are certain capacities right now in for DSS, which can start the commercial production and help into the backward integration for the adhesive business, but also we can offload some capacities in the market and set up our specialty B2B business. And I think one of the things which I would also like to kind of make it clear is currently our India adhesive business, the B2C business comprises of around 90% and B2B is around 10% with specialty business of DSS, I think we'll still maintain 10% into the B2B, but with better margins.

I think the best part is -- I can add here, the best part is that in DSS, the most of the products are import substitute. That is the beauty of that business. So scaling up that business will be very, very fast and the margin lucrative. And beside that a lot of, I can say, the export opportunity. So I can give you an example that recently we have acquired one order from the export, the single KG cost of that chemical is EUR 65. So you can understand the kind of product specialty will be there and then the margins will be very, very high. So if that business which we already communicated in past that we are targeting to INR 500 crores revenue in the next 4 to 5 years, and maybe early also if we can do tight things so fast. Then that business is going to generate a huge margin for the chemical vertical. .

Right. Sir, just a clarification. Next year means FY '27, we are talking?

FY '28. INR 150 crores.

Okay. And also DSS related, you wanted to go with some backward integration as well because this is a raw material for the adhesive and the other product which you are manufacturing. So this INR 150 crores is the external sales you are talking about or the club of the backward integration?

It is a club of both. But already this year, from this month, they have started 2 products, commercial production, which is going to help us in both ways as improving the margins. And these are more modern-based products where the chemistry of the product also is getting improved in a big way. .

Right. Perfect, sir. And the last question is, definitely, you said that you will share the balance sheet later. But if you can give some color on the return profile, how is going to be looked for this Astral Chemi and also the cash or investment which you have in the balance sheet of around INR 940 crores, how is that going to decide?

I think right now, the working is going on. So we will be ready by, I think, once a first quarter number will be out, at that time, we will be able to tell you exactly the number will be there. Right now, it will be too early for me to tell you. So please wait for 3, 4 quarters because now quarter is almost on the verge of completing, and we are targeting to publish the number by July end. So by that time, we will be having everything ready with you.

We will take the next question from the line of Sneha Talreja from Nuvama Wealth.

A couple of questions. So generally, we have seen this kind of a demerger happening at me, but is you also mentioned that you did see a lot of pluses and minuses. So could you actually tell us what were the pluses and the minuses of what you were looking at the demerger of this businesses to your view?

There were many pluses. Plus is 1 at both businesses, though the product goes in the construction world. The way they are sold and the way they are perceived in both as a business B2C completely. One is B2C and part of B2 directory projects. Second, the way of manufacturing especially the way of manufacturing in the sense that 1 is a polymer related product and other is a chemicals related. And third is the both these deals and paints go hand in hand, in sales also. -- in certain uses also. And the people who applied are also common. There is also 1 more aspect which we bring is a more transparency to communicate to all our investors because when we our meeting, and there is a lot of confusions on the chemical side, some kind the pipe side, sometimes the faucet side, which gives you a complete transparency now on both the verticals, which at and which go in the same market, but there are certain things which are different in both these verticals. Third is the plus side is the opportunity of growth prospects both are different, both are going backwards. Both are taking on a lot of new initiatives. And there are a lot of initiatives coming to our doorsteps. So all these things are where we need to take the -- all that it's -- both the babies are there, but both babies have to grow independently, generate business, generate cash flows and grow at a very high pace. The third thing is that the businesses will be almost full of capital cycles completion by the time it gets demerged. And also, we actually impact us to growth and the impact is to deliver the numbers will be much higher from as the fiscals go ahead. So a certain high level of sizes, the matter would have been more challengeable. And always, there are certain minuses like when you see it now, you'll see and look at both the companies in its own perspective, and there will be certain challenges always happening here and there on the operations side. But seeing the whole way the synergies and the organization and the way we have been structured the organization for growth, innovations and backward integration. I think it will be giving a more positive result from all the angles or both the verticals happening going forward.

Understood. Sir, that was really helpful. Just understanding since you said both of them are currently -- there are other divisions where there are a lot of commonalities, be it branding, be it distribution, we were looking at like 1 building material sort of company, which you said this is paying price across the board. How do we see branding and distribution going [indiscernible]?

There has been no commonality in branding. Let me tell you very friendly I never said that because when you make a for white glue, it's a white glue. You cannot say I am a pipe enabler. Like Ranbeer comes and says about it, it doesn't say that the pipes are good. Secondly, for the distribution, the distribution channels for pipes only going to construction chemical sales, but most of these B2C products of adhesive and paints, we are going direct to the dealer model. So no distribution channel in between. And in adhesives, there are smaller distribution like in Ahmedabad we may have 6 pipe distributors or industry will need to distributors region wise because the distributor has to cover 200 shops or 150 shops, every distributor. So the commonalities of sales as per se, is as a user prospectivity is there, but as the distribution pattern, which is not that much common. Faucet and ceramic web, many pipe distributors because pipe and fats go hang in and so those are sold to many distributors, but a lot of new showrooms and people have been added, who now be only in faucet ceramicware and not in pipes. So looking to all the perspectives, we don't see any great things happening. Even when you say warehouses, the pipe warehouses don't need that much fire protection, whereas the adhesive warehouses need more fire protection. So even they are at common premises, we need to differentiate how do we store more the products.

Secondly, Sneha, your question relating to the branding, the umbrella brand, the parent brand is still remain Astral. So it is not going to change that. So it is going to complement each businesses. So that is not going to affect.

Yes. When you do a branding called Astral, it carries to the entire the people we call the entire Astral. But let me tell you on my small thing. And I think this is a very practical answer if you all understand. When we always used to tell Astral people would only relate to pipe business. And people would always say that it is a pipe company and pipe business. So though we were in chemical, adhesives, leading being our number to in the market, creating a lot of things in #1, #2 in many chemistries and doing hard work, the Astral Chemi differentiate as a Chemi will always help us that we have a division called Astral, and we have Astral Chemical also this differentiate like to push the chemical business out of that shadow and bring it to a level where it will also be equally been seen perceived and also taking forward a perceived company will always help us. And at the same time, Astral, which leads in a product category will also be equally growing in its own category. It's a very practical thing when we go and ask for. If I meet somebody and talk this is going to help us in a big way in the future. .

We will take the next question from the line of Tejas Pradhan from Citigroup.

Just continuing on the earlier discussion point on the broader Astral brand. would both the entities, the listed entities have access to the brand or any sort of brand fee-type arrangement just to get some clarity on that?

Both will be having access to the brand Astral. No fees.

And there won't be any brand fee for the actions.

No, that will not be there.

Okay. Okay. Understood. Revenue contribution of Solvent cement to Adhesive segment. I know you mentioned that in the initial comments, but I just missed it. Can you repeat?

So it is the overlapping is only INR 100 crores. That is a well-known brand. Rest all the 3 brands, which I mentioned, Solvobond, Pudo Mo, all this is a separate that brand itself is a INR 125 crore kind of level. So that they are directly anyway selling to the market, which is a no current with the vertical.

Okay, understood. And the dividend policy now both the businesses would have different cash needs, right? So at a Astral level, currently, we had a dividend payout of 20-odd percent. Any sense how would that change on the piping entity and the adhesives entity?

So to be very honest, we have not yet decided. I think that Board will decide that policy. So we may be communicating when this complete process will get over maybe another 9 months or so. Then after, we will be in a position to communicate that how much percentage dividend we are going to distribute from each company.

Okay. And just lastly, just a data question. Could you just share for FY '26, how much revenue and EBITDA was there from India adhesives U.K. and the paint business?

So like India was revenue of INR 1,263 crores and EBITDA was INR 191 crores, U.K. as was INR 385 crores, EBITDA was INR 15 crores, Paint was INR 240 crores with a negative EBITDA of INR 14 crore.

Negative INR 14 crores EBITDA.

Yes. total INR 1,861 crores and INR 192 crores.

We will take the next question from the line of Ritesh Shah from Investec India.

I want Saumya to answer this question, if possible. Saumya, my question is, if you look at resin as broadly said INR 26 crores, if you take solvent out, probably we are looking at INR 1,000 crores. You did indicate a B2C, B2B at INR 1,090 crores, which is great. But if we had to look at the residual revenue stripping out solvent wherein we are looking at INR 1,000 crores, how should we appreciate the quality of this revenue base. I think Sandeep, in the initial remarks, you indicated that for a few chemistries, we are leading our #1, #2 position. If possible, if you could just highlight what is the market share, say, to the best extent possible that PVA epoxy proxy could be [indiscernible] the sort of ramp-up that we have done. And I think you did indicate INR 4,000 cores, INR 4,500 crores, which in pounds effectively around 20%, 25% CAGR over the next 4 to 5 years, which is a great number. But if one had to bifurcate it by chemistry, what's our confidence level, what's the strategy over here? That would be useful.

Yes. So I'll briefly take you through all the points. So basically, if I take you through the adhesive India, I think if we -- as Hiranand said, if we remove the solvent, I think we don't remove the complete INR 250 crores solvent. I think we remove the INR 100-odd crores solvent. So I think Solvobond, [indiscernible] is still being operated. So I think the base is not INR 1,000, but a little bit INR 100 crores, INR 150 crores up base, I would say, in terms of solvent cement. So solvent cement if we put Astral family together, all the brands, including well on, we are #1 position, I would say, in the Indian market when it comes to solvent cement. I think now if I move to chemistries where India adhesive business would operate would be epoxies, epoxyputis, solvent cements, sinacalate, silicons, PVA construction chemical in which we'll have waterproofing, coatings, integral as well as cementatious products. We will be into good working adhesives where it will be white glue, PVA as well as rubber adhesives, which will be used for specialty applications in creating furniture as well. We have also been now putting ourselves into the tape market with lot of focus into expansion of tapes as well, whether it is plumbing tapes or electrical types or paper tapes and going backward into that as well in terms of understanding how we want to expand our tape. So as with confidence, I could say that everything Astral produces in-house. So there is a strong support of supply chain. There is a strong support of manufacturing footprint right now already present, which gives us utmost confidence that the India adhesive business, has the number communicated for next 4 to 5 years, and you know the growth trajectory of India adhesive business, could be -- will be in line to our aspirations and also the India market growing at a fast pace with maybe 2 or 3 players only present in this space in terms of -- and it is also a niche market. It is not like a humongous market when it comes to the adhesive sealant space. I would put the construction chemical aside, but adhesive sealant space is still like a niche market and it's a very specialized market with very few players in it. So I think we are positioned very nicely into it. And I think we have fairly good products. I think in silicon chemistries, epoxy chemistries, and a few chemistries, I would definitely put ourselves up there in the top 3 positions in the Indian adhesive and sealant market. So I think definitely with this, we will expand the market footprint and our market shares in times to come and grow in our distribution as well. So as you know that the business itself, as I mentioned, 10 chemistries, those 10 chemistries are also split into different specialized selling verticals within the Indian adhesive business with proper focus into each chemistry. So that also gives us good confidence in terms of how we want to expand our distribution, expand our retail reach and reach the end user and get our product talking in the market and acceptable in the market. So I think just a few numbers I would like to say it would be approximation. I wouldn't go into exact things. So we reach unique almost 2 lakh outlets in adhesive business. And in rural, we are reaching almost 13,000 towns, and we want to expand into almost 20,000 towns in coming year to 2 years. So now you can understand that how aggressively we are planning in distribution and how we want to get our footprint strong in the Indian adhesive space. I hope it kind of broadly covers what you are asking.

This helps, Saumya, just to drill a little bit. You did indicate like in a few chemistries we are #2, #3 or in top 3 solvent, you indicated #1, which would be the other one. I presume it's epoxy and epoxy putti?

Yes, and silicons.

On silicon as well. Okay. Yes, that's encouraging. Would it be possible for you to -- and in relates .

And in cyanoacrylates.

Okay. Would it possible for you to give qualitatively, which is the chemistry where you are most excited about, like solvent probably will grow in line with plumbing or probably better than that. But the other chemistries, is it more a function of the distribution reach? Or is there something beyond that we are planning to actually get to the 20%, 25% CAGR?

I think which time will go into the numbers in terms of distribution reach. Now if in the distribution reach, you can see itself that we are planning to grow the distribution reach by, let's say, more than 25%, 30%. Now that is our aspiration to grow the distribution reach by 25%, 30%. But that aspiration is backed by the chemistry penetration also in the market in terms of shelf space or taking the product to the shelf. Now going into the chemistry wise breakup, I think with time, we will form an internal strategy of how we want to communicate our chemistry-wise kind of thought process. But I think all our chemistries will fairly grow and give us that mark of higher numbers in the Indian business. So fairly, it won't be epoxy not growing and silicon growing. So fairly, we are taking robust figures of all our chemistries. And as you also know in the market that we are fairly small in this space still looking at the current market size and the growth of the market. So I think we still have a lot of room ourselves to take this business forward to the next level.

That's great. Just a follow-up. Like the revenue is great, but if 1 has to look at the profitable growth as you speak about distribution, how should we look at A&P plus S&P plus distribution related expense because historically, this number has been like 3.5%, 4%, at Astral consol level, which has been pretty much okay. Now if I just assume a 20% growth next year, assuming a 4% on A&P, that number effectively which looks quite cheap versus the reported EBITDA, if you look at paying the residue as CRT combined, which was INR 190 crores last year. So would you like to give some color on how should we understand the cost going ahead given this business is great, but the competitive intensity is also very high. So any numbers on A&P, S&P, marketing spends, margin profile that will help.

So I think overall, we'll go into the cost. I think manpower cost is always a debate we have internally me and Hiranand also. So he always has a check on us as well in terms of the cost factor when it comes to manpower. So I think with the increase in sales and our distribution strength getting stronger and stronger. I think we won't be equivalently increasing the manpower cost. It will be rationalizing and going down. So that is a very positive sign we are seeing in terms of the cost factor. So I think in this digital age and how we are reaching our retailers and how we are increasing our retailer points in terms of hitting the shelf space, I think we are using a lot of digitalization and digital processes also in terms of order taking or all those things. So I think we are investing in understanding that what would be the new ways of distribution and taking this adhesive space forward and not just increasing our manpower cost. And when it comes to creating a brand I think, yes, definitely, it's a cost. And I think it would be in line of our expenditures going on in last 1 year or 2 years, and it would incrementally, I think, grow keeping in check with our top line and, of course, taking a very logical step. And I think we won't do something where we are not understanding our sales and our overall gross margins and taking rash decisions anywhere in terms of spend. But again, those spends are for the investment of the brands and creation of the brand. And in adhesive space, we definitely have Astral as a mother brand for the piping as well as additive business, but it's very important when we look at our peers and long-term players in the market who have been fairly successful in this space. We need to create the brand effect of our sub-brands. So Bondtite will always be our anchor brand, and we will be betting very strong on Bondtite brand in times to come.

Secondly, Ritesh, I can add what Saumya said that on this separate P&L will start getting from the Q1 onward. I think a lot of analysis will be done at a line level, -- so wherever any cost, we feel that it is high. So we'll start controlling that side also wherever spend, which we feel that it is not relevant at this stage, we can cut that also. So I think line level management will start from the Q1 onward. That is going to help us in a big way in the coming time because once us make a separate P&L level, it is -- you can then net profit level, then you will clearly understand where the missing part is there, where the improvement is there. So that will start happening in the short term. So I don't want to say that in 1 quarter or 2 quarters, we are going to do any vehicle. But definitely, once by year-end, our team will be geared up with that I think the reading of the MIS and that is going to help us in a big way. So wait for few quarters, and you will see a lot of change in the coming time, a lot of cost control mechanism will also be there. But this thing cannot happen overnight. So I think with the separate P&L, we are going to do that thing and which is going to definitely help to the organization and the investors also.

Sure. Just a quick one. I think Sandeep indicated Dahej further expansion, you also indicated about pains expansion in vest. And DSS, incrementally, there might be some -- would it be possible to put some number cumulatively all these 3 variables together? And if hypothetically, we do this, what can be the best case revenues? Will this be over and above what you indicated INR 4,500 crores?

So I think DSS, the first stage of expansion, we are working on that and will not be much. Maybe INR 8 crores, INR 10 crores will be there. It's not going to be substantial in the first phase. Second phase maybe will come next year. Next year being FY '28. By that time, we will be ready with our second phase of expansion. With this past INR 150 crore of revenue, we are not going to spend that much. INR 8, INR 10 crores CapEx will be there. And that company is self-sufficient to generate their cash flow because now the revenue has already started from this quarter. This quarter will be -- June quarter will be a little low. But from July onwards, it is going to ramp up very fast because of backward integration of our products also and at the same time, forward sale also. So I think they will be generating their cash flow. So there will not be much dependent on the Astral per se -- on the Chemical division per se. Now coming to the adhesive side and the paint side expansion, I think that is also going to get over this year. So I don't think from the next year onward, it is going to be any substantial. Maybe routine kind of INR 40 crores, INR 50 crores kind of expansion will be there with the product addition or maybe some -- anything else we want to do. But at the same time, we are expecting another INR 50 crores to INR 60 crores of cash flow from adhesive division by this year because we are going to sell out our office, which is there in the Bangalore because we don't think that now we need that office because that is in the prime location. And because we are now going to keep the head office in Ahmedabad because we have with this consolidation. So close to about INR 60 crore cash flow we are expecting from that office also, which will be materialized this year. So with that additional cash flow also, I don't think that division need any extra cash flow. Whatever that requirement will be there, they will be able to fulfill from their internal approval. And even this adhesive and paint will not need much cash flow this year also.

Certainly what had to finish that yes, with all these expansions and the things in line, which are about to get completed. And that's why we are aggressively going to increase our dealer network reach and distributors. So obviously, it will help in the growth strategy of the business.

Sure. Hiranand-ji, any accumulated losses? How should we look at the tax rate for the new entity? I presume that...

As far as this adhesive -- pipe is concerned, it is going to remain the same, close to as tax rate will be low initially because a lot of write-off we are doing every year, if you see, we are amortizing for close to about INR 27 crores. So because of that, the tax rate will be low. That is a book entry only, but tax advantage will be there, plus accumulated losses of paid division of last couple of years. So that will also giving the benefit. So that tax rate will be sizably low. How much low I have not done the calculation, so I will not be able to tell you exactly how much benefit will be. But definitely, this year will be -- next year onward, it will be low.

Sure. And just last question before I join back the queue. Sandeep, when we look at the holding, so I'm approaching purely from a standpoint that if I'm 1 of the funds, the implied market cap assuming a certain multiple for others will be significantly lower. Now based on my reading of the shareholding, I don't think to either Kairav or Saumya have direct holding into the listed entity. I think it's more under your name and madam's name. So if 1 has to say faster 10 years out, how would you look at it to ensure that everything goes smooth, given what we have done right now is also a more proactive step to ensure that things actually move in a smooth fashion over the next 20, 30, 40 years. So if I have to just fast forward 10 years out, any thoughts on that particular variable?

The holding will absolutely remain the way the pattern it is today and for the coming years also. So it will be the holding will be in the name of myself, madam and our 2 Kairav chemicals and Saumya Polymers entities. There won't be any change or deviations happening.

We will take the next question from the line of Utkarsh Nopany from Anand Rathi Shares and Stock Brokers Limited.

Sir, my first question is regarding the return issue profile of the Chemicals division. So in our understanding, it appears that the Chemical division is making an ROE of around, say, mid-single digit, whereas the Plumbing division is making an ROE of around say 17% to 18% in FY '26. So just wanted to know whether the return ratio profile of the Chemical division is likely to be significantly lower compared to the Pipe division going forward or whether it could reach near to the plumbing division in future as we are expecting significant improvement in the performance of [indiscernible] and the paint business going forward?

I think your understanding is correct right now at this number. But going forward, it is going to be completely change. If you see the first time talking about the piping division. Piping division, we will spend a lot of money into the expansion, though we were not needed because we were doing the decentralization of plant. So we added the south plant. We added the East plant. We now recently added the North plant. So because we wanted to be a pan-India company and wanted to grow fast, that is why we did the sizable CapEx into that vertical. And definitely, once you do sizable CapEx, your return ratio will be low. Secondly, we are sitting on a high cash also. So that also drag your return to some extent. So going forward, the sizable CapEx is not related to that vertical. So return ratio will shoot up very quickly, which you can see in the -- this year itself, I can say. So that will change the return profile of the piping vertical. Now coming to the adhesive vertical, the similar story because we have spent a lot of money into the paint. We have spent a lot of money into this as expansion activities and all and we have invested into the new businesses also. So because of that also, the return ratios are low. And particularly the last year, 2 divisions, U.K. and paint had not generated a positive EBITDA. U.K. has little bit generated, but paint was in the negative. So if I combine paint in U.K., it was 0 EBITDA. So now from this year, we are confident that the both vertical is going to generate a positive EBITDA paint maybe a little low single-digit EBITDA. But U.K. definitely going to generate the double-digit EBITDA. So with this change, you will see that FY '27 numbers, it will shoot up very fast. So this was a specific region. That's why FY '26 number looks like that. But I'm sure and I'm very high conviction that FY '27, this number will be completely getting changed.

Okay. What would be the sustainable ROE for the chemical division, which we can see over the next, say, 3, 4 years period, if you can give some sense, sir?

So I think FY '28 onward, this will start pushing upward. But then maybe '29 onwards, it will be maturing. So we are considering both the business from ROC point of view, if I tell you because still the different balance sheets are not getting ready, so will be ready by maybe in a couple of weeks or 3 weeks. But Pipe division will be having 20% minimum ROC maybe going forward. 2 years down the line, it can go up to 25% also because we are expecting a sizable growth and at the same time, sizable improvement into the EBITDA with a low CapEx. As far as the additive division is concerned, once a couple of years will go away and the specialty business will gear up. We are expecting at least 15% kind of 15% to 17% kind of ROC. And at a later stage, our wish is that we should be in the range of 20% kind of coal. But that will take 3 to 4 years' time.

And my, sir, second question is on the Specialty Chemicals business, where we have done the acquisition last week. So we have guided that we are expecting a significant growth in the revenue. So it was around say INR 3 crores in FY '26, and now we are expecting it to go up to INR 500 crores over the next 5 years. So I just wanted to know like why the earlier promoter decided to pay down the stake if there is such a strong growth potential in that business. And what are the key products of the specialty chemical and who are the major competitors in India?

So as far as the previous promoters are concerned, they were basically the scientist they were running the R&D facility more rather than the commercial selling. So they were innovating the product. Okay? So they are not the commercial people also to scale up the business. That was the magically region that they joined ahead with a company like Aspen. So they were in the development side, once the development took place -- and they realize that now we can commercially launch these products. At that time, they wanted a commercial partner, which would synergically fitted to their product also and we lent also. So we were talking to them for the last 1 year, and we were discussing each other, and we have given them the plan for the growth and they got convinced that, okay, these are the easily doable plan. And based on their understanding and our understanding, we realized that the few products are already ready to launch. Okay? And we already launched. That's why we are confidently saying that this year itself, you will see a sizable growth because from the current month June onward, we have started using that product in our plant. And at the same time, we have started forward selling also. We have also started getting the export orders also. And one is commercially launched product and people will be happy with this product, we are going to get a sizable flow of inquiries. And we are confident that the moment we will spend another INR 8 crores, INR 10 crore in the CapEx side because they are already having the facility. But with this additional few reactor, we are going to take up the capacity, which can take care of INR 150 crores of revenue next year. And we understood everything in detail. And then only with confidence, we are telling you, but that you have to wait for some time. But we are confident you will see in the Q2 number where the DSS number will be shoot up very fast. I'm not telling you far away. I'm telling you Q2 from July, August, September quarter itself, you will see sizable improvement into the revenue. So earlier, whatever the revenue you are seeing that was the testing revenue, they were giving selling, you can say, the pilot plant bases to the customer and getting the feel of the customer that whether the product is right, whether they are happy with the performance. So there, the volume you can't see, the value you can't see. Value will come now, because now we are -- we already launched the commercially.

Sir, can you please incinerate product profile? What are the key products and who all of the major competitors operating in this space? That is my last question, sir.

So I think it will be -- it's quite technical. So I won't be able to take you through all the product profile, but their mean would be -- they are highly into amines. So ammines is something which it is an import substitute. India imports mostly all the amines from outside of India, whether it is Japan or Korea or China. So I think it is an import substitute. So it is a very technical product. And I think the segments which we are trying to focus on except the internal consumption, so which would benefit us, but outside would be adhesives for renewable energy like wind and solar. And also, we would -- we have certain products which could be used in defense as well. So we will go 1 step at a time, do our trials, create a good product, create a good impactful business with it. And I think our main focus like Hiranand said, we got together with the promoter -- we wanted to give something to the Indian market that why we cannot make all these chemistries and highly technical products in India and why we need to import from outside. So there is a vision also behind it of we could make in India and kind of give the Indian market all this specialized and technical product.

I think we can take the last question. And then Kairav will ramp up the things. If you have anything to ask Kairav, you can ask to Kairav also.

Sir, he has left the call.

Okay. So Ritesh, you can -- I think, we can conclude the call.

Yes. Just question -- 1 question for Kairav. I think on my indicated in the initial remarks that PVC resin is by end of fiscal. Is there any change in data? Because to my understanding, it was by December that you expected the plant to be commissioned?

We are planning for our commercial production by Q1 next year. Everything is on track.

Commercial, Ritesh, will be from April onwards. Trial will be there in Q4. So some quantity will come maybe 5,000 tonnes that kind of quantity we are expecting in the last quarter. But big-bang full capacity utilization will be the April and that is what we communicated in the last quarter call also.

Perfect Yes. Any closing remarks, Kairav, from the plumbing side and overall [indiscernible]?

No, not many remarks, just saying short term, whatever decision we have taken is for the overall betterment and growth of strand businesses and the family and all the teams are working together, and we've always worked together to continue to grow both the verticals and both the companies in the same spirit and the same aggression.

So Ritesh the same closing remark is there. Please don't get any other confusions. We are all as a team, and I will be leading and we'll be -- the whole thing is for the growth of the 2 businesses, which are going to create a great landmark in the coming years. in the Indian industry space, and that's the spirit with which the family is going ahead, and we all are going ahead as a team, Hiranand, the both son and all the teams who are been working with us for many years. and it is a complete confidence in all of you that your confidence will go up, increase and will create a value for the brand Astral and both the verticals put together. Thank you.

Thank you, Sandeep. Thank you, Hiranand-ji. Thank you, Kairav and Saumya. Thank you all for joining. Thank you all [indiscernible].

Thank you, Ritesh, for hosting the call, at a short notice.

Thank you, members of the management. On behalf of Investec India, we conclude this conference. Thank you, everyone, for joining us with us today, and you may now disconnect your lines. Thank you.