Case Study: Astral Poly

The story of Astral Poly is about Mr Sandeep Engineer, who started his professional journey with a salary of ₹ 850 a month in the year 1981 to build up a 4,886 cr market cap company in the year 2016. Like all other companies described in this book, here too, the company was a pioneer of CPVC pipes that we use in our homes today. The company now has a 70% market share which quite unbelievably was on the cusp on bankruptcy in its initial years itself. The story of this company is divided into three phases.

Phase 1: 1997-2003

The Chinese proverb “Fall down seven times, stand up eight times'' is the basis of the story of Astra Poly. The promoter, Sandeep Engineer (henceforth referred to as Engineer), has seen a lot of struggles that ultimately made him stronger and stronger. 

The story of his entrepreneurial journey started with a pharmaceutical business which was ultimately shut down due to the collapse of its biggest customer. Then he incorporated a bulk drugs manufacturing company that was also closed down due to strict government regulations. In 1991, he started Kairav Chemicals, named after his son, to manufacture Active Pharmaceutical Ingredients (API). This business stayed on for a while. However, during this time itself, Engineer started becoming fascinated towards CPVC which could survive high heat (200-degree Fahrenheit). He decided to partner with Lubrizol (the company that held the patent for CPVC resin  which is the raw material for CPVC pipes) and bring CPVC to India.

He travelled to the US in order to form a joint venture (JV) with Thompson Plastics. This was in order to gain the know-how for setting up the CPVC plant. After acquiring the license from the patent holder, he set up Astral Poly Technik in 1996. The initial capital was funded as follows: 20% by the JV partner (Thompson Plastics), 20% by Engineer’s uncle and the balance 60% by Engineer himself. He had sourced the money by selling his ancestral house in Ahmedabad.

The company started by launching industrial pipes as a replacement of (Galvanized Iron Pipes) GI pipes which were prone to corrosion. The product however was 20% costlier than the GI pipes. This was a major deterrent for the product’s initial pick up. 

This proved to be a risky venture for Engineer. He had an established business “Kairav Chemicals” which was used to fund Astral. However, soon after the 2001 Gujarat earthquake jeopardized the Chemical business as well. Added to his troubles, the main banker to Astral, “Madhavpura Mercantile Cooperative Bank” also failed which resulted in a liquidity crisis for the company.

In 2003, Astral was on brink of bankruptcy.

Phase 2: 2003-06

Engineer had to do something to save his brain child. He was already all-in for the CPVC business and had no other equity left to save the company himself. Therefore, he travelled to Alabama to convince the Thompson family to convert the loan into equity and infuse some money in order to generate capital for capex. They agreed.

This embarked on a turnaround for Astral. Engineer realized that the industrial segment was difficult to tap. Therefore, he shifted his focus to CPVC pipes used in plumbing. Engineer started to approach real estate developers and hotels to use these pipes instead of copper pipes. In 2003, he received his first large order from a south Mumbai based real estate developer. Once the product was in the market, many other popular real estate developers in Mumbai like Hiranandani and Kalpataru also joined in as customers for CPVC pipes. Soon developers in other cities followed.

Now he wanted to get into the retail market as well. Here Engineer realized that the key decision maker was the plumber and hence he gave his focus to market Astral’s products to the plumbers.

As the business stabilized, the company could also spend large amounts on advertisements and chose two hindi channels, Aaj Tak and Star News. In the fifteen years since he started Astral in 1996, the firm grew rapidly to become two-thirds the size of the largest plastic pipe manufacturer in India—Supreme Industries. To put things into perspective, in FY06, Astral generated net revenues of ₹ 51.8 crore from its HP plant, higher than the Rs 45 crore of revenues generated that year from its Gujarat plant.

Phase 3: 2007-15

Now CPVC was held as a reliable product and Astral was serving big real estate developers, public sector and large companies in the private sector as well. After establishing scale, Engineer’s challenge was to build a pan-India brand. Unlike a Bajaj Auto or a Hindustan Unilever, Astral’s target group was not the end-consumer, but the humble plumber who Engineer knew exercised considerable influence in choosing pipes. While the first wave of advertising in 2004 had provided awareness, the next wave would have to entrench Astral as a brand in pipes. He chose Lowe Lintas as their ad agency and in August 2014 announced that Bollywood superstar, Salman Khan, would be its brand ambassador. Khan’s superhit movies included Dabangg in 2010 and its sequel Dabangg 2 in 2012.

The growing strength of the brand also allowed the company to drive bargaining power with its dealers and hence they reduced the debtor days from 43 days in FY14 from 96 days in FY07.

The phase also accompanied a mistake wherein the company established its operations internationally in Kenya. This however didn't work out as planned but the capital employed was very small, less than 1% of the company's capital.

IBAS Framework:

Innovation
The company’s main product, i.e. CPVC pipe itself was the major innovation as it was the first product of its kind in the market. The product was better than the already present copper and GI pipes and hence with some effort on marketing and taking lower margin or losses in the initial years, the company was able to succeed.

Brand

The company gave serious attention to brand building as seen with some high-profile TV advertisements along with movie endorsements (Dabangg series). The company was also seen marketing the brand at the last match of Master Blaster in the year 2013. The company has been consistently spending 1-2% of sales on marketing.

Architecture

The company chose a different path and recognized that plumbers were their ultimate target market instead of consumers. Therefore the company made efforts to introduce new products to the plumbers directly.

Strategic Assets

The pan India manufacturing network remains the main strategic asset for the company. Astral’s second strategic asset is its relations with global majors. Lubrizol, a company owned by Warren Buffett, is the pioneer of the CPVC compound globally. Astral is one of the two manufacturers (Ashirvad being the second) in India with access to CPVC technology from Lubrizol. The company’s tie-up with Lubrizol enables it to produce best-in-class CPVC pipes and also launch new products ahead of competition.