A Belgium-based MNC is close to acquiring Ashirvad Pipes, the Bangalore-based pipes major, in a transaction worth $150 million.
Ashirvad Pipes, which reported revenues of Rs 600 crore for last fiscal, has been in business for the past 15 years and had opened discussions with a bouquet of strategic and private equity players during late 2012. A transaction, most probably with the Belgium major, is expected to be sewn up within fiscal 2013.
The privately-held Ashirvad Pipes has over the past years established its market position as among the top three in this fast growing segment focussing on the unplasticised polyvinyl chloride (UPVC) and chlorinated polyvinyl chloride (CPVC) pipes, SWR (soil, waster & rain water / sewerage) pipes and fittings market. UPVC pipes find application in deep bore wells of up to 1,200 feet in depth, while CPVC pipes are used in residential and commercial buildings.
Pawan Poddar, one of the three-founding brothers of Ashirvad Pipes, told Business Standard that they have various options in front of them to take the company forward.
“We want to take the company to the next level in terms of variety of products and technologies. We are discussing with private equity funds, strategic players as well as thinking of a public offer. We should be zeroing in on an option pretty soon,” Poddar said, declining to spell out any specific details.
Ashirvad Pipes, which competes against publicly held Astral Poly Technik and Ajai Pipes, has a network of 1,200 distributors and 14,000 dealers and channel partners.
Investment bankers, who are tracking this transaction, added that while there is a distinct possibility of the promoters ceding control, they will continue to run the operations for the next few years.
"The promoters are looking at this transaction as a joint venture to expand the offerings of Ashirvad Pipes," the bankers added.
According to HDFC Securities, the Indian plumbing industry is estimated at around Rs 17,000 crore and is growing at a CAGR of 15%. While galvanised iron (GI) pipes account for 41% of the market, 53% is for the PVC pipes, while around 4% of the market is for CPVC pipes.
“CPVC is still a very underrated product in India due to preconceived notions of the Indian public. In reality, CPVC pipes are as good as GI/PVC pipes and in some aspects such as life, fire resistance and corrosion proof even better. GI pipes are steel pipes coated with zinc. PVC pipes are made of plastic and vinyl. CPVC pipes are made of CPVC resin, which is a value-add of PVC,” HDFC Securities noted.
Ashirvad Pipes has recently set up a new unit with a capacity of 8,000 tonne per annum to manufacture SWR (sewer) pipes, which commenced commercial operations in August 2012.
The company is also one of the three licensees of Warren Buffet’s Berkshire Hathway-owned Lubrizol Corporation Inc, USA in India to manufacture CPVC pipes and fittings.
In addition to the fresh capacity addition, Ashirvad has an installed capacity of 48,000 tpa for PVC and UPVC pipes and 8,000 tpa for SWR pipes.
The company is planning to have a capacity of 52,000 tpa for PVC and CPVC pipes and 18,000 tpa for SWR pipes by the end of 2013-14.
During last fiscal, the company’s net profit almost doubled at close to Rs 50 crore on revenues of Rs 600 crore.
Crisil, in its latest rating on Ashirvad Pipes, had noted that Ashirvad has a healthy financial risk profile, marked by comfortable gearing, strong debt protection metrics and healthy cash accruals. Crisil believes that Ashirvad will maintain its business risk profile over the medium term, supported by its strong revenue growth and improving profitability, unless it undertakes expansion with high gearing.
