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Astral Ltd>
  • CMP : 1,994.2 Chg : 31.0 (1.58%)
  • Target : 1,930.0 (10.29%)
  • Target Period : 12-18 Month

31 May 2022

Higher input cost dent margins…

About The Stock

Astral is the leader in the CPVC piping segment and expanding into the adhesive business.

  • Astral is the third largest piping company with a value market share of 9%. Piping, adhesive contribute 77%, 23%, respectively, to topline
  • Healthy balance sheet reflected in strong return ratios (RoE: 21%, RoCE: ~27%)
Q4FY22 Results

Strong revenue growth, higher RM cost drags profitability.

  • Revenue growth of ~23% YoY to ₹ 1391 crore; piping & adhesive segment growth came in at 22% & 27% YoY to ₹ 1084 core & ₹ 306 crore, respectively
  • EBITDA margin declined 698 bps YoY to 15.6%, mainly due to higher raw material cost, which led to a decline in gross margin by 763 bps YoY
  • PAT declined 18% YoY to ₹ 144 crore tracking lower EBITDA margin
What should Investors do?

Astral’s share price has grown by ~4.6x over the past five years (from ~₹ 367 in May 2017 to ~₹ 1750 levels in May 2022).

  • We maintain our HOLD rating on the stock
Target Price & Valuation

We value Astral at ₹ 1930 i.e. 55x P/E on FY24E EPS.

Key Triggers for future price performance
  • Pick-up in housing sales and construction activities will augment growth in both pipes and adhesives
  • Capacity addition, launch of new products (water tank, valve) and diversification in the sanitary ware and paint business to drive overall revenue CAGR of 20% in FY22-24E
  • Price hike, improved product mix (launch of high margin valve business) will help recovery in EBITDA margin from FY24E onwards
Alternate Stock Idea

We like Supreme Industries in our coverage universe.

  • Supreme is market leader in plastic piping segment with ~14% market share. Robust b/s with average RoE, RoCE of 24%, 27%, respectively
  • BUY with a target price of ₹ 2320

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results:

  • Astral’s consolidated revenue increased ~23% YoY even on a higher base of Q4FY21 (revenues were up 79% YoY). Piping & adhesive segment revenues increased ~22% and ~27% YoY to ~| 1084 crore & | 306 crore, respectively. Piping segment volume was up ~11% YoY
  • Gross margin declined sharply by 763 bps YoY mainly due to sharp increase in raw material prices and delay in price hikes. As a result, EBITDA margin declined 698 bps YoY to 15.6% (280 bps lower than I-direct estimate)
  • Despite strong sales growth, PAT declined 18% YoY to ~| 144 crore, tracking a sharp fall in EBITDA margins

Q4FY22 Earnings Conference Call highlights

  • Demand Outlook:
    • Astral has a market share of ~9% in plastic and infra pipes and ~4% market share in adhesives in India. The management expects continued gain in market share led by higher volume offtake
    • The company expects to grow higher than 15% CAGR in the next five years led by growth in its pipes and adhesive segments. The new categories such as water tanks, valves, sanitaryware and paints will aid in overall topline growth in the next five years
    • The company expects ~ | 1,500 crore of additional revenue from new products in the next four to five years
    • Astral has acquired 51% stake in Gem Paints. Gem Paints achieved ~| 260 crore of revenue from the south India market in FY22. Astral does not have a strong foothold in southern India. With its acquisition of Gem, the company is looking to grow adhesives business in parallel with its paints business in the south. They plan to enter additional geographies simultaneously
    • Astral will leverage its existing adhesive dealers to push paint products in the non-south regions
  • New product launches
    • The company will launch its faucets & sanitaryware line on June 10, 2022
    • DrainPro pipes, a new product, achieved ~ | 1.5 crore of revenue in a month. The management expects higher revenue growth from this product
    • The company launched specialised valves. The management sees it as a | 500 crore opportunity and is looking to grow in this segment
  • Margins:
    • EBITDA margin was largely affected by rise in prices of construction chemicals and inflation in adhesives and polymer along with supply chain disruptions
    • The management maintained its double digit EBITDA margin guidance led by decline in raw material prices and improve product mix (Valve is considered to be higher margin business)
  • Capex:
    • The company has planned for ~| 150 crore capex in FY23E
    • Astral’s capex cycle will end in FY23E. The company has not planned any capex in the next five years. Post that it expects to reap the benefits of the capex made at this point
  • Other:
    • Astral currently has 2500+ distributors and 1,80,000+ dealers
    • The company has worked on expansion of its facilities and added capacities at Ahmedabad, Hosur, Rajasthan, Orissa, Telangana for pipes and water tanks
  Q4FY22 Q4FY22E Q4FY21 YoY (%) Q3FY22 QoQ (%)   Comments
Revenue 1,390.6 1,273.3 1,127.8 23.3 1,102.7 26.1   Price hikes in the piping segment drives topline
Other Income 16.4 6.9 5.0 228.0 6.2 164.5    
Raw Material Exp 943.2 821.3 681.2 38.5 717.9 31.4   Sharp rise in input prices and delay in passing of the same drags gross margin down by 373 bps YoY
Cost of traded goods 9.9 9.0 5.7 73.7 7.9 25.3    
Employee Exp 64.1 64.9 47.5 34.9 61.6 4.1    
Other expenditure 156.6 143.4 138.8 12.8 117.7 33.1    
EBITDA 216.8 234.6 254.6 -14.8 197.6 9.7    
EBITDA Margin (%) 15.6 18.4 22.6 -698 bps 17.9 -233 bps   Savings in other costs help restrict EBITDA margin fall at 100 bps YoY
Depreciation 32.8 35.7 29.2 12.3 32.1 2.2    
Interest 5.2 2.0 1.2 333.3 2.0 160.0    
PBT 195.2 203.8 229.2 -14.8 169.7 15.0    
Total Tax 49.2 50.2 52.7 -6.6 41.8 17.7    
Profit from associates -1.9 0.0 -0.4 NM 0.0 NM    
PAT 144.1 153.6 176.1 -18.2 127.9 12.7   Bottomline growth was restricted at 3% as strong revenue growth was partially negated by lower EBITDA margins
Key Metrics                
Plastic  1,084.1 1,015.0 886.4 22.3 841.5 28.8   Segment revenue growth was largely driven by price hike. Standalone segment volume de-grew by 4.5% during Q3FY22 on higher base and lower dealer offtake
Adhesive 306.5 258.3 241.4 27.0 261.2 17.3   Streamline of distirbution network and focus on market share gains drives revenue growth for Q3

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