PL Stock Report: Astral Ltd. (ASTRA IN) - Q2FY24 Result Update – Robust volume growth, beat our earnings est. - HOLD

Astral Ltd. (ASTRA IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs1,844 | TP: Rs1,983

Q2FY24 Result Update – Robust volume growth, beat our earnings est.

Quick Pointers:

• Healthy vol. growth at 27.8% YoY in plumbing seg. led to rev. growth of 17.3%.
• Gross margin expanded 870bps to 38.9%, even after inventory loss.

Astral Ltd (ASTRA) upward revised its volume growth guidance at >-20% in pipe & fittings business and ~15%/20% vol./rev. growth guidance in paints & adhesive business, with consolidated EBITDA margin guidance of 17-18% alongside improvement in volumes & correction in RM prices and breakeven in sanitaryware business in couple of quarters. ASTRA reported strong expansion in gross margin (+870bps YoY) in Q2FY24, even after inventory loss (Rs 200mn) on account of increase in VAP mix and lower RM procurement cost. However, increase in front-loaded expenses for growth, led to relatively lower expansion in EBITDA margin (+390bps YoY), which will reflect in numbers over coming quarters with product mix change & increase in revenue.

Astral is trading at 63x/49x FY25/FY26 earnings; we still believe that the company is a consistent quality performer and is a compounding story. With strong performance in 1HFY24, strong volume guidance of 15-20% and margin improvement in FY24, we maintain our FY24 estimates with 22% revenue growth and 18.2% EBITDA margin in H2FY24. We estimate Sales/EBITDA/PAT CAGR of 17.7%/24.8%/32.9% over FY23-26E and value the stock on DCF based TP of Rs1,983 which implies 56x Sep’25 EPS. Maintain ‘HOLD’.

Sales grew 16.3%, PAT up by ~83% YoY: Sales grew 16.3% YoY to Rs13.6bn in-line with of our est. (PLe:Rs13.6bn) led by 17.3% YoY growth in Plumbing segment and 14% YoY growth in Paints and Adhesives Business. Gross margin expanded by 870bps YoY to 38.9%, above our est. of 35.5%, on account of increase in VAP mix and lower RM procurement cost, reflected with reduction in payable days & received cash discount. However, with reduction CPVC resin, inventory loss was ~Rs 200mn in Q2FY24. EBITDA was up by 52.8% to Rs2.2bn (PLe: Rs2.0bn). EBITDA margin expanded by 390bps YoY to 16.1%, above our est. of 14.9%, Plumbing EBITDA margin improved by 460bps YoY to 18% and EBITDA margin of Paints and Adhesives business improved by 220bps YoY at 14.8%. PAT grew by ~83% to Rs1.32bn (PLe: Rs1.17bn) on account of volume growth and margins improvement.

Plumbing business – strong volume growth: Plumbing business posted revenue of Rs9.8bn which was up by 17.3% YoY. This was led by robust volume growth in pipe & fittings (up 27.8% YoY) and rev. growth up 15.1% YoY. EBITDA grew by 57.2% YoY to Rs1.8bn. EBITDA margin expanded 460bps YoY to 18.0%, even after inventory loss (Rs200mn) and Rs 41mn loss in Bathware. EBITDA per Kg (incl. OI) in pipe & fitting business was Rs34.7 (up 22.6% YoY). Pipe & fittings sales vol. stood at 52,079 MT up by 27.8% YoY. ASTRA reported bathware revenue of Rs 180mn in Q2FY24. Management will be focusing more on supply chain and distribution to improve sales from new businesses, with target of Rs 1.5bn in coming years.

Paints and adhesives – healthy rev growth in dom. adhesive business: Paint & Adhesives revenue grew 14% YoY to Rs3.8bn, and excluding GEMS paint P&A business grew at 17.2% YoY. The growth was majorly contributed by domestic adhesive business; SEAL-IT was flat sequentially. P&A EBITDA margin expanded by 220bps YoY to 14.8% in Q2FY24, with higher margin in domestic adhesive business (~16%) while SEAL-IT margin impacted due to high cost inventory which is expected to normalize Q3FY24 onwards. Management expects margins to improve in 2HFY24 on account of full benefit of softening in raw material prices & SEAL-IT margin improvement.