PL Stock Report: Astral Ltd. (ASTRA IN) - Q1FY24 Result Update - Healthy volume growth in pipes, above est - HOLD

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

Rating: HOLD | CMP: Rs1,974 | TP: Rs1,955

Q1FY24 Result Update - Healthy volume growth in pipes, above est

Quick Pointers:

§ Healthy vol. growth at 31% YoY in pipe segment led to rev. growth of 7.1%.

§ Gross margin expanded 610bps to 37.3%, even at lower pipe realization.

Astral Ltd (ASTRA) maintained its volume growth guidance at 15-20% 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 volume & correction in RM prices and breakeven in sanitaryware business in H2FY24. ASTRA reported strong expansion in gross margin (+610bps YoY) in Q1FY24, however, due to product mix (PVC higher contribution in Q1), inventory loss (Rs 150mn) and increase in front-loaded expenses for growth, resulted relatively lower expansion in EBITDA margin (+160bps YoY), which will reflect in number in coming quarters with product mix change & increase in revenue.

ASTRA trades at rich valuation of 64x 1yr fwd earnings and in the recent past, post bonus issuance and our initiating coverage, stock has given 50%+ return. We still believe that ASTRA is a consistent quality performer and is a compounding story on back of strong industry tailwinds and robust guidance on volume & margins across segment for FY24-25. We estimate Sales/EBITDA/PAT CAGR of 17.4%/25.7%/34.3% over FY23-25E and value the stock on DCF based TP of Rs1,955 which implies 63x FY25E EPS. Maintain ‘HOLD’.

Sales grew 5.8%, PAT up by 27.2% YoY: Sales grew 5.8% YoY to Rs12.8bn (PLe:Rs12.2bn) led by 31% YoY growth in plumbing volume on higher base and 10% volume growth in adhesive business. Gross margin expanded by 610bps YoY to 37.3% even after higher contribution of PVC product in plumbing, while RM benefit in adhesive business. EBITDA was up by 17.4% to Rs2.0bn (PLe: Rs1.97bn). EBITDA margin expanded 160bps YoY to 15.7% (PLe: 16.2%) due to one off expenses & front-loaded expenses for growth. EBITDA per Kg in pipe & fitting business was Rs34.5 (down ~3.0% YoY) and EBITDA margin in Paints and Adhesives business improved by 20bps. PAT grew by 27.2% to Rs1.2bn (PLe: Rs1.16bn) on account of higher other income & decline in interest expenses.

Plumbing business – Healthy volume growth: Plumbing business posted revenue of Rs9.4bn which was up by 7.1% YoY. This was led by robust volume growth (up 31% YoY vs SI/Price/Finolex/Apollo Pipes 48%/19%/28%/47% YoY). EBITDA grew by 27.3% YoY to Rs1.7bn. EBITDA margin expanded 280bps YoY to 17.6%, even after higher contribution of PVC product, inventory loss (Rs150mn) and Rs 34mn loss in Bathware. Pipe & fittings sales vol. stood at 47,950 MT up by 31.1% YoY. ASTRA planned to set up three new green field plant at Guwahati, Hyderabad, Kanpur for pipe & fittings with capacity of 20k/70k/50kMT. The company reach at 500 showrooms/display centers for bath segment and focus on increasing revenue, currently clocking around Rs50mn per month. Management will be focusing more on supply chain and distribution to improve sales from new businesses in coming years.

Paints and adhesives – Healthy revenue growth with margin improvement: Paint & adhesives revenue grew 3.3% YoY to Rs3.45bn, and revenue excluding GEMS paint was Rs3.0bn (up ~2% YoY). Paints business reported rev. ~Rs410mn. P&A business’ EBITDA margin expanded by 20bps YoY with correction in RM prices in domestic business, while SEAL-IT got impacted, reported 8% margin. The company has successfully implemented SAP at Gem Paints Pvt Ltd. wef 1st April,2023 which will further improve its revenue and margins.

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