Astral - 4QFY22 Result Update - Multiple Avenues of Revenues to Unfold

 

       Astral reported a healthy revenue of Rs13.9bn in 4QFY22 (up 23.3% YoY and 26.5% QoQ) vs. our estimate of Rs12.9bn. Plastic revenue increased by 22.3% YoY to Rs10.8bn, while Adhesive revenue jumped by 27% YoY to Rs3.1bn. Volume of Plastic segment rose by 11% YoY to 47,211MT, while realization stood at Rs230/kg, up 7.4% YoY. EBITDA fell by 14.8% YoY (up 9.7% QoQ) to Rs2.2bn (in line with our estimate of Rs2.2bn), while EBITDA margin dipped by 700bps YoY to 15.6%, due to the higher RM cost (+39% YoY). EBITDA margin of Plastic segment declined by 610bps YoY to 18.5%, while Adhesive business’ margin fell by 630bps YoY to 10.8%. PAT came in at Rs1.46bn, down 17.3% YoY (up 14.2% QoQ), in line with our estimate of Rs1.45bn. For FY23E/FY24E, we lower our revenue estimates by 1%/2%, despite assuming an additional revenue from the newer businesses, mainly due to a lower realization of Pipes business on a high base. Revenue from newer segments like Water Tanks, Paints and Faucet & Ceramic is likely to increase gradually. We lower our EBITDA margin estimates by 154bps/167bps for FY23E/FY24E, and thus reduce our EBITDA estimates by 9%/10% and PAT estimates by 11%/10% for FY23E/FY24E. For FY22, Astral reported 21% YoY growth in PAT at Rs4.9bn, while revenue rose by 37% YoY to Rs43.4bn. 

In view of the strong all-round growth ahead, rising market share, revival in infrastructure and real estate activities, foray into new segments, it may be considered for buying , with a revised Target Price of Rs2,215 (from Rs2,840 earlier), valuing the stock at a revised target P/E of 65x FY24E earnings. 

Revenue to Double in Next 5 Years; Major Capex to Complete by FY23 

Astral expects its major capex to be completed by FY23 and post which, there will be a maintenance capex of Rs400-500mn every year. Construction activity of its adhesive plant in the chemical zone of Dahej (Gujarat) is on in full swing and the plant will be ready by FY23-end. The company has launched various products in the Adhesive & Sealants segment under a different chemistry, whereby revenue is expected to double in 5 years with the existing products. Astral has a market share of 9.5% in Pipes business. The additional 2 new pipe plants at Sangli and Aurangabad will increase its market share in Maharashtra and South India markets over the next 5 years. We expect the newly undertaken businesses like Water Tanks, Faucet, Sanitaryware, Paints, and Drain Pro to contribute Rs15bn revenue over the next 5 years.  

Outlook & Valuation  

We believe Astral would continue with its growth trajectory led by a) leadership position in CPVC market, b) opportunities in infra pipes segment, c) government’s strong emphasis on infrastructure and housing, d) strong growth potential of Adhesive business after restructuring of its distribution network and, e) new segments. We believe the company’s premium valuation will sustain, going forward, led by the leading position in CPVC pipes segment, continued focus on innovative and high-margin products and restructuring of its Adhesive business. We expect the company to report revenue and earnings CAGR of 11% and 18% respectively, over FY22-FY24E. Factoring the strong all-round growth, rising market share, revival in infrastructure and real estate activities, foray into new segments, it may be considered for buying , with a revised Target Price of Rs2,215 (from Rs2,840 earlier), valuing the stock at a revised target P/E of 65x (earlier 75x) FY24E earnings.

Adani Wilmar - IPO - A Fortune of Edible Oil

Adani Wilmar - IPO - A Fortune of Edible Oil

 About the Company   

Adani Wilmar (AWL) is a JV between Adani Enterprises and Wilmar International, which offers most of the essential kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses, and sugar. The company’s business is categorized into 1) Edible Oil (82% of revenue): AWL is the largest player in branded edible oil, with 25% of India’s refining capacity, and has 2x market share of the next competitor. 2) Packaged Food and FMCG (5%): It ranks among the top 3 players in foods in India. 3) Industry Essentials (13%): It ranks first and is the world’s largest castor oil player, most of which is exported to Europe, the US and China. AWL produces 32% of the country’s stearic acid requirement, 23% of glycerine requirement and 9% of soap noodles requirement. It operates in 28 states and 8 UTs with 10 crushing units and 19 refineries, and the business spans to 1.6mn retail outlets. The company’s “Fortune” flagship brand is the largest-selling edible oil brand in India. Rural population contributes to 30%-35% of the edible oil share. Recently, AWL has focused on value-added products and has launched edible oil products, rice bran health oil, fortified foods, khichdi etc. The company has strong raw material sourcing capabilities and was India’s largest importer of crude edible oil as of FY21. AWL’s edible oil refinery in Mundra is one of the largest single-location refineries in India with a capacity of 5,000MT per day. In addition to the 22 plants, the company also used 36 leased tolling units as of Sept’21 for additional manufacturing capacities. The IPO’s price band is fixed at Rs218-230 per share, raising Rs36bn (at a higher band) with the fresh issue. The objective of the issue is to fund the capex of existing manufacturing facilities and develop new manufacturing facilities. The company also plans to repay its borrowings and fund strategic acquisitions.   

Financials in Brief  

AWL has been mostly resilient to the fallouts from the Covid pandemic. Despite a dip in the EBITDA margin from 4.4% in FY20 to 3.6% in FY21, the company reported a 62% YoY jump in PAT at Rs6.6bn, led by the saving in interest cost, which also helped to improve the net margin to 1.8% in FY21, from 1.4% in FY20. Debt-to-equity improved from 0.9x in FY20 to 0.6x in FY21. For 1HFY22, its revenue jumped by 54% YoY to Rs248bn, with an EBITDA of Rs8bn (up 23% YoY) and PAT of Rs3.3bn (up 36% YoY). 

Our View: SUBSCRIBE  

On FY22 annualized financials, the IPO is valued at 19x EV/EBITDA, 0.6x EV/sales and 44.6x P/E. On FY22 annualized financials, the IPO is valued at 19x EV/EBITDA, 0.6x EV/sales and 44.6x P/E. The IPO is available at ~53x TTM PE vs. the industry average of 67x TTM PE, which is a discount of ~21%. AWL is the largest player in branded edible oil, with 25% of India’s refining capacity, and has 2x market share of the next competitor. The company’s market share increased from 17% in FY20 to 18.3% in FY21, and it believes that there is great opportunity to increase it further on the back of a strong brand equity and fragmented nature of the branded market. AWL ranks #1 in large categories of soya oil & mustard oil. The company believes that a player has to be present in all types of oils that the country consumes and offer multiple SKUs across the price spectrum. Currently, its export business comprises of 3 portfolios namely food (~Rs4bn revenue), oleochemicals (~Rs15bn) and castor oil (~Rs25bn), and it looks to add more products to exports, going ahead. India would consume more value-added functional products as people are becoming aware of health issues. AWL continues to focus on sustainability and with a professional and experienced board, it looks to grow over the years. In view of the differentiated product portfolio, leading market position and extensive distribution network, decent financials, likely margin improvement from current level and valuation comfort compared to peers, we recommend SUBSCRIBE to the issue. 

APL Apollo Tubes - 3QFY22 Result Update - Healthy Volume and Better Product Mix to Aid Margins

 

APL Apollo Tubes - 3QFY22 Result Update - Healthy Volume and Better Product Mix to Aid Margins

APL Apollo Tubes (APAT) has delivered a strong operating performance, despite volume decline, beating our estimate on all fronts. Revenue grew by 24% YoY (up 5% QoQ) to Rs32.3bn vs our expectation of Rs25.3bn on the back of better realisation of Rs77,569/ton (up 51% YoY and up 19% QoQ) despite volume de-growth of 17% YoY and 6% QoQ. The company recorded EBITDA/tonne of Rs5,023 vs. our estimate of Rs4,157bn. Its EBITDA margin contracted by 266bps YoY and 94bps QoQ to 6.3% vs. our estimate of 6.6%, due to the lag effect of commodity cost inflation pass-on to consumers and higher RM prices. PAT stood at Rs1.2bn (down 12% YoY and down 12% QoQ), 29% above our estimate. The management’s current plan of capacity expansion by 1.5mnT at Raipur by FY22-end and a full ramp-up in FY23, and the focus to increase the share of value-added products would aid the company’s margins, going forward. 

In view of the strong products basket, improving volume traction from value added products, healthy order book, likely margin expansion from current level, introduction of new high margin products from Raipur plant and improving return ratios, it  BUY rating on the stock, with an unrevised Target Price of Rs1,100. 

Healthy Demand Outlook; Margins to Expand 

We expect the demand for structural steel pipes and newer framed structures in various projects would keep rising over the next decade. Moreover, the company’s new product launches in various applications with strength would provide comfort to the end user to increase its usage in various projects like hospitals, new plant & projects and office structures. APAT’s ongoing projects of a 2mn sqft hospital and a 0.1mn sqft oxygen plant in Delhi have proved its efficiency in terms of 20% less steel consumption and 10% project cost saving. This would establish it to gain market share and win new orders from various industries, going forward. The company aims for a sizable volume traction in its high-margin tricoat segment and stable volume in the low-margin general structure, resulting into superior mix and leading to an expansion in overall margins. Moreover, its Raipur facility would launch all the value added products i.e. Apollo Column, Coated tubes and Coated products in FY23, which would help volume growth and margin expansion going ahead. Thus, we expect its EBITDA margin to expand to 9.2% in FY24E, from the current 6.3%.  

Outlook & Valuation 

IAPAT’s estimated volume to witness 9% CAGR over FY21-FY24E. Considering the lower volume and subdued financial performance in 3QFY22, we lower our revenue/EBITDA/PAT estimates by 2%/12%/15%, for FY22E. Factoring the company’s capacity expansion plan at Raipur, we raise our revenue/PAT estimates by 3%/4% for FY23E and broadly maintain it for FY24E. In view of the expected healthy volume growth ahead, better product mix, improved earnings visibility, new margin territory and return ratios of 20%, hence , The  BUY rating on APAT and maintain the Target Price to Rs1,100, valuing the stock at 30x FY24E EPS. 

As on 28th-Jan2022,  Apl Apollo Tubes Ltd has provided 78%return in last 1 year .

Next Read : Devyani International Ltd. - IPO