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.