Lockdown hits performance…
Astral’s Q1FY21 performance was better than our estimates despite sales loss for almost 45 days amid lockdowns. While April 2020 was a washout month, the piping business reported a month on month improvement in volume with June 2020 volume recovering 96% YoY. Piping segment’s volume de-growth of 31% YoY in Q1FY21, was better than our estimate of ~44% decline. On the adhesive front, revenue fell 37% YoY (better than our estimate of 56% YoY decline). However, it saw a substantial recovery in sales on a month on month basis. Sales in July 2020 were up 26% YoY. A sharp fall in other expenditure (down 49% YoY) was on the back of the company’s cost optimisation measures that helped restrict fall in EBITDA margin by 164 bps YoY to 13.4%. Finally, ~58% fall in bottomline to | 20 crore was much ahead our estimate of | 7.5 crore. While the management refrained from giving any volume guidance for FY21 (considering the intermediary lockdowns), we believe a pick-up in construction activity would help in a faster recovery in sales for both segments from H2FY21E onwards.
Non metros drive demand recovery
Piping segment demand recovery was led by semi urban, rural areas that were less impacted by pandemic. Astral recovered ~90% of piping sales volume in May-July 2020 despite nominal sales from metro regions. Further, opening of metro regions coupled with its plan to enhance dealer networks across semi urban and rural regions would help in a faster sales recovery from H2FY21E onwards. On the adhesive side, the demand recovery was impressive post ease in restrictions with ~26% sales growth in July 2020. Low base and completion of its distribution realignment strategy yielded a better-than-expected performance. We model consolidated revenue CAGR of 10% in FY20-22E led by adhesive and piping segment revenue CAGR of 12% and 9%, respectively, during the same period.
Lower profitability from adhesive segment
Gross margins fell 164 bps YoY (354 bps QoQ) mainly due to carryover of high cost inventory (~| 10 crore) from FY20 in piping segment. However, piping segment EBITDA margin fall was limited to 65 bps YoY at 14.8% due to significant cost control measures. On the adhesive front, EBITDA margin fall of ~600 bps YoY to 8.4% was mainly due to higher employee costs. We model recovery in EBITDA margin in line with sales in FY20-22E.
Valuation & Outlook
We revise our earnings estimate up 5%, 16% for FY21E, FY22E considering improved sales. Though we maintain our positive stance on the stock, a delay in construction activity would lead to a slow recovery for Astral, going ahead. We maintain our HOLD recommendation on the stock with a revised target price of | 1120/share.
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