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Buy Asahi India Glass Ltd For Target Rs.317 - HDFC Securities

Our Take:

Asahi India Glass (AIS) is present across the entire value chain of architectural and automotive glass. The company has been introducing new products looking at the changing life styles and customer demands and in order to stay competitive and relevant in the market. Asahi has a dominant 73% market share in Indian passenger car glass market and is the 2 nd largest producer of architectural glass in India (FY20 market share ~16%). Despite the recent adverse business environment due to Covid pandemic, the company has shown resilience and focused on generating incremental benefits on the back of product diversification and cost reduction initiatives. The company is also expanding its capacity keeping in view the growing consumption which will aid revenue growth in the long term. Post the completion of current capex, the company would have sufficient capacity and we expect the company to utilize its cash flows to pare down debt levels.

AIS is likely to be a key beneficiary of revival in the volume of automotive and real-estate industries. Moreover, strong traction in aftermarket business will also aid profitability. The commissioning of Gujarat plant in the coming months is likely to enhance the company’s capacity for growth across both architectural and automotive segment.

Valuations & Recommendation:

We expect revenues of the company to grow at a modest CAGR of 6.4% over FY20-FY23. However, tighter control on costs and better operating leverage would drive 8.9% CAGR growth in EBITDA and 130bps expansion in EBITDA margins to 17.7%. Debt repayment and higher asset utilization on back of improving demand in end-user industries would lead to PAT CAGR growth of 13.5%. We expect RoE to improve from 12.2% in FY20 to 14.3% in FY23. We believe, Asahi will continue to trade at a premium to other auto ancillary companies which is mainly on the back of its dominant strong market positioning and MNC parentage with global expertise which makes it a preferred choice for OEMs. Also it faces no threat from the advent of Electric Vehicles. Its presence in high value architectural segment will help grow revenues and maintain high margins. At a CMP of Rs 286, AIS is trading at 29.3x Sept22E EPS; 13.8xFY23E EV/EBITDA. We feel investors can buy the stock on dips to Rs 262-264 band (27.0x Sept22E EPS; 12.8xFY23E EV/EBITDA) and add more in Rs 233-235 band (24.0x Sept22E EPS; 11.7xFY23E EV/EBITDA) for a base case fair value of Rs 293 (30.0x Sept22E EPS;14.3xFY23E EV/EBITDA) and bull case fair value of Rs 317 (32.5x Sept22E EPS;15.0xFY23E EV/EBITDA)

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