IGI Logo

Strong Revenue Growth at the Cost of Margin

Astral reported healthy revenue of Rs12.1bn in 1QFY23 (up 73% YoY, down 13% QoQ), higher than our estimate of Rs11bn. Plumbing revenue increased by 74% YoY to Rs8.8bn, while adhesive revenue jumped by 72% YoY to Rs3.7bn. Volume of plumbing segment increased by 49% YoY to 36,578 MT, while realisation stood at Rs240/kg, up 17% YoY. EBITDA increased by 33% YoY (down 21% QoQ) to Rs1.7bn, (in-line with our estimates of Rs1.6bn) while blended EBITDA margin declined by 433bps YoY to 14.2% due to higher RM Cost (+93% YoY) and other expenses (+60% YoY). PAT Came in at 938mn, up 25% YoY (down 36% QoQ), largely in-line with our estimate of Rs954mn. Consolidated cash (including cash equivalents) and bank balances as at June’22 is Rs5.4bn. The company has inaugurated, its first display center for their bath ware range at Ahmedabad. This display center is Astral’s flagship showroom that will mark brand’s first of many such exclusive showrooms in India. For FY23E/FY24E, we increase our revenue estimates by 12%/7% to factor in strong volume growth in 1QFY23 and healthy volume guidance. Revenue from the new businesses like Water Tanks, Paints and Faucet & Ceramic are likely to increase gradually in the coming quarters. We lower our EBITDA margin estimates by 263bps/44bps for FY23E/FY24E, due to the lower margin in Plumbing segment, and thus reduce our EBITDA estimates by 4% in FY23E and increase by 5% in FY24E. We lower our PAT estimates by 12% in FY23E while we maintain our PAT estimates for FY24E. In view of the strong all-round growth, rising market share, higher capacity addition and earnings visibility, and the government’s initiatives for infrastructure, we maintain our BUY rating on the stock, with an unrevised Target Price of Rs2,215, valuing the stock at unrevised target P/E of 65x FY24E earnings.

Inventory loss of ~Rs250mn Impacted margin

The CPVC prices have stabilised relatively but PVC prices continued to drop. Margin pressures have remained elevated and the company incurred inventory loss of ~Rs250mn in 1QFY23 and is likely to witness some inventory loss in 2QFY23 as well. Moreover, there was a forex loss of ~Rs117mn due to depreciating Rupee and an amortisation of ~Rs70mn. EBITDA/Kg has witnessed an improvement primarily due to the decentralisation of plants, change in productsmix with greater focus on CPVC and addition of value-added products like valves. Chemicals prices in the adhesive business continue to be volatile. The other expenses increased in 1QFY23 due to launch events of Faucets and Sanitaryware. The company has purchased faucets manufacturing ready-to-use assets at Jamnagar which will aid in timely production and will ease product availability across the country. Most of the Faucets will be manufactured in-house while few will be outsourced.

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. For FY22, Astral reported 21% YoY growth in PAT at Rs4.9bn, while revenue rose by 41% YoY to Rs43.4bn. We expect the company to report revenue and earnings growth of 15% and 18% respectively, over FY22-FY24E. In view of the strong all-round growth, rising market share, higher capacity addition and earnings visibility, with the government’s initiatives for infrastructure, we maintain our BUY rating on the stock, with an unrevised Target Price of Rs2,215, valuing the stock at unrevised target P/E of 65x FY24E earnings.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.reliancesmartmoney.com/disclaimer
SEBI Registration number is INZ000172433

Above views are of the author and not of the website kindly read disclaimer