IGI Logo

Demand and margin trend remains favourable

We interacted with the management of Astral Ltd (Astral) and following are the key takeaways: a) demand trend in pipe market remains healthy in Q2FY24-TD with 20%+ volume growth YoY (partly aided by low base) driven largely by the plumbing segment; b) management indicated operating margins to improve QoQ in Q2FY24 for both pipes (due to better product mix and no inventory losses likely to recur in Q2 given that PVC resin prices have been on an uptrend) and adhesives (benign raw material prices); c) ramp-up in bathware segment (sanitaryware & faucetware) is progressing well and the company has opened 500+ showrooms/display centres as of Jun’23; d) paint segment will likely start delivering better performance from H2FY24 post complete handover of GEM Paints by Sep’23. According to management, Astral is on track to achieve pipe volume growth and adhesive revenue growth in high double-digits YoY in FY24. We maintain our estimates and HOLD rating with an unchanged Sep’24E target price of INR 1,909.

Pipe demand trend remains healthy

Management indicated demand for pipes has remained steady with 20%+ volume growth YoY (partly aided by lower base) in Q2FY24-TD driven largely by the plumbing segment. Other segments like agriculture and infrastructure too continue to see steady demand as in Q1. The continued trend of lower PVC prices is enabling strong demand for the pipe segment and is likely to continue in the near term. East plant (Odisha) ramp-up has been steady and now with CPVC pipe production too starting, product mix here too will start to improve going forward. Guwahati plant is expected to contribute from H2FY24 thus enabling better volume growth in a seasonally strong second half. Management indicated it is on track to achieve its guidance of high doubledigit pipe volume growth (~15-20%) in FY24. Demand for adhesives remains healthy in Q2-TD and the company expects segmental revenue growth in double-digits in FY24.

Margins in both pipe and adhesive segments to normalise

Management indicated pipe margins to improve in Q2FY24 (due to better product mix as CPVC sales are higher, and there have been no inventory losses as PVC resin prices have been rising in Q2FY24). Management believes 16- 18% is a sustainable margin range for pipe segment. Adhesive margins are expected to improve in Q2 due to benign input prices. Management expects adhesive margins to be sustainable at ~15-16% going ahead.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

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