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Beat on all front…

Astral Ltd has reported an all-round performance in Q4FY21 with revenue and PAT coming in much ahead of our expectation. Consolidated revenue growth at 79% YoY to | 1128 crore was ahead of our expectation of 36% growth. This was mainly driven by strong performance of both piping and adhesive businesses. Standalone piping revenue increased 80% YoY to ~| 910 crore supported by ~26% YoY growth in volume. Strong demand from housing and construction segment helped drive volumes in Q4FY21. On the adhesive front, segment revenue growth at 78% YoY to | 241 crore was on a lower base and streamlining of distribution networks. The management commentary suggests, a short-term demand blip due to ongoing lockdowns. We slightly tweak our revenue and earnings estimate downward by 2% and 5%, respectively. However, strong future demand post opening up of the economy backed by government thrust on Jal Jeevan Mission and other infrastructure spend keeps medium to long term piping segment volume growth guidance at ~15% intact for Astral. The adhesive business revenue growth guidance at 20% is also intact supported by new product launches and dealer expansion in new geographies. The management also revised long term EBITDA margin guidance upward by ~16-19% with restoration of advertisement & other costs.

Expansion work continues despite pandemic challenges

Despite pandemic related challenges, Astral has decided to continue its expansion plans. The company has earmarked a capex of | 250 crore for FY22E-23E to start manufacturing SWR, AGRI, CPVC, & UPVC pipes in three locations viz. Sangli (with 8856 MT capacity), Aurangabad (with 5000 MT capacity) and Bhubaneswar (with 20,000 MT capacity). This will take overall capacity to 291802 MT by FY22, up 13% YoY. The plants in the said locations would enable significant cost savings on logistics fronts and increase operating profits.

Higher EBITDA margin guidance backed by price hikes

The company has taken price hikes of about ~6-8% in the CPVC category to offset inflationary pressure. Astral is focusing on launching high margin products in both pipes and adhesive segments. Despite restoration of some of the operating costs, the management has revised EBITDA margin guidance upward from earlier 16% to 16-19%.

Valuation & Outlook

We build in consolidated revenue, PAT CAGR of 21%, 20% for FY21-23E, respectively. While EBITDA margin is likely to peak out in FY21, we model our EBITDA margin estimates in line with management guidance. We maintain our positive stance on Astral given its strong fundamentals and reiterate HOLD rating with a revised target price of | 1915 (earlier | 1670).

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