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Strong recovery amid pent up demand…

Astral’s Q3FY21 performance was better than our estimates on all front. This was led by strong pent demand in the piping segment from urban regions and a favourable base for adhesive segment. Consolidated revenue growth at 35% YoY was supported by ~33%, ~42% YoY growth in the piping and adhesive segments respectively. Standalone revenues (~77% of consolidated topline & mainly piping business) witnessed a notable growth of 33% led by ~15% volume growth. Besides, streamlining of distribution networks of adhesive business help drive consistent segment revenue growth (Q2FY21 was higher by 29%). This was also supported by launching of products along with dealer additions. The gross margin was down by ~154 basis mainly due to delay in price hikes and change in product mix. However, better operating leverage helped drive EBITDA margin up by ~360 bps YoY to ~21%. Management commentary suggests, a strong piping demand going forward supported by government thrust on Jal Jeevan Mission. That said, medium to long term piping segment volume growth for Astral is ~15%. This along with newly acquired water tank business would also start aiding to revenue growth from Q4FY21 onwards. The adhesive business revenue growth guidance at 20% would largely be supported by dealer expansion in new geographies. Company also sees long term EBITDA margin profile at 15%-16% Vs 9MFY21 EBITDA margin of 19%, with normalisation in input price and restoration of advertisement & other costs.

Expansion on track, revenue contribution to start from FY22

For 9MFY21 the company has incurred a capex of | 87 crore including | 51 crore acquisition of water tank business in Nov’20. The other two plants in Orrisa and Dholka (for pipes & fittings and valve) will commence operation from H2FY22E, while brownfield expansion in Hosur will also be completed by H1FY22. Company’s current piping capacity at ~2.4 lakh tonnes would increase to ~2.9 lakh tonnes by the end of FY22E.

Operational performance back to pre-Covid level so far

For 9MFY21 company reported revenue growth of 5% YoY to | 2049 crore supported by ~13% and ~3% growth in adhesive and piping business respectively. Better operating leverage help drive EBITDA margin up by ~200 bps at 19% and PAT were up by 17% YoY to | 232 crore. According to management, the strong performance is likely to continue in Q4FY21 (Jan’21 sales were up by 35% YoY).

Valuation & Outlook

We revise our earnings estimate up by 16%, 33% for FY23E considering improved growth guidance. However, with recent run in stock price we maintain our Hold rating on the stock with revised target price of |2225 (earlier TP | 1260).

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