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Strong performance continues…

About the stock: Astral is the leader in the CPVC piping segment and expanding into the adhesive business.

* Astral is the third largest piping company with a value market share of 9%. Piping, adhesive contribute 76%, 24%, respectively, to topline

* Healthy balance sheet reflected in strong return ratios (RoE: ~21.5%, RoCE: ~27.5%)

Q1FY22 Results: Better than expected performance by both piping and adhesive business.

* Consolidated revenue growth of 73% YoY to | 700 crore

* Price hikes, better product mix and improved operating leverage drives EBITDA margin up 504 bps YoY to 18.5%

* PAT jumped ~4x YoY to | 75 crore tracking strong topline growth.

What should investors do?

Astral’s share price has grown by ~7.5x over the past five years (from ~| 280 in August 2016 to ~| 2190 levels in August 2021).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value Astral at | 2160 i.e. 68x P/E on FY23E EPS

Key triggers for future price performance:

* Pick-up in housing sales and construction activities will augment growth in both pipes and adhesives

* Capacity addition (by 13% YoY to 291802 MT in FY22), launch of new products (water tank, valve) will help drive revenue of piping business

* Launch of new products and dealer addition in the adhesive business will drive segment revenue at CAGR of 34% in FY21-23

Alternate Stock Idea: We also like Asian Paints in our coverage universe.

* Asian Paints is the market leader in the decorative paint and is expanding its product portfolios along dealer expansion in tier II and tier III cities

* BUY with a target price of | 3665.

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