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Insipid quarter

Astral Ltd reported lower-than-expected consolidated revenue growth of 22.4% YoY with piping/adhesive segment witnessing growth of 24.6%/16.1% YoY. Piping volume declined by 4.4% YoY due to fluctuating PVC prices resulting in lower offtake by dealers, unseasonal rains affecting demand, and covid restrictions. EBIDTA margin shrank 341bps YoY to 18% due to lower profitability in both the segments on account of higher raw material cost, resulting in EBIDTA growth of just 2.9% YoY. Management stated demand was yet to pick up in Q4 but it is hopeful of it doing so, as underlying trends for the industry remain favourable. It believes FY24 to be a high growth year as a lot of new product launches (like water tanks, sanitaryware & faucetware, etc.) which will/have happened will start materially contributing. We cut our PAT estimates for FY22-24E by 2%-4% and maintain HOLD with a revised Mar’23E target price of Rs2,274 (prior: Rs2,358).

Consolidated revenue growth of 22.4% YoY: Astral’s Q3FY22 consolidated revenues grew by 22.4% YoY with the piping/adhesive segment growing at 24.6%/16.1 YoY. Piping segment volume declined 4.4% YoY due to impact on demand for PVC pipes from dealers on account of fluctuating prices, unseasonal rains, and covid19 restrictions. CPVC pipe demand remained robust in the quarter and the company took a price increase of ~10%. Adhesive segment grew by 16.1% YoY with UK operations seeing some pressure due to the lack of availability of a key raw material (Silicon). As per management, demand in India for adhesives remained strong during the quarter. Management believes it will be able to deliver double-digit volume growth in the pipe business over the next few years, and the adhesive business despite a tepid Q3 will end FY22 at ~Rs10bn, in line with guidance. The company plans to launch sanitaryware & faucetware products in Q1FY23 and is hopeful of a meaningful contribution from this segment from FY24. Also, water tanks and valves business should see meaningful revenues from FY24 and thus it expects good growth in that year.

Operating margins shrink: Astral consolidated operating margins contracted 341bps YoY to 18%, primarily due to higher raw material cost in both pipes & adhesive segment. Piping margins shrank 307bps YoY (+53bps QoQ), whereas adhesive margins contracted 455bps YoY/330bps QoQ. Management indicated that with PVC prices now stabilizing and CPVC continuing to rise, it expects margins from this segment to remain healthy going ahead. For adhesive segment too, it believes when raw material prices stabilize, margins will again show improvement.

Valuations & View: Astral results has been lower than our expectation, and we cut FY22-24E PAT estimates by 2%-4%. Maintain HOLD with a revised Mar’23E target price of Rs2,274 (earlier Rs2,358)

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