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Expensive valuations, assign REDUCE!

Result Synopsis

Astral Ltd reported stellar volumes of 45,859Te in pipe biz (73% of revenue), a growth of 30%YoY & 13%QoQ (3-year CAGR: 13%), owing to healthy demand from pluming segment. ASP came in at Rs203/Kg as compared to Rs244/Rs205 in Q3FY22/Q2FY23 respectively. EBITDA/kg for the quarter stood at Rs31 Vs Rs49/Rs28 in Q3FY22/Q2FY23 respectively. Adhesive’s biz (27% of biz) registered a revenue growth of 31%YoY & flattish QoQ to Rs3.36Bn. EBITDA margins came in at 12.2% as compared to 11.7%/13.4% in Q3FY22/Q2FY23 respectively. 9MFY23 revenue stood at Rs10.05Bn, a growth of 41%YoY & margins came in at 13.2% Vs 13.4% in 9MFY22. For Sanitaryware & Faucets, Company opened 231 showrooms in Q3FY23 and 80 more such showrooms are under constructions & by end of FY23, Astral plans to have 500 showrooms. This segment reported revenue of Rs97Mn in Q3FY23 and a loss of Rs40Mn.

We expect ASTRAL will continue to report strong growth in Pipes & adhesive’s segments owing to healthy industry tailwinds & company’s dominant share in pluming sector. Hence in pipe segment, ASTRAL will register a volume/revenue growth of 15%/14% CAGR over FY22-FY24E respectively. We reckon, EBITDA/Kg to come in at Rs33/Rs35 in FY23/FY24E respectively. Going ahead, owing to positive demand traction, we expect adhesive biz to report a revenue growth of 20%CAGR over FY22-F24E & margins are likely to remain steady at 13%. Paints segment revenue stood at Rs520Mn, a growth of 4%QoQ & EBITDA margins came in at 12.6%. With company’s foray into Paints, Sanitaryware & Faucets, we believe ASTRAL is on path to become one of India’s leading BUILDING MATERIALS companies. Though in near term, growth & market acceptance of these new products will be under review, we reckon with the extensive dealer network & strong brand image of ASTRAL, company will gain respectable market share in these new categories in coming-years. Though we remain positive on growth, Astral continues to trade at expensive valuation of 60x on FY24E EPS of Rs31.9. Hence, we have assigned a REDUCE rating on the stock.

Result Highlights

* Revenue for the quarter stood at Rs12.68Bn, registering a growth of 15%YoY & 8%QoQ (vs street est of Rs11.65Bn).

* EBITDA margin came in at 14.7% (vs street est 15.2%) as compared to 17.9%/12.3% in Q3FY22/Q2FY23 respectively. Absolute EBITDA stood at Rs1.86Bn, declined 6%YoY but increased 29%QoQ.

* Net profit stood at Rs 952Mn, declined 26%YoY and increased 28%QoQ (Vs Street est of Rs1.04Bn)

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