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Bullish on growth but valuations compel SELL rating!

Result Synopsis

Astral Ltd delivered yet another quarter of strong volume growth, despite Q1 being a Agri-heavy season. Company’s plastic pipe volumes stood at 47,950Te, a growth of 31%YoY (5-year volume growth stood at 16%), on account of healthy demand from Plumbing and Infra segment. ASP contracted to Rs196/Kg Vs Rs240/Rs206 owing to fall in resin prices coupled with change in product-mix. Consequently, EBITDA/Kg came in at Rs35/Kg Vs Rs48/Kg (exceptionally high & unsustainable) in previous quarter & Rs36 in Q1FY23. Adhesives & Paints biz revenue stood at Rs3.44Bn, a minimal growth of 2%YoY & decline of 10%QoQ. The segment’s margins came in at 14% Vs 13.7%/15.1% in Q1FY23/Q4FY23 respectively. Paints biz was impacted due to implementation of SAP & other demerger of associated companies with Gem paints. This lead to sales loss of Rs150-200Mn. Sanitaryware & Faucets division registered an EBITDA loss of Rs34Mn during the quarter.

On account of strong demand from plumbing segment & ASTRAL’s growing brand presence in Tier-II,III and other cities we reckon company’s volume to grow by 20%CAGR over FY23-FY25E. Incrementally with ASTRAL’s focus on plumbing segment & growing value-added contribution, we reckon EBITDA/Kg to come in at Rs36/37 in FY24E/FY25E respectively. Adhesive’s biz is likely to grow by 18%CAGR, backed by commencement of new Dahej facility. Moreover, with rebranding of paints biz & growing orders of Sanitaryware & Faucets, we believe these new segments will support overall growth. Hence, we expect Revenue/EBITDA/PAT growth of 19%/24%/27% respectively over FY23-FY25E. ASTRAL continues to trade at premium P/E(x) of 90x/71x on FY24E/FY25E EPS of Rs22/27.6. Hence, though we remain bullish on company’s growth, demanding valuations compels us to downgrade the stock to SELL from REDUCE.

Result Highlights

* Revenue stood at Rs12.83Bn, a growth of 6%YoY & decline of 15%QoQ.

* EBITDA margins came in at 15.7% Vs 14.1%/20.5% in Q1FY23/Q4FY23 respectively.

* Net profit stood at Rs1.19Bn, a growth of 35%YoY.

* Pipes: Vols stood at 47,950Te, a growth of 31%YoY & decline of 12%QoQ. ASP stood at Rs196/Kg Vs Rs240/Rs206 in Q1FY23/Q4FY23 respectively. Pipes revenue stood at Rs9.38Bn, growth of 7%YoY & decline of 17%QoQ.

* Pipes EBITDA/Kg (excl loss of Sanitaryware & Faucets) stood at Rs35 as compared to Rs36/Rs48 in Q1FY23/Q4FY23 respectively).

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