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Astral Poly Technik

Astral Poly Technik has guided that the demand trend continues to be strong across both its pipes and adhesives business segments. Rising consolidation has further aided the industry’s pricing power and, hence, its strong margin is expected to sustain despite soaring RM costs. While pricing power is sustaining in the near term, continued resin price inflation will impact agri demand and hit margin 1QFY22E. Astral’s expansion across pipes, tanks and valves is on track and will support its strong growth momentum. We have an ADD rating on the stock with a TP of INR 2,210 (34x its FY23E consolidated EBITDA).

* Robust demand trends: Real estate bookings are going strong, supporting outlook for pipes demand. Demand from infra segment will gain traction once tenders take place at revised (upwards) prices. Price-sensitive agri demand is expected to be impacted by continued increase in PVC pipes’ prices.

* Bigger branded players gaining market share: The company guided that domestic PVC resin prices have soared to ~INR 125/kg vs ~ INR 76/kg YoY. This has led to a sharp increase in working capital requirement for the industry. In turn, this has stressed the smaller unorganised players, who are seeing volume decline. Thus, larger players are gaining market share.

* Raw material cost continues to rise: While the raw materials prices across pipes and adhesives are on the rise, the same is getting passed on due to increasing market consolidation in the pipe segments and the adhesive business is already consolidat

* Tanks and valve businesses: While it is positioning the recently acquired ‘Sarita’ brand under economical category, it will sell its own produced tanks under ‘Astral’ brand (from 1QFY22) under premium category. Astral’s valve plant will become operational from 2QFY22.

* Odisha plant: Its greenfield pipes plant in Odisha will become operational in FY22E. The management further reiterated that Astral will focus on asset sweating, and Capex run rate should reduce going further.

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