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Margin impacted due to one-off

Robust plumbing volume growth on high base

Astral (ASTRA IN) Q3 net sales rose 8.1% YoY as the plumbing business posted value growth of 7.1% and volume growth of 15%, with a four-year CAGR of 17.7% and 13.3%, respectively. Plumbing volume YTD grew 24% and management is confident of ending FY24 with 20% growth. The sanitaryware and faucets segment delivered sales of INR 200mn in Q3 vs INR 170mn in Q2 and expects to cross INR 1.0bn in FY25. The domestic adhesives business (Resinova) and Seal IT UK grew 17% YoY and 9% YoY, respectively, led by robust volume growth while the newly acquired paints business contracted 10% YoY.

Building capacity to cater to robust demand

During the 9MFY24, the company increased plumbing business capacity by 30,000mn tonne pa (MTPA), reaching total capacity of 320,000. To address rising demand for plastic pipes and fittings, it is expanding capacity in Guwahati by 22,000 MTPA, Hyderabad by 70,000 MTPA, and Kanpur by 50,000 MTPA. Sales at the Guwahati plant is anticipated to commence in Q4. The Hyderabad unit, initially at 40,000 MTPA, is scheduled to become operational by Q2FY25 while the Phase 1 capacity expansion of 30,000 MTPA at Kanpur is expected to be operational in Q1FY26.

Sustains guidance of 16-17% plumbing EBITDA margin

Plumbing EBITDA margin came in at 16.5%, up 110bp YoY, given inventory loss of INR 200mn and 25 year celebration cost of INR110mn. Management expects PVC prices to bottom in Q4 and move up from Q1, which augurs well for the segment. Paints and adhesive EBITDA margin expanded 30bp YoY to 12.5%, following inventory loss in the UK business. Management has retained EBITDA margin in the range of 16-17% in the plumbing business and 14-15% in the adhesives business.

Valuation: reiterate Accumulate with a TP of INR 2,034

We cut our earnings by 6.6%/4.7-% each for FY25E/FY26E, respectively, to factor in lower-than-estimated revenue growth. We reiterate Accumulate with a TP of INR 2,034 based on 60x FY26E P/E as we roll forward.

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SEBI Registration number is INH000000933