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The wait continues

Astral (ASTRA IN) is expected to miss its FY25 volume target, but potential price hikes in plumbing (due to BIS implementation and anti-dumping duty) and improved demand should drive channel restocking and 10% volume growth in FY26E. Despite near-term challenges, ASTRA with strong brand remains well-positioned to take advantage of the long-term growth opportunity in Pipes. So, we maintain Accumulate but with TP pared to INR 1,550 (from INR 2,000) on 55x FY27 P/E

Lower channel inventory and infra spending hit volumes:

In Q3, net sales grew 2% YoY to INR 13.7bn, falling 2.7% short of estimates due to stagnant volumes in the plumbing segment, which remained flat against the expected 2% growth. Despite stable PVC prices, channel partners maintained lower inventory, anticipating further price declines. Additionally, subdued government infrastructure spending and liquidity constraints dampened performance in the segment. The expected imposition of antidumping duty by Dec ’24, which could have driven price increases, is yet to materialize, delaying the anticipated price rise. Meanwhile, the bathware segment reported sales of INR 279mn in Q3 (INR 830mn in 9M), marking a 47.8% YoY growth and keeping it on track to surpass INR 1.2bn in FY25. Domestic adhesives (Resinova) expanded 14.5% YoY, driven by rural market penetration, whereas Seal IT UK declined by 5% YoY. The newly-launched paint segment saw a 7.5% YoY increase, with Astral Paints extending its reach to the Rajasthan market.

Awaiting demand recovery: In 9MFY25, plumbing volumes grew by 4.3%, significantly trailing the targeted 10-15% growth in FY25. While January saw decent growth, a sustained recovery hinges on demand revival and the expected imposition of antidumping duty, which management anticipates post the Union Budget. For FY26, ASTRA projects volume growth exceeding 10%, supported by a soft base, alongside higher value growth driven by anticipated price increases. Additionally, ASTRA is optimistic about BIS implementation, which is expected to benefit organized players

Plumbing – Strong margin expansion:

In Q3, EBITDA margin expanded by 74bps YoY to 15.7%, surpassing our estimate of 14.7%, primarily led by a 200bps margin expansion in the plumbing segment. The management anticipates a sequential improvement in margin for both paints and SEAL IT UK, supported by operating leverage in the paints division and cost optimization measures in the UK business. Additionally, ASTRA has reaffirmed its EBITDA margin guidance for FY25 in the range of 15-16%.

Reiterate Accumulate with a lower TP of INR 1,550:

We cut FY25E/26E/27E earnings estimates by 8%/16%/20%, respectively, primarily to factor in lower-than-estimated revenue. We reiterate Accumulate as the stock has corrected by >15% in the past three months. We arrive at a lower TP of INR 1,550 (from INR 2,000), based on 55x (from 60x due to near-term growth challenges) FY27E P/E as we roll forward.

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