Buy Astral Ltd For Target Rs.1,608 by Motilal Oswal Financial Services Ltd
Demand momentum stays strong; margins to gradually recover Healthy volume/revenue; moderation in margins in 2QFY27
* Astral (ASTRA) reported a weak operating performance in 2QFY27.
* Consolidated revenue grew 26% YoY, EBITDA was flat, and PAT declined 6% YoY.
* Gross and EBITDA margins contracted by 300-400bp YoY as the company could not fully pass on input cost inflation.
* Plumbing: pipe volume/revenue up 19%/25% YoY, EBITDA margin 16.3% vs. 18-23% range in last five quarters.
* Adhesives: revenue up 29% YoY, EBITDA margin 7.6% vs. 8.7-12.1% range in last five quarters.
* Bathware revenue grew by 26.8% YoY.
* Cash balance stood at ~INR4.6b.
Key highlights from the management commentary
* 2Q strong pipe volume was aided by restocking after a below normal inventory at 1Q-end.
* Pipe demand momentum has sustained in Oct’26.
* ASTRA expects to continue to gain market share in all product categories.
* Pipe margin to recover with full pass-on of input cost inflation.
* Adhesives margins to gradually improve to ~10%, driven by improvement in both domestic and UK/US markets.
* Management expects consolidated EBIDTA margin to gradually recover from 3Q onward and reach 15% (from 13.1% in 2Q).
* Took 5% price rise in CPVC pipe from Oct’26.
* All cost inflation already passed in PVC pipes.
* Capex: 1H at INR2.6b, FY27E ay INR4b.
* GEM Paints – all legacy issues like collection cycle and dealer network are behind.
Valuation and view
* After a miss in earnings in 2Q, we cut our estimates by 14%/2% in FY27/28 owing mainly to lowering of margin estimates.
* After a modest CAGR of 16%/11% /7% in revenue/EBITDA/APAT over FY21-26, we now estimate a CAGR of 19%/21%/31% over FY26-28 with RoE/RoCE (pre-tax) estimated to reach ~18%/26% in FY28.
* After a recent correction in stock price, we reiterate our BUY rating on ASTRA with a revised TP of INR1,608, based on 45x FY28E EPS.
* While we build in meaningful improvement in margins, any miss can lead to a de-rating in ASTRA’s scrip.
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