Buy Astral Ltd For Target Rs.1,779 by Prabhudas Liladhar Capital Ltd
Astral Chemicals business demerger to focus on growth
Astral Ltd has announced the demerger of its businesses into Astral Ltd. (Plumbing) and Astral Chemie (Adhesives, Paints & Specialty Chemicals), wherein management outlined the strategic rationale behind creating two focused entities with independent capital allocation, dedicated management teams and enhanced operational efficiency. Management highlighted that the restructuring will enable each business to pursue its own growth strategy while improving financial transparency through separate reporting from Q1FY27 onwards. The Plumbing business is expected to benefit from the upcoming CPVC backward integration, continued product additions and healthy growth across the faucets and sanitaryware portfolio, while Astral Chemie is entering a phase of stronger profitability driven by the completion of its major capex cycle, improving performance in the Paints business, the turnaround of the UK and US operations, and the scaling up of the high-margin DSS specialty chemicals platform. Over the medium term, management targets Astral Chemie to expand revenue from INR 18.6bn in FY26 to INR 44–50bn over the next four to five years while improving EBITDA margins to 14–15%. We estimate sales/EBITDA/PAT CAGR of 18.8%/22.5%/34.4% over FY26-28E. Maintain ‘BUY’ rating with revised SOTP-based TP of INR 1,779 (INR 1,863 earlier)
Demerger of Chemicals Business
• Astral is separating its Chemicals business to create a focused chemicals platform with dedicated management, independent capital allocation and better operational synergies across R&D, manufacturing and distribution.
• The Chemicals business comprises adhesives, sealants, construction chemicals, solvent cements, silicones, epoxy resins, putties and specialty chemicals.
• Post demerger, Astral's chemicals portfolio will be combined with Astral Chemie's paints & coatings business, creating a dedicated chemicals platform with synergies across manufacturing, R&D, procurement, warehousing and distribution.
• Existing Astral shareholder will receive 1 equity share of Astral Chemie for every 1 equity share held in Astral (1:1 entitlement ratio), subject to the record date and regulatory approvals.
• Astral Chemie will seek separate listing on NSE and BSE upon completion of the scheme.
• Post restructuring, Astral Ltd will primarily house the Plumbing & Building Materials business (FY26 revenue: INR46.7bn, EBITDA margin: 18.6%), while Astral Chemie Ltd will house the Chemicals business (FY26 revenue: INR18.6bn, EBITDA margin: 10.3%).
Amalgamation of Al-Aziz Plastics
• Astral has also approved the amalgamation of its wholly owned subsidiary Al-Aziz Plastics Pvt. Ltd. into Astral Ltd.
• Al-Aziz manufactures electrofusion fittings, compression fittings, saddles, electrical fittings and allied accessories, complementing Astral's plumbing portfolio.
• The amalgamation is expected to strengthen the Plumbing business through better product integration, improved supply-chain efficiencies and lower compliance costs.
• Since Al-Aziz is already a wholly owned subsidiary, there will be no change in Astral's shareholding pattern and no fresh equity issuance.
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