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Result Synopsis

Astral ltd (ASTRA) reported a muted performance in Q2FY25. Pipe volumes declined marginally by 2.5%YoY (2-year volume CAGR stood at 12%) at 50,754Te (13% below our est). Volume growth was dented due to dealers resorting to de-stocking with constant fall in PVC resin prices and extended monsoons. The silver lining was that despite lower volumes, ASTRA improved their EBITDA/Kg to ~Rs35.5 from Rs33/Kg in the previous quarter which was impacted owing to Jaipur launch event and higher promotional spends. With Anti-Dumping Duty (ADD) on PVC resin prices and PVC prices in international markets trending upwards due to higher freight cost, company expects dealers to commence re-stocking which should enable volume growth. However, in Oct’24 volume growth was flattish due to festive season and uncertainties surrounding the imposition of ADD. Company’s Hyderabad plant has commenced operations with initial capacity of 21,000Te and more machineries will be added by Q4FY25. Kanpur is progressing as planned & will start from Q4FY25. For, O-PVC as well company is awaiting ISI certificate and management is planning to have double wall corrugated line at every plant. Management has guided for a 10-15% volume growth for FY25 with an EBITDA margin of 16-18%.

Paints and Adhesives biz cumulative revenue stood at Rs4Bn, a growth of 6%YoY & 9%QoQ. Paints revenue stood at Rs490Mn, a growth of 5%YoY with EBITDA margin of ~5%, which was impacted due to company launching in 2-new states which led to higher S&A spends. For paints, management expects revenue to grow steadily and margins to normalize once distribution network is set-up which is likely to happen in coming 1-year. Adhesives India biz reported revenue of Rs2.63Bn, a growth of 8.5%YoY & margins remained steady at 15.5%. However, UK Adhesives biz topline remained flattish at Rs920Mn with an EBITDA loss of ~2% which was dented due to new product launches in USA which elevated the manpower cost. Management expects UK biz to register double digit growth & improve margins next year onwards.

Our View

We continue to remain positive on ASTRA’s growth owing to favorable industry tailwinds. The demand should regain traction with improvement & PVC resin prices and expected BIS norms on PVC; dealers should resort to re-stocking. Moreover, with no major slowdown in new home construction, we expect plumbing demand to improve further. Incrementally, ASTRA is establishing presence in O-PVC segment, which is used for water transportation, and setting-up new capacities in Hyderabad and Kanpur for pipes & water tanks to cater the growing demand. Hence, we expect the company to deliver Pipe volume growth of 15%CAGR over FY24-FY27E (lowered our growth for FY25E from 15% to 10%). Given the resilience displayed by ASTRA in maintaining the profitability of pipe business, we maintain our EBITDA/Kg estimate at Rs35/Kg. With expected improvement in UK biz and Paints biz gaining traction over FY24-FY27E, we expect this segment to register a 15% topline CAGR.

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