Buy Astral Ltd for the Target Rs 1,697 by Motilal Oswal Financial Services Ltd
Weak but industry-leading performance in the pipes segment Revenue/EBITDA/PAT up 16%/25%/48% YoY in 1QFY27
* Astral (ASTRA)’s revenue/EBITDA/PAT grew 16%/25%/48% YoY, but missed our estimates by 5-13%. Gross margin stood at 40.6%, hit by partial pass through of RM cost inflation. EBITDA margin stood at 14.7%, affected by weak margin in the adhesive and paint businesses.
* Cash balance at the end of Jun’26 stood at INR4.7b
* Pipes: Overall demand scenario in the plastic pipe industry was weak in 1Q, mainly due to volatility and downward trend in polymer prices. Plastic pipe industry volume is expected to have declined 10% YoY in 1Q. ASTRA reported a flat volume (best among peers), and thus continued to gain market share. Higher pipe realization led to segment revenue growing by 10% YoY. Pipe EBITDA margin stood high at 18.9%. Bathware revenue grew by 18.1% YoY.
* Adhesives: India business revenue grew ~25% YoY with 12.2% EBITDA margin. Overseas business revenue grew 26% YoY with 4.9% EBITDA margin; seeing healthy recovery. It continued to expand network; added 8,000+ towns and 500+ dealers to take the total to over 1500 dealers. Joinery gained encouraging early traction, establishing presence across 8 states; focus is to build scale through portfolio expansion, deeper woodworking penetration and continued innovation-led differentiation.
* Paints: Revenue grew 48.7% YoY with EBITDA at breakeven level. It is currently operating in six states. Current capacity utilization stands at 60%.
Key highlights from the management commentary
* Jul’26 witnessed a surge in pipe volume; maintains guidance of double-digit volume growth and 20%+ value growth in FY27.
* Channel restocking has started with a rise in polymer prices.
* ASTRA expects current high realization to sustain in the coming quarter also due to the upward reversal in PVC prices in 2Q and also the implementation of the MIP, which will protect the floor price of PVC.
* Strong growth in Adhesives and Paints are likely to sustain.
* Adhesives margin is likely to expand with full pass-through of RM cost inflation
* FY27 capex stands at ~INR3b.
* New plant for CPVC resin (40,000 tons) Phase-1 is progressing well for trial runs in 4QFY27 and will help in gaining market share and improve margins.
* Several new products (OPVC, PPR, etc.) are also scaling up fast.
Valuation and view: Reiterate BUY
After delivering a modest CAGR of 16%/11% /7% in revenue/EBITDA/APAT over FY21-26, we now estimate a CAGR of 16%/22%/30% over FY26-28 with its RoE and RoCE (pre-tax) reaching ~18% and ~26%, respectively, in FY28. We reiterate our BUY rating on ASTRA with a revised TP of INR1,697, based on ~48x FY28E P/E. The current valuation of ~41x FY28E P/E broadly factors in our expectation of improving financials.
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