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Margin contraction due to muted volumes and inventory losses

Earnings below our estimate

• Astral Limited (ASTRA) reported a muted quarter, which was in line with its industry peers due to a volatile pricing scenario and a weak demand environment. ASTRA reported a marginal decline in revenue (down 2% YoY) with flat volume YoY at 56.1k MT. However, its EBITDA margin contracted 190bp YoY to 13.6%, severely impacted by inventory losses and an adverse operating leverage.
• The management commentary on outlook remains in sync with the industry. The company is witnessing a good 2QFY26 to date for its piping and adhesives business (including paints) and remains confident of maintaining its earlier guidance of double-digit revenue growth in FY26. PVC prices are expected to bottom out, and demand improvement will drive the growth and recovery in margins in 9MFY26.
• Factoring in the weak 1Q operating performance and maintenance of management guidance, we cut our FY26E earnings by only 7% (despite a miss of 39% in 1Q). However, we broadly maintain our FY27 estimates. We reiterate our BUY rating with an SoTP-based TP of INR1,650.

Weak operating performance across businesses

• ASTRA’s consolidated revenue declined 2% YoY/19% QoQ to INR13.6b in 1QFY26 (est. INR15.2b), primarily led by a dip in the plumbing business (down 6% YoY), which was partially offset by a 10% YoY growth in the paints and adhesive business.
• Consolidated EBITDA declined 14% YoY/39% QoQ to INR1.8b (est. INR2.4b), with EBITDA margin contracting 190bp YoY/440bp QoQ to 13.6% (est. 15.5%). This was driven by an increase in employee expenses/raw material as a % of sales by +130bp/+120bp YoY. Adj. PAT declined 33% YoY and 55% QoQ to INR811m (est. INR1.3b).
• The plumbing business reported a volume of 56.1k MT (flat YoY) with revenue at INR9.5b (-6% YoY), largely due to lower realization (down 6% to INR170/kg). EBITDA stood at INR1.6b (-14% YoY), resulting in an EBITDA margin of 16.4% (-150bp YoY). EBITDA/EBIT per kg stood at INR27.9/INR17.6 (down 14%/36% YoY, respectively).
• The paints and adhesive business revenue stood at INR4.1b (up 10% YoY), EBITDA was INR375m (down 16% YoY), and EBITDA margin came in at 9.2% (-280bp YoY). EBIT stood at INR196m (down 25%), with margin at 4.8% (down 220bp YoY).

Highlights from the management commentary

• Outlook: ASTRA’s 1QFY26 volumes were flat due to weak demand, early monsoon, and low government spending, alongside an inventory loss of INR350m. From Jul’25 onwards, volumes have started improving (up 30% YoY), and the company expects “lower double-digit” volume growth for FY26, with potential upside if ADD/BIS spur channel restocking. Piping business EBITDA margins are guided at 16–18%.
• Backward integration: Astral is acquiring 80% of Nexelon Chem to set up an INR1.5b, 40,000MT CPVC resin plant (commissioning in 2QFY27) using an inhouse developed technology. This will be the lowest-cost capacity in the industry, fully for captive use, and is likely to boost margins (in the 25-30% range for CPVC pipes), free working capital, and drive market share as CPVC demand improves.
• Adhesive and paints: The company delivered decent performance in 1QFY26; however, it maintains a healthy revenue growth guidance for both India adhesives (~15-16% growth and 14-16% margins in FY26) and paints (INR2.4b revenue at 20% growth). Appointed a senior person in the UK Adhesive business and expect a healthy turnaround.

Valuation and view

• Macro headwinds have hit the industry, including ASTRA, over the last few quarters; however, with PVC prices expected to stabilize around this level and demand likely to improve, we anticipate the growth momentum to pick up going forward.
• With new acquisitions and investments in CPVC, the company can further expand its margins profile (which is already the best in the industry) and improve its working capital.
• We expect ASTRA to clock a 15%/17%/22% CAGR in revenue/EBITDA/PAT over FY25-28. We reiterate our BUY rating on the stock with an SoTP-based TP of INR1,650 (premised on 56x FY27 P/E).

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