Astral Poly Technik - Good results on higher volumes + price hikes - BRICS

Astral reported a 48% yoy increase in net profit to Rs193mn while revenues increased 29% to Rs1.82bn. EBITDA was up 105% at Rs388mn and EBITDA margins expanded by 8% to 21% on a 7% price increase in Q3 and rupee appreciation. We maintain our target price of Rs192 (based on 8x FY13 EPS) but reduce rating to Add from Buy on a limited 5% upside.

Profit up on higher volumes, margins on price increase: Profits increased 48%yoy to Rs193mn on a 17% volume growth at 11,698 tonnes. There was a 730bps expansion in operating margins to 21% due to a price hike of 7% taken in Q3 and a sharp appreciation in the rupee in the middle of Q4. This margin is not sustainable and company expects margins to revert to the 12%-14% range in FY13. Product mix by value was unchanged with 64% CPVC and balance PVC. In Q4, Astral booked a forex loss of Rs82mn on liabilities (Rs600mn ECB + Rs950mn acceptances as of Q4FY12).

No sign of slowdown in demand: Management is seeing no slowdown in demand as of now. This could be because of the branding exercise carried out by the company in FY12. Manufacturing capacity increased by 35% yoy to 65,496tpa (excluding 1,100tpa capacity of Bendable (composite pipe) which will be commissioned in May 2012). It launched Bendable CPVC in Q4 while its Blazemaster (fire sprinkler systems) permissions are still pending.

Maintain target price at Rs192, downgrade to Add: Astral trades at 8xFY13 and 6x FY14 on our estimates, which is at a discount to its peer average of around 10x FY13. We maintain our target at Rs192 (8x FY13) which implies an upside of 5%. We like the business because of its strong return ratios (28% ROCE in FY13), growth in existing product lines, and new product introductions (Blazemaster). However, we downgrade to Add on limited upside.

Source : Equity Bulls

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