Astral Poly Technik - Profit up 52% yoy; downgrade to SELL - BRICS

Astral's net profit grew 52% yoy to Rs292mn, led by increase of 42% yoy in revenue to Rs2.61bn. Profit surpassed our estimate on account of higher than expected volume (production rose 30% yoy to 15,218MT vs. estimate of 13,859MT) and EBITDA margin (18% vs. estimate of 12%). We raise our estimated sales volume for FY14 by 3.3% to factor in stronger business momentum. We also raise target P/E multiple by 10% to 11x to factor in Astral's tight control on its working capital cycle. Our TP is up 22% to Rs419, though we downgrade the stock to SELL, as we believe the current valuation factors in all the positives.

Profit up 52% yoy to Rs292mn and volume up 30% yoy

Astral's net profit grew 52% yoy to Rs292mn (vs. estimate of Rs158mn), led by increase of 42% yoy in revenue to Rs2.61bn (vs. estimate of Rs2.22bn). Sales were driven by higher volume - production was up 30% yoy to 15,218MT. EBITDA margin expanded by 9% qoq to 18% due to favourable INR-USD exchange rate and price hike taken by the company in December 2012. Astral commenced sales of an indigenous solvent cement in Q4FY13. Mark to market losses on ECBs and acceptance stood at Rs65.4mn (vs. Rs59mn in Q3FY13).

Blazemaster to be launched in 2HFY14; Hosur plant to start by Q2FY14

According to management, production of Blazemaster is expected to commence in 2HFY14, as BIS standards are in place and approval is likely in 2-3 months. Construction work on the Hosur, Tamil Nadu facility is expected to be completed by June 2013, with trial production likely to begin in July 2013 and commercial production by Q3FY14. The Hosur plant will improve Astral's margins, as its proximity to the southern markets will reduce transportation costs. Astral is expected to end FY14 with processing capacity of 90,000MT. Capex for FY14 is estimated to be Rs50mn. As per management, the company will commence exports of bendable Flowguard pipes to Mexico and US in FY14.

CAGR of 43% and 26% in sales and debtors through FY08-FY13

Management continues to focus on reducing the company's working capital cycle. Hence, in spite of recording a CAGR of 43% in sales to Rs8.21bn in FY13 from Rs1.35bn in FY08, the company's trade receivables grew at a CAGR of only 26% to Rs1.04bn in FY13 from Rs0.33bn in FY08 and inventory grew at a CAGR of 41% to Rs1.48bn in FY13 from Rs0.265bn in FY08. Management expects the company's working capital cycle to tighten further in the coming years.

Raising FY14 sales volume estimate by 3.3% and EPS estimate by 6%

We are raising our sales volume estimate for FY14 by 3.3% to about 61,800 MT, to factor in the commencement of the company's Hosur facility and increasing demand for CPVC. As a result of the change in our assumptions, our profit estimate for FY14 is up by 6% to Rs855mn.

Raising target price; downgrade to Sell

Given Astral's steady volume growth, led by new product launches, as well as its pricing power and tight control on working capital cycle, we are raising our target P/E multiple to 11x from 10x, which is 28% higher than its 5-year average. Our target price is now up by 22% to Rs419, due to the change in P/E multiple and our assumptions, as we roll over to Q4FY14 estimates. We continue to like Astral, as the company is likely to deliver a superior earnings growth and strong return ratios, due to the growth in its existing product lines and new product introductions. However, we believe that the stock's current valuation - 14.2xFY14E and 11.6xFY15E EPS - factors in all the positives. We downgrade Astral to Sell from Reduce.

Source : Equity Bulls

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