Asahi India Glass - Benefits of fixed-cost reduction comes to the fore - ICICI Securities

Asahi India Glass' (Asahi) Q2FY21 operating numbers were a beat on all fronts as EBITDA margin came in at 19.6% (up 193bps) while revenues came in at Rs 6.2bn (down just 1% YoY). We remain positive on the stock due to: i) strong recovery in auto segment expected in FY22 (expect 15-20% OEM volume growth); ii) faster growth in architectural segment on the back of robust domestic and increased curbs on imports; iii) leaner fixed-cost structure aided by structural measures, and iv) continued benefits of lower gas costs. We expect capex intensity to reduce and FCF to improve (to ~Rs4.8bn in FY22E) thereby driving deleveraging from FY22E onwards (~Rs3.5bn reduction over FY22-23). Maintain BUY.

- Key highlights of the quarter: Topline declined marginally by 1% YoY to Rs6.3bn due to ~5% lower automotive segment to ~Rs3.6bneven as the architectural segment improved by ~5% YoY to Rs2.7bn. EBITDA margin expanded 193bps to 19.6% aided by lower power & fuel costs (down 378bps) and tight control on other expenses (down 207bps). On segmental basis, EBIT margins of architectural business came in at 17.3% while automotive came in at 14.4%. Reported PAT grew 22% YoY at Rs374mn.

- Management focus remains on fixed-cost reduction and debt reduction: Asahi is expected to continue to improve margins from better product mix, tighter cost control measures (e.g. headcount rationalisation, enhanced productivity targets). Management expects gas costs to inch up in H2 vis-à-vis H1; however, to remain much lower on YoY basis. Company is expected to witness strong cashflow build-up as gross debt is likely to have peaked in H1FY21 at ~Rs17bn and we expect it to reduce to ~12bn in FY23E. In the architectural segment, domestic demand has remained robust as imports (10-15% share of industry supply) have continued to decline. Key imports markets such as Malaysia are witnessing strong demand from China. Government policy support by way of anti-dumping duty (ADD) is likely to further help the industry and continued policy support would remain a key driver. Pricing across key product segments in architectural segments have also witnessed meaningful improvements, is likely to continue in H2FY21.

- Maintain BUY: We like Asahi's business as it: 1) has a dominant automotive market share with mix benefits and limited EV risk; 2) is a proxy play to the growing architectural segment demand where the strategy is on higher-value products; and c) has strong underlying business leading to improvement in cashflows / RoCEs. We revise our earnings higher ~61%/18% FY21E/22E respectively on the back of strong cost reductions. We rollover our estimates to Sep'22E and value Asahi at a multiple of 11.5x (earlier:12x) Sep'22E EV/EBITDA. Maintain BUY with a revised target price of Rs286/share (earlier: Rs242).

Shares of ASAHI INDIA GLASS LTD. was last trading in BSE at Rs.223 as compared to the previous close of Rs. 220.8. The total number of shares traded during the day was 2126 in over 278 trades.

The stock hit an intraday high of Rs. 227 and intraday low of 221. The net turnover during the day was Rs. 473728.

Source : Equity Bulls

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