Astral Poly Technik - Firing all cylinders; robust growth outlook - ICICI Securities

Astral Poly Technik's (ASTRA) Q2FY21 numbers were a big beat to consensus as well as our expectations driven by: a) Impressive double digit revenue growth (28.7% YoY) in adhesive business, b) impressive EBIDTA margin in both the businesses (20.3% and 15%+ in pipes and adhesives, respectively) despite decline in gross margins in both the businesses which is expected to recover in H2. Astra maintains robust growth outlook in pipes (85% YoY) and adhesives (55% YoY) segments in Oct'20, which is likely to sustain. With growth tailwinds expected to accelerate in both the businesses (driven by market share gains, new product launches and distribution expansion) and gross/EBITDA is likely to improve further, we believe, ASTRA's earnings growth momentum may remain robust in near-medium term. Upgrade to BUY.

- Valuation and outlook: Considering the robust growth outlook and expected improvement in margins in both pipe and adhesive businesses, we increase our revenue and PAT estimates by 9.1%/11.4% and 17%/11.9%, respectively, for FY21E/FY22E. We expect ASTRA to report overall revenue/PAT CAGRs of 17.1%/34.7%, respectively, over FY20-FY22E. We upgrade the stock to BUY with a revised SoTP-based target price of Rs1,345 (earlier: Rs1,104), implying a P/E multiple of 45x FY22E earnings - considering robust earnings visibility and impressive balance sheet strengthening in such testing times.

- Pipe business reports life-time high EBDITA margin and positive volume growth: ASTRA reported 2.2% YoY growth in its standalone revenue at Rs5.7bn (I-Sec: Rs5.4bn), up 4.1% YoY, driven by 2.2% YoY growth in its pipe volumes and sharp spurt in PVC prices. Despite lower gross margins (down 0.3% YoY) and adverse product mix, ASTRA reported 20.3% EBITDA margin (a life-time high) for the quarter led by cost optimisation and inventory gains in PVC pipes segment. With robust growth outlook (Oct'20 already witnessing 85% YoY growth) led by likely industry consolidation and new product launches, and expected improvement in margins (driven by product mix improvement), we estimate ASTRA's standalone revenue/PBT to grow at 14.1%/31% CAGRs, respectively, over FY20-FY22E.

- Adhesive business sustains growth momentum post Jul'20; robust outlook ahead: Adhesive business has reported an impressive 28.7% YoY growth in revenue (I-Sec: 10% YoY) with sharp recovery in revenue (25%+ growth) witnessed across the three months. In fact, ASTRA managed to report an impressive growth of 55% YoY in Oct'20. The robust growth in last four months is largely driven by the recent systemic corrections initiated by the company and lower base of last year. EBIDTA margin (adjusted for one-time loss in Q2 due to liquidation of old inventory) has also reported a beat at 16-17% level which looks sustainable going forward. With recovery likely to sustain and expected new product launches, the management remains optimistic of sustaining strong growth momentum in near term. We, thus, expect ASTRA's adhesive business to exhibit revenue/PBT CAGRs of 22.4%/49.7%, respectively, over FY20-FY22E.

Shares of ASTRAL POLY TECHNIK LTD. was last trading in BSE at Rs.1284 as compared to the previous close of Rs. 1279.2. The total number of shares traded during the day was 2423 in over 220 trades.

The stock hit an intraday high of Rs. 1302.95 and intraday low of 1271. The net turnover during the day was Rs. 3130947.

Source : Equity Bulls

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