ICICI Direct recommended buy rating on Astral Poly Technik with a target price of Rs 720 in its research report dated August 09, 2017.
ICICI Direct's research report on Astral Poly Technik
De-stocking of inventory at the dealer’s level had dented volumes of APTL as volume growth remained flat in Q1FY18. Additionally, backward integration of raw materials resulted in lower realisation (declined ~6% YoY) as the company passed on benefits to customers. Further, under the adhesive category where domestic business was marred by lower volume offtake by dealers, the overseas business declined in sales by 5% YoY due to adverse currency movement. However, the management has guided a strong recovery in the domestic business post implementation of GST The decline in EBITDA margin was largely on account of a sharp rise in branding expenses (up 3x YoY) associated with new launches coupled with addition of employees. We believe the EBITDA margin will remain at elevated level (at ~15%) for FY17-19E on account of an increase in utilisation of new capacity coupled with saving in raw material cost through backward integration.
We reckon a revival of the plastic piping industry is on the cards with a major government infrastructure push, implementation of GST as well as continued replacement demand from tier II and tier III cities. Backward integration (of raw material sourcing) coupled with stabilisation of new capacity would help drive the EBITDA margin from ~14% in FY17 to ~15% in FY19E. Strong sales and EBITDA margin in FY17- 19E would help the company record PAT CAGR of 30%. We maintain our BUY rating on the stock with revised target price of Rs 720/share (35x FY19E earnings).
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