Hold Astral Poly Technik; target of Rs 900: ICICI Direct

ICICI Direct's research report on Astral Poly Technik

Astral’s performance in Q4FY20 was marred by lockdown in March 2020. The company reported a decline in consolidated revenue by ~19% YoY to ~Rs 629 crore owing to ~28% and ~16% YoY dip in revenue of adhesive segment (23% of revenue) and piping segment (~77% of revenue) respectively. The piping volume, value in March 2020 dipped 53%, 58%, respectively, mainly due to lockdown across the country. However, better gross margin (up 440 bps YoY due to benign raw material prices and price hikes in the CPVC pipes category) restricted the fall in absolute EBITDA at 5%, much lower than the pace of decline in sales. Resulting EBITDA margin for Q4FY20 was 255 bps higher YoY at 18% (vs. I-direct estimate of 16%). While all the company’s plants are operational with prescribed government Covid-19 norms, utilisation level has been encouraging in the last two weeks of May 2020. However, the management refrained from giving any future volume growth guidance for FY21E owing to challenging macro conditions. We believe lower operating leverage will weigh on EBITDA margin in FY21E.

Outlook
We cut our revenue, earning estimate by 23%, 37% for FY21E, respectively. Though we maintain our positive stance on the stock, a delay in construction activities would lead to a slow recovery for Astral, going ahead. We revise our rating from BUY to HOLD considering its present valuation at 58x FY21E, 42x FY22E and cut target price to Rs 900/share.

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