Hold Astral Poly Technik; target of Rs 1250: ICICI Direct

ICICI Direct's research report on Astral Poly Technik

Astral’s consolidated revenue growth of ~24% YoY in Q3FY19 was led by consolidation of Rex Polyextrusion (Rex) in the topline. Piping and adhesive segment recorded revenue growth of ~14% and ~15%, respectively. Piping segment volume growth at ~4% YoY was impacted by liquidity issue and systemic corrections (like channel financing and installation of billing software). On the adhesive segment, Resinova (domestic business) recorded slow revenue growth of 7% YoY on account of a high base Lower-than-expected increase in EBITDA margin was largely attributable to a sharp increase in branding expenses (of Resinova) and employee cost in Q3FY19. Finally, a sharp increase in depreciation & tax provisioning restricted PAT growth at ~15% YoY The management has guided for consolidated revenue growth of 15%, going forward, led by piping and adhesive segment revenue growth of 15% and 20%, respectively.

Outlook

We reckon that a revival of the plastic piping industry is on the cards with government push on the housing sector, implementation of GST and continued replacement demand from tier II, tier III cities. Additionally, backward integration coupled with stabilisation of new capacity would help EBITDA margins to remain elevated. We believe Rex would add value to ATPL in the long run by contributing to the bottomline from day one. We believe that at 51x FY20E and 39x FY21E earnings, the stock captures near term positives. Hence, we maintain our target price and change our recommendation from BUY to HOLD.

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