Hold Astral; target of Rs 1983: Prabhudas Lilladher

Prabhudas Lilladher's research report on Astral

Astral Ltd (ASTRA) upward revised its volume growth guidance at >-20% in pipe & fittings business and ~15%/20% vol./rev. growth guidance in paints & adhesive business, with consolidated EBITDA margin guidance of 17-18% alongside improvement in volumes & correction in RM prices and breakeven in sanitaryware business in couple of quarters. ASTRA reported strong expansion in gross margin (+870bps YoY) in Q2FY24, even after inventory loss (Rs 200mn) on account of increase in VAP mix and lower RM procurement cost. However, increase in front-loaded expenses for growth, led to relatively lower expansion in EBITDA margin (+390bps YoY), which will reflect in numbers over coming quarters with product mix change & increase in revenue. Astral is trading at 63x/49x FY25/FY26 earnings; we still believe that the company is a consistent quality performer and is a compounding story. With strong performance in 1HFY24, strong volume guidance of 15-20% and margin improvement in FY24, we maintain our FY24 estimates with 22% revenue growth and 18.2% EBITDA margin in H2FY24.

Outlook

We estimate Sales/EBITDA/PAT CAGR of 17.7%/24.8%/32.9% over FY23-26E and value the stock on DCF based TP of Rs1,983 which implies 56x Sep’25 EPS. Maintain ‘HOLD’.