ICICI Direct is bullish on Astral Poly Technik has recommended buy rating on the stock with a target price of Rs 1250 in its research report dated December 26, 2018.
ICICI Direct's research report on Astral Poly Technik
Astral Poly came out with a strong set of numbers in H1FY19 wherein revenue, PAT increased 20%, 30% YoY, respectively, led by impressive growth in the adhesive segment (revenue up 25% YoY). The piping segment revenue growth at ~12% YoY was lower-than-expected mainly due to trucker’s strike, floods in Kerala and fall in PVC prices, which led to sales deferral by dealers. Despite this, EBITDA margins increased ~200 bps YoY to 15.6% due to price hike (mainly in the adhesive segment), change in product mix and backward integration (mainly in the piping segment). We believe the recent correction in PVC prices (down ~10% QoQ) would be limited to the company’s PVC piping portfolio (~30% of the total topline). However, Astral would benefit from softening raw material prices (crude derivatives) in the adhesive segment where it has taken a price hike to the extent of 2-10% in H1FY19. We introduce our FY21E estimates with revenue, earning CAGR of ~23%, 26%, respectively, in FY18-21E. We model piping and adhesive segment revenue CAGR of ~23% and ~22%, respectively, in FY18-21E.
Outlook
We introduce our FY21E estimates with revenue, earning CAGR of 23%, 26%, respectively, in FY18-21E. We reckon that a revival of the plastic piping industry is on the cards with government push on housing and infrastructure sector, implementation of GST and continued replacement demand from tier II, tier III cities. In addition to this, strong balance sheet of the company (with D/E at 0.1x and RoE, RoCE at ~23%, ~17%, respectively,) coupled with strong free cash flow generation in FY20E-21E (as no major capex announced by the company for FY20-21E) would justify the premium valuation. We roll over our valuation on FY21E and upgrade our rating from HOLD to BUY with a revised target price of Rs 1250/share.
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