Analysts remain bullish on this plastic pipe maker, see double digit return after Q3 earnings

Shares of Astral Poly Technik continued to trade volatile on February 17 after the company reported October-December quarterly results which were in line with expectations.

The stock has gained more than 31 percent in the last one year. It closed at Rs 1,185, down 1.03 percent on the BSE.

While reiterating a positive view on the stock with a potential upside of 12-15 percent, Sharekhan said it has fine-tuned its numbers for FY20, FY21 and FY22, and expects revenue and earnings CAGR of 19.2 percent and 34.8 percent, respectively, over FY19-FY22.

Narnolia also retained its buy call on the stock with a target price of Rs 1,380 (implying a 14 percent potential upside from current levels).

"Margin expansion on sequential basis was due to structural changes, favourable product mix and operating leverage benefits in Q3FY20. Extended monsoon impacted the volume growth in Q3FY20. However, management expects double-digit volume growth going ahead. Looking forward, the capacity addition and current utilisation level at 60 percent incremental capex won't be higher in FY21," the brokerage said.

"The management is focusing on expanding the utilisation level to 75-80 percent. Post completion of these structural changes adhesive business is expected to outperform by double-digit growth," it added.

Astral Poly Technik reported profit growth of 28.8 percent due to lower tax rate, and revenue grew marginally by 4.8 percent YoY to Rs 664 crore in quarter ended December 2019.

The company delivered healthy volume growth of 15 percent YoY in the plastic segment, while performance in the adhesive segment (up 0.7 percent YoY) was not encouraging.

Ease in input cost pressures coupled with a change in product mix and higher contribution of value-added products resulted in gross margin expansion of 563 bps YoY to 39.6 percent. However, increased employee expense and other expenses up by 40 bps and 221 bps YoY to 6.5 percent and 15.3 percent of sales respectively restricted the improvement in operating margins to 302 bps YoY to 17.8 percent.

The management stated that the expansion programs are progressing as per schedule, some of which will be commissioned in Q4FY2020 and the balance in FY2021. The management expects to incur Rs 75-100 crore on expansion during FY2021.

The management guided for a healthy performance in Q4FY2020 and maintained guidance of 10-15 percent volume growth for FY21 in plastic segment and expects EBITDA growth to be in excess of revenue growth at the company level.

The management stated that in case the company does not make any acquisition it would be debt-free by FY21.

While maintaining outperform call on the stock and raising price target to Rs 1,340 (from Rs 1,305), CLSA said the piping EBITDA margin increased sharply by 4 percent to 20 percent.

"We are seeing some recovery in piping volume with 24 percent growth in January. Changes undertaken in adhesives should start to bear fruit in FY21," said the global brokerage which expects a 23 percent EPS growth over FY19-22.

"Capex expansion should drive piping volume but recovery in adhesives key," it said.