Despite near-term macro challenges, we expect Astral Poly Technik (ASTRA) to continue to trade at premium valuations backed by its increasing visibility of double-digit topline growth and margin improvement in pipes as well as adhesives business over the next 2-3 years.
The recent steps initiated by the company reaffirms our view, induction of senior sales personnel from a leading adhesive company and a senior technical head from a leading pipe company for managing its entire plant operations, launching loyalty programme and offering exciting rewards to its users (dealers & plumbers) of pipes and fittings. With these initiatives, we expect growth momentum in pipes to continue while growth in adhesives segment is likely to pick up from Q4FY20.
Premium valuations to sustain on decent volume and earnings growth visibility. With growth momentum in pipes segment to continue and adhesives likely to start growing in double digits post Q3FY20, we expect ASTRA to report revenue and PAT CAGR of 20.8% and 43.8%, respectively, over FY19-FY21. Maintain ‘hold’ on ASTRA with an unchanged target price of Rs 1,075, valuing the stock at 40x FY21E earnings.
ASTRA’s market share gains will continue in PVC/CPVC pipes segment. In the near to medium term, we expect ASTRA to post double digit volume growth in its pipes segment aided by market share gains in PVC pipes segment on the back of industry consolidation with some large organised players and unorganised industry losing market share, impressive market share gains in CPVC pipes post provisional ADD imposed on CPVC resin/compound imported from China/Korea, growth traction in DWC pipes post corrective action recently taken in Rex Polyextrusion, traction from the recently launched products like Silencio, PEX pipes and varied range of fittings and increase in geographical footprint.
Growth traction in adhesives segment likely post Q3FY20. The recent change (in distribution) from a stockiest to a distributor-driven model is likely to get adhesives segment back on growth track. While we expect the segment to grow in single digit in Q3FY20 with some of the adjustments panning out in the quarter, we now expect the adhesive segment to gain growth momentum starting Q4FY20.
Also, with the company recently foraying into high growth segments like waterproofing, cyanoacrylate and wood-based adhesives, scaling up its team strength with the recent induction of a key sales and marketing head and creating a tier-3 vertical system – wood-based adhesives, construction chemicals and maintenance for enhancing focus on each chemistry, we expect the segment to post high double- digit growth starting FY21.