We upgrade ASTRA to Purchase with the stock correcting ~27% in the final one month. Besides expecting the enterprise to continue with its sturdy earnings traction post , we count on its premium valuations to sustain driven by sustained market place share acquire chance in piping segment with most likely accelerated consolidation in PVC/CPVC pipes segment in the post Covid atmosphere sturdy selection worth in its adhesive enterprise (capable of increasing at 20-25% CAGR more than the next 3-5years) sturdy development chance in tanks (most likely to realize Rs 1.5bn income by FY23) and DWC pipe (anticipated to post 25-30% CAGR more than next 2-3 years) segments expansion of manufacturing footprint (Odisha plant to commence by Oct’21) which opens up large chance in East India (exactly where its scale is at present at ~1/10th of Supreme’s income in East India) selection worth in the kind of most likely acquisition/(s) (with ASTRA most likely to close FY23 with money on books in excess of Rs 10bn) and e) pre-tax RoCEs (ex-money) most likely to touch 50% by FY23.
Valuation and outlook. Considering the robust development outlook amid the ongoing second Covid wave, we raise our income and PAT estimates by 4.4%/8.3%/8.1% and 6.7%/7.2%/7.9% for FY21E/FY22E/FY23E, respectively. We count on ASTRA to report all round income/PAT CAGR of 23.1%/39.1%, respectively, more than FY20-FY23E. We upgrade ASTRA to Purchase (from HOLD) with a revised target price tag of Rs 1,663 (earlier: Rs 1,387), implying a P/E several of 50x (earlier – 45x) FY23E earnings. Key dangers, sharp decline in PVC rates and reduced than anticipated choose-up in adhesive enterprise.
Prefer ASTRA (post current correction) more than Prince Pipes (PPF) and Supreme Industries (SI). We count on ASTRA’s earnings to outpace its essential peers in FY22 driven by most likely least effect of the current strict restrictions imposed by handful of states amid the ongoing second Covid wave.
with Q1 income becoming substantially leaner at 17- 18% of all round sales for ASTRA vs 24-25% for SI and 21-22% for PPF most likely least effect on its realisations and margins on account of anticipated steep price tag fall in PVC pipes segment post Q1FY22 with anticipated uptick in CPVC pipes rates (by ~15-20%) in FY22E (ASTRA’s share in CPVC pipes segment becoming substantially larger than peers Q1FY22 has currently observed a price tag hike of 6-8% in CPVC pipes) and its least effect of muted development in agricultural pipes segment (due to elevated rates of agricultural PVC pipes in Q1FY22 – becoming a essential season) exactly where ASTRA’s share is least at 4-5% vs SI at ~30-35% and PPF at ~30%.
RoCEs (adjusted for money) most likely to touch 50% by FY23E. Strong earnings momentum, stricter working capital management and impressive cost-free money generation (due to muted capex) are anticipated to drive important money on books (Rs10bn+) by FY23E. We hence assign a 50 PE several to ASTRA’s FY23 earnings compared to 35x for SI and 25x for PPF thinking about a) its higher RoCE (adj. for money) profile (50.6% for ASTRA vs 28.3% for SI and 27.1% for PPF) and b) selection worth in the kind of most likely acquisitions and its scaling up of its niche segments (adhesives, tanks and DWC pipes).