Invest In This Plastics Sector Stock, Turning Ex-Dividend Tomorrow, For Potential Gain Of 30%

Anand Rathi has given buy rating to the stock of Astral Ltd for a potential surge of 30% with a target price of Rs 2605 apiece. Astral's Q1 performance was good. Revenue/EBITDA/PAT grew 73%/ 33%/28% y/y to Rs12.1bn/Rs1.7bn/Rs961m (ARe: Rs12.6bn/Rs1.8bn/ Rs1,088m.

Astral Ltd Stock Outlook

The current market price of the stock is Rs 2040 apiece with a gain of 1.32% in today's trading. The 52-week high of the stock is 2525 and 52-week low is Rs 1584 apiece. The stock has given a return of 415% return in 5 years, 181% return in 3 years, and fell 1%.

According to Anand Rathi, if you buy the stock at a current price of Rs 2014 apiece, it has the potential to surge to Rs 2605 apiece. The stock is also turning ex-dividend tomorrow for Rs 1.75 per share.

Strong growth momentum continues, margin pressures persist

Plastics and paints & adhesive revenues grew 74% and 72% y/y respectively to Rs8.8bn and Rs3.4bn. Cost pressures persisted, resulting in a 520bp contraction in plastic pipes & fittings; in paints & adhesives it was broadly the same (13.8%). EBIT margins shrank 387bps and 383bps y/y respectively to 11.2% and 9.4%.

Retains revenue guidance

Management aims to double (consolidated) revenue in the next five years. Capex of ~Rs2bn is likely in FY23. Growth looks strong in plastic pipes & fittings, but margins would continue under pressure in Q2 FY23. Adhesives demand in the UK and US looks encouraging.

Paints potential factored in, awaiting clarity on faucets & sanitaryware

According to Anand Rathi, "We expect 19% and 32% revenue and earnings CAGRs over FY22-24 respectively. We factor in the potential from paints (acquired in Q1 FY23). However, as the faucets & sanitaryware category is in a nascent stage, we await more clarity and guidance from management before incorporating it into our model.

Valuation

According to Anand Rathi, "Retaining a Buy. We cut our FY23 and FY24 margins 180bps each. The healthy revenue growth momentum and margin tailwinds are comforting. Also its lean balance sheet and higher return ratios lead to the stock commanding a premium to its peers. We maintain our Buy on it with a higher TP of Rs2,605 (earlier Rs2,560) based on 62.5x (unchanged) FY24e earnings. Faucets and sanitaryware, when factored in, would increase the potential."

About Astral Ltd

Astral Limited is engaged in manufacturing plumbing and drainage systems. It provides plumbing pipes, fittings, insulation tubes, fire sprinklers, water tanks, cable protection, and drainage systems. Astral serves residential and industrial customers in India. It has a market capitalization of Rs 41,005 crore. 

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.