Top Pick 2023: Brokerage Optimistic On This Multibagger Midcap Stock, Assigns Buy For Strong Upside

Renowned brokerage firm Axis Securities has picked Astral limited with a buy call as its Top Stock Pick for 2023. It has estimated a target price of Rs 2,280 apiece for the stock. Considering the stock's current market price and the estimated target price, it is likely to surge up to 16% from its current level. Astral is a Plastic sector Midcap company with a market capitalisation of Rs 39,590.66 crore.

Astral Limited manufactures plumbing and drainage systems offering plumbing pipes, fittings, insulation tubes, fire sprinklers, water tanks, cable protection, and drainage systems. The company serves residential and industrial customers in India.

Stock Outlook & Returns

 The current market price (CMP) of the stock is Rs 1,965.20 apiece on NSE. Its 52 week high level is Rs 2,654.80/share and its 52 week low level is Rs 1,581.55 apiece, respectively. The stock moved up 4.42% in the past 1 month and moved down 8.83% in the past 2 months, respectively. Stock over the past 1 year has fallen 13.66%. However, it has given 125.04% multibagger returns in 3 years and 287.77% multibagger returns in 5 years, respectively.

 

Investment Rationale

Marginal Inventory Gains in Q3FY23 with PVC Prices increase of 2% QoQ: In Dec'22, PVC prices stood 2% higher than the prices seen in early Oct'22. Furthermore, the pace of decline in PVC prices (13% over 2 months) was lower than the increase in prices during the quarter (16.5% in 1 month). These two factors give us confidence that PVC pipe manufacturers will either witness very marginal inventory losses or may even witness a small inventory gain in Q3FY23. Furthermore, we also expect PVC pipe manufacturers to benefit from higher primary sales in Q3, led by channel restocking in Dec'22. This is positive for Astral Ltd in the upcoming quarters.

Revenue from new products and Capex: The company estimates its newly launched products and segments including tanks, drain-pro, ball-valve, sanitary ware and faucets, and paint business would generate revenue of Rs 1,500 Cr over the next 5 years. Astral has invested Rs 1,000 Cr in Capex in the last 5 years. The utilization of the same will be in the coming few years. Therefore, the company is confident that it will be able to grow not only in its existing product portfolio but also accrue additional revenue of Rs 1,500 Cr in the next 4 -5 years by leveraging its new products and categories.

Foray into Paint Segment: The company estimates that newly launched products and segments including tanks, drain-pro, ball-valve, sanitary ware and faucets, and the paint business will be able to generate revenue of Rs 1,500 Cr over the next 5 years. Astral has invested Rs 1,000 Cr in Capex in the last 5 years. The utilization of the same will be in the coming few years. Therefore, the company is confident that it will be able to grow not only in its existing product portfolio but also accrue additional revenue of Rs 1,500 Cr in the next 4 -5 years by leveraging its new products and categories.

Outlook & Valuation

Astral has reported volume growth of ~10% in the piping segment - the highest among peers in the last 4 years, manifesting that the company is gaining market share in the plumbing segment. Raw material and PVC prices have been falling continuously which would aid in improving its gross margins once inventory stabilizes. Astral may deliver consolidated margins in the range of 17-18% in the upcoming quarters. Furthermore, Astral's foray into Valves, Resins, Sanitary ware, and Tanks would add revenue growth in the upcoming years.

Axis Securities said, "We maintain our BUY recommendation based on SOTP valuation and arrive at a TP of Rs 2,280/share, implying a significant upside of 16% from the CMP."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. 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 consult with certified experts before making any investment decision.