Midcap Stock To Buy Which Benefits From Solid Brand, Expansion & Price Hikes

Even as the markets have staged a recovery with the Sensex back again above the 59,000 level mark, there are certain stocks that can be good bets. Here is a midcap stock to buy for the long-term.

Astral: Good show, strong brand

Astral Pipes was established in 1996 with the aim of manufacturing plumbing and drainage systems in India. Today, the company covers the needs of millions of households. With the real estate and housing sector back on track, the company is likely to benefit tremendously.

According to Anand Rathi, Astral reported good Q3 FY22 results, slightly below its own expectation as higher input costs rendered the business environment challenging. Revenue, EBITDA and PAT grew 22.4%, 2.9% and 3.3% year-on-year. They were 6.8%, 5.9% and 7.9% below Anand Rathi's expectations.

"Price hikes drove revenue growth. To offset higher input costs, prices were raised, driving encouraging y/y revenue growth in both divisions: plastic pipes 24.6%, adhesives 16.1% (chiefly through realisations as offtake was low). Profitability was impacted as the gross and EBITDA margins contracted respectively 373bps and 341bps year on year," the brokerage said.

Expansion to drive growth

The company will be expanding its plastic water tanks at Hosur, and expanding pipe manufacturing at Aurangabad, according to Anand Rathi.

Expansion of blow-moulding of water tanks at Santej and Ghiloth were completed. The Bhubaneswar project would be completed by end-FY22 while at the valves project at Dholka, some products have been launched, others are in trials. The adhesives project at Dahej is slated to be commissioned by end-FY23.

Pace of growth to be maintained

According to Anand Rathi, challenges in the second half of Q3 FY22 seem to be gradually receding. "Hence, we believe the outlook is encouraging. We introduce FY24e and expect 21.7% and 26.7% revenue and earnings CAGRs over FY21-24 (from 15.3%/32.2% over FY18-21)," the brokerage has said.

The brokerage has said that it is upgrading the stock to a Buy despite rich valuation.

"Many factors (given on the valuation page) lead us to believe in the company's long-term growth prospects, and justify the valuation premium it commands over its peers. Hence, we are upgrading our rating on the stock to a Buy, with a higher target price of Rs 2,560 based on 62.5 times FY24e (earlier Rs 2,039 based on 65 times FY23e)," the brokerage has said.