Astral Poly Technik’s (ASTRA) Q3FY21 numbers were a beat to our expectations driven by: a) Impressive double-digit revenue growth in both its businesses: pipe (33.3% YoY) and adhesive (41% YoY); b) EBIDTA margin traction in both the businesses (22.9%/16.4% in pipe/adhesive respectively) led by inventory gains in PVC segment, higher value-added sales, and superior product mix. Jan’21 consolidated revenues too reported 35% YoY growth. ASTRA maintains its robust growth outlook in its plastic piping business (including recently launched tanks and DWC pipes) and adhesive segment, going forward, driven by market share gains, new product launches, and distribution expansion.

Valuation and outlook: Considering the robust growth outlook and expected improvement in margins in both the pipe and adhesive businesses, we increase our revenue and PAT estimates by 1.3%/2.5%/3.5% and 5.4%/7.4%/9.4% respectively, for FY21E/FY22E/FY23E. We expect ASTRA to report overall revenue/PAT CAGRs of 19.9%/35.7% respectively over FY20-FY23E. With the recent surge in stock price, we downgrade it to HOLD (from Add) with a revised target price of Rs1,850 (earlier: Rs1,530), implying a P/E multiple of 45x FY23E earnings. Key risks: 1) sharp decline in PVC prices, and 2) lower than expected pick-up in the adhesive business.

Pipe business reports lifetime high EBIDTA margin and 15% volume growth: ASTRA reported 33.3% YoY growth in its standalone revenues at Rs6.9bn (I-Sec: Rs7.2bn), driven by 15% YoY growth in pipe volumes and sharp spurt in PVC prices. Despite lower gross margins (down 80bps YoY), ASTRA reported 22.9% EBITDA margin (a lifetime high) for the quarter led by better product mix, higher value-added sales, and inventory gains in PVC pipe segment. With robust growth outlook (Jan’21 witnessing 35% YoY growth) led by likely industry consolidation and new product launches, and expected improvement in margins (driven by product mix improvement), we estimate ASTRA’s standalone revenue/PBT to grow at 17.2%/33.1% CAGRs respectively, over FY20-FY23E.

Adhesive business revenues grow 41% YoY: robust outlook ahead: Adhesive business has reported an impressive 41% YoY growth in revenues on the back of sharp demand recovery in metros and considerable pick-up in construction activity pan-India. The robust growth is also attributable to recently concluded systemic corrections initiated by the company and lower base of last year. EBIDTA margin came in at 16.4% (I-Sec: 17.2%) largely driven by operating leverage. With growth recovery expected to sustain and new product launches likely in H1FY22, the management remains optimistic of sustaining the strong growth momentum in near term. We thus expect ASTRA’s adhesive business to register revenue and PBT CAGRs of 25.2% and 53% respectively, over FY20-FY23E.

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