Astral Ltd. and Supreme Industries Ltd. will deliver higher earnings growth over the next three years as large Indian pipe companies approach a demand recovery, according to multinational investment firm JPMorgan. The firm initiated coverage on the two companies with an 'overweight' rating and a bullish target price.
Analysts forecast demand turning around in the second half of the current fiscal on the back of favorable combination of real-estate construction, water infrastructure spend, and channel inventory dynamics.
"Structural growth drivers of housing, agri, infrastructure and the 'metal-to-PVC shift' are intact, and we expect 8% industry volume growth for FY25-FY28... We initiate on Astral and SI at Overweight, for the prospect of 17-18% EPS growth over the next three years, with PVC prices as the key risk," they said in a note.
A further fall in PVC prices and unabated PVC imports from China may weigh on Astral and Supreme Industries, as these dissuade channel restocking and help the unorganized sector compete.
Share Price Target
JPMorgan has a share price target of Rs 1,700 on Astral, valuing it at 56 times the FY27 price-to-earnings estimate. The target implies a return potential of 18% over the previous close.
The company has a cleaner exposure to renewable energy, a leadership position in CPVC, and idiosyncratic margin improvement drivers.
The Supreme Industries share price target is Rs 4,930, valuing it at 41 times the FY27 P/E estimate. The target implies a return potential of 13% over the previous close. The company benefits from its scale and distribution edge.
"While absolute valuations look rich, they could sustain, given the runway for growth, earnings inflection, high-teens ROE profile, net cash balance sheets, and internally funded expansions," JPMorgan analysts said.
Stock Movement History
Astral's share price has fallen by 25% in the last 12 months and 12% so far this year.
Supreme Industries' stock is down 16% on a one-year basis and 5% on a year-to-date basis.
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