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Prabhudas Lilladher Report
Astral Ltd. upward revised its volume growth guidance at more than -20% in pipe and fittings business and ~15%/20% volume/revenue growth guidance in paints and adhesive business, with consolidated Ebitda margin guidance of 17-18% alongside improvement in volumes and correction in raw material prices and breakeven in sanitaryware business in couple of quarters.
Astral reported strong expansion in gross margin (+870 basis points YoY) in Q2 FY24, even after inventory loss (Rs 200 million) on account of increase in value added product mix and lower raw material procurement cost. However, increase in front-loaded expenses for growth, led to relatively lower expansion in Ebitda margin (+390 bps YoY), which will reflect in numbers over coming quarters with product mix change & increase in revenue.
Astral is trading at 63 times/49 times FY25/FY26 earnings; we still believe that the company is a consistent quality performer and is a compounding story.
With strong performance in H1 FY24, strong volume guidance of 15-20% and margin improvement in FY24, we maintain our FY24 estimates with 22% revenue growth and 18.2% Ebitda margin in H2 FY24.
We estimate Sales/Ebitda/profit after tax compound annual growth rate of 17.7%/24.8%/32.9% over FY23-26E and value the stock on discounted cash flow based target price of Rs 1,983 which implies 56 times September-25 earning per share. Maintain ‘Hold'.
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