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Astral Ltd - 532830 - Announcement under Regulation 30 (LODR)-Analyst / Investor Meet - Intimation
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Astral Ltd - 532830 - Announcement under Regulation 30 (LODR)-Analyst / Investor Meet - Intimation
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Astral expands its horizons - from pipes to a building materials company
Astral is well on its way to becoming a building products company. From being a producer of plumbing pipes, it has over time expanded its product range into adjacent categories like drainage pipes, fire sprinkler pipes, adhesives, and storage water tanks. It announced its entry into sanitaryware and faucets in October 2021. This will be keenly watched by investors, given its track record of successful expansion into new product categories in the past. The Q3FY22 results also illustrate the company’s ability to hang on to its leadership position despite roadblocks. Quick Takes Astral’s consolidated net profit grew 3.3% YoY to Rs 127.3 crore Consolidated revenues grew 22% YoY to Rs 1,105.1 crore from Rs 903.6 crore Piping vertical grew YoY by 25% to Rs 838 crore and adhesives vertical grew YoY by 16% to Rs 261 crore Delayed projects at Bhubaneswar, Hosur and Ahmedabad are complete and will start operations in Q1FY23 Price hikes of 10% in Q3FY22 cushioned the company’s margins against higher raw material costs, leading to an EBITDA margin of 18% Entry into the sanitaryware and faucets segment from Q1FY23 onwards Revenues grew across verticals, but profits dipped with rising raw material costs Astral experienced challenges in Q3FY22 with the spread of the Omicron variant. This affected economic activity and limited movement with localized lockdowns and curfews. The price of key raw materials PVC (polyvinyl chloride) and CPVC (chlorinated polyvinyl chloride) were also higher during the quarter. The company was able to pass some of the rise in costs through price hikes and maintain its margins. The consolidated revenues grew 22% YoY to Rs 1,105.1 crore in Q3FY22, but the rise in raw material prices led to net profit growth of barely 3.3% YoY to Rs 127.3 crore during the quarter. The management during the post-earnings conference call said that they have existing relationships for the supply of PVC, with Reliance Industries a key supplier. The availability of these raw materials is currently erratic and there are a limited number of suppliers. Given the rising demand, the management expects that suppliers would increase production. However, their suppliers have no stated expansion plans at present. Astral asserts itself as the industry leader Astral in this quarter also remains the growth leader. Among peers in the PVC and UPVC pipes segment, Astral’s YoY revenue growth for Q3FY22 was the highest at 22.4% followed by Prince Pipes at 20.9%. In terms of profit growth, while Supreme Industries and Finolex Industries had a negative growth rate, Prince Pipes grew by only 0.8%. While the net profit YoY growth number of 3.3% for Astral may not be impressive, it speaks to how Astral has outpaced the competition with operational efficiency despite rising raw material prices. Pipes clock higher YoY revenue growth in Q3FY22 Astral has two verticals–pipes and adhesives. In Q3FY22, pipes registered a higher YoY growth of 25% as compared to 16% YoY growth for adhesives. The management said that lower growth in adhesives was on account of a shortage of silicon, due to which production was hampered for it’s UK subsidiary. They expect the supply of silicon to improve in Q4FY22, and adhesives would see a higher growth rate as raw material availability improves. The company also put out the 9MFY data for 9MFY22 as well as the preceding three years. There is sharper growth substantially across both the verticals in 9MFY22. The management, during the earnings call post Q4FY21 results, had guided for a target of Rs 1,000 crore revenue from the adhesives vertical for FY22. The management is confident that with the easing of raw material supplies in this quarter, they will be able to meet the revenue guidance for the adhesives business. A pick-up in housing projects this quarter was a key driver for growth in the pipe vertical. The company also increased the prices of some CPVC products by as much as 10%, aiding higher revenues. Along with the growth in the last few quarters, the operating margin of the company dropped significantly to 18% in Q3FY22 compared to 21.4% a year ago. The company expects these to improve in the coming quarters with raw material prices cooling off from their peak levels. Astral also completed its expansion projects at its Bhubaneswar, Hosur and Ahmedabad units. These projects were delayed due to Covid-19 and will be operational from Q1FY23 onwards. These include capacity expansion as well as new product lines. The management said that there are currently no new expansion plans and it would wait for new products and supply chain from these plants to stabilize over FY23. It expects the benefits of these capacity expansion projects to accrue from FY24 onwards. The company currently holds Rs 300 crore cash on its books and would take a decision in the next quarter on going forward with a share buyback, higher dividends, or fresh capex in FY23. Entry into the sanitaryware and faucets segment The major development this quarter is the announcement of Astral’s product expansion into the sanitaryware and faucets segment. The designs are complete and the company will be outsourcing the manufacturing till it is able to gauge the market response to the product. The vendors for outsourcing have been identified and the company plans to launch the product range in Q1FY23. Astral has roped in an experienced hand - former executive director and CEO of Cera Sanitaryware, Atul Sanghvi to head this venture. The management took a cautious stance on plans for this venture. They are expected to comment on the capex and growth strategy for this venture in the conference call for Q4FY22. Astral plans to double its revenues over the next five years. Its new product direction will be critical to that goal.15-02-2022