Astral Poly Technik Ltd - Decent Volume Growth; Margins Disappoint :: Edelweiss report

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Astral Poly Technik Ltd. (Astral Poly) has delivered ‘below expectation’ numbers for Q2FY15. Although revenues grew by 19% YoY to INR 303 cr in Q2FY15, pressure on its margins has resulted in a disappointing set of numbers for the quarter. The increase in revenue was supported by a strong 16% YoY volume growth and 3% YoY value growth. EBITDA declined by 9% YoY while EBITDA margins contracted 368 bps YoY, as inventory losses due to lower polymer prices put pressure on gross margins (decrease of 799 bps). We expect Astral Poly to clock 24% CAGR in revenues and 28% CAGR in PAT for the period FY14-FY16E on the back of enhanced distribution reach and greater acceptance of the company’s products. At the current price of INR 374, the stock trades at PE of 43.4x FY15E EPS of INR 8.6 and 32.1x FY16E EPS of INR 11.6.

Revenue growth at 19% despite weak macro environment

Astral Poly recorded strong revenue growth of 19% YoY, with volume growth at 16% YoY and realizations up 3% YoY. Astral Poly’s subsidiaries i.e. Seals as well as Adhesives business reported good growth. Long-term outlook for Astral Poly still remains strong, as CPVC/PVC pipes replace GI pipes. The company’s foray into the Agricultural space with Pipes and Fittings bodes well for its future growth outlook. In addition, Blaze Master - a fire sprinkler product will provide value addition to the existing product basket going ahead. Overall, we are positive on the company’s future growth prospects.

EBITDA down 9% as gross margins contract; Reported PAT up 24.6%

Astral Poly’s EBITDA declined by 9% YoY to INR 37 cr this quarter, with EBITDA margins contracting by 368 bps YoY to 12%. Gross margins contracted by 799 bps YoY, as fall in polymer prices led to inventory losses. Inventory losses resulted in a loss of ~INR 6 cr for the company. We expect this to be an aberration  and pressure on gross margins is unlikely to sustain in the coming quarters.  Core PAT for the quarter grew by 24% YoY to INR 20 cr. We expect EBITDA margin for FY15 to be sustained in 13-14% range. Also, going ahead, we expect the company’s forex losses to abate, as the commissioning of Lubrizol’s compounding plant in Dahej in FY16E will lead to reduced forex exposure.

LINK
https://www.edelweiss.in/research/Astral-Poly-Technik-Ltd--Decent-Volume-Growth;-Margins-Disappoint-Due-to-Inventory-Losses;-Result-Update-Q2FY15/10005118.html