Astral Poly Technik's Q1FY20 results (Outperformer) - Built to last!

Q1FY20 result highlights

• REX has been amalgamated with ASTRA’s standalone entity from 10 July 2018. As a result, standalone financials reflect the entire pipes business (incl. REX) and is not comparable yoy.
• Pipes (incl. REX): Volume came in at ~31.7k (+41.2% yoy; in-line), while revenue came in at ~Rs4.7bn (+37.2% yoy; 7% beat) as blended realisations fell just 2.8% yoy (vs est. 10.4% fall). Pipes EBITDA came in at Rs791m (+28.2% yoy), while margins stood at 16.7% (vs 17.9% yoy; IDFCe: 16.5%). Adjusting for REX, comparable volume growth was very strong at 27.9% led by plumbing segment and also agri (though contribution is small), while revenue growth came in at ~25.6% yoy.
• Adhesives: Revenue grew just 2.3% yoy to ~Rs1.4bn (9% miss) led by change in distribution model in Resinova (merging stockists and distributors), EBITDA grew 2% yoy to ~Rs208m (3% miss) due to better than expected operating margins (14.4% vs est. 13.5%; flat yoy).
• Overall: Cons. rev at ~Rs6.1bn grew 27.2% yoy (in-line), while EBITDA grew 19.5% yoy to ~Rs931m (margin at 15.3% vs IDFCe: 15.7%; ~100 bps yoy fall). Margin decline was on account of REX consolidation. Net income came in at 6.6% yoy at ~Rs481m (in-line) on account of higher depreciation/interest expense (post REX consolidation).
• FY20E Guidance: Pipes vol. growth of 15% (conservative est.) with margins of 15%. Adhesives rev. growth to be in double digits at least.

Key positives: Better than expected pipes realisations/adhesives margins

Key negatives: Weak adhesives revenue growth.

Impact on financials: Broadly unchanged.

Valuations & view

We remain constructive on the growth prospects of ASTRA, given its leadership position in the CPVC pipes space, and proven managerial and innovation capabilities in the pipes market. The corrective measures in REX are now in the base, and this particular business segment should begin contributing meaningfully to revenue/EBITDA once the infrastructure cycle begins to move upwards. The adhesives business is undergoing a correction (on the distribution side) and benefits from this would start accruing from H2FY20E onwards and build on from there onwards. We maintain our OP rating on ASTRA with a TP of Rs1,329 (47x FY21E EPS). We expect premium valuations to sustain given strong execution and ability to stay ahead of the industry in terms of innovation.