Astral Poly Technik's Q4FY19 results (Outperformer) - In line; steep valuations leave no scope for error!

Q4FY19 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 ~38.9k (+23.0% yoy), while revenue came in at ~Rs6bn (+20.1% yoy; 3% miss). Pipes EBITDA came in at Rs977m (+9.7% yoy), while margins stood at 16.1% (vs 17.7% yoy; IDFCe: 15.9%). REX’s margin profile is lower vs ASTRA’s non REX portfolio (16.9% margin ex-REX; REX margin 8.7% in Q4).
• Adhesives: Revenue grew 18.8% yoy to ~Rs1.8bn (in-line), while EBITDA fell ~22.1% yoy to ~Rs250m (in-line) as the company kicked up its marketing efforts in this segment. Resinova margins fell ~10% points to 15.7% while Seal-IT margins improved 60 bps to 8.3%.
• Overall: Cons. revenue at ~Rs7.7bn grew 21.3% yoy (1.9% miss), while EBITDA was flat yoy at ~Rs1.2bn (margin at 15.4% vs IDFCe: 15.3%). Major swing in margins was due to the adhesives business. Net income (incl. associate loss share) came in at ~Rs608m, down 12.9% yoy (6% miss – mainly due to associate loss).

Key positives: ~23% pipes volume growth (incl. Rex).

Key negatives: Associate losses, higher than exp. D&A.

Impact on financials: 5%/4% cut in FY20E/21E EPS on higher dep.

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 as the infrastructure cycle begins to move upwards post the elections. Excluding REX, ASTRA’s pipes business continues to grow at a healthy pace with strong operating margins (~17% in FY19). The adhesives business is undergoing a margin correction, mainly due to the company’s bid of building the Astral/Resinova brand as a credible player in the industry. We increase our target multiple for ASTRA to 47x (vs 45x earlier) FY21E EPS (TP Rs1,334) and maintain our Outperformer rating. Given the recent run-up in the stock price, we would advise investors to wait for any near-term price dips due to general market volatility while building up positions.