Recommendation From Plastics Sector

Recommendation From Plastics Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

ASTRAL LTD. : PROFITS IN THE PIPELINE

HERE IS WHY
✓Strong financial position
✓Huge growth potential
✓Good returns on capital employed

Formerly known as Astral Poly Technik Ltd., Astral Ltd. is one of the fastest growing piping companies in India with a strong brand name. Formed in 1996, it started off with the manufacturing of plastic pipes and fittings and eventually ventured into the business of adhesives, infrastructure and water tanks. It mainly manufactures pipes and fittings for plumbing, sewerage, agriculture, industries, fire sprinklers, etc. The company has been a pioneer for introducing countless innovation in the pipe category. In 2020, it acquired Sarita, a water tank company, thus foraying into the huge market of water tanks through its strong brand recall.

The company has experienced one of the best financial performances in its history. It reported net sales of Rs 3,176.3 crore in FY21 compared to Rs 2,577.9 crore in FY20, a growth of nearly 23.2 per cent. The growth is attributed to both segments i.e. pipes and adhesives performing well in FY21. The EBIDTA stood at Rs 668.1 crore in FY21 as against Rs 455 crore in the previous year. That is a growth of over 46.8 per cent. The economies of scale helped boost the margins. Also, the PAT grew by 65.3 per cent, rising from Rs 251.2 crore to Rs 415.2 crore from FY20 to FY21 respectively. The focused sale of value-added high margin products led to increase in profitability.

The company has significantly improved its working capital cycle from 41 days to 27 days in FY21. A rise of nearly 64 per cent can be seen in the cash flows from operating activities increasing from Rs 405 crore in FY20 to Rs 664 crore in FY21. Net sales for the quarter ended June 2021 stood at almost Rs 700.1 crore, indicating de-growth of -37.92 per cent on QoQ basis but a growth of 73.33 per cent on YoY basis. The EBITDA, exclusive of other income, was Rs 129.4 crore, which again is a decline of -49.16 per cent QoQ but a growth of nearly 143.23 per cent YoY. The net profit stood at Rs 75.1 crore, a decline of -57.5 per cent QoQ but a huge growth of 252.6 per cent YoY.

The company was the first to introduce chlorinated poly vinyl chloride (CPVC) pipes in India. It is thus a leader in the manufacturing of CPVC and PVC plumbing systems. It currently has seven pipe manufacturing units. The management has decided to close the loss-making business of a joint venture with Astral Pipes Ltd. of Kenya, which is a positive sign for common shareholders. The recently tapped water tank segment has a market opportunity of Rs 65,000 crore and so along with Sarita, it has started manufacturing tanks under its own name since April 2021. It is setting up additional two manufacturing units for the same.

The company is optimistic about the future of its adhesive business. Its adhesive brand ‘Resinova’, which faced challenges a couple of years ago, is back in action and has delivered phenomenal results by growing 93 per cent YoY basis in Q4FY21. It is also expanding its research and development facility. On the returns front, the ROE and ROCE stand at 18.57 per cent and 21.43 per cent, respectively. The company has significantly reduced its debt. The plastic pipes industry is set to reach Rs 512 billion by 2025, which in FY20 stands at Rs 300 billion. This certainly implies huge growth potential in this industry and the company as well. By virtue of these factors, we recommend our reader-investors to BUY this stock.

 

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

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