Fundamental Analysis of Astral: Investors are always looking for companies that are gradual but consistent wealth creators. They slowly, but steadily compound the investments as their earnings and net profits grow year-on-year. Their lack of volatility gives an investor peace of mind. In this article, we’ll conduct a fundamental analysis of one such similar company i.e. Astral Ltd., a consistent, wealth-generating stock, and find out whether it can be a good bet or not.
Fundamental Analysis of Astral
We’ll start off by getting a quick overview of the business of Astral followed by a segment analysis. Next, we’ll learn about the industry landscape, the financials of the stock, and its future plans. A summary concludes the article at the end. So without further ado, let us jump in.
Company Overview
Astral Ltd. (popularly known as Astral Pipes) was set up in 1996 to manufacture drainage and plumbing products. Fast forward to the present date, it is one of the leading Indian real estate ancillary companies serving millions of households with its product offerings.
The company manufactures Chlorinated Poly Vinyl Chloride (CPVC) and Poly Vinyl Chloride (PVC) pipes, piping systems, and tanks for drainage, agriculture, fire protection, cable protection, and other end uses. Additionally, it also makes adhesives and sealants. But that’s not all, Astral has also ventured into the paints, faucets, and sanitary ware product lines to tap their growing market in India.
The company owns 18 manufacturing facilities all over the world. Its strong workforce of over 6,000 employees serves customers across 25 countries. Its total domestic installed capacity and UK & US installed capacity stood at 3,36,686 MT and 31,632 MT at the end of FY22 respectively.
The pipe maker has a strong distribution network with 23 depots, 2,535+ distributors, and 1,80,000+ dealers.
We pretty much understand the business and scale of operations of the company now. We’ll move forward to a quick segment analysis of Astral.
Segment Analysis
Product-wise Segments
The fittings, pipes, tanks, and other piping systems form part of the plastic division. The revenue share of the adhesives & sealants segment and the plastic segment has largely remained the same over the last six years.
The table below presents the share (in percentage) of the two revenue segments of Astral Ltd.
| Segment Revenue | FY17 | FY18 | FY19 | FY20 | FY21 | FY22 |
| Plastic | 75 | 74 | 74 | 77 | 76 | 77 |
| Adhesives | 25 | 26 | 26 | 23 | 24 | 23 |
However, a closer look at the segment profits below tells that the contribution of adhesives in the earnings of the company has come down. This is because of the rise in the cost of raw materials used for manufacturing sealants & adhesives. The management expects margin improvement for its smaller division in the coming quarters.
| Segment Profit | FY17 | FY18 | FY19 | FY20 | FY21 | FY22 |
| Plastic | 71 | 64 | 69 | 78 | 79 | 81 |
| Adhesives | 29 | 36 | 31 | 22 | 21 | 19 |
Geographical Segments
The table below highlights the share of geographical revenue segments of the company for the last two fiscals. ERROR
| Geographical Areas | FY21 | FY22 |
| Within India | 90.15 | 91.02 |
| Outside India | 9.85 | 8.98 |
Industry Overview
For our industry overview of Astral, we’ll take a look at the 3 sectors i.e. the pipes, tanks, and adhesives sectors separately. These are the three segments in which it primarily operates.
Pipes
The Indian plastic pipes market is pegged at Rs 30,000 crore with organized players controlling 65% of the market. Talking about the industry segmentation, plumbing pipes used for residential and commercial real estate make up 50-55% of the total demand. The share of agricultural and infrastructure & industrial demand is 35% and 5-10% respectively.
The domestic plastic pipes market is projected to grow at a CAGR of 12-14% during the FY21 and FY25 period. The demand will primarily be led by the substitution of metal pipes, replacement demand, affordable housing, higher irrigation, and water supply & sanitation (WSS) demand.
Tanks
The water storage tanks market is Rs 4,500-5,000 crores worth, with unorganized players catering to a majority of 70% of the market. This is because of the voluminous nature of the product which results in high transportation costs.
However, the outlook for the organized market is strong as the companies are setting up manufacturing and distribution networks throughout the country.
Adhesives
The adhesives market in India was valued at Rs 13,400-13,600 crore in FY21. The industrial (B2B industries such as packaging, footwear, paints & automotive) and consumer (furniture, construction, arts, & electrical) are two sub-segments accounting for 40-42% and 58-60% of the market respectively.
The consumer adhesives market (worth Rs 5,300-5,500 crore in FY21), in which Astral operates is expected to expand at a CAGR of 9-10% during the FY21 and FY26 period.
Thanks for reading so far. We have covered the hardest parts of our fundamental analysis of Astral. In the sections ahead, we’ll race through the financials of the stock.
Astral – Financials
Revenue & Net Profit Growth
The operating revenues of the pipe manufacturer have grown at a CAGR of 12.85% to Rs 4,394 crore in FY22 over the last six years. The table below shows the growing trend of the sales and net profits of Astral.
| Financial Year | Operating Revenue | Operating Profit | Net Profit |
| 2022 | 4,394 | 781 | 490 |
| 2021 | 3,176 | 666 | 408 |
| 2020 | 2,578 | 468 | 250 |
| 2019 | 2,507 | 388 | 197 |
| 2018 | 2,139 | 329 | 176 |
| 2017 | 2,127 | 265 | 145 |
| 6-Yr CAGR | 12.85% | 19.76% | 22.58% |
But the net profits have increased faster than the operating income. How? We answer this in the section on profit margins of our fundamental analysis of Astral.
Operating & Net Profit Margins
Despite commodity cost inflation in the last few years, the operating and net profit margins have expanded in the last six financial years. The figures below show how the broadening of margins has aided the company to post better bottom-line growth.
| Financial Year | OPM | NPM |
| 2022 | 17.77 | 11.16 |
| 2021 | 20.97 | 12.85 |
| 2020 | 18.16 | 9.68 |
| 2019 | 15.47 | 7.87 |
| 2018 | 15.37 | 8.21 |
| 2017 | 12.44 | 6.80 |
Debt/Equity & Interest Coverage
Speaking of the leverage of the company, Astral is almost a debt-free stock with a minimal debt-to-equity ratio of 0.04 and a high-interest coverage ratio of 61.26. Its interest coverage has improved in recent years as the interest charges came down.
| Financial Year | Debt/Equity | Interest Coverage |
| 2022 | 0.04 | 61.26 |
| 2021 | 0.02 | 42.22 |
| 2020 | 0.08 | 8.81 |
| 2019 | 0.15 | 9.98 |
| 2018 | 0.12 | 12.62 |
Return Ratios
Astral is an efficient and profitable business with high return ratios. The company reported adequate RoCE and RoE of 30.28% and 23.29% in FY22 respectively.
However, RoE being lower than RoCE reflects that the management can increase earnings for shareholders by including leverage in the capital mix.
The table below presents the return on capital employed (RoCE) and the return on equity (RoE) of Astral for the last five years.
| Financial Year | RoCE | RoE |
| 2022 | 30.28 | 23.29 |
| 2021 | 30.32 | 24.46 |
| 2020 | 21.43 | 18.57 |
| 2019 | 23.13 | 18.10 |
| 2018 | 23.88 | 19.16 |
Future Plans of Astral
So far we have only looked at the past years’ data for our fundamental analysis of Astral. In this section, we’ll try to get a sense of what lies ahead for the company and its shareholders.
- Astral recently acquired a majority 51% stake in Gem Pants for Rs 194 crore. This will mark a gradual entry of the company into the growing paints market in India.
- In addition to this, with the recently launched faucets and sanitary product lines, the company plans to add Rs 1,500 crore to its revenues in the next few years.
Key Metrics of Astral
Let us now have a review of the key metrics of the stock.
| CMP | ₹1,860 | Market Cap (Cr.) | ₹37,500 |
| EPS | ₹19.5 | Stock P/E | 96.8 |
| RoCE | 30.28% | RoE | 23.29% |
| Promoter Holding | 55.8% | Book Value | ₹120 |
| Debt to Equity | 0.04 | Price to Book Value | 15.50 |
| Net Profit Margin | 11.16% | Operating Profit Margin | 17.77% |
In Conclusion
Astral’s focus on maintaining margins and staying a premium company has helped it to grow consistently. It has likewise delivered stellar profit growth. As the company braces for its new ventures, it will be interesting to closely follow the sales data of the paints and sanitary ware divisions in the coming quarters.
After going through our fundamental analysis of Astral, do you think the stock will be able to deliver stellar returns in the future as well? It has given an impressive CAGR return of 32% every year in the last five years. How about you let us know in the comments below?
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