Astral’s Rs 885 cr block-deal could spark short-term volatility; long-term outlook stable

Despite the promoters likely offloading almost two percent of their stake in Astral in a block deal on December 20, analysts believe that the long-term outlook of the company is stable.

Around 1.76 percent Astral shares changed hands in a block deal for a total consideration of Rs 884.6 crore. The promoters are the likely sellers, according to a CNBC-TV18 report.

A total number of 46.8 lakh shares were sold at Rs 1,889.8 each. In the previous session, the stock fell 1.56 percent to Rs 1,911. Compared to the closing price, the shares in the block deal were sold at a discount of 1.1 percent.

Analysts believe that the move will not have a long-term impact on the scrip. Suman Bannerjee, CIO, Hedonova said that the sale could simply be profit booking on yearly gains since the stock has remained flat over the past few months after the strong surge in the beginning of the year.

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“We can expect some short-term volatility due to the selling pressure, but the impact could be muted if the broader market sentiment remains positive. The long-term outlook for Astral remains stable and positive,” said Bannerjee, on the outlook following the block deal.

Alternatively, the sale could also be due portfolio balancing or institutional restructuring as the seller might want to diversify into other sectors. Both these factors indicate a neutral outlook for the company, per analysts.

If the promoters were confirmed to be the sellers, Rajesh Sinha, senior research analyst, Bonanza Portfolio said that the block deal will not impact the future growth prospects of Astral.

Decentralizing, innovation to drive growth

“Astral has strategically invested in decentralization, aiming to expand into new regions, while trimming operational costs and boosting margins. It has entered the rapidly-growing plastic pipe market in East India,” said Elara Securities, in a report from October.

To cater growing demand for plastic pipes and fittings, Astral has enhanced its capacity in Guwahati, Hyderabad and Kanpur. Also, the Dahej facility for adhesives business is expected to be fully operational in the next two quarters. “Sanitaryware and faucets business has a sales run-rate of Rs 6 crore per month and we believe it can reach Rs 10 crore per month in the next two quarters,” said Sinha.

Elara added that to boost growth, the firm might introduce new products, venturing into adjacent and new categories that may leverage its established brand and distribution channels. Astral anticipates additional revenues of Rs 1,500 crore in the next five years from new products and categories.

Also Read | Astral block deal sees 1.8% stake change hands for Rs 885 cr; promoters likely sellers

Way ahead

In the upcoming sessions, Riyank Arora, technical analyst, Mehta Equities, said that the shares could likely reclaim its all-time high of Rs 2,050 in the coming few sessions, if it manages to hold well above the Rs 1,850 mark.

For the July-September quarter, Astral’s jump in net profit nearly doubled year-on-year (YoY) to Rs 131.2 crore. Its total revenue stood at Rs 1,363 crore during the period under review, up 16.3 percent YoY.

Though the company’s net profit jumped 90 percent and revenue rose by 16 percent, it missed street expectations. Improvement in the building material and equipment firm’s EBITDA margin to 16.1 percent also failed to impress, and brokerages offer mixed calls on the scrip.

“While we remain upbeat on Astral’s long-term prospects, at 64x FY25E P/E, we maintain ‘hold’, with an unchanged target price of Rs 1,889,” said Systematix Institutional Equities.

The counter has limited upside, per InCred Equities, which retained its hold rating with a lower target price of Rs1,936, earlier Rs 1,978.

“We believe that healthy housing demand will further aid the company’s volumes and a sharp fall in PVC prices will help the company to improve and sustain its EBITDA margin. With an expected improvement in topline and bottomline in the medium term, our outlook remains positive for the company,” said Parth Shah, research analyst, StoxBox.

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