Astral Poly Technik Rating: Add; Deal with SPPL can be very rewarding

Astral Poly Technik (ASTRA) has made a big-bang entry into plastic storage tanks segment through acquisition of certain assets of Shree Prabhu Petrochemicals Pvt Ltd (SPPL) for Rs 510 mn. Besides access to SPPL’s water tank capacity of 500mn ltrs and pipe capacity of 4,500te p.a., the acquisition would allow ASTRA to leverage SPPL’s brand ‘SARITA’ and its existing dealer network. The acquisition seems very lucrative considering the high RoCE potential of the asset and payback period of just over two years. Key synergies (i) leveraging of ASTRA’s existing dealer network; (ii) multi-location manufacturing footprint as water tanks are highly freight-sensitive products; (iii) ready access to SPPL’s technology and dealer network.

Valuation and outlook: Considering the potential revenue and profitability generation from the said acquisition, we increase our FY22e revenue and PAT estimates by 2% and 1.5%, respectively. While rolling over our valuations to FY23e, we expect ASTRA to report overall revenue and PAT CAGRs of 18.5% and 31.7%, respectively, over FY20-FY23e. With the recent spurt in stock price, we downgrade ASTRA to Add from Buy with a revised SoTP-based target price of Rs 1,530 (earlier: Rs1,345), implying a P/E multiple of 45x Sep’22e earnings.

Deal to aid further scalability to company’s strong model: ASTRA’s acquisition of SPPL assets marks its seamless entry into the fast growing water storage tank segment. It has potential to generate revenue of Rs 2.5 bn in next 3-4 years with a consolidated Ebitda margin of 13-15%. This would result in a potential accretion of Rs 11 bn (5% of current market cap) to its existing market cap over the next 3-4 years.