Astral Shares Tank 6% After Weak Q1 Earnings Disappoints Investors

Shares of Astral fell as much as 6% on August 12 after the company’s June quarter results showed a sharp drop in profit and compressed margins.

Net profit for the quarter fell 32.7% year-on-year to ₹81 crore, compared with ₹120 crore in the same period last year. Revenue from operations slipped 1.6% to ₹1,361.2 crore from ₹1,383.6 crore a year earlier.

Operating performance also weakened, with Ebitda falling 13.8% to ₹185 crore from ₹214.4 crore, while the Ebitda margin narrowed to 13.6% from 15.5% a year earlier. In the plumbing segment, margins dropped 150 basis points year-on-year, while the paints and adhesives business saw a sharper contraction of 280 basis points.

Astral’s management, in a post-earnings call, attributed the soft performance to weak demand during the quarter and volatility in PVC prices, which led to inventory losses and lower realisations. However, the company said PVC prices have begun to stabilise since the start of the September quarter, and market conditions are showing signs of improvement, hinting at a potentially better performance ahead.

Brokerages, however, remained cautious. Jefferies maintained a 'hold' rating with a target price of ₹1,565 per share, highlighting that the results missed estimates across the board.

Following the lead, Morgan Stanley kept an 'equal-weight' rating with a target price of ₹1,489 per share, citing revenue that missed expectations due to flat volume growth and a 7% drop in realisations, though adhesive and paint revenues were broadly in line. CLSA also reiterated its 'hold' call with a target price of ₹1,515 per share, pointing out that lower PVC prices hit both realisations and margins, with revenue down 2% year-on-year and weak margins across segments.

In a separate development, Astral announced plans to acquire an 80% equity stake in Nexelon Chem Private Limited, along with a further investment of up to ₹120 crore over time.

Nexelon Chem, incorporated in July 2023, manufactures chemicals and chemical products. The acquisition will allow Astral to produce CPVC resin, its key raw material, aimed at cutting costs and boosting margins.

The cash transaction involves buying shares at ₹80,000 at par value, with the total investment, including additional funding, capped at ₹120 crore. The capital structure will be finalised within 60 days, and the deal is expected to be completed within two to three months.