Astral Poly Technik: Recommendation review

We had recommended Astral Poly Technik (APTL) in DSIJ Vol. 26 Issue No. 25 (dated 4th Dec, 2011). The stock is trading at a six per cent premium to our recommended price of Rs 175 per share. After the company faced some financial pressures in the recently-concluded December 2011 quarter, investors may be wondering if it still is safe to hold on to the counter. Well, we continue to remain bullish on the counter. Despite the bottomline having declined on a YoY basis, the company’s fundamentals are still strong and robust.

On the financial front, during Q3 FY12, the topline of the company grew by a whopping 63 per cent to Rs 160.97 crore (YoY). This was on the back of a strong growth in volumes coupled with better realisations, which was possible as the company hiked its product prices. However, there was a fall in margins mainly on account of a sharp rise in Other Expenditure, as the company undertook certain promotional schemes to boost sales. The management has reiterated that margins would normalise going forward. The net profits fell by 43 per cent to Rs 4.77 crore (YoY), as ATPL suffered a one-time exceptional forex loss of Rs 5.8 crore on account of repayment of foreign currency loans. Adjusted for the same, the net profit grew by 25 per cent on a YoY basis.

On the capex front, the company has successfully commissioned its Dholka manufacturing facility during the quarter, and started commercial production of PVC solvent cement in its subsidiary company, Advanced Adhesives.

Backed by a strong demand for plumbing systems from the replacement as well as new markets, coupled with the ongoing capacity addition and the increase in product offerings, we urge investors to keep holding the stock for higher returns. The rupee gaining strength against the dollar will also augur well for the company to recoup its MTM forex losses by the end of the year.