Dolat Capital Market has given Buy recommendation for Asahi India Glass with a target price of Rs. 350 in its research report issued on Feb 12, 2021
Dolat Capital Market’s research report on Asahi India Glass
Asahi India Glass (AIS) printed an impressive earning performance in 3Q. EBITDA grew 52% YoY to Rs.1.75bn with expanded margin at 23.3% (+413bps QoQ) led by lower fuel cost, cost control measures and sharp expansion in margin of Architecture glass. EBIT Margin for Automotive glass expanded by 371 bps YoY to 17.2 % and for Architecture glass by 1151 bps YoY to 22.9% led by benefit of restrictions on import. We expect the company to be a key beneficiary of revival in the volume of Automotive and Architectural glass(Building) segments. Moreover, strong traction in aftermarket business will also aid profitability. In the Automotive glass business, AIS would be the key beneficiary of uptick in volume of MSIL (current share of business from MSIL is above 90%). MSIL’s low network inventory (less than 1 week) and robust order backlog (~200k vehicle) will aid further volume growth. Architectural glass business has also shown strong recovery in revenue and margin, benefiting from reduced import in India from Asian countries. Also imposing anti-dumping duty for clear float glasses in Malaysia is positive for building products (benchmark prices increased by 10%), which supported both pricing and volume. As most of the capex has already been incurred (~Rs.12bn over FY18-20 towards 2.5mn windshield in automotive and increasing capacity of Taloja plant), AIS is likely to generate strong free cash flow of ~Rs.12bn over FY21-23E (~17% of current EV) which would help to repay debt. The company is targeting to reduce debt by Rs.2.5-3bn in FY21.
We forecast 67% CAGR in earnings in FY21-23E, driven by a 20% increase in Revenue, 120bps margin expansion and benefits from the fall in interest and tax. We value the stock Rs.350 (based on 25x of FY23E EPS), and recommend BUY.