On June 25, Astral announced its plan to demerge its adhesives, paints, and construction chemicals business into a separately listed company, while retaining its plumbing business in the existing listed entity. This strategic move aims to streamline operations and focus on core competencies.
The plumbing business has emerged as Astral's primary earnings and cash-flow generator, with its Profit Before Interest and Tax (PBIT) rising to ₹686.9 crore in FY26 from ₹605.4 crore in FY24. In contrast, the PBIT of the chemicals business declined to ₹103.4 crore from ₹139.6 crore, increasing the plumbing division's contribution to total PBIT to nearly 87% from about 81% during the period.
In FY26, the plumbing business accounted for approximately 71% of the total ₹6,569 crore revenue. Despite the demerger announcement, brokerages have maintained their 'buy' ratings on Astral, although some have reduced their target prices by 5-9%.
“Adhesive plus paint business valuations will be the tricky part as how much discount it gets versus listed peers is difficult to comprehend.”
Equirus Securities
Management anticipates the chemical business revenue to grow to ₹4,400-5,000 crore over the next four to five years from ₹1,861 crore in FY26, indicating an annual growth rate of 19-22%. The company plans to disclose separate Profit and Loss statements and balance sheets for both entities with the June quarter of FY27 results.
HDFC Securities noted potential cost increases and operational disruptions during the demerger process but maintained a 'buy' rating on the stock with a target price of ₹1,740. The stock closed Thursday's session at ₹1,364.6 on the BSE.
“We expect the creation of a separate entity to lead to some cost increases, along with potential operational disruptions during the demerger process.”
HDFC Securities
Background
Astral's demerger decision reflects a broader trend in the industry where companies are restructuring to enhance focus and unlock shareholder value. This move is expected to allow each business segment to pursue tailored growth strategies and improve operational efficiencies.
Investors and analysts will closely monitor the demerger's impact on Astral's financial performance and market positioning. The success of this strategic shift will depend on the company's ability to manage potential disruptions and capitalize on growth opportunities in both segments.
