Astral shares fall 6% after JPMorgan downgrades on demerger news

Another brokerage firm CLSA said the demerger is unlikely to have a meaningful impact on the stock in the near term, adding that sustained growth and margin improvement in the chemicals business will be the key drivers for any future rerating.

Shares of Astral Ltd. are trading lower by 6% on Monday, June 29, after the company announced a major restructuring of its business and brokerages shared mixed views on the move.

Astral's board has approved a composite scheme of arrangement to separate its chemicals business into a standalone listed entity while merging Al-Aziz Plastics Pvt. Ltd. into Astral Ltd.

Under the proposed restructuring, Astral will transfer its chemicals business to its wholly owned subsidiary, Astral Chemie Ltd., formerly known as Astral Coatings Pvt. Ltd.

The chemicals portfolio, comprising adhesives, sealants, construction chemicals, paints and coatings, generated revenue of ₹1,266.3 crore in FY26, contributing around 21% of the company's total turnover.

Astral shareholders will receive one equity share of Astral Chemie for every one Astral share held on the record date. Following the demerger, Astral Chemie will mirror Astral's shareholding pattern and is proposed to be listed on both the NSE and the BSE, subject to regulatory approvals.

The transaction does not involve any cash consideration.

The company said the restructuring is aimed at creating two focused businesses with independent capital allocation and growth strategies. While Astral Chemie will house the chemicals portfolio, Astral will sharpen its focus on its core plumbing business.

The merger of Al-Aziz Plastics is expected to strengthen its plastics product portfolio and manufacturing capabilities.

Managing Director Sandeep Engineer said the businesses have reached a stage where dedicated management, sharper execution and focused capital allocation can accelerate their next phase of growth.

Following the announcement, JPMorgan downgraded Astral to 'Neutral' from 'Overweight'. The brokerage believes the demerger allows the mature plumbing business to pursue a more aggressive growth strategy through improved capital allocation and channel investments.

However, it also cautioned that the standalone chemicals business, particularly paints and adhesives, could face slower growth without the financial support of the plumbing segment.

JPMorgan estimates the chemicals business could account for roughly 15% of consolidated profit before tax by FY28.

While the valuation impact may be limited, the brokerage said uncertainties around future cost allocation and cash flows remain. It also flagged near-term pressure from declining domestic PVC prices, which could lead to inventory losses and channel destocking, prompting it to recommend staying on the sidelines for now.

The brokerage added that a stronger focus by Astral on its plumbing business could intensify competition for peers such as Supreme Industries, making margin expansion more challenging for the company.

Despite the downgrade, JPMorgan said it continues to prefer Astral over Supreme from a structural perspective and would look for better entry points once volatility in PVC prices subsides.

Investec maintained its 'Buy' rating on Astral with a target price of ₹1,710. The brokerage said the demerger creates the country's second-largest listed pure-play chemicals business after Pidilite Industries and sees the move as a long-term value-unlocking opportunity.

It believes enhanced business disclosures and focused execution could improve the market's valuation of the chemicals business.

CLSA retained its 'Hold' rating with a target price of ₹1,475. The brokerage said the demerger is unlikely to have a meaningful impact on the stock in the near term, adding that sustained growth and margin improvement in the chemicals business will be the key drivers for any future rerating.