Sintex Industries (SNTX.BO)
Buy
In line with expectations; Robust growth across segments; Buy
What surprised us
Sintex reported Q2FY11 net profit of Rs1,001 mn, c.15% ahead of our and
Bloomberg consensus estimates. Adjusting for tax write-backs and onetime
settlements, Q2FY11 net profit was in line with our estimates. Strong
growth in the monolithic business (up 108% YoY) and the custom molding
business (up 24% YoY) more than offset continuing weakness in the
Telecom tower segment. The monolithic segment order book stands at
Rs26 bn, offering strong revenue growth visibility over the next 24 months.
What to do with the stock
The Infra projects’ subsidiary, incorporated to facilitate greater participation
in the infrastructure sector, will not impact profitability or growth in the
nearer term and is more of a longer-term strategic initiative, in our view.
We forecast sales CAGR of 20% over FY10-12E, with the monolithic and
social pre-fabs segments being the key drivers of growth, contributing to
56% of this growth. Despite the c.350 bps sequential improvement in
overall EBITDA margins in this quarter, margin performance at some of
the custom molding subsidiaries continue to remain below target levels.
We expect EBITDA margins to improve by c.200 bps over FY10-12E.
Sintex currently trades at 11.6X FY12E P/E vs. 5-yr median 12-m
fwd P/E of 11X and 12-m fwd MSCI India index P/E of 18X. These
valuations are attractive, in our view, given our forecast of a 24% EPS
CAGR and a 260 bps improvement in ROE over FY10-12E for the company.
We maintain our Buy rating on the stock and our P/E-based 12-month
target price of Rs538. Key risks include: 1) execution delays in the
monolithic construction segment, and 2) volatile raw material prices
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