Sintex Industries Ltd – ADD: The going gets better; says IIFL

Sintex Industries Ltd – ADD: The going gets better
Sintex Industries’s strong momentum in domestic businesses along with steady improvements in its
international businesses continued in 2QFY11. Strong topline growth of 29% YoY translated into 56%
growth in reported PAT. The monolithic business weighed in with revenue growth of 108% YoY, while
most other domestic plastic businesses clocked 20-50%. In view of improved prospects of the domestic
plastics business, we raise our FY11–12 earnings estimates by 11.1%. That said, balance-sheet
concerns such as high working-capital seem to be scarcely reflected in the current P/E of 14.4x FY11ii,
so we retain ADD, in spite of a new TP of Rs520 (14x FY12ii), indicating 20% upside on 12-month basis.
Strong headline numbers: Buoyed by 29% YoY topline growth and 34bps EBITDA margin expansion,
EBITDA grew 31.4% YoY. PAT grew 56.4% YoY, thanks to 462% growth in other income (34% QoQ), in spite
of a 69.2% YoY rise in interest costs and a higher tax rate.
Strong momentum in housing and domestic mouldings: The monolithic-construction business
consolidated its momentum, with revenue up 108% YoY at Rs2.43bn, while maintaining an order book size
of Rs26bn (up from Rs22bn in the previous quarter). Revenue from non-BT pre-fabs rose 22% YoY. In
domestic mouldings, Bright Brothers registered 50% YoY revenue growth.
Foreign subsidiaries growing, textiles recovering: In constant-currency terms, in our estimate, Nief grew
54% YoY (thanks partly to consolidation of its two new acquisitions), while Wasaukee grew 37% YoY. This
should expand profitability through operating leverage. In textiles, revenue growth of 24% aided a 978bps YoY
EBIT margin improvement to a healthier 13.6%.
Balance-sheet management remains key: The company’s non-cash NWC is 150 days now (double of last
year’s number), driven by 122% growth in loans and advances, coupled with a 15% drop in current
liabilities. While this is partly explained by high monolithic billing at year end, the increase is still very high.