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COMPANY UPDATE
Sintex Industries (SNTX.BO)
Buy Equity Research
Investment in DCPL provides direct exposure to infra spend; Buy
What's changed
Sintex Industries recently acquired a 30% stake in Delhi-based Durha
Constructions Pvt Ltd (DCPL), a civil and mechanical construction company
across power, petrochemicals and cement segments for Rs 422mn. DCPL
was valued at an EV of Rs1150 mn, implying a FY10 EV/EBITDA multiple of
4.6X (vs Sintex’s FY10 EV/EBITDA of 12.2X). Sintex proposed to increase
its stake to 51% by Dec 2011 based on DCPL’s FY11 results.
Implications
The acquisition is in-line with Sintex’s strategy of expanding into new and
attractive business areas inorganically. Given Sintex’s track-record of
successful acquisitions in the past and DCPL’s strong client base, we
believe this acquisition positions Sintex to be a more direct participant in
the Indian infrastructure spend and potentially find its next big growth
area beyond the monolithic and prefab segments that are key growth
drivers currently.
DCPL currently has an order book of Rs 7.5bn (5XFY10 revenues) and aims
to record a sales CAGR of 53% over FY10-12E. Margins are expected to
improve from the current 17% as the company executes on higher value
addition projects, going forward. Assuming a 40% YoY sales CAGR over
FY10-12E and that FY10 net profit margins of 8% are maintained, we
expect this acquisition to add 4% to Sintex’s FY12E EPS. However, our
current numbers for Sintex exclude any impact from this acquisition.
Valuation
Sintex currently trades at a 12-m fwd P/E of 10.5X – vs 5-yr median of
10.4X Our 12m TP of Rs 269 is based on 13.5X FY12E EPS, in-line with the
average 2-yr fwd P/E multiple for its global industrial peers.
Key risks
(1) Further increase in working capital requirements (2) Execution delays in
the monolithic segment (3) Volatile raw material prices impacting margins
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