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Sintex Industries Limited
Overweight
SNTX.BO, SINT IN
DPCL Acquisition: Positive at the Outset
• Acquires minority stake in DPCL: Sintex has acquired a 30% stake in
Durha Constructions, a privately-held company engaged in ENC
projects. Sintex has an option to acquire another 21% by FY11E to
become a majority owner in DPCL. The acquisition does not come as a
surprise as the management has been indicating a potential ‘small’ EPC
acquisition for over the past few quarters.
• Valuations look reasonable: DPCL has been valued at an EV of
Rs1.15B and an equity value of Rs1.05B, translating to 4.5xFY10
EV/EBITDA. This compares favorably to 8.9xFY11E EV/EBITDA at
which SINT is currently trading. DPCL had revenues of Rs1.5B and
EBITDA of Rs255MM in FY10. SINT management estimate DPCL to
generate Rs2.25B in revenues and Rs450MM in EBITDA in FY11E.
Terms of the remaining 21% stake to be acquired are not known and
valuation parameters could change on the incremental acquisitions.
• DPCL will boost presence in monolithic, EPC segments: DPCL will
help SINT boost its presence in monolithic and EPC segments. DPCL is
engaged in civil and mechanical construction with presence in power,
petrochemical and cement projects and has an order book of Rs7.5B. We
see DPCL as a logical fit for SINT.
• Price target, valuation, key risks: We maintain our Sep-11 price target
of Rs237.5 for SINT, which implies 28% potential return from current
levels. We have not yet factored in DPCL into our estimates, pending
more details on financials and potential valuations for the incremental
stake. Based on the current valuation paid, we estimate that the
acquisition is likely to be accretive to earnings. Key risks to our thesis
include rising dependence on govt. orders, slowdown in Europe, expensive
acquisitions, and high working capital
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