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Sintex Industries Limited
Overweight
SNTX.BO, SINT IN
3Q beats expectations; raise PT to Rs243
• Raising price target to Rs243, reiterate OW: We increase our EPS
estimates for FY11-FY13 by 1.0%-8.1%% following better-than-expected
3Q results. We accordingly increase our Sep-11 PT to Rs243 (from Rs237.5
earlier), still based on 12x FY12E P/E. We believe that the recent stock
correction provides a good buying opportunity. SINT is currently trading at
8.3x FY12E P/E with a 26.3% EPS CAGR over FY10-FY13E and FY12E
ROE of 21.1%. We add SINT to our Asia Analyst Focus List.
• Robust growth outlook: Management reiterated its guidance of FY12 sales
growth of 25%+ and profit growth of 30%+. It expects growth to be led by
monolithic construction (40%+ yoy growth, current order book of Rs26B,
giving 22-24 months of sales visibility), 20%+ growth in prefabricated
segment, and 15%+ growth in custom moldings. SINT is also seeing a
strong pickup in new customer enquiries across all segments, which
enhances confidence in guidance. In addition, recently acquired DCPL will
enhance execution capability in the construction segment.
• Concerns on power business investments allayed: Management clarified
that SINT will not take a stake in the privately owned power venture of the
promoters. SINT is looking to invest in a captive power asset (to the extent
of 24% and an investment of Rs0.8B-Rs1.4B) for its power requirements,
under the group’s captive power policy, which entails sharing power among
multiple users. SINT expect to have access to about 100MW of captive
power by 2014 and it to cost 20%-30% less than the current cost.
• 3Q FY11 results beat estimates: 3Q FY11 net profit was up 55% yoy (20%
ahead of our estimates), driven by 42% yoy sales growth (76% for
monolithic, 26% for textiles, 25% for prefab, and 15% for custom moldings)
and a 140bp EBITDA margin expansion (see Table 2 for details). The cash
position has improved by Rs1.5B over the past quarter, while debt levels
have remained constant. Management also expects the working capital
position to improve going forward. Key risks to our thesis include rising
dependence on government orders, a slowdown in Europe, high working
capital, and investments in non-core businesses.
PT and valuation analysis
Our Sep-11 price target of Rs243 is based on a P/E of 12x
FY12E EPS, in line with its historic average.
Sintex trades at a discount of 28% and 29% on FY11E and
FY12E P/E respectively to the Indian construction peer
group.
Sintex trades at a discount of 62% and 63% on FY11E and
FY12E P/E respectively to Indian electrical equipment
manufacturers.
Sintex trades at a discount of 56% and 51% on FY11E and
FY12E P/E respectively to Indian auto component
manufacturers.
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