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Sintex Industries – 3QFY2011 Result Update
Angel Broking maintains a Buy on Sintex Industries with a Target Price of Rs229.
For 3QFY2011, Sintex reported above expectation results. Strong revenue and
profit growth of 39.9% yoy and 55.7% yoy, respectively, was mainly led by the
monolithic segment and international subsidiaries. The recent acquisition of DCPL
has strengthened Sintex’s geographical footprint and the monolithic segment’s
product portfolio. Management has reiterated its strong outlook for the domestic
plastic segment and has clarified that future investment of `100cr–140cr by
FY2013 in the power segment is purely for captive consumption, which will
Monolithic segment and international subsidiaries drive profitability: Sintex’s
consolidated net sales grew by 39.9% yoy to `1,186cr during 3QFY2011, in line
with our expectation. Strong revenue growth was mainly led by the monolithic
segment (up 171% yoy), Bright Autoplast (up 49% yoy), textile segment (up 29%
yoy) and international subsidiaries (up 20% yoy). The domestic custom moulding
segment reported subdued performance. Standalone BT Shelter and Zeppelin
continued to drag the company’s performance. Sintex’s 3QFY2011 consolidated
operating profit stood at `197cr, up 55% yoy. OPM for the quarter stood at
16.6%, up 162bp yoy (down 200bp qoq) on the back of higher contribution from
the high-margin monolithic segment. During the quarter, the company booked
other income of `14cr (down 45.0% yoy). Consequently, PAT came in at
`112.8cr, up 55.7% yoy, significantly above our expectation.
Outlook and valuation: We have revised upwards our earnings estimates for
FY2011 and FY2012 by 8.0% and 8.6%, respectively. At `167, the stock is
trading at 8.1x FY2012E EPS and 1.7x FY2012E BV. Historically, Sintex has
traded at 14x its 1-year fwd. avg. P/E, which makes current valuations attractive.
Besides, Sintex’s fundamentals have strengthened with strong revenue visibility
and demand in the domestic plastic segment. We maintain Buy with a TP of `229.
Monolithic & textile segments drive operating performance
During the quarter, the plastic segment’s EBIT margin grew by 213bp yoy but
declined by 311bp qoq on account of a better product mix in favour of the
high-margin monolithic segment since last quarter. The company reported 18%
OPM in the monolithic segment in 3QFY2011 as against 23% in 2QFY2011. EBIT
margin in the textile segment expanded by 672bp yoy and 44bp qoq owing to a
pick-up in demand for high-end fabrics and better pricing. In our view, quarterly
margins are not a fair indicator of the company’s performance due to lumpiness of
its business.
Segment-wise performance
During the quarter, the textile segment continued to report strong revenue
growth of 29.2% yoy to `115cr on account of low base and a pick-up in
demand for high-end fabrics. Management is positive about demand stability
in the segment in the ensuing quarters.
The standalone pre-fab segment, which includes BT Shelter, registered strong
growth of 25.6% yoy on account of new product launches, such as industrial
site offices, cold chains and agricultural sheds. The BT Shelter segment
captured by Zeppelin grew by modest 2.9% yoy.
During the quarter, revenue from the monolithic segment grew by 170.2% yoy
to `349cr on account of low base, higher execution and change in accounting
method for revenue recognition. Moreover, the order book of `2,600cr
provides strong revenue visibility over the next two years. We expect the
segment’s revenue to post a 45% CAGR over the next two years.
The domestic custom-moulding segment’s revenue declined by 7.0% yoy to
`107cr; however, management reiterated 25–30% yoy growth in FY2011.
Bright Autoplast’s revenue continued to grow, up 49.4% yoy, driven by
increasing capacity utilisation of its new Chennai plant and addition of new
customers. Nief (up 18.8% yoy) and Wausaukee (up 14.5% yoy) reported
good set of numbers on account of improving volumes in constant currency
terms. Consequently, the consolidated custom-moulding segment grew by
14.6% yoy to `459cr during the quarter.
Sintex acquires 30% stake in DCPL
During the quarter, Sintex acquired 30% stake in Durha Constructions Pvt. Ltd.
(DCPL) for `42cr (4.6x FY2010 EV/EBITDA). The company intends to acquire
majority stake (~51% stake) by FY2011-end. DCPL is engaged in civil and
mechanical construction work in varied infrastructure sectors viz. power,
petrochemicals and cement with current order book of `750cr. For FY2010, DCPL
registered revenue of `150cr with an EBITDA margin of 16.6%. Management has
guided that while DCPL would contribute to Sintex’s financials for 3QFY2011 and
4QFY2011, consolidation effect on annual basis would occur from FY2012. We
believe contribution to revenue and earnings would be marginal, given DCPL’s
relatively smaller size.
Investment in power and oil & gas
As guided by the management, Sintex would pick a 24% equity stake in the
group’s planned 300MW power plant for approximately `80cr. The investment is
targeted solely to meet captive consumption, which will enhance the company’s
bottom line. Besides, the company also intends to invest `80cr–100cr in the
group’s oil and gas business, which it might exit at a later stage. However, the
deals are three-four years away and clarity is expected to emerge in due course.
Investment arguments
Dominant player in the domestic plastics market
Sintex’s domestic business contributed around 70% and 80% to overall revenue
and EBITDA, respectively, in FY2010. The company is 10x the size of its nearest
competitor in single-storey pre-fabs; 6x in custom mouldings; and is the sole
monolithic construction player in the country. The company derives ~60% of its
total domestic revenue from government contracts. The monolithic segment has an
order book of around `2,600cr, which provides further visibility. We estimate
Sintex to register 28% and 30% yoy growth in its domestic revenue and EBITDA in
FY2011E, respectively, with high revenue visibility underpinned by the
government’s thrust on schools and hospitals in economically backward areas and
slum rehab projects.
Synergies in international business improving
The benefits of integration and restructuring of overseas subsidiaries are already
reflecting in the company’s improved margins. International acquisitions are
yielding 10–11% OPM, an improvement of 500bp since the acquisition.
We estimate further improvement of 400bp by FY2012E on account of the
integration process.
Trading at attractive valuations
We have upgraded our earnings estimates for FY2011E and FY2012E by 8.0%
and 8.6%, respectively. Sintex has a low net debt/equity of 0.9x, even after
factoring in non-conversion of FCCBs maturing in FY2013E. The stock is currently
trading at 8.1x FY2012E EPS. Over the last five years, Sintex has traded at an
average one-year P/E of 14.0x, which makes current valuations attractive.
Moreover, further integration of foreign subsidiaries and acquisition in the
monolithic segment will act as key catalysts for the stock. We maintain Buy on the
stock with a Target Price of `229
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