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Sintex Industries Ltd |
Clears Ambiguity |
ACCUMULATE
CMP: Rs 169 Target Price: Rs 215
n Excellent quarter again beating estimates; consolidated revenues up 40% yoy (est. 27% yoy), EBITDA margins 16.6% (up 162bps yoy) and PAT up 55% yoy (est. 39%yoy)
n Some improvement in working capital cycle visible (111 days, assuming Rs3bn of loans & adv. as cash, otherwise 134 days), net debt reduces by Rs1bn
n Some clarity on power investment size (likely Rs0.80bn, Max Rs1.4bn) and purpose; ambiguity on investment in oil & gas continues
n Fine tune estimates (3% up); Trading at 8.2xFY12E earnings (Rs20.5/Share), upgrade to accumulate on 14% under performance versus nifty in past three months
Performance beat estimates; marginal earnings upgrade
Sintex’s Q3FY11 numbers were above our estimates - consolidated revenues up 40%
yoy (est. 27% yoy), Cons EBITDA margins 16.6% (up 160bps yoy) and Cons PAT up
55% yoy (est. 39%yoy). This was mainly because of (1) higher EBITDA margins in
standalone business at 20.2% (up 360bps yoy) versus estimate of 18.1%, (2) higher
monolithic revenues Rs3.5bn versus expectations of Rs2.4bn, (3) higher revenues in
Textiles/Nief Rs1.2bn/Rs2.3bn versus expectation of Rs1.0bn/Rs1.9bn. The earnings
for 9mFY11 stand at Rs10.8/Share, a growth of 53%. Though the earnings have been
better in Q3FY11, we expect slightly lower growth (12%) in Q4FY11E due to very high
base. We have fine tuned our FY11E and FY12E EPS numbers to Rs16.5/Share (+3%)
and Rs20.5/Share (+3%).
Some improvement visible in working capital; key variable to track
Increase in the working capital cycle (from 55days in FY08 to 142 days in Q2FY11) has
been our key concern in Sintex. This has been mainly driven by increasing contribution
of monolithic. However, some tightening in the working capital cycle is visible in Q3FY11
numbers. Assuming Rs3bn of loans and advances as cash/ICDs, the working capital
cycle works out to be 111days in Q3FY11. We believe this is the key variable to track in
this company deciding the fate of its free cash flows.
Management steps in to clarify on investment in power
Sintex’s management in the concall clarified that the stake in power would be limited to
(1) only a 300-400MW group captive power plant also to be used for Sintex’s captive
consumption, (2) a maximum of 24% equity stake and (3) likely investment of Rs0.8bn
with a maximum cap of Rs1.4bn. However, the ambiguities remain on oil and gas
investment size but plans at very initial stage.
14% underperformance versus Nifty since last quarter; Upgrade to
accumulate
The stock has underperformed by 14% versus Nifty since last quarter and is now trading at
attractive valuations of 8.2xFY12E earnings (Rs20.5/Share). During past 3, 5 and 7 years,
Sintex has traded at an average of 10.5-12x 1-yr fwd earnings. Considering relatively higher
working capital cycle, it should trade at lower end of the range (10.5x). Given the
underperformance, we upgrade the stock to Accumulate but retain the price target of
Rs215/Share.
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