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Sintex Industries - Q3FY11 results: strong revenue growth; maintain HOLD
SINT’s Q3FY11 revenues were above our estimates led by strong revenue growth across key
segments, though overall margins were broadly in-line. Execution in the monolithic
construction segment remains strong with revenues up 43.6% Q -o-Q to INR 3.5 bn, including
projects worth INR 1.4 bn (~INR 500 mn in Q2FY11) executed through its subsidiary Sintex
Infrastructure where it books revenues on a partial completion basis.
· Building products segment (incl monolithic construction, prefabs and tanks) reported
a sharp uptick with revenues up 76% Y-o-Y, 48% Q -o-Q to INR 6.1 bn.
· Key growth driver was the Monolithic business with revenues at INR 3.5 bn (up
~43.6% Q-o-Q, 170% Y-o-Y). SINT executed projects worth ~INR 1.4 bn in this
segment through its subsidiary Sintex Infrastructure where it books revenues on a
partial completion basis.
· Monolithic construction order book was flat Q-o-Q at ~INR 26 bn to be executed
in 20-21 months.
· Prefabs and tanks businesses reported a bounce-back in revenues – prefabs
revenues were up 66% Q-o-Q, marginally up by 3% Y-o-Y to INR 2.1bn while tanks
segment revenues were up 18% Q -o-Q, 16% Y-o-Y at INR 520 mn.
· Custom molding segment revenues grew 15% Y-o-Y to INR 4.6 bn. Standalone
custom moldings revenues were at INR 1.1 bn (up 47% Q -o-Q, down 7% Y-o-Y). Among
the subsidiaries, Bright and Nief reported strong growth of 49% and 18% Y-o-Y
respectively, while Wausaukee revenues grew at a 12% Y-o-Y, but fell ~11% Q-o-Q.
· Textile segment revenues up 21.6% Q -o-Q, 28.8% Y-o-Y to INR 1.2 bn.
n Update on investments in power assets
Management stated that in order to reduce its captive power costs, it intends to invest in
power assets whereby it will be forming a JV with 3-4 other groups with similar captive power
requirements. SINT will hold a maximum of ~24% in the power venture. Management is
initially looking at acquiring/setting up ~300-400 MW. Roughly, this implies an initial
investment in the next 3 years of INR 20 bn (assuming INR 50mn/MW for 400 MW) and
assuming D/E at 4:1 and with SINT holding a 24% stake, this would imply an initial
investment of INR 1 bn by SINT. Management highlighted that the maximum investment
by SINT in this venture would be ~INR 1.4 bn. Management stated that SINT currently
consumes ~87 MW of power and over next 3 years its consumption is expected to rise to 100
MW.
n Increases stake in Wausaukee to 100%
SINT increased its stake in Wausaukee from 87% to 100% in Q3FY11 at a cost of USD 1 mn.
n Maintain HOLD
Overall the growth for key businesses (monolithic constr. and custom molding remains
strong). We see ~5% upgrade to our FY11-12 numbers primarily owing to consolidation of
SINT’s recent acquisition Durha Constructions (30% consolidation in Q4FY11 and 51%
consolidation in FY12) and strong growth in the custom molding segment. However, we
believe investments in unrelated businesses by SINT (oil & gas and power) is a concern and
we expect pressure on RoCEs to continue on this account. We therefore maintain HOLD
recommendation on the stock despite attractive valuations of ~9x FY12 (basic EPS).
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