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Sintex Industries Ltd
Clarifies on Oil & Gas and Power foray
Having met with management Tuesday at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
Clarifying on its Oil & Gas foray, the company mentioned that it will move
completely out of this subsidiary in the next 12 to 15 months so as to address
investor concerns that Sintex is in this segment. While the company is yet to start
investing in this subsidiary, over the next one year its investments are likely to be
less than INR100mn. Net Investment post stake sale would be nearly zero.
Clarifying on its intention to invest in Power SPV where it had earlier planned to
invest INR800mn to 1400mn to hold 23% stake so that it would get a reliable and
cost effective supply of power, the company said it has shelved this plan. Instead,
Sintex will look at one of three options: a) as per Sintex, industry estimates suggest
that power situation in India is likely to improve substantially in the next 2-3yrs. If
such an improvement happens, Sintex would limit its purchase of power to buying
power from State Electricity Boards only, b) It will look at increasing its captive gas
based power capacity in Kalol in FY13 to increase proportion of gas based power
given lower costs OR c) Sintex can look at taking minority stakes in smaller power
companies near to Sintex plants to tie up reliable and cost effective power supply for
captive use. Investment would be limited to INR800 to 1000mn here.
We believe these are positive steps by the management to address investor
concerns on these investments Sintex had announced. We reiterate our Buy
rating with price objective of INR250. The stock trades at 7xFY12e PE for 25%
EPS CAGR.
Price objective basis & risk
SINTEX INDUSTRIES LTD (SIXDF)
Our PO of INR250 is based on SOTP and implies a target of 9x FY12 fwd
EV/EBITDA and 12.5x FY12e PE, in line with five yr average 1yr fwd PE multiple
and reasonable, in our view, given over 20% expected RoE and 27% estimated
EPS CAGR.
We prefer SOTP given absence of close comparables due to Sintex's multiple
businesses. We have grouped its segments as follows: (1) Monolithic
construction has been valued at 10% premium to historical 5yr avg. multiple given
long term growth potential and visibility, (2) Textiles and Water tanks segments
are compared to their industry multiples: textiles business has been compared to
industry average and water tanks business is compared with plastic molding
companies like Finolex Industries, (3) For the rest of the businesses we have
attached average historical EV/EBITDA multiple of 9.4x1yr fwd. We expect the
stock performance to be driven by higher visibility and 27% estimated earnings
CAGR. At over 20% expected ROE, we believe risk/reward is attractive.
Risks: (1) delays in monolithic projects can impact margins, (2) likely increase in
competition in economic housing, and (3) dependence on govt spend on welfare
schemes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sintex Industries Ltd
Clarifies on Oil & Gas and Power foray
Having met with management Tuesday at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
Clarifying on its Oil & Gas foray, the company mentioned that it will move
completely out of this subsidiary in the next 12 to 15 months so as to address
investor concerns that Sintex is in this segment. While the company is yet to start
investing in this subsidiary, over the next one year its investments are likely to be
less than INR100mn. Net Investment post stake sale would be nearly zero.
Clarifying on its intention to invest in Power SPV where it had earlier planned to
invest INR800mn to 1400mn to hold 23% stake so that it would get a reliable and
cost effective supply of power, the company said it has shelved this plan. Instead,
Sintex will look at one of three options: a) as per Sintex, industry estimates suggest
that power situation in India is likely to improve substantially in the next 2-3yrs. If
such an improvement happens, Sintex would limit its purchase of power to buying
power from State Electricity Boards only, b) It will look at increasing its captive gas
based power capacity in Kalol in FY13 to increase proportion of gas based power
given lower costs OR c) Sintex can look at taking minority stakes in smaller power
companies near to Sintex plants to tie up reliable and cost effective power supply for
captive use. Investment would be limited to INR800 to 1000mn here.
We believe these are positive steps by the management to address investor
concerns on these investments Sintex had announced. We reiterate our Buy
rating with price objective of INR250. The stock trades at 7xFY12e PE for 25%
EPS CAGR.
Price objective basis & risk
SINTEX INDUSTRIES LTD (SIXDF)
Our PO of INR250 is based on SOTP and implies a target of 9x FY12 fwd
EV/EBITDA and 12.5x FY12e PE, in line with five yr average 1yr fwd PE multiple
and reasonable, in our view, given over 20% expected RoE and 27% estimated
EPS CAGR.
We prefer SOTP given absence of close comparables due to Sintex's multiple
businesses. We have grouped its segments as follows: (1) Monolithic
construction has been valued at 10% premium to historical 5yr avg. multiple given
long term growth potential and visibility, (2) Textiles and Water tanks segments
are compared to their industry multiples: textiles business has been compared to
industry average and water tanks business is compared with plastic molding
companies like Finolex Industries, (3) For the rest of the businesses we have
attached average historical EV/EBITDA multiple of 9.4x1yr fwd. We expect the
stock performance to be driven by higher visibility and 27% estimated earnings
CAGR. At over 20% expected ROE, we believe risk/reward is attractive.
Risks: (1) delays in monolithic projects can impact margins, (2) likely increase in
competition in economic housing, and (3) dependence on govt spend on welfare
schemes.
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