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Sintex Industries Ltd
Balance sheet and visibility to
improve; reiterate Buy
„Execution on track; Reiterate Buy on attractive valuations
Post speaking to Sintex MD Amit Patel this week, we reiterate Buy with PO of
INR250. An in line Q4 (12% yoy growth), improved balance sheet and visibility
can act as near term trigger. Stock is at 9x FY11e and 7.5x FY12e PE for ~27%
estimated EPS CAGR. We believe these are attractive valuations given i) revenue
visibility/ strong demand environment and ii) expected de-leveraging.
New states to drive prefab; Visibility in monolithic to go up
Company mentioned that it will extend prefab business to Assam, Bihar and
Orissa. This in addition to continued strength in orders from UP, will drive over
20% growth in prefabs in FY12. Additionally we expect over 10% qoq jump in
monolithic order book at the end of Q4 and hence better segmental visibility.
Addition of clients in custom molding to drive growth
In custom molding, Sintex’s strategy is i) to scale up existing clients, ii) improve
margins by shifting work to India and iii) to add 1 to 2 large clients every year.
While ‘Schneider’ scaled up in FY11, Sintex has likely closed similar deals with
two more clients who will ramp in FY12. Company is confident of beating our
expectation of ~10% consol. (including subsidiaries) growth in custom molding.
Expect balance sheet improvement; Upside risk to est.
We expect reported debt to equity to improve post Q4 as cash locked in escrow
accounts for acquisitions and bank guarantees related to large monolithic orders
is freed. Going ahead, Sintex plans to improve client mix in monolithic in favor of
lower debtor days. We see upside risks to our FY12/13 estimates from better than
expected execution/ margins in monolithic and prefabs. Reiterate Buy.
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
Balance sheet and visibility to
improve; reiterate Buy
„Execution on track; Reiterate Buy on attractive valuations
Post speaking to Sintex MD Amit Patel this week, we reiterate Buy with PO of
INR250. An in line Q4 (12% yoy growth), improved balance sheet and visibility
can act as near term trigger. Stock is at 9x FY11e and 7.5x FY12e PE for ~27%
estimated EPS CAGR. We believe these are attractive valuations given i) revenue
visibility/ strong demand environment and ii) expected de-leveraging.
New states to drive prefab; Visibility in monolithic to go up
Company mentioned that it will extend prefab business to Assam, Bihar and
Orissa. This in addition to continued strength in orders from UP, will drive over
20% growth in prefabs in FY12. Additionally we expect over 10% qoq jump in
monolithic order book at the end of Q4 and hence better segmental visibility.
Addition of clients in custom molding to drive growth
In custom molding, Sintex’s strategy is i) to scale up existing clients, ii) improve
margins by shifting work to India and iii) to add 1 to 2 large clients every year.
While ‘Schneider’ scaled up in FY11, Sintex has likely closed similar deals with
two more clients who will ramp in FY12. Company is confident of beating our
expectation of ~10% consol. (including subsidiaries) growth in custom molding.
Expect balance sheet improvement; Upside risk to est.
We expect reported debt to equity to improve post Q4 as cash locked in escrow
accounts for acquisitions and bank guarantees related to large monolithic orders
is freed. Going ahead, Sintex plans to improve client mix in monolithic in favor of
lower debtor days. We see upside risks to our FY12/13 estimates from better than
expected execution/ margins in monolithic and prefabs. Reiterate Buy.
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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