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Target 217
Investment Rationale
• Robust Revenue growth
• Diversifying Business (High growth Building Material, custom
moulding & Textile segment)
• Profitability Driver - Monolithic Segment
• Aggressive M&A help to grow Geo-graphically
Company Description
Sintex Industries Limited manufactures and sells plastic and textile
related products in India and internationally. It offers plastic
building and construction products, including water, loft, panel,
septic, and underground water storage tanks; rainwater harvesting
systems; PVC pipes; doors, windows, and ventilators; waste water
treatment systems; prefabricated buildings; and monolithic
solutions for low income group houses. It also provides electrical
equipment products consisting of meter boxes, pillar boxes, fuse
boards, connection boards, junction boxes, and cable trays, cross
arms, battery stands, trench covers, pultruded sections, notice
plates, and insulators. In addition, the company offers interiors,
such as wall paneling products, plastic boards, kitchen cabinets,
and furniture systems; industrial products comprising pallets,
insulated boxes, pallet containers, chemical/acid tanks, troughs,
electroplating/pickling tanks, bins and vats, drums, and injection
molded pallets; and consumer products consisting of bins, ice
boxes, solar water heating systems, solar cookers, planters, bio
gas plants, road dividers, milk cans, and evacuated glass tube
systems. Further, it provides customized solutions for
infrastructure, construction, interiors, packaging, electrical
engineering, railways, defense, and industrial sectors. Additionally,
the company offers textile products, including men’s shirting
fabrics, ladies wear fabrics, yarn-dyed corduroy, and ultima cotton
yarn based corduroy products. Sintex Industries also provides
ready-to-stitch cut pieces and small meter lengths for retailers, as
well as tents, and water proof and fire retardant fabrics for the
defense sector.
Its subsidiaries include Bright AutoPlast Private Limited,
Wausaukee Composites Inc. (WCI), Nief Plastics SA and Sintex
Infra Projects Limited. During fiscal 2010, the Company acquired
the remaining 26% interest in Zeppelin Mobile System India Ltd.
Revenue surprise
Sintex reported 3QFY11 sales of INR 1183 Cr. (up 42 % y-y and 28%
q-q). Sales were higher than Bloomberg consensus estimate of INR
1070 Cr.. The low cost housing (monolithic) and custom molding
division witnessed strong growth on execution gains. Sintex’s 3QFY11
PBIDT margins of 17.80% were marginally higher than Street estimate
(17.4%). We expect 28% & 17% growth in top line for FY 11(Full
Year) & FY12.
Diversified Business
Company generates revenue mainly from Building products, custom
moulding and textiles. Building products & Custom moulding both
contributes 45% while textile contributes 10% in total revenue.
Company is also exploring opportunities in new areas such as oil and
gas exploration, telecom and power.
Company signed the production sharing contract with Indian
government to explore, develop and produce petroleum resources in
three blocks CB-ONN-2009/1 of 113 square km, CBONN- 2009/2 of
68 sq km and CB-ONN-2009/7 of 144 sq km respectively. The
exploration activity in all these blocks will start this year while the
production will take 5-7 years.
Profitability Driver - Monolithic Segment
Monolithic housing is the fastest growing segment for Sintex aided by
rising government expenditure on mass housing and slum
rehabilitation. Sintex currently has an order book of more than Rs 25
Billion, which provides sales visibility for next 2 years.
Monolithic construction segment caters to mass housing projects
contribute around 23% to overall revenues. Sintex is well positioned to
cater to the government demand for low cost housing.
Monolithic construction entails light-weight plastic based formwork,
with liquid concrete poured into formwork. Sintex has developed
plastic formwork (using its existing facilities), which can be reused for
40-50 cycles and is 8-10% cheaper (~Rs. 400 per sq.ft) compared to
conventional construction and build time averages 4-6 months as
against 2 years for traditional construction.
Apart from the government, Sintex also executes mass housing
projects for the Indian Railways (which recently announced intent to
provide housing for all its employees), university hostel blocks,
hospitals and defense. Further, monolithic housing also offers huge
Sintex has acquired 30% stake in Durha Construction Pvt. Ltd. This
acquisition would help Sintex strengthen its execution capabilities in
its monolithic business.
Merger & Acquisition help to grow Geo-graphically
Sintex Industries made four acquisitions in India and overseas to
enhance its presence in the composites segment. Globally, the
composites industry is around US$ 6-US$ 7 billion with US, Europe
and Japan the biggest users. As per company estimates, the Indian
market is close to US$ 1 billion and is expected to grow 25% on
growth in transportation, infrastructure, wind energy, and oil and gas
sectors. Sintex’s acquisitions in the composites segment included
Wausaukee Components and Nero Plastics in the US, Bright
Autoplast in India, and NIEF Plastics in France. These acquisitions
have strengthened the company’s position by giving it access to
technology and customers. It has been in the process of restructuring
the subsidiaries which should enhance value going forward.
Sintex has been in the process of restructuring the subsidiaries which
should enhance value going forward. It has managed to cut costs in
some of these subsidiaries by moving production to cheaper
locations. It has also managed to capitalize on the new customer
relationships – for instance it has recently set up a dedicated
production line in the Bright facility in India for Schneider, a client
relationship it acquired from Nief. It is also in discussions with other
players for setting up similar dedicated lines in India.
Valuation
At the CMP of Rs 159, the stock is trading at a consolidated P/E of
10.3x and 8.8x to its FY11E and FY12E EPS of Rs 15.4 and Rs 18.1
respectively. Historically, we have seen the stock trading around 13x
– 14x on 2 year forward EPS basis. We assign a conservative PE of
12 for FY 12 for a fair value of Rs. 217 and with an upside potential of
36%.
Concern
High dependence on government orders
Slowdown in overseas business
Forex Risk
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Target 217
Investment Rationale
• Robust Revenue growth
• Diversifying Business (High growth Building Material, custom
moulding & Textile segment)
• Profitability Driver - Monolithic Segment
• Aggressive M&A help to grow Geo-graphically
Company Description
Sintex Industries Limited manufactures and sells plastic and textile
related products in India and internationally. It offers plastic
building and construction products, including water, loft, panel,
septic, and underground water storage tanks; rainwater harvesting
systems; PVC pipes; doors, windows, and ventilators; waste water
treatment systems; prefabricated buildings; and monolithic
solutions for low income group houses. It also provides electrical
equipment products consisting of meter boxes, pillar boxes, fuse
boards, connection boards, junction boxes, and cable trays, cross
arms, battery stands, trench covers, pultruded sections, notice
plates, and insulators. In addition, the company offers interiors,
such as wall paneling products, plastic boards, kitchen cabinets,
and furniture systems; industrial products comprising pallets,
insulated boxes, pallet containers, chemical/acid tanks, troughs,
electroplating/pickling tanks, bins and vats, drums, and injection
molded pallets; and consumer products consisting of bins, ice
boxes, solar water heating systems, solar cookers, planters, bio
gas plants, road dividers, milk cans, and evacuated glass tube
systems. Further, it provides customized solutions for
infrastructure, construction, interiors, packaging, electrical
engineering, railways, defense, and industrial sectors. Additionally,
the company offers textile products, including men’s shirting
fabrics, ladies wear fabrics, yarn-dyed corduroy, and ultima cotton
yarn based corduroy products. Sintex Industries also provides
ready-to-stitch cut pieces and small meter lengths for retailers, as
well as tents, and water proof and fire retardant fabrics for the
defense sector.
Its subsidiaries include Bright AutoPlast Private Limited,
Wausaukee Composites Inc. (WCI), Nief Plastics SA and Sintex
Infra Projects Limited. During fiscal 2010, the Company acquired
the remaining 26% interest in Zeppelin Mobile System India Ltd.
Revenue surprise
Sintex reported 3QFY11 sales of INR 1183 Cr. (up 42 % y-y and 28%
q-q). Sales were higher than Bloomberg consensus estimate of INR
1070 Cr.. The low cost housing (monolithic) and custom molding
division witnessed strong growth on execution gains. Sintex’s 3QFY11
PBIDT margins of 17.80% were marginally higher than Street estimate
(17.4%). We expect 28% & 17% growth in top line for FY 11(Full
Year) & FY12.
Diversified Business
Company generates revenue mainly from Building products, custom
moulding and textiles. Building products & Custom moulding both
contributes 45% while textile contributes 10% in total revenue.
Company is also exploring opportunities in new areas such as oil and
gas exploration, telecom and power.
Company signed the production sharing contract with Indian
government to explore, develop and produce petroleum resources in
three blocks CB-ONN-2009/1 of 113 square km, CBONN- 2009/2 of
68 sq km and CB-ONN-2009/7 of 144 sq km respectively. The
exploration activity in all these blocks will start this year while the
production will take 5-7 years.
Profitability Driver - Monolithic Segment
Monolithic housing is the fastest growing segment for Sintex aided by
rising government expenditure on mass housing and slum
rehabilitation. Sintex currently has an order book of more than Rs 25
Billion, which provides sales visibility for next 2 years.
Monolithic construction segment caters to mass housing projects
contribute around 23% to overall revenues. Sintex is well positioned to
cater to the government demand for low cost housing.
Monolithic construction entails light-weight plastic based formwork,
with liquid concrete poured into formwork. Sintex has developed
plastic formwork (using its existing facilities), which can be reused for
40-50 cycles and is 8-10% cheaper (~Rs. 400 per sq.ft) compared to
conventional construction and build time averages 4-6 months as
against 2 years for traditional construction.
Apart from the government, Sintex also executes mass housing
projects for the Indian Railways (which recently announced intent to
provide housing for all its employees), university hostel blocks,
hospitals and defense. Further, monolithic housing also offers huge
Sintex has acquired 30% stake in Durha Construction Pvt. Ltd. This
acquisition would help Sintex strengthen its execution capabilities in
its monolithic business.
Merger & Acquisition help to grow Geo-graphically
Sintex Industries made four acquisitions in India and overseas to
enhance its presence in the composites segment. Globally, the
composites industry is around US$ 6-US$ 7 billion with US, Europe
and Japan the biggest users. As per company estimates, the Indian
market is close to US$ 1 billion and is expected to grow 25% on
growth in transportation, infrastructure, wind energy, and oil and gas
sectors. Sintex’s acquisitions in the composites segment included
Wausaukee Components and Nero Plastics in the US, Bright
Autoplast in India, and NIEF Plastics in France. These acquisitions
have strengthened the company’s position by giving it access to
technology and customers. It has been in the process of restructuring
the subsidiaries which should enhance value going forward.
Sintex has been in the process of restructuring the subsidiaries which
should enhance value going forward. It has managed to cut costs in
some of these subsidiaries by moving production to cheaper
locations. It has also managed to capitalize on the new customer
relationships – for instance it has recently set up a dedicated
production line in the Bright facility in India for Schneider, a client
relationship it acquired from Nief. It is also in discussions with other
players for setting up similar dedicated lines in India.
Valuation
At the CMP of Rs 159, the stock is trading at a consolidated P/E of
10.3x and 8.8x to its FY11E and FY12E EPS of Rs 15.4 and Rs 18.1
respectively. Historically, we have seen the stock trading around 13x
– 14x on 2 year forward EPS basis. We assign a conservative PE of
12 for FY 12 for a fair value of Rs. 217 and with an upside potential of
36%.
Concern
High dependence on government orders
Slowdown in overseas business
Forex Risk
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