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Sintex Industries Limited
Overweight
SNTX.BO, SINT IN
Strong 4Q: Balance sheet profile improving. Increase
PT to Rs270
• Management addressing balance sheet concerns: 4QFY11 marks a sharp
improvement in working capital, which has been a key concern in the past.
Net WC has improved to 132 days from 191 in FY10. Management has
indicated that most of the cash from escrow account has been freed and
loans to group companies have largely been refunded (of Rs5.29B in escrow
at end of FY10, Rs4.5B has been freed up). Sintex have also hived off their
oil & gas subsidiary, a positive step in our view and an indication that
management is unlikely to use the balance sheet for non core ventures.
• Increasing focus on capital efficiency: While so far emphasis has largely
been on growth, management is now looking to enhance capital return and
balance sheet discipline. Management stated that FY10 marked the bottom
for ROCEs, and that ROCE should improve going forward. Investments in
the monolithic business pared capital efficiency, but with monolithic having
scaled up to critical levels, return profile will likely improve. Management
indicated that monolithic business could potentially generate ROCEs of
17%-18%.
• Growth outlook maintained: Management have guided at FY12E revenue
growth similar to FY11 (36%), and a stable operating margin profile.
Management expects further margin improvement in the custom moulding
business as full synergies from acquisitions are yet to be realised.
• 4Q beats estimates: 4Q profit grew 20% YoY, 5% ahead of our estimates
and 10% ahead of consensus. Revenues grew 35% YoY, driven by 47%
growth in building materials (monolithic, prefab), 27% growth in custom
mouldings and 22% growth in textiles. EBITDA margins improved 330bps
to 21.2%.
• Increase PT to Rs270: Sintex is trading at 8.6x FY12E P/E, which we
believe is attractive valuation, especially in the context of 21% earnings
CAGR over FY11-13E EPS. We raise Sep-11 TP to Rs 270 based on 12x
Sep-12E P/E, in-line with its historical multiple. Key risks include rising
dependence on govt orders, a slowdown in Europe, reversal to high WC, and
any investments in non-core businesses.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sintex Industries Limited
Overweight
SNTX.BO, SINT IN
Strong 4Q: Balance sheet profile improving. Increase
PT to Rs270
• Management addressing balance sheet concerns: 4QFY11 marks a sharp
improvement in working capital, which has been a key concern in the past.
Net WC has improved to 132 days from 191 in FY10. Management has
indicated that most of the cash from escrow account has been freed and
loans to group companies have largely been refunded (of Rs5.29B in escrow
at end of FY10, Rs4.5B has been freed up). Sintex have also hived off their
oil & gas subsidiary, a positive step in our view and an indication that
management is unlikely to use the balance sheet for non core ventures.
• Increasing focus on capital efficiency: While so far emphasis has largely
been on growth, management is now looking to enhance capital return and
balance sheet discipline. Management stated that FY10 marked the bottom
for ROCEs, and that ROCE should improve going forward. Investments in
the monolithic business pared capital efficiency, but with monolithic having
scaled up to critical levels, return profile will likely improve. Management
indicated that monolithic business could potentially generate ROCEs of
17%-18%.
• Growth outlook maintained: Management have guided at FY12E revenue
growth similar to FY11 (36%), and a stable operating margin profile.
Management expects further margin improvement in the custom moulding
business as full synergies from acquisitions are yet to be realised.
• 4Q beats estimates: 4Q profit grew 20% YoY, 5% ahead of our estimates
and 10% ahead of consensus. Revenues grew 35% YoY, driven by 47%
growth in building materials (monolithic, prefab), 27% growth in custom
mouldings and 22% growth in textiles. EBITDA margins improved 330bps
to 21.2%.
• Increase PT to Rs270: Sintex is trading at 8.6x FY12E P/E, which we
believe is attractive valuation, especially in the context of 21% earnings
CAGR over FY11-13E EPS. We raise Sep-11 TP to Rs 270 based on 12x
Sep-12E P/E, in-line with its historical multiple. Key risks include rising
dependence on govt orders, a slowdown in Europe, reversal to high WC, and
any investments in non-core businesses.
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