Buy Sintex:: 1QFY12 results- price target of Rs200,:: CLSA

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1QFY12 results
Sintex’s 1QFY12 results saw healthy operational performance with sales
growth of 22% and 200bps Ebitda margin expansion. However, bottom
line performance was tempered by higher interest costs (+41% YoY) and
taxes, dragging down PAT growth to 20%. Whilst interest costs are likely
to remain elevated, the tax rate should normalise on a full year basis and
momentum in key businesses (particularly monolithic) remains strong.
Given the 22% earnings CAGR over FY11-13, positive FCF and 8.5x
FY12PE, rerating potential for Sintex remains high. Retain BUY.
4QFY11: healthy headline performance
Sintex reported results for 4QFY11 results. Revenue growth was a healthy
22%, with the building products business growing at 32% YoY (monolithic at
57%) while composites grew at 16% YoY. Ebitda margins expanded 200bps
YoY to 16.8%. However, this was offset by higher interest costs and tax rate,
pulling back net profit growth to 20%. QoQ revenues declined 24% and
profits 44%, in line with seasonal trends in the business.
Operating performance strong
The overall business momentum remains strong. The order book in the
monolithic business stood at Rs30bn (Rs29bn in March, gross order booking
of Rs3.75bn) even as revenues grew 57% YoY in the quarter. The prefab
business continues to gain traction and expects to benefit from new states,
which should be visible in 2H. In custom mouldings, growth is being driven by
new customers in India and new products at Nief. We have made modest
upgrades to our operating forecasts (+2% at Ebitda), driven by monolithic.
Interest and taxes drag down profit growth
Interest costs rose 41% YoY to Rs350m (+19% QoQ). Whilst Rs27m of this
came from the ONGC settlement, the remainder was driven by higher rates
and commissioning of three plants, the interest costs from which has started
to come into the P&L. However, there was no major QoQ change in working
capital or debt. We raise our interest cost estimates by 20%, which offsets
the Ebitda upgrade. Whilst tax rate for the quarter was high at 26% due to a
plant coming out of its tax holiday, the company expects this to normalise on
a full year basis as two new plants start contributing.
Maintain forecasts, BUY
We maintain FY12-13 forecasts as the modest operating upgrade is offset by
higher interest costs. We like Sintex due to its strong growth drivers in India’s
social infrastructure spend, synergy driven opportunities in the composites
business and healthy earnings growth alongside positive FCF. Maintain BUY
with a SOTP based price target of Rs200, 17% upside.