JPMorgan:: Sintex Industries 1QFY12: Strong operational performance marred by one off interest costs. Maintain Overweight

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Sintex Industries Limited Overweight
SNTX.BO, SINT IN
1QFY12: Strong operational performance marred by
one off interest costs. Maintain Overweight


1QFY12 reported profit growth of 20% is in line with our estimates. But for
one time interest expenses related to a settlement with ONGC, profit growth
would have been higher. We are enthused to see 200bps expansion in EBITDA
margins (despite raw material cost pressures). Sintex is adding new customers
and expanding to new geographies to sustain high growth levels. Reiterate
OW with TP of Rs270.
 Contribution of non-government orders rising: Despite Q1 being
seasonally weak, Monolithic construction grew +57% YoY. Post Q1,
monolithic order book stands at Rs30B (vs. Rs29B at end of Mar-11).
Management indicated that new markets, esp. in private sector are opening
up for monolithic construction in the areas of worker shelters for large infra
projects and student hostels in education sector. These projects provide a
opportunity to reduce SINT’s dependence on govt. driven orders.
 Prefab/Custom molding targeting new growth avenues. Sintex is
ramping up its prefab capacities to encompass more states across the
country with work to start on prefab structures in Bihar post-monsoon. In
custom molding, Sintex is now also looking into tapping domestic players
for potential outsourcing opportunities. These efforts would further
diversify Sintex earning streams across various sectors and geographies.
 Q1FY12 results review. Sales +22% YoY driven by growth in building
materials (+32% YoY) and Custom molding (+16% YoY). EBITDA margin
expanded 200bps YoY to 17.1% driven by lower overheads. Interest costs
were up 41% YoY due to one time settlement cost with ONGC and
commissioning of new plant at Chennai (we await more details on this). Net
profits increased 20% YoY.
 On track to meet our FY12E estimates. Based on Q1 results, Sintex
revenues need to grow 21% with flat EBITDA margins for 9 month period
to meet our FY12 estimates. We would be keen to hear about the balance
sheet (esp working capital) on the management conference call tomorrow.
Maintain OW rating and Sep-11 TP of Rs270, based on 10x Sep-12E P/E,
in-line with historical average. Key risks include dependence on govt orders,
slowdown in Europe, high WC, and any investments in non-core businesses.