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Sintex Industries (SNTX.BO)
Buy Equity Research
Market concerns on forex debt overdone; reiterate CL-Buy
What's changed
The stock has declined 11.5% over the past week vs. the BSE Sensex +1.8%
likely on market concerns around FCCB outstanding of US$225mn in a
depreciating rupee environment (USD/INR now at 49 vs. 45.6 one month ago).
This sell-off has been compounded by concerns of a macro slowdown in
Europe and US, and the company’s 20% EBITDA exposure to these regions.
Implications
From the total FCCB amount of US$225mn, only US$100mn has been
utilized thus far and the remaining US$125mn is in an escrow account as
of March. Additionally, the company has cash balances and ST
investments of Rs8bn (US$167mn), and we expect Sintex to generate FCF
of around Rs2.8bn (US$58mn) over FY12E-13E. All this supports our belief
in the company’s ability to repay the FCCB when it comes up for
redemption in March 2013.
Regarding the impact of the recent INR depreciation, we expect this to be
trade neutral as there is a natural hedge available to the company in the
form of 20% EBITDA coming from foreign subsidiaries. We could see markto-market losses on translation of net foreign exchange liabilities, which are
currently non-cash and are not built into our estimates. If USD/INR stays at
current levels, we expect a gross impact of around Rs400mn-Rs500mn.
Our model factors in a conservative 8% yoy growth for foreign subsidiaries
revenue in FY12E vs. the company’s guidance of 12%-13%.
Valuation
The stock currently trades at 12-m fwd P/E of 5.7X, at a 47% discount to its
5-yr median multiple of 10.7X. We maintain our 12-month P/E-based target
price of Rs225 and Buy (on CL) rating on the stock.
Key risks
(1) Prolonged slowdown in telecom and auto business segments; (2)
volatile raw material prices.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sintex Industries (SNTX.BO)
Buy Equity Research
Market concerns on forex debt overdone; reiterate CL-Buy
What's changed
The stock has declined 11.5% over the past week vs. the BSE Sensex +1.8%
likely on market concerns around FCCB outstanding of US$225mn in a
depreciating rupee environment (USD/INR now at 49 vs. 45.6 one month ago).
This sell-off has been compounded by concerns of a macro slowdown in
Europe and US, and the company’s 20% EBITDA exposure to these regions.
Implications
From the total FCCB amount of US$225mn, only US$100mn has been
utilized thus far and the remaining US$125mn is in an escrow account as
of March. Additionally, the company has cash balances and ST
investments of Rs8bn (US$167mn), and we expect Sintex to generate FCF
of around Rs2.8bn (US$58mn) over FY12E-13E. All this supports our belief
in the company’s ability to repay the FCCB when it comes up for
redemption in March 2013.
Regarding the impact of the recent INR depreciation, we expect this to be
trade neutral as there is a natural hedge available to the company in the
form of 20% EBITDA coming from foreign subsidiaries. We could see markto-market losses on translation of net foreign exchange liabilities, which are
currently non-cash and are not built into our estimates. If USD/INR stays at
current levels, we expect a gross impact of around Rs400mn-Rs500mn.
Our model factors in a conservative 8% yoy growth for foreign subsidiaries
revenue in FY12E vs. the company’s guidance of 12%-13%.
Valuation
The stock currently trades at 12-m fwd P/E of 5.7X, at a 47% discount to its
5-yr median multiple of 10.7X. We maintain our 12-month P/E-based target
price of Rs225 and Buy (on CL) rating on the stock.
Key risks
(1) Prolonged slowdown in telecom and auto business segments; (2)
volatile raw material prices.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
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