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Sintex Industries Ltd
Summary
Sintex Industries Ltd. has come a long way from its original Textile (Bharat Vijay Mills) & Water
tank business to a technology backed complete business solution provider in plastics &
composites market. The company has over the years leveraged its established brand name &
dominance in water tank business to penetrate high margin, innovative & niche product
segments (Monolithic & Composite segments) to become the market leader in Indian plastic
processing industry. With its strong & cost effective domestic manufacturing base, efficiently
evolving global delivery model and proficient & experienced management the company is well
poised to deliver sales CAGR of 24% & earnings CAGR of 18% over FY11-13E.
Monolithic would lead from front; Pre-Fab to follow suit
Monolithic business, which formed 30% of Sintex’s FY11 sales, was earlier based on government’s
social infra-spending. Now it has started seeing traction from Housing Boards & Pvt. players as
well. Backed by buoyant order book of 2x sales, this segment would continue its upsurge of
growth (85% sales CAGR over FY08-FY11), we expect it to give revenue CAGR of 40% & maintain
its margins between 18-19% for next 2 years. Prefab business, which formed 14% of total FY11
sales, is expected to grow by 20% for next 2 years with margins maintained at 21% levels.
Custom Moldings could remain subdued; Textile to balance same
Owing to decline in US & European economies, Nief Plastic’s Ltd & Wausaukee Inc would not
grow by more then 10% for next 2 years, their margins would also be under pressure. Although
domestic subsidiary Bright brothers, which is expected to grow at 30% CAGR for next 2 years
with margins maintained & Sintex Stand alone which is expected to grow at 20% CAGR for same
period; would balance out this segments damp growth. Textile business, which forms 10% of
total sales generates highest margin of 24-25% among all segments, it is expected to grow at 10%
for next 2 years with historical margins to remain strong.
Balance sheet strength would return; Return ratio’s set to improve
Improvement in working capital from 130 days in FY10 to 105 days in FY11 helped Sintex
generate FCF after 2 years. This coupled with expiring of FCCB’s in 2013 will bring the D/E down
from current 1.2 to 0.5 in FY13E. This would also help ROCE to improve from current 11.2% to
16% in FY13E. Sintex has enough cash & provisions to carry out FCCB redemption with out
conversion
Valuation
Sintex has traded in range of 12x to 14x 1 yr fwd earnings in the past and is currently trading at
5x FY13E expected earnings of Rs 23.5. The stock has corrected by more then 200% in last 1 yr
due to deteriorating working capital, for-ex exposure, concerns on Monolithic business & FCCB
redemption issues. We believe that concerns are over done & stock price would bounce back
sharply as Sintex would continue its performance going ahead. Our SOTP based target price of
Rs 165 values the company at 7x 1yr fwd EPS & is at 40-45% discount to its historical long period
average.
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