Sintex Inds ; Target – Rs 180 ::Way2Wealth :: Diwali Picks 2011

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History and Business Model
Sintex Industries Ltd is one of the leading providers of plastics and niche textilerelated
products in India. Sintex is organized into two business segments namely,
textile and plastics. In the textile division, the company manufactures high-value,
yarn-dyed structured fabrics, corduroy and items relating to home textiles. In the
plastic division, the company manufactures storage solutions for water, oil and fuel;
prefabricated structures, monolithic structures, industrial custom moulded products,
consumer custom moulded products and interiors products. Sintex is a leader in
providing building and custom molding products in India and abroad. Sintex has
strong presence in 4 continents and serves many reputed Fortune 500 global as
well as domestic companies.
Financials
The Company has been growing at a steady rate with revenue and profit CAGR of
25% and 24% resp. over FY08-FY11. Over the last year, the building materials
segment was the largest contributor to revenues at 48%. This segment reported a
CAGR growth of 29% over FY08-FY11 primarily based on higher spending on low
cost mass housing, increased Government spending on rural infrastructure, health,
sanitation and education. The monolithic segment contributed 30% to revenues
whereas the prefab segment contributed 14%. Q2FY12 saw a dip in profits Y-o-Y
by 61% due to reported notional MTM loss of Rs59.6crores on FCCBs as the
Rupee weakened against the US Dollar by 9.6% Q-o-Q.
Growth Drivers
• Spending on Housing schemes beneficial for Sintex: The Government of
India has been spending more than Rs 10,000 crores on various housing
schemes to provide housing for poor, low and middle income groups. Sintex is
in a favorable position with respect to attending to the housing needs of low and
middle income groups. As the majority business segments like Prefab and
monolithic construction of Sintex derives more than 70% of its revenues from
social sector government spending and in the near future this spending is not
expected to be reined in; thus Sintex is relatively well protected from any
probable slowdown.
• Strong order book: Sintex has a strong order book of Rs 3000 crores in
monolithic segment to be executed over 2 years.
• International acquisitions to augment its operations: With increasing
synergies between acquired entities the acquisition of six companies in OECD
countries by Sintex is slated to augment its operations. The acquisitions were
carried out to access enhanced technology and tap newer markets as well as
clients for its custom moulding business. We expect this to lead its consolidated
Custom moulding segment to grow at a CAGR of 10.3%.
• Positive Cash Flow: With improvement in its working capital cycle, Sintex has
turned cash flow positive in FY11 after reporting negative cash flow for years.
Reduction in loans and advances and increase in creditor payments resulted in
this turnaround for Sintex. We expect the working capital to further improve due
to better management of inventories and lower loans & advances.
• FCCB redemption on cards: About USD 22.5 crores worth of FCCBs are due
for conversion in March 2013. The primary intention of the fund raising was to
scout for inorganic growth options, but it has used only USD 8 crores to date
and the remaining USD 13.5crores is still intact. We expect Sintex to not
encounter any difficulty in repayment of FCCBs by FY13E with enough cash,
liquid investments and positive free cash flow generation.
Valuations:
At CMP of Rs 116.8, stock trades at PE of 6.3x and 5.3x its FY12E and FY13E
earnings of Rs 18.5 and Rs 22.1 respectively as per Bloomberg estimates. With
strong visibility in top and bottom line due to robust order book and long term
contracts with diversified industries, we believe Sintex is provides a sufficient
upside potential.
Technicals
The rally was unabated since 2009 till it reached Rs 240 levels. However now the
correction has been reasonable enough till 61% retracement of rally at Rs 112
levels which we believe would be held on. One should utilize these levels to initiate
longs for target of Rs 180 & Rs 220.

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Way2Wealth :: Diwali Picks 2011