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Sintex Industries has corrected 54% from its peak owing to concerns on sustainability of growth and overhang of
FCCB redemption. While the near term challenges remain, we do not see any earnings deceleration which warrants
such correction. Apart from the momentum visible in the building products segment, the custom moulding segment
continues to show reasonable growth backed by operational synergies across acquired companies and capex
initiatives at its domestic facilities. We expect Sintex to report a revenue and PAT CAGR of 21.6% and 16.2%
respectively from FY11-13E. Considering that Sintex has a diversified presence across sectors, we have valued
these segments (building product, custom moulding and textiles) on EV/EBIDTA basis and arrived at the valuation
of Rs174 per share after considering a 20% conglomerate discount. At the target price, the stock trades at an implied
P/E of 7.6x FY13E EPS and 6x FY13E EV/EBIDTA.
Investment Rationale
“Thrust on change” but “Connect within the Disconnect”
Since its incorporation, Sintex has forayed into niche businesses like liquid
storage tanks, prefabricated structures and monolithic construction. Further,
Sintex made a series of overseas acquisitions which not only marked its
entry into EU and the US markets but also helped it diversify into a host of
plastic composite products with applications in aerospace & defence, mass
transit, medical imaging, wind energy and so on. This willingness to change
prompted Sintex to foray into scalable businesses at their nascent stages.
Such forays gave it a first-mover advantage, helped identify inflection points
and then capture the market, leading to attractive value-creation. It may be
noted that while a number of its business verticals and products may appear
unconnected, there is a common thread binding them -- replacing
conventional material with plastic in high-growth sectors.
Monolithic segment to drive building product revenues
The building product segment comprises of three revenue streams –
monolithic construction, pre-fabricated structures and storage tanks. The
monolithic segment particularly has grown rapidly, with revenue and EBIDTA
CAGR of 85% and 92% respectively from FY08-11. With a strong order book of
Rs 30bn and increasing scalability in terms of number of sites per annum and
average ticket size of orders resulting in economies of scale, we expect this
segment to report revenue and EBIDTA CAGR of 38.5% and 29.4% respectively
from FY11-FY13E. The building products segment in turn is expected to grow
at 31% and 24% CAGR in revenue and EBIDTA respectively.
Custom moulding segment to supplement growth
Sintex has over the years developed as a leading plastic processor in the
areas of electricals and automobiles, providing plastic components to
dedicated OEM clientele. After acquiring companies abroad, it has ventured
into composites business in various high-growth verticals such as mass transit,
aerospace & defense and medical imaging. After being hit during the
slowdown, these are now beginning to deliver due to outsourcing synergies
and following some signs of revival. We expect this segment to deliver a
revenue and PAT CAGR of 13.6% and 11.8% respectively for FY11-13E.
SoTP based Valuation on EV/EBIDTA basis
Considering that Sintex has a diversified presence across sectors, we have
valued these segments (building product, custom moulding and textiles) on
case to case basis and arrived at the valuation on EV/EBIDTA basis. We have
valued:
Building product segment at 6.5x EV/EBIDTA, at a premium over valuations
of small construction companies like Ahluwalia Contractors, B L Kashyap,
etc on account of better execution capabilities and much higher margins.
Custom moulding segment at 7x FY13 EV/EBIDTA at a 30% discount to
valuation of Kemrock Industries
Textiles at a EV/EBIDTA of 7x FY13EBIDTA, at a slight premium over players
like Arvind, Raymond, etc considering its presence in high value structured
fabric resulting in much better margins than these players
We have given it a conglomerate discount of 20% to arrive at the target price
of Rs 174. At the target price, the stock trades at an implied P/E of 7.6x FY13E
EPS and 6x FY13E EV/EBIDTA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sintex Industries has corrected 54% from its peak owing to concerns on sustainability of growth and overhang of
FCCB redemption. While the near term challenges remain, we do not see any earnings deceleration which warrants
such correction. Apart from the momentum visible in the building products segment, the custom moulding segment
continues to show reasonable growth backed by operational synergies across acquired companies and capex
initiatives at its domestic facilities. We expect Sintex to report a revenue and PAT CAGR of 21.6% and 16.2%
respectively from FY11-13E. Considering that Sintex has a diversified presence across sectors, we have valued
these segments (building product, custom moulding and textiles) on EV/EBIDTA basis and arrived at the valuation
of Rs174 per share after considering a 20% conglomerate discount. At the target price, the stock trades at an implied
P/E of 7.6x FY13E EPS and 6x FY13E EV/EBIDTA.
Investment Rationale
“Thrust on change” but “Connect within the Disconnect”
Since its incorporation, Sintex has forayed into niche businesses like liquid
storage tanks, prefabricated structures and monolithic construction. Further,
Sintex made a series of overseas acquisitions which not only marked its
entry into EU and the US markets but also helped it diversify into a host of
plastic composite products with applications in aerospace & defence, mass
transit, medical imaging, wind energy and so on. This willingness to change
prompted Sintex to foray into scalable businesses at their nascent stages.
Such forays gave it a first-mover advantage, helped identify inflection points
and then capture the market, leading to attractive value-creation. It may be
noted that while a number of its business verticals and products may appear
unconnected, there is a common thread binding them -- replacing
conventional material with plastic in high-growth sectors.
Monolithic segment to drive building product revenues
The building product segment comprises of three revenue streams –
monolithic construction, pre-fabricated structures and storage tanks. The
monolithic segment particularly has grown rapidly, with revenue and EBIDTA
CAGR of 85% and 92% respectively from FY08-11. With a strong order book of
Rs 30bn and increasing scalability in terms of number of sites per annum and
average ticket size of orders resulting in economies of scale, we expect this
segment to report revenue and EBIDTA CAGR of 38.5% and 29.4% respectively
from FY11-FY13E. The building products segment in turn is expected to grow
at 31% and 24% CAGR in revenue and EBIDTA respectively.
Custom moulding segment to supplement growth
Sintex has over the years developed as a leading plastic processor in the
areas of electricals and automobiles, providing plastic components to
dedicated OEM clientele. After acquiring companies abroad, it has ventured
into composites business in various high-growth verticals such as mass transit,
aerospace & defense and medical imaging. After being hit during the
slowdown, these are now beginning to deliver due to outsourcing synergies
and following some signs of revival. We expect this segment to deliver a
revenue and PAT CAGR of 13.6% and 11.8% respectively for FY11-13E.
SoTP based Valuation on EV/EBIDTA basis
Considering that Sintex has a diversified presence across sectors, we have
valued these segments (building product, custom moulding and textiles) on
case to case basis and arrived at the valuation on EV/EBIDTA basis. We have
valued:
Building product segment at 6.5x EV/EBIDTA, at a premium over valuations
of small construction companies like Ahluwalia Contractors, B L Kashyap,
etc on account of better execution capabilities and much higher margins.
Custom moulding segment at 7x FY13 EV/EBIDTA at a 30% discount to
valuation of Kemrock Industries
Textiles at a EV/EBIDTA of 7x FY13EBIDTA, at a slight premium over players
like Arvind, Raymond, etc considering its presence in high value structured
fabric resulting in much better margins than these players
We have given it a conglomerate discount of 20% to arrive at the target price
of Rs 174. At the target price, the stock trades at an implied P/E of 7.6x FY13E
EPS and 6x FY13E EV/EBIDTA.
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