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Sintex Industries (SNTX.BO)
Buy Equity Research
Concerns on moderation in growth and foreign debt priced in; Buy
What's changed
The recent underperformance of Sintex (down 28% vs. Sensex down 7.3%
over 1m) can primarily be attributed to: (1) its $225mn FCCB outstanding in a
depreciating rupee environment; (2) exposure to the EU through its foreign
custom-moldings subsidiaries (FY12E - 23% revenue and 12% EBITDA) in a
slowing European economy, and (3) concerns on the company’s foray into the
power EPC business with the promoter group to set up a 300MW power plant.
Implications
We maintain our Buy rating as: (1) we expect strong overall growth at
14%/12% in FY12E/13E despite building in a slowdown in the European
business where we now expect 2%/5% revenue decline in FY12E/13E;
1HFY12 revenue grew by 23% yoy but we expect moderation in 2HFY12E;
(2) We believe concerns relating to its FCCB are overdone as, only
US$110mn has been utilized by the company so far and repayment is due
in March 2013. However, we assume the repayment of FCCB at Rs
55/US$ in our base case and assume MTM losses in FY12 at that same
rate; (3) We also lower our margins, building some loss of operating
leverage, resulting in a total decline of 120 bps over FY12E. Though, we
still expect positive cash flow before investing for FY12E-14E. Thus, as a
result, we cut our EPS for FY12E/13E/14E by 32%/19%/15%.
Valuation
Sintex trades at 3.6X 12 m forward P/E and 0.6X 12 m forward P/B vs. 5-
year median P/E of 11X and P/B of 2X, attractive valuations in our view
given normalized EPS growth in mid-teens over FY13E-FY14E and high
ROEs of 17%. We lower our TP to Rs 130 (from Rs 200 earlier) based on 7X
FY13E (from 10X earlier) due to moderating growth and flattening returns
over FY12.
Key risks
(1) prolonged slowdown in telecom and auto business segments, (2)
volatile raw material prices (3) business diversification
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sintex Industries (SNTX.BO)
Buy Equity Research
Concerns on moderation in growth and foreign debt priced in; Buy
What's changed
The recent underperformance of Sintex (down 28% vs. Sensex down 7.3%
over 1m) can primarily be attributed to: (1) its $225mn FCCB outstanding in a
depreciating rupee environment; (2) exposure to the EU through its foreign
custom-moldings subsidiaries (FY12E - 23% revenue and 12% EBITDA) in a
slowing European economy, and (3) concerns on the company’s foray into the
power EPC business with the promoter group to set up a 300MW power plant.
Implications
We maintain our Buy rating as: (1) we expect strong overall growth at
14%/12% in FY12E/13E despite building in a slowdown in the European
business where we now expect 2%/5% revenue decline in FY12E/13E;
1HFY12 revenue grew by 23% yoy but we expect moderation in 2HFY12E;
(2) We believe concerns relating to its FCCB are overdone as, only
US$110mn has been utilized by the company so far and repayment is due
in March 2013. However, we assume the repayment of FCCB at Rs
55/US$ in our base case and assume MTM losses in FY12 at that same
rate; (3) We also lower our margins, building some loss of operating
leverage, resulting in a total decline of 120 bps over FY12E. Though, we
still expect positive cash flow before investing for FY12E-14E. Thus, as a
result, we cut our EPS for FY12E/13E/14E by 32%/19%/15%.
Valuation
Sintex trades at 3.6X 12 m forward P/E and 0.6X 12 m forward P/B vs. 5-
year median P/E of 11X and P/B of 2X, attractive valuations in our view
given normalized EPS growth in mid-teens over FY13E-FY14E and high
ROEs of 17%. We lower our TP to Rs 130 (from Rs 200 earlier) based on 7X
FY13E (from 10X earlier) due to moderating growth and flattening returns
over FY12.
Key risks
(1) prolonged slowdown in telecom and auto business segments, (2)
volatile raw material prices (3) business diversification
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
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