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We hosted Mr. Amit Patel, Managing Director of Sintex Industries (SINT), for
investor meetings. As the company has previously stated, it is looking to
improve its balance sheet profile. We believe SINT will significantly cut capex
and slow down execution of its working-capital-intensive monolithic business.
We cut our monolithic business growth assumption from 30% to 5%. As a
result, we cut FY12E-FY14E EPS by 14%-20% and lower our PT to Rs115.
Looking to improve its balance sheet profile as the operating
environment becomes more challenging: We expect SINT to significantly
cut its capex over the next two years, while slowing down the execution of
its monolithic projects to preserve working capital, as payments from the
government have slowed considerably over past 1-2 quarters.
Monolithic business likely to slow down sharply: Execution for the
monolithic business is slowing down, as payments from the government are
being delayed, and delays in government clearances and site handovers are
adding to the slowdown. We reduce our monolithic business growth
estimates for FY12/13 from 30% to 5%.
Receivables cycle getting stretched, but cash flows to improve: We
believe that while working capital in FY12 is likely to deteriorate at the
margin on account of the delay in government payments, free cash
generation should improve aided by slower growth of the working-capitalintensive
monolithic business and lower capital expenditure.
Comfortable on FCCB repayment: Management is comfortable on the
FCCB maturing in Mar 2013. The repayment of US$278MM will be partly
met through US$170MM of US$-denominated cash deposits. The remaining
US$110MM will likely be refinanced through a US$-denominated ECB.
We reduce our PT to Rs115: We cut our FY12-FY14 EPS estimates by
14%-20% to incorporate lower growth for the monolithic business. We also
reduce our Sep-12 PT to Rs115 based on 7x FY13E P/E (from Rs208 based
on 10x FY13E P/E). We cut our target multiple from 10x to 7x to factor in
the lower growth outlook; our target multiple is in line with the domestic
peer group average. Key risks include deteriorating working capital, nonrelated
ventures, and a further slowdown in the European business.
Management meeting: Looking to improve its balance sheet
profile; comfortable with the balance sheet and FCCB
repayment
We hosted Mr. Amit Patel, Managing Director of SINT, for a day of investor
meetings. As the company has previously stated, the current management focus is on
improving its balance sheet profile in an operating environment that is getting
tougher by the day. We expect Sintex to significantly cut its capital expenditure plans
over the next two years and look to sweat its existing assets more effectively.
In addition, the execution of monolithic projects has been slowed considerably, as
payments from the government have been delayed. According to the company,
sustaining past growth rates for monolithic projects would entail a significant
increase in working capital deployment, and management does not want to block
cash where a risk of delayed payments is emerging. Monolithic execution is also
being adversely affected by slower technical clearances and in some case delays in
the handing over of project sites. As a result, we reduce our growth estimates for the
monolithic business from 30% to 5% for FY12-FY13.
Besides the monolithic business, Mr. Patel also cited a slowdown in orders for the
custom moldings business, largely from Europe. A slowdown in domestic car
volumes is also paring growth but SINT is mitigating this by looking to increase its
product offerings and generating a higher revenue share per offering. Textiles
business growth is looking up, aided by rupee depreciation, although volumes could
slow down in FY13, as most orders are from the European market.
Management sounded comfortable on the FCCB repayment that is maturing in
March 2013. SINT has US$140MM of unutilized FCCB money in overseas deposits,
and about US$35MM in domestic deposits. This cash will be utilized to partly pay
the FCCB. About US$110MM would likely be refinanced through a US$-
denominated ECB. The potential refinancing could be as early as Sep 2012 (six
months ahead of the maturity date for the FCCB) which is the earliest window
permitted by the Indian central bank for prepayment of outstanding FCCBs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We hosted Mr. Amit Patel, Managing Director of Sintex Industries (SINT), for
investor meetings. As the company has previously stated, it is looking to
improve its balance sheet profile. We believe SINT will significantly cut capex
and slow down execution of its working-capital-intensive monolithic business.
We cut our monolithic business growth assumption from 30% to 5%. As a
result, we cut FY12E-FY14E EPS by 14%-20% and lower our PT to Rs115.
Looking to improve its balance sheet profile as the operating
environment becomes more challenging: We expect SINT to significantly
cut its capex over the next two years, while slowing down the execution of
its monolithic projects to preserve working capital, as payments from the
government have slowed considerably over past 1-2 quarters.
Monolithic business likely to slow down sharply: Execution for the
monolithic business is slowing down, as payments from the government are
being delayed, and delays in government clearances and site handovers are
adding to the slowdown. We reduce our monolithic business growth
estimates for FY12/13 from 30% to 5%.
Receivables cycle getting stretched, but cash flows to improve: We
believe that while working capital in FY12 is likely to deteriorate at the
margin on account of the delay in government payments, free cash
generation should improve aided by slower growth of the working-capitalintensive
monolithic business and lower capital expenditure.
Comfortable on FCCB repayment: Management is comfortable on the
FCCB maturing in Mar 2013. The repayment of US$278MM will be partly
met through US$170MM of US$-denominated cash deposits. The remaining
US$110MM will likely be refinanced through a US$-denominated ECB.
We reduce our PT to Rs115: We cut our FY12-FY14 EPS estimates by
14%-20% to incorporate lower growth for the monolithic business. We also
reduce our Sep-12 PT to Rs115 based on 7x FY13E P/E (from Rs208 based
on 10x FY13E P/E). We cut our target multiple from 10x to 7x to factor in
the lower growth outlook; our target multiple is in line with the domestic
peer group average. Key risks include deteriorating working capital, nonrelated
ventures, and a further slowdown in the European business.
Management meeting: Looking to improve its balance sheet
profile; comfortable with the balance sheet and FCCB
repayment
We hosted Mr. Amit Patel, Managing Director of SINT, for a day of investor
meetings. As the company has previously stated, the current management focus is on
improving its balance sheet profile in an operating environment that is getting
tougher by the day. We expect Sintex to significantly cut its capital expenditure plans
over the next two years and look to sweat its existing assets more effectively.
In addition, the execution of monolithic projects has been slowed considerably, as
payments from the government have been delayed. According to the company,
sustaining past growth rates for monolithic projects would entail a significant
increase in working capital deployment, and management does not want to block
cash where a risk of delayed payments is emerging. Monolithic execution is also
being adversely affected by slower technical clearances and in some case delays in
the handing over of project sites. As a result, we reduce our growth estimates for the
monolithic business from 30% to 5% for FY12-FY13.
Besides the monolithic business, Mr. Patel also cited a slowdown in orders for the
custom moldings business, largely from Europe. A slowdown in domestic car
volumes is also paring growth but SINT is mitigating this by looking to increase its
product offerings and generating a higher revenue share per offering. Textiles
business growth is looking up, aided by rupee depreciation, although volumes could
slow down in FY13, as most orders are from the European market.
Management sounded comfortable on the FCCB repayment that is maturing in
March 2013. SINT has US$140MM of unutilized FCCB money in overseas deposits,
and about US$35MM in domestic deposits. This cash will be utilized to partly pay
the FCCB. About US$110MM would likely be refinanced through a US$-
denominated ECB. The potential refinancing could be as early as Sep 2012 (six
months ahead of the maturity date for the FCCB) which is the earliest window
permitted by the Indian central bank for prepayment of outstanding FCCBs.
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