Sintex Industries - Still some pain in store; visit note; Hold: Edelweiss PDF link

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Sintex Industries (SINT IN, INR 83, Hold)

Our recent interaction with Sintex Industries (Sintex) management reinforces that: (a) balance sheet strength and cash preservation are primary focus areas than topline growth as FCCBs near redemption in FY13; and (b) delay in government payments and orders persist and it’s too early to comment on business condition in UP after election (major state for monolithic business). Though the stock looks attractive on the valuation front at FY13E earnings, we believe it will remain under pressure till there is some clarity on FCCB repayment and the monolithic business starts showing traction. We maintain ‘HOLD’ with TP of INR78.

Monolithic business: Still no sign of recovery

Sintex’s monolithic business’ topline declined 24% YoY and EBDITA contracted 200bps in Q3FY12. Management reinforced that delay in government orders and payments prevail and the company is still cautious in infusing additional working capital/capex in the business (CAGR of 85% for FY08-11). We maintain our 8% YoY decline in the monolithic business in FY12E.

FCCB repayment not a concern

Management indicated that repayment of FCCBs worth USD291mn (including 29.3% premium) will not be a concern. Sintex has unutilized funds of USD126mn and balance will be raised through ECB and USD denominated debt in a foreign subsidiary. Management maintained its stance that the Shirpur power EPC contract has been given to Sintex Infra at arm lengths price (i.e., INR13000mn for 300MW) and there is no cross equity and project financing by the arm.

Outlook and valuations: Headwinds persist; maintain ‘HOLD’

Sintex stock has corrected 43% in last one year and trading at 6.9x FY13E PE. Though on the valuation front, the stock looks attractive, we do not see any positive catalyst in the near term. We maintain ‘HOLD’ recommendation with a target price of INR78. 

Sintex Industries - Still some pain in store; visit note; Hold

Regards,