Buy Sintex Industries: Margins beat estimates: religare research

SINT posted a modestly better Q1FY13 on above-expected margins of 16.1% (vs. 14.5% estimated), even as topline/EBITDA/adj. PAT were down 3%/7%/20% YoY. While a depreciating Re, a deteriorating working capital position and growth concerns across segments would remain near-term stock overhangs, we believe these negatives are largely priced in at current levels. We value the stock at 6x one-year forward earnings to arrive at a PT of Rs 90. We restate a BUY on SINT given its attractive valuations.

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 Topline drops 3% YoY: Topline fell 3% YoY to Rs 10.8bn as the Building Material (BM)/Custom Moulding segments declined 4.6%/2.1% YoY. Under BM, while the Monolithic segment reported a 22% drop, Prefabs grew by a strong 23%. The domestic Custom Moulding segment clocked a 25% YoY growth for the quarter.
 Margins beat estimates: SINT’s margins beat estimates, coming in at 16.1% (vs. 14.5% estimated) down 72bps YoY/up 118bps QoQ, on better margins in the Monolith and domestic Custom Moulding segments. Adjusting for forex losses of Rs 289mn, PAT fell 20% YoY to Rs 757mn, but came in higher than the estimated Rs 709mn aided by a below-expected tax rate of 24.6% (vs. 27% estimated).
 Slowdown in Monolithic to continue; Prefabs improve: The management expects improvements in the Monolithic segment only post Q3FY13 due to continued slowdown in government projects. Prefabs, however, continued to see healthy growth on new order inflows and entry into new regions (Maharashtra, MP).
 BUY on valuations: The stock is trading at 4.4x FY14E earnings and, in our view, prices in concerns related to businesses and a stretched working capital position. We maintain a BUY on SINT, valuing the stock at 6x one-year forward earnings, which translates into a TP of Rs 90. However, growth concerns across segments and a depreciating Re could continue to weigh on the stock in the near term.


Con-call highlights
 Cautious on the capex: The management remained cautious on the capex front, guiding to incur Rs 1bn/Rs 1.5bn on a standalone/consolidated basis during FY13, in-line with the guidance given last quarter. During Q1FY13, the company spent Rs 240mn on a standalone basis and ~Rs 300mn at the consolidated level. The FY12 capex stood at Rs 4.9bn.
 Monolithic segment to see muted growth for two more quarters: The management indicated of no improvement in the Monolithic business on account of government inaction. No progress was seen in the 6-7 project sites which were reportedly grappling with operational issues (related to payments, land/project clearances, and technical hurdles). Working capital remained stretched for this business with no improvements expected until the next two quarters. The current order book of the Monolithic business stands at Rs 24bn.
 Stretched working capital/higher interest costs/tight liquidity – key issues: (1) Payments and receivables for the Monolithic business remained high (total average debtors days at 170, loan & advances as in Q4FY12). (2) Interest costs and liquidity remain concerns, and the company is evaluating options for refinancing its FCCBs.
Other highlights:
 Margins in the textile segment were impacted by higher energy costs and lower utilisation levels during the quarter.
 The promoters maintained that they intended to increase their stake beyond ~40%, going ahead. Last quarter, they raised their holding in the company to 36.5% from 35% earlier.
 Lower other income during the quarter was attributable to: (1) low balance in Indian deposits; and (2) booking of services related to drawing and making moulds which were not included during the quarter.
 Cash balance remained the same QoQ.