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Sintex Industries, which earlier was established as a textile player and then
ventured into the storage tank business (during1975), is now mainly in the
prefab and custom moulding segment, which together contributes ~64% of
total revenues. The remaining 36% of revenues are mainly contributed by
the monolithic segment (16%), textile (9%) and balance by EPC and tank
business. Although venturing into the newer segment led to revenue CAGR
of 16.9% in FY08-14, it has also resulted in negative free cash flow
generation in FY08-10 due to heavy capex pertaining to expansion in the
monolithic business and overseas acquisitions in the custom moulding
segment. While the monolithic business remained the main revenue growth
driver in FY08-11, prefab and custom moulding became the leading growth
drivers between FY11 and FY14 after a major slowdown was witnessed in
the monolithic segment due to low government spending. Although we
expect the revenue growth momentum to continue, going forward, with the
entry of two more segments (i.e. EPC and textile spinning), managing these
segments in a profitable manner with their long-term sustainability would
remain a key challenge for the company in our view given the hitch faced
by the company in the past. Taking this into account, we factor in revenue
CAGR of 15.1% in FY14-16E (without taking into account revenue from
spinning business that would start accruing fully from FY17E.



Capex on spinning business to put cap on return ratios till FY16E
The company is setting up a million spindles in three phases over five years
under the scheme launched by the Gujarat government. In phase I, it is
setting up 300,000 spindles with estimated capex of | 1,800 crore and plans
to commission it within 15 months. Since debt (i.e. 75% of total capex), to
be taken for this project, would be available at much lower rate, this would
not have any material impact on its profit & loss account during the capex
phase.
Growth momentum to continue; upgrade to BUY
Given the robust outlook for prefab and spinning business coupled with
improvement in the custom moulding business, we expect the growth
momentum to continue with healthy margins. Hence, we revise our rating
to BUY from HOLD rating with SOTP based target price of | 94/share
LINK
http://content.icicidirect.com/mailimages/IDirect_SintexInds_Q2FY15.pdf