Sintex Industries -Growth momentum to continue… :: ICICI Securities, report

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Growth momentum to continue… • This quarter once again saw a good overall performance with healthy growth in revenues and profitability led by better performance from the prefab and custom moulding segments • Revenues during the quarter were up 32.7% YoY | 1826 crore (our estimate: | 1748.9 crore) led by growth of 28.3% and 37.2% YoY from the prefab and custom moulding (due to pick-up in automotive segment), respectively. On the other hand, monolithic segment reported 41.8% YoY drop in revenues. However, with additional revenue flow of | 147 crore from the EPC segment, the company managed to clock robust revenue growth during the quarter • The EBITDA margin for the quarter remained in line with our estimates at 16.8%. However, it declined 100 bps YoY due to lower margin from EPC (7%) and monolithic segment (14%) • On the other hand, lower tax rate on account of available tax credit of previous year’s net profit grew sharply by 92.9% YoY to | 162 crore (vs. I-direct estimate: | 135.3 crore) Scouting for growth by venturing into different segments 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 ~67% of total revenues. The remaining 33% of revenues are mainly contributed by monolithic segment (10%), textile (11%) and balance by EPC and tank business. Although venturing into the newer segment led to revenue CAGR of 16.9% in FY08-14, it 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 driver between FY11 and FY14 after a major slowdown 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 16.3% in FY14-17E (without taking into account revenue from spinning business that would start accruing 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 3 lakh 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 in 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 revise our target price upward to | 132/share as per our SOTP valuation and continue to maintain BUY rating on the stock.

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 http://content.icicidirect.com/mailimages/IDirect_SintexInds_Q3FY15.pdf