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Robust growth across key business segments
Sintex Industries’ (SINT) Q4FY11 and FY11 results were above our estimates, led
by strong revenue growth and margin expansion across key segments (monolithic
construction and custom moulding). In a seasonally strong quarter, Q4FY11
revenue and EBITDA jumped ~23.4% and ~57.5%, respectively, Q-o-Q, while
consolidated EBITDA margin improved to 21.2% from 16.6% in Q3FY11. FY11
revenues grew 35%, led by robust revenue growth of ~86% in the monolithic
construction (MC) segment, Y-o-Y. Consolidated custom molding (CM) revenues
grew 25% Y-o-Y, with strong revenue growth for both standalone business and
overseas subsidiaries. Prefabs and textiles reported bounce-back in revenues (up
+23% and +26%, Y-o-Y, respectively). Consolidated EBITDA margin expanded
significantly by 200bps Y-o-Y, led by prefabs (+300bps), textiles (+400bps),
standalone CM business (+100bps) and overseas subsidiaries (except
Wausaukee).
Working capital cycle improves; FY11 capex significantly higher
We were positively surprised by the sharp improvement in net working capital
(WC), despite accelerated growth in the MC and prefabs segments. Net WC days
declined to 103 in FY11 from 150 in FY10, led by lower inventory days and decline
in loans and advances. Better working capital management led to positive FCF in
FY11, despite significantly higher FY11 capex of INR 7.69 bn (versus earlier
management guidance of INR 7 bn for 2 years). Going forward, the management
has guided to annual capex of INR 3.5-4 bn.
Outlook and valuations: Attractive; maintain ‘BUY’
Overall, the core business growth (MC and CM segments) remains strong. MC
order book of INR 29 bn (up from INR 26 bn in Q3FY11), to be executed over the
next 22-24 months, provides strong revenue visibility for the segment. Prefabs
business also continues to gain scale with expansion into additional states of Bihar
and Maharashtra. We are upgrading our FY12 and FY13 estimates by 8.3% and
6.4%, respectively, primarily to factor in higher MC revenues and margin
improvement in CM and prefabs segments. We, thus, estimate healthy earnings
CAGR of ~18% over FY11-13. At INR 177, the stock continues to trade at
attractive valuations of 9.9x FY12 and 8.6x FY13 (diluted), respectively. We
maintain ‘BUY’ on the stock.
Company Description
Ever since the commoditisation of its water tank business, Sintex Industries (SINT) has
moved on to providing technology-intensive products and complete business solutions
based on plastics. Over the past few years, the company has ventured into several new
segments including monolithic construction, prefabricated structures, and custom molded
composites. It operates in two key segments-plastics (comprising monolithic construction,
prefabs, storage tanks and custom molded composites) and textiles. In textiles, SINT's
products are skewed towards the high-end and design-intensive segment of the market,
which give it high operating margins. This division is a steady source of cash for the
overall business, although its revenue share is gradually decreasing.
Investment Theme
We like SINT for its track record of innovations in plastic, creating new markets in the
process. SINT's plastics business growth is driven by some of the most vibrant parts of
the infrastructure-build up and corporate/government capex in India. It is a leading
player in the monolithic construction segment which will benefit from increased
government spending on low-cost housing, while the prefabs business will benefit from
government welfare spend on healthcare, education, and sanitation. In the composites
segment, global acquisitions have provided access to global clientele and diverse
industries like aerospace, wind power, aeronautics, defence, plus automotive and
electrical components. Cost reduction measures in subsidiaries along with mining
existing client relationships are expected to drive segment growth and margins.
Key Risks
The company’s business segments serve diverse end-user categories and the risks are
different for each segment. However, for the business as a whole, following are the
overarching risks:
Execution risk: SINT’s growth businesses of prefab structures and BT shelters have a
high service and labour component. Hence, its ability to execute end-to-end projects is
critical. Inability to execute timely on a regular basis will be a risk to top line growth.
Raw material costs: The company’s plastic business uses crude derivatives as raw
material, hence, sharp fluctuations in crude prices could cause raw material costs to rise
significantly and also result in inventory markdowns.
Poor performance in subsidiaries: Poor performance in subsidiaries can become a
drag on consolidated numbers. Cost escalations in subsidiaries are a key concern.
Slowdown in industrial capex, and auto sector: SINT derives a large part of its
custom moulding revenues from electrical and auto segments. Slowdown in spending of
these sectors can impact the company’s growth.
Macro-economic slowdown: Growth in SINT’s businesses is dependent on India’s
robust economic growth and the resultant infrastructure, social, and corporate spends.
Any strong and sustained slowdown in the economy could dampen growth drivers
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Robust growth across key business segments
Sintex Industries’ (SINT) Q4FY11 and FY11 results were above our estimates, led
by strong revenue growth and margin expansion across key segments (monolithic
construction and custom moulding). In a seasonally strong quarter, Q4FY11
revenue and EBITDA jumped ~23.4% and ~57.5%, respectively, Q-o-Q, while
consolidated EBITDA margin improved to 21.2% from 16.6% in Q3FY11. FY11
revenues grew 35%, led by robust revenue growth of ~86% in the monolithic
construction (MC) segment, Y-o-Y. Consolidated custom molding (CM) revenues
grew 25% Y-o-Y, with strong revenue growth for both standalone business and
overseas subsidiaries. Prefabs and textiles reported bounce-back in revenues (up
+23% and +26%, Y-o-Y, respectively). Consolidated EBITDA margin expanded
significantly by 200bps Y-o-Y, led by prefabs (+300bps), textiles (+400bps),
standalone CM business (+100bps) and overseas subsidiaries (except
Wausaukee).
Working capital cycle improves; FY11 capex significantly higher
We were positively surprised by the sharp improvement in net working capital
(WC), despite accelerated growth in the MC and prefabs segments. Net WC days
declined to 103 in FY11 from 150 in FY10, led by lower inventory days and decline
in loans and advances. Better working capital management led to positive FCF in
FY11, despite significantly higher FY11 capex of INR 7.69 bn (versus earlier
management guidance of INR 7 bn for 2 years). Going forward, the management
has guided to annual capex of INR 3.5-4 bn.
Outlook and valuations: Attractive; maintain ‘BUY’
Overall, the core business growth (MC and CM segments) remains strong. MC
order book of INR 29 bn (up from INR 26 bn in Q3FY11), to be executed over the
next 22-24 months, provides strong revenue visibility for the segment. Prefabs
business also continues to gain scale with expansion into additional states of Bihar
and Maharashtra. We are upgrading our FY12 and FY13 estimates by 8.3% and
6.4%, respectively, primarily to factor in higher MC revenues and margin
improvement in CM and prefabs segments. We, thus, estimate healthy earnings
CAGR of ~18% over FY11-13. At INR 177, the stock continues to trade at
attractive valuations of 9.9x FY12 and 8.6x FY13 (diluted), respectively. We
maintain ‘BUY’ on the stock.
Company Description
Ever since the commoditisation of its water tank business, Sintex Industries (SINT) has
moved on to providing technology-intensive products and complete business solutions
based on plastics. Over the past few years, the company has ventured into several new
segments including monolithic construction, prefabricated structures, and custom molded
composites. It operates in two key segments-plastics (comprising monolithic construction,
prefabs, storage tanks and custom molded composites) and textiles. In textiles, SINT's
products are skewed towards the high-end and design-intensive segment of the market,
which give it high operating margins. This division is a steady source of cash for the
overall business, although its revenue share is gradually decreasing.
Investment Theme
We like SINT for its track record of innovations in plastic, creating new markets in the
process. SINT's plastics business growth is driven by some of the most vibrant parts of
the infrastructure-build up and corporate/government capex in India. It is a leading
player in the monolithic construction segment which will benefit from increased
government spending on low-cost housing, while the prefabs business will benefit from
government welfare spend on healthcare, education, and sanitation. In the composites
segment, global acquisitions have provided access to global clientele and diverse
industries like aerospace, wind power, aeronautics, defence, plus automotive and
electrical components. Cost reduction measures in subsidiaries along with mining
existing client relationships are expected to drive segment growth and margins.
Key Risks
The company’s business segments serve diverse end-user categories and the risks are
different for each segment. However, for the business as a whole, following are the
overarching risks:
Execution risk: SINT’s growth businesses of prefab structures and BT shelters have a
high service and labour component. Hence, its ability to execute end-to-end projects is
critical. Inability to execute timely on a regular basis will be a risk to top line growth.
Raw material costs: The company’s plastic business uses crude derivatives as raw
material, hence, sharp fluctuations in crude prices could cause raw material costs to rise
significantly and also result in inventory markdowns.
Poor performance in subsidiaries: Poor performance in subsidiaries can become a
drag on consolidated numbers. Cost escalations in subsidiaries are a key concern.
Slowdown in industrial capex, and auto sector: SINT derives a large part of its
custom moulding revenues from electrical and auto segments. Slowdown in spending of
these sectors can impact the company’s growth.
Macro-economic slowdown: Growth in SINT’s businesses is dependent on India’s
robust economic growth and the resultant infrastructure, social, and corporate spends.
Any strong and sustained slowdown in the economy could dampen growth drivers
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